discourage this kind of recycling. The transfer-based exclusion
finalized today is available for hazardous secondary materials that are
recycled by means of one or more reclamation processes, including when
they occur at more than one reclamation facility.
    The conditions for generators and reclaimers under the terms of
this exclusion would apply in the same way, regardless of how many
reclamation steps were involved with recycling of an excluded material.
For example, if the excluded hazardous secondary material was reclaimed
by more than one facility or company, the generator of such material
would need to make reasonable efforts to examine each facility or
company involved in the reclamation process to ensure that the
hazardous secondary materials would be properly and legitimately
recycled. We believe that this is a consistent application of the idea
of requiring ``reasonable efforts'' as a condition of this exclusion.
Where recycling of a hazardous secondary material involves more than
one reclamation step at more than one facility, generators should be
well informed as to how the materials will be reclaimed, and by whom,
throughout the recycling process. Additionally, each reclaimer
(including `partial reclaimers') managing hazardous secondary materials
must meet all the reclaimer conditions listed under 40 CFR
261.4(a)(24), as well as the recordkeeping requirements.

C. Conditions and Requirements

1. Provisions Applicable to the Hazardous Secondary Materials
Generator, the Reclamation Facility, and Any Intermediate Facility
    Prohibition on speculative accumulation. As a condition of the
transfer-based exclusion, hazardous secondary materials cannot be
speculatively accumulated (40 CFR 261.1(c)(8)) at the hazardous
secondary material generator, reclamation facility, or intermediate
facility. Restrictions on speculative accumulation have been an
important element of the RCRA hazardous waste recycling regulations
since they were promulgated on January 4, 1985. According to this
regulatory provision, hazardous secondary materials are accumulated
speculatively if the person accumulating them cannot show that the
material is potentially recyclable; further, the person accumulating
the hazardous secondary material must show that during a calendar year
(beginning January 1) the amount of such material that is recycled or
transferred to a different site for recycling is at least 75% by weight
or volume of the amount of the hazardous secondary material present at
the beginning of the period. It is also the same prohibition that is
being promulgated today for the generator-controlled exclusions.
    Legitimate recycling. Under the transfer-based exclusion, hazardous
secondary materials must be legitimately reclaimed, as specified under
40 CFR 260.43. Legitimate recycling must involve a hazardous secondary
material that provides a useful contribution to the recycling process
or product and the recycling process must produce a valuable product or
intermediate. In addition, as part of a legitimacy determination,
persons must consider whether the hazardous secondary material is
managed as a valuable product and must consider the levels of toxics in
the product of the recycling process as compared to analogous products
made from virgin materials. The details of the legitimacy provision are
discussed in section IX of this preamble.
    Notification. Under today's transfer-based exclusion, hazardous
secondary material generators, reclaimers, and intermediate facilities
are required to send a notification prior to operating under this
exclusion and by March 1 of each even numbered year thereafter to the
EPA Regional Administrator using EPA Form 8700-12. In states authorized
by EPA to administer the RCRA Subtitle C hazardous waste program,
notifications may be sent to the state Director. The notice must
include:
     The name, address, and EPA ID number (if applicable) of
the facility;
     The name and telephone number of a contact person;
     The NAICS code of the facility;
     The exclusion under which the hazardous secondary
materials will be managed (e.g., whether the hazardous secondary
materials are managed under the transfer-based exclusion in 40 CFR
261.4(a)(24) and/or under the exclusion for hazardous secondary
materials exported for reclamation in 40 CFR 261.4(a)(25));
     For reclaimers and intermediate facilities managing
hazardous secondary materials, whether the reclaimer or intermediate
facility has financial assurance for the management of such hazardous
secondary materials (not applicable for hazardous secondary material
generators);
     When the facility expects to begin managing the hazardous
secondary materials in accordance with the exclusion;
     A list of hazardous secondary materials that will be
managed according to the exclusion (reported as the EPA hazardous waste
numbers that would apply if the hazardous secondary materials were
managed as hazardous waste);
     For each hazardous secondary material, whether the
material, or any portion thereof, will be managed in a land-based unit;
     The quantity of each hazardous secondary material to be
managed annually; and
     The certification (included in EPA Form 8700-12) signed
and dated by an authorized representative of the facility.
    If a facility has submitted a notification, but then subsequently
stops managing hazardous secondary materials in accordance with the
exclusion, the facility must re-notify the Regional Administrator
within 30 days using the same EPA Form 8700-12. We consider a facility
to have `stopped' managing hazardous secondary materials when a
facility no longer generates, manages and/or reclaims hazardous
secondary materials under the exclusion and does not expect to manage
any amount of hazardous secondary material under the exclusion for at
least one year. Of course, a facility could certainly choose to begin
managing hazardous secondary materials again and would simply have to
submit a notification in compliance with 40 CFR 260.42.
    The requirement to provide this notification is not a condition of
the exclusion. Thus, failure to comply with the requirement constitutes
a violation of RCRA, but does not affect the excluded status of the
hazardous secondary materials.
    This notification requirement is the same as the notification
requirement for the generator-controlled exclusion. For further
discussion on the notification, including examples of when a facility
must re-notify that it has stopped managing hazardous secondary
materials, see section VII.C. of today's preamble.
    Hazardous secondary materials must be contained. Another condition
of the transfer-based exclusion applicable to hazardous secondary
material generators, reclamation facilities, and intermediate
facilities is that the hazardous secondary materials must be contained
in their management units. Hazardous secondary materials released to
the environment from any unit are discarded and would be subject to the
hazardous waste regulations, unless they are immediately cleaned up.
Hazardous secondary materials remaining in a unit that experiences a
release may also be considered discarded in certain cases. This is the
same as the restriction that is being promulgated for the generator-
controlled exclusions. For further discussion on the containment
provisions, including examples of how they might be applied in case-
specific situations, see section VII.C. of today's preamble.
2. Provisions Applicable to the Hazardous Secondary Material Generator
    Reasonable efforts. Today's final rule requires generators to make
reasonable efforts to ensure that their hazardous secondary materials
are properly and legitimately recycled before shipping or otherwise
transferring them to a reclamation facility or any intermediate
facility. As discussed previously, this condition effectively requires
that generators perform a type of environmental ``due diligence'' on a
reclaimer or any intermediate facility to ensure that those facilities
intend to properly manage the hazardous secondary materials as
commodities and legitimately recycle rather than discard them. We
believe that this condition reflects the existing best practices of
many responsible generators who audit and assess recyclers to maintain
their commitment to sound environmental stewardship, minimize their
potential regulatory and liability exposures, and make decisions about
with whom they should do business.
    Our successful recycling study quotes one large recycling and
disposal vendor

as stating that with respect to its new customers, 60% of its large
customers and 30%-50% of its smaller customers now perform audits on
them. Under current practices, such audits can involve a site visit to
the recycling facility and an examination of the company's finances,
technical capability, environmental compliance record, and housekeeping
practices. (Note: Audits that are currently conducted may or may not
cover all of these areas.) Through the codification of this condition,
we want to reinforce this best practice among all generators who use
the transfer-based exclusion to send hazardous secondary materials to
reclamation and intermediate facilities. We believe that this condition
is critical for generators who currently may not evaluate reclaimers
and intermediate facilities because this condition provides these
generators with a framework for making reasonable efforts to ensure
their hazardous secondary materials are properly managed and reclaimed,
and not discarded.
    Currently, under 40 CFR part 262, a generator must make a hazardous
waste determination and, thus, already has an obligation to determine
whether the waste is subject to regulation as a hazardous waste. EPA
believes that to make a parallel determination under 40 CFR
261.4(a)(24) that hazardous secondary materials are not solid wastes
because they are destined for reclamation and are not discarded, the
generator must meet the reasonable efforts condition. A reasonable
efforts inquiry by the hazardous secondary material generator ensures
that the reclaimer intends to recycle the hazardous secondary material
legitimately pursuant to 40 CFR 260.43 and not discard it, and that the
reclaimer or any intermediate facility will manage the hazardous
secondary materials in compliance with 40 CFR 261.4(a)(24)(vi).
    The reasonable efforts condition for generators applies when
hazardous secondary materials are transferred to intermediate
facilities (as defined in 40 CFR 260.10) and reclamation facilities
operating without a RCRA Part B permit or under the interim status
standards that extend to management of the hazardous secondary
materials in question. If the permit or interim status standards
address the units being used to manage the hazardous secondary
materials, we do not require generators to conduct reasonable efforts
because we believe that a Part B permit or the interim status standards
provide some assurance to generators that the facility has a measure of
financial stability and that the hazardous secondary materials will be
well managed. RCRA permitted or interim status facilities where the
permit or interim status standards extend to the management of the
hazardous secondary materials being reclaimed are already subject to
stringent design and operating standards, must demonstrate financial
assurance, and are subject to the corrective action requirements in the
event of environmental problems. Not requiring reasonable efforts for
generators that transfer hazardous secondary materials to these RCRA
permitted or interim status recycling or intermediate facilities would
likely be of particular benefit to relatively smaller volume generators
who may not have the resources required to satisfy this condition.
    Of course, if a permitted facility later modifies its permit terms
in a way that the permit no longer extends to the management of the
hazardous secondary materials, the generator would need to perform
reasonable efforts in accordance with this exclusion. EPA recommends
that any hazardous secondary material generator transferring hazardous
secondary materials to a permitted facility request that it get placed
on the facility mailing list, so they can then receive notice of
changes to the permit status of the reclaimer or intermediate facility
(see 40 CFR 270.42 and 40 CFR 124.10).
    In contrast, if the permit or interim status standards do not
extend to the hazardous secondary materials being reclaimed, the same
level of assurance is not guaranteed. Therefore, if a reclamation or
intermediate facility only has a RCRA permit or complies with the
interim status standards for another on-site operation unrelated to the
hazardous secondary materials of interest to the generator, then the
hazardous secondary material generator is required to make a reasonable
efforts inquiry of the facility as if it were a non-permitted facility.
    EPA believes that a generator should be allowed to use any credible
evidence available in making reasonable efforts, including information
gathered by the generator, provided by the reclaimer or intermediate
facility, and/or provided by a third party, in lieu of personally
performing an assessment. For example, the hazardous secondary material
generator might hire an independent auditor to review the operations,
produce audit reports as a consortium of generators, or rely on an
assessment of a recycler or intermediate facility by a parent
corporation or trade association that is used by several generating
facilities. In fact, EPA believes that many reputable third-party
auditors, parent companies, and trade associations already assemble the
types of information based on credible evidence that would be needed
for a generator to satisfy the reasonable efforts condition. EPA would
encourage this type of pooling of information to reduce the burden on
generators and to take advantage of specialized technical expertise.
    EPA is also finalizing in the regulatory text a series of
questions, which together represent a minimum standard for reasonable
efforts, to provide generators and overseeing agencies with regulatory
certainty regarding fulfillment of the condition. We believe that these
questions are objective and must be answered affirmatively. Hazardous
secondary material generators wishing to take advantage of the
exclusion must be able to answer all questions affirmatively to
determine that their hazardous secondary materials are or will be
properly and legitimately recycled and will not be discarded. The
reasonable efforts questions are straight-forward by design and will
allow generators to use a common sense approach in answering the
questions and satisfy the condition. These questions can be found at 40
CFR 261.4(a)(24)(v)(B) and are discussed below.
    Of course, a generator could choose to seek additional information
or ask additional questions to determine that its hazardous secondary
materials will not be discarded due to concerns about CERCLA liability.
One example of additional information that many responsible generators
currently seek from recyclers, but that EPA is not including in today's
final rule, is information about a reclamation facility's financial
health. Based on EPA's successful recycling study and comments on the
proposed rule, we know that responsible generators often inquire about
a reclamation facility's financial health. These inquiries can include
reviews of liability insurance coverage, company annual reports,
bankruptcy filings, investments in capital improvements, markets for
recycled products, and business reports, such as Dun & Bradstreet
reports. EPA believes that evaluating the financial health of a company
can benefit a generator's reasonable efforts inquiry of a reclamation
or intermediate facility and encourages generators to do so, although
we acknowledge that it is not an activity that lends itself to an
objective standard that would be appropriate for regulation. Instead,
EPA is requiring that, under the transfer-based exclusion and
reasonable efforts condition, reclamation and intermediate

