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 study of good recycling practices quotes one large recycling and
disposal vendor as stating that with respect to its new customers, 60%
of the large customers and 30%–50% of the 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 recycled, 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 261.2(g) 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)(v).

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 interim status standards that extend to
management of the hazardous secondary materials in question. If the
permit or interim status addresses 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 financially 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 hazardous secondary materials are already subject to
stringent design and operating standards, must demonstrate financial
assurance, and are subject to 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
hazardous secondary materials, the same level of assurance is not
guaranteed. Therefore, if a reclamation or intermediate facility only
has a RCRA permit or complies with 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. These questions can be found at 40
CFR 261.4(a)(24)(iv)(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 study of good recycling practices 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
reasonable efforts:

(1) Does the reclamation facility intend to reclaim the hazardous
secondary materials legitimately pursuant to 40 CFR 261.2(g)?

(2) Has the reclamation facility and any intermediate facility 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)(v)(F)?

(3) Are there any unresolved significant violations of environmental
regulations at the reclamation facility or at any intermediate facility,
or any formal enforcement actions taken against the facilities in the
previous three years for violations of environmental regulations? If
yes, does the hazardous secondary material generator have credible
evidence that the facilities will manage the hazardous secondary
materials properly?

(4) Do the reclamation facility and any intermediate facility have the
equipment and trained personnel to properly manage the hazardous
secondary materials and does the reclamation facility have the equipment
and trained personnel to properly reclaim the hazardous secondary
materials?

(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?

Question (1) focuses on whether the reclamation facility receiving
hazardous secondary materials from a generator legitimately recycles
such materials. EPA believes that any generator “claiming to be
excluded from hazardous waste regulation under [40 CFR 261.4] because
they are engaged in recycling, must be able to demonstrate that the
recycling is legitimate” (40 CFR 261.2(g)). 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 261.2(g), EPA believes that generators should be
able to work with reclaimers to answer question (1) for the purposes of
satisfying the condition. (See section IX of today’s rulemaking for a
discussion of determining legitimacy.)

Question (2) concentrates on whether the recycler or 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 financial
assurance to cover the costs of managing any hazardous secondary
material 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.

Question (3) focuses on the compliance history of the recycler or the
intermediate facility. Although compliance data represent an imperfect
tool for determining whether a recycler would properly manage the
hazardous secondary materials, we believe that compliance data are a
reasonable starting point. Facility-specific enforcement data on
unresolved alleged significant violations, 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/. While the presence of a violation does not
automatically mean that the facility would not reclaim the hazardous
secondary materials properly, it would raise questions and would likely
require additional information from the facility. If the generator
obtains reasonable information that the enforcement data 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.

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 inadequate
equipment for storing the hazardous secondary material or untrained
personnel for managing 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. A generator may
answer this question using 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 other relevant information, which, as noted
in the successful recycling study, could include an evaluation by a
qualified engineer. A generator may also ask for explanations of the
kind of equipment used for recycling; reviews of equipment
specifications; and demonstrations of OSHA training standards, the
facility training program, and training records. Specific questions
and/or a site visit may be appropriate for certain hazardous secondary
materials. Generators can find additional guidance about facility safety
requirements in the “Memorandum: Requirements that other Regulatory
Programs would place on Generators, Reclaimers and Transporters of
Hazardous Secondary Materials,” found in the docket along with
today’s final rulemaking. This memorandum has been prepared by an EPA
contractor and may be useful for generators performing a reasonable
efforts inquiry. It is meant solely for use as guidance and is not a
definitive or exhaustive list of other requirements. A hazardous
secondary material generator would be expected to consult its own
sources for any kind of definitive analysis of safety requirements.
Consulting this memorandum alone would not be dispositive regarding this
aspect of the reasonable efforts inquiry.

Question (5) focuses on another major cause of environmental problems
from recycling hazardous secondary materials: the management of the
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 would be considered a discard activity if
residuals from the recycled hazardous secondary materials are discarded.
Roughly one-third of the damage cases documented in EPA’s study of
environmental problems 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. These residuals may or may not be regulated
hazardous wastes, but, in either case, the 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.
A generator may answer the series of questions by asking a reclamation
facility about required permits or contracts with permitted disposal
facilities, or if applicable, by observing that a reclamation facility
has a system in place for deciding where to send any residuals
generated. 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)(iv)(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 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
recycled 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)(v). While at the
transfer facility, the hazardous secondary materials must continue to
meet all applicable Department of Transportation (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 facility, such records must document the name
and address of the hazardous secondary material generator, the type and
quantity of hazardous secondary materials received, any intermediate
facilities that managed the hazardous secondary materials, the name of
the transporter, and the date such materials were received.

