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California Legislature Passes Bills To Create Regulatory Framework For Carbon Capture Projects – Oil, Gas & Electricity



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After significant lobbying by California Governor Gavin Newsom,
the California Legislature passed a flurry of climate bills last
week and approved nearly $54 billion in climate spending. Included
in the suite of bills sent to Newsom’s desk was significant
legislation pertaining to carbon capture, including S.B. 905, S.B.
1314 and A.B. 1757

S.B. 905: Creation of a Carbon Capture Regulatory
Framework

S.B. 905 requires the California Air Resources Board (state
board) to establish a Carbon Capture, Removal, Utilization, and
Storage Program “to evaluate the efficacy, safety, and
viability of carbon capture, utilization, or storage (CCUS)
technologies and carbon dioxide removal (CDR) technologies and
facilitate the capture and sequestration of carbon dioxide from
those technologies, where appropriate.” More specifically, the
bill requires the state board to:

  • Adopt regulations for a unified permit application for the
    construction of CCUS projects throughout the state to expedite the
    permitting process. Relevant state agencies would be required to
    use the unified permit application for all permits and
    authorizations.

  • Develop a centralized database to track the deployment of CCUS
    and CDR technologies and the development of CCUS projects
    throughout the state.

  • Adopt protocols to support additional and new methods of
    utilization or storage of carbon dioxide.

  • Adopt financial responsibility regulations applicable to CCUS
    projects.

The California Legislature included in the bill several
provisions relating directly to property rights around CCUS
projects. For example, S.B. 905 requires the secretary of the
Natural Resources Agency, in consultation with the state board, to
publish a framework for governing agreements regarding two or more
tracts of land overlying the same geologic storage reservoir
utilized in a CCUS project. The framework must include recommended
requirements for submission of such agreements to authorized state
agencies as well as standards for fair and reasonable compensation
to property owners, site access, allocation of liability,
allocation of royalty payments associated with leasing of the
geologic reservoir, and financial responsibility of operators.

Additionally, the bill provides that title to any geologic
storage reservoir is vested in the owner of the overlying surface
estate, unless it has been severed and separately conveyed, and
establishes specific requirements for conveyance of ownership
interest in geologic storage reservoirs. The bill further provides
that CCUS project operators must give owners of a surface,
subsurface, or storage reservoir estate adjacent to a CCUS
project’s geologic storage reservoir/complex 60 days’
notice before the CCUS project commences.

S.B. 905 also contains numerous provisions relating to
protection of the public and environmental health and safety. Those
provisions:

  • Authorize the state board to require changes in operations of a
    CCUS project where monitoring and reporting indicate increased
    seismic activity or carbon dioxide leakage outside the geologic
    storage reservoir.

  • Require the California Geologic Survey to establish a working
    group, the Geologic Carbon Sequestration Group, to provide
    expertise on regulatory guidance to the state board and advise on
    suitable locations for injection wells.

  • Require the state geologist to report to the state board
    seismic activity or leakage of carbon from a CCUS project.

Similar to many state mining laws, S.B. 905 includes financial
responsibility provisions that impose certain obligations on a CCUS
project operator. More specifically, the bill requires operators to
maintain financial responsibility for a period of time sufficiently
long to demonstrate that the risk of carbon dioxide leakage poses
no threat to public health, safety, and the environment, but not
less than 100 years after the last date of injection of carbon
dioxide into the geologic storage reservoir.

The operator is further required to:

  • Submit a plan to the state board to cover short- and long-term
    costs associated with corrective action, plugging and abandonment,
    monitoring, site care and closure, emergency and remedial response,
    liability associated with resultant seismic activity, loss of
    carbon dioxide containment, and protection of drinking water
    quality.

  • Show proof to the state board that there is a binding agreement
    among relevant parties that drilling or extraction that may
    penetrate the geologic storage reservoir is prohibited for a period
    of time no less than 100 years.

  • Create an air monitoring and mitigation plan to track and
    minimize potential toxic air contaminants.

  • Take steps to avoid any impact on residents in nearby
    communities and generally comply with state health and safety
    regulations intended to protect the public from air, water, and
    soil pollution.

S.B. 1314: Enhanced Oil Recovery and CCUS

With the passage of S.B. 1314, the California Legislature
declared that the purpose of “carbon capture technologies, and
carbon capture and sequestration is to facilitate the transition to
a carbon-neutral society and not to facilitate continued dependence
upon fossil fuel production.” As such, the bill prohibits an
operator from injecting a concentrated carbon dioxide fluid
produced by a CCUS project into a Class II injection well for
enhanced oil recovery or facilitation of enhanced oil recovery from
another well.

A.B. 1757: Carbon Sequestration Targets

In A.B. 1757, the California Legislature charged the state’s
Natural Resources Agency, in collaboration with various other
entities, the state board, and an expert advisory committee, to
establish a range of targets for natural carbon sequestration for
2030, 2038, and 2045. The bill both recognizes the role of carbon
sequestration in the effort to reach a condition of carbon
neutrality and announces the state’s intention to support CCUS
efforts.

Summary

S.B. 905 provides the scaffolding upon which the state of
California intends to build a regulatory framework for carbon
capture projects in the years to come. There remains substantial
regulatory uncertainty for potential stakeholders in CCUS projects
within the state of California, but S.B. 905 is both a first step
toward addressing that uncertainty and a declaration of the
state’s intent to play a role in the rapidly developing CCUS
economy. This declaration is further documented by A.B. 1757, which
charges state agencies with establishing carbon sequestration
targets for the next several decades. However, consistent with the
state’s previous efforts to facilitate a move away from
reliance on fossil fuels, S.B. 1314 will preclude the use of carbon
capture technologies for purposes of enhanced oil recovery. With
the passage of various climate bills last week, California has
begun the process of establishing a regulatory pipeline for desired
CCUS projects. However, there remains much work to be done.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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