Oil and gas exemptions

Federal Oil and Gas ExemptionsAside from the infamous Halliburton Loophole, the oil and gas industry has historically enjoyed exemptions from a number of federal regulatory acts.  Several major federal oil and gas exemptions deal specifically with emissions from drilling operations, thus curtailing the power of the US government to regulate such processes as treatment and disposal of fracking fluid and produced water.

Oil and gas exemptions in the Clean Air Act

The Clean Air Act (CAA) was established by Congress in 1970 as a response to growing national concern about air quality and the increase of airborne pollutants.  The Act established a set of national air quality standards in conjunction with an industrial permitting system that would provide states with a means of achieving these standards.

The most stringent aspects of the permitting process apply to industrial operations that are designated a major “stationary source” of restricted pollutants2.  According to the CAA, an operation would constitute a “stationary source” if it emitted or could emit 100 tons per year (tpy) of pollutant2.  This designation seems very clear at first glance.  However, controversy was introduced when companies began questioning their designation as a stationary source.  Companies knew that they would face certain permitting restrictions when they reached an emission level of 100 tpy, but what types and sizes of operations would be considered in this tally?  For example, would a single drilling rig constitute a “source” or would emissions from all a company’s rigs in the same field be considered in calculating the 100 tpy limit?

In answer to these questions, the EPA introduced the concept of aggregation.  The emissions from multiple sites could be aggregated into a single “stationary source” if: they were connected either physically or functionally, they were in close proximity to each other, and/or they shared ownership2.  These conditions would allow the legal aggregation of oil and gas industry facilities such as multiple adjacent drilling rigs, refineries connected by pipelines, and all drilling and processing machinery.  As a result, most oil and gas drilling activity would require permitting under the most restrictive conditions.

However, these restrictions were lifted by the implementation of the 2005 Energy Policy Act.  Along with the exemptions that constitute the Halliburton Loophole, the Act introduced language that exempted oil and gas operations from legal aggregation1.

Oil and gas exemptions in the Resource Conservation and Recovery Act (RCRA)

drilling mud oil and gas exemption

Drilling mud was exempted from the RCRA due to low pollutant concentrations.

The Resource Conservation and Recovery Act (RCRA) was adopted in 1976 as a comprehensive federal regulatory system for the management and disposal of industrial wastes.  The degree of regulation under the RCRA is dependent on the type of waste in question.  Industrial outputs that are designated as “hazardous waste” receive the highest degree of oversight and restriction3.

Oil and gas drilling wastes were originally included in this category.  However,  in 1978 the EPA issued a proposal that certain large volume “special wastes”—including drilling mud and oil production brines—be excluded from these regulations on the grounds that they were less toxic than other “hazardous wastes” due to their low pollutant concentrations.  In accordance with a series of subsequent EPA recommendations, by the 1980s “drilling fluids, produced water, and other wastes associated with the exploration, development, or production of crude oil or natural gas” were excluded from regulation under the hazardous waste category3.

Interestingly, this language ties the regulation of drilling waste to its origins rather than its content.  Wastes associated with exploration, development, or production are exempt while those not associated with these processes are regulated, regardless of their actual composition.  This wording has resulted in a complex and sometimes paradoxical list of exempt wastes.  A prominent example—produced water is exempt but unused fracking fluid is not3.

Exempt:                                                                                               

  • produced water                                                                              
  • waste crude oil from field operations                                    
  • hydrocarbons from production             

Non-exempt:

  • unused fracking fluid
  • equipment lubrication oil
  • hydrocarbons from refining

Oil and gas exemptions in the National Environmental Policy Act (NEPA)

The National Environmental Policy Act (NEPA) of 1970 requires that federal agencies uphold certain established environmental standards in all projects and activities.  Pursuant to this goal, NEPA requires that any project proposal by a federal agency undergo a three stage vetting process ending with the submission of an Environmental Impact Statement (EIS)4.  The EIS is subject to review and commenting by the EPA.  The statement is also released publicly and further subject to public scrutiny and commentary4.

As such, the NEPA review process previously provided the EPA with oversight capabilities regarding procedures such as the exploration and production of fossil fuels on federal land.  However, legislation introduced in the 2005 Energy Policy exempts oil and gas drilling from the standard NEPA review process1.

Oil and gas exemptions in the Toxic Release Inventory

In 1987, the Emergency Planning and Community Right-to-Know Act (EPCRA) was established as a response to concern about chemical and pollutant release by industrial operations5.  The Act was aimed at increasing industry transparency through increased disclosure of potentially hazardous chemicals.  The legislation required a multitude of industrial operations to disclose specific released chemicals in the annual, publicly released Toxic Release Inventory.  Although mining and other mineral extraction processes are included in the EPCRA, oil and gas drilling have never been bound by these disclosure requirements5.

The State and Fate of Federal Regulation

While the industry has hardly been given free rein in exploration and production activities, oil and gas exemptions from major blocks of legislation have crippled federal regulatory power.  While recent years have seen increasingly common attempts to reverse current exemptions, many view such initiatives as misguided or even detrimental to successful regulation.

The void of federal oversight in the oil and gas industry effectively places the burden of regulation on state governments, and indeed, drilling and fracking processes are highly regulated on this more localized level.  The high volume of cases in a rapidly growing industry may mean that state governments are better equipped to enforce such regulations than is a centralized agency such as the EPA.  As the oil and gas industry continues to expand, it becomes increasingly important to weigh the desire for standardized regulation against the reality of the demanding nature of successful implementation and enforcement.

 

References:

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

2)        Steven H. Lord Jr., Aggregation Consternation: Clean Air Act Source Determination Issues in the Oil & Gas Patch, 29 Pace Envtl. L. Rev. 645 (2012)

3)        US Environmental Protection Agency, (n.d.). Exemption of oil and gas exploration and production wastes from federal hazardous waste regulations

4)        US Environmental Protection Agency, (2013). National environmental policy act

5)        US Environmental Protection Agency, (2013). What is the toxic release inventory program?

 

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