D.C. Circuit Once Again Reminds EPA Which Governmental Branch Enacts Laws

Featured Expert Column – Environmental Law and Policy

sboxermanBy Samuel B. Boxerman, Sidley Austin LLP with Katharine Falahee Newman, Sidley Austin LLP

In recent years, either when Congress has chosen not to act on certain matters—or arguably does so without sufficient clarity—the Executive Branch has asserted the power to address issues through regulation. These agency actions, of course, run headlong into one of the core separation of powers under the Constitution—that Congress is empowered to enact laws while the Executive is tasked with implementing them.

Hence, not surprisingly, the judiciary has increasingly been asked to answer whether an agency had the statutory authority to issue a particular regulation—or whether the agency exceeded the power it had been granted by the Congress.

A recent decision of the U.S. Court of Appeals for the D.C. Circuit adds to that jurisprudence. On August 8, 2017, a three-judge panel ruled in Mexichem Fluor, Inc. v. EPA that the U.S. Environmental Protection Agency (“EPA”) exceeded its authority under the Clean Air Act (“CAA” or Act) when it issued a 2015 rule eliminating the use of hydrofluorocarbons (HFCs) in certain products (the “2015 HFC Rule”).

In issuing the rule, EPA had relied on § 612 of the CAA, which authorizes EPA to require manufacturers to replace ozone-depleting substances in their product with other EPA-approved substances. Section 612 does not authorize EPA to require the replacement of non-ozone-depleting substances, such as HFCs. Therefore, the court found EPA exceeded its authority under the CAA and vacated the 2015 HFC Rule, remanding it to EPA for additional consideration. 

Background

The origin of the 2015 HFC Rule dates to 1990, when Congress added Title VI to the CAA.  Congress did so, in part, to meet the United States’ obligations under the Montreal Protocol—an international agreement requiring nations to regulate ozone-depleting substances. Section 612 of Title VI requires manufacturers to replace ozone-depleting substances with safer product substitutions. In order to implement § 612, EPA developed lists of safe substitutes and prohibited substitutes. In 1994, EPA concluded that HFCs were safe substitutes for ozone-depleting substances when used in certain contexts, including aerosols, vehicle air conditioners, and commercial refrigeration.

In the years that followed, many manufacturers replaced ozone-depleting substances with HFCs. Simultaneously, EPA was gathering additional information on HFCs and ultimately concluded that HFCs are greenhouse gases that contribute to climate change.  Based on this information, EPA issued the 2015 HFC Rule and removed HFCs from its list of safe substitutes—and, “[e]ven more importantly for present purposes under the Rule,” EPA found that “manufacturers that have already replaced ozone-depleting substances with HFCs can no longer use those HFCs in their products.”   

Panel Decision

As the panel noted, the parties agreed on several points: (i) EPA had authority to regulate ozone-depleting substances; (ii) EPA may change the list of safe and prohibited substitutes; (iii) EPA may prohibit a manufacturer from replacing an ozone-depleting substance with a prohibited substitute; (iv) EPA may prohibit a manufacturer that is still making products with ozone-depleting substances from replacing those substances with HFCs; and (v) HFCs are not ozone-depleting substances.

The court then focused on one key issue:  Does § 612 authorize EPA to prohibit a manufacturer from producing a product containing HFCs if the manufacturer had already replaced the ozone-depleting substances in its product with HFCs at a time when EPA had listed HFCs as approved substitutes?

Relying on the familiar two-step approach of Chevron U.S.A. v. NRDC, the panel found the CAA did not grant EPA that authority. Although EPA itself had previously stated that § 612 did not authorize the agency to require manufacturers to replace non-ozone-depleting substances, the agency now argued that the Act authorized EPA to order a manufacturer to replace a substitute that had previously been acceptable. According to EPA, it could interpret the word “replace” to be an indefinite obligation, extending to every time the manufacturer uses the substitute substance.

The panel rejected this argument, finding the word “replace” to be clear on its face – it means “to take the place of” and that once a manufacturer had transitioned to a substitute “there is no ozone-depleting substance” left to be replaced. EPA’s new reading, the panel found, would stretch the word “replace” beyond its ordinary reading,” and that such “boundless interpretation of EPA’s authority under Section 612(c) borders on the absurd.” Accordingly, EPA’s interpretation “contravenes the statute and thus fails at Chevron step 1.”

The court also pointed out that EPA has other ways to regulate non-ozone-depleting substances that EPA believes are causing harm to the environment, such as through the Toxic Substances Control Act or other CAA provisions. However, the court emphasized, no matter how well-intentioned its objectives, EPA may only act as authorized by Congress. “Here, EPA has tried to jam a square peg (regulating non-ozone depleting substances that may contribute to climate change) into a round hole (the existing statutory landscape).” 

Dissent

In dissent, Judge Wilkins wrote that the court erred in finding the statute only required a manufacturer to “replace” an ozone-depleting substance once. Instead, the dissent reasoned, “replace” is more properly defined as “to provide a substitute for” and thus replacement can occur more than once. This interpretation, according to the dissent, is more consistent with the purpose of § 612—to replace substances with alternatives that reduce risks to human health and the environment.

Moreover, at a minimum, the statutory language is sufficiently ambiguous to proceed to Chevron step two—and EPA’s current interpretation is reasonable and thus merits deference. Judge Wilkins agreed with the majority that the CAA does not grant EPA unlimited authority to regulate these substances forever. But, while the traditional ozone-depleting substance is in use, EPA may regulate its replacement. 

Analysis

This decision is just the latest in a string a recent cases to address the separation of powers issues present when EPA acts or fails to act contrary to congressional authorization. In Utility Air Regulatory Group v. EPA, the Supreme Court weighed in, finding the CAA did not authorize or permit EPA to “tailor” the Prevention of Significant Deterioration and Title V programs to address greenhouse gases.

The Mexichem panel relied on this decision to highlight two important separation of powers points: (1) “well-intentioned policy objectives” alone are insufficient to authorize EPA to regulate outside of statutory bounds and (2) an absence of congressional action also does not authorize EPA action.

Other decisions have similarly highlighted these principles. For example, in Center for Biological Diversity v. EPA, the court vacated EPA’s so-called “Deferral Rule,” postponing the regulation of biogenic carbon dioxide for three years. There, the court found the rule failed to explain how the CAA allows the agency to treat these sources differently. “As a policy matter, EPA may have very good reasons to temporarily exempt biogenic carbon dioxide from the PSD and Title V permitting programs. But Congress sets the policy in the statutes it enacts; EPA has discretion to act only within the statutory limits set by Congress.”

More broadly, of course, the U.S. Supreme Court and the courts of appeals have been wrestling with the Chevron doctrine itself, in and out of the environmental area.  E.g. King v. Burwell (showing no deference to agency interpretation on a matter of major economic and political significance); Michigan v. EPA (finding the CAA requirement ambiguous, but then invalidating the agency’s interpretation) and Thomas, J., concurring (questioning the constitutionality of Chevron); United States Telecom Assoc. v. FCC, No. 15-1063 (May 1, 2017) (Kavanaugh, J., dissenting on denial of petitions for rehearing en banc) (arguing a “major rule” was invalid as it was not clearly authorized by the Congress).

Read alongside these and other opinions, Mexichem is a further example of the courts grappling with the separation of power between Congress and the Executive—between statutory mandates and agency interpretation.  Such disputes will continue to be issues for the courts to resolve and bear close watching.

[Ed. Note: An intervenor in the Mexichem case, NRDC, has sought rehearing en banc.]

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