facilities have financial assurance and generators affirm that
facilities have notified the appropriate authorities that the financial
assurance condition is satisfied.
    EPA intends that if a hazardous secondary material generator has
met the reasonable efforts condition prior to transferring hazardous
secondary materials to the reclamation or intermediate facility, then
the reclaimer or intermediate facility, not the generator, would be
liable under RCRA if the materials were discarded (i.e., not properly
and legitimately recycled). However, if the generator does not meet the
reasonable efforts condition, then the generator is ineligible for the
transfer-based exclusion and would be potentially liable in the event
its hazardous secondary materials were discarded by a reclamation or
intermediate facility. (See section VIII.E. for more information.) EPA
acknowledges that meeting this condition will not affect CERCLA
liability. (See section XIII for more information on CERCLA liability.)
    The following five questions represent a minimum standard for
satisfying the reasonable efforts condition:
    (1) Does the available information indicate that the reclamation
process is legitimate pursuant to Sec.  260.43? In answering this
question, the hazardous secondary material generator can rely on its
existing knowledge of the physical and chemical properties of the
hazardous secondary material, as well as information from other sources
(e.g., the reclamation facility, audit reports, etc.) about the
reclamation process. (By responding to this question, the hazardous
secondary material generator has also satisfied its requirement in
Sec.  260.43(a) to be able to demonstrate that the recycling is
legitimate.)
    (2) Does the publicly available information indicate that the
reclamation facility and any intermediate facility that is used by the
hazardous secondary material generator have notified the appropriate
authorities of hazardous secondary materials reclamation activities
pursuant to 40 CFR 260.42 and have they notified the appropriate
authorities that the financial assurance condition is satisfied per 40
CFR 261.4(a)(24)(vi)(F)? In answering these questions, the hazardous
secondary material generator can rely on the available information
documenting the reclamation facility's and any intermediate facility's
compliance with the notification requirements per Sec.  260.42,
including the requirement in Sec.  260.42(a)(5) to notify EPA whether
the reclaimer or intermediate facility has financial assurance.
    (3) Does publicly available information indicate that the
reclamation facility or any intermediate facility that is used by the
hazardous secondary material generator has not had any formal
enforcement actions taken against the facility in the previous three
years for violations of the RCRA hazardous waste regulations and has
not been classified a significant noncomplier with RCRA Subtitle C? In
answering this question, the hazardous secondary material generator can
rely on the publicly available information from EPA or the state. If
the reclamation facility or any intermediate facility that is used by
the hazardous secondary material generator has had a formal enforcement
action taken against the facility in the previous three years for
violations of the RCRA hazardous waste regulations and has been
classified as a significant non-complier with RCRA Subtitle C, does the
hazardous secondary material generator have credible evidence that the
facilities will manage the hazardous secondary materials properly? In
answering this question, the hazardous secondary material generator can
obtain additional information from EPA, the state, or the facility
itself that the facility has addressed the violations, taken remedial
steps to address the violations and prevent future violations, or that
the violations are not relevant to the proper management of the
hazardous secondary materials.
    (4) Does the available information indicate that the reclamation
facility and any intermediate facility that is used by the hazardous
secondary material generator have the equipment and trained personnel
to safely recycle the hazardous secondary material? In answering this
question, the generator may rely on a description by the reclamation
facility or by an independent third party of the equipment and trained
personnel to be used to recycle the generator's hazardous secondary
material.
    (5) If residuals are generated from the reclamation of the excluded
hazardous secondary materials, does the reclamation facility have the
permits required (if any) to manage the residuals? If not, does the
reclamation facility have a contract with an appropriately permitted
facility to dispose of the residuals? If not, does the hazardous
secondary material generator have credible evidence that the residuals
will be managed in a manner that is protective of human health and the
environment? In answering these questions, the hazardous secondary
material generator can rely on publicly available information from EPA
or the state, or information provided by the facility itself.
    Question (1) focuses on whether the reclamation facility receiving
hazardous secondary materials from a generator legitimately recycles
such materials. EPA believes that any generator ``regulated under Sec.
260.34 or claiming to be excluded from the hazardous waste regulations
under Sec.  261.2(a)(2)(ii), Sec.  261.4(a)(23), (24), or (25) because
they are engaged in recycling, must be able to demonstrate that the
recycling is legitimate'' (40 CFR 260.43). Determining whether a
recycling operation is legitimate is a fundamental basis for
establishing that a generator's hazardous secondary materials will not
be discarded after being transferred to a reclamation facility.
    Since reclaimers must also be able to demonstrate that the
recycling is legitimate under 40 CFR 260.43, EPA believes that
generators can work with the owner or operator of the reclamation
facility to verify that they have made a determination that the
recycling is legitimate, which would answer question (1) for the
purposes of satisfying the condition. We would expect that a reclaimer
would be willing and able to adequately explain to the hazardous
secondary material generator how the recycling activity satisfies the
legitimacy requirements pursuant to 40 CFR 260.43, such that we would
not expect that a generator would have to examine in detail the
legitimacy factors. Of course, in order to answer question (1), a
generator may also rely on its existing knowledge of the physical and
chemical properties of the hazardous secondary material. Based on our
discussions with the generating industry, we would expect that a
hazardous secondary material generator that produces and manages a
material that is more like an ingredient (i.e., a hazardous secondary
material to be recycled) than a waste to be discarded would have a good
understanding of the material's valuable components and useful
contribution to a process. Since the generator manages the process that
generates the hazardous secondary material, it would be knowledgeable
about the makeup of the material and the value and usefulness of its
components.
    However, if questions or concerns remain regarding the legitimacy
of the recycling activity, a generator could request additional
information on how the definition of legitimacy is met. (See section IX
of this rulemaking preamble for a discussion of determining
legitimacy.)
    Question (2) concentrates on whether the recycler or intermediate
facility (to

the extent that the hazardous secondary material generator uses an
intermediate facility) has met the following obligations under the
exclusion before accepting hazardous secondary materials: Notification
of the appropriate regulatory authorities that it plans to reclaim (or,
in the case of the intermediate facility, properly store the hazardous
secondary material) excluded hazardous secondary materials, and
notification of the appropriate regulatory authorities that the
facility has the necessary financial assurance to cover the costs of
managing any hazardous secondary materials that remain if the facility
closes. If a facility was found to have failed to meet the notification
requirement and condition to have financial assurance, then it also
would have failed to show a good faith effort towards demonstrating
that it intends to recycle the hazardous secondary materials (or, in
the case of the intermediate facility, properly store the hazardous
secondary material) and not discard them.
    For the purposes of reasonable efforts, generators will be able to
determine that a facility has satisfied both the notification
requirement and financial assurance condition if the reclamation or
intermediate facility has submitted a notification. The notification
form will include a section indicating the facility has satisfied the
financial assurance condition. Generators may access the notification
information, including the facility's notification that it has
financial assurance, through EPA's public Web site at http://
www.epa.gov/enviro/html/rcris/ or other successor Web sites.
    Question (3) focuses on the compliance history of the recycler or
the intermediate facility (to the extent that the hazardous secondary
material generator uses an intermediate facility). Although
consideration of compliance data is an imperfect tool for determining
whether a recycler would properly manage the hazardous secondary
materials, we believe that publicly available compliance data are a
reasonable starting point for evaluating a facility's environmental
performance. Facility-specific enforcement data on compliance status,
ongoing enforcement actions by both EPA and states, and specific case
information for formal enforcement actions are readily available on
EPA's public Web site at http://www.epa.gov/echo. ``Formal
enforcement'' is a written document that mandates compliance and/or
initiates a civil or administrative process, with or without appeal
rights before a trier of fact that results in an enforceable agreement
or order and an appropriate sanction. For EPA, formal enforcement
action is a referral to the U.S. Department of Justice for the
commencement of a civil action in the appropriate U.S. District Court,
or the filing of an administrative complaint, or the issuance of an
order, requiring compliance and a sanction. For states, formal
enforcement action is a referral to the state's Attorney General for
the commencement of a civil or administrative action in the appropriate
forum, or the filing of an administrative complaint, or the issuance of
an order, requiring compliance and a sanction. ``Significant non-
complier'' is a defined term in EPA's Hazardous Waste Civil Enforcement
Response Policy and means the violators have caused actual exposure or
a substantial likelihood of exposure to hazardous waste or hazardous
waste constituents; are chronic or recalcitrant violators; or deviate
substantially from the terms of a permit, order, agreement, or from the
RCRA statutory or regulatory requirements. In evaluating whether there
has been actual or likely exposure to hazardous waste or hazardous
waste constituents, EPA and the states consider both the environmental
and human health concerns, including the potential exposure of workers
to hazardous waste or hazardous waste constituents. For both terms, see
EPA's Hazardous Waste Civil Enforcement Response Policy (Dec. 2003) at
http://www.epa.gov/compliance/resources/policies/civil/rcra/
finalerp1203.pdf.
    We do not believe that evaluating this publicly available
information, which a generator would likely already be familiar with
based on its own regulated activities, is difficult for a generator,
nor is interpreting the data and deriving conclusions about facilities,
since the database specifically notes whether a facility is alleged to
be a ``significant non-complier'' (i.e., identified as a ``SNC'' or in
``significant non-compliance''). We also note that since many states
already provide compliance information to EPA and the public through
the EPA Web site, we do not believe that requiring hazardous secondary
material generators to review such information would pose a significant
new burden for state agencies.
    While a facility designated as a significant non-complier and the
subject of a formal enforcement action does not mean that the facility
would not reclaim the hazardous secondary materials properly, it does
raise questions that we believe the hazardous secondary material
generator should investigate. That is, if any formal enforcement
actions were taken against the facility in the previous three years for
such non-compliance and the facility was alleged to be a significant
non-complier, we would expect that the reclaimer would adequately
explain to the hazardous secondary material generator how it has
resolved any issues or how the reclamation facility will properly
manage the hazardous secondary materials to avoid future violations
and/or enforcement actions. Additionally, if the generator obtains
reasonable information that the enforcement matters are unrelated to
the facility's commitment to manage the hazardous secondary materials
properly or that the violation has been corrected and the facility is
back in compliance, then that would satisfy this aspect of the
reasonable efforts determination. The generator also may wish to make a
similar investigation of facilities designated as significant non-
compliers by EPA or a state even if no formal enforcement action has
been taken.
    Question (4) concentrates on the technical capability of the
recycler or intermediate facility, the most basic requirement for
ensuring proper and legitimate recycling of hazardous secondary
materials. If a reclamation or intermediate facility was found to have
no equipment or inadequate equipment for storing the hazardous
secondary material or was found to have personnel who have not been
trained for reclaiming the hazardous secondary materials, it raises
serious questions as to whether the facility would properly manage such
materials and avoid discarding them to the environment.
    In public comments on this question, which was included in the
preamble to the proposed rule, commenters pointed out that a
determination of what specific equipment and training would be
appropriate to safely recycle hazardous secondary materials may be
beyond the expertise of some generators. EPA agrees that, as drafted in
the proposed rule, answering this question may require specialized
knowledge and expertise. Accordingly, EPA is changing this question to
allow the generator to rely on the reclamation facility to explain why
its equipment and personnel are appropriate. Of course, the generator
must have an objectively reasonable belief based on this information
that the reclamation facility's equipment and trained personnel are
adequate for safe recycling. Accordingly, if the equipment and
personnel described by the reclamation facility would be, to an
objective and reasonable person, clearly inadequate for safe recycling
of the generator's hazardous secondary material, then the generator
would not have met this condition. However, EPA

