[Federal Register Volume 66, Number 140 (Friday, July 20, 2001)]
[Proposed Rules]
[Pages 38064-38105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17199]
[[Page 38063]]
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Part II
Environmental Protection Agency
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40 CFR Part 82
Protection of Stratospheric Ozone; Allowance System for Controlling
HCFC Production, Import and Export; Proposed Rule
Federal Register / Vol. 66, No. 140 / Friday, July 20, 2001 /
Proposed Rules
[[Page 38064]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 82
[FRL-6929-9]
RIN 2060-AH67
Protection of Stratospheric Ozone: Allowance System for
Controlling HCFC Production, Import and Export
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: EPA is seeking comment on a proposed allowance system to
control the United States (U.S.) production and consumption of class II
controlled substances, the hydrochlorofluorocarbons (HCFCs), in
accordance with U.S. obligations under the Montreal Protocol on
Substances that Deplete the Ozone Layer (Protocol). Under the Protocol,
the U.S. is obligated to limit HCFC consumption (defined by the
Protocol and this document as production plus imports, minus exports)
under a specific cap, which will be reduced in a step-wise fashion over
time. The U.S. is also a signatory to amendments to freeze HCFC
production on January 1, 2004. EPA published an Advance Notice of
Proposed Rulemaking (ANPRM) on April 5, 1999, laying out a variety of
options for developing an allowance system. Having fully considered
comments on the ANPRM, EPA is today proposing an HCFC allowance system,
similar in many respects to the class I allowance system in place
before January 1, 1996. Instituting such a system for HCFCs would allow
EPA to ensure that the U.S. maintains compliance with the Protocol
caps, while providing certainty and predictability to allowance
holders. In addition, the Clean Air Act (CAA) requires EPA to establish
an allowance system for HCFCs.
A slightly different version of this document was signed on
December 28, 2000, by then Administrator Carol Browner. It was sent
forward to the Federal Register and made available on the EPA Web site.
It was not published in the Federal Register, but rather was recalled
to EPA for review by the incoming Administration. In the interim, EPA
was alerted to some potential discrepancies in baseline allocations;
this led to the discovery that the tracking databases manifested some
correlation errors. EPA reviewed all paper records to determine
accurate baseline numbers, and the corrected numbers are included in
this document.
DATES: Comments on this proposed rule must be received on or before
September 4, 2001, unless a public hearing is requested. Comments must
then be received on or before 45 days following the public hearing. Any
party requesting a public hearing must notify the Stratospheric Ozone
Protection Hotline listed below by 5 p.m. Eastern Standard Time on July
30, 2001. Following the period for requesting a hearing, you may call
the Stratospheric Ozone Protection Hotline to find out whether a
hearing will be held, and if a hearing is held, the date and location
it will take place.
ADDRESSES: Comments on this proposed rule should be submitted in
duplicate to: The Air and Radiation Docket (6102), Air Docket No. A-98-
33, U.S. Environmental Protection Agency, 401 M Street, SW.,
Washington, DC, 20460. Inquiries regarding a public hearing should be
directed to the Stratospheric Ozone Protection Hotline at 1-800-269-
1996.
Materials relevant to this rulemaking are contained in Docket No.
A-98-33. The Docket is located in Room M-1500, First Floor, Waterside
Mall at the address above. The materials may be inspected from 8 am
until 4 p.m. Monday through Friday. A reasonable fee may be charged by
EPA for copying docket materials.
FOR FURTHER INFORMATION CONTACT: Vera Au, EPA, Global Programs
Division, Office of Atmospheric Programs, Office of Air and Radiation
(6205-J), Ariel Rios Building, 1200 Pennsylvania Avenue, NW.,
Washington, DC, 20460, (202) 564-2216 or the Stratospheric Protection
Hotline at (800) 296-1996.
SUPPLEMENTARY INFORMATION:
Regulated Entities
The HCFC allowance allocation system would affect the following
categories:
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Category NAICS code SIC code Examples of regulated entities
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Chlorofluorocarbon gas manufacturing.......... 325120 2869 Chlorodifluoromethane manufacturers;
Dichlorofluoroethane manufacturers;
Chlorodifluoroethane manufacturers.
Chlorofluorocarbon gas importers.............. ........... ........... Chlorodifluoromethane importers;
Dichlorofluoroethane importers;
Chlorodifluoroethane importers.
Chlorofluorocarbon gas importers.............. ........... ........... Chlorodifluoromethane exporters;
Dichlorofluoroethane exporters;
Chlorodifluoroethane exporters.
Urethane and Other Foam Product (Except 326150 3086 Insulation and cushioning, foam
Polystyrene) Manufacturing. plastics (except polystyrene)
manufacturing.
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This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. This table lists the types of entities that EPA is now aware
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, etc., is regulated by
this action, you should carefully examine these proposed 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.
Abbreviations and Acronyms Used in This Document
Act--Clean Air Act
ANPRM--Advance Notice of Proposed Rulemaking
Article 2 countries--industrialized countries
Article 5 countries--developing countries
CAA--Clean Air Act
Cap--limitation in level of production or consumption
CFC--chlorofluorocarbon
CFR--Code of Federal Regulations
EPA--Environmental Protection Agency
FDA--Food and Drug Administration
HCFC--hydrochlorofluorocarbon
NASA--National Aeronautics and Space Administration
ODP--ozone depletion potential (CFR 40, Part 82)
ODS--ozone-depleting substance
Party--Signatory country to the Montreal Protocol on Substances that
Deplete the Ozone Layer
Protocol--Montreal Protocol on Substances that Deplete the Ozone Layer
SBREFA--Small Business Regulatory Enforcement Fairness Act
SNAP--Significant New Alternatives Policy
UNEP--United Nations Environment Program
[[Page 38065]]
U.S.--United States
Table of Contents
I. Background
A. How Does the Montreal Protocol Phase Out HCFCs?
B. How Does Title VI of the CAA Amendments of 1990 Phase Out
HCFCs?
C. How Is Today's Document Arranged?
II. Response to Comments on the April 5, 1999 ANPRM
A. When Would the Allowance System Go Into Effect?
B. What Types of Allowances Would be Available?
C. What Would be the Unit of Measure for Allowances?
D. How Would Allowances Be Distributed Each Year?
E. What Percentage of the Cap and What Percentage of the
Baseline Would Be Distributed?
1. Consumption Allowances
2. Production Allowances
F. How Would EPA Establish an Equitable Baseline?
G. Would Production for Export be Allowed After Each Phaseout?
1. Exports to Parties
2. Exports to Article 5 Countries
H. Would There Be Any Critical Needs Allowances?
I. Would I Be Able to Transfer Allowances?
1. Transfers Within Groups of HCFCs
2. Inter-Pollutant Transfers
3. Inter-Company Transfers
4. Inter-pollutant Transfers Combined with Inter-Company
Transfers
5. International Trades of Current-Year Allowances
6. Transfers of Current-Year Allowances
7. Permanent Transfers of Baseline Allowances
8. Offset for a Transfer of Allowances
J. Would Other Regulatory Options Be Used to Control HCFCs?
1. Labeling
2. SNAP Approval and Restrictions
3. Non-Essential Products Ban
III. Additional Proposed Provisions
A. Would There Be Changes in Definitions?
1. Modifications
2. Additions
B. What Type of Allowances Would be Available for Space Vehicles
and Defense Needs?
C. Would There Be a Petition System for Importing Used HCFCs?
1. Petition for Each Individual Shipment
2. Threshold Quantity Requiring a Petition
3. Information Requirements
4. Timing for Review of a Petition
5. Reasons for Issuing an Objection Notice
6. Petition and Non-Objection Letter to Accompany the Shipment
D. Would There be New Restrictions on Imports to and Exports
from Specific Parties?
E. Should There Be Consumption Allowance Credits for Reductions
of HCFC Production By-products Regulated by Title VI?
IV. Summary of Today's Proposal
A. How Would Allowances be Calculated and Allocated?
B. Would There be Additional Import or Export Restrictions?
C. How Would Transfers Function?
D. What Would the Reporting and Recordkeeping Requirements
Change?
V. Administrative Requirements
A. Executive Order 12866
B. Regulatory Flexibility Act
C. Executive Order 13045: Children's Health Protection
D. National Technology Transfer and Advancement Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination with
Indian Tribal Governments
G. Unfunded Mandates Reform Act
H. Paperwork Reduction Act
I. Executive Order 13211: Energy Effects
I. Background
A. How Does the Montreal Protocol Phase Out HCFCs?
Signatory countries that are Parties to the international agreement
called the Montreal Protocol on Substances that Deplete the Ozone Layer
(Protocol) identified HCFCs as transitional substitutes for CFCs and
other more destructive ODSs during their second meeting in London in
1990. At the Parties' fourth meeting in Copenhagen in 1992, a detailed
phaseout schedule for HCFCs (listed in Annex C, Group I of the
Protocol) was created. The Parties established a cap on the consumption
of HCFCs for developed countries, or what the Protocol refers to as
Article 2 countries, at the same meeting. Note that consumption is
defined by the Protocol as production plus imports minus exports. The
cap on HCFC consumption for Article 2 countries went into effect on
January 1, 1996, and was derived from the formula of 3.1 percent
(reduced to 2.8 percent at the seventh meeting of the Parties) of a
Party's CFC consumption in 1989, plus the Party's consumption of HCFCs
in 1989. This formula puts the current U.S. cap for HCFC consumption at
15,240 ODP-weighted metric tons. The Parties to the Protocol then
created a schedule for the gradual reduction and eventual phaseout of
the consumption of HCFCs by 2030. The Copenhagen Amendments to the
Protocol call for a 35 percent reduction of the cap in 2004, followed
by a 65 percent reduction in 2010, a 90 percent reduction in 2015, a
99.5 percent reduction in 2020, and a total phaseout in 2030. The U.S.
must, at a minimum, comply with this phaseout schedule under the
Protocol.
A freeze on HCFC production for Article 2 countries was agreed to
at the eleventh Meeting of the Parties in 1999. This level of
production is derived from the average of the Party's consumption cap
(2.8 percent of a Party's CFC consumption in 1989, plus the Party's
HCFC consumption in 1989) and the result of the same formula for
production (2.8 percent of the Party's CFC production in 1989, plus the
Party's HCFC production in 1989). The cap for the U.S. for the HCFC
production freeze is 15,537 metric tons with each different HCFC
chemical being weighted according to its ODP. The ODP of a chemical is
determined according to its ability to destroy ozone molecules in the
stratosphere. The higher the ODP, the more destructive the chemical is
to stratospheric ozone.
EPA was petitioned by environmental organizations and industry
groups in 1993 to phase out the most ozone-depleting HCFCs first (58 FR
65018, December 10, 1993; 58 FR 15014, March 18, 1993). Based on the
available data at the time, EPA determined that the U.S. could meet, if
not exceed, the required Protocol reductions by the specified dates
through a chemical-by-chemical phaseout. Therefore, the U.S., as
authorized under the CAA, implemented a phaseout schedule carried out
on a chemical-by-chemical basis for HCFCs (58 FR 65018), which was
intended to meet or exceed the Protocol reductions required. U.S.
implementation of the HCFC phaseout is described below in section I.B
of this document.
B. How Does Title VI of the CAA Amendments of 1990 Phase Out HCFCs?
Section 605(c) of the CAA Amendments of 1990 requires the
Administrator to promulgate, by December 31, 1999, regulations phasing
out the production, and restricting the use of, class II substances, in
accordance with the schedule in that section and subject to any
acceleration of the phaseout of production under section 606. Section
605(c) further states that the Administrator shall promulgate
regulations to ensure that the consumption of class II substances is
phased out and terminated in accordance with the same schedule. The
original phaseout schedule established in the Act has since been
accelerated as authorized under section 606 and is outlined below.
Section 605 of the Act established the original U.S. phaseout
schedule for class II substances. Section 605(a) states that,
``Effective January 1, 2015, it shall be unlawful for any person to
introduce into interstate commerce or use any class II substance unless
such substance: (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.'' Section 605(b) states that,
``Effective
[[Page 38066]]
January 1, 2015, it shall be unlawful for any person to produce any
class II substance in an annual quantity greater than the quantity of
such substance produced by such person during the baseline year.
Effective January 1, 2030, it shall be unlawful for any person to
produce any class II substance.'' This phaseout schedule has since been
accelerated under authority of Section 606.
Section 606(a) specifically requires the Administrator to
promulgate regulations accelerating the phaseout of production and
consumption of ozone-depleting substances, ``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 * * *, 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.''
Thus, section 606(a)(3) requires EPA to accelerate the phaseout to
conform to any acceleration under the Protocol. In addition, section
614(b) provides that in the case of a conflict between Title VI of the
Act and the Protocol, the more stringent provision shall govern. Based
on scientific evidence that losses of stratospheric ozone were
occurring more rapidly than anticipated, the Parties accelerated the
phaseout of class I substances and established the phaseout schedule
for class II substances at the fourth Meeting of the Parties in
Copenhagen in 1992.
Pursuant to authorities provided by Title VI, EPA amended its
regulations on December 10, 1993 (58 FR 65018) to provide for these
accelerations. Targeting the phaseout set by the Protocol, EPA chose to
phase out production and consumption of HCFCs on a chemical-by-chemical
basis, beginning with those with the highest ODP. EPA accelerated the
phaseout of production and import of HCFC-22, HCFC-141b and HCFC-142b,
the three HCFCs with the highest ODPs. Specifically, EPA's rule bans
the production and import of HCFC-141b as of January 1, 2003. HCFC-141b
has an ODP of 0.11. The production and import of HCFC-142b, with an ODP
of 0.065, and HCFC-22, with an ODP of 0.055, are prohibited effective
January 1, 2010, except for use in equipment manufactured prior to
January 1, 2010. Beginning January 1, 2020, the production and import
of HCFC-142b and HCFC-22 are banned. Production and import of the
remaining HCFCs will be prohibited beginning January 1, 2015, except as
a refrigerant in equipment manufactured before January 1, 2020. All
HCFCs will be completely phased out by January 1, 2030. Because HCFC
consumption did not approach the Protocol cap for the U.S. during mid-
1990, EPA did not at that time establish an allocation system for class
II substances, as it did for class I substances.
Section 605(d) of the Act speaks to exceptions to the original
phaseout schedule for HCFCs. Beginning in 2030, EPA can authorize up to
10 percent of the baseline per year for production of class II
substances for medical products considered essential by the U.S. FDA
and for which no safe and effective alternative has been developed and
approved. In addition, EPA can authorize use of these quantities
beginning in 2015 as an exception to the use restrictions contained in
605(a). EPA can authorize this limited amount of production and use, to
the extent consistent with the Protocol, if FDA, in consultation with
EPA, determines that it is necessary. In addition, beginning in 2015,
and continuing up until 2030, EPA may authorize production of up to 110
percent of the baseline per year solely for export to and use in
developing countries, referred to as Article 5 countries in the
Protocol. This production is intended to be solely for the purpose of
satisfying basic domestic needs of the importing developing country.
Between 2030 and 2040, no more than 15 percent of the baseline can be
produced annually for export to Article 5 countries. Section 605(d)
does not permit any production for export to and use in Article 5
countries after January 1, 2040.
Per section 602(b) of the Act, EPA published a list of class II
substances in 40 CFR part 82, subpart A, appendix B. All HCFCs fall
into one grouping under class II controlled substances, and, since
publication of the initial list, no new class II substances have been
added to the list.
Section 602(e) requires EPA to assign numerical values representing
the ODP of all class II substances; Section 602(e) further states that,
``Where the ozone depletion potential of a substance is specified in
the Montreal Protocol, the ozone depletion potential specified for that
substance under this section shall be consistent with the Montreal
Protocol.'' Appendix B to part 82, subpart A in the regulatory text of
this document lists the ODPs for all class II substances as currently
specified by the Protocol. Note that some of the ODPs listed under
Appendix B to Part 82, Subpart A of this document vary slightly from
those listed under the current Appendix B to 40 CFR part 82, subpart A,
due to revisions of those ODPs under the Protocol since May 10, 1995.
Today's document proposes to amend the list of ODPs currently presented
in 40 CFR Part 82, by reflecting the current Protocol list. Unless
there are future revisions of the ODPs for class II substances under
the Protocol, entities involved in the HCFC market can expect to use
the ODPs listed in appendix B to part 82 subpart A of this document for
any ODP-weighted calculations that may be necessary as part of an HCFC
allowance system.
Section 607(b) of the Act requires EPA to permit the transfer of
any class I or class II allowances, within each group or class, on an
ozone depletion potential (ODP)-weighted basis. In allowing transfers,
under section 607(a) of the Act, EPA must ensure that ``the
transactions under the authority of this section will result in greater
total reductions in the production in each year of class I and class II
substances than would occur in that year in the absence of such
transactions.'' In other words, transfers cannot be made at a 1:1
ratio. Under the class I allowance system, EPA required an offset of
one percent in any U.S. transfer to achieve the environmental benefit
required by section 607. Those transfer requirements are set forth in
40 CFR part 82, subpart A, Sec. 82.12 (60 FR 24970, May 10, 1995).
Transfers of class II allowances between entities and inter-pollutant
transfers on an ODP-weighted basis, along with an appropriate offset,
are addressed under Section II.I.8 of today's document.
Section 616 of the Act states that the U.S. may transfer allowances
to another Party, under certain conditions. Few countries currently
have a system in place for allocating, trading and expending HCFC
consumption allowances. As discussed in today's document, differences
exist between the manners in which the Protocol and the U.S. have
structured their respective HCFC phaseout systems. In addition, the
Protocol language in paragraph 5 bis of Article 2 restricts the U.S.
from trading away HCFC consumption to another Party because the U.S.
per capita consumption of CFCs in 1989 was well above the per capita
limit set by the Protocol for transferring HCFC consumption. A trading
regime similar
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to that implemented by EPA for transferring class I production
allowances (40 CFR 82.9) (60 FR 24970, May 10, 1995), however, is
possible, since the Parties established a cap on HCFC production for
Article 2 countries during the eleventh meeting of the Parties in 1999.
A proposed system for international trades of production allowances of
class II substances is discussed in Section II.I.5 of this document.
Reporting requirements mandated in section 603 relative to HCFCs
are currently in place in 40 CFR 82.13(n) and (o).
C. How Is Today's Document Arranged?
Because this proposed rulemaking follows an ANPRM on which we have
received comments, we both respond to those comments and outline the
provisions EPA is proposing today. The document is divided by issues.
For each issue, we outline options presented in the ANPRM, discuss any
relevant comments we received, then present and request comment on the
related provision proposed by EPA. Next we propose several provisions
that have arisen since the ANPRM was published and request comment on
these provisions. Following these sections, we summarize the complete
proposal. Proposed regulatory text follows this preamble.
It should be noted that the regulatory text of the class II
allowance allocation system is found in the definitions of Sec. 82.3,
as well as the new sections being proposed today, Secs. 82.15 through
82.24.
In this proposed rulemaking, the word ``you'' may be interpreted as
``producer'', ``importer'', or ``exporter'', depending on the situation
under discussion.
II. Response to Comments on the April 5, 1999 ANPRM
Section 607 of the Act requires EPA to issue allowances for the
production and consumption of class II substances. With this document,
EPA is proposing an allowance system, similar in many respects to that
of the class I system, with an allocation of baseline allowances,
transfer capability, appropriate exemptions, and recordkeeping and
reporting requirements. The proposed allowance system would ensure that
U.S. consumption of class II substances does not exceed the consumption
cap (currently at 15,240 ODP-weighted metric tons to be reduced over
time) agreed to under the Protocol, and that U.S. production of class
II substances does not exceed the production cap of 15,537 ODP-weighted
metric tons agreed to at the eleventh Meeting of the Parties in 1999.
It is important to remember when reading this proposal that consumption
in the context of the Protocol, the CAA, and EPA regulations
implementing Title VI of the CAA, does not mean use, but instead,
represents a formula: Production + Imports - Exports=Consumption. When
we speak of consumption allowances, then, we are referring to
allowances for the calculated amount of production plus imports, minus
exports.
For the class I substances, EPA considered many methods for
achieving the required reductions that were agreed to under the
Protocol (53 FR 30566, August 12, 1988). The approaches distinguished
between economic incentives and engineering controls or bans. EPA
concluded that the most economically efficient, market-based, and
relatively simple to administer system for achieving the Protocol's
required reductions for class I ODSs was a marketable allowance system.
EPA established such a system for the class I ODSs, which proved highly
successful. By January 1, 1996, the production and import of class I
substances (other than methyl bromide, slated for phaseout in 2005)
were completely phased out, except for narrow exemptions granted by the
Parties to the Protocol. Anecdotal evidence from producers and
importers indicated that the reduction steps and phaseout of class I
ODSs through the allowance system was smooth and had minimal economic
impact.
A. When Would the Allowance System Go Into Effect?
In the ANPRM, EPA considered an approach whereby an allowance
system for class II substances would only become effective if a certain
threshold (i.e., a certain percentage of the total U.S. cap set by the
Protocol for class II substances) were reached or exceeded. However,
the U.S. HCFC consumption in 1998 jumped to 92 percent. This percentage
had been discussed in the ANPRM as a possible threshold that would
allow for implementation of the allowance system. Because the average
consumption was up to 95.5 percent of the cap by mid-1999, EPA believes
we reached and could surpass that threshold unexpectedly. Therefore we
are not proposing a threshold point.
Since publication of a final rule is expected during the last
quarter of 2001, the requirements of the HCFC allowance system would
likely take effect the quarter beginning January 1, 2002. EPA requests
comment on any impact of allocating HCFC allowances for less than four
quarters of 2002, if necessary, to ensure that EPA remains below the
U.S. annual consumption cap. In this event, EPA would propose to
allocate the remaining quarters of each entity's allowance allocation
for 2002, unless that entity has exceeded past quarters of its
allocation during 2002. In the case of an entity having exceeded the
relevant quarter(s) of its allocation for 2002, the exceedance would be
subtracted from the remaining quarters on a pro rata basis. EPA
requests comment on this proposed HCFC allocation for the remaining
quarters of 2002, if necessary. EPA also requests comment on the time
needed to implement the new recordkeeping and reporting requirements,
given their similarity to the class I recordkeeping and reporting.
B. What Types of Allowances Would Be Available?
Under the control system for class I substances, EPA created a unit
of measure called an allowance. An allowance, for a class I substance,
represented the marketable rights and privileges granted to a company
to produce or import a specific quantity of that class I substance.
Under the class I allowance program, there were two types of
allowances: production allowances and consumption allowances. One
allowance in the regulatory program for class I substances was equal to
one kilogram of an ODS.
Under the class I phaseout regulations, a company was required to
expend both production and consumption allowances to be able to
produce. To be able to import a class I controlled substance, a company
was required to expend consumption allowances (see 40 CFR 82.4). After
proper documentation was presented to EPA reflecting an export of a
class I controlled substance, consumption allowances were refunded or
returned to the exporting company for future use (see 40 CFR 82.10).
In the ANPRM, EPA discussed two options: Allocating both production
and consumption allowances, to be expended in the same manner as those
in the class I system, as discussed above; and allocating only a
consumption allowance, whereby one consumption allowance would be used
to produce or to import one kilogram. One consumption allowance would
be returned per kilogram exported.
Twelve commenters addressed this issue, with ten of the twelve
favoring consumption allowances only. The proponents cited simplicity,
and thus decreased regulatory burden. One commenter had no preference;
however, the commenter stated that whichever type of allowance is used
should be flexible enough to accommodate any
[[Page 38068]]
changes arising from ongoing international negotiations. Another
commenter expressed a preference for production and consumption
allowances, since this system worked well for class I substances; the
commenter also felt that implementation of a proven and familiar system
would promote simplification.
One commenter claimed that the use of two types of allowances could
artificially alter the marketplace if capacity in the United States was
underutilized but companies were not allowed to use other allowance
holders' unused production rights for import of the class II substances
domestically. This same commenter claimed that it would be equally a
problem if import rights could not be used to obtain class II
substances from a domestic supplier if the production capacity were
available. EPA believes that the continued use of both allowances will
not result in marketplace disruption. Under the class I system,
companies that produced and imported were granted production and
consumption allowances to continue producing and importing in response
to market fluctuations; rather than disrupting the marketplace, the
allowance system allowed market forces to prevail. EPA believes that
import rights would not be necessary to obtain class II substances from
a domestic supplier; a U.S. importer could purchase class II substances
from any domestic supplier without using allowances. The Agency tried
to assign baseline allowances as closely representative of each
company's production and consumption as possible.
EPA considered the benefits of using one kind of allowance, the
consumption allowance, and found that, on its face, such a system would
be administratively easier. However, at the 1999 Beijing meeting of the
Parties to the Protocol, the Parties agreed to a cap on production, in
addition to the current cap on consumption of class II substances. This
will require that EPA allocate both production and consumption
allowances.
Additionally, because the majority of companies to whom allowances
will be allocated in this action are familiar with expending, trading,
reviewing, and reporting allowances according to the class I system,
staying with the known and proven method is in many ways simpler for
the companies. For example, reporting forms would not change
significantly, negating the need to re-learn calculation and reporting
of allowances.
For these reasons, EPA proposes to use both production and
consumption allowances in its class II allocation system. EPA seeks
comment on including both production and consumption allowances in a
class II allowance allocation system. EPA also seeks input from
commenters on the potential value of an allowance, taking into account
the differing values of each HCFC and the proximity in time to that
HCFC's phaseout.
C. What Would Be the Unit of Measure for Allowances?
In the class I allowance system, EPA assigned each allowance a
value of one kilogram of a class I substance. To produce or import,
allowances were expended by kilograms. Because ODSs have different
potentials to cause ozone depletion, numbers are assigned to each
chemical according to the ODP assigned by the Parties, calculated on
the basis of CFC-11 having a potential of one (1.0). Since each
chemical has its own ODP, any trades that took place between class I
chemicals took into account the difference in ODPs, weighting the
resulting allowances accordingly.
In the ANPRM, EPA discussed two options for the unit of measure to
be used in allocating allowances and implementing the class II
allowance system. One option is to retain the class I allocation and
tracking on an absolute chemical-by-chemical basis, which relies on
ODP-weighting for any inter-pollutant transfers that may occur.
Expending, reporting and tracking of allowances would also be on a
chemical-specific basis, with any trades between chemicals reflecting
the differences in ODPs.
The second option for an allowance unit of measure discussed in the
ANPRM was an ODP-weighted unit, tied to no specific chemical. To expend
allowances, you would determine the chemical to be produced or
imported, multiply it by its ODP and subtract the result from the total
allowance units.
EPA received fourteen comments on the unit of measure to be used in
allocating and tracking allowances. Ten of the commenters favored an
ODP-weighted system, primarily due to the flexibility they believed it
would allow. They argued that such a system would simplify transfers,
respond to the needs of the marketplace without added burden, and
provide for more trading. Three commenters stated their preference for
an absolute chemical-by-chemical basis for allocation and transferring.
