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American Petroleum Institute v. Environmental Protection Agency

United States Court of Appeals, District of Columbia Circuit

July 7, 2017

American Petroleum Institute, Petitioner
Environmental Protection Agency, Respondent American Chemistry Council, et al., Intervenors

          Argued November 3, 2016

         On Petitions for Review of a Final Regulation Promulgated by the United States Environmental Protection Agency

          Jeremy C. Marwell and Thomas Sayre Llewellyn argued the causes for Industry Petitioners. With them on the briefs were Stacy R. Linden, Matthew A. Haynie, Aaron J. Wallisch, Laura E. Boorman, Kevin A. Gaynor, John P. Elwood, Roger R. Martella, Jr., Joel Visser, Linda E. Kelly, Quentin Riegel, and Leslie A. Hulse. Wayne D'Angelo, Harry M. Ng, and Michael R. See entered appearances.

          Kenneth M. Kastner was on the brief for amici curiae Eastman Chemical Company and Solvay USA Inc. in support of Industry Petitioners.

          James S. Pew argued the cause for Environmental Petitioners. With him on the briefs was Khushi K. Desai.

          Daniel R. Dertke, Attorney, U.S. Department of Justice, argued the cause for respondents. With him on the brief were John C. Cruden, Assistant Attorney General, Douglas M. Bushey, Attorney, U.S. Department of Justice, and Alan Carpien, Attorney, U.S. Environmental Protection Agency.

          Donald J. Patterson, Jr. argued the cause for Industry Intervenor-Respondents. With him on the brief were Eric L. Klein, Aaron J. Wallisch, Laura E. Boorman, John L. Wittenborn, Wayne D'Angelo, Kevin A. Gaynor, John P. Elwood, Jeremy C. Marwell, Leslie A. Hulse, Linda E. Kelly, Quentin Riegel, Roger R. Martella, Jr., Joel Visser, James W. Conrad, Jr., Thomas Sayre Llewellyn, Stacy R. Linden, and Matthew A. Haynie. Douglas H. Green entered an appearance.

          David R. Case, James S. Pew, Khushi K. Desai, and Vincent Atriano were on the joint brief for respondent-intervenors and movant-intervenor Gulf Chemical and Metallurgical Corp.

          Before: Tatel and Kavanaugh, Circuit Judges, and Williams, Senior Circuit Judge.


          PER CURIAM.

         This case arises from the Environmental Protection Agency's latest effort to define the term "solid waste" under the Resource Conservation and Recovery Act. In 2015, EPA promulgated a final rule governing when certain hazardous materials qualify as "discarded" and hence are subject to the agency's regulatory authority. Environmental and Industry Petitioners have each petitioned for review of that rule, arguing that numerous aspects of it are unlawful and arbitrary and capricious. For the reasons explained, we grant the Industry petition for review with respect to Factor 4 of the legitimacy test and to the Verified Recycler Exclusion and we dismiss the Environmental petition for review.

         I. Introduction

         The Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901-6992k, empowers EPA to manage solid and hazardous waste. The statute defines solid waste as "garbage, refuse, sludge . . . and other discarded material." 42 U.S.C. § 6903(27). Hazardous waste is a subset of solid waste that may pose a substantial threat to human health or the environment when improperly managed. § 6903(5)(B). If a material qualifies as hazardous waste, it is subject to regulation under RCRA Subtitle C, §§ 6921-6939g, which imposes comprehensive reporting and operating requirements. Material that is not solid waste, and therefore not hazardous waste, is exempt from Subtitle C.

         Pursuant to its RCRA authority, EPA has promulgated a rule defining solid waste as "discarded material" not otherwise excluded from the agency's regulations. 40 C.F.R. § 261.2(a)(1). A separate regulation lists materials that fall outside the definition of solid waste. § 261.4. Central to the issues before us, EPA considers certain materials that are destined for recycling to be discarded and hence solid waste subject to RCRA regulation. Definition of Solid Waste, 80 Fed. Reg. 1, 694, 1, 738/3 (Jan. 13, 2015) (the "Final Rule").

