The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases. The act requires all state agencies to consider and implement strategies to reduce their greenhouse gas emissions.

This bill would additionally require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective. The bill would require the state board, no later than December 31, 2024, to establish a certification standard for natural gas producing low methane emissions. The bill would require the state board to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. The bill would also require the state board, the Public Utilities Commission, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.

Existing law requires the state board to inventory sources of air pollution within the air basins of the state and determine the kinds and quantity of air pollutants. Existing law requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants for each facility that reports to the state board and air pollution control and air quality management districts as well as the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants throughout the state broken down to a local and subcounty level for stationary sources and to at least a county level for mobile sources, as specified. Existing law also requires the state board to quantify and publish annually the amount of greenhouse gas emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state from out-of-state sources.

This bill would require the state board to annually request and incorporate, as part of this quantification for annual publication, information from utilities and other large gas users regarding any contract for and use of natural gas certified to have a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and greenhouse gases from natural gas supplying California. The bill would also require the state board to quantify and publish annually, commencing January 1, 2025, an estimate of potential greenhouse gas emissions reductions associated with the use of natural gas certified to have a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices applied to natural gas supplies to California.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases. The act requires all state agencies to consider and implement strategies to reduce their greenhouse gas emissions.

This bill would additionally require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective. The bill would require the state board, no later than December 31, 2024, to establish a certification standard for natural gas producing low methane emissions. The bill would require the state board to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. The bill would also require the state board, the Public Utilities Commission, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.

Existing law requires the state board to inventory sources of air pollution within the air basins of the state and determine the kinds and quantity of air pollutants. Existing law requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants for each facility that reports to the state board and air pollution control and air quality management districts as well as the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants throughout the state broken down to a local and subcounty level for stationary sources and to at least a county level for mobile sources, as specified. Existing law also requires the state board to quantify and publish annually the amount of greenhouse gas emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state from out-of-state sources.

This bill would require the state board to annually request and incorporate, as part of this quantification for annual publication, information from utilities and other large gas users regarding any contract for and use of natural gas certified to have at least 80% lower methane emissions than average a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and greenhouse gases from natural gas supplying California. The bill would also require the state board to quantify and publish annually, commencing January 1, 2025, an estimate of potential greenhouse gas emissions reductions associated with the use of natural gas certified to have at least 80% lower methane emissions than average a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices applied to natural gas supplies to California.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases. The act requires all state agencies to consider and implement strategies to reduce their greenhouse gas emissions.

This bill would additionally require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective. The bill would require the state board, no later than December 31, 2024, to establish a certification standard for natural gas producing low-methane low methane emissions. The bill would require, no later than December 31, 2025, that natural gas procured require the state board to encourage natural gas procurement on behalf of the state agencies be to shift to certified as producing low-methane emissions. natural gas producing low methane emissions. The bill would also require the state board, the Public Utilities Commission, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.

Existing law requires the state board to inventory sources of air pollution within the air basins of the state and determine the kinds and quantity of air pollutants. Existing law requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants for each facility that reports to the state board and air pollution control and air quality management districts as well as the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants throughout the state broken down to a local and subcounty level for stationary sources and to at least a county level for mobile sources, as specified. Existing law also requires the state board to quantify and publish annually the amount of greenhouse gas emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state from out-of-state sources.

This bill would require the state board to annually request and incorporate, into the latter report described above, as part of this quantification for annual publication, information from utilities and other large gas users regarding their procurement any contract for and use of natural gas certified to have at least 80% lower methane emissions than average across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and greenhouse gases from natural gas supplying California. The bill would also require the state board to quantify and publish annually, commencing January 1, 2025, an estimate of potential greenhouse gas emissions reductions associated with the use of natural gas certified to have at least 80% lower methane emissions than average across the natural gas supply chain, as data are available, or the use of other best practices applied to natural gas supplies to California.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases. The act requires all state agencies to consider and implement strategies to reduce their greenhouse gas emissions.

This bill would additionally require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective. The bill would require the state board, no later than December 31, 2024, to establish a certification standard for natural gas producing low-methane emissions. The bill would require, no later than December 31, 2025, that natural gas procured on behalf of state agencies be certified as producing low-methane emissions. The bill would also require the state board, the Public Utilities Commission, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.

Existing law requires the state board to inventory sources of air pollution within the air basins of the state and determine the kinds and quantity of air pollutants. Existing law requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants for each facility that reports to the state board and air pollution control and air quality management districts as well as the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants throughout the state broken down to a local and subcounty level for stationary sources and to at least a county level for mobile sources, as specified. Existing law also requires the state board to quantify and publish annually the amount of greenhouse gas emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state from out-of-state sources.

This bill would require the state board to annually request and incorporate, into the latter report described above, information from utilities and other large gas users regarding their procurement and use of natural gas certified to have at least 80% lower methane emissions than average at the point of production across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and greenhouse gases from natural gas supplying California. The bill would also require the state board to quantify and publish annually, commencing January 1, 2025, an estimate of potential greenhouse gas emissions reductions associated with the use of natural gas certified to have at least 80% lower methane emissions than average at the point of production across the natural gas supply chain, as data are available, or the use of other best practices applied to natural gas supplies to California.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases. The act requires all state agencies to consider and implement strategies to reduce their greenhouse gas emissions.

This bill would additionally require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective. The bill would require, no later than December 31, 2025, that natural gas procured on behalf of state agencies be certified as producing low-methane emissions. The bill would also require the state board, the Public Utilities Commission, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.

Existing law requires the state board to inventory sources of air pollution within the air basins of the state and determine the kinds and quantity of air pollutants. Existing law requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants for each facility that reports to the state board and air pollution control and air quality management districts as well as the emissions of greenhouse gases, criteria air pollutants, and toxic air contaminants throughout the state broken down to a local and subcounty level for stationary sources and to at least a county level for mobile sources, as specified. Existing law also requires the state board to quantify and publish annually the amount of greenhouse gas emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state from out-of-state sources.

This bill would require the state board to annually request and incorporate, into the latter report described above, information from utilities and other large gas users regarding their procurement and use of natural gas certified to have at least 80% lower methane emissions than average at the point of production or the use of other best practices to minimize emissions of methane and greenhouse gases from natural gas supplying California. The bill would also require the state board to quantify and publish annually, commencing January 1, 2025, an estimate of potential greenhouse gas emissions reductions associated with the use of natural gas certified to have at least 80% lower methane emissions than average at the point of production or the use of other best practices applied to natural gas supplies to California.

Date of Hearing: August 16, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

SBPCA Bill Id:SB 781

Author:(Stern) – As Amended Ver:June 28, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill, among other things, requires the Air Resources Board (ARB) to establish a certification for natural gas producing low methane emissions.

Specifically, this bill, among other things:

1. Requires ARB, no later than December 31, 2024, to establish a certification standard for natural gas producing low methane emissions.
2. Requires state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
3. Requires ARB, the California Public Utilities Commission (CPUC), and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.
4. Requires ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, where feasible, cost effective, and in the best interests of ratepayers as determined by CPUC.
5. Specifies that the requirements above shall not be construed to require new or additional natural gas utility procurement or to promote the expanded use of natural gas from fossil resources and is not intended to interfere with state efforts to reduce the use of natural gas or increase the production and use of renewable gas.
6. Requires ARB, as part of its annual greenhouse gas (GHG) inventory, to annually request and incorporate information from utilities and other large gas users regarding any contracts for and use of natural gas certified to have a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.
7. Requires ARB, commencing January 1, 2025, to quantify and annually publish an estimate of potential GHG emissions reductions associated with the use of natural gas certified to have a methane emissions intensity of less than 0.2% across the natural gas supply chain, as data are available, or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.

FISCAL EFFECT:

1. ARB estimates costs of approximately $9.8 million in fiscal year 2023-24 and $7.7 million annually thereafter (Cost of Implementation Account) for 34 positions as well as contracting and travel costs, to develop the low methane emissions certification program, track methane emissions, and develop a verification program, among other things.
2. CPUC estimates ongoing costs of $657,000 annually (Public Utilities Commission Utilities Reimbursement Account) for three new positions to coordinate with ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, as specified in the bill.

COMMENTS:

1) Purpose. According to the author:

Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and it’s time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.

2) Background.

Methane and Natural Gas. Methane is termed a short-lived climate pollutant (SLCP) because it has a much shorter lifetime in the atmosphere than carbon dioxide. Though short-lived in the atmosphere, methane has a much higher global warming potential than does carbon dioxide. According to the United Nations Environment Programme, methane is more than 80 times more effective than carbon dioxide in trapping heat in the atmosphere over a 20-year period. SLCPs, including methane, are responsible for 30% to 40% of global warming to date. Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing.

Methane is the principal component of natural gas. As a result, methane is emitted into the atmosphere at various points along the natural gas supply chain, which relies on extensive processing and transportation to make natural gas ready for use. California continues to depend on out-of-state imports for nearly 90% of its natural gas, underscoring the importance of monitoring and evaluating ongoing market trends and outlook.

