[Federal Register Volume 69, Number 164 (Wednesday, August 25, 2004)]
[Proposed Rules]
[Pages 52366-52402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18933]



[[Page 52365]]

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Part III





Environmental Protection Agency





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40 CFR Part 82



Protection of Stratospheric Ozone: Process for Exempting Critical Uses 
From the Phaseout of Methyl Bromide; Request for Information on 
Existing and Available Stocks of Methyl Bromide; Proposed Rule and 
Notice

  Federal Register / Vol. 69, No. 164 / Wednesday, August 25, 2004 / 
Proposed Rules  

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[FRL-7802-3]
RIN 2040-0170


Protection of Stratospheric Ozone: Process for Exempting Critical 
Uses From the Phaseout of Methyl Bromide

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: EPA is proposing to amend the accelerated phaseout regulations 
that govern the production, import, export, transformation and 
destruction of substances that deplete the ozone layer under the 
authority of Subchapter VI of the Clean Air Act (CAA), as amended. 
Today's proposed amendments provide the framework for an exemption 
permitted under the Montreal Protocol on Substances that Deplete the 
Ozone Layer (Protocol) and Subchapter VI of the CAA and specify the 
amount of methyl bromide that may be supplied in 2005 from available 
stocks and new production and consumption to meet proposed critical 
uses. Specifically, EPA is proposing requirements to govern the 
``critical use'' exemption from the production and consumption (defined 
as production plus imports minus exports) phaseout for quantities of 
class I, Group VI controlled substances (methyl bromide) that are 
produced or imported for critical uses. EPA is also proposing the list 
of uses that qualify for the critical use exemption in 2005, the amount 
of additional methyl bromide that may be produced or imported for those 
uses in 2005, and limitations on the sale of existing inventories for 
use in critical use categories that are a necessary condition 
applicable to those who are granted the privilege in 2005 of obtaining 
a dedicated supply of methyl bromide from new production and imports 
for critical uses after the scheduled phaseout date.

DATES: Written comments on the proposed rule must be received on or 
before October 12, 2004. Any party requesting a public hearing must 
notify the contact person listed below by 5 p.m. eastern standard time 
on September 7, 2004. If a hearing is requested it will be held 
September 10, 2004. If a hearing is held, commenters will have 30 days 
to submit follow up comments before the close of the comment period. 
Persons interested in attending a public hearing should consult with 
the contact person below regarding the location and time of the 
hearing.

ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2003-
0230, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the on-line instructions for submitting comments.
     Agency Web site: http://www.epa.gov/edocket. EDOCKET, 
EPA's electronic public docket and comment system, is EPA's preferred 
method for receiving comments. Follow the on-line instructions for 
submitting comments.
     E-mail: [email protected].
     Fax: 202-343-2337 attn: Hodayah Finman.
     Mail: Air Docket, Environmental Protection Agency, 
Mailcode: 6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In 
addition, please mail a copy of your comments on the information 
collection provisions to the Office of Information and Regulatory 
Affairs, Office of Management and Budget (OMB), Attn: Desk Officer for 
EPA, 725 17th St., NW., Washington, DC 20503.
     Hand Delivery: EPA Air Docket, EPA West 1301 Constitution 
Avenue, NW., Room B108, Mail Code 6102T, Washington, DC 20460. Such 
deliveries are only accepted during the Docket's normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information.
    Instructions: Direct your comments to Docket ID No.OAR-2003-0230. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at http://www.epa.gov/edocket, including any personal information provided, 
unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through EDOCKET, regulations.gov, or e-
mail. The EPA EDOCKET and the Federal regulations.gov Web sites are 
``anonymous access'' systems, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through EDOCKET or regulations.gov, your e-mail address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses. For additional information about EPA's public 
docket visit EDOCKET on-line or see the Federal Register of May 31, 
2002 (67 FR 38102).
    Docket: All documents in the docket are listed in the EDOCKET index 
at http://www.epa.gov/edocket. Although listed in the index, some 
information is not publicly available, i.e., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically in EDOCKET or in hard 
copy at the Air Docket, EPA/DC, EPA West, Room B102, 1301 Constitution 
Ave., NW., Washington, DC. This Docket Facility is open from 8:30 a.m. 
to 4:30 p.m., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744, and the 
telephone number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: For further information about this 
proposed rule, contact Hodayah Finman by telephone at (202) 343-9246, 
or by e-mail at [email protected], or by mail at Hodayah Finman, 
U.S. Environmental Protection Agency, Stratospheric Protection 
Division, Stratospheric Program Implementation Branch (6205J), 1200 
Pennsylvania Avenue, NW., Washington, DC 20460. You may also visit the 
Ozone Depletion Web site of EPA's Global Programs Division at http://www.epa.gov/ozone for further information about EPA's Stratospheric 
Ozone Protection regulations, the science of ozone layer depletion, and 
other related topics.

SUPPLEMENTARY INFORMATION: This proposed rule concerns Clean Air Act 
restrictions on the consumption, production and on the use of methyl 
bromide (class I, Group VI controlled substance) for critical uses 
after the phaseout date of January 1, 2005. Under the Clean Air Act, 
methyl bromide consumption and production will be phased out on January 
1, 2005, apart from allowable exemptions, namely the proposed critical 
use exemption and the existing quarantine and pre-shipment exemption. 
With today's action, EPA is

[[Page 52367]]

proposing a framework for how the critical use exemption will operate 
as well as specific amounts of methyl bromide to be made available for 
proposed critical uses.

