On July 7, 2017, the United States Court of Appeals for the District of Columbia Circuit dealt EPA another blow to its over-zealous attempts to regulate as hazardous waste the hazardous secondary materials (HSM) that are recycled to make products and intermediates. In a 2 to 1 decision, the court struck down the “factor 4 legitimacy test” in EPA’s 2015 definition of solid waste (DSW) rule under which a recycler must show that its recycled product contains lower or “comparable” levels of hazardous constituents than are in the same product that is made entirely with virgin, non-HSM ingredients.[1] The court found that EPA failed to support its conclusion that the HSM is being discarded, and thus should be regulated as a waste, whenever a recycled product has higher levels of hazardous constituents in it. This decision to vacate factor 4 embraces the arguments Hogan Lovells made in the amicus brief it filed in this case on behalf of two of our clients, so we are especially pleased with this result. The decision can be found by clicking here.

The court also vacated the “verified recycler” exclusion in the 2015 DSW rule whereby HSM that is sent off-site for reclamation and reuse will avoid regulation as a waste if the off-site recycler has been verified by EPA or the state agency as meeting standards akin to what a RCRA-permitted hazardous waste treatment, storage or disposal facility must meet.[2] The court found that EPA had an insufficient basis to presume that any HSM sent off-site for recycling was being discarded, and EPA unlawfully created an overly burdensome verification process to overcome that presumption. The court vacated the verified recycler exclusion and replaced it with the slightly less burdensome 2008 transfer-based exclusion, which allows HSM to be sent off-site for reclamation and reuse if the generator itself confirms that the off-site recycling is, among other things, legitimate and properly conducted. The court also rejected all of the challenges environmental groups brought against the 2015 rule.

There are some uncertainties regarding how these rulings will alter the regulations, and those uncertainties may not be clarified until the court responds to a petition for rehearing that might be filed, and until EPA issues revised rules to reflect the court’s mandate. But based on what the court has said so far, we expect the following:

1. 40 CFR 260.43(a)(4), which is the factor 4 legitimacy test, will not have to be met for any recycle exclusion, except potentially for recycle exclusions and exemptions that expressly require a legitimacy determination. For example, under 40 CFR 261.4(a)(23), HSM is excluded from solid and hazardous waste regulation when recycled under the generator’s control, but only if a separate legitimacy determination is made. The court said it was not specifically asked to consider whether the legitimacy determination in this exclusion was lawful, so its vacatur of factor 4 does not affect the “generator-control” exclusion.

2. The first three 2015 DSW rule legitimacy factors will still have to be met for all recycle exclusions, except possibly the transfer-based exclusion discussed below. Those three factors are:

(i) the HSM provides a useful contribution to the recycling process or to the product or intermediate of the recycling process;

(ii) the recycling process produces a valuable product or intermediate; and

(iii) the HSM is managed in an equally protective manner as the virgin raw material it is replacing, or where it is not replacing a virgin raw material, the HSM must be contained to prevent unrecovered releases.

3. The court vacated the 2015 verified recycler exclusion currently at 40 CFR 261.4(a)(24), which excluded from solid and hazardous waste regulation spent materials, listed by-products, and listed sludges that are sent off-site and then reclaimed and reused by a third-party reclaimer in the U.S. In its place, the court said EPA must reinstate the 2008 transfer-based exclusions that then appeared at 40 CFR 261.4(a)(24) for HSM recycled in the US and at 40 CFR 261.4(a)(25) for HSM recycled outside the U.S. The requirements of these 2008 exclusions can be found at 73 Fed. Reg. at 64761-64 (Oct. 30, 2008). The court also said that EPA must add to these transfer-based exclusions the requirements in the current verified recycler rule that the HSM be contained with no releases that cannot be immediately recovered (see 40 CFR 261.4(a)(24)(v)(A)), and that the HSM generator comply with emergency response and preparedness conditions (see 40 CFR 261.4(a)(24)(v)(E)). Recycling under the transfer-based exclusion must also be legitimate, but it is unclear whether EPA will require generators/recyclers to meet legitimacy factors i, ii, and iii above that are now required for most other exclusions, or just factors i and ii, which were required in the 2008 transfer-based rule that has now been reinstated.

Approximately 15 states currently have adopted and/or have been authorized to implement the 2015 DSW rule. Because several aspects of that rule have now been overturned by the court, we expect those states to revise their rules to reflect what remains. Many of the other 35 states that had not previously acted to adopt the 2015 rule are also likely to move forward and adopt it with the court-ordered changes now that the cloud of litigation has passed. But in both cases, states will likely need to await EPA issuing in the Federal Register a revised rule that reflects the court’s decision before states can adopt that revised rule. All of this timing is very uncertain, and recyclers should consult their state officials to better anticipate when rule changes will occur.