Fugitive Emissions. The term “fugitive emissions” refers to unintended emissions at any step in the natural gas supply chain. Identifying and addressing points of methane leakage along the natural gas supply chain is a pressing, albeit technologically challenging, issue. On April 23, 2021, Governor Newsom directed ARB to evaluate the phase-out of oil and gas extraction in the state no later than 2045, as part of the Scoping Plan – ARB’s regularly updated roadmap to reduce the state’s GHG emissions. In the 2022 Scoping Plan Update, ARB proposed meeting increased demand for electricity without any new natural gas-fired resources. Within the state, ARB intends for oil and gas fugitive methane emissions to be reduced by 50% by 2030 and further reductions as infrastructure components retire in line with reduced fossil gas demand.

Certified Gas. With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product, known as “certified gas”. While a universally accepted definition has yet to emerge, this term broadly refers to gas produced consistent with certain environmental, social, and governance standards, as verified by a third party. Methane emissions are a key performance metric for certified gas, with an emphasis on monitoring and measurement.

Today, only about 14% of natural gas in the United States is certified natural gas. The author intends this bill to reduce leakage of methane from natural gas production. The thinking is that ARB certification standards for low-emission natural gas, which this bill requires, will encourage production of natural gas, such as certified gas, that meets the state’s standards.

To certify natural gas, ARB will likely need to conduct a life cycle analysis, and since ARB is required to annually report on this certification, it will need to verify that the certification is valid. While the bill requires ARB, in developing the certification standard, to consider existing, analogous third-party certification standards, ARB could not simply borrow a standard from a private company or from another state, given the need to comply with various state requirements, such as the California Environmental Quality Act and the Administrative Procedure Act. Therefore, ARB will likely need to promulgate regulations.

Tradeoffs. In weighing the costs and benefits of this policy approach, including possible impacts on customer bills, the Assembly Utilities and Energy Committee analysis of this bill notes:

This bill takes a cautious approach and does not mandate the procurement of certified natural gas, and even explicitly requires any encouragement from CARB to shift natural gas usage to certified natural gas must be feasible, cost effective, and in the best interest of ratepayers as determined by the CPUC. This seems appropriate given the various changes occurring simultaneously to decarbonize the natural gas sector: biomethane procurement, the CPUC’s gas leak abatement proceeding, customer reduction in natural gas usage through conservation measures, and increasing electrification in the building and industrial sectors. In this way CARB and the CPUC can consider whether the low-methane natural gas certification required under this bill can help achieve meaningful methane reductions from the natural gas sector beyond those achieved through these existing initiatives.

Analysis Prepared by: Nikita Koraddi / APPR. / (916) 319-2081

Date of Hearing: July 12, 2023

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Eduardo Garcia, Chair

SBPCA Bill Id:SB 781

Author:(Stern) – As Amended Ver:June 28, 2023

SENATE VOTE: 29-5

SUBJECT: Methane emissions: natural gas producing low methane emissions

SUMMARY: Requires the California Air Resources Board (CARB) to establish a certification for low-methane emissions and to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. Requires CARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas (GHG) emissions from the natural gas supply system. Specifically, this bill:

1. Requires state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
2. Requires CARB, the California Public Utilities Commission (CPUC), and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.
3. Requires CARB, no later than December 31, 2024, to establish a certification standard for natural gas producing low methane emissions. In developing the certification standard, requires CARB to consider existing third-party natural gas certification standards that may be considered as natural gas with low methane.
4. Requires CARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, where feasible, cost effective, and in the best interests of ratepayers as determined by CPUC, as specified. Specifies that the procurement encouragement shall not be construed to require new or additional natural gas utility procurement or to promote the expanded use of natural gas from fossil resources and is not intended to interfere with state efforts to reduce the use of natural gas or increase the production and use of renewable gas.
5. Requires CARB, as part of their annual GHG inventory, to request and incorporate information from utilities and other large gas users regarding their procurement and use of natural gas certified to have a methane emissions intensity of less than 0.2% across the supply chain.
6. Requires CARB, commencing January 1, 2025, to annually quantify and publish an estimate of potential GHG emissions reductions associated with the use of natural gas certified to have to have a methane emissions intensity of less than 0.2% across the supply chain or the use of other best practices applied to natural gas supplies in California.
7. States legislative findings and declarations related to the role of methane as a short-lived climate pollutant (SLCP), methane in the context of the state’s climate goals, and the importance of reducing methane emissions from natural gas supplies.

EXISTING LAW:

1. Requires CARB, pursuant to California Global Warming Solutions Act of 2006 (Act) [AB 32 (Núñez, Chapter 488, Statutes of 2006)], to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. AB 32 authorizes CARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations once specified conditions are met. Requires CARB to approve a statewide GHG emissions limit equivalent to 85% below the 1990 level by 2045. (Health and Safety Code §§ 38500-38599.11)
2. Requires CARB to develop a comprehensive strategy to reduce the emissions of SLCPs to achieve a 40% reduction in methane emissions, 40% reduction in hydrofluorocarbon gases, and 50% reduction in anthropogenic black carbon below 2013 levels by 2030. (Health and Safety Code §§ 39730-39730.5)
3. Requires CARB to adopt regulations, known as the Mandatory Reporting Rule (MRR), that require the reporting and verification of statewide GHG emissions, as specified. (Health and Safety Code § 38530)
4. Requires CARB to use the best available science to quantify and annually report on its website the amount of GHG emissions resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources. (Health and Safety Code § 39607)
5. Requires CARB to, among other things, consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports. (Health and Safety Code § 39731)
6. Requires each gas corporation to develop a plan for the safe operation and management of its pipeline system. Existing law specifies components that must be included in this plan, including leak detection monitoring, reporting, and mitigation. Existing law requires gas corporations to submit these plans to the CPUC for review, approval, modification, or rejection, and implement an approved plan. (Public Utilities Code § 961)
7. Requires the CPUC to, in consultation with CARB, minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and to evaluate and track leaks geographically and over time. (Public Utilities Code §§ 975 et seq.)

FISCAL EFFECT: According to the Senate Committee on Appropriations, this bill will result in ongoing costs in the millions of dollars to CARB to develop the low-methane emissions certification program, and ongoing costs of approximately $624,000 to the CPUC to coordinate with CARB on natural gas procurement.

BACKGROUND:

Methane and Natural Gas –Methane is termed a SLCP because it has a much shorter lifetime in the atmosphere than carbon dioxide, but has a much higher global warming potential. According to the United Nations Environment Programme, methane is more than 80 times more effective than carbon dioxide in trapping heat in the atmosphere over a 20-year period. SLCPs, including methane, are responsible for 30-40% of global warming to date. Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing.

Methane is the principal component of natural gas. As a result, methane is emitted into the atmosphere at various points along the natural gas supply chain, which relies on extensive processing and transportation to make natural gas ready for use. The steps in this supply chain are categorized as either “upstream” (exploration and production), “midstream” (processing, compressing, and transporting the gas), or “downstream” (distribution to industrial, residential, or commercial customers). Nearly 90% of California’s natural gas usage is imported from out of state,^[1] underscoring the importance of monitoring and evaluating ongoing market trends but also raising the difficulty in quantifying or enforcing methane emission reductions in out-of-state infrastructure.

Slippery Molecules – The term “fugitive emissions” is used to refer to unintended emissions at any step in the natural gas supply chain. Notably, the majority of fugitive methane emissions from natural gas occur in the mid- and upstream processes. Identifying and addressing points of methane leakage along the natural gas supply chain is a pressing issue. However, identifying fugitive methane emissions is technologically challenging. California’s natural gas supply is transported over thousands of miles of pipelines, which vary in age and condition, and cross state and international borders. This infrastructure includes small leaks gradually emitting natural gas slowly over long periods of time. Quantifying these fugitive emissions has long posed challenging for creating a full inventory of California’s emissions from the power sector, which makes up about 45% of natural gas end use in the state.

In 2014, the Legislature passed SB 1371 (Leno, Chapter 525, Statutes of 2014), which required gas corporations to file reports on methane leaks from the natural gas pipeline system, and it required the CPUC to adopt rules and procedures to reduce methane emissions from the natural gas system. In response to SB 1371, the CPUC opened a proceeding^[2] to address gas leak abatement. As part of the first phase of this proceeding, the CPUC adopted a decision^[3] which established annual reporting requirements to track methane emissions from natural gas facilities, compliance plans, 26 mandatory best practices for leak prevention and mitigation, and created a cost recovery mechanism for implementing those best practices. Since the adoption of these best practices, the CPUC has conducted a second phase of rulemaking to limit cost-recovery for gas corporations that fail to reduce methane emissions 20% below their 2015 baseline level of emissions.

Given the value of supplying natural gas to end users, minimizing its release can actually benefit suppliers’ bottom line and much of the methane emission mitigation work can actually save producers money. The International Energy Agency (IEA) has stated that there is a huge opportunity to cut methane emissions from the energy sector. The IEA estimates that more than 70% of current emissions from oil and gas operations are already technically feasible to prevent, and around 45% could typically be avoided at no net cost because the value of the captured gas is higher than the cost of the abatement measure. However as noted above, the natural gas system contains many segments across many states, making quantification of emissions savings difficult.

Certified Gas – With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product, known as certified gas. While a universally accepted definition has yet to emerge, broadly this term refers to gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social, and governance standards. Methane emissions are a key performance metric for certified gas, with an emphasis on monitoring and measurement.

As of October 2022, only 14% of the United States’ natural gas supply was certified. Certification standards vary, but there are three major standards: Project Canary’s TrustWell certification, Equitable Origin’s EO100 standard, and the MiQ Standard. As an example of what certification standards include, the MiQ Standard grades methane intensity, technology deployment, and operational best practices. Methane intensity is the ratio of natural gas produced to excess methane emitted, though methane emissions are particularly difficult to measure.

