Environmental Regulations:
Burdens, Overreach, Efficiency, Reform, and Certainty/Uncertainty: The
Search for Effective Yet Sensible Regulation of Industry
Environmental Law is a subject that is quite debatable. Most
often the challenge is to compare costs vs. benefits and to set boundaries
between what constitutes acceptability and what constitutes environmental harm.
With climate change and carbon emissions the challenge also very often includes
the desirability of emissions mitigation or reduction.
There are different approaches to environmental regulation
at all levels from federal to state to local. The approach of hardcore American
liberals like Bernie Sanders is to super-regulate and punish polluters and
carbon emitters. The approach of hardcore American conservatives has been to
de-regulate. Obama’s approach was to regulate in some innovative ways such as
the Clean Power Plan and in some specific ways such as the Waters of the U.S.
Rule, and federal mandates for methane emissions reduction at oil & gas
facilities. The right argued that he went too far, the far left that he did not
go far enough. The Trump administration EPA under Scott Pruitt is attempting
with significant success to undo most of the Obama era rules and to redefine
the role of the EPA itself, charging that the culture had become too
anti-industry. Now it is often seen as too pro-industry. It is a delicate
balance for sure. Some on both sides favor regulation at state levels rather
than federal. There are practical reasons for this including geography and regional
natural resource endowment. Of course, if some states have more stringent
regulations than others there will be outcries. Resource states grapple these
days with rules about oil and gas severance taxes, forced pooling/co-tenancy of
leases for drilling horizontal wells, state methane emissions mandates, spill
prevention and containment, coal ash impoundment regulations, mountaintop
removal mining overburden deposition regulations, etc. An example would be EQT,
the largest American natural gas producer who drills wells in Pennsylvania and
West Virginia. They are drilling long lateral wells to optimize economics. In
Pennsylvania they can benefit from forced pooling of leases when a certain
percentage (I believe it is 75%) of leasers in a unit agree to lease so that
the other leaseholders at that point would be compelled to lease. That way a
small holdout of one or two landowners can’t block development. Before the
state of West Virginia approved such a practice this year – which they refer to
as ‘co-tenancy’ – they would be able to block. For that reason, EQT favored
developing Pennsylvania wells instead of West Virginia wells.
Of course, the ideal situation is to have regulators as a
non-biased independent third party. However, in reality that is difficult to
achieve. Regulators, industry people, and academics meet at conferences, talks,
and society meetings and sometimes become friends. These meetings are
educational, useful, even essential for all parties. Regulatory issues may be
discussed. However, this is not to say that they are making deals simply by
being friendly. Anti-industry people could also attend such meetings but they
are less likely to be friended if they have strong positions against a majority
of attendees. Charges of industry people becoming cozy with regulators or even
the ubiquitous charges of “revolving door” policies where former regulators
become industry people or lobbyists or vice versa may well be true but if you
think about it they usually have the best qualifications. So, the potential for
pro-industry bias is stronger than for anti-industry bias. There has to be some
collaboration between regulators and industries and much of that is scientific
and knowledge-based. While people from environmental organizations sometimes
attend conferences, they tend to be less tuned into the science and engineering
of the various industries. While there are some anti-industry activist
scientists, typically academics, most have been controversial and less
knowledgeable of industry and the changes within industry. It would be
imprudent and potentially disastrous to have regulators making rules who do not
have a solid understanding of the industries they regulate.
Regulatory burdens are real. If complying with new
regulations makes a marginally profitable project unprofitable then that
project would either have to be scrapped or more likely continued to be run at
a loss. Since industries like oil and gas are subject to the volatile whims of
commodities prices they have experience running projects at a loss while
assuming future profit from recovering commodities prices. One example is a small
refinery project operated by one of the majors where new methane leakage rues
would require that project to be run unprofitably – at least for a time –
although one would think that after initial investments in the “pollution
controls” to capture methane the project would eventually return to marginally
economic.
Scott Pruitt calls his approach “cooperative federalism” but
it has been called a corrupt form of cooperative federalism, which environmental
hawk Senator Sheldon Whitehouse calls “cooperative corporatism.” Cooperative
federalism would involve the EPA collaborating with states to regulate but
Pruitt has preferred to collaborate much more with industry and has been at
odds with states that have strong regulations like California. As in much of
American politics he (and many other politicians of both parties) is heavily
funded by those industry interests. They have tended to simply ask industry how
it would like to be regulated and try to get there. Trump’s Interior Secretary
Ryan Zinke has also sought to make his department friendlier to extraction
industries. This is also true of West Virginia governor Jim Justice, who is
actually a very wealthy coal executive. They have sought to decrease
“regulatory burden” on a rather unprecedented scale, although some of that is
practical. Justice wants to make permits easier and less burdensome to obtain.
That is rather practical in several cases where some permits, especially those
involving multiple federal agency sign-offs, can take years, sometimes many
years. This is true of hydro-electric projects as well as fossil fuel projects.
