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Governor Gavin Newsom has proposed a buffer zone of 3,200ft for new wells and emissions monitoring of existing wells, which could be put in place by 2023.
The proposed rule from the California Geologic Energy Management Division goes even further than the 2,500ft barrier wanted by environmental groups.
“Our reliance on fossil fuels has resulted in more kids getting asthma, more children born with birth defects, and more communities exposed to toxic, dangerous chemicals,” said Mr Newsom in a statement.
“We are committed to protecting public health, the economy and our environment as we transition to a greener future that reckons with the realities of the climate crisis we’re all facing.”
Environmental and public health campaigners say that oil fields in the state, which have had very little restrictions, disproportionately impact Latino and Black communities.
The move came just weeks after a damaged underwater pipeline leaked 131,000 gallons of crude oil off the coast of Orange County.
In the wake of the largest California oil spill since 2015, Mr Newsom pledged action to move the state away from fossil fuels.
“It’s time once and for all to disabuse ourselves that this has to be part of our future. This is part of our past,” Mr Newsom said after the accident.
“We can moralise and talk about the good old days, but at the end of the day, this isn’t about the stale air of normalcy but the fresh air of progress.”
Environmental campaigners have welcomed the proposed rule.
“After years of delay, we are encouraged by this announcement from the Newsom administration, which sends a strong signal that oil and gas has no place in neighbourhoods,” said Neena Mohan, the California Environmental Justice Alliance’s climate justice manager.
“We’re ready to carry this rule home and make sure it actually accomplishes what we need it to accomplish: the end of neighbourhood oil and gas drilling.”
In some areas of the state, including Los Angeles County, there are no restrictions on where oil drilling can take place, and more than 2 million people in California live within half a mile of an oil well.