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)(iv)(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 damages documented in the
study of environmental problems 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
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 272.

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.

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 more detail 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
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 study of environmental problems associated
with recycling 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 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 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)(v)(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 that an owner or
operator must provide in order 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,
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 §261.4(a)(24)(v)(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
recycling operations cease, 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 §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 estimate, the owner or operator, within 60 days after the change
in the cost estimate, must either (1) deposit an amount into the 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. 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 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 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 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 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 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. 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 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 §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 §261.143(a);

(B) Updating of Schedule A of the trust agreement (see §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. 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 §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 §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 credit, the owner or operator, within 60 days after
the increase, must either cause the amount of the 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 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
§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 intermediary
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, and the funds in the trust becomes 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 in 40 CFR part 265, with
some modifications to reflect differences between conditionally excluded
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 §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 §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
§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 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
261.143, or the Regional Administrator releases the owner or operator
from the requirements of this section in accordance with §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 §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.

	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 §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 §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 §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 §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)(v)(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 based on its analysis of whether the recycling
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)–(iv), 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)(iv)(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 §260.42 and if the reclaimer or intermediate
facility has financial assurance as required under §261.4(a)(24)(v)(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. 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.

Notifications must be sent to EPA’s Office of Enforcement and
Compliance Assurance, which will then notify the receiving country and
any transit countries. 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 US 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 full Subtitle C requirements if the Agency
determines that recycling 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 timeframe 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 261.1(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 XIII.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 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)(iv)(A) to make reasonable efforts to ensure that the
hazardous secondary material will be recycled 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.

IX. Legitimacy

A. Background of Legitimacy

	As noted in the March 26, 2007, supplemental proposal, 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 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. To guard against this, EPA has long articulated the
need to distinguish between "legitimate" (i.e., true) recycling and
"sham" recycling, beginning with the preamble to the 1985 regulations
that established the definition of solid waste (50 FR 638, January 4,
1985) and continuing with the 2003 proposed codification of criteria for
identifying legitimate recycling.

	In the October 28, 2003, proposal at 68 FR 61581–61588, EPA
extensively 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 is not
substantively different from the Agency’s longstanding policy that has
been expressed in the earlier preamble discussions and guidance
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. Today’s final rule effectively replaces that
memorandum with final regulations that both the regulated community and
implementing agencies can look to for determining whether recycling is
legitimate, although the Lowrance Memo will continue to have relevance
as an historical document and provides insight into how EPA views
legitimacy.

The following discussion sets forth EPA’s reasoning for the final
version of the legitimacy criteria 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
the decision 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.
To the extent there is any discussion in this preamble that may be
inconsistent with statements made in the October 2003 or March 2007
preambles, the statements in this preamble represent the position of the
Agency. In addition, EPA notes that we do not expect the regulated
community or implementing regulatory agencies to revisit previous
legitimacy determinations and expect that any existing written
determinations from these agencies will be unchanged under the new
structure.

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 construct and factors
discussed in those proposals and being finalized today are 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.

	By putting legitimacy into the regulations, EPA is ensuring that this
important requirement is more readily available to the public, including
the regulated community, in the Federal Register and in the Code of
Federal Regulations and not just in Agency guidance. The Agency expects
that this action will prevent or minimize fraudulent or sham recycling
and will make the legitimacy criteria a more enforceable standard for
states and other entities implementing the RCRA hazardous waste
regulations.

2. Scope and Applicability

	The definition of legitimacy is intended to apply generally to these
types of hazardous secondary materials:

•	Recyclable hazardous secondary materials that are excluded from
Subtitle C regulation as wastes under today’s final rule for materials
that are either generated and reclaimed under the control of the
generator per 40 CFR 261.2(a)(2)(ii) or 40 CFR 261.4(a)(23); generated
and transferred to another person for the purpose of reclamation per 40
CFR 261.4(a)(24); or formally determined to be a non-waste under the
procedures per 40 CFR 260.34.

