It's easy to tick off the ways in which California is a leader in clean energy: It harvests more solar energy than any other state, has a program to curb greenhouse gas emissions from the vehicles on its famously long highways, and launched its own cap-and-trade system this year. (See accompanying photo gallery: "Pictures: Oil Potential and Animal Habitat in the Monterey Shale.")

And yet, a move is afoot for a quite different type of new energy development in the Golden State, beneath the same valley that beckoned gold seekers and migrant farmers generations ago. That ever alluring land happens to lie atop the Monterey shale formation, a vast rock formation that is believed to hold one of the world's largest onshore reserves of shale oil.

Oil companies are seeking to stake their claim to this prize, plunging California into a debate on its energy and economic future. The U.S. trailblazer on renewable energy could well become the latest front in the nation's fracking-driven oil boom. (See related story: "U.S. to Overtake Saudi Arabia, Russia as World's Top Energy Producer.")

It's not yet clear whether hydraulic fracturing can unleash the same sort of oil rush in California's Monterey shale as the United States is now seeing in North Dakota and in Texas. The San Joaquin Valley, site of historic tension over river flow, aquifer-pumping, and irrigation, is a dubious location for a business that requires large volumes of water to fracture the underground rock. (

See related story: "Pictures: Bakken Shale Oil Boom Transforms North Dakota.")

As for the rock itself, it is deeper and thicker than other shales, formed by tectonic faulting millions of years ago. Today the geology's potential and risks are still not fully understood. But perhaps the biggest obstacles are above ground, as California grapples with questions fundamental to its identity. Should the state move aggressively to seize this new opportunity for jobs and industrial development, or take steps to preserve its remaining havens of undeveloped land and shun a new round of fossil fuel expansion?

Large Resources

Spanning some 1,750 square miles of central and southern California, the Monterey formation is a jumble of rocks broken, fractured, wrinkled, and folded by tectonic shifts over millions of years. Trapped between and within these rocks are the remnants of ancient marine life: organic matter from the Miocene epoch, rendered into oil through heat and pressure. Uncertain at this point is how much oil remains trapped, where it can be found, and how difficult it will be to extract. (See interactive: "Breaking Fuel From Rock.")

According to U.S. government estimates, as much as 15.4 billion barrels of oil could be locked within the Monterey shale. That would be more than double the amount of oil reckoned to lie within the Bakken shale, the booming play that has made North Dakota the nation's number 2 oil-producing state behind Texas. It's more than five times the oil of Texas' thriving Eagle Ford shale. Indeed, Monterey holds more than half of the undeveloped, technically recoverable shale oil resources believed to exist in the continental United States. (See related: "Pictures: The New Oil Landscape.")

It is a storehouse that, if developed, could add as many as 2.8 million jobs by 2020 and increase tax revenue for state and local governments by $4.5 billion, according to an analysis by University of Southern California academics. Industry experts believe the possibilities are huge. (See related feature: "America Strikes Oil.")

"You have the Bakken, Eagle Ford, Utica, from the Rockies to the East Coast, that are generating a lot of new oil and gas, and it's making huge differences in our domestically produced supplies," says Pete Stark, an analyst with the consulting firm IHS Energy. "Here's this obviously well-known, very rich source rock, and gosh, if we can crack the code on getting into new and unconventional parts of the Monterey, maybe we have a huge new bonanza on hand."

If so, it wouldn't be the first oil windfall for California. The motto emblazoned on the state seal, "Eureka," hearkens back to the gold rush that drew the first wave of fortune-seekers here beginning in 1849, but it could as easily refer to the discovery of the state's first big gusher, the Shamrock, nearly 50 years later. Indeed, oil generated more wealth for California over the past 150 years than gold ever did, and the source rock for much of that petroleum was the Monterey formation.

And although California's clean-energy bona fides are real, so is its oil business; it is currently the number 4 oil-producing state, behind Texas, North Dakota, and Alaska.

