The bad news about SB 181

What could have been, should have been, but isn’t

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Joel Dyer

Phillip Doe is a former environmental compliance officer and head of the Reclamation Law Administration for the U.S. Bureau of Reclamation. He currently serves as the environmental director for Be the Change Colorado. 

The many citizens who believe Governor Jared Polis is slow-walking implementation of the new Colorado oil and gas law, Senate Bill 181, were served no surprise the other night at a meeting in Thornton. These citizens now know with certainty Polis will not implement the new law any time soon. In place of SB 181 is a fabricated set of 16 “Objective Criteria” established by Jeffrey Robbins — Polis’ choice to head the Colorado Oil and Gas Conservation Commission (COGCC) as well as his former attorney who managed to push drillers back from the governor’s country estate a few years ago.  

Robbins was invited to speak in Thornton to a group of citizens threatened by what the writer Rob Nixon has termed the slow violence of fracking. It was there that Robbins explained his 16 “Objective Criteria.” He told the crowd these criteria are the law, and will remain the law until new rules governing the real law, SB 181, could be promulgated. 

He defended this position by noting that as the head of the COGCC it was his responsibility alone to come up with an implementation plan within 30 days of SB 181’s passage. Indeed, in his view, the law made him Czar — his term — of all things oil and gas in the state of Colorado.

A fairer reading of the legislation’s fine print would be for Robbins to set out in detail within 30 days of the law’s passage how he, as the state’s designated representative, was going to swiftly and faithfully implement SB 181. This bill’s intent is guided by the precautionary principle that when there is doubt about the impacts of an oil and gas activity on the public’s health or the environment, precaution requires the government not to proceed until those doubts are reasonably settled. But such an approach would inevitably cause delays in approving oil- and gas-drilling permits, which appears to be the reason Robbins has ignored the precautionary principle to date.

Robbins’ approach has been the opposite. It appears to have been developed not from the language of the bill, but from the announcements of expected results by some high-ranking Democrats, particularly those Governor Polis made at the bill’s signing, where he said, “This is an important step forward for the stability of Colorado, to end the oil and gas wars in a way that everybody wins.”

On its face, this statement may be dismissed as just one of those meaningless politician-speak clichés. The oil and gas industry clearly lost the legislative battle on SB 181 because the state went from fostering oil and gas development as its top priority to protecting the public and the environment as a condition for permitting new development. Legitimate rulemaking by Robbins and the COGCC as it pertains to SB 181 would mean the real war had only just begun.

The only way the Governor’s “end of the war” proclamation could be true is if SB 181 were to be used as a prop to disguise a business-as-usual approach adorned in vague promises of future enforcement. At this point it appears that is exactly what Polis intended. 

At the Thornton meeting, Robbins emphasized the governor opposed any statewide ban or moratorium. And he made it clear Polis favored the “Criteria” and undoubtedly approved them before their issuance.

It’s all about our health

The sixth edition of The Compendium of Scientific, Medical, and Media Findings Demonstrating Risks and Harms of Fracking (Unconventional Gas and Oil Extraction) was released in June of this year. 

The Compendium is recognized as the definitive source for scientific and cultural information on fracking. It has been translated into Spanish and used as a source and reference document in the European Union, South Africa, the United Kingdom, Australia, Mexico and Argentina. The vast majority of the studies and articles it contains expose fracking as a prevailing threat to the planet and most life on it. These are a few of the Compendium’s observations.

•  Wastewater samples collected from 329 fracked oil wells found that virtually all — 98% — contained benzene at levels that exceeded standards for permissible concentrations in drinking water. (Note: Benzene is a carcinogen and is unsafe to humans at any concentration.)

