The Controversy Over Hydraulic Fracturing

Over the past two decades, vast deposits of oil and gas have been unlocked in the United States by a late-20th-century extraction-process innovation known as hydraulic fracturing (also known as hydrofracking or fracking). That process has enabled industry to recover oil and natural gas resources from shale buried deep underground, generating tremendous economic benefits in the process. Federal policy once presumed a future of forever dwindling domestic oil and gas resources, but thanks to hydraulic fracturing and directional drilling techniques, America’s 30-year trajectory of declining supplies and rising prices has been reversed.[1]

Hydraulic fracturing has been used in perhaps 90 percent of all natural gas well operations sunk over the past decade. Its effect on the domestic natural gas industry has been nothing short of revolutionary.[2] The “Shale Revolution” promises to supply America with oil and natural gas sufficient to meet our energy needs affordably well into the future.[3] As one commentator recently put it, “The shale revolution has reduced America’s dependence on foreign oil and gas, created valuable jobs for many Americans, and expanded American consumers’ purchasing power and freedom of action in countless ways.”[4]

Yet hydraulic fracturing has become a contentious social, economic, and political issue. Different people and organizations have strong views as to who should regulate this process—the states or the federal government—and what regulations are appropriate. Critics object to hydraulic fracturing on several grounds,[5] but their principal concern is the risk that it poses of potentially contaminating aquifers or surface drinking water sources.[6] Those risks are serious, critics argue, even if the hydraulic fracturing process goes awry in only a small fraction of cases. In response, the oil and gas industry argues that the National Academy of Sciences,[7] the Environmental Protection Agency (EPA),[8] the Department of Energy,[9] and others[10] have studied hydraulic fracturing and that no one has found that it contaminates drinking water when properly executed. The policy and legal dispute between opponents and supporters of hydraulic fracturing has been a heated one. At times, it has been reminiscent of the feud between the Hatfields and the McCoys. As one observer has noted, “So deep is the divide between advocates and opponents that a straightforward conversation about hydraulic fracturing is nearly impossible in certain communities.”[11]

The propriety of hydraulic fracturing, however, has passed far beyond community-level conversations.

The Controversy Becomes a Legal Dispute: The Department of the Interior’s Hydraulic Fracturing Rule

Alexis de Tocqueville once wrote that in America, every political dispute ultimately becomes a legal one.[12] The dispute over hydraulic fracturing is no exception.

The Bureau of Land Management (BLM) of the Department of the Interior (DOI) is responsible for overseeing oil and gas development on approximately 700 million acres of subsurface mineral estate and 56 million acres of Indian land, in addition to millions more above ground.[13] Until 2012, the BLM did not separately regulate hydraulic fracturing on federal or Indian lands, which remained under individual Indian and state regulation. The BLM regulated the surface effects of using hydraulic fracturing in oil or gas extraction but generally did not regulate the subterranean aspects of that technique.[14]

On March 26, 2015, the BLM adopted regulations to govern hydraulic fracturing on federal and Indian land.[15] The bureau summarized the goals of the rule as follows:

To ensure that wells are properly constructed to protect water supplies, to make certain that the fluids that flow back to the surface as a result of hydraulic fracturing operations are managed in an environmentally responsible way, and to provide public disclosure of the chemicals used in hydraulic fracturing fluids.[16]

The BLM Fracking Rule seeks to achieve that result in several ways. It imposes additional drilling and construction requirements on shale mining companies for operations on federal or Indian lands. It requires disclosure of the chemicals and propping agents used in hydraulic fracturing. And it imposes new management requirements for the surface-operation aspects of hydraulic fracturing, including the use of above-ground storage tanks, instead of below-ground pits, to hold “flowback” (returned drilling fluid) and “produced water” (briny water found in shale containing oil and gas).[17]

The primary effects of the rule would land on seven western states where some 98 percent of hydraulic fracturing operations on federal lands take place.[18] The vast majority of BLM land is located in the West, leaving fracking operations in other areas of high activity like Pennsylvania, Texas, and Ohio mostly untouched by the BLM’s rule. The rule would therefore give eastern states a competitive advantage in the extraction process and could render some drilling in the western states unprofitable.

