California’s Battle Over Oil

Abstract 

California Senate Bill 467 set out to gradually phase out oil and gas extraction processes that account for most of the state’s petroleum industry but failed to muster the five necessary votes needed to advance in the state legislature. Key points on the bill were to ban enhanced oil recovery techniques, add a 2,500-foot setback clause, and encourage CalGEM to utilize displaced oil and gas workers for the abandonment of old oil and gas sites. But, California Governor Gavin Newsom took matters into his own hands after the bill did not move to the legislature. He has since tasked state agencies to move away from fossil fuels and combat climate change by halting the issuance of hydraulic fracturing permits by 2024 and planning to phase out oil and gas extraction two decades later. 

Key Points

  • California Senate Bill 467 was created to gradually phase out oil and gas extraction processes for most of the state and create 2,500-foot setbacks for all oil drilling operations. It failed to receive the five votes needed to move it from the Senate Natural Resources and Water Committee to the state legislature.

  • Major components of the bill were to ban all new and renewed fracking permits in 2022 and all new permits for methods using enhanced oil recovery in California. It was amended to phase out all injection methods by 2035, which would affect 80-95% of oil production in the state.

  • The bill also tasked the regulatory agency, CalGEM, with identifying displaced oil industry employees affected by the legislation and provide them with an equitable transition away from the fossil fuel industry. This provision would provide training, health care, secured pensions, unionized green jobs, and transition workers to help with the abandonment of oil and gas wells.

  • One other state bill has also recently been focused on California’s oil and gas industry. It raises the required funds for the state to plug and abandon orphan wells to $100 million, even though it is estimated as much as $5 billion may be needed.

  • After SB 467 failed to reach the California legislature, Governor Newsom directed CalGem to halt the issuance of hydraulic fracturing permits by 2024 and evaluate how to phase out oil and gas extraction over the next two decades. Hydraulic fracturing only accounts for about 2% of oil production in the state, but phasing out all oil and gas would jeopardize jobs and potentially increase the state’s reliance on foreign oil.

Introduction 

Introduced on February 16, 2021, California Senate Bill 467 set out to gradually phase out oil and gas extraction processes that account for most of the state’s petroleum industry. It failed to muster the five votes needed to move it out of the Senate Natural Resources and Water Committee and advance in the state legislature. Senators Scott Wiener, Monique Limón, Ben Allen, and Assembly Members Jeff Stone and Ash Kalra created the bill in an effort to protect the public by updating the regulation pertaining to drilling, operation, maintenance, and abandonment of oil and gas wells in the state [1]. The bill had three distinct components. The first was a response to Governor Newsom’s call in an executive order last September for a ban on fracking in the state; the second mandates that all oil drilling operations be set back a minimum of 2,500 feet from homes, schools, and health care facilities; and the third component was an effort to address the employment consequences of a transition away from fossil fuel production. While the concepts reflected in SB 467 have been discussed in various forms and contexts over the years, their consolidation into an aggressively framed, no-holds-barred bill forced legislators to confront the impact of California’s oil industry on the communities within the state. Ultimately, it was determined that California’s oil industry was such a vital pillar of their economy and energy security that it failed to move forward. 

The Enhanced Oil Recovery Ban

SB 467 bans new and renewed fracking permits as of 2022, but goes beyond what Governor Gavin Newsom called for in 2021 by also banning other methods of enhanced oil recovery currently in use in California, including steam flooding, water flooding, and cyclic steaming. By expanding on the Governor’s mandate to ban fracking, Senators Wiener and  Limón are recognizing that fracking is not the biggest threat to California communities. The bill would have banned new permits for not only fracking but for any “enhanced oil recovery” methods. This includes the injection of water, steam, and additional substances into the ground to produce oil starting Jan. 1, 2022, and would have banned such extraction methods entirely by 2027 [1]. The bill was recently amended to delay the full phase-out of injection methods until 2035, but that wasn’t enough to get more lawmakers on board. 