does not require or expect the generator to have specialized knowledge
or expertise of the recycling process.
    Of course, generators of hazardous secondary materials also are
already familiar with equipment and personnel needed to manage their
hazardous secondary materials properly at their own site. Therefore, a
generator may also choose to answer question (4) using its existing
knowledge of the physical and chemical properties of the hazardous
secondary materials, technologies involved with managing and recycling
such materials, and applicable regulations or industry standards based
on the generator's experience producing and managing such materials.
    Generators may also at their discretion use relevant third-party
information sources to answer questions about a facility's equipment
and personnel, including audit reports; information provided by
industry or waste management associations related to the reclamation or
intermediate facility; documents provided by the reclaimer or
intermediate facility; and as noted in the successful recycling study,
an evaluation by a qualified engineer.
    Question (5) focuses on another major cause of environmental
problems from recycling hazardous secondary materials: The management
of residuals. This question relates to discard through the concept that
a generator or reclaimer may actually be discarding hazardous secondary
materials through the release of residuals from the recycling process.
While the product made from recycling may be a legitimate product, the
whole recycling process could be considered a discard activity if
hazardous constituents from the recycled hazardous secondary materials
are released to the environment. Roughly one-third of the damage cases
documented in EPA's environmental problems study were caused by
mismanagement of the residuals from recycling. Because the residuals
from recycling can contain the hazardous constituents that originated
with the hazardous secondary materials, it is important that the
hazardous secondary material generator understands how a reclamation
facility will manage any residuals generated.
    Many generators of hazardous waste already understand and comply
with the requirements for residuals management. Therefore, they may
rely on their existing knowledge to answer question (5) and we do not
anticipate that answering it will pose a significant challenge to them.
We also anticipate that new generators will use the same resources that
are publicly available to current hazardous secondary material
generators for determining applicable regulatory requirements. In
addition, a reclamation facility would likely assist the generator in
understanding any requirements applicable to residuals management. For
example, the reclamation facility could identify the types of residuals
generated by the recycling process and explain to the generator how
they are managed, whether any requirements apply, and how the
requirements are met.
    To answer question (5), a generator should determine that the
reclamation facility has practices in place to ensure that residuals
are managed in a manner that is protective of human health and the
environment and according to applicable federal or state standards. For
example, residuals may or may not be regulated hazardous wastes. If a
residual is a hazardous waste, generators could access information
about a facility's permit for managing the material on EPA's public Web
site at http://www.epa.gov/enviro/html/rcris (or successor Web sites)
or through a state Web site if such information is made publicly
available. If a residual is a non-hazardous waste, a generator could
access permit information from state agencies or a state Web site if
available. A reclamation facility may also send its residuals to a
waste management facility, in which case, a generator could ask about
contracts with appropriately permitted disposal facilities. If a
reclamation facility does not have permits for managing residuals or
disposal contracts with permitted facilities, then the generator should
determine that a reclamation facility has a system in place for
managing residuals in a manner that is protective of human health and
the environment.
    Any inquiry into a reclamation facility's system for analyzing
options for residuals management should acknowledge that various
options do exist and that price fluctuations may be a determining
factor for selecting an option.
    In today's final rule, EPA is requiring that hazardous secondary
material generators make reasonable efforts every three years, at a
minimum, in order to ensure that the generators adequately manage their
risk and are attune to changes at reclamation and intermediate
facilities with which they are partners. We believe that this schedule
reflects an average time frame for re-evaluating facilities, based on
public comments, although we acknowledge that shorter time frames could
be appropriate for certain industries, as suggested by some commenters.
By specifying periodic updates for reasonable efforts every three years
at a minimum, EPA in no way intends to limit a generator to conducting
evaluations only every three years. In fact, EPA expects that any
generator who has concerns about a reclamation or intermediate
facility, or who gains new knowledge of significant changes or
extraordinary situations at such facilities, would conduct reasonable
efforts regardless of the required schedule. For example, if a
hazardous secondary material generator conducted reasonable efforts in
the first year it took advantage of the exclusion, prior to
transferring materials to an intermediate facility, and then again
conducted reasonable efforts in the second year upon learning about a
significant change at the intermediate facility (such as bankruptcy),
the hazardous secondary material generator would be required to update
reasonable efforts three years later during the generator's fifth year
of taking advantage of the exclusion.
    EPA is requiring that generators maintain documentation showing
that they satisfied the reasonable efforts condition under 40 CFR
261.4(a)(24)(v)(B) prior to transferring the hazardous secondary
materials to the intermediate facility or the reclamation facility.
Such records could include copies of audit reports and/or other
relevant information that was used as the basis for affirmatively
responding to inquiries about a reclamation or intermediate facility.
Specifying that hazardous secondary material generators document these
questions helps EPA and authorized states determine whether the
generator made reasonable efforts to ensure that the hazardous
secondary materials were not discarded. Documenting reasonable efforts
is also beneficial for generators because EPA intends that if a
generator has met the reasonable efforts condition prior to
transferring the hazardous secondary materials to the reclamation or
intermediate facility, then the reclaimer or intermediate facility, not
the generator, would be liable under RCRA if the materials were
discarded (see section VIII.E. for more information).
    Generators are also required to certify for each reclamation and
intermediate facility that reasonable efforts were made to ensure that
hazardous secondary materials will be properly and legitimately
recycled, and not discarded. This certification should be signed and
dated by an authorized representative of the generating company prior
to transferring the excluded hazardous secondary materials to a
reclamation or intermediate facility under 40 CFR 261.4(a)(24). The

certification should also incorporate the certification language in 40
CFR 261.4(a)(24)(v)(C)(2). EPA believes that requiring a certification
creates a necessary level of oversight from an authorized
representative, who can be any appointed company representative, and
who must affirm that the condition is met and that hazardous secondary
materials will not be discarded.
    Documentation and certification are both necessary requirements of
the reasonable efforts condition. Documentation of questions (1)-(5)
will support a hazardous secondary material generator's assertion that
it affirmatively answered the questions and is in compliance with the
regulations. It will also facilitate any review by regulatory
authorities investigating whether the conditions of the transfer-based
exclusion are satisfied and help delineate liability under RCRA if the
materials were discarded. Having an authorized representative certify
reasonable efforts is critical for guaranteeing accountability at the
generator facility for meeting the condition and for ensuring that the
act of making reasonable efforts is in fact genuine. The certification
is also necessary in order to allow for the ``flexible'' documentation
requirement that does not specify a particular format. Since individual
generators may use any form of documentation, we believe it is critical
for all generators to uniformly certify that the condition is
satisfied. Furthermore, we find both reasonable efforts requirements
(documentation and certification) to be appropriate based on our
understanding that third-party auditors do not generally draw any
conclusions based on their audits, but simply report the results to
generators. While a generator may use any information for making
reasonable efforts, the certification statement would affirm that a
generator used information that is gathered and documented during the
reasonable efforts inquiry, similar to how generators currently draw
conclusions based on third-party audit documents.
    The requirement for documentation and certification of reasonable
efforts is not unlike existing forms of RCRA documentation that
incorporate certifications, such as the RCRA Site ID Form, RCRA
financial assurance requirements, and the Uniform Hazardous Waste
Manifest.
    Documentation of reasonable efforts and the certification statement
must be maintained by the generator for a minimum of three years and it
must be made available upon request by a regulatory authority within 72
hours, or within a longer period of time as specified by the regulatory
authority. Requiring documentation will help EPA and authorized states
to determine that hazardous secondary material generators have made
reasonable efforts to ensure that hazardous secondary materials were
reclaimed and not discarded. We understand that many generators may
maintain this kind of documentation and certification at their company
headquarters or at another off-site facility; therefore, we are not
requiring that they be maintained on-site. However, we do believe that
generators, having satisfied the reasonable efforts condition and
certified reasonable efforts prior to transferring the hazardous
secondary materials, should be able to produce the documentation and
certification readily. Moreover, we understand that since generators
today conduct business in an age of near-instantaneous communication,
retrieving documentation from company headquarters or another off-site
facility should be relatively easy. EPA also notes that time frames for
producing documentation are generally determined by regulatory
authorities on a case-by-case basis and time frames are clearly
outlined by authorities within RCRA section 3007 information request
letters.
    Recordkeeping. In addition to documentation and certification of
reasonable efforts (discussed above in section VIII.C.2.), EPA is
requiring hazardous secondary material generators to maintain at the
generating facility certain records that document off-site shipments
(i.e., transfers) of hazardous secondary materials for a period of
three years. Specifically, for each shipment of hazardous secondary
material, the generator must maintain documentation of when the
shipment occurred, who the transporter was, the name and address of the
reclaimer(s) and, if applicable, each intermediate facility, and the
type and quantity of the hazardous secondary materials in the shipment.
This recordkeeping requirement may be fulfilled by ordinary business
records, such as bills of lading.
    In addition, hazardous secondary material generators are required
to maintain confirmations of receipt from each reclaimer and
intermediate facility for all off-site shipments of hazardous secondary
materials in order to verify that the hazardous secondary materials
reached their intended destination and were not discarded. These
receipts must be maintained at the generating facility for a period of
three years. Specifically, the hazardous secondary material generator
must maintain documentation of receipt that includes the name and
address of the reclaimer or intermediate facility, the type and
quantity of hazardous secondary materials received, and the date which
the hazardous secondary materials were received. The Agency is not
requiring a specific template or format for confirmations of receipt
and anticipates that routine business records (e.g., financial records,
bills of lading, copies of Department of Transportation (DOT) shipping
papers, electronic confirmations of receipt) would contain the
appropriate information sufficient for meeting this requirement.
    We recognize that, in some cases, reclamation of a hazardous
secondary material may involve more than one reclamation step. In these
cases, the recordkeeping conditions for generators and reclaimers under
the terms of the exclusion applies for each reclaimer and intermediate
facility, regardless of how many reclamation steps were involved. For
example, if a hazardous secondary material generator transferred
hazardous secondary materials to one reclaimer for partial reclamation
and then arranged for the partially-reclaimed material to be
subsequently transferred to another reclaimer for `final' reclamation,
the generator must maintain confirmations of receipt from each
reclaimer involved in the reclamation process.
    The Agency believes that the recordkeeping requirements in today's
rule comprise the minimum information needed to enable effective
oversight to ensure the hazardous secondary materials were transferred
for reclamation and were not discarded.
3. Provisions Applicable to the Transportation of Hazardous Secondary
Materials
    Hazardous secondary materials may be stored for up to 10 days at a
transfer facility and still be considered in transit. The 10-day
storage standard for defining transfer facilities is the same as that
used for hazardous waste transportation, and EPA has revised the
definition of ``transfer facility'' at 40 CFR 260.10 to clarify that
such facilities may store hazardous secondary materials, as well as
hazardous waste. However, if the facility stores the hazardous
secondary materials for more than 10 days, then it would be considered
an intermediate facility and subject to the conditions in 40 CFR
261.4(a)(24)(vi). While at the transfer facility, the hazardous
secondary materials must continue to meet all applicable DOT standards.
Hazardous secondary materials may be consolidated for shipping, but
cannot be intermingled in a way that would constitute waste management.

