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Honeywell & Dupont Lose Chemical Share Protest

(CN) - Two companies cannot advance claims that their competitors illegally transferred allowances for ozone-depleting chemicals in 2008, the D.C. Circuit ruled.

The Clean Air Act tasks the Environmental Protection Agency with creating a cap-and-trade program to regulate and phase out production of ozone-depleting pollutants called hydrochlorofluorocarbons (HCFCs) by 2030, as required by the 1987 Montreal Protocol.

Regulators calculate annual limits on HCFC production and consumption, and they study past usage of the chemicals in allotting baseline production and consumption allowances to HCFC companies.

Companies can transfer their allowances in two different ways. Interpollutant transfers involve on company swapping its allowance of a certain HCFC in exchange for an allowance of another HCFC. Two parties can also conduct an intercompany transfer by trading their allowances of the same HCFC, but this type of transfer may each company's HCFC baseline allowance.

The EPA originally allowed interpollutant transfers in a 2008 rulemaking, but revoked its approval when it established baseline HCFC allowances in 2010. Arkema and Solvay, which had both exchanged allowances of HCFC-142b for HCFC-22, challenged the EPA's determination.

The D.C. Circuit sided with the companies in its 2010 ruling Arkema Inc. v. EPA, which found that the Clean Air Act allows companies to make permanent interpollutant transfers and that the EPA must honor them.

Honeywell International and E. I. Du Pont De Nemours and Co. challenged the scheme anew after concluding that the 2008 transfers had unfairly increased the baseline allowances Arkema and Solvay hold for HCFC-22, reducing the market share and allowances available to Honeywell and Dupont.

A divided three-judge panel of the D.C. Circuit refused to review the EPA rules last week.

"Honeywell's main contention ultimately boils down to a claim that permanent interpollutant transfers are prohibited by section 607 of the Clean Air Act," Judge Brett Kavanaugh wrote for the majority (emphasis in original).

"Honeywell thus argues that interpollutant transfers are good only for the same year in which the transfers are made and should not be permanent or affect a company's baseline allowance for a new regulatory period," he added.

Since Arkema established that permanent interpollutant transfers actually are acceptable, however, Kavanaugh said that decision must hold, "absent an en banc review."

"Put simply, Honeywell's claim is foreclosed by this court's decision in Arkema," Kavanaugh wrote.

He also dismissed the "longshot procedural challenges" Honeywell and Dupont raised in a "roundabout attempt to undermine" the 2008 transfers.

Honeywell and Dupont could have intervened in the Arkema case to present its views, Kavanaugh noted. Since it did not, however, their "procedural objections to the 2008 transfers are unavailing," according to the ruling.

"Honeywell's real problem is Arkema," Kavanaugh wrote. "But a panel cannot remedy that problem.

In a brief dissent, Judge Janice Rogers Brown said the court should not have reached the merits.

"In Arkema, this court held that EPA changed the legal landscape by not giving effect to the 2008 transfers in the new regulatory period - in other words, that the 2008 transfers had always been permanent," Brown wrote (emphasis in original). "Thus, Arkema cannot constitute after-arising grounds and the petitions for review are untimely."

Timothy Webster represented Honeywell and Dupont, with help from James Wedeking, Richard Ayres, Jessica Olson, Chet M. Thompson, Robert Meyers and David Young.

Justice Department attorney Perry Rosen argued for the EPA with Diane McConkey and Matthew Oakes.

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