The definition of a “source” is the foundation of air permitting. Yet for many years, one of the most vexing questions has been how to determine which air emission sources located near each other and under common ownership or control need to be aggregated into a ‘single source’ when determining if air permitting thresholds are met. After years of uncertainty, EPA recently issued a guidance document to return to its 1980 position that “adjacent” means physical proximity, not functional interrelatedness or other relationship criteria.

EPA has long used a three-part “source determination” test to determine if different emission-generating activities should be aggregated together into a single “stationary source” under the Clean Air Act for Title V and New Source Review (NSR) purposes. EPA’s NSR permitting regulations defines a stationary source as being comprised of all of the pollutant-emitting activities which:

1. Belong to the same industrial grouping.

2. Are located on one or more contiguous or adjacent properties.

3. Are under the control of the same person (or persons under common control).

EPA’s Title V permitting rules contain a similar definition for what constitutes a “major source.”

For two or more activities to be considered a single source, the second prong of this test requires the activities to be located on “one or more contiguous or adjacent properties.” The term contiguous has consistently been interpreted to mean properties that are touching each other. But the term “adjacent” has been subject to numerous agency interpretations over time. The agency’s most recent prior interpretation of “adjacent” included an evaluation of functional interrelatedness and concluded that properties located miles apart were “adjacent.” This interpretation was controversial among regulated sources and prompted litigation in which the U.S. Court of Appeals for the Sixth Circuit ruled against EPA. Summit Petroleum v. EPA, 690 F.3d 733 (6th Cir. 2012).

The more expansive the term “adjacent” is, the more likely sources will be aggregated and therefore the more likely that air permitting will be required or that air pollution controls will be required. For entities with multiple sites of operation, this can add significant complexity, uncertainty, and cost.

On November 26, 2019, Anne Idsal, Acting Assistant Administrator for EPA’s Office of Air and Radiation, issued new guidance explaining that EPA will now determine if different emission-generating activities are on “adjacent” properties solely by looking at their physical proximity to each other. In this new guidance, which applies to all sources except those in the oil and gas sector that are subject to separate guidance specific to that industry, EPA clarifies that “adjacent” is based solely on physical proximity. The guidance does not establish a bright-line test or a fixed distance that can be used to evaluate adjacency. Instead, it explains that properties should comport with what the D.C. Circuit Court of Appeals decades ago called the “common-sense notion of a plant.” Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. Cir.1979). EPA states this is a return to its initial position when the PSD rules were developed in 1980. 

The guidance explicitly repudiates EPA’s prior positions that adjacency can include sites that are merely “nearby,” so long as the pollutant emitting activities are functionally interrelated. Instead, EPA proposes to interpret adjacency solely based on physical proximity, as determined on a site-by-site basis.

EPA emphasizes that this guidance is not a rule, is not final agency action, and “does not create or change any legal requirements applicable to EPA, state, local, or tribal permitting authorities, permit applicants, or the public.” EPA also cautions that the definition of “adjacent” is just one element of the source determination test, which is a case-by-case analysis based on the relevant administrative record.

The new interpretation will not apply in all jurisdictions. It will apply when EPA is the direct Title V or NSR permitting authority, or when EPA has delegated its authority to issue federal permits under the federal rules to states, tribes or local authorities. Where facilities are subject to state, tribal or municipal permitting under local rules contained in an EPA-approved state or tribal implementation plan (so-called authorized states), the guidance is relevant only at the discretion of the permitting authority. Therefore, in authorized states, the guidance may not apply. EPA states that permitting authorities operating under authorized programs “retain discretion in determining what information supports the conclusion that pollutant-emitting activities are ‘close’ or ‘near’ enough to be ‘adjacent’ while approximating a ‘common sense notion of a plant’ in a reasonable manner.”

EPA advises the prospective application of this guidance and indicates that it would be inappropriate to revisit prior source determinations or related permits. As such, this guidance is relevant “from this point forward when those authorities are for the first time assessing the relevant facts and circumstances governing whether a given set of activities should be considered a single source” for Title V and NSR purposes. EPA acknowledges there “may be circumstances” where it would be appropriate to re-evaluate a prior source determination but advises that even if those circumstances were present, it would still not be appropriate to revise final permits “that were based on a reasonable application of regulatory requirements and then-existing policies to a given set of facts.” EPA does not explain what would constitute a “reasonable application” of the adjacency requirement in this context.