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January 9, 2014

Aggregation of Air Emission Sources at the Forefront Again

Next week, a federal appeals court will hear arguments on whether the U.S. Environmental Protection Agency’s ("EPA") sweeping policy on the aggregation of emission sources should be invalidated.  Initiated by a national multi-sector manufacturing coalition, the lawsuit stands to have major impacts on the oil and gas industry.

In 2012, the Sixth Circuit’s landmark decision in Summit Petroleum Corp. v. EPA, struck the EPA’s broad definition of "adjacency" in the context of aggregation in the oil and gas sector, was a victory for industry.  Summit rejected the EPA’s functional relatedness test and directed the EPA to limit its interpretation of the term adjacent to include only a review of the geographical proximity of the facilities.

The EPA, however, decided to limit Summit’s reach by issuing a December 21, 2012 policy document entitled Applicability of the Summit Decision to EPA Title V and NSR Source Determinations (the "Policy") which directs regional EPA offices in states outside of the Sixth Circuit to continue to implement EPA’s broad interpretation of the term "adjacent," which bases the determination of adjacency on the interrelatedness of facilities in determining whether facilities must be aggregated for permitting and regulatory purposes.

The National Environmental Development Association’s ("NEDA") Clean Air Project, which members include ALCOA; Intel Corp; Proctor and Gamble; Georgia-Pacific; Koch Industries; BP America; Exxon Mobil; Occidental and Weyerhaeuser, has challenged EPA’s Policy in  the United State Court of Appeals for the D.C. Circuit.  NEDA’s argument is that Summit’s directive must be implemented across all EPA regions because the Clean Air Act ("CAA") and  40 CFR § 56.3 require uniform application of all "criteria" used to implement and enforce the CAA.  NEDA also contends that the Policy is an abuse of discretion because the EPA failed to provide a reasoned explanation for its decision to depart from the uniformity requirement and to adopt different criteria outside of the Sixth Circuit.

In opposition, the EPA has argued that the Policy is not final agency action under the CAA and, therefore, it cannot be reviewed by the court.  EPA further argues that under the CAA and the Administrative Procedure Act ("APA"), EPA is not required to adopt the Sixth Circuit’s interpretation on a nationwide basis, petitioners lack standing to bring their challenge and, finally, that the challenge is not ripe because NEDA members’ legal rights have not yet been adversely affected.

Oral argument on NEDA’s challenge will be heard by the D.C. Circuit on January 17, 2014.  Because of the permitting implications at issue with respect to the cost and timing associated with obtaining the approvals and permits that are necessary for a project to proceed if emissions are unnecessarily aggregated, the Policy is a significant concern such that the Court’s ultimate decision is likely to have a significant impact on the oil and gas industry.

The EPA’s policy document can be accessed here: http://www.epa.gov/region07/air/title5/t5memos/inter2012.pdf

The 6th Circuit’s Summit decision is available at: http://www.ca6.uscourts.gov/opinions.pdf/12a0248p-06.pdf

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