• By April 2019, the amount of natural gas burned off via flaring in the Permian oil fields in Texas reached a record high, exceeding the amount of gas needed to power every residence in that state. (Note: Flaring and venting of natural gas in Colorado is also common. Drillers want the oil, but methane comes up with it. In many cases, the cost of getting the methane to market is greater than its market value so it is simply released into the atmosphere, where, according to the IPCC — the United Nations panel on climate — it has 125 times the heat trapping potential of CO2 over the critical time frame of 10 years. That’s the same time frame the IPCC recently warned we have left to control climate warming or face a perilous future. 

• Over 90% of all original research studies published from 2016-2018 on the health impacts of fracking find a positive association with immediate or potential harm. (Note: In the scientific world, 90% agreement constitutes consensus and cannot be legitimately ignored by any government serious about protecting public health and the environment.)

Mr. Robbins’ 16 “Objective Criteria” do not acknowledge any of the more than 340 pages of abstracted scientific studies and articles documented in the Compendium. Instead, he simply asks that any drilling permits in an urban environment that are within 1,500 feet of people’s homes be sent to him for review. He, as Czar, will decide whether they pose a threat to public health and the environment. Rural folk and their proximity to proposed wells are apparently outside his purview. 

To date, over 450 wells have been approved since SB 181 was signed into law. Roughly 1,500 permits have been approved since Polis took office in January. Thus, from all appearances, the transition from the Hickenlooper to the Polis administration has been substantively seamless for oil industry interests despite all the shouts and murmurs that this would not be the case. One thing can be said with certainty; all the scientific evidence concerning fracking’s health and environmental impacts is not going to inform the Polis administration’s decision process any time soon. It will be done with magic tricks designed to gull the public.

Lest you think I exaggerate, a woman at the Thornton meeting — hand-picked out of the audience by Robbins — gushed that Robbins had been successful in getting a driller to change his fracking formula, thus lessening the resulting stench in her neighborhood. But our review of the chemicals exchanged indicate both were diesel-based. Thus both contained benzene. So it appears there was a placebo effect — the smell got better — but the threat probably didn’t. 

The true extent of the toxic releases from the fracking operation would have been known had a continuous monitoring system been in place at those wells as required by SB 181, but the realization of that requirement now appears to be years out. Until that far-off day, we’ll have to rely on testimonials from nose-sensitive neighbors on how the poisons from urban fracking can be ameliorated if you just know the right person. 

It is indeed fortunate for Robbins that the latest statistical study from Dr. Lisa McKenzie at the Colorado School of Public Health was not released until a day or two after his meeting in Thornton. McKenzie’s peer-reviewed study indicates pregnant women living in proximity to fracking activity have up to a 70%-increased chance of giving birth to children with heart defects compared to pregnant women living away from fracking during pregnancy.

During his Thornton presentation, an activist in the audience interrupted Robbins to say his 16 “Objective Criteria” were actually 16 “Subjective Criteria,” noting they weren’t based on any objective scientific information. He replied dismissively and somewhat nonsensically, “that could be your opinion.”

The differences between the Robbins Law and SB 181, the law written to protect the people and the environment, are vast and numerous.  Here are but a few of the more significant differences.

Setbacks

One of the long-festering controversies over fracking has been the proper setback distance needed to protect human health. Fires and explosions are not uncommon at oil and gas facilities. Leaks and discharges of toxins, such as benzene, are ubiquitous. A significant number of deaths from explosion and fire have occurred.  The state has continually increased the setbacks as a sop to the public’s clamor for better protection. Robbins’ 1,500-foot setback is simply the latest example in this official policy based on nothing more substantial than dampening public unrest whenever it reaches what the neoliberal establishment thinks is the boiling point. 

A citizen-sponsored setback initiative, Prop 112, was on the November election ballot. It called for a setback distance of 2,500 feet from where people live and work. It was opposed by establishment Democrats, including Polis, who explained his opposition with the trifling sound bite: “one size doesn’t fit all.” A compliant press never asked the future governor what that statement meant. Certainly it could be reasoned to mean that some people deserved more protection than others — particularly in light of the Robbins “Criteria,” which gives urban people a small amount of additional protection while excluding rural people from any additional setback protections.