The time factor can affect companies’ financing if there are long periods of
“regulatory uncertainty.” Companies can lose large sums of money if regulation denies
their projects going forward. For example, before the state of New York placed
a moratorium on fracking (nearly a decade ago) there were several companies who
had spent significant sums of money leasing and test drilling. They totally
lost their investments as did landowners who stood to profit and local people
who could have been hired for work. New York state’s environmental regulator
also continues to deny pipeline permits, typically for issues that would
temporarily affect water quality (sedimentation and erosion). New York is an
example of anti-industry bias while Justice and Pruitt are examples of
pro-industry bias. Rules often change with differing political administrations
at all levels so regulatory uncertainty is often a function of change in
political power, at least in recent times. Some companies, typically the oil
majors, tend to favor some rules they see as financially do-able because they
offer regulatory certainty which helps them plan better. They have tended to
favor methane leakage rules and carbon taxes for these reasons. Since they plan
projects on time scales of several years to a decade or more, having knowledge of
the regulatory climate ahead can help them plan successfully. This is true of
most companies where regs can make or break project economics.
Pruitt has also often touted ‘regulatory certainty’ as a
reason for changing rules but so too did his predecessor Gina McCarthy and probably
others before. Others claim his policy of undoing every Obama rule is creating
the opposite, regulatory uncertainty, since any new administration, especially
a Democratic one is likely to change things again. Logic would dictate that in
order to create certainty there would have to be some middle ground found between
the views from the left and from the right. Some level of compromise would be
required.
Environmental protection has long been recognized as a
public good. The usual issue is quantifying a boundary between acceptable and unacceptable
environmental harm and impact. Some form of cost-benefit analysis is required
to estimate where the baseline should be. Often, the individual companies in
the industries participate in gathering the information that is used to set
regulations. That aspect of what has been called ‘self-regulation’ is rather
non-negotiable since the companies are usually by far the most qualified to do
it. Other aspects of self-regulation such as frequency of reporting, monitoring
of carbon emissions accounting is now strongly suggested by many corporate boards.
Some are suggesting carbon contingency plans as well. This is happening with
energy companies as pipeline builder/operator Kinder Morgan shareholders just
approved non-binding measures to require just this. Kinder Morgan’s first
response is that they will study and consider.
New facilities are also regulated by state requirements as shown
by the control the state of New York has wielded regarding fracking and pipelines.
Another example is the repeated denial of coal export terminal proposals on the
West Coast to export Western coal. It is another case of being landlocked. In
some cases involving international infrastructure projects the Feds may
overrule as in the Keystone Pipeline which is set to deliver tar sands oil from
Canada to the Gulf Coast. But most infrastructure projects are ceded to states
to rule on them where applicable. At least they have veto power. Although the
US EPA is often credited as being more stringent in requirements than states
that is not always the case. In the case of the coal export terminals several
interior coal states are going to federal court to say that the state of
Washington’s denials were too ‘broad’ and that their access to international
markets is being hindered on policy grounds. With global issues like climate
change it is harder to justify coal but who gets to make those decisions and
where and when are all up for debate. Though Washington state regulators did
cite carbon emissions as one reason for the denial there were perhaps other
reasons that were more significant such as an increase in local diesel fumes
from the additional 16 coal trains per day expected to arrive at the terminal
and impacts to the Columbia River. A similar situation is occurring in Oakland,
California where plans to build a coal export terminal at the Oakland Army Base
has been battled out in the courts and a federal judge has recently struck down
bans on the terminal and associated coal trains that would bring the coal.
Environmental justice advocates say the trains would bring coal and its fine
particulate matter, presumably coal dust as well as diesel fumes through poor
and minority neighborhoods of West Oakland where the export facility would be
built. Pruitt is also in the process of ceding the management of coal ash
slurry waste to states. In a different direction the EPA is being sued by 17
states for relaxing the national fuel standards set by the Obama
administration. In that case there is consensus that a national standard helps
auto-makers so ceding to the states is not recommended but California
especially does not want to relax its standards and negotiations are underway. If
the automakers end up like the utility companies they may continue to plan for
stricter fuel standards regardless (assuming future administrations will go for
stricter ones) much as the utility companies continue to plan for decarbonization.
Another issue with regulator and industry contact is claims
of conflicts of interest. Of course, that is bound to come up and be invoked by
those who seek to further regulate but in most cases it is simply not a big
problem. Since regulators and industry have to co-ordinate and work together it
is not unusual for potential conflict of interest situations to arise but that certainly
does not mean cooperation equates to conflict of interest. While environmental
protection is obviously a public good so too is fairness toward industry through
sensible regulations. Claims of ethics violations often involve (at least
nowadays with the Trump administration’s friendliness toward industry and deregulation
agenda) former lobbyists and anti-regulation advocates being picked to run and
staff regulatory agencies. While this may seem a slap in the face to those who
see regulators as “opposed” to industry it need not be the case. In the Trump administration
case it can certainly be argued that they are too friendly to industry and too
eager to deregulate. Qualifications are another issue. Political appointees, including
cabinet-level officials like Pruitt, can be seen as unqualified but of course,
they have qualified staffs that they can rely on. Too many appointees can be
seen as fostering too much of an agenda-driven focus.