         For our purposes, the relevant history begins in 2007, when EPA proposed a rule deregulating many hazardous secondary materials. See American Petroleum Institute v. EPA, 683 F.3d 382, 385 (D.C. Cir. 2012) ("API II"). Secondary materials are substances generated as the remainder of industrial processes; they include spent materials, byproducts, and sludges. See 40 C.F.R. § 260.10. EPA's proposed rule-which became a final rule in October 2008- excluded hazardous secondary materials from the definition of solid waste in two circumstances: first, if the company that generated the materials controlled the recycling of those materials; and second, if the generator transferred the materials to an off-site recycler it had audited to ensure compliance with proper recycling practices. Revisions to the Definition of Solid Waste, 73 Fed. Reg. 64, 668, 64, 669/3-70/1-2 (Oct. 30, 2008) (the "2008 Rule"). These two exemptions were known, respectively, as the "Generator-Controlled Exclusion" and the "Transfer-Based Exclusion." Id. at 64, 670/1, 64, 675/2 (capitalization added). To qualify for either, secondary materials had to be recycled "legitimately, " a term EPA defined by reference to certain "legitimacy factors." Id. at 64, 675/2-3. EPA adopted this legitimacy requirement to distinguish "true" recycling from "sham" recycling in which companies claim to reuse materials they in fact discard. Id. at 64, 700/2.

         Several organizations challenged the 2008 Rule. One, the American Petroleum Institute, argued that the rule unlawfully regulated materials called spent petroleum refinery catalysts, which are byproducts of the oil refining process. API II, 683 F.3d at 387. Another group, the Sierra Club, asserted that the rule "was not sufficiently protective of human health and the environment, " in violation of RCRA. Id. at 389. A third entity, Gulf Chemical and Metallurgical Corporation ("Gulf"), moved to intervene to defend the rule's treatment of spent catalysts.

         Before this court heard oral argument, EPA entered a settlement agreement with the Sierra Club. Id. Pursuant to that agreement, the Sierra Club withdrew its petition, and EPA agreed to propose a new solid waste rule. Id. As promised, EPA published a notice of proposed rulemaking in July 2011. Definition of Solid Waste, 76 Fed. Reg. 44, 094 (July 22, 2011) (the "Proposed Rule"). A year later, we held that API's challenge to the 2008 rule was unripe given the forthcoming final rule. API II, 683 F.3d at 384. We deferred any action on Gulf's motion to intervene, which is dealt with in a separate order published today.

         EPA promulgated the Final Rule on solid waste-the one before us now-in January 2015. 80 Fed. Reg. at 1, 694/1. The 2015 Final Rule differs from the 2008 Rule in several ways, four of which are relevant here. First, the Final Rule revises the definition of "legitimate" recycling and expands the scope of the legitimacy factors to cover all recycling. Id. at 1, 719/3-20/1. Second, it establishes that spent catalysts-which were ineligible for exclusions under the 2008 Rule-could qualify for the exemptions in the 2015 regulation. Id. at 1, 738/1. Third, the rule defers a decision on whether to add conditions to 32 previously promulgated exclusions from the definition of solid waste, which EPA calls the "pre-2008" exclusions. Id. at 1, 741/2. Fourth and finally, the rule replaces the transfer-based exclusion with the "Verified Recycler Exclusion, " a new standard governing when transferred materials qualify as solid waste. Id. at 1, 695/2. We provide additional detail on each of these provisions later in this opinion.

         Multiple organizations petitioned for review of the 2015 rule. Their petitions, which are consolidated in this case, challenge the regulation on multiple fronts. Industry Petitioners argue that both the legitimacy test and the Verified Recycler Exclusion exceed EPA's RCRA authority. Industry Petitioners also challenge EPA's treatment of two specific materials: spent catalysts and off-specification commercial chemical products. Environmental Petitioners argue that the Verified Recycler Exclusion is too permissive and that EPA should have added containment and notification conditions to the 32 pre-2008 exclusions. We consider these challenges in turn.

