ENERGY LAW AND CROSS-BORDER CARBON STORAGE AGREEMENTS

1. Introduction

Cross-border carbon storage agreements are legal arrangements under which captured carbon dioxide (CO₂) is transported from one country or jurisdiction to another for permanent geological storage. They are becoming increasingly important in Carbon Capture and Storage (CCS) and Carbon Capture, Utilisation and Storage (CCUS) projects, particularly where suitable geological formations are located offshore or across national boundaries.

Such agreements involve several areas of law, including energy law, environmental law, maritime law, international law, contract law, liability law, property rights, transportation regulation, and climate policy. The principal legal challenge is to establish clear rules concerning transportation, injection, monitoring, verification, long-term liability, leakage, permitting, ownership of stored CO₂, and transboundary environmental responsibility.

2. Meaning of Cross-Border Carbon Storage

Cross-border carbon storage occurs when:

CO₂ is captured in one country;

the CO₂ is transported through or across another jurisdiction;

the CO₂ is injected into a geological storage formation located in another country or offshore area; and

responsibility for monitoring and long-term storage is allocated between the participating jurisdictions.

For example, an industrial facility in Country A may capture CO₂ and transport it by pipeline or ship to a geological storage site beneath the seabed of Country B.

Therefore, a cross-border CCS project requires cooperation between different legal and regulatory systems.

3. Legal Nature of Carbon Storage Agreements

A cross-border carbon storage agreement may contain provisions dealing with:

ownership of captured CO₂;

transportation rights;

pipeline or shipping arrangements;

access to storage reservoirs;

injection rights;

storage permits;

measurement and verification;

monitoring obligations;

leakage liability;

environmental damage;

financial security;

insurance;

emergency response;

decommissioning;

post-closure monitoring;

transfer of liability;

carbon-credit or emissions-accounting rights;

dispute resolution; and

governing law.

The agreement therefore operates as both a commercial contract and an instrument supporting environmental and energy regulation.

4. International Legal Framework

A. London Protocol

The 1996 London Protocol is particularly important for transboundary movement of CO₂ for geological storage.

The Protocol originally restricted the dumping of wastes and other matter at sea. The 2009 amendment created a framework allowing certain CO₂ streams to be exported for sub-seabed geological storage, subject to specified conditions.

This is significant because transportation of CO₂ from one country to another for offshore geological storage raises questions concerning international marine environmental law.

B. London Convention

The earlier London Convention 1972 established an international framework controlling dumping at sea. CCS developments have required interpretation and modification of this framework to accommodate environmentally controlled geological storage.

C. UNCLOS

The United Nations Convention on the Law of the Sea (UNCLOS) is relevant where storage takes place beneath the seabed or where CO₂ is transported through maritime areas.

States have obligations concerning protection and preservation of the marine environment. Consequently, CCS projects must be designed consistently with applicable marine environmental obligations.

D. Paris Agreement

The Paris Agreement provides the broader climate-policy context for CCS. Carbon storage can contribute to emissions reduction where captured CO₂ is permanently stored and the relevant emissions accounting rules are satisfied.

5. Core Legal Issues

5.1 Ownership of CO₂

One of the first questions is:

Who owns the CO₂ after it has been captured?

Possible approaches include ownership by:

the emitter;

the capture operator;

the transportation company;

the storage operator; or

another contractual entity.

The agreement should identify the precise point at which ownership and risk transfer.

5.2 Transportation Across Borders

CO₂ may be transported through:

pipelines;

ships;

road tankers; or

multimodal systems.

Cross-border pipelines require rules concerning construction, access, safety, land rights, tariffs, technical standards and emergency response.

Ship transportation raises additional issues involving maritime safety, port regulation and international marine environmental obligations.

5.3 Storage Rights

The storage operator must have legally enforceable rights to inject CO₂ into the geological formation.

These rights may require:

petroleum or mineral-rights legislation;

seabed rights;

environmental permits;

injection licences;

property rights;

offshore rights; and

regulatory approval.