One of those commenters believed that the class I system worked well on
a chemical-by-chemical basis and that extending it to the class II
system would likely succeed. One of the three commenters claimed that
an entity should not be able to trade HCFC-141b for HCFC-22, because
they serve two distinct and non-interchangeable markets. The same
commenter stated that EPA could allow for revisions after the 2003
phaseout of HCFC-141b. Another of the three stated that both methods
are flexible with no real difference, but expressed a preference for
chemical-specific allocation. One commenter indicated no preference for
either unit of measure but emphasized the importance of a flexible
inter-company trading scheme.
One of the commenters who favored the ODP-weighted system
elaborated that reporting would still need to happen on a chemical-by-
chemical basis and that, should the 2003 phaseout of HCFC-141b result
in a reduction greater than 35 percent, EPA should ensure that total
allowances available in 2004 be at the 65 percent level.
After reviewing the comments and analyzing the potential outcomes
in using each unit of measure for allowances, EPA is proposing to
institute a chemical-by-chemical absolute kilogram system for
allocating and transferring allowances. The baseline allocation for
each company would be the total or a percentage of the number of
kilograms of each chemical produced and consumed during the baseline
year. To ensure compliance with the requirements of trading and to be
able to report accurately to the Parties to the Protocol on production
and importation of each of the class II substances, EPA would need
allowance holder reports that included the kilograms of specific
chemicals for which allowances are traded and expended. Tracking the
associated chemicals, along with its associated ODP weighting, is
imperative for reasons described below.
As noted in the Background section of today's document, the U.S. is
slated to phase out HCFC-141b in 2003, HCFC-22 and HCFC-142b in 2010
(with some exceptions), and the remaining HCFCs in 2015 (with some
exceptions). A complete phaseout is required in 2030. Because the U.S.
is making reductions in class II substances by phasing out chemicals,
EPA will need to have in its database the baseline allocation of
kilograms of each of the chemicals as they are being phased out. On the
first HCFC phaseout date of 2003, those companies that received
baseline consumption allocations (or received a permanent baseline
transfer) (see section II.I.7 of this document) of HCFC-141b would
subtract that portion from their total consumption allocation. If
permanent inter-pollutant trades had been made, an amount equal to the
[[Page 38069]]
ODP-weighted kilograms of baseline HCFC-141b allowances that had been
received in the transfer would be deducted from the baseline
allocation. Similarly, the person who transferred HCFC-141b permanent
baseline allowances to someone else would no longer be responsible for
deducting them from their allocation. That should have happened when
the trade was made.
The same would occur in 2010 and 2015 for the relevant chemicals
being phased out. Without chemicals associated with the various ODPs,
EPA would be unable to enforce the regulation adequately. Furthermore,
the U.S. would be unable to fulfill its obligation to report under the
Protocol the volume of each chemical produced, imported and exported.
Under a chemical-by-chemical approach, allowances representing
kilograms of the specific chemical expended would be the only
information required, unless an inter-pollutant trade is made, as
referenced above. The more rigorous reporting required under an ODP-
weighted system would mean deciding which chemicals would be associated
with which ODP units. This could both increase the regulatory and
recordkeeping burden on companies and EPA and likely lead to
inaccuracies. Blends could present further complication by requiring a
calculation of the percentage of each HCFC in a substance (e.g., R-
401A), that would need to be multiplied by its applicable ODP, then
included in the total reported ODP and chemical produced or imported
for a quarter. Reporting properly under the ODP-weighted system brings
the reporter full-circle to a chemical-by-chemical analysis.
Proponents of an ODP-weighted system extol the ease of tracking and
expending generic ODPs, as well as the advantages of avoiding an
environmental offset for intra-company transfers, because an ODP-
weighted system allows you to expend allowances for any chemical
without actually trading internally. However, for the lesser ozone-
depleting ODSs, such as HCFCs, EPA is proposing to impose an offset
much lower than the one percent required in the class I system. (See
discussion on proposed offset in section II.I.8 of today's action.)
Therefore, the offset should not be a burden in transferring chemical-
specific allowances.
Today's action thus proposes a chemical-by-chemical, absolute
kilogram allocation system, whereby the amount of each HCFC produced
and each HCFC consumed (production + imports - exports) would require
the expending of one (1) allowance for one (1) kilogram of a specific
substance. Inter-pollutant trades would involve calculating the ODP of
each chemical and translating accordingly. EPA seeks comments on using
an absolute chemical-by-chemical approach as presented above for
implementing a class II allowance system, as well as on alternatives,
including the ODP-weighting scheme described above.
D. How Would Allowances Be Distributed Each Year?
In the ANPRM, EPA discussed three methods for allocating
allowances: a one-time allocation, a changing allocation on a periodic
rolling basis, and a changing allocation on a year-by-year basis. The
first method allocates baseline allowances on a one-time basis; these
allowances continue until the time each associated chemical is phased
out, unless adjustments are necessary to meet required Protocol
reductions. Any distribution system must take into account: the
approach of U.S. accelerated phaseouts for individual chemicals (e.g.,
those for HCFC-141b, HCFC-22 and HCFC-142b); the step-wise reduction of
the consumption cap as mandated under the Protocol; and the new
production cap agreed upon by the Protocol Parties. For example, in
2003, all production and consumption allowances associated with the
HCFC-141b baseline allocation would be subtracted from holders'
allowances. The same would happen as other chemicals are phased out in
the specified years. At each phaseout, EPA must determine whether the
aggregate chemical-specific phaseouts to that date are equal or greater
than the reductions required by the Protocol in those years. If
chemical-specific reductions are less than the Protocol requirement,
EPA would then need to reduce the percentage of baselines to be
allocated accordingly.
The one-time allocation of allowances was the method followed in
the regulatory program for class I substances. For class I substances,
a specified historical quantity of allowances was allocated to listed
companies as a baseline in the Federal Register. Allocating allowances
for the full time period until a phaseout date for a particular
chemical provides certainty and stability for the market. Assuming the
regulatory program includes smooth procedures for trading allowances,
the full-term allocation of allowances establishes the basis for a
``marketable permit'' system.
The second option considered was a system for re-calculating and
re-allocating allowances on a ``rolling basis.'' This would essentially
move the baseline forward in time so that the baseline would presumably
be the most accurate reflection of the current HCFC market. Under this
option, EPA would review data on the production, import and export of
HCFCs on some periodic basis, establish a new baseline for each entity,
and re-allocate the allowances accordingly. A re-allocation of
allowances could require an amendment to the original list in the
regulation of entities with their respective baseline allowances.
Alternatively, an administrative mechanism could be established to re-
allocate allowances automatically at regular intervals.
A final option discussed would involve re-allocating allowances on
a year-by-year basis. Under the year-by-year approach, actual
recalculation of baselines and re-allocations based on past year
activity would take place prior to January 1 of each control period.
EPA received fifteen comments on the method of allowance
distribution. All of the commenters favored allocating one time, such
that allocations are consistent from control period to control period
(except for reductions associated with phaseouts). One commenter stated
that anything other than the one-time allocation would result in market
uncertainty and complicate production planning processes. Another
stated a dislike for using a rolling basis, because it encourages
speculation, whereas a one-time allocation for the class I system was
perceived as fair and unchanging.
EPA agrees with commenters on the disadvantages of using a rolling
average. EPA believes that any rolling average allocation system would
create administrative complications for both EPA and the regulated
community, as well as introduce uncertainty into the market between
periods when the allocation would roll over, and thus, change. The
ability of producers, importers and exporters to plan for the longer
term would also be hampered, and markets could be disrupted. EPA
believes that if the regulatory system includes smooth procedures for
trading allowances, shifts in demand and changes in market share will
be addressed by individual companies, thus avoiding a need to re-
allocate allowances. EPA chose not to propose a rolling average
allocation system for these reasons.
EPA believes that re-allocating allowances on a year-by-year basis
would create administrative complications for EPA and for the regulated
community, similar to the reasons cited above regarding the rolling
[[Page 38070]]
basis allocation system. Consequently, EPA also chose not to propose
allocations on a year-by-year basis.
EPA is proposing a baseline on a one-time basis, whereby the
allowance allocations would remain consistent (or be moved through
permanent trades) from control period to control period (one calendar
year to the next), until each chemical is phased out via subtraction of
its commensurate allowances, or until the percentage of baseline
allocated is changed to ensure compliance with the Protocol cap. As in
the class I allocation system, a baseline is based on one year of a
company's production and consumption (as discussed in section II.F
below). At the beginning of each year, EPA would notify each allowance
holder in writing of the number and type of allowances it had for that
control period. If the allowance holder believed there was a
discrepancy in the number of allowances it should have for that control
period, EPA would work with that entity to resolve the discrepancy. As
under the class I system, the allowances for any control period can
only be used during that control period and cannot be carried over into
the following calendar year.
Because of uncertainties associated with current projections of
actual reductions that will be realized through the 2010 phaseout of
HCFC-142b and HCFC-22, EPA will likely need to re-evaluate allowance
allocations prior to 2010, to ensure that the U.S. can meet the 65
percent reduction of the consumption cap required by the Protocol
beginning in 2010. The least certain factor is the demand for these two
chemicals after 2010 to be used in equipment manufactured before 2010.
Neither the core regulations nor the baseline year would likely change,
but the amount of allocations themselves could be adjusted on a pro
rata or some other basis to account for any shortfall in reduction that
might become imminent. Consequently, throughout the rule, we refer to
specific allocation provisions as in effect until 2010. If EPA
determines that the U.S. will meet its 65 percent reduction obligation
in 2010 with the current allocation, then there may be no reason to
adjust the percentage of baseline to be allocated, until it is
necessary to re-evaluate them for the 2015 phaseout.
EPA is seeking comment on its proposal to distribute HCFC
allowances on a one-time basis, to be adjusted accordingly as
individual chemicals are phased out.
E. What Percentage of the Cap and What Percentage of the Baseline Would
Be Distributed?
1. Consumption Allowances
As discussed in section I.A of this document, the current U.S. cap
for HCFC consumption is 15,240 ODP-weighted metric tons. In the ANPRM,
EPA considered a number of options for the percentage of baseline
allowances to be allocated under the U.S. HCFC consumption cap. These
options included 100 percent allocation under the consumption cap, 100
percent allocation of the baseline production and import, or any
percentage under 100 percent. In the latter option, the remaining
percentage could be allocated pro rata to those with production or
importation activity in the baseline year, allowed to lapse by EPA to
ensure a cushion if violations threatened to push the U.S. over its
cap, or be set aside for some special situation allocation.
Because the sum of the individual companies' consumption baseline
activity could fall under the 15,240-metric-ton consumption cap, the
issue arises as to whether and how to allocate any remaining class II
consumption allowances falling between the U.S. consumption cap and the
sum of baseline consumption allowances (discussed in section II.F of
this document). For example, if the year 1996 were chosen as the
baseline for consumption allowances, this allocation would represent
about 82 percent of the U.S. consumption cap, thus leaving open the
question of how to allocate the remaining 18 percent, and also whether
the remaining 18 percent should be allocated in its entirety. This
remaining percentage, or a lower percentage that would provide for a
margin of error, could be auctioned. Alternatively, it could be added
pro rata to the allocated baseline consumption allowances of those
companies that participated in the HCFC market in the baseline year. It
could alternatively be set aside to offset any potential overruns, or
it could be used as a set-aside for a specific allocation purpose.
EPA received fifteen comments from producers, importers, and trade
associations on how much of the cap should be allocated. Thirteen
commenters supported a 100 percent allocation. They stated that the 100
percent allocation under the class I system was successful; therefore,
we should anticipate the same allocation for a class II system being
successful. Two commenters claimed that companies keep their own
allowance buffers, so EPA did not also need to retain a buffer. One
commenter believed that EPA's penalties are enough of an incentive to
remain within one's allocation. Another commenter said that any amount
less than 100 percent would create artificial shortages. One commenter
believed no allowances should be held back for new entrants into the
market, because there is no certainty these entities will emerge in the
future.
EPA agrees with the commenters that a 100 percent allocation of
baseline consumption is likely to maintain compliance with the cap. A
100 percent baseline allocation worked well for the class I allocation
system, the penalties discouraged people from exceeding their
individual allocations, and many allowance holders consciously
maintained individual allowance buffers to ensure compliance.
The current aggregate of individual baseline consumption allowances
anticipated to be allocated is below the cap of 15,240 ODP-weighted
metric tons. EPA believes that it would be prudent to allow the
remaining percentage below the cap to be set aside for allocations
specifically for narrow situational exemptions from the baseline. As
described in Section F below, EPA is proposing a narrow exception for
certain new entrants into the HCFC imports market: those businesses
newly importing after the end of 1997 and before April 5, 1999, when
the publication of the ANPRM put all potential stakeholders on notice
of this rulemaking. The necessary portions of the remaining percentage
below the cap could be available for allocations to those new entrants
according to historical data. See the detailed discussion of this
proposed exemption and allocation in the section addressing baseline in
Section F.
Given the good faith evidenced by compliance throughout the class I
system, EPA believes that allocating the full amount of baseline
allowances, as permitted under the Protocol HCFC cap for the U.S. is
prudent and equitable to both the allowance holders and their
customers. By this action, EPA is proposing to allocate 100 percent of
the listed individual companies' consumption baselines under the class
II cap established under the Protocol. In 2010, the date at which the
Copenhagen Amendments to the Protocol call for a 65 percent reduction
in HCFC consumption, as stated earlier in this proposal, it may be
necessary to reduce each allowance holder's allocations accordingly, in
order to maintain U.S. consumption of HCFCs within limits and avoid
possible violation of the cap.
EPA is not proposing to allocate the difference between the
Protocol
[[Page 38071]]
consumption cap and the aggregate of the baseline consumption
allowances on a pro rata basis, for the following reasons. The
remaining amount above the aggregate baseline and below the consumption
cap is small, and EPA believes it can best be used to allocate
allowances to companies described in section F as eligible late
entrants, and possibly as credits for reductions of substitutes
regulated under Title VI that are created as by-product(s) in the
manufacture of an HCFC, as discussed in section IV.E. Because EPA is
proposing to individually assign a baseline to each company based on
its highest ODP-weighted consumption year among 1989, 1994, 1995, 1996,
and 1997 (see section II.F), EPA emphasizes that companies should
receive their highest recorded consumption from among those years.
EPA is seeking comments on its proposal to allocate 100 percent of
baseline consumption activity. EPA also seeks comment on its proposal
to allocate portions of the remaining amount above the aggregate
baseline and below the consumption cap to companies described in
section F as eligible recent entrants.
2. Production Allowances
The Parties to the Protocol at the recent meeting in late 1999 in
Beijing adopted a production cap, in addition to the existing
consumption cap. Using the formula agreed to by the Parties for
calculating the cap, the U.S. production is frozen at 15,537 metric
tons beginning January 1, 2004.
The recent Protocol amendment maintains the production cap at this
level through the various phaseout years. Some anticipate that the
Parties may make changes in future meetings, which would likely reduce
production in a step-wise fashion. If such a change occurs, EPA will
amend its regulation to reflect the Protocol requirements.
In the case of production allowances, 100 percent of production
activity in the aggregate of all baseline consumption years, as
discussed in section II.F. below, is below the production cap allowed
by the Protocol. EPA can allocate 100 percent of the production in the
baseline year and remain in compliance with the Protocol. The aggregate
allocation will equal less than 100 percent of the production cap
allowed by the Protocol.
Because production is currently frozen at a constant level that
will continue over time, EPA is proposing that entities with baseline
production allowances could produce the phased-out HCFC following the
respective phaseouts, using export production allowances, for export
only to Parties listed in Appendix C as having ratified the Copenhagen
Amendments. These entities would be allocated their full production
baseline for that chemical in export production allowances, for export
only. Following individual HCFC phaseouts, 15 percent of production
baseline for that chemical is reserved for export to Article 5
countries to be used for their domestic needs. The manner in which
these post-phaseout production allowances for export would be allocated
and expended is discussed below in Section II.G.
EPA did not discuss a detailed process for allocating production
allowances in the April 1999 ANPRM, because the production freeze had
not yet been adopted by the Parties. Therefore, there are no comments
in response to the ANPRM on this issue.
F. How Would EPA Establish an Equitable Baseline?
In developing the regulatory program for class I controlled
substances, EPA collected information on the amounts of each class I
substance produced, imported, and exported during a given calendar year
that was established as a baseline in accordance with the CAA. EPA
collected the data by publishing two notices in the Federal Register
under authority of section 114 of the Act (52 FR 47489 (December 14,
1987) and 55 FR 49116 (November 26, 1990)). The data requested from
U.S. companies included reports on production runs, quantities of
feedstock chemicals used in production, bills of lading, invoices, and
other documents for a specific calendar year. The data submitted to EPA
was used to assign company-specific class I production and consumption
rights (allowances) to companies.
The CAA does not prescribe one specific year to serve as the
baseline for allowance allocations for class II substances. For class
II substances, the definition of ``baseline year'' in the CAA is ``* *
* a representative calendar year selected by the Administrator.'' EPA
explored a variety of options for establishing a baseline for HCFC
allowances, analyzing available historical data for each company's
production and consumption activities (reported to EPA) to identify a
representative proposed class II baseline. EPA has been collecting
quarterly reports on all HCFCs produced, imported and exported from
1994 on. Reliable data is thus available for years between 1994 and the
present. Accurate data also exists for 1989 due to information
gathering EPA conducted for class I baseline determinations, as
discussed above.
In the ANPRM, EPA discussed some of the multiple options for
establishing baseline allowances for class II controlled substances.
The familiar use of historical information from one year, using an
average of multiple years, or using some type of formula for combining
multiple years were all covered in the ANPRM. EPA stated its belief
that the process of establishing the baseline should take into account,
inter alia, the agreements by the Parties to the Protocol to control
and phase out class II substances, the 1990 CAA Amendments, the
regulations under Title VI of the Act governing the phaseout of class
II substances, and the development of the current HCFC market in the
U.S. In arriving at the proposed baseline years for HCFC allowances, we
believe we have taken into account each of the legal and policy guides
considered above.
It is important to review the recent history of public notification
and participation related to development of a class II allowance
allocation rule. During the two stakeholder meetings in January and
February, 1998, EPA stated that it would not consider the year 1998 or
later years in baseline calculations and allocations. A primary reason
was that once public discussion on a potential allowance system began,
companies had much to gain by significantly increasing 1998 and 1999
activity--or entering the HCFC import market during those years to have
activity on record--and subsequently advocating the use of those years
as baseline years. EPA's opening the process to the public should not
give unfair advantage to some and allow artificial market changes and
baseline increases based on anticipated profit potentials.
Consequently, EPA announced its intention not to include 1998 or later
years in baseline calculations at both stakeholder meetings, in its
subsequent ANPRM publication of April 1999, and in individual
discussions with stakeholders.
All seventeen commenters stated their preferences for establishing
a baseline. One company preferred 1989 as the baseline year. Five
commenters believe that 1998 is most representative of the HCFC market.
Two companies stated that 1997 reflects the current situation. Two
commenters preferred 1996, one of them leaving open the option of 1996
or 1997 or an average of both. The second of the two commenters
preferred 1996, because they stated that 1997, 1998, and 1999 include
uncharacteristically high production and import for many
[[Page 38072]]
companies. Another commenter cited the growing HCFC market as we
transition away from CFCs, and claimed that using an earlier year than
1998, which was a year of particularly high consumption, would not
accurately reflect the continuing transition away from CFCs.
One commenter suggested recent years on a weighted basis, giving as
an example, 100 percent of 1997 consumption plus 50 percent of 1996
consumption. This commenter also suggested that in 1998, industry may
have artificially increased consumption in response to early EPA
stakeholder meetings exploring the possibility of an ANPRM on this
topic. Therefore, this commenter believed only 50 percent of 1998
numbers should be used. Two commenters believed that a single year
baseline is necessary, one to avoid excessive record compilation and
processing and the other because an averaged allocation would not
adequately reflect the continuing transition away from CFCs. Four
commenters preferred the average of 1996-1998 if the averaging option
were selected; one commenter selected an even weighting of the years
1989, 1992, and 1995.
EPA did receive one general comment on allocations, however. Three
commenters believed that producers exiting the HCFC market early should
be required to return the unused allowances to EPA for distribution
among the remaining allowance-holders on a pro rata basis. EPA believes
otherwise. Under today's proposal, the allowances granted to the
various companies would be the companies' to do with what they will.
If a company decides to decrease production, or importation, from
its baseline, EPA believes the market should drive the outcome, in that
the company can choose to transfer its excess allowances for the year
or let those allowances lapse, and thereby benefit the environment. One
advantage of the one-time allocation favored by commenters is that it
provides certainty to all the players. Having EPA taking allowances
from those who decrease production or import from their baseline and
re-distributing allowances to other allowance holders would disrupt the
market forces. It would also defeat the environmental purpose of
encouraging companies to move toward substitutes. Consequently, EPA is
proposing not to re-distribute unexpended allowances resulting from a
company's decision to decrease or stop its production or importation of
HCFCs.
EPA believes that because it is allocating to entities who have had
very different production and import histories, there is no one year
that is representative for all companies. Picking only one year,
regardless of the year, could disadvantage many. EPA's intent is to
find the most representative baseline possible within the constraints
of the consumption cap and production freeze. EPA disagrees with the
comments opposing an averaging or formula of multiple years. Once a
multi-year allocation is made, using a one-time, or permanent
allocation would require no additional data compilation over a single-
year system. Once a baseline is determined for each company, EPA is
proposing that the baseline remain unchanged through the duration of
the program, with allocation reductions made according to the phaseout
schedule and necessary increases in reductions to ensure the U.S. meets
the 65 percent and later Protocol step-wise reductions.
In reviewing the consumption figures for the years before 1994, EPA
believes that only one year can reasonably be considered. With the
Protocol signed and the CAA close to passage and enactment in 1989, EPA
has accurate data for that year. Additionally, the year 1989 was
designated as the baseline year used for the allocations of several of
the class I substances (Groups III, IV, and V), thus providing a
complete database of ODS production, import, and export (when combined,
equaling consumption) activity during that year.
Reviewing the production and consumption data on HCFCs from the
most reliable reporting years, EPA found a wide spectrum of years that
benefitted different companies. Looking at the available information
from 1989, 1994, 1995, 1996, and 1997, EPA calculated that if it
allocated allowances to every company based on their individual highest
ODP-weighted consumption year among those five years, the U.S. would be
able to remain just under the Protocol consumption cap. Any producers
or importers entering the HCFC market for the first time in 1998 or
1999 would not be eligible to receive an allocation, except for a
situation outlined later in this section. However, under the proposed
transfer provisions, such a company could purchase allowances from
another company that held allowances.
As discussed earlier in today's action, EPA is proposing to
allocate and track on a chemical-by-chemical basis. However, for
purposes of arriving at the baseline, EPA examined total ODP-weighted
consumption in determining the highest year for each company. That way,
the highest number of ODP-weighted kilograms, rather than highest
number of absolute kilograms, could determine the most beneficial
allocation for each entity. Actual allocations will be distributed and
tracked on an absolute kilogram, chemical-by-chemical basis for
production and for consumption.
Using the individual baseline approach based on the highest ODP-
weighted consumption year brings total U.S. consumption to a small
percentage below the cap of 15,240 metric tons. Total ODP-weighted
production, aggregated from production in each relevant individual
baseline year as proposed, brings the U.S. to below the U.S. production
cap of 15,537 metric tons. Because the consumption baseline years
include the highest production for each producer, EPA believes that
using the same baseline year for production for each company is still
the most equitable. EPA's proposed production baseline and allocations
would be in compliance with the new Protocol production cap.
In exploring baseline years after 1997, EPA believes it is possible
that, as two other commenters have noted, recent years' consumption is
inflated, due to stockpiling in anticipation of an impending
rulemaking. EPA does not believe, as discussed above, that 1998, when
we began publicly discussing an allocation system, can serve as a truly
representative baseline year or as an equitable factor in a multi-year
baseline. Instead, the escalating 1998 figures may reflect an effort by
some to dramatically increase consumption not only to stockpile, but
also to ensure a high HCFC allowance allocation for those companies in
the hopes that 1998 or 1999 would be selected. Such an aggregate number
would likely place the U.S. in violation of the Protocol cap.
EPA recognizes that, in assigning a year or years prior to 1998,
those with their highest consumption falling in 1998 or 1999 would
receive fewer allowances from EPA than their most recent consumption
would reflect. However, with transfers of allowances and the ability to
import used HCFCs, the transition could likely be made without
significantly disrupting consumption trends. Additionally, data on
increased 1998 and 1999 consumption, as compared to earlier years,
seems to indicate significant stockpiling, which should allow customer
demand to be met.
For these reasons and the fact that using the most recent years
could skew the market and disadvantage those who did not significantly
increase consumption in those years, EPA is not proposing to use 1998
production or consumption in the HCFC baseline
[[Page 38073]]
calculation. For similar reasons, and because complete data for the
year 1999 will not be available during the drafting of this rule, EPA
also does not propose to use 1999 as part of the calculation for
baseline.
EPA is, however, proposing one exception to its policy to not use
1998 or later years as part of a person's baseline. EPA proposes to
grant available HCFC consumption allowances to late entrants into the
HCFC import market that meet the following qualifications: the HCFC
import market is their primary source of business income; they began
importing HCFCs after the end of 1997 but before the publication of the
ANPRM on April 5, 1999; and they have accurately reported all relevant
required quarterly import information to EPA prior to publication of
today's proposal. Businesses meeting these qualifications would be
eligible to receive consumption allowances based on a full year's data,
if available. If a full year's data is not available because the entity
has not been in business for a complete year by April 5, 1999, EPA
proposes to extrapolate based on the available reports for one, two, or
three quarters.
EPA believes that such new entrants into the market during that
time would likely be small businesses whose owners and operators were
unfamiliar with EPA's plans to begin work on an allowance allocation
system for HCFCs until the ANPRM appeared in the Federal Register on
April 5, 1999. These businesses that began importing HCFCs after 1997
and before the ANPRM publication date might have had less access to
information from standard industry sources and might not have heard the
announcements at the stakeholders' meetings; they might not have had
reason to know of an imminent rulemaking allocating allowances based on
historical production and importation. In a case where a person, acting
in good faith and prior to the publication of the ANPRM, established a
business whose primary income was derived from importing HCFCs, EPA
believes that it is appropriate to make an exception. Once public
notice was given via the published ANPRM, businesses that desired an
allocation of HCFC allowances would have known the risks of jumping
into the business at this juncture. Prior to April 5, 1999, imperfect
information left the door open for small new companies to observe the
potential market in HCFCs and begin importing HCFCs as a new business.
Therefore, EPA is today proposing to grant available allowances to any
business who can successfully demonstrate that it meets these criteria.
However, EPA will not allocate allowances in excess of the consumption
cap. Although EPA does not anticipate an outpouring of new entrants who
fit this description, to forestall the possibility of exceeding the cap
as a result of allocations to new entrants, we will consider
submissions on a pro rata basis, if necessary.
