As a result of the D.C. Court of Appeals' (COA) ruling on September 26, 2016 invalidating a Department of Labor, Occupational Safety  and Health Administration (OSHA) Memorandum, one of the U.S. Environmental Protection Agency’s (EPA) national enforcement initiatives for FY 2017 (beginning October 1, 2016) has  stumbled out of the gate. This Memorandum, dated July 22, 2015, sought to reduce accidental releases at industrial and chemical facilities by narrowing an exemption and expanding the scope of regulated parties subject to interrelated industrial accident prevention laws implemented by EPA and OSHA.

Every three years, EPA resets its national enforcement initiatives, which identify the Agency's programmatic priorities so that resources can be utilized effectively in developing EPA’s environmental programs over a three-year period. While six of the eight initiatives are carryovers from the prior 2014-2016 plan, one of the new initiatives is reducing risks of accidental releases at industrial and chemical facilities (the “Initiative”). As an indirect result of the COA ruling, achieving the goals of the Initiative will most certainly be delayed, if not seriously undermined.  

The impetus for OSHA’s Memorandum and EPA’s Initiative arose from the 2013 explosion of an agricultural fertilizer plant in West, Texas, where 15 people were killed, 160 injured, and 150 buildings damaged or destroyed. The Texas fertilizer plant had been exempt from OSHA and EPA accident prevention requirements promulgated under § 112(r) of the Clean Air Act, which are referred to as “Process Safety Management” (PSM) requirements (as implemented by OSHA) and the “Risk Management Plan” (RMP) requirements (as implemented by EPA). The PSM/RMP requirements regulate highly hazardous chemicals used in certain industrial processes above certain threshold quantities. OSHA and EPA share related but different oversight and implementation responsibilities to collectively reduce risks of accidental releases. Of significance is that OSHA's standard defines which industries are covered by the RMP and PSM requirements.  

The Texas fertilizer plant, which had bulk storage tanks of ammonium nitrate, was not subject to PSM/RMP requirements due to an OSHA rule exempting retailers from the PSM/RMP rules if 50% or more of income is derived from direct sales to end users. Because the fertilizer plant sold fertilizer in bulk and 50% or more of its income was derived from direct sales to end users, it was exempt and not subject to PSM/RMP requirements.

As a result of the explosion, President Obama on August 1, 2013 issued Executive Order 13650 requiring—

• OSHA and EPA to determine if the RMP or PSM can and should be expanded to address additional regulated substances and types of hazards;
• OSHA and EPA to develop a plan to expand, implement, and enforce PSM/RMP in a manner that addresses the additional regulated substances and types of hazards; and
• OSHA to identify any changes that need to be made in the retail and commercial grade exemptions in the PSM Standard.

Almost two years later, OSHA, through the issuance of a Memorandum, dated July 22, 2015, sought to narrow the definition of “retailer” to include only facilities “organized to sell merchandise in small quantities.” Thus, the narrowed exemption would no longer cover facilities that sell chemicals in bulk, such as the West Texas fertilizer plant.

As a companion to OSHA’s PSM Memorandum, which now broadened the applicability of the PSM/RMP requirements, on March 14, 2016, EPA proposed regulations (81 Fed. Reg. 13637) to its RMP rules, which included changes to the accident prevention program requirements, such as—

• Additional requirements for the process hazard analysis (PHA) required for Program 3 processes, which include ten classified industry sectors, such as pulp mills, petrochemical manufacturing, certain chemical manufacturing, fertilizer, pesticide and agricultural chemicals manufacturing;  
• Enhancements to the emergency preparedness requirements;
• Increased public availability of chemical hazard information; and
• Other changes to certain regulatory definitions and data elements submitted in the RMPs.

Key changes included—

• Consideration of “Inherently Safer Technologies (IST)” but not mandated when developing plans, such as switching from chlorine to a less risky substance;
• Identification of certain industries that are responsible for a disproportionate number of accidents to conduct new analyses;
• Requirements for certain facilities to meet annually with emergency responders;
• Requiring all facilities to conduct an emergency response drill every 5 years;
• Sharing detailed information, such as compliance audits and accident histories, with the local emergency planning committees; and  
• Sharing certain basic information with the public through readily available means, such as posting to a company website.    

While the issuance of the final regulations had been expected at the end of this year, such issuance is now on hold. OSHA's Memorandum and effort to narrow the retail exemption was invalidated on September 23, 2016, by the D.C. Circuit Court of Appeals in the matter of Agricultural Retailers Association v. U.S. Department of Labor and OSHA (D.C. Cir. Case Nos. 15-1326 and 15-1340). In this case, the Court found that OSHA’s effort to narrow the definition of retailer was, in effect, a standard, and pursuant to OSHA, was subject to public notice and comment, which OSHA did not do when it issued the Memorandum. As a result of the decision, OSHA is not implementing the July 2015 Memorandum, and is now considering its options.  

While EPA’s proposed RMP changes are not industry specific and relate to general implementation requirements, the COA decision indirectly calls into question the validity of EPA’s proposed RMP regulations, which relied significantly on OSHA’s reinterpreted retail exemption. For example, the proposed regulatory analyses of costs and benefits; applicability; background; justification based on Obama’s executive order; summary of costs for affected facilities, damages, benefits; references to related federal rules were premised on OSHA’s Memorandum and the inclusion of retailers of chemicals within the ambit of the proposed RMP rule. Because the regulatory framework upon which the proposed RMP rules is no longer valid, it seems unlikely that EPA will finalize the proposed RMP Rule as-is, and it appears that EPA will have to reissue the proposed regulations if it wants to proceed, with any potential finalization of the rules to be carried into the next administration.

And regardless of whether OSHA appeals the D.C. COA, or promulgates a new standard to define the retailer exemption, or lets the retail exemption stand as-is, EPA’s new Initiative to reduce the risk of accidental releases at best seems to be stymied, and, at worst, likely will not be achieved over the next three years. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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