DC Circuit Scrutinizes Federal Regulations for Explicit Statutory Hook Even When No “Major Questions” Are Involved

Takeaways from the DC Circuit decision in Heating, Air Conditioning & Refrigeration Distributors International v. EPA:

• This is a statutory decision like the US Supreme Court’s recent decision in Sackett (discussed here).  Accordingly, the Court here scrutinizes statutory language and seeks to find fairly exact correlations between statutory language passed by Congress and regulations promulgated by EPA.  When courts overturn decisions on statutory grounds, Congress can amend statutory law to support the regulations more clearly.    
• In contrast, working around constitutional decisions requires amending the US Constitution.  The quasi-constitutional challenge was based on the non-delegation doctrine, which means policy decisions Congress should have made were instead delegated to an administrative agency.  (Note here that this case’s non-delegation challenge was rejected on administrative exhaustion grounds.)
• In general, the ruling is but another in a series — including Sackett and West Virginia v. EPA (discussed here) — in which courts require agencies to provide “clear statements,” explicit statutory hooks, to support their regulations and overturning regulations when no explicit statutory hooks are provided.  Next term, in Loper Bright Enterprises v. Raimondo, the Supreme Court will consider these issues again in evaluating whether the seminal case of Chevron USA Inc. v. Natural Resources Defense Council should be overturned. (See here). 

The Underlying Regulations

HFCs are used in machines including refrigerators and air conditioning units.  While HFCs are useful in this context, they are considered “greenhouse gases,” which in EPA’s view are “hundreds to thousands of times more potent than carbon dioxide” in terms of global warming.

The American Innovation and Manufacturing (AIM) Act, enacted by Congress in 2020, directed EPA to “issue a final rule . . . phasing down” HFCs “through an allowance allocation and trading program.”  The Act outlined in general terms how this would happen but left it to EPA to fill in program details, which EPA did with its final "Phasedown Rule" issued in October 2021. 

Under the statutory program, EPA calculated the baseline for HFC production and consumption in 2023 and capped production at this level.  Over time, the cap would draw down to 15% of baseline production enforced by a program of “allowances” distributed by EPA, which would permit the production or consumption of HFCs.  These allowances could be bought or sold by original producers and the amount issued would be tied to the overall production and consumption cap.  EPA’s Phasedown Rule included particulars about EPA’s calculation of production and consumption caps, how It would distribute allowances, and how it would establish reporting and auditing requirements for HFC consumers. 

Court Challenge

After the Phasedown Rule was issued, petitioners including trade associations, manufacturers of heating and cooling chemicals, and a manufacturer of cylinders used to transport HFCs challenged three aspects of the Phasedown Rule: first, whether EPA had authority to regulate HFCs when blended with other chemicals; second, whether Congress gave EPA too much discretion in distributing HFC allowances; and third, to provisions of the rule that mandated the use of refillable cylinders to transport HFCs that have QR codes linking to certifications identifying the allowance that permitted the distribution of particular HFCs. 

On review, the court rejected the first challenge on the grounds that the statute provided EPA the statutory authority to regulate HFCs in blends and the second challenge because petitioners failed to raise the non-delegation challenge before EPA.  However, the court vacated those portions of the rules that were related to refillable cylinders and QR codes and remanded those issues to EPA.

What to Watch

Our main takeaway from this decision is that EPA regulations without an absolutely clear textual hook face an uphill climb, even when they don’t involve “major questions,” such as last term’s West Virginia v. EPA:  

• Related to the first issue of HFCs in “blends,” the court found that the statute identified HFCs to be regulated by molecular formula and that an HFC in a blend still has the same molecular structure as it would outside a blend; “HFC in a blend of other chemicals is like a blue M&M in a bag of red M&Ms. The blue one does not stop being blue just because it is tossed in with a bunch of red ones. In the same way, an HFC mixed with other chemicals does not stop being a regulated substance under the Act.”
• On the third issue, which relates to EPA’s mandate that HFCs be sold in refillable cylinders with QR codes, the court found that EPA had failed to identify any provision of the AIM Act directly granting it the authority for these requirements.  The authority EPA provided — one section giving it the authority to “promulgate . . . such regulations as are necessary to carry out the functions of the [EPA] under [the AIM Act]” and a second giving it authority to “ensure that the annual quantity” of HFCs produced or consumed will not exceed yearly cap — were too non-specific in the court’s view to support the imposition of costs in excess of $441 million per year on the regulated industry.  The plain meaning of the word “ensure” focused only on EPA’s quantitative review of the cap and not on mechanisms EPA desired to impose the cap.  “Ordinary readers of English do not expect provisions setting out math equations to empower an agency to proscribe other ‘fundamental details of a regulatory scheme.’” Importantly, before reaching this conclusion, the court found that this challenge did not involve a “major question” like those contemplated by WV v. EPA, but still found that the language in the statute was insufficiently clear to support regulatory actions EPA selected.  (For a detailed discussion of the “major question doctrine,” see here.) 
• The second issue — a non-delegation challenge — was dismissed for failure to raise the issue with EPA.  As noted above, the quasi-constitutional nature of non-delegation challenges makes them somewhat harder to craft statutes around.  Related to non-delegation doctrine, we only want to note that it is discussed with some regularity at the Supreme Court generally by conservative justices, often in context with other “clear statement” rules like the major questions doctrine. 

The firm’s Environmental, Government Relations, Energy & Cleantech, and Health Care teams actively monitor administrative law decisions of interest to the regulated community. Stay tuned for further updates.