•	Hazardous secondary materials that, because they are recycled, are
excluded or exempted from Subtitle C regulation under other regulatory
provisions (e.g., see the other exclusions from the definition of solid
waste in 40 CFR 261.4).

•	Recyclable hazardous wastes that are regulated under Subtitle C
prior to recycling.

	Apart from the definition of solid waste implications, the concept of
legitimate recycling is also used to determine if a recycling unit is
exempt from RCRA Subtitle C permitting (except for certain air emission
standards) or if a regulated waste treatment or disposal unit is subject
to full RCRA Subtitle C permitting.

	In addition, we also noted in the October 2003 proposal that EPA has
examined in depth a number of waste-specific and industry-specific
recycling activities, and has promulgated specific regulatory exclusions
or provisions that address the legitimacy of these practices in much
more specific terms than the general factors being promulgated today.
Thus, there will be situations where today’s broadly-applicable
factors could overlap with these more specific legitimacy provisions.
One example would be the regulation for zinc fertilizers made from
recycled hazardous secondary materials. In the zinc fertilizer
regulation, among the requirements established by EPA are specific
numerical limits on five heavy metal contaminants and dioxins in the
zinc fertilizer product exclusion at 40 CFR 261.4(a)(21). Other examples
of more specific legitimacy provisions are found in the regulations for
comparable fuels at 40 CFR 261.38, the “use constituting disposal”
provisions in 40 CFR part 266, subpart C, and the “burning for energy
recovery” provisions in 40 CFR part 266, subpart H. These more
specific provisions remain applicable and today’s legitimacy factors
do not replace them. Affected parties should look to those regulatory
provisions, in addition to the definition of legitimate recycling, to
ensure compliance.

	It is the Agency’s position that the definition of legitimate
recycling applies to all hazardous secondary materials recycling and
hazardous waste recycling, whether such recycling remains under
hazardous waste regulation or is excluded from the definition of solid
waste. This has been our long-standing policy and it is well understood
throughout the regulated community and the implementing state regulatory
agencies. We also firmly believe that the legitimacy factors being
codified in today’s rulemaking are a simplification and clarification
of our existing policy and, as such, existing legitimacy determinations
should not change or be revisited. Furthermore, we do think it is
important to reiterate that the legitimacy factors apply to the existing
exclusions. We recognize that under some of the existing exclusions,
certain conditions may fulfill certain legitimacy factors or
considerations, but this is not universally the case for all of the
recycling exclusions. Even under the existing exclusions, there remains
the possibility of someone claiming an existing recycling exclusion as a
means of discarding their hazardous waste; thus, 40 CFR 261.2(g) would
apply to the existing recycling exclusions.

3. Legitimacy Requirements

	EPA is finalizing the legitimacy factors in this action. The final
regulatory language is found at 40 CFR 261.2(g). 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 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 recognition that legitimate recycling may
occur in these situations, EPA has made management of the hazardous
secondary materials and the presence of hazardous constituents in the
recycled product factors that must be considered in the overall
legitimacy determination, but not factors that must always be met.

Scope of legitimacy. The legitimacy factors finalized today are relevant
to all recycling of hazardous secondary materials. Under the first
paragraph of 40 CFR 261.2(g), hazardous secondary materials that are not
legitimately recycled are discarded materials and, therefore, are solid
wastes. This paragraph also states that anyone recycling hazardous
wastes who claims an exclusion under §261.2 or §261.4 or who claims to
qualify for special management standards under §261.6 or 40 CFR part
266 must be able to demonstrate that their recycling activity is
legitimate. The Agency has added the following language: “An
evaluation of legitimacy must consider the requirements of §261.2(g)(2)
and §261.2(g)(3)” to make it clear that all four factors must be
considered and evaluated in determining whether the recycling activity
is legitimate. Although there is no specific recordkeeping requirement
that goes with the ability to demonstrate legitimacy, EPA expects that
in the event of an inspection or an enforcement action by an
implementing agency, the recycler would be able to show how it made the
overall legitimacy determination per §261.2(f). In the event that the
process does not conform to one of the two factors under §261.2(g)(3),
the facility should be able to show that it considered that factor and
why it is not appropriate or necessary for that particular factor to be
met.

