On April 10, 2024, the U.S. Environmental Protection Agency ("EPA") filed a complaint for civil penalties against USA Wholesale, Inc. for the illegal import of hydrofluorocarbons ("HFCs"). HFCs are greenhouse gases used mainly in the refrigerant and cooling industries.
This marks the first time that EPA has exercised its authority under the American Innovation and Manufacturing Act of 2020 ("AIM Act") to file an administrative complaint for an illegal import of HFCs into the United States. This may indicate the beginning of further actions by EPA to increase enforcement under the AIM Act, and a general trend to increase enforcement for activities relating to greenhouse gases and climate change.
EPA's Enforcement Action
In this recently-filed complaint, EPA alleges that USA Wholesale "attempted to illegally import 34,480.3 pounds of HFC-134a." This action came after EPA issued a letter to Customs and Border Protection ("CBP"), recommending denial of entry of the shipment into the United States. This shipment was subsequently exported, and EPA now seeks "a ruling by the administrative law court that USA Wholesale's importation and failure to submit required reports to EPA constitute[] violations of the AIM Act," and warrant civil penalties.
This is an escalation in enforcement of the AIM Act for shipments of HFCs to the United States. Since the beginning of 2022, EPA and CBP have denied over 80 shipments of HFCs for failure to follow proper procedures under the AIM Act for importation of HFCs into the Unites States. However, this is the first time that a civil complaint was also filed to seek further civil penalties. According to EPA, this action and escalation are in line with its new policy under the National Enforcement and Compliance Initiative on Mitigating Climate Change, which calls for greater enforcement under EPA's existing frameworks to increase enforcement actions for activities related to greenhouse gases and climate change.
Under the AIM Act, the United States must reduce production and consumption of HFCs by 85 percent by 2036, enacting the Kigali Amendment to the Montreal Protocol. To comply with the AIM Act, companies cannot produce or import HFCs unless granted annual tradable allowances under the HFC phasedown program. These allowances are meant to decrease every year to meet the long-term 2036 target. EPA has been increasingly cracking down on entities trying to import HFCs without seeking allowances or properly complying with these regulations.
AIM Act Continued Controversy
However, the AIM Act continues to be the subject of controversy within the courts. The provision regulating the import and production of HFCs is currently being challenged before the D.C. Circuit. Several industry groups have alleged that the regulatory scheme is an unlawful delegation of Congressional power. Specifically, industry groups argue that these regulations, allowing EPA to grant decreasing allowances, improperly enable EPA to decide what businesses are allowed to participate in the HFC market. The matter is currently pending before the court.
This comes after the recent successful challenge to part of the phasedown rule last summer, where the D.C. Circuit found that EPA's actions to implement certain new rules to phasedown HFC levels under the AIM Act exceeded EPA's authority. Specifically, the court sided with challengers that EPA did not have authority to mandate the use of refillable cylinders and implement a QR-code certification and tracking system.
These lawsuits indicate the importance of this new regulatory scheme to industry.
Additional Enforcement Actions
According to EPA, enforcement actions are vital to meet these reduction targets under the AIM Act and ensure that the public and policymakers have access to accurate data. While EPA has just filed its first complaint in pursuit of this goal, EPA has previously enforced the rule through settlements with violating entities. Recently, EPA announced three settlements for the illegal import of HFCs for a combined penalty amount exceeding $900,000. This may show an increasing trend towards enforcement of improper importation of HFCs.
Overall, as demonstrated by EPA's recent enforcement strategy guidance memo, EPA is placing a greater emphasis on bringing enforcement actions for violations that may affect greenhouse gas emissions. Entities working with HFCs and other greenhouse gases should ensure compliance with applicable rules and regulations to avoid this trend of enforcement actions.
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