COMMENTS:

1. Author’s Statement. According to the author, “Climate change is upon us, and it poses significant and immediate threats to all states, communities, resources and infrastructure. The best way to slow these impacts in the near-term is to reduce emissions of potent short-lived climate pollutants – “super pollutants” that are both powerful climate forcers and harmful air pollutants – including methane. Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and it’s time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.”
2. Costs and Benefits. This bill seeks to reduce the leakage of methane from natural gas production by requiring CARB to develop a certification standard for natural gas producing low methane emissions. In this, the bill seems to align with existing statewide climate goals, such as the recently adopted 2045 carbon neutrality goal from AB 1279 (Muratsuchi, Chapter 337, Statutes of 2022), as well as the pipeline leak abatement program at the CPUC mentioned above. Additionally, given the enormous market California represents (with over 90% imports of natural gas), setting standards for the gas that California buys could impact the type of gas available in the broader market. Even though only 14% of gas sold today is certified, that percentage could climb rapidly as producers try to provide gas that meets the state’s standards.

However, as is the case with many decarbonization initiatives, there may be real impacts to customer bills by adding new—and potentially more costly—requirements on the natural gas supply mix. As was felt acutely this past winter, fluctuations in the cost of natural gas prices can have severe consequences to customers’ bottom lines. In December 2022 prices at both Pacific Gas & Electric CityGate and SoCal CityGate exceeded or nearly exceeded $50 per million British thermal units (MMBtu).^[4] For context, the past few years have seen natural gas prices hovering between $5-$10/MMBtu at the SoCal CityGate hub. While these spikes in cost of fossil natural gas procurement are troubling, they foreshadow a growing trend of natural gas unaffordability, with natural gas rates—not just commodity prices—increasing. Moreover, recent efforts to decarbonize the natural gas system with biomethane procurement have the likely impact of further raising natural gas costs.

In February 2022, the CPUC adopted biomethane procurement targets for 2025 and 2030.^[5] The 2030 target reflected approximately 12% of the residential and small business natural gas usage in 2020. In the Decision, the CPUC reported that the average cost of biomethane was $17.70/MMBtu, far more costly than the average cost of fossil natural gas at $9.40/MMBtu.^[6] The Decision didn’t set a price cap on biomethane procurement, but did require the gas utilities to seek CPUC review if prices exceeded $26/MMBtu, what the CPUC determined as the “social cost” of methane.^[7] It is unclear to this committee how much more, if at all, certified natural gas may be compared to standard fossil natural gas, as some estimates have claimed only a 10¢ difference,^[8] but any additional requirement poses the risk of increasing volatility to the natural gas supply and the potential to greatly impact customer bills if that supply is ever limited.

This bill takes a cautious approach and does not mandate the procurement of certified natural gas, and even explicitly requires any encouragement from CARB to shift natural gas usage to certified natural gas must be feasible, cost effective, and in the best interest of ratepayers as determined by the CPUC. This seems appropriate given the various changes occurring simultaneously to decarbonize the natural gas sector: biomethane procurement, the CPUC’s gas leak abatement proceeding, customer reduction in natural gas usage through conservation measures, and increasing electrification in the building and industrial sectors. In this way CARB and the CPUC can consider whether the low-methane natural gas certification required under this bill can help achieve meaningful methane reductions from the natural gas sector beyond those achieved through these existing initiatives.

1. Prior Legislation.

AB 2195 (Chau) required CARB to quantify and annually publish the amount of GHG emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state. Status: Chapter 371, Statutes of 2018.

AB 1496 (Thurmond) required CARB to work with air districts to measure high-emission methane hot spots and consult with federal and state agencies and other appropriate stakeholders to develop a life-cycle analysis of GHG emissions from natural gas produced and imported into the state. Status: Chapter 604, Statutes of 2015.

SB 1371 (Leno) required gas corporations to file reports on methane leaks from the natural gas pipeline system and required the CPUC to adopt rules and procedures to reduce methane emissions from the natural gas system. Status: Chapter 525, Statutes of 2014.

1. Double Referral. This bill was heard in the Assembly Committee on Natural Resources on June 26, 2023, where it passed out on an 8-3-0 vote.

REGISTERED SUPPORT / OPPOSITION:

Support

350 Bay Area Action
350 Conejo
350 Humboldt
350 Sacramento
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Ban Sup (single Use Plastic)
Climate Action California
Elders Climate Action, Norcal and Socal Chapters
Indivisible South Bay LA
Planning and Conservation League
Project Canary
The Climate Center
Urban Ecology Project

Other

CalChamber

Opposition

None on file.

Analysis Prepared by: Laura Shybut / U. & E. / (916) 319-2083

1. CEC, “Supply and Demand of Natural Gas in California,” accessed on February 2, 2023; https://www.energy.ca.gov/data-reports/energy-almanac/californias-natural-gas-market/supply-and-demand-natural-gas-california ↑

2. R.15-01-008 ↑

3. D.17-06-015 ↑

4. Energy Information Administration’s Natural Gas Weekly, December 22, 2022. ↑

5. D. 22-02-025, Decision Implementing Senate Bill 1440 Biomethane Procurement Program, R. 13-02-008, February 24, 2022; https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M454/K335/454335009.PDF ↑

6. Average natural gas price in California in 2021; U.S. Energy Information Administration, “California Natural Gas Industrial Price”, https://www.eia.gov/dnav/ng/hist/n3035ca3A.htm ↑

7. Order # 13, pg. 59, D. 22-02-025, Ibid. ↑

8. Mora Fernandez Jurado, “Certified gas: What? Why? How? Who? How Much?;” Darcy Partners; https://darcypartners.com/research/certified-gas-what-why-how-who-how-much ↑

Date of Hearing: June 26, 2023

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Luz Rivas, Chair

SBPCA Bill Id:SB 781

Author:(Stern) – As Amended Ver:June 19, 2023

SENATE VOTE: 29-5

SUBJECT: Methane emissions: natural gas producing low methane emissions

SUMMARY: Requires the Air Resources Board (ARB) to establish a certification for low-methane emissions and encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. Requires ARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas (GHG) emissions from the natural gas supply system.

EXISTING LAW:

1. Requires the Air Resources Board (ARB), pursuant to California Global Warming Solutions Act of 2006 (Act) [AB 32 (Núñez), Chapter 488, Statutes of 2006], to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. AB 32 authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations once specified conditions are met. Requires ARB to approve a statewide GHG emissions limit equivalent to 85% below the 1990 level by 2045. (Health and Safety Code (HSC) 38500-38599.11)
2. Requires ARB to develop a comprehensive strategy to reduce the emissions of short-lived climate pollutants (SLCPs) to achieve a 40% reduction in methane emissions, 40% reduction in hydrofluorocarbon gases, and 50% reduction in anthropogenic black carbon below 2013 levels by 2030. (HSC 39730-39730.5)
3. Requires ARB to adopt regulations, known as the Mandatory Reporting Rule (MRR), that require the reporting and verification of statewide GHG emissions, as specified. (HSC 38530)
4. Requires ARB to use the best available science to quantify and annually report on its website the amount of GHG emissions resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources. (HSC 39607)
5. Requires ARB to, among other things, consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports. (HSC 39731)
6. Requires the California Public Utilities Commission (CPUC) to, in consultation with ARB, minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and to evaluate and track leaks geographically and over time. (Public Utilities Code 975 et seq.)

THIS BILL:

1. Requires state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
2. Requires ARB, CPUC, and other relevant agencies to timely consider programs, or changes to existing programs, to reduce methane emissions, including emissions from imported natural gas procured by utilities and other large gas users.
3. Requires ARB, no later than December 31, 2024, to establish a certification standard for natural gas producing low methane emissions. In developing the certification standard, requires ARB to consider existing third-party natural gas certification standards that may be considered as natural gas with low methane.
4. Requires ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, where feasible, cost effective, and in the best interests of ratepayers as determined by CPUC, as specified.
5. Specifies that the requirements above shall not be construed to require new or additional natural gas utility procurement or to promote the expanded use of natural gas from fossil resources and is not intended to interfere with state efforts to reduce the use of natural gas or increase the production and use of renewable gas.
6. Revises the provision that specifies that nothing in the Act relieves any person, entity, or public agency of compliance with other applicable federal, state, or local laws or regulations, including state air and water quality requirements, and other requirements for protecting public health or the environment to instead specify that only the revisions made by this bill to HSC 38592 relieve any person, entity, or public agency of compliance with specified federal, state, or local laws or regulations.
7. Requires ARB, as part of their annual GHG inventory, to request and incorporate information from utilities and other large gas users regarding their procurement and use of natural gas certified to have at least 80% lower methane emissions than average at the point of production or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.
8. Requires ARB, commencing January 1, 2025, to annually quantify and publish an estimate of potential GHG emissions reductions associated with the use of natural gas certified to have at least 80% lower methane emissions than average at the point of production or the use of other best practices applied to natural gas supplies in California.
9. States legislative findings and declarations related to the role of methane as an SLCP, methane in the context of the state’s climate goals, and the importance of reducing methane emissions from natural gas supplies.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. ARB estimates ongoing costs of $9.8 million in 2023-24 and about $7.7 million annually thereafter (Cost of Implementation Account, Air Pollution Control Fund , and Greenhouse Gas Reduction Fund ) to develop the low-methane emissions certification program, track methane emissions, and develop a verification program, among other things.
   