Factor 1—Useful Contribution. “Legitimate recycling must involve a
hazardous secondary material that provides a useful contribution to the
recycling process or to a product of the recycling process…The
hazardous secondary material provides a useful contribution if it (A)
contributes valuable ingredients to a product or intermediate; or (B)
replaces a catalyst or carrier in the recycling process; or (C) is the
source of a valuable constituent recovered in the recycling process; or
(D) is recovered or regenerated by the recycling process; or (E) is used
as an effective substitute for a commercial product” (40 CFR
261.2(g)(2)(i)).

	This factor, one of the two core legitimacy factors, expresses the
principle that hazardous secondary materials should contribute value to
the recycling process. This factor is an essential element to legitimate
recycling because real recycling is not occurring if the hazardous
secondary materials being added or recovered do not add anything to the
process. This factor is intended to prevent the practice of adding to or
recovering hazardous secondary materials from a manufacturing operation
simply as a means of disposing of them, or recovering only small amounts
of a constituent, which EPA would consider sham recycling.

	In response to comments received on this factor asking for more
clarification on what useful contribution means, the regulatory text
includes an explanation of how useful contribution might be achieved in
(A) through (E) of §261.2(g)(2)(i). EPA stresses that the ways in which
hazardous secondary materials can add value and be useful in a recycling
process are (A) contributing valuable ingredients to a product or
intermediate; (B) replacing a catalyst or carrier in the recycling
process; (C) providing a valuable constituent to be recovered; (D) being
regenerated; or (E) being used as an effective substitute for a
commercial product. The preamble to the October 2003 proposed rule gave
full descriptions of these five situations (68 FR 61585), but the Agency
has also included them in the regulatory text to clarify this factor for
the regulated community.

	The Agency also wants to restate for clarification that for hazardous
secondary materials to meet the useful contribution factor, not every
constituent or component of the hazardous secondary material has to make
a contribution to the recycling activity. For example, a legitimate
recycling operation involving precious metals might not recover all of
the components of the hazardous secondary material, but would recover
precious metals with sufficient value to consider the recycling process
legitimate. In addition, the recycling activity does not have to involve
the hazardous component of the hazardous secondary materials if the
value of the contribution of the non-hazardous component justifies the
recycling activity. One example is where hazardous secondary materials
containing large amounts of zinc, a nonhazardous component, are recycled
into zinc micronutrient fertilizers. In cases where the hazardous
component is not being used or recycled, the Agency stresses that the
recycler is responsible for the management of any hazardous residuals of
the recycling process.

	In a situation where more than one hazardous secondary material is used
in a single recycling process and the hazardous secondary materials are
mixed or blended as a part of the process, each hazardous secondary
material would need to satisfy the useful contribution factor. This
requirement prevents situations where a worthless hazardous secondary
material could be mixed with valuable and useful hazardous secondary
materials in an attempt to disguise and dispose of it. In addition, a
situation in which hazardous secondary materials that can be useful to a
process are added to that process in much greater amounts than are
needed to make the end-product or to otherwise provide its useful
contribution would also be sham recycling.

	Another way the usefulness of the hazardous secondary material’s
contribution could be demonstrated is by looking at the efficiency of
the material’s use in the recycling process—that is, how much of the
constituent in a hazardous secondary material is actually being used. As
an example, if there is a constituent in the hazardous secondary
material that could add value to the recycling process, but, due to
process design, most of it is not being recovered but is being disposed
of in the residuals, this would be a possible indicator of sham
recycling. However, there are certainly recycling scenarios where a low
recovery rate could still be legitimate. For example, if the
concentration in a metal-bearing sludge is low (2%–4%) and a recycling
process was able to recover a large percentage of the target metal, this
factor could be met and the recycling may be legitimate (depending on
the outcome of the analysis of the other legitimacy factors).

	One way to use the efficiency of the recycling process to evaluate
legitimacy is to compare the process to typical industry recovery rates
from raw materials to determine if the recycling process is reasonably
efficient. This method should involve an examination of the overall
process, not just a single step of the process. For example, if one step
in the process recovers 10% of the constituent, but the overall process
recovers 90%, the Agency would consider this reasonably efficient and
one way to demonstrate that the hazardous secondary materials are
providing a useful contribution.

