Comments on the Department of the Interior s Request for Public Input on Regulatory Reform

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1 September 6, 2017 VIA ELECTRONIC SUBMISSION The Honorable Ryan Zinke Secretary of the Interior U.S. Department of the Interior 1849 C St., NW Washington, DC Attn: DOI ; DOI RE: Comments on the Department of the Interior s Request for Public Input on Regulatory Reform Dear Secretary Zinke: On behalf of our millions of members and supporters, the undersigned groups submit the following comments in response to the Department of the Interior s (DOI) request for public input on its review of existing regulations pursuant to Executive Order 13777, Enforcing the Regulatory Reform Agenda. We are committed to smart and sensible regulation and management of our public lands and to ensuring that public resources are used effectively, efficiently, and responsibly. The recently finalized Bureau of Land Management (BLM) Waste Prevention, Production Subject to Royalties, and Resource Conservation rule (Waste Rule), is one such measure. The Waste Rule establishes commonsense requirements that will minimize the waste of natural gas produced on public lands, increase federal and state revenues and reduce emissions that harm public health and the environment. We oppose any effort to roll back this necessary regulation under the false pretense that it somehow inhibits economic growth and job creation. Instead of delaying, suspending or rescinding this rule as suggested in the Unified Agenda 1, DOI should be working to fully implement and strengthen the current requirements in a way that benefits the American public and our environment. 1 See Proposed Revision or Rescission of the 2016 Waste Prevention, Production Subject to Royalties, and Resource Conservation Rule available at: and Proposed Waste Prevention, Production Subject to Royalties, and Resource Conservation; Delay and Suspension of Implementation Dates for Certain Requirements available at: 1

2 As we will elaborate on below, BLM has both the authority and obligation to minimize waste of public resources and existing regulations are far from sufficient to fulfill that mandate. Additionally, supported by robust analysis, the final rule maximizes public benefits while minimizing costs to industry. In many ways, it works further the goals set out by the President and Secretary of the Interior under subsequent orders. We respectfully request that the Secretary not identify the Waste Rule as a regulatory burden in his response to E.O DOI and BLM have the legal obligation and authority to require waste reduction measures and has a mandate to reduce waste. Under the Mineral Leasing Act (MLA), Federal Land Policy and Management Act (FLPMA), and the Federal Oil and Gas Royalty Management Act (FOGRMA), the Department of the Interior has a responsibility and an obligation to put forward regulations to manage federal resources in a way that benefits the public. The MLA provides for the Department of the Interior to manage lands for conservation and development of oil and gas, among other minerals and resources. See 30 U.S.C. 189 (BLM is empowered to prescribe necessary rules and regulations and do any and all things necessary to carry out the purposes of the MLA). BLM, under the MLA, is the only federal agency with a waste prevention mandate. The MLA directs DOI to require all reasonable precautions to prevent waste of oil or gas developed in the land (30 U.S.C. 225) and mandates that [e]ach lease shall contain provisions for the prevention of undue waste. Id Further, the MLA s use of all to modify the term reasonable precautions shows that Congress intended BLM to aggressively control waste. The agency may not forego reasonable and effective measures limiting venting, flaring and leaks for the sake of administrative convenience or to enhance the bottom lines of operators. See Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 266 (5th Cir. 2014) (ruling that statutory term all relief necessary authorized broad remedies against defendant because we think Congress meant what it said. All means all. (internal quotation omitted)); Cty. of Oakland v. Fed. Housing Fin. Agency, 716 F.3d 935, 940 (6th Cir. 2013) ( a straightforward reading of the statute leads to the unremarkable conclusion that when Congress said all taxation, it meant all taxation (emphasis original)). Courts have recognized BLM s authority to reduce waste by reducing natural gas leaking into the air. See Ctr. for Biological Diversity v. BLM, 937 F. Supp. 2d 1140, (N.D. Cal. 2013); Forbes v. United States, 125 F.2d 404, (9th Cir. 1942). FLPMA further provides that the public lands be managed in a manner that will protect the quality of environmental, air and atmospheric values, 43 U.S.C. 1701(a)(8), and for BLM to manage lands for conservation under its multiple use mandate, id. 1702(c); see also N.M. ex rel Richardson v. BLM, 565 F.3d 683, 710 (10th Cir. 2009) ( It is past doubt that the principle of multiple use does not require BLM to prioritize development over other uses. ). FLPMA also requires BLM by regulation or otherwise to take any action necessary to prevent unnecessary or undue degradation of public lands. 43 U.S.C. 1732(b), which authorizes BLM to 2

