V&E Environmental Law E-Communication, January 15, 2009
On January 12, 2009, EPA finalized the portion of a proposed September 2006 rulemaking that addresses how EPA and state agencies will analyze ostensibly separate projects to determine whether they should be considered together, or aggregated, for purposes of federal new source review applicability determinations. EPA wishes to prevent project developers from circumventing new source review by breaking one large project that would require new source review into a series of smaller projects that are each less than the relevant thresholds. Similarly, industry is concerned that excess aggregation could require lengthy permitting delays and emission controls for multiple small projects that are unrelated to each other.
In its September 2006 proposal, EPA had sought to formalize its aggregation policy, which previously had been applied through case-by-case determinations and documented mostly in letters or memoranda, and was considered by many to sorely need clarification. EPA’s proposal was that two projects should be aggregated for new source review purposes when one of the projects is “technically or economically dependent” on the other. The September 2006 proposed rulemaking devoted several pages to explaining what the terms “technical dependence” and “economic dependence” were intended to mean. Stated
briefly, a project was technically dependent on another project if it could not perform as intended or up to its maximum production without the other, and a project was economically dependent on another project if its contemplated economic viability or return on investment could not be achieved without the other. EPA also solicited public comment on whether and how the timing of two projects should factor into the aggregation calculus. The final rule actually makes no changes to the existing new source review regulations but merely provides an interpretation of the existing definitions of “project” found at 40 C.F.R. §§ 51.165(a)(1)(xxxix) and 52.21(b)(52). In response to comments that criticized the technical and economic dependency tests as unworkable in practice, EPA replaces the tests with the concept of “substantially related.” Two changes are substantially related when there is “an apparent interconnection — either technically or economically — between the physical and/or operational changes, or a complementary relationship whereby a change at a plant may exist and operate independently, however its benefit is significantly reduced without the other activity.” When there is no technical or economic relationship or where the relationship is not substantial, no aggregation is required. These determinations are to be made on a case-by-case basis, and EPA states that it is possible that case-specific factors could cause similar changes undertaken at different facilities to yield different results under the aggregation inquiry. EPA also concedes that its “substantially related” test may not provide the “bright line” guidance that it sought with its September 2006 proposal.
EPA’s test may be better understood in the context of the examples the agency provides in the final rule. A “clear” substantial relationship exists between the installation of burners on a utility boiler and a required modification to the air handling system to avoid severe impairment when operating the new burners, or when a process heater is installed to make a new product and a holding tank is constructed to hold the new product. Conversely, a substantial relationship generally will not exist between changes made on separate manufacturing lines that each makes a different project and that do not share equipment.
EPA’s rule also addresses the significance of timing to the aggregation analysis. EPA states that, in general, there should be no presumption that activities should be aggregated as a result of their proximity in time. While two projects that occur closely together may invite greater scrutiny, permitting authorities should rely on the “substantially related” test to evaluate whether the projects should be aggregated. However, EPA’s rule establishes a rebuttable presumption that a change that occurs more than three years after an earlier change should be presumed not to be substantially related to the earlier change. Evidence demonstrating a substantial relationship between the two changes would be required to rebut the presumption. The relevant event for measurement of the interval is the time of approval of the changes’ minor new source review permits, or if none is issued, the time that construction of the change commences.
EPA has stated that the final aggregation rule will operate prospectively only because the interpretation contains elements not previously addressed in EPA’s guidance letters. The draft rule that was circulated with yesterday’s notice states that it will become effective thirty days after it is published in the Federal Register (which would likely make its effective fall somewhere in late February or early March), but EPA’s website contains a fact sheet that says the rule will not become effective until sixty days after publication.
The September 2006 rulemaking also included new proposed rules concerning debottlenecking and “project netting,” but EPA did not take any final action on either of those rules in conjunction with finalizing the aggregation rule.
To learn more about this rule and its history contact Vinson & Elkins lawyers Chris Amandes or Eric Groten. To learn more about V&E’s Environmental Law practice, visit our website.