Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export, 237-259 [2011-33456]

Agencies

• ENVIRONMENTAL PROTECTION AGENCY

[Federal Register Volume 77, Number 2 (Wednesday, January 4, 2012)]
[Proposed Rules]
[Pages 237-259]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33456]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[EPA-HQ-OAR-2011-0354; FRL-9614-5]
RIN 2060-AQ98


Protection of Stratospheric Ozone: Adjustments to the Allowance 
System for Controlling HCFC Production, Import, and Export

AGENCY: Environmental Protection Agency [EPA].

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to adjust the allowance system controlling 
U.S. consumption and production of hydrochlorofluorocarbons (HCFCs) as 
a result of a recent court decision vacating a portion of the rule 
titled ``Protection of Stratospheric Ozone: Adjustments to the 
Allowance System for Controlling HCFC Production, Import, and Export; 
Final Rule.'' EPA interprets the court's vacatur as applying to the 
part of the rule that establishes the company-by-company baselines and 
calendar-year allowances for HCFC-22 and HCFC-142b. Following the 
August 5, 2011 interim final rule allocating allowances for 2011, this 
action proposes to relieve the regulatory ban on production and 
consumption of these two chemicals following the court's vacatur by 
establishing company-by-company HCFC-22 and HCFC-142b baselines and 
allocating production and consumption allowances for 2012-2014.

DATES: Written comments on this proposed rule must be received by the 
EPA Docket on or before February 3, 2012, unless a public hearing is 
requested. Any party requesting a public hearing must notify the 
contact listed below under FOR FURTHER INFORMATION CONTACT by 5 p.m. 
Eastern Standard Time on January 11, 2012. If a public hearing is 
requested, the hearing would be held on January 19, 2012 and commenters 
will have until February 21, 2012 to submit comments before the close 
of the comment period. If a hearing is held, it will take place at EPA 
headquarters in Washington, DC. EPA will post a notice on our Web site, 
https://www.epa.gov/ozone/strathome.html, announcing further information 
should a hearing take place.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2011-0354, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for 
submitting comments.
     Email: a-and-r-docket@epa.gov.
     Mail: Docket  EPA-HQ-OAR-2011-0354, Air and 
Radiation Docket and Information Center, U.S. Environmental Protection 
Agency, Mail code: 6102T, 1200 Pennsylvania Ave. NW., Washington, DC 
20460.
     Hand Delivery: Docket EPA-HQ-OAR-2011-0354 Air 
and Radiation Docket at EPA West, 1301 Constitution Avenue NW., Room 
B108, Mail Code 6102T, Washington, DC 20004. Such deliveries are only 
accepted during the Docket's normal hours of operation, and special 
arrangements should be made for deliveries of boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2011-0354. EPA's policy is that all comments received will be included 
in the public docket without change and may be

[[Page 238]]

made available online at www.regulations.gov, including any personal 
information provided, unless the comment includes information claimed 
to be Confidential Business Information (CBI) or other information 
whose disclosure is restricted by statute. Do not submit information 
that you consider to be CBI or otherwise protected through 
www.regulations.gov or email. The www.regulations.gov Web site is an 
``anonymous access'' system, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an email comment directly to EPA without 
going through www.regulations.gov, your email address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses. For additional information about EPA's public 
docket, visit the EPA Docket Center homepage at www.epa.gov/epahome/dockets.htm.

FOR FURTHER INFORMATION CONTACT: Luke H. Hall-Jordan by telephone at 
(202) 343-9591, or by email at hall-jordan.luke@epa.gov, or by mail at 
U.S. Environmental Protection Agency, Stratospheric Protection 
Division, Stratospheric Program Implementation Branch (6205J), 1200 
Pennsylvania Avenue NW., Washington, DC 20460. You may also visit the 
Ozone Protection Web site of EPA's Stratospheric Protection Division at 
www.epa.gov/ozone/strathome.html for further information about EPA's 
Stratospheric Ozone Protection regulations, the science of ozone layer 
depletion, and related topics.

SUPPLEMENTARY INFORMATION:
    Acronyms and Abbreviations. The following acronyms and 
abbreviations are used in this document.

CAA--Clean Air Act
CAAA--Clean Air Act Amendments of 1990
CFC--Chlorofluorocarbon
CFR--Code of Federal Regulations
EPA--Environmental Protection Agency
FR--Federal Register
HCFC--Hydrochlorofluorocarbon
HVAC--Heating, Ventilating, and Air Conditioning
Montreal Protocol--Montreal Protocol on Substances that Deplete the 
Ozone Layer
MOP--Meeting of the Parties
MT--Metric Ton
ODP--Ozone Depletion Potential
ODS--Ozone-Depleting Substances
Party--States and regional economic integration organizations that 
have consented to be bound by the Montreal Protocol on Substances 
that Deplete the Ozone Layer

    Organization of This Document. The following outline is provided to 
aid in locating information in this preamble.

I. General Information
    A. Does this action apply to me?
    B. What should I consider as I prepare my comments for EPA?
    1. Confidential Business Information (CBI)
    2. Tips for Preparing Your Comments
II. Background
    A. How does the Montreal Protocol phase out HCFCs?
    B. How does the Clean Air Act phase out HCFCs?
    C. What sections of the Clean Air Act apply to this rulemaking?
    D. How does this action relate to the recent court decision?
    E. Comments Relevant to Recovery and Reclamation Issues in This 
Rulemaking Submitted in Response to the 2011 Interim Final Rule 
Allocating HCFC Allowances
III. How does EPA propose to allocate HCFC-22 and HCFC-142b 
allowances for 2012-2014?
    A. What baselines does EPA propose to use for HCFC-22 and HCFC-
142b allowances?
    B. What factors did EPA consider in proposing allocation amounts 
for HCFC-22 and HCFC-142b?
    1. How important is HCFC-22 relative to HCFC-142b for servicing 
existing equipment?
    2. Can servicing needs be met with virgin and recovered 
material?
    3. How would the allocation decline?
    4. How will EPA address the court's decision with regard to 2010 
HCFC allowances?
    C. How Much HCFC-22 and HCFC-142b would be allocated in 2012-
2014?
    1. How does EPA propose to allocate HCFC-22 consumption 
allowances for 2012-2014?
    2. How does EPA Propose to allocate HCFC-22 production 
allowances for 2012-2014?
    3. How does EPA propose to allocate HCFC-142b consumption and 
production allowances for 2012-2014?
    4. How would the aggregate for HCFC-22 and HCFC-142b translate 
entity-by-entity?
    D. Are HCFC-141b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb 
allowances affected by this rulemaking?
    E. How will EPA allocate other HCFCs?
IV. How does EPA propose to change the regulations governing 
transfers of allowances of Class II Controlled Substances?
    A. How does EPA propose to change the regulations governing 
permanent transfers of Class II Allowances?
    B. How does EPA propose to change the regulations governing 
transfers of Article 5 HCFC Allowances?
V. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health and Safety Risks
    H. Executive Order 13211: Actions That Significantly Affect 
Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations

I. General Information

A. Does this action apply to me?

    This rule will affect the following categories:

--Industrial Gas Manufacturing entities (NAICS code 325120), including 
fluorinated hydrocarbon gases manufacturers and reclaimers;
--Other Chemical and Allied Products Merchant Wholesalers (NAICS code 
422690), including chemical gases and compressed gases merchant 
wholesalers;
--Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing entities (NAICS code 
333415), including air-conditioning equipment and commercial and 
industrial refrigeration equipment manufacturers;
--Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS 
code 423730), including air-conditioning (condensing unit, compressors) 
merchant wholesalers;
--Electrical and Electronic Appliance, Television, and Radio Set 
Merchant Wholesalers (NAICS code 423620), including air-conditioning 
(room units) merchant wholesalers; and
--Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 
238220), including Central air-conditioning system and commercial 
refrigeration installation; HVAC contractors.

