In Summit Petroleum Corp. v. EPA, the U.S. Court of Appeals for the Sixth Circuit rejected EPA’s attempt to classify natural gas production wells and a dedicated processing plant, located miles from the wells, as a single major source under Title V of the Clean Air Act (CAA). The Sixth Circuit’s decision is important not only for the oil and gas industry, but also for all industrial process operations that are integrated but operate at separate and non-contiguous plant locations.
In an attempt to bring smaller individual corporate operating units under EPA’s major source Title V permit regulations, the Agency has been applying an interpretation that considers multi-operational emissions facilities as a single regulated entity if the operations are “functionally related.” The Court in Summit Petroleum found that EPA’s “functional relatedness” test is contrary to the provisions of the CAA and the plain meaning of EPA’s regulations. EPA’s regulations, at 40 C.F.R. §71.2, allow EPA to aggregate emission sources under Title V only if the sources are:
- under common control;
- located on one or more contiguous or adjacent properties; and
- belong to the same major industrial grouping.
If any one of these factors is not present, the sources cannot be aggregated. In Summit Petroleum, the Court held that “contiguous or adjacent properties” must be analyzed from a physical proximity standpoint and not from an operational relatedness standpoint.
As companies work to determine if related but separate operations are major sources under the CAA that must meet stricter federal emission regulations, including upcoming CO2 regulations, this decision provides a clear test for maintaining separate operational and permitting flexibility. EPA still has the opportunity to request a rehearing of the Court’s decision and/or petition the Supreme Court to review the decision, but it is unclear whether the Agency would pursue such a challenge. Articles on the Summit Petroleum decision can be found at Bloomberg BNA and Greenwire.