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 









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              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.










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              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, 









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              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). 










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            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 İincluding EOR]? Injection 
              wells used for İEOR] 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.










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              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 









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              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 İto] 
              existing regulatory uncertainties that were identified by 
              the İCEC] and İPUC]. Removing the gaps in the permitting 
              process sends the confidence signal necessary to spur 
              investment in CCS."  









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               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 









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              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