In part, it seems SB 181 was a peace offering to the proponents of Prop 112. The sincerity of the legislative effort, given present enforcement, could be called into doubt. As a participant in all the hearings on this bill and someone who even drafted language for it when asked, I believe the bill’s sponsors were sincere. 

It is unfortunate that a couple of them were prodded into denying industry claims that the purpose of the bill was to ban fracking. This created a talking point for the industry, which knew the actual purpose of the legislation is to protect the public and the environment. But what is required to protect the people and the environment will not soon be known or enforced given the Polis administration’s dallying. Robbins magisterially peering at some drilling applications, to the exclusion of others, is not a valid test for fracking’s wide range of negative and dangerous impacts. 

A mountain of scientific information exists suggesting setbacks, no matter how large, won’t mitigate the many harms of fracking. There are simply too many other factors that must be weighed and aggregated in any mature effort to evaluate the risks today’s drilling practices pose to people, the environment and the planet. 

This is not to say setbacks are not important. They are the first line of defense for people living in the fracking fields of Colorado. But 1,500 feet is nowhere near adequate to protect human health. Fire lines in Colorado for oil and gas fires are a one-half to 1 mile. Impacts on the fetus of pregnant women have been measured up to 10 miles away from extraction operations.

In fact, the 1,500-foot Robbins’ setback of choice really isn’t a setback. It’s just a standard. Those permit applications with less than a 1,500-foot setback will still be reviewed and a permit could be issued. For those with at least a 1,500-foot setback, no review, no problem — except near schools where a 2,000-foot setback has now been arbitrarily dictated by Robbins. 

It seems no coincidence that a 1,500-foot setback was the compromise position developed for the oil industry by RS Energy last year during the battle over Prop 112. The industry study prepared at the time found that at 1,500 feet, the setbacks’ impacts on the industry’s core holdings would be minimal. Even Extraction Oil and Gas, whose business model is based on urban drilling, sometimes within shouting distance of playgrounds and parks, would have been only moderately impacted.

Financial Assurance  

SB 181 has a requirement that every driller, in order to get a new drilling permit, must present financial evidence that the company is capable of fulfilling its obligations to monitor, maintain and eventually close, plug and reclaim the wells being permitted. Though not a public health issue (except when wells are improperly plugged), this test for “can and will” is necessary to protect the public welfare and is one of SB 181’s specific requirements. It is not covered in Robbins’ 16 “Objective Criteria.”

The question of financial solvency has long plagued the industry. It has never made a sustainable profit from horizontally drilling and fracking shale formations. Its expenses have always exceeded the income generated from its oil and gas production from this expensive process. In 2017, the Wall Street Journal estimated the industry had debt totaling $280 billion. Its debt has only increased since then. 

It wasn’t long ago that some Wall Street analysts were saying Elon Musk would have to sell Tesla when his debt load reached $10 billion. That prophecy has not come true because the big difference between Musk and the frackers is that Musk can work himself out of debt if he can just build enough cars. He makes a profit on each one of them. The very opposite is true of today’s shale oil and gas industry — the more they drill the more they lose, and that has always been the case.

In the past, the industry was able to get Wall Street investors to bet on its future. But those investors are now rightfully leery of continued funding for what appears to be a losing proposition. Without tremendous amounts of new borrowed money, the overall oil and gas shale extraction industry simply cannot survive at current market prices or even much higher prices.

A recent report from one of the world’s leading banks warned that “the economics of renewables are impossible for oil to compete with.” It is their opinion that all the money presently being spent for developing new oil is a waste and could amount to as much as $24 trillion in lost investment capital for gas alone in the next 25 years if there isn’t a strategic U-turn in energy policy. 

