CHAPTER 11 DEVELOPMENTS AND TRENDS IN CLEAN AIR ACT SOURCE “AGGREGATION”

• Jurisdiction: United States

Air Quality Issues Affecting Oil, Gas, and Mining Development in the West
(Feb 2013)
CHAPTER 11
DEVELOPMENTS AND TRENDS IN CLEAN AIR ACT SOURCE "AGGREGATION"
John R. Jacus ¹
Davis Graham & Stubbs LLP
Denver, Colorado

JOHN R. JACUS is a partner with Davis, Graham & Stubbs LLP in Denver, Colorado. He represents clients under all major federal and state environmental laws and regulatory programs, including the Clean Air Act (CAA). His air quality experience includes rulemaking and adjudicatory proceedings, environmental auditing and voluntary disclosure, permitting, compliance counseling and enforcement defense, and the appeal of final agency actions. Mr. Jacus' environmental practice has emphasized the unique legal and operational requirements applicable to the oil and gas, mining and other natural resources industries, as well as the manufacturing and service industries. Mr. Jacus has represented clients in the favorable resolution of consent decrees and administrative orders under the CAA and state counterparts, as well as rulemaking to adopt NSR reforms and to implement SIP revisions, among other CAA administrative and judicial proceedings. Recent CAA projects include Title V permit renewals, NGO appeals of source determinations (aggregation) in state and federal permitting contexts, MACT applicability and compliance disputes, the resolution of various air permitting issues in Indian Country, and state, federal and tribal CAA enforcement defense and administrative/civil penalty negotiations for alleged violations. He speaks and writes frequently on air quality and other environmental issues, and is a Vice Chair of the Air Quality Committee of the American Bar Association's Section of Environment, Energy & Resources (SEER), and a Trustee of the Rocky Mountain Mineral Law Foundation (RMMLF), serving as the SEER Liaison to RMMLF. John has also served as Chair of the Environmental Law Section of the Colorado Bar Association (1996-1997), and twice served on the Executive Council of ABA SEER, among other bar leadership positions. He currently is Chair of the Energy & Environment Council of the Colorado Association of Commerce & Industry (CACI). John obtained his B.A. in Environmental Policy from Stanford University (The Program in Human Biology) in 1979, and his J.D. from the University of Colorado School of Law in 1984.

I. INTRODUCTION

The topic of Clean Air Act ("CAA") source determinations has been a relatively hot and controversial one for the natural resources industries, and especially the oil and gas sector in recent years. The topic has been animated by high profile administrative and judicial challenges by environmental advocacy groups and permittees alike, several of which are still pending; a recent federal appellate court decision holding a long-standing internal EPA interpretation to be unlawful, and a sequence of divergent approaches for oil and gas air permitting in particular by EPA itself. This paper reviews developments in CAA source determinations against this backdrop, including a review of the statutory and regulatory basis for source determinations, and several significant recent challenges to single-source air permitting of natural resources activities and facilities that are separated by varying distances, but are connected by pipelines, conveyors, and/or roads. The paper also touches upon the separate, but related prohibition on circumvention of New Source Review ("NSR") permitting requirements.

II. REGULATORY BASIS FOR SOURCE DETERMINATIONS

The Clean Air Act² defines a stationary source of air pollutants in such a way that multiple activities and items of equipment may collectively be permitted at a single source. This frequently happens without dispute or controversy when the emission points are all within a common fence line at a single facility, although the consequence of permitting such sources together is to increase the "potential to emit" of the collective "source," possibly triggering additional requirements for larger sources of air pollutants. This can also happen for sources at multiple different facilities or properties if certain criteria are satisfied. The single-source permitting of multiple facilities is commonly referred to as source aggregation or source determination.

The Clean Air Act regulates major sources of criteria pollutants and major sources of hazardous air pollutants ("HAPs") more stringently than it regulates minor sources of those pollutants. It does so through the provisions of the New Source Review³ and Title V operating permit

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programs, as well as the CAA § 112 National Emission Standards for Hazardous Air Pollutants ("NESHAP") program (which also distinguishes between major sources and non-major, or "area" sources). Whether and when sources should be aggregated together to constitute a single source, becoming subject to more onerous major source requirements, is grounded in the definitions of "major" and "stationary source" in the statute and regulations for these programs. These definitions have been infrequently interpreted by the courts, but are regularly examined and applied by the states and EPA itself in a variety of permitting circumstances that help to clarify their application to the natural resources industries.

