LawFlash

The Clean Air Act's Application to Oil and Gas Facilities on Indian Lands: an Evolving Regulatory Scheme

February 21, 2013

Background and Summary

Since July 2011, EPA has promulgated several final rules under the Clean Air Act (CAA) that affect emissions sources, including oil and natural gas drilling operations, on Indian lands. Besides the several rules specific to Indian lands, additional regulatory issues — including fugitive emissions, the aggregation of emissions sources, and federal action triggers such as Endangered Species Act and General Conformity — have the potential to substantially impact such operations on Indian lands in the future.

Before EPA’s final new source review (NSR) rules for Indian lands became effective in August 2011, EPA already had a Federal Implementation Plan (FIP) in place for major sources on Indian lands located in attainment areas. On behalf of the vast majority of tribes that had not been delegated permitting authority under the CAA, EPA had been issuing permits under its FIP. In 2011, EPA added a nonattainment major NSR program and a minor NSR program for Indian lands to its FIP. Under consent agreements with a number of impacted exploration and production entities, which were conducting activities on the Fort Berthold Indian Reservation, the August 2011 FIP’s effects were postponed for a year. In August 2012, EPA published a final rule specific to that reservation, which addressed 600 existing and new production facilities that EPA could not issue permits for prior to the consent agreements’ expiration dates.

Although the new Indian lands rules fill certain regulatory gaps, some gaps still remain. Depending on how those gaps are filled, industry could be confronted with regulatory burdens on Indian lands that it had not been anticipating. EPA’s authority to require the inclusion of fugitive emissions when calculating major modifications of non-Section 302(j) major sources — including sources in the oil and natural gas production sector — remains in limbo while EPA resolves a conflict between contrary rules from 2002 and 2008. In addition, EPA is currently sorting out a recent appeals court ruling, which emphasized physical proximity as the most important factor in the determination of whether sources are adjacent and thus, should be aggregated. EPA Region 8, the home of 27 Tribal Nations, is undertaking a program to consider how source determinations can be streamlined. That Region 8 program could possibly lead to a policy of more source aggregation. Of course, large, aggregated sources could also potentially end up surpassing the greenhouse gas permitting thresholds. In addition, permits issued by EPA under this new authority in nonattainment areas are subject to General Conformity requirements of CAA section 176 and the Endangered Species Act.

In January 2013, EPA granted industry requests for reconsideration on two aspects of the Minor NSR Rule for Indian lands but refused to grant an administrative stay. EPA is still deciding whether to reconsider another thirteen aspects of that rule.

Indian Lands NSR Rule

On July 1, 2011, EPA published a final FIP, which included the Minor and Nonattainment Major NSR Rules, effective August 30, 2011.1 In December 2013, EPA responded to petitions for reconsideration by industry groups requesting that, with respect to the “synthetic minor sources” covered by the Minor NSR Rule, EPA reconsider the effective date and stay the rule.2 In a January 2013 Federal Register notice, EPA confirmed that it was denying the stay request and declining to reconsider both the rule’s application to synthetic minor sources and the effective date. But EPA granted the industry’s petition for reconsideration on two of the rule’s components and is still deciding whether to reconsider another thirteen issues.

    Minor NSR Rule

The Minor NSR Rule applies to all new sources on Indian lands with potential to emit (PTE) greater than “Minor NSR thresholds” but below the major NSR thresholds. Minor NSR thresholds are new thresholds set by EPA to exempt small sources and modifications from minor NSR permitting requirements. Generally, new minor sources are (1) new sources in attainment areas with a PTE greater than the minor NSR thresholds but less than 250 tons per year (tpy) and (2) new sources in nonattainment areas with a PTE greater than minor NSR thresholds but less than 100 tpy. Minor modifications are also subject to the minor NSR rule. Minor modifications subject to the rule include (1) modifications at minor sources that result in an emission increase greater than the minor NSR threshold and (2) modifications at existing major sources that result in less than significant emission increases but the emission increase exceeds the minor NSR threshold. “Significant” thresholds are set forth in EPA rules for each regulated pollutant. The rule also allows major sources on Indian lands to become “synthetic minor sources” by voluntarily accepting emission limits on their PTE.3

