Patrick Crow
Energy Policies Editor
Voluntary Environmental Action by the E&P Sector chart (31604 bytes)
Environmental issues have taken center stage in the 104th Congress as Republican legislators and some Democrats attempt to revise U.S. laws and influence future rulemakings.
The changes they make to federal laws such as the Clean Water Act (CWA), wetlands permitting, Superfund, and others will have a lasting effect on the oil industry.
Both houses have passed bills to allow exports of Alaskan North Slope crude oil, and the issue awaits a House-Senate conference committee (OGJ, May 22, P. 28).
Alaska congressmen may seek to open the Arctic National Wildlife Refuge Coastal Plain for leasing, but support for such a measure could be thin.
For example, on another oil and gas issue, the Republican dominated House appropriations committee declined by a wide margin to lift the moratoria against leasing off much of the U.S. coastline (OGJ, July 3, Newsletter).
Economic Effect of Potential Environmental Requirements table (27340 bytes)
ENDANGERED SPECIES
A U.S. Supreme Court decision upholding the Endangered Species Act (ESA) has cast more attention on the 1973 law.
Rep. Don Young (R-Alaska), the House resources committee chairman, plans to introduce a bill this month to pay landowners for property taken by federal action and give them incentives - grants, technical aide, and compensation - to provide habitats for wildlife.
"Our legislation will be designed to make private landowners part of the solution in preserving species," Young said. "We want to include them in making the law work effectively. The existing law does just the opposite. It is designed to create conflicts between the federal government, the species, and private landowners."
He said the bill will allow landowners to modify habitats if they do not harm wildlife. He said under existing regulations, landowners could be jailed for cutting a tree that could provide habitat for a "threatened" or "endangered species" that might migrate onto the landowners' property.
"This issue needs to be more clearly defined so landowners know exactly what they can and can't do on their own property," Young said.
In the Senate, Bennett Johnston (D-La.), Slade Gorton (R-Wash.), and Richard Shelby (R-Ala.) have filed a bill to inject more scientific analysis and independent peer reviews to the process by which endangered species are identified and protected.
Johnston said the Endangered Species Act is "unworkable" and "is making outlaws out of law abiding U.S. citizens who are unable to comply with overzealous regulations based on emotion, not science."
Their bill will require a decision to list a species to be based solely on science after a peer review.
It will require the Interior Department to set a specific conservation objective for each listed species and
consider biological and economic factors before drafting a protection plan.
Johnston said, "We want to protect endangered species. But before we make a decision that costs the taxpayer billions of dollars, we want that decision to be based on sound science and weighted with economic considerations."
Pending Action and Compliance Costs chart (20060 bytes)
OTHER VIEWS
A committee of the National Research Council (NRC) recommended in May that not weakened.
The study, requested by Congress, said changes are needed in the way biological populations and habitat are designated for protection, but enforcement of ESA generally has followed good science.
The committee said too often recovery plans are developed too slowly or have provisions that cannot be justified scientifically
It said the U.S. Fish and Wildlife Service should establish explicit guidelines for developing plans, including as much guidance as possible on which human activities are likely to harm recovery and which are not, to enable people to plan economic activities.
For purposes of evaluation, plans should include estimates of the probabilities of achieving various recovery goals during different periods.
The study said the relationship between vanishing habitats and vanishing species nationwide is well documented, and protecting species in the wild most often means conserving habitats.
Detailed information needed to designate critical habitat for a given species often is lacking.
"Just because a species occurs within a habitat does not necessarily mean that it requires that habitat or that the present amount and quality of habitat is critical to species survival."
And it said absence of a species from a habitat does not mean the habitat is not Critical to the survival of the species.
It recommended that when a species is listed as endangered, a core amount of "survival habitat" should be protected as an emergency measure-without reference to economic effect. This survival habitat should be able to support either current populations or the population required to ensure short-term survival for 25-50 years, whichever is greater.
The study said regulators should use regionally based, negotiated approaches to habitat conservation. It predicted increasing conflicts between what is needed to protect different species in the same region. It said the most effective approach would be to maintain protected areas large enough to allow existence of a diverse array of habitats.
And it said, "More approaches need to be developed and implemented as complements to the act to prevent continued, accelerating loss of species and to reduce economic and social disruption and uncertainty. ESA by itself cannot prevent the loss of species and their habitats but should be viewed as only one part of a comprehensive set of tools for protecting them."