Table of Contents

I. General Information
    A. Regulated Entities
    B. How Can I Get Copies of This Document and Other Related 
Information?
    C. How and to Whom Do I Submit Comments?
    D. How Should I Submit Confidential Business Information (CBI) 
to the Agency?
II. What Is the Background to the Phaseout Regulations for Ozone-
Depleting Substances?
III. What Is Methyl Bromide?
IV. What Is the Legal Authority for Exempting the Production and 
Import of Methyl Bromide for Critical Uses Authorized by the Parties 
to the Montreal Protocol?
V. What Is the Critical Use Exemption Process?
VI. What Are the Details of Today's Proposed Action To Implement the 
Critical Use Exemption for Methyl Bromide?
    A. What Is the Total Amount of Methyl Bromide That May Be 
Supplied for U.S. Critical Uses?
    B. What Is the Proposed Regulatory Framework for Implementing 
the Critical Use Exemption and What Is a Critical Use Allowance 
(CUA) and a Critical Stock Allowance (CSA)?
    C. How Will Critical Use Allowances (CUAs) be Distributed?
    D. How Are Critical Stock Allowances (CSAs) Distributed?
    E. Are Allowances To Be Allocated on a Sector-Specific Basis or 
as One Lump Sum for All Sectors?
    F. How Many Critical Use Allowances (CUAs) and Critical 
Stockpile Allowances (CSAs) Will Producers, Importers and 
Distributors Be Allocated?
    G. What Are the Tracking Requirements for a Sector- or 
Applicant-Specific Allocation?
    H. How Do ``Approved Critical Users'' Acquire Methyl Bromide 
Under Today's Proposal?
    I. Who Is an Approved Critical User?
    J. Can New Market Entrants or New Consortia Members Be Approved 
Critical Users?
    K. What Uses and ``Limiting Critical Conditions'' Are Permitted 
Access to the Methyl Bromide Under the Critical Use Exemption?
    L. What Are the Reporting Requirements?
    M. What Are the Record-Keeping Requirements?
    N. How Often Will Critical Use Allowances (CUAs) Be Distributed 
and How Are Allowances Expended?
    O. Can Allowances Be Traded?
    P. Are Allowances Bankable From One Year to the Next?
    Q. How Is Unused Critical Use Methyl Bromide Treated at the End 
of the Compliance Period?
    R. What Are the Enforcement Provisions Governing Critical Uses?
VII. What Are Other Options on Which EPA Seeks Comment?
    A. Distribution of Critical User Permits (CUPs) to End Users of 
Methyl Bromide?
    B. What Is a Critical Use Permit (CUP) and Can It Be Traded?
    C. Who Is Eligible To Receive an Initial Allocation of CUPs and 
Who May Use CUPs?
    D. Who May Hold a CUP?
    E. Methods for Distribution of Critical User Permits: 
Distribution Based on Data.
    F. Submitting Individual Entity Data To Obtain Critical User 
Permits (CUPs).
    G. Methods for Distribution of Critical User Permits: 
Distribution Using Auctions.
    H. Frequency of Auctions and Set Asides.
    I. Other Methods for Distributing CUPs.
    J. Tracking Permits.
    K. Redeeming CUPs for Methyl Bromide.
    L. Reporting Requirements for CUP Holders.
    M. Interaction Between CUPs and CUAs.
VIII. What Conforming Amendments Is EPA Proposing With Respect to 
Essential Use Allowances?
IX. Statutory and Executive Order Reviews
    A. Executive Order No. 12866: Regulatory Planning and Review.
    B. Paperwork Reduction Act.
    C. Regulatory Flexibility Act.
    D. Unfunded Mandates Reform Act.
    E. Executive Order No. 13132: Federalism.
    F. Executive Order No. 13175: Consultation and Coordination With 
Indian Tribal Governments.
    G. Executive Order No. 13045: Protection of Children From 
Environmental Health & Safety Risks.
    H. Executive Order No. 13211: Actions That Significantly Affect 
Energy Supply, Distribution, or Use.
    I. National Technology Transfer Advancement Act.

I. General Information

A. Regulated Entities

    Entities potentially regulated by this proposed action are those 
associated with the production, import, export, sale, application and 
use of methyl bromide. Potentially regulated categories and entities 
include:

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             Category                  Examples of regulated entities
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Industry..........................  Producers, Importers and Exporters
                                     of methyl bromide; Applicators,
                                     Distributors of methyl bromide;
                                     Users of methyl bromide, e.g.
                                     farmers of vegetable crops, fruits
                                     and seedlings; and owners of stored
                                     food commodities and structures
                                     such as grain mills and processors,
                                     Government and non-government
                                     researchers.
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    The above table is not intended to be exhaustive, but rather 
provides a guide for readers regarding entities likely to be regulated 
by this proposed action. This table lists the types of entities that 
EPA is aware could potentially be regulated by this proposed action. To 
determine whether your facility, company, business, or organization is 
regulated by this proposed action, you should carefully examine the 
regulations promulgated at 40 CFR part 82, subpart A. If you have 
questions regarding the applicability of this action to a particular 
entity, consult the person listed in the preceding FOR FURTHER 
INFORMATION CONTACT section.

B. How Can I Get Copies of This Document and Other Related Information?

    1. Docket. EPA has established an official public docket for this 
action under the Office of Air and Radiation Docket & Information 
Center, Electronic Air Docket ID No. OAR-2003-0230. The official public 
docket consists of the documents specifically referenced in this 
action, any public comments received, and other information related to 
this action. Although a part of the official docket, the public docket 
does not include Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. The official 
public docket is the collection of materials that is available for 
public viewing at EPA West, 1301 Constitution Ave., NW., Room B108, 
Mail Code 6102T, Washington, DC 20460, phone: (202) 566-1742, fax: 
(202) 566-1741. The materials may be inspected from 8:30 a.m. until 
4:30 p.m. Monday through Friday, excluding legal holidays. A reasonable 
fee may be charged for copying docket materials.
    2. Electronic Access. You may access this Federal Register document 
electronically through the EPA Internet under the ``Federal Register'' 
listings at http://www.epa.gov/fedrgstr/. An electronic version of the 
public docket is available through EPA's electronic public docket and 
comment system, EPA Dockets. EPA prefers that you use the electronic 
EPA Dockets at http://

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www.epa.gov/edocket/ to submit or view public comments and access the 
index listing of the contents of the official public docket. To locate 
the docket on EPA's docket Web site, select ``search,'' then key in the 
appropriate docket identification number, in this case OAR-2003-0230. 
Additional supporting documents related to this proposed action may be 
found in EPA's electronic docket system, docket numbers OAR-2002-0018 
and OAR-2003-0017 and in EPA's paper docket, Air Docket ID No. A-2000-
24.
    Certain types of information will not be placed in the EPA Dockets. 
Information claimed as confidential business information (CBI) and 
other information whose disclosure is restricted by statute, will not 
be included in the official public docket and will not be available for 
public viewing in EPA's electronic public docket. EPA's policy is that 
copyrighted material will not be placed in EPA's electronic public 
docket but will be available only in printed, paper form in the 
official public docket. Although not all docket materials may be 
available electronically, you may still access any of the publicly 
available docket materials through the docket facility identified in 
Unit B.
    For public commenters, it is important to note that EPA's policy is 
that public comments, whether submitted electronically or in paper, 
will be made available for public viewing in EPA's electronic public 
docket as EPA receives them and without change, unless the comment 
contains copyrighted material, CBI, or other information whose 
disclosure is restricted by statute. When EPA identifies a comment 
containing copyrighted material, EPA will provide a reference to that 
material in the version of the comment that is placed in EPA's 
electronic public docket.
    Public comments submitted on computer disks that are mailed or 
delivered to the docket will be transferred to EPA's electronic public 
docket. Public comments that are mailed or delivered to the Docket will 
be scanned and placed in EPA's electronic public docket. Where 
practical, physical objects will be photographed, and the photograph 
will be placed in EPA's electronic public docket along with a brief 
description written by the docket staff.

