Fourth Quarter 2008

EPA Issues Final Rule Redefining “Solid Waste,” Thereby Generating Substantial Industry Cost Savings

Holland & Knight Newsletter
Amy L. Edwards

On October 7, 2008, EPA released a final rule redefining “solid waste” under RCRA, the statute governing hazardous waste. The new rule excludes certain materials that were formerly regulated under the definition of “solid waste.” This is significant because materials that are not “solid waste” are not subject to RCRA’s regulations. Thus, the definition of “solid waste” plays a critical role in defining the scope of EPA’s authority over hazardous materials.

The EPA promulgated this new rule for a number of reasons. First, it wished to respond to a series of decisions by the U.S. Court of Appeals for the D.C. Circuit and other circuit courts which, taken together, redefined EPA’s authority to regulate hazardous wastes under RCRA. Before these decisions, EPA took the position that hazardous materials destined for recycling had been “discarded” and were thus considered “solid waste” for purposes of RCRA regulation. This position was reflected in EPA’s 1985 rule defining “solid waste.” A series of court decisions in part rejected EPA’s determination. Specifically, the courts questioned whether recycled materials were actually “discarded” and thus subject to RCRA’s hazardous waste regulations. If they were not “discarded,” then they were not “solid wastes” and could not be regulated as such. The new rule takes account of these holdings.

Second, in accordance with its policies, the EPA wished to promote recycling among a broad range of industries. By removing unnecessary regulatory controls, the EPA expects to make it easier and more cost-effective to safely recycle hazardous secondary material. Indeed, the new rule is sweeping in effect. The EPA estimates that it will affect approximately 5,600 facilities, will de-regulate or subject to reduced regulation approximately 1.5 million tons of hazardous waste annually, and will provide cost savings to industry of approximately $95 million per year.

While industry is generally in support of the rule, it is not without its detractors. One of the main concerns voiced by regulators and environmental groups was that the new rule may allow companies to engage in sham recycling – making it appear as though they are recycling hazardous waste so as to avoid the requirements of RCRA. The EPA took these objections seriously and included provisions in the rule for assessing the “legitimacy” of recycling programs through a series of regulations. But a review of the comments raises questions about whether EPA’s attempt to prohibit the practice of sham recycling may have been enough.

Legal History
On January 4, 1985, the EPA issued a final rule that defined “solid waste” under RCRA. See 50 Fed. Reg. 615 (January 4, 1985). That early rule rejected a definition of solid waste that would exclude recycled material. According to the EPA, recycled material had been “discarded” and was thus subject to RCRA regulations. See 50 Fed. Reg. 615, 617. This rule revised an earlier rule that was even more expansive because it treated all recycled materials subject to RCRA’s regulations as solid waste. See 50 Fed. Reg. at 618.

In a series of challenges to EPA’s interpretation of “solid waste,” courts chipped away at EPA’s position on its definition of “solid waste.” The first challenge came from trade associations representing mining and oil refining interests. It challenged the definition. In 1987, the D.C. Circuit held that EPA exceeded its authority “in seeking to bring materials that are not discarded or otherwise disposed of within the compass of ‘waste’” American Mining Congress v. EPA, 824 F.2d 1177, 1178 (D.C. Cir. 1987). However, the Court suggested that materials disposed of and recycled as part of a waste management program are within EPA’s jurisdiction. Id. at 1179.

Subsequent decisions further circumscribed EPA’s authority to regulate recycled materials under RCRA. In 1998, EPA promulgated a rule in which EPA claimed jurisdiction over hazardous secondary materials recycled by reclamation within the mineral processing industry. See 63 F.R. 28556 (May 26, 1998). In that rule EPA noted that the statute does not authorize it to regulate “materials that are destined for immediate reuse in another phase of the industry’s ongoing production process.” But the EPA did take the position that materials that are removed from a production process for storage are not “immediately reused,” and are therefore “discarded.” Thus, they would be considered solid waste under the regulations. See Id.