Unlike Pennsylvania, North Dakota, Texas, and other oil-producing states, where the boom in oil and gas production over the last two decades was driven by fracking, the stimulation method is not particularly prevalent in California. Governor Newsom has stated that it represents less than 2% of overall oil production, but informal estimates indicate high- and low-pressure cyclic steaming accounts for roughly 21% of California’s oil production [2]. More importantly, the ban on all EOR techniques would have affected 80-95% of oil production in California, effectively shutting down most of the industry [2]. Although this bill was not voted into law, the California Geologic Energy Management Division (CalGEM) released updated guidelines on underground injection control regulations in early 2020 for increased oversight into many of the aforementioned EOR practices. Luckily for proponents of California’s booming oil and gas industry, an extensive ban on cost lowering techniques to extract necessary hydrocarbons from underground has been saved for another day. 

Setback Requirement

The drilling setback component of SB 467 was not originally included when it was first introduced. When Section 3203.5 was later added, it included a “health protection zone” within 2,500 feet of a sensitive receptor or residence which includes a private home, condominium, apartment, or living quarter [1]. The need for setbacks has been a subject of vigorous advocacy for years from communities and their allies who point out that most other oil and gas producing states have such setbacks in place, but California with its reputation for progressive regulation does not. Senator Wiener decried the lack of a statewide public health buffer as “a stain” on California’s vaunted global environmental reputation, noting that even oil-friendly Texas has one [4]. 

Last year, advocates expended extensive effort in support of AB 345, which would have required that CalGEM establish a setback, and in doing so consider whether 2,500 feet is the right distance. The idea was to provide bounds around CalGEM’s consideration of the need for setbacks in the context of its ongoing public health rulemaking, which was initiated in the same gubernatorial announcement of a moratorium on high-pressure cyclic steaming [2]. AB 345, sponsored by Assembly Member Muratsuchi, died in committee following heated diatribes about how CalGEM’s ongoing rulemaking efforts should be left untouched. SB 467 has now brought these debates back to life. Some California communities, along with most oil and gas producing states, have setbacks in place of several hundred feet, and some published literature points to the need for the 2,500-foot distance that would be mandated by SB 467. One notable California exception is Ventura County, which recently put in place a 2,500-foot setback. The California Council on Science and Technology’s (CCST) study of fracking health risks mandated by SB 4, California’s 2013 fracking law, found that “the most significant exposures to toxic air contaminants” occur within a half-mile of well operations, and recommended consideration of setbacks [4]. In addition, the PSE Healthy Energy study and other compilations of the health literature reference findings of health risk even for people living a mile or more away from drilling operations. The problem is, the studies cite risks associated with air pollution, yet the California Air Resources Board significantly expanded their air emissions reporting requirements in 2020 to keep air toxins under control [6]. While the state appears to be pushing for additional setback requirements, support for extreme setback measures was not enough to propel SB 467 through the state legislature. 

Displaced Worker Provisions

Finally, SB 467 tasks CalGEM with identifying oil industry workers who have lost their jobs, and provides incentives to companies involved in remediating abandoned oil and gas well sites to hire those workers. More specifically, California must provide fossil fuel workers, and the communities in which they live, with a just and equitable transition away from the fossil fuel industry. This includes, but is not limited to, training opportunities, health care coverage, secured pensions of affected workers, the creation of new, unionized, green jobs with family-sustaining wages, and investing in economic development and infrastructure in communities currently supported by fossil fuels [1]. This provision is a nod to widespread recognition that California’s decline in oil production is going to require a concerted effort to ensure a “just transition” for workers and communities into other economic sectors. Ingrid Brostrom, the Assistant Director of the Center on Race, Poverty & the Environment and sponsor of SB 467, noted “residents are tired of being asked to sacrifice their health to help maintain the profits of a dying industry. This bill protects health and creates pathways for fossil fuel workers who are being impacted by the state’s declining oil industry” [7]. This particular incentive is a move both proponents and opponents of the industry agree upon and has led to additional support in its efforts to pass since directing displaced workers to help address California’s looming half-billion-dollar abandoned well crisis is an excellent idea. 