C. How and to Whom Do I Submit Comments?

    EPA is seeking comments on options that are proposed, as well as 
all other options and methods that are discussed. You may submit 
comments electronically, by mail or through hand delivery/courier. The 
preferred method for submitting comments on this proposed rulemaking is 
to submit comments to the electronic docket OAR-2003-0230. To ensure 
proper receipt by EPA, identify the appropriate docket identification 
number in the subject line on the first page of your comment, in this 
instance OAR-2003-0230. Please ensure that your comments are submitted 
within the specified comment period. Comments received after the close 
of comment period will be marked late. EPA is not required to consider 
late comments. If you plan to submit comments, please notify Hodayah 
Finman, U.S. Environmental Protection Agency, Stratospheric Protection 
Division (6205J), 1200 Pennsylvania Ave., NW., Washington, DC 20460, 
(202) 343-9246.
    Information designated as Confidential Business Information (CBI) 
under 40 CFR part 2, subpart 2, must be sent directly to the contact 
person for this notice. However, the Agency is requesting that all 
respondents submit a non-confidential version of their comments to the 
docket as well.
    To submit an electronic comment as described below, EPA recommends 
that you include your name, mailing address, and an e-mail address or 
other contact information in the body of your comment. Also include 
this contact information on the outside of any disk or CD ROM you 
submit, and in any cover letter accompanying the disk or CD ROM. This 
ensures that you can be identified as the submitter of the comment and 
allows EPA to contact you in case EPA cannot read your comment due to 
technical difficulties or needs further information on the substance of 
your comment. EPA's policy is that EPA will not edit your comment, and 
any identifying or contact information provided in the body of a 
comment will be included as part of the comment that is placed in the 
official public docket, and made available in EPA's electronic public 
docket. If EPA cannot read your comment due to technical difficulties 
and cannot contact you for clarification, EPA may not be able to 
consider your comment.
    i. EPA Dockets. Your use of EPA's electronic public docket to 
submit comments is the preferred method for submitting comments. Go 
directly to EPA dockets at http://www.epa.gov/edocket, and follow the 
online instructions for submitting comments to docket OAR-2003-0230.
    ii. By Mail. Send one copy of your comments to each of the 
following two offices: U.S. Environmental Protection Agency, Air and 
Radiation Docket (6102), Electronic Air Docket ID No. OAR-2003-0230 
Washington, DC 20460 and to U.S. Environmental Protection Agency, 
(6205J) 1200 Pennsylvania Ave., NW., Washington, DC 20460, attn: 
Hodayah Finman docket no. OAR-2003-0230.
    iii. By Hand Delivery or Courier. Deliver your comments to: Hodayah 
Finman 1310 L Street, NW., Washington, DC 20005, Attention Electronic 
Air Docket ID No. OAR-2003-0230. Such deliveries are only accepted 
during the normal hours of operation 9 a.m to 5 p.m.
    iv. By Facsimile. Fax your comments to both: (202) 566-1741, 
Attention Electronic Air Docket ID No. OAR-2003-0230 and to (202) 343-
2337, Attention Hodayah Finman, Electronic Air Docket No. OAR-2003-
0230.

D. How Should I Submit Confidential Business Information (CBI) to the 
Agency?

    Do not submit information that you consider to be CBI 
electronically through EPA's electronic public docket or by e-mail. 
Send or deliver information identified as CBI only to the mail or 
courier addresses listed in the FOR FURTHER INFORMATION CONTACT 
section, Electronic Air Docket ID No. OAR-2003-0230. You may claim 
information that you submit to EPA as CBI by marking any part or all of 
that information as CBI (if you submit CBI on disk or CD ROM, mark the 
outside of the disk or CD ROM as CBI and then identify electronically 
within the disk or CD ROM the specific information that is CBI). 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2. In addition to one complete 
version of the comment that includes any information claimed as CBI, a 
copy of the comment that does not contain the information claimed as 
CBI should be submitted for inclusion in the public docket and EPA's 
electronic public docket. If you submit the copy that does not contain 
CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly 
that it does not contain CBI. Information not marked as CBI will be 
included in the public docket and EPA's electronic public docket 
without prior notice. If you have any questions about CBI or the 
procedures for claiming CBI, please consult the person identified in 
the FOR FURTHER INFORMATION CONTACT section.

II. What Is the Background to the Phaseout Regulations for Ozone-
Depleting Substances?

    The current regulatory requirements of the Stratospheric Ozone 
Protection

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Program that limit production and consumption of ozone depleting 
substances can be found at 40 CFR part 82 subpart A. The regulatory 
program was originally published in the Federal Register on August 12, 
1988 (53 FR 30566), in response to the 1987 signing of the Montreal 
Protocol on Substances that Deplete the Ozone Layer (Protocol). The 
U.S. was one of the original signatories to the 1987 Montreal Protocol 
and the U.S. ratified the Protocol on April 21, 1988. Congress then 
enacted, and President Bush signed into law, the Clean Air Act 
Amendments of 1990 (CAAA) that included Title VI on Stratospheric Ozone 
Protection to ensure that the United States could satisfy its 
obligations under the Protocol. EPA has made several amendments to the 
regulations since that time.

III. What Is Methyl Bromide?

    Methyl bromide is an odorless, colorless, toxic gas, which is used 
as a broad-spectrum pesticide and is controlled under the CAAA as a 
Class I ozone depleting substance (ODS). Methyl bromide is used in the 
U.S. and throughout the world as a fumigant to control a wide variety 
of pests such as insects, weeds, rodents, pathogens, and nematodes. 
Additional characteristics and details about the uses of methyl bromide 
can be found in the proposed rule on the phaseout schedule for methyl 
bromide published in the Federal Register on March 18, 1993 (58 FR 
15014), and the final rule published in the Federal Register on 
December 10, 1993 (58 FR 65018). The phaseout schedule for methyl 
bromide was revised in a concurrent proposal and direct final 
rulemaking on November 28, 2000 (65 FR 70795), which allowed for the 
phased reduction in methyl bromide consumption and extended the 
phaseout to 2005. The revised phaseout schedule was again amended to 
allow for an exemption for quarantine and preshipment purposes on July 
19, 2001 (66 FR 37751), with an interim final rule and with a final 
rule (68 FR 238) on January 2, 2003. Information on methyl bromide can 
be found at the following sites of the World Wide Web: http://www.epa.gov/ozone/mbr and http://teap.org or by contacting the 
Stratospheric Ozone Hotline at 1-800-296-1996.
    Because it is a pesticide, methyl bromide is also regulated by EPA 
under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) 
and other statutes and regulatory authority and by states under their 
own statutes and regulatory authority. Under FIFRA, methyl bromide is a 
restricted use pesticide. Because of this status, a restricted use 
pesticide is subject to certain federal and state requirements 
governing its sale, distribution, and use. Nothing in this proposed 
rule implementing the Clear Air Act is intended to derogate from 
provisions in any other federal, state, or local laws or regulations 
governing actions including, but not limited to, the sale, 
distribution, transfer, and use of methyl bromide. All entities that 
would be affected by the proposed provisions must continue to comply 
with FIFRA and other pertinent statutory and regulatory requirements 
for pesticides (including, but not limited to, requirements pertaining 
to restricted use pesticides) when importing, exporting, acquiring, 
selling, distributing, transferring, or using methyl bromide for 
critical uses. The proposed regulations in today's rulemaking are 
intended only to implement Clean Air Act restrictions on the 
production, consumption and use of methyl bromide for critical uses 
exempted from the phaseout of methyl bromide.

