Federal Task Force on Carbon Capture and Sequestration Will Need to Grapple With Property Rights Law

by Alexandra Klass

A federal task force of the EPA and a host of federal agencies are  currently working on a proposal, due to President Obama by June, on carbon capture and sequestration (CCS) policy; they’re now holding a series of public meetings (for background on CCS generally, see the CPR Perspective I wrote examining some of the arguments for and against). I had a chance recently to discuss with members of the task force the key property rights and takings law issues associated with injecting billions of tons of CO2  into the ground. Here are some of the points I made:

In order to store the billions of tons of CO2 a kilometer below the surface over millions of acres (which is what will be required to use CCS as a viable climate change mitigation technology) lawmakers will need to address the extent to which that subsurface pore space is in private ownership and, if so, how to acquire it. The Fifth Amendment provides that private property can only be taken for a public use, and that just compensation must be paid. So the questions are, first, is there a protectable property interest in subsurface pore space that triggers the takings clause in the first place and, if so, will a government action to use, allow someone else to use, or place restrictions on that pore space be a taking of such property that requires just compensation?

With regard to the first question, simply because someone has a property right in surface lands, does that also mean the owner has property rights in subsurface pore space? We know that there are subsurface property rights in oil, gas, and subsurface minerals, but here we are talking about the subsurface pore space that houses those minerals. There is some precedent with regard to ownership of the airspace above and resources below that may provide some guidance. It used to be said that surface owners had ownership rights up to the heavens and down to the center of the earth. Then came the more frequent use of air travel, and federal government regulation of the air space to facilitate air travel. At that point, the Supreme Court held categorically in Causby v. United States and other cases that property owners do not own “up to the heavens” above their property. We generally control only the airspace that we reasonably use in connection with our surface use. We can prevent nuisances, but we can’t prevent occupation of the higher airspace – that is now in the public domain regulated by the federal government.

What about the subsurface? Courts have struggled with ownership of the subsurface for a long time in disputes over the rights to groundwater, oil and gas, and other subsurface natural resources. In many ways, the subsurface is different than airspace. Unlike airspace rights, subsurface rights have been carved up, conveyed, used, bought, sold and developed by private parties and the state and federal government since the founding of the country. Any federal CCS legislation will have to exist against a backdrop of a significantly greater expectation of private property rights and longstanding state law that differs from state to state. 

But on the other hand, the subsurface may not be just like the surface or even just like the resources housed in the subsurface. The leading case involving taking surface property is the Supreme Court’s decision in Loretto. In that case, the Court found that the a requirement by the City of New York that apartment owners allow TV cable companies to lay cable along apartment buildings was a taking of that small area in which the cable was placed. The apartment building owner did not need to show that he/she used that portion of the building on which the cable was laid – a few inches. Instead, the Court found that any permanent physical invasion of property was a per se taking, requiring just compensation, even if that compensation might be nominal – in this case it was only $1. But Loretto relied on Causby, which limited property interests in the skies to the portion of the airspace necessary to enjoy the surface lands. So one could argue that maybe Loretto only protects subsurface interests that are necessary to the reasonable use of the surface or area already in economic use. In that case, neither Loretto nor Causby decide the issue.

What about cases involving ownership of subsurface resources like oil, gas, and coal and the subsurface areas in which those resources are found? What about rights to inject waste underground, which is done in many parts of the country? There is a large body of law developed in the state courts that attempts to balance Loretto and Causby when it comes to the subsurface. Surface owners generally cannot sue for trespass if the underground injection of waste or contaminants migrates below their property. So long as the federal or state government has approved the project, the courts have found that there are some property rights in the subsurface, but they are limited. Courts in those cases often cite to Causby and other airspace cases, and say that there is a right to recovery if there is actual economic damage to the subsurface. In the absence of damage, the surface owner cannot prevent the invasion or sue for trespass.

But we have to contrast this with the situation for the storage of natural gas, which is kept underground in depleted oil and gas reservoirs, salt caverns and other natural aquifers. Congress passed the Natural Gas Act (NGA) to govern how and where natural gas should be stored and to regulate the pipeline to transport the gas. Under the NGA, operators can obtain the power of eminent domain from FERC to take land to create subsurface storage facilities for natural gas. Operators generally negotiate with both surface owners and mineral owners to obtain the subsurface space to store the natural gas, and if negotiations break down, operators can obtain the space through an eminent domain action.