But oil production in California fell 50 percent from 1985 to 2011, following the inexorable trend line of the conventional crude business. In 2012, for the first time in years, overall oil production actually ticked up slightly in California, as drillers wrung more petroleum from established fields. The question is whether shale oil and unconventional techniques like fracking can unleash a new California oil boom. Some oil companies, like Occidental and Aera Energy are beginning to place bets that it will, acquiring acreage across the Monterey and ramping up exploration efforts. Another company, Venoco, recently sold off most of the acreage it had accumulated in search of Monterey shale oil since 2006, but it still plans to direct $13 million to Monterey shale development in 2013. For private landowners, there's excitement at the prospect of signing bonuses and royalties.

Seismic Implications

But the Monterey shale is not a place that gives up its secrets easily, even though great rocky outcroppings of the formation are plainly visible throughout the region. "We do know every square mile of the Monterey is not like the other square miles around it," says Stark. (See Special Report, "The Great Shale Gas Rush.")

Unlike North Dakota's Bakken or the other U.S. shale oil plays, the Monterey was deposited at the edge of the North American continent as it broke up, explained geologist Richard Behl, who runs an industry-supported program at California State University, Long Beach. "It was all faulted, and it broke into all these steep basins and islands and bank tops in between," says Behl, whose program is called the MARS Project (Monterey and Related Sedimentary Rocks). The shale of the Monterey formation averages nearly 1,900 feet thick and more than 11,200 feet deep, compared to an average thickness of just 22 feet and depth of 6,000 feet for the Bakken shale. The Bakken, spread over 6,500 square miles of North Dakota and Montana, spans nearly four times as much land area as the Monterey.

"All these other shales are in areas that have not been tectonically formed, so the rock itself is not naturally fractured," Behl said. "When they go in and they drill horizontally and they do the artificial hydraulic fractures, they're breaking those rocks open for the first time in a relatively narrow zone, and allowing the oil to come out of where it's been trapped."

The Monterey is a different beast. Here, Behl said, "brittle rocks are naturally fractured, and have been for millions of years." Oil has flowed into the cracks, and comes up easily when drilled. "Instead of trying to suck a milkshake through a straw, it's like just dumping it out of a cup," he said.

So a key question is this: Did the Monterey's oil already move up into the traps that were discovered (and tapped) over the last hundred years? Perhaps California oil prospectors from the days chronicled in the movie There Will Be Blood long ago drank the milkshake that the shale oil industry now hopes to tap. Or there could be a lot of oil just waiting to be found in these rocks. "That's of course what the optimists are really hoping," says Behl.

A Habitat's Last Stand

Geology may not be as great an obstacle as citizen and environmental opposition. In a lawsuit brought by environmental groups, a judge ruled this spring that the U.S. Department of the Interior's Bureau of Land Management (BLM) had moved too fast to lease federal lands in the Monterey shale for oil exploration and development. U.S. Magistrate Judge Paul Grewal said that federal law requires a comprehensive environmental review of the potential impacts of fracking before such leases can be granted. It was unreasonable, the court ruled, for BLM to rely on old analyses predicting limited drilling. Advances in hydraulic fracturing, horizontal drilling, and other techniques have dramatically changed the possible development scenarios, and the court held that the agency must "at least consider reasonable projections of drilling in the area that include fracking operations." Grewal was to rule later on whether to invalidate the leases on some 2,500 acres of federal land in Monterey County that the BLM had auctioned off for up to $900 per acre in 2011.

Environmental groups have vowed to continue the fight, and shortly after the ruling they filed another suit to block BLM from leasing 17,000 acres in Monterey, San Benito, and Fresno counties. In early May, the agency drew fire from the petroleum industry when it announced that all sales of leases for oil drilling in California will be postponed until October or later. Citing budget problems resulting from the automatic cuts of the federal sequester and a need to focus on existing leases, the agency said it would delay the sale of four parcels on nearly 1,300 acres of the Monterey shale that had been scheduled to take place last week.

