D.C. Circuit Invalidates EPA's Efforts to Apply Divergent "Source Aggregation" Policies

V&E Environmental Law Update E-communication, June 5, 2014

The D.C. Circuit Court of Appeals decided last week that the Environmental Protection Agency (EPA) cannot by policy memorandum direct the use of differing Clean Air Act interpretations in different regions of the country. Nat'l Envtl. Dev. Ass'n's Clean Air Project v. EPA , No. 13-1035 (D.C. Cir. May 30, 2014) . This decision invalidated a directive that EPA had issued in response to a 2012 Sixth Circuit Court of Appeals opinion, which had deemed unlawful EPA's policy of aggregating emissions from dispersed activities as one "source" for permitting purposes. Summit Petroleum Corp. v. EPA , 690 F.3d 733, 751 (6th Cir. 2012) . The memorandum issued in response to the Sixth Circuit opinion directed EPA personnel to continue applying EPA's preferred interpretation in all regions except for the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee). See Memorandum from Stephen D. Page, EPA OAQPS Director, to Regional Air Division Directors (Dec. 21, 2012) . A unanimous D.C. Circuit invalidated EPA's directive because "it is plainly contrary to the agency's own 'Regional Consistency' rules."

EPA's Clean Air Act permitting rules define a "source" as all activities (1) under common control, (2) within the same major industrial category, and (3) located on "contiguous or adjacent" properties. The more activities aggregated into the "source," of course the more likely it is to be "major," and subject to stringent and time-consuming permitting requirements. Over the years, various EPA memos and case-specific determinations had evolved the rule's requirement for adjacency into a requirement that the activities simply be "functionally related," even if geographically separate. The Sixth Circuit invalidated this interpretation as contrary to the plain meaning of "adjacent."

Rather than seek further appellate review of that decision, or revise its rules defining "source," EPA simply issued a directive requiring use of the "functional interrelatedness" test in every state other than those in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee). It was this directive that an association of resource extraction and manufacturing companies challenged in the D.C. Circuit.

The D.C. Circuit's Opinion
There was no real dispute that EPA's directive mandated inconsistent permit applicability criteria for different parts of the country. Petitioners pointed to an EPA rule declaring the Agency's policy to "[a]ssure fair and uniform application by all Regional Offices of the criteria, procedures, and policies employed in implementing and enforcing the [Clean Air Act]." See 40 C.F.R. § 56.3(a). This rule closely tracks the Clean Air Act itself, which provides that EPA "regulations shall be designed to assure fairness and uniformity in the criteria, procedures, and policies applied by the various regions in implementing and enforcing the chapter … and to provide a mechanism for identifying and standardizing inconsistent or varying criteria, procedures, and policies being employed by such officers and employees in implementing and enforcing the chapter." CAA Sec. 301(a)(2).

Because the memorandum contravened this "regional consistency" rule, the D.C. Circuit invalidated the memorandum. It expressly declined to reach the question of whether the same result would have been compelled by statute.

Going Forward
Having given the D.C. Circuit the opportunity to opine on the legality of inter-circuit non-acquiescence without having to opine on the merits of the aggregation policy at issue, EPA is now functionally stuck with the Sixth Circuit interpretation. Judge Edwards' opinion informs EPA that it has several options:

First, EPA might be able to revise its regulations for aggregating emissions from multiple facilities, so as to require aggregation when facilities are functionally interrelated, rather than "adjacent." Second, EPA could have appealed the Sixth Circuit decision in Summit Petroleum to the Supreme Court, which it did not do. And, finally, EPA might also revise its uniformity regulations to account for regional variances created by a judicial decision or circuit splits.

And so, short of flouting this directive, EPA has no choice but to undertake a rulemaking before attempting to impose the functional interrelatedness test again, anywhere. It remains to be seen whether EPA will pursue any of the courses left open by Judge Edwards. It also remains to be seen whether, in light of Section 301(a)(2) of the Clean Air Act, any rules to accommodate circuit splits - Judge Edward's third option - would survive judicial review. Regardless, in the meantime, EPA will be unable to insist on permit applicability determinations based on functional interrelatedness. Permit applicants now have the opportunity to insist that only activities that are geographically adjacent are aggregated into the "source" identified for permitting purposes.

The D.C. Circuit had the opportunity to invalidate EPA's plans to apply divergent rules only because EPA committed those plans to a memorandum, which the D.C. Circuit found to be final agency action subject to judicial review under Section 307 of the Clean Air Act. Had EPA simply applied its rules as it wished, as it normally does when it wishes to engage in "inter-circuit non-acquiescence," it would have befallen an aggrieved permittee (or enforcement action defendant) to re-litigate the merits of the Sixth Circuit opinion (and perhaps to urge the additional grounds of regional inconsistency prohibited by 40 C.F.R. § 56.3). We can be reasonably certain that this generation of EPA senior staff will not issue any more overt non-acquiescence memos.

For more information, please contact Vinson & Elkins lawyers Eric Groten or Casey Hopkins. Visit our website to learn more about V&E's Environmental practice, or e-mail one of the practice contacts.

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