Revising the rule

The U.S. Environmental Protection Agency (EPA) published its final Definition of the Solid Waste (DSW) rule in the Federal Register Jan. 13, 2015. The EPA says these new safeguards promote responsible recycling of hazardous secondary materials and demonstrate a step forward in promoting recycling innovation. It also says the final rule will result in resource conservation and economic benefits while strengthening protections for environmental justice in communities throughout the country.

According to Kenneth M. Kastner, a partner in the Washington-based law firm Hogan Lovells, the 2015 DSW rules “are very prescriptive, burdensome and complex. In many cases, the rules regulate recycling that is part of an ongoing manufacturing process where the secondary materials have not been discarded. The unfortunate effect is that the recycling and reuse of valuable secondary materials in manufacturing operations will be discouraged.”

He adds that the 2015 DSW rulemaking “is EPA’s latest response to the 2000 ruling of U.S. Court of Appeals for the District of Columbia Circuit in the Association of Batter Recyclers v. EPA, where the court overturned the EPA’s attempt to regulate as hazardous waste the characteristic byproducts and sludges destined for reclamation in the mineral processing industry that were stored on the ground prior to reclamation.” According the ruling, under the Resource Conservation and Recovery ACT (RCRA), the EPA only can regulate “materials that are discarded by virtue of being disposed of, abandoned or thrown away.”

In 2008 the EPA issued a DSW rule that applied two conditions to exclude hazardous secondary materials reclaimed and reused by the generator or transferred to third parties for reclamation and reuse:

1. The reclaimed material must provide a useful contribution to the recycling process or to the product or intermediate created through recycling.
2. The recycled product or intermediate has value.
    

However, Kastner says following President Obama’s election the Sierra Club petitioned the EPA to reconsider the rule.

Kastner shares his insight into the DSW final rulemaking and spells out what it could mean for recyclers and generators of hazardous secondary materials.
 

Recycling Today (RT): Is the DSW final rule issued in early 2015 at odds with the 2000 ruling of the U.S. Court of Appeals in the Association of Battery Recyclers v. EPA? Can you explain how the final rule contradicts this ruling? Should we expect litigation regarding the 2014 ruling?

Kenneth Kastner (KK): The Court of Appeals basically said that EPA only has the authority to regulate as solid waste and, therefore, potentially as hazardous waste materials that are discarded. The question that they framed was, When does discard occur? They went on to say that if you are reusing material in an ongoing manufacturing process, it is not considered discarded. And, as a result of that, they overturned EPA’s rule, which said that any material that is recycled in the mineral processing industry where it is placed on the ground prior to it being recovered is, by the act of placing it on the ground, discarded. The court said that was not correct.

EPA in 2008 improved its DSW rules to respond to the court during the George W. Bush administration. But, with the change of administration in late 2008, there was reaction to what had happened during the Bush administration. The Sierra Club brought a lawsuit challenging the 2008 rule, and EPA decided to revisit the rule and to make some changes.

In the 2015 DSW rule, particularly with regard to recycling that occurs on-site in a manufacturing process, EPA has created numerous conditions that now have to be met in order to qualify the material as not being solid waste. In other words, they have come at it by saying we are going to assume that all recycling is an act of discard unless you can show the following criteria are met. In addition to historic conditions that various exclusions have had, they’ve added four legitimacy criteria that have to be shown for existing exclusions and have placed the burden on recyclers in an inspection or enforcement case to prove that the recycling is legitimate.

Some of those criteria are not difficult to meet, but the last one—that there are no toxics along for the ride—is particularly difficult to meet, especially in an ongoing manufacturing operation.

Just as some background: At a chemical manufacturing plant you may have dozens if not hundreds of manufacturing processes. In each of those processes, there may be two or three or four or five different streams that come off of the process that are recycled back into the process. You are continually trying to get as much value out of your raw material as you can by reusing it. If it reacts and becomes a different chemical, you try to reuse that reacted chemical. You try not to throw things away because they are valuable raw materials.

There are all these different loops of recycling that occur in a chemical manufacturing operation, and under this new rule, EPA would require the manufacturer to evaluate each one of those loops and make sure it meets the legitimacy criteria and, in particular, show that the toxics that are in the recycled loop are comparable to the toxics that would be in a nonrecycled loop where you are using virgin materials instead of recycled material.

You’re assumed to discard unless you can show you are not discarding, and the burden is now on the manufacturer to demonstrate that.

I do think there is strong basis for litigation. Whether particular trade associations or industrial companies decide that it is worth the effort, I can’t predict that.
 

