BILL ANALYSIS Ó SB 1139 SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator S. Joseph Simitian, Chairman 2011-2012 Regular Session BILL NO: SB 1139 AUTHOR: Rubio AMENDED: April 9, 2012 FISCAL: Yes HEARING DATE: April 16, 2012 URGENCY: No CONSULTANT: Peter Cowan SUBJECT : CARBON DIOXIDE CAPTURE AND SEQUESTRATION SUMMARY : Existing law : 1) Defines land as material of the earth regardless of composition, and includes free or occupied space for an indefinite distance upwards and downwards. (Civil Code §659). 2) Under the Elder California Pipeline Safety Act establishes the State Fire Marshal (SFM) as the designee for carrying out the federal Hazardous Liquid Pipeline Safety Act for intrastate hazardous liquid pipelines. (Government Code §51010 et seq.). 3) Under the California Global Warming Solutions Act of 2006 (CGWSA) requires the Air Resources Board (ARB) to determine the 1990 statewide level of greenhouse gas (GHG) emissions and achieve a limit that is equivalent to that by 2020 and sets several requirements, including the adoption of mandatory GHG reporting regulations, to meet that requirement. ARB may also adopt a market-based compliance mechanism as part of regulations to meet the GHG limit. (Health and Safety Code §38000 et seq.). 4) Requires the Public Utilities Commission (PUC) in consultation with the California Energy Commission (CEC) and ARB to: a) establish the greenhouse gases emission performance standard (EPS); b) specify various requirements and considerations for the establishment of the EPS including that carbon dioxide (CO2) captured from SB 1139 Page 2 powerplant emissions and permanently disposed is not counted as emissions; c) prohibit any load-serving entity, or local publicly owned electric utility, from entering into a long-term financial commitment, unless baseload generation complies with the EPS. (Public Utilities Code §8341). 5) Under the federal Safe Drinking Water Act establishes the Underground Injection Control (UIC) Program for regulating the construction, operation, permitting, and closure of injection wells. 6) Establishes the Division of Oil, Gas, and Geothermal Resources (DOGGR) within California's Department of Conservation and grants its Supervisor broad authority over activities related to the recovery of oil and gas including the injection of air, gas, water, or other fluids into productive strata. (Public Resources Code §3106). This bill enacts the Carbon Capture and Storage Act of 2012 that: 1) Specifies that "land" includes pore space that can be possessed and used for the storage of greenhouse gases. 2) Provides that the SFM exercises exclusive safety regulatory and enforcement authority over intrastate carbon dioxide (CO2) pipelines. Defines "carbon dioxide" for the purpose of this authority to be a fluid consisting of more than 90 percent CO2. 3) Requires ARB on or before January 1, 2015, to adopt a final quantification methodology (the methodology) for carbon capture and storage (CCS) projects and requires the methodology to: a) Be used for the quantification of emissions as part of compliance obligations under the CGWSA for any regulation for the mandatory reporting of GHGs, any regulation implementing a market-based compliance mechanism, or any offset protocol for use in regulations implementing a market-based mechanism. SB 1139 Page 3 b) Include methods for CO2 enhanced oil recovery (EOR) projects seeking to demonstrate simultaneous sequestration and address specified modes of CO2 transportation. c) Be suitable for use for the demonstration of sequestration under the EPS and requires ARB to consult with PUC and CEC on the development of the methodology and the coordination of its incorporation, to the maximum extent possible, into the EPS certification process. 4) Requires ARB, to the maximum extent feasible, to harmonize the methodology with GHG storage or sequestration quantification methodologies used by other state, federal, or international greenhouse gas emission reduction programs. The methodology may include surface and subsurface characterization, monitoring, operational, reporting, accounting and verification requirements to be administered by ARB or other agencies. 5) Requires DOGGR to regulate the injection of CO2 at an enhanced oil recovery (EOR) project, including EOR projects seeking to demonstrate simultaneous geologic GHG sequestration. 6) Provides that the above requirements #3, 4 and 6 do not modify, limit, or supersede the operation of other laws applicable to CO2 capture, transportation, or underground injection, or their application by CEC, PUC, DOGGR, or the California Environmental Protection Agency. 7) Provides related legislative findings and intent. COMMENTS : 1) Purpose of Bill . According to the author "SB 1139 seeks to accomplish the following: recognize the role that carbon capture and storage (CCS) can play in enabling California to meet its greenhouse gas reduction goals; acknowledge that CCS can enhance California's local oil production with resulting job creation and economic growth; create a regulatory framework for the planning, construction, SB 1139 Page 4 operation and decommissioning of a CCS project; ensure that adequate health and safety requirements are met; and that the risk of unacceptable leakage from the injection and storage zone for CCS is minimized." The author further notes: "Currently, there are gaps in the regulatory process for the permitting of CCS projects within the state which has caused great uncertainty regarding the permitting of these projects. Also, the current regulatory framework for California's climate change management program creates a disincentive for capturing and permanently sequestering carbon emissions." 