4. Provisions Applicable to the Reclamation Facility and Any
Intermediate Facilities
    Recordkeeping. Reclaimers and intermediate facilities who operate
under the transfer-based exclusion must maintain certain records,
similar to the records we are requiring for hazardous secondary
material generators. Specifically, reclaimers and intermediate
facilities must maintain at their facilities for a period of three
years records of all shipments of hazardous secondary materials that
were received at the facility and, if applicable, of all shipments of
hazardous secondary materials sent off-site from the facility. For
hazardous secondary materials received at the reclamation and
intermediate facility, such records must document the name and address
of the hazardous secondary material generator, the type and quantity of
hazardous secondary materials received at the facility, any
intermediate facilities that managed the hazardous secondary materials,
the name of the transporter that brought the hazardous secondary
materials to the facility, and the date such materials were received at
the facility.
    For hazardous secondary materials that, after being received by the
reclaimer or intermediate facility, are subsequently transferred off-
site for further reclamation, reclaimers and intermediate facilities
must document the name and address of the hazardous secondary material
generator, when the shipment occurred, who the transporter was, the
name and address of the (subsequent) reclaimer and, if applicable, each
(subsequent) intermediate facility, and the type and quantity of
hazardous secondary materials in the shipment. This recordkeeping
requirement may be fulfilled by ordinary business records, such as
bills of lading.
    Reclaimers and intermediate facilities must also send confirmations
of receipt to the hazardous secondary material generator for all off-
site shipments of hazardous secondary materials received at the
facility in order to verify for the hazardous secondary material
generator that their materials reached the intended destination and
were not discarded. Specifically, the reclaimer (or each reclaimer,
when more than one reclamation step is required) and, if applicable,
each intermediate facility, must send documentation of receipt to the
hazardous secondary material generator that includes the name and
address of the reclaimer or intermediate facility, the type and
quantity of the hazardous secondary materials received and the date
which the hazardous secondary materials were received. The Agency is
not requiring a specific template or format for confirmations of
receipt and anticipates that routine business records (e.g., financial
records, bills of lading, copies of DOT shipping papers, electronic
confirmations of receipt) would contain the appropriate information
sufficient for meeting this requirement.
    In addition, reclaimers and intermediate facilities must also meet
the recordkeeping requirements under financial assurance discussed
below in this section.
    Storage of Recyclable Hazardous Secondary Materials. In addition to
the condition that the hazardous secondary materials must be contained
(40 CFR 261.4(a)(24)(v)(A)), reclamation facilities and intermediate
facilities must also manage the hazardous secondary materials in a
manner that is at least as protective as that employed for the
analogous raw material, where there is an analogous raw material. An
``analogous raw material'' is a material for which a hazardous
secondary material substitutes and which serves the same function and
has similar physical and chemical properties as the hazardous secondary
material. A raw material that has significantly different physical or
chemical properties would not be considered analogous even if it serves
the same function. For example, a metal-bearing ore might serve the
same function as a metal-bearing air pollution control dust, but
because the physical properties of the dust would make it more
susceptible to wind dispersal, the two would not be considered
analogous. Similarly, hazardous secondary materials with high levels of
toxic volatile chemicals would not be considered analogous to a raw
material that does not have these volatile chemicals or that has only
minimal levels of volatile chemicals.
    Storage conditions for reclamation facilities and intermediate
facilities that operate under today's exclusion will show that the
materials are not discarded, but instead are treated as commodities
which the handler considers valuable and would be used and not be lost
to the environment. The great majority of damage cases documented in
the environmental problems study occurred at commercial reclamation and
intermediate storage facilities, and mismanagement of hazardous
secondary materials was found to be a cause of environmental problems
in 40% of the incidents. Accordingly, EPA believes that this condition
for storage is necessary and appropriate for reclamation facilities and
intermediate facilities that take advantage of this exclusion to show
that storage of these materials is not just another way of disposing of
them. In addition, it will establish an expectation for the owner/
operators of such facilities that they must manage hazardous secondary
materials in at least as protective a manner as they would an analogous
raw material, and in such a way that materials would not be released
into the environment.
    Management of recycling residuals. Another condition of the
transfer-based exclusion is that any residuals that are generated from
the reclamation processes must be managed in a manner that is
protective of human health and the environment. If any residuals
exhibit a hazardous characteristic according to subpart C of 40 CFR
part 261, or themselves are listed hazardous wastes, they are hazardous
wastes (if discarded) and must be managed according to the applicable
requirements of 40 CFR parts 260 through 273.
    The purpose of this condition is to clarify the regulatory status
of these waste materials and to emphasize in explicit terms that
residuals that are generated from the reclamation of hazardous
secondary materials must be managed properly so that the reclamation
operation does not become another way of avoiding waste management and
simply becomes another way of discarding unwanted material. The study
of recent (i.e., post-CERCLA and post-RCRA) recycling-related
environmental problems revealed that mismanagement of residuals was the
cause of such problems in one-third of the incidents that were
documented. Some common examples of these mismanaged residuals were
acids and casings from the processing of lead-acid batteries, solvents
and other liquids generated from cleaning drums at drum reconditioning
facilities, and PCBs and other oils generated from disassembled
transformers. In many of these damage incidents, the residuals were
simply disposed of on-site with little regard for the environmental
consequences of such mismanagement or possible CERCLA liabilities
associated with cleanup of these releases. By making proper management
of the recycling residuals a condition of the exclusion, EPA ensures
that the reclamation operation is not just another way of discarding
hazardous constituents. This has the added benefit of ensuring that the
reclamation operation does not pose a significant risk to human health
and the environment.

    EPA notes that the ``derived from'' rule articulated in 40 CFR
261.3(c)(2) does not apply to residuals from the reclamation of
hazardous secondary materials excluded under today's rule. These
residuals are a new point of generation for the purposes of applying
the hazardous waste determination requirements of 40 CFR 262.11. If the
residuals exhibit a hazardous characteristic, or they themselves are a
listed hazardous waste, they would be considered hazardous wastes
(unless otherwise exempted) and would have to be managed accordingly.
If they did not exhibit a hazardous characteristic, or were not
themselves a listed hazardous waste, they would need to be managed in
accordance with applicable state or federal requirements for non-
hazardous wastes.
Financial Assurance
    For the transfer-based exclusion, EPA proposed in its March 2007
supplemental proposal that reclamation facilities comply with the 40
CFR part 265 subpart H financial assurance requirements as a condition
of the exclusion. As discussed in section V.B of this preamble, by
obtaining financial assurance, the reclamation or intermediate facility
is making a direct demonstration that it will not abandon the hazardous
secondary materials, it will properly decontaminate equipment, and it
will clean up any unacceptable releases, even if events beyond its
control make its operations uneconomical. Moreover, financial assurance
also addresses the issue of the correlation of the financial health of
a reclamation or intermediate facility with the absence of discard. In
essence, financial assurance will help demonstrate that the reclamation
or intermediate facility owner/operators who would operate under the
terms of this exclusion are financially sound and will not discard the
hazardous secondary materials.
    An implementation issue for the financial assurance condition stems
from the fact that the 40 CFR part 265 subpart H financial assurance
requirements directly reference and rely on the provisions of the 40
CFR part 265 subpart G closure requirements. For example, in 40 CFR
part 265 subpart H, a facility owner uses the ``closure plan'' in 40
CFR part 265 subpart G to calculate closure cost estimates, which then
set the amount of financial assurance required under subpart H.
Similarly, the financial assurance requirements remain in place until
EPA has reviewed the closure plan, and the facility has closed
according to the plan. At that point, EPA releases the financial
assurance instruments. Commenters expressed some confusion on this
issue and requested that EPA clarify that the provisions of subpart G
which are required to implement financial assurance be made explicit.
    Thus, in today's final rule, for the convenience of the regulated
community, EPA has detailed the applicable requirements in a separate
regulation, subpart H of 40 CFR part 261, using terminology appropriate
for excluded facilities, that specifically identifies the processes by
which a facility determines the amount of financial assurance required
and by which it secures release of financial assurance when it no
longer wishes to operate under the transfer-based exclusion. The
financial assurance requirements detailed in 40 CFR part 261 subpart H
incorporate those aspects of the hazardous waste closure and financial
assurance regulations as they apply to the financial assurance
condition for excluded hazardous secondary material reclamation and
intermediate facilities. However, since these facilities are not
regulated hazardous waste facilities, new subpart H does not include a
stand-alone closure requirement, although some aspects of the closure
process (described below) are included as being necessary for the
implementation of the financial assurance condition.
    Substantively, these requirements generally mirror the interim
status standards in 40 CFR part 265 for hazardous waste treatment,
storage and disposal facilities (TSDFs), but have been tailored for
hazardous secondary material reclamation and intermediate facilities.
The provision in the new subpart H in 40 CFR part 261 are linked to
equivalent provisions under 40 CFR part 265, which, as we noted in the
March 2007 supplemental proposal, ``outline how owners and operators
should determine cost estimates, explain the acceptable mechanisms for
providing financial assurance, and set the minimum amounts of liability
coverage required'' (see 72 FR 14196).
    In addition to the closure requirements, 40 CFR part 265 subpart H
includes requirements for post-closure care. Post-closure care (e.g.,
groundwater monitoring, maintenance of waste containment systems) only
applies to land disposal units, where hazardous waste remains in the
unit or other contamination is present after Subtitle C closure.
However, the conditional exclusion being promulgated today only applies
to hazardous secondary materials intended for reclamation. In no cases
should the storage of these materials be designed or managed with the
intent of leaving these hazardous secondary materials in place. Unlike
the need for closure, which could occur at a reclamation or
intermediate facility which meets all the conditions of the exclusion,
but then becomes subject to forces beyond its control (such as a sudden
downturn in the market for its recycled product), the need for post-
closure care would only apply to a facility that does not meet the
condition that the hazardous secondary materials are contained in the
unit. Thus, the Agency has determined that the issue of post-closure
care is most appropriately dealt with by enforcement of the condition
that the hazardous secondary materials must be contained. If, during
the life of the unit, there is a significant release that indicates
that the hazardous secondary materials are discarded, and thus are
wastes, then such waste is subject to the RCRA Subtitle C requirements,
including the post-closure care requirements. See discussion of the
condition that the hazardous secondary materials must be ``contained''
found in section VII.C.
Cost Estimate
    Under subpart H of 40 CFR part 261, as it is under subpart H of 40
CFR part 265 for hazardous waste treatment storage and disposal
facilities, the first step in obtaining financial assurance is to
develop a detailed written estimate on the amount of financial
assurance required. The cost estimate determines the amount of
financial assurance that will be available to the state or EPA for a
third party to close a facility if the owner or operator fails to do
so. The requirements for a cost estimate in 40 CFR 261.142 generally
tracks the procedures in 265.142 with changes to accommodate the
absence of a closure plan. Because hazardous secondary materials that
lose the exclusion may have to be disposed of as a hazardous waste and
the facility may have to be closed as a hazardous waste facility in
accordance with the requirements of 40 CFR part 265, the owner or
operator must have a detailed written estimate in current dollars of
performing this work. The detailed cost estimate should include all
necessary information which will allow the state or EPA to assess
whether the assumptions underlying the estimate are consistent with
what could be required to close the facility. For example, do the
estimates for disposal, including transportation charges, reflect the
distance to available disposal facilities? What level of personal
protective equipment is needed to protect workers? Is there sufficient
sampling of equipment to determine that it has been decontaminated?
Where

