BILL ANALYSIS                                                                                                                                                                                                    Ó





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          |                                                                 |
          |         SENATE COMMITTEE ON NATURAL RESOURCES AND WATER         |
          |                   Senator Fran Pavley, Chair                    |
          |                    2013-2014 Regular Session                    |
          |                                                                 |
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          BILL NO: SB 34                     HEARING DATE: April 23, 2013   

          AUTHOR: Calderon                   URGENCY: Yes  
          VERSION: April 10, 2013            CONSULTANT: Katharine Moore  
          DUAL REFERRAL: No                  FISCAL: Yes  
          SUBJECT: Greenhouse gas: carbon capture and storage.  
          
          BACKGROUND AND EXISTING LAW
          The Division of Oil, Gas, and Geothermal Resources (division) is  
          the state's oil and gas regulator.  The division's Oil and Gas  
          Supervisor has extensive and broad authority to regulate  
          activities associated with the production and removal of  
          hydrocarbons (e.g. oil and gas) from the ground (Public  
          Resources Code (PRC) §3106).  This includes the subsurface  
          injection of water and other fluids.  This authority is granted  
          in order to prevent damage to life, health, property, natural  
          resources, and underground and surface water suitable for  
          irrigation or domestic purposes.
           
           The California Global Warming Solutions Act of 2006 (AB 32,  
          Pavley, c. 488, Statutes of 2006)(Health and Safety Code §38500  
          et seq.) requires the California Air Resources Board (board) to  
          establish regulations to achieve specified greenhouse gas (GHG)  
          emissions reductions goals and permits the use of market-based  
          compliance mechanisms, in part, to achieve those goals.  In  
          particular, California aims to reduce GHG emissions to 1990  
          levels by 2020.

          Many experts believe that carbon capture and storage,  
          particularly the long-term geologic sequestration of carbon  
          dioxide (CO2), will be an important component of meeting GHG  
          emission reduction goals in California and world-wide.  The  
          recent December 2010 report by the California Carbon Capture and  
          Storage Review Panel, (formed by the board, the California  
          Public Utilities Commission and the California Energy  
          Commission), identified significant gaps in California's laws  
          and regulations hindering the development of carbon capture and  
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          storage (CCS) projects in the state.  These include clarifying  
          the regulatory responsibility for CCS projects, as well as  
          establishing clear financial responsibility for the stewardship  
          of geologic storage sites during the operating, post-injection  
          and post-closure phases.  The report also highlights the  
          potential use of carbon dioxide for enhanced oil recovery.

          Enhanced oil recovery is a well-established technique where  
          pressure is increased by fluid injection into a hydrocarbon  
          reservoir in order to promote hydrocarbon production.  A common  
          form in use in California is water flooding. The US Department  
          of Energy reports there is considerable potential for the use of  
          carbon dioxide in enhanced oil production to boost US effective  
          oil reserves and production, and which, at the same time, could  
          facilitate the adoption of CCS.  According to industry,  
          approximately 30 million tons per year of carbon dioxide are  
          being injected annually in enhanced oil recovery operations in  
          the United States already.  These operations use Underground  
          Injection Control (UIC) wells.

          UIC wells are regulated by the US Environmental Protection  
          Agency (EPA) under the authority of the Safe Drinking Water Act  
          (42 U.S.C. §300f et seq.).  Main features of the UIC program  
          include permitting, inspection, enforcement, mechanical  
          integrity testing, plugging and abandonment oversight, data  
          management, and public outreach.  A UIC well critically depends  
          upon confinement of the injection fluid to the intended zone or  
          zones of injection.  UIC wells are separated into six classes -  
          Class II wells are oil and gas related injection wells and the  
          new Class VI well designation is for wells used for the  
          long-term geological sequestration of carbon dioxide.  The  
          division obtained "primacy" or regulatory authority for Class II  
          wells from the US EPA in 1983.  There are thousands of Class II  
          UIC wells in California and enhanced oil recovery operations in  
          California use Class II wells.  Class VI wells - for which the  
          US EPA continues to develop guidance and regulations - remain  
          under the US EPA's control.  The US EPA clearly anticipates that  
          some Class II wells will seek to be re-classified as Class VI  
          wells once the hydrocarbon reservoir is depleted in order to  
          provide long-term geologic sequestration.

          The US EPA recently reviewed the division's primacy of the UIC  
          Class II Program.  The main report was released in June 2011.  A  
          number of program deficiencies - some requiring immediate  
          attention - were found.  In its recent response to the audit,  
          the division pledged to continue to strive to address the  
          deficiencies noted in the report.
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          The Elder California Pipeline Safety Act of 1981 provides the  
          State Fire Marshall with exclusive safety regulatory and  
          enforcement authority over intrastate hazardous liquid pipelines  
          and, to some degree, over interstate hazardous liquid pipelines.  
           Additionally, the Public Utilities Commission, the California  
          Energy Commission and the board are required to establish GHG  
          emission performance standards, among other provisions (Public  
          Utilities Code §8341).

