Briefing: What is the CCS Business Act? Why is it Problematic?

On February 13, 2024, cabinet approvals were made by the Kishida administration for two bills: The Bill for the Act on Promotion of Supply and Utilization of Low-Carbon Hydrogen and its Derivatives for Smooth Transition to a Decarbonized, Growth-Oriented Economic Structure (Hydrogen Society Promotion Bill) and The Bill for the Act on Carbon Dioxide Storage Businesses (CCS Business Act).

Hydrogen, ammonia, and CCS are also being promoted as part of the Japanese government’s GX policy (Green Transformation) to achieve carbon neutrality by 2050. Both bills have been submitted to the current Diet session for consideration.

Below is a summary on the background and issues related to the CCS Business Act (“The Bill for the Act on Carbon Dioxide Storage Businesses”).

Japanese Governments’ Summary PDF（In Japanese）

What is CCS?

CCS refers to a technology for capturing carbon dioxide emitted from factories and power plants and burying it underground. In Japan, a relatively large-scale demonstration experiment was conducted in Tomakomai, Hokkaido, where 300,000 tons of carbon dioxide was stored over a period of three years (Japan’s annual emissions are approximately 1.1 billion tons, and 300,000 tons is 0.027% of that amount. The facility construction cost was 30 billion yen).
However, there are not many examples of this technology being demonstrated in real-world applications. CCS is also extremely costly and comes with many technical challenges. The Japanese government aims to operationalize CCS projects at  full scale by 2030, but the future of CCS is uncertain.

Learn More About CCS Issues
>Briefing Note: Japan’s CCS (Carbon Capture and Storage) Policy

The CCS Business Act establishes a framework for implementing CCS projects in Japan and overseas. For some time, various issues related to CCS, such as storage and transportation projects, separation and recovery, and the creation of credits through CCS projects, have been discussed by several government committees. This bill mainly focuses on transportation and storage projects and indicates that exploration rights and storage rights shall be created, that the Minister of Economy, Trade and Industry (herein Minister of METI) shall grant a license to the operator, and that the operator shall contribute funds for post-storage monitoring. This section summarizes the bill and CCS-related issues.

Lack of Environmental Impact Assessment
Whether on land or offshore, CCS projects have a significant impact on the surrounding environment and communities because it involves large-scale drilling and other alterations. However, the current bill does not clearly describe the procedures for environmental impact assessment and does not include any legal assessment as is usually conducted when constructing power plants and other facilities. Although it says that the relevant prefectural governor of the storage site shall be consulted (Article 6.1), no agreement is required.
Furthermore, the licensing of projects is conducted on a zone-by-zone basis, and there are no plans to assess individual projects. As for operators, the bill only requires operators whether it has the financial basis and technical capability to carry out the project. As for storage areas, it is only stated that “stable storage of carbon dioxide is expected (Article 5.3)," but no specific criteria are given. Each CCS project differs. Even in well studied areas, there are cases where unexpected geologic movements are identified (e.g. Snøhvit and Sleipner CCS in Norway).

Before a permit is granted, the public is given one month to view the information pertaining to the project (Article 7). The information shared to the public includes the name of the representative of the project, a map of the area, an outline of the project, and other items specified by ministerial ordinance, making it doubtful communities will have access to sufficient information, and fishing communities’ access to information in the case of marine CCS. Instead of disclosing only the outline of the project, an individual environmental assessment should be conducted, the assessment report should be made public from its drafting stages, and the opinions of residents should be heard.

Authority is in the Hands of the Minister of METI

The Japanese government has been promoting CCS for some time and the Ministry of Economy, Trade, and Industry (METI), which oversees energy policy, plays a central role in this effort. However, most of the licensing authority rests with the Minister of Economy, Trade and Industry, and only in the case of offshore storage is the consent of the Minister of the Environment required, making it questionable whether objective decisions on CCS projects can be made. Not only should an environmental impact assessment be introduced for each storage project, but a third-party review (including the establishment of a regulatory committee) should be introduced so that promotion and regulation are separated.

Transfer of Monitoring Responsibilities

Post-storage monitoring responsibilities are expected to be transferred to JOGMEC (Japan Organization for Metals and Energy Security), which is wholly owned by the government, and operators will pay contributions to secure the necessary funds for monitoring and other operations.

In the event of carbon dioxide leakage, the operator is to take measures and report to the minister in charge, but there is no mention of penalties (Article 48) (JOGMEC will handle any leakage issues after monitoring responsibilities have been transferred to them, and report to the minister in charge, Article 56). If damage is caused to others due to carbon dioxide leakage or other issues, even after monitoring responsibilities are transferred to JOGMEC, the storage operator will compensate damages incurred (Article 124).

Whether transferring monitoring responsibilities to JOGMEC is appropriate, is also a debatable question. JOGMEC, like other public institutions such as JBIC (Japan Bank for International Cooperation) and NEXI (Nippon Export and Investment Insurance), directly finance and guarantee fossil fuel projects overseas. JBIC and NEXI have established guidelines for environmental and social considerations, and for large-scale development projects, environmental impact assessments are made publicly available. A minimal safeguard mechanism is in place for JBIC and NEXI, but JOGMEC does not have any of these considerations.

The criterion for transfer is that the CO₂ storage conditions must be stable and expected to maintain their stable state into the future (Article 53), but detailed criteria for determining stability are not provided. There is also no indication of how long JOGMEC will continue monitoring after the transfer. It is also assumed that CO₂ will be exported overseas, but it is not clear who will take responsibility in the event of leakage at the export destination or during transportation to the export destination.

In discussions of carbon removal, it is important that CO₂ be sequestered from the atmosphere permanently, which is described as “durably" by the IPCC. In discussions of carbon removal under the United Nations Framework Convention on Climate Change, “durably" is not clearly defined, but some argues it should be at least 200 to 300 years. A legal system that can guarantee the maintenance of sequestered carbon for such a long period of time is impossible in practice. If the government takes over responsibility after the end of monitoring by operators and finances the management of the large amount of carbon assumed at public expense, it will only leave future generations to deal with this issue.

Will Costs be Borne by Future Generations?

According to the IPCC, CCS has been shown to be one of the least cost-effective countermeasures to climate crisis and many subsidies have been provided to promote CCS projects already. The Japanese government is working to establish international rules for carbon credits to be generated from CCS projects and exchanged on the international carbon market. However, pricing carbon and giving it market value may lead to increased carbon dioxide emissions, the opposite of what we should be trying to achieve.

In any case, at a time when costs are high and no prospects for cost reductions have been demonstrated, this sector will become unsustainable without subsidies in 2030 and beyond, simply shifting the responsibility from fossil fuel businesses to taxpayers.

Reference

・METI, About the CCS business law (in Japanese)
・METI, Institutional arrangements for CCS (in Japanese)