2) Carbon Sequestration : The term sequestration is used to describe multiple processes that concentrate CO2 and store or sequester it away from the atmosphere. Terrestrial carbon sequestration is used to refer to management practices that cause natural ecosystems, such as forests, to take up and store more CO2 than they otherwise would. Geologic sequestration, the subject of SB 1139, is also commonly called carbon capture and storage (CCS) and involves collecting and purifying CO2 from large point sources and injecting it below ground for storage. Proponents and CCS experts identify two main types of CCS in California. One is the injection of CO2 into saline formations that do not contain hydrocarbons, such as oil or gas, and is estimated by a joint CEC and Department of Conservation report to have a capacity of tens to hundreds of metric gigatons of CO2 (statewide emissions are approximately half a gigaton). Another type CCS, and one specifically identified in SB 1139 is the injection of CO2 into oil reservoirs, specifically through the use of enhanced oil recovery (EOR). According to DOGGR, common types of EOR in California include water flooding, steam flooding and cyclic steam. EOR is used to increase production from oil and gas reservoirs. Injection of CO2 has successfully been used in other states and countries to boost production efficiency of oil and gas by re-pressurizing the reservoir, and in the case of oil, by also increasing mobility. CO2 injection into saline formations requires the use of a Class VI well, while the CO2 EOR requires a Class II well (see comment #5 below). SB 1139 Page 5 3) Pore Space Ownership . The California Carbon Capture and Storage Review Panel (CCCSRP), consisting of representatives from industry, trade groups, academia, and environmental organizations identifies three options for determining pore space: "1) a traditional private property approach, 2) a limited private property approach, and 3) a public resource approach," and describes the traditional private property approach taken by SB 1139 as "premised on the long-standing common law rule that the surface owner owns the subsurface, subject to considerations such as the dominance of the mineral estate. This approach?recognizes that the right to use the pore space for the injection and sequestration of CO2 is a property right that must be acquired from the property owner in return for payment." 4) Carbon Dioxide Pipelines . Currently there are no CO2 pipelines in the state. According to a CCCSRP report "CO2 pipelines have been operating in the United States for almost 40 years, and there are approximately 3,600 miles of CO2 pipelines in operation today." Under the federal Hazardous Liquid Pipeline Safety Act CO2 pipelines are regulated by the Pipeline and Hazardous Materials Safety Administration, part of the Department of Transportation, which defines for this purpose CO2 as "a fluid consisting of more than 90 percent CO2 molecules compressed to a supercritical state." SB 1139 instead defines CO2 as "a fluid consisting of more than 90 percent CO2 molecules." 5) Class II wells vs. Class VI wells . Under the federal Safe Drinking Water Act the federal EPA has designated several classes of underground injection wells, including Class II and Class VI. Class II wells include those used for EOR and other types of injection wells associated with oil and gas production. According to the U.S. EPA, "Class II CO2 injection wells designated for enhanced recovery Ýincluding EOR]? Injection wells used for ÝEOR] are regulated through the UIC Class II program." Currently DOGGR does not have regulations specific to CO2 EOR; however, it does fall under their existing regulatory and permitting authority for all types of Class II injection wells. SB 1139 Page 6 Class VI wells were specifically developed by U.S. EPA for the purpose of CCS. According to the U.S. EPA "The relative buoyancy of CO2, its corrosivity in the presence of water, the potential presence of impurities in captured CO2, its mobility within subsurface formations, and large injection volumes anticipated at full scale deployment warrant specific requirements tailored to this new practice." Currently no state agency has been authorized by the legislature to apply for primacy over class VI wells and thus their use in California is regulated by the U.S. EPA. Class VI regulations do allow for Class II wells to transition to Class VI wells recognizing that the purpose of a well may shift from primarily oil recovery to primarily CO2 sequestration The U.S. EPA is currently preparing specific guidance on how this transition should occur. Because Class II well regulations were not developed for the purpose of CO2 sequestration it may not be appropriate at this time to require that CO2 sequestration occurring as a result of CO2 EOR (a Class II use) be used for compliance under the CGWSA. The U.S. EPA Class VI well rulemaking notes that CO2 purchases constitute approximately one to two thirds of an EOR project cost and thus the volume injected is carefully monitored, and recovered CO2 is reused; and while significant amounts of CO2 remains belowground "Class II EOR requirements do not require tracking and monitoring of