BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Wieckowski, Chair
2015 - 2016 Regular
Bill No: SB 1441
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|Author: |Leno, Pavley |
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|Version: |4/7/2016 |Hearing | 4/20/2016 |
| | |Date: | |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Rebecca Newhouse |
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SUBJECT: Natural gas: methane emissions
ANALYSIS:
Existing law:
1) Under the California Global Warming Solutions Act of 2006
(Health and Safety Code (HSC) §38500 et seq.):
a) Defines methane, CO2, and other chemicals as a
greenhouse gas (GHG).
b) Requires the California Air Resources Board (ARB), to
determine the 1990 statewide GHG emissions level, and
approve a statewide GHG emissions limit that is equivalent
to that level, to be achieved by 2020.
c) Requires ARB to adopt GHG emissions reductions measures
by regulation to achieve the 2020 GHG limit.
d) Requires ARB to adopt regulations to require the
reporting and verification of statewide GHGs.
e) Authorizes ARB to include the use of market-based
mechanisms to comply with these regulations.
2) Requires ARB to complete, by January 1, 2016, a comprehensive
strategy to reduce emissions of short-lived climate
pollutants in the state (HSC §39730)
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3) Requires the California Public Utilities Commission (CPUC) to
open a proceeding to adopt rules and procedures that minimize
natural gas leaks from CPUC-regulated gas pipeline
facilities. (Public Utilities Code § 975)
4) Requires the State Energy Resources Conservation and
Development Commission (CEC), beginning in November 2015, to
report on strategies to maximize benefits from natural gas as
an energy source, and include an evaluation of the benefits
and economic cost of proposed strategies, including
evaluating the life-cycle GHG emissions from production,
transportation, and use of natural gas, in consultation with
ARB. (Public Resources Code §25303.5)
5) Requires ARB to monitor high-emission methane hot-spots in
the state, consult with specified entities to gather
information for purposes of carrying out life-cycle GHG
emissions analyses of natural gas imports, and update
relevant policies and programs based on those updated
life-cycle analyses. (HSC §39731)
This bill:
1) Requires the ARB, in consultation with CPUC and other
relevant agencies, to adopt by regulation methane emissions
reductions measures for the emissions associated with the
extraction, production, storage, processing, and
transportation of natural gas used in the state, including
imports, that will achieve a reduction in methane emissions
of at least 40% below 2012 methane emissions levels by 2025.
2) Requires the regulation adopted to include information
acquired as part of ARB's existing efforts to carry out
life-cycle GHG emissions analysis of natural gas imports.
3) Requires the regulation to include interim targets to reach
the methane emissions goal.
4) Requires ARB, in consultation with CPUC and other relevant
state agencies, to consider specified approaches in efforts
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to establish measures for reducing methane emissions,
including:
a) Developing new incentives and investment programs in
basins and fields from which the state receives natural
gas;
b) Imposing new procurement and tracking requirements of
interstate deliveries on the state's regulated natural gas
corporations;
c) Modifying the state's market based-emissions reductions
measures to include compliance obligations of natural gas
utilities and fuel importers;
d) Participating or forming interstate and federal working
groups, compacts or agreements; and
e) Designing regulations in a manner that seeks to minimize
costs and maximize the total benefits.
5) Requires CPUC to prohibit gas corporations from seeking or
receiving recovery from ratepayers for the value of natural
gas lost to the atmosphere during the extraction, production,
storage, processing, transportation, and delivery of natural
gas, to the extent feasible when CPUC establishes rates for
gas corporations.
Background
1) Short-lived climate pollutants. Greenhouse gases or climate
pollutants, such as CO2, work to warm the earth by trapping
solar radiation in the earth's atmosphere. Depending on the
molecule, these pollutants can vary greatly in their ability
to trap heat and the length of time they remain in the
atmosphere. CO2 remains in the atmosphere for centuries,
which makes it the most critical greenhouse gas to reduce in
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order to limit long-term climate change. However, climate
pollutants including methane, tropospheric ozone,
hydrofluorocarbons (HFCs), and soot (black carbon), are
relatively short-lived (anywhere from a few days to a few
decades), but when measured in terms of how they heat the
atmosphere (global warming potential, or GWP), can be tens,
hundreds, or even thousands of times greater than that of
CO2. These climate forcers are termed short-lived climate
pollutants (SLCPs).
Because SLCPs remain in the atmosphere for a relatively short
period of time, but have a much higher global warming
potential than CO2, efforts aimed at reducing their emissions
in the near term would result in more immediate climate, air
quality, and public health benefits, than a strategy focused
solely on CO2. According to ARB's SLCP draft strategy,
"while the climate impacts of CO2 reductions take decades or
more to materialize, cutting emissions of SLCPs can
immediately slow global warming and reduce the impacts of
climate change." Recent research estimates that SCLPs are
responsible for about 40% of global warming to date and that
actions to significantly reduce SLCP emissions could cut the
amount of warming that would occur over the next few decades
by half.