The legal regime must identify who controls the underground storage formation and who may authorize its use.

5.4 Monitoring and Verification

Permanent storage requires continuous monitoring.

The legal agreement should establish:

baseline geological information;

injection measurements;

pressure monitoring;

seismic monitoring;

leakage detection;

reporting requirements;

verification standards; and

regulatory inspection powers.

Monitoring is essential because the legal treatment of stored carbon may depend upon demonstrating that the CO₂ remains permanently contained.

5.5 Leakage Liability

Leakage is one of the most significant legal risks.

A storage agreement should determine liability for:

accidental leakage;

gradual migration;

reservoir failure;

groundwater contamination;

marine environmental damage;

damage to third parties; and

loss of claimed emissions reductions.

The contract should distinguish between operational liability and long-term liability after closure.

6. Transfer of Long-Term Liability

A major feature of CCS legislation is the possibility of transferring responsibility from the private operator to the state after successful completion of specified monitoring requirements.

Such transfer normally requires:

completion of injection;

evidence of stable containment;

satisfactory monitoring;

closure approval;

financial security; and

regulatory authorization.

The European Union's CCS regulatory framework is particularly relevant because it establishes detailed requirements concerning storage permits, monitoring, corrective measures, financial security and post-closure obligations.

7. Carbon Accounting and Double Counting

Cross-border projects create an additional problem: which country receives recognition for the stored CO₂?

If Country A captures CO₂ and Country B stores it, the legal framework must prevent:

double counting;

conflicting emissions inventories;

fraudulent carbon credits;

inconsistent verification; and

disputes over climate-accounting responsibility.

Accordingly, contractual arrangements should establish how emissions reductions are measured and reported.

8. Financial Security

Storage operators may be required to maintain financial security for:

monitoring;

corrective action;

remediation;

leakage;

closure;

post-closure obligations; and

environmental damage.

Financial-security requirements protect the public from bearing the cost of private CCS failures.

9. Cross-Border Environmental Impact Assessment

A transboundary CCS project can potentially affect ecosystems, fisheries, groundwater, shipping routes and coastal communities.

Environmental assessment may therefore be required before:

constructing pipelines;

transporting CO₂;

drilling injection wells;

establishing offshore storage facilities; or

expanding storage complexes.

The precautionary principle is relevant where scientific uncertainty exists concerning long-term geological storage.

10. Important Case Laws

1. Pulp Mills on the River Uruguay (Argentina v. Uruguay), ICJ (2010)

The International Court of Justice recognized the importance of procedural environmental obligations in situations where activities may cause significant transboundary environmental harm.

Relevance to CCS:

A cross-border carbon-storage project may require prior assessment, notification, cooperation and information-sharing where significant environmental risks exist.

Principle:

States must exercise appropriate environmental due diligence in activities capable of causing significant transboundary harm.

2. Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua), ICJ (2015)

The ICJ addressed environmental damage and the relationship between sovereignty and environmental obligations.

Relevance to CCS:

A state cannot treat environmental considerations as irrelevant merely because an activity occurs within its territory. Cross-border effects may trigger international responsibilities.

Principle:

Territorial sovereignty is accompanied by environmental responsibilities.

3. Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), ICJ (1997)

The case concerned a major infrastructure project and competing considerations involving development and environmental protection.

Relevance to CCS:

Large energy infrastructure must reconcile economic development with environmental protection and changing scientific circumstances.

Principle:

Environmental protection is an important consideration in the planning and operation of major infrastructure projects.

4. Trail Smelter Arbitration (United States v. Canada), 1941

The Trail Smelter arbitration is one of the foundational authorities on transboundary environmental harm.

Relevance to CCS:

If CO₂ storage operations cause significant cross-border environmental damage, the principle underlying Trail Smelter becomes relevant to state responsibility and prevention of transboundary harm.

Principle:

A state should not permit activities within its territory that cause serious environmental injury in another state.

5. MOX Plant Case (Ireland v. United Kingdom), ITLOS/UNCLOS Proceedings

The dispute concerned potential transboundary environmental risks associated with a nuclear facility.