IV. What Is the Legal Authority for Exempting the Production and Import 
of Methyl Bromide for Critical Uses Authorized by the Parties to the 
Montreal Protocol?

    Methyl bromide was added to the Protocol as an ozone depleting 
substance in 1992 through the Copenhagen Amendment to the Protocol. The 
Parties to the Protocol established a freeze in the level of methyl 
bromide production and consumption for industrialized countries at the 
1992 Meeting in Copenhagen. The Parties agreed that each industrialized 
country's level of methyl bromide production and consumption in 1991 
should be the baseline for establishing the freeze. EPA published a 
final rule in the Federal Register on December 10, 1993 (58 FR 69235), 
listing methyl bromide as a class I, Group VI controlled substance, 
freezing U.S. production and consumption at this 1991 level, and, in 
section 82.7 of the rule, setting forth the percentage of baseline 
allowances for methyl bromide granted to companies in each control 
period (each calendar year) until the year 2001 (58 FR 65018). This 
phaseout date was consistent with requirements under section 602(d) of 
the CAA for newly listed class I ozone-depleting substances that ``no 
extension under this subsection may extend the date for termination of 
production of any class I substance to a date more than 7 years after 
January 1 of the year after the year in which the substance is added to 
the list of class I substances.'' Therefore, the 1993 regulation 
established a United States phaseout for methyl bromide in 2001.
    At their 1995 meeting, the Parties made adjustments to the methyl 
bromide control measures and agreed to reduction steps and a 2010 
phaseout date for industrialized countries with exemptions permitted 
for critical uses. At this time, the U.S. continued to have a 2001 
phaseout date in accordance with the Clean Air Act language. At their 
1997 meeting, the Parties agreed to further adjustments to the phaseout 
schedule for methyl bromide in industrialized countries, with reduction 
steps leading to a 2005 phaseout for industrialized countries. In 
October 1998, the U.S. Congress amended Subchapter VI of the CAA to 
prohibit the termination of production of methyl bromide prior to 
January 1, 2005, to bring the U.S. phaseout of methyl bromide in line 
with the global requirements specified under the Protocol and to 
provide for the exemptions under the Protocol. These amendments were 
contained in section 764 of the 1999 Omnibus Consolidated and Emergency 
Supplemental Appropriations Act (Pub. L. 105-277, October 21, 1998) and 
were codified in section 604 of the CAA. On November 28, 2000, EPA 
issued regulations to amend the phaseout schedule for methyl bromide 
and extend the complete phaseout of production and consumption to 2005 
(65 FR 70795).
    Today, in accordance with the 1998 amendments to the CAA, EPA is 
proposing to further amend 40 CFR part 82 to implement an exemption to 
the 2005 phaseout of methyl bromide that allows continued production 
and consumption of methyl bromide for critical uses. Section 604(d)(6) 
of the Clean Air Act provides that ``[t]o the extent consistent with 
the Montreal Protocol, the Administrator, after notice and the 
opportunity for public comment, and after consultation with other 
departments or instrumentalities of the Federal Government having 
regulatory authority related to methyl bromide, including the Secretary 
of Agriculture, may exempt the production, importation, and consumption 
of methyl bromide for critical uses.'' 42 U.S.C. 7671c(d)(6). Article 
2H (5) of the Montreal Protocol provides that the 2005 methyl bromide 
phaseout shall not apply ``to the extent the Parties decide to permit 
the level of production or consumption that is necessary to satisfy 
uses agreed by them to be critical uses.''
    Both section 604(d)(6) and section 614(b) of the CAA address the 
relationship between the Montreal

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Protocol and actions taken under Subchapter VI of CAA. Section 
604(d)(6) addresses critical uses specifically, while section 614(b) is 
more general in scope. Section 604(d)(6) states that ``to the extent 
consistent with the Montreal Protocol,'' the Administrator may exempt 
methyl bromide for critical uses. Section 614(b) states that Subchapter 
VI ``shall be construed, interpreted, and applied as a supplement to 
the terms and conditions of the Montreal Protocol, as provided in 
Article 2, paragraph 11 thereof, and shall not be construed, 
interpreted, or applied to abrogate the responsibilities or obligations 
of the United States to implement fully the provisions of the Montreal 
Protocol. In case of a conflict between any provision of this 
subchapter and any provision of the Montreal Protocol, the more 
stringent provision shall govern.''
    EPA must take into account not only the text of Article 2H but also 
the related Decisions of the Protocol Parties that interpret that text. 
Under customary international law, as codified in the 1969 Vienna 
Convention on the Law of Treaties (8 International Legal Materials 679 
(1969)) both the treaty text and the practice of the parties in 
interpreting that text form the basis for its interpretation. Although 
the United States is not a party to the 1969 Convention, the United 
States has regarded it since 1971 as ``the authoritative guide to 
current treaty law and practice.'' See Secretary of State William D. 
Rodgers to President Richard Nixon, October 18, 1971, 92d Cong., 1st 
Sess., Exec. L (November 22, 1971). Specifically, Article 31(1) of the 
Vienna Convention provides that ``[a] treaty shall be interpreted in 
good faith in accordance with the ordinary meaning to be given to the 
terms of the treaty in their context and in light of its object and 
purpose.'' Article 31(3) goes on to provide that ``[t]here shall be 
taken into account, together with the context: (a) any subsequent 
agreement between the parties regarding the interpretation of the 
treaty or the application of its provisions.'' In the current 
circumstances Decisions of the Parties can be construed as subsequent 
consensus agreements among the Parties to the Montreal Protocol, 
including the United States, regarding the interpretation and 
application of the Protocol.
    In accordance with Article 2H(5), the Parties have issued several 
Decisions pertaining to the critical use exemption. At their Ninth 
Meeting in 1997, the Parties issued Decision IX/6 which established 
criteria applicable to the critical use exemption. In paragraph 1 of 
Decision IX/6, the Parties agreed as follows:

