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Fracking rig operates next to a walking and bike way for residents of Signal Hill drilling into the Los Angeles Oil Field. Photo by Sarah Craig.

The rise of leaky wells and taxpayer liabilities

A rapidly growing movement is underway in California to call out Governor Gavin Newsom for ramping up approval of fracking and drilling permits. This comes at a time when the effects of fossil fuel pollution on public health is of grave concern and many oil and gas companies may abandon leaky wells because of bankruptcy with falling demand for their products.

Over the July 4th holiday weekend Newsom’s oil and gas regulatory agency approved 12 new permits for Chevron to conduct fracking in the Lost Hills Oil Field in Kern County. Newsom has now granted a total of 48 fracking permits since ending his initial moratorium on the practice.

Newsom has also approved drilling permits for more than 1,400 new oil and gas wells so far this year. According to a California Council on Science and Technology report, it would cost more than $9.2 billion to properly plug California’s existing oil and gas wells, and operators have not set aside nearly enough money to pay for this legally required cleanup. Lower-income communities are disproportionately affected by exposure to pollution through proximity to these wells, making this a climate justice issue.

The federal government estimates that there are already more than three million abandoned oil and gas wells across the United States. Two million of those are unplugged, releasing the methane equivalent of the annual emissions from more than 1.5 million cars. 

As oil and gas companies face bankruptcy, many fear that wells will be left leaking pollution, with cleanup costs left to taxpayers. At the same time, some of the top executives at these companies are granting themselves multi-million dollar bonuses just days before declaring bankruptcy.

Meanwhile, cities across the state see a way out of reliance on natural gas. The City of Berkeley banned new natural gas hookups in 2019, and now 30 California cities have policies that ban gas or at least encourage all-electric construction in some way. 

San Francisco officials recently said that they are introducing legislation that would be similar to Berkeley’s ban, and Pacific Gas & Electric has also said it would support the growing push for state rules that require new buildings to be all-electric.

Clearly California communities are moving away from natural gas. So, why is Newsom increasing extraction permits and with it, taxpayer liability for leaky wells?

Tell Governor Newsom to put public health first, not oil and gas interests

Governor Gavin’s chance to become a climate dividends hero

by Mike Sandler, co-founder of The Climate Center

With Federal climate action stalled for years, climate activists have looked to California to lead the way.  And California has in many ways, including by adopting the most ambitious multi-sector GHG cap in the country and an economywide carbon price, the first and still only one in the United States.  However, when it comes to climate dividends, California has not lived up to its full potential.

But with our new Governor Gavin Newsom reviewing Cap & Trade expenditures and priorities, there is a rare and exciting opening for climate dividends to become a reality.

First, a quick recap of the state of climate dividends in California.  After California passed AB32 in 2006, the California Air Resources Board convened the Economic and Allocations Advisory Committee (EAAC), which released recommendations for carbon price design in 2010, including returning “the largest share (roughly 75%) of allowance value…to California households.”  This recommendation was not carried out, as we’ll see below.  Meanwhile, the California Public Utilities Commission held a proceeding on the allocation of allowances in the electric utility sector and declared that 100% of proceeds from the electricity sector should be returned to ratepayers, including a non-volumetric (equal per households) “climate dividend” rebate. This was instituted as the California Climate Credit, seen as a line-item on utility bills starting in April 2014. The Credit was expanded to include revenues from the natural gas sector in 2018.

So, what happened to the Cap and Trade revenues? Since the Cap & Trade program began in November 2012, the Air Board, under direction from Governor Jerry Brown and with approval of the State Legislature, has spent $1.2 billion dollars on high speed rail and $959 million on urban infill housing.  An additional $400 million was given to the California High-Speed Rail Authority (CHSRA) to repay a loan they took before any auction revenues had materialized. Combined with the total $6.1 billion, this represents about 39% of monies available.  Indeed, when the State extended the Cap & Trade program through 2030, Governor Brown made a point to include a requirement for 25% of Cap & Trade funds to be used for high speed rail going forward.  It looks like now-Governor Gavin Newsom is reviewing that approach.

In Governor Newsom’s inaugural 2019 State of the State Address, he acknowledged publicly that the high-speed rail program will need modifications.  No one knows what this means exactly, but let’s assume that one outcome would be taking it off the life-support of Cap & Trade funds.  Let’s also assume that Governor Newsom is willing to move the infill and affordable housing projects (which have taken about 20 percent of Cap & Trade appropriations) out of Cap & Trade and back into the regular budgeting process.  Using 2017-2018 estimates, this would free up $356 million from high-speed rail, and $285 million from infill and affordable housing.  Another source of Cap & Trade revenues that could be used as dividends is the free allowances currently given to industry. In 2016, the Petroleum Refining, Natural Gas Extraction, and Cement sectors received over 49 million free allowances. At $15.31 per allowance, that subsidy is worth over $750 million per year.

Finally, what if the Climate Credit were changed from an on-bill line item on their utility bill (that no one sees) into off-bill amount and combined with the other funding sources?  The utility sector’s amount in 2016 was $771 million.  This gives us a cool $2.16 billion per year for dividends.  With approximately 40 million Californians, this would equal a climate dividend of $54 per person per year.  OK, no one is going to retire.  But every time the carbon price goes up, the dividend would go up.  Every time someone receives their dividend through a check in the mail or onto a debit card, there will be one more supporter of carbon pricing, and one more person who would support a tighter carbon cap (because that means a bigger dividend).  And as they spend that money back into the economy, think of the economic stimulus, funded by polluting companies.

Governor Newsom seems to be clued in to Silicon Valley, so he probably knows that the CEOs are excited about basic income.  Several of them have said it is necessary for the economy of the future.  Governor Newsom has proposed a “data dividend” that would monetize our digital profiles.  Climate dividends would be a great next step, because even though my Facebook posts are clever, they won’t actually save the climate (and I know at least one person whose Tweets actually harm the climate). Gov. Newsom likely recognizes the sour, populist mood at the national level, and the concern about ongoing economic inequality.  People are asking, why doesn’t the money ever “trickle down” to them?  In fact, that was the basis of the Tea Party movement, and part of the Rust Belt states’ discontent reflected in the 2016 election.  Dividends could address California’s own disadvantaged communities’ rightful concern that the Cap & Trade revenues focus only on coastal cities.  Governor Newsom can use climate dividends to make good on California’s desire for climate leadership, while making the expenditures simpler, less politicized, and more transparent.  By decreasing subsidies to the fossil fuel industry and moving the funding for high-speed rail and affordable housing back into the regular budget process, he could free up billions of dollars of California’s Cap & Trade revenues and return them back to people as climate dividends.