According to ARB's 2015 updated Scoping Plan, methane is one
of the three short-lived climate pollutants with the greatest
implications for California.
Methane (CH4) is the principal component of natural gas and
is also produced biologically under anaerobic conditions in
ruminants, landfills, and waste handling. Methane is 84
times more powerful as a global warming pollutant than CO2 on
a 20-year time scale. Atmospheric methane concentrations have
been increasing as a result of human activities related to
agriculture, fossil fuel extraction and distribution, and
waste generation and processing.
SB 605 (Lara, Chapter 523, Statutes of 2014) directs ARB to
develop a comprehensive short-lived climate pollutant
strategy by January 1, 2016. In developing the strategy, ARB
is required to complete an inventory of sources and emissions
of short-lived climate pollutants in the state based on
available data, identify research needs to address data gaps
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and existing and potential new control measures to reduce
emissions. The draft strategy outlines a number of actions to
reduce methane emissions.
According to the draft strategy, agriculture represents the
largest methane source and accounts for nearly 60% of methane
emissions in the state. Landfills are the next largest source
of methane at 20%, and methane from pipeline leaks and oil
and natural gas extraction make up about 15% of the total.
2) Fugitive methane from the natural gas sector. A growing body
of evidence suggests that national and state estimates of
methane emissions have been significantly underestimated.
Studies suggest that U.S. methane emissions from all sources
are likely anywhere from 25 to 75% higher than EPA estimates,
and they note the discrepancy may in large part be due to a
small number of very large leaks from natural gas production
and distribution system.
Additionally, several recent analyses of atmospheric
measurements in state suggest that actual California methane
emissions may be 30 to 70% higher than estimated in ARB's
emission inventory. The Short-Lived Climate Pollutant draft
strategy notes that several efforts are underway at the CEC
and ARB to improve emissions monitoring to help identify
sources of fugitive methane emissions and reduce them,
including from oil and gas operations. Additionally, ARB and
NASA's Jet Propulsion Laboratory are collaborating to
identify large "hot spot" methane sources through a
systematic survey of high methane emitters throughout
California using both aerial and ground measurements.
By state, California is the second largest user of natural
gas in the country (Texas is the largest user). Although the
state has worked to reduce fugitive methane emissions from
various sources over recent years, including new efforts to
reduce fugitive leaks from natural gas infrastructure in the
state, 91% of the natural gas used in California is imported.
3) State efforts to reduce natural gas system leaks.
a) SB 1371. In an effort to address systemic natural gas
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leaks from an aging infrastructure as well as address
climate impacts due to methane, SB 1371 (Leno, Chapter
525, Statutes of 2014) requires CPUC, in consultation with
ARB, to open a proceeding to adopt rules and procedures
that minimize natural gas leaks from CPUC-regulated gas
pipeline facilities. SB 1371 requires the rules and
procedures include procedures for the development of
metrics to quantify the volume of emissions from leaking
gas pipeline facilities, and for evaluating and tracking
leaks geographically and over time that may be
incorporated into ARB's mandatory GHG emissions reporting.
SB 1371 also requires, to the extent feasible, the owner
of each commission-regulated gas pipeline facility that is
an intrastate transmission or distribution line to
calculate and report to the commission and ARB a baseline
system-wide leak rate, along with any data and computer
models used in making that calculation.
On January 15, 2015, CPUC opened a rulemaking proceeding
to implement the requirements of SB 1371, with an expected
decision in the first quarter of 2017. On July 7, 2015,
CPUC released a scoping memo that raises questions and
issues in implementing the legislation to be addressed by
the rulemaking. Among many other questions raised, the
memo asks how ratepayer and shareholder financial
incentives should be aligned when accounting for and
paying for "lost gas."
