The Nickel Report

On February 7, 2018, US Environmental Protection Agency (EPA) Administrator Scott Pruitt signed a proposed rule to establish user fees to defray EPA’s costs of administering its responsibilities under the Toxic Substances Control Act (TSCA), as amended by the 2016 Frank Lautenberg Chemical Safety for the 21^st Century Act (Lautenberg Act). EPA estimates in the proposed rule that it will collect about $20.05 million per year in user fees, not counting any user fees associated with manufacturer-requested risk evaluations, which would range from $1.3 million to $2.6 million per evaluation.

The fee structure in the proposed rule applies to fiscal year (FY) 2019, which begins October 1, 2018, and FYs 2020 and 2021; EPA would be required to adjust fees every three years based on inflation and to ensure that estimated fees would be sufficient for EPA to recover 25 percent of its costs in administering sections 4, 5, 6 and 14 of TSCA. Publication in the Federal Register will initiate a 60-day comment period; EPA has posted a PDF copy of the proposed rule. EPA has indicated that it expects to publish a final rule in September 2018, just prior to the beginning of FY 2019.

Who’s Paying and How Much?

EPA has proposed user fees to parties:

• Required to submit information under section 4 (Testing);
• That submit a notice, exemption or other information under section 5 (New Chemicals); and
• That manufacture a chemical subject to a risk evaluation (including a risk evaluation requested by a manufacturer) under section 6(b).

TSCA authorizes EPA to charge fees to both chemical manufacturers (which here also includes importers) and processors; however, EPA has proposed that manufacturers be obligated to pay all user fees, other than those attributable to a processor submission of a Significant New Use Notice (SNUN) to EPA or where section 4 activity is triggered by a processor SNUN submission. EPA’s rationale is simple: it acknowledges the difficulty in identifying a “representative group of processors” and “expects that manufacturers required to pay user fees will have a better sense of the universe of processors and will pass some of the costs on to them.”

The proposed fee amounts are as follows:

*EPA is proposing to waive the TME fee for submissions from companies that have graduated from EPA’s Sustainable Futures program.

One notable modification to the current fee approach under section 5 is the elimination of the “intermediate PMN” fee class. EPA argues that each intermediate in a sequence takes about the same time as the end product chemical. The regulated community will need to weigh in on the impact of this change, especially in cases where the process of manufacturing a chemical involves multiple intermediates, and what the impact on innovation will be.

Also noteworthy are EPA’s decisions to (1) not impose additional fees on the submission of information claimed to be Confidential Business Information (CBI), notwithstanding EPA’s authority under section 26 of TSCA to do so and (2) not impose fees for risk management actions taken under TSCA section 6(b).

The bulk of the remainder of the proposed rule is devoted to how EPA calculated the proposed fees and the appropriate standards to use to identify businesses that should be given beneficial treatment as “small business concerns.” While these issues are not unimportant, there are other issues arising from the structure of EPA’s proposal that warrant further discussion.

Potential Impact on Market of $1.35 Million Fee for EPA-Initiated Risk Evaluations

While a sizable fee would be unlikely to substantially affect manufacturer participation in a high-value market with considerable sales and good margins, the market for most existing chemicals would not fit such a description. For low-value markets, where there are likely to be fewer participating manufacturers, the impact of a comparatively large share of a substantial fee, coupled with a comparatively large share of the potentially substantial cost of responding to EPA requests for testing and other information to support EPA’s section 6(b) risk evaluation, will be either greater market concentration (and correspondingly higher prices), or, where the commercial viability of the market is extremely low, a complete exit from the market. This may have a substantial downstream impact, depending on the availability and cost of substitutes and any associated environmental or public health issue associated with such substitutes.

Proposed Rule Assumes That Manufacturers Will Quickly Form Consortia to Allocate Fees

EPA assumes in the proposed rule that fee payments associated with section 4 requests for testing and other information and EPA-initiated section 6(b) risk evaluations will be accomplished through manufacturers forming consortia to allocate such fees among them and that this will be a comparatively straightforward process that can be done quickly. For example, EPA requires payment of the $1.35 million user fee for an EPA-initiated risk evaluation within 60 days of the publication of its final scope.

Antitrust Issues

One complication that EPA does not address in the proposed rule is the potential impact that US antitrust laws may have on this process. Since the participants in any such consortium would be competitors, meetings and other opportunities for exchanging information may pose risks under antitrust laws. For example, a basis for allocating costs within a consortium would be market share, where the costs would be borne on a basis proportionate to the relative value of the market.

For subject chemicals constituting a low value market, the triggering event (section 4 request for information or section 6(b) risk evaluation) and the corresponding fee may result in withdrawals from the market and price increases from remaining participants. To the extent that such events may appear to result from agreements among competitors, there may be corresponding issues raised by antitrust laws.

As discussed above, EPA plans to focus its emphasis on collecting fees from manufacturers, with the expectation that manufacturers are in a better position to identify processors, as well as pass along costs. Again, to the extent that these activities appear to be pursuant to an agreement among competitors, antitrust issues may be raised.

Finding Additional Parties Liable for Fee Payments

Respecting section 4 and section 6(b) fee obligations that apply to multiple manufacturers, each manufacturer subject to a fee obligation is liable for the payment of the entire fee. Regardless of the fact that a manufacturer is the member of a consortium, it would be responsible to pay the entire fee and subject to penalties for non-payment until the fee is paid. Penalties under TSCA are substantial; the current statutory amount is $38,114 per day. While EPA expects members of consortia to do the heavy lifting finding other parties who should be sharing in these payment obligations, such parties’ remedy is limited to initiating a contribution action.

This also raises a question about whether manufacturers incurring costs and fees associated with section 4 testing and information requests and EPA-initiated risk evaluations under section 6(b) may recover such costs against future manufacturers. I note that TSCA contains no “data compensation” provisions similar to those under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). While this is beyond the scope of this blog post, it is certainly food for future thought.

Final Thought

These issues that arise from structuring the obligation to pay fees in a way that depends upon the parties organizing themselves into consortia will also arise in the corresponding EPA activities incurring the fees: section 4 requests for testing and other information and EPA-initiated risk evaluations under section 6(b). Manufacturers of chemicals included in the 2014 TSCA Work Plan should consider having antitrust counsel involved sooner rather than later to ensure that their environmental compliance activities do not subject them to antitrust liability.