BILL ANALYSIS �
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2011-2012 Regular Session |
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BILL NO: SB 1139 HEARING DATE: April 24, 2012
AUTHOR: Rubio URGENCY: No
VERSION: April 9, 2012 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 (DOGGR)
exists within California's Department of Conservation. DOGGR's
Supervisor (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
emissions reductions goals and permits the use of market-based
compliance mechanisms, in part, to achieve those goals. In
particular, California aims to reduce greenhouse gas (GHG)
emissions to 1990 levels by 2020.
Many experts believe that carbon capture and storage,
particularly the long-term geologic sequestration of carbon
dioxide, 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 ownership of pore space and the regulatory responsibility
for CCS projects, as well as establishing the 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 and long-standing
technique where pressure is increased by fluid injection into a
hydrocarbon reservoir in order to promote hydrocarbon
production. Common forms in use in California include water
flooding and cyclic steam injections. 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 have been underway
for decades and use Underground Injection Control (UIC) wells.
UIC wells are regulated by the US Environmental Protection
Agency under the authority of the Safe Drinking Water Act (SDWA)
(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. DOGGR
obtained "primacy" or regulatory authority for Class II wells
from the US EPA in California under section 1425 of the SDWA 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 is continuing to
develop guidance and regulations - remain under the US EPA's
control. Although the guidance is still in draft form, 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 DOGGR's primacy of the UIC Class II
Program. The main report was released in June 2011 and a July
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18, 2011 letter to then-Supervisor Miller summarized the
results. A number of program deficiencies - some requiring
immediate attention - were found. These include a federal
definition of drinking water that allows higher salt
concentrations, and an apparent over-reliance on engineering
estimates and simplifications. Often, for example, physical
measurements and data, such as documentation of the true
geologic variation at a site, and more appropriate modeling
techniques were warranted. The performance and integrity of an
UIC well depends fundamentally on pressure. The US EPA noted
that the limited data available may "not adequately capture the
full extent of pressure influences from the injection activity."
Deficiencies were also noted in UIC staff qualifications;
annual project reviews; mechanical integrity surveys and
testing; inspections and compliance/enforcement practices and
tools; the idle well planning and testing program; financial
responsibility requirements and plugging and abandonment
requirements - including the incorrect use of a plug material in
one district. The letter also notes that DOGGR staff apparently
did not always follow statutory requirements or regulation. To
be fair, DOGGR has not yet provided its formal response to the
US EPA. However, the depth and breadth of the issues raised in
the letter and report - as well as DOGGR's interim response
while the review was underway - underscore the substance of the
report.
Further, the US EPA's report repeatedly attributed observed
deficiencies in the UIC Program to a lack of resources and
personnel. In the last two budgets, DOGGR has received
authorization for 35 new positions - many to bolster the UIC
Program - in order to improve its regulatory capabilities.
These are fewer positions than sought, and there has been
difficulty in filling them. As of March 2012, 13 positions
remained unfilled, according to Legislative Analyst's Office,
although recent administrative changes offer the promise of
larger pools of qualified candidates, particularly engineers.
Both of the Assembly and Senate Budget sub-committees have held
open DOGGR's current request for further personnel pending the
receipt of additional information, including a workload
analysis. A new director of the Department of Conservation and
a new DOGGR supervisor were recently appointed, and the
allocation of new personnel to DOGGR in recent budgets, despite
the state's financial difficulties, indicates that the issues
with the UIC Program are recognized.
The Elder California Pipeline Safety Act of 1981 provides the
State Fire Marshall with exclusive safety regulatory and
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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
greenhouse gas emission performance standards, among other
provisions (Public Utilities Code �8341).
PROPOSED LAW
This bill would create the Carbon Capture and Storage Act of
2012 and would:
Make extensive legislative findings describing
California's goal to limit greenhouse gas 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
Allow subsurface pore space to be used for greenhouse
gas storage without altering 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 carbon capture and
storage projects seeking to demonstrate geologic
sequestration by January 1, 2015
Require DOGGR and the board to develop a regulatory
structure for the use of carbon dioxide in enhanced oil
recovery operations with simultaneous geologic
sequestration of the carbon dioxide
ARGUMENTS IN SUPPORT
According to the author, "�s]tudies by a broad range of
governmental and non-governmental organizations show that CCS is
a critical component of a cost-effective strategy for achieving
greenhouse gas emission reductions. �?] California and Kern
County, in particular, are home to the flagship CCS project in
the United States. The Hydrogen Energy CA (HECA) plant has
received commitments of over $400 million from the US Department
of Energy for its CCS project located adjacent to the Elk Hills
oil field. HECA plans to capture 2 million tons of CO2 per year
while providing low carbon base load power, creating
construction and permanent jobs in the area, generating new tax
revenue for local communities and providing much needed CO2 to
local oil fields for enhanced oil recovery. Other large-scale
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CCS projects are being discussed in the region with the
expectation that currently identified regulatory gaps are
addressed."