The District Court Decision in Wyoming v. Department of the Interior

Several parties—including four states, an Indian tribe, and several independent organizations—challenged the BLM’s regulations. The petitions were consolidated before the U.S. District Court for the District of Wyoming, which entered a preliminary injunction barring the BLM from enforcing the rule pending the court’s decision on the merits.[19] In June 2016, that court ruled that the BLM lacked the statutory authority to promulgate those regulations. In the court’s view, Congress assigned the responsibility for protecting drinking water supplies to the states. The case is on appeal to the U.S. Court of Appeals for the Tenth Circuit, which is likely to issue its decision late in 2016 or early in 2017.

The government argued that several federal statutes, particularly the Mineral Leasing Act of 1920 (MLA)[20] and the Federal Land Policy and Management Act of 1976 (FLPMA),[21] empower the BLM to regulate hydraulic fracturing. Those laws make the government the trustee of federal and Indian land for all generations, present and future, and the statutes require the government to consider a host of factors when granting mining leases, including any potential environmental effects of the extraction process.[22] Implicit in those laws, the government argues, is the authority to issue whatever regulations are necessary to prevent mining operations from befouling surface and underground water.[23] No other act of Congress, moreover, repeals the authority those statutes grant the BLM to protect drinking water. Accordingly, the government concluded, the BLM had ample power to regulate hydraulic fracturing on federal and Indian land.

As the district court recognized, however, the BLM approached this issue from the wrong direction. The Supreme Court’s decision in Chevron U.S.A. Inc. v. NRDC[24] requires courts to follow a two-step process when reviewing an agency’s interpretation of a statute it administers.[25] First, did Congress directly speak to the issue?[26] If so, the inquiry is over because Congress’s word is final.[27] Second, if Congress did not answer that question, is the agency’s interpretation of the relevant statute “permissible”?[28] If so, the court must accept the agency’s interpretation because Congress is presumed to have intended to leave interpretive authority to the agency.[29]

The district court reasoned that this case can be resolved at Chevron Step 1. It found that Congress had vested regulatory authority over hydraulic fracturing in the states, not the federal government, through the Safe Drinking Water Act (SWDA) of 1974[30] and the Energy Policy Act (EP Act) of 2005.[31] Under Chevron, Congress’s decision to make the states responsible for regulating hydraulic fracturing resolved the legal dispute. As the district court summarized:

“[N]o matter how important, conspicuous, and controversial the issue…an administrative agency’s power to regulate in the public interest must always be grounded in a valid grant of authority from Congress.”… Having explicitly removed the only source of specific federal agency authority over fracking, it defies common sense for the BLM to argue that Congress intended to allow it to regulate the same activity under a general statute that says nothing about hydraulic fracturing. Despite the lack of authority, the BLM persisted in its rulemaking efforts. Comments made by the EPA itself suggest that the Fracking Rule is an attempt to resurrect EPA’s pre-2005 EP Act authority (see DOI AR 0103278_002-3); that is, the BLM is attempting to regulate hydraulic fracturing as underground injection wells in a manner that the EPA would have done under the SDWA absent the 2005 EP Act. The BLM has attempted an end-run around the 2005 EP Act; however, regulation of an activity must be by Congressional authority, not administrative fiat. The Court finds the intent of Congress is clear, so that is the end of the matter; “for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”[32]

That ruling correctly read the text of the relevant federal statutes and properly rejected the BLM’s attempt at regulatory overreaching.

The Safe Drinking Water Act of 1974

Historically, states and localities had the responsibility to regulate drinking water supplies for public health purposes.[33] The federal government played only an advisory role. Beginning in 1914, the U.S. Public Health Service promulgated drinking water standards that, by 1974, the states or local governments had adopted for all public water systems.[34] In that latter year, Congress modified that regulatory scheme by adopting the Safe Drinking Water Act of 1974.