SB 1441 clarifies this issue by requiring CPUC, to the
extent feasible, to prohibit gas corporations from
recovering the value of natural gas lost to the atmosphere
during the extraction, production, storage, processing,
transportation, and delivery of natural gas, from
ratepayers.
b) ARB draft oil and gas regulations. In April of last
year, ARB released a draft regulation to address fugitive
and vented emissions from new and existing oil and gas
facilities, pursuant to authority under AB 32 to regulate
GHGs. Specifically, the proposed regulation applies to
crude oil and natural gas production, crude oil storage,
underground natural gas storage, natural gas processing
plants and transmission stations. The draft regulation
contains requirements for natural gas underground storage
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facility well monitoring, restrictions for natural gas
venting and specifications for leak detection and repair,
as well as other requirements.
c) Aliso Canyon and DOGGR's emergency regulation. In
response to the state of emergency from the recent natural
gas leak at the Southern California Gas Company's Aliso
Canyon storage well facility, the Division of Oil Gas and
Geothermal Resources (DOGGR) adopted emergency regulations
for oil and gas storage facilities. The new regulations
are in effect for six months beginning February 5, 2016,
but can be extended. DOGGR is requiring increased
inspections and monitoring requirements for all wells,
regular testing of all safety valves, minimum and maximum
pressure limits for each gas storage facility in the
state, and each storage facility to establish a
comprehensive risk management plan that evaluates and
prepares for risks at each facility, including corrosion
of potential pipes and equipment.
4) National efforts to reduce natural gas sector emissions. In
August 2015, the United States Environmental Protection
Agency (US EPA) proposed standards to directly reduce methane
emissions from the oil and gas sector to help address climate
change. The standards are strategies to support the
Administration's goal of reducing methane emissions from the
oil and gas sector by 40 to 45% from 2012 levels by 2025. The
proposed requirements address emissions from the production
to transmission segments, including: expanding the federal
New Source Performance Standards for the oil and gas industry
to include methane emissions directly upstream; requiring
leak detection and repair at well sites, gathering and
boosting stations and compressor stations across the
transmission and storage segments; new standards to reduce
methane emissions from hydraulically fractured oil wells; and
emission guidelines to reduce smog-forming emissions from
existing oil and gas sources in areas where smog reaches
unhealthy levels.
Comments
1) Purpose of Bill. According to the authors, "Methane
emissions represent a threat to our climate and a waste of
natural gas, a valuable energy resource. Enough natural gas
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is lost each year to fuel 6 million homes. In the U.S. last
year, this lost gas had the same negative impact on the
climate as the annual carbon emissions of 117 million cars,
or roughly half the cars in the United States."
The authors states that, with the exception of rules
accounting for and reducing leakage from gas produced
in-state (10% of the gas we use)-methane leakage that occurs
in the value chain before it is delivered to consumers is not
accounted for in the statewide inventory or considered in the
state's emissions reduction strategies. The authors further
notes that this leaves the vast majority of pollution off the
books-and without a concrete strategy for California to
reduce it. These emissions come from old valves, tanks,
compressors, and other equipment located in oil and gas
fields in California, and in places like Texas, New Mexico,
Colorado, Utah, Wyoming, and Canada. SB 1441 clarifies that
utilities may not seek and be awarded ratepayer compensation
for gas they lose to the atmosphere from utility owned
transmission and distribution systems, including storage. SB
1441 also requires the ARB to develop a comprehensive plan to
reduce leakage from gas used in California, including
imports.
Finally, the authors states that "SB 1441 leverages recent
regulatory advances in the methodology of quantifying methane
leaks, national and international efforts targeting a 40%
reduction in vented and fugitive emissions of methane, and
California's leading role in climate change policy, to
achieve meaningful and effective reductions in one of the
most common and potent climate changing pollutants."
2) Fixing leaks outside California. SB 1441 directs ARB, in
consultation with CPUC, to adopt methane reduction measures
for the emissions associated with extraction, production,
storage, processing and transportation of the natural gas
used in the state, to reach a 40% reduction in those methane
emissions, from their 2012 level, by 2025.
As noted in the background, California imports 91% of its
natural gas. Therefore, to reach the target established in
the bill, most of the leakage reduction measures will need to
occur in natural gas infrastructure that exists outside
California.
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As the state has limited authority to require measures that
address fugitive natural gas outside its borders, the
question arises as to how ARB and CPUC will reach the 2025
methane reduction goal.
SB 1441 does not mandate a particular strategy, but instead
requires ARB and CPUC consider incentives, requirements
related to natural gas procurement, amending the
cap-and-trade program, and working with other states and the
federal government. The state currently influences the types
of electrical generation that may be contracted for,
independent of geographic origin, through both a greenhouse
gas emission performance standard on electrical generation
and a procurement requirement for renewable energy.
Additionally, California requires transportation fuels used
in the state to have reduced carbon intensities through the
Low Carbon Fuel Standard. As such, there is precedent for
state-wide measures that have regional and national
implications for achieving environmental goals. A
procurement standard for natural gas, inter-state and federal
collaboration, and incentives and investments in natural gas
basins that supply gas to California, all required for
consideration by SB 1441, may work to influence fugitive
methane emissions from the natural gas sector outside the
state.
