EPA Proposes Two Options for Aggregating Air Emissions in Oil & Gas Industry
October 19, 2015
The Clean Air Act requires Title V operating permits for new and modified major sources and enhanced permit review (New Source Review or Prevention of Significant Deterioration (PSD) Review) for major stationary sources of air pollutants. EPAs regulations define a stationary source as any building, structure, facility, or installation which emits or may emit a regulated [air] pollutant. 40 C.F.R. § 52.21(b)(5) (PSD) and § 71.2 (Title V). Both EPAs Title V and PSD regulations further provide that multiple pollutant-emitting sources may be aggregated together and considered a single stationary source only if they: (1) belong to the same major industrial grouping; (2) are under common control; and (3) are located on one or more contiguous or adjacent properties. 40 C.F.R. § 52.21(b)(6) (PSD) and § 71.2 (Title V). With regard to the third factor, the regulations do not define the word adjacent, but EPA historically interpreted it not simply in terms of proximity, but also in terms of functional interrelatedness.
In the oil and gas industry, EPA and private litigants have tried to aggregate the emissions from numerous small and physically disconnected sites that are interconnected by pipelines for the purpose of imposing the more stringent permitting obligations applicable to major sources on them by arguing that while not physically adjacent (i.e., in close proximity) to one another, these sources were functionally interrelated. In recent years, courts have rejected these efforts. See discussions here and here. In 2012, the Sixth Circuit Court of Appeals rejected EPAs functional interrelatedness interpretation of the word adjacent as used in its Title V and PSD regulations. After that ruling, EPA issued a policy directive to its Regional Administrators to apply different standards to sources of air pollution depending on whether they were located in states within the Sixth Circuits jurisdiction (which includes Michigan, Ohio, Kentucky, and Tennessee). This led to confusion and uncertainty, and the policy directive was eventually struck down by the D.C. Circuit Court of Appeals in 2014.
On September 18, 2015 EPA proposed a new rule that is intended to clarify the term adjacent as used in the definition of building, structure, facility or installation in its PSD regulations and in the definition of major source in its Title V regulations, both of which are used to determine which sources in the oil and natural gas sector may be aggregated for the purposes of identifying a single stationary source. See 80 Fed. Reg. 56,579 (Sept. 18, 2015). In its new proposal, EPA suggests two options for determining whether smaller oil and gas sources are adjacent for purposes of aggregating their emissions. The first option would define adjacent only in terms of proximity. The second option would allow the term adjacent to be defined in terms of either proximity or functional interrelatedness.
The first option would add language to EPAs regulations clarifying that adjacent means pollutant emitting activities that are located on the same surface site, or on surface sites that are located within ¼ mile of one another[.] Under this option, only physical proximity would be considered when determining whether multiple sources will be aggregated, and a bright line would be drawn at ¼ mile. Somewhat surprisingly, given EPAs prior policies, this is EPAs preferred option. However, EPA has also proposed an alternative option, which would add language to its regulations clarifying that pollutant emitting activities would be considered adjacent if they are either separated by a distance of less than ¼ mile or separated by a distance of ¼ mile or more and there is an exclusive functional interrelatedness. Under this option, smaller sources would be aggregated into a single stationary source if they are functionally interrelated, regardless of the distance between them.
EPA is accepting public comments on these options until November 17, 2015.