Significant New TSCA Fees Rule Proposed by EPA

Entities that are required to submit test data to EPA or to seek the Agency's authorization to import, manufacture, or process chemical substances will soon be required to pay significant new fees. On February 7, 2018, EPA released a pre-publication edition of its proposed rule to establish "User Fees for the Administration of the Toxic Substances Control Act" (the TSCA Fees Rule).¹ Fees associated with requests to manufacture a new chemical or process a substance for a significant new use would rise to as much as six times the level of fees imposed under current EPA regulations. EPA also is proposing fees in excess of $2.5 million to be paid by entities that voluntarily request the Agency to perform a risk evaluation for a chemical substance the entity manufactures or imports. EPA is seeking to impose the new fees for submissions made to the Agency commencing October 1, 2018.

The TSCA Fees Rule proposes a series of fees to be imposed on entities subject to requirements under Sections 4 (chemical testing and submission requirements), Section 5 (requirements to seek EPA authorizations for new chemicals and new uses of chemicals), and Section 6 (prioritization and evaluation of chemical risks) of the amended TSCA. The fees outlined in the proposed rule would be imposed later this year and remain in effect during Fiscal Years 2019-2021. The proposal explains EPA's methodology for calculating fees and the formula to be used when making adjustments for future fiscal years. Assuming the fees remain as proposed and the Agency begins collecting the proposed fees from the outset of Fiscal Year 2019, EPA projects it will increase revenue derived from TSCA fees by almost twentyfold, from $1.1 million to $20.05 million annually.

The proposed rule did not emerge when originally planned. In the summer of 2016, when EPA issued its First-Year Implementation Plan for the 2016 TSCA amendments (the Lautenberg Amendments), the Agency stated its intent to issue a final rule establishing service fees for the administration of TSCA by June 2017. Consultations with affected entities commenced between EPA and certain industry groups with that objective in mind. However, unlike the TSCA Risk Evaluation and Risk Prioritization rules establishing the Agency's processes for prioritizing substances and performing risk evaluations on selected chemicals (which were promulgated in July 2017 in accordance with a statutory deadlines), the amended statute did not require publication of the TSCA Fees Rule by a particular date. EPA now estimates that it will publish a final TSCA Fees Rule in September 2018, following public comment on and revisions to the proposed rule.

2016 Amendments to TSCA Expanded EPA's Authority to Impose Fees

EPA's authority to issue the TSCA Fees Rule derives from the 2016 amendments to Section 26 of TSCA. Section 26(b)(4)(B) of the amended TSCA authorizes EPA to collect fees to offset the lower of $25 million and 25 percent of EPA's costs of administering Sections 4, 5, 6, and 14 of the amended TSCA. Because fees will not be collected until Fiscal Year 2019 has begun, the Agency argues Section 26(b)(4)(F) provides EPA with the authority to actively adjust fees to ensure that the fees cover approximately 25 percent of EPA's costs of administering Sections 4, 5, 6, and 14 of the amended TSCA without being encumbered by the $25 million "cap" on fee collection that would have been applicable if EPA had begun collecting fees prior to Fiscal Year 2019. Notably, although EPA argues that it is not subject to the $25 million cap discussed in TSCA Section 26(b)(4)(B), the Agency only plans to collect $20.05 million annually under the proposed rule. This $20.05 million represents 25 percent of EPA's estimated annual costs of administering Sections 4, 5, 6, and 14 of the amended TSCA during Fiscal Years 2019-2021.

In the proposed rule, EPA also announces its intention to focus its fee collection efforts on manufacturers (including importers) of chemical substances, rather than processors. Manufacturers and importers of chemical substances will be required to pay the following fees: (1) fees associated with test orders, test rules, and enforceable consent agreements issued pursuant to TSCA Section 4; (2) fees associated with TSCA Section 5 premanufacture notices (PMNs), significant new use notices (SNUNs), and exemption notices and applications, including test-marketing exemptions and low-volume exemptions; and (3) fees associated with EPA- and manufacturer-initiated risk evaluations of chemical substances. However, processors of chemical substances will only be subject to fee requirements if they submit a TSCA Section 5 SNUN or if there is TSCA Section 4 activity relating to a SNUN submitted by a chemical substance processor.