This list is not intended to be exhaustive, but rather provides a guide

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for readers regarding entities likely to be regulated by this action. 
This table lists the types of entities that could potentially be 
regulated by this action. Other types of entities not listed in this 
table could also be affected. To determine whether your facility, 
company, business organization, or other entity is regulated by this 
action, you should carefully examine these regulations. If you have 
questions regarding the applicability of this action to a particular 
entity, consult the person listed in the FOR FURTHER INFORMATION 
CONTACT section.

B. What should I consider as I prepare my comments for EPA?

1. Confidential Business Information (CBI)
    Do not submit confidential business information (CBI) to EPA 
through www.regulations.gov or email. Clearly mark the part or all of 
the information that you claim to be CBI. For CBI information in a disk 
or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM 
as CBI and then identify electronically within the disk or CD-ROM the 
specific information that is claimed as CBI. In addition to one 
complete version of the comment that includes information claimed as 
CBI, a copy of the comment that does not contain the information 
claimed as CBI must be submitted for inclusion in the public docket. 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR 2.2.
2. Tips for Preparing Your Comments
    When submitting comments, remember to do the following:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions. The Agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree with the proposal; 
suggest alternatives and substitute language for your requested 
changes.
     Describe any assumptions and provide any technical 
information and/or data that you used in preparing your comments.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
     Make sure to submit your comments by the comment period 
deadline identified.

II. Background

    EPA is undertaking this rulemaking as a result of the decision 
issued by the U.S. Court of Appeals for the District of Columbia 
Circuit (Court) in Arkema v. EPA (618 F.3d 1, DC Cir. 2010) regarding 
the December 15, 2009, final rule titled ``Protection of Stratospheric 
Ozone: Adjustments to the Allowance System for Controlling HCFC 
Production, Import, and Export,'' published at 74 FR 66413 (2009 Final 
Rule). Certain allowance holders affected by the 2009 Final Rule filed 
petitions for judicial review of the rule under section 307(b) of the 
Clean Air Act. Among other arguments, the petitioners contended that 
the rule was impermissibly retroactive because in setting the baselines 
for the new regulatory period, EPA did not take into account certain 
inter-pollutant baseline transfers that petitioners had performed 
during the prior regulatory period.
    The Court issued a decision on August 27, 2010, agreeing with 
petitioners that ``the [2009] Final Rule unacceptably alters 
transactions the EPA approved under the 2003 Rule,'' (Arkema v. EPA, 
618 F.3d at 3). The Court vacated the rule in part, ``insofar as it 
operates retroactively,'' and remanded to EPA ``for prompt 
resolution,'' (618 F.3d at 10). The Court withheld the mandate for the 
decision pending the disposition of any petition for rehearing. EPA's 
petition for rehearing was denied on January 21, 2011. The mandate 
issued on February 4, 2011. More detail is provided on the case and 
EPA's interpretation of the Court's decision in section II.D. of this 
preamble.
    EPA addressed the Court's partial vacatur as it relates to 2011 in 
an August 5, 2011, interim final rule, ``Protection of Stratospheric 
Ozone: Adjustments to the Allowance System for Controlling HCFC 
Production, Import, and Export,'' (2011 Interim Final Rule). This 
proposed rule is a follow-on to that action, and proposes a path 
forward for the remainder of the regulatory period ending on December 
31, 2014.

A. How does the Montreal Protocol phase out HCFCs?

    The Montreal Protocol on Substances that Deplete the Ozone Layer is 
the international agreement aimed at reducing and eventually 
eliminating the production and consumption of stratospheric ozone-
depleting substances (ODS). The U.S. was one of the original 
signatories to the 1987 Montreal Protocol and the U.S. ratified the 
Protocol on April 12, 1988. Congress then enacted, and President George 
H.W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA), 
which included Title VI on Stratospheric Ozone Protection, codified as 
42 U.S.C. Chapter 85, Subchapter VI, to ensure that the U.S. could 
satisfy its obligations under the Montreal Protocol. Title VI includes 
restrictions on production, consumption, and use of ODS that are 
subject to acceleration if ``the Montreal Protocol is modified to 
include a schedule to control or reduce production, consumption, or use 
* * * more rapidly than the applicable schedule'' prescribed by the 
statute (CAA Sec.  606). Both the Montreal Protocol and the Clean Air 
Act (CAA) define consumption as production plus imports minus exports.
    In 1990, as part of the London Amendment to the Montreal Protocol, 
the Parties identified HCFCs as ``transitional substances'' to serve as 
temporary, lower ozone depletion potential (ODP) substitutes for CFCs 
and other ODS. EPA similarly viewed HCFCs as ``important interim 
substitutes that will allow for the earliest possible phaseout of CFCs 
and other Class I substances''\1\ (58 FR 65026). In 1992, through the 
Copenhagen Amendment to the Montreal Protocol, the Parties created a 
detailed phaseout schedule for HCFCs beginning with a cap on 
consumption for developed countries not operating under Article 5 of 
the Montreal Protocol (non-Article 5 Parties), a schedule to which the 
U.S. adheres. The consumption cap for each non-Article 5 Party was set 
at 3.1 percent (later tightened to 2.8 percent) of a Party's CFC 
consumption in 1989, plus a Party's consumption of HCFCs in 1989 
(weighted on an ODP basis). Based on this formula, the HCFC consumption 
cap for the U.S. was 15,240 ODP-weighted metric tons (MT), effective 
January 1, 1996. This became the U.S. consumption baseline for HCFCs.
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    \1\ Class I refers to the controlled substances listed in 
appendix A to 40 CFR part 82 subpart A. Class II refers to the 
controlled substances listed in appendix B to 40 CFR part 82 subpart 
A.
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    The 1992 Copenhagen Amendment created a schedule with graduated 
reductions and the eventual phaseout of HCFC consumption (Copenhagen, 
23-25 November, 1992, Decision IV/4). Prior to a later adjustment in 
2007, the schedule initially called for a 35 percent reduction of the 
consumption cap in 2004, followed by a 65 percent

