In Win for Energy Industry, Court Strikes Down Portions of Obama-Era Waste Rule

On July 7, 2017, in a 2-1 decision, the U.S. Court of Appeals for the District of Columbia Circuit struck down parts of a 2015 U.S. Environmental Protection Agency (EPA) rule that revised the definition of solid waste for purposes of the federal hazardous waste regulatory program under RCRA. The EPA’s stated objective in promulgating the rule was to provide stronger protections against potential mismanagement of hazardous secondary materials intended for recycling and to establish a clear, uniform legitimate recycling standard for all hazardous secondary materials recycling to ensure that such materials are, in fact, legitimately recycled, rather than illegally discarded.

The rule faced opposition from both industry groups (led by the American Petroleum Institute), who claimed that it too broadly expanded the universe of materials that would be considered discarded solid waste, and environmental groups, who argued the rule was not stringent enough to have a meaningful impact on the practice of sham recycling.

The DC Circuit vacated portions of the test EPA proposed to use to determine when materials are legitimately recycled or are merely discarded (the “legitimacy test”), finding that the line between “genuine and sham” recycling was not adequately defined in the rule. Industry petitioners argued successfully against the fourth factor of the legitimacy test, which would have required that the product of the recycling process be comparable to a legitimate product unless a recycler can show its product is legitimate by documenting that any incremental risk it presents is not significant to health and the environment. To satisfy the fourth legitimacy factor, the rule requires a recycler to document how its recycling is still legitimate, notify regulators of that finding, and keep the documents onsite for three years after the recycling operation has ceased.

The court found this factor to be “draconian” and impose tasks that were “tangential to disposal . . . and thus tangential to EPA’s authority.” The court noted that a legitimate product would not be transformed into an illegitimate one simply by nature of a recycler’s failure to file required documentation with the agency or maintain required forms onsite.

The court also vacated significant parts of the Verified Recycler Exclusion, which excludes reclamation of materials transferred to and reclaimed by a third-party from the definition of solid waste only if the third-party reclaimer possesses a RCRA permit (or interim status) or a RCRA variance and the generator meets certain emergency preparedness standards prior to shipment. Instead, the court reinstated the 2008 version of the exclusion promulgated during the Bush Administration (the Transfer-Based Exclusion), which allows for transfer of hazardous secondary materials to third parties so long as “reasonable efforts” are made to ensure that the materials will be properly handled. Nonetheless, the court maintained the emergency preparedness requirements and the expanded containment requirement of the Verified Recycler Exclusion, finding those requirements to be reasonable and lawful.

The court’s decision was not a complete victory for industry. The court upheld the third factor of the legitimacy test, which requires the persons controlling the secondary material to manage the hazardous secondary material as a valuable commodity. Under the third legitimacy factor, the material must either be handled in an equally protective manner as an analogous raw material, or if no raw analogue exists, then the material must be “contained” (i.e., held in a unit that meets certain conditions, including that the unit be labeled or otherwise have a system to immediately identify the hazardous secondary materials). The court found that the standard does not appear to require anything beyond what could be expected of generators engaged in legitimate recycling.

While important, the DC Circuit’s decision is just one step toward vacating the requirements of the 2015 rule. Under section 3006 of RCRA, EPA may authorize a qualified state to administer and enforce a hazardous waste program within the state in lieu of the federal program. State RCRA programs must always be at least as stringent as the federal requirements. Authorized states had until July 1, 2016 to adopt regulations implementing the 2015 rule, and thus many of the rule’s requirements are now in effect in key energy states throughout the U.S., including Texas. Because authorized states are allowed to adopt more stringent requirements than EPA, the DC Circuit’s decision will not automatically result in similar parts of the state rules being rendered invalid and unenforceable. Consequently, states will be the next battleground for rollback of the 2015 rule.