    (a) That a use of methyl bromide should qualify as ``critical'' 
only if the nominating Party determines that:
    (i) The specific use is critical because the lack of 
availability of methyl bromide for that use would result in a 
significant market disruption; and
    (ii) There are no technically and economically feasible 
alternatives or substitutes available to the user that are 
acceptable from the standpoint of environment and health and are 
suitable to the crops and circumstances of the nomination;
    (b) That production and consumption, if any, of methyl bromide 
for critical uses should be permitted only if:
    (i) All technically and economically feasible steps have been 
taken to minimize the critical use and any associated emission of 
methyl bromide;
    (ii) Methyl bromide is not available in sufficient quantity and 
quality from existing stocks of banked or recycled methyl bromide, 
also bearing in mind the developing countries' need for methyl 
bromide;
    (iii) It is demonstrated that an appropriate effort is being 
made to evaluate, commercialize and secure national regulatory 
approval of alternatives and substitutes, taking into account the 
circumstances of the nomination * * * Non-Article V [Developed 
country] parties must demonstrate that research programmes are in 
place to develop and deploy alternatives and substitutes* * *

    The Parties also agreed in Decision IX/6 that the technical panel 
(discussed below) that reviews nominations and makes recommendations to 
the Parties regarding approval of critical use exemptions, would base 
its review and recommendations on the criteria in paragraphs (a)(ii) 
and (b). The criterion in paragraph (a)(i) was not subject to review by 
this technical panel.
    At the First Extraordinary Meeting of the Parties in March of 2004, 
the Parties issued several decisions that address the agreed critical 
uses, the allowable levels of new production and consumption for 
critical uses, the conditions for granting critical use exemptions, and 
reporting obligations. Decision Ex. I/3 covers the agreed critical uses 
and allowable levels of new production and consumption for the year 
2005. This Decision includes the following terms:
    1. For the agreed critical uses set forth in annex II A to the 
report of the First Extraordinary Meeting of the Parties to the 
Montreal Protocol for each Party, to permit, subject to the conditions 
set forth in decision Ex. I/4, the levels of production and consumption 
set forth in annex II B to the present report which are necessary to 
satisfy critical uses, with the understanding that additional levels 
and categories of uses may be approved by the Sixteenth Meeting of the 
Parties in accordance with decision IX/6;
    2. That a Party with a critical-use exemption level in excess of 
permitted levels of production and consumption for critical uses is to 
make up any such difference between those levels by using quantities of 
methyl bromide from stocks that the Party has recognized to be 
available;
    3. That a Party using stocks under paragraph 2 above shall prohibit 
the use of stocks in the categories set forth in annex II A to the 
report of the First Extraordinary Meeting of the Parties to the 
Montreal Protocol when amounts from stocks combined with allowable 
production and consumption for critical uses exceed the total level for 
that Party set forth in annex II A to the present report;
    4. That Parties should endeavor to allocate the quantities of 
methyl bromide recommended by the Technology and Economic Assessment 
Panel as listed in annex II A to the report of the First Extraordinary 
Meeting of the Parties;
    5. That each Party which has an agreed critical use should ensure 
that the criteria in paragraph 1 of decision IX/6 are applied when 
licensing, permitting or authorizing the use of methyl bromide and that 
such procedures take into account available stocks. Each Party is 
requested to report on the implementation of the present paragraph to 
the Ozone Secretariat;
    The agreed critical uses and allowable levels of production and 
consumption are set forth in annexes to the Parties' report. Decision 
Ex I/4 addresses the conditions for granting and reporting critical-use 
exemption for methyl bromide.
    Decisions IX/6, Ex. I/3, and Ex. I/4 are subsequent consensus 
agreements of the Parties that address the interpretation and 
application of the critical use provision in Article 2H(5) of the 
Protocol. For example, Decision Ex. I/3 reflects a decision called for 
by the text of Article 2H(5) where the parties are directed to ``decide 
to permit the level of production or consumption that is necessary to 
satisfy uses agreed by them to be critical uses.'' EPA intends to 
follow the terms of Decisions IX/6, Ex. I/3, and Ex. I/4. This would 
ensure consistency with the Montreal Protocol and satisfy the 
requirements of Section 604(d) (6) and Section 614(b) of the CAA.
    Decision Ex. I/3 recognizes that article 2H(5) of the Protocol 
contemplates that the Parties will make two separate determinations 
when establishing the critical use exemption. First, the Parties agree 
on the total amount and categories

[[Page 52371]]