Conclusion

While this aggressively framed, no-holds-barred bill was stopped shy of its goals, three other bills to tackle the state’s aging oil industry and its long-troubled top industry regulator all advanced. This included one by Senator Limon that would raise the required industry funds for plugging and abandoning tens of thousands of idle wells to $100 million, even though an expert study concluded last year that as much as $5 billion might be needed and Limon said they don’t want taxpayers stuck footing the bills [3]. The problem is, SB 467 would result in a near-complete shutdown of California’s oil and gas production industry, cost the state billions in lost revenue and legal liability, and lead to massive job losses. In addition, Rock Zierman, CEO of the California Independent Petroleum Association, put it perfectly when he said, “we will continue to oppose bills that only increase our reliance on foreign oil which drives up gas prices, contributes to pollution in our crowded ports, and is produced without California’s environmental protections or humanitarian values” [4]. He has a point because the state imports about 70% of its crude supply, oftentimes from places that produce it far less safely or conscientious to the environment, and opponents of the bill noted California already heavily regulates the oil and gas industry to make sure oil extraction is performed safely. Banning the practice would not reduce California’s dependence on oil, which is driven by the tens of millions of gas-powered cars and trucks on the state’s roads, and will ultimately still require it to import more oil from other places. “We’re still going to use it, but we’re going to use it from places that produce it less safely” Democratic Senator Susan Eggman said. She added she supports transitioning the state away from oil and gas but cautioned: “I don’t think we’re quite there yet, and this bill assumes that we are” [5]. Historically, blanket bans are rarely good public policy. There are better ways to balance the environment, energy, equity, and the economy, and it starts with the people whose ideas and experience are critical to developing those solutions. 

Even though SB 467 was stopped shy of reaching California Governor Gavin Newsom’s desk to begin the process of becoming law, Newsom directed CalGEM to initiate a process that will halt the issuance of hydraulic fracturing permits by 2024 and to analyze how to phase out oil and gas extraction two decades later [8]. The April 23rd move comes at the heels of a failed SB 467 and after Newsom has come under pressure from environmental activists and progressive politicians who say the state’s permitting of new drilling is at odds with his goals to move away from fossil fuels and combat climate change. According to Newsom, “I’ve made it clear I don’t see a role for fracking in that future and, similarly, believe that California needs to move beyond oil” [8]. As noted, since hydraulic fracturing only accounts for approximately 2% of overall oil production in the Golden State, the true concern lies in Newsom’s ambitious moves to phase out oil and gas extraction before mid-century. This proposal in addition to SB 467 would fundamentally shift energy policy in California, which produced 144 million barrels of oil last year, the seventh highest in the United States [3]. It is simply unrealistic to think California could essentially shut down production in a few years without significant impacts to the communities that rely on the oil and gas industry for tax revenue and good-paying union jobs. While reform is likely still in the state’s future, the current path does not appear to provide the best benefit for those living in California. 

References 

[1] https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB467 

[2] https://www.nrdc.org/experts/ann-alexander/taking-gloves-california-battle-over-oil 

[3] https://www.latimes.com/opinion/story/2021-04-15/newsom-fracking-bill

[4] https://www.desertsun.com/story/news/environment/2021/04/13/california-bill-ban-fracking-dies-senate-committee-buffer-zones/7212190002/

[5] https://ktla.com/news/california/bill-to-ban-fracking-in-california-fails-to-advance-in-state-legislature/ 

[6] https://ww2.arb.ca.gov/resources/documents/laws-and-regulations 

[7] https://www.dailykos.com/stories/2021/2/17/2016654/-Senators-Wiener-and-Limon-Introduce-bill-SB-467-to-ban-fracking-and-require-2500-foot-setbacks 

[8] https://www.hartenergy.com/exclusives/california-governor-seeks-end-oil-drilling-state-2045-193738?mkt_tok=NDMzLU9ESy04ODkAAAF8rJq3Gu6GqzpvewpqKtfu_7ViYysRNDgAUcEXoYlhFldOW-IWCxbPH6bTa623oszvdWaoKBQEgnSvSdbpqRs0-39cgwyn77QefJYOLga5SYMT 

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