RT: When can recyclers expect this ruling to take effect? What actions will they need to take under the new ruling?

KK: It is supposed to take effect 180 days after publication, and it was published Jan. 13, 2015. But it only will take effect automatically by then in two states—Alaska and Iowa—because all other states have what is called base RCRA authorization, and this is a base RCRA rule. Those other states have to go through a process to adopt the new rule. It is further complicated because parts of this rule are more stringent, and all states that have base authorization have to adopt the more stringent components of the rule within a period of usually one to two years.

The short answer is that in Iowa and Alaska, the rule will take effect in 180 days from publication. In the other states, it will more likely be a year to two before we see these changes in effect.

What recyclers in those other 48 states really need to do is check with their state environmental agency in terms of the state’s plans to adopt the rule and get a better sense of timing; it really varies quite widely from state to state.
 

RT: The new ruling specifies four legitimacy criteria that generators must prove to ensure hazardous secondary materials are treated as recyclable commodities and not as a solid and hazardous waste. What is the purpose of these criteria?

KK: There are four criteria that have to be evaluated and—under some of the exclusions—documented, and—under others— just proven if challenged.

The hazardous secondary material being recycled provides a useful contribution to the recycling process or to the product or intermediate of the recycling process—that is the first criteria. Basically, if you are using something to make a product or to make an intermediate, it must be useful in that manufacturing operation; it’s not just that you are putting it in to get rid of it. It makes the product work or it makes the product producible.

Just to back up for a minute, the purpose of all these legitimacy criteria is to show that recycling of the secondary material is legitimate as opposed to a sham form of discard.

The second [criterion] is that the recycling process produces a valuable product or intermediate. That is very close to the first criterion in that what you are going to end up with after you recycle something is a useful product or intermediate.

The third criterion is that the hazardous secondary material is managed as a valuable commodity. … You need to basically show that it is a valuable raw material and, therefore, that you are handling it in a way that is protective of the material … that it is not just being lost through rain and wind and other things like that.

The last criterion is the really troubling one: The product or the intermediate resulting from the recycling process using the secondary material is comparable to the product or intermediary made from virgin materials.

This is the toxics-along-for-the-ride criterion. What it is trying to get at is that the secondary material has toxics that are below or comparable to the toxics that would be in a virgin raw material.

For example, let’s say you are an automobile manufacturer and you put windshield washer fluid in the cars you manufacture. You could buy a windshield washer fluid from a company that makes it from virgin materials, or you could buy a windshield washer fluid that is essentially used and reclaimed fluid. Here the question would be: Does the spent, reclaimed wiper fluid have other extraneous constituents that the fluid made from virgin, nonrecycled materials would not have?

You essentially perform a chemical analysis of the hazardous secondary material versus the virgin material, or of the products made from it, and you determine if there are extra toxic constituents in the hazardous secondary material that are not in the virgin material or in the product made from hazardous secondary materials but not in the product made from virgin materials. If there are other toxic constituents at levels that are not lower or comparable, the recycling is considered to be sham. If it is sham, the material used to make the reclaimed wiper fluid would be a solid waste, and potentially a hazardous waste, and in that case it would be subject to hazardous waste regulations.

My example is fairly easy to deal with. It becomes much harder when you have in-process manufacturing recycling—the kind of chemical loops of recycling that I talked about earlier.
 

RT: I was thinking as you were going through your example of plastics that are used in electronics that are treated with flame retardants. If those plastics were to go into a product that didn’t require flame retardants, would those chemicals be considered toxics along for the ride?

KK: Yes, yes they could be.

One of the problems with that fourth criterion is that the EPA has said the toxics in the secondary hazardous material must be lower or comparable to the toxics in virgin materials. What is “comparable to?” They don’t say within 10 percent or within 20 percent. They have given a few examples in their proposed rule, but they don’t lead you to good, quantitative numbers.
 

RT: Would these inspectors be from your local environmental agency or from the U.S. EPA?

KK: Both, because under RCRA there is concurrent enforcement jurisdiction.
 

RT: An inspector from the national EPA could say your levels are too high, while an inspector from your local environmental agency could say the numbers are acceptable?

KK: That is exactly right.
 

RT: When the EPA released this rule, it said metal recycling wouldn’t be affected. What are your thoughts?

KK: I think that largely all manufacturing operations have more at stake now and have more risk in light of the 2015 rule.

The EPA, throughout its preamble discussion in the Federal Register notice, talks about how in the past these recycling activities have always been considered legitimate and, therefore, should be considered legitimate going forward.