Through today's proposal, EPA requests notification from any
business that fits the outlined criteria and wishes to request
allowances by submitting a demonstration of eligibility during the 45-
day comment period following publication of this proposal. This will
allow EPA to process the submissions and include allocations for
eligible new entrants in the final rulemaking. No submissions for
eligibility will be accepted after September 4, 2001. To adequately
demonstrate the eligibility of such a business, EPA requests the
following information: records showing the date the first HCFC imports
took place; business records showing that imported HCFCs are the
primary source of the business's income; quantities (in kilograms) of
each chemical imported; exporting country of each shipment; and port of
entry of imported HCFC shipments, accompanied by bills of lading,
invoices and Customs entry forms.
The Administrator will review only the complete submissions that
meet the criteria outlined above. Incomplete submissions will not be
considered. EPA will conduct a thorough review of the details of those
submissions. The final rule will contain allowance allocations for new
entrants that EPA has determined to be eligible.
EPA also considered the possibility of new entrants that entered or
wish to enter the market following publication of the ANPRM in April of
1999. EPA believes that once the ANPRM was published, the public
possessed adequate notice that an allocation system for HCFC allowances
was in the development phase and that EPA was seriously discussing a
period of historical data that would be used in the baseline
designations. It was evident at that time that new entrants were
unlikely to receive an allocation of allowances. Simultaneously, EPA
emphasized its intention to phase out HCFCs in order to meet U.S.
obligations under the Protocol and the CAA. Encouraging new companies
to join the business after the ANPRM would counter the efforts of
moving people out of HCFCs into more environmentally sound substitutes.
EPA believes that any new entrants following the ANPRM publication
would not be precluded from entering the market, because they could
purchase allowances from existing allowance holders who may not intend
to use their full amount of allowances. They also have the opportunity
to import used HCFCs through EPA's petition system or deal in
substitutes to HCFCs, which would benefit the ozone layer and provide
longer-term business security. Accordingly, EPA believes that the
market will sufficiently allow for any new entrants after April 5,
1999, as appropriate.
It is important to note that, under any scenario, when the phaseout
date for HCFC-141b is reached in 2003, all HCFC-141b import and
production for domestic purposes will cease. Those who were not
allocated HCFC-141b consumption allowances will not be affected in
2003, unless they had gained baseline allowances for HCFC-141b through
a permanent trade (Section II.I.6-II.I.7). However, those who were
allocated consumption allowances to produce or import HCFC-141b would
no longer have annual consumption allowances associated with their
baseline HCFC-141b activity, and thus have no authorization to produce
or import HCFC-141b for domestic purposes (where both production and
consumption allowances are necessary). EPA is proposing to allow
production for export following phaseout, however, up to 115 percent of
producers' HCFC-141b production baseline, as discussed below in Section
II.G.
Any company that, through a baseline (or permanent) trade, received
HCFC-141b consumption allowances associated with historic HCFC-141b
consumption, would no longer have the consumption allowances associated
with the baseline trade in 2003. However, that company's total
baseline, for purposes of determining the amount of export production
allowances and Article 5 allowances for which it would be eligible
following the phaseout, would reflect the baseline trade.
In 2004, when the Protocol requires that the HCFC consumption cap
be reduced from its current level by 35 percent, it is possible that
holders of allowances for HCFCs other than HCFC-141b would be affected
if the 35 percent reduction cannot be met. EPA does not intend to
subtract both baseline HCFC-141b consumption allowances in 2003 and an
additional 35 percent of the remaining consumption allowances in 2004.
Instead, it intends, as laid out in its accelerated phaseout rule
published December 10, 1993, to subtract the baseline HCFC-141b
consumption allowances to fulfill the required 35 percent reduction. If
a 35 percent reduction could not be achieved
[[Page 38074]]
through subtraction of baseline HCFC-141b consumption allowances, then
EPA would need to reduce the remaining HCFC consumption allowances by
the requisite percentage to achieve the full 35 percent reduction.
EPA wishes to clarify that allowances can only be allocated for
which we were supplied verifying documentation, such as invoices, bills
of lading, Customs documents, and/or canceled checks. Many companies
supplied such information along with each quarterly report, and thus
EPA had the information on record. We requested that companies without
the information on file with EPA supply this information to us by mid-
January of 2000, so that EPA could determine accurate production and
consumption figures for purposes of allocating allowances. Allowance
allocations, then, are based on verified production and consumption in
each company's respective baseline year.
Additionally, allocations are listed in the proposal only for those
companies that gave EPA permission to publish production and
consumption figures for each HCFC in their baseline year. Because EPA
considers individual company's production and consumption data to be
Confidential Business Information, permission to publish these numbers
is necessary.
EPA expects to receive additional verification from a small number
of companies, permission from companies that have not yet permitted EPA
to publish their potential allocation data, and new entrants as
described above, before the final rule is completed and published.
Consequently, additional companies and their allocations not in this
proposal may be added to the final rulemaking and that potential
allocation information would be reflected in the rulemaking docket.
EPA requests comment on its proposal to assign individual baseline
years by company, using one of the years 1989, 1994, 1995, 1996, or
1997, in which the highest ODP-weighted consumption was accurately
reported. EPA also seeks comment on its proposal to use data from the
same year for production. EPA requests comment on allowing certain new
HCFC importers established after 1997 and before April 5, 1999 to be
eligible for allowances as discussed above.
G. Would Production for Export Be Allowed After Each Phaseout?
Because the U.S. adopted a different approach from the Protocol in
phasing out HCFCs, i.e., chemical-specific phaseouts rather than by
percentage, the continued ability to export to other countries after
each HCFC is phased out becomes of interest. One factor driving foreign
demand for HCFC-141b is the number of HCFC-141b projects being funded
by the Multilateral Fund (MLF) that are intended to move Article 5
countries out of class I substances. The MLF was established by the
1992 London Amendment to the Protocol to enable developing countries to
meet the requirements of the Protocol. The MLF helps pay for the
incremental cost of projects that replace use of ODSs with ozone-
friendly substances. Because HCFC-141b (ODP of 0.11) is intended to
replace CFC-11 (ODP of 1.0) in most of these projects, the
environmental benefit of these substitutions comes to a reduction of
0.89 in ODP weight per kilogram.
Another factor is the approach by which other developed countries
are choosing to meet their Protocol reductions, i.e., by percentage (as
outlined by the Protocol) rather than chemical-by-chemical (as in the
U.S.). Consequently, there will likely be a continuing demand for HCFC-
141b by Article 2 countries after the U.S. 2003 phaseout date for that
chemical.
The decision by the Parties in Beijing in late 1999 to freeze
production provides a vehicle for a suitable resolution to the export
concern. In 2003, while production and import for domestic use of HCFC-
141b is eliminated, production for exports and narrow domestic
exceptions can continue at baseline levels. Because consumption
allowances, necessary for production and importation, would no longer
be available, production after January 1, 2003 of HCFC-141b for
domestic sale or use would no longer take place. However, because
production for export continues to be allowed under the Protocol
production cap, EPA is proposing to allow production for export only to
Parties listed in Appendix C (those who also have ratified the
Copenhagen Amendments) after the phaseout of HCFC-141b on January 1,
2003.
Under the Montreal Protocol, 15 percent of production baseline
would be available for export to Article 5 countries (listed in
Appendix E) only for their domestic needs, while 100 percent of
baseline of the phased-out chemical would be allowed for export to
Article 2 or Article 5 countries, or any combination of the two. After
all the export production allowances have been allocated, some of the
production remaining between the aggregate export production allowances
and the HCFC production cap could be allocated for production or import
of HCFC-141b for space vehicle or defense needs, as discussed in
Section III.B. Allowing an additional 15 percent of HCFC-141b
production baseline for Article 5 countries ensures that developing
countries will have adequate access to supplies to transition to class
II ODSs before turning to non-ODP substances. The 15 percent of HCFC-
141b production baseline for Article 5 countries is discussed in detail
below.
1. Exports to Parties
Prior to each phaseout, EPA's allowance system would require that
both production and consumption allowances be used for any production,
with consumption allowances being returned when a chemical is exported.
As with the class I allowance system, one kilogram of production
allowance and one kilogram of consumption allowance would be expended
to produce one kilogram of an HCFC. Under today's proposal, post-
phaseout production could occur beginning January 1, 2003 up to 100
percent of HCFC-141b production baseline for export only to Parties
listed in the third column of Appendix C (those who have ratified the
Copenhagen Amendments). To distinguish between these post-phaseout
production allowances and pre-phaseout allowances, EPA proposes calling
the former ``export production allowances.''
Reporting provisions associated with production for export only
after the relevant HCFC phaseout would require similar information and
documentation as export reporting prior to a relevant phaseout. This
requirement is outlined in the Recordkeeping and Reporting Section of
today's proposal.
EPA requests comment on the proposed allocation of export
production allowances equal to 100 percent of HCFC-141b production
baseline, allowing production of phased-out HCFCs with these allowances
for export only to Parties who have ratified the Copenhagen Amendments
(Appendix C to Subpart A). EPA also requests comment on allocating some
of the production remaining between the aggregate of export production
allowances and the HCFC production cap for production or import of
space vehicle/defense uses of HCFC-141b, as discussed in Section III.B.
2. Exports to Article 5 Countries
In the class I phaseout and allowance system, EPA allowed 15
percent of baseline to be produced after phaseout for export to Article
5 countries to satisfy their basic domestic needs. With the recent
decision of the Protocol to freeze the production of HCFCs, the
[[Page 38075]]
Parties also decided to provide an additional 15 percent of baseline
production for export to Article 5 countries. The 15 percent that EPA
is proposing today would only be available for those HCFCs that have
been phased out, would be over and above the production cap, and would
differ from export production allowances in that exports could go only
to Article 5 countries for their domestic need.
As in the class I system, Article 5 allowances would be expended,
without accompanying consumption allowances, for production
specifically for Article 5 countries. Because they are to be used
specifically for the importing countries' basic domestic needs, these
exports are not expected to compete with U.S. markets using
substitutes.
EPA believes it is appropriate, following chemical-specific
phaseouts, to permit production specifically for export only to Article
5 countries that may require the chemical to facilitate their
transition to less ozone-depleting chemicals. In deciding to propose
this approach, we have considered the current volume of U.S. exports to
other Parties, the projected increased demand by Article 5 countries,
the Protocol requirement that exports to Article 5 countries be used
only for their domestic needs, and the precedent of allowing 15 percent
of baseline production for export only in the class I system. EPA is
proposing that 15 percent of each company's production baseline of
phased-out HCFCs can be used for production for export only to any
Article 5 country for their domestic needs, following the phaseout of
each chemical, until 2030. For example, in 2003, when production and
consumption allowances associated with HCFC-141b are eliminated,
fifteen percent of HCFC-141b production baseline would be available
after phaseout to enable HCFC-141b production for export to Article 5
countries for their domestic needs. As in the class I system, these
post-phaseout production allowances would be called ``Article 5
allowances.''
EPA seeks comment on its proposal to allocate Article 5 allowances
equal to 15 percent of a phased-out HCFC's baseline production after
phaseout for export to Article 5 countries.
H. Would There Be Any Critical Needs Allowances?
EPA is proposing a narrow exception in Section III of today's
action regarding continued production of HCFC-141b where necessary, for
critical space vehicle and defense uses. A variety of criteria would
need to be met for this exemption to be granted, e.g., a lack of
availability of viable alternatives or substitutes. See Section III.B
below for a detailed discussion.
I. Would I Be Able To Transfer Allowances?
In establishing the allowance program for class I controlled
substances, EPA included provisions that permit the transfer of
allowances. The provisions for trades and transfers of class I
allowances are 40 CFR 82.9, 82.10, 82.11 and 82.12 as promulgated in
the final rule published on May 10, 1995 (60 FR 24970). Today's
document describes the many different types of transfers permitted for
class II allowances, as well as other variations discussed in the
ANPRM.
Under the current class I regulatory program, EPA is required to
process all transfers of allowances within three working days from when
EPA receives the request for an inter-pollutant or inter-company trade.
Companies fax or send the request for a trade to EPA and within three
working days EPA faxes a reply showing the new balance of unexpended
allowances (See 40 CFR 82.12(a)(1), (b)(4)). EPA proposes to retain the
above process schedule for class II trades and requests comment on the
proposed process for requesting EPA approval of trades of class II
substances and the three-day turnaround time for such requests.
1. Transfers Within Groups of HCFCs
To facilitate transfers among class II substances, EPA is
permitted, under Section 607(b)(3) of the Act, to establish groups of
HCFCs. Under such a framework, inter-pollutant transfers of allowances
would be limited to chemicals within an assigned group. Class I
controlled substances are listed in the Act in groups, and inter-
pollutant transfers of class I allowances are restricted to transfers
within each group. While class I substances are listed in groups in the
Act, no such grouping exists for class II substances. One option
discussed in the ANPRM was to establish HCFC groups based on each
chemical's ODP. Another option was establishment of HCFC groups based
on the U.S. phaseout dates. A third option would be not to group HCFCs
at all.
Two of the eleven who commented on transfers indicated a preference
for no grouping of HCFCs at all or for including all HCFCs in one
single group. They both felt that grouping would reduce the flexibility
necessary in inter-pollutant transfers. The remaining nine commenters
did not address the grouping issues. Since transfers were limited to
CFCs of the same group in the class I allowance system, allowance
holders experienced some restrictions in their trading. EPA agrees that
imposing a grouping system for HCFCs would unnecessarily restrict
flexibility in inter-pollutant transfers.
EPA is not proposing to group the HCFCs. This will provide the
greatest flexibility for allowance holders to transfer among chemicals.
2. Inter-Pollutant Transfers
Section 607(b) of the Act states that inter-pollutant transfers of
ozone-depleting substance allowances shall be permitted. An inter-
pollutant transfer is the transfer of an allowance of one substance to
an allowance of another substance on an ODP-weighted basis. As an
example, under the class I system, a company would transfer allowances
for CFC-12 to allowances for CFC-115, taking into account ODP
differences between the two chemicals. If a company wanted to transfer
1000 kilograms of their CFC-12 production allowances to CFC-115
production allowances, paperwork would be submitted with the following
calculation: the 1000 kilograms of CFC-12 allowances are multiplied by
the ODP of CFC-12 (1.0) and then divided by the lower ODP of CFC-115
(0.6), yielding 1667 kilograms of new CFC-115 production allowances
minus the required offset. Section 607 of the CAA requires that any
trade of ozone-depleting substance allowances result in a benefit to
the environment. The offset is intended to fulfill this mandate.
Inter-pollutant transfers are sometimes called intra-company
transfers or trades because a company might shift allowances internally
from one substance to another to react to shifts in demand. Inter-
pollutant transfers of allowances were fairly common for class I
substances. There were an average of 95 inter-pollutant transfers for
class I substances each year from 1992 through 1995.
For class II substances in the chemical-by-chemical allocation
system proposed in section II.C, an example of an inter-pollutant
transfer would be a transfer of 10,000 kilograms of HCFC-142b
allowances for HCFC-141b allowances, which would result in 5,909
kilograms of HCFC-141b allowances because of the adjustment for the
ODPs of the two chemicals. This calculation does not take into account
the required offset for transfers as proposed and discussed in section
II.I.8 of this document.
All eleven commenters advocated maximum flexibility in transfers.
Two commenters were in favor of transfers with as little regulatory
oversight as
[[Page 38076]]
possible. One felt no need for EPA permission prior to the trade,
provided the actual amounts of individual HCFCs are shown in the
quarterly reports.
EPA proposes to allow inter-pollutant transfers (or intra-company
trades) in tandem with the proposed chemical-by-chemical system in
section II.C above, similar to the program for the class I substances.
As in the class I system, companies would fax or send the request for a
trade to EPA and within three working days of receipt, EPA would fax a
reply showing the new balance of unexpended allowances. EPA's oversight
should ensure that the company making the transfer has the requisite
number of unexpended allowances. EPA requests comment on the proposed
inter-pollutant transfers (also referred to as intra-company trades) in
tandem with the proposed chemical-by-chemical system, and the three-day
turnaround time associated with such trades.
A major difference in the class II proposed system should be noted.
Because the allowances for production and consumption fall away as of
the phaseout date of an individual HCFC, inter-pollutant and inter-
company trades among production and consumption allowances for that
HCFC can no longer be made. For example, after HCFC-141b is phased out
in 2003, a person cannot trade ODP-weighted HCFC-22 production
allowances for HCFC-141b production allowances. No production or
consumption allowances for HCFC-141b should exist (except for narrowly
stated exemptions).
However, two new and separate sets of allowances--export production
allowances and Article 5 allowances--would be available to that
allowance holder once HCFC-141b is phased out. Export production
allowances could only be used for production for export to countries
that are Party to the Copenhagen Amendments. Article 5 allowances could
only be used for production to export to Article 5 countries. Because
HCFC-141b will be the only chemical with export production allowances
and Article 5 allowances between 2003 and 2010, inter-pollutant trading
of HCFC-141b would not be possible. Inter-company trades of each type
of allowance could take place, to be used in the manner specified under
that allowance.
3. Inter-Company Transfers
Another example of trades of class II allowances that EPA permits
are inter-company transfers under Section 607(c) of the Act. Inter-
company transfers are trades of allowances, for the same substance
under a chemical-by-chemical system, from one company to another
company. Under such a system, Company A would simply transfer its
allowances for production of a class II substance to Company B who
wished to have more allowances for production of that particular class
II substance. The requisite offset would be deducted by EPA when
processing the trade. It would be necessary for both companies to
record and report the chemical(s) associated with that trade. The
proposed chemical-by-chemical system (Section II.C) would eliminate any
need for conversion in reporting the trade.
Of the eleven commenters in favor of maximum flexibility in
transfers, two specifically recommended free inter-company trades.
EPA proposes to allow inter-company trades, with an environmental
offset as described in Section II.I.8. EPA also proposes to process all
transfer requests within three working days from when EPA receives the
request, similar to the process used for the class I system. Companies
fax or send the request for a trade to EPA and within three working
days EPA faxes a reply showing the new balance of unexpended
allowances.
4. Inter-Pollutant Transfers Combined With Inter-Company Transfers
Both inter-company and inter-pollutant transfers could be combined
in the same transaction for class I substances, and EPA is planning to
allow the same possibility for class II substances. Section 607(c) of
the CAA states that EPA's transfer regulations for class I and class II
substances shall permit combined inter-company and inter-pollutant
transfers, subject to certain requirements. As an example of how this
worked under the class I system, Company A would trade 35,000 kilograms
of CFC-11 allowances to Company B who needed allowances to produce CFC-
115. In the information submitted to EPA, the two companies would agree
that Company A would deduct 35,000 allowances for CFC-11 from its
balance and Company B would receive 58,333 kilograms of CFC-115, due to
the ODP difference between the two chemicals. An additional 0.1 percent
offset would be required in this calculation as discussed in Section
II.I.8.
Under this combined system for class II substances in a chemical-
by-chemical allocation system, a company that wishes, for example, to
increase its production of HCFC-141b before the 2003 phaseout could:
(1) Re-distribute its own allowances that have been allocated for
another class II substance to HCFC-141b (inter-pollutant transfer); (2)
purchase more HCFC-141b allowances from another company (an inter-
company transfer); or (3) purchase more allowances from another company
of a substance other than HCFC-141b and conduct a simultaneous inter-
pollutant transfer for HCFC-141b production, making the related ODP
adjustments (an inter-company/inter-pollutant transfer). After the 2003
phaseout of HCFC-141b, a company receiving export production allowances
and Article 5 allowances for HCFC-141b could engage in inter-company
transfers of those allowances, but could not engage in inter-pollutant
transfers until 2010, when export production allowances and Article 5
allowances for HCFC-22 and HCFC-142b become available and thus,
tradeable with the ones for HCFC-141b (Section II.I.2).
Only one commenter out of the eleven commenters discussing
transfers singled out inter-pollutant transfers with inter-company
transfers for special favorable mention. The remaining ten commenters
generally advocated maximum flexibility in transfers without
emphasizing inter-pollutant transfers with inter-company transfers.
EPA proposes to allow inter-pollutant transfers combined with
inter-company transfers for class II substances, similar to what it
allows in the system used for class I substances. EPA requests comment
on its proposal to allow inter-pollutant transfers combined with inter-
company transfers.
5. International Trades of Current-Year Allowances
Under the Protocol, international trades are recognized as a part
of a process called ``industrial rationalization.'' In Article 1 of the
Protocol, industrial rationalization is defined as ``the transfer of
all or a portion of the calculated level of production of one Party to
another, for the purpose of achieving economic efficiencies or
responding to anticipated shortfalls in supply as a result of plant
closures.'' International trades of production and consumption are
permitted under the Protocol so Parties can consolidate the
manufacturing of a chemical in order to be able to achieve economies of
scale as demand shrinks. International trades of production and
consumption allowances are permitted under EPA's current regulations
for class I controlled substances (40 CFR 82.9(c)). The procedures for
international trades involve more review than the procedures for inter-
pollutant and inter-company trades.
The Protocol includes the following language in Article 2,
paragraph 5 bis: ``Any Party not operating under paragraph 1 of Article
5 [an
[[Page 38077]]
industrialized country] may, for one or more control periods, transfer
to another such Party any portion of its calculated level of
consumption set out in Article 2F [pertaining to HCFCs], provided that
the calculated level of consumption of controlled substances in Group I
of Annex A [CFCs] of the Party transferring the portion of its
calculated level of consumption did not exceed 0.25 kilograms per
capita in 1989 and that the total combined calculated levels of
consumption of the Parties concerned do not exceed the consumption
limits set out in Article 2F. Such transfer of consumption shall be
notified to the Secretariat by each of the Parties concerned, stating
the terms of such transfer and the period for which it is to apply.''
The Protocol language in paragraph 5 bis of Article 2 discussed
above clearly restricts the U.S. from trading away HCFC consumption to
another Party. The U.S. per capita consumption of CFCs in 1989 was 1.28
kilograms, well above the 0.25 kilogram per capita limit for
transferring HCFC consumption. However, the Protocol language allows
the U.S. to potentially receive a transfer of HCFC consumption from
another Party. Only two Article 2 countries, Norway and Poland, had a
per capita consumption of CFCs in 1989 less than 0.25 kilograms. Thus,
these are the only Parties from which the U.S. could potentially
receive a transfer of HCFC consumption. EPA considered the likelihood
of such international trades, and whether or not the establishment of
provisions for class II international consumption trades is warranted.
During the eleventh Meeting of the Parties in 1999, with the
adoption of a production cap, came the potential for transfers of
production between Parties. The restrictions that exist for
international consumption trades do not exist for production. Thus
international production allowance trades may be of greater interest to
U.S. entities.
Of the eleven commenters on transfers, only two addressed the issue
of international trades. One commenter acknowledged that industrial
rationalization is important and is a mechanism that tends to reduce
overall consumption but stated that the absence of production
allowances (comment submitted prior to Protocol adoption of production
cap in late 1999) would mean that international trades must take place
on a different basis than that established for class I substances. This
commenter suggested that the material for U.S. consumption be produced
``under license'' in another country but was unsure how this would fit
with international and foreign country regulations. The commenter's
concern regarding the lack of production allowances would be answered
by today's proposal to establish production allowances in addition to
consumption allowances (Section II.B). The second commenter stated that
although the Protocol supports such international trades, the
limitations are severe and clearly discriminatory to multinationals
operating in developed countries. EPA believes that this comment gives
an indication of the possibility of international trades of consumption
allowances occurring in view of the limitations imposed by the
Protocol.
In light of the constraints on international trade of HCFC
consumption described above, EPA is not proposing any provisions for
international trades of consumption allowances. If the U.S. cannot
transfer its consumption allowances to any other Party, and the only
nations from which it could receive consumption rights to import are
Norway and Poland, EPA believes that it appears unlikely that any such
consumption trade would be desired or beneficial. Consequently, EPA has
not included any such provisions in this proposal. EPA requests comment
on its decision not to include provisions for international trades of
consumption allowances. EPA also requests comment on provisions for
transfer of consumption rights from Norway or Poland should the
situation arise.
The Parties have placed a cap on production, in addition to the
current cap on consumption of class II substances. This would allow for
the possibility of transfers of production allowances. Because of the
minimal restrictions placed on the trade of HCFC production between
certain Parties, EPA proposes to allow such production transfers, using
a process very similar to the class I process for international trades
(see 40 CFR 82.9(c)).
Such transfers are authorized under section 616 of the CAA. The
proposed regulations in today's document that would implement this
authority are arranged consistent with international trades under the
class I allowance system. For trades from a Party, EPA proposes that
the person must obtain from the principal diplomatic representative in
that nation's embassy in the U.S. a signed document stating that the
appropriate authority within that nation has revised production limits
for that nation equal to the lesser of: The maximum production that the
nation is allowed under the Protocol minus the amount transferred; the
maximum production that is allowed under the nation's applicable
domestic law minus the amount transferred; or the average of the
nation's actual national production level for the three years prior to
the transfer minus the production allowances allowed. The person would
need to submit to EPA information on the contact person and Party
authorizing the transfer; the chemical being transferred; the control
period for that transfer; and a signed statement that the increased
production is intended as an export to the relevant Party.
For trades to a Party, the person must submit to EPA the same
information outlined, except for the signed statement. For these
trades, the allowance revisions would be reflected at the individual
trader level, as discussed below. In reviewing submissions for trades
to a Party, the Administrator would have the discretion to take factors
into account relating to possible economic hardships created by a
trade, potential effects on trade, potential environmental
implications, and the total amount of unexpended allowances held by
entities in the U.S.
For both trades from and to Parties, the Administrator, following
review, would issue a notice either granting or deducting the
appropriate production allowances and specifying the affected control
period(s), provided she determines it meets the proposed required
conditions.
In approving an international trade, the Administrator would also
need to ensure that the individual person or entity involved in the
trade has made the appropriate revisions to his/her allowance balance.
For trades from a Party, the Administrator would issue a notice
revising the allowances of that entity to equal the unexpended
production allowances held by the entity plus the level of allowable
production transferred from the Party.
For a trade to a Party, section 616 of the CAA does not limit the
quantity of production allowances that may be transferred but the
Administrator is given the option to disapprove the proposed transfer
if she/he believes the transfer is not consistent with domestic policy
or if the transferor did not possess sufficient allowances to permit
the reduction in aggregate domestic production to be reflected in the
transferor's revised production limits. If EPA approves the proposed
transfer, the Administrator is required to establish revised production
limits for the transferor so that the aggregate domestic production
permitted after the transfer reflects the effect of the transfer of
production allowances because such trades cannot result in an increase
in
[[Page 38078]]
production over what would have occurred in the absence of the trade.