3 promulgate protective regulations, see Manning v. United States, 146 F.3d 808, (10th Cir. 1998). These laws make it clear that BLM has a duty and obligation to prevent loss of public resources and to consider a wide range of values in managing our public lands. BLM s authority and duty to regulate waste was recently reaffirmed by the U.S. District Court for the District of Wyoming in an opinion denying a request for preliminary injunction of the Waste Rule. There, Judge Skavdahl stated that the MLA and FOGRMA unambiguously grant BLM authority to regulate the development of federal and Indian oil and gas resources for the prevention of waste. 2 Given the broad authority granted to BLM to regulate waste and the clear mandate to do so under the MLA, the Waste Rule is not only legal but required. Previous policies were inadequate to fulfil this mandate and resulted in unnecessary waste. The issues associated with the federal onshore fluid minerals program are well documented and were partially responsible for the development of the Waste Rule. Starting in December 2007, a Royalty Policy Committee (RPC) report, Mineral Revenue Collection from Federal and Indian Lands and the Outer Continental Shelf, recommended that the BLM update its rules and identified specific actions to improve production accountability. This was followed by a March 2010 report by the Office of Inspector General (OIG), BLM and MMS Beneficial Use Deductions; an October 2010 Government Accountability Office (GAO) report, Federal Oil and Gas Leases Opportunities Exist to Capture Vented and Flared Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases; and eventually the July 2016 GAO report entitled, OIL AND GAS--Interior Could Do More to Account for and Manage Natural Gas Emissions. These reports detailed significant and serious oversights in DOI and BLM onshore oil and gas management policies. In particular, the 2010 GAO report found rampant waste of publicly owned resources stating, in 2008, about 128 billion cubic feet (Bcf) of natural gas was either vented or flared from Federal leases, about 50 Bcf of which was economically recoverable (about 40% of the total volume lost). This economically recoverable volume represents about $23 million in lost Federal royalties and 16.5 million metric tons of carbon dioxide equivalent (CO2e) emissions. 3 These issues were illuminated again as the BLM prepared the Regulatory Impact Analysis (RIA) for the Waste Rule. In conducting that analysis, the BLM found that in 2013, 98 Bcf of natural gas was vented and flared from Federal and Indian leases. This volume had a sales value of $392 million and a royalty value of $49 million. Of the 98 Bcf, it is estimated that 22 Bcf was vented 2 State of Wyoming v. United States Department of Interior, 2:16-cv SWS (D.Wyo. Jan. 16, 2017). 3 RIA Available at: 3

4 and 76 Bcf was flared. 4 According to the Office of Natural Resources Revenue (ONRR), Federal and Indian onshore lessees and operators reported that they vented or flared 462 billion cubic feet (Bcf) of natural gas between 2009 and The waste of federal resources is not just an historic issue, but one that has continued to worsen over time. The total amount of annual reported flaring from Federal and Indian leases increased by over 1000 percent from 2009 through During this period, reported volumes of flared oil-well gas increased by 318 percent. 6 The problem can also be seen in requests for flaring and venting submitted as Sundry Notices to BLM field offices. In 2005, the BLM received just 50 applications to vent or flare gas, in 2011, the BLM received 622 applications. This number doubled again within 3 years and 1,248 applications were received in This waste has resulted in very real financial and environmental impacts. The statistics cited above clearly illustrate the inadequacy of reverting back to policies like Notice To Lessees 4A, BLM s waste prevention policy that was in place until the Waste Rule was adopted, that have not been updated in over thirty years. Rescission of the Waste Rule could make the agency vulnerable to legal challenge. The Waste Rule relies on years of robust analysis that minimized costs to operators while maximizing public benefit. The agency conducted rigorous analysis to identify the scope of the waste issue and was just as meticulous when drafting the methane rule provisions. The final rule was published in November 2016 after years of analysis and stakeholder engagement that included listening session across the nation, a robust notice and comment process and multiple public hearings. The final rule relies on the findings of the RIA but revises a few estimates to reflect changes to the proposed regulation and new information gathered during the public processes. If fully implemented, the agency found that the rule would result in monetized benefits of $ million per year. 8 It also estimates that the rule would reduce methane emissions by 175, ,000 tpy, which [it] estimates to be worth $ million per year. 9 Overall, BLM predicts the rule will reduce methane emissions by 35% from the 2014 estimates and reduce the flaring of associated gas by 49%, when the capture requirements are fully phased in. It is important to note that the analysis does not monetize other climate benefits, or the benefits to public health and the environment of reducing VOC emissions by 400, ,000 tons per year and reducing 4 5 See Final Rule at: See Final Rule at: 9 4

