## Facts

- Title VI of the Clean Air Act implements the Montreal Protocol’s phased reductions of hydrochlorofluorocarbons (HCFCs) through an EPA-administered allowance trading program.
- In 2003, EPA created a cap-and-trade allowance system for HCFC production and import, allocating baseline allowances and allowing trading between companies and between HCFC types, including on a permanent basis with EPA approval.
- Arkema, an HCFC producer, completed permanent inter-pollutant trades that altered its baseline allowance holdings, and EPA approved those trades under the 2003 framework.
- In 2010, to implement the Protocol’s 65% stepdown target, EPA issued a rule recalculating and reallocating allowances.
- The 2010 rule refused to recognize prior permanent inter-pollutant trades, asserting such trades had never been permissible, and recalculated allowances as if the completed trades had not occurred.
- Arkema and other producers petitioned for review in the D.C. Circuit, arguing the 2010 rule unlawfully imposed retroactive consequences on completed, previously approved transactions.

## Issues

1. Whether EPA’s 2010 HCFC allowance rule was impermissibly retroactive by refusing to give effect to previously approved permanent inter-pollutant trades completed under the 2003 allowance program.
2. Whether EPA’s authority under Clean Air Act § 607 permits reallocations that effectively negate past agency-approved allowance transactions.

## Decision

- The D.C. Circuit granted the petitions in part.
- The court held EPA’s 2010 rule was impermissibly retroactive insofar as it denied effect to permanent inter-pollutant trades previously approved under the 2003 rule.
- The court vacated the challenged portions of the 2010 rule and remanded to EPA for further proceedings consistent with the prohibition on retroactive rulemaking.

## Legal Principles

- An agency action is impermissibly retroactive when it attaches new legal consequences to completed events.
- Agencies may change policy prospectively, but absent clear statutory authorization they may not recharacterize completed, lawful, agency-approved transactions as invalid and deprive regulated parties of resulting legal entitlements.
- Broad statutory rulemaking authority to administer an allowance trading system remains subject to the presumption against retroactivity and general administrative-law limits.
- In cap-and-trade regimes, previously granted and approved allowances and trades can constitute concrete legal interests that cannot be withdrawn by later rules that negate past transactions.

## Conclusion

The court ruled that EPA could implement the 2010 HCFC stepdown only through measures that operate prospectively and may not recalibrate the allowance system by nullifying earlier, EPA-approved permanent inter-pollutant trades, vacating the retroactive portions of the rule and remanding for a lawful revision.


Arkema Inc. v. EPA, 618 F.3d 1 (D.C. Cir. 2010)