          SB 1139 (Rubio, 2012) was substantially similar to this bill.   
          SB 1139 bill analyses indicate that the author pledged to find  
          industry funding for the proposed program, but no amendments to  
          that effect were made.  The bill was held on the Assembly  
          Appropriations Suspense file.

          PROPOSED LAW
          This bill would create the Carbon Capture and Storage Act of  
          2013 and would:
                 Make extensive legislative findings describing  
               California's goal to limit GHG emissions; the potential of  
               and need for the development of long-term geologic storage  
               of carbon dioxide to meet California's emissions reduction  
               goal; existing federal and state authority to address  
               various elements of long-term geologic storage of carbon  
               dioxide including underground injection wells; and gaps in  
               existing statutes and regulation that need to be addressed
                 Assert that subsurface pore space can be possessed and  
               used to store GHGs and assert the dominance of mineral  
               rights
                 Specify that pipelines can carry carbon dioxide and  
               defines carbon dioxide for the purposes of transportation  
               by pipeline
                 Require the board to develop, as specified, a  
               quantification methodology to address CCS projects seeking  
               to demonstrate geologic sequestration by January 1, 2016
                 Require the division and the board to execute an  
               agreement using a coordinated and comprehensive regulatory  
               approach, including oversight, monitoring requirements and  
               verification for geologic sequestration of GHGs during and  
               following enhanced oil recovery operations

          ARGUMENTS IN SUPPORT
          The California CCS coalition argues that "carbon capture and  
          storage will play a 'significant' role in reaching the state's  
          greenhouse gas reduction goals according to the [board]. [?]  
          That's why environmental organizations and academics strongly  
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          support CCS."

          "The use and storage of carbon dioxide for CCS and enhanced oil  
          recovery projects is a proven and safe method.  It has been  
          utilized in more than 100 projects around the country for the  
          past thirty years.  Furthermore, the U.S. Environmental  
          Protection Agency has developed comprehensive regulations for  
          CCS that ensure protection of water resources and air quality."

          They continue that "there are significant regulatory gaps and  
          uncertainties that will inhibit the development of CCS projects.  
           SB 34 is specifically designed to address these problems by  
          creating a clear and certain regulatory structure for these  
          projects."

          "CCS and the use of carbon dioxide for enhanced oil recovery  
          will help maintain and increase state and local revenues to help  
          fund public safety, schools, law enforcement and other vital  
          services. [?] SB 34 would also decrease our state's dependence  
          on oil imports.  CCS projects and those that use carbon dioxide  
          for enhanced oil recovery would help extend the life of many  
          California oil fields that would otherwise decline."

          ARGUMENTS IN OPPOSITION
          Sierra Club California argues "the carbon sequestered in the  
          ground in the process of retrieving oil would, under SB 34, 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."

          "Sierra Club California opposes SB 34 because it undermines  
          California's GHG reduction goals by treating carbon dioxide  
          enhanced oil recovery as an emissions-reducing measure, despite  
          the fact that it is a means for increasing fossil fuel  
          production.  The carbon sequestration accomplished in the  
          process of recovering oil would likely be offset by release of  
          GHGs when the oil is later combusted."

          "Furthermore, insufficient research has been done to fully  
          comprehend potentially negative impacts of injecting large  
          amounts of carbon dioxide into the ground."

          COMMENTS 
           Committee of second referral  .  This bill passed the Senate  
          Environmental Quality Committee on April 17th and during that  
          hearing, the author agreed to craft an amendment to be taken in  
          the Senate Natural Resources and Water Committee in order to  
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          facilitate meeting legislative deadlines.  This amendment is to  
          have the board account for increased criteria pollutant emission  
          impacts resulting from CCS projects and provide direction for  
          the mitigation of those emissions (Amendment 1).

           This bill is a work-in-progress  .  Ownership of pore space is a  
          complicated issue with potential and wide-ranging ramifications.  
           The author's office has agreed to strike section 3 (Amendment  
          2) and the committee may wish to direct committee staff to  
          continue to work with the author's office on this issue.  The  
          committee may wish to re-hear this bill should it change  
          substantially in the future.

           CCS and earthquakes (induced seismicity)  .  In mid-2012 the  
          National Research Council (NRC) published a report titled  
          "Induced Seismicity Potential in Energy Technologies."  In  
          addition to assessing the risks of induced seismicity associated  
          with hydraulic fracturing and the deep disposal of waste water  
          in injection wells, the report states:

               "Projects that inject or extract large net volumes of  
               fluids over long periods of time such as CCS may have  
               potential for larger induced seismic events, though  
               insufficient information exists to understand this  
               potential because no large-scale CCS projects are yet  
               in operation.  Continued research is needed on the  
               potential for induced seismicity in large-scale CCS  
               projects."