This calculation does not include health and environmental costs. For example, another new study found that “coastal communities in the U.S. must spend upwards of $400 billion at a minimum in the next five to 10 years alone to protect property from sea level rise.” Colorado won’t have to worry about ocean flooding, but increased flash flooding, wildfires and drought are also impacts of climate warming and instability. And they do carry costs.

The evidence suggests the Polis administration does not believe in U-turns, even though the legislature provided a usable road map in the form of SB 181. The result of ignoring the realities of shale-oil-extraction economics is that the public will very likely, one day, have to pick up the tab for the closing, plugging and remediation of many, if not most, of the wells in this state, of which there are approximately 100,000. The costs will be many, many billions of dollars and will strain the state’s budget to the point of breaking. 

Bonding 

SB 181 directs the COGCC to revisit the bonding requirements to determine what amount of insurance is needed to adequately protect the public from someday inheriting the costs of closing and maintaining the industry’s old, played-out wells.  Presently, drillers have to post a $10,000 bond for one well, but bonding is capped at a laughable $100,000 for all wells a driller owns and/or operates. Noble Energy, though the second largest producer in the state, has the most wells, more than 7,000. At $10,000 per well, that would require a bond of some $70 million not the $100,000 the current law requires.

Last year about $5 million had to be allocated from the state’s general fund to close a few old, abandoned wells the COGCC had determined were an immediate health and safety risk. The cost came to about $250,000 per well. The COGCC has identified 365 more abandoned wells that should be likewise closed soon for public health and safety reasons. The legislature will likely have to allocate at least $91 million from the general fund to close them, and that’s only if there are no surprises. In California, the cost of closing two old wells in Hollywood recently ran to about a $1 million each. It is almost axiomatic that the closer fracked wells are to people and important public resources such as water supplies, the greater the costs of closing, plugging and monitoring.

A leaked government report from the Canadian province of Alberta set the likely cost of closing all old wells and attendant infrastructure in the province at $130 billion. The province has less than $1 billion in a trust fund for environmental restoration. Colorado has no funds set aside by the legislature and no trust fund.  Colorado has about half of Alberta’s 200,000 wells.

The immediate question becomes how are we the people going to pay for the closing of old wells, how many will there be, and how likely is it they will become a long-term public liability?

It is very likely the public will have to pay to close the majority of the wells in the state for the reasons discussed in the previous section on industry finances. It is a lead pipe cinch that the taxpayers will have to pay for the long-term maintenance of these wells, because the industry will be long gone in 20 years, replaced by renewables, assuming, of course, we humans are interested in and capable of self-preservation. Engineering studies show that old wells have to be resealed repeatedly, on average, every 20 years — concrete decays and steel corrodes. The costs tend to increase with re-closings. They are potentially a horrendous public cost. And still our elected officials treat the oil and gas industry as an economic positive to our state as opposed to the devastating liability it actually represents. 

This raises the question of why would the state not close off this obvious, known subsidy to the industry at the earliest opportunity? It is likely most of the 450 drilling permits issued since SB 181 became law were deemed bonded under the old system, so the drillers paid nothing, having already posted their $100,000 maximum. Thus, a $113-million taxpayer subsidy has likely been extended to the industry just since the April passage of SB 181 and Robbins’ 16 “Criteria” replaced it as state law shortly thereafter. Robbins’ Law does not address subsides or bonding, though bonding rulemaking is promised soon, perhaps. 

In another example of what the future holds, Anadarko, the largest producer in the state, was recently bought for $38 billion by Occidental Petroleum. As a condition for approving transfer of ownership under SB 181’s financial assurance requirements, the Polis administration could have insisted that new bonding was required. That could have allowed the $100,000 cap on bonding for Anadarko’s estimated 6,300 wells to have been increased to $1.6 billion at $250,000 per well, a much more realistic projection of what will eventually be needed. 

