EPA’s Administrator, Lisa Jackson, said yesterday EPA will issue guidance soon on the use of diesel fuel as a chemical additive in hydraulic fracturing fluids for oil and natural gas production. The forthcoming guidance comes in the wake of much industry uncertainty caused by the EPA’s website posting in August of 2010 stating that “[a]ny service company that performs hydraulic fracturing” using diesel fuel in the fracking fluid must obtain Underground Injection Control (UIC) program permits as Class II wells. Currently EPA has not required such a federal permit, and the forthcoming guidance marks the first time EPA has meaningfully weighed in on this issue.

Indeed, EPA’s website pronouncement is the subject on ongoing litigation in the United States Court of Appeals for the District of Columbia in a challenge brought by IPAA—a national trade association comprised of independent oil and gas producers and field service providers. While IPAA does not dispute the EPA’s authority under the Safe Drinking Water Act (SDWA) to regulate fracking operations that use diesel fuel, it asserts that EPA circumvented federal administrative law in an attempt to regulate hydraulic fracturing outside of comment-and-notice rulemaking. Without a clear federal mandate to obtain a federal permit and no practical means of doing so (at least currently), significant uncertainty remains for operators who have used or are using diesel without being expressly permitted.

Thirty-three states have primacy in overseeing their UIC program without any federal involvement. In these states, the responsible state regulatory agency(s) approve and issue permits for all aspects of a drilling operation. In the heart of the Marcellus Shale in states like Pennsylvania and New York—which do not have UIC primacy—various state agencies, nonetheless, have long regulated natural gas and oil drilling through various state authorities. It is in these states, where the unclear overlap between EPA and state jurisdiction is perhaps most vexing. Indeed, EPA has issued a detailed information request, seeking specific information on the types of fluids spilled last week at a Chesapeake Energy Corporation fracking operation in Pennsylvania. The EPA also wants additional information about the well failure by May 9, including admissions of any violations of Clean Water Act permit or water-quality standards, a list of each chemical brought to the site, and information on the processing of wastewater from the well. While it is unknown whether diesel was used at this site, it is almost a certainty that if it was, Chesapeake had no permit (state or federal) specifically authorizing its use. The million dollar question will be whether Chesapeake could potentially be held liable.

The new EPA guidance will hopefully shed light on the Agency’s position in this unclear jurisdictional territory and help to answer the types of questions that are almost certain to be raised in relation to last week’s spill (i.e., will EPA seek to retroactively apply permit requirements where diesel was used; what happens going forward?). Yesterday, the Administrator said that “we would prefer to allow the states to be the first level of response,” but noted that EPA was “looking to find those places where EPA needs to provide, if not guidance, some direction.” Of course, guidance and direction is a different animal, with wholly different legal consequences, from a website announcement requiring operators to obtain a permit from an unspecified regulatory authority. And it is difficult to reconcile the Administrator’s preference with EPA’s insertion into the Chesapeake matter, which is a significant departure from how EPA has heretofore interacted with the Pennsylvania Department of Environmental Protection (DEP). Ideally, the upcoming guidance will lay to rest some of the uncertainty, but it must be squared with EPA’s actions on the ground. Regarding the latter, it will be very interesting to see how the Chesapeake matter unfolds.