there is uncertainty about the scope of the work, is there a reasonable
contingency factor included? While not required by this rule for
developing a cost estimate, some owners or operators may find that
developing a plan similar to the requirements in 40 CFR 265.112 would
be beneficial for assessing the potential costs of closing the
facility. (Note, however, that the cost estimate must reflect the costs
of closure under the Subtitle C hazardous waste requirements, and any
remaining hazardous secondary material must be managed as a hazardous
waste, and therefore the procedures used as the basis of the cost
estimate may differ from the actual procedures a compliant facility
will carry out when it completes operations and exits from the
exclusion.) The owner or operator can be required to provide the
documentation of the cost estimate upon request.
    The cost estimating requirements in 40 CFR 265.142 and 40 CFR
261.142 are designed so that if a state or EPA must close a facility
because of an owner or operator's failure, there will be adequate funds
to do so. The requirements for the cost estimate are therefore based
upon the point when the extent and manner of the facility's operation
would make these activities the most expensive.
    The cost estimate must, at minimum, be based on the costs of hiring
a third party or parties to conduct these activities. The cost estimate
may not include any salvage value for the hazardous secondary materials
as hazardous waste or non-hazardous waste and the owner or operator may
not incorporate a zero cost for such materials that might have economic
value.
    The financial assurance provisions are intended, in part, to
demonstrate that the owner and operator is not discarding the hazardous
secondary materials. As noted earlier, 69 of the 208 incidents of
environmental damage identified in EPA's environmental problems study
involve abandonment of the hazardous secondary materials as the primary
cause of damage. These cost estimate provisions, found in 40 CFR
261.142(a) are equivalent to those required to estimate financial
assurance under 40 CFR 265.142(a).
    In addition, the financial assurance cost estimate must be revised
and additional financial assurance must be obtained to adjust annually
for inflation or in the event that changes in the reclaimer's or
intermediate facility's operations or unexpected events result in an
increase in the cost of managing any hazardous secondary materials that
are not reclaimed and the cost of removing or decontaminating all
hazardous residues. These cost estimate provisions, found in 40 CFR
261.142(b) and 40 CFR 261.142(c) are equivalent to those required under
40 CFR 265.142(b) and 40 CFR 265.142(c), and incorporates language from
40 CFR 265.112(c)(2) requiring the owner or operator to amend the
estimates at least 60 days prior to a planned change in facility design
or operation or no later than 60 days after an unexpected event has
occurred that affects cost estimates. The financial assurance cost
estimate must be documented and this documentation maintained at the
facility. This information must be furnished upon request, and made
available at all reasonable times for inspection. The requirement in 40
CFR 261.142(d) to maintain documentation at the facility is from the
requirement in 40 CFR 265.142(d) and 40 CFR 265.73(b)(7), and the
responsibility to make it available upon request, which will allow
Agency representatives to review the cost estimate, is from 40 CFR
265.74(a) which covers information required in 40 CFR 265.73.
Interaction of the Cost Estimate and the Financial Assurance
Instruments
    As with the interim status regulations in 40 CFR part 265 subpart
H, the interaction of the cost estimating requirements in 40 CFR
261.142 and the instrument requirements in 40 CFR 261.143 result in
adjustments in the amount of financial assurance as facility operations
change. If changes in the reclaimer's or intermediate facility's
operations result in a reduction in the cost estimate, the owner or
operator may submit a new cost estimate. If the new cost estimate is
less than the amount of financial assurance provided, the amount of the
financial assurance instrument may be reduced to the amount of the new
cost estimate following written approval by the Regional Administrator
(see, for example, 40 CFR 261.143(b)(7)). For example, a facility with
three units managing hazardous secondary materials that use a single
surety bond could close one unit according to the plan in 40 CFR
261.143(h). With a new cost estimate submitted by the facility that
reflects the lower costs for the two remaining units, the Regional
Administrator can approve a reduction in the value of the surety bond.
On the other hand, a change in the facility's operating plan or design
that increases the cost of closing necessitates a new cost estimate (40
CFR 261.142(c)) and an increase in the amount of financial assurance
(see, for example, 40 CFR 261.143(b)(7)).
Establishment of the Instrument, Plan for Removal of All Hazardous
Secondary Material Residues, and Release From Financial Assurance
    Under 40 CFR 261.4(a)(24)(vi)(F), an owner or operator of a
reclamation or intermediate facility must establish financial assurance
as a condition of the exclusions under 40 CFR 261.4(a)(24) and
261.4(a)(25). The same general types of instruments that are available
for interim status facilities under 40 CFR part 265 subpart H are also
available to owners or operators of reclamation or intermediate
facilities. Owners or operators may use trust funds, payment surety
bonds, letters of credit, insurance, or a financial test and corporate
guarantee to demonstrate financial assurance.
    The regulations governing the financial assurance instruments that
an owner or operator must provide to qualify for the exclusions have
been modified to reflect that they apply to hazardous secondary
materials and not hazardous wastes. The financial assurance instruments
for the trust fund, surety bond, letter of credit, and corporate
guarantee have been revised so that EPA can direct the financial
assurance funds at the point the hazardous secondary material
reclamation or intermediate facility no longer meets the exclusion and,
therefore, is managing a hazardous waste. As long as a facility is
operating under the transfer-based exclusion so that the hazardous
secondary material is not being discarded, there would be no need to
invoke the financial assurance instruments.
    The regulations allow the same flexibility as in 40 CFR part 265
subpart H for using a combination of trust funds, surety bonds, letters
of credit and insurance at a single facility (see 40 CFR 261.143(f)),
and allow the use of a single mechanism for multiple facilities (see 40
CFR 261.143(g)).
    The provisions for releasing the reclamation or intermediate
facility from the financial assurance requirements, found in 40 CFR
261.143(h), are functionally equivalent to those under 40 CFR
265.143(h). ``Within 60 days after receiving certifications from the
owner or operator and a qualified Professional Engineer that all
hazardous secondary materials have been removed from the unit and the
unit has been decontaminated in accordance with the approved plan per
paragraph (i), the Regional Administrator will notify the owner or
operator in writing that he is no longer required under Sec.
261.4(a)(24)(vi)(F) to maintain financial assurance for that

unit, unless the Regional Administrator has reason to believe that that
all hazardous secondary materials have not been removed from the unit
or that the unit has not been decontaminated in accordance with the
approved plan.''
    Under 40 CFR part 265 subpart H, the provisions for releasing
financial assurance rely on receiving a certification that the unit was
closed per the approved closure plan in 40 CFR 265.112. However, as
noted earlier, under today's exclusion, units managing hazardous
secondary materials are not subject to closure. Thus, the provision for
releasing financial assurance for these units adapts language from the
closure plan requirement found in 40 CFR 265.112 and from the
certification requirement found in 40 CFR 265.115. Instead of a
hazardous waste ``closure plan,'' the 40 CFR 261.143(i) provisions for
releasing financial assurance require submission of a plan for removing
hazardous secondary materials and decontaminating the unit at least 180
days prior to the date that owner or operator expects to cease
operating under the exclusion. The contents of the plan are detailed in
40 CFR 261.153(i)(2) and have been tailored to reflect the fact that,
although the hazardous secondary material management units are not
subject to closure, when reclamation operations or storage operations
(in the case of an intermediate facility) ceases, the hazardous
secondary materials must be removed or the unit would become subject to
the Subtitle C hazardous waste requirements (see section VIII.D).
Briefly, the plan must include, at least, (a) a description of how all
excluded hazardous secondary materials will be reclaimed or sent for
reclamation and how all residues, contaminated containment systems
(liners, etc), contaminated soils, subsoils, structures, and equipment
will be removed or decontaminated as necessary to protect human health
and the environment (for guidance, see the March 16, 1998, memorandum
entitled ``Risk-Based Clean Closure,'' from Elizabeth Cotsworth, Acting
Director, Office of Solid Waste, to RCRA Senior Policy Advisors.
Available at http://www.epa.gov/correctiveaction/resource/guidance/
risk/cclosfnl.pdf; (b) a description of the steps necessary to remove
or decontaminate all hazardous secondary material residues and
contaminated containment system components, equipment, structures, and
soils including, but not limited to, procedures for cleaning equipment
and removing contaminated soils, methods for sampling and testing
surrounding soils, and criteria for determining the extent of
decontamination necessary to protect human health and the environment;
(c) a description of any other activities necessary to protect human
health and the environment during this time frame, including, but not
limited to, leachate collection, run-on and run-off control, etc.; and
(d) a schedule for conducting the activities.
    This plan, which is essentially the subset of information required
in a 40 CFR part 265 closure plan that would apply to excluded
hazardous secondary material units, would still need to be reviewed by
the Regional Administrator (or State Director, in authorized states)
because that would ensure that EPA would agree that the hazardous
secondary materials, or equipment contaminated with hazardous secondary
materials, will not remain unregulated at the facility after it is no
longer operating under an exclusion and no longer maintains financial
assurance. As with the financial assurance release provision of 40 CFR
part 264, the Regional Administrator will provide notice to the owner
or operator and the public and an opportunity to submit written
comments on the plan and request modifications to the plan. The
Regional Administrator will approve, modify, or disapprove the plan
within 90 days of its receipt.
    Once residuals (and any hazardous secondary materials) have been
removed and the unit has been decontaminated according to the plan, the
facility would send a certification to that effect from the owner or
operator and a qualified Professional Engineer to the regulatory
agency, and that agency would then authorize the release of the
financial assurance for those specific units, unless there is reason to
believe that the hazardous secondary materials and residues were not
removed (in which case the regulatory authority would send a written
explanation of this fact). Again, this process is similar to that
required under 40 CFR 265.115, as referenced in 40 CFR part 265 subpart
H.
Operation of the Instruments if the Exclusion Is No Longer Applicable
    As noted above, as long as a facility is operating under the
transfer-based exclusion and the hazardous secondary material is not
being discarded, there would be no need to invoke the financial
assurance instruments. However, if the exclusion is no longer
applicable, then the hazardous secondary material is a hazardous waste
subject to the Subtitle C requirements and the Regional Administrator
can invoke the instruments consistent with RCRA 3004(t) and related
laws. Similarly, as in 40 CFR part 265, if an owner or operator fails
to obtain an approved replacement instrument within 90 days after a
notice of cancellation from a surety, issuer of a letter of credit,
insurer, or guarantor, the Regional Administrator can invoke the
instrument. The following descriptions of the instruments contain
additional information on how the instruments operate under this rule.
Trust Funds
    If facilities choose to use a trust fund, they must fully fund the
trust before they can rely on it for financial assurance. This is
consistent with the proposal, which was based on the pay-in provisions
under 40 CFR part 265. In part 265, the pay-in period for trust funds
is limited to the remaining operating life of a facility or 20 years
from the effective date of the 40 CFR part 265 regulations, which
became effective in 1982. Thus, under the exclusion, the pay-in period,
which would allow a trust to build over time, is not available. This
means that facilities that are not financially strong enough to qualify
for the financial test and that cannot obtain a guarantee, such as a
surety bond or a letter of credit from a third party (potentially
because the surety or bank is not confident that it will be repaid if
the instrument is called upon) will need to fully fund the trust before
qualifying for the exclusion.
    While the hazardous secondary materials retain the exclusion, EPA
has no access to these funds. The trustee must meet the qualifications
in 40 CFR 261.143(a)(1) and the wording of the trust agreement must be
identical to the wording specified in Sec.  261.151(a)(1). The trust
agreement must include a Schedule A that lists each facility, including
the units with hazardous secondary materials, and the amounts of the
current cost estimates, or portions thereof, for which financial
assurance is demonstrated by the trust. Schedule A of the trust
agreement must be updated within 60 days after a change in the amount
of the current cost estimate covered by the agreement.
    Whenever the current cost estimate changes, the owner or operator
must compare the new estimate with the trustee's most recent annual
valuation of the trust fund. If the value of the fund is less than the
amount of the new cost estimate, the owner or operator, within 60 days
after the change in the cost estimate, must either (1) deposit an
amount into the trust fund so that its value after this deposit at
least equals the amount of the current cost estimate, or (2) obtain
other financial assurance,

