In a confusing opinion, the D.C. Circuit has rejected a rule that would have allowed the use of two ozone-depleting chemicals in certain circumstances despite the designation of a non-depleting alternative. Although the decision was based in part on the improper consideration of costs to industry, the court nonetheless declined to make a definitive holding on the permissibility of cost considerations in the disputed section of the Clean Air Act. About the Case The case was brought by Honeywell International, maker of a hydrofluorocarbon (HCFC) approved as a substitute for an HCFC scheduled to be phased out in accordance with Title VI of the Clean Air Act, which implements the Montreal Protocol on Substances that Deplete the Ozone Layer. Although the Environmental Protection Agency approved Honeywell's HCFC, the EPA also issued a final rule permitting the continuing use of two other ozone-depleting HCFCs as additional substitutes for the phased-out HCFC whenever "technical constraints" prevented companies from using Honeywell's approved alternative in foam end-uses. EPA also declined to limit existing uses of the two ozone-depleting HCFCs because "there would be a significant impact on small businesses" if EPA limited their use and because mandating non-ozone-depleting alternatives "would be difficult and prohibitively costly." The court did not address Honeywell's claim that EPA's 180-degree turn between the proposed rule and the final rule on limiting the two ozone-depleting HCFCs constituted a failure to provide adequate notice of the ultimate decision. Instead, after a lengthy treatment of Honeywell's standing to sue, the court concentrated on Honeywell's argument that EPA should not have considered economic factors in its decision. Although the court did rule that flaws in EPA's reasoning justified vacating the rule, its explanation for that decision leaves unclear the extent to which economic analysis is forbidden by Title VI of the Clean Air Act. Diverging Rationales The court was unanimous that EPA erred in issuing the final rule, splitting instead on the question of appropriate remedy. Judge Randolph's separate opinion, dissenting from the majority on the remedy question, also offered an alternative concurring approach on the rationale for rejecting EPA's rule. There are two important questions for the court:

• Did EPA's rule depend on economic considerations?
• If so, were those economic considerations permitted by the Clean Air Act?

Although both the opinion of the court by Judge Sentelle and the Randolph concurrence agree that economic considerations found their way into the final rule (differing only in the reasoning that leads to that conclusion), the opinions diverge significantly on the second question. Economic Considerations One point of divergence for the Sentelle and Randolph opinions is the meaning of the key term "technical constraints." EPA argued that the final rule permitted use of the two disputed HCFCs only when "technical constraints" prevented the use of Honeywell's non-depleting alternative. Because the rule limited those additional uses to cases of technical constraint, according to EPA, any discussion of economic considerations in its explanation of the rule should be treated as a harmless error that should not be the basis for rejecting the rule itself. Sentelle rejected that argument, noting instead that technical feasibility is not necessarily categorically distinct from economic feasibility: The flaw in EPA's position is the assumption that technical constraints exclude considerations of economics. In truth, economic feasibility is part of technical feasibility. It is often possible to fit a round peg in a square hole if enough money is spent to make the round peg fit. In other words, a given change in manufacturing technique may be "technically infeasible" only as compared to some baseline of what it would cost to change the technique. Rejecting that categorical distinction gave the court freedom to identify all instances in the agency's published explanation in which the agency referred to economic considerations. EPA gave Sentelle quite a bit of ammunition. The essence of EPA's justification for permitting limited use of the disputed HCFCs was that widespread use of them in certain commercial applications with special "technical considerations" would "make it difficult for businesses to switch to other, non-ozone-depleting blowing agents." These considerations are all ultimately, according to Sentelle, economic:

• One such special technical consideration, according to EPA, arises in the case of foam used to insulate refrigerated truck bodies and insulated rail cars. In this case, industry requires not just the insulating and flammability control properties of the foam but also foam that permits industry to "maximiz[e] internal dimensions" of the shipping cars. The desire to maximize the internal dimensions "arises because trucking companies want to transport as much food as possible per truckload to maximize their revenues," wrote Sentelle.
• EPA also argued that "it had insufficient information to assess the 'viability'" of alternatives to the two HCFCs because their use is so widespread in such a large number of diverse end-uses that there would be many company-specific "technical considerations" warranting their continued use. In some such "niche applications," EPA argued, "foam manufacturers may experience difficulties and delays in transitioning to" a substitute. Sentelle untangled the argument and found economics at its core: The implication is that economic factors caused those companies to be "locked in" to using these particular chemicals in the manufacturing process, despite the fact that within those end uses, "non-ozone depleting alternatives have been identified and, in limited cases, implemented successfully." In other words, even though it is technically possible to use manufacturing techniques that do not deplete the ozone layer, it would cost too much to require companies to transition to such techniques given those that, for cost reasons, they have already implemented. This, too, is therefore an economic justification for continuing to allow these companies to use [the disputed HCFCs].
• EPA had also identified "technical constraints" specific to small businesses, stressing "the constraints associated with cost and timing of transitioning to alternatives for small businesses, and the need to facilitate a smooth and equitable transition." Sentelle found it easy to dismiss this argument: Finally, EPA noted that the wide variety of products these types of foam are used to manufacture meant that small businesses might economically suffer from a regulatory requirement to use non-ozone-depleting alternatives. EPA noted, specifically, that it was necessary to "level the playing field for small businesses," and that those businesses might face "constraints associated with cost and timing of transitioning to alternatives," a justification that clearly considers costs. Even if the agency is correct to characterize such concerns as "performance" or "technical" factors, the fact remains that they are also economic factors.