of uses that are deemed critical under the criteria established in 
Decision IX/6. Second, the Parties determine the maximum level of new 
production and consumption that should be permitted because it is 
necessary to satisfy those critical uses. Under paragraph 1 of Decision 
Ex. I/3, the first of these determinations (the ``agreed critical 
uses'') is reflected in annex II A to the report of the First 
Extraordinary Meeting of the Parties. For the United States, the 
Parties agreed to 16 critical uses for methyl bromide and authorized 
use of 8,942 metric tons of methyl bromide for these critical uses. The 
second of these determinations is set forth in annex II B which allows 
the United States 7,659 metric tons of production and consumption of 
methyl bromide to satisfy critical uses. Where the level of agreed 
critical uses exceeds the level of new production and consumption 
determined by the Parties to be necessary to satisfy those uses, a 
Party is to utilize available stocks of methyl bromide to fill the gap. 
Decision Ex. I/3, para. 2. Parties are to ensure that the total use of 
methyl bromide material supplied from existing stocks and new 
production and consumption does not exceed the overall level of use 
agreed to be critical. Decisions Ex. I/3, para. 3. Thus, Decision Ex. 
I/3 establishes two caps with respect to methyl bromide for 2005--one 
on the level of new production and consumption for critical uses and 
one on the total usage of methyl bromide in the agreed critical use 
categories.
    Under Decision Ex I/3, the United States is allowed to use a total 
of 8,942 metric tons of methyl bromide in 2005 to satisfy critical 
uses. In accordance with Decision Ex I/3, the quantity of new 
production and consumption in combination with the amount of stocks 
determined to be available for the specified critical uses cannot 
exceed for 2005 the amount of 8,942 metric tons. Because of the cap on 
the amount of methyl bromide available for the specified critical uses, 
EPA will not authorize new production and consumption that, when 
combined with use of available stocks, would exceed the agreed critical 
use level of 8,942 metric tons. The methyl bromide to satisfy those 
uses may be derived from available stocks of material or new production 
and consumption. The upper limit on the amount of new production and 
consumption for the specified critical uses is 7,659 metric tons. 
However, this level of new production and consumption was authorized by 
the Parties subject to compliance with the conditions set forth in 
Decisions Ex. I/3 and Ex. I/4. One of these conditions, in paragraph 5 
of Decision Ex. I/3, provides that ``each Party which has an agreed 
critical use should ensure that the criteria in paragraph 1 of decision 
IX/6 are applied when licensing, permitting or authorizing the use of 
methyl bromide and that such procedures take into account available 
stocks.'' Thus, in deciding the level of new production and consumption 
allowed in the United States, EPA is proposing to consider the amount 
of methyl bromide from stocks recognized by EPA to be ``available'' for 
critical uses.
    In addition, to prevent the total use levels of methyl bromide from 
exceeding the critical use cap, Paragraph 3 of Decision Ex I/3 requires 
that Parties prohibit the use of stocks of methyl bromide under certain 
circumstances. This provision states ``that a Party using stocks under 
paragraph 2 above shall prohibit the use of stocks in the categories 
set forth in annex II A to the report of the First Extraordinary 
Meeting of the Parties to the Montreal Protocol when amounts from 
stocks combined with allowable production and consumption exceed the 
total level for that Party set forth in annex II A to the present 
report.'' This restriction applies in countries where methyl bromide 
material necessary to meet the agreed critical uses is derived from a 
combination of available stocks and new production or imports. In this 
situation, a Party may not allow the total amount of material supplied 
from stocks and new production and consumption to exceed the level of 
use for categories determined by the Parties to be critical. This 
restriction is necessary to ensure that a Party's total level of use in 
critical use categories does not exceed the level which formed the 
basis for the Parties' decision to authorize new production and 
consumption at particular levels. This limitation was deemed to be a 
necessary condition applicable to Parties authorized under the critical 
use exemption to produce or import a dedicated supply of methyl bromide 
to meet critical needs after the 2005 phaseout of methyl bromide.
    Thus, in accordance with Decision Ex. I/3, if EPA authorizes new 
production and consumption to supplement available stocks, EPA will 
restrict the use of existing stocks of methyl bromide in cases where 
use of stocks combined with the authorized level of new production and 
consumption could exceed the critical use cap. In light of the Parties' 
agreement in Decision Ex. I/3 that such a restriction is needed to 
implement Article 2H(5) of the Protocol, EPA is authorized under 
sections 604(b)(6) and 614(b) of the Clean Air Act to regulate the use 
of existing stocks of methyl bromide. EPA's power under section 
604(b)(6) to exempt new production, importation, and consumption of 
methyl bromide for critical uses exists ``to the extent consistent with 
the Montreal Protocol.'' 42 U.S.C. 7671c(b)(6). Because the Parties 
have interpreted the Protocol to impose such a use restriction as a 
condition for the authorization of new production and consumption for 
critical uses, EPA will adhere to the same restriction in its domestic 
implementation of the critical use exemption. This adherence is 
consistent with section 614(b) of the Clean Air Act. 42 U.S.C. 
7671m(b).
    Although many parts of the Montreal Protocol and Subchapter VI of 
the Clean Air Act focus on controlling the production and consumption 
of ozone depleting substances, select provisions also require 
restrictions on the use of such substances. For example, section 605 of 
the Clean Air Act restricts the use of class II substances 
(hydrochlorofluorocarbon) to a limited number of applications starting 
in 2015. 42 U.S.C. 7671d(a). Section 608 of the CAA requires the 
Administrator to promulgate regulations to reduce the use and emission 
of class I substances during the service, repair, and disposal of 
appliances and refrigeration equipment. 42 U.S.C. 7671g. The essential 
use exemption in sections 604(d)(1)-(3) authorizes limited production 
of controlled substances subject to the limitation that such substances 
may only be used in specific applications. 42 U.S.C. 7671c(d). 
Likewise, the critical use exemption under section 604(d)(6) permits 
exempted production, importation, and consumption but only ``for 
critical uses.'' 42 U.S.C. 7671c(d)(6). Thus, under the essential use 
and critical use exemptions, new production and consumption is 
necessarily restricted to particular use categories.
    In the case of the critical use exemption for methyl bromide, the 
Parties recognized in Decision Ex. I/3 that the use restrictions on 
newly produced material must also extend to the use of existing stocks 
of such material in those use categories for which new production and 
consumption has been permitted by the Parties under the exemption. As 
noted above, such a restriction is necessary to ensure that Parties 
abide by the critical use representations underlying the authorization 
of new production and consumption. Where new production and consumption 
is authorized because sufficient material is not available from

[[Page 52372]]