          The US EPA's Class VI well guidelines address seismicity in  
          siting requirements particularly with respect to ensuring the  
          integrity of carbon dioxide sequestration.  However, the  
          committee may wish to supplement these nationwide requirements  
          with direction to the division to specifically address this  
          risk, given California's geology, to incorporate additional  
          monitoring and assessment (Amendment 3).
           
          Is CCS a mature technology  ?  There are numerous demonstration  
          CCS projects in the US and around the world.  Demonstration  
          projects are used to show the potential commercial viability of  
          a technique or process, and the project may not be designed or  
          operated for the long-term.  At least in the US, there are  
          relatively few commercial CCS projects in development, as noted  
          by the NRC above.  Enhanced oil recovery using carbon dioxide is  
          mature.  

          Is Class II carbon dioxide-enhanced oil recovery necessarily  
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          permanent sequestration?  No.  During enhanced oil recovery,  
          injected carbon dioxide is used to help produce oil.  A  
          significant amount of the carbon dioxide may be recovered with  
          the produced oil.  While the recovered carbon dioxide is  
          recycled and re-injected into the formation, this is not  
          permanent sequestration.  In long-term geologic sequestration,  
          the carbon dioxide would not be intended to return to the  
          surface or leave the formation once injected.   

          Planned CCS projects in California.   The Hydrogen Energy  
          California (HECA) plant, near the Elk Hills oil field, is a 400  
          MW power plant utilizing a gasification unit and carbon capture  
          facility that produces hydrogen and carbon dioxide from a blend  
          of California-produced petroleum coke (25%) and western coals  
          (75%).  HECA applied for certification from the California  
          Energy Commission in 2008 as an integrated gasification combined  
          cycle power generating facility and remains under review.   
          Approximately 90% of the CO2 from the power plant will be  
          transported by pipeline for use in enhanced oil recovery in Elk  
          Hills by Oxy.  The project also has the capability to make  
          fertilizer using the produced carbon dioxide.  (Fertilizer is  
          not permanent sequestration.)  

          The West Coast Regional Carbon Sequestration research consortium  
          (WESTCARB) in collaboration with Clean Energy Systems and others  
          is planning a demonstration project of a 50 MW coal and  
          biomass-fueled power plant where the produced exhaust is  
          sequestered in fluvial sandstone in Kimberlina (Kern County).   
          The planned injection of 250,000 tons per year will be for four  
          years.
           
          Class II vs Class VI wells
           The final Class VI regulations were released by the US EPA in  
          December 2010, and important elements of the guidance materials  
          are still in draft form.  While selected requirements for both  
          Class II and Class VI wells are the same, permit applications  
          for Class VI wells appear to require more comprehensive geologic  
          data and higher construction and siting standards.  This is  
          consistent with long-term geologic sequestration as opposed to  
          hydrocarbon production.  According to the US EPA, no  
          applications under Class VI have yet been filed.

          SUGGESTED AMENDMENTS 

               AMENDMENT 1  
               (taken in the Senate Environmental Quality Committee and  
               from that Committee's analysis)
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               The author agreed "to address the concern of increased  
               criteria pollutant emissions due to large scale CCS  
               projects" and the Environmental Quality Committee suggested  
               an amendment "to require the board, in adopting the  
               methodology, to account for direct, indirect and cumulative  
               emission impacts of criteria pollutant that may result from  
               CCS projects, and provide direction for the mitigation of  
               those emissions."

               AMENDMENT 2 
               Delete page 6, lines 37 - 40, inclusive and page 7, lines  
               1-14, inclusive
               
               AMENDMENT 3  
               On page 12, line 8, replace "both" with "all"

               Insert on page 12, between lines 12 and 13:

               "(2) Whether long-term successful geologic sequestration in  
               California may require enhanced seismic monitoring in order  
               to understand and assess the risk of induced seismicity."

               Insert on page 12, line 13, replace "(2)" with "(3)"

          SUPPORT
          California CCS Coalition
          Natural Resources Defense Council
          Environmental Defense Fund 
          Silicon Valley Leadership Group
          California Conference of Carpenters
          International Union of Operating Engineers
          California State Council of Laborers
          National Federation of Independent Business
          San Francisco Chamber of Commerce
          California Association of Black Pastors
          Con10u, Inc.
          California Chamber of Commerce
          California Manufacturers and Technology Association
          Western States Petroleum Association
          San Diego Urban Economic Corporation
          The Linde Group
          YADARI Enterprises
          3 Individual Research Scientists 

          OPPOSITION
          Sierra Club
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