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States Square Off Over Potential Federal Regulation of Methane Emissions From Oil and Gas Operations

May 14, 2013

 

On May 2, 2013, Oklahoma Attorney General Scott Pruitt, joined by 12 other state Attorneys General, cautioned the United States Environmental Protection Agency (“EPA”) from engaging in negotiations with seven Northeastern states over potential federal regulation of methane emissions from oil and gas operations, including those utilizing hydraulic fracturing (“fracking”). In their letter addressed to EPA’s Acting Administrator and Assistant Administrator, the 13 states expressed “very great concern” that EPA may “succumb to pressure” to negotiate with the seven Northeastern states to resolve a notice of intent to sue under the Clean Air Act (“CAA”) over EPA’s decision not to regulate methane emissions from oil and gas operations under the New Source Performance Standards (“NSPS”) program. In opposing the negotiations, the 13 states argue that the threatened lawsuit is without merit and that any negotiations should, at a minimum, include states that “actually have oil and gas operations and facilities.”

The 13 states that signed the May 2 letter to EPA are Alabama, Arizona, Indiana, Kansas, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas, West Virginia, and Wyoming. The seven Northeastern states seeking federal regulation of methane emissions from oil and gas operations are New York, Connecticut, Delaware, Maryland, Rhode Island, Vermont, and Massachusetts. In those Northeastern states, the practice of fracking in the development of oil and gas from shale formations has generated substantial controversy, focusing more attention on regulation of the oil and gas industry. While New York has proven natural gas reserves in the Marcellus Shale, a geological formation that stretches across several Northeastern states, New York has instituted a moratorium on gas development through fracking since 2008, and an extension of that moratorium through 2015 is now pending in the State Senate. Given the varying perspectives on oil and gas development in these different regions of the country, the 13 states are concerned that “friendly” negotiations between EPA and the Northeastern states under a “sue and settle” approach could result in stricter federal regulations for all states.

EPA’s Decision on the NSPS Program

In April 2012, EPA issued a final rule revising some aspects of NSPS Subpart OOOO, which covers oil and gas operations. In issuing that rule, however, EPA declined to determine whether it would be appropriate to develop standards for methane emissions. Rather, EPA stated no final action would be taken with respect to methane emissions at that time, and that EPA “intend[ed] to continue to evaluate the appropriateness of regulating methane with an eye toward taking additional steps if appropriate.” EPA noted that its ongoing evaluation would include an assessment of emissions data over time. However, EPA did not set any timetable for issuing a decision on whether methane emissions would be regulated.

Seven Northeastern States Threaten to Sue

On December 11, 2012, New York Attorney General Eric T. Schneiderman, joined by the Attorneys General of the other six Northeastern states, informed then-EPA Administrator Lisa Jackson of the states’ intent to sue EPA for alleged violation of Section 111 of the CAA based on EPA’s decision not to take final action on potential regulation of methane emissions from oil and gas operations. The seven Northeastern states argued that EPA was required to “complete a thorough review” of air quality criteria and to issue a decision on methane regulation at the end of that review process. The seven Northeastern states also argued EPA was obligated as part of the eight-year NSPS review to undertake a “mandatory” review of new pollutants such as methane, which they contend have been determined to endanger public welfare but have not previously been regulated. Finally, the seven Northeastern states contended that EPA had unreasonably delayed in determining whether standards for methane emissions were appropriate, and in setting such standards. The seven Northeastern states also expressed an interest in engaging in settlement negotiations with EPA “to explore any effective means of resolving this matter without the need for litigation.”

Allegations of “Sue and Settle” Negotiations

Under the CAA and other federal statutes, federal agencies may negotiate with entities that have submitted a notice of intent to sue in an effort to reach a mutually agreeable result memorialized in a consent decree or settlement agreement. In some instances, however, federal agencies have been accused of using these negotiations as a means of excluding other interested parties from discussions that could have wide-ranging impacts that bind other parties without their participation. This practice is sometimes referred to as “sue and settle.”

In a May 3 press release, Oklahoma Attorney General Scott Pruitt, the author of the May 2 letter, voiced his concern that negotiations between EPA and the seven Northeastern states were part of a “sue and settle” strategy. He cautioned that the effects of those negotiations could be binding not just on the seven Northeastern states, but on other states as well, stating that the “outcomes of these settlements have a very real effect on families, businesses, communities, and state economies.”

May 2 Letter

In their May 2 letter to EPA, the 13 states enumerated various arguments for excluding methane emissions from oil and gas operations from regulation as part of the NSPS program.

First, the 13 states argued that prior estimates for methane emissions from fracking operations were exaggerated, thus leading to an overstatement of emissions from the sector generally. They argued that more recent information compiled from state evaluations and industry studies yielded dramatically lower estimates of methane emissions from oil and gas operations and that potential flaws in the statistical methodology of the prior studies call into question EPA’s emissions estimates both for fracking operations and the sector overall.

Second, the 13 states argued that a decision is not required under the CAA and that a review need not be conducted where information on the efficacy of the standard is not readily available, which, the 13 signatory states contend, it is not.

Third, the 13 states argued that methane emissions from oil and gas operations are adequately covered by existing NSPS and other regulations, including NSPS Subparts IIII and JJJJ, and state startup, shutdown, and maintenance regulations and permits.

Since the 13 states concluded that regulation of methane emissions from oil and gas operations is not “appropriate” under the CAA, they argued that EPA should not engage with the seven Northeastern states in negotiations to discuss any such regulation. They further noted, however, that if such negotiations are to take place, EPA should not limit those discussions to the seven Northeastern states but should also include “other states that actually have oil and gas operations and facilities” in any future discussions about the application of the NSPS program to emissions from oil and gas operations.

Conclusion

The outcome of the dispute over the potential federal regulation of methane emissions under the NSPS program could have an effect on oil and gas operations nationwide. The current stand-off between these states over EPA’s regulation of methane emissions from oil and gas operations represents one of the first clear divisions of states over federal regulation that impacts fracking operations. EPA’s decision on whether to engage all 20 states in negotiations moving forward, to negotiate only with the seven Northeastern states that have noticed intent to sue, or not to negotiate at all, could foreshadow events on the horizon as EPA and other federal agencies consider further regulation of fracking.

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