EPA has proposed to resolve an issue that has vexed the oil and gas industry for years—how to determine which operations compose a single “source” for permitting decisions. Unfortunately, the proposed resolution introduces new ambiguities. The proposal comes as part of President Obama’s Climate Action Plan, but in reality is the latest chapter in EPA’s storied history of attempting to establish a clear policy to determine when emissions from physically separate sources should be aggregated for purposes of determining permitting obligations under the Clean Air Act.
EPA requires a single air permit for emission sources that are closely related. Unfortunately, that closeness has been hard to define over the years. Historically, EPA aggregated separate emission sources based on physical proximity alone – the shorter the distance, the more likely that separate emissions sources would be considered “adjacent” and, as a consequence, aggregated under a single permit. For a time, EPA also proposed determining adjacency based on the so-called “functional interrelatedness” between the sources (whether sources are operationally dependent on one another). These case-by-case determinations were particularly problematic for the industry because of the nature of oil and gas exploration and gathering equipment, which frequently are located on small “well pads” or “gathering stations” distributed over large areas that do not geographically abut one another and that may be controlled or owned by separate entities.
Following years of conflicting guidance, EPA is proposing two options for defining or determining adjacency for purposes of evaluating when oil and gas equipment and activities are considered part of the same stationary source. The proposed rule is intended to apply to only portions of the oil and gas sector, in particular, oil and natural gas production (which include natural gas compressor stations) and natural gas processing facilities.
Under option one, which is EPA’s preferred approach, adjacency is based purely on physical proximity. Specifically, “emitting activities at the [same] surface site” would be considered adjacent, with “surface site” including “any combination of one or more graded pad sites, gravel pad sites, foundations, platforms, or the immediate physical location upon which equipment is physically affixed.” In addition, EPA is proposing that pollutant-emitting activities separated by a distance of less than ¼ mile be presumed adjacent even if such activities are not part of the same surface site. EPA requested comment on how to determine distance as well as how to address a series of emissions units that are “daisy-chained” together.
EPA’s alternative approach is to base adjacency on whether sources or activities are “exclusively functionally interrelated.” EPA provided little direction on how “exclusive functional interrelatedness” is to be determined, other than to suggest that physically connected equipment and operationally dependent equipment (i.e., one group of equipment is dependent on the other group to operate) would likely satisfy the standard. Nor did EPA opine on how the proposed “exclusively functionally interrelated” standard differed from the “functional interrelatedness” standard struck down by the Sixth Circuit Court of Appeals in Summit. Lastly, as with EPA’s preferred approach, EPA proposed that activities or sources within ¼ mile would be presumed adjacent notwithstanding the absence of “exclusive functional interrelatedness.”
The proposed rule was published in the Federal Register on August 27, 2015. The comment period will close 60 days after the date of publication, on October 26, 2015. Please let us know if you would like assistance in commenting or interpreting the language of the proposal.
 See Schiff Hardin’s prior discussions of EPA’s source aggregation policy:
 Adjacency is one of three criteria (the other two being industrial grouping and common control) used to determine what emission sources must be aggregated when issuing a construction or operating permit to major sources under the Clean Air Act.
 The Sixth Circuit Court of Appeals struck down EPA’s consideration of “functional interrelatedness” to determine adjacency. See Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012).