Jessica Wentz and Susan Biniaz

Earlier this week, the D.C. Circuit Court of Appeals vacated a 2015 EPA rulemaking aimed at phasing out the use of hydrofluorocarbons (HFCs), a potent class of greenhouse gas emissions which were introduced as a substitute for ozone-depleting chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs) in the 1990s (Mexchem Fluor, Inc. v. EPA, No. 15-1328). The court’s decision raises important questions about which alternative pathways EPA can use to regulate these substances, including to meet its international obligations should it join the Kigali Amendment to the Montreal Protocol.

Case Background and Decision

The key issue in the case was whether EPA could use Section 612 of the Clean Air Act to phase out the use of certain HFCs in various industrial and commercial applications. Section 612 is one of several provisions in Title VI of the Clean Air Act aimed at phasing out the production and use of ozone-depleting substances. Section 612 establishes a “safe alternatives policy” which calls for the replacement of ozone depleting substances with alternatives that “reduce overall risks to human health and the environment.” § 612(a). To implement this policy, Section 612 directs EPA to evaluate the effects of potential substitutes to ozone depleting substances and to designate a list of approved (i.e., safe) alternatives to prohibited ozone depleting substances, as well as a list of prohibited alternatives. § 612(c). EPA considers all types of environmental and public health impacts when determining what constitutes a safe alternative (including climate change impacts) and retains discretion to revise the lists of approved and prohibited alternatives at any time. This is known as the “Significant New Alternatives Policy” (SNAP) program.

In the 1990s, EPA had designated HFCs as safe alternatives to CFCs and HCFCs, which are particularly potent ozone depleting substances. In the years since then, it became clear that HFCs are not in fact a safe alternative because they are very potent greenhouse gases. HFC-23, for example, is 12,400 more potent than CO2 over a 100-year time horizon.  EPA thus issued a new SNAP rulemaking in 2015 in which it moved certain HFCs with high global warming potential (GWP) from the approved to the prohibited list and established deadlines for phasing out the use of these HFCs in applications such as air conditioning, retail food refrigeration and vending machines, aerosols, and foam blowing. In the same rulemaking, EPA placed several climate-friendlier alternatives on the approved substances list. Two foreign manufacturers of products containing HFCs filed a lawsuit challenging this rule.

Two of the three judges on the D.C. Circuit panel held in favor of the manufacturers, finding that Section 612 could not be used to require manufacturers to replace HFCs with safer alternatives. The majority opinion, authored by Judge Kavanaugh, acknowledged that EPA had authority to move HFCs from the list of safe substitutes to the list of prohibited substitutes based on its assessment of public health and environmental risks, and that in doing so, EPA could prohibit a manufacturer from replacing an ozone depleting substance with HFCs. However, Judge Kavanaugh held that EPA could not require those manufacturers which had already switched to using HFCs to replace those HFCs with a safer alternative. In sum, Judge Kavanaugh held that “Section 612 does not require (or give EPA authority to require) manufacturers to replace non-ozone depleting substances such as HFCs” with safer alternatives.

The two-judge majority decision rested on an interpretation of the term “replace” as entailing a one-time transition – “[a]fter that transition has occurred, the replacement has been effectuated, and the manufacturer no longer makes a product that uses an ozone-depleting substance.” Under this interpretation, EPA’s decision to remove a substance from the list of safe alternatives would have no effect on manufacturers that had already switched to using the substance.

There are concerns with this interpretation.

•  It ignores the purpose of the “safe alternatives policy”—to ensure that ozone depleting substances are replaced with alternatives that reduce overall environmental and human health risks – and undermines EPA’s ability to implement that policy. If Congress did not intend for EPA to regulate the alternatives to ozone depleting substances as well as the substances themselves, then it would not have directed EPA to evaluate the safety of these alternatives and to prohibit the use of those that are deemed unsafe.

