Environment & Natural Resources

Today, our blog takes a detour from advising on the CPSC and FTC to update you on a lesser-known law that can have major compliance consequences for appliance manufacturers and importers: the Energy Policy and Conservation Act, or “EPCA.”

Background

EPCA was born out of legislation in the late 1970s, which authorized the setting of non-binding “energy efficiency improvement targets” for 13 categories of appliances. Congress beefed up the statute in the 1980s to impose mandatory energy efficiency standards for a suite of covered products, and empowered the Secretary of Energy to promulgate new standards for additional products in his or her discretion. Pursuant to that authority, the Secretary of Energy has promulgated efficiency standards for a multitude of additional products over the course of the last three decades.

Today, the Department of Energy (“DOE”) has set mandatory energy and water efficiency standards for over 60 “covered products,” including everything from battery chargers to refrigerators, and microwave ovens to air conditioners.

Each efficiency standard has two components: a conservation standard and an associated testing procedure, which the manufacturer must apply to demonstrate compliance with that conservation standard. DOE is required to reassess each standard and each test procedure at least every six years, but critically, DOE only has the authority to strengthen, not weaken, energy efficiency standards – even in response to technological advancement that may nevertheless result in overall greater energy savings – meaning that manufacturers subject to onerous standards may only get relief from Congress (except in very limited circumstances). Participating in the DOE proceedings in which the agency reassesses a given product’s conservation standards and testing procedures is a critical means for companies and other stakeholders to ensure that standards are revised in an equitable and sensible manner.

Enforcement

Understanding whether your products are covered by EPCA and if you’ve complied with its substantive and procedural requirements is essential for any manufacturer or importer because the penalty for a failure to comply with EPCA can be substantial. Companies should also be aware that EPCA defines “manufacturers” more expansively than many other regulatory regimes, to include importers of EPCA products that are manufactured internationally. Importers may be responsible for EPCA compliance obligations and subject to enforcement actions for noncompliance as if they were the literal manufacturer.

Each non-compliant unit is subject to a maximum civil penalty of (currently) $449, with a five year “look-back” period. For manufacturers or importers with large inventories, the penalties can quickly add up to millions of dollars. It is important, therefore, for companies to not only maintain adequate EPCA compliance programs, but to also respond swiftly in the event they find themselves in DOE’s crosshairs. If DOE determines your products are non-compliant, it will typically demand that you:

  • Immediately halt sales of noncompliant products,
  • Ensure that replacement products are compliant,
  • Notify customers who may have purchased noncompliant products, and
  • Pay some (but not usually all) civil penalties.

In negotiating with DOE, it is important to abide by the following principles, which have served our clients well. First, do not immediately go to war with DOE. DOE understands its leverage (large civil penalties, reputational damage, and collateral litigation) and is not afraid to use it. Second, engage early and often with the Department. For example, request any testing performed by DOE and all other pertinent materials in the Department’s possession. Similarly, it is important for you to quickly compile all EPCA-related testing and other materials in your own possession. Understanding the scope of possible liability is necessary to understand your negotiating position. Third, consult with your SEC attorneys if you are a public company. If the possible civil penalty is sufficiently large, you may be required to publicly disclose the proposed or final penalty. Finally, read, understand, and apply DOE’s Civil Penalties Guidelines to your situation. The Guidelines are current, plain English, and valuable in understanding the mitigating factors that could help adjust the maximum penalty downwards. DOE has often been willing to settle civil cases at a significant discount to the maximum penalty permitted under law, but only if the settling party has checked the appropriate boxes described by the Guidelines and worked collaboratively with DOE to address its concerns.

The Future of EPCA

As EPCA ages and products evolve, stakeholders are reconsidering EPCA’s basic structure. In the past year and a half, DOE has issued three requests for information – typically a precursor to initiating a rulemaking or even proposed legislation – asking industry, non-profits and other interested parties to weigh in on EPCA’s future. It has sought comment on (i) whether EPCA should adopt market-oriented mechanisms for achieving reductions in energy consumption; (ii) how the Department should reform its process for developing appliance standards; and (iii) how to address the growing market for appliances enabled with smart technology, a topic not yet addressed in either EPCA or its existing regulations.