	There are various ways in which hazardous secondary materials can be
useful to a recycling process and various ways are laid out in this
discussion of how a facility might demonstrate conformity with this
factor. Overall, the Agency considers this factor to be a critical
element in determining legitimacy and any recycling process that does
not meet this factor cannot be considered legitimate recycling.

Factor 2—Valuable Product or Intermediate. “The recycling process
must produce a valuable product or intermediate…The product or
intermediate is valuable if it is (A) sold to a third party; or (B) used
by the recycler or the generator as an effective substitute for a
commercial product or as an ingredient or intermediate in an industrial
process” (40 CFR 261.2(g)(2)(ii)).

	This factor, one of the two core legitimacy factors, expresses the
principle that the product or intermediate of the recycling process
should be a material of value, either to a third party who buys it from
the recycler, or to the generator or recycler itself, who can use it as
a substitute for another material that it would otherwise have to buy
for its industrial process. This factor is also an essential element of
the concept of legitimate recycling because recycling can not be
occurring if the product or intermediate of the recycling process is not
of use to anyone and, therefore, is not a real product. This factor is
intended to prevent the practice of running a hazardous secondary
material through an industrial process to make something just for the
purpose of avoiding the costs of hazardous waste management, rather than
for the purpose of using the product or intermediate of the recycling
activity. Such a practice would be sham recycling.

	Most commenters on the proposed rule for this factor stated that this
is a useful way of gauging whether recycling is actually taking place,
but requested that the Agency clarify the meaning of the term valuable,
as it is used in the regulatory text. EPA is repeating and clarifying
today that for the purpose of this factor, a recyclable product may be
considered “valuable” if it can be shown to have either economic
value or a more intrinsic value to the end user. Evaluations of
“valuable” for the purpose of this factor should be done on a
case-by-case basis, but one way to demonstrate that the recycling
process yields a valuable product would be the documented sale of a
recycled product to a third party. Such documentation could be in the
form of receipts or contracts and agreements that establish the terms of
the sale or transaction. This transaction could include money changing
hands or, in other circumstances, may involve trade or barter. A
recycler that has not yet arranged for the sale of its product to a
third party could establish value by demonstrating that it can replace
another product or intermediate that is available in the marketplace. A
recycled product may be sold at a loss, either because of normal market
fluctuations or as a “loss leader,” but the recycler will have to
show how selling the product at a loss is economically beneficial to the
seller and that the product is valuable to the purchaser.

	However, many recycling processes produce outputs that are not sold to
another party, but are instead used by the generator or recycler. A
recycled product may be used as a feedstock in a manufacturing process,
but have no established monetary value in the marketplace. Such recycled
products or intermediates would be considered to have intrinsic value,
though demonstrating intrinsic value may be less straightforward than
demonstrating value for products that are sold in the marketplace.
Demonstrations of intrinsic value could involve showing that the
recycled product or intermediate replaces an alternative product that
would otherwise have to be purchased or could involve a showing that the
recycled product or intermediate meets specific product specifications
or specific industry standards. Another approach could be to compare the
product’s or intermediate’s physical and chemical properties or
efficacy for certain uses with those of comparable products or
intermediates made from raw materials.

	Some recycling processes may consist of multiple steps that may occur
at separate facilities. In some cases, each processing step will yield a
valuable product or intermediate, such as when a metal-bearing sludge is
processed to reclaim a precious metal and is then put through another
process to reclaim a different mineral. When each step in the process
yields a valuable product or intermediate that is salable or usable in
that form, the recycling activity would conform to this factor. If,
however, a particular step in a recycling process does not yield a
separate salable or ready-for-use product or intermediate, that process
step would typically need to add value to the product or intermediate in
some way in order to satisfy this factor. For example, if the first step
in reclaiming a metal-bearing hazardous secondary material results in a
fused or agglomerated material, a second step consisting of particle
size reduction may be necessary to facilitate the reclamation step.
Although reducing the particle size in this case would not by itself
produce a valuable product or intermediate, it would add value to the
recycling process and is consistent with the intent of this factor.

