CO2 Storage Insurance – U.S. 45Q Recapture Risk Assessment
Sproule ERCE advised a primary insurer and the excess insurance markets underwriting a policy covering nearly $1 billion USD in 45Q tax credits, assessing the risk of credit recapture from CO₂ leakage under a Carbon Capture and Storage (CCS) project. Under Section 45Q, tax credits may be recaptured if stored CO₂ leaks to the atmosphere. Sproule ERCE conducted an independent analysis of containment risks, evaluating the likelihood of CO₂ leakage and potential credit recapture.
Project Highlights
- Audited Monitoring, Reporting, and Verification (MRV) Report and Class VI Permits
- Performed containment risk assessment and reviewed monitoring and mitigation plans
- Likelihood and quantification of risk of CO2 leakage risk to atmosphere, 45Q recapture
- Provided recommendations for future MRV planning activities and well design
Challenges:
Risk Assessment: Containment risk assessment to communicate and quantify the risk of atmospheric CO2 leakage, especially given the lack of historical data on such events from commercial Carbon Capture and Storage (CCS) projects.
Large Quantity of Subsurface Data: Large quantity of data to review and analyze, including Class VI permitting documentation and supporting subsurface data and MRV, within a short timeline. Deliverable within two weeks.
Communication of Risks: Client and broader insurance markets’ understanding of subsurface principles of CO2 sequestration was limited. Sproule ERCE had to strike a balance between maintaining technical accuracy and communication of key containment risks in plain language.
Large Quantity of Subsurface Data: Large quantity of data to review and analyze, including Class VI permitting documentation and supporting subsurface data and MRV, within a short timeline. Deliverable within two weeks.
Communication of Risks: Client and broader insurance markets’ understanding of subsurface principles of CO2 sequestration was limited. Sproule ERCE had to strike a balance between maintaining technical accuracy and communication of key containment risks in plain language.
Solutions:
Containment and Subsurface Risk Review: Analyzed the Class VI well permit, MRV report, and supporting documents to identify critical CO₂ leak pathways and audit measurement and monitoring strategies. Evaluated potential leakage risks associated with legacy wells, faults, fractures, bedding planes, confining zone limitations, and CO₂ purity and fluid composition. Reviewed injection and monitoring well integrity and baseline environmental measures.
MRV Strategy Evaluation: Reviewed the Monitoring, Reporting, and Verification (MRV) plan and implementation schedule, assessing early detection technologies such as fiber-optic sensing and characterizing impacts of additional or amended MRV activities on containment risk.
Risk Quantification and Benchmarking: Developed a Severity × Likelihood matrix to quantify containment risks. Conducted a comparative review of MRV activities from analogous CCS projects and a global review of CCS leak incidents to benchmark best practices and lessons learned.
MRV Strategy Evaluation: Reviewed the Monitoring, Reporting, and Verification (MRV) plan and implementation schedule, assessing early detection technologies such as fiber-optic sensing and characterizing impacts of additional or amended MRV activities on containment risk.
Risk Quantification and Benchmarking: Developed a Severity × Likelihood matrix to quantify containment risks. Conducted a comparative review of MRV activities from analogous CCS projects and a global review of CCS leak incidents to benchmark best practices and lessons learned.
Values:
Clear and Concise Analysis: Sproule ERCE provided the Client and excess insurance markets with a clear and concise analysis to improve understanding of CCS operations, CO2 leakage and 45Q recapture and risk and support decision-making regarding the insurability of 45Q tax credits.
Actionable Risk Mitigation and Advisory Solutions: Provided a comprehensive evaluation of well design, monitoring systems, and operational management practices to enhance CO₂ storage integrity. The review identified critical risks from legacy wells, corrosion, monitoring failures, and emergency response gaps. Lessons from global CCS projects, including ADM Decatur, were applied to recommend improvements, strengthen MRV strategies, and mitigate potential containment failures.
Insurance Market Confidence: Sproule ERCE’s independent assessment of CO2 containment and 45Q recapture risk played a key role in supporting the insurability of 45Q tax credits for this CCS project and providing insurance market confidence.
Actionable Risk Mitigation and Advisory Solutions: Provided a comprehensive evaluation of well design, monitoring systems, and operational management practices to enhance CO₂ storage integrity. The review identified critical risks from legacy wells, corrosion, monitoring failures, and emergency response gaps. Lessons from global CCS projects, including ADM Decatur, were applied to recommend improvements, strengthen MRV strategies, and mitigate potential containment failures.
Insurance Market Confidence: Sproule ERCE’s independent assessment of CO2 containment and 45Q recapture risk played a key role in supporting the insurability of 45Q tax credits for this CCS project and providing insurance market confidence.