         II. Legitimacy Factors

         Industry Petitioners first attack EPA's new legitimacy test. Before EPA can regulate a hazardous secondary material as hazardous waste, it must determine that the material has been "discarded" under 42 U.S.C. § 6903(27). Items recycled through "immediate reuse in" an "industry's ongoing production process, " are not discarded within the meaning of that section and are outside EPA's hazardous waste regulations. See American Mining Congress v. EPA, 824 F.2d 1177, 1183-85 (D.C. Cir. 1987) ("AMC"); see also Ass'n of Battery Recyclers, Inc. v. EPA, 208 F.3d 1047, 1052-53 (D.C. Cir. 2000) (explaining that "immediate" in AMC means "direct, " not instantaneous). But because EPA's waste disposal regulations are acknowledged to be very costly to meet, "there is an incentive for some handlers to claim they are recycling when, in fact, they are conducting . . . disposal." Final Rule, 80 Fed. Reg. at 1, 719/3. To prevent such evasion, EPA polices the line "between 'legitimate' (i.e., true) recycling and 'sham' (i.e., fake) recycling." Id. at 1, 720/1.

         Until recently, EPA's policy on sham recycling existed chiefly in uncodified guidance, notably a memo issued in 1989 by Sylvia K. Lowrance, Director, EPA Office of Solid Waste (Apr. 26, 1989) (the "Lowrance Memo"). The memo discussed over a dozen factors for evaluating recycling, all aimed at determining "whether the secondary material is 'commoditylike, '" i.e., is it being handled like a valuable industrial input or like a worthless industrial byproduct. See id. at 2 & attachment.

         The Final Rule updates and codifies this effort to draw the distinction between legitimate and sham recycling. It requires that all recycling of hazardous secondary materials meet a legitimacy test set forth in 40 C.F.R. § 260.43(a) or else be labeled "sham" and subjected to full RCRA regulation. 40 C.F.R. § 261.2(g). Like the Lowrance Memo, the rule is rooted in the assumption that legitimate recycling should involve some "recognizable benefit, " Final Rule, 80 Fed. Reg. at 1, 722/1, independent of merely "avoid[ing] the requirements of" RCRA regulation, id. at 1, 719/3.

         To satisfy the legitimacy test for recycling of a particular material, firms must prevail on all of four factors, § 260.43(a)(1)-(4), which are in addition to whatever elements a specific exclusion might require, see Final Rule, 80 Fed. Reg. at 1, 720/2. First, the hazardous secondary material must "provide[] a useful contribution to the recycling process." § 260.43(a)(1). Second, "[t]he recycling process must produce a valuable product or intermediate." § 260.43(a)(2). Third, the persons controlling the secondary material must "manage the hazardous secondary material as a valuable commodity." § 260.43(a)(3). Fourth, "[t]he product of the recycling process must be comparable to a legitimate product or intermediate." § 260.43(a)(4). Factors 1 and 3 address the process, Factors 2 and 4 the product.

         Industry Petitioners do not attack EPA's authority to formulate and apply a legitimacy test, nor do they fault EPA's premise that legitimate recycling involves "valuable" materials being used for a "recognizable benefit." Final Rule, 80 Fed. Reg. at 1, 697/3, 1, 722/1. At that level of generality, EPA's policy seems to be a reasonable method for identifying materials that are "part of the waste disposal problem" and thus subject to EPA's RCRA authority over discarded materials. Safe Food & Fertilizer v. EPA, 350 F.3d 1263, 1268 (D.C. Cir. 2003). Industry Petitioners instead attack EPA's planned means to implement that policy. They complain that mandating Factors 3 and 4 across all recycling results in EPA's "unlawfully regulat[ing] non-discarded materials." Industry Pet'rs' Br. 16 (capitalization omitted).