2. The CPUC estimates ongoing costs of $624,000 annually (ratepayer funds) to coordinate with ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions where feasible, cost effective, and in the best interests of ratepayers.

COMMENTS:

1. Methane. Methane is the principal component of natural gas. It is also produced biologically under anaerobic conditions in ruminant animals and solid waste facilities. Methane is termed a Short-Lived Climate Pollutant (SLCP) because it has a much shorter lifetime in the atmosphere than carbon dioxide, but has a much higher global warming potential. According to the United Nations Environment Programme, methane is more than 80 times more effective than carbon dioxide in trapping heat in the atmosphere over a 20-year period. SLCPs, including methane, are responsible for 30-40% of global warming to date.
   
   Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing. Methane gas from oil and gas production and distribution is a growing source of emissions in many countries, including the United States, due to increased exploration and use of natural gas for energy.
2. Natural gas. Natural gas is primarily methane. It can be burned for energy or used as a chemical feedstock. Nearly 45% of the natural gas burned in California was used for electricity generation, and much of the remainder was consumed in the residential (21%), industrial (25%), and commercial (9%) sectors. California continues to depend on out-of-state imports for nearly 90% of its natural gas supply, underscoring the importance of monitoring and evaluating ongoing market trends and outlook.

On April 23, 2021, Governor Newsom directed ARB to evaluate the phase-out of oil and gas extraction in the state no later than 2045, as part of the Scoping Plan. In the 2022 Scoping Plan Update, the 2022 Scoping Plan for Achieving Carbon Neutrality, ARB’s proposed scenario for achieving the state’s 2030 and 2045 climate goals involves meeting the anticipated increased demand for electricity without any new natural gas-fired resources. Moreover, the plan strives to reduce demand for natural gas across the entire economy. Within the state, ARB intends for oil and gas fugitive methane emissions to be reduced by 50% by 2030 and further reductions as infrastructure components retire in line with reduced fossil gas demand.

1. Fugitive emissions. Regardless of the end uses, making natural gas ready for use relies on extensive processing and transportation. These steps are categorized as either “upstream” (exploration and production), “midstream” (processing, compressing, and transporting the gas), or “downstream” (distribution to industrial, residential, or commercial customers).

The term “fugitive emissions” is used to refer to unintended emissions at any step in this process. Notably, many of these fugitive emissions are not necessarily at the “point of production” of the natural gas. Overall, the majority of methane emissions from natural gas occur in the mid- and upstream processes.

Identifying and addressing points of methane leakage along the natural gas supply chain is a pressing issue. However, identifying fugitive methane emissions is technologically challenging. Given the strong warming effects of methane in the atmosphere, minimizing its release is important to mitigate climate change. Given the value of supplying natural gas to end users, minimizing its release can benefit suppliers’ bottom line and much of the methane emission mitigation work can actually save producers money. The International Energy Agency (IEA) has stated that there is a huge opportunity to cut methane emissions from the energy sector. The IEA estimates that more than 70% of current emissions from oil and gas operations are already technically feasible to prevent, and around 45% could typically be avoided at no net cost because the value of the captured gas is higher than the cost of the abatement measure.

1. Certified gas. With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product, known as certified gas. While a universally accepted definition has yet to emerge, broadly this term refers to gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social, and governance standards. Methane emissions are a key performance metric for certified gas, with an emphasis on monitoring and measurement.

Despite movement in this direction, as of October 2022, only 14% of the United States’ natural gas supply was certified. Certification standards vary, but there are three major standards: Project Canary’s TrustWell certification, Equitable Origin’s EO100 standard, and the MiQ Standard. As an example of what certification standards include, the MiQ Standard grades methane intensity, technology deployment, and operational best practices. Methane intensity is the ratio of natural gas produced to excess methane emitted, though methane emissions are particularly difficult to measure.

1. Author’s statement:

Climate change is upon us, and it poses significant and immediate threats to our states, communities, resources and infrastructure. The best way to slow these impacts in the near-term is to reduce emissions of potent short-lived climate pollutants – “super pollutants” that are both powerful climate forcers and harmful air pollutants – including methane. Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and its time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.

1. This bill. This bill is intended to reduce the leakage of methane from natural gas production by requiring ARB to develop a certification standard for natural gas producing low methane emissions. California imports 90% of its natural gas from other states or countries. Given the enormous market California represents, setting standards for the gas that California buys could have a significant impact on the type of gas available in the market. Even though only 14% of gas sold today is certified, that percentage could climb rapidly as producers try to provide gas that meets the state’s standards.
   
   While well intentioned, this bill relies on the presumption that best practices and compliance with the certification will be complied with and continue into the future. The fossil fuel supply chain is subject to unplanned issues, such as well abandonment, leaks during transportation, and even natural disasters, which may result in significant methane emissions. This bill may reduce the methane emissions associated with the natural gas used in the state, but the only way to absolutely avoid fossil fuel releases—including methane emissions—across the entire up-, mid-, and downstream natural gas supply chain is to keep it in the ground.
   
2. Suggested amendment. The committee may wish to amend the bill to revise subdivision (g) of section 38592 to ensure that it continues to apply to the Act, as follows:

(g) This section does not Nothing in this division shall relieve any person, entity, or public agency of compliance with other applicable federal, state, or local laws or regulations, including state air and water quality requirements, and other requirements for protecting public health or the environment.

8) Double Referral This bill has been double referred to the Utilities and Energy Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

350 Sacramento

Climate Action California

Planning and Conservation League

Project Canary

Opposition

None on file

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. /

 THIRD READING  

Bill No: SB 781

Author: Stern (D)

Amended: 5/1/23

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 3/29/23

AYES: Allen, Gonzalez, Hurtado, Menjivar, Skinner

NOES: Dahle, Nguyen

SENATE ENERGY, U. & C. COMMITTEE: 14-2, 4/24/23

AYES: Bradford, Ashby, Becker, Caballero, Dodd, Durazo, Eggman, Gonzalez, McGuire, Min, Newman, Rubio, Skinner, Stern

NOES: Seyarto, Wilk

NO VOTE RECORDED: Dahle, Grove

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/18/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

SUBJECT: Methane emissions: natural gas producing low methane emissions

SOURCE: Author

DIGEST:

This bill requires the California Air Resources Board (CARB) to establish a certification for low-methane emissions and encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. It would also require CARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas (GHG) emissions from the natural gas supply system.

ANALYSIS:

Existing law:

1. Requires CARB to adopt regulations—known as the Mandatory Reporting Rule (MRR)—that require the reporting and verification of statewide GHG emissions, as specified. (HSC §38530)
   
2. Requires CARB to, under AB 2195 (Chau, Chapter 371, Statutes of 2018), use the best available science to quantify and annually report on its website the amount of GHG emissions resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources. (HSC §39607)
   
3. Requires CARB to, under AB 1496 (Thurmond, Chapter 604, Statutes of 2015), among other things, consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports.
   
4. Requires the California Public Utilities Commission (CPUC) to, under SB 1371 (Leno, Chapter 525, Statutes of 2014), in consultation with CARB, minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and to evaluate and track leaks geographically and over time.

This bill:

1. Makes findings and declarations including, but not limited to, the role of methane as a short-lived climate pollutant, methane in the context of the state’s climate goals, and a claim that “Near-term efforts to reduce methane emissions from natural gas supplies will support California’s climate change priorities and its transition away from fossil-based energy.”
   
2. States that it is the intent of the Legislature that California take steps to reduce methane emissions associated with natural gas imported and used in the state in a manner that supports efforts to reduce the use and reliance on fossil fuels and the state’s transition to clean energy.
   
3. Requires state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
   
4. Directs CARB, the CPUC, and other relevant agencies to consider programs or changes to programs to reduce methane emissions, including those from imported natural gas.
   
5. Requires CARB to, no later than December 31, 2024, establish a certification standard for natural gas producing low methane emissions.
6. Directs CARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, where feasible, cost effective, and in the best interests of ratepayers.
   
7. Requires CARB to, as part of their annual GHG inventory, request and incorporate information from utilities and other large gas users on their contracts for and use of natural gas, certified to have at least 80% lower methane emissions than average, at the point of production or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.
   
8. Requires CARB to, starting January 1, 2025, quantify and report an estimate of potential GHG emission reductions associated with the use of natural gas, certified to have at least 80 percent lower methane emissions than average, across the natural gas supply chain, as data are available, or the use of other best practices applied to natural gas supplies to California.

Background

1. Methane. Methane is the principal component of natural gas. It is also produced biologically under anaerobic conditions in ruminant animals, landfills and waste handling. Methane is termed a Short-Lived Climate Pollutant (SLCP) because it has a much shorter lifetime in the atmosphere than carbon dioxide, but has a much higher global warming potential. According to the U.S. Environmental Protection Agency (US EPA), methane is 20-30 times more effective than carbon dioxide in trapping heat in the atmosphere over a 100-year period. SLCPs, including methane, are responsible for 30-40% of global warming to date.
   
   Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing. Methane gas from oil and gas production and distribution is a growing source of emissions in many countries, including the United States, due to increased exploration and use of natural gas for energy.
   
