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In response to various pressures on the energy industry to reduce the environmental impact associated with excess carbon dioxide emissions, many energy companies are investigating carbon capture and sequestration projects as a means of reducing their carbon emissions. In addition to reducing carbon emissions, carbon capture and sequestration projects often qualify for valuable income tax credits.

One such credit is a California state income tax credit under California’s Low Carbon Fuel Standard program, overseen by the California Air Resource Board. This program allows for carbon capture and sequestration project operators that operate outside of California to receive state income tax credits if they are engaged in direct air capture or sales of low carbon transportation fuel within the state of California. To qualify for the credits, the California Air Resource Board requires that the project operator demonstrate that there is a binding agreement in place to prohibit drilling through the storage reservoir. However, the Louisiana Geologic Sequestration of Carbon Dioxide Act (the “Act”) does not prohibit mineral interest owners from drilling through approved storage reservoirs in search for minerals, thus project operators must successfully acquire binding contractual agreements from all affected mineral owners to qualify for these valuable credits.

A recent amendment to the Act addresses scenarios where these contractual agreements cannot be acquired from all affected mineral owners, at least with respect to projects located in Caldwell Parish. As currently written, the Act allows the project operator to expropriate the rights “necessary or useful” in constructing and operating the storage facility.[1] However, the Act clarifies that “[t]he exercise of the eminent domain granted in this Chapter shall not prevent persons having the right to do so from drilling through the storage facility in such manner as shall comply with the rules of the commissioner . . . .”[2] The amendment expands the project operator’s expropriation rights to allow for the exercise of eminent domain to “prohibit persons having the right to do so from drilling through the storage facility located in Caldwell Parish” if the following two requirements are satisfied: (1) five years have passed from actual drilling or operating an oil or gas well within the boundaries of the storage facility to depths below the base of the underground reservoir and (2) all formerly productive reservoirs below the underground reservoir are no longer capable of producing in paying quantities.[3] This new exception is not absolute or indefinite – if a person is prohibited from drilling through the reservoir as a result of this new exception, the prohibition will terminate if the Commissioner finds that the storage facility operator abandoned reasonable efforts to use the storage facility prior to any use of the underground storage reservoir component.[4]

The amendment (Act 163 of 2022) was signed by Governor Edwards on May 26, 2022 and will become effective on August 1st of this year. It is possible that the amendment will be expanded to cover additional parishes in the future as carbon capture and sequestration projects continue to expand. Liskow & Lewis attorneys will continue to monitor these and other developments in the carbon capture and sequestration space.

[1] La. R.S. 30:1108(A)(1).

[2] La. R.S. 30:1108(B).

[3] Act 163 of 2022.

[4] Id.

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