Will Regulators Invalidate California Offsets?

On May 29, 2014, the California Air Resources Board (ARB) blocked the transfer of, and initiated an investigation into, offset credits (offsets) issued for ozone depleting substance (ODS) destruction projects that took place at the Clean Harbors Incineration Facility in El Dorado, Arkansas. Evidence suggested that the facility was not in compliance with certain provisions of its operating permit issued under the federal Resource Conservation and Recovery Act (RCRA). Under section 95985(c)(2) of the AB-32 cap-and-trade regulation, ARB can investigate and invalidate offsets if "[t]he offset project activity and implementation of the offset project was not in accordance with all local, state, or national environmental health and safety regulations during the Reporting Period for which the ARB offset credit was issued."

As a result of the investigation, ARB determined that ODS materials eligible for offset projects are destroyed in the facility's rotary kiln incinerator. The gases produced through this process are treated and cooled to produce a liquid brine that is reclaimed and sold as a recycled product for use as a drilling fluid and make up water in oil and gas well drilling, completion, and remediation applications. Because the Arkansas DEQ (ADEQ) approved the use of the brine material in this manner, the material was considered by Clean Harbors and ADEQ to be exempt from hazardous waste regulations.

In November 2011, an EPA inspector noted that because the brine is the result of hazardous waste destruction for listed materials, the brine is considered a hazardous waste under the "derived from" rule (40 C.F.R. 261.3(c)). Under the federal RCRA program, hazardous wastes must be stored, handled, and disposed of using measures that safeguard public health and the environment. Therefore, selling the brine for use as drilling fluid and make up water constituted a RCRA violation.

Clean Harbors was notified by the EPA of this violation in a report received on February 2, 2012. However, on...