Friday, May 6, 2011

A Review of Some Oil and Gas Exemptions from Environmental Regulation

May 6, 2011

As hydraulic fracturing for natural gas continues to attract media attention, I thought that this would be a good time to review several of the major statutory exemptions enjoyed by oil and gas companies. The most substantial exemption, in my view, is the EPA's determination in 1988 that oil and gas exploration and production or "E&P" wastes should not be regulated under Subtitle C of the Resource Conservation and Recovery Act. When Congress enacted RCRA in 1976, the Act contained no oil and gas exemption. Congress eventually directed the EPA to study, though, whether certain oil and gas wastes should be regulated under Subtitle C or not, and after some foot-dragging and a lawsuit, the agency determined that the wastes--although some of them were hazardous--should be exempted.

Specifically, the EPA's 1988 study, located at 53 Fed. Reg. 25,446, concluded that "23 percent of the statistically weighted sample sites generating produced water contain one or more of the toxic constituents of concern at levels greater than 100 times the health-based standards." More generally, the EPA found that between ten and seventy percent of the oil and gas wastes sampled (the percentages varied by type of waste) "could potentially exhibit RCRA hazardous waste characteristics." The EPA concluded, though, that imposing corrective action requirements, including on-site management of the wastes under RCRA, would result in "significant costs to the industry" and that "most existing State regulations are generally adequate for protecting human health and the environment."

The EPA conducted its RCRA exemption study before high-volume "slickwater" hydraulic fracturing in shales had fully emerged. Gas operators in the Barnett Shale did not perfect the slickwater technique, which uses large quantities of water mixed with smaller quantities of chemicals, until the late 1990s, so the EPA has never directly studied whether the several million gallons of fracture solution injected into a well--some of which flow back up and must be disposed of--have hazardous characteristics and might merit a reconsideration of the RCRA Subtitle C exemption. In light of this concern, the Natural Resources Defense Council submitted a rulemaking petition to the EPA in 2010, requesting that the EPA reconsider the 1988 RCRA exemption for oil and gas exploration and production wastes.

Another interesting aspect of the RCRA exemption is its reliance, to some extent, on non-mandatory guidelines that are intended to improve state regulations. Because the EPA recognized that some oil and gas exploration and production wastes were hazardous when it exempted them from RCRA Subtitle C regulation, the agency noted that some gaps in state regulation needed to be filled. As a solution, the agency gave money to the Interstate Oil and Gas Compact Commission to review state regulations, and the IOGCC formed something called the State Review of Oil & Natural Gas Environmental Regulations, Inc., or "STRONGER." STRONGER brings together representatives from industry, state environmental agencies, and environmental groups to review the efficacy of state oil and gas regulations, but STRONGER is of course not a regulatory agency. After reviewing the adequacy of regulations--including recent reviews specific to hydraulic fracturing--STRONGER develops non-mandatory "guidelines" for better state laws. In evaluating whether the RCRA exemption is a good idea, we should therefore look both to the data and assumptions behind the EPA's 1988 exemption decision and to its assumption about how states would improve their laws by, for example, following STRONGER recommendations.

A second important oil and gas exemption in federal environmental law is the exemption of uncontaminated sediments from oil and gas construction sites from National Pollutant Discharge Elimination System stormwater permitting requirements. The EPA has a useful website that summarizes several aspects of this exemption, including: its original text; Congress's attempt to expand the exemption to most oil and gas construction, exploration, and production activities in the Energy Policy Act of 2005; and subsequent litigation that has somewhat narrowed this attempted expansion.

Third, oil and gas operators do not need to prepare annual toxic chemical release forms under the Emergency Planning and Community Right-to-Know Act. (42 U.S.C. 11023 describes the Standard Industrial Classification codes to which the reporting requirement applies, and oil and gas drilling do not appear to fall within the SIC codes covered.) Oil and gas operators must keep material safety data sheets on site under Section 311 of EPCRA, however, and must provide the MSDS to local emergency planning committees upon request. EPCRA specifically allows the operators to claim trade secret status for chemicals when providing MSDS to local emergency planning committees.

Finally, the process of fracturing itself is not regulated under the Safe Drinking Water Act. The EPA had long maintained that hydraulic fracturing did not count as "underground injection" under the Safe Drinking Water Act--a position that the Legal Environmental Assistance Foundation successfully challenged in Alabama--and Congress formally affirmed the EPA's position in the Energy Policy of Act of 2005, in which Congress declared that hydraulic fracturing (unless the fracturing used diesel fuel) did not fall under the SDWA definition of underground injection. This exemption means that oil and gas operators need not obtain a permit for an underground injection control (UIC) well prior to fracturing. Interestingly, a report recently released by Representatives Waxman, Markey, and DeGette concludes that some of the major fracturing companies injected approximately thirty million gallons of diesel fuel "or hydraulic fracturing fluids containing diesel fuel" into fractured wells between 2005 and 2009. It is not clear whether these companies obtained a UIC permit for this fracturing.

The report that reveals the use of diesel fuel is also interesting because several of the major fracturing companies signed a memorandum of agreement with the EPA in 2003 stating that they would not use diesel fuel in fracturing. (The memorandum is no longer available online, but the EPA's press release about the memo is still available.)

In sum, oil and gas companies operate under several substantial exemptions from federal environmental laws. As the Ground Water Protection Council likes to point out, many other federal laws still apply. A company wanting to discharge wastes into a river, for example, must obtain an NPDES permit under the Clean Water Act. Oil and gas companies also must comply with the Endangered Species Act and OSHA regulations, among many other federal laws. But the exemptions should not be ignored, particularly as states, and groups of state regulators such as the Ground Water Protection Council, argue that state regulations adequately control hydraulic fracturing risks. If we continue to rely substantially on states to control the risks, we should ensure that state regulations are sufficiently robust.

-Hannah Wiseman


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