The agency’s pace is only quickening. In January it announced its intention to roll back proposed standards for certain lightbulbs which were expected to take effect in 2020. And only days ago, DOE published a proposal in the Federal Register that would re-write the agency’s Process Rule, which is the standard by which the agency seeks input regarding potential revisions to its energy efficiency standards. Comments on DOE’s wide-ranging proposal are due by April 15, 2019.

Understanding the existing regulatory regime and how proposed changes will impact your products is an essential but often overlooked component of a smart compliance program. For those of you who were previously less familiar with EPCA, hopefully this blog post is a first step toward ensuring that your products follow EPCA’s compliance requirements, and in warding off unwanted attention from DOE.

Many universities and local governments have installed synthetic turf made with “crumb rubber” – ground up tires – on playing fields and playgrounds in recent years to obtain the advantages of all-season use and lower maintenance costs. In recent months, however, the media and a growing group of critics contend that the crumb rubber used in these fields contains carcinogens and is potentially dangerous to children and other users. While the scientific evidence to date shows no basis for these concerns, the movement against crumb rubber is nevertheless escalating, due in large part to media reports from NBC, ESPN, and others, followed by Members of Congress calling for an investigation by the CPSC and EPA. The article at the link below surveys the crumb rubber debate, the current science and existing health investigations of crumb rubber, and the litigation risk arising from ongoing investigations and media pressure.

http://www.law360.com/articles/737107/turf-wars-the-attack-on-crumb-rubber-synthetic-turf

Burton Microbeads

The number of states who have banned the use of microbeads in personal care products is growing, with California being the most recent to join the trend.  California and New Jersey laws expand their bans to include biodegradable microbeads; Johnson & Johnson and Proctor & Gamble both opposed the California law.  The Personal Care Products Council, a trade group for the cosmetics industry, came out in support of several state bills.  The following is a snapshot of current state bans:

 

State Date Enacted Effective date Scope
California October 8, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Does not allow biodegradable microbeads
Colorado March 26, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads
Connecticut June 30, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads
Illinois June 8, 2014 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads; excludes prescription drugs
Indiana April 15, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads
Maine March 11, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads
Maryland May 12, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads.
New Jersey March 12, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Does not allow biodegradable microbeads.
Wisconsin July 1, 2015 Jan. 1, 2018 (manufacture of personal care products); Jan. 1, 2020 (sale of over-the-counter drugs) Allows biodegradable microbeads ; excludes prescription drugs

 

 

Industry leader Unilever has announced a full stop to the use of microbeads in its products, while Proctor & Gamble, Colgate-Palmolive, and Johnson & Johnson report an intent to stop use by 2017.  Likewise, many large retailers have already removed microbeads from in-house brands or announced intentions to do so in the near future.

 

At the Federal level, the Microbead-Free Waters Act of 2014 (H.R. 4895) which would ban sale and distribution of cosmetics containing plastic microbeads, died in Congress; Rep. Frank Pallone re-introduced The Microbead-Free Waters Act of 2015 (H.R. 1321) on March 4, 2015 and it has been referred to the House Energy and Commerce Committee.

 

Finally, researchers are investigating whether chemicals from microbeads eaten by fish transfer into fish meat, and the potential human health effects, if any, following consumption.