In certain circumstances, following a transfer of allowances to another
Party, Section 616 requires that the aggregate national U.S. production
of HCFCs be reduced by an additional amount beyond a simple deduction
of the number of allowances transferred to another Party. Specifically,
if the average U.S. production during the previous three years for the
controlled substance transferred is less than the total allowable U.S.
production under Sec. 82.18(h) and (i), then following a transfer, U.S.
production would need to be revised downward to equal the three-year
average minus the amount transferred. This additional reduction would
also need to be reflected in the revised production limits for U.S.
production allowance holders. EPA believes that in these circumstances,
it is appropriate for the required reduction in U.S. production to be
allocated among all the transferors in the same control period in
proportion to the number of allowances transferred by each entity. EPA
would notify each transferor of the revised production limit after
approving the transfer of production allowances to a Party rather than
waiting to the end of the control period; the transferor would then be
able to make timely market decisions with the remaining production
allowances. Although there are perhaps other methods of revising
production limits, EPA is proposing the following method to determine
the transferor's balance of production allowances after a trade to a
Party. Under today's proposal, the Administrator would issue a notice
revising the transferor's balance of production allowances to equal the
lesser of: (a) The unexpended production allowances held by the
transferor minus the quantity of production allowances transferred; or
(b) the quantity derived from (a) minus the quantity derived from the
following calculation: the total U.S. allowable production for the HCFC
being traded minus the U.S. average annual production of the HCFC for
the three years prior to the transfer.
For those more comfortable with formulas, the proposed method could
be expressed in this manner:
f = (a-d)-(c-b), if c > b
a-d, if c b
Where a = the person's unexpended production allowances, b = the
U.S. 3-year average production for that HCFC, c = the total
allowable U.S. production for that HCFC, and d = the actual quantity
being transferred, and f = the person's revised production allowance
level.
EPA requests comment on the proposed method used to calculate
revised production limits for those wishing to trade production
allowances internationally; EPA requests comment on possible
alternative methods to calculate revised production limits.
If more than one transfer of production allowances occurs in the
same control period, the Administrator will need to issue revised
production limits for all the transferors after each transfer. Each
transferor's balance of production allowances previous to the current
transfer would be adjusted upwards retroactively after each transfer
and each transferor would be notified after the approved transfer
rather than towards the end of the control period. Under EPA's
proposal, if more than one company trades production of an HCFC to
another Party or Parties in one control period, they would all
equitably share the burden of absorbing any shortfall in national
production. Although there are perhaps other methods of revising
production limits, EPA is proposing the following method to determine
the revised production limits for all transferors in the same control
period since EPA believes that the potential allowance decrease, (c-b),
would be allocated among all transferors. EPA is proposing that the
formula for revising allocations after a transfer would be:
a-[(c-b) x (d/D)]-d,
where D = the total amount of allowances transferred by all domestic
producers in that control period.
EPA requests comment on the proposed method used to calculate
revised production limits for all transferors transferring production
allowances in the same control period; EPA requests comment on possible
alternative methods to calculate these revised production limits.
6. Transfers of Current-Year Allowances
In the ANPRM, EPA considered approaches for permitting transfers of
current-year allowances for class II controlled substances. A transfer
of current-year allowances means the allowances being traded can only
be expended for production or import in that specific control period,
or calendar year. Transfers of current-year allowances do not change
the quantity of baseline allowances assigned to a company. A trade of
current-year allowances is a temporary trade, only reflected in a
company's balance of allowances for that control period (calendar year)
in which the trade occurs. Trades of current-year allowances were
permitted in the class I regulatory program. From 1992 to 1995, many
companies took advantage of the opportunity to trade current-year
allowances for class I controlled substances.
Six of the eleven commenters on transfers were in favor of the free
trade of current-year allowances. One commenter generally supported
transfer of current-year allowances because it was consistent with the
class I regulatory program. A commenter felt that it should be allowed
while another commenter noted that the bureaucratic burden on companies
and on EPA would not be too large and that such flexibility would be as
complete as it could be within a system of controls. The remaining five
commenters were silent on the issue. EPA agrees that trades of current-
year allowances would allow companies the flexibility to respond to
market forces and achieve economies of scale in production and import.
EPA proposes to allow trades of current year allowances similar to
those permitted in the class I regulatory system and seeks comment on
allowing current-year trades.
7. Permanent Transfers of Baseline Allowances
EPA also considered the merits of permitting permanent transfers of
baseline allowances for class II substances in the ANPRM. A transfer of
baseline allowances is a permanent shift of some quantity of a
company's baseline allowances to another company. The permanent nature
of the transfer of baseline allowances makes the trade different from
the transfer of current-year allowances. For example, if Company A
produced 1,000 kilograms of HCFC-22 in the baseline year, it would
receive 1,000 baseline allowances of HCFC-22. Company A could in turn
permanently trade away these baseline allowances to Company B. In all
relevant subsequent years, Company A's quantity of baseline allowances
would be permanently reduced, while Company B's quantity of baseline
allowances would be permanently increased. At the 2010 phaseout of
HCFC-22 and HCFC-142b, Company B would be responsible for deducting the
HCFC-22 that it permanently received from Company A from its baseline
allocation.
Under a chemical-by-chemical allocation approach, the historic
consumption baseline amount for a given chemical would be deducted from
the current holder of the permanent allowances in the relevant phaseout
year for that chemical (e.g. 2003 for HCFC-141b). If a person purchases
permanent baseline allowances, of
[[Page 38079]]
HCFC-141b, for example, then conducts an inter-pollutant trade within
the company, that person would deduct the ODP-weighted equivalent
consumption of the HCFC-141b that was traded to them on a permanent
basis. In our example, in 2003, the purchaser of allowances associated
with HCFC-141b would have that number of ODP-weighted allowances
associated with HCFC-141b deducted, even if it had conducted an inter-
pollutant trade within the company for another HCFC.
Six of the eleven commenters discussing transfers favored allowing
permanent transfers of baseline allowances. Five of the eleven
commenters did not discuss permanent transfers.
EPA proposes to allow permanent trades of allowances for class II
substances. EPA requests comment on its proposal to allow these
permanent trades.
8. Offset for a Transfer of Allowances
The final aspect of trades of class II allowances discussed in the
ANPRM and considered in today's document is the manner of achieving
greater total reductions than would occur in the absence of a trade, as
required by section 607(a) of the Act. EPA believes that the offset
required by section 607 of the Act is intended for inter-pollutant and
inter-company transfers. Therefore, in the allowance program for class
I substances, an offset was not included for international trades.
International trades are governed by section 616 of the Act, rather
than section 607.
Section 607(a) states that, ``transactions under the authority of
this section will result in greater total reductions in the production
in each year of class I and class II substances than would occur in
that year in the absence of such transactions.'' For the class I
allowance program, EPA adopted a one percent offset, deducted from the
transferor's allowance balance, for all inter-pollutant trades and all
inter-company trades (40 CFR 82.12(a)(1)(i)(H), 82.12(b)(4)(i)(F)).
However, for inter-pollutant trades combined with inter-company trades,
only one offset was applied to the transfer of allowances.
Nine commenters on possible offset options preferred a lower offset
than the one for the class I system, because CFCs are more ozone-
depleting than HCFCs. There were two suggestions for an offset of 0.1
percent and there were two for an offset of 0.05 percent. Because the
class II substances are less ozone-depleting than class I substances,
EPA considered a smaller offset for trades of HCFC allowances. Yet, EPA
recognizes that the offset must provide an environmental benefit, as
called for by Congress. For class II controlled substances, EPA is
therefore proposing a 0.1 percent offset for inter-company transfers.
This 0.1 percent offset would simplify calculations for the affected
companies and reflect the lower ODP of HCFCs compared to CFCs. This
offset would still provide the environmental benefit intended by
Congress without hampering market forces. If allocations are made and
implemented on a chemical-by-chemical basis, both inter-pollutant
trades and inter-company domestic trades would be affected.
EPA requests comment on its proposal to impose a 0.1 percent offset
to afford an environmental benefit associated with domestic trades, in
compliance with section 607 of the CAA.
J. Would Other Regulatory Options Be Used To Control HCFCs?
In the ANPRM, EPA also discussed other authorities under Title VI
that are available to ensure that the U.S. adheres to its phaseout
schedule for class II substances. The discussion outlined relevant
provisions of EPA's current labeling program for products made with
ODSs, its SNAP program and the nonessential products ban. These
provisions would affect the sale and/or use of HCFCs rather than their
production, import and export, which an allowance system would control
directly. The purpose of including these regulatory tools in the ANPRM
discussion of controlling HCFC emissions was to make readers aware of
the variety of paths EPA could take in sustaining compliance with the
Protocol.
Because EPA is proposing an allowance allocation system in today's
action that it believes would be effective in maintaining compliance
with the Protocol, it is not proposing today to include any amendments
to these provisions to further control HCFCs. The approaches discussed
briefly below however, could provide further options for HCFC control,
if needed to ensure U.S. compliance.
Thirteen commenters were generally opposed to the imposition of any
of the following regulatory tools.
1. Labeling
Under section 611 of the Act, EPA could require labels on products
containing or made with specified class II substances. These labels
would read as follows:
Warning: Contains/manufactured with [insert name of substance],
a substance which harms public health and environment by destroying
ozone in the upper atmosphere.
As a prerequisite to imposing such a labeling requirement, the
Administrator would have to determine, ``after notice and opportunity
for public comment, that there are substitute products or manufacturing
processes (A) that do not rely on the use of such class II substance,
(B) that reduce the overall risk to human health and the environment,
and (C) that are currently or potentially available. ``Beginning
January 1, 2015, all products containing or manufactured with a class
II substance must bear the specified label regardless of whether the
Administrator has made a determination regarding the availability of
substitutes (Section 611(c)(2) and 611(e)(5)). Therefore, the issue
upon which EPA is requesting comment is whether EPA should, prior to
January 1, 2015, require labels on certain products containing or
manufactured with class II substances.
Eleven commenters felt that imposing labeling requirements before
2015 would be undesirable and unnecessary. A couple of commenters
stated that such labeling requirements might precipitate what they
characterized as confusing labeling that occurred with CFCs, requiring
the intervention of the Federal Trade Commission. This statement
represents the commenters' characterization only, and not that of EPA.
The commenter has apparently confused the Title VI labeling regulations
with a different labeling rule issued by another federal agency. EPA
was consulted on several cases where potentially deceptive ``positive
labeling'' appeared on a product. Typically, such a label would read,
``ozone-friendly'' or ``environmentally safe,'' while the product
contained an ozone-depleting substance that may have had a lower ODP
than found in other products in its category. These specific labels
were not associated with the Section 611 labeling requirements of the
CAA, and were subsequently referred to the Federal Trade Commission,
because consumers were being sold products under potentially inaccurate
labeling.
EPA does not currently see a need to use labeling to ensure
compliance with the Protocol and is therefore not proposing in today's
action to use this regulatory tool to control HCFC emissions.
2. SNAP Approval and Restrictions
Section 612 of the Act requires EPA to promulgate rules making it
unlawful to replace any class I or class II substance with any
substitute substance that may present adverse effects to
[[Page 38080]]
human health or the environment, where EPA has identified an
alternative to such replacement that ``(1) reduces the overall risk to
human health and the environment; and (2) is currently or potentially
available.'' In accordance with Section 612 of the Act, and under the
SNAP program, EPA publishes lists of acceptable and unacceptable
substitutes for class I and class II substances. In some SNAP sector
end-uses, class II substances have been listed as acceptable
substitutes. Class II substances are viewed by the Agency as transition
chemicals that facilitate the transition out of more harmful class I
chemicals. Since 1994, availability of zero-ODP alternatives has
increased in a number of end-uses. It is therefore possible that SNAP
determinations regarding existing HCFC acceptable uses could be
revised. This could happen through three mechanisms.
First, EPA could receive a petition from a company to add a
substance to or delete a substance from the SNAP list of acceptable and
unacceptable alternatives (See section 612(d)). Second, EPA could
receive notification from a company before introduction of a substitute
into interstate commerce for significant new use as an alternative to
an ODS (See section 612(e)). Finally, EPA can initiate changes to the
SNAP determinations independent of any petitions or notifications
received. Such changes could be based on new data either on additional
substitutes or on characteristics of substitutes previously reviewed.
Thirteen commenters opposed the use of SNAP to control the use of
HCFCs to sustain compliance with the Protocol. Four commenters
supported delisting only if the alternative significantly reduced risk
to human health and the environment. Seven commenters were concerned
about the possibility of creating an unfair competitive advantage for
the new alternative and impacting small businesses adversely.
Under this rulemaking, EPA believes that the tracking of
consumption of HCFCs will allow the U.S. to remain under the cap.
Therefore, in this rule, we are not including any SNAP-related
provisions. It is possible, that on their own, SNAP approvals and
restrictions might affect HCFC production and consumption sometime in
the future.
3. Non-Essential Products Ban
Section 610(d) of the Act prohibits the sale, distribution, or
offer for sale or distribution in interstate commerce, of certain
nonessential products that contain or are made with class II
substances. EPA is authorized to grant exceptions to the ban under
certain conditions. Since the issuance of the final rule providing
exemptions from the statutory class II nonessential products ban (58 FR
69638, December 30, 1993), EPA has received information, including
information on new substitutes for making certain products, indicating
that it may be necessary to reconsider the continued appropriateness of
those exemptions. The Agency also is aware that since the issuance of
that initial final rulemaking, there has been further substitution away
from ozone-depleting substances in aerosols and pressurized dispensers.
EPA is currently reviewing information concerning the aerosol products
and pressurized dispensers that were given exemptions in the December
30, 1993 rulemaking, independent of the goals of this rulemaking. In
particular, the Agency is evaluating whether there are technologically
available substitutes for the HCFCs used in these products.
Two of the four commenters were opposed to the use of the ban to
control use of HCFCs and thus sustain compliance with the Protocol. One
commenter supported use of the ban to ensure the U.S. does not exceed
its consumption and production caps for class II substances.
EPA does not currently see a need to use the nonessential products
ban to ensure compliance with the Protocol and is therefore not
proposing to use this regulatory tool to control HCFC use. It is
possible, that on its own, the nonessential products ban might affect
HCFC production and consumption sometime in the future.
III. Additional Proposed Provisions
EPA is proposing several provisions that were not discussed in the
ANPRM. Some are definitions, necessary to implement portions of the
class II allowance system discussed in the ANPRM. Others are additional
issues that have arisen since publication of the ANPRM. EPA seeks
comment on each of the proposed provisions below.
A. Would There Be Changes in Definitions?
To effectively establish an allowance allocation system for HCFCs,
EPA is proposing to change and add several definitions to Sec. 82.3 of
the existing phaseout regulation. We are proposing modifications that
will clarify throughout this proposal where a provision would apply
only to a class I substance or to both class I and class II substances.
1. Modifications
EPA is proposing to modify the definitions for ``baseline
consumption allowances'' and ``baseline production allowances'' to
include class II ODSs, in addition to currently covered class I ODSs.
EPA is also proposing to modify the definitions of ``consumption
allowances,'' ``production allowances,'' and ``Article 5 allowances''
to include class II ODSs.
The definitions for ``destruction credit'' and ``transformation
credit'' would not apply to the class II allowance system. To date, no
one under the class I system has requested destruction or
transformation credits after production allowances have been expended
for a chemical that was later found to be destroyed or transformed in
the manufacture of another chemical or product. EPA believes that, with
less HCFCs being used in manufacturing systems that ultimately
transform or destroy them than the earlier class I ODSs, the likelihood
that any company would need or want to use these credits is minuscule.
Normally, destruction or transformation is anticipated prior to
production. Companies need not expend production allowances when
producing ODSs specifically for destruction or transformation. EPA
requests comment on its decision to follow suit with the accelerated
phaseout program for class I substances (60 FR 24970, May 10, 1995) and
not include the definitions for ``destruction credit'' and
``transformation credit.''
At this time, the definitions for ``essential use allowances'' and
``unexpended essential use allowances'' would not apply to the class II
allowance system and EPA is proposing to modify them to make them
explicitly apply to class I substances only. If the Parties approve any
essential use exemptions for class II substances, EPA would consider
such exemptions in light of the domestic phaseout and revisit these
definitions as necessary.
2. Additions
EPA is proposing to add a definition of ``export production
allowances.'' Companies could use these allowances, calculated at 100
percent of their phased-out HCFC's production baseline, to produce
certain HCFCs after the relevant phaseout date, for export only to any
Party that has ratified the Copenhagen Amendments (such Parties would
be listed in Appendix C). These export production allowances would
become available to HCFC-141b producers on January 1, 2003 (the
phaseout date for that chemical), and remain available at least until
December 31, 2009. EPA expects to re-evaluate the possibility of export
production allowances in 2009 in view of the 65 percent reduction in
consumption in
[[Page 38081]]
2010. An export production allowance could be used for production for
purposes of export only, where net consumption equals zero. A
definition of ``unexpended export production allowances'' is also being
proposed. It is not clear at this time the amount of export production
allowances that would be available for HCFC-141b, as well as HCFC-22
and HCFC-142b, after January 1, 2010, when a 65 percent reduction in
consumption of HCFCs is mandated by the Protocol. Following notice and
comment, EPA plans to issue a rule prior to 2010, which would allocate
relevant allowances, beginning in 2010, taking into account the
declining consumption cap, the refrigerant servicing exemptions after
2010, and any relevant modifications to the Protocol or the CAA.
In proposing a class II petition system for used ODSs imports, EPA
is proposing adding three definitions that will allow EPA to closely
track used imports and make accurate determinations on the eligibility
to import the used HCFCs. Three new definitions are proposed to help
facilitate a rigorous petition system: ``individual shipment,'' to
distinguish one separate shipment from another; ``non-objection
notice,'' to indicate when a person is granted privileges to import an
individual shipment of used HCFCs; and ``source facility,'' to explain
exactly what information the petitioner must provide regarding the
equipment and place from which the used HCFC was recovered.
Definitions of ``space vehicle/defense allowances'' and of
``unexpended space vehicle/defense allowances'' are added to permit
U.S. Federal government entities and certain other entities to import
or order the production of HCFC-141b for critical uses related to space
vehicle or narrow defense needs, where no substitute for HCFC-141b is
viable. These allowances would not be tradeable.
B. What Type of Allowances Would Be Available for Space Vehicles and
Defense Needs?
EPA is proposing to provide space vehicle/defense allowances to a
U.S. agency, department or instrumentality, or related entities
involved in space vehicle endeavors, for extremely narrow needs after
demonstrating by petition to EPA that no viable alternative exists for
HCFC-141b and that space vehicle or national security viability is at
issue if HCFC-141b cannot be used for the specified purpose. NASA first
brought this need to EPA's attention because space launch vehicles
currently use HCFC-141b-blown foam as the only workable thermal
protection system for several different areas of the space vehicle
system. EPA is also proposing to provide allowances to U.S. military
departments for extremely narrow needs after demonstrating by petition
to EPA that no viable alternative exists for HCFC-141b in narrow
defense uses such as cleaning of oxygen equipment and aircraft parts.
EPA believes U.S. government space vehicle entities, other space
vehicle service entities and military departments have vital needs for
small quantities of HCFC-141b for very specific needs beyond the
phaseout date contained in Sec. 82.15(a)(4) of today's rulemaking.
These uses would include unique thermal protection system needs of
space vehicles designed to travel beyond the limit of the earth's
atmosphere (e.g., satellites, space stations, space transportation
systems such as the Space Shuttle system), and the cleaning of oxygen
equipment and aircraft parts. EPA believes that the new
Secs. 82.15(a)(1) and 82.18(e) will not adversely affect compliance
with the provisions of the CAA Amendments of 1990 or the U.S.
obligations under the Protocol as amended.
EPA considered other approaches to an exemption for the production
and import of HCFCs critically needed for space vehicles intended to
travel outside the earth's atmosphere or for narrow defense needs. EPA
considered whether the exemption should be specific for one, or two, or
all of the HCFCs (e.g., specific exemptions only for HCFC-141b, HCFC-
22, or HCFC-142b for national security purposes.) To date, EPA has
received only specific requests for space vehicle and defense
exemptions for HCFC-141b. Therefore, EPA believes there is no need for
a broader exemption and accordingly is proposing to limit the exemption
to HCFC-141b. EPA requests comment on its proposal to limit a space
vehicle/defense exemption to HCFC-141b.
A person seeking an exemption for the production and import of
HCFC-141b for space vehicle purposes and for narrow defense needs under
Sec. 82.15(a)(1)would need to apply for the exemption under Sec. 82.18.
Today's action proposes a streamlined application and review process
under Sec. 82.18(e) for space vehicle/defense allowances. The
application process would require a U.S. government or other entity
involved in space vehicle endeavors or narrow defense uses to submit
the following information to EPA prior to July 1, 2002: (a) Name and
address of the entity; name of contact person and phone and fax numbers
and e-mail address; (b) quantity (in kilograms) of HCFC-141b needed for
each relevant control period for the space vehicle or defense interest;
(c) a detailed description of the space vehicle or defense need met by
the use of HCFC-141b; (d) a technical description of the processes in
which HCFC-141b is being used; (e) a technical description of the area
where the product will be applied; (f) a technical description of why
alternatives and substitutes are not sufficient to eliminate the space
vehicle or defense use of HCFC-141b; (g) a detailed analysis showing
why stockpiled, recovered or recycled quantities are deemed to be
technically infeasible for use; (h) an estimate of the number of
control periods over which such an exemption would be necessary; and
(i) a detailed description of continuing investigations into and
progress on possible alternatives and substitutes.
EPA would review the application in order to determine whether to
grant space vehicle/defense allowances for the specific quantity of
HCFC-141b for the specified control period. If more information is
needed, EPA would contact the applicant and specify the necessary
information. EPA would retain the right to disallow the space vehicle/
defense allowances based on information received regarding, inter alia,
fraud, misrepresentation, inconsistency with Articles and Decisions
under the Montreal Protocol, inconsistency with the CAA Amendments of
1990, or other reasons related to human health and the environment.
EPA is proposing a specific application period ending July 1, 2002.
By limiting the time frame for accepting applications, EPA is providing
a strong incentive for U.S. government and other space vehicle entities
to periodically review their HCFC-141b needs for long-term planning. By
limiting the time frame for the review of applications, EPA would also
be reducing the Agency's long-term burden to continually review claims
of space vehicle or defense interest.
EPA considered conducting a one-time period of review of petitions
for space vehicle/defense allowances to be finalized by publication of
a notice with a list of acceptable and unacceptable space vehicle/
defense exemptions to the class II phaseout dates. EPA is not proposing
this approach because the Agency expects very few applications for
space vehicle/defense allowances for HCFC-141b, and EPA believes it is
important for petitioners to periodically reassess the critical nature
of continued HCFC-141b need. EPA expects that no more than one percent
of the total
[[Page 38082]]
HCFC-141b allocations would be needed for this exemption. EPA is also
proposing that the allocation be updated every three years, via
submission of an update report which indicates the following: whether
the entity has found no viable substitute and will need to extend their
exemption for the next three years; why the entity believes no
alternatives are viable for their application; and the efforts
undertaken by that entity to find alternatives. The first period would
provide allocations for January 1, 2003 through December 31, 2005.
Updates would be due to EPA by March 1, of 2005 for the three-year
period of 2006 through 2008, and so on until 2010. EPA would make a
determination on the update within 90 days of receipt and notify the
submitting entity accordingly.
Another option in the implementation of an exemption for the
production and import of HCFCs beyond the accelerated phaseout would be
a limit on the total quantity of HCFC-141b that one U.S. government
entity or other space vehicle entity could request and obtain in a
control period. Finally, EPA could limit the number of control periods
for which a U.S. government or other space vehicle entity with these
interests may apply for an HCFC-141b exemption. EPA is not proposing
these options to limit the quantity of material or the control periods
because the Agency expects the numbers of requests and the quantities
to be very small. However, EPA is proposing to limit the total quantity
of HCFC-141b produced or imported for space vehicle or narrow defense
needs to one (1) percent of the aggregate of HCFC-141b baselines per
year. This would reflect the expected small number of requests for
small quantities while still allowing for export to Parties and Article
5 countries.
EPA is today proposing to create an exemption process for the
continued production or import of HCFC-141b up to January 1, 2010, for
applications related to critical space vehicle needs or narrow defense
needs in cases where alternatives and stockpiled, recovered or recycled
quantities are deemed to be technically infeasible for use. Upon
request by the appropriate Agency or entity, the Administrator may
grant authorization for production or import of a specified quantity,
for a three year period, beginning on January 1, 2003. If need for
HCFC-141b remains critical past 2005, exempted entities may renew their
submission for an additional three years by updating the information
submitted in the original application to EPA. Approval for production
or import does not imply or mandate production; each user must locate a
willing supplier and negotiate supply. It should be noted that the
Parties at the 1999 Meeting of the Parties in Beijing adopted a
production freeze, which requires that all production, which would
include space vehicle/defense exemptions, remain below the cap. The 65
percent reduction in consumption in 2010 may preclude continued
availability of this exemption; the more current consumption figures in
the years leading up to 2010 may provide EPA with a more realistic
picture of the possibility of granting the exemption for the years
after 2010. The availability of this exemption will be revisited in the
rulemaking implementing the January 1, 2010 phaseout. Consequently,
today's action proposes that the exemption be available until January
1, 2010. EPA requests comment on its proposal to make the space
vehicle/defense exemption available until January 1, 2010.
The Agency believes technically feasible alternatives will likely
be available for commercial and the vast majority of non-commercial
uses of HCFCs prior to their phaseout dates. However, there may be
specialized uses where stockpiled, recovered, or recycled quantities
are technically inadequate. At this time, the only foreseeable use of
this authorization is for the thermal protection system used for space
exploration and satellite launches and for cleaning applications in
certain defense equipment.
Section 605 of the CAA contains certain constraints on use,
production, and consumption of HCFCs. This exemption is limited by
these constraints. For example, under CAA Section 605(a), effective
January 1, 2015, no person may introduce into interstate commerce or
use any virgin class II substance unless the substance is either used
and entirely consumed (except for trace quantities) in the production
of other chemicals, or the substance is used as a refrigerant in
appliances manufactured prior to January 1, 2020. In addition, CAA
section 605(b)(2) prohibits production of class II substances on or
after January 1, 2030. Finally, EPA will not authorize quantities of
HCFCs under the space vehicle/defense exemption that would cause the
U.S. to exceed the HCFC consumption cap as agreed under the Montreal
Protocol.
To facilitate accurate tracking of exempted HCFC-141b production
and use, EPA proposes requiring the manufacturer of the applicable foam
(or the formulation for spray foam) or the cleaning product to submit
information quarterly to EPA delineating the quantity of HCFC-141b
received; the quantity of HCFC-141b used or contained in the product;
the identity of the producer or importer supplying the HCFC-141b; the
identity of the recipient of the product made with or containing HCFC-
141b; and the quantity of HCFC-141b used or contained in the product
sent to the recipient. Additionally, the entity requesting allowances
of the exempted material in space vehicles or defense purposes would
report quarterly to EPA on: the type of product made with or containing
HCFC-141b; the specific application of the product; the quantity of
HCFC-141b used or contained in the product; and the identity of the
manufacturer of the product.