existing stocks, then the predicate for this decision would be 
undermined if Article 2H(5) of the Protocol was interpreted to permit 
unrestricted use of existing stocks in the categories of use that may 
utilize newly produced or imported material. Furthermore, placing such 
a limitation on the use of existing stocks encourages the entities in 
possession of the methyl bromide material to make it available for 
critical uses. This limitation reduces the incentive for entities to 
withhold methyl bromide material from the market in order to induce EPA 
to authorize more new production.
    This kind of a restriction on the use of existing stocks is also 
authorized under the essential use exemption for production or import 
of CFCs and other class I controlled ozone-depleting substances as a 
condition for allowing new production and consumption. However, for 
practical reasons the Parties and EPA have never needed to expressly 
impose such restrictions under the essential use exemption. The limited 
quantities of CFCs and methyl chloroform produced and consumed in the 
United States under the essential use exemption have historically been 
held by the users of such substances. In addition, the number of 
essential uses and size of the user community is very small. Essential 
uses have been limited to use of CFCs as propellants in asthma inhalers 
by not more than 10 companies and the servicing of space vehicles by 
the National Aeronauticsal and Space Administration. Thus, it has been 
much easier under the essential use exemption for the Parties and EPA 
to determine how much existing material is available to the essential 
users and to ensure that the exempted production and consumption in a 
given year was not grossly exceeding the level of essential need. In 
the case of the essential use exemption, the Parties never agreed to a 
Decision that limited the amount of material available from stocks for 
uses deemed essential. However, the Parties track the stocks of these 
essential use materials to ensure the exempted production and 
consumption does not result in a growing stockpile.
    In contrast, in the case of methyl bromide, the majority of 
existing stocks of methyl bromide are not owned and controlled by users 
but by producers, distributors, and importers of such material. There 
are also hundreds of potential users and many uses for methyl bromide. 
In addition, the Parties have authorized a greater number of critical 
uses for methyl bromide (16 categories in the U.S. for 2005), and these 
uses were identified based on specific limiting conditions under which 
methyl bromide use in those categories becomes critical. In this 
situation, there is more risk that the use level in critical use 
categories could exceed the level of agreed critical use without 
express regulation. In the case of essential use allowances, there was 
no need for an express restriction on use of existing stocks because 
the marketplace and the user community self-regulated. However, in a 
situation such as methyl bromide where the distribution patterns of the 
material are different and the user group and critical use profile is 
much larger, the EPA can no longer rely solely on self-regulation to 
ensure the appropriate use level.
    Thus, in accordance with these authorities, EPA is proposing a 
limit on the sale of stocks of methyl bromide to the approved users 
permitted to obtain new production and consumption for their critical 
uses. We propose that holders of stocks will only be authorized to sell 
methyl bromide for critical uses by expending critical stock allowances 
(CSAs) allocated by EPA through this rulemaking action. The proposed 
limitation on the sale of stocks is narrowly defined and applicable 
only to the categories of critical uses for which new production and 
consumption has been authorized because of a demonstrated critical need 
for methyl bromide in that category under certain limiting conditions. 
Consistent with Decision Ex. I/3, those critical users who benefit from 
the greater assurance of obtaining a dedicated supply of methyl bromide 
for critical uses in 2005 from new production or imports, as a 
condition of obtaining this benefit, have limited access to existing 
stocks of methyl bromide to avoid exceeding the overall critical use 
cap established in Decision Ex. I/3.
    EPA is proposing a limitation on the amount of stocks that may be 
sold to the end-users, defined as ``approved critical users'' (see 
description below in Section VI.I.), who may obtain a dedicated supply 
of methyl bromide from new production or imports under the critical use 
exemption. In addition, EPA is proposing that end-users in these same 
categories listed in Decision Ex. I/3, who applied for an exemption but 
were determined in the preparation of the U.S. government nomination to 
have technically and economically feasible alternatives to methyl 
bromide available for their circumstances of use (thus lacking the 
critical need for methyl bromide) would not have access to methyl 
bromide from stockpiles. Thus, EPA is proposing that holders of pre-
phaseout stocks would not be permitted to sell these stocks in 2005 to 
end-users in nominated sectors who do not have the ``limiting critical 
conditions'' (see Section VI.K below) that make methyl bromide use 
critical for the categories listed in Decision Ex I/3. In reviewing 
applications and developing the U.S. nomination for 2005 critical use 
exemptions, the U.S. government determined and submitted documentation 
that in particular circumstances there is a critical need for methyl 
bromide, and that for the other circumstances in that sector there are 
technically and economically available alternatives to methyl bromide 
(e.g., curcurbit production in Michigan with less than moderate fungal 
pathogen infestation). EPA is proposing that end-users in sectors 
nominated by the U.S. that do not have the specified ``limiting 
critical conditions'' would not have access to stocks of methyl bromide 
because, without the limiting critical conditions, they can use the 
technically and economically feasible alternatives. EPA seeks comment 
on these proposed limitations.
    The Agency recognizes there may be other options for controlling 
access to methyl bromide inventories after the phaseout if necessary to 
maintain use below the cap set forth in Decision Ex. I/3. Other groups 
of users who might be subject to controls on use of stocks could 
include: (1) Those users who did not apply for a critical use 
exemption, (2) those users who did apply but whose category of use did 
not, under any limiting condition, meet the conditions necessary to be 
included in the U.S. government nomination for critical use exemptions, 
or (3) those users who applied and were nominated by the U.S. 
government but whose use was not included among the agreed critical 
uses for 2005 set forth in the Parties' Decision Ex I/3. Thus, we 
request comment on whether these groups of users should also be subject 
to a limitation on the use of stocks of methyl bromide produced or 
imported prior to the phaseout and whether we may establish such a 
limitation under applicable legal authority.

V. What Is the Critical Use Exemption Process?

    The procedural requirements for the critical use exemption are 
delineated in Decision IX/6 of the Parties to the Protocol. As applied 
in the United States, users of methyl bromide who believe they may meet 
the criteria to qualify for a critical use exemption may make an 
application to EPA for inclusion in the U.S. nomination of critical 
uses. Starting in 2002, EPA began notifying applicants as to the 
availability of the application, and the

[[Page 52373]]

deadline to apply, with a notice in the Federal Register (68 FR 24737) 
and an announcement on the methyl bromide Web site at http:/
www.epa/.gov/ozone/mbr. Applicants for the critical use exemption must 
provide information demonstrating to the U.S. government that the 
specific use of methyl bromide is critical because (1) the lack of 
availability of methyl bromide for that use would result in significant 
market disruption, and (2) the applicants have no technically and 
economically feasible alternatives or substitutes to methyl bromide 
available to them that are acceptable from the standpoint of 
environment and health and are suitable to the crops and circumstances 
of use. Applicants for the exemption must also submit information on 
their use of methyl bromide, on research into the use of alternatives 
to methyl bromide, on efforts to minimize use of methyl bromide and to 
reduce emissions and on the specific technical and economic results of 
testing alternatives to methyl bromide. Applicants may apply as 
individuals or as part of a group of users (a ``consortium'') who face 
the same limiting critical conditions (i.e. specific conditions which 
establish a critical need for methyl bromide).
    The U.S. government reviews applications and creates a package for 
submission to the Ozone Secretariat of the Protocol for uses nominated 
as having a critical need for methyl bromide beyond the phaseout. Each 
Party must justify such a request by determining that (1) the specific 
use is critical because the lack of availability of methyl bromide for 
that use would result in a significant market disruption; and (2) there 
are no technically and economically feasible alternatives or 
substitutes available to the user that are acceptable from the 
standpoint of environment and health and are suitable to the crops and 
circumstances of the nomination.
    The critical use nominations (CUNs) of various countries are then 
reviewed by a technical committee that advises the countries that have 
ratified the Protocol (the ``Parties'' to the Protocol). This technical 
committee is known as the Methyl Bromide Technical Options Committee 
(``MBTOC'') of the Technical and Economic Assessment Panel (``TEAP''). 
The TEAP is an advisory body to the Parties to the Protocol and is 
directed by the Parties to provide assessments and reviews for 
consideration by the Parties at their annual meetings. The TEAP has 
subgroups called Technical Option Committees that are organized to 
focus on specific topic areas of interest to the Parties. Based on the 
recommendations of MBTOC and TEAP and their own review of the Critical 
Use Nominations (CUNs) submitted by various countries seeking a 
critical use exemption, the Parties, at their annual meetings, take 
decisions to authorize critical use exemptions which ``permit the level 
of production or consumption [of methyl bromide] that is necessary to 
satisfy uses agreed to them to be critical uses'' (Article 2H, 
paragraph 5).
    After decisions by the Parties, for each control period, EPA will 
provide an opportunity such as this for comment on the amounts of 
methyl bromide that may be supplied under the critical use exemption 
and the end uses eligible to use critical use methyl bromide.
    EPA recognizes that users of methyl bromide who qualify for a 
critical use exemption and producers and importers of methyl bromide, 
need to have certainty regarding the amounts of methyl bromide that 
will be available under this proposed exemption and the additional 
regulatory procedures that govern the production and use of critical 
use methyl bromide before the phaseout date of January 1, 2005. 
Therefore, EPA is considering all available regulatory procedures that 
will allow affected entities to have operational certainty about an 
exemption in advance of the phaseout date.

