A Decade Later: Industry Successful in Latest Challenge to 2015 "Verified Recycler Exclusion"

By Karen Aldridge Crawford – March 12, 2018
Finally, following a decade of challenges to attempts by the U.S. Environmental Protection Agency (EPA) to drastically narrow the recycling exclusion in regulations setting forth the definition of solid waste and the determination of what hazardous materials may be legitimately recycled pursuant to regulatory exclusions therein, the D.C. Circuit has handed down an opinion vacating additional portions of the EPA’s 2015 rule, severing and clarifying others.

In October 2008, the EPA promulgated revisions to the definition of solid waste, which made the exclusion dependent on whether the generator performed the recycling itself (generator-controlled) or sent the material to an off-site recycler (transfer-based). Changed from the 2007 proposal, the final rule imposed a “ban” or “disqualifier” for spent refinery catalyst from the transfer-based exclusion. This 2008 rule also established a set of “legitimacy factors” to be used in determining the applicability of those exclusions to materials being recycled. One of those factors—known as “Factor 4”—was an effort to prevent recyclers from loading products with “hazardous secondary materials that provide no recognizable benefit to the product” and that are “just along for the ride.” The 2008 rule was challenged by American Petroleum Institute (API), among others, but those challenges were held in abeyance pending a 2015 notice of proposed rulemaking on these same exclusions. These anticipated revisions were issued in January 2015.

Pertinent to the March 6, 2018, decision, that 2015 rule changed the content and application of the four legitimacy factors, redefined and made more stringent the “containment” standard applicable to recyclers managing materials pursuant to these exclusions whether generator-controlled and transfer-based, allowed spent petroleum refinery catalysts to qualify for these exclusions and replaced the “transfer-based exclusion” with the “verified recycler exclusion,” which requires generators to audit recyclers to ensure adequacy of procedures.

In 2017, after continuing challenges by industry and environmental groups, the D.C. Circuit vacated the verified-recycler exclusion and reinstated the transfer-based exclusion, but that decision again disqualified spent catalysts from the exclusion. The court, however, left the door open for a different outcome if such could be supported by the parties. The API filed a petition for panel rehearing, which resulted in yesterday’s decision.

Spent Refinery Catalyst
While the EPA had supported its regulatory stance on spent catalyst by basing it on “risk of fire or explosion” from such materials, industry persuaded the court that this catalyst material was not as dangerous as the EPA thought and rarely are pyrophoric or otherwise exhibit the RCRA characteristic of ignitability. While the EPA didn’t agree, it did not provide evidence or support otherwise. The EPA did agree, however, that the containment requirements in the regulations adequately addressed the risk of fires and explosions from such materials and there needn’t be a separate exclusion. Because the revised containment standard survives the vacating of other aspects of the verified-recycler exclusion, the EPA did not object to the conclusion that there is no need for separate catalyst treatment in the rule. Interestingly, because the EPA’s oral argument differed from its position in the rulemaking record, the court cited Verizon v. FCC as its basis for accepting the EPA’s position on rehearing even in the face of its contrary position on oral argument.

In fact, the court’s analysis emphasized that the revised containment standards were found in two places in the verified-recycler exclusion, applicable to both generators (the portion of that rule that was severed and affirmed) and reclaimers or third-party recyclers (the portion of the rule that was vacated), but was also found word-for-word in the transfer-based exclusion, which is now reinstated and applicable to third-party recyclers/reclaimers. Therefore, the court disagreed with the environmentalists’ arguments that third-party recyclers were not covered by the containment standard and the EPA would not have undone the bar on eligibility for spent catalysts.

The court also concluded that, because the only definition of “contained” is found in section 260.10, both generators and third-party recyclers will be bound by the revised (and unvacated) containment standard found in that definition, even though it is not specifically referenced in subsection (a)(24)(vi) like it is in (a)(24)(v).

The court severed and affirmed the EPA’s decision in 2015 to eliminate the provisions in the 2008 rule that barred spent catalyst from qualifying for the transfer-based exclusion.

Legitimacy Factors
With respect to the legitimacy factors, after revisiting the industy’s argument that they challenged Factor 4 in its entirety (including challenging its use in the individual exclusions that were not vacated) and requested all the legitimacy factors be vacated, the court (and the EPA) agreed on the scope of the challenge to Factor 4. The March 6 decision vacates Factor 4 in its entirety, but fails to vacate all of the legitimacy factors.

At the EPA’s request set out in its response to the petition for panel rehearing, the court clarified its intended effect of vacatur of Factor 4, as well. Importantly, the court expressly noted that a subset of the industry petitioners appears to disagree with this clarification. Per the court’s opinion/clarification, the net result of this decision is that 1) the 2015 version of Factor 4 is vacated in its entirety, 2) the 2015 change making the legitimacy factors applicable to all exclusions remains in effect, 3) Factor 3 remains mandatory per the 2015 changes, and 4) the 2008 version of factor 4 (which requires only that the factor be “considered”) replaces the now-vacated 2015 version.

Thus, the industry’s persistence over the last decade has paid off in that there has been further vacatur of the portions of the 2015 rule that narrow the recycling exclusions in the definition of solid waste, and the court clarified its interpretation of the net effects of these decisions. Is there more to come from the subset of industry petitioners mentioned in the opinion? Stay tuned.