What Will the Election Mean for Hydraulic Fracturing?
The U.S. energy industry faces uncertain times. The triple hit of depressed oil and natural gas prices, reduced demand resulting from a global pandemic, and an economic recession have battered producers. Against the backdrop of these factors is the looming U.S. presidential election and the potential for a Democratic sweep. A number of progressive groups, including former Democratic presidential candidates, have called for a nationwide ban on hydraulic fracturing, or “fracking,” a common well stimulation technique that has powered a surge in U.S. oil and natural gas production for more than a dozen years. The Obama administration pursued a number of federal efforts to regulate hydraulic fracturing, including limitations on air emissions, waste water discharges, chemical disclosure requirements, and restrictions on oil and gas development on federal lands, many of which the Trump administration has rolled back or is attempting to rescind or modify.
The potential for a Biden administration in 2021 raises the specter of a return to an aggressive environmental regulatory agenda, but an outright hydraulic fracturing ban is unlikely for a number of legal and political reasons. For example, currently, Vice President Biden has only indicated that he would ban new permits for hydraulic fracturing on federal land. If there is a “blue sweep,” a unified Democratic government may take additional actions that could limit or otherwise impose new requirements with respect to hydraulic fracturing on both private and federal land. Notably, neither candidate Biden nor unofficial drafts of the Democratic platform mentions specific measures to ban or more stringently regulate hydraulic fracturing. Nevertheless, a new administration is likely to pursue a strategy of stricter federal regulation of hydraulic fracturing and the oil and gas industry in general, but any such strategy would be constrained by limitations on Executive Branch authority and administrative rulemaking requirements.
General Legal Framework for Oil and Gas Development
Historically, state governmental authorities have been the primary source of regulations for oil and gas activities on both state and private lands. While the federal government may promulgate overarching rules to address the emission of air pollutants, wastewater discharges, and how certain oil and gas wastes may be handled or disposed of, this power flows from existing federal environmental laws. None of these existing laws provide any federal agency with the authority to ban hydraulic fracturing on state or privately owned lands. While Congress could pass a new law pursuant to the Commerce Clause of the U.S. Constitution purporting to provide the Executive Branch with authority to restrict or ban hydraulic fracturing on private or state lands, that authority currently does not exist. Moreover, any attempt to pass a law usurping traditional state authority over oil and gas activities, including hydraulic fracturing, would likely be subject to legal challenge and face years of uncertainty before reaching a final resolution.
Executive authority is broader with respect to hydraulic fracturing on federal lands. So the potential risk of a federal ban under a Biden administration is greater (and more likely given candidate Biden’s most recent statements). The Bureau of Land Management (BLM) within the Department of the Interior is the federal agency responsible for regulating oil and gas activities on federal and tribal lands. BLM oversees more than 245 million acres of land and 700 million subsurface acres of federal mineral estate primarily located in the west. As far back as 2013, BLM already estimated that about 90% of the approximately 2,800 new wells spudded on federal and tribal lands that year were stimulated using hydraulic fracturing techniques. While BLM manages vast amounts of land, most oil and gas production still happens on private or, in some cases like operations in New Mexico, state land. Onshore production from BLM managed lands accounts for only approximately 9% of natural gas production, 5% of natural gas liquids production, and 5% of oil production. And, as explained in greater detail below, BLM’s leasing activities are governed by a defined regulatory process, so even if a future President Biden were to issue an executive order banning hydraulic fracturing on federal lands, it would take time for the agency to implement such a directive and the probability of the ban extending to existing leases is unlikely.
Past Regulation of Hydraulic Fracturing on Federal Land
The Obama administration previously used existing authority to target hydraulic fracturing on federal lands. Still, a ban was never on the table and, as described below, these prior attempts to regulate hydraulic fracturing on federal lands are the subject of a protracted legal battle that continues long after President Obama left office.
