Despite a number of court victories in recent months, the U.S. Environmental Protection Agency ("EPA") was struck a serious blow today when a federal appeals court invalidated the agency's sweeping policy on the aggregation of air emission sources for the oil and gas industry. Nat'l Environmental Development Association's Clean Air Project v. Environmental Protection Agency, No. 13-1035 (D.C. Cir. May 30, 2014).
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. Specifically, the Summit decision 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 separate 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 "Summit Directive"), which directed regional EPA offices in states outside of the Sixth Circuit to continue to implement EPA’s broad interpretation of the term "adjacent," which based 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, challenged the Summit Directive in the United State Court of Appeals for the D.C. Circuit. NEDA argued that EPA violated the Clean Air Act ("CAA") and its own regulations by establishing inconsistent permit criteria for facilities depending on whether they were located inside or outside the Sixth Circuit and sought to invalidate the Summit Directive.
In opposition, the EPA argued that the Summit Directive was not final agency action under the CAA and, therefore, it could not be reviewed by the Court. The EPA further asserted that under the CAA and the Administrative Procedure Act, EPA was not required to adopt the Sixth Circuit’s interpretation on a nationwide basis, that NEDA lacked standing to bring the challenge and, finally, that the challenge was not ripe because NEDA members’ legal rights had not yet been adversely affected.
In its Decision, dated May 30, 2014, the D. C. Circuit rejected each of EPA's arguments in seriatim. As to the threshold issues of whether the Court would entertain NEDA’s petition, the Court found that NEDA had standing because the Summit Directive created a standard that put facilities outside of the Sixth Circuit at a competitive disadvantage, that the Summit Directive was final agency action subject to judicial review because it set forth binding and enforceable agency policy regarding permit determinations, and that the claim was ripe for review because the issue was purely one of law that would not benefit from further factual development.
As for the substance of NEDA’s challenge, the Court agreed that the Summit Directive must be vacated. The Court found the Summit Directive to be "plainly contrary to EPA’s own regulations, which require EPA to maintain national uniformity in measures implementing the CAA, and to ‘identify[] and correct[]’ regional inconsistencies by ‘standardizing criteria, procedures, and policies.’" It also went on to reject EPA’s argument that the agency had no choice following the Summit decision but to acquiesce across the country. As the Court pointed out, the EPA could have appealed the Summit decision to the U.S. Supreme Court and it could have revised its own regulations – either those regulations concerning aggregation from multiple facilities or its regulations regarding uniformity – all of which it failed to do. Notably, the Court did not address whether the Summit decision was properly decided.
The Court’s decision to vacate the Summit Directive is very significant. The EPA’s now defunct functional interrelatedness test for adjacency resulted in substantial permitting implications due to the cost and timing associated with obtaining the approvals and permits necessary for a project to proceed if emissions are unnecessarily aggregated. The more straight forward geographic proximity approach advanced in Summit provides greater regulatory certainty and helps foster more efficient and timely permitting decisions for oil and gas facilities. With this being said, it will now be very important to see how the EPA responds. Will it acquiesce? Will it seek rehearing or appeal? Will it amend its regulations? Only time will tell. In the meantime, however, the Court’s decision is significant both as it relates to aggregation and also, more generally, as it impacts the EPA’s selective policy of non-acquiescence when it faces a judicial determination concerning the CAA that it does not like.