The News Journal from Wilmington, Delaware on February 19, 2012 · Page 59
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The News Journal from Wilmington, Delaware · Page 59

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Sunday, February 19, 2012
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delawareonline.com BUSINESS COVER STORY FEB. 19, 2012 SUNDAY NEWS JOURNAL E5 Who pays for damages if all that stored C02 bubbles up? Insurance issues stymie carbon capture projects By SALLY BAKEWELL Bloomberg News The cloud of carbon dioxide that burst out of Lake Nyos in Cameroon and asphyxiated 1,700 people haunts the plans of oil and power companies to bury their greenhouse gases underground. "It was shocking," said Minoru Kusakabe, a Japanese geo-chemist who makes regular trips to the site of the 1986 disaster near the border with Nigeria. "The village was completely devastated, and people were in their homes dying." While the source of the C02 bubble was natural, originating from volcanic magma deep below the lake, the devastation shows how shifts in the Earth's crust can trigger worst-case scenarios for the energy industry, just as an earthquake in Japan in March triggered a tsunami that sent a nuclear plant into meltdown. Dispute over who pays for such geological surprises is threatening to derail efforts to combat global warming and put out of reach the $25 billion governments have offered in grants to facilities that would siphon away C02 from industrial polluters. Such projects are central to curtailing global emissions and building new markets for companies. Commercial scale Oil companies Exxon Mobil Corp. and Chevron Corp. and utilities such as Nuon Energy NV are seeking to tap those funds for carbon capture and storage plants. Insurance companies are dragging their feet in offering coverage against catastrophic accidents for CCS plants. "No shareholders are going to agree for any publicly owned company to expose the total company balance sheet to an unlimited or unknown liability that long-term storage risk could relate to," said John Scott, chief risk officer for global corporate at insurer Zurich Financial Services AG. The emerging technology, made by contractors such as Al-stom SA of France, Fluor Corp. and Honeywell International Inc., is one of the most promising to restrain carbon emissions from burning fossil fuels, the International Energy Agency says. The United Nations Intergovernmental Panel on Climate Change said there may be suitable sites worldwide to hold 2 trillion tons of the waste gas, or about 42 times last year's global C02 emissions. After more than a decade on the political agenda, no carbon-capture plant is operating at a commercial scale. While smaller facilities are demonstrating CCS technology can work, none is attached to a plant generating more than about 50 megawatts of electricity, which is less than 10 percent of the capacity of the average U.S. nuclear power reactor. The biggest obstacles are ensuring a guaranteed return and the murky situation of liability for accidents, which companies are hoping to solve by persuading governments to assume most of the risk. ; Chevron, Exxon and Royal Labor: Lawsuits set to go Continued from Page E1 Appearing before the Joint Finance Committee last week, Labor Secretary John McMahon told lawmakers that prevailing-wage investigations are conducted at random or based on a complaint from workers who believe they're not being paid the correct wage. "Tony doesn't sit there and say 'go do this,' " McMahon said in an interview. DeLuca, a Newark-area senator, did not reply to an email message seeking comment. The lawsuits are set to go to trial April 2 before Superior Court Judge John A. Parkins Jr., said Kevin Fasic, attorney for Tri-State. A third company, CTA Roofing & Waterproofing, recently settled its case with the department, McMahon said. Terms of that settlement were not disclosed and an attorney for CTA Roofing did not return a phone call seeking comment. A fourth company, Wilkinson Roofing, has a similar prevailing-wage dispute with the agency and is awaiting Parkins' ruling in the lawsuits, McMahon said. Council silent for years The roofing companies con Z2? Z 4 The In Salah natural-gas project in Algeria has stored more than 3 million tons of C02 since 2004 from a gas field that BP is pumping. BLOOMBERG NEWSADAM BERRY Dutch Shell Pic agreed to invest in the $37 billion Gorgon natural-gas venture that includes a carbon-capture plant only after Australia's national and state governments accepted long-term liability for accidental C02 discharges. That project's CCS plant starts in 2015. The gas, while harmless in small quantities such as in human breath, disperses rapidly and is lethal if inhaled in high concentrations, as Lake Nyos demonstrated. "Even if the risks of leakage are very small, the possible liabilities are unbounded," said Keith Whiriskey, a CCS expert at the Bellona research institute in Norway. "Geologists are very certain that the C02 will stay down there and not leak, but being geology, they cannot predict exactly how the C02 will act in the subsurface. We physically can't see down there." Several companies, such as Norway's Statoil ASA, have pumped C02 successfully underground into depleted oil wells. Those wells aren't required to meet more stringent regulations on C02 injection, under which the U.S. can require an assurance that funds will be available to monitor the site for leaks through the life of the project. For power utilities that are under pressure to control emissions, Japan's atomic disaster is a reminder of the limits of risk analysis. Tokyo Electric Power Co. is in talks with banks to borrow as much as $26 billion to stave off bankruptcy as it compensates survivors of the Fukushima accident and decommissions reactors, two people with knowledge of the talks said in January. It may face billions more in payments in 2013 to those who lost livelihoods and homes. Power plants on way Three CCS power plants are due to start working in 2014, in Texas, Mississippi and Saskatchewan. Each is selling the C02 to oil companies that will use it to boost production. Three