There are three permit options under the Minor NSR Rule: (1) site-specific permits made on a case-by-case basis; (2) general permits; or (3) “synthetic minor permits,” which apply to sources that would be major sources but voluntarily accept emission limits on their PTE to keep emissions below major thresholds. As of the rule’s effective date, existing synthetic minor sources could potentially need permits depending on how they became synthetic minors, while new synthetic minor sources are required to apply for permits. Synthetic minor sources undergo site-specific permitting, and general permits are not issued to such sources. In January 2013, EPA agreed to reconsider allowing the use of general permits for synthetic minor sources but declined to stay the requirement in the interim.4

As for “natural” or “true” minor sources, existing sources generally only need to register within the first 18 months of the minor NSR program, and those sources are not subject to the program’s requirements until their operators propose modifications.5 Following the earlier of the first 36 months from the rule’s September 2, 2014, effective date or 6 months after a general permit for a source category is published, new and modified “natural” minor sources require permits where proposed new or modification-related emissions exceeded minor source thresholds. The final Minor NSR Rule also provides a process for case-by-case determinations of maximum achievable control technology (MACT), and the rule establishes a registration system for existing minor sources to improve Indian tribes’ inventories of emissions sources.6 Lastly, minor modifications at major sources necessitate the submission of permit applications beginning on the rule’s effective date.

Besides agreeing to reconsider two aspects of the Minor NSR Rule, EPA has left open the possibility that it will grant reconsideration on thirteen additional issues noted in petitions for reconsideration.7 Those thirteen issues for possible reconsideration include: EPA issuing a general permit for oil and gas facilities; EPA shortening the time required to obtain a minor source permit and eliminating the Environmental Appeals Board’s appeals process for all permits; EPA setting September 2, 2014, as the implementation deadline for sources seeking site-specific and general permits; and EPA including portable sources within a permitting exemption for mobile sources.

    Nonattainment Major NSR Rule

The scope of the Nonattainment Major NSR Rule is limited to Indian lands in areas that do not meet the NAAQS. Major sources are those with PTEs above major NSR thresholds, which vary depending on the type of source, pollutant, and nonattainment classification but are generally no more than 100 tpy in nonattainment areas. The Nonattainment Major NSR Rule’s requirements follow the transitional NSR program commonly known as “Appendix S,” through which EPA imposes requirements for states and Indian tribes that lack nonattainment major NSR programs for any pollutants regulated under the CAA.8 Under the Nonattainment Major NSR Rule, operators of major sources need to receive permits before they can construct or modify their sources. The rule requires affected sources to install Lowest Achievable Emission Rate (LAER) control technology and to obtain offsets, which create net air quality benefits in the nonattainment areas.9 In the final Indian lands FIP, EPA, citing concerns about implementation, decided not to allow offset waivers for certain major sources.10

Fort Berthold Indian Reservation

The Fort Berthold Indian Reservation (Fort Berthold) in North Dakota, which overlies the Bakken Shale, is the site of extensive exploration and production activity. Fort Berthold is home to three affiliated tribes that collectively constitute a federally-recognized Indian tribe. The Bureau of Indian Affairs estimates that roughly 1,000 wells will be drilled on Fort Berthold over the next decade.
 
    Consent Agreement Final Orders Delaying Implementation

Because the final FIP for Indian lands had an effective date of August 30, 2011,11 many affected oil and gas companies with operations on Fort Berthold entered into consent agreements, known as Consent Agreement Final Orders (CAFOs), with EPA’s Region 8 prior to the deadline.12 Each CAFO addressed the “unique situation in that the Respondent is unable to obtain an effective synthetic minor source permit from EPA prior to commencing construction because, pursuant to the new Tribal Minor NSR Rule, the authority to issue such permits begins August 30, 2011.”13 The agreements provided one-year reprieves for affected entities: time for them to complete and submit synthetic minor source permit applications under EPA’s Tribal Minor NSR Rule for the entities’ existing emission sources.14

    Fort Berthold Indian Reservation “Gap” Rule

In the Federal Register notice for its final Indian lands FIP, EPA undertook to develop general permits or permits-by-rule as streamlined options for a number of source categories on Indian lands.15 By August of 2012, when the CAFOs were due to expire, EPA had yet to issue actual proposals for streamlined permitting options. Even more, EPA had been unable to finalize the permits for the more than 600 existing and new production facilities at Fort Berthold.16 As a result, EPA published another final rule on August 16, 2012, after the agency determined it had good cause to forgo a notice and comment period.17 The Fort Berthold rule was prepared as an “initial step to fill a regulatory gap.”18 That gap concerned the control of emissions of volatile organic compounds (VOCs) from oil and natural gas operations on the reservation.19