The mining industry challenged the rule, and the D.C. Circuit vacated the provisions that expanded EPA jurisdiction over characteristic by-products and sludges destined for reclamation. See Association of Battery Recyclers v. EPA, 208 F.3d 1047 (D.C. Cir. 2000). The Court held that it had already resolved the issue in an earlier opinion where it found that “... Congress unambiguously expressed its intent that ‘solid waste’ be limited to materials that are ‘discarded’ by virtue of being disposed of, abandoned, or thrown away.” Id. at 1051. It repeated that materials reused within an ongoing industrial process are neither disposed of nor abandoned. Id. at 1051–52. Significantly, the court noted that “... at least some of the secondary material EPA seeks to regulate as solid waste (in the mineral processing rule) is destined for reuse as part of a continuous industrial process and thus is not abandoned or thrown away.” Id. at 1056.

Other circuit courts have agreed with the D.C. Circuit, but have added qualifications. For instance, the 11th Circuit found that “[i]t is unnecessary to read into the term ‘discarded’ a congressional intent that the waste in question must finally and forever be discarded.” U.S. v. ILCO, 996 F.2d 1126, 1132 (11th Cir. 1993). And the Fourth Circuit found that slag held on the ground untouched for six months before sale for use as road bed could be a solid waste. See Owen Electric Steel Co. v. EPA, 37 F.3d 146, 150 (4th Cir. 1994).

In the D.C. Circuit Court’s most recent opinion dealing with the definition of solid waste, Safe Food and Fertilizer v. EPA, 350 F.3d 1263 (D.C. Cir. 2003), the court upheld a determination that a hazardous fertilizer material had not been discarded when it was in fact recycled. It found that the combination of market participants’ treatment of the materials, EPA required management standards, and the “identity principle” are a reasonable set of tools to establish that the recycled hazardous secondary materials and fertilizers had not been discarded.

In response to these cases, EPA first proposed a rule in October 2003 which redefined “solid waste.” After evaluating public comments and conducting independent analyses, the EPA revised its 2003 proposal and published a supplemental proposal in March 2007. In that supplemental proposal EPA decided to restructure its approach to revising the definition of solid waste. It more directly considered whether particular materials are or are not considered “discarded,” the key term for defining whether a material is in fact solid waste.

The Rule
The October 7, 2008 rule finalized the March 2007 supplemental proposal, determining that if a hazardous materials generator maintains control over the recycled hazardous secondary material, and the material is legitimately recycled under the standards established in the proposal, then the material is not discarded. Under the rule, the following three situations are excluded from the definition of “solid waste”:
1. Generator controlled recycling:

Generated and legitimately recycled within the United States or its territories under control of the generator in land- or non-land units at the generating facility, or by the same company, or pursuant to a written agreement between a tolling contractor (a person or company that arranges for the production of a product made from raw materials through a written contract with a batch manufacturer) and the generator. Under this exclusion, notification to EPA or the authorized state would be required, speculative accumulation would not be allowed, and the hazardous secondary material must be legitimately reclaimed.

2. Offsite transfer recycling:

Generated and subsequently transferred to a different person or company for the purpose of recycling subject to a number of conditions. One of the conditions would require the generator to make reasonable efforts to determine that its hazardous secondary materials will be properly and legitimately recycled (thus demonstrating the hazardous secondary material is not being discarded). Another condition would require the reclamation facility to have adequate financial assurances (thus demonstrating that the hazardous secondary material will not be abandoned). In addition, EPA proposed that both the generator and reclaimer would need to maintain shipping records (to demonstrate that the hazardous secondary material was sent for reclamation and was received by the reclaimer), and the reclaimer would be subject to additional storage and residual management standards.
3. Case-by-case recycling:

Recycled in a continuous industrial process, or indistinguishable from a product or intermediate, or under control of the generator, as demonstrated by a case-specific non-waste determination petition process. The determination is available to applicants who demonstrate (1) that their hazardous secondary materials are reclaimed in a continuous industrial process, or (2) that the materials are indistinguishable in all relevant aspects from a product or intermediate. This regulatory mechanism is intended to address recycling practices that do not involve discard of materials, and in essence can be considered normal manufacturing processes, rather than waste management operations.

