The 113th Congress, especially the US House of Representatives, will use their oversight responsibilities this term to conduct hearings on many issues related to hydraulic fracturing or “fracking.” Hydraulic fracturing involves the underground, high-pressure injection of millions of gallons of water, silicates and chemicals into ancient cracks in shale formations deep below the ground to release natural gas. The main question considered by these legislative committees boils down to who's the best regulator: cities, states or the federal government?
Federal Regulation
In the corridors and committee rooms of Washington, DC, the oil and gas industry argues for state control instead of federal regulation. Two of the major legislative vehicles supporting this policy in the 112th Congress were the FRESH Act [PDF] and the Empower States Act of 2012. To drilling proponents, the states (especially those with histories of oil and gas development) have grand traditions regulating drilling within their borders. Regional geological differences require a localized approach and a federal “one size fits all” policy will ill-serve job creation and efficient energy development. Local regulators have familiarity not only with the area geology, but also the institutional memory needed to effectively handle inspections, enforcement and violations.
To put it mildly, the ability of state regulators to enforce their own rules has generated considerable dispute. Recent studies suggest that state agencies by and large simply cannot handle the stunning increase in the number of wells in their jurisdictions. Even in states like Colorado and Pennsylvania — where drilling has occurred for a long time — the recent explosion in the number of gas wells near homes, schools and other populated areas has led some to question whether the limited resources appropriated to state regulators can keep up with the new demands of the shale gas boom.
Thus, just as a practical matter, it appears that the states would greatly benefit simply from some extra help. The federal government has much to offer states in terms of staff, resources, and expertise. For the most part, the federal government has primarily conducted studies and supplied research and development dollars. The current technology used in high-volume hydraulic fracturing owes much of its origin to studies over the last 30 years funded by federal tax dollars and led by the US Department of Energy. Other federal agencies, including the Environmental Protection Agency (EPA), continue to study hydraulic fracturing.
From a regulatory perspective, it's important to understand that the federal government has virtually no authority over hydraulic fracturing. The reason is that natural gas drilling enjoys broad exemptions from seven of our nation's bedrock environmental laws. For example, the Safe Drinking Water Act (SDWA) has, at its core, a program designed to control fluids injected underground — an essential process of hydraulic fracturing. However, the Energy Policy Act of 2005 [PDF] specifically exempted it from the SDWA's Underground Injection Control program.
Another critical exemption involves the aggregation of emission sources under the Clean Air Act (CAA). The CAA allows the EPA to set National Emissions Standards for Hazardous Air Pollutants (NESHAP) from major sources. The law can also regulate individual, small sources in the same manner as major sources as long as the same operator controls similar sources positioned closely together. Just not oil and gas wells. In response to a lawsuit forcing action, the EPA in 2012 did issue new air rules for gas wells under Section 111 — the New Source Performance Standard — to capture volatile organic compounds and other airborne toxic pollutants.
Besides last year's air rule, the only other important arena where the federal government will do some regulating is where drilling occurs on federal lands. The Bureau of Land Management (BLM) appears ready to issue rules analogous to those in some states concerning disclosure, waste disposal, and well integrity. At the time of this writing, the degree to which the BLM proposals will set a better or worse standard than their state counterparts remains an open question.
Act 13
The industry's argument that the more local the regulator, the better the regulation, breaks down once disputes arise between states and municipalities. Rather than taking the position that the locals know best, the oil and gas industry instead argues that an in-state one size fits all approach provides regulatory certainty and best promotes efficient resource development. The best two examples of this have occurred recently in Pennsylvania and Colorado.
In the Keystone State, Harrisburg legislators passed a series of sweeping reforms to the state's oil and gas law known collectively as Act 13. The effect of this legislation was to seize powers traditionally reserved for municipalities and concentrate them in the state government. Perhaps the most controversial aspect of Act 13 included provisions preempting the power of municipalities to issue zoning rules for oil and gas facilities. For instance, 58 Pa.C.S. § 3303 reads:
Notwithstanding any other law to the contrary, environmental acts are of Statewide concern, and to the extent they regulate oil and gas operations, occupy the entire field of regulation, to the exclusion of all local ordinances. The Commonwealth by this section, preempts and supersedes the local regulation of oil and gas operations regulated by the environmental acts, as provided in this chapter.
On March 29, 2012, seven municipalities filed a complaint against the Commonwealth of Pennsylvania seeking a declaratory judgment and injunctive relief. The suit challenges the constitutionality of Act 13 on grounds that the state's power grab of local zoning control violates, among other things, the 14th amendment's guarantee of substantive due process. The Commonwealth countered that municipalities' powers to zone are delegated to them by state statute — the Municipal Planning Code (MPC), P.L. 805, as amended, 53 P.S. §§ 10101-11202. As a result, since the state grants towns the power to zone, it also has the right to limit it.