Companies now will have to evaluate the legitimacy, do toxics-along-for-the-ride analyses and make determinations as to whether, if they find a few constituents that are somewhat higher than virgin materials, that is legitimate recycling. Are they going to take the risk of being second guessed by an enforcement official? Or are they simply not going to take that risk and dispose of their valuable hazardous secondary materials and instead use virgin materials?

That will apply to all industries. It becomes more complicated and more problematic for companies whose manufacturing processes are looping and relooping secondary materials back into the process.

One of the other requirements of this rule is that the material be contained. That is easier in chemical manufacturing because you are typically dealing with liquids. In metals recycling, you are dealing with solids that are sometimes placed on the ground. Is that sufficient containment?
 

RT: How has the 2015 DSW rule altered existing exclusions?

KK: All of the existing exclusions are now subject to the legitimacy criteria. In the past, things like recycling in a closed loop that is done on-site where you are taking hazardous secondary materials from one part of the manufacturing process that ends up being looped into a reclamation unit via pipe and are used again in the same process or in an integrated process now you are going to have to demonstrate these four legitimacy criteria are met. That’s a whole new set of conditions that must be met in order to rely on these exclusions.

EPA believes these legitimacy criteria have always been factors that are considered by the regulated community and by regulators in the past, but this is the first time that these criteria are rules that have to be met and demonstrated if challenged in an enforcement action. And the burden is on the manufacturer or recycler to show that they are met.

There are some other changes. Speculative accumulation has now changed to require that you log when you begin to accumulate materials for recycling. The rules also changed the three major exclusions that were adopted by the Bush administration in 2008. They are called the generator controlled exclusions. There are more conditions that have to be met now in order to rely on the generator controlled exclusions under the 2015 rule. The 2015 rule does away with the transfer-based exclusion that was adopted in 2008 and has replaced it with the verified recycler exclusion, which is much more prescriptive. And the nonwaste exclusion has also become more prescriptive. For example, it has to be renewed every 10 years whereas that was not required under the 2008 rule.
 

RT: Can you talk a bit about how the transfer-based exclusion varies from the verified-recycler exclusion?

KK: If a company generates a secondary hazardous waste material and does not have the facilities on-site to reclaim it, and instead transfers the valuable material off-site to a third-party who does the reclamation—it is being transferred offsite, and could be excluded from regulation under the 2008 transfer-based exclusion. That was allowed under the 2008 rule provided certain safeguards were in place in terms of how the material was handled prior to transfer, how it was sent to the off-site reclaimer, recordkeeping, that the off-site reclaimer had the capacity to do the reclamation, and that there was legitimate reuse of the reclaimed material.

With the 2015 rule, basically EPA said: We’re not comfortable that the off-site reclaimer is legitimate so before we will allow this hazardous secondary material that is being sent off-site to be excluded from regulation, we are going to require that we evaluate the off-site reclaimer. EPA is going to verify the legitimacy of the off-site reclamation operation. You have to go through a process of verification now for the third-party reclaimer that you did not have to go through before—that is the main difference. And the criteria that the off-site reclaimer must meet in order to be verified are numerous and quite prescriptive.

One other point is that under the 2008 rule, the transfer exclusion allowed for transfer to reclaimers within the United States and outside U.S. The 2015 rule does away with the exclusion if the material is transferred outside of the U.S. That is potentially going to curtail recycling that occurs at specialized facilities outside of the U.S.
 

RT: Did they give their rational for that?

KK: If I recall correctly, they said they can’t really verify the foreign reclaimers’ operations. They have the ability to require a U.S. reclaimer to submit documentation to meet certain criteria and they can go out to visit to verify that it is a legitimate reclamation facility, but they don’t have jurisdiction to do that in foreign countries or to make foreign reclaimers provide that information.
 

RT: Will these verifications be based on site visits or on paper audits?

KK: I don’t think the rule itself requires the agency to do site visits. That is not to say that they wouldn’t come around to verify the off-site activity as being legitimate; in fact, they very well may. The rules don’t require that. It is more of a paper application and review process. There are two parts of it. There is the verification that the third-party recycler is legitimate and has the capacity and does not have a background that is suspect. Once verified, there are a number of conditions that have to be met in order to maintain the exclusion and those involve things like recordkeeping.

