The U.S. Court of Appeals for the District of Columbia Circuit (the "Court") recently issued a decision with potentially significant implications for entities involved in the recycling of hazardous wastes. American Petroleum Institute v. EPA, No. 09-0138 (D.C. Cir. July 7, 2017). Most notably, the Court, in a 2-1 decision, struck down one of four factors promulgated by the U.S. Environmental Protection Agency ("EPA") to distinguish "legitimate recycling" of hazardous secondary materials from "sham recycling" of such materials. The Court also rolled back certain conditions that EPA had added to an existing exclusion allowing generators to send hazardous secondary materials to third-party recyclers for reclamation. These provisions were part of EPA's 2015 final rule (80 Fed. Reg. 1694 (Jan. 13, 2015)) amending the Definition of Solid Waste ("DSW") within the hazardous waste regulatory framework under the Resource Conservation and Recovery Act ("RCRA"). The 2015 final rule was one in a long history of EPA administrative actions dating back to the 1980s defining the boundaries of solid waste regulation within the hazardous waste program.

The following discussion summarizes two key aspects of the Court's decision. Importantly, whether the decision will be challenged, and how it will be implemented at the federal and state level, is far from clear. Consequently, hazardous waste generators and recyclers will want to follow the aftermath of this decision closely in the coming months and beyond.

"Toxics Along for the Ride" Legitimacy Factor Rejected, Management as Valuable Commodity Factor Upheld Among other elements, the 2015 final rule distilled into four factors various criteria that EPA had established through 1989 guidance, and in a 2008 DSW rulemaking, intended to evaluate whether activities claimed to be legitimate recycling of hazardous secondary materials are in fact real recycling subject to lesser or no RCRA regulation, or rather mere disposal performed under the guise of recycling. (Hazardous secondary materials include such items as spent materials, byproducts, and sludges that would be considered hazardous waste when discarded.) The rule also made these four legitimate recycling factors mandatory for all RCRA solid waste recycling exclusions regardless of when an exclusion was established.

The Court agreed with industry petitioners by vacating "Factor 4" of EPA's legitimate recycling test. This factor, which focuses on so-called "toxics along for the ride," involves determining whether the recycled product is comparable to a legitimate (i.e., non-recycled) product or intermediate in terms of the presence of hazardous constituents. This factor was intended to prevent entities from simply disposing of toxic materials by incorporating them into recycled products without providing a legitimate benefit to the recycling process. Factor 4 establishes a complex two-track evaluation procedure, one for recycled products for which analogous non-recycled products exist, and one for recycled products lacking such analogues. The Court criticized EPA's procedure for evaluating the first category of recycled products. Among other things, this procedure involves determining whether the levels of hazardous constituents in the recycled product are "comparable to or lower than" those in the non-recycled analogue, or whether the recycled product meets widely recognized commodity standards and specifications that explicitly address the hazardous constituents. For recycled products failing these tests, the rule offers an alternative whereby the recycler can submit written documentation to the regulatory agency demonstrating that the levels of hazardous constituents do not pose a significant human health or environmental risk.

The Court found this test too imprecise. It concluded that the mere presence of a small amount of hazardous constituents in a recycled product does not provide a reasonable basis to define the product or the process as sham recycling. While EPA offered some relief for products with high levels of hazardous constituents (versus analogous non-recycled products) by allowing comparison to commodity standards and specifications, the Court noted that such standards and specifications usually describe minimum levels of desired elements, but not maximum levels of hazardous constituents and other impurities. As for the alternative test of evaluating the product's risks to human health and the environment, the Court found the administrative burdens required to satisfy this exception unjustified given what the Court viewed as EPA's failure to demonstrate on the record that recycled products exceeding the "comparable" standard present a reasonable probability of harming health or the environment. For these reasons, the Court invalidated Factor 4 of the legitimate recycling criteria to the extent the regulations (at 40 C.F.R. § 261.2(g)) apply it generally to all hazardous secondary material recycling exclusions; the Court left Factor 4 in place with respect to individual exclusions that explicitly refer to the legitimacy factors (because industry groups did not seek to invalidate Factor 4 in this context).

