The Environmental Protection Agency (EPA) overstepped its authority under the Clean Air Act (CAA) with a 2015 rule that required companies to replace non-ozone-depleting hydrofluorocarbons (HFCs) with other chemicals, according to the federal D.C. Circuit. The court in Mexichem Fluor, Inc. v. EPA vacated the portion of the rule that required companies to stop using HFCs that the Agency had previously approved. Under the court's reasoning, industrial and commercial sectors that have relied on EPA approvals (including air conditioning, refrigeration, heat pumps, foams, and other applications) will no longer have to rely on those specific approvals. Consistent with court procedure, absent an appeal or further rulemaking, the order vacating this portion of the rule will go into effect by September 22, 2017.

HFCs were broadly adopted as alternatives to ozone-depleting substances (ODSs) in the 1990s under the Montreal Protocol, the international treaty adopted in 1987 to protect the ozone layer. In the U.S., their adoption was encouraged through application of EPA's Significant New Alternatives Policy (SNAP) Program, which was created to help implement U.S. obligations under the Montreal Protocol. In creating the SNAP Program under the CAA, Congress gave EPA explicit authority to regulate substances that "replace" ODSs.

Importantly, although they do not deplete stratospheric ozone, HFCs have significant global warming potential relative to other greenhouse gases like carbon dioxide. In 2015, following earlier failures by Congress to address global warming, President Obama announced a series of executive branch measures to combat climate change that would not require legislative agreement. Among those, President Obama directed EPA to use the SNAP Program to restrict the use of HFCs. In its 2015 rule, EPA essentially banned 38 HFCs used in aerosols, refrigerants, foam blowing, and car air conditioning. 

In the 2015 rule, EPA defined "replace" in a way that gave it perpetual authority in sectors that ever used ODSs. In the court's view, Congress gave EPA authority only to evaluate and approve or disapprove substances that might replace ODSs, not to force users to make yet another switch to alternative chemicals after ODSs had been replaced. In so holding, the court adopted the common meaning of "replace": namely, "a new thing taking the place of the old." EPA's contrary definition, according to the court, "borders on the absurd." 

SNAP approval has long been an important signal to the market, and commercial use of unapproved substances has been limited. Under this decision, however, EPA approval will no longer be generally necessary. Specifically, using a non-ODS chemical in place of another non-ODS chemical - like HFCs - will be permissible without SNAP review. (EPA will continue to have authority over the replacements for any ODS that may still remain in use.) Companies may continue to use HFCs approved at the time the manufacturer made the "replacement" of an ODS. The Mexichem ruling may effectively end the SNAP Program for users and sectors that have moved entirely away from ODSs.

The ruling may not be the final word on the fate of HFC use. In the short term, either EPA or the parties that intervened in the case to support EPA's position could appeal the Mexichem decision either to the full D.C. Circuit or to the Supreme Court. Such a filing would ordinarily delay the effective date of the decision (the duration of the delay would depend on the nature of the filing and the request of the party or parties filing the appeal). The court also pointed to a potential alternative legal theory for the delisting of HFCs - "retroactive disapproval" - although the court suggested that EPA would bear a heavy burden to successfully invoke that theory. Importantly, the U.S. has still to ratify the Kigali Amendment to the Montreal Protocol, which would create the framework for a global phaseout of HFCs similar to the framework governing the phaseout of ODSs. Ratification of the amendment would be the first step in possible new authority for EPA to implement a system to regulate HFCs, but that may be a longer-term possibility.

If the decision stands as is, the contours of the SNAP Program will be changed dramatically.