Summary of Fees Being Proposed

The Agency proposes the following fees for non-small business manufacturers (including importers) and processors of chemical substances. Under the proposed rule, small businesses will be subject to fees approximately 80 percent less than those outlined below, except those relating to manufacturer-initiated risk evaluations, for which small businesses will be required to pay the full proposed fee.

Noteworthy Features of the Proposed Rule

New Chemical and New Use Notices

Entities submitting information under TSCA Section 5, such as PMNs and SNUNs, and exemption requests, will be responsible for the payment of the fees specified above. The fee for PMNs under the proposed rule represents a greater than six fold increase from the current PMN fee: $2,500. The fees imposed for exemption applications would roughly double under the proposed rule. Under the proposed rule, fees for information submitted pursuant to TSCA Section 5 will be due at the time the information is submitted. Notably, EPA will continue to allow manufacturers and processors of chemical substances to consolidate PMNs and MCANs for up to six "closely similar chemical substances with similar uses." Additionally, the proposed rule announces that EPA plans to eliminate reduced fees currently paid for "intermediate PMNs"—or "PMNs of a chemical intermediate in a synthetic pathway"—when the PMN for the chemical intermediate is submitted with the PMN for the final substance in the pathway. Although small businesses will pay only a fraction ($2,800, or approximately 20 percent) of the fees set forth above, under current regulations, a small business pays only $100 when submitting PMNs and SNUNs. Whether the increased fees will be likely to stifle innovation in the chemicals sector is unknown. However, under the current fee structure, EPA has experienced a considerable disparity between the number of notices submitted, and the number of substances that eventually are commercialized, with fewer than 50 percent of the substances reported in PMNs submitted being added to the Inventory upon commercialization. The higher fees are likely to affect the timing of submittals, delaying such applications until a point of greater commercial certainty has been reached in the development process. This may expand the scope and timing of research and development activities carried out by manufacturers and importers prior to PMN submittals. The effect of higher PMN and exemption application fees is expected to be particularly pronounced on smaller businesses.

Confidential Information

The 2016 amendments to Section 26 of TSCA also provided EPA with the authority to issue fees for "collecting, processing, reviewing and providing access to and protecting from disclosure" Confidential Business Information (CBI). EPA estimates these costs to the Agency to be in excess of $4 million per year. However, after receiving numerous public comments on this issue, EPA has decided not to impose additional charges on the submission of information claimed to be CBI.

Manufacturer-Requested Evaluations

As EPA suggested during an August 2016 meeting focused on obtaining public feedback on provisions to potentially be included in the TSCA Fees Rule, a manufacturer who requests a risk evaluation of a chemical substances under Section 6 of the amended TSCA will be required to cover 50 percent of the cost (or $1.3 million) of the risk evaluation if the substance at issue was included on the 2014 TSCA Work Plan, and to cover 100 percent of the cost (or $2.6 million) of the risk evaluation if the substance at issue was not among those included on the 2014 Work Plan. In the proposed rule, EPA estimates that it expects the cost of a manufacturer-initiated risk evaluation ($2.6 million) to be significantly lower than the cost of an EPA-initiated risk evaluation ($3.9 million) because manufacturers will be likely to have already generated data and risk analyses that will be submitted to EPA for its use. This analysis suggests that EPA expects such data and other information provided from manufacturers will be of high value and sufficient to allow EPA to conduct a risk evaluation of the condition of use of interest to the manufacture. EPA also believes that manufacturers are not likely to initiate risk evaluations of chemical substances that will be found to pose an unreasonable risk to human health or the environment. Moreover, this hints that EPA is willing to limit the contours of the requested assessment to solely those conditions of use within the scope put forth by the requesting manufacturer. This is likely to be a topic of considerable attention in the public comments to be submitted.