BUDGET WARS
Meanwhile, the Interior Department proposes more flexibility in the current species law. It suggests allowing individuals to disturb as much as 5 acres of habitat for a threatened - but not endangered - species.
It wants to use a multi-species approach rather than species by species. And it wants to require the public to submit supporting documents when asking that a species be protected.
ESA and the National Biological Service, which gathers scientific data on endangered species, also are under fire from House and Senate budget cutters.
The House appropriations committee voted June 27 to merge the National Biological Service (NBS) with the U.S. Geological Survey and deny funding for listing new species as threatened or endangered until Congress reauthorizes and revises ESA.
Interior Sec. Bruce Babbitt said the action would "effectively abolish" NBS, cut biological research by one third, and prevent NBS from conducting research on private property even if landowners asked for it.
Ronald Pulliam, NBS director, said, "Contrary to charges made by some fear mongers on Capitol Hill, NBS is nonadvocacy and does not participate in regulatory decisions."
Since Babbitt created NBS in 1993, conservatives have seen it as another way for the government to expand its protection of endangered species.
Babbitt maintains the agency is needed to review the science behind species protection in an unbiased way, centralize Interior's scientific functions, and separate Interior agencies' research and regulatory roles.
SUPERFUND
Congress is moving toward revision of the Comprehensive Environmental Response, Compensation, and Liability Act (Cercla or Superfund).
The hazardous waste cleanup function is partly funded by a tax on oil, but that expires at the end of the year unless the law is revised.
The key point of contention is whether Congress should repeal the retroactive liability provision in the law that makes companies responsible for cleaning up hazardous waste generated before the law was enacted in 1980.
Businesses have complained loudly about tough liability provisions that hold all parties liable for cleaning up Superfund sites. They say Superfund's liability system is unfair and increases program costs by encouraging lawsuits.
In the House, three key chairman have urged reform of the liability system. They are Reps Bud Schuster (R-Pa.), chairman of the transportation committee; Thomas Bliley (R-Va.), chairman of the commerce committee; and Michael Oxley (R-Ohio), chairman of the commerce, trade, and hazardous materials subcommittee.
States oppose retroactive liability repeal, fearing they will be forced to assume costs previously borne by responsible parties.
Sen. Bob Smith (R-N.H.,) chairman of the Superfund, waste control, and risk assessment subcommittee, proposes that the federal government assume costs for sites where disposal occurred before 1980.
All parties seem to agree that Superfund needs a major overhaul, and states should be given more responsibilities for the program.
Bernard Reilly, a DuPont attorney, told a House hearing Congress is entering a critical 6 month period for Superfund. "It can complete a plan that reforms and reauthorizes the program that puts Superfund back on the right track or it can stand by and watch it self-destruct."
ACTION ON CWA
The House has approved more flexible reauthorization of the Clean Water Act, but the Senate is inclined to make only minor changes.
The House bill shifts many federal regulatory powers to state and local governments. It is more flexible than current law, allowing polluters to try new prevention procedures and even temporarily exceed discharge limits if they achieve a net improvement.
It requires water quality protection programs to be based on scientifically objective assessments of the risks and rules to be based on cost/benefit analysis.
On the House floor, opponents failed to amend the bill's provisions that drastically alter the law's management of storm water runoff from manufacturing plants. The legislation would redefine storm water discharges as nonpoint-source discharges and would not require tough regulation.
The House also retained a controversial measure that would not require some industrial dischargers pretreat waste water to federal standards before sending it to a public water treatment facility.
John Chafee (R-R.I.), chairman of the Senate environment and public works committee, will have his staff consult with interest groups and prepare a draft bill by Aug. 1. Hearings will follow in the fall.
Chaffee, a defender of the current legislation, believes only a few fixes are needed, such as storm water runoff and wetlands permitting.
After the House passed its CWA rewrite, President Clinton pledged to veto it. He charged it would "roll back a quarter century of bipartisan progress in public health and environmental protection."
He said, "This House bill would put the cleanliness and safety of our water at risk. Industries in our country use roughly 70,000 pollutants, chemicals, and other material that can poison water if they're not controlled properly. This bill would make it easier for those poisons to find their way into our water."
WETLANDS
Use of wetlands is an important issue for the oil industry because many wells are drilled and pipelines cross such areas.