EPA contends that no other federal rule, including the “Oil and Gas Rule” published on the same day as the Fort Berthold rule,20 was able to fill the gap for the “particular geologic formations” existing on Fort Berthold.21 The rule essentially takes standards consistent with North Dakota’s State Implementation Plan (SIP) and applies them to the oil and gas production facilities on Fort Berthold.22 Per EPA, the Fort Berthold rule imposes “legally and practicably enforceable requirements to use control measures to reduce VOC emissions such that those reductions can then be considered in calculating a source’s PTE.” Such enforceable limits on PTE allow Fort Berthold sources to continue to operate without a source specific permit. The FIP makes such source-specific limits unnecessary because it adequately limits PTE.

Fugitive Emissions

EPA’s disputed regulations on fugitive emissions, once reconciled, could lead to the regulation of such emissions from a broader set of major sources. In its August 2006 proposed rule for Indian lands, EPA sought comment on whether it should include fugitive emissions in PTE calculations, to the extent fugitive emissions are quantifiable, for (1) all sources or (2) only those major sources in certain listed categories.23 For the final FIP for Indian lands, EPA concluded that the PTE for minor sources includes fugitive emissions, to the extent they are quantifiable, but only if the minor sources belong to any of the EPA-regulated source categories.24 Those specifically-designated source categories, such as petroleum refineries, are listed pursuant to Section 302(j) of the CAA.25 The categories have not changed since 1980, and the oil and natural gas sector is not one of them.26 EPA also states in its final FIP that it is proceeding further by “developing a program that applies generically to sources on Indian lands regardless of whether fugitive emissions from major or minor sources are a significant source of air pollution in a specific location.”27

Since 1989, fugitive emissions have been a factor in determining whether a source from one of the listed source categories is “major.”28 But for a non-Section 302(j) source, such as an oil and natural gas production facility, fugitive emissions cannot be included in the calculation of whether the source’s PTE puts it above the major source threshold.

In 2002, EPA issued final rules that quietly mandated the inclusion of fugitive emissions when calculating increases for the purpose of determining whether a particular change constitutes a major modification requiring a PSD or nonattainment major NSR permit.29 The 2002 rule covered fugitives from all major sources, regardless of whether those major sources belonged to the categories designated under Section 302(j).30 Thus, under EPA’s 2002 rule, the determination of whether a proposed modification to a major oil and gas source is itself “major” would require a PTE calculation that included fugitive emissions.

EPA reversed course in 2008 and chose to limit the inclusion of fugitive emissions to PTE calculations for major modifications of sources in only the source categories listed under Section 302(j).31 In other words, EPA’s 2008 fugitive emissions rule would have adopted a regulatory scheme that considered such emissions when determining whether a source is major or whether a change is a major modification, but only for Section 302(j) sources. EPA has stayed its 2008 rule multiple times since publishing it, and the legality of those repeated stays is in question. Nonetheless, it is clearly EPA’s position that fugitive emissions must be included in PTE calculations for determining whether modifications to existing non-Section 302(j) major sources on Indian lands — including petroleum and natural gas extraction sources, natural gas liquid extraction sources, and natural gas distribution sources — are also “major.” Including fugitive emissions for modifications becomes more critical, if EPA’s broad policy on aggregation is applied in a way to make more sources major. On March 30, 2011, EPA issued an indefinite stay to the 2008 rule and stated that EPA intended to issue a final rule (with public notice and comment) by October 4, 2012 addressing the reconsideration of the 2008 rule. EPA has not yet issued a proposal.

Aggregation on Indian Lands

The question of how to address aggregation on Indian lands has not yet been resolved. The proposed and final Indian lands rules, the CAFOs that followed the promulgation of the final rule in 2011, and EPA’s notice of proposed settlements with environmental groups are all silent on the issue of aggregating sources.32 Under EPA regulations, multiple pollutant-emitting activities are to be aggregated into a single source when they are: (1) under common control; (2) located on one or more contiguous or adjacent properties; and (3) belong to the same major industry classification.33 In Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012), the Sixth Circuit resolved a dispute over whether a natural gas sweetening plant and roughly 100 sour gas production wells located within an area of about 43 mi2 could be considered “adjacent.” The court found that “adjacency” is an unambiguous term that can be evaluated without additional factors. In short, the court established physical proximity — rather than sources’ functional interrelationships — as the most important factor with respect to “adjacency” in source determinations.34

Summit is the only court decision on the issue and is only binding in the Sixth Circuit, which adjudicates over states containing relatively few Indian lands (Michigan, Ohio, Kentucky, and Tennessee). However, the case may have a broader impact on EPA’s actions in other circuits. Although Title V and NSR source determinations are usually made by states, EPA usually retains that authority on Indian lands.