the injectate; therefore, the migration and fate of the unrecovered CO2 is not documented." According to the sponsor, SB 1139 intends that these and other gaps between current Class II regulations and Class VI wells would be addressed in the methodology adopted by ARB. However, SB 1139 does not require any specific safeguards be included in the methodology. Given Class II wells are regulated by the U.S. EPA and DOGGR for the purpose of oil and gas recovery and not CO2 sequestration while Class VI wells are specifically designated for CO2 sequestration it may be appropriate to strike the requirement that ARB, when developing the methodology, include methods for quantifying EOR as sequestration and to strike the requirement that DOGGR regulate EOR for sequestration (Section 6 of SB 1139). If SB 1139 Page 7 these provisions are retained, amendments are needed to: a) Require DOGGR to develop regulations for CO2 injection in Class II wells. b) Ensure that Class II wells used for CCS meet standards for verification, permanence, monitoring, and safety similar to those required for Class VI wells. c) Ensure that Class II wells used for CCS are constructed and monitored in a way that clearly allows them to transition to Class VI wells when oil production ceases. d) Clarify the liability for CO2 injected during operation, transition to Class VI wells and post-closure. 6) Cap-and-trade offsets . Under ARB cap-and-trade regulations, offsets (a compliance instrument generated by reducing emissions under specified protocols) can only be generated from uncapped sectors. This requirement prevents the double-counting of compliance instruments under the regulation. Current CCS technology is only effective when associated with very large point sources, such as power plants or refineries, all of which would be capped entities in California. Certain biomass derived fuel stocks are uncapped and GHG sequestration of those sources may be able to produce offset without causing double-counting; however, the smaller scale of these sources do not make them strong candidates for CCS. Given the limited opportunities for offset development within California it may be appropriate to strike the requirement that the methodology be used for compliance with any offset protocol adopted pursuant to the CGWSA. 7) Support concerns . According to supporters, SB 1139 by establishing regulations for CCS "will enable several projects to move forward that have been stalled due Ýto] existing regulatory uncertainties that were identified by the ÝCEC] and ÝPUC]. Removing the gaps in the permitting process sends the confidence signal necessary to spur investment in CCS." SB 1139 Page 8 The California CCS Coalition notes that CO2 EOR have been utilized in more than 100 projects around the country for 30 years and contends that U.S. EPA "has developed comprehensive regulation for CCS that ensure the protection of water resources and air quality." 8) Opposition concerns . According to Sierra Club California, CO2 EOR "injects carbon dioxide into the ground as a means of retrieving oil. The carbon sequestered in the ground in the process of retrieving oil would, under this bill, be counted toward California's established goals for reducing GHG emissions. However, the GHGs released by the oil recovered in this process are not taken into account. There are, according to this bill, significant oil reserves in California that would be suitable for such a method, and the amount of fossil fuels made available for consumption could be a significant source of GHG emissions." 9) Amendments needed . In addition to amendments noted in comments #5 and #6, amendments are needed to: a) Require ARB, when developing the methodology, to consider the potential for direct, indirect, and cumulative emission impacts. While CCS can greatly reduce the amount of GHG emissions from a point source, those reductions do not necessarily translate to reductions in criteria pollutants. In fact, this may be exacerbated as additional energy is required to compress, transport, and store the CO2. b) Make technical changes so that references refer to the enacting statute rather than the California Code of Regulations. c) Amend findings and declarations to improve accuracy and fix typographical errors. 10)Related Legislation . SB 669 (Rubio) establishes the CEC as the lead agency for CCS projects under the California Environmental Quality Act. An April 28, 2011 hearing by Senate Energy, Utilities, and Communications Committee was canceled at the author's request. Other bills amending the SB 1139 Page 9 CGWSA, include: a) SB 1572 (Pavely), establishes the Greenhouse Gas Reduction Account within the Air Pollution Control Fund, which is set for hearing April 23, 2012, in the Senate Environmental Quality Committee; b) SB 143 (Rubio), requires ARB to adopt methodologies for determining the quantity of greenhouse gas emissions reduced through specified greenhouse gas emission reduction programs, which is with the Assembly Natural Resources Committee; and c) AB 1532 (Perez), establishes the Greenhouse Gas Reduction Account within the Air Pollution Control Fund, which is set for hearing April 23, 2012, in the Assembly Natural Resources Committee. SOURCE : The California CCS Coalition SUPPORT : American Council of Engineering Companies, California Chamber of Commerce, California Manufacturers and Technology Association, Western States Petroleum Association OPPOSITION : Sierra Club California