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reduction in 2010, a 90 percent reduction in 2015, a 99.5 percent 
reduction in 2020 (restricting the remaining 0.5 percent of baseline to 
the servicing of existing refrigeration and air-conditioning 
equipment), with a total phaseout in 2030.
    The Copenhagen Amendment did not cap HCFC production. In 1999, the 
Parties created a cap on production for Non-Article 5 Parties through 
an amendment to the Montreal Protocol agreed by the Eleventh Meeting of 
the Parties (Beijing, 29 November--3 December 1999, Decision XI/5). The 
cap on production was set at the average of: (a) 1989 HCFC production 
plus 2.8 percent of 1989 CFC production, and (b) 1989 HCFC consumption 
plus 2.8 percent of 1989 CFC consumption. Based on this formula, the 
HCFC production cap for the U.S. was 15,537 ODP-weighted MT, effective 
January 1, 2004. This became the U.S. production baseline for HCFCs.
    To further protect human health and the environment, the Parties to 
the Montreal Protocol adjusted the Montreal Protocol's phaseout 
schedule for HCFCs at the 19th Meeting of the Parties in September 
2007. In accordance with Article 2(9)(d) of the Montreal Protocol, the 
adjustment to the phaseout schedule was effective on May 14, 2008.\2\
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    \2\ Under Article 2(9)(d) of the Montreal Protocol, an 
adjustment enters into force six months from the date the depositary 
(the Ozone Secretariat) circulates it to the Parties. The depositary 
accepts all notifications and documents related to the Protocol and 
examines whether all formal requirements are met. In accordance with 
the procedure in Article 2(9)(d), the depositary communicated the 
adjustment to all Parties on November 14, 2007. The adjustment 
entered into force and became binding for all Parties on May 14, 
2008.
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    As a result of the 2007 Montreal Adjustment (reflected in Decision 
XIX/6), the U.S. and other developed countries are obligated to reduce 
HCFC production and consumption 75 percent below the established 
baseline by 2010, rather than 65 percent as previously required. The 
other milestones remain the same. The adjustment also resulted in a 
phaseout schedule for HCFC production that parallels the consumption 
phaseout schedule. All production and consumption for Non-Article 5 
Parties is phased out by 2030.
    Decision XIX/6 also adjusted the provisions for Parties operating 
under paragraph 1 of Article 5 (developing countries): (1) To set HCFC 
production and consumption baselines based on the average 2009-2010 
production and consumption, respectively; (2) to freeze HCFC production 
and consumption at those baselines in 2013; and (3) to add stepwise 
reductions of 10 percent below baselines by 2015, 35 percent by 2020, 
67.5 percent by 2025, and 97.5 percent by 2030--allowing, between 2030 
and 2040, an annual average of no more than 2.5 percent to be produced 
or imported solely for servicing existing air-conditioning and 
refrigeration equipment. All production and consumption for Article 5 
Parties will be phased out by 2040.
    In addition, Decision XIX/6 adjusted Article 2F to allow developed 
countries to produce ``up to 10 percent of baseline levels'' for export 
to Article 5 countries ``in order to satisfy basic domestic needs'' 
until 2020.\3\ Paragraph 14 of Decision XIX/6 notes that no later than 
2015, the Parties would consider ``further reduction of production for 
basic domestic needs'' in 2020 and beyond. Under paragraph 13 of 
Decision XIX/6, the Parties will review in 2015 and 2025, respectively, 
the need for the ``servicing tails'' for developed and developing 
countries. The term ``servicing tail'' refers to an amount of HCFCs 
used to service existing equipment, such as certain types of air-
conditioning and refrigeration appliances.
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    \3\ Paragraphs 4-6 of adjusted Article 2F read as follows:
    ``4. Each Party shall ensure that for the twelve-month period 
commencing on 1 January 2010, and in each twelve-month period 
thereafter, its calculated level of consumption of the controlled 
substances in Group I of Annex C does not exceed, annually, twenty-
five per cent of the sum referred to in paragraph 1 of this Article. 
Each Party producing one or more of these substances shall, for the 
same periods, ensure that its calculated level of production of the 
controlled substances in Group I of Annex C does not exceed, 
annually, twenty-five per cent of the calculated level referred to 
in paragraph 2 of this Article. However, in order to satisfy the 
basic domestic needs of the Parties operating under paragraph 1 of 
Article 5, its calculated level of production may exceed that limit 
by up to ten per cent of its calculated level of production of the 
controlled substances in Group I of Annex C as referred to in 
paragraph 2.
    5. Each Party shall ensure that for the twelve-month period 
commencing on 1 January 2015, and in each twelve-month period 
thereafter, its calculated level of consumption of the controlled 
substances in Group I of Annex C does not exceed, annually, ten per 
cent of the sum referred to in paragraph 1 of this Article. Each 
Party producing one or more of these substances shall, for the same 
periods, ensure that its calculated level of production of the 
controlled substances in Group I of Annex C does not exceed, 
annually, ten per cent of the calculated level referred to in 
paragraph 2 of this Article. However, in order to satisfy the basic 
domestic needs of the Parties operating under paragraph 1 of Article 
5, its calculated level of production may exceed that limit by up to 
ten per cent of its calculated level of production of the controlled 
substances in Group I of Annex C as referred to in paragraph 2.
    6. Each Party shall ensure that for the twelve-month period 
commencing on 1 January 2020, and in each twelve-month period 
thereafter, its calculated level of consumption of the controlled 
substances in Group I of Annex C does not exceed zero. Each Party 
producing one or more of these substances shall, for the same 
periods, ensure that its calculated level of production of the 
controlled substances in Group I of Annex C does not exceed zero. 
However:
    i. each Party may exceed that limit on consumption by up to zero 
point five per cent of the sum referred to in paragraph 1 of this 
Article in any such twelve-month period ending before 1 January 
2030, provided that such consumption shall be restricted to the 
servicing of refrigeration and air conditioning equipment existing 
on 1 January 2020;
    ii. each Party may exceed that limit on production by up to zero 
point five per cent of the average referred to in paragraph 2 of 
this Article in any such twelve-month period ending before 1 January 
2030, provided that such production shall be restricted to the 
servicing of refrigeration and air conditioning equipment existing 
on 1 January 2020.''
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B. How does the clean air act phase out HCFCs?

