by Samuel B. Boxerman, Sidley Austin LLP
On February 12, 2014 the Environmental Protection Agency (EPA) published a notice that the agency was releasing an interpretive memorandum and technical recommendations for the use of “diesel fuels” in hydraulic fracturing. N1 The guidance is another step in the direction of increased EPA regulation of oil and gas development, a regulatory area long the province of state governments.
In the Energy Policy Act of 2005, Congress had largely exempted hydraulic fracturing from the Underground Injection Control (UIC) program of the federal Safe Drinking Water Act (“SDWA”). EPA did retain some authority to regulate, however, as Congress amended the SDWA to provide that “underground injection … means the subsurface emplacement of fluids by well injection;” but excludes “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.” (emphasis added). N2
EPA’s “Diesel Guidance” N3 has been in the works at the agency since well before it was first proposed in May 2012. N4 EPA has claimed, but not exercised, a right to regulate hydraulic fracturing fluids that included diesel fuels, in part because as industry pointed out, Congress did not define the phrase “diesel fuels” in the SDWA. EPA first sought to pursue this authority by quietly publishing a change in policy on its website, but that effort was challenged and the agency withdrew that posting. Instead, EPA proposed the draft guidance and allowed public comment. N5 The documents were before the Office of Management and Budget (OMB) for many months, before OMB released them shortly after President Obama’s State of the Union.
The Diesel Guidance consists of three separate documents: EPA’s “Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels: Underground Injection Control Program Guidance #84 (Feb. 2014) (“EPA Guidance #84), a Memorandum to the agency’s Regional Administrators and State/Tribal UIC program directors, N6 and a response to public comments. N7 In these documents, EPA essentially does three things:
First, the agency defines “diesel fuels” by reference to five fuels listed in the Chemical Abstracts Services Registry: CAS Registry Nos. 68334-30-5 (Primary name: Fuels, diesel), 68476-34-6 (Primary name: Fuels, diesel No.2), 68476-30-2 (Primary name: Fuel Oil No.2), 68476-31-3 (Primary name: Fuel Oil No.4), and 8008-20-6 (Primary Name: Kerosene). Beyond the two fuels which are listed in the CAS Registry as diesel fuels, EPA does not offer insight into the bases for its definition, except to point out that the other three fuels have “diesel fuel” as among their “common synonyms.” N8 EPA also offers no room for debate over its definition, stating that it “expects that EPA UIC Program Directors, and the permit writers acting on their behalf, will follow the interpretation of the statutory term ‘diesel fuels’ presented in this guidance document.” N9 EPA set no de minimis level, contending one was not required and would add complexity and uncertainty.
Second, EPA announces that hydraulic fracturing wells are subject to UIC “Class II regulations,” as opposed to one of the other well classes. This apparently is the first time the agency has made this pronouncement. Like its definition of diesel fuels, EPA expects all permitting authorities to apply only the Class II regulations, making clear that it not only will apply those rules in jurisdictions in which EPA is the permitting authority, but that the “applicability of the Class II regulations,” is an interpretation “which the EPA intends to apply in its oversight of UIC Class II primacy programs.” N10 EPA goes so far as to remind states that EPA “may withdraw program approval when a state primacy program no longer complies…” N11 Moreover, EPA is claiming that both states with primacy and the agency itself have the right to apply these new requirements without promulgating new regulations, asserting that EPA is “simply describing what is already required under the existing statute and regulations…” N12 As such, EPA claims, it may apply its new diesel fuels definition and Class II well designation retroactively if it chose to do so and declined to accept the comment that it cannot enforce the guidance retroactively. N13That is an aggressive posture, given that retroactivity is generally disfavored in the law—and that EPA waited years before it informed the public how the agency defines the term “diesel fuels.”
Third, EPA provides what it terms “Technical UIC Program Requirements and Recommendations for Application to Hydraulic Fracturing Activities Using Diesel Fuels.” While drafted specifically for hydraulic fracturing operations that use diesel fuels, EPA states that the Guidance incorporates what EPA submits are best practices for all hydraulic fracturing activities, including technical recommendations for well casing integrity and background water quality sampling, as well as other provisions. EPA describes the technical guidance as “recommendations” that are “non-binding,” but that remains to be seen.
1. See 79 Fed. Reg. 8451 (Feb. 12, 2014).
2. 42 U.S.C. § 300h(d).
3. EPA calls the document a policy guidance, but many agency pronouncements in recent years have appropriately been challenged in court as having the effect of regulation, under the guise of agency guidance.
4. Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels –Draft: Underground Injection Control Program Guidance #84 (May 2012), http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/upload/hfdieselfuelsguidance508.pdf.
6. EPA Memorandum to Regional Administrators and State and Tribal UIC Program Directors, Implementation of the Safe Drinking Water Act’s Existing Underground Injection Control Program Requirements for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels (Feb. 5, 2014). States that are authorized to implement the UIC program have primary enforcement authority (“primacy”) subject to EPA oversight. In states which do not have primacy, EPA is the permitting authority.
7. Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels: Response to Summary Comments (Feb. 2014) (Response to Comments) http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/upload/epa816d14001.pdf.
8. Response to Comments at 36 (dropping one of the definitions in the draft for that reason).
9. UIC Program Guidance #84 at 1.
10. Response to Comments at 39.
11. Response to Comments at 40.
12. Response to Comments at 39.
13. Response to Comments at 41.