The PSD provisions of the Act have been held by reviewing courts to prohibit the construction or "modification" of a "major stationary source" of air pollution unless, among other things: (1) a permit has been issued for a proposed facility prior to its construction or modification; and (2) the proposed facility is subject to the best available control technology ("BACT") for each pollutant subject to regulation under the CAA.⁴ Failure to obtain a PSD permit prior to construction of a new source or modification of an existing source that triggers PSD can result in the imposition of significant civil penalties and/or injunctive relief, and subject the owner or operator to citizen suits.⁵

The Act defines "stationary source" as "any building, structure, facility, or installation which emits or may emit a regulated air pollutant."⁶ The regulations further define the terms "building," "structure," "facility," or "installation" as including:

[A]ll of the pollutant-emitting activities which belong to the same industrial grouping, are located on one or more contiguous or adjacent properties, and are under the control of the same person (or persons under common control) except the activities of any vessel.⁷

A source is "major" for PSD program purposes if it has the potential to emit 250 tons per year ("tpy") of any regulated pollutant or 100 tpy if within one of 28 specifically-listed source categories identified by Congress as "major emitting facilities."⁸

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Title V of the Act requires "major sources" of air pollutants to obtain a federally enforceable operating permit.⁹ "Major" for Title V purposes means "any stationary source (or group of stationary sources) that are located on one or more contiguous or adjacent properties, and are under common control of the same person (or persons under common control) belonging to a single major industrial grouping" that has the potential to emit 100 tpy of any regulated pollutant or is major under another CAA program (e.g., a major source of HAPs under CAA § 112).¹⁰ The main purpose of Title V is to compile into one document all CAA requirements applicable to a particular source.¹¹ It also imposes additional monitoring, reporting, and recordkeeping requirements.¹² As with PSD, failure to obtain a Title V Permit can result in significant liabilities.¹³

III. ALABAMA POWER AND THE 1980 PREAMBLE

In 1978, EPA promulgated regulations defining stationary source for purposes of the PSD program as "any structure, building, facility, equipment, installation, or operation (or combination thereof) which is located on one or more contiguous or adjacent properties and which is owned or operated by the same person (or by persons under common control)."¹⁴ Industry challenged the new rules on multiple grounds, including the over breadth of this definition of stationary source.¹⁵ In Alabama Power, the D.C. Circuit rejected this interpretation, finding it to be an impermissible expansion of the CAA statutory definition of "stationary source." The court found that Congress specifically defined the term "stationary source" to include only the four terms "structure," "building," "facility," and "installation," and not any combination of such sources.¹⁶ The court held that this general statutory definition, found in the Act's provisions for the NSPS program, applies equally to the PSD program's regulation of major "stationary sources," and that EPA lacks the authority to define the term "stationary source" more broadly than did Congress.¹⁷

Significantly, the Alabama Power court did indicate that it would be reasonable for EPA to define the terms "facility" and "installation" "broadly enough to encompass an entire plant."¹⁸ The court also stated that EPA "should devise regulatory definitions of the terms 'structure,'" "building," "facility," and "installation" to provide for the aggregation, where appropriate, of industrial activities according to considerations like proximity and ownership. These

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pronouncements in Alabama Power would figure prominently in the EPA rulemaking that ensued.

EPA promulgated a new definition of "stationary source" for the PSD program in the wake of the Alabama Power decision that addressed the question of which pollutant-emitting activities may be aggregated to form a single source for air permitting purposes.¹⁹ In so doing, EPA openly acknowledged that the Alabama Power decision established several limits upon EPA's ability to aggregate sources based on the definition to be promulgated: (1) it must carry out reasonably the purposes of PSD; (2) sources aggregated per the definition must approximate a common sense notion of...