In 2010 and 2011, EPA was sued by environmental groups alleging that the agency failed to properly aggregate sources for Title V permits. To settle these suits, EPA agreed to undertake a pilot program in EPA Region 8 to study and potentially streamline source determinations for permits issued by EPA Region 8.35 EPA Region 8 covers 27 Tribal Nations and widespread exploration and production activity, including activities in the Dakotas, Utah, Colorado, and Wyoming. The Pilot Program will cover Title V permits issued by EPA in Tribal lands before the end of 2013. Although the settlements do not require EPA to aggregate sources, the agency will at least consider the possibility.

After Summit, EPA is now on notice that its use of the functional relationship test is vulnerable to legal challenge. This may make EPA more hesitant to use the test in its Region 8 pilot program, and EPA may make source determinations based primarily on proximity. If EPA follows that approach in the pilot program, EPA may follow it when making aggregation decisions in other regions.

Thus, the results of the EPA Region 8 pilot program should signal how EPA will handle aggregation on Indian lands like Fort Berthold. To be sure, Region 8’s pilot program could result in a policy of more source aggregation. Along those lines, aggregated sources could potentially end up exceeding GHG permitting thresholds.

General Conformity and Endangered Species

In addition to the standard nonattainment NSR requirements described above, any permits issued by EPA, including minor NSR permits, are potentially subject to General Conformity requirements of CAA section 176. Section 176 applies to federal government actions in nonattainment areas; EPA issued permits are federal actions. In addition, just as EPA-issued PSD permits (issued in attainment areas) trigger the Endangered Species Act (ESA) obligations, EPA-issued Nonattainment NSR permits will trigger ESA. Minor NSR permits might also trigger ESA and General Conformity requirements.
 
Section 176 of the CAA simply prohibits any federal action which does not conform to an approved implementation plan. Conformity means (1) conforming with the plan and (2) that the activities will not cause or contribute to any new violation of any standard in any area or increase the frequency or severity of any existing violation in any area or delay timely attainment of any standard in any area. The twist here is that most of these Indian lands do not have an approved plan, and activities in Indian lands might contribute to nonattainment areas both within and outside the Indian lands.

Section 7 of the ESA requires federal agencies to consult with the Department of Interior to insure that any federal action does not jeopardize an endangered or threatened species or cause harm to critical habitat of such species.

What Next?

In its August 2011 FIP, EPA took a clear regulatory position on NSR for minor sources, minor modifications at major stationary sources, new major stationary sources, and major modifications on Indian lands. But EPA was unable to meet its permitting burden at Fort Berthold, and so the agency was forced to issue a gap-filling measure to regulate VOC emissions, as an interim final rule. The final rule will be issued following public comment.

EPA declined to stay but agreed to reconsider parts of the Tribal Minor NSR Rule for synthetic minor sources, and EPA left open the possibility of granting reconsideration on several more aspects of that rule. EPA had also committed to completing reconsideration of the 2008 fugitive emissions rule in 2012, but EPA has yet to issue a proposal. In addition, EPA’s ultimate policy for handling aggregation on Indian lands remains to be determined. EPA Region 8 pilot program could result in a policy for the agency’s handling of source determinations on Indian lands or EPA could undertake a rulemaking to respond to the Summit court decision. Finally, EPA actions to comply with the ESA and General Conformity could set new policy for permitting in Indian lands, especially as ambient air quality standards are lowered and more areas are designated nonattainment.

Because of the potential implications for oil and natural gas operations and other emissions sources on Indian lands, industry should remain aware of EPA’s evolving regulatory scheme for implementing the CAA on Indian lands.

 

 

 


1 “Review of New Sources and Modifications in Indian Country,” 76 Fed. Reg. 38,748 (July 1, 2011).

2 “Review of New Sources and Modifications in Indian Country: Notice of Action Partially Granting Petition for Reconsideration and Denying Request for Administrative Stay,” 78 Fed. Reg. 2210 (Jan. 10, 2013); Letter from Lisa P. Jackson, Administrator, EPA, to Amy Farrell, Vice President of Regulatory Affairs, America’s Natural Gas Alliance (Dec. 19, 2002), available at http://www.epa.gov/NSR/tribalnsr/2012anga.pdf  (hereinafter Jackson Letter).