•  As noted by Judge Wilkins in a vigorous dissent, the term “replace” can refer to an ongoing process of substitution by multiple products: replacement can take place “not at a single point in time, not just once, and not by a single substitute.” Judge Wilkins also noted that the actual process of replacement under Section 612 does not occur at a single point in time, in part due to the breadth of regulated actors — for example, if a retailer purchases a new air conditioner, “the fact that the manufacturer may have previously ‘replaced’ an [ozone depleting] substance with an HFC as the refrigerant in its air conditioners does not mean that ‘the replacement has [already] been effectuated’ with respect to that retailer.” To the contrary, the statute appears to give EPA authority to prohibit the retailer from purchasing an air conditioner with HFC after EPA has moved HFCs to the prohibited list of alternatives.

It should also be noted that the majority opinion also rests on an important factual error. In introducing the case, the majority states that “[t]he fundamental problem for EPA is that HFCs are not ozone-depleting substances, as all parties agree.” Contrary to this statement, NASA has found that HFCs are in fact ozone-depleting substances, although their ozone depletion potential (ODP) is not as potent as that of CFCs and HCFCs. This research was released several months after EPA issued the 2015 rule and thus was not presented as a justification for the rule. However, as discussed below, the fact that HFCs are ozone depleting substances means that EPA could potentially use other provisions of Title VI to regulate these substances – namely, the same provisions it used to phase out CFCs and HCFCs.

There is a possibility that the Department of Justice will seek an en banc review of the decision. This is not a case where industry is all on one side of the argument: there were two companies (Chemours and Honeywell International) that intervened in support of EPA and the HFC rule. These companies want the rule to stay in effect because they manufacture substitutes for HFCs that are more environmentally friendly. The plaintiffs, meanwhile, are French- and Mexican-based companies that manufacture HFCs.

Implications for U.S. Implementation of the Kigali Agreement

The effect of the court’s decision on potential U.S. implementation of the Montreal Protocol’s “Kigali Amendment” is unclear.  Historically, the Montreal Protocol generally addresses ozone-depleting substances; it has been adjusted and amended many times over the years to both add new substances and strengthen the control schedules of existing substances.

The Kigali Amendment, adopted in October 2016, added HFCs to the mix, calling for a phasedown of production and consumption.  There are several variations among Parties in terms of schedules and baselines.  For the United States, the commitments would include, relative to a 2011-2013 baseline:

•  reducing production and consumption of HFCs by 10% by 2019; and

•  following a series of interim steps, reducing production and consumption by 85% by 2036.

Were the United States to become a Party to the Kigali Amendment, and in the absence of the court’s decision, the United States would presumably have relied, at least in part, on EPA’s SNAP authority to implement its international commitments.  However, the SNAP authority would not necessarily, in any event, have been sufficient to implement U.S. obligations under the Amendment. There are several reasons for this:

•  The SNAP authority would not necessarily have enabled EPA to implement the later stages of the phasedown.

•  The SNAP authority would not have enabled the United States to implement the obligation (which is typical of Montreal Protocol-regulated substances) not to engage in trade of HFCs with non-Parties.

•  U.S. industry groups supportive of the Amendment appear to favor a phasedown approach to the domestic regulation of HFCs over SNAP-type regulations.

As such, even before the court’s decision, the EPA would likely have looked to sources of authority beyond SNAP — whether existing, new, or a combination — in order to implement fully U.S. obligations under the Amendment.  The decision therefore does not necessarily affect prospects for U.S. adherence/implementation in any existential manner.

Alternative Legal Pathways for Regulating HFCs

One potential legal pathway to regulating HFCs would be new legislation. There are also some existing statutory authorities that could be used for this purpose. In particular, there are two provisions of Title VI that would be a good fit for phasing out HFCs:

•  Section 614: If the U.S. ratifies the Kigali Amendment, it could potentially use Section 614 of the Clean Air Act to phase down HFCs and implement the other commitments set forth in the Amendment. Section 614 provides: “In the case of conflict between any provision of this subchapter and any provision of the Montreal Protocol, the more stringent provision shall govern.” This provision potentially authorizes EPA to implement provisions of Kigali, which is part of the Montreal Protocol, that are more stringent than the provisions in Title VI.