After studying the existing regulatory requirements, the Obama administration decided that additional federal regulations were needed to control hydraulic fracturing on federal and tribal lands. In 2015, BLM issued the Hydraulic Fracturing Rule. The rule did not ban hydraulic fracturing on federal lands. Instead, it included a comprehensive set of requirements for well-bore integrity, use of tanks for the interim storage of recovered waste fluids, mandatory notifications and waiting periods for key parts of the fracturing process, as well as chemical usage disclosure requirements.
The Hydraulic Fracturing Rule never went into effect because it was challenged in court and enjoined, or blocked, by a federal district court judge in Wyoming. While that decision was on appeal in the Tenth Circuit, BLM (now under the Trump administration) proposed to rescind (rollback) the 2015 Rule because the agency believed it was “unnecessarily duplicative of state and some tribal regulations and imposes burdensome reporting requirements and other unjustified costs on the oil and gas industry.”
BLM then rescinded the Hydraulic Fracturing Rule on December 27, 2017, leaving in effect BLM’s regulations (43 CFR Part 3160) that have governed oil and gas activities on federal and tribal lands since the 1980s.
California and several environmental groups challenged BLM’s rescission of the Hydraulic Fracturing Rule in a federal district court in California under the Administrative Procedure Act (APA), National Environmental Policy Act (NEPA) and Endangered Species Act (ESA). Essentially, these groups argued that BLM did not follow the proper procedures, complete the necessary level of environmental analysis, or sufficiently explain its reason for rescinding the 2015 Rule.
As explained in a prior post, a federal district court in California granted BLM’s motion for summary judgment in March 2020, upholding the agency’s decision to rescind the Hydraulic Fracturing Rule. The court’s decision means that oil and gas operators on federal and tribal lands will not have to comply with the additional requirements in the Hydraulic Fracturing Rule. Instead, operators must continue to follow existing state and federal requirements.
The plaintiffs who challenged the Hydraulic Fracturing Rule reinstated have appealed the California federal court’s decision to the U.S. Court of Appeals for the Ninth Circuit, where the case is pending. The Ninth Circuit could affirm the lower court (meaning that the rollback would remain in place), or could disagree with the lower court, in which case the court could decide whether to tell the agency that requirements from the Hydraulic Fracturing Rule should be put back in place.
How Could the Election Affect Hydraulic Fracturing?
Putting campaign rhetoric aside, there is no clear regulatory pathway for any potential future Democratic administration to ban hydraulic fracturing nationwide. That is not to say that a future Biden administration could not take regulatory action that adversely impacts the oil and gas industry, but prior efforts from the Obama administration may serve as a better roadmap to what the future holds than promises to progressives on the campaign trail.
As noted, any nationwide hydraulic fracturing “ban” would be problematic given the scope of existing federal environmental statutes. Congress would need to pass a new law, likely on the basis of its constitutional authority to regulate interstate commerce, and even if a Democratic Party sweep occurs, there may not be sufficient votes to support a ban given the number of Democratic senators and representatives from oil and gas producing states. Even if such an effort were ultimately successful, it would likely expose the federal government to billions of dollars in potential “takings” claims from industry, landowners, and mineral owners. Setting aside the political issue of potentially alienating oil and gas producing states important to a potential Biden victory, such as Pennsylvania and New Mexico, an expansive national ban on hydraulic fracturing presents a number of thorny legal issues.
While an outright ban faces constitutional issues, there are federal policies that a Biden administration could pursue that could limit or otherwise restrict the ability of operators to use hydraulic fracturing techniques on non-federal lands. The federal government already has authority under existing environmental statutes to regulate some aspects of oil and gas activities, regardless of where such activities occur. Some examples of federal actions that a potential Biden administration could take include:
- Listing, or revisiting prior decisions not to list, certain plant and animal species known to inhabit oil and producing states as threatened or endangered under the ESA. For example, there have been renewed calls from environmental groups to list the Dunes Sagebrush Lizards under the ESA, a species typically found in oil producing areas of New Mexico and west Texas, and the U.S. Fish and Wildlife Service is currently conducting a year-long scientific study of the species to determine if listing under the ESA is warranted.
