On December 10, 2014, the U.S. Environmental Protection Agency (“EPA”) issued its long-awaited revisions to the definition of solid waste rule (“Final DSW Rule”) under the Resource Conservation and Recovery Act (“RCRA”). The Final DSW Rule scales back certain important RCRA recycling exemptions that were first promulgated as part of a contentious rulemaking in 2008 (“2008 DSW Rule”). It also adds new regulatory factors that all recycling activities must meet, including long-standing exemptions that pre-date the 2008 DSW Rule. While the Final DSW Rule provides additional clarification and flexibility absent from EPA’s original proposal in 2011, uncertainties remain and the application of new factors to existing exemptions will increase the regulatory burdens associated with the recycling of certain hazardous materials. Likewise, the notification and reporting obligations imposed on generators and recyclers of hazardous materials promise to elevate EPA and state oversight and enforcement over industries’ recycling activities. For companies that rely on RCRA recycling exemptions in handling hazardous materials, the key changes in the Final DSW Rule that impact operations are as follows:
- Legitimacy – Flexible approach for determining whether a recycling activity is legitimate is replaced by four mandatory factors.
- Broader application – Legitimacy factors apply to both generators and recyclers and extend not only to exemptions first introduced in the 2008 DSW Rule but to all recycling exemptions under RCRA.
- Off-site recycling – The transfer-based exemption established in 2008 is replaced by a requirement to send any recyclable materials off-site to a “verified recycler” – i.e., a facility that has a RCRA Part B permit or has been granted a solid waste variance from EPA.
- On-site recycling – Additional requirements apply to generators who recycle hazardous materials on-site.
- Variances and non-waste determinations – Revisions require notice to EPA and technical changes that provide opportunities for EPA to better track variances and non-waste determinations and evaluate them over time.
- Remanufacturing – An exemption is established for 18 high-value spent solvents that are recycled and reused in the pharmaceutical, organic chemical, plastics and resins, and paint and paint coatings industries.
I. DSW RULEMAKING BACKGROUND
The Final DSW Rule focuses on defining the circumstances under which hazardous secondary materials – i.e., spent materials, by-products and sludge that, when discarded, are identified as hazardous waste under the Act – are regulated under RCRA. EPA began the rulemaking process after several court decisions held that EPA’s regulatory definition of solid waste was overly broad and did not clearly identify when a material was discarded. EPA issued the 2008 DSW Rule in response to these cases, revising the definition of solid waste to exclude certain categories of material that were being recycled both on-site and off-site. 73 Fed. Reg. 64668 (Oct. 30, 2008). The 2008 DSW Rule was adopted in six RCRA-authorized states – Alaska, Iowa, Idaho, Illinois, New Jersey and Pennsylvania. The Sierra Club challenged the 2008 DSW Rule, and EPA committed in a settlement to issue a new proposed rule in 2011 and a final revised DSW rule by December 2012. The Final DSW Rule is the culmination of EPA’s regulatory efforts. In response to the litigation and Agency concerns that the 2008 DSW Rule did not provide the tools necessary for proper oversight of commercial recycling facilities and resulted in the mismanagement of hazardous materials, EPA introduced a draft rule in 2011. The 2011 proposal significantly scaled back the exemptions afforded by the 2008 DSW Rule and imposed new requirements on recycling exemptions that pre-dated the 2008 DSW Rule. The 2011 proposal, especially EPA’s effort to expand its authority over well-established recycling exemptions, prompted strong reactions by industry which anticipated substantial impacts to their operations if the rule were finalized as proposed. This rulemaking extended well beyond the December 2012 deadline and included a nearly eight month review by the Office of Management and Budget (“OMB”). The Final DSW Rule will go into effect 180 days after the Federal Register publication date. However, authorized states will need to separately adopt the new provisions before the Final DSW Rule will go into effect in those states.
