California Legislature Passes Bills to Create Regulatory Framework for Carbon Capture Projects

Alerts / September 7, 2022

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.


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.

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