That statute creates a program of shared regulatory authority. To take advantage of the federal government’s expertise in devising water quality standards, the act directed the Environmental Protection Agency to adopt national drinking water standards that would bind the states.[35] To respect the state’s historic role in protecting local drinking water, the act also contemplates that the states will have the primary responsibility for enforcement —“the most direct oversight”[36]—with the federal government (in particular, the EPA) playing a subordinate role.[37] To establish that mechanism, the act requires the EPA to designate state agencies as having “primary enforcement responsibility” if state law is “no less stringent” than the relevant federal rules and if the state has appropriate enforcement mechanisms.[38] In other words, the act assumes that the EPA has superior scientific knowledge than the states regarding water safety, and so it assigns the EPA the responsibility to develop standards that will assure satisfactory drinking water quality. But the act also contemplates that once the EPA has approved a state’s drinking water quality regulatory program, the state can be trusted to implement that program and protect local health without direct federal involvement in each case.

Particularly important is Part C of the Safe Drinking Water Act. It directed the EPA to adopt regulations establishing minimum requirements for “underground injection control” programs “to prevent underground injection which endangers drinking water sources.”[39] Initially, the EPA took the position that the SDWA did not regulate hydraulic fracturing because the “principal function” of that technique is to extract natural gas, not to emplace fluids by well injection. In 1997, however, the U.S. Court of Appeals for the Eleventh Circuit rejected the EPA’s position and ruled that hydraulic fracturing fell within the statutory definition of “underground injection.”[40] The Eleventh Circuit’s decision required the EPA to regulate that practice throughout the nation, “on all lands, federal, state and tribal,”[41] with regard to the permitting, construction, operation, monitoring, and closure of wells using hydraulic fracturing.[42]

That is where the law remained until 2005.

The Energy Policy Act of 2005

In 2005, Congress modified this regulatory scheme. Section 322 of the Energy Policy Act of 2005 excluded from the “underground injection control” program construed by the Eleventh Circuit “the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.”[43] The effect of that provision was to overrule the Eleventh Circuit’s interpretation of the Safe Drinking Water Act and to transfer to the states authority to regulate hydraulic fracturing insofar as it could affect underground drinking water supplies. In other words, the Energy Policy Act singled out hydraulic fracturing for special treatment and assigned to the states the responsibility to protect drinking water from any danger that hydraulic fracturing might pose.[44] The EPA agrees with that reading of the statute’s text.[45]

As the district court concluded in Wyoming v. Dep’t of the Interior, the text of the Energy Policy Act directly answers the question in that case. The issue is not whether some level of government may regulate hydraulic fracturing to protect drinking water supplies, but which one has that authority. The text of the Safe Drinking Water Act and the Energy Policy Act answers that question directly. In 1974, Congress chose to vest all federal supervision of drinking water safety in the EPA’s hands, but in 2005, Congress decided to wrest that authority from the EPA and transfer it to the states with respect to any risks posed by hydraulic fracturing. That decision is critical. None of the statutes cited by the BLM specifically addresses—or even mentions—hydraulic fracturing; only the Energy Policy Act does. In those circumstances, as the Supreme Court explained in Chevron, both the agency and the courts must respect Congress’s decision to reassign regulatory authority over hydraulic fracturing from the EPA to the states.[46]

That decision was a sensible one. The states traditionally have protected local drinking water supplies, and the Safe Drinking Water Act recognized in 1974 that the states are still competent to do so. Nothing in the Energy Policy Act of 2005 suggests that Congress has changed its mind that state and local officials are fully capable of protecting the same aquifers that they use for their own drinking water. The BLM can exercise only the authority that Congress has delegated to the agency, and it perforce cannot exercise authority that Congress has decided to lodge elsewhere. The BLM’s attempt to do so was a classic example of regulatory overreaching, and the district court properly put a halt to it.

Conclusion

Prior to 2005, the Safe Drinking Water Act gave the EPA the responsibility to protect aquifers from hydraulic fracturing pursuant to the agency’s “underground injection control” program. In the Energy Policy Act of 2005, however, Congress transferred that role to the states. The result was to remove the EPA from that business. In Wyoming v. DOI, the district court paid respect to Congress’s decision and prevented the BLM from engaging in regulatory overreach.