II. THE FINAL DSW RULE IMPACTS ALL RECYCLING ACTIVITIES
As discussed further below, the Final DSW Rule makes several key changes to the definition of solid waste that will impact recycling operations. First, the Final DSW Rule requires that all recycling activities, regardless of the regulatory exclusion and including pre-2008 exemptions, must meet four mandatory legitimacy factors. Second, if an entity is sending its hazardous secondary materials to an off-site recycling facility and that activity does not fall under a pre-2008 regulatory exclusion such as the scrap metal recycling exclusion, then the materials must be sent to a “verified recycler.” Third, if an entity is recycling its hazardous secondary materials on-site under its control, then the material must be managed in accordance with new containment standards and certain documentation and recordkeeping requirements must be met. The Final DSW Rule also implements changes to EPA’s solid waste variance and non-waste determination process, and establishes a remanufacturing exclusion for certain higher-value hazardous spent solvents.
A. Four Mandatory Legitimacy Factors
The Final DSW Rule marks the first time that all recycling activities under RCRA will have to satisfy a four-prong mandatory legitimacy test. This is a departure from EPA’s prior reliance on guidance that a facility could consider a variety of criteria on a case-by-case basis in evaluating whether a particular recycling activity is legitimate. See, e.g., Memorandum from S. Lowrance, Director of Office of Solid Waste to Hazardous Waste Management Division Directors, Region I-X, RCRA Online (April 26, 1989) (the “Lowrance Memo”). EPA’s prior approach provided the flexibility to account for a wide range of materials and activities covered by the RCRA exemptions. Failure to comply with one particular factor did not necessarily render the recycling activity a “sham.” Under the 2008 DSW Rule, EPA began the move toward codifying the legitimacy determination, but only advanced two factors as mandatory, leaving two others for consideration in light of the unique circumstances confronted by the recycler. This legitimacy test also only applied to the exemptions that were established in the 2008 rulemaking (i.e., the off-site, transfer-based exclusion and the on-site, generator-controlled exclusion). In its 2011 proposed rule, EPA went further making the four factors mandatory and applying them to all recycling activities. The Final DSW Rule maintains this approach; any activities that do not meet all four factors are no longer considered legitimate and therefore must be regulated as hazardous waste under Subtitle C. It appears that both generators and recycling facilities must assess the legitimacy of the recycling activity and meet the four factors.
1. Codification of the Legitimacy Factors
The four legitimacy factors are:
- Factor 1 – the secondary hazardous material must provide a useful contribution to the recycling process or to a product or intermediate of the recycling process.
- Factor 2 – the recycling process must produce a valuable product or intermediate.
- Factor 3 – the generator and the recycler must manage the hazardous secondary material as a valuable commodity when it is under their control.
- Factor 4 – the product of the recycling process must be comparable to a legitimate product or intermediate.
Factor 1 is intended to ensure that the hazardous secondary material contributes value to the recycling process. The Final DSW Rule identifies five ways that the material can provide a useful contribution, including if it is used as an effective substitute for a commercial product. Factor 2 focuses on whether the product of the recycling process is a material of value – to a buyer or to the generator or the recycler itself. Factor 3 emphasizes EPA’s expectation that all parties handling hazardous secondary materials destined for recycling will handle them in the same manner as valuable raw materials. Finally, Factor 4 is intended to determine when toxics are “along for the ride” to be discarded in a final product rather than being legitimately recycled. While comments were submitted on all four proposed legitimacy factors, Factor 4 has been the source of particular scrutiny during the rulemaking, as many in the regulated community raised concerns about being able to meet that factor or conclusively determine if they have satisfied it. In response, EPA has revised Factor 4 in an effort to build in some of the flexibility afforded by previous EPA guidance. Under the Final DSW Rule, in situations where there is an analogous product, the recycled product is “comparable” to a legitimate product if (a) it does not exhibit a hazardous characteristic that the analogous product does not exhibit and (b) it contains hazardous constituents (i) at levels comparable to or lower than those found in the analogous product, or (ii) at levels that meet widely recognized commodity standards and specifications that specifically address the relevant constituents. On the other hand, if there is no analogous product to compare against, a recycled product will meet Factor 4 if it “is a commodity that meets widely recognized commodity standards” (e.g., standards established by ASTM) or if the hazardous secondary materials being recycled are returned to the original process from which they were generated to be reused (e.g., closed loop recycling). A recycling activity can be considered “legitimate” even if it cannot meet Factor 4 by satisfying certain documentation, certification and notification requirements. This process is intended to replace the petition process in the 2011 proposed rule, which many had argued would be impossible for EPA to implement in practice. Instead of a petition, the recycling facility can show legitimacy by documenting that the recycled product does not contain levels of hazardous constituents that pose a significant risk to human health or the environment. The documentation must include a certification statement by a responsible official that the recycling is legitimate. And, the recycling facility must notify regulatory authorities that it is taking advantage of this provision by reporting the type of hazardous secondary material and recycling process being used through EPA’s hazardous waste Form 8700-12. This is intended to be a self-implementing process; facilities do not have to wait for any decisions from the Agency regarding whether the recycling is legitimate. EPA has concluded that documentation of the legitimacy determination is not required except when Factor 4 cannot be satisfied or when recycling is being conducted under the control of the generator, discussed further below.