	Like the other factors, this factor should be examined and evaluated on
a case-by-case basis looking at the specific facts of a recycling
activity. If, for instance, a recycling activity produces a product or
intermediate that is used by the recycler itself, but does not serve any
purpose and is just being used so that the product or intermediate
appears valuable, that would be an indicator of sham recycling. An
example of this is where a recycler “uses” a hazardous secondary
material as indiscriminate fill around its property for no real purpose.

Factor 3—Managed as a Valuable Commodity. “The generator and the
recycler should manage the hazardous secondary material as a valuable
commodity. Where there is an analogous raw material, the hazardous
secondary material should be managed, at a minimum, in a manner
consistent with the management of the raw material. Where there is no
analogous raw material, the hazardous secondary material should be
contained. Hazardous secondary materials that are released to the
environment and are not recovered immediately are discarded” (40 CFR
261.2(g)(3)(i)).

The first of the additional factors that must be considered expresses
the principle that hazardous secondary materials being recycled should
be managed in the same manner as other valuable materials. This factor
requires those making a legitimacy determination to look at how the
hazardous secondary material is managed before it enters the recycling
process. In EPA’s view, a recycler will value hazardous secondary
materials that provide an important contribution to its process or
product and, therefore, will manage those hazardous secondary materials
in a manner consistent with how it manages a valuable feedstock. If, on
the other hand, the recycler does not manage the hazardous secondary
materials as it would a valuable feedstock, that behavior may indicate
that the hazardous secondary materials may not be recycled, but rather
released into the environment and discarded.

This factor may be particularly appropriate in the case where a recycler
has been paid by a generator to take its materials as a result of the
economic incentives in the hazardous secondary materials market. By
looking at the management of the hazardous secondary material before it
enters the recycler’s process, the entity making the legitimacy
determination can tell that a material being managed like an analogous
raw material is, in fact, valued by the recycler. If the hazardous
secondary material is not being managed like a valuable raw material
because it is uncontrolled or is being released, that indicates that the
fee the recycler obtains for taking the hazardous secondary material may
be its only value to that recycler. If the fee received were the only
value to the recycler, it would mean that discard was taking place.

 	This factor addresses the management of hazardous secondary materials
in two distinct situations. The first situation is when a hazardous
secondary material is analogous to a raw material which it is replacing
in the process. In this case, the hazardous secondary material should be
managed prior to recycling similarly to the way the analogous raw
materials are managed in the course of normal manufacturing. EPA expects
that all parties handling hazardous secondary materials destined for
recycling—generators, transporters, intermediate facilities and
reclamation facilities—will handle them in generally the same manner
in which they would handle the valuable raw materials they might
otherwise be using in their process. “Analogous raw material,” as
defined elsewhere in this preamble, is a raw material for which the
hazardous secondary material substitutes and which serves the same
function and has similar physical and chemical properties as the
hazardous secondary material.

The second situation the factor addresses is the case where there is no
analogous raw material that the hazardous secondary material is
replacing. This could be either because the process is designed around a
particular hazardous secondary material—that is, the hazardous
secondary material is not replacing anything—or it could be because of
physical or chemical differences between the hazardous secondary
material and the raw material that are too significant for them to be
called “analogous.”

Hazardous secondary materials that have significantly different physical
or chemical properties when compared to the raw material would not be
considered analogous even if they serve the same function because it may
not be appropriate to manage them in the same way. In this situation,
the hazardous secondary material would have to be contained for this
factor to be met. A hazardous secondary material is “contained” if
it is placed in a unit that controls the movement of that material out
of the unit. This requirement is consistent with the idea that normal
manufacturing processes are designed to use valuable material inputs
efficiently rather to than allow them to be released into the
environment.

For example, if a manufacturer has an ingredient that is a dry raw
material managed in supersacks, the Agency would expect that a hazardous
secondary material that is a similar dry material also would be managed
in supersacks or in a manner that would provide equivalent protection.
If, on the other hand, the hazardous secondary material was instead
managed in an outdoor pile without appropriate controls in place to
address releases to the environment, it may indicate that it was not
being handled as a valuable commodity. If, however, the manufacturer
decided to replace the dry raw material in its process with a liquid
having the same constituents, it would not be sufficient, nor would it
make sense, for the liquid to be managed in supersacks. Instead, the
liquid would have to be “contained.”