projects were scrapped last year, leaving about 72 large-scale CCS projects under development worldwide, according to the Global CCS Institute in Canberra, Australia. At least 23 CCS projects to date have been considered and abandoned, according to London-based Bloomberg New Energy Finance, a research company that tracks industry investments. tend the legal dispute could be avoided if the Department of Labor would follow its own regulations and update the specific duties of roofers working on state construction jobs. A little-known advisory council that is supposed to help resolve such disputes about workplace job descriptions for taxpayer-financed construction projects hasn't met during DeLuca's six-year tenure as administrator of labor-law enforcement. The Labor Department's Prevailing Wage Advisory Council, consisting of five union members and five-non union members, has not met since 2004, McMahon said. McMahon, former executive director of the Delaware Contractors Association, a mixed group of union and non-union companies, said the advisory council always deadlocked on issues dividing labor unions and merit shops. "They always agreed to disagree," McMahon said. The department has not updated prevailing-wage job descriptions since 2003, records show. Fasic, a former labor-law enforcement officer, said the descriptions used to be updated every few .years based on recom ftr T Most U.S. projects plan to sell the C02 to help pump oil, meaning rules requiring long-term care for wells aren't applied. Developers injecting the gas solely for permanent storage must monitor the site more rigorously and "assure the availability of funds for the life of the project," according to the U.S. Environmental Protection Agency. That includes care for the deposit after injection stops and "emergency response." Under European Union law, developers flip liability for the safety and security of sites to governments after at least 20 years from the final C02 injections. For carbon-capture supporters, the Lake Nyos disaster was caused by unique circumstances unlike those expected at any capture and storage plant. In Cameroon, C02 from a magma plume likely seeped upward through rock and combined with water in the lake, where it built up at the bottom. When the lake could hold no more, the carbon suddenly was released as a gas and erupted toward the surface in a geyser, said Howard Herzog of the Massachusetts Institute of Technology's Energy Initiative. At a CCS plant, the carbon gas will be compressed into a liquid form, pumped downward into porous rock underneath a layer of impermeable rock, known as cap rock. It will be monitored so that injection can be halted if pressure builds up too much. Over hundreds of years, the liquid carbon will chemically bind to the rocks around it, scientists say. "Putting C02 into geological formations is very different" than keeping gas in volcanic structures, said Herzog, a research engineer for emissions-cutting technologies based at the institute in Cambridge, Mass. "We may get drips, but not the violent degassing we saw at Lake Nyos." Liability In the U.S., there are places where volcanic rock has held C02 for about 65 million years, said Michael Stephenson, head of energy at the British Geological Survey in Nottingham. "It is difficult for C02 to leak through that strata," Kusakabe said. "And during storage, it would react with the surrounding rocks to form carbonate" that's solid. Even so, insurance companies refuse to offer long-term policies, and public opposition to perceived dangers has cropped up around a few projects. Zurich and Swiss Re, two of the biggest reinsurance companies, are interested in covering the operating phase of plants, after which they insist that governments help cover the liability for any massive leak that might occur during the hundreds of years that storage sites may have to be guarded. Insurers find it difficult to gauge the risk of CCS projects and want a finite period to consider, said Cliff Warman, head of environmental practice for Europe, the Middle East and Africa at the consulting firm Marsh. "Is the insurance market able and willing to write a 100- or 1,000-year policy for C02 sequestration? The answer is no," War-man said. "It's an almost uninsurable risk." to trial in Superior Court mendations by the council, which Sanna has gone to in the past with industry disputes. "It actually was a good process," Sanna said. The roofing companies want the council to be reconstituted to make changes to job duties used for determining which skilled trade's wage to pay, Sanna said. Specifically, they want it clarified that affixing insulation to a metal roof involves a roofer's skill set, not those of a sheet-metal worker. McMahon said he wants the Legislature to either abolish the council or give it some teeth. Since he became labor secretary in 2009, McMahon said building-trades unions have refused to give him names of union tradesmen to appoint to the council because they don't want to be making rulings against their organized-labor brethren. "They don't want to get into that," McMahon said. Protocol question The roofing companies claim the agency is quick to demand payment without explaining in writing how a company can appeal a prevailing-wage decision. Dozens of prevailing-wage letters recently reviewed by The News k?.