2. Application of Legitimacy Factors To All Recycling Exemptions
The Final DSW Rule applies the legitimacy factors not only to the more limited exemptions first set forth in the 2008 DSW Rule, but to all RCRA recycling exemptions. Consequently, material that is being recycled under pre-2008 exclusions will remain exempt from regulation as hazardous waste only if new requirements are satisfied. EPA’s proposal to regulate anew these well-established recycling exemptions was the source of significant outcry during the comment period. In response, EPA clarifies in the Final DSW Rule that it is not intending to supersede any of the pre-2008 solid waste exclusions. As explained in the Final DSW Rule, the Agency’s view is that the vast majority of recycling performed under existing exclusions will be considered legitimate under the new legitimacy test with no further action required. EPA uses the following examples to illustrate its point:
- Scrap metal – EPA maintains that the scrap metal recycling exclusion is an activity that, if conducted in accordance with existing RCRA requirements, is likely to meet the legitimacy factors and therefore can continue to be conducted after issuance of the Final DSW Rule without any additional obligations. Excluded scrap metal that contains recoverable metals will be considered to provide a useful contribution to the product of the recycling process, thereby satisfying Factor 1. Factor 2 will be met if the recycling process produces a valuable metal product. If the recycler and generator use appropriate handling and good management practices to store and manage the scrap metal to prevent releases to the environment, then that will satisfy Factor 3. Importantly, EPA explains that storage of scrap metal material on the ground is consistent with Factor 3, provided that large pieces of scrap metal are not swept away with runoff. And, as long as the recovered metal meets widely-recognized commodity standards/specifications for the metal product, Factor 4 will be satisfied.
- Circuit boards – Shredded circuit boards that contain recoverable metals that provide a useful contribution to the product of the recycling process and are sent to a recycling process that produces a valuable metal product will satisfy Factors 1 and 2, respectively. Pursuant to the existing RCRA shredded circuit board exclusion, the material must be stored in containers sufficient to prevent a release to the environment, which in turn will satisfy legitimacy Factor 3. The exclusion also requires that the circuit boards be free of mercury switches, mercury relays and nickel-cadmium and lithium batteries, which will fulfill Factor 4.
The preamble to the Final DSW Rule includes similar analyses for other long-standing recycling exclusions. EPA has decided to defer certain issues raised in the 2011 proposal including whether to require entities operating under pre-2008 exclusions to meet the new contained standard, discussed below, or notify the Agency of their activities. EPA acknowledged that further study on these issues is needed in light of the comments received during the rulemaking process.