Senator Rubio continues that these gaps in the regulatory
process have "?caused great uncertainty �that] have delayed or
prevented large investments in CCS projects."
According to the California CCS Coalition, SB 1139 "will help
create jobs, protect the environment, and reduce carbon dioxide
emissions necessary to meet California's AB 32 goals." They
continue "SB 1139 is an important first step to encourage
investment in CCS and enhanced oil recovery projects in
California."
ARGUMENTS IN OPPOSITION
According to the Sierra Club California "�t]he 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. �?] The carbon sequestration accomplished in the
process of oil recovery as an emission reduction would therefore
give an inaccurate account of California's actual GHG emissions,
and would allow offset credits to go to fossil fuel production."
COMMENTS
The challenge for DOGGR . As described above, DOGGR has the
clear authority in California to promulgate regulations for
Class II UIC wells. However, as the US EPA's recent review of
the UIC program demonstrates, some existing UIC practices fail
to meet established standards. DOGGR is well aware of and
working to correct these issues, although its response has been
hampered. It is appropriate, given the multi-jurisdictional
nature of effective and verifiable regulation of long-term
geologic sequestration of carbon dioxide and the current UIC
program, to provide specific direction to DOGGR to meet the
opportunity and challenge provided by this bill (Amendment 1).
DOGGR's existing UIC Class II program is expected to change
considerably during the time period when the regulations
required by this bill will be under development.
This bill was heard in the Senate Environmental Quality
Committee last week. In order to meet procedural deadlines and
process requirements, the amendments discussed in that
committee's bill analysis are incorporated here. The
Environmental Quality Committee's bill analysis should be
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consulted for further information on aspects of the bill under
that Committee's jurisdiction.
Sufficient time to develop regulations . The author agreed in
the Senate Environmental Quality Committee to extend the
deadline for regulatory development by one year to 2016
(Amendment 2). This will allow time for DOGGR to grapple with
its existing budget and personnel issues as well as revamp the
existing UIC Class II program.
Paying for this opportunity . The author has committed to a
provision that would require industry funding for the full cost
to the regulatory agencies of this bill's proposed program.
The California Air Resources Board's role . The board is the
lead agency in the implementation of the California Global
Warming Solutions Act of 2006. As such it has played a vital
role in the development of regulations seeking to meet the
requirements of AB 32 and has acknowledged technical expertise
in the development of GHG quantification methodologies and
emissions monitoring of carbon dioxide and other pollutants.
Specific requirements and considerations for the development of
a quantification methodology to demonstrate simultaneous
sequestration during enhanced oil recovery operations and
address concerns about offsets are provided (Amendment 3).
These include, for example, assessing the potential for leakage,
minimizing fugitive emissions and assessing the long-term
post-closure emissions monitoring needs of Class VI wells. A
close collaboration between the board and DOGGR is essential as
expertise in geology and oil and gas well drilling, production
and operation is needed in the development of the quantification
methodology (see Amendment 1). Additionally, the development of
a project to demonstrate long-term geologic sequestration should
not otherwise degrade air quality (Amendment 3), particularly as
much of California, including the San Joaquin Valley,
experiences some of the worst air quality in the United States.
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
- such as how to transition from a Class II to a Class VI well -
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. Therefore, advance planning by the well
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owner or operator may be necessary to ensure that a Class II
well with a potential future as a Class VI well is engineered
for more rigorous service in an appropriate location from the
outset. It is anticipated that a Class II well will need to
shift to a Class VI designation when the purpose of CO2
injection changes from enhanced oil recovery to sequestration.
Some CO2 used in enhanced oil recovery operations stays in the
formation. That amount, however, under current regulations, is
not tracked (see Amendments 1 and 3). According to DOGGR,
approximately 50 - 80% of the injected CO2 is recovered,
recycled and reused.
Currently, DOGGR has UIC Class II primacy under Section 1425
which requires states to demonstrate that their program is an
effective program to prevent underground injection that
endangers underground sources of drinking water. Section 1422
of the SDWA is required for a state to obtain primacy from the
US EPA for Class VI wells. This requires, among other factors,
that states adopt UIC regulations that are at least as stringent
as federal requirements.
The HECA plant
The Hydrogen Energy California plant, near the Elk Hills field,
is a 400 MW power plant utilizing a gasification unit and carbon
capture facility that transforms a blend of California-produced
petroleum coke and western coals into hydrogen and CO2. The
carbon capture process is designed to divert approximately 90%
of the CO2 from the fuel and transport it by pipeline for
enhanced oil recovery in local oil fields while simultaneously
starting the ultimate goal of permanent and secure storage in
deep geological formations. The CO2 will be injected into a
sandstone rock layer that is capped by a dome of impervious
shale rock. The field is extensively mapped and studied, and
the Class VI process requires that any existing wells within the
"area of review" be identified and any deficiencies addressed
that may hinder long-term geologic storage. There are no CO2
pipelines yet in California and this project would construct one
to transport CO2 from the plant to the injection well.
