Arkema Inc. v. Environmental Protection Agency

618 F.3d 1 (D.C. Cir. 2010)


The United States signed the Montreal Protocol on Substances that Deplete the Ozone Layer. It agreed to incrementally decrease the manufacture or consumption of these substances using a series of decreasing caps, with an initial focus on chlorofluorocarbons (CFCs). It was amended to accelerate the phase-out schedule for CFCs and identified hydrochlorofluorocarbons (HCFCs) as the target. Section 607 of the Clean Air Act (CAA) requires D to use a market-based cap and trade regulatory system--a system of pollutant production allowances transferable between companies and between types of HCFCs--to control production and importation of HCFCs. In 2003, D promulgated a final rule for a cap and trade regulatory system. The Rule allowed companies to trade their allocations between companies and between regulated HCFCs on an annual or permanent basis. D sought to create a system with 'maximum flexibility,' making 'allowances easily tradable with minimum regulatory interference and oversight, thereby encouraging companies to make business decisions[s] as they would in an unregulated industry.' In 2008 D initiated new rulemaking. It outlined five possible approaches but in the Final Rule, D chose to honor only inter-company transfers of baseline allowances and to disallow permanent baseline changes resulting from inter-pollutant trades. Before the new rule transactions could take place between companies or within a company among different types of HCFCs. The new rule caused a retroactive reduction of the credits for the trades within a company that were made before the new rule. P sued claiming the Final Rule is arbitrary and capricious and has an impermissibly retroactive effect as to their HCFC baseline allowances.