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July 18, 2017

Court Tosses RCRA Verified Recycler Exclusion but Retains Balance of Definition of Solid Waste Rule

Bergeson & Campbell, P.C.

On July 7, 2017, the U.S. Court of Appeals for the D.C. Circuit found “unreasonable,” and thus threw out, the “verified recycler” exclusion promulgated by the U.S. Environmental Protection Agency (EPA) in its 2015 revisions to the definition of solid waste under the Resource Conservation and Recovery Act (RCRA).  The court reinstated the “transfer-based” exclusion promulgated by EPA under the Bush Administration.  In the case, American Petroleum Institute v. EPA (D.C. Cir. No. 09-1038), the court also removed one of the provisions of the legitimacy criteria.  The court upheld all other portions of the 2015 rule and rejected the environmental groups’ challenges to it.
To RCRA aficionados, the court’s ruling is yet another in a seemingly endless progression of cases.  EPA has revised the RCRA definition of solid waste dozens of times since its original promulgation in 1980.  EPA similarly has been sued over those revisions throughout the lifespan of the regulation.  This case arises from EPA’s 2015 effort to delineate when certain recycled items are solid waste under RCRA.  On January 13, 2015, EPA promulgated a final rule governing when certain hazardous materials qualify as “discarded” and hence are subject to RCRA.  80 Fed. Reg. 1694.  Environmental and industry groups challenged several aspects of the rule.  The court in this case ruled in favor of industry petitioners on one aspect of EPA’s legitimate recycling criteria and also found the “Verified Recycler Exclusion” to be unreasonable.  All other aspects of the 2015 rule withstood the legal challenges to them.
The history of this litigation really begins in 2008, when EPA issued a rule exempting several materials from regulation as solid waste.  73 Fed. Reg. 64668 (Oct. 30, 2008).  Specifically, EPA 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 that it had audited to ensure compliance with proper recycling practices.  These two exemptions were known, respectively, as the “Generator-Controlled Exclusion” and the “Transfer-Based Exclusion.”  To qualify for either, secondary materials had to be recycled “legitimately,” a term EPA defined by reference to certain “legitimacy factors.”
Several organizations challenged the 2008 rule, including the Sierra Club.  EPA eventually entered into a settlement agreement with the Sierra Club.  Pursuant to that agreement, the Sierra Club withdrew its petition, and EPA agreed to propose a new rule.  EPA did so in July 2011.  76 Fed. Reg. 44094 (July 22, 2011).  EPA then promulgated the rule in final in 2015.  The 2015 final rule differs from the 2008 rule in several ways.  In particular, EPA revised the definition of “legitimate” recycling and expanded the scope of the legitimacy factors to cover all recycling, and replaced the transfer-based exclusion with a new “Verified Recycler Exclusion.”
Several organizations filed petitions for review on the 2015 rule, and those petitions were consolidated into the present case.  Industry petitioners argued that both the legitimacy test and the Verified Recycler Exclusion exceeded EPA’s RCRA authority.  They also challenged EPA’s treatment of 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 pre-2008 exclusions.

Legitimacy Factors

EPA’s long held position — formally articulated in 1989 — is that recycling must be legitimate and not just a sham to avoid disposal costs and standards.  See Memorandum from Sylvia K. Lowrance, Director, Office of Solid Waste (Apr. 26, 1989(Lowrance memo).  The Lowrance memo set forth several criteria that a recycling activity must meet to be considered legitimate.  In the 2015 rule, EPA codified these criteria and required that all recycling meet the four factors of this legitimacy test.  See 40 C.F.R. Section 260.43(a).  These factors are:

  • The hazardous secondary material must provide a useful contribution to the recycling process. 
  • The recycling process must produce a valuable product or intermediate.
  • The persons controlling the secondary material must manage the hazardous secondary material as a valuable commodity.
  • The product of the recycling process must be comparable to a legitimate product or intermediate.

Industry petitioners in the case did not challenge EPA’s authority to promulgate the legitimacy test.  They instead attacked EPA’s planned means to implement that policy.  They argued that mandating factors 3 and 4 of the legitimacy test across all recycling results in EPA’s unlawfully regulating non-discarded materials.  The court rejected this argument for factor 3, but found that factor 4 presented 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.  80 Fed. Reg. at 1722.  After a lengthy analysis that weaved between pleadings, EPA studies, and regulatory and preamble language, the court concluded that “Factor 4 is unreasonable as a requirement applied … to all hazardous secondary material recycling.”  It thus remanded that factor. 

Verified Recycler Exclusion

Under the Transfer-Based Exclusion promulgated in 2008, the generator of a hazardous secondary material could send the material to a RCRA-permitted reclaimer.  Alternatively, if the reclaimer lacked a permit, the generator could send the material to this reclaimer if the generator had made reasonable efforts to ensure that the reclaimer intended to properly and legitimately reclaim the hazardous secondary material and not discard it. 

In the 2015 rule, however, EPA replaced this exclusion with the Verified Recycler Exclusion.  This exclusion requires the generator to meet emergency preparedness standards in its custody of the materials before shipment.  It also eliminated the “reasonable efforts” option and requires that generators send their secondary materials to reclaimers who either have a RCRA permit or a RCRA variance.

The industry petitioners argued that EPA had no reason in the 2015 rule to tighten the conditions of the Transfer-Based Exclusion.  Both EPA and the industry petitioners agreed, however, that some general exclusion for third-party reclamation is necessary.  The court, thus, based its analysis on whether EPA acted reasonably in adding emergency preparedness requirements and in supplanting the reasonable efforts option with the variance procedure.  Again, after a lengthy analysis, the court found that EPA did not act reasonably in promulgating the Verified Recycler Exclusion and remanded it, essentially putting the Transfer-Based Exclusion back in place.  

The implications for those recycling hazardous secondary materials may be mixed.  In those states who adopted the 2015 rule, reverting to the Transfer-Based exclusion will provide greater flexibility and ease of recycling, as will deleting factor 4 of the legitimacy test.  In those states that have not yet adopted the 2015 rule, the impact will be negligible.