C. Would There Be a Petition System for Importing Used HCFCs?
With today's action, EPA is proposing a petition system for use in
importing used HCFCs. The Protocol allows used ODSs to be imported
outside of the process required under the cap. Because the potential
for abusing this exception was high in imports of class I substances
(for example, by claiming that a CFC was used when in fact it was
virgin, thus requiring allowances), EPA instituted a petition process
in 1995 that requires those wanting to import used class I ODSs into
the U.S. to petition EPA for approval before making the import. To
ensure that relevant class II imports are legitimately used previous to
import, EPA proposes a petition system for the import of used HCFCs.
EPA will make a definitive determination that a shipment contains used
HCFCs before granting a non-objection notice allowing the import. A
description of the petition system that EPA is proposing is discussed
below.
The original reason the Parties to the Protocol agreed to permit
international trade in previously used ozone-depleting substances was
to ease the transition to alternatives. In addition, the Parties
believed that allowing trade in quantities of already existing used
material would offset the need for new global production.
Evidence has increasingly indicated that new production overseas of
class I material has been clandestinely diverted to the U.S. and other
non-Article 5 countries as imports of ``used'' material. EPA
anticipates that a similar situation will evolve as HCFCs are phased
out and supply diminishes in the face of continued demands.
EPA is proposing today's petition system in the hopes that the
provisions of the process can guard against abuses and guarantee that
imported material is truly previously used, thus setting the stage for
an effective class II petition
[[Page 38083]]
system for used imports. EPA requests comment on all aspects of the
proposed petition system for the import of used HCFCs.
1. Petition for Each Individual Shipment
EPA is proposing that a petition to import used HCFCs may only be
submitted on a shipment-by-shipment basis. The information in a
petition and the quantity a person wishes to import into the U.S. must
be limited to a specific shipment and a single U.S. Customs entry. If
an importer cannot arrange for the entire quantity to be shipped as one
entry through U.S. Customs, the importer would be required to submit
more than one petition for the quantity in each individual Customs
entry.
2. Threshold Quantity Requiring a Petition
EPA is proposing a threshold quantity of used HCFCs for an
individual shipment for which a person is required to submit a petition
to import. EPA is proposing that individual shipments of five (5)
pounds or more require submitting a petition to import. A threshold
quantity of five pounds allows a company to take three samples from a
large ISO-tank for laboratory analysis and send those samples to a
testing facility in the U.S. without being subject to the petition
requirements. In developing today's proposal, EPA also considered
requiring that a person who wishes to import any quantity of used
HCFCs, regardless of the size, be required to submit a petition,
thereby eliminating the threshold level altogether. EPA is not
proposing to eliminate the threshold level altogether in order to
minimize burden on the regulated community and conserve Agency
resources.
3. Information Requirements
EPA is proposing that petitions to import used HCFCs include a
comprehensive and detailed list of information. This reflects the type
of information that EPA needs to independently verify the previous use
of the HCFC. Today's action proposes under Sec. 82.24 (c)(3) that
contact information for the entire chain of custody of the used HCFC be
provided in the petition. For example, a petition must include complete
contact information for: every source equipment from which the used
controlled substance was originally recovered; every company that
collected the material from the equipment; every previous owner of the
material; and every company that will be exporting the used controlled
substance. EPA seeks comment on the effectiveness and potential burden
associated with requiring such contact information.
Today's proposal calls for providing a copy of a contract for the
purchase of the used HCFC in addition to the intended use. In light of
efforts by Parties to the Protocol to implement a licensing system for
exports as well as imports, EPA is proposing that the petitioner
provide an export license from the appropriate government agency in the
country of export. EPA requests comment on its proposal for detailed
information to accompany each petition to import used HCFCs.
EPA also considered proposing that the petition to import used
HCFCs include the name, make and model number of the equipment from
which the HCFC was as a means to verify that the shipment of HCFC had
been truly used to operate equipment. EPA requests comment on the
likely utility and burden of requiring this information about the
equipment from which the material was removed.
4. Timing for Review of a Petition
EPA considered many time frames for the review of petitions to
import used HCFCs, including a complete elimination of any time limit
for EPA's review of a petition. EPA also considered whether to include
an automatic approval provision with any of these time limits. Through
experience and the unexpected volume of petitions in the class I
petition system to import used CFCs, EPA learned that the 15 working-
day time limit for petitions was too short for a thorough review. Given
the large number of petitions used being submitted (192 in 1997, 160 in
1998, and 120 in 1999), combined with the fact that EPA will likely
require more time to independently verify the information required with
today's document, EPA is proposing a time limit for the review of a
petition by EPA of forty (40) working days. EPA believes that 40
working days allows it the time to thoroughly verify the information in
the petition and decide whether to allow or disallow the petition. EPA
requests comment on whether the 40 working-day time limit is
practicable and appropriate or whether another time limit would be more
appropriate.
EPA is specifying that the time for review begins on the working
day after EPA's Global Programs Division actually receives the
petition. EPA is proposing that a 40-day time frame with no automatic
approval would allow the Agency to balance the goals of responsiveness
to legitimate requests and thoroughness in identifying abuses of the
petition process. EPA additionally proposes, that while EPA will make
every effort to respond to the petitioner within the 40 working-day
period, a lack of response does not constitute a grant of authority to
import. EPA requests comment on the need for a definitive response from
EPA before a person may import the used HCFCs.
5. Reasons for Issuing an Objection Notice
Under the class I petition process, EPA attempts to independently
verify the information contained in a petition to import used HCFCs,
with special attention given to confirming the prior use of the
material. EPA's effort to confirm the information in a petition is
conducted with support from other government agencies that are members
of the inter-agency task force combating illegal imports of ozone-
depleting substances. Since 1994, EPA has worked with the inter-agency
task force members who include the Department of Justice, the Internal
Revenue Service, the Customs Service, the State Department, and the
Department of Defense. In the six years of implementing the petition
process to import used class I controlled substances, EPA has received
a variety of petitions. Many of the petitions provided insufficient
information or provided information that EPA had reason to doubt was
sufficient to confirm that the material was, in fact, previously used.
To adequately process class II petitions, EPA is proposing a list
of reasons for which the Agency might issue an objection notice to a
petition to import used HCFCs.
The first reason for disallowing a petition is a lack of sufficient
information. If the importer of used HCFCs fails to supply the required
information in Sec. 82.24(c)(3), this would be a basis for disallowing
a petition.
The second reason for disallowing a petition is if the Agency
determines that the petition contains, or is believed to contain, false
or misleading information.
EPA may issue objection notices for petitions to import used HCFCs
if the transaction appears to be contrary to provisions of the Vienna
Convention on Substances that Deplete the Ozone Layer, the Montreal
Protocol and Decisions by the Parties, or the non-compliance procedures
outlined and instituted by the Implementation Committee of the Montreal
Protocol. Section 614(b) of the CAA states that in the case of conflict
between the CAA and the Montreal Protocol, the more stringent provision
shall govern. Thus, EPA proposes that if a petition contains
information about a transaction that
[[Page 38084]]
indicates the transaction is contrary to the provisions of the
Convention or the Protocol, including Decisions by the Parties to the
Protocol or the Protocol's non-compliance procedures, that shall be
grounds for issuing an objection notice.
If a country states that it is no longer allowing exports or if it
reports that it has not granted any export licenses, EPA will treat
this as grounds for issuing an objection notice for a petition to
import from that country. EPA proposes to disallow a petition if the
appropriate government agency in the exporting country has not agreed
to issue any required export license for the individual shipment of
used HCFCs that is cited in the petition.
Today's action also proposes that EPA may issue an objection notice
for a petition when the Agency receives information indicating that a
person listed in the petition has produced false or misleading
information regarding transactions in ozone-depleting substances. In
the past, EPA has received information from other U.S. government
agencies, from other petitioners, from non-governmental organizations
and from foreign governments that have implicated companies or
individuals in activities designed to mislead government authorities
about activities related to ozone-depleting substances.
Another proposed reason for disallowing a petition is the receipt
by the Administrator of information regarding activities contrary to
EPA regulations by any individual or company listed in a petition.
Activities contrary to EPA regulations that have been reported to EPA
or discovered by EPA personnel and that are related to ozone-depleting
substances include, but are not limited to, un-certified recovery; un-
certified reclamation; reclamation that does not meet the required
specifications; improper labeling; diverted transhipment; mis-
identification during import; forgery of EPA documents; and fraudulent
claims regarding these activities. This action proposes that EPA may
disallow a petition if the Agency receives information that any person
or company listed in the petition is involved in an activity that is a
potential violation any 40 CFR part 82 regulation or any evidence of
false statements.
EPA also believes that conditions established for disbursing monies
to specific country projects by the Executive Committee of the Montreal
Protocol's Multilateral Fund may provide a basis for objecting to
petitions. EPA believes as a general rule that no used HCFCs should be
imported from Article 5 countries where reclamation capacity, for that
specific controlled substance, has been or is being installed through
assistance of the Multilateral Fund. The U.S. contributes approximately
one fourth of all funds going to the Multilateral Fund, the general
purpose of which is to assist countries operating under Article 5(1) of
the Protocol to make the transition away from ozone-depleting
substances; and a transition policy includes the development of
reclamation facilities in order to optimize the use of existing ozone-
depleting substances so as to avoid unnecessary production of virgin
materials. Thus, EPA views the importation of used HCFCs from countries
where reclamation capacity has been supported by the Multilateral Fund
to run counter to U.S. interest, and counter to the aims of a global
phaseout strategy. EPA requests comment on its proposal that
importation of used HCFCs from Article 5 countries where reclamation
facilities have been funded by the Multilateral Fund for reclaiming
ODSs to be used for that country's basic domestic needs may provide a
basis for objection to a petition.
EPA is proposing an appeals process through re-petitioning within
10 working days after the date of an objection notice from the
Administrator, if the basis for the objection notice is ``insufficient
information.'' EPA proposes to allow only one re-petition for any
original petition received by EPA. EPA requests comment on the
appropriateness of the aspects proposed above for an appeals process.
6. Petition and Non-Objection Letter to Accompany the Shipment
EPA is proposing a requirement in Sec. 82.24(c)(3) that the
petition and the non-objection notice from EPA, approving the import of
a used class II controlled substance, accompany each shipment through
U.S. Customs. EPA believes that presenting the petition and EPA-
approval letter with a shipment will facilitate the clearance through
U.S. Customs.
D. Would There Be New Restrictions on Imports to and Exports From
Specific Parties?
EPA is proposing a restriction on Parties to whom you (as defined
in Section II.C) can export HCFCs and from whom you can import HCFCs,
beginning in 2004, to comply with an amendment to the Protocol that the
Parties agreed to at the eleventh meeting in late 1999. This amendment
states that as of January 1, 2004, each Party shall ban imports from
and exports to countries that have not ratified the 1992 Copenhagen
Amendments, in addition to the original Montreal Protocol (1987) and
London Amendments (1990). These bans on imports from and exports to
non-Parties reflect an agreed strategy by Parties for encouraging
ratification of the Protocol and each successive package of amendments.
Appendix C of this rulemaking will include all Parties to the
Copenhagen Amendments as of the promulgation date of the final rule.
The UNEP web site maintains a real-time list of current Parties to the
Protocol and all its amendments, for those wishing to ensure they are
viewing the most current list. The Internet address is: http://www.unep.org/ozone/ratif.htm.
E. Should There Be Consumption Allowance Credits for Reductions of HCFC
Production By-products Regulated by Title VI?
In addressing emissions reductions with a view toward also avoiding
increases in, and encouraging reductions of, other regulated emissions,
EPA realizes that there is at least one case where the production of an
HCFC creates a by-product that is also regulated under Title VI of the
CAA. In an effort to encourage emissions reductions of other chemicals
regulated under the CAA, EPA has in the past explored the ideas of
reduction credits or offsets. Such an approach may be appropriately
used in ensuring that a by-product (regulated under Title VI), created
in the production process of an HCFC regulated under Title VI, is
voluntarily controlled to the greatest extent possible. One option to
consider is granting one available consumption allowance (one kilogram)
and one available production allowance of the HCFC whose production
creates the Title VI regulated by-product, for each kilogram of the by-
product that is reduced as of a certain date from an established
baseline. EPA believes that portions of the consumption allowances
remaining below the U.S. cap, after allocations are made to eligible
new entrants, could be available for such a program. Allowances could
be granted only to the extent available under the cap.
EPA seeks comments on an incentive approach of providing allowance
credits to producers of an HCFC who reduce emissions of that HCFC
production's by-product that is also regulated under Title VI. EPA
specifically requests comments on the advantages and disadvantages of
this type of program and how such a program might work, if instituted.
[[Page 38085]]
EPA requests comments on any or all of the above additional
provisions not discussed in the ANPRM.
IV. Summary of Today's Proposal
A. How Would Allowances Be Calculated and Allocated?
Both production and consumption allowances would be allocated to
those with production and/or import activity in their individual
baseline year (highest ODP-consumption year among 1989, 1994, 1995,
1996, and 1997). The recent decision by the Parties to freeze
production of HCFCs requires two kinds of allowances: production and
consumption. As in the class I system, a person would expend production
allowances and consumption allowances to produce prior to the relevant
HCFC phaseout. A person would need only to expend consumption
allowances to import, and would receive consumption allowances in
return following proof of export.
New entrants to the HCFC importing market, who began importing
HCFCs after the end of 1997 and before April 5, 1999, when the ANPRM
was published, may request allowances from EPA for historical HCFC
importation during that time. These new entrants would be eligible for
allowances if they submitted appropriate required quarterly reports to
EPA prior to publication of this proposal; sent proper documentation of
HCFC imports to EPA; and if the HCFC import market is their primary
source of business income. EPA will issue available allowances to those
companies determined eligible by EPA after review of the documentation.
EPA proposes to allocate and track allowances on a chemical-by-
chemical basis, as done in the class I allowance system. Although EPA
would analyze total baseline ODP-weighted consumption units to
determine individual baseline years, the actual detailed allocations
would be listed chemical-by-chemical. Consumption allowances would be
allocated in the total amount of consumption in the baseline year.
Production allowances would be allocated using total production for
that same year. Tracking would work in the same way as under the class
I system--any trades between chemicals would be ODP-weighted. Although
many commenters prefer an ODP-weighted unit for allocation, trading and
expenditure, EPA has studied its reporting obligations to the Protocol
and its ability to ensure adequate compliance. To ensure company and
U.S. compliance, EPA would need to know specific chemicals produced and
consumed in order to maintain a chemical-by-chemical tracking system.
EPA's required offset of 0.1 percent for inter-pollutant and inter-
company trades would be significantly lower than the 1 percent used for
class I substances. Therefore, the offset should not create an undue
burden on trades.
EPA would annually allocate, based on the relevant baseline(s), for
the entire period of time prior to each chemical's phaseout, unless the
U.S. is unable to meet its 35 percent reduction by 2004. In that case,
EPA would need to adjust allowances accordingly, on a pro rata basis.
Before 2010, EPA would re-evaluate the percentage allocated from the
baseline to determine whether modifications are necessary to meet the
65 percent consumption reduction required in 2010 by the Protocol. If
reductions of HCFC-22 and HCFC-142b are not sufficient to reach the
Protocol-required 65 percent reduction for 2010, EPA would allocate a
lesser percentage of baseline. Any post-phaseout exceptions would be
re-evaluated similarly.
At the beginning of each control period, EPA would officially
notify each allowance holder of the amount available for that year,
based on the relevant baseline. Between now and 2003, each allowance
holder would receive 100 percent of their baseline consumption, and 100
percent of their historic production in the same baseline year as
consumption, unless permanent trades occur that would transfer the
traded portion of the allowance to the purchasing entity, or unless the
U.S. would be unable to meet its 2004 35 percent reduction, as
explained above. In 2003, HCFC-141b consumption allowances would be
subtracted from the holders' allocations (other than any potential
exceptions).
Because the Protocol freezes production at baseline but does not
currently require further reductions, EPA is proposing to allow
production after relevant phaseouts only for very narrow space vehicle
or defense uses of HCFC-141b, and for export to any Party listed in
Appendix C to Subpart A (Parties that have ratified the Copenhagen
Amendments) after January 1, 2003. At that same time, an additional 15
percent of production baseline allocation of the phased out HCFC, over
and above the Protocol production cap, would be allocated for
production for export only to Article 5 countries for their basic
domestic needs. This post-phaseout production (100 percent of
production baseline to Parties that have ratified the Copenhagen
Amendments plus 15 percent of baseline for Article 5 countries) would
not require accompanying consumption allowances, only ``export
production allowances'' or ``Article 5 allowances,'' respectively. When
EPA re-evaluates baseline allocations before the HCFC-22 and HCFC-142b
phaseout to determine 2010 compliance with Protocol reductions, it
would also evaluate the continued possibility of offering export
production allowances and Article 5 allowances for HCFC-22 and HCFC-
142b.
EPA is proposing to allocate 100 percent of the consumption
baseline, which is below the U.S. consumption cap of 15,240 ODP-
weighted metric tons. The total baseline figure for consumption
represents the aggregate of companies' baselines, as described below.
The baseline EPA is proposing in today's action would be as follows:
each company with baseline production and/or consumption in 1989, 1994,
1995, 1996, and/or 1997 would take their highest ODP-weighted
consumption year as their baseline. Both production and consumption
allowances would be derived from the relevant individual baselines in
the applicable year. The allowances remaining between the aggregate
baseline and the consumption cap could be used for allocations for
those eligible entrants new to the HCFC market between January 1, 1998
and April 5, 1999.
EPA is proposing to use 100 percent of the baseline years'
production, which would keep the U.S. in line with its production cap.
We propose to include 1989 as a potential baseline year because we
have very good numbers from our earlier requests for baseline data, and
class II substances began to increase their presence in the market
during that time. In 1990-1993, our data on consumption was poor,
because reporting was not yet required on a regular basis. To obtain
accurate numbers from those years, we would need to request the data
from each participating company, along with invoices, bills of lading,
and other documents that could help verify the accuracy of the
production and consumption numbers submitted. The time entailed and the
uncertainty of receiving complete and accurate information rules out
attempting to obtain figures from 1990 to 1993. Detailed reporting, for
which we have supporting documentation and/or which we have verified
with individual companies, began in 1994. Additionally, activity in
class II ODSs grew significantly from 1994 to 1997. Therefore,
including those years beginning with 1994 is reasonable. The years 1998
and later would not be included, except for certain eligible new
entrants as discussed above, because
[[Page 38086]]
they would likely be artificially high, reflecting companies'
anticipation of EPA's allocation system and the desire to stockpile.
B. Would There Be Additional Import or Export Restrictions?
We are proposing a restriction on importing and exporting HCFCs to
comply with the Beijing Amendments to the Montreal Protocol. The
proposed restriction would ban imports from and exports to countries
that have not ratified the Copenhagen Amendments, in addition to the
original Protocol and the London Amendments. These bans are further
discussed in Section III.D. of today's proposal.
We are also proposing a petition system--similar to the one
provided for used class I ODSs, with strengthening modifications--for
the import of used HCFCs. A person wishing to import a used HCFC into
the U.S. would need to petition EPA by providing detailed information
on the import, including: specific name and amounts of the HCFC; source
from which it was recovered; contact information for that source;
intended shipper; intended port; date of import; intended reclamation
and use in the U.S., and more. EPA would thoroughly verify information
in the petition, and either issue a ``non-objection notice'' allowing
the person to import the shipment, or an ``objection notice''
disallowing the import. See Section III.C. of this action for further
discussion.
C. How Would Transfers Function?
The proposal would allow intra-company, inter-pollutant transfers,
using ODP-weighting to account for differing ODPs between chemicals.
The proposal would also allow inter-company trading (both same
pollutant and inter-pollutant trading) with ODP-weighting required if
two or more different chemicals are involved. International transfer of
production allowances only would be permitted. An environmental offset,
required by the CAA, is proposed at 0.1 percent for inter-pollutant and
inter-company trades. At one-tenth of one percent, EPA believes the
burden on inter-pollutant and inter-company trades would be minimal.
Transfers could be made on a temporary basis, to be applied within
the control period (1/1 through 12/31) in which the trade is made. EPA
also proposes to allow permanent baseline trades, which would transfer
the allowances for the remaining period prior to phaseout. The
recipient of the allowances would add those to its baseline, while the
transferor would subtract them from his/her baseline. For example, if a
company was allocated 150 allowances of HCFC-141b as part of its
baseline, and that company then received 100 HCFC-141b permanent
baseline allowances from a transferring company, the receiving company
could expend 250 HCFC-141b allowances each year until 2003, at which
time that company would subtract the entire 250 HCFC-141b (or
commensurate ODP-weighted equivalent) allowances from its baseline
allowances. The company that transferred the 100 allowances to the
receiving company would not subtract those 100 HCFC-141b allowances
from its baseline in 2003, because it already subtracted those
allowances when it transferred them on a permanent basis to the
receiving company.
EPA is not proposing to supplement an allocation system with
further regulation under sections 610, 611, or 612 of the CAA at this
time. EPA believes that compliance with the consumption and production
caps can be assured through the proposed allocation system of class II
allowances.
D. How Would the Reporting and Recordkeeping Requirements Change?
Recordkeeping and reporting would be similar to that used for class
I. EPA would require quarterly reports, outlining each chemical and the
amounts produced, imported, transformed, destroyed, and exported. These
forms would be intended for use between the effective date of the final
rule and the next reporting changes made to the phaseout regulations by
EPA, or modifications made to address the incremental phaseouts past
2010, whichever is earlier.
EPA is proposing that failure by producers to keep records on their
production or to submit reports regarding their production would lead
the Administrator to assume that the producer has produced at full
capacity during the period for which records were not kept, for
purposes of determining possible violations. EPA requests comment on
this proposal to account for missing records or reports in order to
determine possible violations.
EPA is proposing that reporting for exports be conducted quarterly,
as is reporting for all other activities. Under the class I system,
reporting on exports was required annually. However, due to the recent
adjustment to the Protocol banning trade with non-Parties to the
Copenhagen Amendments, EPA needs data that is more current for review.
Forms for recording exports made using export production allowances
after a phaseout would require information on the chemical and the
volume, with accompanying copies of the bills of lading and invoices.
Trades of class II substances would be reported in the same manner as
class I trades. ODP-weighting and calculation of the environmental
offset would need to be accounted for in the transfer calculations, as
they were for class I substances.
Entities granted space vehicle/defense allowances would report
quarterly on the quantity of exempted HCFC-141b that was received and
used, and how it was used. The foam formulator/supplier would also
report quarterly on the producer from whom the exempted HCFC-141b was
received, the amount received, the amount used in fulfilling space
vehicle or defense needs, and the amount sold to whom in which
products. The same entities granted the allowances would certify to EPA
before the beginning of each year that a viable alternative to HCFC-
141b, or stockpiled, recovered, or recycled HCFC-141b was not adequate
or not commercially available.
EPA is currently exploring the possibility of having reports filled
out and submitted to the Agency over a secure Web site. If and when
electronic reporting would occur, EPA would change its guidance
document and its Information Collection Request to indicate a change in
burden hours.
EPA requests comment on any and all portions of today's proposal.
V. Administrative Requirements
A. Executive Order 12866
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether this regulatory action is ``significant''
and therefore subject to Office of Management and Budget (OMB) review
and the requirements of the Executive Order. The Executive Order
defines ``significant regulatory action'' as any regulatory action
(including an advance notice of proposed rulemaking) that is likely to
result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or,
[[Page 38087]]
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
It has been determined by OMB and EPA that this action is a
``significant regulatory action'' under the terms of Executive Order
12866 and is therefore subject to OMB review under the Executive Order
even though the annual effect on the economy is expected to be less
than $100 million. This document was reviewed by OMB and changes
recommended by OMB have been made and documented for the public record.
B. Regulatory Flexibility Act (RFA), as Amended by the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et
seq.
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business that employs
1000 employees or less; (2) a small governmental jurisdiction that is a
government of a city, county, town, school district or special district
with a population of less than 50,000; and (3) a small organization
that is any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field.
After considering the economic impacts of today's proposed rule on
small entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities.
We have determined that 13 small businesses, or 50 percent of the
total businesses addressed, would receive allowances, for which
recordkeeping and reporting to EPA is required. The administrative
recordkeeping and reporting these small businesses will experience will
amount to an impact of between 0.01 and 0.02 percent of their HCFC
revenues alone. When considering that the vast majority deal in
numerous chemicals and/or also obtain revenues from services provided,
this percentage for the majority would be significantly lower.
Although this proposed rule would not have a significant economic
impact on a substantial number of small entities, EPA nonetheless has
tried to reduce the impact of this rule on small entities. Although
small entities receiving allowance allocations would be subject to the
same recordkeeping and reporting requirements as the larger entities,
for purposes of tracking allowance trades and expenditures, the small
entities would be on the same footing as the larger entities; they
would be receiving their best year of activity in the range of years
discussed above as a baseline year for determining allowance
allocations, and would be able to conduct their business with a degree
of certainty in a competitive market. Like the large entities, the
small entities would receive allowances for the entire phaseout period,
with the necessary adjustments each calendar year to accommodate the
required reductions in consumption agreed to by the Parties to the
Protocol and the phaseouts of HCFC-141b, HCFC-22, and HCFC-142b.
EPA believes that the ability to transfer allowances among HCFCs
provides the greatest flexibility for small entities to manage their
allocation. Unlike the class I system for transfers, there is no
restriction to limit inter-pollutant transfers to groups of substances.
Inter-pollutant transfers, also known as intra-company transfers or
trades, would allow a company to shift allowances internally from one
HCFC to another to respond to market forces, e.g. HCFC-142b allowances
for HCFC-22 allowances. Inter-company transfers of allowances would
also be possible, either on a current-year basis or on a permanent
basis. Current-year trades are temporary trades and are reflected in a
company's balance of allowances in the control period in which the
trade occurs.
By using the phaseout schedules and the option for current-year or
permanent trades, a small entity could opt for short-term decisions or
long-term decisions concerning the allowances it holds after evaluating
its place in the market. In addition, the offset required by the CAA is
proposed at 0.1 percent, 0.9 percent less than that required under the
class I allowance trading system; such an offset would still provide
the environmental benefit required by Congress without penalizing small
entities should they wish to avail themselves of transfers. EPA
estimates that the burden would be negligible on small businesses,
while those same small businesses would gain a marketable asset in
their allocated allowances. The actual burden would consist of
quarterly reports on production, imports, exports, and allowance
trades, as well as paperwork describing any trades in which the
business decides to engage. The estimated recordkeeping and quarterly
reporting burden on the affected small businesses would be about 40
hours per year per business, at an estimated cost of $3,070. Each trade
made at the discretion of the small business would add a burden of 4
hours at a cost of $307, basing the calculation on a cost of $76.88 per
hour.
