Earth Day has been celebrated every April 22 since its beginnings in 1970, a time which also corresponds with a wide swath of environmental legislation aimed at correcting decades of ecological misdeeds at virtually every level of American society. Greater awareness of the ramifications of what were then common practices resulted in a renewed effort to respect the planet’s finite resources and ability to sustain human life.
As a result, the energy industry, particularly oil and gas companies, face a complex array of environmental regulations at the federal, state, and local levels. These regulations are designed to protect air and water quality, manage waste, and mitigate the impact of energy production on the environment. While clean air and water are obviously in everyone’s best interests, complying with these regulations can present significant challenges for management teams in the 21st century; failure to do so can result in significant fines, legal liabilities, and reputational damage, to say nothing of serious damage to our world.
Let’s explore some of the key environmental regulations affecting the energy industry and discuss real-world examples of the consequences of non-compliance.
Signed into law by President Nixon in 1970 (and amended twice since then), the Clean Air Act (CAA) regulates air emissions from stationary and mobile sources. Under the CAA, the Environmental Protection Agency (EPA) sets National Ambient Air Quality Standards (NAAQS) for six common air pollutants, including ozone, particulate matter, and carbon monoxide. Following the 1990 amendments, energy companies must obtain permits and install pollution control equipment to ensure compliance with these standards.
The penalties for CAA violations can be substantial. Earlier this year, for example, one of the world’s largest engine manufacturers, Cummins Inc, agreed to pay a record $1.675 billion penalty—the largest in the history of the Clean Air Act—for multiple violations of the CAA. Cummins Inc. had faced charges that approximately one million pickup trucks were illegally equipped with devices intended to circumvent California’s emission standards and federal standards. Cummins agreed to pay $300 million in cleanup costs, as well as an extensive recall of the affected engines, making the tab run well over $2 billion for the settlement, one in which Cummins admitted no wrongdoing and found “no evidence that anyone [at Cummins] acted in bad faith.”
More locally and specific to the energy industry, a $14.25 million fine against ExxonMobil for air pollution at its Baytown, Texas, crude oil refinery was upheld by a federal appeals court in 2022. The fine remains the largest penalty ever assessed in a citizen enforcement suit over air pollution.
The Clean Water Act of 1972 (CWA) established the basic structure for regulating discharges of pollutants into navigable waters of the United States and regulating quality standards for surface waters. Energy companies must obtain permits under the National Pollutant Discharge Elimination System (NPDES) program for any discharges, including produced water, drilling fluids, and stormwater runoff. The Clean Water Act also requires companies to develop plans around the Spill Prevention, Control, and Countermeasure (SPCC) plans to prevent and respond to oil spills.
Perhaps the best-known and most expensive litigation waged at least partially under the auspices of the CWA was the $20.8 billion settlement agreed to by the owners of the Deepwater Horizon rig. The onboard explosion on April 20, 2010, killed 11 people and resulted in a devastating 87-day oil spill that ravaged the coasts and economies of Florida, Alabama, Mississippi, Louisiana, and Texas. The co-owners of the rig—BP, Anadarko, TransOcean, and Halliburton—had been the targets of multiple civil and criminal claims under the CWA as well as the Oil Pollution Act before agreeing to this record-setting settlement.
More commonly, the Clean Water Act is used by both federal and state authorities to hold corporate and municipal entities responsible for infractions. Where the EPA has delegated enforcement authority to states, there is a significant disparity between state and federal penalties, and even from one state to another, as demonstrated in a study published last year in the Stanford Environmental Law Journal. This disparate enforcement, including statutory limits that vary widely from state to state, may be one reason why corporations tend to congregate in states they perceive to be less hostile to their business.
The Resource Conservation and Recovery Act (RCRA) of 1976 amended the Solid Waste Disposal Act of 1965, and regulates the management and disposal of solid and hazardous waste by granting the EPA the authority to oversee hazardous waste from its generation to its disposal. The law also encourages recycling and efficient cleanup innovations.
Energy companies must comply with RCRA regulations for the storage, treatment, and disposal of waste generated during oil and gas production, including drilling fluids, produced water, and contaminated soils. Violations can occur when businesses, knowingly or unknowingly, dump waste into landfills, pour hazardous substances down drains, or dispose of waste in vacant lots, bodies of water, or other unauthorized areas.
As with other environmental legislation, the penalties for failing to comply with the RCRA can add up quickly, and the EPA prioritizes adjusting the maximum fines (currently at over $90,000 per day of noncompliance) for inflation; personal liability for company executives that may include prison time, while rare, is also on the table.
The Safe Drinking Water Act (SDWA) is a federal law passed in 1974 after scientists discovered widespread contamination of American tap water with perchlorate; the law protects public drinking water sources from perchlorate and multiple other contaminants. Under the SDWA, the EPA sets the standards for drinking water quality and monitors states, local authorities, and water suppliers who enforce those standards.
The EPA regulates the underground injection of fluids associated with oil and gas production within the energy industry, including produced water and hydraulic fracturing fluids. Energy companies must obtain permits for underground injection wells and ensure that their operations do not endanger underground drinking water sources.
The most common violation of the SDWA is failing to conduct regular monitoring of drinking water quality or submit monitoring results in a timely fashion. The penalties for these transgressions are up to $69,000 per day, an amount that is adjusted annually for inflation.
Even more serious charges, such as tampering with public water systems, can carry significantly higher fines and the possibility of jail time for company executives.
The Endangered Species Act (ESA) protects threatened and endangered species and their habitats. Energy companies must consult with the U.S. Fish and Wildlife Service (FWS) to ensure that their operations do not jeopardize the continued existence of listed species or destroy their critical habitats, both domestically and abroad.
Since 2015, Houston-based Energy Transfer Partners (now Energy Transfer LP) has faced legal challenges under the ESA related to its Dakota Access Pipeline project. The Standing Rock Sioux Tribe and other groups argued that the pipeline would, among other things, harm the endangered pallid sturgeon and other species. The company has prevailed thus far in court, but the case continues through the appellate system to this day, and highlights the potential ESA compliance challenges faced by energy companies.
Environmental regulations pose significant compliance challenges for energy companies, particularly those in the oil and gas sector. As the real-world examples discussed in this article demonstrate, the consequences of non-compliance can be severe, both to the companies in question, their executives personally, and to the environment that we all share.
To navigate this complex regulatory landscape, energy companies must develop robust compliance strategies, invest in pollution control equipment and technologies, and work closely with experienced legal counsel. By proactively addressing environmental compliance challenges, energy companies can mitigate risks, protect the environment, and ensure the long-term sustainability of their operations.
At Phillips Kaiser, our team has extensive experience helping energy companies navigate the complex web of environmental regulations. With a deep understanding of the energy industry and a commitment to providing strategic, practical advice, we are well-positioned to help your company achieve its business objectives while maintaining the highest standards of environmental compliance.
Contact us today to learn more about how we can help your organization thrive in the face of environmental regulatory challenges.
