United States: Evolution Of Source Determination For Certain Emission Units In The Oil And Natural Gas Sector

Last Updated: August 10 2016
Article by Charles T. Wehland and Jennifer M. Hayes

On August 2, 2016, the Environmental Protection Agency's ("EPA") final rule regarding the aggregation of physically separate emitting surface sites into a single source for permit determinations in the oil and natural gas industry took effect.1 This Source Determination for Certain Emission Units in the Oil and Natural Gas Sector rule came alongside updates to New Source Performance Standards ("NSPS").2 These rules are part of President Obama's Climate Action Plan: Strategy to Reduce Methane Emissions and the Clean Air Act ("CAA"). Through this rulemaking, EPA has set out to clarify the term "adjacent" as applied to the determination of whether or not physically separate emitting sites in the onshore oil and gas sector should be aggregated into a single "stationary source" for the purposes of the Prevention of Significant Deterioration ("PSD") and Nonattainment New Source Review ("NNSR") programs and "major source" permitting under Title V of the CAA.3

Prior to this new rule, individual policy interpretations, the Summit litigation,4 and resulting guidance have created uncertainty over the correct interpretation of "adjacent" as applied to determining whether individual sources should be aggregated as a single source for purposes of air permitting. The final EPA source determination rule states that EPA will consider pollutant-emitting activities adjacent when they are: (i) located on the same surface site or (ii) located within a quarter mile from each other (as measured from the center of the emitting equipment) and share equipment.5 EPA asserts that this new definition of "adjacent" will allow permit applicants and permitting authorities in the oil and natural gas industry to make source determinations with greater ease and clarity.

Existing Legal Framework

Consistent with the term's use in § 111(a)(3) of the CAA, EPA defines a "stationary source" as "any building, structure, facility, or installation which emits or may emit a regulated NSR pollutant."6 EPA promulgated an earlier stationary source determination regulation7 that outlined three factors to aid permitting authorities in making these single source determinations:

  1. Same industrial grouping per Standard Industrial Classification ("SIC") codes,
  2. Location on contiguous or adjacent properties, and
  3. Common control of the same person or persons.

If these three factors are present, EPA aggregates the separate emitting activities into a single stationary source. Initially, permitting authorities made these determinations on a case-by-case basis without a clear indication of the meaning of "adjacent" or how each factor should be judged or weighed against one another.

When interpreting the meaning of "adjacent" within individual policy determinations, EPA focused generally on determining whether or not emitting activities met the "common sense notion of a plant"8 until EPA Acting Assistant Administrator William Wehrum issued the Wehrum Memo in 2007.9 The memorandum directed permitting authorities to focus on the location and proximity of each surface site, rather than the operational dependency of each site, to determine if two separate properties were adjacent. In 2009, the McCarthy Memo withdrew the Wehrum Memo.10 The McCarthy Memo instructed permitting authorities to refocus on all three factors in the regulation, noting that permitting authorities must justify aggregation conclusions by reviewing all the factors, not just physical proximity.

The confusion continued following the Sixth Circuit's decision in the Summit Petroleum case.11 In 2010, focusing on the interdependent nature of the operations, EPA aggregated Summit Petroleum's physically separate sweetening plant facilities into a single source for permitting purposes. In making this determination, EPA focused on the fact that all of Summit's wells were located within an eight-mile radius of its sweetening plant that processed all of the oil and gas from the connected wells. Upon review, the Sixth Circuit disagreed with the aggregation of these dispersed wells and plant, and it held that EPA's determination that these facilities were "adjacent" was unreasonable and contrary to the plain meaning of the unambiguous term.12

EPA responded to this decision by issuing the Summit Directive.13 This directive instructed regional offices outside of the Sixth Circuit to disregard the Summit decision and to continue considering interrelatedness in the "adjacency" factor of the single source determination. The D.C. Circuit Court invalidated the Summit Directive because it violated EPA's "Regional Consistency" regulations and gave facilities located within the Sixth Circuit a competitive advantage.14 The "Regional Consistency" regulations require EPA officials to "assure fair and uniform application by Regional offices of the criteria, procedures, and policies employed in implementing and enforcing the [Clean Air Act]."15 The court saw the Summit Directive as placing companies and producers outside of the Sixth Circuit at a competitive disadvantage as they were more likely to have their operations aggregated into a single source for permitting purposes.16 Following this decision, permitting authorities and applicants in the oil and gas industry were left without any definitive interpretation of the meaning of "adjacent" in source determinations.

Download - Evolution of Source Determination for Certain Emission Units in the Oil and Natural Gas Sector

Footnotes

1 40 C.F.R. §§ 51, 52, 70, 71.

2 40 C.F.R.§ 60.

3 80 Fed. Reg. 56,579, 56,579 (Sept. 18, 2015).

4 Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Circ. 2012), reh'g en banc denied, No. 09-4348/10-4572, 2012 U.S. App. LEXIS 23988 at *1 (6th Cir. Oct. 29, 2012). (Explaining that the term "adjacent" is unambiguous and implies physical proximity in geographic location rather than functional interrelatedness).

5 40 C.F.R. §§ 51.165(a)(i)(ii)(B), 51.166(b)(6)(ii), 52.21(b)(6)(ii), 70.2, 71.2.

6 40 C.F.R. §§ 52.21(b)(5), 51.165(a)(1)(i), 51.166(b)(5).

7 40 C.F.R. § 51.166(b)(6).

8 45 Fed. Reg. 52,676 (Aug. 7, 1980).

9 Memorandum from William L. Wehrum, Office of Air and Radiation, to EPA Regional Admin. I-X, Source Determinations for the Oil and Gas Industries (Jan. 12, 2007).

10 Memorandum from Gina McCarthy, Office of Air and Radiation, to EPA Regional Admin., Regions I-X. Withdrawal of Source Determinations for Oil and Gas Industries (Sept. 22, 2009).

11 Summit Petroleum Corp., 690 F.3d at 751.

12 Summit Petroleum Corp, 690 F.3d at 741-44. ("The dictionary definition of 'adjacent' implies physical proximity ... The EPA's interpretation of the term 'adjacent,' to which no deference is owed, runs contrary to its plain meaning.").

13 Memorandum from Stephen D. Page, Office of Air Quality Planning Standards, to Regional Air Division Directors I-X, Applicability of the Summit Decision to EPA Title V and NSR Determinations (Dec. 21, 2012).

14 Nat'l Envtl. Dev. Ass'ns Clean Air Project v. EPA, 752 F.3d 999, 1003 (D.C. Cir. 2014).

15 Id. at 1004 (citing 40 C.F.R. § 56.3(a)).

16 Id. at 1005.

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Charles T. Wehland
Jennifer M. Hayes
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