This regulatory structure and the parties’ voluntary transactions are based on the assumption that there is a property right that must be compensated, even if in many cases there are disputes about how much compensation is due. However, just because the statute provides for eminent domain and compensation does not mean the Constitution requires it. 

So that’s the precedent. It doesn’t answer the question of whether there’s a private property interest in subsurface pore space, but it does give some sort of a framework for analyzing the question. Based on the precedent, one could argue that to the extent there are existing or reasonably foreseeable uses of that subsurface, there is likely a protectable property interest.   Currently, there are oil and gas operations as well as underground waste injection and natural gas storage that occur at those depths. To the extent that the government or CCS operators displace those existing or reasonably foreseeable uses, it seems fairly easy to conclude there is a property interest. But what about in parts of the country where the landowner had no reasonable expectation of ever using the deep subsurface? Could you say that in those cases there is no protectable property interest? There is no reasonably foreseeable economic use either in connection with the surface or for development of resources. There's a good argument that in those cases there is no protectable property interest under the 5th Amendment

Some states have already jumped into the mix. Wyoming, Montana, and North Dakota enacted legislation last year purporting to vest ownership of the subsurface pore space with the owner of the surface lands above the pore space. These states still ensure the dominance of the mineral estate in those circumstances. Can the federal government override state laws like these and declare there are no private property rights in pore space at those depths just as it has done with the skies above? Such federal action is unlikely (and will be strongly opposed by the states in which CO2 storage is likely), so this may mean that there will be private property rights in the subsurface pore space in some states and not in others.

With regard to the second question, if there’s a protectable property interest, can the government take it by eminent domain because storage of CO2 is a public use under the 5th amendment? Probably yes. The main precedent is Kelo v. City of New London, where the Supreme Court upheld the city’s decision to take private homes to convey the land to a pharmaceutical company to build its headquarters and increase the city’s tax base.   If taking private property to give it to a private development to increase the tax base is a public use, taking private property to mitigate climate change probably is also a public use. So Congress could authorize the use of eminent domain to take subsurface property rights for CO2 sequestration similar to authority it has given to pipeline companies under the Natural Gas Act to construct pipelines and obtain subsurface property rights for natural gas storage.

In cases where a taking is found, the question then is the compensation, and in many cases it will be very little -- $1, $10. But in cases where there are existing or reasonably foreseeable uses of the subsurface, the compensation may be substantial. There is some precedent in the natural gas context, where courts have looked to a variety of valuation methods to determine just compensation for subsurface rights obtained for natural gas storage. But CCS will create an entirely new market for these subsurface rights.

In an article Elizabeth Wilson and I recently published in the University of Illinois Law Review, we examine options for what federal legislation that takes all this into account might look like. First, if policymakers wish to pursue CCS as a major part of the nation’s response to climate change, it will be necessary to create a means to acquire the pore space to store billions of tons of CO2. Federal legislation authorizing eminent domain will be necessary to deal with holdouts and such legislation would need to declare CO2 storage a “public use.” The law would need to allow both the government and private parties who obtain a certificate or permit to store CO2 to exercise that power of eminent domain. In the paper, we suggest using the Natural Gas Act for a model both with regard to eminent domain authority and also with regard to administering a regulatory structure to review and approve projects to collect, transport, and store CO2. Either EPA or FERC could administer the regulatory structure. We also suggest a presumption in favor of no protectable property interest in subsurface pore space but with an opportunity for landowners to rebut that presumption based on existing or reasonably foreseeable uses of the pore space. It may be that such a presumption couldn’t apply in those states that had enacted legislation specifically creating subsurface pore space rights, as has been done in Wyoming, Montana, and North Dakota. With regard to compensation, we suggest a presumption of no compensation or nominal compensation with an opportunity to rebut that presumption based on existing or reasonably foreseeable use of the pore space.

While there are clear reasons to be concerned about the risks associated with large scale deployment of CCS, it is not clear that any alternatives are either less risky or sufficient in the short term to stabilize GHG concentrations while still meeting worldwide energy demands. As a result, there are good arguments that CCS technology development should be pursued, along with other non-coal-based alternatives, so that all options remain open for reducing CO2 emissions as soon as possible. The Intergovernmental Panel on Climate Change (IPCC) notes that the opportunity cost of not pursuing CCS as part of the problem may simply be too high, and some estimates suggest that using the technology could save tens of billions to trillions of U.S. dollars when compared to other climate strategies.

© 2016 The Center for Progressive Reform