2. Natural gas. Natural gas is primarily methane. It is also known as “fossil gas.” It can be burned for energy or used as a chemical feedstock. Nearly 45 percent of the natural gas burned in California was used for electricity generation, and much of the remainder was consumed in the residential (21 percent), industrial (25 percent), and commercial (9 percent) sectors. California continues to depend upon out-of-state imports for nearly 90 percent of its natural gas supply, underscoring the importance of monitoring and evaluating ongoing market trends and outlook.
   
   On April 23, 2021, Governor Newsom directed CARB to evaluate the phaseout of oil and gas extraction in the state no later than 2045, as part of this Scoping Plan. In the 2022 Scoping Plan Update, CARB’s proposed scenario for achieving the state’s 2030 and 2045 climate goals involves meeting the anticipated increased demand for electricity without any new natural gas-fired resources as well. Moreover, the plan strives to reduce demand for natural gas across the entire economy. Within the state, CARB intends for oil and gas fugitive methane emissions to be reduced by 50% by 2030 and further reductions as infrastructure components retire in line with reduced fossil gas demand.
   
3. Fugitive emissions. Regardless of the end uses, making natural gas ready for use relies on extensive processing and transportation steps. These steps are categorized as either “upstream” (exploration and production), “midstream” (processing, compressing, and transporting the gas), or “downstream” (distribution to industrial, residential, or commercial customers).
   
   The term “fugitive emissions” is used to refer to unintended emissions at any step of the process. Notably, many of these fugitive emissions are not necessarily at the “point of production” of the natural gas. Overall, the majority of methane emissions from natural gas occur in the mid- and upstream processes.
   
4. Finding and dealing with leaks. Identifying and addressing points of methane leakage along the natural gas supply chain is a pressing issue. However, identifying fugitive methane emissions is technologically challenging. Given the strong warming effects of methane in the atmosphere, minimizing its release is important to mitigate climate change. Given the value of supplying natural gas to end users, minimizing its release can, in fact, benefit suppliers’ bottom line. Considering this, it should come as no surprise that much of the methane emission mitigation work can actually save producers money. The International Energy Agency (IEA) has stated that there is a huge opportunity to cut methane emissions from the energy sector. The IEA estimates that more than 70% of current emissions from oil and gas operations are already technically feasible to prevent and around 45% could typically be avoided at no net cost because the value of the captured gas is higher than the cost of the abatement measure.
   
5. Certified gas. With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product: certified gas. While a universally accepted definition has yet to emerge, broadly this means gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social, and governance standards. Methane emissions have emerged as a key performance metric for certified gas, with an emphasis on monitoring and measurement.
   
   Despite movement in this direction, as of October 2022, only 14% of the U.S. natural gas supply was certified. Certification standards vary, but there are three major standards: Project Canary’s TrustWell certification, Equitable Origin’s EO100 standard, and the MiQ Standard. For an example of what is included, the MiQ Standard grades methane intensity, technology deployment, and operational best practices. Methane intensity is the ratio of natural gas produced to excess methane emitted, though it should be noted again that methane emissions are particularly difficult to measure.

Comments

1. Purpose of bill. According to the author, “Climate change is upon us, and it poses significant and immediate threats to our states, communities, resources and infrastructure. The best way to slow these impacts in the near-term is to reduce emissions of potent short-lived climate pollutants – “super pollutants” that are both powerful climate forcers and harmful air pollutants – including methane. Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and its time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.”
   
2. So, we agree there’s a problem. Reducing the amount of methane released into the atmosphere is an essential piece of stopping and reversing global warming, full stop. Especially over shorter time horizons, the gas results in more than 80 times more warming effects than carbon dioxide. When considering the catastrophic results of reaching climate tipping points, every fraction of a degree of avoided warming matters in saving lives and ecosystems alike.
   
   Tackling methane emissions is a major focus of a number of groups across the private and public sectors. The IEA is one such group; in their Roadmap to Net Zero Emissions by 2050, methane emissions from fossil fuel operations fall by around 75% between 2020 and 2030. About one-third of this decline is a result of an overall reduction in fossil fuel consumption, but the larger share comes from measures and technologies aimed at reducing emissions in existing fields, pipelines, and mines.
   
3. But, is this the solution? The approach employed in SB 781 is not necessarily the only way to reduce methane emissions associated with natural gas production and usage, and indeed raises a number of questions.
   
   As mentioned above, California imports 90% of its natural gas from other states or countries. Given the enormous market California represents, it would make sense that setting standards for the gas that California buys could have an outsized impact on the type of gas available in the market. Even though only 14% of gas sold today is certified, it is reasonable to imagine that number climbing rapidly as producers try to provide gas that meets our state’s standards. Indeed, given the IEA’s assertion that the majority of methane emission reductions could be done with a cost benefit to the provider, it is surprising that the number is not higher already.
   
4. Gas, break, dip. If everything went according to plan, natural gas producers would drill wells, operate them according to industry best practices for as long as the well remains economical, then safely plug and decommission the well. In reality, the companies responsible for the assets may go under, restructure, or otherwise abdicate their duties and leave the wells without adequate care taken to avoid leaks, releases, or other health and environmental hazards.
   
   Beyond abandonment, the rest of the fossil fuel supply chain is subject to other unplanned issues as well. No one plans for their operations to become the next Aliso Canyon gas leak, the next Exxon Valdez oil spill, or the next Deepwater Horizon disaster, yet these events keep happening, and will almost certainly continue happening as long as these systems are in place.
   
   The author and Legislature should be cognizant of these facts, and remember that even when best practices are established and enforced for natural gas operations, things do not always go according to plan. The only way to absolutely avoid fossil fuel releases—including methane emissions—across the entire up-, mid-, and downstream natural gas supply chain is to keep it in the ground.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• CARB estimates ongoing costs of $9.8 million in 2023-24 and about $7.7 million annually thereafter (Cost of Implementation Account [COIA], Air Pollution Control Fund [APCF], and Greenhouse Gas Reduction Fund [GGRF]) to develop the low-methane emissions certification program, track methane emissions, and develop a verification program, among other things.
• The California Public Utilities Commission (CPUC) estimates ongoing costs of $624,000 annually (ratepayer funds) to coordinate with ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions where feasible, cost effective, and in the best interests of ratepayers.

SUPPORT: (Verified 5/18/23)

350 Sacramento

Climate Action California

Elders Climate Action, NorCal and SoCal Chapters
Planning and Conservation League
Project Canary

OPPOSITION: (Verified 5/18/23)

California Chamber of Commerce

California Independent Petroleum Association

California Manufacturers and Technology Association

California Restaurant Association

Plastics Industry Association

Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to one private natural gas certifier, Project Canary, “…This innovative and welcome legislation will direct state agencies to take more effective steps to mitigate methane on imported natural gas, which can lead to a significant global reduction in overall short-lived greenhouse gas pollutants. This legislation positions California as a leader in the battle against climate change…

“Enactment of SB –781 will encourage those consuming natural gas, to procure certified, low-emission natural gas, which is natural gas that has undergone independent third-party measurement and certification to attest that the gas was produced under specified best practices for methane mitigation.

Not all natural gas is the same when you consider the environmental footprint of its production and transportation. Methane is 82 times worse than CO2 (using a 20 year GWP), and reducing these emissions by such an amount would result in earlier and more significant reductions in greenhouse gases. Certified, low methane natural gas is available and affordable, and California must act now to ensure that until natural gas is no longer consumed, it is produced with the smallest environmental footprint possible. California’s market power and standard-setting climate leadership will drive change in national and global energy production.”

ARGUMENTS IN OPPOSITION: According to a coalition led by the California Chamber of Commerce, “…The bill would impose procurement requirements of certified natural gas on utilities and large users, which would ultimately increase energy costs in California.

“This bill directly impacts every ratepayer in the state. The price of natural gas in California is already volatile and has historically been higher on a per MMBtu basis than in other parts of the country. Layering a certification requirement on top of natural gas entering the state will only add to the volatility and add costs…

“California has leak detection protocols in place. Understanding the importance of methane abatement, California has adopted a number of regulations that add layers of safety to the storage, transmission and distribution of natural gas within California…

“This bill is inappropriately scaled. Certified low methane natural gas has only

recently been introduced and done so on a pilot basis5. It is not clear that deliveries of low methane natural gas could meet the needs of Californian’s during peak winter months.”

Prepared by: Eric Walters / E.Q. / (916) 651-4108

5/30/23 11:41:38

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 781 (Stern) - Methane emissions: natural gas producing low methane emissions

Bill Summary:

This bill would require the California Air Resources Board (ARB) to establish a certification for low-methane emissions and encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. It would also require ARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas (GHG) emissions from the natural gas supply system.

Fiscal Impact:

• ARB estimates ongoing costs of $9.8 million in 2023-24 and about $7.7 million annually thereafter (Cost of Implementation Account [COIA], Air Pollution Control Fund [APCF], and Greenhouse Gas Reduction Fund [GGRF]) to develop the low-methane emissions certification program, track methane emissions, and develop a verification program, among other things.
• The California Public Utilities Commission (CPUC) estimates ongoing costs of $624,000 annually (ratepayer funds) to coordinate with ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions where feasible, cost effective, and in the best interests of ratepayers.

Background:

Methane. Methane is the principal component of natural gas. It is also produced biologically under anaerobic conditions in ruminant animals, landfills and waste handling. Methane is termed a Short-Lived Climate Pollutant (SLCP) because it has a much shorter lifetime in the atmosphere than carbon dioxide, but has a much higher global warming potential.

