The D.C. Circuit Court of Appeals has struck down an Environmental Protection Agency (EPA) policy directive that required its Regional Administrators to apply different standards to sources of air pollution, depending on which state those sources were located in, when making determinations about whether two or more facilities constitute a single stationary source for purposes of Clean Air Act permitting requirements. EPA’s so-called “Summit Directive” was issued after a 2012 ruling by the Sixth Circuit Court of Appeals, which vacated EPA’s determination that a natural gas sweetening plant and more than 100 gas production wells owned by Summit Petroleum Corporation in Michigan constituted a single stationary source requiring a Title V permit for the combined sulfur dioxide emissions from those facilities. The Sixth Circuit held that EPA’s determination was based on an interpretation of its regulations that was contrary to the plain meaning of the word “adjacent.”
Under the CAA, a “major source” of air pollution is required to obtain a Title V operating permit and may be required to obtain a New Source Review (NSR) permit (if located in a non-attainment area). A source is considered “major” if it has the potential to emit more than 100 tons per year of any pollutant. Pursuant to EPA’s regulations, two or more stationary facilities can be considered a single stationary source for CAA permitting purposes if they are: (1) under common control, (2) are located on one or more contiguous or adjacent properties, and (3) belong to the same major industrial grouping. 40 C.F.R. § 71.2.
In the Sixth Circuit case, Summit Petroleum’s natural gas sweetening plant and over 100 gas production wells were located within a 43 square mile area that was not entirely owned by Summit. Neither the plant nor any of the wells were located on property that shared a common boundary, and Summit did not own the property between the well sites or between the wells and the plant. Nevertheless, EPA concluded that the plant and the wells were “adjacent” based not on the physical proximity of the facilities, but on their “functional interrelationships.” The sweetening plant alone did not have the potential to emit enough sulfur dioxide to be considered a “major source”; however, the sulfur dioxide emissions from the plant plus any one of the hundreds of production wells were enough to trigger a requirement for Summit Petroleum to obtain a Title V permit. The Sixth Circuit struck down EPA’s decision regarding Summit Petroleum’s facilities, ruling that it was contrary to the plain meaning of the word “adjacent.” EPA chose not to appeal the Sixth Circuit’s decision.
After the Sixth Circuit’s ruling, the EPA issued the Summit Directive to its Regional Administrators. Pursuant to the directive, for facilities located within the Sixth Circuit’s jurisdiction (Michigan, Ohio, Kentucky, and Tennessee), EPA would follow the Sixth Circuit’s ruling and only consider physical proximity when determining whether two or more facilities are “adjacent” under 40 C.F.R. § 71.2. However, for facilities in all other states, EPA would continue its practice of considering not just physical proximity but also the “functional interrelationships” of facilities when deciding whether two or more facilities are “adjacent.”
The National Environmental Development Association (NEDA), an association of resource extraction and manufacturing companies subject to permitting requirements under the CAA, filed a challenge to the Summit Directive in the District of Columbia Circuit Court of Appeals, arguing that the directive violated a regulation that requires EPA to maintain national uniformity in its policies and procedures. See 40 C.F.R. § 56(a) & (b). NEDA argued that EPA’s Summit Directive created a competitive disadvantage for companies with facilities located outside of the Sixth Circuit’s jurisdiction, because a more stringent standard would be applied to them when EPA Regions determine whether they are subject to CAA permitting requirements.
As an initial matter, the D.C. Circuit Court of Appeals agreed with NEDA that EPA’s legally binding Summit Directive had created a competitive disadvantage for companies located outside of the Sixth Circuit resulting in injury to those members. On the merits, the Court held that the Summit Directive violated 40 C.F.R. § 56(a) and (b), which requires EPA to maintain national uniformity in its policies and procedures. EPA had argued that it essentially had no choice but to comply with the Sixth Circuit’s ruling within that jurisdiction but to continue to apply its preferred interpretation of the term “adjacent” in the rest of the country. The Court disagreed, finding that EPA had other options after the Sixth Circuit’s ruling, including revising its regulations to adopt its preferred definition of “adjacent,” appealing the Sixth Circuit’s ruling to the U.S. Supreme Court, or revising the regulations requiring national uniformity to account for situations in which there are regional variances created by judicial decisions.
This article was authored by Jennifer L. Hughes, Jackson Kelly, PLLC. For more information on the author, see here.