Halliburton Loophole

halliburton loopholeWhat is the “Halliburton Loophole”?

 The “Halliburton Loophole” refers to legislation introduced in the 2005 Energy Policy Act that exempts hydraulic fracturing and oil and gas drilling from certain sections of the Safe Drinking Water Act of 1974 and the Clean Water Act of 1972.  As such, the Halliburton Loophole legislation represents a significant reduction in federal oversight of drilling and fracking operations.

The Energy Policy Act passed in Congress and was signed into law by President George W. Bush in the summer of 2005.  The act was the result of a four year period of bipartisan negotiation in an effort to establish sweeping federal policy reforms in a diversity of energy platforms including coal, nuclear, hydroelectric, ethanol, and oil and gas6.  Changes introduced included the creation of new safety standards, the restructuring of licensing procedures, the subsidizing of energy research, and of course, the exemptions that constitute the Halliburton Loophole.

What does Halliburton have to do with it?

As the discovery of vast amounts of natural gas in the Marcellus Shale formation has made drilling and fracking a pressing issue in the densely populated east coast of the United States, the term “Halliburton Loophole” has become increasingly apparent in popular culture.  However, the actual legislation it refers to does not actually mention Halliburton in any capacity.  Where did this term come from?

Mainly, this form of reference stems from the involvement of then Vice President Dick Cheney in the insertion of the exemptions into the 2005 Energy Act.  Cheney was chairman of the Energy Policy Task Force established by President Bush—an organization that wielded heavy influence in the 2005 legislation and recommended inclusion of the exemptions8.  Cheney was also a former executive of Halliburton.  In a secondary capacity, the term is resultant of the fact that Halliburton has always been strongly associated with fracking.  Although experimental hydraulic fracturing methods were first developed in the late 1940s by Stanolind Oil, the fracking process was first patented under the name “Hydrafrac” by the Halliburton Oil Well Cementing Company in 194910.

In short, the term “Halliburton Loophole” is a result of associations between Halliburton and the insertion of the exemptions as well as between Halliburton and the technology itself.  The “Halliburton Loophole” does not in fact refer specifically to Halliburton or grant the company any special powers or exemptions.

The Halliburton Loophole and the Safe Drinking Water Act

The Safe Drinking Water Act (SDWA) was implemented in 1974 with the goal of preserving the purity and safety of the limited supply of potable water in the United States.  The act granted and enhanced federal regulatory power over industrial operations with the potential to cause pollution in drinking water supply.  In fact, the SDWA constitutes the bulk of the EPA’s authority to enforce protection of US water supply11.  A special focus of the SDWA is the establishment of extensive restrictions on “underground injection” which is defined as “the subsurface emplacement of fluids through well injection”3.  This definition would include fracking operations and subject them to any and all restrictions outlined in the Act.

signing halliburton loophole into law

Former President Bush signs the Energy Policy Act into law in 2005 as current President Barrack Obama looks on.

The exemption of fracking from these restrictions is a consequence of the introduction of the following language in the 2005 Energy Policy Act:

“The term ‘underground injection’—

(A)   means the subsurface emplacement of fluids by well injection; and

(B)    excludes—

(i)  the underground injection of natural gas for purposes of storage; and

(ii)  the underground injection of fluids or propping agents(other than diesel fuels) pursuant to hydraulic    fracturing operations related to oil, gas, or geothermal production activities.”

By excluding natural gas and fracking fluid injection from the definition of “underground injection”, the 2005 legislation exempts these processes from all associated provisions of the SDWA, stripping the EPA of the vast majority of its regulatory power in these cases.

The Halliburton Loophole and the Clean Water Act

Another major body of federal legislation amended in the 2005 Energy Policy Act was the Clean Water Act.  The Clean Water Act (CWA) was introduced in 1972 with the purpose of establishing permitting systems for industrial processes in order to curtail the introduction of pollutants into US waters from point sources.  The CWA is another major source of EPA regulatory power, granting the agency the authority to set industry-wide standards for the quality and disposal of effluent water7.  That power was further expanded in 1987, when the definition of “effluent water” was expanded to include rainwater runoff from industrial operations5.

The Energy Policy Act again significantly reduces EPA regulatory authority of oil and gas drilling by introducing language that creates exemptions from Clean Water Act provisions.  This reduction is accomplished in several ways:

  1.      Chemicals additives used in fracking fluid are formally defined as “tools” used by the oil and gas industry rather than as “pollutants”.  Thus, restrictions applying to pollutants are circumvented by fracking chemicals.
  2.       The oil and gas industry is exempted from the 1987 inclusion of rainwater runoff restrictions5.  As a result, the EPA cannot regulate any potential pollution that may occur as a product of rainwater runoff from drilling sites and drilling rig construction.

