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Still Up in the Air: The Future of Methane Regulations on Public Lands

As discussed in this previous post, the federal government’s regulation of methane for the oil and gas industry — both from the Department of Interior on public land, and from EPA — continues to swing back and forth due to shifting agency positions in different administrations and lawsuits challenging those shifts.

In August 2020, we’ve seen EPA release its new Methane Rule for New Sources in the Oil and Gas Sector, and Interior’s Bureau of Land Management (BLM) take the unusual step of confessing error in the Waste Prevention Rule (the “Rule”) litigation — basically saying that the agency got it wrong in the Obama-era Rule, so much so that they do not think they can legally defend the Rule in court. In doing so, BLM argued that by vacating (overturning) the Rule, the court could “put a stop to the regulatory seesawing that has made it extremely difficult for operators to prepare for and comply with BLM’s waste regulations.”

Brief Background on the Waste Prevention Rule Litigation

In 2016, during the Obama administration, BLM issued a regulation for oil and gas activity on public lands known as the “Waste Prevention Rule.” BLM estimated that between 2009 to 2015, approximately 462 billion cubic feet (“Bcf”) of natural gas were released into the atmosphere through venting and flaring — a process where gas associated with production is either released into the atmosphere (venting), or burned off (flaring) because it can’t be feasibly captured or transported to market. The Waste Prevention Rule imposed additional requirements on upstream oil and gas operators designed to limit venting and flaring practices, including requiring them to capture a certain percentage of produced gas each month, with the required percentage increasing over a ten-year period. It also required operators to inspect for and repair equipment leaks and to replace certain types of equipment with equipment that vents or flares less gas.

The Waste Prevention Rule was completed in late 2016 and went into effect on January 17, 2017 — just days before the start of the Trump administration. As explained in this previous post, the Waste Prevention Rule has been bouncing back and forth between BLM and two federal district courts — one in California, and one in Wyoming — for years. The key decisions are summarized below:

During the Obama administration, the Waste Prevention Rule was immediately challenged by Wyoming and Montana (later joined by North Dakota and Texas) in federal district court in Wyoming before the Rule could go into effect. BLM, California, New Mexico, and several environmental groups defended the Waste Prevention Rule.

The Trump administration BLM then took a number of steps to delay or suspend part of the Waste Prevention Rule. Those steps were repeatedly challenged, and vacated (undone) by the federal court in the Northern District of California. Meanwhile, the parties who challenged the Waste Prevention Rule then went back to the federal district court in Wyoming, and that court agreed to stay (pause) certain deadlines in the Waste Prevention Rule while BLM worked to rescind (repeal) the Waste Prevention Rule. At the end of 2017, the Wyoming court agreed to pause litigation as BLM continued to work on rescinding the Waste Prevention Rule.

BLM finally “rescinded” the Waste Prevention Rule on September 28, 2018, and in doing so eliminated some, but not all, of the requirements in the Waste Prevention Rule. The rescission was challenged in federal court in the Northern District of California before it went into effect. On July 15, 2020, the California court vacated BLM’s rescission and reinstated the Waste Prevention Rule. The California court gave the parties 90 days to reopen their lawsuit in Wyoming before the Waste Prevention Rule would become effective.

On July 21, 2020, the federal district court in Wyoming lifted the stay on the suit, and gave the parties until September 4, 2020, to complete briefing on the case, presumably so that it has time to issue a ruling before the Waste Prevention Rule goes into effect.

In its first brief since returning to Wyoming after the California court struck down the rescission, BLM did not try to defend the Waste Prevention Rule. Instead, it asked the Wyoming court to strike down the Rule:

“Because the California court has effectively vacated the Revision Rule, BLM is now left to either defend the 2016 Rule, which the agency has already determined is flawed, or confess error in this Court. BLM chooses the latter course and hereby acknowledges that it failed to adequately explain and support certain key aspects of the 2016 Rule, and that this Court could properly find that the agency did not comply with the [Administrative Procedure Act] . . .. BLM has also determined that the 2016 Rule is premised on an interpretation of its own authority that is inconsistent with the [Mineral Leasing Act]. Under the particular circumstances of this case, it is appropriate for the Court to vacate the 2016 Rule.”1

This is an usual step. Confessing error, rather than defending a rule on the books, is rarely done in environmental cases litigated by the Department of Justice. The fact that BLM and the Department felt the need to take this measure shows just what an awkward situation agencies can be placed in when there is simultaneous litigation over a roll-back and the very regulation that the agency was trying to roll back.

What comes next?

It remains to be seen whether the Wyoming court will agree with BLM and overturn the Waste Prevention Rule or leave it on the books. If the court agrees with BLM and vacates the Rule, then the language and reasoning of its decision could make it more difficult for a future Democratic administration to impose additional venting and flaring requirements on public lands. If the court disagrees with BLM and decides the Waste Prevention Rule is lawful, then a second term Trump administration could still attempt to rescind the Rule again, but doing so would take additional time and agency resources as the agency addresses the flaws found in the previous recession by the California court. In other words, the future of methane regulations on public lands still remains uncertain.

BLM itself acknowledged the impact that this kind of regulatory uncertainty can have on oil and gas operators, and the strange situation that both agencies and their regulated communities can find themselves in when rules are challenged or rolled back before they have time to fully go into effect. In arguing that the Wyoming court should vacate the Waste Prevention Rule, BLM said that doing so would not have “disruptive or harmful consequences because the [Waste Prevention Rule] has never been fully phased in and fully in effect.  Rather, it will put a stop to the regulatory seesawing that has made it extremely difficult for operators to prepare for and comply with BLM’s waste regulations” and “return the regulatory landscape to [the requirement] which was previously in effect for over 30 years.” BLM further argued that vacating the Rule won’t harm air quality because the provisions in the Waste Prevention Rule that would have provided air benefits were never fully phased in or implemented.

There is also a broader question about whether agencies will increasingly take the position in the future that they simply can’t defend the rules of a previous administration in court—not because they disagree with them as a policy matter, but because they think the rules are legally wrong. So far “confessing error” has only been used sparingly. Given how frequently regulations and agency actions are challenged in court, and how long it can take to both litigate those challenges, and change a prior administration’s policies, agencies may increasingly find themselves between a rock and a hard place.

1 BLM went on to note that “certain severable provisions of the [Waste Prevention] Rule have not been challenged in this litigation, were not rescinded or revised in the Revision Rule, were not promulgated pursuant to any legal error, and should not be enjoined or vacated. See 83 Fed. Reg. at 49,191. Specifically, these are: (1) 43 C.F.R. subpart 3178, which pertains to the royalty-free use of production (VF 395-98, 430-32); and, (2) the amendment of 43 C.F.R. § 3103.3-1, which aligned the prior regulation text with the terms of the MLA (VF 393-394, 429-430). These provisions will continue to function independently if the remainder of the [Waste Prevention] Rule (i.e., the provisions pertaining to venting, flaring, and leaks) are vacated.”

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.