An important part of this factor is the statement in the regulatory text
clarifying that hazardous secondary materials that are released to the
environment and not recovered immediately are discarded. Valuable
products should not be allowed to escape into the environment through
poor management and this factor clarifies that those hazardous secondary
materials that do escape (and are not immediately recovered) are clearly
discarded. Either a large release or ongoing releases of smaller amounts
could indicate that, in general, the hazardous secondary material is not
being managed as a valuable product, which could potentially lead to the
recycling process being found not to be legitimate. Hazardous secondary
materials that are immediately recovered before they disperse into the
environment—air, soil, or water—and are reintroduced in the
recycling process are not discarded. This determination must be made on
a case-by-case basis, however.

EPA has determined that it is appropriate that this factor is one of the
two that must be considered rather than a factor that must be met
because there are situations in which this factor is not met, but
recycling appears to be legitimate. An example of this kind of situation
is described in the March 2007 supplemental proposal (72 FR 14199). In
the example, a hazardous secondary material that is a solid powder-like
material is shipped in a woven super sack and stored in an indoor
containment area, whereas the analogous raw material is shipped and
stored in drums. A strict reading of this factor may determine that the
hazardous secondary material is not being managed in a manner consistent
with the raw material even if the differences in management are not
actually impacting the likelihood of a release. By designing the
legitimacy factors so that this one has to be considered, but not
necessarily met, the individual facts of situations like the one
described here can be evaluated on a case-by-case basis to determine if
they affect the legitimacy of the recycling activity.

In summary, given the nature of the legitimacy factors and their need to
apply to practices across the recycling industry, in general, it is not
appropriate or practicable for EPA to develop a specific management
standard. In the absence of such a management standard, EPA is using
this factor: materials must be managed as analogous raw materials or, if
there are no analogous raw materials, the materials must be contained.
EPA’s intent with this factor is that hazardous secondary materials
are managed in the same manner as materials that have been purchased or
obtained at some cost, just as raw materials are. Just as it is good
business practice to ensure that raw materials enter the manufacturing
process rather than being spilled or released, we would expect hazardous
secondary materials to be managed effectively and efficiently in order
that their full value to the manufacturing process would be realized.

Factor 4—Comparison of Toxics in the Product. “The product of the
recycling process does not (A) contain significant concentrations of any
hazardous constituents found in Appendix VIII of part 261 that are not
found in analogous products; or (B) contain concentrations of any
hazardous constituents found in Appendix VIII of part 261 at levels that
are significantly elevated from those found in analogous products; or
(C) exhibit a hazardous characteristic (as defined in part 261 subpart
C) that analogous products do not exhibit” (40 CFR 261.2(g)(3)(ii)).

The second of the additional factors that must be considered requires
those making a legitimacy determination to look at the concentrations of
the hazardous constituents found in the product made from hazardous
secondary materials and compare them to the concentrations of hazardous
constituents in analogous products. Any of the following three
situations could be an indicator of sham recycling: a product that
contains significant levels of hazardous constituents that are not found
in the analogous products; a product with hazardous constituents that
were in the analogous products, but contains them at significantly
higher concentrations; or a product that exhibits a hazardous
characteristic that analogous products do not exhibit. Any of these
situations could indicate that sham recycling is occurring because in
lieu of proper hazardous waste disposal, the recycler could have
incorporated hazardous constituents into the final product when they are
not needed to make that product effective in its purpose. This factor,
therefore, is designed to determine when toxics that are “along for
the ride” are discarded in a final product and therefore the hazardous
secondary material is not being legitimately recycled.

	To evaluate this factor, a recycler will ordinarily compare the
recycled product to an analogous product made of raw materials. For
example, if a recycling process produced paint, the levels of hazardous
constituents in the paint will be compared with the levels of the same
constituents found in similar paint made from virgin raw materials.

	A recycler is also allowed to perform this evaluation by comparing the
hazardous constituents in the hazardous secondary material feedstock
with those in an analogous raw material feedstock. If the hazardous
secondary material feedstock does not contain significantly higher
concentrations of hazardous constituents than the raw material
feedstock, then the end product of the recycling process would not
contain excess hazardous constituents “along for the ride” either.