EPA has also carefully reviewed the quarterly reports submitted by
small entities for the baseline years under consideration to ensure
that the correct quantities have been ascribed to each entity for each
year. EPA consulted with the small entities in order to reconcile any
disparities encountered during the record review.
We continue to be interested in the potential impacts of the
proposed rule on small entities and welcome comments on issues related
to such impacts.
C. Executive Order 13045: Children's Health Protection
Executive Order 13045: ``Protection of Children from Environmental
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies
to any rule that: (1) is determined to be ``economically significant''
as defined under Executive Order 12866, and (2) concerns an
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, the Agency must evaluate the environmental health
or safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the Agency.
EPA interprets Executive Order 13045 as applying only to those
regulatory actions that are based on health or safety risks, such that
the analysis required under Section 5-501 of the Order has the
potential to influence the regulation. This proposed rule is not
subject to Executive Order 13045 because it implements specific
phaseout schedules established under the CAA and the Montreal Protocol.
D. National Technology Transfer and Advancement Act
The National Technology Transfer and Advancement Act of 1995
(NTTAA), Section 12(d), Public Law 104-113, requires federal agencies
and departments to use technical standards that are developed or
adopted by voluntary consensus standards bodies, using such technical
standards as a means to carry out policy objectives or
[[Page 38088]]
activities determined by the agencies and departments. If use of such
technical standards is inconsistent with applicable law or otherwise
impractical, a federal agency or department may elect to use technical
standards that are not developed or adopted by voluntary consensus
standards bodies if the head of the agency or department transmits to
the Office of Management and Budget an explanation of the reasons for
using such standards.
This proposed rule does not mandate the use of any technical
standards; accordingly, the NTTAA does not apply to this action.
E. Executive Order 13132: Federalism
Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires EPA to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
Under section 6 of Executive Order 13132, EPA may not issue a
regulation that has federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, or EPA
consults with State and local officials early in the process of
developing the proposed regulation. EPA also may not issue a regulation
that has federalism implications and that preempts State law unless the
Agency consults with State and local officials early in the process of
developing the proposed regulation.
This proposed rule does not have Federalism implications. It will
not have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. The proposals discussed in this
document are directed to economic entities that either produce, import,
export, transform, or destroy class II controlled substances, and not
to State or local governments. Thus, the requirements of Section 6 of
the Executive Order do not apply to this rule.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by tribal officials in the development of regulatory
policies that have tribal implications.'' ``Policies that have tribal
implications'' is defined in the Executive Order to include regulations
that have ``substantial direct effects on one or more Indian tribes, on
the relationship between the Federal government and the Indian tribes,
or on the distribution of power and responsibilities between the
Federal government and Indian tribes.''
This proposed rule does not have tribal implications. It will not
have substantial direct effects on tribal governments, on the
relationship between the Federal government and Indian tribes, or on
the distribution of power and responsibilities between the Federal
government and Indian tribes, as specified in Executive Order 13175.
Today's rule does not significantly or uniquely affect the
communities of Indian tribal governments. The options discussed are
directed to entities that either produce, import, export, transform, or
destroy HCFCs, and not to Indian tribal governments or their
communities. Thus, Executive Order 13175 does not apply to this rule.
In the spirit of Executive Order 13175, and consistent with EPA
policy to promote communications between EPA and tribal governments,
EPA specifically solicits additional comment on this proposed rule from
tribal officials.
G. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under Section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. Before promulgating an EPA rule for which a written statement
is needed, Section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective or least burdensome alternative
that achieves the objectives of the rule. The provisions of Section 205
do not apply when they are inconsistent with applicable law. Moreover,
Section 205 allows EPA to adopt an alternative other than the least
costly, most cost-effective or least burdensome alternative if the
Administrator publishes with the final rule an explanation why that
alternative was not adopted. Before EPA establishes any regulatory
requirements that may significantly or uniquely affect small
governments, including tribal governments, it must have developed under
Section 203 of the UMRA a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of EPA regulatory proposals with significant
Federal intergovernmental mandates, development of EPA regulatory
proposals with significant Federal intergovernmental mandates, and
informing, educating, and advising small governments on compliance with
the regulatory requirements.
EPA has determined that this rule does not contain a Federal
mandate that may result in expenditures of $100 million or more for
State, local, and tribal governments, in the aggregate, or the private
sector in any one year. Entities in the private sector that either
produce, import, export, transform, or destroy HCFCs will be operating
under an allowance allocation system very similar to the system
selected for CFCs (53 FR 30566, August 12, 1988), which was determined
to be the most economically efficient, market-based, and simple to
administer in meeting the requirements of the Protocol. Recordkeeping
would be somewhat simplified due to the absence of essential use
allowances and destruction credits. The experience gained by those
entities familiar with the class I allowance allocation system would
carry over in the class II allowance allocation system. Thus, today's
rule is not subject to the requirements of Section s 202 and 205 of the
UMRA.
H. Paperwork Reduction Act
The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An
Information Collection Request (ICR) document has been prepared by EPA
(ICR No. 2014) and a copy may be
[[Page 38089]]
obtained from Sandy Farmer by mail at Collection Strategies Division;
U.S. Environmental Protection Agency (2822); 1200 Pennsylvania Avenue,
NW, Washington, DC 20460, by email at [email protected], or
by calling (202) 260-2740. A copy may also be downloaded off the
Internet at http://www/epa.gov/icr.
The recordkeeping and reporting requirements proposed in this rule
are similar to those used in the class I allowance system that has been
in place for several years. The information collected will be utilized
to monitor business compliance with the proposed class II allowance
system. The information will also be used to comply with the reporting
requirements agreed to by the Parties to the Montreal Protocol on
Substances that Deplete the Ozone Layer. The information is intended to
ensure that the U.S. meets its obligations to control and administer
the phaseouts of class II substances under the Protocol and the CAA
Amendments of 1990.
Reporting requirements mandated in Section 603 of the CAA relative
to class II substances are currently in place in 40 CFR 82.13(n) and
(o). New recordkeeping requirements and expanded reporting requirements
to ensure accurate expenditures of allowances and trades of allowances
are proposed. Responses to the collection of information are mandatory
pursuant to Section 114 of the CAA.
Information collected from businesses may be claimed as
confidential by clearly identifying the material as confidential. Such
information will be treated in accordance with EPA's procedures for
handling information claimed as confidential under 40 CFR Part 2,
Subpart B and will only be disclosed by the means set forth in that
subpart.
It is estimated that the annual reporting burden for producers is
1,132 hours and for importers it is 1,800 hours. This includes
maintaining records, preparing and submitting quarterly reports on
production, import, exports, and claims for transfers of allowances and
offsets. The average burden hours per response is estimated to be
between 283 and 450 hours. The proposed frequency of response is four
times per year and the likely number of respondents will be 7 producers
and 14 importers, although some of the producers and some of the
importers also function as exporters. The only industry requirements
for the start-up phase are an evaluation of the impact of the allowance
system and the development of a plan of action. The start-up burden is
estimated to be 910 hours for producers and 1,820 hours for importers.
Start-up costs are estimated to amount to $209,882, after which
annual industry cost is estimated to be $225,412 to maintain records of
production, import, and export; submit quarterly reports to EPA on
production, import and export; provide additional information requested
by EPA; prepare transfer claims; and submit petitions to import used
HCFCs. The latter two functions are not periodical tasks but are
initiated by the person based on business decisions.
U.S. agencies, departments or instrumentalities, or related
entities involved in space vehicle endeavors, are being asked in the
initial application for an exemption to produce or import HCFC-141b for
space vehicle or narrow defense needs to identify the quantity of HCFC-
141b needed for each control period, an estimate of the number of
control periods over which such an exemption would be necessary, and a
detailed description of the need met by HCFC-141b in this proposal. EPA
is proposing that the entities supply technical descriptions of the
processes in which HCFC-141b is being used, the areas where the product
will be applied, and why alternatives and substitutes are not
sufficient to eliminate the use of HCFC-141b. EPA is also proposing
that entities supply a detailed analysis showing why stockpiled,
recovered, or recycled quantities are not technically feasible for use
and a detailed description of continuing investigations into and
progress on possible alternatives and substitutes by the applicants.
Entities granted space vehicle/defense allowances for the
production of HCFC-141b products would be required to report quarterly
to EPA on the type and application of the products received from the
manufacturer and the quantity of HCFC-141b contained in the products.
The manufacturer would report quarterly to EPA the quantity and
supplier of HCFC-141b received because of space vehicle/defense
allowances; the identity of the recipient of the products; and the
quantity of HCFC-141b used or contained in the products. It is
estimated that the annual reporting burden for the recipient of the
allowances is about 20 hours at a cost of about $864 and the burden for
the manufacturer is about 20 hours at a cost of about $1,538.
Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency. This includes the time
needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.
An Agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations are listed in 40 CFR part 9 and 48 CFR Chapter 15.
Comments are requested on the Agency's need for this information,
the accuracy of the provided burden estimates, and any suggested
methods for minimizing respondent burden, including through the use of
automated collection techniques. Send comments on the ICR to the
Director; Collection Strategies Division; U.S. Environmental Protection
Agency (2822); 1200 Pennsylvania Ave., NW; Washington, DC 20460; and to
the Office of Information and Regulatory Affairs; Office of Management
and Budget; 725 17th St., NW; Washington, DC 20503, marked ``Attention:
Desk Officer for EPA.'' Include the ICR number in any correspondence.
Since OMB is required to make a decision concerning the ICR between 30
and 60 days after July 20, 2001, a comment to OMB is best assured of
having its full effect if OMB receives it by August 20, 2001. The final
rule will respond to any OMB or public comments on the information
collection requirements contained in this proposal.
I. Executive Order 13211: Energy Effects
This rule is not subject to Executive Order 13211, ``Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use'' (66 FR 28355, May 22, 2001) because it is not a
significant regulatory action under Executive Order 12866.
List of Subjects in 40 CFR Part 82
Environmental protection, Administrative practice and procedure,
Air pollution control, Chemicals, Chlorofluorocarbons, Exports,
Hydrochlorofluorocarbons, Imports, Reporting and recordkeeping
requirements.
[[Page 38090]]
Dated: July 2, 2001.
Christine Todd Whitman,
Administrator.
For the reasons stated in the preamble, 40 CFR part 82 is proposed
to be amended as follows:
PART 82--PROTECTION OF STRATOSPHERIC OZONE
1. The authority citation for Part 82 continues to read as follows:
Authority: 42 U.S.C. 7414, 7601, 7671-7671q.
Subpart A--Production and Consumption Controls
2. Amend Sec. 82.3 as follows:
a. Revise the section heading;
b. Revise the following definitions: ``Article 5 allowances'',
``Baseline consumption allowances'', ``Baseline production
allowances'', ``Consumption allowances'', ``Destruction credits'',
``Party'', ``Production allowances'', and ``Transformation credits';
c. Add new definitions in alphabetical order for the terms ``Export
production allowances'', ``Individual shipment'', ``Non-objection
notice'', ``Source facility'', ``Space vehicle/defense allowances'',
``Unexpended space vehicle/defense allowances'', and ``Unexpended
export production allowances''.
The revisions and additions read as follows:
Sec. 82.3 Definitions for class I and class II controlled substances.
* * * * *
Article 5 allowances means the allowances apportioned under
Sec. 82.9(a) and Sec. 82.18(a).
Baseline consumption allowances means the consumption allowances
apportioned under Sec. 82.6 and Sec. 82.19.
Baseline production allowances means the production allowances
apportioned under Sec. 82.5 and Sec. 82.17.
* * * * *
Consumption allowances means the privileges granted by this subpart
to produce and import controlled substances; however, consumption
allowances may be used to produce controlled substances only in
conjunction with production allowances. A person's consumption
allowances for class I substances are the total of the allowances
obtained under Secs. 82.6 and 82.7 and 82.10, as may be modified under
Sec. 82.12 (transfer of allowances). A person's consumption allowances
for class II substances are the total of the allowances obtained under
Secs. 82.19 and 82.20, as may be modified under Sec. 82.23.
* * * * *
Destruction credits means those privileges that may be obtained
under Sec. 82.9 to produce class I controlled substances.
* * * * *
Export production allowances means the privileges granted by
Sec. 82.18 to produce HCFC-141b for export following the phaseout of
HCFC-141b on January 1, 2003.
* * * * *
Individual Shipment means the kilograms of a used controlled
substance for which a person may make one (1) U.S. Customs entry, not
to be dis-aggregated, as identified in the non-objection letter from
the Administrator under Sec. 82.13(g) and Sec. 82.24(c)(4).
* * * * *
Non-Objection Notice means the privilege granted by the
Administrator to import a specific individual shipment of used
controlled substance in accordance with Sec. 82.13(g) and Sec. 82.24(c)
(3) and (4).
* * * * *
Party means any foreign state that is listed in Appendix C to this
subpart (pursuant to instruments of ratification, acceptance, or
approval deposited with the Depositary of the United Nations
Secretariat), as having ratified the specified control measure in
effect under the Montreal Protocol. Thus, for purposes of the trade
bans specified in Sec. 82.4(l)(2) pursuant to the London Amendments,
only those foreign states that are listed in Appendix C to this subpart
as having ratified both the 1987 Montreal Protocol and the London
Amendments shall be deemed to be Parties. For purposes of the trade
bans specified in Secs. 82.15(e)(1) pursuant to the 1999 Beijing
Amendment, only those foreign states that are listed in the third
column of Appendix C to this subpart as having ratified the Copenhagen
Amendments shall be deemed to be Parties.
* * * * *
Production allowances means the privileges granted by this subpart
to produce controlled substances; however, production allowances may be
used to produce controlled substances only in conjunction with
consumption allowances. A person's production allowances for class I
substances are the total of the allowances obtained under Secs. 82.7,
82.5 and 82.9, and as may be modified under Sec. 82.12 (transfer of
allowances). A person's production allowances for class II substances
are the total of the allowances obtained under Sec. 82.17 and as may be
modified under Secs. 82.18 and 82.23.
* * * * *
Source Facility means the exact location at which a used controlled
substance was recovered from a piece of equipment, including the name
of the company responsible for, or owning the location, a contact
person at the location, the mailing address for that specific location,
and a phone number and a fax number for the contact person at the
location.
Space vehicle/defense allowances means the privileges granted to
space vehicle program or a defense entity by this subpart to order
production of or to import HCFC-141b, deemed critical by the
Administrator for use on space vehicles intended for travel beyond the
earth's atmosphere or for narrow defense needs, as determined by the
Administrator in accordance with Sec. 82.18(j).
* * * * *
Transformation Credits means those privileges that may be obtained
under Sec. 82.9 to produce class I controlled substances.
* * * * *
Unexpended export production allowances means export production
allowances that have not been used. A person's unexpended export
production allowances are the total of the quantity of the export
production allowances the person has authorization under Sec. 82.18(b)
to hold for that control period, minus the quantity of class II
substances that the person has produced at that time during the same
control period.
* * * * *
Unexpended space vehicle/defense allowances means space vehicle/
defense allowances that have not been used. A person's unexpended space
vehicle/defense allowances are the total of the quantity of the space
vehicle/defense allowances the person has authorization under
Sec. 82.18(j) to hold for that control period, minus the quantity of
HCFC-141b that the person has had produced or has had imported at that
time during the same control period.
* * * * *
3. Amend Sec. 82.4 as follows:
a. Revise the section heading;
b. Remove paragraphs (n) through (s) and paragraph (u).
c. Redesignate paragraph (t) as (n).
Sec. 82.4 Prohibitions for class I controlled substances.
* * * * *
4. Amend Sec. 82.5 as follows:
a. Revise the section heading;
b. Remove paragraph (h).
[[Page 38091]]
Sec. 82.5 Apportionment of baseline production allowances for class I
controlled substances.
* * * * *
5. Amend Sec. 82.6 as follows:
a. Revise the section heading;
b. Remove paragraph (h).
Sec. 82.6 Apportionment of baseline consumption allowances for class I
controlled substances.
Sec. 82.8 [Removed]
6. Section 82.8 is removed.
7. Section 82.9 is amended by revising the section heading as
follows:
Sec. 82.9 Availability of production allowances in addition to
baseline production allowances for class I controlled substances.
8. Section 82.10 is amended by revising the section heading as
follows:
Sec. 82.10 Availability of consumption allowances in addition to
baseline consumption allowances for class I controlled substances.
9. Section 82.11 is amended by revising the section heading as
follows:
Sec. 82.11 Exports of class I controlled substances to Article 5
Parties.
10. Section 82.12 is amended by revising the section heading as
follows:
Sec. 82.12 Transfers of allowances for class I controlled substances.
11. Amend Sec. 82.13 as follows:
a. Revise the section heading;
b. Remove paragraphs (n) and (o).
c. Redesignate paragraphs (p) through (z) as (n) through (x)
Sec. 82.13 Recordkeeping and reporting requirements for class I
controlled substances.
12. Add Secs. 82.15 through 82.24 to subpart A to read as follows:
Sec. 82.15 Prohibitions for class II controlled substances.
(a) Production. (1) Effective January 1, 2002, no person may
produce class II substances in excess of the quantity of unexpended
production allowances, unexpended Article 5 allowances, unexpended
export production allowances, or unexpended space vehicle/defense
allowances held by that person for that substance under the authority
of this subpart at any time in any control period, unless the
substances are transformed or destroyed domestically or by a person of
another Party. Every kilogram of excess production constitutes a
separate violation of this subpart.
(2) Effective January 1, 2002, no person may produce class II
substances in excess of the quantity of unexpended consumption
allowances, unexpended Article 5 allowances, unexpended export
production allowances, or unexpended space vehicle/defense allowances
held by that person under the authority of this subpart at any time in
any control period, unless the substances are transformed or destroyed
domestically or by a person of another Party, or unless they are
produced using an exception granted in paragraph (f) of this section.
Every kilogram of excess production constitutes a separate violation of
this subpart.
(3) Effective January 1, 2002, no person may use production
allowances to produce a quantity of class II substance unless that
person holds under the authority of this subpart at the same time
consumption allowances sufficient to cover that quantity of class II
substances. No person may use consumption allowances to produce a
quantity of class II substances unless the person holds under authority
of this subpart at the same time production allowances sufficient to
cover that quantity of class II substances.
(4) Effective January 1, 2003, no person may produce HCFC-141b
except for use in a process resulting in its transformation or its
destruction, for export under Sec. 82.18(a) using unexpended Article 5
allowances, for export under Sec. 82.18(b) using unexpended export
production allowances, for space vehicle/defense needs using unexpended
space vehicle/defense allowances, or for exceptions permitted in
paragraph (f) of this section.
(5) Effective January 1, 2010, no person may produce HCFC-22 or
HCFC-142b for any purpose other than for use in a process resulting in
their transformation or their destruction, for use in equipment
manufactured before January 1, 2010, for export under Sec. 82.18(a)
using unexpended Article 5 allowances, or for exceptions permitted in
paragraph (f) of this section.
(6) Effective January 1, 2015, no person may produce class II
substances not previously controlled, for any purpose other than for
use in a process resulting in their transformation or their
destruction, for use as a refrigerant in equipment manufactured before
January 1, 2020, for export under Sec. 82.18(a) using unexpended
Article 5 allowances, or for exceptions permitted in paragraph (f) of
this section.
(7) Effective January 1, 2020, no person may produce HCFC-22 or
HCFC-142b for any purpose other than for use in a process resulting in
their transformation or their destruction, for export under
Sec. 82.18(a) using unexpended Article 5 allowances, or for exceptions
permitted in paragraph (f) of this section.
(8) Effective January 1, 2030, no person may produce class II
substances, for any purpose other than for use in a process resulting
in their transformation or their destruction, for export under
Sec. 82.18(a) using unexpended Article 5 allowances, or for exceptions
permitted in paragraph (f) of this section.
(9) Effective January 1, 2040, no person may produce class II
substances for any purpose other than for use in a process resulting in
their transformation or their destruction, or for exceptions permitted
in paragraph (f) of this section.
(b) Import. (1) Effective January 1, 2002, no person may import
class II substances (other than transhipments, heels or used class II
substances), except for use in a process resulting in their
transformation or their destruction, in excess of the quantity of
unexpended consumption allowances held by that person under the
authority of this subpart, at any time in any control period. Every
kilogram of excess importation constitutes a separate violation of this
subpart.
(2) Effective January 1, 2002, no person may import, at any time in
any control period, a used class II substance, without having submitted
a petition to the Administrator and received a non-objection notice
from the Administrator in accordance with Sec. 82.24(c)(3) and (4). A
person issued a non-objection notice for the import of an individual
shipment of used class II substances may not transfer or confer the
right to import, and may not import any more than the exact quantity
(in kilograms) of the used class II substance stated in the non-
objection notice. Every kilogram of importation of used class II
substance in excess of the quantity stated in the non-objection notice
issued by the Administrator in accordance with Sec. 82.24(c)(3) and (4)
constitutes a separate violation.
(3) Effective January 1, 2003, no person may import HCFC-141b
(other than transhipments, heels or used class II substances) in excess
of the quantity of unexpended space vehicle/defense allowances held by
that person except for use in a process resulting in its transformation
or its destruction, or for exceptions permitted in paragraph (f) of
this section.
(4) Effective January 1, 2010, no person may import HCFC-22 or
HCFC-142b (other than transhipments, heels or used class II substances)
for any purpose other than for use in a process resulting in their
transformation or their destruction, for exceptions permitted in
paragraph (f) of this section, or for use
[[Page 38092]]
in equipment manufactured prior to January 1, 2010.
(5) Effective January 1, 2015, no person may import class II
substances not subject to the requirements of paragraph (b)(3) or (4)
of this section (other than transhipments, heels or used class II
substances) for any purpose other than for use in a process resulting
in their transformation or their destruction, for exceptions permitted
in paragraph (f) of this section, or for use as a refrigerant in
equipment manufactured prior to January 1, 2020.
(6) Effective January 1, 2020, no person may import HCFC-22 or
HCFC-142b for any purpose other than for use in a process resulting in
their transformation or their destruction, or for exceptions permitted
in paragraph (f) of this section.
(7) Effective January 1, 2030, no person may import class II
substances not subject to the requirements of paragraph (b)(3) or (4)
of this section for any purpose other than for use in a process
resulting in their transformation or their destruction, or for
exceptions permitted in paragraph (f) of this section.
(c) Post-phaseout limits to Article 5 countries. Effective January
1, 2003 for HCFC-141b; January 1, 2010 for HCFC-22 and HCFC-142b; and
January 1, 2015 for all other HCFCs, no person may produce class II
substances for export to Article 5 countries in excess of unexpended
Article 5 allowances, as allocated under Sec. 82.18(a), and unexpended
export allowances, as allocated under Sec. 82.18(b). No person may
introduce into interstate commerce in the U.S. any class II substance
produced explicitly for export to an Article 5 country.
(d) Post-phaseout limits to non-Article 5 countries. Effective
January 1, 2003, no person may produce HCFC-141b for export to non-
Article 5 countries in excess of unexpended export production
allowances, as allocated under Sec. 82.18(b). No person may introduce
into interstate commerce in the U.S. any HCFC-141b produced using
export production allowances.
(e) Violations. Every kilogram of a class II substance, and every
class II product, imported or exported in contravention of this subpart
constitutes a separate violation of this subpart. No person may:
(1) Import or export any quantity of a controlled substance listed
as class II, in Appendix A to this subpart, from or to any foreign
state not Party to the Copenhagen Amendments (as noted in Appendix C,
Annex l, to this subpart), unless that foreign state is complying with
the Copenhagen Amendments.
(2) [Reserved]
(f) Exemptions.
(1) Medical devices.
(2) [Reserved]
Sec. 82.16 Phaseout schedule of class II controlled substances.
(a) Effective January 1, 2002, each person is granted the specified
percentage of the baseline production and consumption allowances
allocated under Secs. 82.17 and 82.19 in each control period as
indicated in the table at the end of this section.
(b) On January 1 of the phaseout year designated for each class II
substance, EPA will deduct from each company all baseline consumption
and production allowances granted in 2002 for that substance. EPA will
also deduct baseline consumption and production allowances received in
a permanent trade after January 1, 2002 for that substance. Deductions
do not include:
(1) Article 5 allowances granted under Sec. 82.18(a).
(2) Export production allowances granted under Sec. 82.18(b).
(3) Space vehicle/defense allowances granted under Sec. 82.18(j).
(4) Baseline consumption and production allowances traded away
permanently after January 1, 2002.
(5) Any other allowances associated with exceptions to production
and import bans for class II substances.
(c) The following table lists the phase out schedule of class II
controlled substances:
----------------------------------------------------------------------------------------------------------------
Percent of
HCFCs (except Percent of Percent of
Control period for 141b, 22, HCFC-141b HCFC-22 & HCFC-
and 142b) 142b
----------------------------------------------------------------------------------------------------------------
2002............................................................ 100 100 100
2003............................................................ 100 d 0 100
2004............................................................ 100a d 0 100
2005............................................................ a 100 d 0 100
2006............................................................ a 100 d 0 100
2007............................................................ a 100 d 0 100
2008............................................................ a 100 d 0 100
2009............................................................ a 100 d 0 100
2010............................................................ a 100 d 0 b d 0
2011............................................................ a 100 d 0 d 0
2012............................................................ a 100 d 0 d 0
2013............................................................ a 100 d 0 d 0
2014............................................................ a 100 d 0 d 0
2015............................................................ c 0 d 0 d 0
----------------------------------------------------------------------------------------------------------------
a Allocations may be reduced pro rata for these years if EPA determines that Montreal Protocol consumption
reduction requirements cannot be met through this schedule.
b On and after January 1, 2010, HCFC-22 and HCFC-142b may still be produced for use in equipment manufactured
before January 1, 2010, providing the producer has adequate production and consumption allowances.
c On and after January 1, 2015, all other HCFCs, not previously phased out, may still be produced as a
refrigerant for use in refrigeration equipment manufactured before January 1, 2020, providing the producer has
adequate production and consumption allowances.
d Export production allowances may be available after the phaseout under Sec. 82.18.
Sec. 82.17 Apportionment of baseline production allowances for class
II controlled substances.
Effective January 1, 2002, a person who produced class II
substances in any of the years 1989, 1994, 1995, 1996, and 1997, and
who accurately reported such activity as required by EPA, is
apportioned baseline production allowances based on the person's year
of highest total ODP-weighted consumption as set forth in the following
table. Companies whose names have been changed are listed under their
official name in effect during the baseline year. Additional companies
for whom EPA does not have complete information as of this
[[Page 38093]]
proposal, or who EPA determines are eligible for a late entrant
exemption, may be listed with allocations in the final rule, pending
receipt of such information or EPA determination:
------------------------------------------------------------------------
Allowances
Person Controlled substance (kg.)