         A. Factor 3

         We begin with Factor 3, which requires secondary materials to be handled as "valuable commodit[ies]." 40 C.F.R. § 260.43(a)(3). Where there is an analogous raw material, the firm can meet this standard by handling the secondary material "in an equally protective manner." Id. If there is no raw analogue for comparison, EPA requires that the secondary material be "contained." Id. "Contained" means "held in a unit (including a land-based unit . . .) that meets" multiple enumerated criteria, including that the unit be "labeled or otherwise ha[ve] a system (such as a log) to immediately identify the hazardous secondary materials" therein. 40 C.F.R. § 260.10 (entry for "Contained"). "[L]and-based unit[s], " id., encompass, at least for some materials such as scrap metal, simply lying on the ground, see Final Rule, 80 Fed. Reg. at 1, 721/3, 1, 736/2.

         EPA previously claimed that any "interdiction in time" during a secondary material's trajectory from initial output to recycling, e.g., for storage, could be considered discard and thus trip the material into EPA's RCRA authority. Battery Recyclers, 208 F.3d at 1052 (internal quotation marks omitted). We rejected that rule. "To say that when something is saved it is thrown away is an extraordinary distortion of the English language." Id. at 1053. Industry Petitioners read that holding to bar EPA from ever regulating how recycled materials are contained. Their reading goes too far. EPA can impose a containment requirement so long as it is such that an inference of "sham" or illegitimacy would logically flow from a firm's non-compliance. And given EPA's explanation that a material may be "contained" if it is simply piled on the ground, Final Rule, 80 Fed. Reg. at 1, 721/3, 1, 736/2, and meets specific requirements that petitioners do not challenge as unreasonable (with one exception, the "labelling" requirement discussed below), the standard does not on its face appear to ask for anything beyond what could be expected of firms engaged in legitimate recycling.

         Industry Petitioners express concern about having to label or log unwieldy molten metals and acidic sludges to satisfy EPA's insistence on material being "contained." But EPA offers an alternative to labelling in the conventional sense- provision of "a system (such as a log) to immediately identify the hazardous secondary materials in the unit." § 260.10. Thus, in substance, the requirement is not precisely one of labeling or logging, but only of assuring that it somehow be possible for the material to be "immediately identif[iable]." Id. While doubtless EPA's language could be interpreted unreasonably, we cannot see that the requirement itself is unreasonable.

         B. Factor 4

         Factor 4 presents more difficulty. EPA explains this factor as an effort to prevent recyclers from loading products with hazardous secondary materials that "provide[] no recognizable benefit to the product, " Final Rule, 80 Fed. Reg. at 1, 722/1, and are simply "along for the ride, " id. at 1, 726/2. Although EPA does not require a material's "hazardous component[s]" themselves to provide a "useful contribution" to the product, see id. at 1, 723/3 (discussing Factor 1), the agency is concerned that a purported recycler might "incorporate[] hazardous constituents into the final product when they were not needed to make that product effective as a way to avoid proper disposal of that material, which would be sham recycling, " id. at 1, 726/1-2.

         The factor sets up two tracks, 40 C.F.R. § 260.43(a)(4)(i)-(ii), one covering products for which there is an analogue of undoubted legitimacy, the other addressing products with no such analogue. EPA refers to these together as the "technical provisions." Final Rule, 80 Fed. Reg. at 1, 729/1. But as EPA recognizes that the criteria set forth under these two tracks don't draw a satisfactory line between genuine and sham, it also offers a rather complicated exception-aimed at preventing products from being labelled a sham when they in fact pose no "significant human health or environmental risk." § 260.43(a)(4)(iii). But Factor 4's complex provisions fall short of the aim. As we shall see, Factor 4 imposes tasks tangential to disposal vel non (and thus tangential to EPA's authority), even when EPA has offered little reason to doubt a product's legitimacy.

