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08.08.2017 D.C. Circuit Court Limits EPA’s Sham Recycling Rule By: Phillip L. Conner

The United States Court of Appeals for the District of Columbia Circuit recently rejected portions of an EPA rule designed to distinguish true recycling from “sham recycling” under the Resource Conservation and Recovery Act (“RCRA”).  Materials that are legitimately recycled, meaning they meet one of EPA’s recycling exclusions, are generally excluded from regulation under RCRA.  On the other hand, materials that are actually discarded or used in a manner constituting disposal, despite claims of being recycled or reused, are subject to full regulation under RCRA.  The trick has been in figuring out the fine distinctions that separate true recycling from sham recycling.  Prior to issuance of the rule, the concept of sham recycling was addressed only in EPA guidance documents.  The rule attempted to provide more clarity on the issue through revisions to the definition of “solid waste.” 

Under RCRA, a material must first meet the definition of solid waste to be considered a hazardous waste.  RCRA regulations provide certain exemptions from the definition of solid waste for materials that are recycled.  According to EPA guidance documents and interpretations, a material being recycled must serve a legitimate purpose to qualify for the recycling exemption, such as providing an effective substitute for virgin material.  Recycling of material that does not provide a recognizable benefit is deemed “sham recycling” and does not qualify for the recycling exemption. 

In 2008, EPA promulgated a rule altering the definition of solid waste as it pertains to certain hazardous secondary materials that are recycled.  Secondary material is essentially the residue of an industrial process, and it includes such things as spent materials, byproducts and sludges.  The rule excluded secondary materials from the definition of solid waste in the following two circumstances: (1) the generator controlled the recycling of those materials; and (2) the generator transferred the materials to an off-site recycler whom the generator had audited to ensure compliance with proper recycling practices.  These two exclusions were known respectively as the “Generator-Controlled Exclusion” and the “Transfer-Based Exclusion.”  To qualify for either of these exclusions, the secondary materials had to meet certain legitimacy factors set forth in the rule to demonstrate that there was no sham recycling.

The 2008 rule was challenged by several organizations.  The American Petroleum Institute argued that the rule unlawfully regulated materials referred to as petroleum refinery catalysts.  The Sierra Club argued that the rule was not sufficiently protective of human health and the environment.  In 2015, EPA promulgated a revised rule.  Still not satisfied, these organizations and others filed suit in the D.C. Circuit.  The provisions of the 2015 rule that were challenged include expansion of the legitimacy factors and replacement of the “Transfer-Based Exclusion” with the “Verified Recycler Exclusion.”

The four legitimacy factors in the 2015 rule are as follows: (1) the recycled 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 recycled material must manage the material as a valuable commodity; and (4) the product of the recycling process must be comparable to a legitimate product or intermediate.  Industry petitioners argued that Factors 3 and 4 of the legitimacy test exceeded EPA’s RCRA authority because these factors unlawfully regulated non-discarded materials.

In its decision, the Court disagreed with the industry petitioners regarding Factor 3 of the legitimacy test, thereby retaining Factor 3 as part of the rule.  However, the Court agreed with the industry petitioners that Factor 4 exceeded EPA’s authority.  Specifically, EPA’s 2015 rule provides three options for satisfying Factor 4.  First, the recycled material is comparable to a legitimate product if it does not exhibit a hazardous characteristic not exhibited by the legitimate product.  Second, the recycled material is comparable to a legitimate product if it has comparable levels of hazardous constituents.  Third, even if the recycled material has high levels of hazardous constituents as compared to a raw material, recycling can still be legitimate if the recycler conducts health and environmental studies showing that the hazardous constituents are not harmful.  In evaluating the Factor 4 criteria, the Court found that EPA failed to articulate a concrete standard for determining what contaminant levels in a recycled material were significant in terms of health and environmental risks.  The Court reasoned that recycling of a material can still be legitimate even though the material may have high levels of hazardous constituents.  Consequently, the Court vacated Factor 4.

Replacement of the “Transfer-Based Exclusion” with the “Verified Recycler Exclusion” resulted in a new standard governing when transferred materials qualify as solid waste, and industry petitioners argued that this change also exceeded EPA’s RCRA authority.  The Court agreed with the industry petitioners that the Verified Recycler Exclusion exceeded EPA’s authority and ordered EPA to reinstate the prior Transfer-Based Exclusion.  This allows materials sent to a recycling facility to be excluded from regulation as a hazardous waste so long as reasonable efforts are made to ensure proper reclamation.

Industry is hopeful this decision will further one of the goals of RCRA, which is to promote recovery of resources from spent or used materials rather than dispose of them.

American Petroleum Institute v. EPA, No. 09-01038 (D.C. Cir. July 7, 2017).