5 emissions of hazardous air pollutants. 10 However, taking into account such benefits would increase the total net benefits reported by the agency from the final rule. In terms of the rule s impact on production, the BLM estimates additional natural gas production ranging from 9 41 Bcf per year (representing percent of the total U.S. production) and a reduction in crude oil production ranging from million bbl per year (representing percent of the total U.S. production). 11 It also expects 0.8 Bcf of gas to be combusted on-site that would have otherwise been vented. 12 The rule will result in additional royalties of $3 13 million per year. And for the 26 smallest companies the agency evaluated, a per-entity compliance cost increase of $55,200 would result in an average reduction in profit margin of 0.15 percentage points (based on the 2014 company data). 13 All this is to say, that a tremendous amount of time, energy and thought went into identifying the problem and crafting a solution that would increase public benefits while minimizing compliance costs for operators. The obvious benefits of this rule have resulted in broad public support and have made it increasingly difficult for policy makers to rescind it. According to a 2017 Colorado College poll, 81% of Westerners support keeping the Waste Rule in place. 14 This sentiment was heard in the Senate where elected representatives both Republican and Democrat - voted in early May to reject efforts to repeal the rule under the Congressional Review Act (CRA). The Waste Rule is not a regulatory burden but is in fact in line with this administration s energy priorities as identified in E.O , E.O , S.O and other statements of policy. E.O lays the framework for agency review of regulations deemed overly burdensome to energy producers alone. But when it comes to energy specifically, E.O , Promoting Energy Independence and Economic Growth, lays out this administration s energy goals. Those include promoting, clean and safe development of our Nation's vast energy resources, avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation and ensuring access to affordable, reliable, safe, secure, and clean electricity. In achieving these goals, the E.O. states agencies must take appropriate actions to promote clean air and clean water for the American people and ensure that any regulations developed to address our energy needs are of greater benefit than cost 10 RIA 11 Final Rule Colorado College 2017 Conservation in the West Poll. Available at: chedule.pdf 5

6 and achieve environmental improvements for the American people. Contrary to what DOI has stated publicly, the Waste Rule will help this administration fulfill its energy objectives. The Waste Rule does not unnecessarily encumber energy production, constrain economic growth, and prevent job creation. Despite little evidence, the oil and gas industry continues to argue that the rule will force operators to shut in wells and that it will disproportionately impact small producers. This is patently false. When the state of Colorado passed new waste minimization requirements in 2014, Bloomberg reported the number of active wells and overall natural gas production actually increased. 15 Additionally, independent economic analyses looking specifically at the potential impact on small producers and marginal wells found that compliance costs would account for less than 3 percent of annual costs for an average marginal well, resulting in a decrease in annual profit of less than one-tenth of one percent. 16 The BLM in their own analysis found that overall the rule would increase profits for operators except for the smallest companies which would see a decrease in profit margins of between only and 0.104%. 17 The Waste Rule will not reduce production or cause significant financial harm to producers. Instead, we have seen the potential for this regulation to encourage economic growth and create new jobs. Similar state requirements have spurred the development of technology and compliance related businesses across the country. According to a recent report, more than 60 companies provide LDAR services to oil and gas companies in 45 states. 18 Those new businesses along with other compliance related needs have resulted in the creation of new jobs. That includes oil and gas companies hiring additional employees to assist with compliance internally as well as environmental consults bringing on specialized staff. Those businesses and associated jobs would be harmed by the rescission of the Waste Rule. Keeping the rule in place will also benefit operators by providing regulatory certainty. Given the compliance deadlines established by the final rule, most operators have already begun investing in the technology and equipment necessary to meet the rule s requirements. Ongoing legal, legislative and administrative attempts to repeal the rule place operators in the position of not knowing when and how to invest. According to a recent Politico story, behind the scenes, Exxon Mobil, BP and other large oil and gas companies considered the rule relatively 15 Available at: 16 Morton, P., etal (2016). A Review of the Economic Factors Surrounding the Capture of Methane from Oil and Natural Gas Development on Federal Public Land. Bozeman, MT: Conservation Economics Institute. Available at: 17 RIA at Veyrier, M., et al (2017). Find and Fix: Job Creation in the Emerging Methane Leak Detection and Repair Industry. Washington, D.C.: Datu Research. Available at: 6