------------------------------------------------------------------------
Allied (Honeywell).............. HCFC-22 36,094,556
HCFC-124 3,227,086
HCFC-141b 27,719,366
HCFC-142b 2,334,508
Ausimont........................ HCFC-142b 4,418,767
DuPont.......................... HCFC-22 52,072,484
HCFC-123 10,410
HCFC-124 6,390
HCFC-141b 10,464
HCFC-142b 53,978
Elf Atochem (ATOFINA Chemicals). HCFC-22 22,230,306
HCFC-141b 23,801,431
HCFC-142b 15,577,099
MDA............................. HCFC-22 2,301,966
------------------------------------------------------------------------
Sec. 82.18 Availability of production allowances in addition to
baseline production allowances for class II controlled substances.
(a) Effective January 1, 2003 for HCFC-141b; January 1, 2010 for
HCFC-22 and HCFC-142b; and 2015 for all other HCFCs, a person
apportioned baseline production allowances under Sec. 82.17 is also
apportioned Article 5 allowances, equal to 15 percent of their baseline
production allowances for the specified HCFC or HCFCs for each control
period up until January 1, 2030, to be used for the production of the
specified HCFC or HCFCs for export only to foreign states listed in
Appendix E to this subpart. The quantity produced for export under this
paragraph must not exceed the quantity of Article 5 allowances held by
that person. Inter-pollutant trades of Article 5 allowances may only be
made for other Article 5 allowances.
(1) Each person who exports a class II substance that was produced
with an Article 5 allowance to an Article 5 country must submit a
notice to the Administrator of such exports (except exports of used
class II substances) at the end of the quarter, as set forth in
Sec. 82.24(d)(1) and (d)(3).
(2) [Reserved]
(b) Effective January 1, 2003, a person apportioned baseline
production allowances for HCFC-141b under Sec. 82.17 is also
apportioned export production allowances equal to 100 percent of their
baseline production allowances for HCFC-141b for each control period up
until December 31, 2009, to be used for the production of HCFC-141b for
export only, to foreign states listed in the third column of Appendix C
to this subpart (Parties to the Copenhagen Amendments). The quantity
produced for export under this paragraph must not exceed the quantity
of unexpended export production allowances held by that person at that
time for that control period. Inter-pollutant trades of export
production allowances may only be made for other export production
allowances.
(1) Each person who exports HCFC-141b that was produced with export
production allowances must submit a notice to the Administrator of such
exports at the end of the quarter, as set forth in Sec. 82.24(d)(2).
(2) [Reserved]
(c) Effective January 1, 2002, a person may increase or decrease
production allowances through trading allowed under Sec. 82.23(a), (b),
(c) and (d). Trades cannot be made for production of any substance
after that class II substance's phaseout date, except as provided under
paragraphs (a) and (b) of this section.
(d) Effective January 1, 2002, a person may increase its production
allowances, its export production allowances, or its Article 5
allowances, through trades with another Party to the Protocol as set
forth in this paragraph (d), and as allowed under Sec. 82.23(d). Trades
cannot be made for production of any substance after that class II
substance's phaseout date, except as provided under paragraph (a) of
this section (regarding Article 5 allowances) and paragraph (b) of this
section (regarding export production allowances). A nation listed in
the third column of Appendix C to this subpart (Parties to the
Copenhagen Amendments) must agree either to transfer to the person for
the current control period some quantity of production that the nation
is permitted under the Montreal Protocol or to receive from the person
for the current control period some quantity of production that the
person is permitted under this subpart. If the class II substance is to
be sold to the Party from whom the allowances are received, the person
need not expend its consumption allowances allocated under Sec. 82.19
in order to produce with the additional production allowances. If the
class II substance is to be sold in the U.S. or to another Party (not
the Party transferring the allowances), the person need not expend its
consumption allowances allocated under Sec. 82.19 in order to produce
with the additional production allowances.
(e) Trade from a Party--Information Requirements. A person must
submit the following information to the Administrator:
(1) A signed document from the principal diplomatic representative
in that nation's embassy in the U.S. stating that the appropriate
authority within that nation has established or revised production
limits for the nation. The production limit must be equal to the lowest
of the following three production quantities:
(i) The maximum production that the nation is allowed under the
Protocol minus the quantity (in kilograms) transferred;
(ii) The maximum production that is allowed under the nation's
applicable domestic law minus the quantity (in kilograms) transferred;
or
(iii) The average of the nation's actual national production level
for the three years prior to the transfer minus the production
transferred.
(2) A transfer request that includes a true copy of this document
and that sets forth the following:
(i) The identity and address of the person;
(ii) The identity of the Party;
(iii) The names and telephone numbers of contact persons for the
person and for the Party;
[[Page 38094]]
(iv) The chemical type and quantity (in kilograms) of production
being transferred;
(v) Documentation that the Party possesses the necessary quantity
of unexpended production rights;
(vi) The control period(s) to which the transfer applies; and
(vii) For increased production intended for export to the Party
from whom the allowances would be received, a signed statement of
intent to export to the Party.
(f) Trade to a Party--Information Requirements. A person must
submit the following information to the Administrator:
(1) A transfer request that sets forth the following:
(i) The identity and address of the person;
(ii) The identity of the Party;
(iii) The names and telephone numbers of contact persons for the
person and for the Party;
(iv) The chemical type and quantity (in kilograms) of allowable
production being transferred; and
(v) The control period(s) to which the transfer applies.
(g) Review of transfer request to a Party. After receiving a
transfer request that meets the requirements of paragraph (f) of this
section, the Administrator may, at his/her discretion, consider the
following factors in deciding whether to approve such a transfer:
(1) Possible creation of domestic economic hardship;
(2) Possible effects on trade;
(3) Potential environmental implications; and
(4) The total quantity of unexpended production allowances held by
U.S. entities.
(h) Notice of trade. If the request meets the requirement of
paragraph (e) of this section for trades from Parties and paragraphs
(f) and (g) of this section for trades to Parties, the Administrator
will issue the person a notice. The notice will either grant or deduct
production allowances or export production allowances or Article 5
allowances and specify the control period to which the transfer
applies. The Administrator may disapprove the transfer request
contingent on the consideration of factors listed in paragraph (d)(3)
of this section for trades to Parties.
(1) Trade from a Party. The Administrator will issue a notice
revising the allowances held by the transferee to equal the unexpended
production allowances or unexpended Article 5 allowances held by the
transferee under this subpart plus the quantity of allowable production
transferred from the Party.
(2) Trade to a Party. The Administrator will issue a notice
revising the production limit for the transferor to equal the lesser
of:
(i) The unexpended production allowances, unexpended export
production allowances or unexpended Article 5 allowances held by the
transferor minus the quantity transferred; or
(ii) The quantity derived in paragraph (i) of this section, minus
the amount derived from the following calculation:
(A) The total U.S. allowable production of the class II substance
being traded minus the three-year average of the actual annual U.S.
production of the class II substance prior to the control period of the
transfer.
(B) [Reserved]
(i) Revised notices of production limits. If after one person
obtains approval of a trade of allowable production of a class II
substance to a Party and other persons obtain approval for trades of
the same class II substance during the same control period, the
Administrator will issue revised notices.
(1) Production limit for subsequent transferors. The notices will
revise the production limits for each of the other persons trading to
equal the lesser of:
(i) The unexpended production allowances, unexpended export
production allowances or unexpended Article 5 allowances held by the
transferor under this subpart minus the quantity transferred; or
(ii) The result of the following set of calculations:
(A) The total U.S. allowable production of the class II substance
minus the three-year average of the actual annual U.S. production of
the class II substance prior to the control period of the transfer;
(B) The quantity transferred divided by the total quantity
transferred by all the other persons trading the same class II
substance in the same control period;
(C) The result of paragraph (i)(1)(ii)(A) of this section
multiplied by the result of paragraph (i)(1)(ii)(B) of this section;
(D) The quantity derived in paragraph (i) of this section, minus
the result of paragraph (i)(1)(ii)(C) of this section;
(2) Production limit for previous transferors. The Administrator
will also issue a notice revising the production limit for each
transferor who previously obtained approval of a trade of the class II
substance in the same control period to equal the result of the
following set of calculations:
(i) The total U.S. allowable production of the class II substance
minus the three-year average of the actual annual U.S. production of
the class II substance prior to the control period of the transfer;
(ii) The quantity transferred by the person divided by the quantity
transferred by all the persons who have traded that class II substance
in that control period;
(iii) The result of paragraph (i)(2)(i) of this section multiplied
by the result of paragraph (i)(2)(ii) of this section.
(iv) The unexpended production allowances, unexpended export
production allowances or unexpended Article 5 allowances held by the
person plus the result of paragraph (i)(2)(iii) of this section;
(3) Effective date of revised production limits. The change in
production allowances, export production allowances or Article 5
allowances will be effective on the date that the notice is issued.
(j) Petition for space vehicle/defense allowances. Effective
January 1, 2002, an agency, department, or instrumentality of the U.S.,
or a non-governmental space vehicle entity, may petition the Director
of the Office of Atmospheric Programs for space vehicle/defense
allowances for HCFC-141b in accordance with this paragraph (j) and with
Sec. 82.15(a)(4).
(1) The agency, department, or instrumentality of the U.S., or a
non-governmental space vehicle entity must submit the following
information to the EPA HCFC Manager prior to July 1, 2002:
(i) Name and address of U.S. government entity or non-governmental
space vehicle entity; name of contact person, phone number, fax number
and e-mail address;
(ii) Quantity (in kilograms) of HCFC-141b needed for the control
period beginning January 1, 2003 until December 31, 2005;
(iii) A description of the space vehicle/defense need met by the
use of HCFC-141b;
(iv) A technical description of the processes in which HCFC-141b is
being used;
(v) A technical description of the area where the product will be
applied;
(vi) A technical description of why alternatives and substitutes
are not sufficient to eliminate the space vehicle/defense use of HCFC-
141b;
(vii) A detailed analysis showing why stockpiled, recovered or
recycled quantities are deemed to be technically infeasible for use;
(viii) An estimate of the number of control periods over which such
an exemption would be necessary; and
[[Page 38095]]
(ix) A detailed description of continuing investigations into
possible alternatives and substitutes.
(2) Within 90 days of receipt of the petition, the Director of the
Office of Atmospheric Programs will issue to an agency, department, or
instrumentality of the U.S., or non-governmental space vehicle entity
that has petitioned for space vehicle/defense allowances for HCFC-141b,
based on information received in accordance with paragraph (j)(1) of
this section, a notice indicating one of the following:
(i) The Director of the Office of Atmospheric Programs may decide
to grant space vehicle/defense allowances if he/she determines that the
space vehicle/defense allowances are necessary to maintain either
safety or operational viability:
(A) The notice will indicate the quantity (in kilograms) that he/
she will grant for the specified 3-year control period; and
(B) The grant of space vehicle/defense allowances will be effective
on the date that the notice specified in paragraph (j)(2) of this
section is issued, and shall not be applicable after December 31, 2009,
unless otherwise authorized by EPA.
(ii) The Director of the Office of Atmospheric Programs may request
additional information if he/she determines:
(A) The information received in accordance with paragraph (j)(1) of
this section is not sufficient to make a determination.
(B) [Reserved]
(iii) The Director of the Office of Atmospheric Programs may decide
not to grant space vehicle/defense allowances if he/she determines:
(A) The space vehicle/defense interest can be met by the use of a
substance other than HCFC-141b;
(B) The space vehicle/defense interest can be met by the use of
existing supplies of HCFC-141b;
(C) There is evidence of fraud or misrepresentation;
(D) Approval of the allowances would be inconsistent with the
Montreal Protocol or Decisions of the Parties;
(E) Approval of the allowances would be inconsistent with the Clean
Air Act Amendments of 1990; or
(F) Approval of the allowances may reasonably be expected to
endanger human health or the environment.
(3) If the Director of the Office of Atmospheric Programs decides
not to grant the request for space vehicle/defense allowances for any
of the reasons stated in paragraph (j)(2)(iii) of this section, the
Director of the Office of Atmospheric Programs will issue an objection
letter disallowing the request for space vehicle/defense allowances.
Within ten working days after receipt of the objection letter, the
requestor may file a one-time appeal, with supporting reasons, with the
Director of the Office of Atmospheric Programs. The Director of the
Office of Atmospheric Programs may affirm the disallowance or grant an
allowance, as she/he finds appropriate in light of the available
evidence. If no appeal is taken by the tenth day after receipt of the
objection letter, the disallowance will be final on that day.
(4) The total quantity of HCFC-141b produced or imported for space
vehicle or narrow defense needs during each year is not to exceed 1
percent of the aggregate of HCFC-141b baselines for one year.
(5) The space vehicle/defense allowance allocation may be renewed
every three years after the original petition and the petition for
renewal must contain the following information:
(i) Name and address of U.S. government entity or non-governmental
space vehicle/defense entity; name of contact person and phone and fax
numbers and e-mail address;
(ii) Quantity (in kilograms) of HCFC-141b needed for the control
period;
(iii) A description of the space vehicle/defense need met by the
use of HCFC-141b;
(iv) A technical description of the process in which HCFC-141b is
still being used;
(v) A technical description of the area where the product is still
being applied;
(vi) A technical description of why alternatives and substitutes
are still not sufficient to eliminate the space vehicle/defense use of
HCFC-141b;
(vii) A detailed analysis showing why stockpiled, recovered or
recycled quantities are still deemed to be technically and economically
infeasible for use; and
(viii) A detailed description of continuing investigations into
possible alternatives and substitutes.
(6) For the control period from January 1, 2006 through December
31, 2008, the agency, department, or instrumentality of the U.S., or a
non-governmental space vehicle entity must submit the petition for
renewal by March 1, 2005.
Sec. 82.19 Apportionment of baseline consumption allowances for class
II controlled substances.
(a) Effective January 1, 2002, a person who produced, imported, or
produced and imported class II substances, and accurately reported such
activity to EPA as required, in any of the years 1989, 1994, 1995,
1996, and 1997, is apportioned baseline consumption allowances based on
the year of the person's highest total ODP-weighted consumption as set
forth in paragraphs (1) through (28) of this section. Companies whose
names have been changed are listed under their official name in effect
during the baseline year. Additional companies for whom EPA does not
have complete information as of July 20, 2001, or who EPA determines
are eligible for a late entrant exemption, may be listed with
allocations in the final rule, pending receipt of such information or
EPA determination:
------------------------------------------------------------------------
Allowances
Person Controlled substance (kg)
------------------------------------------------------------------------
ABCO............................ HCFC-22 253,032
AGA............................. HCFC-225ca 109,653
HCFC-225cb 134,024
Air Systems..................... HCFC-22 12,240
Allied (Honeywell).............. HCFC-22 32,056,219
HCFC-124 2,958,382
HCFC-141b 18,793,538
HCFC-142b 1,191,783
Altair.......................... HCFC-22 241,367
Ausimont........................ HCFC-142b 4,418,767
Automatic Equipment............. HCFC-22 48,989
Condor.......................... HCFC-22 603,374
Continental..................... HCFC-141b 18,400
DuPont.......................... HCFC-22 46,599,488
[[Page 38096]]
HCFC-123 71,063
HCFC-124 6,302
HCFC-141b 8,196
HCFC-142b 47,820
Elf Atochem..................... HCFC-22 26,741,356
(ATOFINA Chemicals)............. HCFC-141b 23,010,714
HCFC-142b 15,101,025
HG Refrigeration................ HCFC-22 36,291
ICC............................. HCFC-141b 73,568
ICI............................. HCFC-22 2,306,278
Kivlan (Dynatemp)............... HCFC-22 1,837,718
Klomar.......................... HCFC-22 7,776
MDA............................. HCFC-22 2,301,966
Mondy-Global.................... HCFC-22 255,258
National Refrigerants........... HCFC-22 4,963,713
HCFC-123 76,520
HCFC-124 204,980
Refricenter..................... HCFC-22 345,350
Refricentro..................... HCFC-22 41,645
Rhone-Poulenc................... HCFC-22 47,180
R-Lines......................... HCFC-22 57,217
Saez............................ HCFC-22 34,360
Solvay.......................... HCFC-22 284,370
HCFC-124 274,990
HCFC-141b 3,568,700
Tesco........................... HCFC-22 43,520
Tulstar......................... HCFC-141b 78,720
------------------------------------------------------------------------
(b) [Reserved]
Sec. 82.20 Availability of consumption allowances in addition to
baseline consumption allowances for class II controlled substances.
(a) Effective January 1, 2002, a person may obtain at any time
during the control period, in accordance with the provisions of this
subsection, consumption allowances equivalent to the quantity of class
II substances (other than used class II substances or transhipments)
that the person has exported from the U.S. and its territories to a
foreign state listed in the third column of Appendix C to this subpart
(Parties to the Copenhagen Amendments).
(1) The exporter must submit to the Administrator a request for
consumption allowances setting forth the following:
(i) The identities and addresses of the exporter and the recipient
of the exports;
(ii) The exporter's Employer Identification Number;
(iii) The names and telephone numbers of contact persons for the
exporter and the recipient;
(iv) The quantity (in kilograms) and type of class II substances
reported;
(v) The source of the class II substances and the date purchased;
(vi) The date on which, and the port from which, the class II
substances were exported from the U.S. or its territories;
(vii) The country to which the class II substances were exported;
(viii) A copy of the bill of lading and the invoice indicating the
net quantity (in kilograms) of class II substances shipped and
documenting the sale of the class II substances to the purchaser;
(ix) The commodity code of the class II substances reported; and
(x) A written statement from the producer that the class II
substances were produced with expended allowances.
(2) The Administrator will review the information and documentation
submitted under paragraph (a)(1) of this section and will issue a
notice.
(i) The Administrator will determine the quantity of class II
substances that the documentation verifies was exported and issue
consumption allowances equivalent to the quantity of class II
substances that were exported.
(A) The grant of the consumption allowances will be effective on
the date the notice is issued.
(B) The consumption allowances will be granted to the person the
exporter indicates, whether it is the producer or the exporter.
(ii) The Administrator will issue a notice that the consumption
allowances are not granted if the Administrator determines that the
information and documentation do not satisfactorily substantiate the
exporter's claims.
(b) Effective January 1, 2002, a person may increase consumption
allowances through trading allowed under Sec. 82.23(a), (b), and (c).
Sec. 82.21 [Reserved]
Sec. 82.22 [Reserved]
Sec. 82.23 Transfers of allowances of class II controlled substances.
(a) Inter-company transfers. (1) Effective January 1, 2002, a
person (``transferor'') may transfer to any other person
(``transferee'') any quantity of the transferor's class II consumption
allowances, production allowances, export production allowances, or
Article 5 allowances, as follows:
(i) The transferor must submit to the Administrator a transfer
claim setting forth the following:
(A) The identities and addresses of the transferor and the
transferee;
(B) The name and telephone numbers of contact persons for the
transferor and the transferee;
(C) The type of allowances being transferred, including the names
of the class II substances for which allowances are to be transferred;
(D) The quantity (in kilograms) of allowances being transferred;
(E) The control period(s) for which the allowances are being
transferred;
(F) The quantity of unexpended allowances of the type and for the
control period being transferred that the transferor holds under
authority of this subpart on the date the claim is submitted to EPA;
and
(G) For trades of consumption allowances, production allowances,
export production allowances, or Article 5 allowances, the quantity of
the 0.1
[[Page 38097]]
percent offset applied to the unweighted quantity traded that will be
deducted from the transferor's allowance balance.
(ii) The Administrator will determine whether the records
maintained by EPA indicate that the transferor possesses unexpended
allowances sufficient to cover the transfer claim on the date the
transfer claim is processed. The transfer claim is the quantity (in
kilograms) to be transferred plus, in the case of transfers of
production or consumption allowances, 0.1 percent of that quantity. The
Administrator will take into account any previous transfers, any
production, and allowable imports and exports of class II substances
reported by the transferor. Within three working days of receiving a
complete transfer claim, the Administrator will take action to notify
the transferor and transferee as follows:
(A) The Administrator will issue a notice indicating that EPA does
not object to the transfer if EPA's records show that the transferor
has sufficient unexpended allowances to cover the transfer claim. In
the case of transfers of production or consumption allowances, EPA will
reduce the transferor's balance of unexpended allowances by the
quantity to be transferred plus 0.1 percent of that quantity. In the
case of transfers of export production or Article 5 allowances, EPA
will reduce the transferor's balance of unexpended allowances,
respectively, by the quantity to be transferred. The transferor and the
transferee may proceed with the transfer when EPA issues a no objection
notice. However, if EPA ultimately finds that the transferor did not
have sufficient unexpended allowances to cover the claim, the
transferor and transferee, where applicable, will be held liable for
any knowing violations of the regulations of this subpart that occur as
a result of, or in conjunction with, the improper transfer.
(B) The Administrator will issue a notice disallowing the transfer
if EPA's records show that the transferor has insufficient unexpended
allowances to cover the transfer claim, or that the transferor has
failed to respond to one or more Agency requests to supply information
needed to make a determination. Either party may file a notice of
appeal, with supporting reasons, with the Administrator within 10
working days after receipt of notification. The Administrator may
affirm or vacate the disallowance. If no appeal is taken by the tenth
working day after notification, the disallowance shall be final on that
day.
(iii) The transferor and transferee may proceed with the transfer
if the Administrator does not respond to a transfer claim within the
three working days specified in paragraph (a)(1)(ii) of this section.
In the case of transfers of production or consumption allowances, EPA
will reduce the transferor's balance of unexpended allowances by the
quantity to be transferred plus 0.1 percent of that quantity. In the
case of transfers of export production allowances or Article 5
allowances, EPA will reduce the transferor's balance of unexpended
allowances by the quantity to be transferred plus 0.1 percent of that
quantity. If EPA ultimately finds that the transferor did not have
sufficient unexpended allowances to cover the claim, the transferor
and/or the transferee, where applicable, will be held liable for any
knowing violations of the regulations of this subpart that occur as a
result of, or in conjunction with, the improper transfer.
(b) Inter-pollutant transfers. (1) Effective January 1, 2002, a
person (transferor) may convert consumption allowances or production
allowances for one class II substance to the same type of allowance for
another class II substance listed in Appendix B of this subpart,
following the procedures described in paragraph (b)(3) of this section.
(2) Inter-pollutant transfers will be permitted at any time during
the control period and during the 45 days after the end of a control
period.
(3) The transferor must submit to the Administrator a transfer
claim that includes the following:
(i) The identity and address of the transferor;
(ii) The name and telephone number of a contact person for the
transferor;
(iii) The type of allowances being converted, including the names
of the class II substances for which allowances are to be converted;
(iv) The quantity (in kilograms) and type of allowances to be
converted;
(v) The quantity (in kilograms) of allowances to be subtracted from
the transferor's unexpended allowances for the first class II
substance, to be equal to 100.1 percent of the quantity of allowances
converted;
(vi) The quantity (in kilograms) of allowances to be added to the
transferor's unexpended allowances for the second class II substance,
to be equal to the quantity (in kilograms) of allowances for the first
class II substance being converted multiplied by the quotient of the
ozone depletion potential of the first class II substance divided by
the ozone depletion potential of the second class II substance, as
listed in Appendix B to this subpart;
(vii) The control period(s) for which the allowances are being
converted; and
(viii) The quantity (in kilograms) of unexpended allowances of the
type and for the control period being converted that the transferor
holds under authority of this subpart as of the date the claim is
submitted to EPA.
(4) The Administrator will determine whether the records maintained
by EPA indicate that the convertor possesses unexpended allowances
sufficient to cover the transfer claim on the date the transfer claim
is processed (i.e., the quantity (in kilograms) to be converted plus
0.1 percent of that quantity (in kilograms)). EPA will take into
account any previous transfers, any transfers, and any production,
imports (not including transshipments or used class II substances), or
exports (not including transhipments or used class II substances) of
class II substances reported by the convertor. Within three working
days of receiving a complete transfer claim, the Administrator will
take action to notify the convertor as follows:
(i) The Administrator will issue a notice indicating that EPA does
not object to the transfer if EPA's records show that the convertor has
sufficient unexpended allowances to cover the transfer claim. EPA will
reduce the transferor's balance of unexpended allowances by the
quantity to be converted plus 0.1 percent of that quantity (in
kilograms). When EPA issues a no objection notice, the transferor may
proceed with the transfer. However, if EPA ultimately finds that the
transferor did not have sufficient unexpended allowances to cover the
claim, the transferor will be held liable for any violations of the
regulations of this subpart that occur as a result of, or in
conjunction with, the improper transfer.
(ii) The Administrator will issue a notice disallowing the transfer
if EPA's records show that the transferor has insufficient unexpended
allowances to cover the transfer claim, or that the transferor has
failed to respond to one or more Agency requests to supply information
needed to make a determination. The transferor may file a notice of
appeal, with supporting reasons, with the Administrator within 10
working days after receipt of notification. The Administrator may
affirm or vacate the disallowance. If no appeal is taken by the tenth
working day after notification, the disallowance shall be final on that
day.
(iii) The transferor may proceed with the transfer if the
Administrator does not respond to a transfer claim within the three
working days specified in
[[Page 38098]]
paragraph (b)(4) of this section. EPA will reduce the transferor's
balance of unexpended allowances by the quantity (in kilograms) to be
converted plus 0.1 percent of that quantity (in kilograms). The
transferor will be held liable for any violations of the regulations of
this subpart that occur as a result of, or in conjunction with, the
improper transfer if EPA ultimately finds that the transferor did not
have sufficient unexpended allowances or credits to cover the claim.
(c) Inter-company transfers and Inter-pollutant transfers. (1) If a
person requests an inter-company transfer and an inter-pollutant
transfer simultaneously, the quantity (in kilograms) subtracted from
the transferor's unexpended production or consumption allowances for
the first class II substance will be equal to 100.1 percent of the
quantity (in kilograms) of allowances that are being converted and
transferred.
(2) [Reserved]
(d) Transfers of class II production between Parties. (1) A person
may increase or decrease its production allowances, export production
allowances, or Article 5 allowances by trading such allowances with
another Party to the Protocol, in accordance with the provisions in
Sec. 82.18(d).
(2) [Reserved]
Sec. 82.24 Recordkeeping and reporting requirements for class II
controlled substances.
(a) Recordkeeping and reporting. Any person who produces, imports,
exports, transforms, or destroys class II substances must comply with
the following recordkeeping and reporting requirements:
(1) Reports required by this section must be mailed to the
Administrator within 15 days of the end of the applicable reporting
period, unless otherwise specified.
(2) Records and copies of reports required by this section must be
retained for three years.
(3) Quantities of class II substances must be stated in terms of
kilograms in reports required by this section.