    The U.S. has chosen to implement the Montreal Protocol phaseout 
schedule on a chemical-by-chemical basis. In 1992, environmental and 
industry groups petitioned EPA to implement the required phaseout by 
eliminating the most ozone-depleting HCFCs first. Based on the 
available data at that time, EPA believed the U.S. could meet, and 
possibly exceed, the required Montreal Protocol reductions through a 
chemical-by-chemical phaseout that employed a ``worst-first'' approach 
focusing on certain chemicals earlier than others. In 1993, as 
authorized by section 606 of the CAA, the U.S. established a phaseout 
schedule that eliminated HCFC-141b first and would greatly restrict 
HCFC-142b and HCFC-22 next, followed by restrictions on all other HCFCs 
and ultimately a complete phaseout (58 FR 15014, March 18, 1993; 58 FR 
65018, December 10, 1993).
    On January 21, 2003 (68 FR 2820), EPA promulgated regulations (2003 
Final Rule) to ensure compliance with the first reduction milestone in 
the HCFC phaseout: The requirement that by January 1, 2004, the U.S. 
reduce HCFC consumption by 35 percent and freeze HCFC production. In 
the 2003 Final Rule, EPA established chemical-specific consumption and 
production baselines for HCFC-141b, HCFC-22, and HCFC-142b for the 
initial regulatory period ending December 31, 2009. Section 601(2) 
states that EPA may select ``a representative calendar year'' to serve 
as the company baseline for HCFCs. In the 2003 Final Rule, EPA 
concluded that because the entities eligible for allowances had 
differing production and import histories, no single year was 
representative for all companies. Therefore, EPA assigned an individual 
consumption baseline year to each company by selecting its highest ODP-
weighted consumption year from among the years 1994 through 1997.

[[Page 241]]

EPA assigned individual production baseline years in the same manner. 
EPA also provided for new entrants that began importing after the end 
of 1997 but before April 5, 1999, the date the advanced notice of 
proposed rulemaking was published. EPA took this action to ensure that 
small businesses that might not have been aware of the impending 
rulemaking would be able to continue in the HCFC market.
    The 2003 Final Rule apportioned production and consumption 
baselines to each company in amounts equal to the amounts in the 
company's highest ``production year'' or ``consumption year,'' as 
described above. It completely phased out the production and import of 
HCFC-141b by granting 0 percent of that substance's baseline for 
production and consumption in the table at 40 CFR 82.16. EPA did, 
however, create a petition process to allow applicants to request small 
amounts of HCFC-141b beyond the phaseout. The 2003 Final Rule also 
granted 100 percent of the baselines for production and consumption of 
HCFC-22 and HCFC-142b for each of the years 2003 through 2009. EPA was 
able to allocate allowances for HCFC-22 and HCFC-142b at 100 percent of 
baseline because, in light of the concurrent complete phaseout of HCFC-
141b, the allocations for HCFC-22 and HCFC-142b, combined with 
projections for consumption of all other HCFCs, remained below the 2004 
cap of 65 percent of the U.S. baseline.
    EPA allocates allowances for specific years; they are valid between 
January 1 and December 31 of a given control period (i.e., calendar 
year). Prior to December 15, 2009, EPA had not allocated any HCFC 
allowances for year 2010 or beyond. The regulations at section 82.15(a) 
and (b) only addressed the production and import of HCFC-22 and HCFC-
142b for the years 2003-2009. Through the 2009 Final Rule (74 FR 
66412), EPA addressed the production and import of HCFC-22 and HCFC-
142b for the 2010-2014 control periods. Absent the granting of 
calendar-year allowances, section 82.15 would have prohibited the 
production and import of HCFC-22 and HCFC-142b after December 31, 2009. 
The 2009 Final Rule allowed for continued production and consumption, 
at specified amounts, of HCFC-142b, HCFC-22, and other HCFCs not 
previously included in the allowance system, for the 2010-2014 control 
periods.
    In the U.S., an allowance is the unit of measure that controls 
production and consumption of ODS. EPA establishes company-by-company 
baselines (also known as ``baseline allowances'') and allocates 
calendar-year allowances equal to a percentage of the baseline for 
specified control periods. A calendar-year allowance represents the 
privilege granted to a company to produce or import one kilogram (not 
ODP-weighted) of the specific substance. EPA allocates two types of 
calendar-year allowances--production allowances and consumption 
allowances. ``Production allowance'' and ``consumption allowance'' are 
defined at section 82.3. To produce an HCFC for which allowances have 
been allocated, an allowance holder must expend both production and 
consumption allowances. To import an HCFC for which allowances have 
been allocated, an allowance holder must expend consumption allowances. 
An allowance holder exporting HCFCs for which it has expended 
consumption allowances may obtain a refund of those consumption 
allowances upon submittal of proper documentation to EPA.
    Since EPA is implementing the phaseout on a chemical-by-chemical 
basis, it allocates and tracks production and consumption allowances on 
an absolute kilogram basis for each chemical. Upon EPA approval, an 
allowance holder may transfer calendar-year allowances of one type of 
HCFC for calendar-year allowances of another type of HCFC, with 
transactions weighted according to the ODP of the chemicals involved. 
Pursuant to section 607 of the CAA, EPA applies an offset to each HCFC 
transfer by deducting 0.1 percent from the transferor's allowance 
balance. The offset benefits the ozone layer since it ``results in 
greater total reductions in the production in each year of * * * class 
II substances than would occur in that year in the absence of such 
transactions'' (42 U.S.C. 7671f).
    The U.S. remained comfortably below the aggregate HCFC cap through 
2009. The 2003 Final Rule announced that EPA would allocate allowances 
for 2010-2014 in a subsequent action and that those allowances would be 
lower in aggregate than for 2003-2009, consistent with the next 
stepwise reduction for HCFCs under the Montreal Protocol. EPA stated 
its intention to determine the number of allowances that would be 
needed for HCFC-22 and HCFC-142b, bearing in mind that other HCFCs 
would also contribute to total HCFC consumption. EPA noted that it 
would likely achieve the 2010 reduction step by applying a percentage 
reduction to the HCFC-22 and HCFC-142b baselines. EPA subsequently 
monitored the market to estimate servicing needs and market adjustments 
in the use of HCFCs, including HCFCs for which EPA did not establish 
baselines in the 2003 Final Rule.
    In the 2009 Final Rule, EPA determined both the estimated demand 
for HCFC-22 during the 2010-2014 regulatory period and the percentage 
of that estimated demand for which it was appropriate to allocate 
allowances. As described in section III.B. of this action, EPA 
determined that the percentage of the estimated demand allocated in the 
form of allowances should not remain constant from year to year but 
rather should decline on an annual basis. For 2010, EPA allocated 
allowances equal to 80 percent of the estimated demand for HCFC-22, 
concluding that reused, recycled, and reclaimed material could meet the 
remaining 20 percent. Under the 2009 Final Rule, the percentage of 
estimated demand for which there was no allocation, and therefore would 
need to be met through recycling and reclamation, rose from 20 percent 
in 2010 to 29 percent in 2014 to ensure the U.S. market would have a 
viable reclamation industry and could meet the 2015 stepwise reduction 
under the Montreal Protocol.
    The determinations EPA made in the 2009 Final Rule regarding (1) 
the total estimated demand for HCFC-22 in 2010-2014 and (2) the 
percentage of that estimated demand that EPA would address through an 
allowance allocation were not at issue in the litigation and are 
unaffected by the Court's decision. As such, EPA did not revisit either 
determination with respect to 2011 in the 2011 Interim Final Rule (76 
FR 47451), but rather relied on the existing record from the 2009 Final 
Rule (74 FR 66412). The 2011 Interim Final Rule established new 
baselines that (1) credited the 2008 inter-pollutant trades at issue in 
Arkema v. EPA based on the Court's decision and (2) reflected inter-
company, single-pollutant baseline transfers that occurred since the 
2009 Final Rule was signed. The 2011 Interim Final Rule also (3) 
allocated HCFC-22 and HCFC-142b allowances for 2011, (4) clarified 
EPA's policy on all future inter-pollutant transfers, and (5) updated 
company names.