Some key senators are supporting a bill by Louisiana's Johnston to reform wetlands rules. Supporters include Sens. Lauch Faircloth (R-N.C.), chairman of a key environment subcommittee; Robert Dole (R-Kan.), majority leader; and Frank Murkowski (R-Alaska), chairman of the energy committee.
Johnston said, "The current Section 404 (wetlands) regulatory program has been designated less by the elected representatives of the people than by officials of the Corps of Engineers and the Environmental Protection Agency, and by federal judges."
He said 75% of the land regulated in Section 404 programs as "wetlands" or "waters of the U.S." is privately owned property
The bill would define wetlands as those covered with water for at least 21 consecutive days during the growing season. It would adjust regulations whether the wetland had high, medium, or low environmental value.
The bill would remove EPA's veto over Corps of Engineers actions, and allow "mitigation banking," restoration or creation of wetlands to offset the effect of authorized development.
Meanwhile, the NRC report says ranking wetlands on three levels, based on their perceived value, won't work. The House-passed and Johnston bills use that approach.
The report said federal agencies that oversee wetlands should adopt a single new manual to make identification and regulation of wetlands more consistent.
It said, "Wetlands regulation is a source of considerable friction between private landowners and the federal government for many reasons. Multiple definitions, field manuals, and agency responsibilities have contributed to confusion among citizens and corporations whose land may be affected."
Federal agencies tried to consolidate and revise manuals used to delineate wetlands in 1989 and 1991. NRC said the new federal manual should incorporate recent research while drawing from the strengths of present manuals.
"For example, the new manual should have an increased recognition of the differences in wetlands from region to region that result from variations in climate and geology.
"Some groups have proposed designating wetlands as high, medium, or low value based on some general assessment of the purposes served by wetlands. Examples of categories that have been suggested as having low value include wetlands smaller than 10 acres and those within heavily industrial or intensely developed areas."
The report said relying on broadly drawn categories to determine the usefulness or value of specific wetlands probably would not be possible.
REGULATORY REFORM
The House has passed a broad regulatory reform bill, but the Senate has been locked in private talks on the matter.
The House bill would overhaul the federal rulemaking process by requiring that agencies subject major regulations to risk assessments and cost benefit analyses.
Realizing that Democrats could filibuster the legislation in the Senate, Dole opened negotiations with Johnston, a moderate Democrat who represents the views of others.
The Dole-Johnston camps have conducted 2 months of negotiations but are still apart on a number of key issues. Even so, Dole brought the bill to the floor late in June and said amendments will be considered the week of July 10.
One is the question of whether to have the bill apply to rules with an economic cost of $50 million/year, as in the House measure. Democrats generally want the level at $100 million/year or higher. Dole and Johnston have agreed on a $50 million threshold.
They propose a petition process that would allow citizens to ask an agency for changes of rules 3 years after they are passed. Agencies would be required to review all existing rules during a 10-year period.
The measure would require risk assessments for all major environmental management activities costing at least $10 million.
Jerry Jasinowski, chairman of the Alliance for Reasonable Regulation and president of the National Association of Manufacturers, said, "Republicans and Democrats are keenly aware there is a growing national consensus that our regulatory system is broke and needs to be fixed.
"A significant number of senators from both parties have said it is imperative to support regulatory reform, and they have indicated their support of a bipartisan bill."
Clinton administration officials said they will recommend that the president veto the measure if passed in its current form.
Sally Katzen, administrator of regulatory affairs for the Office of Management and Budget, said the draft bill would override present legal requirements, which were set with the goals of protecting public health.
She said requiring agencies to review rules that are in place would tie them up in paperwork and force them to let existing rules expire.
How Potential Rules Could Cut Production chart (78180 bytes)
API URGES CHANGE
Charles DiBona, president of the American Petroleum Institute, said the administration and environmental groups claim regulatory reform would roll back environmental progress.
"The truth is just the opposite. The House-passed bill rolls back nothing. Instead, it asks that regulations be written so that Americans will receive benefits commensurate to the costs they must bear.
"Many regulations now on the books are clearly beneficial. That's largely because a quarter century ago, our laws were addressing large pollution problems and pretty much whatever the country did would help. That's no longer the case."
DiBona said regulators are now trying to squeeze the last few grams or the last few molecules from the tailpipe of a car or the smokestack of an industry. That is a very expensive way to attain very small benefits.
