On June 17th, 2013, Illinois Governor Pat Quinn signed Public Act 98-22 – the Illinois Hydraulic Fracturing Regulatory Act (Act). The contents of the Act have been compiled into 225 Ill. Comp. Stat. 732 (2013) and 35 Ill. Comp. Stat. 450 (2013). The Act provides for the regulation of high volume horizontal hydraulic fracturing (fracking) activities in Illinois. Its provisions were effective immediately. The legislation has no impact on low-pressure vertical hydraulic fracturing activities.

Oil drilling in Illinois first occurred near Champaign in 1853. By far the biggest currently known oil and gas reserve contained within Illinois is the New Albany Shale formation. The formation’s highest anticipated area of opportunity is concentrated in south-east Illinois. The perimeter of the formation extends into Southwest Indiana, Western Kentucky and Western Tennessee. Drilling first occurred into the formation in the 1860s.   Since then, more than 500 oil and gas wells have been drilled into the formation. To date, the wells in Illinois have primarily been small scale vertical wells using low-pressure injection techniques. With recent gains in fracking technology, interest in exploring the oil and gas opportunities provided by the formation has significantly increased.

The Act was formulated in an effort to pro-actively regulate fracking before it became wide-spread in Illinois. A coalition of industry, environmental groups, legislators, regulatory and enforcement agencies negotiated the details of the Act before it came to a vote. As a result, there was broad support for the provisions of the Act.

Key provisions of the Act are as follows:

• Illinois Department of Natural Resources (IDNR) is the regulatory agency tasked with drafting and implementing rulemaking, as well as enforcement.
• Operators must register with IDNR at least 30 days before submitting a permit application. Registration involves financial disclosure by the registering entity, disclosure of related entities, disclosure of previous violations, a description of the proposed operations in detail and proof of minimum liability insurance of $5 million.
• Once registered, operators can apply for a permit from IDNR for proposed activities. The permit must contain detailed information regarding the proposed activity, including disclosure of each chemical to be used, as well as plans for containment of the well, fluid storage and traffic management plans. This information is provided to all property owners within 1,500 feet of the well site. It also must be posted in the local newspaper. The information is also shared with a number of state agencies. A public hearing will be held if requested (by the public) to be adjudicated by an administrative law judge, based upon the disclosures contained within the application. IDNR is required to issue the resulting permit, if approved, within 60 days of the application.
• Storage of fracking fluid prior to injection, and flowback following injection, must be contained in closed tanks. Storage in open, lined pits is permitted on a temporary basis.
• Within 60 days of completing its activity, the permittee must submit a completion report, including disclosure of chemicals actually used.
• All chemicals used in the process must be disclosed to IDNR. Absent designation as a trade-secret, this information will also be made available to the public. If it is deemed a trade-secret, general public disclosure will not occur, but the information will be made available to health providers and public health officials by IDNR. The public can also challenge the trade secret designation.
• Water quality monitoring will begin at each site prior to the commencement of fracking activities. If water contamination is discovered within 30 months of the completion of activities, there will be a rebuttable presumption that the fracking activities are responsible for the contamination. The permittee will have the burden to prove otherwise.
• Well construction standards using best practices are incorporated.
• Setbacks are required from water sources, neighbors, and nature preserves.

The IDNR is currently engaged in the rulemaking process. Once the proposed rules are complete, they will be subject to review and approval by the Joint Committee on Administrative Rules, a bi-partisan legislative oversight committee. Once the proposed rules are finalized, permits can be issued. This is expected to occur mid-2014. Until rules are finalized, no permits can be issued. The only activity operators have engaged in to date under the Act is registration.

All parties involved claim a benefit: industry wanted certainty, environmental groups wanted strong controls and the state wanted a means to balance economic opportunity with environmental considerations. Many of the parties involved claim it is a model act which could have far reaching implications for other jurisdictions interested in addressing the regulation of fracking activities.

Until the Act is fully implemented, its impact in Illinois cannot be determined. The ultimate feasibility of oil and gas development activities in Illinois will depend upon the productivity of the shale. If it produces primarily natural gas, absent an increase in natural gas prices, productivity will be limited. If, on the other hand, oil is produced in substantial quantities, the shale’s productivity will be much higher. Until the Act is fully implemented, and the shale can be further explored, the ultimate production possibilities are unknown.

