On April 5, 2019, the D.C. Circuit largely struck down another regulation restricting the use of hydrofluorocarbons (HFCs) in certain products under EPA’s Significant New Alternatives Policy (SNAP). The court held that it was bound by its prior decision regarding SNAP Rule 20 (Mexichem I) in the case before it concerning SNAP Rule 21 (Mexichem II) based on the legal doctrine of issue preclusion. See Mexichem Fluor, Inc. v. EPA, No. 17-1024 (D.C. Cir. Apr. 5, 2019). 

SNAP Rules 20 and 21 restrict manufacturers from using HFCs in aerosols, motor vehicle air conditioners, commercial refrigerators, and foams, with SNAP Rule 21 specifically limiting the use of HFCs in foam-blowing agents for closed cell foam products. See 80 Fed. Reg. 42870 (July 20, 2015) (SNAP Rule 20) and 81 Fed. Reg. 86778 (Dec. 1, 2016) (SNAP Rule 21), both codified at 40 C.F.R. Part 82 Subpart G. HFCs have been used since the 1990s to replace ozone-depleting substances (ODS) pursuant to Title VI of the Clean Air Act, but have a high global warming potential due to their capacity to trap heat in the atmosphere. 

In Mexichem I, the D.C. Circuit held in an opinion authored by then-Judge Kavanaugh that although EPA has authority to prevent manufacturers of ODS from replacing those substances with HFCs, the agency does not have authority to require manufacturers to replace HFCs already in use as ODS substitutes with substances that have a lower global warming potential. See Mexichem Fluor, Inc. v. EPA, 866 F.3d 451 (D.C. Cir. 2017). The Supreme Court denied certiorari in Mexichem I on October 9, 2018. In Mexichem II, the court held that its prior ruling is binding with respect to SNAP Rule 21, and rejected arguments from intervenors that a timeliness challenge not expressly decided in Mexichem Ishould permit an alternative outcome.

Next Steps from EPA and the Trump Administration

The Mexichem II decision was generally expected by the legal community, but is another blow to the prior administration’s efforts to regulate greenhouse gases. Indeed, although EPA defended SNAP Rule 20 in Mexichem I shortly after President Trump took office, the agency sided with HFC manufacturers this time in Mexichem II. 

In addition, although the D.C. Circuit left intact a portion of SNAP Rule 20 to the extent that it prohibits the replacement of ODS with HFCs, EPA announced in April 2018 that it was suspending application of SNAP Rule 20 in its entirety pending a rulemaking to address the remand of the rule. See 83 Fed. Reg. 18431 (Apr. 27, 2018). The per curiam opinion in Mexichem II is silent regarding remanding the rule to the agency, but it is expected that EPA will take similar action to suspend application of the portions of SNAP Rule 21 that were not vacated. (The agency’s suspension of SNAP Rule 20 is currently being challenged in the D.C. Circuit by environmentalists and several states. SeeNRDC v. Wheeler, No. 18-1172 (D.C. Cir.).) 

Meanwhile, EPA has not taken action on the rule it proposed last October to rescind its 2016 application of certain appliance refrigerant leak repair and maintenance rules to HFCs. See 83 Fed. Reg. 49332 (Oct. 1, 2018). EPA also failed to extend the January 1, 2019 compliance deadline for those rules, despite suggesting an extension might be forthcoming while it considers comments on the proposed rule. Industry litigation that was brought to challenge the 2016 rule is currently being held in abeyance, pending EPA’s proposed revisions. See NEDA v. EPA, Case No. 17-1017 (D.C. Cir.). Consequently, the refrigerant management rules as amended in 2016 – including the HFC-related controls – have now taken effect as a matter of law. 

EPA also indicated last October that it was considering whether the 2016 extension of refrigeration management requirements to HFCs should be rescinded in its entirety. A more complete summary of that proposed rule is available here.

The Trump Administration still has not indicated whether it intends to ratify the Kigali Amendment adding HFC controls to the Montreal Protocol, despite broad industry support for the pact. Implementation of U.S. obligations under domestic law pursuant to the Kigali Amendment would be increasingly difficult in the face of these HFC deregulatory actions and court decisions and may require new legislation to facilitate implementation. 

State Responses

In response to these deregulatory efforts and judicial decisions, a growing number of states have taken action on HFCs or announced their intent to do so, utilizing authorities available under state laws. 

The California Air Resources Board (CARB) adopted rules last March that replace some of the SNAP Rule 20 regulations vacated in Mexichem I and SNAP Rule 21 regulations it correctly anticipated would be vacated in Mexichem II. In September 2018, the California Cooling Act (S.B. 1013) was passed, generally codifying into state law SNAP Rules 20 and 21, and covering a number of HFC end-uses not covered by CARB’s earlier action, including chillers, residential refrigerator‐freezers, several foam end‐uses, and aerosol propellants.

New York announced in September 2018 that it plans to adopt regulations by the end of 2019 phasing out HFCs in certain applications. Since that time, the state has been accepting informal comments from industry on a pre-proposal stakeholder draft of its rule released in September and revised in November.

The Washington state House passed H.B. 1112 on March 1, 2019, requiring reductions in the use of HFCs. The bill is currently under consideration in the state Senate (S.B. 5426). 

Maryland and Connecticut announced in September 2018 that they intend to promulgate regulations phasing out the use of HFCs, with Maryland subsequently indicating that it hopes to have final rules in place in 2020. New Jersey is considering taking similar action.

Recommendations

Given the state of uncertainty regarding federal regulation of HFCs, ongoing litigation, and responses by an increasing number of states to fill any perceived regulatory void, companies in affected industry sectors should stay apprised of important legal developments. As noted above, potentially affected industries for these issues include manufacturers of aerosols, motor vehicle air conditioners, commercial refrigerators, and foams, as well as retailers and other businesses that own, service, and dispose of refrigeration and air-conditioning appliances and refrigerants.

Moreover, industry should develop flexible compliance strategies that allow for the possibility of a patchwork of state laws, and account for a rapidly evolving federal framework. Beveridge & Diamond has significant experience advising companies on these issues, tracking legal developments, and engaging with regulators on behalf of stakeholders.