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Groups Push Expanded Federal Regulation of E&P Activities
October 31, 2010

by Andrew B. McCallister, as published in IOGA of West Virginia newsletter, November 2010

Over the past two years the Environmental and Safety Committee has spent considerable time monitoring and advocating IOGA members’ interests with respect to various state and federal efforts to create new regulations or modify existing regulations of oil and gas development activities.  From revisions to the state rule regulating oil and gas wells, to the omnibus review of the oil and gas regulatory program, to the draft rule to require reporting of greenhouse gas emissions, to the United States Environmental Protection Agency’s study of hydraulic fracturing, it seems as though there is no area of regulation of the industry that these government agencies have not considered revising since the beginning of 2009.  Despite the flurry of activity from these agencies, environmental groups continue to find new areas in which they think USEPA should exercise control of the industry.  Most notably, these groups are pushing for regulation of air emissions from wells and associated systems, to repeal the “Bentsen Wastes” exemption from RCRA for exploration and production-related wastes; and pushing USEPA to immediately regulate frac fluids that contain diesel under the Underground Injection Control permit program.  Because the current round of regulatory action has its roots in environmental activists’ efforts two to three years ago, it is imperative that IOGA members understand the potential implications of the “next” round of changes these groups are advocating.

New Clean Air Act Standards for Oil and Gas Operations
Activists sued USEPA in January 2009, claiming that the agency had not fulfilled its statutory duty to review air emissions from the oil and gas industry sector and propose, if necessary, new or revised New Source Performance Standards (“NSPS”), National Emissions Standards for Hazardous Air Pollutants (“NESHAPs”), and residual risk standards.  Under the Clean Air Act, USEPA is required to undertake these reviews every eight years, but the agency had not satisfied this requirement.  USEPA settled the suit with the activists in February 2010 by agreeing that it would undertake a review of the emissions from the oil and gas industry and determine whether new NSPS, NESHAPs or residual risk standards are necessary by January 31, 2011.  The agency also agreed to have final rules, or determinations that new rules are not necessary, by November 30, 2011.  Environmental activist groups have continued to press USEPA on this issue, and in July sent a letter tying the need for these new air regulations to the Deepwater Horizon disaster and the increased need for strict oversight of all aspects of the oil and gas industry.  They also listed concerns such as oil and gas-related emissions contributions to ground-level ozone and the increased human exposure to benzene and other air pollutants as justification for the imposition of new regulations.  If USEPA determines that new NSPS, NESHAPs, or residual risk standards are necessary, it is possible that IOGA members will have to invest in new emissions control systems to comply, thereby driving up the costs of producing natural gas.

Repeal of the “Bentsen Wastes” Exemption
In a September 8th letter to USEPA, the Natural Resources Defense Council petitioned to have a long-standing exemption from the requirements of the Resource Conservation and Recovery Act for wastes associated with oil and gas exploration and production activities.  These wastes, including but not limited to cuttings, are often referred to as “Bentsen Wastes” after Senator Lloyd Bentsen who introduced the amendment to RCRA which directed USEPA to study whether these types of wastes should be considered hazardous.  In 1988, USEPA concluded not to regulate these wastes as hazardous wastes under RCRA due to the low toxicity characteristics of the wastes, the adequate regulation of the wastes by states, the economic harm that would result from regulation of these wastes as hazardous, and the infeasibility of implementing such regulations.  Now, more than twenty years later, NRDC is asking USEPA to revisit this exemption arguing that the rationale relied on by USEPA in 1988 are no longer true.  USEPA will now consider the NRDC petition and how to respond.  Even if USEPA ultimately reverses its earlier determination with respect to drilling wastes, that would not immediately subject E&P wastes to regulation as a hazardous waste.  Because of a quirk of Senator Bentsen’s amendment, Congress will have to approve that finding and any new rules that USEPA proposes.  Clearly, regulation of cuttings and other wastes as hazardous wastes would dramatically alter longstanding practice with respect to disposal of wastes.  Although quick action on this front is unlikely, this issue deserves close monitoring.

Regulation of Frac Fluids Containing Diesel
Environmental groups have also continued their campaign against hydraulic fracturing.  On August 5, 2010, a coalition of groups urged USEPA to regulate any hydraulic fracturing activities which used diesel in the frac fluid.  This effort appears to have paid immediate dividends for these groups as USEPA, without any fanfare or public statement, changed its website around the same time to state that any service company that uses diesel in its frac fluids must obtain approval from the Underground Injection Control (“UIC”) program because the well being fractured will be considered a Class II UIC well.  Although the website is unclear on this point, it appears that the UIC program it is referring to is the federal program administered by USEPA, not WVDEP’s delegated UIC program.  The Energy Policy Act of 2005, which specifically exempted hydraulic fracturing from regulation under the Safe Drinking Water Act, did carve out an exception from that exemption if the frac fluids included diesel as a constituent.  However, this recent assertion of authority by USEPA over frac fluids containing diesel is both new and unexpected.  The new policy did not go through rulemaking or any other public process.  As such, IPAA and the U.S. Oil and Gas Association have filed a legal challenge in the Circuit Court of Appeals for the District of Columbia claiming that USEPA’s action is an illegal rulemaking.  This new policy demonstrates USEPA’s intent to aggressively regulate the oil and gas industry.  It could also signal that the agency will attempt to expand its authority over oil and gas operations using the current hydraulic fracturing study, the CAA and RCRA issues discussed above, and any other statute or regulation that it can assert a colorable claim of jurisdiction to address such issues.  

In all three instances discussed in this article, environmental activists have prodded USEPA to take steps to roll back exemptions or impose new requirements on the oil and gas industry.  The Environmental and Safety Committee will continue to monitor and report on these issues so that IOGA members will be fully informed about these efforts to impose new and more onerous regulations on the industry.

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