Jun 92022

EPA Defends Hydrofluorocarbons Cap-and-Trade Rule

Jagdeep Singh and Samuel B. Boxerman
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In a June 2, 2022, brief addressing the U.S. Court of Appeals for the D.C. Circuit’s review of the final rule regarding the hydrofluorocarbons (HFCs) cap-and-trade program (Final Rule or Framework Rule), the Environmental Protection Agency (EPA or Agency) argued that the challenged measures of the Final Rule are within its statutory authority under the American Innovation and Manufacturing Act of 2020 (AIM or the Act). The Framework Rule is a part of the Agency’s efforts to achieve AIM’s objective of reducing manufacturing and consumption of 18 saturated HFC chemicals by 85% by 2036.

HFCs are greenhouse gases (GHGs) commonly used in a wide range of applications, including refrigeration, air conditioning, building insulation, and aerosols. The review is a result of consolidation of three cases filed by companies that are a part of the refrigerant industry, asking the court to vacate certain sections of the Framework Rule alleging that EPA has exceeded its authority and imposes overly burdensome requirements. How the court evaluates this challenge could inform future legislation and regulation of GHGs.

The petitioners argued that because an HFC blend is an entirely different substance from its components, the EPA cannot require blend importers to use their allowances, under the cap-and-trade program, for blend components. The Agency responds that the components of a blend and their amounts can be identified even after the blending. The EPA also argues that allowing the industry to import blends without expending an allowance would defeat the purpose of the entire program, which is to reduce GHG emissions.

More broadly, the petitioners have invoked the nondelegation doctrine to argue that the Act impermissibly delegated legislative authority to the EPA, a rarely invoked doctrine that has gained more currency recently in various contexts. In addition to arguing that any nondelegation arguments are not properly before the court because they were not raised during the public comment period, EPA argues that the contention lacks merit because the delegation at issue is fairly narrow. The Agency argues that Congress defined the nature and purpose of allowances, provided methodology for determining the number of allowances, identified the uses that must receive priority access to allowances, created the process for identifying other priority uses, and delegated to the EPA the responsibility to allocate the remaining allowances among producers, importers, or users of HFCs.

The refrigerant industry is closely watching the review of a key instrument of AIM — a law intended to have a rapid impact.

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.

Jagdeep Singh

Samuel B. Boxerman

Washington, D.C.

sboxerman@sidley.com

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