Natural gas. Natural gas is primarily methane. It is also known as “fossil gas.” It can be burned for energy or used as a chemical feedstock. Nearly 45 percent of the natural gas burned in California was used for electricity generation, and much of the remainder was consumed in the residential (21 percent), industrial (25 percent), and commercial (9 percent) sectors. California continues to depend upon out-of-state imports for nearly 90 percent of its natural gas supply, underscoring the importance of monitoring and evaluating ongoing market trends and outlook.

On April 23, 2021, Governor Newsom directed ARB to evaluate the phaseout of oil and gas extraction in the state no later than 2045, as part of this Scoping Plan. In the 2022 Scoping Plan Update, ARB’s proposed scenario for achieving the state’s 2030 and 2045 climate goals involves meeting the anticipated increased demand for electricity without any new natural gas-fired resources as well. Moreover, the plan strives to reduce demand for natural gas across the entire economy. Within the state, ARB intends for oil and gas fugitive methane emissions to be reduced by 50% by 2030 and further reductions as infrastructure components retire in line with reduced fossil gas demand.

“Methane emissions at the point of production.” Regardless of the end uses, making natural gas ready for use relies on extensive processing and transportation steps. The term “fugitive emissions” is used to refer to unintended emissions at any step of the process.

Certified gas. With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product: certified gas. While a universally accepted definition has yet to emerge, broadly this means gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social, and governance standards. Methane emissions have emerged as a key performance metric for certified gas, with an emphasis on monitoring and measurement. Despite movement in this direction, as of October 2022, only 14% of the U.S. natural gas supply was certified.

Proposed Law:

This bill would require ARB to establish a certification for low-methane emissions and encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions. It would also require ARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas GHG emissions from the natural gas supply system. Specifically, this bill would:

1. Require state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
   
2. Direct ARB, the CPUC, and other relevant agencies to consider programs or changes to programs to reduce methane emissions, including those from imported natural gas.
3. Require ARB to encourage natural gas procurement on behalf of the state to shift to certified natural gas producing low methane emissions, where feasible, cost effective, and in the best interests of ratepayers as determined by the Public Utilities Commission (CPUC), as specified.
   
4. Require ARB to, as part of their annual GHG inventory, request and incorporate information from utilities and other large gas users on any contracts for and use of natural gas, certified to have at least 80% lower methane emissions than average, at the point of production or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.
   
5. Require ARB to, starting January 1, 2025, quantify and report an estimate of potential GHG emission reductions associated with the use of natural gas, certified to have at least 80 percent lower methane emissions than average, at the point of production or the use of other best practices applied to natural gas supplies to California.

Related Legislation:

AB 2195 (Chau, Chapter 487, Statutes of 2018) requires CARB, by January 1, 2020, to use the best available science to quantify and annually report on its website the amount of GHG emissions, expressed in tons of carbon dioxide equivalents, resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources.

AB 1496 (Thurmond, Chapter 604, Statutes of 2015) requires CARB to 1) monitor high-emission methane hot-spots in the state, 2) consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports, 3) update relevant policies and programs based on those updated life-cycle analyses, and 4) review scientific information on atmospheric reactivity of methane as a precursor to the formation of photochemical oxidants.

SB 1371 (Leno, Chapter 525, Statutes of 2014) requires the CPUC, in consultation with the CARB, to open a proceeding to adopt rules and procedures that minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and requires the rules and procedures that provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and for evaluating and tracking leaks geographically and over time that may be incorporated into the CARB’s mandatory GHG emission reporting.

Staff Comments:

A number of state agencies are part of the commercial customer class and rely on broader utility procurements for energy. To the extent that this bill could be interpreted as requiring the utilities to ensure that natural gas supplied to state agencies meets a low-methane certification standard, this bill could lead utilities to submit applications for new natural gas procurements that are not necessary to meet demand. Staff notes that, should this occur, such a procurement could result in unnecessary and burdensome costs for ratepayers.

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SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Steven Bradford, Chair

2023 - 2024 Regular

Bill No: Hearing Date: 4/24/2023

SUBJECT:

DIGEST: This bill requires the California Air Resources Board (CARB) to establish a certification for low-methane natural gas and requires all natural gas procured on behalf of state agencies to be certified low-methane natural gas by December 31, 2025. This bill also requires CARB to collect specified information about limiting emissions from the natural gas supply chain and incorporate that data into existing analyses of greenhouse gas (GHG) emissions from the natural gas supply system.

ANALYSIS:

Existing law:

1. Requires each gas corporation to develop a plan for the safe operation and management of its pipeline system. Existing law specifies components that must be included in this plan, including leak detection monitoring, reporting, and mitigation. Existing law requires gas corporations to submit these plans to the California Public Utilities Commission (CPUC) for review, approval, modification, or rejection, and implement an approved plan. (Public Utilities Code §961)
2. Requires the CPUC to adopt rules and procedures for the management and operation of intrastate gas pipelines to minimize leaks and reduce emissions of natural gas to advance the state’s emissions reduction goals. Existing law specifies goals these rules and procedures must achieve, including, but not limited to the following:
   1. Evaluate the operations, maintenance, and repair practices of intrastate gas pipelines to determine whether existing practices are effective at reducing methane leaks and promoting public safety.
   2. Establish protocols and procedures for quantifying the emissions leaking from gas pipelines, evaluating and tracking those leaks, and incorporating fugitive emissions data into state emission tracking systems, including CARB’s inventory of GHG emissions.
   3. Require owners of intrastate gas pipelines to report gas leak rates to the CPUC and CARB as specified. (Public Utilities Code §975)
3. Requires gas corporations to incorporate the rules, procedures, best practices, and repair standards for limiting fugitive emissions into gas pipeline safety plans filed with the CPUC. (Public Utilities Code §975)
4. Requires state agencies to consider and implement strategies to reduce their GHG emissions. (Health and Safety Code §38592)
5. Requires CARB to develop an inventory of sources of air pollution within the air basins of the state and monitor the air quality in collaboration with local air districts. Existing law also requires CARB to establish and periodically review criteria for designating an air basin attainment or nonattainment for any state ambient air quality standard. Existing law requires CARB to annually quantify and report on GHG emissions resulting from the production, processing, and transporting of natural gas imported into the state. (Health and Safety Code §39607)

This bill:

1. Requires CARB to establish a certification standard for low-methane emissions natural gas by December 31, 2024. This bill requires CARB to consider existing low-methane natural gas certification standards as part of the development of this certification.
2. Requires CARB, the CPUC, and other state agencies to consider creating programs or modifying programs to reduce methane emissions from natural gas procured by utilities and other large natural gas users.
3. Required state agencies to prioritize strategies to reduce methane emissions where feasible and cost effective.
4. Requires all natural gas procured on behalf of state agencies to be certified as low-methane natural gas by December 31, 2025.
5. Specifies that this bill’s establishment of the certification of low-methane natural gas, the requirement to shift state agencies’ natural gas procurement to low-methane natural gas, and the creation or modification of state programs to reduce methane emissions from natural gas should not be used to expand the use of natural gas or promote increased production and use of renewable natural gas.
6. Requires CARB to request and incorporate data from utilities and other large natural gas users about certified low-methane natural gas use into existing CARB analyses of emissions from the natural gas supply chain. This data may be reported as available and may include the use of other best practices to minimize methane emissions from the natural gas supply system.
7. Requires CARB to quantify and annually publish, starting January 1, 2025, an estimate of GHG emission reductions associated with the use of certified low-methane natural gas or the use of other best practices for lowering methane emissions from the natural gas supply chain.

Background

What is low-methane natural gas? Natural gas is primarily comprised of methane, which is emitted into the atmosphere at various points along the natural gas supply chain. This bill requires CARB to establish a certification standard for natural gas associated low-methane emissions; however, this bill does not specify what this standard must include or what natural gas resources would meet the definition of “low-methane.” The primary mechanism for limiting methane emissions from natural gas is limiting the emissions of natural gas, including leaks. Limiting leaks from the natural gas system can limit overall emissions; however, the natural gas system contains many segments across many states, making quantification of emissions savings difficult.

Natural gas certifications focus on process improvements to prevent leaks. A number of organizations have developed a variety of certification standards to encourage natural gas emissions reductions. These standards have been variously known as “low-carbon,” “green,” or “responsibly sourced” natural gas. These standards generally encompass a variety of process improvements to prevent, detect, and mitigate leaks. Measures may include installing advanced leak detection monitors or establishing more tightly controlled monitoring protocols for natural gas facilities. This bill would require CARB to develop a certification standard or adopt an existing certification standard for “low-methane” natural gas. Some in-state companies are already procuring natural gas certified as “low-methane” by third-party certification organizations. For example, Bloom Energy has announced they will convert its natural gas fleet to certified “low leak” natural gas, certified using a third-party standard to verify limitations on methane emissions.

Certification standards may focus on emissions reductions out-of-state. Within the natural gas supply chain, certification standards may be most easily adopted upstream from natural gas transmission pipelines. These upstream facilities include gas wellheads at the point of extraction, the gas gathering systems transporting gas from wells to processing facilities, and the processing facilities. However, the upstream facilities for most of California’s natural gas supply exist out-of-state and internationally. California relies heavily on natural gas imported from other states and Canada; less than 10 percent of the state’s natural gas supply comes from in-state resources. As a result, fully transitioning California’s gas supply to certified low-methane natural gas would require upstream segments of the North American gas supply system to adopt stricter leak prevention systems. This bill would encourage in-state entities to procure natural gas from those out-of-state facilities that are certified; however, California may not mandate that out-of-state facilities, including the transmission pipeline system, adopt certification standards.