         The second track is the more reasonable of the two. When there is no analogue, the recycled product will pass if it was created by looping secondary materials back "to the original process . . . from which they were generated" or if it meets "widely recognized commodity standards and specifications." § 260.43(a)(4)(ii)(A)-(B). Those standards or specifications need not address the hazardous aspects of the product. Final Rule, 80 Fed. Reg. at 1, 728/2-3. And EPA has explained that compliance with "customer specifications" may suffice for "specialty" products. Id. at 1, 728/1. Although that gloss on "specifications" appears only in EPA's discussion of the with- analogue track, the Final Rule offers little indication that the same word in the no-analogue track is meant to read differently on this matter. Compare id. at 1, 727/3-28/1 (with-analogue), with id. at 1, 728/2-3 (no-analogue). Putting all this together, if a recycled product, lacking an analogue, fails to satisfy customer specifications, falls short of relevant commodity standards, and is not derived from a closed-loop type process, EPA treats it as discarded (subject to the ultimate exception). These tests focus largely on the utility of the recycling in question, a reasonable inquiry when deciding legitimacy. See id. at 1, 728/3 (commodity standards and specifications criteria mean that "market forces [will] dictate" legitimacy); id. at 1, 729/1 ("looping" criterion appropriate because this type of recycling "conserves the use of raw materials" without adding new hazards).

         The other track in Factor 4's technical provisions, applying where the recycled product has an analogue, is more explicitly tuned to the "along for the ride" metaphor. It requires that the recycled product exhibit no hazardous "characteristic" that is absent from the product's analogue. 40 C.F.R. § 260.43(a)(4)(i)(A); see also Final Rule, 80 Fed. Reg. at 1, 727/1 ("The characteristics are ignitability, corrosivity, reactivity, and toxicity."). This criterion-fenced in as it is by the definitions of those characteristics, see 40 C.F.R. §§ 261.21-.24-also seems reasonable: one would expect analogous products to have similar attributes. But the track goes on from there. Even if the recycled product and its analogue share the same hazardous characteristics, the amount or "levels" of hazardous constituents in the product must be "comparable to or lower than" its analogue's. § 260.43(a)(4)(i)(B). If the product fails that test, it can still be legitimate if it "meet[s] widely-recognized commodity standards and specifications." Id. Unlike in the no-analogue track, here the commodity standards and specifications must "specifically address [] hazardous constituents." Id. Otherwise EPA will regard the product as discarded (subject to the ultimate exception).

         We have left EPA some leeway in applying the idea that genuine recyclers cannot include hazardous material just "along for the ride" in their products. Thus in American Petroleum Institute v. EPA, 216 F.3d 50 (D.C. Cir. 2000) ("API I"), we rejected a challenge under "Chevron step one" to a rule that treated "recovered oil" as discarded if it included "extra materials . . . that provide no benefit to the industrial process." Id. at 58-59 (emphasis added). But we hinted that such a rule should reasonably avoid "incidentally regulat[ing] oil containing chemicals [whose presence in the recycled oil was] not caused by sham recycling (and therefore not discarded)." See id. at 59.

         Judged by that perhaps opaque standard, EPA's "along for the ride" metaphor suffers at least one of the usual dangers of metaphors-imprecision. The record contains examples of hazardous secondary materials that are beneficially recycled into valuable products (recognized as such by EPA), even though those products contain hazardous constituents that do not, in themselves, contribute to the value of the final product. See, e.g., Final Rule, 80 Fed. Reg. at 1, 721/1-2 (zinc-containing secondary materials), 1, 729/3 (lead-containing secondary materials). In those cases, even if EPA could technically say that some small excess of hazardous constituents has been left in the final product, the mere fact of their presence would not constitute a reasonable basis for dubbing the product or the process a sham. After all, it can be costly to extract tiny amounts of hazardous constituents- potentially on the order of "parts per million, " see id. at 1, 727/2-3-from secondary materials destined for recycling, and no statute has given EPA authority to compel firms to engage in such extraction where failing to do so imposes no health or environmental risk. To rule otherwise would be to disregard the statute's stated "objective[]" of "encouraging . . . properly conducted recycling." 42 U.S.C. § 6902(a)(6).

