The End of the "Functional Interdependence" Test?

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On August 7, 2012, in Summit Petroleum Corp. v. EPA, the United States Court of Appeals for the Sixth Circuit, in a 2-1 decision, rejected the U.S. Environmental Protection Agency’s (“EPA”) current position that “functional interdependence” should be a consideration in determining whether to aggregate the air emissions of two or more physically distant facilities for the purpose of regulation under the Clean Air Act (“CAA”). In the past, EPA has evaluated functional interdependence to determine whether separate facilities are “adjacent” to one another, a requirement under EPA regulations. In rejecting EPA’s “functional interdependence” test, the Sixth Circuit directed EPA to limit its evaluation of “adjacency” to whether activities are located on physically proximate properties in accordance with the “ordinary, i.e., physical and geographical, meaning of that requirement.” Summit is an important decision for the oil and gas industry because source aggregation of multiple oil and gas wells can trigger the stringent requirements of the Prevention of Significant Deterioration (“PSD”), New Source Review (“NSR”), and Title V permit programs. Industry should closely monitor EPA’s response to the Sixth Circuit decision.

Statutory Background -

Generally, the CAA subjects only “major sources” of air emissions to the stringent requirements of the PSD, NSR, and Title V programs. Whether a source qualifies as “major” is based upon the quantity of pollutants that a source emits or has the potential to emit (the specific threshold can differ depending on the pollutant, the regulatory program, attainment status of the area, and type of facility at issue). Permitting agencies have often disagreed in their interpretations of what constitutes a single “source” of emissions under the CAA and EPA’s implementing regulations for the purpose of determining if the relevant pollution threshold has been exceeded. This disagreement has been particularly fierce with regard to whether oil and gas well pads should be considered to be part of the same “source” as a central oil or gas processing facility or compressor station.

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