D.C. Circuit Strikes Down EPA Stay on Key Parts of Quad OA — the 2016 Methane NSPS Rule for the Oil and Gas Industry
On July 2, 2017, in Clean Air Council, et al. v. E. Scott Pruitt, No. 17-1145, the D.C. Circuit vacated EPA’s 90-day stay of EPA’s 2016 final rule entitled “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” which EPA codified as Subpart OOOOa to 40 CFR Part 60 or “Quad Oa.” Quad Oa overhauled new source performance standards (“NSPS”) for the oil and natural gas sector. A deeper analysis of Quad Oa can be found here. As noted below, Quad Oa is now in effect unless EPA successfully finalizes a proposed rule that would stay for two years parts of Quad Oa. Quad Oa carries certain monitoring and reporting deadlines that will need to be complied with, unless EPA successfully extends those deadlines.
Background on the Stays
On June 5, 2017, in
response to the President’s Executive Order on Promoting
Energy Independence and Economic Growth, EPA published a notice in the Federal Register
stating that EPA would stay certain aspects of Quad Oa for three months. On
June 16, 2017, EPA issued a proposed rule that, if finalized, would stay these same
aspects of Quad Oa for two years. During this two-year period, EPA would review
Quad Oa in light of several petitions for reconsideration submitted to EPA in
August 2016. The comment period for this proposed rule closed on July 17, 2017.
Scope of the Stays
As with EPA’s 90-day
stay, EPA’s proposed rule for a two-year stay would cover certain contested portions
of Quad Oa related to: (1) well site and/or compressor station fugitive
emissions, (2) pneumatic pump emissions, and (3) a professional engineer’s
certification of a closed vent system design and capacity for a number of
affected facilities (e.g., centrifugal compressors, reciprocating compressors,
pneumatic pumps, and storage vessels). If finalized, this
stay would effectively suspend Quad Oa’s compliance deadlines.
Litigation Involving the 90-day Stay
The D.C. Circuit
invalidated EPA’s 90-day stay, holding that EPA lacked authority under the
Clean Air Act (“CAA”) to stay the Contested Rules. On July 13, 2017, the D.C.
Circuit recalled its mandate enforcing the contested portions of Quad Oa for
two weeks to allow EPA to seek a panel rehearing, rehearing en banc, or consider other alternatives.
EPA failed to make any filing within the time provided. Intervenors in favor of
the 90-day stay, however, filed petitions for rehearing en banc. On July 31, 2017, nine of eleven judges on the D.C.
Circuit reinstated the mandate. A decision regarding the petitions for
rehearing en banc is pending. Because
almost all of the judges on the court were involved in the decision to
reinstate the stay, it appears unlikely that the D.C. Circuit will recall its
mandate a second time even if the court grants a petition for rehearing en banc.
Deadlines under Quad Oa and Consequences for EPA
When the D.C. Circuit issued its mandate, two main deadlines under Quad
Oa became effective. First, Quad Oa
requires that facilities covered by the rule conduct an initial monitoring
survey by June 3, 2017. 40 C.F.R. § 60.5397a(f). Second, Quad Oa requires
facilities covered by the rule to submit their initial annual monitoring report
to EPA by 90 days after the “initial compliance period” defined under the rule
ended. This compliance period ended, at the latest, on August 2, 2017, meaning
that the initial annual monitoring reports are now due 90 days from that date. See 40 C.F.R. §§ 60.5420a and60.5410a.
It remains to be seen whether EPA will be able to finalize its proposed rule
before the reporting deadlines in Quad Oa become effective.
Even if EPA finalizes its proposed rule before the initial reporting
requirements in Quad Oa become effective, there is a substantial question about
whether the D.C. Circuit will uphold EPA’s two-year stay on Quad Oa in
subsequent litigation. The D.C. Circuit clearly stated that its decision to
strike the 90-day stay did not consider or review the merits of the proposed
two-year stay. However, because EPA intended for the two-year stay to be an
extension of the 90-day stay, and relied in the proposed rule on much of the
same reasoning that EPA gave when issuing the 90-day stay, EPA may need to
provide an alternative justification for its proposed two-year stay to
withstand judicial review. Additionally, in its opinion striking down the
90-day stay, although the D.C. Circuit noted that EPA has inherent authority to
review its regulations, the D.C. Circuit also questioned whether EPA has
inherent authority to stay regulations while they are being reviewed.
The D.C. Circuit’s July
31, 2017 mandate made the contested portion of Quad Oa effective as of that
date. Oil and Gas operators should familiarize themselves with the current and
fast-approaching deadlines of Quad Oa and should be aware that there is a
distinct possibility that Quad Oa will remain in effect in the short- and
medium-term. At the very least, Oil and Gas operators should be aware that Quad
Oa requires covered facilities to submit an initial annual report no later than
90 days after August 2, 2017. Although EPA could soon finalize its proposed
rule, effectively staying this deadline, it remains to be seen whether EPA’s
proposed rule will be upheld in court. If the two-year stay is struck down, all of Quad Oa’s deadlines will be
reinstated and several of them could be immediately effective. It would therefore be prudent for Oil and Gas
operators to consider their obligations under this rule.