such as a letter of credit, to cover the difference.
    There are also circumstances when the owner or operator may request
a release of funds from the trust fund. If the value of the trust fund
is greater than the total amount of the current cost estimate, the
owner or operator may submit a written request to the Regional
Administrator for release of the amount in excess of the current cost
estimate. This could occur as a result of the closing of a unit at the
facility and the submission of a revised cost estimate. Alternatively,
the earning of the trust fund could exceed the increase in the cost
estimate due to inflation. Further, if an owner or operator substitutes
other financial assurance as specified in the regulations for all or
part of the trust fund, he may submit a written request to the Regional
Administrator for release of the amount in excess of the current cost
estimate covered by the trust fund.
    Within 60 days after receiving a request from the owner or operator
for release of funds, the Regional Administrator will instruct the
trustee to release to the owner or operator such funds that exceed the
amount of the current cost estimate, as the Regional Administrator
deems appropriate and specifies in writing. Alternatively, in the event
that the owner or operator begins final closure of the unit under
subpart G of 40 CFR part 264 or 265, an owner or operator may request
reimbursements for partial or final closure expenditures by submitting
itemized bills to the Regional Administrator.
    The Regional Administrator will agree to termination of the trust
fund when the owner or operator substitutes alternate financial
assurance, such as receiving approval for an insurance policy to
replace the trust, or if the owner or operator demonstrates that he
meets the requirements of the financial test. It should be noted that
both surety bonds and letters of credit require a standby trust, as
discussed below. The Regional Administrator will also agree to the
termination of the trust fund when he releases the owner or operator
from the requirements of this section in accordance with 40 CFR
261.143(i).
    The preceding discussion explained the operation of the regulations
during the exclusion. The regulations also address the situation where
the hazardous secondary materials lose their exclusion. The
requirements in 40 CFR 261.151(a) for the trust fund provide that if
the hazardous secondary materials lose their exclusion, EPA becomes the
beneficiary of the trust, consistent with RCRA section 3004(t) and
federal law. The trust fund also receives the proceeds of a payment
surety bond or letter of credit if the hazardous secondary materials
lose the exclusion. The trustee shall make payments from the Fund as
the EPA shall order or direct, in writing, to provide for the payment
of the costs of the performance of closure activities required under
subpart G of 40 CFR parts 264 or 265 for the facilities covered by the
trust agreement. This provision allows funds from the trust to be used
to close facilities as hazardous waste facilities.
    An owner or operator whose hazardous secondary materials have lost
their exclusion, but subsequently meets the requirements for the
exclusion, including establishing financial assurance in accordance
with the provisions of 40 CFR 261.143, may request a reduction in the
amount of the trust fund and the Regional Administrator may instruct
the trustee to return funds to the owner or operator under Section 4 of
the trust agreement in 40 CFR 261.151(a). For example, hazardous
secondary materials could lose their exclusion and the Regional
Administrator could draw upon a letter of credit being used to
establish financial assurance and have it deposited into the trust
fund. If the hazardous secondary materials regained their exclusion and
the owner or operator substituted a new approved letter of credit, the
Regional Administrator may direct the trustee to refund funds to the
owner or operator.
Surety Bonds
    The surety bond operates similarly to the payment surety bond in 40
CFR part 265, with some modifications to reflect the differences
between a conditionally exempt hazardous secondary material and a
hazardous waste. The surety bond must conform to the requirements of 40
CFR 261.143(b) and the owner or operator must submit the bond to the
Regional Administrator. The surety company issuing the bond must, at a
minimum, be among those listed as acceptable sureties on federal bonds
in Circular 570 of the U.S. Department of the Treasury. The wording of
the surety bond must be identical to the wording specified in 40 CFR
261.151(b).
    The owner or operator who uses a surety bond must also establish a
standby trust fund and submit an originally signed duplicate of the
trust agreement with the surety bond. Under the terms of the bond, all
payments made thereunder will be deposited by the surety directly into
the standby trust fund in accordance with instructions from the
Regional Administrator. This standby trust fund must meet the
requirements specified in Sec.  261.143(a), except that until the
standby trust fund is funded pursuant to the requirements of this
section, the following are not required by these regulations:
    (A) Payments into the trust fund as specified in Sec.  261.143(a);
    (B) Updating of Schedule A of the trust agreement (see Sec.
261.151(a)) to show current cost estimates;
    (C) Annual valuations as required by the trust agreement; and
    (D) Notices of nonpayment as required by the trust agreement.
    The penal sum of the bond must be in an amount at least equal to
the current cost estimate, except as provided in 40 CFR 261.143(f). The
regulations at 40 CFR 261.143(f) allow the use of certain combinations
of instruments so long as their sum is at least equal to the total cost
estimates.
    Whenever the current cost estimate increases to an amount greater
than the penal sum, the owner or operator, within 60 days after the
increase, must either cause the penal sum to be increased to an amount
at least equal to the current cost estimate and submit evidence of such
increase to the Regional Administrator or obtain other financial
assurance as specified in the regulations in 40 CFR 261.143 to cover
the increase. Whenever the current cost estimate decreases, the penal
sum may be reduced to the amount of the current cost estimate following
written approval by the Regional Administrator. So long as the owner or
operator meets the exclusion, the Regional Administrator will not
access the bond.
    The Regional Administrator will agree to termination of the surety
bond when the owner or operator substitutes alternate financial
assurance, such as an approved insurance policy to replace the surety
bond, or if the owner or operator demonstrates that he meets the
requirements of the financial test. The Regional Administrator will
also agree to the termination of the surety bond when he releases the
owner or operator from the requirements of this section in accordance
with 40 CFR 261.143(i). Under 40 CFR 261.151(b), the Principal may
terminate this bond by sending written notice to the Surety(ies),
provided, however, that no such notice shall become effective until the
Surety(ies) receive(s) written authorization for termination of the
bond by the EPA Regional Administrator(s) of the EPA Region(s) in which
the bonded facility(ies) is (are) located.
    Under 40 CFR part 261, the surety becomes liable for funding the
trust if the owner or operator has failed to fund the trust before the
loss of the exclusion. The cancellation provisions for the

surety bond in 40 CFR part 261 operate similarly to the provisions in
40 CFR part 265. If the surety has issued a notice of cancellation, and
the owner or operator has not funded the trust or obtained approval by
the Regional Administrator of a replacement instrument within 90 days,
the surety becomes liable for payment into the trust fund. Under the
hazardous waste rules, if the surety issues a notice of cancellation
and the owner or operator does not fund the trust or obtain approved
alternative financial assurance within 90 days, the Regional
Administrator may access the funds.
    Reclamation and intermediate facilities, as under 40 CFR part 265,
may not use a performance surety bond because there is no closure plan
that has undergone review under the permitting process. The performance
surety bond, which is allowed under the permitting standards in 40 CFR
part 264 subpart H, requires the surety, in the event of a failure by
the owner or operator to comply with the requirements of the closure
requirements of 40 CFR part 264, to perform closure in accordance with
the closure plan and permitting requirements or to deposit the penal
sum of the bond into the standby trust. Closure plans for permitted
facilities undergo detailed review as part of the permitting process,
so it is appropriate to allow a surety to perform closure in this
circumstance. However, like interim status facilities, reclamation and
intermediate facilities do not have closure plans that undergo this
type of review. ``During interim status, the closure and post-closure
plans for a facility are generally not reviewed by the Regional
Administrator until shortly before the time of closure. Upon such
review, the Regional Administrator may find that major changes are
needed in the plans. The Agency believes a performance bond is not
appropriate when the actual required performance for the particular
facility may not be specified in any detail during most of the term of
the bond'' (47 FR 15040).
Letters of Credit
    The letter of credit requirements generally operate similarly to
the requirements in 40 CFR part 265, except that they reflect the
status of conditionally exempt hazardous secondary materials. An owner
or operator may satisfy the requirements of 40 CFR 261.143 by obtaining
an irrevocable standby letter of credit which conforms to the
requirements of 40 CFR 261.143(c) and submitting the letter to the
Regional Administrator. The issuing institution must be an entity which
has the authority to issue letters of credit and whose letter-of-credit
operations are regulated and examined by a federal or state agency.
    The wording of the letter of credit must be identical to the
wording specified in Sec.  261.151(c). As with the surety bond, an
owner or operator who uses a letter of credit must also establish a
standby trust fund and submit to the Regional Administrator an
originally signed duplicate of the trust agreement with the letter of
credit. Under the terms of the letter of credit, all amounts paid
pursuant to a draft by the Regional Administrator will be deposited by
the issuing institution directly into the standby trust fund in
accordance with instructions from the Regional Administrator. This
standby trust fund must meet the requirements specified in Sec.
261.143(a), except that until the standby trust fund is funded pursuant
to the requirements of this section, the requirements, as noted above,
that are not necessary for a surety bond are also not required for a
letter of credit.
    The letter of credit must be issued in an amount at least equal to
the current cost estimate, except as provided in 40 CFR 261.143(f). The
regulations in 40 CFR 261.143(f) allow the use of certain combinations
of instruments so long as their sum is at least equal to the total cost
estimates.
    Whenever the current cost estimate increases to an amount greater
than the amount of the letter of credit, the owner or operator, within
60 days after the increase, must either cause the amount of the letter
of credit to be increased so that it at least equals the current cost
estimate and submit evidence of such increase to the Regional
Administrator or obtain other financial assurance as specified in the
regulations in 40 CFR 261.143 to cover the increase. Whenever the
current cost estimate decreases, the amount of the letter of credit may
be reduced to the amount of the current cost estimate following written
approval by the Regional Administrator.
    The Regional Administrator will return the letter of credit to the
issuing institution for termination when an owner or operator
substitutes alternate financial assurance as specified in 40 CFR
261.143, or when the Regional Administrator releases the owner or
operator from the requirements of this section in accordance with Sec.
261.143(i).
    So long as the owner or operator meets the exclusion and maintains
financial assurance, the Regional Administrator will not access the
letter of credit. Access to the letter of credit only occurs upon the
loss of the exclusion. For the letter of credit, in the event that the
hazardous secondary materials at the covered reclamation or
intermediate facilities no longer meet the conditions of the exclusion,
EPA may draw upon the letter of credit. If the owner or operator does
not establish alternate financial assurance and obtain written approval
of such alternate assurance from the Regional Administrator within 90
days after a notice from the issuing institution that it has decided
not to extend the letter of credit beyond the current expiration date,
the Regional Administrator will draw on the letter of credit. When the
Regional Administrator draws on the letter of credit, the proceeds are
deposited into the standby trust fund, and the funds in the trust
become available for the payment of the costs of closure in compliance
with subpart G of 40 CFR parts 264 or 265.
Insurance
    Insurance operates similarly to the insurance instrument in 40 CFR
part 265, with some modifications to reflect differences between
conditionally exempt hazardous secondary materials and hazardous
wastes. An owner or operator may satisfy the requirements of 40 CFR
261.143 by obtaining insurance that conforms to the requirements of 40
CFR 261.143(d) and submitting a certificate of such insurance to the
Regional Administrator At a minimum, the insurer must be licensed to
transact the business of insurance or be eligible to provide insurance
as an excess or surplus lines insurer, in one or more states.
    The wording of the certificate of insurance must be identical to
the wording specified in Sec.  261.151(d). As part of the certificate,
the insurer warrants that the policy conforms in all respects with the
requirements of 40 CFR 261.143(d), as applicable, and agrees that any
provision of the policy inconsistent with 40 CFR 261.143(d) is hereby
amended to eliminate such inconsistency. The insurer also agrees to
furnish to the EPA Regional Administrator(s) a duplicate original of
the policy listed above, including all its endorsements, whenever
requested by the Regional Administrator.
    The insurance policy must be issued for a face amount at least
equal to the current cost estimate, except as provided in Sec.
261.143(f), which allows the use of certain combinations of instruments
so long as their sum is at least equal to the total cost estimates.
    Whenever the current cost estimate increases to an amount greater
than the face amount of the policy, the owner or operator, within 60
days after the increase, must either cause the face amount to be
increased to an amount at least equal to the current cost estimate

