Blog By: Justin Potter
If you have ever sat on the sidelines of a tennis match, watching the ball go back and forth over the net, you likely can relate to how the Bureau of Land Management (“BLM”) has felt regarding their Methane Waste Rules of late. With the implementation of rules that have not been updated in more than forty years, the BLM found itself in the crosshairs of both oil-producing states and environmental groups.[i] To add to the complication, the courts themselves volleyed the validity of the updated rules back and forth; one court held a 2016 rule change was arbitrary while another determined the 2018 change to the 2016 change was arbitrary.[ii] This judicial juggling left the BLM to question which factors in an analysis may or may not land a proposed regulation out of bounds.
For the past forty years, the BLM relied on waste requirements under a Notice to Lessees (“NTL-4A”).[iii] In 2016, the BLM issued a final rule (“2016 Rule”) “to reduce waste of natural gas from mineral leases” in an attempt to modernize its oil and gas regulations.[iv] The 2016 rule promulgated “economical, cost-effective, and reasonable measures.”[v] However, the rule also factored in “social costs,” including nuisance and air pollution.[vi]
The 2016 Rule sparked controversy among lessees and oil-producing states.[vii] The petitioners contended the 2016 Rule was primarily being used as a way to regulate air pollution, not mineral waste.[viii] Much back-and-forth among litigants, agencies, and even Congress resulted in the Wyoming District Court issuing a stay pending the results of forthcoming BLM revisions.[ix] This new rule change (“2018 Revision”) rescinded most of the 2016 Rule.[x] The California District Court then vacated the revision, reinstating the 2016 rule.[xi] This brought the issue back to Wyoming.[xii]
Using the two-step analysis under Chevron[xiii], the Wyoming court relied on the following lessee requirements found in the Mineral Leasing Act of 1920: “[To] use all reasonable precautions to prevent waste of oil or gas developed in the land.”[xiv] The court acknowledged the statute’s ambiguity and the broad grant of rulemaking authority given the BLM.[xv] Where the court raised an eyebrow to the rule was the costs and benefits analysis.[xvi] The 2016 Rule factored in a “social benefit” of methane capture that accounted for the vast majority of the monetary gains offsetting the costs for implementing the regulations.[xvii] Without it, the court reasoned, the costs of the rule would likely more than double the benefits every year.[xviii] Applying the arbitrary and capricious standard found in Defenders of Wildlife,[xix] the court determined the BLM’s decision wasn’t reasonable based on the circumstances.[xx] Among other considerations, the court cited the BLM’s reliance on global social costs associated with methane extraction and whether this was “a factor Congress intended BLM to consider in promulgating a resource conservation rule pursuant to its MLA authority.”[xxi] It determined BLM’s primary reliance on ancillary benefits went beyond what Congress intended.[xxii]
The court’s assessment of the arbitrary and capricious standard was correct. It is true agencies are to consider “all costs and benefits” of regulatory actions.[xxiii] To survive an arbitrary and capricious inquiry, an agency’s factual conclusions must be supported by “substantial evidence in the record.”[xxiv] Ancillary factors, by definition, are subordinate to primary ones.[xxv] Here, the 2016 Rule relies on “potential environmental and social effects” on a global scale to justify the millions of dollars it will cost domestic lessees to implement the requirements.[xxvi] This seems to put the justifications of the rules beyond the resource management mandate from Congress.[xxvii] Without the assistance of these social benefits bolstering the gains in the BLM’s cost-benefit analysis, it is clear the BLM would have a much harder time maintaining their view that the “benefits of [the] rule outweigh its costs by a significant margin.”[xxviii] This reliance on factors beyond what Congress intended for BLM, as well as the apparent failure to fully consider the primary issue of cost, satisfies the arbitrary and capricious standard.
Despite the time and resources dedicated to these much needed modernized rules, the BLM is currently stuck with the decades-old NTL-4A regulations.[xxix] But, the BLM has already picked itself back up and is in the process of proposing a new rule—applying the lessons-learned from these past several years of flip-flopping.[xxx] Perhaps this time the final rule will be more cautious about using ancillary factors to justify its regulations. Otherwise, the BLM may see itself in another volley between courts.
[i] See Wyoming v. DOI, 493 F. Supp. 3d 1046 (Wyo. 2020); California v. Bernhardt, 472 F. Supp. 3d 573 (N.D. Cal. 2020).
[ii] Id.
[iii] Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases, 44 Fed. Reg. 76600 (Dec. 27, 1979).
[iv] Waste Prevention, Production Subject to Royalties, and Resource Conservation, 81 Fed. Reg. 83008, 83009 (Nov. 18, 2016).
[v] Id.
[vi] Id. at 83014.
[vii] See Wyoming, 493 F. Supp. 3d 1046.
[viii] Id. at 1060.
[ix] Wyoming v. DOI, 366 F. Supp. 3d 1284 (Wyo. 2020) (“Sadly, and frustratingly, this case is symbolic of the dysfunction in the current state of administrative law.”).
[x] See Waste Prevention, Production Subject to Royalties, and Resource Conservation; Rescission or Revision of Certain Requirements, 83 Fed. Reg. 49184 (Sept. 28, 2018).
[xi] California, 472 F. Supp. 3d at 583 (detailing the “myriad inadequacies upon which the [2018 Revision] is based.”).
[xii] Wyoming, 493 F. Supp. 3d at 1057 (“So, three and a half years later, after several turns and loopty-loops, it seems the roller coaster has returned to the station, though the Court doubts any of the parties will be exiting the ride just yet.”).
[xiii] Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).
[xiv] 30 U.S.C. § 225.
[xv] Wyoming, 493 F. Supp. 3d at 1063.
[xvi] Id. at 1069.
[xvii] Waste Prevention, Production Subject to Royalties, and Resource Conservation, 81 Fed. Reg. at 83014.
[xviii] Wyoming, 493 F. Supp. 3d at 1069.
[xix] National Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (2007).
[xx] Id. at 1078.
[xxi] Id.
[xxii] Id. at 1079-80.
[xxiii] Executive Order 12866, 58 Fed. Reg. 51735 (Sept. 30, 1993).
[xxiv] See Jupiter Energy Corp. v. F.E.R.C., 482 F.3d 293, 296 (5th Cir. 2007).
[xxv] Ancillary, Black’s Law Dictionary (11th ed. 2019).
[xxvi] Waste Prevention, Production Subject to Royalties, and Resource Conservation, 81 Fed. Reg. at 83077 (emphasis added).
[xxvii] See 30 U.S.C. § 225.
[xxviii] Waste Prevention, Production Subject to Royalties, and Resource Conservation, 81 Fed. Reg. at 83013.
[xxix] Waste Prevention, Production Subject to Royalties, and Resource Conservation, 87 Fed. Reg. 73588 (Nov. 30, 2022) (“The end result of these rulemakings and court decisions is that NTL-4A continues to govern.”).
[xxx] Id. (“Recent rulemakings and the related litigation have provided the BLM with two important lessons.”).