Environmental Roadblocks to Petrochemical Projects

The petrochemical industry has long flourished in Texas and Louisiana. Most viewed the positive benefits of the industry, such as job creation, economic growth, and the payment of state and local taxes, as outweighing the potential negative effects of the industry’s emissions or discharges. Over time, those emissions and discharges have been substantially reduced due to regulatory controls, advancements in control technologies, recycling and waste minimization, and a desire by industry to reduce its overall pollution footprint.

During the campaign, Mr. Biden said he wanted to “end fossil fuel.” Well financed environmental groups, now supported by and aligned with sympathetic personnel in regulatory agencies, seem to take this to heart and actively oppose any industry utilizing fossil fuels. The petrochemical industry, from producers, to pipeline companies, to refineries, and to manufacturers, have borne the brunt of this opposition, both in litigation and public opinion. These organizations and agencies actively use any argument or theory available to hinder and erect roadblocks to any new project or any expansion of an existing project.

An important arrow in the quiver has become environmental justice. Although the concept has been around for decades, environmental justice has been elevated to a top priority by the EPA under the Biden Administration. Over the last two years, EPA has infused the concept into its rulemaking, enforcement actions, permitting decision, remediation efforts, and grant awards to the public. EPA has also affirmatively signaled to groups opposing industry that it will take action against industrial facilities opposed by the groups.

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Carbon Capture. Use and Sequestration Is Set for Massive Growth

To reach President Biden’s ambitious goal of net zero carbon dioxide (CO2) emissions by 2050, the United States will likely have to capture and permanently sequester significant quantities of CO2. It is no surprise, then, that the Biden Administration has taken steps to enhance and support carbon capture, use, and sequestration (CCUS) efforts.

CCUS generally refers to a set of technologies that capture CO2 at its source, such as a petrochemical facility or a power plant using coal or natural gas. In some instances, CO2 is used in industrial processes or as a feedstock for production of useful commercial products. Captured CO2 has long been used for enhanced oil recovery (EOR) projects. Alternatively, CO2 may be compressed, transported (usually through pipelines), and then injected for permanent sequestration thousands of feet underground in deep rock formations.

EPA reports that 35.1 million metric tons (MMT) of CO2 was used in EOR in 2021, with about 5 MMT used in the food and beverage industry. Only about 7 MMT were sequestered in 2021. Cumulatively, only about 39 MMT have been sequestered since the greenhouse gas reporting rules have been in place. 

However, recent initiatives should increase these numbers dramatically. The Inflation Reduction Act significantly raised the 45Q tax credit for sequestration, expanded the definition of qualified entities, and allowed credits to be directly monetized in certain circumstances. The Bipartisan Infrastructure Bill provided billions to develop large-scale commercial projects and supporting infrastructure.

Creating incentives is important, but these CCUS projects face very involved and laborious permitting requirements. A permit is required to inject CO2 as a Class VI well. The Class VI permitting rules include multiple regulatory requirements designed to safely inject and sequester CO2, some of which are not required for other classes of injection wells. For example, other classes of injection wells have a regulatorily fixed area of review while Class VI have an area of review delineated using computational modeling which projects the extent of the lateral and vertical migration of the CO2 plume. 

Additionally, because the Underground Injection Control (UIC) Program is a federal program, EPA is the permitting authority but many states have their own permitting programs. As a result, an applicant must submit a permit application to EPA and the state. However, to address this problem, a state may seek primacy from EPA to administer the UIC Program in the state. Louisiana and Texas are seeking primacy and, once obtained, only one application will need to be filed. 

Pipelines carrying CO2 may cross wetlands or waters of the United States, requiring permits from the Corps of Engineers. Interestingly, some environmental groups are opposed to carbon sequestration as a tool to address climate change because it fosters the continued use of fossil fuels and, according to some groups, allows fossil fuel users to ‘greenwash’ their environmental accomplishments. Ironically, some groups are using environmental justice principles, another priority of the Biden Administration, as grounds to oppose the placement of CO2 pipelines.

The Biden Administration, industrial concerns, and CCUS companies are all motivated to increase the amount of CO2 that is used or sequestered. The convergence of these interests will likely spark growth in the CCUS industry and assist in reducing the amount of CO2 that is emitted to the atmosphere.

Same Old WOTUS

EPA and the Corps of Engineers have finalized their latest iteration of the definition of ‘waters of the United States.’ It is seemingly straightforward, consisting only of a list of jurisdictional waters, exclusions, and internal definitions. Although the agencies claim that the new definition “provides clear rules of the road” regarding the scope of jurisdiction, the agencies incorporate prior expansive jurisdictional principles into the rule. 