(4) Reports and records required by this section may be used for
purposes of compliance determinations. These requirements are not
intended as a limitation on the use of other evidence admissible under
the Federal Rules of Evidence. Failure to provide the reports,
petitions and records required by this section and to certify the
accuracy of the information in the reports, petitions and records
required by this section, will be considered a violation of this
subpart. False statements made in reports, petitions and records will
be considered violations of Section 113 of the Clean Air Act and under
18 U.S. Code Section 1001.
(b) Producers. Persons (``producers'') who produce class II
substances during a control period must comply with the following
recordkeeping and reporting requirements:
(1) Reporting--Producers. For each quarter, each producer of a
class II substance must provide the Administrator with a report
containing the following information:
(i) The quantity (in kilograms) of production of each class II
substance used in processes resulting in their transformation by the
producer and the quantity (in kilograms) intended for transformation by
a second party;
(ii) The quantity (in kilograms) of production of each class II
substance used in processes resulting in their destruction by the
producer and the quantity (in kilograms) intended for destruction by a
second party;
(iii) The expended allowances for each class II substance;
(iv) The producer's total of expended and unexpended production
allowances, consumption allowances, export production allowances, and
Article 5 allowances at the end of that quarter;
(v) The quantity (in kilograms) of class II substances sold or
transferred during the quarter to a person other than the producer for
use in processes resulting in their transformation or eventual
destruction;
(vi) A list of the quantities and names of class II substances
exported, by the producer or by other U.S. persons, to a Party to the
Protocol that will be transformed or destroyed and therefore were not
produced expending production or consumption allowances;
(vii) For transformation in the U.S. or by a person of another
Party, one copy of a transformation verification from the transformer
for a specific class II substance and a list of additional quantities
shipped to that same transformer for the quarter;
(viii) For destruction in the U.S. or by a person of another Party,
one copy of a destruction verification paragraph (e) of this section
for a particular destroyer, destroying the same class II substance, and
a list of additional quantities shipped to that same destroyer for the
quarter;
(ix) In cases where the producer produced class II substances using
export production allowances, a list of U.S. entities that purchased
those class II substances and exported them to a Party to the Protocol;
(x) In cases where the producer produced class II substances using
Article 5 allowances, a list of U.S. entities that purchased those
class II substances and exported them to Article 5 countries; and
(xi) A list of the space vehicle/defense allowance holders from
whom orders were placed and the quantity (in kilograms) of HCFC-141b
requested and produced.
(2) Recordkeeping--Producers. Every producer of a class II
substance during a control period must maintain the following records:
(i) Dated records of the quantity (in kilograms) of each class II
substance produced at each facility;
(ii) Dated records of the quantity (in kilograms) of class II
substances produced for use in processes that result in their
transformation or for use in processes that result in their
destruction;
(iii) Dated records of the quantity (in kilograms) of class II
substances sold for use in processes that result in their
transformation or for use in processes that result in their
destruction;
(iv) Dated records of the quantity (in kilograms) of class II
substances produced with export production allowances or Article 5
allowances;
(v) Copies of invoices or receipts documenting sale of class II
substances for use in processes that result in their transformation or
for use in processes that result in their destruction;
(vi) Dated records of the quantity (in kilograms) of each class II
substance used at each facility as feedstocks or destroyed in the
manufacture of a class II substance or in the manufacture of any other
substance, and any class II substance introduced into the production
process of the same class II substance at each facility;
(vii) Dated records of the quantity (in kilograms) of raw materials
and feedstock chemicals used at each facility for the production of
class II substances;
(ix) Dated records of the shipments of each class II substance
produced at each plant;
(x) The quantity (in kilograms) of class II substances, the date
received, and names and addresses of the source of used materials
containing class II substances which are recycled or reclaimed at each
plant;
(xi) Records of the date, the class II substance, and the estimated
quantity of any spill or release of a class II substance that equals or
exceeds 100 pounds;
(xii) Transformation verification in the case of transformation, or
the destruction verification in the case of destruction paragraph (e)
of this section
[[Page 38099]]
showing that the purchaser or recipient of a class II substance, in the
U.S. or in another country that is a Party, certifies the intent to
either transform or destroy the class II substance, or sell the class
II substance for transformation or destruction in cases when allowances
were not expended;
(xiii) Written verifications from a U.S. purchaser that the class
II substance was exported to a Party to the Copenhagen Amendments, in
cases where export production allowances were expended to produce the
class II substance;
(xiv) Written verifications from a U.S. purchaser that the class II
substance was exported to an Article 5 country in cases where Article 5
allowances were expended to produce the class II substance;
(xv) Written verifications from a U.S. purchaser that HCFC-141b was
manufactured for the express purpose of meeting critical space vehicle/
defense needs in accordance with information submitted under
Sec. 82.18(j), in cases where space vehicle/defense allowances were
expended to produce the HCFC-141b.
(3) For any person who fails to maintain the records required by
this paragraph, or to submit the report required by this paragraph, the
Administrator may assume that the person has produced at full capacity
during the period for which records were not kept, for purposes of
determining whether the person has violated the prohibitions at
Sec. 82.15.
(c) Importers. Persons (``importers'') who import class II
substances during a control period must comply with the following
recordkeeping and reporting requirements:
(1) Reporting--Importers. For each quarter, an importer of a class
II substance (including importers of used class II substances) must
submit to the Administrator a report containing the following
information:
(i) Summaries of the record required in paragraphs (c)(2)(i)
through (xiv) of this section for the previous quarter;
(ii) The total quantity (in kilograms) imported of each class II
substance for that quarter;
(iii) The commodity code for the class II substances imported,
which must be one of those listed in Appendix K to this subpart;
(iv) The quantity (in kilograms) of those class II substances
imported that are used class II substances.
(v) The quantity (in kilograms) of class II substances imported for
that quarter and totaled by chemical for the control period to date;
(vi) The importer's total sum of expended and unexpended
consumption allowances by chemical as of the end of that quarter;
(vii) The quantity (in kilograms) of class II substances imported
for use in processes resulting in their transformation or destruction;
(viii) The quantity (in kilograms) of class II substances sold or
transferred during that quarter to each person for use in processes
resulting in their transformation or eventual destruction; and
(ix) Transformation verifications showing that the purchaser or
recipient of imported class II substances intends to transform those
substances or destruction verifications showing that the purchaser or
recipient intends to destroy the class II substances (as provided in
paragraph (e) of this section).
(2) Recordkeeping--Importers. An importer of a class II substance
(including used class II substances) must maintain the following
records:
(i) The quantity (in kilograms) of each class II substance
imported, either alone or in mixtures, including the percentage of each
mixture which consists of a class II substance;
(ii) The quantity (in kilograms) of those class II substances
imported that are used and the information provided with the petition
as required under paragraph (c)(3) of this section;
(iii) The quantity (in kilograms) of class II substances other than
transhipments or used substances imported for use in processes
resulting in their transformation or destruction;
(iv) The quantity (in kilograms) of class II substances other than
transhipments or used substances imported and sold for use in processes
that result in their destruction or transformation;
(v) The date on which the class II substances were imported;
(vi) The port of entry through which the class II substances
passed;
(vii) The country from which the imported class II substances were
imported;
(viii) The commodity code for the class II substances shipped,
which must be one of those listed in Appendix K to this subpart;
(ix) The importer number for the shipment;
(x) A copy of the bill of lading for the import;
(xi) The invoice for the import;
(xii) The quantity (in kilograms) of imports of used class II
substances;
(xiii) The U.S. Customs entry form;
(iv) Dated records documenting the sale or transfer of class II
substances for use in processes resulting in their transformation or
destruction;
(xiv) Copies of transformation verifications or destruction
verifications indicating that the class II substances will be
transformed or destroyed (as provided in paragraph (e) of this section.
(3) Petition to Import Used Class II Controlled Substances and
Transhipments--Importers. For each individual shipment (not to be
aggregated) over 5 pounds of a used class II substance as defined in
Sec. 82.3, an importer must submit directly to the Administrator, at
least 40 working days before the shipment is to leave the foreign port
of export, the following information in a petition:
(i) The name and quantity (in kilograms) of the used class II
substance to be imported;
(ii) The name and address of the importer, the importer ID number,
the contact person, and the phone and fax numbers;
(iii) Name, address, contact person, phone number and fax number of
all previous source equipment from which the used class II substance
was recovered;
(iv) A detailed description of the previous use of the class II
substance at each source facility and dated documents indicating the
date the material was put into the equipment at each source facility
(material must have remained in the equipment at least 24 months prior
to recovery to be considered previously used);
(v) Name, address, contact person, phone number and fax number of
the exporter and of all persons to whom the material was transferred or
sold after it was recovered from the source facility;
(vi) The U.S. port of entry for the import, the expected date of
shipment and the vessel transporting the chemical. If at the time of
submitting a petition the importer does not know the U.S. port of
entry, the expected date of shipment and the vessel transporting the
chemical, and the importer receives a non-objection notice for the
individual shipment in the petition, the importer is required to notify
the Administrator of this information prior to the actual U.S. Customs
entry of the individual shipment;
(vii) A description of the intended use of the used class II
substance, and a copy of the contract for the purchase of the class II
substance that includes the name, address, contact person, phone number
and fax number of the purchaser;
(viii) The name, address, contact person, phone number and fax
number of the U.S. reclamation facility, where applicable;
[[Page 38100]]
(ix) If someone at the source facility recovered the class II
substance from the equipment, the name and phone and fax numbers of
that person;
(x) If the imported class II substance was reclaimed in a foreign
Party, the name, address, contact person, phone number and fax number
of any or all foreign reclamation facility(ies) responsible for
reclaiming the cited shipment;
(xi) An export license from the appropriate government agency in
the country of export and, if recovered in another country, the export
license from the appropriate government agency in that country;
(xii) If the imported used class II substance is intended to be
sold as a refrigerant in the U.S., the name and address of the U.S.
reclaimer who will bring the material to the standard required under
Subpart F of this Part, if not already reclaimed to those
specifications; and
(xiii) A certification of accuracy of the information submitted in
the petition.
(4) Review of Petition to Import Used Class II Controlled
Substances and Transhipments--Importers. Starting on the first working
day following receipt by the Administrator of a petition to import a
used class II substance, the Administrator will initiate a review of
the information submitted under paragraph (c)(3) of this section and
take action within 40 working days to issue either an objection-notice
or a non-objection notice for the individual shipment to the person who
submitted the petition to import the used class II substance.
(i) For the reasons listed below, the Administrator may issue an
objection notice to a petition:
(A) If the Administrator determines that the information is
insufficient, that is, if the petition lacks or appears to lack any of
the information required under paragraph (c)(3) of this section;
(B) If the Administrator determines that any portion of the
petition contains false or misleading information or has reason to
believe that the petition contains false or misleading information;
(C) If the transaction appears to be contrary to provisions of the
Vienna Convention on Substances that Deplete the Ozone Layer, the
Montreal Protocol and Decisions by the Parties, or the non-compliance
procedures outlined and instituted by the Implementation Committee of
the Montreal Protocol;
(D) If the appropriate government agency in the exporting country
has not agreed to issue an export license for the cited individual
shipment of used class II substance;
(E) If the exporting country states that it is no longer allowing
exports or if it reports that it has not granted any export licenses;
(F) If the Administrator has received information indicating that a
person listed in the petition has produced at any time false
information regarding trade in class II substances as defined in this
subpart, including information required by EPA or required by the
appropriate government agency in the exporting country;
(G) If the Administrator has received information indicating that a
person listed in the petition is in violation of a requirement in any
regulation under Title VI of the Clean Air Act;
(H) If reclamation capacity is installed or is being installed for
that specific class II substance in the country of recovery or country
of export and the capacity is funded in full or in part through the
Multilateral Fund.
(ii) Within ten (10) working days after receipt of the objection
notice, the importer may re-petition the Administrator, only if the
Administrator indicated ``insufficient information'' as the basis for
the objection notice. If no appeal is taken by the tenth working day
after the date on the objection notice, the objection shall become
final. Only one re-petition will be accepted for any original petition
received by EPA.
(iii) Any information contained in the re-petition which is
inconsistent with the original petition must be identified and a
description of the reason for the inconsistency must accompany the re-
petition.
(iv) In cases where the Administrator has no reason to object to
the petition based on the criteria listed in paragraph (c)(4)(i) of
this section, the Administrator will issue a non-objection notice.
(v) To pass the approved used class II substances through U.S.
Customs, the petition and the non-objection notice issued by EPA must
accompany the shipment through U.S. Customs.
(vi) If for some reason, following EPA's issuance of a non-
objection notice, new information is brought to EPA's attention which
shows that the non-objection notice was issued based on false
information, then EPA has the right to:
(A) Revoke the non-objection notice;
(B) Pursue all means to ensure that the class II substance is not
imported into the U.S.; and
(C) Take appropriate enforcement actions.
(vii) Once the Administrator issues a non-objection notice, the
person receiving the non-objection notice is permitted to import the
individual shipment of used class II substance only within the same
control period as the date stamped on the non-objection notice.
(viii) A person receiving a non-objection notice from the
Administrator for a petition to import used class II substances must
maintain the following records:
(A) A copy of the petition;
(B) The EPA non-objection notice;
(C) The bill of lading for the import; and
(D) U.S. Customs entry documents for the import that must include
one of the commodity codes from Appendix K to this subpart.
(5) Recordkeeping for Transhipments--Importers. Any person who
tranships a class II substance must maintain records that indicate:
(i) That the class II substance shipment originated in a foreign
country;
(ii) That the class II substance shipment is destined for another
foreign country; and
(iii) That the class II substance shipment will not enter
interstate commerce within the U.S.
(d) Exporters. Persons (``exporters'') who export class II
substances during a control period must comply with the following
reporting requirements:
(1) Reporting--Exporters. For any exports of class II substances
not reported under Sec. 82.20 (additional consumption allowances), or
under paragraph (b)(2) of this section (reporting for producers of
class II substances), each exporter who exported a class II substance
must submit to the Administrator the following information within 15
days after the end of each quarter in which the unreported exports left
the U.S.:
(i) The names and addresses of the exporter and the recipient of
the exports;
(ii) The exporter's Employer Identification Number;
(iii) The type and quantity (in kilograms) of each class II
substance exported and what percentage, if any of the class II
substance is used;
(iv) The date on which, and the port from which, the class II
substances were exported from the U.S. or its territories;
(v) The country to which the class II substances were exported;
(vi) The quantity (in kilograms) exported to each Article 5
country;
(vii) The commodity code for the class II substances shipped, which
must be one of those listed in Appendix K to this subpart;
(viii) For persons reporting transformation or destruction, the
invoice or sales agreement containing
[[Page 38101]]
language similar to the transformation verifications that the purchaser
or recipient of imported class II substances intends to transform those
substances, or destruction verifications showing that the purchaser or
recipient intends to destroy the class II substances (as provided in
paragraph (e) of this section).
(2) Reporting Export Production Allowances--Exporters. In addition
to the information required in paragraph (d)(1) of this section, any
exporter using export production allowances must also provide the
following to the Administrator:
(i) The Employer Identification Number on the Shipper's Export
Declaration Form or Employer Identification Number of the shipping
agent shown on the U.S. Customs Form 7525;
(ii) The exporting vessel on which the class II substances were
shipped; and
(iii) The quantity (in kilograms) exported to each Party.
(3) Reporting Article 5 Allowances--Exporters. In addition to the
information required in paragraph (d)(1) of this section, any exporter
using Article 5 allowances must also provide the following to the
Administrator:
(i) The Employer Identification Number on the Shipper's Export
Declaration Form or Employer Identification Number of the shipping
agent shown on the U.S. Customs Form 7525; and
(ii) The exporting vessel on which the class II substances were
shipped.
(4) Reporting Used Class II Controlled Substances--Exporters. Any
exporter of used class II substances must indicate on the bill of
lading or invoice that the class II substance is used, as defined in
Sec. 82.3.
(e) Transformation and Destruction. Any person who transforms or
destroys class II substances must comply with the following
recordkeeping and reporting requirements:
(1) Recordkeeping--Transformation and Destruction. Any person who
transforms or destroys class II substances produced or imported by
another person must maintain the following:
(i) Copies of the invoices or receipts documenting the sale or
transfer of the class II substances to the person;
(ii) Records identifying the producer or importer of the class II
substances received by the person;
(iii) Dated records of inventories of class II substances at each
plant on the first day of each quarter;
(iv) Dated records of the quantity (in kilograms) of each class II
substance transformed or destroyed;
(v) In the case where class II substances were purchased or
transferred for transformation purposes, a copy of the person's
transformation verification as provided under paragraph (e)(3)of this
section.
(vi) Dated records of the names, commercial use, and quantities (in
kilograms) of the resulting chemical(s) when the class II substances
are transformed; and
(vii) Dated records of shipments to purchasers of the resulting
chemical(s) when the class II substances are transformed.
(viii) In the case where class II substances were purchased or
transferred for destruction purposes, a copy of the person's
destruction verification, as provided under paragraph (e)(5) of this
section.
(2) Reporting--Transformation and Destruction. Any person who
transforms or destroys class II substances and who has submitted a
transformation verification in paragraph (e)(3) of this section or a
destruction verification in paragraph (e)(5) of this section to the
producer or importer of the class II substances, must report the
following:
(i) the names and quantities (in kilograms) of the class II
substances transformed for each control period within 45 days of the
end of such control period; and
(ii) the names and quantities (in kilograms) of the class II
substances destroyed for each control period within 45 days of the end
of such control period.
(3) Reporting--Transformation. Any person who purchases class II
substances for purposes of transformation must provide the producer or
importer with a verification that the class II substances are to be
used in processes that result in their transformation.
(i) The transformation verification shall include the following:
(A) Identity and address of the person intending to transform the
class II substances;
(B) The quantity (in kilograms) of class II substances intended for
transformation;
(C) Identity of shipments by purchase order number(s), purchaser
account number(s), by location(s), or other means of identification;
(D) Period of time over which the person intends to transform the
class II substances; and
(E) Signature of the verifying person.
(ii) If any aspects of this verification change at any time, the
person must submit a revised verification reflecting such changes to
the producer from whom that person purchased class II substances
intended for transformation.
(4) Reporting--Destruction. Any person who destroys class II
substances shall provide EPA with a one-time report containing the
following information:
(i) The destruction unit's destruction efficiency;
(ii) The methods used to record the volume destroyed;
(iii) The methods used to determine destruction efficiency;
(iv) The name of other relevant federal or state regulations that
may apply to the destruction process;
(v) Any changes to the information in paragraphs (e)(4)(i), (ii),
and (iii) of this section must be reflected in a revision to be
submitted to EPA within 60 days of the change(s).
(5) Reporting--Destruction. Any person who purchases or receives
and subsequently destroys class II substances that were originally
produced without expending allowances shall provide the producer or
importer from whom it purchased or received the class II substances
with a verification that the class II substances will be used in
processes that result in their destruction.
(i) The destruction verification shall include the following:
(A) Identity and address of the person intending to destroy class
II substances;
(B) Indication of whether those class II substances will be
completely destroyed, as defined in Sec. 82.3, or less than completely
destroyed, in which case the destruction efficiency at which such
substances will be destroyed must be included;
(C) Period of time over which the person intends to destroy class
II substances; and
(D) Signature of the verifying person.
(ii) If any aspects of this verification change at any time, the
person must submit a revised verification reflecting such changes to
the producer from whom that person purchased class II substances
intended for destruction.
(f) Heels--Recordkeeping and Reporting. Any person who brings into
the U.S. a container with a heel, as defined in Sec. 82.3, of class II
substances, must comply with the following requirements:
(1) Any person who brings a container with a heel must indicate on
its bill of lading or invoice that the class II substance in the
container is a heel.
(2) Any person who brings a container with a heel must report
quarterly the quantity (in kilograms) brought into the U.S. and
certify:
(i) That the residual quantity (in kilograms) in each shipment is
no more
[[Page 38102]]
than 10 percent of the volume of the container;
(ii) That the residual quantity (in kilograms) in each shipment
will either:
(A) Remain in the container and be included in a future shipment;
(B) Be recovered and transformed;
(C) Be recovered and destroyed; or
(D) Be recovered for a non-emissive use.
(3) Any person who brings a container with a heel into the U.S.
must report on the final disposition of each shipment within 45 days of
the end of the control period.
(g) Space vehicle/defense allowances--Reporting.
(1) Any person allocated space vehicle/defense allowances who
submits an order to a producer or importer for a product made with or
containing HCFC-141b must also submit quarterly reports to the
Administrator containing the following information:
(i) The type of product made with or containing HCFC-141b;
(ii) The specific application of the product made with or
containing HCFC-141b; and
(iii) The quantity (in kilograms) of HCFC-141b used or contained in
the product received from the manufacturer; and
(iv) The identity of the manufacturer of the product made with or
containing HCFC-141b.
(2) Any manufacturer of a product made with or containing HCFC-141b
produced or imported as a result of space vehicle/defense allowances
must submit quarterly reports to the Administrator containing the
following information:
(i) The quantity (in kilograms) of HCFC-141b received;
(ii) The identity of the producer or importer supplying the HCFC-
141b used or contained in the product;
(iii) The identity of the recipient of the product made with or
containing HCFC-141b; and
(iv) The quantity (in kilograms) of HCFC-141b used or contained in
the product sent to the recipient.
13. Revise Appendix B to Subpart A to read as follows:
Appendix B to Part 82 Subpart A--Class II Controlled Substances a
------------------------------------------------------------------------
------------------------------------------------------------------------
Dichlorofluoromethane (HCFC-21)........................... 0.04
Monochlorodifluoromethane (HCFC-22)....................... 0.055
Monochlorofluoromethane (HCFC-31)......................... 0.02
Tetrachlorofluoroethane (HCFC-121)........................ 0.01-0.04
Trichlorodifluoroethane (HCFC-122)........................ 0.02-0.08
Dichlorotrifluoroethane (HCFC-123)........................ 0.02
Monochlorotetrafluoroethane (HCFC-124).................... 0.022
Trichlorofluoroethane (HCFC-131).......................... 0.007-0.05
Dichlorodifluoroethane (HCFC-132)......................... 0.008-0.05
Monochlorotrifluoroethane (HCFC-133)...................... 0.02-0.06
Dichlorofluoroethane (HCFC-141b).......................... 0.11
Monochlorodifluoroethane (HCFC-142b)...................... 0.065
Hexachlorofluoropropane (HCFC-221)........................ 0.015-0.07
Pentachlorodifluoropropane (HCFC-222)..................... 0.01-0.09
Tetrachlorotrifluoropropane (HCFC-223).................... 0.01-0.08
Trichlorotetrafluoropropane (HCFC-224).................... 0.01-0.09
Dichloropentafluoropropane (HCFC-225ca)................... 0.025
Dichloropentafluoropropane (HCFC-225cb)................... 0.033
Monochlorohexafluoropropane (HCFC-226).................... 0.02-0.10
Pentachlorofluoropropane (HCFC-231)....................... 0.05-0.09
Tetrachlorodifluoropropane (HCFC-232)..................... 0.008-0.10
Trichlorotrifluoropropane (HCFC-233)...................... 0.007-0.23
Dichlorotetrafluoropropane (HCFC-234)..................... 0.01-0.28
Monochloropentafluoropropane (HCFC-235)................... 0.03-0.52
Tetrachlorofluoropropane (HCFC-241)....................... 0.004-0.09
Trichlorodifluoropropane (HCFC-242)....................... 0.005-0.13
Dichlorotrifluoropropane (HCFC-243)....................... 0.007-0.12
Monochlorotetrafluoropropane (HCFC-244)................... 0.009-0.14
Trichlorofluoropropane (HCFC-251)......................... 0.001-0.01
Dichlorodifluoropropane (HCFC-252)........................ 0.005-0.04
Monochlorotrifluoropropane (HCFC-253)..................... 0.003-0.03
Dichlorofluoropropane (HCFC-261).......................... 0.002-0.02
Monochlorodifluoropropane (HCFC-262)...................... 0.002-0.02
Monochlorofluoropropane (HCFC-271)........................ 0.001-0.03
------------------------------------------------------------------------
\a\ According to Annex C of the Protocol, ``Where a range of ODPs is
indicated, the highest value in that range shall be used for the
purposes of the Protocol. The ODPs listed as a single value have been
determined from calculations based on laboratory measurements. Those
listed as a range are based on estimates and are less certain. The
range pertains to an isomeric group. The upper value is the estimate
of the ODP of the isomer with the highest ODP, and the lower value is
the estimate of the ODP of the isomer with the lowest ODP.''
14. Appendix C to Subpart A is revised to read as follows:
Appendix C to Part 82 Subpart A--Parties to the Montreal Protocol
(as of May 1, 2001)
Updated lists of Parties to the Protocol and the Amendments can be
located at: www.unep.org/ozone/ratif.htm. A check mark indicates
ratification/accession/acceptance/approval of the agreement.
[[Page 38103]]
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Montreal London Copenhagen Montreal Beijing
Foreign state protocol amendments amendments amendments amendments
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Albania............................................................
Algeria............................................................
Angola.............................................................
Antigua and........................................................
Barbuda............................................................
Argentina..........................................................
Armenia............................................................
Australia..........................................................
Austria............................................................
Azerbaijan.........................................................
Bahamas............................................................
Bahrain............................................................
Bangladesh.........................................................
Barbados...........................................................
Belarus............................................................
Belgium............................................................
Belize.............................................................
Benin..............................................................
Bolivia............................................................
Bosnia &...........................................................
Herzegovina........................................................
Botswana...........................................................
Brazil.............................................................
Brunei Darussalam..................................................
Bulgaria...........................................................
Burkina Faso.......................................................
Burundi............................................................
Cameroon...........................................................
Canada.............................................................
Central African....................................................
Republic...........................................................
Chad...............................................................
Chile..............................................................
China..............................................................
Colombia...........................................................
Comoros............................................................
Congo..............................................................
Congo, Democratic..................................................
Republic of........................................................
Costa Rica.........................................................
Cote d'Ivoire......................................................
Croatia............................................................
Cuba...............................................................
Cyprus.............................................................
Czech Republic.....................................................
Denmark............................................................
Djibouti...........................................................
Dominica...........................................................
Dominican..........................................................
Republic...........................................................
Ecuador............................................................
Egypt..............................................................
El Salvador........................................................
Estonia............................................................
Ethiopia...........................................................
European...........................................................
Community..........................................................
Federated States of Micronesia.....................................
Fiji...............................................................
Finland............................................................
France.............................................................
Gabon..............................................................
Gambia.............................................................
Georgia............................................................
Germany............................................................
Ghana..............................................................
Greece.............................................................
Grenada............................................................
Guatemala..........................................................
Guinea.............................................................
Guyana.............................................................
Haiti..............................................................
Honduras...........................................................
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Hungary............................................................
Iceland............................................................
India..............................................................
Indonesia..........................................................
Iran, Islamic Republic of..........................................
Ireland............................................................
Israel.............................................................
Italy..............................................................
Jamaica............................................................
Japan..............................................................
Jordan.............................................................
Kazakhstan.........................................................
Kenya..............................................................
Kiribati...........................................................
Korea, Democratic People's Republic of.............................
Korea, Republic of.................................................
Kuwait.............................................................
Kyrgyzstan.........................................................
Lao, People's Democratic Republic..................................
Latvia.............................................................
Lebanon............................................................