•  Sections 602 and 605: As noted above, research has shown that HFCs are ozone-depleting substances. EPA has authority under other provisions of Title VI to regulate any ozone-depleting substance which, in EPA’s judgement, either: (i) “causes or contributes significantly to harmful effects on the stratospheric ozone layer” (for Class I substances) or (ii) “is known or may reasonably be anticipated to cause or contribute to harmful effects on the stratospheric ozone layer” (for Class II substances). § 602(a),(b). The significance of the impact of HFCs on stratospheric ozone is debatable, but there is no explicit significance threshold for the designation of Class II substances. EPA could therefore designate HFCs as Class II substances, in which case they could be subjected to restrictions on manufacture and use consistent with the timeline set forth in the Kigali Agreement. Specifically, Section 605 directs EPA to promulgate regulations phasing out the production and consumption of class II substances, subject to any acceleration of the phase-out of production under Section 606 (which requires EPA to expedite the phase-out process if “the Montreal Protocol is modified to include a schedule to control or reduce production, consumption, or use of any substance more rapidly than the applicable schedule”).

The majority opinion also cited some other potential regulatory pathways, but some of these are arguably not well-suited to phasing out HFCs:

•  New rulemaking under Section 612: The majority noted that EPA may be able to retroactively determine that some HFCs should not have been approved under Section 612 in the first place and are no longer legal for use going forward. However, there are a number of potential hurdles to this approach, as outlined in the decision.

•  Other Clean Air Act Provisions: The majority cited Section 109 (National Ambient Air Quality Standards), Section 112 (Hazardous Air Pollutants), and Section 202 (Motor Vehicle Emission Standards) as examples of other Clean Air Act provisions that could be used to regulate HFCs.

Section 202 is already being used for this purpose: EPA has begun to address the use of HFCs as coolants in vehicles in its motor vehicle emission standards – specifically, by allowing car manufacturers to generate CO2-equivalent credits for compliance with CO2 emission standards by reducing HFC emissions — but these standards are currently under review by the Trump Administration and thus their fate is uncertain. More on our climate deregulation tracker >>

As for Section 112: it is possible that EPA could use this provision to regulate HFCs, particularly those with toxic effects. However, this program is intended to regulate hazardous pollutants from statutory sources and is arguably not a good fit for phasing out the manufacture and use of products containing HFCs. More on using Section 112 to regulate greenhouse gases >>

Finally: HFCs could be addressed under a comprehensive regulatory scheme for greenhouse gases, either under Section 109 and the NAAQS program or Section 115, the International Air Pollution provision. However, even if legally viable, it is plain that the Trump administration will not be pursuing any such strategy.

•  Toxic Substances Control Act: HFCs could also potentially be regulated as toxic substances under the Toxic Substances Control Act (TSCA). EPA can use TSCA to regulate the manufacture and sale of chemicals that pose an unreasonable risk of injury to health or the environment. EPA has not used TSCA to regulate greenhouse gases, but it does use TSCA to regulate chemicals with toxic effects. Some HFCs, such as HFC-23 (trifluoromethane) are known to have toxic effects and would therefore be prime candidates for regulation under TSCA. However, the regulation of existing chemicals – that is, chemicals which are already manufactured and used in the U.S. – has proven very difficult due to the evidentiary showings needed to initiate the regulatory process. EPA must determine that the chemical “may present an unreasonable risk” to the public in order to require manufacturers to test the existing chemicals for risks, which creates a regulatory Catch-22 insofar as the data needed for this determination is that which would be obtained through such testing. More on the difficulties of regulating existing chemicals under TSCA >>

Conclusion

The D.C. Circuit Court of Appeals decision raises important questions about future options for the domestic regulation of HFCs. As discussed above, alternative regulatory approaches are available. Given the Administration’s track record on climate regulation, it is unclear whether it will endeavor to replace the remanded rule or to take the necessary steps to join the Kigali Amendment and implement it.

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