Lawsuit Threatens EPA’s RCRA Regulation of Oil and Gas Waste as Solid Waste with Significant Potential Costs to California Residents

California produces 218 million barrels of crude oil per year from 50,000 wells. It is the 3rd largest producing state in the U.S. It produces 349 billion cubic feet per year of natural gas from more than 1,500 wells and imports 2 trillion cubic feet of natural gas per year from other U.S. states. Because of the unique blend requirements for gasoline in California, the supply sources are limited and the prices are higher than in other states. Currently, waste generated from the production of oil and gas is regulated as nonhazardous. A recent lawsuit, filed May 4, 2016, is seeking to change this and force EPA to regulate E&P waste under RCRA Subtitle C as a hazardous waste. See Environmental Integrity Project, et al. v. EPA, No. 1:16-cv-842 (D.D.C. May 4, 2016). If the EPA decides (or is ordered) to regulate oil and gas exploration and production (E&P) waste as hazardous waste, the cost of such production will skyrocket. As a result, California residents could be facing significant increases at the pump and California utilities will be forced to increase rates for natural gas and electricity.

The oil and gas industry must dispose of E&P waste in accordance with the federal Resource Conservation and Recovery Act (RCRA) (codified at 40 C.F.R. 239 – 299). Currently, oil and gas waste is subject to RCRA Subtitle D’s generic provision for the disposal, storage, transportation, and handling of solid waste, which are typically implemented by authorized states. RCRA Subtitle D allows the E&P waste to be held in impoundments, spread on roads, reinjected in wells, and disposed of at municipal solid waste landfills. Given the immense volume of waste produced from oil and gas production operations, all of these waste management tools are necessary; the volume of waste could not be accommodated in landfills alone.

Typical E&P wastes include: wastewater, residual waste, drill cuttings, and drilling muds. Oil and gas wastewater includes drilling wastewater, which is the water separated from recovered drilling fluids; hydraulic fracturing flowback, which is the water that returns to the surface upon completion of a well; and produced water, which is the water that returns to the surface from the well’s downhole once production has begun. Hydraulic fracturing has the additional waste of hydraulic fracturing sand (or frac sand), which is the fine silica used to “prop” open the fractures generated during hydraulic fracturing to allow the flow of gas to the surface. EPA has determined the risk to the environment from these wastes does not warrant management as hazardous waste under Subtitle C of RCRA.

EPA established in 1988 that E&P wastes are nonhazardous wastes under RCRA Subtitle D. Oil and gas producers, including those who engage in hydraulic fracturing, are allowed to store and dispose of E&P solid wastes in pits and impoundments, underground injection wells, landfills, and water treatment facilities; and dispose of the wastewater from the operations by road- and land-spreading, subject to state regulation.

Although EPA has set guidance for states, EPA generally delegates the primary responsibility of implementing RCRA’s waste programs to individual states. State regulations must be as restrictive as EPA’s, but they can be more restrictive. In a 2013 review of state regulations, EPA identified that the following requirements are being imposed on the oil and gas industry from various states: liner requirements for pits and impoundments; secondary containment for tanks; setback requirements for facilities; minimum freeboard requirements for fluid levels in pits, impoundments and tanks; inspection, operation and maintenance requirements; permitting of facilities; and closure and reclamation requirements.

With the increase in fracturing as a means of developing gas from shale using horizontal drilling, and the corresponding increase in media attention to the risks associated with such drilling, environmental groups are now seeking increased regulatory scrutiny and oversight of the oil and gas industry. In particular, on May 4, 2016, a coalition of environmental groups filed a complaint in the District Court of the District of Columbia asking the court to force EPA to revise EPA’s Regulatory Decision that E&P wastes are regulated under RCRA Subtitle D, as non-hazardous solid waste, instead of under Subtitle C, as hazardous waste. See id.

The lawsuit alleges that EPA has not reviewed or revised federal regulations or guidelines for state waste management of E&P wastes within the past three years, as required by Congress under RCRA sections 2002(b) and 4002(b). Section 2002(b) of RCRA requires that EPA review and, if necessary, revise at least once every three years the Subtitle D criteria regulations, 40 C.F.R. Part 257. 42 U.S.C. § 6912(b). Section 4002(b) of RCRA requires EPA to “promulgate regulations containing guidelines to assist in the development and implementation of State solid waste management plans.” 42 U.S.C. § 6942(b). Con

The Plaintiffs’ complaint mirrors the complaint in Appalachian Voices v. McCarthy, which resulted in a court-ordered deadline for EPA to review its RCRA regulations relating to coal ash disposal. (989 F. Supp. 2d 30, 55 (D.C. Cir. 2013)). If the lawsuit has the same result as in the coal ash regulations, then oil and gas operators may anticipate more stringent federal regulatory requirements for E&P waste, or removal of the hazardous waste exemption altogether.

The Plaintiffs’ complaint includes detailed allegations of environmental impacts caused by the disposal practices of the oil and gas industry. Oversized pits and impoundments are used by the industry to store waste and wastewater. Underground injection wells are used for the disposal of oil and gas wastewater and injection of “fluids associated with oil and natural gas production” for enhanced oil and gas recovery and wastewater disposal. Oil and gas wastewater is also disposed of through “road-spreading” for the purposes of deicing and dust suppression. Municipal landfills accept drill cuttings and drilling muds for disposal. In addition, the compliant alleges that the transportation of oil and gas wastes by truck or pipeline has resulted in large-scale releases. For these reasons, the complaint states EPA needs to enact nationwide federal regulations for the disposal, storage, transportation, and handling of oil and gas E&P waste, including hydraulic fracturing waste. The Plaintiffs allege the patchwork of state laws is inadequate to protect human health and the environment from risks of exposure to E&P wastes.

Subtitle C of RCRA requires EPA to establish controls on management of hazardous wastes from “cradle to grave.” Subtitle D governs nonhazardous solid waste, requiring state and local governments to administer the regulations. E&P waste has been regulated as nonhazardous waste under Subtitle D since 1988. See 40 C.F.R. 261.4 (b)(5). At that time, EPA made a Regulatory Determination that regulation of oil and gas E&P waste under RCRA Subtitle C was not warranted. See 53 Fed. Reg. 25,446, 25,447- 48 (July 6, 1988). In its Report to Congress in 1988, EPA identified “the adequacy of existing State and Federal regulatory programs for controlling these wastes” as an important factor in its decision. Id. at 25,454. Nonetheless, EPA also identified gaps in existing state and federal programs that regulate E&P wastes and planned to work with states to improve the strength and uniformity of their programs. Id. at 25,456.

In its complaint, the Plaintiffs asked the court to order EPA to issue necessary revisions of the Subtitle D regulations for oil and gas wastes in accordance with section 2002(b) of RCRA by a date certain. Ultimately, the Plaintiffs would like EPA to issue a new Regulatory Decision finding that E&P wastes are hazardous wastes and must be regulated under RCRA Subtitle C. The oil and gas industry, as well as the transportation and waste management industries, are watching this lawsuit closely because of the significant economic ramifications that would result if E&P wastes become regulated as hazardous wastes in the future. Because of the massive volumes of E&P waste produced in oil and gas development and production, regulating such wastes as hazardous wastes would be burdensome and potentially infeasible given the lack of hazardous waste landfills available to accept such volumes. If E&P waste becomes regulated as hazardous waste, then generators, transporters, and owners/operators of disposal and treatment facilities will be subject to RCRA regulations under 40 CFR Part 262 (generators), 263 (transporters) and 264 (owners/operators of treatment and disposal facilities), at significant cost.