Smooth criminal: quantifying fugitive emissions remains elusive. California’s natural gas supply is transported over thousands of miles of pipelines, which vary in age and condition. This infrastructure includes small leaks gradually emitting natural gas slowly over long periods of time. These leaks are known as “fugitive emissions,” and quantifying these emissions has long posed challenges for creating a full inventory of California’s emissions from the power sector. In 2014, the Legislature passed SB 1371 (Leno, Chapter 525, Statutes of 2014), which required gas corporations to file reports on methane leaks from the natural gas pipeline system, and it required the CPUC to adopt rules and procedures to reduce methane emissions from the natural gas system. In response to SB 1371, the CPUC opened a proceeding (R.15-01-008) to address gas leak abatement. As part of the first phase of this proceeding, the CPUC adopted a decision (D.17-06-015). This decision established annual reporting requirements to track methane emissions from natural gas facilities, compliance plans, 26 mandatory best practices for leak prevention and mitigation, and created a cost recovery mechanism for implementing those best practices. Since the adoption of these best practices, the CPUC has conducted a second phase of rulemaking to limit cost-recovery for gas corporations that fail to reduce methane emissions 20 percent below their 2015 baseline level of emissions.

This bill requires CARB to incorporate utilities information about natural gas sourced from certified low-methane sources into existing estimates of emissions associated with the natural gas system. While the certification standard developed pursuant to this bill may help encourage natural gas processing facilities to save upstream emissions, the cost of upgrading national and in-state pipelines may limit the degree to which these emissions can be limited from the pipeline system. It is also unclear whether a low-methane natural gas certification can help achieve meaningful methane reductions from the natural gas sector beyond those achieved through the CPUC’s gas leak abatement proceeding.

Bill’s procurement requirements are unclear. This bill requires all natural gas procured on behalf of state agencies to be certified as low-methane by December 31, 2025. However, energy procurement for all state agency needs is not conducted solely by state agencies. A number of state agencies are part of the commercial customer class and rely on broader utility procurements for energy. To the extent that this bill could be interpreted as requiring the utilities to ensure that natural gas supplied to state agencies meets a low-methane certification standard, this bill could lead utilities to submit applications for new natural gas procurements that are not necessary to meet demand. Such a procurement could result in unnecessary and burdensome costs for ratepayers.

Need for amendments. As currently written, this bill’s procurement requirements are vague and could result in unnecessary additional natural gas procurements. This does not appear to be the author’s intent. As a result, the author and committee may wish to amend this bill to do the following:

• Clarify that CARB shall encourage the power sector to transition to certified low-methane natural gas supplies where feasible, cost-effective, and in the best interests of ratepayers.
• Specify that nothing in this bill shall require a utility procurement.

Dual referral: This bill passed out of the Senate Committee on Environmental Quality on March 29, 2023 with a vote of 5-2.

Prior/Related Legislation

AB 2195 (Chau, Chapter 371, Statutes of 2018) required CARB to quantify and annually publish the amount of GHG emissions resulting from the loss or release of uncombusted natural gas to the atmosphere and emissions from natural gas flares during all processes associated with the production, processing, and transporting of natural gas imported into the state.

AB 1496 (Thurmond, Chapter 604, Statutes of 2015) required CARB to work with air districts to measure high-emission methane hot spots and consult with federal and state agencies and other appropriate stakeholders to develop a life-cycle analysis of GHG emissions from natural gas produced and imported into the state.

SB 1371 (Leno, Chapter 525, Statutes of 2014) required gas corporations to file reports on methane leaks from the natural gas pipeline system and required the CPUC to adopt rules and procedures to reduce methane emissions from the natural gas system.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

Elders Climate Action, NorCal Chapter

Elders Climate Action, SoCal Chapter
Institute for Governance & Sustainable Development

Planning and Conservation League

OPPOSITION:

California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers and Technology Association
California Restaurant Association
Plastics Industry Association
Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to the author:

Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and its time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.

ARGUMENTS IN OPPOSITION: Opponents argue that this bill is unnecessary and could increase natural gas costs for customers by creating a preference for an unproven resource. In opposition, the California Chamber of Commerce states:

…It is not clear what the cost considerations of low methane natural gas are when compared to natural gas stored in California that meets the stringent storage requirements noted above. To shield ratepayers stemming from cost considerations it may be wise to limit the introduction of low methane natural gas to a small subset of generation that would otherwise not impact ratepayers. At a minimum, there should be language included in this bill that directs the CPUC to ensure that procurement of low methane natural gas does not negatively impact ratepayers.

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SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2023 - 2024 Regular

Bill No: SB 781

SUBJECT: Methane emissions: low-methane natural gas

DIGEST: This bill requires state agencies to prioritize and procure natural gas with low associated methane emissions, as specified, and requires the California Air Resources Board (CARB) to gather information and report on the impacts of the use of natural gas which has been certified to have at least 80% lower associated methane emissions than average, as specified.

ANALYSIS:

Existing law:

1. Requires CARB to adopt regulations—known as the Mandatory Reporting Rule (MRR)—that require the reporting and verification of statewide GHG emissions, as specified. (HSC §38530)
   
2. Requires CARB to, under AB 2195 (Chau, Chapter 371, Statutes of 2018), use the best available science to quantify and annually report on its website the amount of GHG emissions resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources. (HSC §39607)
   
3. Requires CARB to, under AB 1496 (Thurmond, Chapter 604, Statutes of 2015), among other things, consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports.
   
4. Requires the California Public Utilities Commission (CPUC) to, under SB 1371 (Leno, Chapter 525, Statutes of 2014), in consultation with CARB, minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and to evaluate and track leaks geographically and over time.

This bill:

1. Makes findings and declarations including, but not limited to, the role of methane as a short-lived climate pollutant, methane in the context of the state’s climate goals, and a claim that “Near-term efforts to reduce methane emissions from natural gas supplies will support California’s climate change priorities and its transition away from fossil-based energy.”
   
2. States that it is the intent of the Legislature that California take steps to reduce methane emissions associated with natural gas imported and used in the state in a manner that supports efforts to reduce the use and reliance on fossil fuels and the state’s transition to clean energy.
   
3. Requires state agencies to prioritize strategies to reduce methane emissions, including emissions from imported natural gas, where feasible and cost effective.
   
4. Directs CARB, the CPUC, and other relevant agencies to consider programs or changes to programs to reduce methane emissions, including those from imported natural gas.
   
5. States that by December 31, 2025, all natural gas procured on behalf of state agencies shall be certified as producing low-methane emissions.
   
6. Requires CARB to, as part of their annual GHG inventory, request and incorporate information from utilities and other large gas users on their procurement and use of natural gas, certified to have at least 80% lower methane emissions than average, at the point of production or the use of other best practices to minimize emissions of methane and GHGs from natural gas supplying California.
   
7. Requires CARB to, starting January 1, 2025, quantify and report an estimate of potential GHG emission reductions associated with the use of natural gas, certified to have at least 80 percent lower methane emissions than average, at the point of production or the use of other best practices applied to natural gas supplies to California.
   

Background

1. Methane. Methane is the principal component of natural gas. It is also produced biologically under anaerobic conditions in ruminant animals, landfills and waste handling. Methane is termed a Short-Lived Climate Pollutant (SLCP) because it has a much shorter lifetime in the atmosphere than carbon dioxide, but has a much higher global warming potential. According to the U.S. Environmental Protection Agency (US EPA), methane is 20-30 times more effective than carbon dioxide in trapping heat in the atmosphere over a 100-year period. SLCPs, including methane, are responsible for 30-40% of global warming to date.
   
   Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing. Methane gas from oil and gas production and distribution is a growing source of emissions in many countries, including the United States, due to increased exploration and use of natural gas for energy.
   
2. Natural gas. Natural gas is primarily methane. It is also known as “fossil gas.” It can be burned for energy or used as a chemical feedstock. Nearly 45 percent of the natural gas burned in California was used for electricity generation, and much of the remainder was consumed in the residential (21 percent), industrial (25 percent), and commercial (9 percent) sectors. California continues to depend upon out-of-state imports for nearly 90 percent of its natural gas supply, underscoring the importance of monitoring and evaluating ongoing market trends and outlook.
   
   On April 23, 2021, Governor Newsom directed CARB to evaluate the phaseout of oil and gas extraction in the state no later than 2045, as part of this Scoping Plan. In the 2022 Scoping Plan Update, CARB’s proposed scenario for achieving the state’s 2030 and 2045 climate goals involves meeting the anticipated increased demand for electricity without any new natural gas-fired resources as well. Moreover, the plan strives to reduce demand for natural gas across the entire economy. Within the state, CARB intends for oil and gas fugitive methane emissions to be reduced by 50% by 2030 and further reductions as infrastructure components retire in line with reduced fossil gas demand.
   
3. “Methane emissions at the point of production.” Regardless of the end uses, making natural gas ready for use relies on extensive processing and transportation steps. These steps are categorized as either “upstream” (exploration and production), “midstream” (processing, compressing, and transporting the gas), or “downstream” (distribution to industrial, residential, or commercial customers).
   