Presiding Judge Dan Pellegrini's 4-3 majority decision [PDF] sides with the municipalities. Quoting from the US Supreme Court's zoning discussion in City of Edmonds v. Oxford House, Inc. and Village OF Euclid et al. v. Amber Realty Company, the Commonwealth Court of Pennsylvania reminds us that the purpose of zoning is to avoid the problem of the “pig in the parlor instead of the barnyard.” As demonstrated in Village of Belle Terre v. Boraas, land use restrictions help secure “zones where … the blessings of quiet seclusion and clean air make the area a sanctuary for people.” In short, the long history of local control over land use decisions recognizes that while individual parcels pay in terms of reasonable regulation, they also benefit from protections for their quiet use and enjoyment.
The Court's substantive due process analysis involved a careful balancing of the rights of property owners subject to zoning against the state's police powers to protect the public interest. Here, the public interest seeking protection is the promotion of oil and gas development. The Court's decision, however, distinguishes this interest from the broader scope of interests protected by zoning requirements. The process the MPC prescribes for zoning requires municipalities to adopt comprehensive plans for land use.
The Court concludes that Act 13 (specifically, 58 Pa.C.S. § 3304) requires municipalities to violate their own comprehensive plans and allow oil and gas drilling in residential neighborhoods. And that such a requirement is simply not rationally related to the purposes served by zoning. If the Commonwealth were allowed to force municipalities to ignore their comprehensive plans, the legislature could similarly require the same for any sources of industrial pollution, effectively inviting the “pig in the parlor.”
Part of the purpose of zoning is, of course, to protect public health and the environment — to keep industrial activity away from residential neighborhoods where the dangers of pollutants can create a substantial risk of harm. The reason municipalities traditionally have zoning power is that most policymakers accept that local folks simply know best. The litigation over Act 13 continues in the Supreme Court of Pennsylvania, with a decision expected soon.
Longmont
A similar debate surfaced in the Boulder County town of Longmont, Colorado. Just as in Pennsylvania, the oil and gas industry sided with the larger government entity rather than the smaller, local one. Also like Pennsylvania, this question of “who's the better regulator?” has resulted in litigation. The remarkable thing about the Longmont suit is that the challenge implicates not only government action, but also a democratic vote by the people.
In July 2012, the Longmont City Council passed an ordinance that prevents drilling in residential areas, requires a 750-foot setback from homes or other occupied structures and implements some additional groundwater monitoring procedures. The state regulator, the Colorado Oil and Gas Conservation Commission (COGCC), has a 350-foot setback requirement. Later that month, the COGCC sued the city over the setback provision as well as additional items, including a restriction on surface drilling in residential areas and a requirement to disclose any hazardous materials transported on the city's roadways.
On November 6, 2012, nearly 60 percent of Longmont voters approved Ballot Question 300 — amending the Longmont city charter to ban fracking and the storage of fracking waste within city limits. On December 17, 2012, the Colorado Oil and Gas Association — an industry trade association — filed suit against the city of Longmont, contending the ban is illegal because it denies mineral owners the right to develop their property and blocks operations that state laws allow.
Various local elected officials have suggested it will take changes in state laws and regulations for local governments to be able to use their land use authority to ban drilling within their boundaries. In 1992, the Colorado Supreme Court overturned the City of Greeley's ban on drilling. That ban was put in place by a city council decision, though, not by a vote of city residents.
Legal defense of the ban will make two sets of arguments. First, times have changed since 1992. Impacts from drilling have increased and the state's ability to regulate and enforce them has decreased. Second, the Colorado state constitution guarantees the right of citizens to vote on matters of local impact — and that the statutory oil and gas act cannot deny that right. As of this writing, the parties have submitted preliminary change of venue motions and motions to dismiss.
Each level of government must play its part in protecting public health and the environment by regulating the fracking industry. Despite enjoying broad exemptions from crucial federal environmental laws, the federal government has two important roles in this arena. First, it should set a regulatory floor below which no other regulator should fall. Second, the federal government is uniquely well-positioned to tackle environmental problems. Not only does it have a monopoly on resources — both human and monetary — but, also, pollution does not respect geopolitical boundaries.
The states also have a critical role to play in oil and gas regulation, often by state agencies dedicated exclusively to that mission. Local governments also enjoy an understanding of energy resources within their borders. Their zoning powers traditionally come from a policy sentiment that locals know best where industry belongs and where it does not.
The oil and gas industry argues in our nation's capitol that agencies closest to drilling regulate best. They oppose federal preemption of state authority. They also support exemptions to our federal environmental laws. But in state capitols, the industry supports laws that allow states to preempt municipal power. They sue local governments over zoning ordinances and attempt to overturn resolutions passed by a democratic vote of the people.
The oil and gas industry has turned federalism on its head.
The locals know best, either we listen or we don't.