C. What sections of the Clean Air Act apply to this rulemaking?

    Several sections of the CAA apply to this rulemaking. Section 605 
of the CAA phases out production and consumption and restricts the use 
of HCFCs in accordance with the schedule set forth in that section. As 
discussed in the 2009 Final Rule (74 FR 66416), section 606 provides 
EPA authority to set a more stringent phaseout schedule than the 
schedule in section 605 based on an

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EPA determination regarding current scientific information or the 
availability of substitutes, or to conform to any acceleration under 
the Montreal Protocol. EPA previously set a more stringent schedule 
than the section 605 schedule through a rule published December 10, 
1993 (58 FR 65018). Through the 2009 Final Rule, EPA made a further 
adjustment to the section 605 schedule based on the acceleration under 
the Montreal Protocol as agreed to at the Meeting of the Parties in 
September 2007. The more stringent schedule established in that rule is 
unaffected by the recent Court decision and is therefore still in 
effect.
    Section 606 provides authority for EPA to promulgate regulations 
that establish a schedule for production and consumption that is more 
stringent than what is set forth in section 605 if: ``(1) based on an 
assessment of credible current scientific information (including any 
assessment under the Montreal Protocol) regarding harmful effects on 
the stratospheric ozone layer associated with a class I or class II 
substance, the Administrator determines that such more stringent 
schedule may be necessary to protect human health and the environment 
against such effects, (2) based on the availability of substitutes for 
listed substances, the Administrator determines that such more 
stringent schedule is practicable, taking into account technological 
achievability, safety, and other relevant factors, or (3) the Montreal 
Protocol is modified to include a schedule to control or reduce 
production, consumption, or use of any substance more rapidly than the 
applicable schedule under this title.'' It is only necessary to meet 
one of the three criteria. In the 2009 Final Rule, EPA determined that 
all three criteria had been met with respect to the schedule for 
phasing out production and consumption of HCFC-22 and HCFC-142b.
    As noted in the 2009 Final Rule, while section 606 is sufficient 
authority for establishing a more stringent schedule than the section 
605 phaseout schedule, section 614(b) of the CAA provides that in the 
case of a conflict between the CAA and the Montreal Protocol, the more 
stringent provision shall govern. Thus, section 614(b) requires the 
Agency to establish phaseout schedules at least as stringent as the 
schedules contained in the Montreal Protocol. To meet the 2010 stepdown 
requirement, EPA is continuing to allocate HCFC allowances at a level 
that will ensure the aggregate HCFC production and consumption will not 
exceed 25 percent of the U.S. baselines. For more discussion of this 
point, see 74 FR 66416.
    Finally, section 607 addresses transfers of allowances both between 
companies and chemicals. EPA is further clarifying the policy and 
procedures applicable to permanent inter-pollutant transfers in this 
action, and is proposing a minor change to the regulations governing 
inter-pollutant transfers to provide additional clarity to 
stakeholders.

D. How does this action relate to the recent court decision?

    Certain allowance holders affected by the 2009 Final Rule filed 
petitions for review in the U.S. Court of Appeals for the District of 
Columbia Circuit. Among other arguments, the petitioners, Arkema, Inc., 
Solvay Fluorides, LLC, and Solvay Solexis, Inc., contended that the 
rule was impermissibly retroactive because in setting the baselines for 
the new regulatory period, EPA did not take into account certain inter-
pollutant baseline transfers that petitioners had performed during the 
prior regulatory period. The 2011 Interim Final Rule contained a 
description of those transfers and the EPA approvals of those 
transfers. As explained in the 2011 Interim Final Rule, the transfers 
at issue occurred in 2008. Solvay Solexis, Inc. submitted two Class II 
Controlled Substance Transfer Forms for consumption allowance transfers 
to Solvay Fluorides, LLC on February 15, 2008, and March 4, 2008. 
Arkema, Inc. submitted two Class II Controlled Substance Transfer Forms 
for consumption and production allowance transfers on April 18, 2008. 
Each company requested EPA's approval to convert HCFC-142b allowances 
to HCFC-22 allowances, and checked a box on the EPA transfer form 
indicating that ``baseline'' allowances would be transferred. EPA sent 
non-objection notices to both Solvay Solexis, Inc. and Solvay 
Fluorides, LLC on February 21, 2008 and March 20, 2008 and to Arkema, 
Inc. in April 2008. The transfer requests and EPA's approvals were 
attached to petitioners' court filings and are available in the docket 
for this action.
    In the Notice of Proposed Rulemaking titled ``Protection of 
Stratospheric Ozone: Adjustments to the Allowance System for 
Controlling HCFC Production, Import, and Export,'' published in the 
Federal Register at 73 FR 78680 on December 23, 2008 (2008 Proposed 
Rule), EPA requested comments on establishing baselines for the 2010-
2014 regulatory period ``with or without'' taking into account baseline 
inter-pollutant transfers made during the 2003-2009 regulatory period 
(73 FR 78687). The proposed regulatory text accounted for the inter-
pollutant transfers discussed above. The increase in HCFC-22 baseline 
allowances for Arkema, Inc. and Solvay Fluorides, LLC presented in the 
2008 Proposed Rule resulted in a larger amount of HCFC-22 baseline 
allowances overall and therefore a lower percentage of HCFC-22 
baselines allocated across the board in each control period. 
Specifically, the proposed shift resulted in a 16 percent decrease in 
allocation share for all other HCFC-22 allowance holders, and increases 
for the petitioners: Arkema and Solvay. For more detail on the effect 
of these transfers, see section III.C. of this preamble.
    In the 2009 Final Rule, after considering comments, EPA determined 
that allowing inter-pollutant transfers from one regulatory period to 
become a part of the baseline in the next regulatory period could 
undermine the Agency's chemical-by-chemical phaseout approach and could 
encourage market manipulation. EPA also concluded that section 607 of 
the CAA was best read as limiting inter-pollutant transfers to those 
conducted on an annual basis. For these reasons, EPA did not take the 
2008 inter-pollutant transfers into account in establishing the 
baselines for the 2009 Final Rule covering 2010-2014.
    The Court issued a decision on August 27, 2010, agreeing with 
petitioners that ``the [2009] Final Rule unacceptably alters 
transactions the EPA approved under the 2003 Rule'' (Arkema v. EPA, 618 
F.3d at 3). The Court vacated the rule in part, ``insofar as it 
operates retroactively,'' and remanded to EPA ``for prompt 
resolution,'' (618 F.3d at 10). The Court withheld the mandate for the 
decision pending the disposition of any petition for rehearing. On 
November 12, 2010, EPA filed a petition for rehearing, which was denied 
on January 21, 2011. The mandate issued on February 4, 2011.
    Because the Court vacated the rule only in part, without specifying 
which part or parts were vacated, EPA may adopt a reasonable 
interpretation of the vacatur's extent. In doing so, EPA is relying on 
its expertise in administering the HCFC phaseout regulations under 
Title VI of the CAA. First, EPA notes that the rule contains elements 
that were not at issue in the litigation. EPA concludes that the 
vacatur has no effect on allowances for any substances other than HCFC-
142b and HCFC-22, since the petitioners' claims and the opinion itself 
discuss only those two substances. Similarly, EPA concludes that other 
discrete portions of the rule, such as the

