California’s New Carbon Capture and Storage Laws

California Governor Gavin Newsom recently signed three bills addressing carbon capture, utilization and storage (“CCUS”) and carbon dioxide removal (“CDR”). Collectively, these bills create a pathway for new regulation of CCUS and CDR projects, enabling them to become part of a solution for the State to meet aggressive carbon reduction / neutrality goals in 2030, 2038 and 2045. Below is a summary of each bill.

Bill 905

Among other things, SB 905 requires the California Air Resources Board (“CARB”) to establish a “Carbon Capture, Removal, Utilization and Storage Program to evaluate the efficacy, safety, and viability of CCUS.” CARB will also be required to enhance monitoring procedures for leakage.

By January 1, 2025, regulations for a unified permit application, for the construction and operation of CCUS projects (including an expedited review process), must be adopted. All CCUS projects within California will be required to use this application process and CARB will develop a centralized public database to track all in-state projects.

In addition to permitting procedures, CARB must publish a framework for governing agreements regarding two or more tracts of land overlying the same geologic storage reservoir or reservoirs. The agreements will set out to manage, develop, and operate CCUS or CDR projects. SB 905 ensures that title to any geologic storage reservoir for CO2 is vested in the owner of the overlying surface estate (unless it has been severed and separately conveyed).

CCUS project operators must provide at least a 60 day written notice to each surface or subsurface owner adjacent to a geologic storage complex or reservoir before commencing development. Project operators must also prove and maintain financial responsibility for the project. Agreements between operators and relevant parties, that any drilling or extraction be prohibited in the geologic storage reservoir for at least 100 years after the CO2 is injected, must be made for every project. All project operators also need to create an air monitoring and mitigation plan that is submitted to CARB.

Senate Bill 1314

Critics of CCUS projects utilizing underground sequestration are concerned that such injections can increase pressures in storage locations proximate to oil and gas reserves, (in)directly enhancing further recovery of carbon-based fuels. SB 1314 “plugs this hole” in part by prohibiting a CCUS project operator from injecting a concentrated CO2 fluid produced by a CO2 capture project or a CO2 capture and sequestration project into a Class II injection well for purposes of enhanced oil recovery, including the facilitation of enhanced oil recovery from another well.

Assembly Bill 1757

While some readers may associate CCUS with controlling industrial sources, the State has also shown a growing interest in utilizing forests and other underutilized lands as “carbon sinks” to absorb and permanently store CO2 already in the atmosphere. AB 1757 requires the California Natural Resources Agency (“NRA”) to set an ambitious range of targets for natural carbon sequestration. Targets will be designed to be achieved by 2030, 2038 and 2045 and will be integrated into the State’s Climate Change Scoping Plan. The NRA must update the techniques for natural carbon capture to include: planting trees and shrubs, using compost and cover crops on farmland, creating green spaces in urban areas and restoring wetlands. By January 1, 2025, the NRA must also develop methods to consistently track greenhouse gas emissions and reductions, carbon sequestration, and, additional benefits from natural and working lands over time. While tracking emissions, the NRA must take into account, where feasible, the potential impacts of climate change on the ability to reduce greenhouse gas emissions and sequester carbon from natural and working lands.

The value of this bill may depend in part on whether CARB expands its palette of approved “compliance offset protocols.” At present, CARB has approved three potentially relevant protocols: (a) rice cultivation projects; (b) urban forest projects; and (c) U.S. Forest projects. The scope of potential projects envisioned under AB 1757 could warrant CARB approving additional protocols. Historically, that has been a controversial process in terms of varying views as to what type of project warrants a state-approved protocol, which ultimately could allow an industrial source to emit additional CO2 because it has generated or purchased offsets under a protocol.

On balance, the above bills create regulatory controls but also predictability for CCUS project developers and entities interested in offtake agreements relating to such projects. Bills enacted on or before October 2 will generally take effect January 1, 2023 unless otherwise specified.