Relevance to CCS:

The proceedings demonstrate the importance of cooperation, information exchange and precaution where industrial activities may produce transboundary environmental consequences.

Principle:

International environmental disputes involving potentially transboundary industrial risks require cooperation and information sharing.

6. Responsibilities and Obligations of States Sponsoring Persons and Entities with Respect to Activities in the Area, ITLOS Seabed Disputes Chamber (2011)

The Seabed Disputes Chamber emphasized the importance of environmental protection and due diligence in activities involving the marine environment and seabed.

Relevance to CCS:

Offshore geological carbon storage involves the seabed and therefore raises comparable questions concerning environmental protection, monitoring and state responsibility.

Principle:

States must exercise appropriate due diligence and ensure environmental protection when activities under their jurisdiction may affect the marine environment.

11. Contractual Allocation of Risk

A well-designed cross-border carbon-storage agreement should contain a detailed risk-allocation framework.

12. Dispute Resolution

International CCS agreements should establish mechanisms for resolving disputes.

Possible mechanisms include:

domestic courts;

international arbitration;

investor-state arbitration where legally available;

state-to-state dispute settlement;

expert determination; and

specialized technical panels.

Technical disputes concerning reservoir behaviour, leakage or measurement may appropriately be referred to independent scientific experts before formal arbitration.

13. Role of Domestic Energy Regulators

Domestic regulators play an important role in ensuring that international CCS arrangements comply with national law.

Their functions may include:

granting storage permits;

regulating pipelines;

approving injection plans;

monitoring environmental performance;

inspecting facilities;

enforcing safety standards;

requiring financial security;

approving closure;

supervising post-closure monitoring; and

enforcing penalties for non-compliance.

Cross-border agreements therefore cannot normally operate independently of domestic regulatory authority.

14. Importance for Developing Countries

Cross-border CCS arrangements may be relevant to developing countries possessing:

offshore geological formations;

depleted oil and gas fields;

saline aquifers;

industrial clusters; or

strategic locations for regional CO₂ transportation.

However, developing countries must carefully address technological capacity, regulatory expertise, environmental protection, financial risks and long-term liability.

15. Key Principles of Cross-Border Carbon Storage Law

The following principles are particularly important:

Polluter Pays Principle – the entity responsible for emissions or environmental damage should bear appropriate costs.

Precautionary Principle – uncertainty concerning long-term storage should not justify ignoring environmental risks.

Prevention Principle – environmental harm should be prevented before it occurs.

Due Diligence Principle – states and operators should take reasonable measures to prevent transboundary harm.

Transparency – monitoring and verification information should be appropriately disclosed.

Intergenerational Responsibility – long-term storage obligations should account for future environmental risks.

Risk Allocation – contractual responsibilities should be clearly defined.

Permanent Containment – storage should be demonstrably secure over the relevant regulatory period.

International Cooperation – neighbouring and participating states should coordinate regulatory systems.

Environmental Integrity – CCS should produce genuine and verifiable emissions reductions.

16. Challenges

Major challenges include:

absence of harmonized international CCS rules;

different national permitting systems;

uncertainty concerning ownership of stored CO₂;

long-term leakage risks;

cross-border liability;

marine environmental protection;

inconsistent carbon-accounting rules;

financing difficulties;

insurance limitations;

geological uncertainty;

changing climate regulations; and

disputes over responsibility after storage-site closure.

17. Conclusion

Energy law relating to cross-border carbon storage agreements combines energy regulation, environmental protection, international law, maritime law and contractual risk allocation. The central legal objective is to create a system in which captured CO₂ can be transported and permanently stored across national boundaries while ensuring environmental integrity and clear responsibility.

The most important legal questions concern ownership, transportation, storage rights, permitting, monitoring, leakage, liability, financial security, carbon accounting and long-term responsibility. International authorities such as Trail Smelter, Pulp Mills, Gabčíkovo-Nagymaros and the ITLOS seabed advisory opinion provide