On September 5, 2018, EPA issued a draft guidance document announcing a shift of the term “adjacent” in the context of the Clean Air Act’s New Source Review (NSR) and title V operating permit programs which may benefit industrial air sources. This interpretation would focus EPA’s attention on physical proximity of facilities when making source determinations, rejecting EPA’s past practice of considering “functional interrelatedness.”

Regulatory Structure

Both the NSR and title V operating permit programs apply to stationary sources with air emissions exceeding established thresholds. A task regulators face when delineating sources of air emissions (i.e., making source determinations) is determining whether numerous inter-related pollution-emitting facilities and activities qualify as a single source. EPA regulations permit EPA to treat a group of pollution-emitting facilities and/or activities as a single source if three factors are met: 1) the operations are under common control; 2) the operations are located on contiguous or adjacent properties; and 3) the operations belong to the same industrial grouping (i.e., they share a SIC code). 40 CFR 52.21(b)(6); 40 CFR 51.165(a)(1)(ii); 40 CFR 51.166(b)(6). EPA has not defined “adjacent” in this context. Rather, the definition of “adjacent” has been shaped and re-shaped by case law and EPA policy over the years, as summarized below. EPA’s recent September guidance is the latest development in this subject.

Interpretations of “Adjacent” Over the Years

For years, when considering whether facilities and operations were sufficiently adjacent for treatment as a single source, EPA has considered both physical proximity and a factor that EPA dubbed “functional interrelatedness.” As an illustration of functional relatedness, EPA has cited its past determination that two General Motors operations, a mile apart but with a dedicated railroad line between them and a shared production line, were adjacent. EPA’s consideration of functional interrelatedness has largely been to the detriment of regulated facilities, as it allows EPA to group a greater number of facilities together so as to trigger major source permitting requirements.

In the 2012 case of Summit Petroleum Corp. v. EPA, the U.S. Court of Appeals for the Sixth Circuit rejected EPA’s practice of considering functional interrelatedness, holding that the term “adjacent” was used unambiguously in EPA’s regulations and clearly means physical and geographical proximity, to the exclusion of functional interrelatedness. 690 F.3d 733 (6th Cir. 2012). For more information about Summit Petroleum, see our prior article.

EPA responded to Summit Petroleum later in 2012, issuing an internal directive (the Summit Directive) that EPA continue to consider functional interrelatedness in all states other than those under the jurisdiction of the U.S. Court of Appeals for the Sixth Circuit. In 2014, the Court of Appeals for the D.C. Circuit vacated the Summit Directive, holding that the directive constituted an arbitrary and capricious violation of EPA’s own Regional Consistency regulation. Nat’l Envtl. Dev. Ass’n’s Clean Air Project v. EPA, 752 F.3d 999. In August 2016, EPA revised its Regional Consistency regulation to allow a regional EPA office subject to an adverse court decision to diverge from national EPA policy. 81 Fed. Reg. 51102 (August 3, 2016). In summary, the Summit Petroleum approach (i.e., rejecting functional interrelatedness, focusing solely on physical proximity) has thus far been confined to the Sixth Circuit.

Return to the Dictionary

EPA’s September 2018 draft guidance essentially endorses the Summit Petroleum approach agency-wide, stating that, for all industries other than oil and natural gas production and processing, EPA shall interpret “adjacent” as considering only physical proximity. According to EPA, “this interpretation is consistent both with the agency’s original understanding of the term, as was explained in the 1980 PSD rule preamble, and with the reasoning of the court in the Summit Petroleum decision.” Furthermore, “EPA believes that focusing exclusively on physical proximity when considering whether or not operations are adjacent is a more objective and reasonable approach, and one that is more consistent with the dictionary meaning of ‘adjacent,’ the ‘common sense notion of a plant,’ and the original intent expressed in the early development of the NSR program.”

EPA’s September guidance distinguishes operations that are contiguous (i.e., located on property that is touching) from those that are adjacent (i.e., operations that are in reasonable proximity to each other, even if they are to some degree separated by a right of way or some other type of property). In emphasizing its rejection of past policy, EPA states, “[f]or those operations not in physical proximity to each other, the existence of some functional interrelationship, e.g., through a pipeline, railway, or other dedicated conveyance, shall not be invoked to establish ‘adjacency.’”

The September guidance does not establish a fixed distance within which two facilities will be deemed adjacent. Furthermore, the guidance is just that – guidance. It is not being submitted through notice-and-comment rulemaking and it will not create binding requirements. However, “EPA recommends that state and local permitting authorities apply this interpretation from this point forward when those authorities are for the first time assessing whether a given pair or set of operations are adjacent for purposes of title V and NSR source determinations.”

EPA will accept public comment on the draft guidance (although, as noted above, not as part of formal notice-and-comment rulemaking) through October 5, 2018. Comments can be e-mailed to Adjacency_Guidance@epa.gov, or submitted using this online comment form.