3 76 Fed. Reg. at 38,749.

4 See Jackson Letter at Enclosure, p. 2. EPA also agreed to reconsider reducing a relocation reports notice requirement to less than 30 days before the affected source plans to relocate. Id.

5 76 Fed. Reg. at 38,751.

6 76 Fed. Reg. at 38,754.

7 See Jackson Letter at Enclosure, pp. 1-2; 78 Fed. Reg. at 2211.

8 76 Fed. Reg. at 38,750-51. See also 40 C.F.R. Part 51, Appx. S.

9 76 Fed. Reg. at 38,750-51, 38,773.

10 Id.

11 76 Fed. Reg. at 38,748.

12 “Dockets by EPA Region| EPA Administrative Enforcement Dockets | US EPA,”  http://yosemite.epa.gov/oa/rhc/epaadmin.nsf/Dockets+by+EPA+Region?OpenView&RestrictToCategory=08&Start=201 (last visited Oct. 3, 2012).

13 See, e.g., Order Granting Filing of an Electronic Consent Agreement and Final Order, In the Matter Of: XTO Energy, Inc. at 2 (Aug. 26, 2011), available at http://yosemite.epa.gov/OA/RHC/EPAAdmin.nsf/Filings/71E36616C37F0527852578FC001B7F12/$File/CAA0820110018%20CAFO.pdf (hereinafter XTO CAFO).

14 Id. at 3.

15 76 Fed. Reg. at 38,767.

16 77 Fed. Reg. at 48,878, 48,880.

17 “Approval and Promulgation of Federal Implementation Plan for Oil and Natural Gas Well Production Facilities; Fort Berthold Indian Reservation (Mandan, Hidatsa, and Arikara Nations),” 77 Fed. Reg. 48,878 (Aug. 16, 2012). EPA simultaneously published a proposed rule that provided an opportunity for interested parties to make comments. See 77 Fed. Reg. 48,923 (Aug. 16, 2012).

18 77 Fed. Reg. at 48,879.

19 Id.

20 “Oil and Natural Gas Sector: New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants Reviews,” 77 Fed. Reg. 49,490 (Aug. 16, 2012).

21 77 Fed. Reg. at 48,879.

22 77 Fed. Reg. at 48,879, 48,881-82 (Finally, this rule is important in that while not identical to, the rule is consistent with regulations approved into North Dakota’s SIP under the authority of the NDDoH and regulations under the authority of the NDIC, which were established for similar purposes. Accordingly, this rule ensures that consistent requirements apply to activities both inside of and within the FBIR.).

23 71 Fed. Reg. at 48,703. See also 42 U.S.C.A. § 7602(j).

24 76 Fed. Reg. at 38,754 (citing 40 C.F.R. Part 51, Appx. S, Para. II.A.4(iii) or 52.21(b)(1)(iii)).

25 “Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR): Reconsideration of Inclusion of Fugitive Emissions,” 73 Fed. Reg. 77,882 (Dec. 19, 2008).

26 See 40 C.F.R. 52.21(b)(1)(iii); 40 C.F.R. Part 51, Appx. S, Para. II.A.4(iii).

27 76 Fed. Reg. at 38,756.

28 54 Fed. Reg. 48,870 (Nov. 28, 1989).

29 “Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR): Baseline Emissions Determination, Actual-to-Future-Actual Methodology, Plantwide Applicability Limitations, Clean Units, Pollution Control Projects.” 67 Fed. Reg. 80,186, 80,246 (Dec. 31, 2002).

30 Id.

31 73 Fed. Reg. at 77,882, 77,885.

32 See 71 Fed Reg. at 48,696; 76 Fed. Reg. at 38,748; XTO CAFO; “Proposed Settlement Agreements, Clean Air Act Citizen Suit,” 76 Fed. Reg. 71,027 (Nov. 16, 2011).

33 40 C.F.R. § 71.2.

34 See also Memorandum from William L. Wehrum, Acting Assistant Adm’r, to Reg’l Adm’rs I-X (Jan. 12, 2007), available at http://www.epa.gov/region7/air/nsr/nsrmemos/oilgas.pdf (last visited Oct. 4, 2012).

35 See “Proposed Settlement Agreements, Clean Air Act Citizen Suit,” 76 Fed. Reg. 71,027 (Nov. 16, 2011).

 

This article was originally published by Bingham McCutchen LLP.