By Claire Bienvenu
On May 23, 2008, the Ninth Circuit vacated EPA’s rule exempting discharges of sediment resulting from oil and gas construction activities from National Pollutant Discharge Elimination System (NPDES) permit requirements. NRDC v. EPA, No. 06-73217 (9th Cir. 5/23/08). The Ninth Circuit found EPA’s rule, which was a codification of a recent exemption added to the Clean Water Act (CWA or the Act), to be an impermissible interpretation of the Act. Unless overturned, the court’s decision to vacate the regulation imposes an unexpected obligation on the oil and gas industry to obtain NPDES permits for all construction activities disturbing land area greater than or equal to one acre in size.
The Decision
EPA’s final rule implemented an amendment to the Clean Water Act’s definition of “oil and gas exploration and production” that was contained in the Energy Policy Act of 2005. The new definition of “oil and gas exploration and production” includes “construction activities,” which brings oil and gas construction activities within the CWA § 402(l)(2) exemption from NPDES permitting. Section 402(l)(2) exempts discharges from oil and gas E&P activities that are composed of flows that “do not come into contact with, any overburden, raw material, intermediate products, finished product, byproduct, or waste products.” In order to revise its codification of this statutory exemption to include discharges from construction activities, EPA revised 40 C.F.R. §122.26(a)(2) to provide that sediment discharged from oil and gas construction activities would not require NPDES permits, even if the discharge contributed to a violation of the water quality standard.
The Ninth Circuit used the following Chevron two step analysis to vacate the regulation. The court first found that there was no clear indication from Congress that it intended to exempt “sediment” discharges from permitting requirements, because the word “sediment” did not appear anywhere in the statute. Instead, Congress only exempted discharges from construction activities where the runoff is not contaminated with the specified contaminants. Citing former EPA guidance, the Court secondly found that EPA’s rule was arbitrary and capricious because it conflicted with EPA’s historical position that sediment constituted “contamination” under CWA § 402(l)(2). The Ninth Circuit rejected EPA’s argument that Congress intended to exempt sediment because it is the pollutant most commonly associated with construction activities.
The Effect
The exemption of sediment discharges from NPDES permitting requirements has been available to oil and gas construction activities since the final rule’s issuance on June 12, 2006. However, the Ninth Circuit’s decision to vacate the rule leaves oil and gas companies without the exemption, at least for the time being, unless the decision is overturned on possible rehearing or appeal to the Supreme Court.
The Ninth Circuit’s decision has particular impact on small oil and gas construction activities (those that disturb one to five acres) because they have not previously been required to obtain an NPDES permit. Small oil and gas construction activities have not needed an NPDES permit because the NPDES permit authorization deadline for small construction activities was June 12, 2006, the same day on which EPA’s final rule excepting sediment discharges from NPDES permitting was promulgated. However, now that the small oil and gas construction activities deadline has passed and there is no exemption available, these construction activities require an NPDES permit. As for large construction activities, they previously required NPDES permits (prior to June 12, 2006). After a brief period of exemption, they require a permit once again.
An EPA Stormwater Construction General Permit is available for these activities. However, oil and gas companies in states that have received NPDES delegation must obtain permits through the state programs. These states enact their own general permits, and the status of these state permits vary throughout the country. In those instances where no general permit is available, oil and gas construction activities will need to obtain individual NPDES permits.
Stay tuned for further developments.