By contrast, the Court overruled an industry challenge to EPA's third legitimate recycling factor, which requires that both the generator and recycler manage the hazardous secondary material as a valuable commodity while under their control. For hazardous secondary materials with analogous raw materials, this factor requires that the material be managed in a manner consistent with procedures used for the raw material, or in an equally protective manner. For hazardous secondary materials without analogous raw materials, the material must be "contained," which entails satisfying certain storage and labeling requirements. The Court found these conditions to be reasonable and therefore upheld Factor 3.

Return of the Transfer-Based Reclamation Exclusion (with Additions) EPA's 2015 final rule also substantially revised an existing RCRA exclusion, established by the 2008 DSW rulemaking, covering certain hazardous secondary materials transferred to third parties for reclamation (i.e., processing to recover a usable product, or regeneration). As a result of litigation by environmental groups challenging this "transfer-based reclamation" exclusion, the 2015 final rule transformed the provision into a more onerous "verified recycler exclusion." Industry groups opposed two of the changes reflected in the verified recycler exclusion.

The first change impacted the method for confirming that a third-party reclamation facility (if it does not possess a RCRA permit or interim status) is actually a legitimate recycling operation. The 2008 exclusion relied on generators to make reasonable efforts to confirm this status by answering questions such as whether the reclaimer utilizes a legitimate recycling process, has the necessary reclamation skills and equipment, and so on. In the 2015 amendments, EPA shifted this responsibility by requiring reclaimers to obtain a regulatory variance from EPA or the authorized state agency. To do so, the reclamation facility must satisfy five criteria based largely on the earlier "reasonable efforts" questions - such as demonstrating a legitimate recycling process and having an approved financial assurance mechanism - and a sixth addressing the potential risk to nearby populations from unpermitted releases.

The Court agreed with the industry challengers that requiring an administrative variance is not justified by the studies EPA relied upon to find that transfer of typically low-value hazardous secondary materials to third-party reclaimers carries an undue risk that the materials will be discarded rather than recycled. Although these studies described theoretical incentives for discard in this context, the Court found that they offered insufficient factual data documenting whether and to what extent such failures actually occur.

The second change to the transfer-based reclamation exclusion challenged by the industry groups was a requirement that generators seeking to utilize the exclusion meet certain emergency preparedness standards while holding hazardous secondary materials prior to transfer. The Court found this requirement a reasonable test of whether the generator intends to recycle the materials rather than discard them, and therefore rejected the industry challenge to this aspect of the exclusion.

As a result of these holdings, the Court restored the 2008 transfer-based reclamation exclusion, while maintaining two elements of the verified recycler exclusion: the upheld emergency preparedness standards, and an expanded containment requirement that had not been challenged by the industry petitioners.

A Hazy Future As of this writing EPA has not publicly commented on the Court's ruling. Given that the decision struck down elements of the 2015 DSW final rule, which were promulgated by the Obama administration to resolve environmental group challenges to the 2008 rule issued by the Bush administration, it is unclear whether the current administration will seek further litigation of these issues.

In addition, the ruling raises a host of questions as to how it will be implemented by EPA and state environmental agencies that in most jurisdictions are authorized by EPA to administer the RCRA program. These questions may include, among others, whether the toxics along for the ride concept will retain some life, either in the form of a non-mandatory "consideration" included in EPA's 2008 version of the legitimate recycling test, or as part of EPA's original 1989 guidance. In addition, the extent to which various aspects of the Court's decision will apply in a given state likely depends on whether the state is authorized to implement the RCRA program, and if so, whether the state had previously adopted all or part of the 2008 and/or 2015 DSW final rules.

For these reasons and others, members of the regulated community engaged in recycling of hazardous secondary materials should stay tuned as the consequences of this decision become clearer.