         EPA made this very point in Safe Food to defend its exclusion for recycled zinc fertilizers even though those fertilizers could have "considerably higher" contaminant levels than the corresponding "virgin commercial fertilizer." 350 F.3d at 1269. After reviewing EPA's data on the threat posed by the additional contaminants, we agreed that the excesses of the contaminant levels that EPA allowed (as consistent with legitimate recycling) over those in virgin fertilizer samples "lose their significance when put in proper perspective- namely, a perspective based on health and environmental risks." Id. at 1270.

         No such perspective is allowed by the "comparable to or lower than" standard for products with analogues. That standard sets the bar at the contaminant level of the analogue without regard to whether any incremental contaminants are significant in terms of health and environmental risks. This problem is reduced, but not eliminated, by firms' option to meet "widely-recognized commodity standards and specifications, " 40 C.F.R. § 260.43(a)(4)(i)(B)-including "customer specifications" if the product is made-to-order, Final Rule, 80 Fed. Reg. at 1, 728/1. Many products might fail this alternative, not because they represent sham recycling, but because the relevant commodity standards or specifications don't address the hazardous constituent levels of concern to EPA. Industry Petitioners contend, and EPA does not contradict, that such standards usually refer to minimum levels of desired elements rather than maximum levels of specific impurities. Doubtless this track will ensnare some sham recycling, but it does so with a test that is not a "reasonable tool for distinguishing products from wastes." See Safe Food, 350 F.3d at 1269.

         EPA, having recognized some of the shortcomings in these provisions, created an exception purporting to account for them. See Final Rule, 80 Fed. Reg. at 1, 729/1. A recycler may avoid the sham label if it "prepare[s] documentation showing why the recycling is, in fact, still legitimate" and notifies regulators. 40 C.F.R. § 260.43(a)(4)(iii). The legitimacy "can be shown" by "lack of exposure from toxics in the product, lack of the bioavailability of toxins in the product, or other relevant considerations which show that the recycled product does not contain levels of hazardous constituents that pose a significant human health or environmental risk." Id.

         In explaining this exception, EPA has indicated that the question is whether the recycled product will be used beneficially in a manner that reasonably protects against the risks its residual hazardous constituents present. See Final Rule, 80 Fed. Reg. at 1, 729/1-3. Absence of these circumstances would indicate that the true purpose of the recycling is disposal. Hence, EPA explained in the rulemaking that "lead contaminated foundry sand[]" would be sham recycled when packaged as "children's play sand" but that the same material can be legitimately recycled for "mold making in a facility's sand loop." Final Rule, 80 Fed. Reg. at 1, 729/2-3. The sand is (in a sense) equally hazardous in both cases, but the latter use is legitimate "because . . . there is little chance of the hazardous constituents being released into the environment or causing damage to human health"; "there is lead throughout the foundry's process" (i.e., the sand isn't introducing new hazards); and "there is a clear value to reusing the sand" in that industry. Id. at 1, 729/3. Recyclers can also meet this exception by analyzing the "increased risk" of their product relative to its analogues, if any. Id. We read this as saying, in light of EPA's brief, that a recycler can show its product is legitimate by documenting that any incremental risk it presents is not "significant" to health and the environment. See Respondent Br. 42-43 (citing Safe Food, 350 F.3d at 1269-71).

         Contrary to Industry Petitioners' claims, the general criteria embodied in the Factor 4 exception seem permissible, indeed consistent with our ruling in Safe Food. Industry Petitioners also argue that the exception affords EPA unlimited discretion to find discard. The language of Factor 4 and its exception is rather open-ended, so judicial review of EPA's subsequent interpretations would normally be highly deferential, Auer v. Robbins, 519 U.S. 452, 461-62 (1997), potentially leaving petitioners at the mercy of a different reading in the future. But we note that Factor 4's exception is tuned specifically to "significant human health or environmental risk[s]." 40 C.F.R. § 260.43(a)(4)(iii). And EPA has simultaneously provided an explanation of how to apply the exception along with an example of how a specific material might pass or fail it. Final Rule, 80 Fed. Reg. at 1, 729/2-3 (foundry sand). These aspects of the rulemaking sufficiently ...

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