The Limited Role of Processors

Although the 2016 amendments give EPA the authority to collect fees from both manufacturers and processors of chemical substances, the Agency has structured the proposed rule to focus fee collection on manufacturers. The Agency thinks this will ease administrative burdens and that manufacturers will pass increased costs along to chemical users and customers who are processors. Thus, as a general matter, fees for TSCA Section 4 testing requirements will be imposed on manufacturers and importers, rather than on processors of chemical substances subject to a TSCA Section 4 test rule, test orders, or enforceable consent agreement. Similarly, fees for TSCA Section 6(b) risk evaluations initiated by EPA will be imposed on manufacturers of chemical substances subject to these risk evaluations. EPA is proposing to collect fees from processors only when a processors submits a SNUN under Section 5 or when a Section 4 data requirement is linked to a SNUN submission by a processor.

Fee Sharing Consortia Expected to Form

The Agency envisions that the fees associated with responding to TSCA Section 4 requirements and those to be borne as a result of Section 6(b) EPA-initiated risk evaluations will be split among the manufacturers and importers of the chemical substance at issue. EPA recommends that parties subject to user fees as a result of Section 4 testing requirements and Section 6(b) EPA-initiated risk evaluations negotiate amongst themselves the division of the imposed fees. The Agency expects that consortia that form will generally be able to determine how fees should be split among the members. Thus, EPA "encourages" such groups to on their own initiative "set lower fees for small business concerns participating in the consortium." (Reduced fees for small businesses will automatically apply when either a single entity is subject to a testing requirement or a risk evaluation, or when all members of consortia qualify as a small business.) If parties fail to reach an agreement about the division of the imposed fees, EPA will calculate the share of each small business and non-small business party subject to the fees.

EPA expects to use information in the Agency's possession to identify parties that will be subject to fees for TSCA Section 6(b) activities by reviewing recent Chemical Data Reporting rule submissions, as well as possibly information recently submitted by parties pursuant to EPA's TSCA Inventory Notification Active-Inactive rule. EPA is also seeking comment on other methods for identifying parties that will be subject to fees for TSCA Section 6(b) activities. The Agency expects to provide notice to persons who EPA believes to be a manufacturer or importer of a chemical targeted for a risk evaluation and that such persons will seek to form a group to share the expense of the fees imposed among themselves. The proposed rule notes as well that, even if a manufacturer or importer of a substance subject to an EPA-initiated TSCA Section 6(b) risk evaluation is not named by EPA as one of the parties subject to the fees for that evaluation, the manufacturer would not be excused from paying those fees. Thus, manufacturers and importers of chemicals will need to stay apprised of ongoing EPA-initiated risk evaluations.

Fee Determination Methods

In setting the fee structure proposed, the Agency declined to assess all fees in a manner that would strictly offset 25 percent of EPA's costs for the particular associated activity. Thus, EPA has not assessed PMN and Test Rule submittal fees in a manner that would be equivalent to 25 percent of the Agency's costs to review such submission. This was intended to avoid discouraging data development and to avoid unnecessarily stifling new chemical innovations. Thus, EPA describes its approach as one which is "generally proportional to the Agency's costs, yet takes into account the numerous comments received from industry regarding the desire to limit costs associated with information submission under TSCA section 4." This focus on being responsive to industry concerns is likely to draw the ire of environmental groups who already have filed legal challenges to each of EPA's previously promulgated framework rules to implement the 2016 amendments.

Public Comment Period Deadlines

Following publication of this proposed rule in the Federal Register, EPA will accept public comment on the proposed TSCA Fees Rule during a 60-day comment period. EPA is specifically seeking comment on the following issues, among others: (1) information and data to be considered in the further development of the economic analysis for the proposed rule; (2) the fee categories outlined in the proposed rule; and (3) the definition of small business for the purpose of the rule and the impact of the rule on small businesses. Given the litigious climate which has met each of the current administration's previously issued TSCA regulations, parties that may be subject to the fees set forth in the proposed rule should be prepared to engage in the rulemaking process during the comment period to ensure that their concerns are addressed in the final rulemaking.

*Camille Heyboer also contributed to this Advisory.

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