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provisions on use and introduction into interstate commerce, are 
unaffected by the vacatur.
    The baselines for HCFC-142b and HCFC-22 were clearly at issue in 
the litigation and indeed are the focus of the Court's opinion. The 
Court found that ``the Agency's refusal to account for the Petitioners' 
baseline transfers of inter-pollutant allowances in the Final Rule is 
impermissibly retroactive,'' (618 F.3d at 9). Because baseline and 
calendar year allowances are inextricably linked,\4\ EPA has determined 
that the Court's vacatur voided the HCFC-22 and HCFC-142b baselines in 
40 CFR 82.17 and 82.19 as well as the percentage of baseline allocated 
for those specific substances in 40 CFR 82.16 for all companies listed 
in those sections.\5\ This means that until EPA establishes new 
baselines and allocates new calendar-year allowances, production and 
import of these two substances is prohibited under 40 CFR 82.15. 
Recognizing this scenario, on January 28, 2011, EPA sent letters to 
affected stakeholders informing them that the Agency would exercise 
enforcement discretion for a limited period provided their production 
and import did not exceed specified levels and provided that they 
adhered to additional conditions.
---------------------------------------------------------------------------

    \4\ The reason baseline and calendar-year allocations are 
inextricable is because calendar-year allocations are expressed as a 
percentage of baseline, and the percentage of baseline allocated for 
a specific substance varies depending on the sum of all company 
baselines for that substance. The process works as follows for each 
specific HCFC: First, all the company-specific baselines listed in 
the tables at 40 CFR 82.17 and 82.19 are added to determine the 
aggregate amount of baseline production and consumption, 
respectively. Second, EPA determines how many consumption allowances 
the market needs for a given year, taking into account recycled, 
reused, and reclaimed material, and divides that amount by the 
aggregate amount of baseline allowances. The resulting percentage 
listed in the table at section 82.16 becomes what each company is 
allowed to consume in a given control period. For example, a company 
with 100,000 kg of HCFC-22 baseline allowances would multiply that 
number by the percentage allowed for 2011 (for example, 32 percent) 
to determine its calendar-year allowance is 32,000 kg. Historically 
and in this proposed rule, EPA has allocated the same percentage of 
baseline allowances for production as it does for consumption.
    \5\ The companies' allocations are inter-related because, as 
noted in footnote 4, the percentage of baseline allocated varies 
according to the sum of the company-specific baselines.
---------------------------------------------------------------------------

    In determining the meaning of the Court's vacatur, EPA considered 
whether this interpretation was consistent with what the Court intended 
and a good fit for the specific circumstances, which include the goals 
and design of the HCFC allowance program and the basic structure of the 
2009 Final Rule. While this interpretation is appropriate in this 
instance, it is possible that another interpretation would be more 
appropriate in a case involving a program with different goals, design, 
or structure.
    EPA's initial response to the Court's partial vacatur was to issue 
the 2011 Interim Final Rule (76 FR 47451). Through today's notice, EPA 
is proposing a way to address the Court's decision as it relates to the 
remainder of the regulatory period ending December 31, 2014. In 
addition, the Agency is taking comment on whether the vacatur and 
remand should be interpreted as applying to the 2010 allocations, and 
if so, how allowances might be adjusted to reflect this. See section 
III.B.4. for EPA's proposed approach to address 2010 allowances.

E. Comments Relevant to Recovery and Reclamation Issues in This 
Rulemaking Submitted in Response to the 2011 Interim Final Rule 
Allocating HCFC Allowances

    The EPA received 15 submissions from 13 commenters in response to 
the 2011 interim final rule. Three comments were received late. 
Specifically, the Agency had asked for comment on several issues 
relevant to HCFC-22 supply and the status of recovery and reclamation, 
including: (1) Previous estimates of HCFC-22 demand; (2) the amount of 
virgin HCFC-22 currently in inventory, available for reuse and/or 
waiting for import from abroad; and (3) whether there is an overall 
surplus of the gas. The Agency received comments directly answering 
these questions, along with other comments that are of relevance to 
this proposed rulemaking.
    EPA is not providing a complete response to comments on the 2011 
interim final rule in this preamble; however, EPA is acknowledging the 
most relevant comments here in order to highlight certain stakeholder 
concerns regarding the future implementation of the HCFC phaseout 
program. It is the Agency's responsibility to implement Title VI of the 
CAA, and its policy objective is to do so in a way that smoothly 
transitions the U.S. away from HCFCs to non-ODS alternatives. 
Therefore, EPA is particularly interested in stakeholder input 
regarding the status of HCFC-22 recovery and reclamation, because this 
information applies directly to previously-stated policy goals. This 
section notes the following three issues discussed in comments to the 
2011 Interim Final Rule.
1. Supply of HCFC-22
    a. Economic feasibility of reclamation.
    b. Economic incentives for recovery and emissions prevention.
    c. Effect of virgin gas supplies on dry-shipped condensing units.
2. Providing Allowances to Reclaimers
3. Providing Allowances to Manufacturers of HCFC Blends
1. Supply of HCFC-22
    Nine commenters submitted comments requesting that EPA decrease 
consumption allowances for 2012-2014. Another company also supported 
such a decrease, as long as updated market conditions indicate there is 
a need to do so and all allowance holders are affected proportionally. 
Commenters suggested that excess supply was due to several factors. 
Additionally, commenters stated the price of HCFC-22 is low, indicating 
that virgin supplies are not constrained to the extent that the Agency 
had anticipated. Some commenters pointed to the unused consumption 
allowances for 2010 as evidence of over-supply and the need for 
decreasing the total number of consumption allowances.
    (a) Economic feasibility of reclamation: Most commenters, many of 
whom are reclaimers, are concerned about the excess supply and low 
price of virgin HCFC-22 because this situation makes reclaim 
financially unfeasible. EPA understands that reclaimers can stay in 
business only if reclaimed gas can be profitably sold for a price that 
does not exceed the price of virgin gas, and the price of virgin gas 
will increase only when the supply has contracted. The Agency promotes 
reclamation via separation and distillation, which requires very little 
virgin gas, and recognizes that reclaiming without significant blending 
further increases the costs of reclamation.
    (b) Economic incentives for recovery and emissions prevention: 
Commenters also pointed out that the excess supply and low price of 
HCFC-22 do not incentivize recovery in general, and likely promote 
venting and poor maintenance practices. EPA agrees that if the gas is 
not valuable then there will be little incentive to reuse it or 
proactively prevent leaks, in addition to increasing the likelihood of 
venting (which is illegal under section 608 of the CAA).
    (c) Effect of virgin gas supplies on dry-shipped condensing units: 
Two commenters also specifically mention the increased popularity in 
dry-shipped condensing units that are eventually charged with HCFC-22 
as a symptom of this over-supply. The Agency recognizes that the 
majority of commenters believe that there is an excess of HCFC-22 on