Sources:

225 Ill. Comp. Stat. 732 (2013)

35 Ill. Comp. Stat. 450 (2013)

Upstream Pumping Solutions, The New Albany Shale,www.upstreampumping.com/article/shale=coverage/new-albany-shale (accessed November 5, 2013).

ProPublica, What is Hydraulic Fracturing, www.propublica.org/special/hydraulic-fracturing-national (accessed November 3, 2013)

Best, Robert, Partner, K&L Gates & Cassel, Jennifer, Staff Atty., Env. Law & Policy Ctr., Speech,The Illinois Hydraulic Fracturing Regulatory Act: Perspectives from environmentalists and industry on the history and future of Illinois fracking law (Chicago, Ill. Oct. 24, 2013) (archive available at the Chicago Bar Association YLS Environmental Law Committee)

On December 10, 2013, the U.S. Supreme Court (“Court”) heard oral arguments on the permissibility of the U.S. Environmental Protection Agency’s (“EPA”) most recent attempt to regulate interstate air pollution. A decision on the matter is anticipated by June 2014.

The Clean Air Act (“CAA”) instructs the EPA to publish National Ambient Air Quality Standards (“NAAQS”). When new NAAQS are published, States traditionally submit plans to the EPA detailing how they will comply with the promulgated NAAQS. If the EPA deems a plan insufficient, the EPA must establish a plan to meet the standards which the State must then carry out.

To address the impacts of air pollution generated in upwind States and then transmitted to downwind States, the CAA contains what is frequently termed the “good neighbor” provision. It requires that State plans contain adequate safeguards to ensure pollution generated in one state will not “significantly” contribute to the non-attainment of NAAQS in another state. Establishing rules to enforce this provision of the CAA has proven particularly difficult for the EPA.

The EPA enacted rules in 1998 to quantify the good neighbor obligations of 22 states resulting from publication of the 1997 NAAQS. The rule favored the use of the most cost-effective emissions controls. In a 2000 decision, the D.C. Circuit Court of Appeals found “no clear Congressional intent to preclude consideration of cost.” Essentially, the court held that the EPA could use cost considerations to lower an upwind State’s obligations under the good neighbor provision. What was not clarified in this decision was whether the EPA could use cost considerations to raise an upwind State’s obligations.

In 2005, the EPA promulgated the Clean Air Interstate Rule (“CAIR”), which built on the 1998 rules and expanded application to 28 States. CAIR went further than the previous rule in incorporating cost considerations to quantify a State’s requirements. As a result of how cost considerations were incorporated into the rule, it was possible that an upwind State would be required to reduce its emissions by more than its pro-rata share of downwind pollution.

In a 2008 decision, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) held that “each state must eliminate its own significant contribution to downwind pollution . . . [EPA] may not require some states to exceed the mark.” The court remanded CAIR without vacatur, leaving CAIR in place “until it is replaced by a rule consistent with our opinion.”

To comply with the D.C. Circuit’s 2008 decision, the EPA promulgated the Transport Rule in 2010 – also known as the Cross-State Air Pollution Rule (CSAPR). Unlike with previous NAAQS, under CSAPR, the EPA did not provide information to the upwind states and then allow them to formulate a plan for achieving desired NAAQS levels. Instead, the EPA calculated what the required amounts would be and then told those upwind states what they needed to do to reach those levels. It is this rule that is currently under review by the Court.

CSAPR applies to three NAAQS for the 28 upwind states which the EPA has identified significantly contribute to NAAQS non-attainment by downwind states (the EPA defined “significant” for these purposes as at least 1% of the downwind States’ NAAQS). Under CSAPR, the EPA calculated how much pollution each upwind States’ power plants could eliminate if all controls available at or below a given cost per ton of pollution were applied. With this information, the EPA generated emission budgets for each State to determine what would be required to meet regional NAAQs targets. The EPA then converted those budgets to an allowance by emitter. At the same time, the EPA provided the 28 upwind States the opportunity to propose modifications to these allowances.