The history of the regulatory definition of WOTUS is one of ever-increasing regulation of the nation’s waters. The original definition was relatively narrow, generally including traditional navigable waters (TNW). That definition was struck down by a federal district court, who held that the Congress intended to regulate more than TNW in enacting the Clean Water Act. Since then, and even though the statutory definition in the Clean Water Act has not changed, the agencies have embarked on a decades-long effort to increase the scope of jurisdiction.

The Supreme Court’s decision in the 2006 Rapanos case only served to fuel the regulatory expansion of jurisdiction. Justice Scalia enunciated a narrow view of the scope of jurisdiction, generally limiting jurisdiction to TNWs, relatively permanent tributaries, and truly adjacent wetlands.  Justice Kennedy, in his concurring opinion, generally included additional waters and wetlands that had a “significant nexus” to TNWs. After Rapanos, the agencies issued a guidance document (the Rapanos Guidance) which incorporated both views. Not surprisingly, the Rapanos Guidance includes a rather expansive view of what constitutes a ‘significant nexus.’

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The Focus On Environmental Justice

Although the concept of environmental justice has been around for decades, it has never been more pervasive. Since the advent of the Biden Administration, EPA has infused environmental justice principles into all its activities. It has also invigorated and encouraged citizen groups to file complaints alleging environmental justice issues.

Since January 2021, EPA has issued multiple pronouncements related to environmental issues in permitting, compliance, and remediation matters. For example, in August 2022, EPA released guidance entitled Interim Environmental Justice and Civil Rights in Permitting Frequently Asked Questions. In it, and for the first time, EPA suggested that a “permit denial may be the only way to avoid a Title VI violation” if there are no mitigation measures an agency can take to address disparate impacts. 

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The New ESG Wave

Environmental, social, and governance (ESG) is a broad and not well-defined term that seems to have become associated with non-financial factors investors use to measure an investment or a company’s sustainability. Companies that may have ignored, resisted, or ‘green-washed’ ESG disclosures may be forced into such disclosures by large investors or the government. It may prove impossible to not be caught up in the coming wave of ESG requirements, both private and public.

As its name implies, there are three ‘pillars’ of ESG. An exact definition of each is difficult as each has been generally described to include any number of factors or criteria. The environmental pillar relates to the impact a company may have on the environment, such as its carbon footprint, including its direct and indirect greenhouse gas emissions, the chemicals involved in its manufacturing processes, or its overall stewardship of natural resources. The social pillar relates to a company’s relationships with its stakeholders or how it deals with people within the company and in the broader community, including diversity programs, hiring practices, and even how a company advocates for social good with its supply chain partners or in the wider world. The governance pillar refers to how a company is led and managed, including how leadership’s incentives are aligned with stakeholder expectations and the types of internal controls which exist to promote transparency and accountability by leadership.

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Hazardous Substance Response Plans Are Coming

Over thirty years after the requirement was first included in the Clean Water Act and after a suit was filed to force EPA to act, EPA has published a proposed rule relating to planning for worst-case discharges of hazardous substances. The comment period is open to May 27, 2022.

The Clean Water Act was amended by the Oil Pollution Act of 1990. As part of that amendment, a provision was added requiring the issuance of regulations mandating that certain facilities prepare and submit a plan “for responding, to the maximum extent practicable, to a worst case discharge, and to a substantial threat of such a discharge, of oil or a hazardous substance.” CWA Section 311(j)(5); 33 USCA 1321(j)(5). Of course, both the EPA and the U.S. Coast Guard have promulgated various regulatory requirements relating to discharges of oil, such as those in 40 CFR Part 112, as well as some requirements relating to hazardous substances. However, according to EPA, no single program covered all the requirements of CWA Section 311(j)(5).

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Is CCUS The Path to Net Zero?

Carbon capture, utilization, and sequestration (CCUS) offer a known and readily available method to reduce the net emissions of carbon dioxide and meet ambitious climate goals. The regulatory framework, and the multiple protections built into it, ensure that it is safe. However, as the number of requests for authorizations of CCUS projects increases, it is uncertain whether that very regulatory framework and the agencies in charge of permitting and regulating the injection of carbon dioxide will facilitate or inhibit our ability to meet those climate goals.     

Upon rejoining the Paris Agreement on January 20, 2021, the United States announced ambitious climate goals: reduce greenhouse gas emissions 50-52 percent from 2005 levels by 2030, create a carbon-free power sector by 2035, and reach net-zero greenhouse gas emissions economy-wide by no later than 2050. The State of Louisiana, through the Governor’s Climate Initiatives Task Force, has also announced its own climate goals: reduce emissions 26-28 percent from 2005 levels by 2025; reduce emissions 40-50 percent from 2005 levels by 2030, and reach net-zero emissions by 2050.

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