[[Page 244]]

the market, which has direct negative consequence for reclaim and 
recovery, and thus overall ODS emissions. Additionally, EPA has 
received a petition (included in the docket) from the Carrier 
Corporation, dated February 3, 2011, concerning dry-shipped HCFC-22 
condensing units. EPA is taking comment on whether the installation of 
dry-shipped HCFC-22 condensing units will affect the phaseout of virgin 
HCFC-22 production and import.
    EPA undertook an analysis to gauge whether there is a surplus of 
HCFC-22 and, if so, how large the surplus is. A memo in the docket for 
this rulemaking details EPA's analysis of the HCFC-22 market. The 
results indicate EPA should consider allocating between 11 to 47 
percent less per year between 2012 and 2014 relative to the amounts 
that appeared in the 2009 Final Rule. Consequently, EPA is proposing in 
this rulemaking to allocate fewer HCFC-22 consumption allowances than 
contemplated in the 2009 Final Rule for 2012-2014 in order to promote 
recovery and reclamation and encourage transition to non-ODS 
alternatives (see section III.B. and III.C.). As stated in the 2009 
Final Rule, ``The Agency strongly encourages increased recovery and 
either recycling or reclamation of HCFC-22 * * * Recovery becomes even 
more important in light of the 2015 Montreal Protocol phasedown step, 
when the U.S. HCFC consumption cap is reduced from 3,810 ODP-weighted 
metric tons to 1,524 ODP-weighted metric tons,'' (74 FR 66422).
2. Providing Allowances to Reclaimers
    Two commenters requested that EPA provide HCFC allowances to 
certified reclaimers. As explained in the report titled ``Analysis of 
Equipment and Practices in the Reclamation Industry,'' which is 
included in the docket for this rulemaking, ``refrigerant reclamation 
refers to the reprocessing and upgrading of recovered refrigerant 
through such mechanisms as filtering, drying, distillation and chemical 
treatment in order to restore the substance to specifications outlined 
in the Air-Conditioning, Heating, and Refrigeration Institute (AHRI)'s 
Standard 700-1995.'' The commenters argue increasing allocations to 
reclaimers would increase the amount of reclaimed HCFCs available for 
purchase. The comments are similar to those submitted prior to the 
finalization of the 2009 Final Rule, which allocated HCFC allowances 
for 2010-2014. EPA responded to this request at the time (74 FR 66422; 
Response to Comments document for the 2008 NPRM), but discusses the 
issue further here.
    The Agency's primary concern is that providing reclaimers with 
allowances could foster unsustainable reclamation practices that rely 
on blending instead of investing in the technology to fully reclaim 
HCFCs. Based on the phaseout schedule and the decrease in annual 
allocations, reclamation through separation and distillation will be 
more important in 2015 when the HCFC-22 allocation must drop by at 
least 45 percent from 2010 levels and absolutely necessary by 2020, by 
which time import and production of HCFC-22 must be phased out 
entirely. In addition, many businesses have either found a way to 
secure reliable access to virgin HCFCs or have made investments to 
reclaim HCFCs in a sustainable way, without a direct allocation of 
allowances.
    EPA is also concerned that providing allowances to reclaimers does 
not address the key structural issue that the industry and the HCFC 
transition are facing: The price of HCFC-22 is too low to foster 
reclamation and is not sending the necessary signal to move consumers 
to non-ODS alternatives. While providing allowances to reclaimers would 
likely decrease the cost to recover and reclaim HCFCs, EPA is concerned 
about what effect providing allowances to reclaimers would have on the 
market price of HCFC-22. EPA is seeking comment on whether providing 
allowances to reclaimers would affect the market price of HCFC-22, and 
what effect that price change would have on the transition away from 
ODS and the sustainability of the reclamation industry.
    EPA continues to believe that allocating fewer allowances is the 
best way to foster reclamation and recovery. Thus, this proposal does 
not include an allocation for reclaimers. However, the Agency has 
included the relevant comments on the Interim Final Rule in the docket 
for this rulemaking and welcomes further comment on this issue from all 
interested parties.
3. Providing Allowances to Manufacturers of HCFC Blends
    One small business has informed EPA that it cannot acquire either 
HCFC allowances or the HCFCs it needs to manufacture its HCFC blend 
(see the letters from ICOR dated May 17, 2011 and September 6, 2011). 
The company asserts that the cap and trade system is in practice ``cap 
and no trade,'' where companies hold onto their allowances, even if 
they have no intention of using them. The commenter argues that this 
leads to artificially high prices for HCFCs and HCFC allowances. To 
remedy this situation, the commenter requests that EPA take unused 
allowances and provide those allowances to companies that either 
purchased HCFCs or HCFC consumption allowances in 2008 and 2009. EPA 
notes that the inability to acquire allowances and/or HCFCs themselves 
does not appear to be a widespread problem, as numerous companies have 
made a significant number of transfers over the last year alone, and no 
other company has indicated it cannot acquire HCFCs. However, EPA is 
taking comment on whether other companies are having difficulty 
acquiring HCFCs or HCFC allowances.
    Some historical background may help to provide context on how EPA 
provided flexibility for small businesses when establishing the HCFC 
allocation system. In the 2003 Final Rule, published January 21, 2003, 
EPA assigned individual company baselines by considering the highest 
production and consumption years for every company between the years 
1994-1997--a four year period preceding regulation of the production 
and import of HCFCs. ``Consumption'' is defined by the Clean Air Act as 
``the amount of that substance produced in the United States, plus the 
amount imported, minus the amount exported,'' (42 U.S.C. 7671). A 
company had to be manufacturing or importing HCFCs at that time in 
order to be assigned a baseline. In addition, the EPA provided an 
exception allowing new entrants provided that they began importing 
after the end of 1997, but before April 5, 1999, the date the EPA 
published the advanced notice of proposed rulemaking for the regulatory 
period 2003-2009. The Agency believed that such small businesses might 
not have been aware of the impending rulemaking that would affect their 
ability to continue in the HCFC market.
    In addition to the exception for late entrants made in the 2003 
Final Rule, there is significant flexibility in the types of transfers 
companies can conduct. Companies can transfer allowances between 
companies and, on a temporary basis, between chemicals. A guidance 
memo, titled ``Flexibility in the HCFC Allowance System,'' describing 
this flexibility further is available in the docket and on EPA's Web 
site. Companies can also purchase HCFCs at the wholesale price, which, 
according to comments on the 2011 Interim Final Rule, has been 
decreasing. The allocation system in part was established to discourage 
the use of HCFCs and companies' continuation in the HCFC market. As 
stated in the 2003 Final Rule, ``businesses that desired an