7 minor The companies had the technology and engineering in place to meet the standards, and they expected to pay down the cost to comply by selling the extra methane they captured 19 Additionally, the rule promotes the clean and safe development of our energy resources while achieving environmental improvements for the American people. As illustrated above, the Waste Rule will not hinder energy production. Instead, it facilitates the continued development of our energy resources while ensuring protections for the environment and public health. Methane is a greenhouse gas 84 times more potent than carbon dioxide. It is the low hanging fruit when it comes to atmospheric carbon reductions and this rule will go a long way towards reducing the nation s GHG emissions. The requirements contained in the rule also have the cobenefit of reducing a number of harmful pollutants. That includes volatile organic compounds (VOCs) which lead to the formation of ground level ozone as well as hazardous air pollutants like benzene (a known carcinogen). In other words, the effects of this rule are of greater benefit than cost. Finally, Secretary Zinke has made it clear on numerous occasions including during his confirmation hearing and in subsequent statements regarding DOI policies related to National Monuments, Sage Grouse and land use planning more generally, that it is important to listen to and address the needs of local communities. Many western rural towns rely on oil and gas royalty revenue and it is important to highlight the significant financial benefits associated with this rule for those communities. By more clearly defining unavoidably lost and requiring capture and sale of previously wasted gas the Waste Rule helps to increase the production volumes on which royalties are assessed resulting in increased revenues for federal, state and local government. Without the final rule, taxpayers are expected to lose out on $800 million in royalties over the next decade because of venting and flaring of natural gas alone. 20 However, with the rule in place, BLM estimates additional royalties of between $3-$14 million per year. Keeping the Waste Rule will only help cash strapped towns across the west. BLM s standards are needed to achieve further reductions in natural gas waste, protect taxpayers and provide consistency and confidence that the entire industry is using sound practices. Accordingly, we urge DOI to withdraw its proposed rule to suspend and delay implementation of the Waste Rule as well as its proposed rule to revise or rescind the Waste Rule, and commit to swiftly implement its protections. We also respectfully request that the Secretary not identify the Waste Rule as a regulatory burden in his response to E.O Adragna, Anthony, et al. Energy Industry Wants Brakes Pumped on Regulatory Rollbacks. POLITICO, 21 Aug. 2017, 20 Western Values Project (2014) Up In Flames: Taxpayers Left Out in the Cold as Publicly Owned Natural Gas is Carelessly Wasted. Available at: 7

8 Thank you for considering these comments. Chase Huntley Director, Energy & Climate The Wilderness Society 1615 M St. NW Washington, DC Chase_huntley@tws.org Sara Kendall Washington, DC Office Director Western Organization of Resource Councils 110 Maryland Ave, NE, Suite 306 Washington, DC sara@worc.org Erik Schlenker-Goodrich Executive Director Western Environmental Law Center 208 Paseo del Pueblo Sur #602 Taos, New Mexico eriksg@westernlaw.org Kate Kelly Public Lands Director Center for American Progress 8

9 1333 H St. NW, 10th Floor Washington, DC kpkelly@americanprogress.org Ani Kame enui Director of Legislation & Policy National Parks Conservation Association 777 6th Street NW, Suite 700 Washington, DC akameenui@npca.org Heidi McIntosh Managing Attorney, Rocky Mountain Office Earthjustice th Street, Suite 1600 Denver, CO hmcintosh@earthjustice.org Bobby McEnaney Government Affairs Director, Land & Wildlife Program Natural Resources Defense Council th Street NW, Suite 300 Washington, D.C bmcenaney@nrdc.org cc: David Bernhardt, Deputy Secretary of the Interior James Cason, Associate Deputy Secretary of the Interior Todd Willens, Assistant Deputy Secretary of the Interior Vincent DeVito, Counselor to the Secretary for Energy 9

10 Katherine MacGregor, Deputy Assistant Secretary for Land and Minerals Management, Department of the Interior Kathleen Benedetto, Acting Deputy Director, Bureau of Land Management Michael Nedd, Acting Director, Bureau of Land Management 10