In a memo dated July 22, the Occupational Safety and Health Administration (OSHA) announced that it was revising its interpretation of the “retail facilities” exemption from its Process Safety Management (PSM) standard, as codified at 29 C.F.R. § 1910.119(a)(2)(1). The PSM standard requires employers to manage hazards associated with processes involving highly hazardous chemicals. The standard exempts retail facilities and for years OSHA interpreted that exemption to apply to employers who derived more than 50% of their income from sales of highly hazardous chemicals to end users. In its July 22 memo, OSHA rescinded that interpretation and will prospectively only exempt facilities that fall within the scope of the “retail trade” sectors as classified by the North American Industry Classification System (NAICS), as published by the U.S. Department of Commerce, namely sectors 44 and 45. According to the OSHA memo, the earlier so-called “50 percent test” exempted from PSM employers who, among others, sold or distributed large, bulk quantities of highly hazardous chemicals to other commercial entities even if those commercial entities, albeit “end users” of the highly hazardous chemicals, used those chemicals in additional processes for application or to make other products. OSHA now claims in its memo that exempting those sellers from the PSM standard was inconsistent with the original intent of the standard, reasoning that those sellers are engaged more in “wholesale” than “retail” sales. The agency estimates that its new interpretation will result in about 4800 employers no longer being eligible for the exemption. Sellers of bulk fertilizer (anhydrous ammonia) and liquid petroleum gas are identified as two common types of operations that will be affected. In related guidance here and here, OSHA states it will relax enforcement for six months to give affected employers time to come into compliance.

Sellers of highly hazardous chemicals that have previously taken advantage of the retail exemption but that do not fall within NAICS sectors 44 or 45 should consult with counsel about the implications of this revised interpretation.

In the FTC’s administrative proceeding against ECM Biofilms, Inc., Administrative Law Judge Chappell rejected the FTC’s assertion, taken directly from the Green Guides, that marketing a product as “biodegradable” includes an implied claim that the product “will completely decompose into elements found in nature within one year after customary disposal.” ALJ Chappell ruled that the FTC failed to “demonstrate with probative, persuasive evidence” that ECM Biofilm’s claim that products made with its plastic additives were “biodegradable” also communicated an implied one-year claim to “a significant number of reasonable consumers.” ALJ Chappell’s traditional advertising claims analysis included ECM’s marketing materials, dictionary definitions of “biodegradable,” the absence of copy tests specific to ECM Biofilm’s claims, competing consumer surveys about biodegradability, and related expert testimony. ECM Biofilms did not escape unscathed, however: ALJ Chappell agreed with the FTC that more specific claims – “fully biodegradable in a landfill within 9 months to 5 years” – were false and unsubstantiated and thus violated the FTC Act.

Don’t scratch the implied one-year claim out of your copy of the Green Guides or change your substantiation practices regarding “bare” biodegradable claims just yet. Given the importance the FTC attaches in the Green Guides to conveying a reasonable time frame for biodegradability, expect the full Commission to sit as an appellate body in review of this ALJ decision.  If the Commission reaches a different result, expect the matter to go up to the DC Circuit for further appellate review, similar to the administrative proceeding and appeals process in the POM Wonderful proceeding.

Image courtesy of Flickr by StockMoneys.com.

The FTC continues its active presence in the environmental claims space with 20 warning letters targeting marketers of “dog waste bags” who make biodegradability and/or compostability claims for the bags and their, er, contents. The sweep contains no surprises in terms of FTC interpretation of environmental claims and is consistent with past FTC actions against marketers of such products as waste disposal bags, plastic lumber, low-VOC mattresses, and diapers. Marketers who want to include environmental claims in their pitch to consumers should avoid stepping into something messy by paying close attention to the FTC’s Green Guides.  Please click here for the full FTC report.

EPA has proposed a new rule to restrict the use of seven toluene diisocyanates (TDIs) in consumer products.  TDIs are commonly used in the production of polyurethanes found in foams, coatings, elastomers, adhesives and sealants used in consumer products.  Flexible foams (for cushioning) and rigid foams (for insulation) are the chief uses for TDI.