This bill is a work in progress . There are several minor
clarifying changes and corrections to the bill. These include,
for example, revising references to DOGGR to conform to its
definition in the Public Resources Code and replacing references
to regulation with references to statute (Amendment 4).
Related legislation.
SB 711 (Rubio) would make changes in the regulation of UIC
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wells. Currently in Assembly Natural Resources Committee
SUGGESTED AMENDMENTS
AMENDMENT 1
Page 11, between lines 36 and 37: insert:
"(b) Pursuant to subdivision (a), the Division and the
California Air Resources Board shall execute an agreement
on a coordinated and comprehensive regulatory approach,
including oversight and short-term and long-term monitoring
requirements and verification, for geologic sequestration
of greenhouse gases during and following enhanced oil
recovery operations.
(c) The Division in developing the regulations pursuant to
subdivision (a) shall consider, but is not limited to, the
following:
(1) long-term successful geologic sequestration may require
adherence to standards and methods exceeding existing
enhanced oil recovery and underground injection control
practices and regulations.
(2) all hydrocarbon reservoirs, given the diversity of
California's geology, well treatment and production
practices may not be suitable for long-term successful
geologic sequestration."
Page 11, line 37: delete "(b)" and replace with "(d)"
AMENDMENT 2
Page 9, line 14: delete "2015" and replace with "2016"
AMENDMENT 3
Page 10, line 26: following "transportation." add "The
methodology shall include provisions to:"
Page 10, between lines 26 and 27: insert:
"(1) Demonstrate that sites are capable of long-term
containment of carbon dioxide.
(2) Identify and characterize potential natural and
man-made leakage pathways, and provide implementation of
appropriate risk management and corrective actions.
(3) Provide design, construction and operation parameters
to prevent, mitigate and remediate the creation or
activation of leakage pathways, and the migration of carbon
dioxide or fluids into any zone in a manner not authorized
by the methodology.
(4) Minimize fugitive carbon dioxide emissions from carbon
dioxide enhanced oil recovery projects seeking to
demonstrate simultaneous sequestration of injected carbon
dioxide.
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(5) Provide for post-injection closure and the long-term
liability for carbon dioxide injected during operation,
transition to Class VI wells and post-closure.
(6) Verify, monitor, account, and report carbon dioxide
quantities sequestered, injected, recycled, leaked, vented,
and any other categories as deemed appropriate by the
board.
(f) The board shall not quantify any carbon dioxide from an
enhanced oil recovery projects seeking to demonstrate
simultaneous sequestration of injected carbon dioxide that
is incapable of transitioning to a Class VI well pursuant
to the federal Safe Drinking Water Act."
Page 10, line 27: delete "(f)" and replace with "(g)"
Page 10, line 34: delete "(g)" and replace with "(h)"
Page 11, line 1: delete "(h)" and replace with "(i)"
Page 11, between lines 7 and 8: insert:
"(j) In adopting the methodology, the state board shall
consider the potential for direct, indirect, and cumulative
emission impacts that may result from carbon capture and
storage projects seeking to demonstrate geologic
sequestration and ensure that emissions of criteria
pollutants are not higher than would occur in the absence
of the carbon capture and storage project."
AMENDMENT 4
Page 2, line 17: delete "scope" and replace with "scoping"
Page 2, line 18: delete "the critical role"
Page 3, line 1: insert "long-term" following "meet its"
Page 3, line 5: delete "key"
Page 3, line 18: delete "approximately" and replace with
"appropriately"
Page 5, line 30: delete "to CO2-EOR operations"
Page 6, lines 21 - 22: delete "create greenhouse gas
emission compliance instrument or" and replace with "reduce
a compliance obligation"
Page 6, lines 28-29: delete "create greenhouse gas or
offset credits that may be adopted" and replace with
"reduce a compliance obligation"
Page 9, delete lines 26 - 29, inclusive, and replace with
"(1) The mandatory reporting requirements adopted pursuant
to Section 38530."
Page 9, delete lines 1 - 3, inclusive
Page 11, line 7: insert "and its boards, offices and
departments" following "Protection Agency"
Page 11, line 10: delete "of Oil, Gas, and Geothermal
Resources"
Page 12, line 1: delete "division" and replace with
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"Division"
Page 12, line 2: following "Protection Agency" insert "and
its boards, offices and departments"
SUPPORT
California CCS Coalition (sponsor)
Natural Resources Defense Council (support, if amended)
Environmental Defense Fund (support in concept)
California State Pipe Trades Council
California Chamber of Commerce
Western States Petroleum Association
California Manufacturers & Technology Association
San Diego Gas & Electric Company
Southern California Gas Company
Southwest California Legislative Council
American Council of Engineering Companies
OPPOSITION
Sierra Club California
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