- Imposing stricter limits on the emission of methane from the oil and gas sector, including the need for methane controls on existing oil and gas wells. While this would not directly regulate the hydraulic fracturing process, it might change the economics behind decisions to drill new wells.
- Promulgating new requirements limiting options for the disposal of produced water. Currently, the U.S. Environmental Protection Agency (EPA) is considering revising Clean Water Act discharge prohibitions so as to provide operators with greater flexibility for produced water disposal options beyond the current standard practice of using underground injection saltwater disposal wells.
- Making it more difficult to permit oil and gas projects in wetland areas, either through a reversion to federal rules defining the “Waters of the U.S.” or potentially by limiting the use of streamlined permitting options such as nationwide permits.
A key takeaway though is that any of the above actions would have to comply with the rulemaking provisions of the APA. The federal rulemaking process is cumbersome and can take a significant amount of time; any attempt by a future administration to impose new requirements related to the oil and gas industry in general or hydraulic fracturing in particular will not happen overnight. Moreover, any effort to establish new regulation of hydraulic fracturing at the federal level would need to address the massive amount of data and analysis already generated by EPA in its multi-year comprehensive study of hydraulic fracturing during the Obama administration, which concluded that the process was not resulting in “widespread or systemic” adverse impacts to the environment.
A Biden administration could also take a more aggressive enforcement approach with respect to spills or unauthorized air emissions resulting from hydraulic fracturing operations. Both EPA and U.S. Department of Justice have considerable discretion to decide what kind of cases to prioritize within their existing authorities, without the need for a rulemaking under the APA. However, because of the limited resources of both agencies, such a shift in priorities would likely still take time and would mean other types of enforcement cases would get less attention. Given that neither Candidate Biden nor the Democratic Party has thus far focused on hydraulic fracturing, such a shift appears unlikely in the immediate aftermath of the election.
All of the potential changes on private land also apply to federal land. However, if Trump wins in November, we can expect to see a continued defense of actions to rescind or modify prior federal rulemakings related to hydraulic fracturing and the oil and gas industry that were viewed as federal overreach. The fate of several other oil and gas regulations for federal land, including the current rescission of the Hydraulic Fracturing Rule and BLM’s Waste Prevention methane regulation, depends on actions still pending in the courts. Even if the courts strike down these rollbacks, BLM may decide to perform additional analysis to justify rolling back the regulations in the future.
As noted, Vice President Biden has already signaled that he intends to ban the use of hydraulic fracturing in new leases on federal land. However, this action would not affect existing leases, and any attempt to rescind previously issued drilling permits for hydraulic fracturing on federal leases would expose the federal government to legal liability. There are also potential statutory limitations under the federal Mineral Leasing Act on how far any Biden administration may be able to go with respect to banning oil and natural gas production activities on federal lands.
The Biden administration could also impose a moratorium on new hydraulic fracturing on federal lands while studying whether or not to ban hydraulic fracturing, similar to the moratorium that the Obama administration placed on coal leasing. While a moratorium could have a much more immediate effect than finalizing new regulations, it would also be subject to court challenges and could potentially be stayed or paused by a court ruling.
Many of the more extreme changes sought by progressives may be difficult to achieve under even under a new administration and a Democratic Congress. While the November presidential election has the potential to impact the long-term regulation of oil and gas activities, including hydraulic fracturing, it is unlikely that there will be large-scale changes in the immediate aftermath of the election. However, Biden has also announced a plan to make the U.S. carbon-neutral by 2050, which would involve significant expansion of renewable power generation and battery storage capacity to support electric vehicle charging infrastructure. While natural gas is likely to continue to play a significant role in powering the U.S. electric grid, the rollout of electric vehicle (EV) infrastructure is likely to impact demand for oil, which in turn could have indirect effects on hydraulic fracturing activities. Navigating the manner in which and the limits of how a potential Biden administration could regulate the U.S. energy industry will be critical for producers to developing long-term operating strategies.
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.