D.C. Circuit Vacates 2018 Rule on Use of Hydrofluorocarbons

On April 7, 2020, the United States Court of Appeals for the District of Columbia Circuit vacated the Protection of Stratospheric Ozone: Notification of Guidance and a Stakeholder Meeting Concerning the Significant New Alternatives Policy (SNAP) Program, 83 Fed. Reg. 18,431, 18,432 (Apr. 27, 2018) (the "2018 Rule"), which had allowed the interim use of hydrofluorocarbons ("HFCs")—which are greenhouse gases ("GHGs")—by all manufacturers as a substitute for ozone-depleting substances in a variety of products. Natural Res. Def. Council v. Wheeler, 955 F.3d 68 (D.C. Cir. 2020).

The history of relevant rulemaking here dates back to 1994, when the United States Environmental Protection Agency ("EPA"), concerned with depletion of the ozone layer, determined that certain HFCs were safe substitutes for ozone-depleting substances in a variety of products, including aerosols, motor vehicle air conditioners, and commercial refrigerators. By 2015, however, EPA was concerned with the climate change impacts of HFCs as GHGs. EPA therefore issued a regulation in 2015, stating that certain HFCs could no longer be used as substitutes for ozone-depleting substances. Protection of Stratospheric Ozone: Change of Listing Status for Certain Substitutes Under the Significant New Alternatives Policy Program, 80 Fed. Reg. 42,870 (July 20, 2015) (the "2015 Rule"). This prohibition applied to both the new use of HFCs as substitutes for ozone-depleting substances and also to the continued use of HFCs by entities that had already switched from use of ozone-depleting substances to HFCs.

The 2015 Rule was challenged in court, leading to a holding by the D.C. Circuit that the regulation exceeded EPA's statutory authority by purporting to regulate entities that had already begun using HFCs as a substitute for ozone-depleting substances. Mexichem Fluor, Inc. v. U.S. Envtl. Prot. Agency, 866 F.3d 451 (D.C. Cir. 2017). Namely, the scope of the agency's statutory authority in this instance—Title VI of the Clean Air Act, addressing ozone depletion—was limited to regulating entities currently using ozone-depleting substances. Once an entity stopped using an ozone-depleting substance, EPA could no longer regulate it under Title VI. Therefore, because HFCs are not ozone-depleting substances, EPA could not prohibit their continued use under Title VI, even if EPA had climate change concerns about their use.

EPA issued the 2018 Rule—couched as interim guidance—to address how to proceed in light of the court's ruling in Mexichem. Rather than enforcing the prohibition on HFCs against only entities that had not yet converted to a non-ozone-depleting substitute, the 2018 Rule removed HFCs from the list of prohibited substances in the 2015 Rule, thereby allowing their use by both entities already using them as a substitute for ozone-depleting substances, as well as entities newly planning to switch to using HFCs as a substitute. EPA did not go through the notice-and-comment process for the 2018 Rule.

The lack of notice and opportunity for comment led to the instant challenge of the 2018 Rule by the Natural Resources Defense Council and a number of states. The court found that the petitioners had standing to bring the suit because the 2018 Rule will lead to an increase in HFC emissions, thereby contributing to climate change, which threatens coastal property owned by petitioners or their members. Vacating the 2018 Rule would redress this by prohibiting new uses of HFCs as substitutes for ozone-depleting substances, thereby reducing HFC emissions.

The court further found that the 2018 Rule, while characterized by EPA as interim, was final agency action for purposes of judicial review because EPA has not yet formally initiated a rulemaking process to replace the 2018 Rule, and the 2018 Rule "firmly establishes" EPA's current position with respect to the use of HFCs under Title VI. In addition, the court held that EPA was required to follow notice-and-comment procedures before implementing the 2018 Rule because it is a legislative, rather than interpretive, rule. Namely, the 2018 Rule has independent legal effect by amending the 2015 Rule with respect to a class of entities that would otherwise be regulated, even after the court's holding in Mexichem. The court therefore vacated the 2018 Rule for failure to follow the required notice-and-comment process.

The court noted in dicta other permissible ways EPA could have instead handled the HFC issue in the wake of Mexichem, including: (i) petitioning the Mexichem court for rehearing, to request that the court vacate the 2015 Rule in full; (ii) issuing an interpretive rule to explain how it understood partial vacatur of the 2015 Rule would apply; (iii) exercising enforcement discretion to focus on entities newly trying to convert to use of HFCs; (iv) "resolv[ing] difficult questions through case-by-case adjudications"; and (v) "invok[ing] the good-cause exception to promulgate an interim legislative rule without notice and comment, pending its undertaking a full legislative rulemaking." Natural Res. Def. Council, 955 F.3d at 85.

Judge Rao dissented, finding the 2018 Rule was interpretive, not legislative. He noted that the 2015 Rule is comprised solely of tables listing certain substitutes for specific end uses, and therefore does not lend itself to drawing a distinction between entities currently using HFCs versus those using ozone-depleting substances. He also stated that EPA's failure to consider climate change in issuing the 2018 Rule was not arbitrary and capricious because such policy considerations were not relevant to the post-Mexichem interpretation of the 2015 Rule. (The majority had no need to address petitioners' argument that the 2018 Rule was arbitrary and capricious.)

Judge Rao also criticized the majority's suggestion of using enforcement discretion or the good-cause exception as permissible alternatives for implementing partial vacatur of the 2015 Rule:

To permit an agency to implement a partial vacatur through enforcement discretion—thus leaving the offending rule on the books—undermines this court's authority and produces further uncertainty. We should encourage agencies to distinguish between regulated parties through clear interpretive guidance, rather than through ad hoc discretion. For similar reasons, EPA should be wary of the majority's suggestion to attempt using the good-cause exception for interim legislative rules, another limited regulatory practice this court has cautioned against abusing.

Id. at 94 n.5 (citations omitted) (Rao, J., dissenting).

Overall, this case provides mixed messages regarding the appropriate exercise of EPA's authority in certain circumstances. On the one hand, the majority found it improper for EPA to exercise its legislative rulemaking authority without following notice-and-comment procedures but then invited EPA to regulate through enforcement or a number of other methods without the need for notice-and-comment as appropriate alternatives. On the other hand, the dissenter criticized the suggestion that regulation through enforcement is appropriate but would instead have held that no notice-and-comment procedures were required for the 2018 Rule in the first instance. It remains to be seen how EPA will attempt to utilize the different avenues suggested here in future actions against the regulated community.

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