Am. Petroleum Inst. v. Envtl. Prot. Agency

• Decision Date: 07 July 2017
• Docket Number: C/w 15-1083, 15-1085, 15-1088, 15-1089, 15-1094,No. 09-1038,09-1038
• Parties: AMERICAN PETROLEUM INSTITUTE, Petitioner v. ENVIRONMENTAL PROTECTION AGENCY, Respondent American Chemistry Council, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

862 F.3d 50

AMERICAN PETROLEUM INSTITUTE, Petitioner

v. ENVIRONMENTAL PROTECTION AGENCY, RespondentAmerican Chemistry Council, et al., Intervenors

No. 09-1038

C/w 15-1083, 15-1085, 15-1088, 15-1089, 15-1094

United States Court of Appeals, District of Columbia Circuit.

Argued November 3, 2016

Decided July 7, 2017

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

Kenneth M. Kastner, Washington, DC, 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, Washington, DC.

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

David R. Case, James S. Pew, Khushi K. Desai, Washington, DC, and Vincent Atriano, Columbus, OH, 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.

Opinion dissenting in part filed by Circuit Judge Tatel.

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 ‘commodity-like,’ " i.e., is it being handled like a valuable industrial input or...