-wo-" Stem:, A.P. Moeller-Maersk leads the shipping industry in developing biofuels made from organic waste that could cut its carbon emissions and reduce its $6 billion annual fuel bill. Bloomberg newsbrendon o'hagan For Maersk, cutting carbon emissions means cutting costs Firm leads container By LOUISE DOWNING Bloomberg News A.P. Moeller Maersk, the world's biggest container ship owner, is leading its industry in developing biofuels made from organic waste that could cut its carbon emissions and reduce a $6 billion annual fuel bill. Maersk is conducting tests with companies including Man Diesel & Turbo and two Danish universities to develop clean fuels tailored for ships and has worked with the U.S. Navy to run vessels using fuel produced from algae, encountering "very few problems," said Jacob Sterling, head of climate and environment at Maersk, based in Copenhagen, Denmark. "The beauty of biofuels is that they work with the engines as they are today," Sterling said. "There is a very, very strong link between reducing emissions and reducing costs." The efforts represent some of the most advanced work in the shipping industry to restrain greenhouse gases as the European Union works to broaden its carbon cap-and-trade system. Shipping accounts for about 3.3 percent of C02 emissions, said Drewry Shipping Consultants. That's more than the 2 percent to 3 percent produced by airlines, now included in the EU rules. Maersk is a "front-runner" among companies seeking to drive down pollution, said Ana Davila Martinez, consultant for corporate distribution and logistics at Heineken. The Dutch brewer is among brands including Adidas, Wal-Mart Stores and Volkswagen that select their shipping supplier based on sustainability, Sterling said. Lloyd's Register, which checks ships' compliance with maritime rules, has given technical advice and independent verification to the projects. Maersk is "one of the leading companies seeking new and innovative approaches" to fuel supplies, said Timothy Wilson, a Lloyd's manager. Mediterranean Shipping, the No. 2 container shipping line, said it's implementing "new technological systems" on its ships as well as alternative fuels. Situation in the air Efforts by shipping companies to cut emissions follow those of airlines that this year joined the EU's carbon cap-and-trade program. Airlines in July won approval to start flying passenger planes with fuel made from or Journal mostly contain the same standard language informing companies of alleged prevailing-wage violations but do not indicate companies have a right to appeal the ruling. The News Journal obtained the records through the Freedom of Information Act after the Attorney General's Office determined the Department of Labor improperly tried to shield the records under an exception in law meant to be used for concealing investigation files. McMahon said the companies could have appealed DeLuca's office's decision to him, but did not follow proper appeals protocol spelled out in agency regulations. Tri-State disputed the decision directly in writing to a labor-law officer in DeLuca's office, but the Department of Labor's attorney said the letter didn't count as an appeal because it didn't go directly to the secretary, court records show. Instead, Tri-State owners Nick and Ron Sanna and their attorney met with McMahon in August 2009 at the offices of Associated Builders & Contractors, a nonunion industry group. The Sannas said they demonstrated to McMahon a model ship industry in change ganic waste and non-food plants, promptmg Thai Airways International, Deutsche Lufthansa and Air France-KLM to start biofuel flights. The problem facing aviation and shipping is producing the fuels in sufficient quantities at prices competitive with traditional fossil fuels. Airplanes use kerosene, ships a heavier fuel typically low in grade and high in sulfur. Alternative fuels made from feedstocks such as algae give the U.S. Navy "increased insulation from a volatile petroleum market," said Pamela Kunze, special assistant in public affairs in the Navy secretary's office. Solazyme supplied fuel for the test Maersk did with the Navy. "The use of alternative fuels in our ships provides increased energy security and mitigates the operational risks," Kunze said. The International Maritime Organization, the United Nations' shipping agency, is considering two proposals to spur the shipping industry to slash emissions by 20 percent by 2020. One would create a cap-and-trade system like the EU Emissions Trading Scheme. The second would tax ship fuel in what would be known as a bunker compensation fund. In July, the IMO reached agreement on energy-efficiency regulations that take effect next January. The rules aim to promote the use of more energy-efficient equipment and engines and apply to new and existing ships. Funds raised from the industry could contribute to the $100 billion a year in aid pledged by industrial countries to help developing nations cope with climate change. Shipping could raise at least 10 percent of that target, said Jonathan Grant, assistant director for sustainability at Price-waterhouseCoopers. Maersk supports the compensation fund because it puts a predictable fixed fee on the fuel, Sterling said. It's also interested in biofuels because of the potential cost savings. Fuel represents at least half of Maersk's operating expenses, and reducing the speed of ships in transit helped the company cut emissions 7 percent and save $300 million a year, he said. "With a fuel bill of $5 billion to $6 billion a year, even one-digit percentage savings are very significant," Sterling said. "There is such a strong link between reducing the cost and thereby improving the competitiveness of the company and improving the carbon footprint." on April 2 showing how they construct the type of roof in question. But the meeting wasn't sufficient to count as a formal appeal to the secretary because "the Department was not present," according to a letter former Deputy Attorney General Linda Carmichael wrote to Fasic in October 2009. The amount of unpaid wages the Department of Labor contends the roofing companies owe their workers pales in comparison to the firm's mounting legal bills in the disputed projects, which date back nearly three years. DOL has ordered Tri-State to pay about $13,488.61 in additional wages on a $2.4 million roof the company built at Smyrna High School in 2009. "I have attorneys fees over $100,000 in this" case, Nick Sanna said. The roofing companies are pursuing the lawsuit to get the worker classification settled for future public-works projects. If the judge rules they have to pay the sheet-metal workers rate, Sanna said, it will drive up their future bids and the costs of new schools, prisons, medical facilities and state office buildings. Contact Chad Livengood at 324-2832, on Twitter ChadLivengood or cliven-gooddelawareonliro.com.

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