D.C. Circuit Upholds U.S. EPA’s HFC Cap-and-Trade Program Under AIM Act

On August 1, 2025, the U.S. Court of Appeals for the D.C. Circuit upheld the U.S. Environmental Protection Agency’s (EPA) authority under the American Innovation and Manufacturing (AIM) Act to phase down hydrofluorocarbons (HFCs) through a cap-and-trade program. In IGas Holdings, Inc. v. EPA, No. 23-1261, a unanimous panel rejected constitutional and administrative law challenges from refrigerant industry members, finding that the AIM Act provides a clear “intelligible principle” to guide EPA’s allowance allocation. The Court also held that EPA’s decision to exclude 2020 market data from its allocation methodology was not arbitrary and capricious.

Background

HFCs are cooling agents commonly used in refrigeration and air conditioning, but are also considered potent greenhouse gases (GHG). To address their climate impact, Congress passed the AIM Act in 2020, which mandates an 85% reduction in U.S. HFC production and consumption by 2036. The Act authorizes EPA to implement a cap-and-trade program, modeled on prior similar programs under Title VI of the Clean Air Act, by issuing production and consumption allowances.

EPA issued implementing rules in 2021 and 2024, calculating allowances based on market data on participants’ historical market share from 2011 to 2019. Industry members challenged the 2024 rule on two separate legal grounds, which were consolidated into a single appeal before the D.C. Circuit.

D.C. Circuit’s Decision

Writing for the panel, Judge Pan addressed the two challenges:

Non-delegation: The Court concluded that Congress did not grant EPA “unbounded discretion,” but instead provided an “intelligible principle” to guide the agency’s actions. It emphasized that the non-delegation doctrine has historically been invoked only in rare circumstances and successfully used to invalidate federal laws just twice — both in 1935. Outside those cases, courts have upheld broad delegations of authority to agencies.

The AIM Act, the Court explained, meets constitutional requirements because it outlines a detailed framework for capping and trading HFC allowances. While not explicit, the Court found that the Act’s structure makes clear that Congress intended EPA to model the HFC program on two prior Clean Air Act schemes under Title VI. The Court further noted that determining allowance allocation in a cap-and-trade system is a highly technical matter — precisely the kind of decision for which Congress may permissibly grant agencies substantial discretion.

Arbitrary and Capricious: Industry members also challenged EPA’s 2024 rule as arbitrary and capricious, arguing that the agency improperly excluded 2020 data when calculating market share, instead relying only on data from 2011 to 2019. The D.C. Circuit rejected this claim, finding that EPA had reasonably justified the exclusion. EPA explained that 2020 market conditions were atypical due to the COVID-19 pandemic and related supply-chain disruptions, and that using such data could distort the allowance allocation and destabilize the market. EPA’s decision, the Court held, reflected a reasoned policy judgment and was supported by stakeholder input, including from industry groups representing the HVAC and refrigeration sector.

Key Takeaways

The ruling affirms EPA’s statutory authority to administer a cap-and-trade program under the AIM Act for the phase-down of HFCs. It also affirms an EPA regulation of one type of GHGs at a time when EPA is reevaluating other measures — such as its reconsideration of the 2009 endangerment finding and the proposed repeal of power-plant GHG regulations.

Stakeholders should closely track EPA’s forthcoming allocation rulemakings and remain alert to the possibility of Supreme Court review, as both could influence the direction of the HFC phase-down and impact long-term compliance strategies.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.