Extracted from Law360
Colorado voters defeated Proposition 112 this November, 55 percent to 45 percent.[1] The initiative would have increased the minimum setback distance for new oil, gas and fracking projects to 2,500 feet from homes, schools, lakes, rivers, and other community and natural resources. Current setback restrictions for wells vary, from 1,000 feet from high-occupancy buildings (e.g., schools and hospitals) to 350 feet from other public spaces.[2]
Oil and gas operations represent an estimated 15 to 20 percent of the state’s economy, and many, including Colorado Gov. John Hickenlooper, expressed concern that the measure, if passed, would cause a statewide recession.[3] Proponents of the measure argued that the state agency in charge of oil and gas operations, the Colorado Oil and Gas Conservation Commission, or COGCC, had not done enough to protect residents from the siting fossil fuel operations. Many feared the new required setbacks would virtually eliminate all oil and gas development in Colorado, while others felt the proposition as written was too inflexible of a solution to address concerns related to well siting.
Oil- and gas-related ballot initiatives have not been particularly successful elsewhere in the country. A carbon tax failed to pass in Washington state, and a renewable energy mandate lost in Arizona in 2018.[4][5] California voters also declined to implement additional oil and gas regulations. In San Luis Obispo County, an initiative to limit fracking was defeated by voters 54 percent to 46 percent.[6]
This is perhaps due in part to the fact that California and Colorado already boast regulations that put them at the forefront of state-level restrictions on fossil fuel production.[7][8] In studying fracking in the state, the California Department of Conservation stated that “California has the most rigorous regulations in the country for oil and gas exploration, development and production, and their historic and on-going implementation has greatly minimized, and in many cases prevented, the types of environmental impacts that have occurred in other states.”[9] For example, SB 4, passed in 2013, required the state Department of Oil, Gas and Geothermal Resources, or DOGGR, in consultation with four other state agencies and local actors to adopt regulations specific to fracking, including notification requirements, water testing and monitoring, and well locations.[10] In Colorado, the COGCC director stated that after the implementation of new rules in February 2018, Colorado has more pipeline oversight “from start to stop, from cradle to grave, than exist in any other state.”[11]
Despite the strict regulations already in place, Colorado and California remain two of the top oil producers in the country. Both California and Colorado rely heavily on the oil and gas industry, ranking sixth and seventh, respectively, in terms of crude oil production in the United States.[12] In California, a recent report found that the industry supports approximately 370,000 jobs and generates over $26 billion in state and local tax revenue.[13]
These ballot initiatives present legal questions of preemption and property rights as well. Opponents of the measure focused on the economic repercussions of the proposition, noting that a measure like this could cost the state “hundreds of millions of dollars in lawsuits.”[14] In response to Proposition 112, Colorado farmers and oil and gas industry advocates proposed Amendment 74, which would compensate landowners for a decrease in property values as a result of government law or regulation.[15] The measure was a response in part to Proposition 112, which if passed would likely have reduced property values in those areas no longer eligible for extraction.[16] With or without additional compensation requirements, with any new measure, states must consider possible takings challenges from oil and gas producers.
Locally implemented regulations have not fared much better. City-level regulations have been struck down by the Colorado Supreme Court, and in 2016 a ballot measure passed by voters in Monterey County, California, restricting oil and gas production was held preempted by state law.[17][18]
Ultimately, the failure of voter-led initiatives may result in environmental groups taking their fight directly to the state legislature.[19] The 2018 elections put Democrats in control in both states. In both California and Colorado, Democrats currently control both chambers of the state Legislature and the governor’s office, and California Democrats have a supermajority.[20] While Democratic politicians may be amenable to restricting oil and gas development, they should be careful not to undermine the industry’s ability to economically produce oil and gas in their states. Doing so will cost jobs and significant, needed tax revenue.[21] Shutting down oil operations in California only results in larger imports, which are not at all carbon-friendly.
As the economic outlook is currently in some doubt, oil and gas development becomes even more important to states that have in recent times been hostile to business with their high taxes and overburdening regulations. Just this past week, in France, protests that were fostered in response to additional gas taxes have become a nationwide movement demanding economic change.[22] Democrats should be cautious before backing drastic measures when voter-led initiatives have demonstrated unfavorable public opinion of new regulations that will drive the price of gasoline and natural gas higher, cost jobs and eliminate desperately needed tax revenue.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Ballotpedia, Colorado Proposition 112, Minimum Distance Requirements for New Oil, Gas, and Fracking Projects Initiative (2018), https://ballotpedia.org/Colorado_Proposition_112,_Minimum_Distance_
Requirements_for_New_Oil,_Gas,_and_Fracking_Projects_Initiative_(2018)#cite_note-3.
[2] Id.
[3] Oil and Gas 360, Colo. Gov. Hickenlooper Won’t Rule Out Calling Special Session if 112 Passes: “That’s How You Spell Recession” (Nov. 2, 2018), https://www.oilandgas360.com/colo-gov-hickenlooper-wont-rule-out-calling-special-session-if-112-passes-thats-how-you-spell-recession/.