B. Off-Site Recycling Conducted by a Verified Recycler
The 2008 DSW Rule excluded from the definition of “solid waste” those hazardous secondary materials that were transferred off-site for legitimate recycling. 40 C.F.R. § 261.4(a)(24). Under this “transfer-based” exclusion, hazardous secondary materials destined for off-site recycling that met certain criteria were not considered to be hazardous waste and therefore fell outside of the RCRA Subtitle C hazardous waste regulatory scheme. In response to concerns that this exclusion did not allow for sufficient regulatory oversight, EPA proposed to eliminate this exclusion in the 2011 proposed rule and regulate all such material as hazardous waste under Subtitle C. The Final DSW Rule does not do away with the transfer-based exclusion altogether, instead replacing it with a “verified recycler exclusion.” EPA has concluded that it was unnecessary to regulate all material sent off-site for recycling under Subtitle C, since that would result in the regulation of certain materials that have not been discarded. However, the requirement that the materials be sent to a verified recycler takes away the generator’s right under the 2008 DSW Rule to independently determine if a recycling facility is legitimate using self-implementing “reasonable efforts.” To allow for greater oversight, hazardous secondary materials must now be sent to a “verified recycler” – that is, a facility that has a RCRA Part B permit or a facility that has been granted a solid waste variance from the Agency. The RCRA permit must cover the management of the materials being recycled in order to qualify as a verified recycler. To qualify for a variance, a facility must address a variety of criteria, including that the reclamation process is legitimate, and that the facility has not been subject to formal enforcement in the previous three years. The variance process allows for public participation through public comment and an opportunity for hearing. According to EPA, all facilities that are currently recycling hazardous secondary materials under the 2008 transfer-based exclusion will be able to continue to recycle those materials under the verified recycler exclusion because all such recycling is being done at RCRA-permitted facilities. In addition to the requirement that the hazardous secondary materials be sent to a verified recycler, the recycling activity must meet the four legitimacy factors previously discussed. Certain other requirements must also be met, many of which are carried over from the 2008 DSW Rule: • As required under the 2008 rule, neither the recycler nor the generator can speculatively accumulate the hazardous secondary materials.
- As required under the 2008 rule, generators and recyclers operating under this exclusion must first notify EPA and provide follow-up notification by March 1 of each even-numbered year. However, unlike the 2008 DSW Rule, failure to submit this notice will no longer be treated by regulators as a paperwork violation but instead will nullify the exclusion.
- As required under the 2008 DSW Rule, generators and recyclers must satisfy certain recordkeeping requirements related to the shipments of hazardous secondary materials sent and received.
- As required under the 2008 DSW Rule, reclaimers must manage material in a manner at least as protective as that used for the analogous raw material. If there is no analogous material, then the material must be contained.
- As required under 2008 DSW Rule, reclaimers must satisfy financial assurance obligations.
- Both generators and recyclers must ensure that the materials meet new containment requirements, discussed further below.
- Depending on whether the generators accumulate more or less than 6,000 kg of hazardous secondary material, they must meet emergency preparedness and response requirements for small quantity waste generators (i.e., maintaining appropriate emergency equipment, access to alarm systems, maintaining needed aisle space, and making arrangements with local emergency authorities) or those requirements for large quantity generators (i.e., the small quantity generator obligations plus the development of a contingency plan that must be shared with local emergency responders).
These requirements do not apply to material that is being legitimately recycled off-site under a pre-2008 exclusion.
C. On-site Recycling Under the Control of the Generator
Along with the transfer-based exclusion, the 2008 DSW Rule excluded from the definition of “solid waste” hazardous secondary materials that were legitimately recycled under the control of the generator. Consistent with its 2011 proposal, the Final DSW Rule retains this exclusion with certain significant revisions. Hazardous secondary materials are considered to be “under the control of the generator” in the following circumstances: (1) when they are generated and reclaimed at the generating facility; or (2) when they are generated and reclaimed at different facilities, if (a) the generator certifies that the materials are sent to a facility controlled by the generator or a facility under common control with the generator, (b) the recycler or the generator acknowledge responsibility for the safe management of the materials, and (c) certain recordkeeping requirements are met; or (3) they are generated and reclaimed pursuant to a written agreement between a tolling contractor and toll manufacturer, if certain certification and recordkeeping requirements are met. The Final DSW Rule requires that the following conditions be met to operate under this exclusion:
- The materials must meet a new “contained” standard. In particular, the storage unit must be in good condition with no leaks and designed to prevent releases. The unit must be properly labeled or the generator must have a system such as a log to immediately identify the materials in the unit. And, the unit cannot hold incompatible materials.