DiBona said, "That's why benefit-cost analysis is needed. We need to make sure we get the most bang for the buck. Doing that will not turn back or 'gut' progress already made. Clean air and books that pass benefit-cost tests are not threatened."
The API president said the administration and environmental groups are attacking the concept of reform although every administration since the Nixon administration, including the current one, has issued executive orders requiring benefit-cost analyses.
He said, "A key problem is that many laws on the books direct regulators to ignore cost. That's the kind of thing that leads to a regulation that would spend the entire gross domestic product to save one fife."
"Making regulators weigh benefits and costs would put common sense back in the process. One can only assume many environmental groups and regulators want to maintain the status quo because they do not want to be held accountable.
"Instead of a 'rollback' of progress, regulatory reform is the common sense key to achieving future progress at affordable costs."
API ANALYSIS
API recently unveiled its analysis of how added environmental requirements on exploration and production could result in major costs to the economy without matching benefits (OGJ, Apr. 3, p. 30).
Current regulatory proposals alone could cost the petroleum industry more than $14 billion during the next 5 years, substantially reducing U.S. petroleum production and requiring an acceleration of the increasing level of oil imports.
It predicted oil and gas production could fall by 6% by 2000, reducing revenues for federal and state treasuries by as much as $9 billion.
And it said the proposals could cause the loss of nearly 55,000 jobs throughout the economy while achieving little environmental benefit.
API said U.S. oil and gas producers are making substantial investments to protect the environment. In 1992, the most recent year for which data are available, the E&P segment of the industry spent nearly $1.6 billion on environmental protection measures.
It said legislative action under consideration could raise total industry compliance costs $27 billion, including initial compliance and increased operating costs.
"On an annual basis," API said, "the regulatory initiatives analyzed could raise industry expenditures by nearly $2.9 billion. Including the $1.6 billion in current environmental compliance expenditures, this amounts to nearly a tripling of current environmental protection expenditures by the E&P industry.
"If both the regulatory and legislative proposals analyzed were enacted, incremental costs to the E&P industry could approach $5.5 billion annually for a total of more than $7 billion, including current compliance expenditures."
REVISING RULES
Meanwhile, the Clinton administration says it has been slowing the rate of regulation.
The administration reported it has reduced by 21 % - to 3,400 from 4,300 - the number of proposed and final regulations it was scheduled to act on in the next 6 months, compared with the forecast it made 6 months ago.
The administration withdrew 895 proposed or final rules during October 1994-March 1995, more than seven times as many in the prior 6 months.
In late June, EPA proposed to delete about 250 obsolete rules from the Federal Code, dealing with the control of air and water pollution and solid and hazardous wastes. It soon will propose to delete more rules but must receive public comment on those.
Beginning July 11 in the House of Representatives, regulatory reform proponents will begin to attack unneeded rules and laws during special "Corrections Days.
Proposed by Speaker Newt Gingrich (R-Ga.), the special sessions will consider only noncontroversial laws and rules that fail to meet the test of common sense.
Of the six issues on the first list, three deal with environmental laws. One of those places stiff insurance penalties, under the 1990 Oil Pollution Act, on ships carrying vegetable oil.
Another prohibited a Manchester, N.H., airport from cutting down trees that posed a runway safety hazard. The trees were in wetlands areas.
In the Senate, the energy committee's oversight and investigations subcommittee has begun examining ways to streamline federal decision making under the 1969 National Environmental Policy Act. Among other things, the law requires agencies to prepare environmental impact statements on major federal actions.
ENVIRONMENTAL BACKLASH
Although Congress' determination to revise environmental laws has not yielded legislative changes so far, environmental groups have benefitted.
For example, the National Wildlife Federation said active members during the past 6 months jumped to more than 100,000 from 60,000. The Sierra Club last year reversed a 3 year slide and increased membership 5% to nearly 600,000. The Wilderness Society reversed a 4 year slide in membership, and National Audubon Society membership is up 11% to 540,000 after a 2 year slump.
Environmental groups have stepped up their rhetoric since Republicans won control of Congress last November and began pushing their Contract with America, which targeted environmental and other laws.
API's DiBona is unconcerned about environmentalists' opposition. He expects environmental issues to get a tougher scrutiny in the Senate than in the House.
DiBona said, "But there is such a public animosity toward wetlands, Superfund, and endangered species, I think there is a reasonable chance the Senate will move forward on these bills."
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