A couple of the more interesting criteria in order to be verified are that a recycler has not been subject to enforcement action in three years. Enforcement actions are quite common in environmental regulations. Many enforcement actions occur where minor violations are identified and minor penalties are assessed. You can’t run a recycling business and make investments in equipment in the hope that an inspector is not going to come by and find something wrong with your operation. These operations tend to involve hundreds of rules that have to be followed, and to be 100 percent in compliance is not an easy thing to do.

I don’t want to make too much of the transfer-based exclusion and the verified-recycler exclusion. The reality is that even under the 2008 rule, which was less prescriptive than the 2015 rule, it was still so uninviting to off-site reclaimers that they simply said they were going to get a hazardous waste permit and not rely on this exclusion. There really has been no use of the 2008 transfer-based exclusion, and there probably will be no use of the 2015 verified-recycler based exclusion simply because both are very prescriptive and burdensome, and the market has simply said it is safer and easier for us to consider this solid and hazardous waste.

The real changes and the real problem with the 2015 rile I think has to do with on-site recycling and in-process recycling operations. It also goes back to the first question you asked about–the court decision. The court said that if you have reuse of secondary hazardous materials in an ongoing manufacturing operation, that does not constitute discard. If you are reusing it on-site, almost by definition, it is in an ongoing manufacturing process. Whereas, if you send it off-site, it becomes harder to argue that that is reuse within an ongoing manufacturing process. When you are sending hazardous secondary materials off-site, the EPA is on stronger ground to consider that material to be discarded and to allow it to be excluded from regulation under stringent conditions. When you reuse the material on-site in a manufacturing process, the court will have to decide if all of these conditions are beyond EPA’s authority because the material hasn’t been discarded.

If I am a manufacturer and am recycling hazardous secondary materials in my process, once these rules take effect in the state where I operate, my options would be to go through the legitimacy criteria analysis and at least internally document it. I may decide that for some of these streams, I can’t meet the criteria because I don’t have an analogous product to compare it with or I’m not comfortable that my toxics along for the ride analysis is comparable. I may not be comfortable taking the risk of being second guessed by an inspector on those issues. So I may say I am not going to recycle this hazardous secondary material anymore and will instead buy virgin material and dispose of my hazardous secondary material rather than reuse it. Then you have less resource conservation, you have less recovery, both of which are key objectives of the Resource Conservation and Recovery Act. You have higher costs in your manufacturing operation, and you’re sending off material that has legitimate value to a landfill or hazardous waste treatment facility.

Another option would be to take that material and send it to a third-party reclaimer, but you would have to weigh the cost and risk of doing that versus sending it off to a disposal facility. Sometimes when you send off hazardous secondary materials to a reclaimer, you are paying the reclaimer to take that material and it is not as if you are getting paid for that material. The cost may exceed the cost of disposal.
 

RT: What about in the case of toll operations?

KK: Toll manufacturing is governed by the generator exclusions and it doesn’t have to be done on-site, it can be done off-site. There are certain criteria that have to be met to substantiate that the toll manufacturer is operating under a contract and that the material that is being reclaimed is being reused by the toll contractor. But that is one of the areas that is allowed under the new rules. The 2008 rule allowed that. The 2015 rule continues to allow it but creates additional criteria that must be met in order to rely on a toll-manufacturing exclusion.
 

RT: What options do generators and recyclers have for recycled hazardous secondary materials that do not meet the criteria of a specific DSW exclusion?

KK: In 2008 EPA adopted the nonwaste determination. It is essentially a case-by-case determination that is made where your material doesn’t fit within one of the many exclusions. You can file a petition with the EPA and ask for exclusion because your material is legitimately recycled and doesn’t create environmental risk. That is still in the regulations; it was not changed in whole by the 2015 rule, but in was changed in some important respects. If that determination is made today, in 10 years, you need to have it redetermined by the EPA, which makes it a less appealing option.
 

RT: What additional components of the 2015 DSW rule should recyclers and generators be aware of?

KK: The one thing to emphasis is that because there are numerous conditions to be met to rely on these exclusions, and some of those conditions are not quantitatively defined, there’s a lot more discretion that enforcement personnel with the agency inspectors will be able to exercise to second guess the exclusion. So there is more risk in recycling than there was before this rule. A company will have to consider whether to take that risk to reuse that valuable secondary material or to not take that risk and to have less resource conservation and recovery. That is really the troublesome part from a policy perspective of this rule; I think it really will discourage recycling and resource recovery that is legitimate and it will result in less reuse of valuable resources.

Kenneth Kastner is a partner with Washington-based Hogan Lovells. He can be contacted at ken.kastner@hoganlovells.com.