Published on January 15, 2015, the proposed Significant New Use Rule (SNUR) would apply to all consumer products containing any of the seven TDIs.  In most instances, consumer products will be covered by the rule if they contain these chemicals at any level of concentration.  All manufacturers, importers, and product processers utilizing these chemicals would be required to notify EPA at least 90 days before such activity commences or resumes.  This would give EPA an opportunity to examine the intended use of products, evaluate the risks and potential hazards, and potential ban or restrict the products’ manufacture, processing or import.

For more information about this proposed rule, including information and deadlines for submitting public comments, see our full report here.

Most everyone knows that the First Amendment restricts the government’s ability to limit commercial speech. Similarly, most everyone would probably think the First Amendment also restricts the government’s ability to compel commercial speech. But are there times when the government may compel commercial speech? Indeed it can in some circumstances, and the D.C. Circuit recently expanded those circumstances in American Meat Institute v. U.S. Department of Agriculture (AMI). AMI involved a trade association’s challenge to regulations requiring meat producers to include country-of-origin labels on their products. This decision is important to almost any company that is, or could be, subject to a regulatory mandate to disclose what the court calls “purely factual and uncontroversial information.”

Rehearing en banc a case decided in the government’s favor by a three-judge panel, the D.C. Circuit in AMI upheld the regulations, applying the test from the U.S. Supreme Court’s decision in Zauderer v. Office of Disciplinary Counsel. Zauderer upheld, against a First Amendment challenge, a state’s disciplinary action against an attorney whose advertisements had the potential to deceive consumers by failing to comply with state regulations mandating certain cost disclosures to prospective clients. Although the regulations concerning meat origins in AMI had nothing to do with countering consumer deception, the D.C. Circuit nonetheless applied Zauderer and thus extended its application beyond protection against consumer deception to the advancement of consumer edification.

Continue Reading To Label Or Not To Label? Companies May Have No Choice

The Federal Trade Commission (FTC) and U.S. Environmental Protection Agency (EPA) are both considering tightening rules governing the advertising of vehicle fuel economy. New federal regulations, however, may not stem the recent tide of consumer class actions alleging that auto manufacturers have misled consumers with inaccurate miles-per-gallon (MPG) claims.

Since 1975, the FTC has published its Fuel Economy Guide, which advises auto manufacturers and dealers to prominently disclose their vehicles’ estimated city and highway MPG whenever they make fuel economy claims 1 . These MPG estimates must be based on EPA-mandated testing procedures. 2 FTC began soliciting comments on revisions to its Fuel Economy Guide in 2009. In May 2014, FTC issued its most specific questions to date, inviting the public to comment on the following issues:

Continue Reading Stricter Rules for Fuel Economy Advertising Are on the Horizon, But Are Unlikely to Put the Brakes on Consumer Class Actions

The U.S. Consumer Product Safety Commission (CPSC) has released the risk assessment on phthalates conducted for the CPSC by a congressionally mandated Chronic Hazard Advisory Panel (CHAP). In the Consumer Product Safety Improvement Act, Congress charged the CHAP with making recommendations on whether the use of additional phthalates or phthalate alternatives in children’s toys and child care articles should be restricted as banned hazardous substances. The CHAP made the following specific recommendations in its assessment of the risks of 14 phthalates and six phthalate alternatives:

  • The interim ban on the use of diisononyl phthalate (DINP) in children’s toys and child care articles at levels greater than 0.1% be made permanent because DINP “induces antiandrogenic effects in animals, although with lesser potency than other active phthalates, and therefore can contribute to the cumulative risk from other antiandrogenic phthalates.”
  • The current interim bans on di-n-octylphthalate (DNOP) and diisodecyl phthalate (DIDP) be lifted because they do not appear to possess antiandrogenic potential but that U.S. agencies responsible for dealing with DNOP and DIDP exposures from food and child care products conduct the necessary risk assessments with a view to supporting risk management steps given other toxicological endpoints of concern.

Continue Reading Report on Phthalates Recommends Permanent Ban on DINP, Additional Permanent Bans on DIBP, DPENP, DHEXP, DCHP, and an Interim Ban on DIOP