Still, the only reasonable way to get the funding needed to establish an adequate trust for closing wells is to raise the severance tax. Bonding increases would not be totally adequate to the job ahead since there are already about 100,000 wells in the state with inadequate or zero bonding, many of which are owned by small operators the state recognizes as financially distressed. A new requirement for permitting new wells should carry a caveat that all wells owned by the operator seeking the permit must be updated to at least a bond of $250,000 per well and more for wells in sensitive locations such as near neighborhoods, water supplies, etc. This bonding could also apply to any ownership transfer or financial assurance review which SB 181 specifies must be conducted annually. This would undoubtedly result in a coincidental reduction in new drilling permits.   

The organization I am member of, Be the Change-Colorado, floated a finished bill to increase the severance tax before Democratic leaders last year. It was not taken up. The Democrats felt that too much had been done with SB 181 on the docket.

The severance tax in this state is now an effective .6%, 10 times lower than neighboring Wyoming’s, which funds a good portion of its school system from a trust established with this tax. Colorado’s severance tax is the lowest by far of all western states largely because Colorado allows local property taxes paid to the counties to be deducted from the severance tax bill owed the state.

The state also allows other industry operating costs such as transportation, processing and manufacturing to be deducted from the severance tax. As a result in 2017, the severance revenues ran in the red by over $14 million. Money had to be allocated from the general fund just to keep the COGCC afloat and well permitting humming. 

The overall effect is that in three of the last 10 years, Weld County operators paid no severance tax to Colorado at all, even though Weld is by far the largest oil-producing county in the state.

Ironically state law also calls for a portion of the severance tax collected to go back to oil producing counties to cover oil and gas impacts even if they pay nothing into the state severance tax that year. For instance, Weld County collected about $490 million in property taxes from the oil industry in 2017, but paid no severance tax to the state. Yet, it received several million from the severance tax pot, a pot into which it had paid nothing.  

There is some talk at the legislature that a bill will be introduced in 2020 to eliminate the property tax deduction from the county severance tax calculation. That would of course help, as would eliminating the exception for stripper wells, those wells that produce less than 15 barrels of oil and/or 90,000 cubic feet of gas per day on average over the year. Over 70% of the wells in the state are stripper wells and thus pay no severance tax. 

But these measures alone would not realize enough revenue to bankroll the prospect of closing, plugging, remediating and maintaining all the wells in this state. 

An increase in the severance tax to at least an effective 9%, a rate similar to North Dakota’s severance tax, would raise enough money to at least start a trust fund for long-term maintenance of this well system. It goes without saying that the idiotic present redistribution of the severance tax back to the counties, as well as the state water program, must cease and be placed instead into this dedicated trust. 

Such action would unleash the furies of the oil industry as nothing else has. But in the end, there is no other way to start making inroads into the environmental debt coming to the citizens of this state. And make no mistake, the citizens in the gas- and oil-producing counties will not be asked to pay the tab alone. It will be all Colorado taxpayers, no matter where they live.

Polis’ temporizing over implementation of SB 181 appears to be an almost reflexive neoliberal reaction to balance the vested economic interests of corporate America, of which he is a prominent member, against the interests of the people and their constitutional rights to protection. Balancing these interests was a central precept of the old law. SB 181 was intended to turn the tables. Polis has simply not accepted the change, and, as a consequence, has made SB 181 a nullity, at least in the short term. 

In summary, there is a wellspring of official tax breaks and subsidies the oil industry enjoys that SB 181 could help correct if it were to be faithfully implemented. Robbins’s 16 “Objective Criteria” protect the industry from paying more. The health and safety requirements in SB 181 would protect the people if implemented, but any such action by Robbins and the COGCC are being pushed so far into the future as to create doubt they will ever be implemented.

Last month the young Swedish activist Greta Thunberg spoke before the French parliament. These were her words: “I believe that the biggest danger is not our inaction. The real danger is when companies and politicians are making it look like real action is happening when, in fact, almost nothing is being done apart from clever accounting and creative PR.” 

It is unfortunate Polis and his lieutenants were not there to hear.