EPA issues a final rule regarding “Source Determination for Certain Emission Units in the Oil and Natural Gas Sector”

On June 3, 2016, the U.S. Environmental Protection Agency (EPA) issued a final rule, published to the Federal Register, with a revision to the regulations applicable to permitting of stationary sources of air pollution under the New Source Review and title V programs in the Clean Air Act.  The final rule is in response to the Summit Petroleum Corp. v. EPA decision, which caused the meaning of the term “adjacent” (when used to determine the scope of a “stationary source” for purposes of the Prevention of Significant Deterioration and Nonattainment New Source Review, and “major source” for purposes of the title V operating permit program, in the onshore oil and natural gas sector) to be in flux since 2012.

• On August 7, 2012, the Sixth Circuit issued its decision in Summit, and held that “EPA’s determination that the physical requirement of adjacency [for purposes of aggregating multiple emission sources as a single “major source”] can be established through mere functional relatedness is unreasonable and contrary to the plain meaning of the term ‘adjacent.’”
• On December 21, 2012, the Director of the EPA’s Office of Air Quality issued a memo to each of the Regional Air Directors explaining that the Summit decision would only apply to states within the Sixth Circuit (Kentucky, Michigan, Ohio and Tennessee).
• An association of resource extraction and manufacturing companies challenged the EPA memo, claiming that its directive would leave facilities outside of the Sixth Circuit at a competitive disadvantage.
• On May 30, 2014, the U.S. Court of Appeals for the D.C. Circuit ruled against the EPA’s attempt to limit the jurisdictional scope of Summit to the states within the Sixth Circuit.
• On June 3, 2016, the EPA issued its final rule.

As it pertains to the oil and gas industry, the EPA’s final rule establishes a quarter-mile “bright-line” rule for whether air sources are “adjacent” for aggregation for Title V threshold determinations. This reverses the agency’s previous use of “functional interrelatedness” for adjacency determinations that was rejected by the Summit decision.