- Generators, reclaimers, tolling contractors and toll manufacturers operating under this exclusion must first notify EPA and provide follow-up notification by March 1 of each even-numbered year. As with the verified recycler exclusion notification requirement, failure to submit this notice will no longer be treated by regulators as a paperwork violation but instead will nullify the exclusion.
- Documentation is now required to demonstrate compliance with speculative accumulation storage limits. Material must be placed in properly labeled storage units or another appropriate method such as an inventory shall be used if labeling is not practicable.
- Recordkeeping will be required for tolling contractors and manufacturers.
- Generators must comply with RCRA emergency preparedness and response regulations, depending on the quantity of hazardous secondary materials accumulated on site at any time, similar to the obligation under the verified recycler exclusion, described above.
In addition, any generator engaged in the recycling of hazardous secondary materials under its control must conduct an assessment to confirm that the recycling activities meet the four-prong legitimacy test outlined above. Entities performing the recycling of hazardous secondary materials under this exclusion also will have to document this legitimacy determination and maintain such written determination in its files.
D. Variance and Non-Waste Determinations
EPA has revised RCRA’s variance and non-waste determination processes to promote additional consistency among implementing agencies and to ensure protection of human health and the environment. The changes require agency notification and enable EPA to evaluate and weigh in on operational changes and reassess variances and non-waste determinations over time. In particular, the following revisions have been adopted in the Final DSW Rule:
- Facilities must notify EPA if there is a change in circumstances that affects how a hazardous secondary material meets the criteria upon which a variance or non-waste determination was based. EPA may determine that the material continues to meet the criteria or require the facility to re-apply.
- Variances and non-waste determinations must include fixed terms of no more than 10 years and must reapply no later than six months prior to the end of the term to maintain the variance or non-waste determination.
- Facilities that receive a variance or non-waste determination must notify regulatory authorities prior to operating under the variance or non-waste determination and then re-notify prior to March 1 of every even-numbered year.
- The “partial reclamation” variance is clarified to reduce discrepancies among the different states granting variances and eliminate variances for materials that are not “commodity-like.”
- Facilities seeking a non-waste determination petition will have to explain why they cannot or should not have to meet an existing solid waste or hazardous waste exclusion.
E. New Exclusion for the Remanufacturing of High-Value Hazardous Spent Solvents
Finally, EPA has finalized its proposed exclusion from the definition of solid waste for the “remanufacturing” of 18 “high value” spent solvents: toluene, xylenes, ethylbenzene, 1,2,4-trimethylbenzene, chlorobenzene, n-hexane, cyclohexane, methyl tert-butyl ether, acetonitrile, chloroform, chloromethane, dichloromethane, methyl isobutyl ketone, NN-dimethylformamide, tetrahydrofuran, n-butyl alcohol, ethanol, and methanol. Allowing the recycling of these solvents for certain uses is intended to extend the life-cycle of the solvents and reduce the amount of virgin solvent produced. In order to qualify for this exclusion, the remanufactured solvent must be used in one of four specific functions – reacting, extracting, purifying or blending chemicals – or must be used as an ingredient in a product. The exclusion is limited to companies in four industry sectors: the pharmaceutical, organic chemical, plastics and resins, or paint and coatings manufacturing sectors. Subsequent use cannot involve cleaning or degreasing oil, grease or similar material. EPA’s goal in selecting the functions was to limit recycling to uses where the chemicals serve the same functional purpose as the original commercial-grade materials. Further, the exclusion can only be used by a company whose primary business is manufacturing in the four sectors referenced above. As with the other solid waste exclusions outlined herein, the remanufacturing activity must also meet the four legitimacy factors for the exclusion to apply. In addition, EPA has set out several requirements that generators and/or remanufacturers must meet in order to take advantage of the exclusion:
- Generators and remanufacturers must notify EPA prior to operating under the exclusion and then by March 1 of each even number year thereafter.