Although Randolph ultimately agreed that economic factors were considered in the rule, he took a slightly less direct route than Sentelle. Randolph opted to begin with the facial evidence of the rule itself and EPA's argument that the rule's plain language meant an end-user can turn to the two ozone-depleting HCFCs only "if it is not actually possible to use anything else." EPA's discussion of the consequences of its decision does not necessarily mean that it relied on such considerations in its actual decision: Expressing concern over whether a substitute product actually works (or works as well) as the substance it is replacing is, of course, a decision that may carry economic consequences, as where a less functional foam product will be less commercially desirable. If a foam is denser, picnic coolers will have to be heavier to keep the same amount of food cold; if a foam is less insular, it will require thicker walls in refrigerators or houses that use it as insulation. But that does not convert every decision EPA makes about whether a substitute works into a decision about costs .... Randolph appears to be arguing that discussion of cost consequences must be differentiated from a rationale based on costs. Without making that distinction, argues Randolph, "[t]he court defines too broadly what it means for EPA to impermissibly consider costs." Reading the agency record with a keener eye, Randolph honed in on the agency's emphasis on the "cost and timing of transitioning to alternatives for small businesses." This passage proved for Randolph to be the most important evidence of cost considerations: It is difficult to understand this passage unless EPA believes there is some subset of end-users for whom it would be possible yet very costly to switch to non-ozone-depleting alternatives, and that the rule grants this subset some form of relief. This, in turn, suggests that EPA construes the term "preclude" to mean something less than "make impossible," such as to "make difficult" or "make cumbersome." Basis for Rejecting the Rule Reaching the conclusion (albeit by different routes) that EPA did consider costs in its final rule, the court next addressed the impermissibility of that consideration. The answer from each opinion is that the consideration of costs required the court to reject the rule. The reasons supplied by Sentelle and Randolph differ significantly, primarily because Randolph's are actually coherent. Sentelle's rationale for rejecting the rule appears to be that EPA must provide some reason for considering costs before actually considering them -- assuming, that is, that EPA can consider costs--and that EPA failed to justify its consideration of costs in the administrative record. The sequence of the argument must, however, be unscrambled from the paragraph in which it is confusingly written:

1. In accordance with the leading Supreme Court authority, the court must "defer to the agency's expert judgment" in interpreting Title VI of the Clean Air Act, "unless [the agency's] interpretation is unreasonable or if the plain terms of the statute say otherwise."
2. If EPA decides that Title VI of the Clean Air Act permits it to consider costs, then, this standard of deference will apply, and the court will be required to accept EPA's interpretation unless it is unreasonable or plainly divergent from the statute's language.
3. EPA does not actually argue that Title VI allows it to consider economic factors in determining whether an HCFC is acceptable as a substitute.
4. EPA does note that the relevant section of the statute prevents the substitution of harmful substances when the agency has designated an alternative that "reduces the overall risk to human health and the environment" and "is currently or potentially available." Clean Air Act § 612(c). EPA argues that the term "available" permits consideration of "economic or practicality" concerns.
5. EPA failed to state this argument in the administrative record but instead raised it for the first time in the court case.
6. "Such a justification cannot pass muster ... as the agency did not offer that construction of the statute below .... Therefore, even assuming, without deciding, that the text of section 612(c) permits EPA to interpret the statute to consider costs, we must still reverse EPA's decision and remand to the agency. Without knowing the agency's interpretation of the statute, we simply have no way of evaluating whether its interpretation is reasonable."

Randolph's alternative rationale for rejecting the rule is based instead on the agency's failure to follow its own regulations. Randolph notes that related regulations allow EPA to consider the "cost and availability of the substitute" as a factor in assessing the acceptability of a substitute. That regulation is strictly limited, however, to assessing whether EPA should forbid the use of the substitute. Because the consideration of the costs for small businesses to transition from the use of a prohibited HCFC is therefore precluded by the existing regulations, Randolph concluded, "it is arbitrary and capricious for EPA to fail to comply with its own regulations," and thus the disputed final rule should be remanded back to the agency for further consideration. Like Sentelle, Randolph refrained from directly addressing whether Title VI of the Clean Air Act permitted cost considerations, although he did signal nonetheless that such considerations are most likely barred: Whether CAA § 612(c) would permit substantive consideration of transition costs is not apparent on the face of the statute and presents a serious question of statutory interpretation. Heretofore, when Congress has wanted the Administrator to consider costs under the CAA it has expressly called for consideration of costs or practicality. See, e.g., 42 U.S.C. § 7411(a)(1), 7412(d)(2), 7479(2)(C)(3) .... The court has repeatedly held in cases involving other sections of the CAA that cost plays no role in the promulgation of emissions standards .... The Supreme Court's decision in Whitman v. American Trucking Ass'n, 531 U.S. 457, 467-70, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001), which rejected a reading of the term "public health" in the CAA that incorporated cost considerations, further cautions against reading economic considerations into the CAA where they do not appear on the face of the statute. Thus, whether CAA § 612(c) might permit consideration of practicality in extreme cases, such [as] where it would be so difficult to "fit a round peg in a square hole["] that a non-ozone-depleting alternative could no longer be said to be "available," is a question that is not yet before the court. EPA has not attempted to locate its approach in the statutory text, and it behooves the court, in light of the deference that may be due, to afford EPA the opportunity to decide whether transition costs are to be considered in evaluating a clean alternative's availability. For Further Reading: Decision in Honeywell Int'l, Inc. v. EPA, No. 02-1294, 2004 WL 1635626 (D.C. Cir. July 23, 2004) Challenged rule:

• Proposed rule: 65 Fed. Reg. 42,653 (July 11, 2000)
• Final rule: 67 Fed. Reg. 47,703 (July 22, 2002)