"Many of the areas proposed for oil development in California are some of our last, best public lands," says Brendan Cummings, attorney for the Center for Biological Diversity, which brought the suit together with the Sierra Club. "They were never farmed, they were never turned into subdivisions." These areas include places like the oak woodlands of Monterey County along the western fringe of the Central Valley. Says Cummings, "It's this last remnant area of habitat for species that once inhabited the whole valley floor."

New oil development here, the Center warns, could negatively impact endangered species, including the San Joaquin kit fox, the California condor, the blunt-nosed leopard lizard, as well as the threatened South Central Coast steelhead.

But the Monterey shale runs beneath more than wildlife habitat. Its irregular twists and folds also underlie the San Joaquin Basin of California's Central Valley, once described by John Muir as a "smooth, flowery, lake-like bed of fertile soil." The agriculture and oil industries have long coexisted at enormous scale here, with Central Valley farmland producing one-quarter of the nation's food and crops worth an estimated $17 billion per year. New, unconventional oil development presents a mixed opportunity for farmers—at once a potential source of income, competition for coveted water allotments, and a possible threat to livelihoods that depend upon clean earth and water. As a result, some growers and vintners have joined environmentalists in calling for greater scrutiny and disclosure of fracking activity.

Because of the potential threat to the important agricultural business and to water, many state and local officials are nervous. The Monterey County government protested BLM's leasing program, expressing particular concerns about "the potential to induce seismic activity and the lack of scientific study related to potential impacts to drinking water and groundwater." And at least seven bills to rein in fracking have been introduced in the state legislature. Three bills that advanced in the assembly in recent weeks would place a moratorium on hydraulic fracturing pending study of its environmental and health effects. A state senate bill would allow fracking to continue for now but would clamp down unless a comprehensive review is conducted by the end of next year. That bill would require operators to obtain a permit, provide advance notice to neighbors, and disclose chemicals to regulators before fracking,

The oil industry, arguing against new restrictions, says fears about fracking are overblown. The process has been used for decades to stimulate oil flow in California wells, and more than 600 wells were fracked in the state in 2011. Historically, fracturing in California has been used in vertical wells—not in combination with the horizontal drilling techniques that have wrested oil from North Dakota's Bakken and natural gas from the Barnett shale of Texas or Marcellus shale in Pennsylvania.

The California Independent Petroleum Association says most fracking occurs in long-established oil country—not wine country or scenic habitats. In western Fresno County, where several parcels in the disputed 2011 lease sale are located, the landscape encompasses golden, desert-like hills and blankets of wildflowers, but also an 800-acre cattle feedlot and Chevron's Coalinga oil field, which has been cranking out oil crude since 1887. The group claims most hydraulic fracturing so far in the state has occurred in Kern County, which pumps out about three-quarters of California's oil production. "These fields have no potable water, no surrounding population and no other significant business interests," says the trade group.

In the future, however, sustained high oil prices in combination with declining output from aging onshore wells and advances in sensors, three-dimensional seismic imaging, horizontal drilling, and other technologies could expand the areas where fracking is both effective and economical.

For many Californians and their supporters in the environmental movement, the fight over the Monterey shale is much larger than the local impacts. Sierra Club executive director Michael Brune, explaining why his group is litigating to stop federal auctioning of more rights for Monterey shale drilling on federal land, says the Obama administration should "double down on clean energy," rather than "leasing land for more dirty fuel drilling."

As with fights under way over the Keystone XL pipeline from Canada, and plans to build coal export terminals on U.S. coastlines, the new fossil fuel abundance is touching off a backlash among those alarmed by the consequences for climate change. (See related story and map: "Keystone XL Pipeline Path Marks New Battleground in Oklahoma.") Cummings describes the Monterey's shale oil as a "carbon bomb," adding, "People have to start saying, 'Nope, it stays in the ground,' because of climate change, and that line ought to be drawn in California."