Companies that beneficially reuse hazardous secondary materials by recycling or reclaiming those materials rather than discarding them as hazardous waste need to be aware of a new federal court ruling that may provide additional flexibility in the reuse and recycling of those materials. In its July 7, 2017, opinion in Am. Petroleum Inst. v. EPA, No. 09-1038, slip op. (D.C. July 7, 2017), the U.S. Court of Appeals for the District of Columbia struck down two key elements of the EPA’s 2015 Final Rule aimed at revising EPA’s “Definition of Solid Waste”: Factor 4 of the legitimacy test (i.e., “toxics along for the ride”) and, in pertinent part, the Verified Recycler Exclusion pertaining to reclamation under RCRA.

The EPA’s 2015 Final Rule attempted to delineate between “sham recycling” and legitimate recycling by formally codifying and requiring four legitimacy factors for assessing when a hazardous material is actually being recycled such that it is outside of RCRA’s definition of solid waste and thus outside of the purview of the EPA’s regulatory authority under RCRA. The four factors of the legitimacy test are: (1) the hazardous secondary material must provide a useful contribution to the recycling process; (2) the recycling process must produce a valuable product or intermediate; (3) the persons controlling the secondary material must manage the hazardous secondary material as a valuable commodity; and (4) the product of the recycling process must be comparable to a legitimate product or intermediate (“Factor 4”). Notably, the EPA’s 2015 Final Rule also required documentation on the legitimacy criteria for Factor 4 when “the hazardous constituents in the recycled products are not comparable or unable to be compared to those in analogous products (unless the recycled product meets widely recognized commodity specifications or the hazardous secondary material is returned to the production process).” For further analysis of the EPA’s 2015 Final Rule, see https://www.spencerfane.com/publication/a-sham-a-waste-epas-new-recycling-and-hazardous-waste-rules-finalized/.

The petitioners did not challenge the first two legitimacy factors, and the court ultimately upheld the third legitimacy factor. However, the court struck down Factor 4, reasoning that it lacked precision. The EPA included Factor 4 within its legitimacy test to thwart unnecessary inclusions of hazardous wastes into products such that the hazardous waste involves “toxics along for the ride.” The court reasoned that the EPA drafted Factor 4 in a manner that also has the potential effect of requiring the removal of even negligible amounts of hazardous material contained within the secondary product to an unreasonable point. The court highlighted this issue by demonstrating that where a secondary product has an analogous product without a minimal amount of hazardous material, the secondary product, to satisfy Factor 4, would have to essentially be void of even a mere single part-per-million of a hazardous material if said hazardous material provided no value to the product itself—an untenable result when hazardous materials can be successfully recycled into secondary products.

The remainder of the D.C. Circuit’s opinion focused on the aspects of the EPA’s rule concerning reclamation. Under EPA’s rules, a material is reclaimed “if it is processed to recover a usable product, or if it is regenerated.” The court held that while the emergency preparedness requirement within the Verified Recycler Exclusion of the EPA’s 2015 Final Rule reasonably filled a regulatory gap and is thus upheld, the remainder of the Exclusion is unreasonable. The court thus reinstated the Transfer-Based Exclusion with the addition of the emergency preparedness standard. Prior to the EPA’s 2015 Final Rule, the EPA treated reclamation of certain secondary hazardous materials as being discarded and established certain exclusions to the general reclamation-equals-discard rule for certain materials and processes. One of those exceptions was the Transfer-Based Exclusion, which allowed the generator to offload secondary hazardous materials to a reclaimer who possessed a RCRA permit or made reasonable efforts to properly and legitimately reclaim the materials and not otherwise discard them. The EPA’s 2015 Final Rule sought to supplant the Transfer-Based Exclusion with the Verified Recycler Exclusion. The Verified Recycler Exclusion required the generator to meet special emergency preparedness standards (i.e. fire control systems, etc.) while it possesses the materials prior to shipping them, and it eliminated the “reasonable efforts” standard from the Verified Recycler Exclusion—requiring the reclaimer to have a RCRA permit. The court held that the EPA’s justifications for eliminating the reasonable efforts standard from the Transfer-Based Exclusions were unreasonable and struck down the Verified Recycler Exclusion.

Where the EPA’s 2015 Final Rule goes from here is unknown at this time. Indeed, many states had not yet adopted or incorporated by reference the requirements of the 2015 Final Rule. Because RCRA is a state-authorized program, companies involved in the beneficial reuse of hazardous secondary materials will need to carefully evaluate the impact of this ruling in the majority of states that have RCRA-delegated programs and how EPA and the states implement this ruling.