On May 30, 2014, the U.S. Court of Appeals for the D.C. Circuit issued a decision in National Environmental Development Assoc.’s Clean Air Project v. EPA (NEDA)[1] that limits the ability of the United States Environmental Protection Agency (USEPA or the Agency) to apply different interpretations of its Clean Air Act (the Act) regulations in different areas of the country.  At issue was a USEPA policy concerning the interpretation of the word “adjacent” in its regulations under the Act.  An earlier decision by the Sixth Circuit held that USEPA’s interpretation was unreasonable.  In response, USEPA issued a directive to its regions, instructing them to continue applying USEPA’s historic interpretation of “adjacent” for permitting decisions outside the Sixth Circuit.  The D.C. Circuit held that USEPA’s directive violated its own Clean Air Act regulations, which require national uniformity.

This case stems from a dispute concerning how to determine whether nominally separate facilities constitute a single “source.”  USEPA’s Clean Air Act regulations, including its permitting requirements, apply to “sources” of air pollutants.  Physically separate pollutant-emitting facilities could be considered to be a single “source” if, among other factors, they are located on “adjacent” properties.  USEPA has a storied history of interpreting how to determine whether nominally separate facilities are adjacent and, therefore, should be aggregated into a single “source.”  In 2012, the Sixth Circuit Court of Appeals in Summit Petroleum Corp. v. EPA,[2] reversed a USEPA determination that a natural gas plant and its associated gas wells constituted a single “source.”  The Court found that USEPA could not base its determination to aggregate physically distant “sources” solely on the “functional interrelationship” between the plant and the wells because the relevant regulations required consideration of adjacency, which requires physical proximity.  In response, USEPA issued a “directive” to each of its ten regional offices, explaining that the Agency would apply two different aggregation tests.  For facilities within the jurisdiction of the Sixth Circuit, USEPA would not consider “functional interrelatedness” in determining whether “sources” were adjacent; for facilities in all other areas, USEPA would continue to consider “functional interrelatedness.”  As a consequence, facilities located outside the Sixth Circuit’s jurisdiction were more likely to be aggregated, potentially subjecting those “sources” to increased permitting and regulation.

Petitioners challenged USEPA’s directive, arguing that USEPA was precluded from establishing different regulatory criteria applicable to different parts of the country.   The D.C. Circuit agreed.  The Court found that, by creating region-specific criteria, the Summit directive violated USEPA’s own “regional consistency” regulation, “which require[s] EPA to maintain national uniformity in measures implementing the [Act], and to ‘identify[] and correct[]’ regional inconsistencies by ‘standardizing criteria, procedures, and policies.’” [3]  In other words, because USEPA could not rely upon “interrelatedness” in states within the Sixth Circuit, USEPA was precluded from doing so in any other area of the country.   In effect, the D.C. Circuit put USEPA on notice that its own regulations require it to act and regulate as a single national agency.  The Court acknowledged (subject to possible arguments about constraints under the Clean Air Act that the Court did not address) that USEPA is free to revise its “regional consistency” regulations or its regulations defining a “source,” but it must comply with its own regulatory constraints by applying “uniform criteria for implementing the Act.”

The potential implications of NEDA are significant.  The “regional consistency” regulation requires the “fair and uniform application by all Regional Offices of the criteria, procedures, and policies employed in implementing and enforcing the [Act].”  Therefore, not only is USEPA now faced with a bar to applying its “functional interrelatedness” test outside the Sixth Circuit, but any other inconsistent interpretation of the Act may also be subject to challenge.  Notably, it has been a common practice, through the doctrine of nonacquiescence, for USEPA to attempt to limit the effect of adverse court decisions by ignoring those decisions in areas outside the jurisdictions of those courts.  It is possible that USEPA will seek rehearing en bancbefore the D.C. Circuit or seek review by the U.S. Supreme Court.  If it does not, USEPA may seek to define “adjacency” by rule, although this may not be a quick solution based on the fact that USEPA has attempted, unsuccessfully, to promulgate a definition of “adjacency” since 1993.  Alternatively, USEPA may attempt to revise its “regional consistency” regulation to allow USEPA to effectively ignore a judicial determination in Regions outside the particular court’s jurisdiction.  Unless this decision is reversed on reconsideration or appeal, or USEPA revises its “regional consistency” regulation, industry and environmental groups alike may see the D.C. Circuit’s decision as a mechanism to challenge region-specific practices by USEPA.