Environmental Regulations: Burdens, Overreach, Efficiency, Reform, and Certainty/Uncertainty: The Search for Effective Yet Sensible Regulation of Industry

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