Regulatory Reform: Be Careful What You Wish For

Venable LLP
Fred R. Wagner

This article was originally posted in the Venable’s EnviroStructure Blog

April 12, 2017

A constant refrain from clients over the years, in both the public and private sectors, is that certainty may be the most valuable characteristic of any regulatory program. The “Waters of the United States” controversy perfectly illustrates this perspective. One could argue whether the Army Corps of Engineers’ reach over jurisdictional waters governed by Section 404 of the Clean Water Act has expanded or contracted over the years. But there can be no dispute, thanks to a series of confusing Supreme Court decisions and regulatory inertia, that a property owner still doesn’t know precisely whether all or part of her land qualifies as “waters of the U.S.” This reality leads to the legitimate complaint from the regulated community that its cost of proposed development rises dramatically because of regulatory uncertainty.

The Trump administration has promised (and is acting on that promise) to address regulatory burdens facing a variety of industries. Some members of the administration take a broad philosophical view of such actions (“deconstructing the administrative state”), while others have a far more practical aim of promoting greater economic activity by reducing the built-in costs of regulatory compliance. Whether the goal is job creation or encouraging a more fundamental shift of power away from federal agencies, this effort isn’t new.

In fact, one of the first tasks assigned to me as Chief Counsel at the Federal Highway Administration was implementation of a directive from the Office of Management & Budget to identify out-of-date or redundant regulations for repeal. Cass Sunstein, then the head of OMB’s Office of Information and Regulatory Affairs, issued a directive to all agencies to find and cut unnecessary rules from the Code of Regulations. Sounds familiar, right? Together with my program office colleagues, I researched and found at least a dozen major rules that had been superseded by subsequent law and served no good purpose.

Think back even further, and I have a distinct recollection of Vice-President Al Gore appearing on a late night show to push the Clinton Administration’s effort to reduce silly regulations. The Vice President demonstrated the testing procedure set forth in federal purchasing regulations to determine whether ash trays meet quality standards. I’m not sure if those regulations were ultimately repealed, but it made for good TV.

Fast forward to last week, when I addressed the National Ocean Industries Association Annual Meeting, giving attendees an overview of regulatory activity impacting the offshore energy sector. While the overall theme of the meeting was one of optimism over the potential for reduced regulatory burdens affecting offshore energy development, my message was somewhat more sobering.

The unprecedented use of the Congressional Review Act has already led to the rescission of a couple of major rules involving oil and gas development, and there are at least a couple of others that could be on the President’s desk before the CRA deadline in early May. (Eleven regulations have been repealed in total, after a grand total of one rule had been overturned by Congress in over 20 years since the CRA was passed.)

Beyond that, Administration Executive Orders and internal Department of the Interior Secretarial Orders will impact energy exploration regulations from top to bottom. So many questions persist. How will the agencies implement the directive to repeal two rules for every new one proposed? How will they attempt to estimate the costs vs. benefits of safety rules governing offshore drilling, for example, against the cost of implementing new Blow-Out Preventer rules put in place after Deepwater Horizon? What rules will be determined to impede energy production and why? Once the agencies identify these regulations, how will they address the legal requirements of the Administrative Procedure Act to attempt to roll back those regulations? Besides those procedural issues, the manner in which the DOI will enforce remaining rules is far from clear.

All those unanswered questions add up to one thing: uncertainty. The Blow-Out Preventer rules, for example, were written largely to adopt and codify existing best practices, many of which were supported by the industry! Would it really make sense for offshore operators to turn back those standards, having spent millions of dollars investing in safety equipment and technology? Not all action involves the repeal of regulations. A proposed rule out of the Department of Homeland Security/Custom and Border Protection could advance the administration’s “America First” policy by prohibiting the use of foreign-flagged vessels for a wide variety of offshore oil and gas activities. If finalized, some industry experts estimate that this new interpretation of the Jones Act could result in tremendous delays in planned offshore drilling activities.

Many regulations on the books clearly deserve close inspection. But in advancing the cause of reform, the administration should keep in mind that by drastically changing the regulatory landscape, it may also be increasing uncertainty for major industries that had already adapted to major public health and safety rules. Fewer regulations may indeed be a laudable goal, but knowing the rules of the road creates certainty that all businesses crave.

This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Mr. Wagner and may not reflect the opinions of Synergy Environmental, Inc., Venable LLP or either of those firms’ clients.

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