3) Incentives should benefit California. SB 1441 requires ARB
and CPUC to consider incentives or investment programs to
facilitate emissions reduction in basins where the state
receives natural gas. As the state imports over 90% of its
natural gas, these basins and fields that could potentially
receive financial incentives or investment will likely be out
of state, and may serve a vast array of other states as well.
Additionally, some of those basins and fields may only serve
a small fraction of California's total natural gas use.
The committee and authors may wish to consider amending the
bill to specify that these basins and fields considered for
incentives and investments be those from which the state
receives significant quantities of natural gas.
4) Aligning with other methane goals. ARB has recently outlined
a goal of reducing methane emissions in California by 40%
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from 2013 levels by 2030. SB 1383 (Lara) this year codifies
that target for methane, as well as targets for other SLCPs.
SB 1441 intends to address a subset of methane
emissions-those from the natural gas sector. The reduction
targets of SB 1441 may work in part toward achieving the 40%
reduction goal for sector-wide methane emissions in
California by 2030.
The natural gas sector goal, as outlined in SB 1441, mirrors
the recent US EPA proposed target of reducing methane
emissions from the oil and gas sector by 40 to 45% from 2012
levels, by 2025.
Having two different baseline years could create confusion in
determining and reaching targets. Additionally, success in
reaching proposed targets is only meaningful if the baseline
year was chosen based on the quality and quantity of
emissions data for that year. As ARB has specified 2013 as
an appropriate baseline year for methane emissions, the
committee and authors may wish to amend the bill to change
the 2012 baseline in SB 1441 to a 2013 baseline year.
5) Clarify the baseline only covers natural gas sector
emissions. SB 1441 sets a target of reducing emissions
associated with the production, processing, and transport of
natural gas of at least 40% below 2012 methane emission
levels by 2025.
As noted in the background, significant methane emissions in
California and the rest of the country come from agricultural
operations and landfills. As SB 1441 is intended to address
emissions from the natural gas system used to deliver natural
gas used in California, an amendment is needed to clarify
that the baseline by which the 40% reduction is measured
includes system-wide methane emissions from the natural gas
sector for natural gas used in California.
6) Require regulations to maximize benefits, minimize costs. SB
1441 requires ARB and CPUC to consider, in reaching the
target specified in the bill, designing regulations in a
manner that seeks to minimize costs and maximize total
benefits. An amendment is needed to instead require ARB and
CPUC, when adopting regulations to reach the 40% reduction
target, to design the regulations in a manner that seeks to
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minimize costs and maximize total benefits.
Related/Prior Legislation
SB 1371 (Leno, Chapter 525, Statutes of 2014) requires CPUC to
open a proceeding to adopt rules and procedures that minimize
natural gas leaks from CPUC-regulated gas pipeline facilities,
with the goal of reducing GHG emissions.
SB 1496 (Thurmond, Chapter 604, Statutes of 2015) requires ARB
to monitor high-emission methane hot-spots in the state, consult
with specified entities to gather information for purposes of
carrying out life-cycle GHG emissions analyses of natural gas
imports, and update relevant policies and programs based on
those updated life-cycle analyses.
AB 1257 (Bocanegra, Chapter 749, Statutes of 2013) requires CEC,
beginning November 2015, to report on strategies to maximize
benefits from natural gas as an energy source, and include an
evaluation of the benefits and economic cost of proposed
strategies, including evaluating the life-cycle greenhouse gas
emissions from production, transportation, and use of natural
gas, in consultation with ARB.
DOUBLE REFERRAL:
This measure was heard in Senate Energy, Utilities, and
Communications Committee on April 5, 2016, and passed out of
committee with a vote of 8-1.
SOURCE: Author
SUPPORT:
American Lung Association in California
California Interfaith Power & Light
California League of Conservation Voters
Clean Water Action
Engineers and Scientists of California
Environment California
Environmental Defense Fund
Moms Clean Air Force
Sierra Club California
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Union of Concerned Scientists
Utility Workers Union of America
OPPOSITION:
None received
ARGUMENTS IN
SUPPORT: Supporters state that SB 1441 closes two
important loopholes that undermine the state's overall effort
and creates a new era
of accountability for natural gas leakage. They note that since
utilities are
compensated for the gas they lose, utility incentive to reduce
leakage above and
beyond regulatory requirements are muted, thus reducing overall
signals to
minimize overall emissions. Supporters state that SB 1441
removes this incentive
in order to increase the overall incentive to minimize methane
pollution. They
further note that California's strategies to reduce methane
pollution stop at the
border and fail to consider 91% of gas California imported into
the state - and the
20 and 100 million metric tons of carbon dioxide equivalent
pollution associated
with it. According to the proponents, SB 1441 removes this
loophole in the
state climate program and requires ARB to integrate methane
reductions from
imported gas into its long term plan for pollution reduction.
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