CSAPR is essentially a cap-and-trade based system which rewards efficiency. It allocates the cost of compliance on a regional basis to those upwind States with the least efficient emitters and away from those upwind States with the most efficient emitters.

In a 2012 decision, the D.C. Circuit vacated CSAPR in its entirety. The court said the EPA exceeded its authority in promulgating CSAPR in two ways: under the cost-efficiency approach, some upwind states may wind up needing to reduce emissions more than their contributions to downwind states NAAQS, and the EPA did not provide upwind States an opportunity to first draft their own plans to reduce their emissions to downwind States. Instead, the EPA both set NAAQS and required States to adopt the EPA’s plan concurrently.

At the same time, the D.C. Circuit elected not to vacate CAIR. The court indicated “the appropriate course is for the EPA to continue to administer CAIR pending its development of a valid replacement.”

The Court granted certiorari in June, 2013 on the EPA’s appeal of the D.C. Circuit’s decision on CSAPR. The Court indicated it will specifically address the following questions:

• Did the D.C. Circuit have jurisdiction to hear the case?
• Did the D.C. Circuit correctly interpret the statutory language in the Clean Air Act when it reviewed the EPA’s actions using a cost-efficiency approach?
• Is an upwind State free from any obligations under CSAPR until the EPA has quantified that State’s contributions to downwind State’s air pollution?

Oral arguments were made December 10, 2013, with a decision expected by June 2014. Justice Alito recused himself from the matter. If the Court splits 4-4, the D.C. Circuit’s decision invalidating CSAPR will be upheld. The tone and type of questions the Justices proffered during oral arguments may indicate the chances for a reversal of the D.C. Circuit’s CSAPR invalidation are strong.

While Justice Scalia’s comments seem to imply he is unlikely to support a reversal and Chief Justice Roberts appears on the fence, Justices Breyer, Kagan, Bader Ginsburg and Sotomayor appear to favor reversal. Justice Thomas was typically silent. As is often the case, Justice Kennedy may be the tie-breaker. His comments seemed to imply he would support a reversal.

Those Justices who appeared to support a reversal did not seem to take issue with the cost-based approach, or the fact that CSAPR resulted in the EPA drafting a plan without first allowing States to draft their own plans. Those Justices indicated it was immaterial whether the EPA drafted the plan first and allowed the State to request a modification or vice-versa. Justice Scalia, on the other hand, focused his comments and questions on the literal statutory language “amounts which will contribute significantly to nonattainment” and whether a cost based, rather than a pro-rata approach, is compatible with this language.

If the Court rejects CSAPR, the EPA will have to completely rethink the approach to addressing downwind pollution. As Malcolm Stewart, Deputy Solicitor General for the U.S. Department of Justice argued on behalf of the EPA, utilizing a pro-rata approach (as suggested by the D.C. Circuit) may appear reasonable on the surface, but implementation, cost and equity factors are prohibitive.

Joe Kruger, the director for energy and environment at the Bipartisan Policy Center, a nonprofit organization specializing in energy and pollution issues, has said: “EPA’s efforts to reduce the cost of cutting pollution by using market trading keep running up against the limitations of the statute . . . without Congressional intervention, we will be left with more pollution near term as well as a higher cost of mitigation in the long run.”

42 U.S.C.A. §7409 (West)

42 U.S.C.A. §7410 (West)

Michigan v. E.P.A., 213 F.3d 663 (D.C.Cir. 2000)

North Carolina v. E.P.A., 531 F.3d 896 (D.C.Cir. 2008)

EME Homer City Generation, L.P. v. E.P.A., 696 F.3d 7 (D.C.Cir. 2012)

American Lung Association v. EME Homer City Generation, L.P., 133 S.Ct. 2857 (2013)

E.P.A. v. EME Homer City Generation, L.P., 133 S.Ct. 2857 (2013)

E.P.A. v. EME Homer City Generation, L.P., Supreme Court cause 12-1182, Oral arguments

Wald, Matthew, New York Times, http://www.nytimes.com/2012/08/22/science/earth/appeals-court-strikes-down-epa-rule-on-cross-state-pollution.html?_r=0 (accessed February 5, 2014)