Section 612 of the Clean Air Act (“CAA”) requires that manufacturers replace substances that have been determined to deplete the stratospheric ozone layer with alternatives that do not have the same effect. Section 612 further directs EPA to develop a list of safe substitutes and a list of prohibited substitutes. Hydrofluorocarbons (“HFCs”) were on the safe substitutes list until 2015, when EPA moved many of them to the prohibited substitutes list. EPA asserted that this change required manufacturers who had been using HFCs to replace them with other substances from the safe list. The 2015 Rule was challenged, and on August 8, 2017, in Mexichem Fluor Inc. et al., v. U.S. Environmental Protection Agency, No. 15-1328, the D.C. Circuit vacated the 2015 Rule to the extent that it required manufacturers to cease using HFCs as a replacement for ozone-depleting substances.

EPA first placed HFCs on the “safe substitutes” list under Section 612 in 1994, in effect encouraging their use. They have since been widely used by industry for years to replace ozone-depleting substances in products like aerosols, motor vehicle air conditioners, commercial refrigerators and foams. In 2009, however, EPA determined that HFCs were greenhouse gases that contributed to climate change and as a result, EPA promulgated Protection of Stratospheric Ozone: Change of Listing Status for Certain Substitutes Under the Significant New Alternatives Policy Program, 80 Fed. Reg. 42,700 (July 20, 2015)(the “2015 Rule”), moving them to the prohibited substances list and ostensibly requiring manufacturers to cease using HFCs. Mexichem Fluor Inc. and Arkema Inc., manufacturers of HFCs, challenged the 2015 Rule on two bases: (a) that EPA exceeded the scope of its authority because Section 612 only allows EPA to require manufacturers to replace substances that have been determined to deplete ozone; and (b) that EPA’s decision to remove HFCs from the safe list was arbitrary and capricious because EPA did not adequately explain its decision. While the Court rejected the second argument, a majority accepted the first, vacating the 2015 Rule to the extent it required manufacturers to replace HFCs with different products.

In addressing whether EPA exceeded the scope of its authority, the Court first looked closely at Section 612, which was enacted upon ratification of the Montreal Protocol in 1987, the result of the international efforts to address ozone depletion. The language of Section 612 provides that ozone-depleting substances be replaced by substitutes that “reduce overall risks to human health and the environment.” 42 U.S.C. § 7671K(a). EPA implements the mandate through Section 612(c), which, as discussed, requires EPA to issue lists of both authorized and prohibited substitute substances based on the safety and availability of the substances. Although the lists are subject to change, EPA’s 1994 comments stated that once a manufacturer has been required to replace its ozone depleting substance with a safe substitute, EPA loses authority to require the manufacturer to later replace that safe substitute with another absent a finding that the substitute depletes ozone. Nevertheless, EPA argued that manufacturers “replace” an ozone-depleting substance every time the manufacturer uses the substitute substance, and that by removing HFCs from the safe list, the manufacturer could be required upon each “replacement” to use a substance other than HFCs.

The Court and the parties all agreed in some respects, namely that a substance that was placed in the safe substitutes list could be removed if later found to be ozone-depleting or to pose a risk for human health and the environment. There was also general agreement that if HFCs pose a risk to the environment, EPA could prohibit manufacturers who were still using ozone-depleting substances from replacing them with HFCs. But the Court found, based on the language of Section 612 and the EPA’s 1994 comments, that EPA could not, however, force manufacturers who had already converted from ozone-depleting substances to HFCs to convert again to a different safe substance, since the language of the CAA did not give the EPA the power to require that manufacturers replace a non-ozone depleting substance.

Although sympathetic to EPA’s underlying policy objectives to combat climate change by regulating the greenhouse gas, the D.C. Circuit Court made clear that EPA may not act outside of the bounds of its clear statutory authority. The Court looked at two Supreme Court opinions, Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014) and Hamdan v. Rumsfeld, 548 U.S. 557 (2006), which held that EPA must act within its statutory authority when promulgating regulations, and that “congressional inaction does not license an agency to take matters into its own hands” supporting the Court’s holding that EPA cannot regulate HFCs through an ozone protecting statute simply because it believes Congress has failed to enact climate change legislation. Because Section 612 of the CAA only allows EPA to prohibit the use of ozone-depleting substances, EPA could not promulgate a Rule that would regulate a substance that, although potentially harmful as contributing to climate change, does not affect atmospheric ozone.

In reaching its decision, the Court expressly rejected as “bordering on the absurd” EPA’s argument that the word “replace” could be understood to include each and every time a product is manufactured, rather than the point at which the manufacturer makes the transition for the entire product line. Indeed, the majority likened this to arguing that President Obama “replaced” President Bush every time he walked into the Oval Office. But the Court did appear to leave the door slightly ajar for the EPA. Specifically, almost in passing, EPA had argued that it could “retroactively disapprove” the use of HFCs as safe substitutes, but did not flesh out that argument. The Court addressed it anyway, laying out a stringent multipart test that EPA would have to pass, in the first instance, to uphold the 2015 Rule on this ground. The Court thus allowed that, on remand, EPA could determine whether it has “authority to conclude that a manufacturer’s past decision to replace an ozone-depleting substance with HFCs is no longer lawful.” Given the current administrative priorities, however, it is unlikely that EPA will make a second run at validating the 2015 Rule.