[[Page 245]]

allocation of HCFC allowances would have known the risks of jumping 
into the business at this juncture'' (66 FR 38073). Since that 
statement more than nine years ago, access to information and knowledge 
of the risks regarding entering or continuing in the HCFC market have 
only increased. Furthermore, new entrants have entered the market by 
purchasing consumption allowances, as EPA predicted they could back in 
2003. All entities wishing to enter the HCFC import or production 
market can continue to purchase allowances for HCFCs.
    As the market continues to decrease in size, EPA does not believe 
that expanding the pool of allowance holders is necessary to prevent 
disruption of the continued servicing of existing equipment. EPA 
explored several options that would have expanded the number of 
allowance holders in the 2008 NPRM (73 FR 78867) and determined the 
current approach with adjustment for transfers of baseline allowances 
was appropriate (74 FR 66419; Response to Comments for the 2008 NPRM). 
Given EPA's intent to phase down, and ultimately phase out, the use of 
HCFCs, consistent with the requirements of the CAA and obligations 
under the Montreal Protocol, EPA believes it is justified in continuing 
to allocate only to those entities who participated in the market at 
the initial stages, as well as those that have entered the market by 
purchasing HCFC baseline allowances in accordance with the established 
practices. EPA does not believe that providing allowances to companies 
that were not importing or producing HCFCs prior to EPA regulation is 
appropriate at this time given the disruption it would create to the 
existing regulatory framework. However, in light of the large number of 
HCFC allowances that were not used in 2010 and the difficulty at least 
one company is having in getting HCFCs, EPA welcomes comments on 
whether an allocation to manufacturers of HCFC blends who are having 
difficulty acquiring HCFCs or HCFC allowances would be appropriate. 
Commenters supporting such an allocation should consider (1) how EPA 
might determine the total amount of such an allocation, (2) how EPA 
might determine which companies should receive allowances, (3) how EPA 
would verify that allowance holders are refusing to sell HCFCs and HCFC 
allowances, (4) how EPA might set baselines for these companies, (5) 
whether EPA should provide allowances in addition to the amount 
proposed in this rule, or as part of the amount proposed in this rule, 
and (6) how providing allowances to an additional set of companies 
would affect the U.S. transition away from HCFCs.

III. How does EPA propose to allocate HCFC-22 and HCFC-142b allowances 
for 2012-2014?

    EPA is proposing to continue the system established in previous 
rulemakings (68 FR 2820, 74 FR 66412, 76 FR 47451) to address HCFC 
production and import in the U.S. The process works as follows for each 
specific HCFC: First, all the company-specific baselines listed in the 
tables at 40 CFR 82.17 and 82.19 are added to determine the aggregate 
amount of baseline production and consumption, respectively. Second, 
EPA determines how many consumption allowances the market needs for a 
given year, taking into account recycled, reused, and reclaimed 
material, and divides that amount by the aggregate amount of baseline 
allowances. The resulting percentage listed in the table at section 
82.16 becomes what each company is allowed to consume in a given 
control period. For example, a company with 100,000 kg of HCFC-22 
baseline allowances would multiply that number by the percentage 
allowed for the year (for example, 32 percent in 2011) to determine its 
calendar-year allowance is 32,000 kg. Historically, EPA has allocated 
the same percentage of baseline allowances for production as it does 
for consumption.
    Specifically, EPA is proposing to (1) establish 2012-2014 company-
by-company consumption and production baselines for HCFC-22 and HCFC-
142b in the tables at 40 CFR 82.17 and 82.19 identical to the baselines 
established in the 2011 Interim Final Rule (76 FR 47468), (2) allocate 
company-by-company production and consumption allowances for these 
substances for 2012-2014 by establishing percentages of production and 
consumption baselines in the table at section 82.16 and (3) revise the 
regulatory text at 40 CFR 82.23 to make the procedure for all future 
inter-pollutant transfers clear. EPA will address the allocations for 
the control periods beyond 2014 at a later date. All aspects of the 
2009 Final Rule promulgated on December 15, 2009 (74 FR 66412) that are 
not addressed in this proposed rule are unchanged.
    Additionally, EPA notes that beginning January 1, 2015, section 605 
of the CAA prohibits the use and introduction into interstate commerce 
of any HCFC unless it ``(1) has been used, recovered and recycled; (2) 
is used and entirely consumed (except for trace quantities) in the 
production of other chemicals; or (3) is used as a refrigerant in 
appliances manufactured prior to January 1, 2020.'' In addition, EPA's 
regulations at 40 CFR 82.15 restrict use and introduction into 
interstate commerce of HCFC-141b, HCFC-142b, and HCFC-22 beginning in 
2010, with limited exceptions. If entities will need HCFCs in 2015 and 
beyond for uses other than the exemptions contained in section 605, 
they should contact EPA prior to 2013. Entities should understand that 
the statutory prohibition in section 605 generally will prevent EPA 
from accommodating such needs, with the possible exception of de 
minimis quantities.

A. What baselines does EPA propose to use for HCFC-22 and HCFC-142b 
allowances?

    In the 2009 Final Rule, EPA presented the allocation structure for 
HCFC-22 and HCFC-142b for the control periods 2010-2014: Allocating a 
percentage of the baseline production and consumption allowances. The 
rationale for this system is discussed further at 74 FR 66412. The 
Court found no fault with EPA's framework for allocating HCFCs in the 
2009 Final Rule, except the aspects of the rule deemed to be 
retroactive, i.e., not taking into account inter-pollutant baseline 
transfers that occurred in the prior regulatory period in establishing 
company-specific baseline allowances. To address this, EPA is proposing 
to establish baselines for 2012-2014 identical to the HCFC-22 and HCFC-
142b baselines established in the 2011 Interim Final Rule (76 FR 47451) 
that reflect past inter-pollutant baseline transfers deemed permanent 
by the Court.
    EPA cited several reasons why it would prefer to set baselines 
without taking into account inter-pollutant transfers in the 2009 Final 
Rule (74 FR 66420), the Response to Comments document included in the 
record for that rulemaking, and the 2011 Interim Final Rule (76 FR 
47451). However, EPA is recognizing the 2008 transfers in establishing 
the baselines through 2014 in accordance with the Court's decision. The 
Agency is providing advance notice that for the 2015-2019 regulatory 
period, it would consider using more recent production and import data 
than the 1994-1997 data used to set baselines for the first time in the 
2003 Final Rule. The Agency is particularly interested in stakeholders' 
views on whether there w