and submit evidence of such increase to the Regional Administrator or
obtain other financial assurance as specified in 40 CFR 261.143 to
cover the increase. Whenever the current cost estimate decreases, the
face amount may be reduced to the amount of the current cost estimate
following written approval by the Regional Administrator.
    In 40 CFR 261.143(d)(4), the insurance policy must guarantee that
funds will be available to pay the cost of removal of all hazardous
secondary materials from the unit, to pay the cost of decontamination
of the unit, and to pay the costs of the performance of any activities
required under subpart G of 40 CFR parts 264 or 265 for the facilities
covered by this policy, if they become necessary. This provision, as
that in 40 CFR part 265, allows the owner or operator to recover the
costs of removing hazardous secondary materials and is similar to the
provisions in Sec.  265.143(d) that allow the owner or operator of a
facility to be reimbursed for the costs of closure. This provision also
allows the Regional Administrator to allow reimbursement for the same
activities that are allowed under the trust fund. The insurance
provisions that allow for reimbursement for the cost of removal of
hazardous secondary materials are broader than the provisions in 40 CFR
261.151(a) for payment from the trust fund. This difference is due to
the fact that the monies in the trust fund are returned to the owner or
operator once the facility exits the exclusion, but there is no such
provision for insurance; in order to make the insurance provisions
functionally equivalent to their counterparts in 40 CFR part 265, the
insurance provisions must cover the cost of removing the hazardous
secondary materials when the unit exits the exclusion. However, the
owner or operator may request reimbursements only if the remaining
value of the policy is sufficient to cover the maximum costs for the
facility.
    The Regional Administrator will give written consent to the owner
or operator that he may terminate the insurance policy when the owner
or operator substitutes alternate financial assurance as specified in
Sec.  261.143, or the Regional Administrator releases the owner or
operator from the requirements of this section in accordance with Sec.
261.143(i).
    Under 40 CFR 261.143(d)(8), cancellation, termination, or failure
to renew may not occur and the policy will remain in full force and
effect in the event that on or before the date of expiration, the
conditional exclusion terminates or is revoked. This is analogous to
the provisions for surety bonds and letters of credit that ensure that
payments under those instruments will occur if the conditionally
excluded hazardous secondary materials lose the exclusion.
    Under the insurance provisions of Sec.  265.143, failure of the
owner or operator to pay the premiums of a policy without the
substitution of an alternative mechanism constitutes a significant
violation of the regulations. EPA was faced with a decision of how to
implement that provision here. Since the exclusion relies upon
compliance with the conditions, failure to pay the premium is
significant and may result in loss of the exclusion. Similarly, loss of
the exclusion will preclude the cancellation or termination of the
policy. Under the circumstances, EPA recognizes that insurers may
carefully screen applicants to ensure that they will meet the
requirements of the exclusion and establish premiums, possibly with a
substantial portion up front or collateralized, that reduce the
insurer's risk of non-payment.
    In 40 CFR 265.143(d)(1), there is a provision allowing an owner or
operator of a treatment, storage, and disposal facility an additional
90 days from the effective date of the regulations to provide a
certificate of insurance. The effective date of the interim status
regulations was in 1982, and therefore this provision is no longer
applicable and today's rule does not allow this additional 90 days. In
keeping with the proposal to use requirements in subpart H of 40 CFR
part 265, the additional 90-day period has been deleted from these
regulations.
Financial Test
    EPA had solicited comment on whether to use the financial assurance
provisions in the standardized permit rule rather than those in 40 CFR
part 265, but commenters generally did not support the standardized
permit rule alternative. Therefore, certain provisions that are
available under the standardized permit rule will not be available to
reclamation and intermediate facilities, with one exception. The
financial test provision referenced by subpart H of 40 part CFR 265
includes an obsolete requirement that the Certified Public Accountant's
report state that ``[i]n connection with that procedure, no matters
came to his attention which caused him to believe that the specified
data should be adjusted.'' This is referred to by the auditing
profession as a ``negative assurance.'' However, the American Institute
of Certified Public Accountants, Inc.'s (AICPA's) Statement on Auditing
Standards no longer permits independent auditors to express negative
assurance. Thus, to ensure that today's final rule conforms with
current professional auditing standards, EPA is using the language from
the standardized permit rule for this aspect of the financial test.\4\
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    \4\ For current EPA guidance for companies using the financial
test in 40 CFR part 264 or 265, please see the February 27, 1997
Memorandum from Elizabeth Cotsworth to Senior RCRA Policy Advisors
entitled ``Obsolete Language in the Financial Test for Subtitle C
Treatment Storage and Disposal Facilities,'' at http://
yosemite.epa.gov/osw/rcra.nsf/ea6e50dc6214725285256bf00063269d/
C68C99D730932BE28525670F006C2B4A/$file/14066.pdf.
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    As noted in the March 2007 supplemental proposal, the Agency
currently has underway a review of the subpart H financial assurance
regulations, which will address this issue among others in the broader
context of 40 CFR parts 264 and 265. As part of any rulemaking that
addresses the results of that review, EPA will include any necessary
changes to the financial assurance condition being finalized today.
    In today's regulation, the letter from the chief financial officer
(see Sec.  261.151(e) or (f)) contains a requirement to account for
obligations assured through a financial test or corporate guarantee for
facilities handling conditionally excluded hazardous secondary
materials. This addition is necessary because the chief financial
officer's letter required in the 40 CFR part 265 regulations does not
anticipate these obligations.
    The financial test and the letter from the chief financial officer
use accounting terms, such as current assets, current liabilities, and
liabilities. Under 40 CFR 261.141, which defines the terms used in this
subpart, these and other accounting terms follow their definition in 40
CFR 265.141(f). As noted in 40 CFR 265.141(f), ``The definitions are
intended to assist in the understanding of these regulations and are
not intended to limit the meanings of terms in a way that conflicts
with generally accepted accounting practices.'' This is an important
provision of the financial assurance regulations because it allows the
terms used in the test to reflect evolving definitions. For example, if
the accounting standards covering retiree obligations change, this
provision ensures that the accounting in the financial test submission
to EPA reflects the new standards. Companies may not use an obsolete
definition of these terms.
    Like the 40 CFR part 265 regulations, this regulation includes a
provision

allowing an owner or operator to obtain a corporate guarantee as a
method of complying with the financial assurance requirements. The
provisions governing who may extend a guarantee are the same as those
in 40 CFR part 265. Since there is no requirement for an up-front
closure plan, the text of the guarantee in 40 CFR part 261 differs
somewhat from the language in 40 CFR part 265. In Sec.  261.151(g)(1),
the guarantor ``guarantees that in the event of a determination by the
Regional Administrator that the hazardous secondary materials at the
owner or operator's facility covered by this guarantee do not meet the
conditions of the exclusion under Sec.  261.4(a)(24), the guarantor
will manage any hazardous secondary material in accordance with
applicable regulations and close the facility in accordance with
closure requirements found in parts 264 and 265 of this chapter or
establish a trust fund as specified in Sec.  261.143(a) in the name of
the owner or operator in the amount of the current cost estimate.''
Liability Requirements
    The liability coverage requirements for sudden and nonsudden
accidental occurrences in subpart H of 40 CFR part 261 are essentially
the same as those for TSDFs in 40 CFR 265.147, with revised terminology
so that the regulatory language applies to hazardous secondary material
reclamation and intermediate facilities. Sudden accidental coverage for
bodily injury and property damage to third parties is required for all
units, and nonsudden accidental coverage is required for land-based
units. Land-based units are defined in 40 CFR 260.10 as an area where
hazardous secondary materials are placed in or on the land before
recycling and are functionally equivalent to the units required to have
nonsudden accidental coverage under 40 CFR 265.147(b) (e.g., surface
impoundments). In addition, the provisions for requesting a variance or
adjusting the coverage are the same as 40 CFR 265.147(c) and (d)
respectively, except the reference that ties these procedures to the
Subtitle C permit modification procedures under 40 CFR 270.41(a)(5) and
40 CFR 124.5 has been removed, because these provisions would not apply
to excluded hazardous secondary material.
Other Financial Assurance Provisions
    Finally, the provisions for incapacity of owners or operators,
guarantors, or financial institutions (40 CFR 261.148), use of state-
required mechanisms (40 CFR 261.149), and state assumption of
responsibility (40 CFR 261.150) are essentially the same as their
counterparts in 40 CFR part 265, with one exception. The state-required
mechanism provisions have been expanded to indicate that states may
allow facilities to use their existing Subtitle C financial assurance
policies to address the financial assurance condition of 40 CFR
261.4(a)(24)(vi)(F), provided they can ensure that the instruments
actually cover the financial assurance cost estimate.
5. Provisions Applicable to Hazardous Secondary Materials That Are
Exported and Imported
    Under today's final rule, generators who export hazardous secondary
materials are required to notify the receiving country through EPA and
obtain consent from that country before shipment of the hazardous
secondary materials takes place (see 40 CFR 261.4(a)(25)). These notice
and consent requirements provide notification to the receiving country
so that it can ensure that the hazardous secondary materials are
reclaimed rather than disposed of or abandoned. As an additional
benefit, these requirements allow the receiving country the opportunity
to consent or not consent based on its analysis of whether the
reclamation facility can properly recycle the hazardous secondary
materials and manage the process residuals in an environmentally sound
manner within its borders. EPA believes that sections 2002, 3002, 3007,
and 3017 of RCRA provide authority to impose this condition because
such notice and consent help determine that the materials are not
discarded.
    Specifically, hazardous secondary materials that are exported from
the United States and its territories and recycled at a reclamation
facility located in a foreign country are not solid wastes, provided
the hazardous secondary material generator complies with the
requirements of 40 CFR 261.4(a)(25), including notifying EPA of the
proposed export and obtaining subsequent consent from the receiving
country.
    Included by reference in 40 CFR 261.4(a)(25), the generator must
comply with the requirements of 40 CFR 261.4(a)(24)(i)-(v), which
comprise the hazardous secondary material generator requirements under
the transfer-based exclusion, such as speculative accumulation and
reasonable efforts. However, hazardous secondary material generators
who export hazardous secondary materials for reclamation are not
required to comply with 40 CFR 261.4(a)(24)(v)(B)(2) for foreign
reclaimers and intermediate facilities because, as part of satisfying
reasonable efforts, this question requires the generator to
affirmatively answer if the reclaimer or intermediate facility has
notified the appropriate authorities pursuant to Sec.  260.42 and if
the reclaimer or intermediate facility has financial assurance as
required under Sec.  261.4(a)(24)(vi)(F). Since foreign reclaimers and
foreign intermediate facilities are not subject to U.S. regulations,
they cannot comply with the notification and financial assurance
requirements under today's rule (however, hazardous secondary material
generators must affirmatively answer this question for domestic
intermediate facilities).
    The provisions that we are finalizing today in 40 CFR 261.4(a)(25)
require hazardous secondary material generators to notify EPA of an
intended export 60 days before the initial shipment is intended to be
shipped off-site. The notification may cover export activities
extending over a 12-month or shorter period. The notification must
include contact information for the hazardous secondary material
generator, as well as for the reclaimer and intermediate facility,
including any alternate reclaimer or alternate intermediate
facilities.\5\ The notification must also include a description of the
type(s) of hazardous secondary materials and the manner in which the
hazardous secondary materials will be reclaimed, the frequency and rate
at which they will be exported, the period of time over which they will
be exported, the means of transport, the estimated total quantity of
hazardous secondary materials to be exported, and information about
transit countries through which such hazardous secondary materials will
pass.
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    \5\ Hazardous secondary material generators may choose, in the
notice of export, to designate alternate reclaimers or alternate
intermediate facilities to which the hazardous secondary materials
may be exported in the event that delivery to the primary reclaimer
or intermediate facility cannot take place. Hazardous secondary
material generators, of course, must comply with all conditions
(e.g., reasonable efforts) for each alternate reclaimer and
alternate intermediate facility as with a primary reclaimer and
intermediate facility.
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    Notifications must be sent to EPA's Office of Enforcement and
Compliance Assurance,\6\ which will then notify the receiving country
and any transit countries. For purposes of 40 CFR 261.4(a)(25), the
terms ``Acknowledgement of Consent,'' ``receiving country,'' and
``transit country'' are used as defined in 40 CFR 262.51 with the
exception that the terms in this section refer to hazardous

secondary materials, rather than hazardous waste.
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    \6\ The Office of Enforcement and Compliance Assurance (OECA) is
the office within EPA that implements the notice and consent process
for exports.
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    When the receiving country consents (or objects) to the receipt of
the hazardous secondary materials, EPA will inform the hazardous
secondary material generator, through an Acknowledgement of Consent, of
the receiving country's response, as well as any response from any
transit countries.
    For exports to Organization for Economic Cooperation and
Development (OECD) Member countries, the receiving country may choose
to respond to the notification with tacit, rather than written,
consent. With respect to exports to such OECD Member countries, if no
objection has been lodged by the receiving country or transit countries
to a notification within 30 days after the date of issuance of the
acknowledgement of receipt of notification by the competent authority
of the receiving country, the U.S. understands that an export may
commence at that time. In such cases, EPA will send an Acknowledgment
of Consent to inform the hazardous secondary material generator that
the receiving country and any relevant transit countries have not
objected to the shipment, and are thus presumed to have consented
tacitly. Tacit consent expires one calendar year after the close of the
30-day period; re-notification and renewal of all consents is required
for exports after that date. This tacit consent procedure for exports
of hazardous secondary materials to OECD Member countries in this rule
is similar to the tacit consent procedure for hazardous waste exports
to OECD Member countries under 40 CFR part 262 subpart H. We note that
Canada and Mexico, though they are OECD Member countries, typically
require written consent for exports to their countries.
    The hazardous secondary material generator may proceed with the
shipment of the hazardous secondary materials only after it has
received an Acknowledgment of Consent from EPA indicating the receiving
country's consent (actual or tacit). If the receiving country does not
consent to the receipt of the hazardous secondary materials or
withdraws a prior consent, EPA will notify the hazardous secondary
material generator in writing. EPA also will notify the hazardous
secondary material generator of any responses from transit countries.
Hazardous secondary material generators must keep copies of any
notifications and consents for a period of three years following
receipt of the consent.
    Hazardous secondary material generators must also file with the
Administrator, no later than March 1 of each year, a report containing
its name, mailing and site address, and EPA ID number (if applicable);
the calendar year covered by the report; the name and site address of
each reclaimer and intermediate facility; and, for each hazardous
secondary material exported, a description of the hazardous secondary
material, the type of hazardous secondary material (reported as the EPA
hazardous waste numbers that would apply if the hazardous secondary
materials were managed as hazardous wastes), the DOT hazard class, the
name and U.S. EPA ID number (where applicable) for each transporter
used, the total amount of hazardous secondary material shipped and the
number of shipments pursuant to each notification. Hazardous secondary
material generators must also sign a certification statement (found
under 40 CFR 261.4(a)(25)(xi)(E)). These procedures are similar to
those required for exports of hazardous waste under 40 CFR part 262
subpart E, except for the use of the hazardous waste manifest which is
not required under today's exclusions.
    Imports of hazardous secondary materials are eligible for today's
transfer-based exclusion, provided that the person who imports the
hazardous secondary material fulfills all requirements and conditions
(e.g., notification, reasonable efforts, recordkeeping) for a hazardous
secondary material generator under 40 CFR 261.4(a)(24) of today's rule.
Persons who import hazardous secondary materials are not eligible for
today's generator-controlled exclusion since EPA would not be able to
ensure the close management and monitoring of the hazardous secondary
materials by a single entity in a foreign country.