- Generators and/or remanufacturers must develop a remanufacturing plan that demonstrates that they meet the requirements, including a certification by the remanufacturer.
- Generators and remanufacturers must maintain at their facilities three years of shipment records of hazardous spent solvents. Additionally, generators must retain confirmation of receipt for all off-site shipments.
- Spent solvents must be managed in RCRA tanks and containers and remanufacturers must certify that equipment, vents and tanks are equipped with and are operating air emission controls in compliance with the Clean Air Act.
- Generators and remanufacturers must satisfy the speculative accumulation restrictions.
EPA recognizes that other hazardous secondary materials, industry sectors or functional uses may be appropriate for inclusion in this remanufacturing exclusion. The existing RCRA rulemaking petition may be used to seek amendments to this exclusion.
III. POTENTIAL IMPLICATIONS OF THE FINAL DSW RULE HIGHLIGHT UNCERTAINTIES
The Final DSW Rule provides clarification and some flexibility that was absent from EPA’s original 2011 proposal. However, the expansion of the legitimacy factors to all recycling activities along with the revisions to the 2008 regulatory exemptions raise a host of unresolved implementation questions and will increase regulatory costs and burdens, undermining EPA’s stated goal of encouraging recycling activities. At the most basic level, the fact that entities operating under the 2008 off-site and on-site recycling exclusions will have to modify their practices in order to continue to engage in those recycling activities may force some to stop recycling and may raise the cost of the recycling of hazardous secondary materials. In addition, while the Final DSW Rule unequivocally applies a four-prong legitimacy test to all recycling activities, EPA has not addressed important practical implications. The legitimacy determination appears to require compliance by both the generator and the recycler, in particular to ensure compliance with the management requirements of Factor 3. Yet, nowhere does EPA address the implications if either the generator or the recycler fail to satisfy the legitimacy test. On its face, it appears that if a generator fails to manage its hazardous secondary materials as a valuable commodity and therefore does not meet the legitimacy test, then the recycling process will be considered a “sham” and the recycler arguably will be accepting hazardous waste instead of a recyclable material. This interplay between the generator and the recycler needs to be addressed by EPA. There is also uncertainty around the documentation, certification and agency notification process that is being established as an alternative if legitimacy Factor 4 cannot be satisfied. This process is intended to replace the controversial petition process that many argued would impose significant costs and delay. Although the Factor 4 process adopted in the Final DSW Rule is intended to be self-implementing, EPA acknowledges that this information will be used for agency oversight and inspections. If legitimacy determinations are subsequently questioned, then a seemingly streamlined process may become just as onerous and time consuming as the petition process EPA is trying to avoid, resulting in regulatory burdens and enforcement risk for generators and recycling facilities. Ultimately, given the scope and breadth of reporting and disclosure obligations, industry can expect greater federal and state oversight, inspection and enforcement of facilities that seek to take advantage of the RCRA recycling exemptions. Only time will tell whether this specter of enforcement will discourage companies from pursing authorized recycling under the Final DSW Rule. What is clear, though, is that the heightened scrutiny and enforcement risks will mandate diligence to ensure recycling initiatives comply with these expanded regulatory requirements. In addition to examining the adequacy of storage containers, processes and emergency response plans, as applicable, companies will want to consider, in conjunction with technical experts and legal counsel, the basis, validity and sufficiency of their legitimacy determinations and associated documentation. Proceeding cautiously and documenting compliance with legitimacy and other requirements, even when not expressly obligated, appears prudent at least until ambiguities in implementation are resolved and the Agency’s intentions with respect to oversight and enforcement are better understood. EPA has acknowledged in its initial commentary on the Final DSW Rule that its guidance on the final rule has been at a high level and limited to date. The Agency intends to hold explanatory webinars beginning next month and likely will issue additional guidance on the Final DSW Rule, which hopefully will address these practical implications in greater detail.