What does the Halliburton Loophole mean for industry and communities?

State Fracking RegulationsIn examining the impact of the Halliburton Loophole on industry and communities, it is vital to distinguish between federal and state regulatory power.  While the Halliburton Loophole effectively cripples the EPA’s regulatory authority over oil and gas drilling and fracking activities, it is important to remember that the EPA is a federal agency.  The Halliburton Loophole is significant in that it severely limits federal oversight.  State regulatory capabilities remain unaltered by the 2005 legislation.  This fact raises questions regarding the practical impact of the loophole.

Are these exemptions affecting our communities on a local level?  Many critics of the publicity received by the legislation would argue that they are not.  Although federal oversight may be absent, oil and gas drilling procedures are highly regulated by most states on an individual basis.  Michael Krancer, Secretary of Pennsylvania’s Department of Environmental Protection, testified to this fact before Congress9.

“In Pennsylvania, all aspects of oil and gas exploration and extraction, including drilling and fracking operations, are regulated by the state’s Oil and Gas Act, the Clean Streams Law and our water protection regulations. The fact is that the so-called and misnamed ‘Halliburton Loophole’ in no way diminishes the statutory and regulatory coverage of our laws as applied to gas extraction.” (Michael Krancer, 2011)9

In fact, it has been asserted that state governments are much better equipped to enforce regulations than are federal agencies.  Due to the rapid recent expansion of shale gas production and hydraulic fracturing, federal enforcement would require a drastic expansion of EPA resources and staff8.

On the other hand, critics of the loophole itself believe that a national standard is needed in order to ensure safe drilling and hydraulic fracturing.  Currently, the EPA retains the right to regulate the use of diesel fuel additives in hydraulic fracturing under the Safe Drinking Water Act.  However, proponents of federal regulation maintain that more comprehensive federal standards are needed.  While the effective exclusion of federal government from drilling and fracking regulation by the Energy Policy Act received bipartisan support in 2005, the initiation of an environmental study on fracking in 2011 may signal a shift in EPA policy8.  Following 2005, former EPA Administrator Lisa Jackson expressed the need for greater federal regulation8.  Furthermore, several measures have been introduced attempting to repeal exemptions and introduce federal legislation post-2005.

  1.        The Fracturing Responsibility and Awareness of Chemicals (FRAC) Act was introduced to Congress in 2011 with the intent of closing the Halliburton Loophole9.  While the Act was not enacted in 2011, it has been recently reintroduced for voting and discussion.
  2.       The FRESHER Act, introduced into Congress in 2013 by House Representative Mathew Cartwright, is aimed at paring down oil and gas exemptions in the Clean Water and Clean Air Acts9.
  3.       The BREATHE Act, introduced by Representative Jared Polis, would further attack exemptions applying to the Clean Air Act.

While oil and gas drilling has previously been regulated primarily on a state and local basis, the recent introduction of these three acts along with EPA investigation into fracking practices may signal greater federal regulation down the road.  However, under current law, involved and interested citizens should look to state and local agencies to learn about drilling and fracking regulation.

 

 

 

References:

1)  (1972). Clean water actUS Environmental Protection Agency

2)  (2005). Energy policy actUS Government Printing Office

3)  (1974). Safe drinking water actUS Environmental Protection Agency.

4)  govtrack.us. (n.d.). Frac act. Retrieved from http://www.govtrack.us/congress/bills/112/s58

5)  Lax rules for the natural gas industry. (2011, March 3). New York Times

6)   Neff, S. (2005). Review of the energy policy act of 2005. Informally published manuscript, Columbia   University, .

7)   (n.d.). National pollutant discharge elimination system: Clean water actUS Environmental Protection Agency.

8)  Philips , S. (2011, December 05). Burning question: What would life be like without the halliburton loophole?.National Public Radio

9)  Philips, S. (2013, March 14). Federal legislation aims to close “fracking loopholes”. National Public Radio

10)  Smith , M., & Montgomery , C. (2010). Hydraulic fracturing: History of an enduring technology. Journal of Petroleum Technology

11)  US Environmental Protection Agency, (n.d.). Regulation of hydraulic fracturing under safe drinking water act  

 

1 comment… add one

  • Steve Mo February 27, 2014, 3:04 am

    Well referenced article, good job.

    Reply

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