D. Termination of the Exclusion

    As with the generator-controlled exclusion, units managing
hazardous secondary materials excluded under the transfer-based
exclusion are not subject to the closure regulations in 40 CFR parts
264 and 265 subpart G. However, when the use of these units is
ultimately discontinued, all owners and operators must manage any
remaining hazardous secondary materials that are not reclaimed and
remove or decontaminate all hazardous residues and contaminated
containment system components, equipment structures, and soils. These
hazardous secondary materials and residues, if no longer intended for
reclamation, would also no longer be eligible for the exclusion (which
only applies to hazardous secondary materials that will be reclaimed).
Failure to remove these materials within a reasonable time frame after
operations cease could cause the facility to become subject to the full
Subtitle C requirements if the Agency determines that reclamation is no
longer feasible. While this final rule does not set a specific time
frame for these activities, the Agency believes that they typically
should be completed within the time frames established for analogous
activities. For example, the requirements for product tanks under 40
CFR 261.4(c) allow 90 days for removal of hazardous material after the
unit ceases to be operated for manufacturing. This time frame should
serve as a guideline for regulators in determining, on a case-by-case
basis, whether owners and operators have completed these activities
within in a reasonable time frame. In any event, these hazardous
secondary materials remain subject to the speculative accumulation
restrictions in 40 CFR 261.4(a)(8), which includes both a time
limitation of recycling 75% of the hazardous secondary material within
a year and a requirement that the facility be able to show there is a
feasible means of recycling the hazardous secondary material.
    In addition, as described in section VIII.C. above, in order to be
released from the financial assurance condition, intermediate and
reclamation facilities will need to submit for approval a plan for
removing the hazardous secondary material and decontaminating the unit,
and then, when the work is completed, submit a certification from a
qualified Professional Engineer that all hazardous secondary materials
have been removed from the unit and the unit has been decontaminated.

E. Enforcement

    Hazardous secondary materials transferred to a third party for the
purpose of reclamation are excluded from RCRA Subtitle C regulation
under certain conditions and restrictions. If a hazardous secondary
material generator fails to meet any of the above-described conditions
that are applicable to the generator, then the hazardous secondary
materials would be considered discarded by the generator and would be
subject to the RCRA Subtitle C requirements from the point at which
such material was generated. In addition, if a reclaimer or an
intermediate facility failed to meet any of the above-described
conditions, then the hazardous secondary materials would be considered
discarded by the reclaimer or intermediate facility and would be
subject to the RCRA Subtitle C requirements from the point at which the
reclaimer or intermediate facility

failed to meet a condition or restriction, thereby discarding the
material.
    It should be noted that the failure of the reclaimer or
intermediate facility to meet the conditions of the exclusion does not
mean that the hazardous secondary material was considered waste when
handled by the generator, as long as the generator can adequately
demonstrate that it has met its obligations, including the obligation
under 40 CFR 261.4(a)(24)(v)(B) to make reasonable efforts to ensure
that the hazardous secondary material will be reclaimed legitimately
and properly managed. A hazardous secondary material generator that met
its reasonable efforts obligations could, in good faith, ship its
excluded materials to a reclamation facility or intermediate facility
where, due to circumstances beyond its control, they were released and
caused environmental problems at that facility. In such situations, and
where the generator's decision to ship to that reclaimer or
intermediate facility is based on an objectively reasonable belief that
the hazardous secondary materials would be reclaimed legitimately and
otherwise managed in a manner consistent with this regulation, the
generator would not have violated the terms of the exclusion.
    In addition, the Agency affirms in this preamble that Sec.
261.2(f) applies to all claims that hazardous secondary materials are
not solid waste because they are being legitimately recycled, including
those that are not specifically addressed in this final rule.
Respondents in enforcement cases should be prepared to demonstrate that
they meet the terms of the exclusion or exemption, which includes
demonstrating that the recycling is legitimate. Appropriate
documentation must be provided to the enforcing agency to demonstrate
that the material is not a solid waste or is exempt from regulation. In
addition, the recycler of the hazardous secondary material should be
prepared to show it has the necessary equipment to perform the
recycling operation. Furthermore, any release of the hazardous
secondary materials to the environment that is not immediately cleaned
up would be considered discarded and, thus, the hazardous secondary
material that was released would be a solid waste and potentially
subject to the RCRA hazardous waste regulations.

IX. Legitimacy

    As part of this final rulemaking, EPA has decided to codify in 40
CFR 260.43 the requirement that materials be legitimately recycled as a
requirement for the exclusion for hazardous secondary materials that
are legitimately reclaimed under the control of the generator (40 CFR
261.2(a)(2)(ii) and 40 CFR 261.4(a)(23)) and as a condition of the
exclusion for hazardous secondary materials that are transferred for
the purpose of legitimate reclamation (40 CFR 261.4(a)(24) and 40 CFR
261.4(a)(25)). EPA is also requiring that hazardous secondary materials
must be legitimately recycled under the final non-waste determinations
(40 CFR 260.34) for hazardous secondary materials that are (a)
reclaimed in a continuous industrial process and (b) indistinguishable
in all relevant aspects from a product or intermediate.
    In addition, in Section IX.B.3, EPA has included a discussion of
how the current legitimacy policy continues to apply to existing
exclusions and how the four factors being added to 40 CFR 260.43 are
substantively the same as the current legitimacy policy.

A. Background of Legitimacy

    Under the RCRA Subtitle C definition of solid waste, many existing
hazardous secondary materials are not solid wastes and, thus, not
subject to RCRA's ``cradle to grave'' management system if they are
recycled. The basic idea behind this construct is that recycling of
such materials often closely resembles normal industrial manufacturing
rather than waste management. However, since there can be a significant
economic incentive to manage hazardous secondary materials outside the
RCRA regulatory system, there is a potential for some handlers to claim
that they are recycling, when, in fact, they are conducting waste
treatment and/or disposal in the guise of recycling.\7\ To guard
against this, EPA has long articulated the need to distinguish between
``legitimate'' (i.e., true) recycling and ``sham'' (i.e., fake)
recycling, beginning with the preamble to the 1985 regulations that
established the definition of solid waste (50 FR 638, January 4, 1985).
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    \7\ As an example of sham recycling, in a recent case the owner
of a facility in Mississippi was found to be illegally burying
hazardous waste on his property, where it was leaching into the
surrounding soil and groundwater, while he was telling regulators
and customers that he was recycling it into a salable product
(Department of Justice, ``Mississippi Hazardous Waste Operator
Sentenced to 41 Months in Prison for Environmental Crimes,'' news
release, February 7, 2008, http://www.epa.gov/compliance/resources/
cases/criminal/highlights/2008/pridemore-02-07-08.pdf).
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    In the October 28, 2003, proposal at 68 FR 61581-61588, EPA
discussed its position on the relevance of legitimacy to hazardous
secondary materials recycling in general and to the redefinition of
solid waste specifically. We proposed to codify in the RCRA hazardous
waste regulations four general criteria to be used in determining
whether recycling of hazardous secondary materials is legitimate. In
the supplemental proposal of March 26, 2007, at 72 FR 14197-14201, we
proposed two changes to the 2003 proposed legitimacy criteria and asked
for public comment on those changes. The changes were (1) a
restructuring of the proposed criteria, called ``factors'' in this
proposal, to make two of them mandatory, while leaving the other two as
factors to be considered, and (2) additional guidance on how the
economics of the recycling activity should be considered in a
legitimate recycling determination.
    The concept of legitimacy being finalized in today's rule as a
restriction or a condition for the final exclusions and the non-waste
determinations is not substantively different from the Agency's
longstanding policy that has been expressed in our earlier preamble
discussions and policy statements. The October 28, 2003, definition of
solid waste proposal discussed the history of the guidance EPA has
provided to the regulated community on the question of what it means to
legitimately recycle. To summarize that discussion, the January 4,
1985, preamble to the final rule that promulgated the original
definition of solid waste regulations established EPA's concept of
legitimacy and described several indicators of sham recycling. A
similar discussion that addressed legitimacy as it pertains to burning
hazardous secondary materials for energy recovery was presented in the
preamble to the January 8, 1988, proposed amendments to the definition
of solid waste (53 FR 522).
    On April 26, 1989, the Office of Solid Waste (OSW) issued a
memorandum that consolidated preamble statements concerning legitimate
recycling that had been articulated previously into a list of criteria
to be considered in evaluating legitimacy [OSWER directive
9441.1989(19)]. This memorandum, known to many as the ``Lowrance
Memo,'' has been a primary source of guidance for the regulated
community and for implementing agencies in distinguishing between
legitimate and sham recycling for many years.
    The legitimacy provision applicable to these exclusions and non-
waste determinations is based on the October 2003 proposal and March
2007 supplemental proposal and all relevant information available to
EPA as contained in the rulemaking record. The basis for how the
legitimacy requirement in 40 CFR 260.43 works

includes the reasoning in the October 2003 and March 2007 preambles to
the proposal and supplemental proposal, respectively, and consideration
of all significant public comments as discussed in section XVIII of
this preamble, as well as in the response to comment document.
    Following the detailed discussion of the structure of the 40 CFR
260.43 legitimacy factors and each individual factor in this preamble,
EPA has included a discussion of how the current legitimacy policy
continues to apply to existing exclusions and how the four factors
being added to 40 CFR 260.43 compare to the questions in the Lowrance
Memo and the discussions in the preambles identified above.

B. How To Determine When Recycling Is Legitimate

1. What Is the Purpose of Legitimacy?
    As discussed in the October 2003 proposal and the March 2007
supplemental proposal to this rulemaking, the Agency has a long-
standing policy that all recycling of hazardous secondary materials
must be legitimate, including both excluded recycling and the recycling
of regulated hazardous wastes. The legitimacy provision in today's
final exclusions and non-waste determinations is designed to
distinguish between real recycling activities--legitimate recycling--
and ``sham'' recycling, an activity undertaken by an entity to avoid
the requirements of managing a hazardous secondary material as a
hazardous waste. Because of the economic advantages in managing
hazardous secondary materials as recycled materials rather than as
wastes, there is an incentive for some handlers to claim they are
recycling when, in fact, they are conducting waste treatment and/or
disposal.
2. Legitimacy Requirements
    In this action, EPA is finalizing requirements that reclamation
being undertaken under the exclusions at Sec.  261.2(a)(2)(ii), Sec.
261.4(a)(23), (24), and (25) and the non-waste determinations at Sec.
260.30(d) and (e) be legitimate. These requirements can be found in the
final regulatory text at Sec.  260.34(b), Sec.  261.2(a)(2)(ii), Sec.
261.4(a)(23)(v), and Sec.  261.4(a)(24)(iv). Each of these provisions
refers to Sec.  260.43, where the full requirements for determining the
legitimacy of the reclamation operation can be found.
    The design of legitimacy in the final rule has two parts. The first
is a requirement that hazardous secondary materials being recycled
provide a useful contribution to the recycling process or to the
product of the recycling process and a requirement that the product of
the recycling process is valuable. These two legitimacy factors make up
the core of legitimacy and, therefore, a process that does not conform
to them cannot be a legitimate recycling process, but would be
considered sham recycling.
    The second part of legitimacy is two factors that must be
considered when a recycler is making a legitimacy determination. EPA
believes that these two factors are important in determining
legitimacy, but has not made them factors that must be met because the
Agency knows that there will be some situations in which a legitimate
recycling process does not conform to one or both of these two factors,
yet the reclamation activity would still be considered legitimate. EPA
does not believe that this will be a common occurrence, but in