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. EPA’s 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 EPA’s 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 EPA’s “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 Circuit’s 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 EPA’s 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 EPA’s prior policies, this is EPA’s “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.