Finally, the rule includes provisions for assessing the “legitimacy” of recycling practices under the new exclusions. The provision requiring “legitimacy” ensures that only authentic recycling, and not treatment or disposal under the guise of recycling, receives the benefits of these streamlined regulations. In order to be legitimately recycled under these exclusions, the hazardous secondary material (1) must provide a useful contribution to the recycling process and (2) the recycling must make a valuable new intermediate or final product. Two additional factors must also be taken into account: (1) whether the recycled material is managed as a valuable product; and (2) whether the recycled product contains toxic constituents at significantly greater levels than a non-recycled product made from virgin materials. These exclusions are not available for materials that are considered inherently waste-like, used in a manner constituting disposal, or burned for energy recovery.

Industry Impact

The new rule re-incentivizes some recycling that was otherwise discouraged partly due to the high costs associated with meeting the hazardous waste requirements under RCRA. According to the Regulatory Impact Analysis generated by the Office of Budget and Management (OBM), the savings will amount to an estimated $95 million per year. These savings consist of approximately $7 million per year for hazardous secondary materials reclaimed under the control of the generator in either land or non-land based units (which includes on-site, same-company and tolling exclusions), $87 million per year cost savings for exclusion of other offsite transfers and $1 million per year in cost savings for case-by-case non-waste determinations.
The industries that are most affected by the rule are those that already recycle hazardous waste, but it may be possible for facilities to enter the recycling market that do not have a RCRA permit. The industries affected the most by the rule are those that generate a large amount of potentially recyclable material, including the steel production industry, the chemical industry and the pharmaceutical production industry where organic solvents could be recycled.
The waste management industry, however, will likely lose revenues. The OBM estimated that hazardous waste landfill-related business line facilities may lose $3 million to $12 million annually; incinerators may lose $0.8 million to $13 million annually; and recyclers may lose $36 million to $66 million annually.

Reactions to the Rule

The new rule has been generally well received by industry leaders and regulators alike. But those groups have also raised a number of concerns. Specifically, many of the comments EPA received expressed concern over EPA’s ability to assess whether recycling is in fact legitimate. In essence, they worry that companies will avoid RCRA by engaging in sham recycling.

General Electric (GE) expressed this concern in comments to EPA in a letter dated June 25, 2007. Specifically, GE was concerned with EPA’s authority under RCRA to impose due diligence requirements on whether a recycling facility is “legitimate.” GE believed that EPA should be clear in defining what is legitimate recycling and should require the use of the six criteria set forth in EPA’s “Lowrance” Memo (April 26, 1989).1 The six criteria are embodied in the following questions set out in the memo:
1) Is the secondary material similar to an analogous raw material or product?

2) What degree of processing is required to produce a finished product?

3) What is the value of the secondary material?

4) Is there a guaranteed market for the end product?

5) Is the secondary material handled in a manner consistent with the raw material/product it replaces?

6) Are there other relevant factors?

These six question are meant to guide the EPA in determining whether recycling is legitimate. GE expressed concern that failure to set out a standard like the one in the memo would result in confusion and ambiguity Tennessee Department of Environment & Conservation agreed. In its comments to EPA, the Tennessee Department stated that “[t]o merely claim that valid recycling is being performed, without an initial regulatory evaluation being conducted, may diminish the long established protective practices afforded under the existing RCRA program.” It emphasized that there should be regulatory standards rather than ambiguous and argumentative “guidance” and subsequent “best judgment” evaluations.
The Environmental Technology Council (ETC), which represents commercial firms that provide technologies and services to customers for the treatment, recycling, and secure disposal of industrial and hazardous wastes, recommended the following conditions to ensure legitimate recycling found in EPA’s Good Practices Study (November 22, 2006): (1) recordkeeping on the nature and quantity of the hazardous secondary materials and legitimate recycling; (2) performance-based standards for tanks and containers designed to prevent releases to the environment; and (3) engineered containment and monitoring systems for land-based units.2
The rule, which goes into effect 60 days after its official publication in the Federal Register, does maintain guidelines for assessing legitimate recycling, but they are not as strict as many industry representatives requested. It remains to be seen whether the new rule will properly discourage sham recycling, and how much in savings the rule will actually offer.



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