[4] Tsvetana Paraskova, OilPrice.com, Big Oil Wins Ballot Initiatives in Colorado, Washington (Nov. 7, 2018), https://oilprice.com/Energy/Energy-General/Big-Oil-Wins-Ballot-Initiatives-In-Colorado-Washington.html.
[5] David Roberts, Vox, Fossil fuel money crushed clean energy ballot initiatives across the country (Nov. 11, 2018), https://www.vox.com/energy-and-environment/2018/11/7/18069940/election-results-2018-energy-carbon-fracking-ballot-initiatives.
[6] Ballotpedia, San Luis Obispo County, California, Measure G-18, Petroleum Extraction and Well Stimulation Regulation Initiative (November 2018), https://ballotpedia.org/San_Luis_Obispo_County,_California,_Measure_G-18,_Petroleum_Extraction_and_Well_Stimulation_Regulation_Initiative_(November_2018).
[7] Cal. Dept. of Conservation, Division of Oil, Gas & Geothermal Resources, Analysis of Oil and Gas Well Stimulation Treatments in California, at p. C.10-24, https://www.conservation.ca.gov/dog/Pages/SB4_Final_EIR_TOC.aspx.
[8] Cathy Proctor, Denver Business Journal, Colorado again pushes to nation’s forefront with new oil and gas rules (Feb. 13, 2018), https://www.bizjournals.com/denver/news/2018/02/13/colorado-again-pushes-to-nations-forefront-with.html.
[9] Cal. Dept. of Conservation, Division of Oil, Gas & Geothermal Resources, Analysis of Oil and Gas Well Stimulation Treatments in California, at p. C.10-24, https://www.conservation.ca.gov/dog/Pages/SB4_Final_EIR_TOC.aspx.
[10] Cal. Dept. of Conservation, Division of Oil, Gas & Geothermal Resources, Analysis of Oil and Gas Well Stimulation Treatments in California, at p. 2-21, https://www.conservation.ca.gov/dog/Pages/SB4_Final_EIR_TOC.aspx.
[11] Ed Sealover, Denver Business Journal, Democrats recapture Colorado Senate, now hold complete power at Capitol (Nov. 6, 2018), https://www.bizjournals.com/denver/news/2018/11/06/colorado-senate-democrat-control.html.
[12] Rob Nikolewski, The San Diego Union-Tribune, California’s ranking as an oil-producing state is slipping (July 12, 2016), http://www.sandiegouniontribune.com/business/energy-green/sd-fi-california-crudeoil-20180711-story.html.
[13] Los Angeles County Economic Development Corporation, Oil & Gas in California: The Industry and Its Economic Impact (June 8, 2017), https://laedc.org/2017/06/08/oil-gas/.
[14] Ballotpedia, Colorado Proposition 112, Minimum Distance Requirements for New Oil, Gas, and Fracking Projects Initiative (2018), https://ballotpedia.org/Colorado_Proposition_112,_Minimum_Distance_
Requirements_for_New_Oil,_Gas,_and_Fracking_Projects_Initiative_(2018)#cite_note-3.
[15] Mark Jaffe, Colorado Sun, “It is going to be very messy”: Opposing oil and gas ballot measures respond to Colorado’s contentious drilling climate (Sept. 11, 2018), https://coloradosun.com/2018/09/11/proposition-112-amendment-75-colorado/.
[16] Id.
[17] Grace Hood, Colorado Public Radio, Voters Said No to Prop 112. Where Does That Leave the State’s Fracking Foes? (Nov. 13, 2018), http://www.cpr.org/news/story/voters-said-no-to-prop-112-where-does-that-leave-the-state-s-fracking-foes.
[18] Tom Leyde, The Californian, Judge Issues Ruling on Measure Z (Jan. 2, 2018), https://www.thecalifornian.com/story/news/2018/01/02/judge-issues-ruling-measure-z/998276001/.
[19] Grace Hood, Colorado Public Radio, Voters Said No to Prop 112. Where Does That Leave the State’s Fracking Foes? (Nov. 13, 2018), http://www.cpr.org/news/story/voters-said-no-to-prop-112-where-does-that-leave-the-state-s-fracking-foes.
[20] Cathy Proctor, Denver Business Journal, Colorado again pushes to nation’s forefront with new oil and gas rules (Feb. 13, 2018), https://www.bizjournals.com/denver/news/2018/02/13/colorado-again-pushes-to-nations-forefront-with.html.
[21] David Roberts, Vox, Fossil fuel money crushed clean energy ballot initiatives across the country (Nov. 11, 2018), https://www.vox.com/energy-and-environment/2018/11/7/18069940/election-results-2018-energy-carbon-fracking-ballot-initiatives.
[22] Euan McKirdy and Saskya Vandoorne, CNN, France to suspend fuel price hike after “yellow vest” protests (Dec. 5, 2018), https://www.cnn.com/2018/12/04/europe/france-yellow-vest-protests-intl/index.html.