Unfortunately, it is also true that sometimes states,
industry, and industry advocacy groups will impede regulations for less noble
reasons. An example there is perhaps the slowness which states, particularly Oklahoma
and Texas, acknowledged that wastewater injection and in some cases pressure
pumping water in the hydraulic fracturing process were inducing seismicity,
causing small earthquakes. At first, the industry and groups simply denied that
these were the cause – even though water injection has long been known to cause
faults to slip. With more science and monitoring it became quite clear that
this was the cause. Injection well operators were sometimes also at fault by
not properly regulating injection pressures. In response, affected states have
developed much better seismicity monitoring systems and regulation of injection
pressures, water volumes, and in some cases injection zones. Incidentally, in
some states the EPA manages wastewater injections while in other states they
cede this authority to the states if they see the state policies as adequate.
Apparently, Pruitt’s EPA reorganization involves taking
significant resources away from enforcement of environmental rules, presumably
fines and other punitive actions. While some say this is effectively a license
to pollute, others note that state regulatory agencies are also in play as well
as giving the industries opportunities to self-regulate responsibly. Recently,
the Ohio EPA as well as the Pennsylvania DEP have issue large fines against Energy
Transfer Partners for significant violations involving the Rover Pipeline and
Sunoco Logistics Mariner Pipeline respectively. Remedial action was coordinated
with FERC which regulates interstate natural gas pipelines. So, despite federal
EPA restructuring the state regulators are still regulating and enforcing quite
effectively. The simple fact that the Western states can ban coal export
terminals (although currently being challenged at Fed level) or that New York and
a few other states can ban fracking and block pipelines (currently unchallenged
at Fed level but pipeline blocks being considered for challenge) shows that
state control in environmental matters is pretty strong, currently.
My own view is that environmental monitoring is important
and that samples should be collected and analyzed – of air and water, and soil
where applicable – at regular intervals and at places where contamination is
more likely. This should be done not as a way to police industry as environmental
activist citizen science advocates like to do, but as a general way to monitor
the environment in a non-biased way. If monitoring finds contamination issues,
then further studies can happen. Some regional organizations manage sampling
and analysis systems. One is ORSANCO, the Ohio River Sanitation Commission. The
Ohio River is considered the most polluted inland water way in the U.S. I grew
up along this river spending much time near it. I saw a few large fish kills.
Although such fish kills may occur from algae blooms they may also occur from
spills related to oil and gas or coal mining activity. Mercury levels are often
high due to coal-burning power plants and mercury advisories regarding the
safety of eating fish caught from the river are often in effect. Recently,
ORSANCO has been considering ceding its sampling and analysis authority to the
states, the various DEPs, and the federal EPA. I tend to agree with the Ohio
Valley Environmental Coalition that this may not be in the best interest of the
public, but I don’t know all the details. The 2014 MCHM spill on the Elk River
in Charleston (which flows into the Ohio River nearby) and the developing petrochemical
hub along the Ohio River and its tributaries does suggest that an adequate
monitoring system for spills should be in effect.
Environmental issues should be debated by the experts as
well as the interested parties: states, feds, industries, experts from industry
and academia, the more rational environmental groups, and local citizens potentially
affected. It should be a collaborative problem-solving approach rather than political
maneuvering. The co-opting of the public comment hearings process by radical
environmental activists showing up at hearings not to voice specific concerns
and help steer the process but to protest the various projects on general principles
(particularly pipelines these days) only serves to erode the processes put in
place where citizens can voice specific concerns relevant to the project.
References:
6 States Join Battle Over the Largest Proposed Coal Export
Terminal in the U.S. – by Natasha Geiling, in Think Progress, May 14, 2018
Records Reveal Interior Official Met With Former Employer, a Koch-Funded
Group Suing the Department – by Mark Hand, in Think Progress, May 14, 2018
Can Oakland Still Stop the Coal Trains? – by Nathanael Johnson, in
Grist, May 17, 2018
Ohio River Pollution Control Standards Are in Jeopardy: Comment by February
24 – by Ohio Valley Environmental Coalition, Feb, 20, 2018
Gov. Justice Order to Expedite Permit Process Could Benefit Business, Oil
Gas Industries – by Rusty Marks, in WV News, April 23, 2018
Scott Pruitt’s Guiding Philosophy is ‘Cooperative Corporatism,’ Per Senator
– by Mark Hand, in Think Progress, April 10, 2018
Nothing Certain in Search for ‘Regulatory Certainty’ at EPA – by Nathan
Rott, in NPR, May 22, 2018