   The term “fugitive emissions” is used to refer to unintended emissions at any step of the process. Notably, many of these fugitive emissions are not necessarily at the “point of production” of the natural gas. Overall, the majority of methane emissions from natural gas occur in the mid- and upstream processes.
   
4. Finding and dealing with leaks. Identifying and addressing points of methane leakage along the natural gas supply chain is a pressing issue. However, identifying fugitive methane emissions is technologically challenging. Satellites are growing in prominence as an important tool in addressing the climate crisis by spotting methane emissions. There are already dozens of greenhouse gas-detecting satellites in orbit today, and both public and private institutions have announced plans to launch more in the future. Additionally, at COP27, the UN announced a new high-tech, satellite-based global methane detection initiative—The Methane Alert and Response System (MARS)—that will leverage satellite data to alert governments, companies, and operators about large methane sources to foster rapid mitigation. California plans to launch its own methane-detecting satellites this year.
   
   Given the strong warming effects of methane in the atmosphere, minimizing its release is important to mitigate climate change. Given the value of supplying natural gas to end users, minimizing its release can, in fact, benefit suppliers’ bottom line. Considering this, it should come as no surprise that much of the methane emission mitigation work can actually save producers money. The International Energy Agency (IEA) has stated that there is a huge opportunity to cut methane emissions from the energy sector. The IEA estimates that more than 70% of current emissions from oil and gas operations are already technically feasible to prevent and around 45% could typically be avoided at no net cost because the value of the captured gas is higher than the cost of the abatement measure.
   
5. Certified gas. With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product: certified gas. While a universally accepted definition has yet to emerge, broadly this means gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social, and governance standards. Methane emissions have emerged as a key performance metric for certified gas, with an emphasis on monitoring and measurement.
   
   Despite movement in this direction, as of October 2022, only 14% of the U.S. natural gas supply was certified. Certification standards vary, but there are three major standards: Project Canary’s TrustWell certification, Equitable Origin’s EO100 standard, and the MiQ Standard. For an example of what is included, the MiQ Standard grades methane intensity, technology deployment, and operational best practices. Methane intensity is the ratio of natural gas produced to excess methane emitted, though it should be noted again that methane emissions are particularly difficult to measure.

Comments

1. Purpose of Bill. According to the author, “Climate change is upon us, and it poses significant and immediate threats to our states, communities, resources and infrastructure. The best way to slow these impacts in the near-term is to reduce emissions of potent short-lived climate pollutants – “super pollutants” that are both powerful climate forcers and harmful air pollutants – including methane. Our fossil fuel energy systems are one of the largest sources of methane emissions in the U.S., and one of the easiest and lowest cost ways to reduce emissions. Even while we focus on transitioning away from fossil fuels, we can, and should focus on minimizing the impacts of our ongoing fossil fuel use, including methane emissions from imported natural gas. This is the definition of low-hanging fruit in the fight against climate change, and its time the state starts to look at mitigating emissions associated with imported natural gas, just like we already do for imported electricity and transportation fuels.”
   
2. So, we agree there’s a problem. Reducing the amount of methane released into the atmosphere is an essential piece of stopping and reversing global warming, full stop. Especially over shorter time horizons, the gas results in more than 80 times more warming effects than carbon dioxide. When considering the catastrophic results of reaching climate tipping points, every fraction of a degree of avoided warming matters in saving lives and ecosystems alike.
   
   Tackling methane emissions is a major focus of a number of groups across the private and public sectors. The IEA is one such group; in their Roadmap to Net Zero Emissions by 2050, methane emissions from fossil fuel operations fall by around 75% between 2020 and 2030. About one-third of this decline is a result of an overall reduction in fossil fuel consumption, but the larger share comes from measures and technologies aimed at reducing emissions in existing fields, pipelines, and mines.
   
3. But, is this the solution? The approach employed in SB 781 is not necessarily the only way to reduce methane emissions associated with natural gas production and usage, and indeed raises a number of questions.
   
   As mentioned above, California imports 90% of its natural gas from other states or countries. Given the enormous market California represents, it would make sense that setting standards for the gas that California buys could have an outsized impact on the type of gas available in the market. Even though only 14% of gas sold today is certified, it is reasonable to imagine that number climbing rapidly as producers try to provide gas that meets our state’s standards. Indeed, given the IEA’s assertion that the majority of methane emission reductions could be done with a cost benefit to the provider, it is surprising that the number is not higher already.
   
   However, it is not immediately clear exactly how compliance could be achieved. What behaviors are truly expected to change as a result of this bill? Do natural gas purchasers in California have the ability to “shop around” between natural gas providers to get certified gas? Can we compel out-of-state (or even international) gas providers to meet certification standards? Are the existing third-party certification standards sufficient for California’s goals? If California stops purchasing non-certified gas, do other buyers simply snap that up instead—shuffling emissions around instead of truly reducing them? If California rapidly increases the demand for a fixed supply of certified gas, might the price for that gas spike sharply until supply increases accordingly? The author should continue to contemplate these questions going forward.
   
4. Maximizing progress while minimizing regrets. It is clear that reducing methane emissions is desirable, but (depending on the details) doing so could come with undesirable outcomes as well.
   
   Section 2 of SB 781 includes the statement that this bill “does not promote the expanded use of natural gas from fossil resources and is not intended to interfere with state efforts to reduce the use of natural gas or increase the production and use of renewable gas,” and although this is laudable, it deserves further consideration. If gas producers invest significant dollars into lowering their methane emissions, they may end up with even more stranded assets should California move away from natural gas entirely quicker than planned. If meeting California’s low-methane emission natural gas standards justifies continued (or expanded) natural gas operations in other jurisdictions, total worldwide emissions could decline slower than they otherwise might have. While these issues are fairly conceptual, they do deserve consideration.
   
   Focusing on the specifics of this bill, there are several imprecise elements that could be refined to help achieve the author’s goals.
   
   The bill requires that, no later than December 31, 2025, natural gas procured on behalf of state agencies shall be certified as producing low-methane emissions. However, it does not further specify what “certified” entails; are third-party standards sufficient? Does CARB need to develop a certification standard? The committee may wish to consider specifying that CARB should develop a certification for low-methane emission natural gas based at least in part on existing certification standards.
   
   The bill also refers to the “point of production or the use of other best practices” twice. Given that methane emissions associated with natural gas can come from all mid- and upstream processes, this may not capture the full picture of methane releases. The committee may wish to consider amending the language to refer to the full natural gas supply chain, rather than simply the “point of production.”
   
5. Gas, break, dip. If everything went according to plan, natural gas producers would drill wells, operate them according to industry best practices for as long as the well remains economical, then safely plug and decommission the well. In reality, the companies responsible for the assets may go under, restructure, or otherwise abdicate their duties and leave the wells without adequate care taken to avoid leaks, releases, or other health and environmental hazards.
   
   These are termed “orphan wells,” and according to a 2020 study from the California Council on Science and Technology, the state has over 5,000 of them today, with an additional almost 70,000 that are economically marginal or idle and may become orphaned in the future. Particularly if things go wrong (whether the well is less productive, the machinery unreliable, etc.), there may unfortunately be economic incentives to abandon infrastructure. Preventing this kind of behavior relies on robust accountability and enforcement. The natural gas California will be using for years to come will likely continue to come primarily from out of state, but these same issues exist wherever the wells do.
   
   Beyond abandonment, the rest of the fossil fuel supply chain is subject to other unplanned issues as well. No one plans for their operations to become the next Aliso Canyon gas leak, the next Exxon Valdez oil spill, or the next Deepwater Horizon disaster, yet these events keep happening, and will almost certainly continue happening as long as these systems are in place.
   
   The author and committee should be cognizant of these facts, and remember that even when best practices are established and enforced for natural gas operations, things do not always go according to plan. The only way to absolutely avoid fossil fuel releases—including methane emissions—across the entire up-, mid-, and downstream natural gas supply chain is to keep it in the ground.
   
6. Committee amendments. Staff recommends the committee adopt the bolded amendments contained in comment 4 above.
   

DOUBLE REFERRAL:

If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Energy, Utilities, and Communications Committee.

Related/Prior Legislation

AB 2195 (Chau, Chapter 487, Statutes of 2018) requires CARB, by January 1, 2020, to use the best available science to quantify and annually report on its website the amount of GHG emissions, expressed in tons of carbon dioxide equivalents, resulting from the loss or release of natural gas during all processes associated with the production, processing, and transport of natural gas imported into the state from out-of-state sources.

AB 1496 (Thurmond, Chapter 604, Statutes of 2015) requires CARB to 1) monitor high-emission methane hot-spots in the state, 2) consult with specified entities to gather information for purposes of carrying out life-cycle GHG emissions analyses of natural gas imports, 3) update relevant policies and programs based on those updated life-cycle analyses, and 4) review scientific information on atmospheric reactivity of methane as a precursor to the formation of photochemical oxidants.

SB 1371 (Leno, Chapter 525, Statutes of 2014) requires the CPUC, in consultation with the CARB, to open a proceeding to adopt rules and procedures that minimize natural gas leaks from CPUC-regulated gas pipeline facilities, and requires the rules and procedures that provide for the development of metrics to quantify the volume of emissions from leaking gas pipeline facilities, and for evaluating and tracking leaks geographically and over time that may be incorporated into the CARB’s mandatory GHG emission reporting.

SOURCE:

Author

SUPPORT:

Elders Climate Action, Norcal and Socal Chapters

Planning and Conservation League

OPPOSITION:

None received

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