VI. What Are the Details of Today's Proposed Action To Implement the 
Critical Use Exemption for Methyl Bromide?

    In today's proposed action, the Agency is proposing both (1) the 
regulatory framework for how the critical use exemption will operate; 
(2) and the allocation of allowances established under this framework 
to methyl bromide producers, importers and suppliers for the 2005 
control period.

A. What Is the Total Amount of Methyl Bromide That May Be Supplied for 
U.S. Critical Uses?

    EPA is proposing a determination that the United States has a 
critical use level for methyl bromide of 8,942,214 kilograms for 2005 
(including amounts from available stocks and new production or 
imports). This is the amount that the U.S. government included in the 
U.S. Critical Use Nomination as adjusted by the Parties in Decision Ex 
I/3. This amount is adjusted from the 9,777,288 kilograms originally 
nominated by the U.S. government. The difference between the two 
amounts is accounted for by the following adjustments as determined by 
MBTOC, TEAP and the Parties to the Montreal Protocol: (a) The removal 
of methyl bromide for tobacco seedling float trays, totaling 1,323 
kilograms, a use category that the Parties agreed did not meet the 
conditions for a critical use exemption, (b) a reduction of 53,328 
kilograms to account for the market uptake of sulfuryl fluoride, a 
newly registered alternative for the fumigation of stored food items, 
(c) a reduction of 635,027 kilograms from strawberry field uses of 
methyl bromide due to further adoption of alternatives, in particular 
emulsified 1,3 dichloropropene formulations, (d) a reduction of 145,367 
kilograms for turfgrass production to reflect lower application rates 
using mixtures with lower concentrations of methyl bromide, and (e) a 
small number of kilograms based on rounding adjustments. EPA seeks 
comment on the amount of methyl bromide the Agency has determined to be 
necessary to satisfy the critical uses authorized by the Parties for 
2005. EPA refers commenters to the E-Docket where the U.S. nominations 
and additional responses to MBTOC are available. These are the 
technical documents which are the basis for the Parties and EPA's 
determination. At this time, EPA does not have additional information 
to indicate that it should adjust the amounts authorized by the 
Parties, but seeks comments on whether additional research and data is 
available with respect to the deployment of alternatives, the adoption 
of emission reduction technologies, and the other criteria listed in 
Decision IX/6.
    Based on the review of the nominations discussed above, the Parties 
to the Montreal Protocol allowed the United States to permit up to 
7,659 metric tons of newly produced and imported quantities of methyl 
bromide for the agreed critical uses set forth in Annex II.a of 
Decision Ex I/3 if this amount is determined by EPA to be necessary to 
satisfy the agreed critical uses. Supplies of methyl bromide for 
critical uses may be obtained by end users from available stocks of 
methyl bromide, or, new production or imports.
    EPA is proposing to consider adjusting the authorized level of new 
production and consumption for critical uses by the amount of 
``available'' stocks (consumption is defined as production plus imports 
minus exports). As recognized by the Parties, the level of existing 
stocks may differ from the level of available stocks. Under this 
approach, EPA will assess how much methyl bromide is available from 
existing inventories and then determine how much is available to meet 
market demand for critical uses. The Decisions by the Parties recognize 
that assessment

[[Page 52374]]

of existing inventory should account for inventory intended to meet the 
needs of developing countries. Decision Ex I/3 (2) further states, 
``That a Party with a critical-use exemption level in excess of 
permitted levels of production and consumption for critical uses is to 
make up any such difference between those levels by using quantities of 
methyl bromide from stocks that the Party has recognized to be 
available.'' Thus, Decision IX/6 and Decision Ex I/3 recognize that not 
all existing stocks may be available to meet critical uses. The EPA has 
the authority to make this determination, and has developed an analysis 
for developing an estimate of available stocks which it believes is 
consistent with the Clean Air Act and with Decision Ex I/3.
    EPA has solicited information on existing and available stocks from 
approved critical users and from producers, importers, and major 
distributors of methyl bromide in the United States through a 
combination of the critical use exemption applications and information 
request letters sent to entities pursuant to Section 114 of the Clean 
Air Act. In developing today's action for the 2005 compliance period, 
EPA believes it has sufficient information to make a preliminary 
assessment about the level of existing and available stocks. However, 
to update this information about existing and available stocks, EPA is 
publishing in today's Federal Register a Section 114 Information 
Request asking any person who has stocks of methyl bromide they hold 
for sale or transfer to another entity as of August 25, 2004, that are 
unrestricted (not for quarantine and preshipment and produced solely 
for export to Article 5 countries) and not under contract for delivery 
to a specific end-user to submit information to EPA by September 23, 
2004. For years beyond 2005, EPA describes later in this proposed 
rulemaking annual reporting requirements that will provide the Agency 
with sufficient information to assess the level of existing and 
available stocks.
    EPA proposes to use the following approach, based on reasoning 
described below in this section, to assess how much of the existing 
stocks are available for critical uses. EPA seeks comment on the 
proposed method and reasoning described in the following paragraphs. 
EPA proposes to use a top-down methodology which involves deducting the 
amounts of stocks that are unavailable (not available for critical 
uses) from the existing stocks. This methodology can be represented as 
follows: AS = (ES + B)-E1-E2-C-N-D, where AS = available stocks; ES = 
existing stocks or unrestricted total stocks held in the United States 
by producers, importers, distributors, and applicants in 2004; B = 
banked stocks of methyl bromide that were produced or imported with 
expended critical use allowances in a given year that were unused 
during that year; E1 = stocks not produced with Article 5 allowances 
held for export to developing countries; E2 = amounts held for export 
to developed countries in 2004; C = amounts held in catastrophic 
reserve; N = amounts held for transition management in non-critical use 
categories in 2005, and; D = the estimated drawdown of stocks by U.S. 
and international consumers in 2004. In this methodology, existing 
stocks (ES) do not include restricted stocks of methyl bromide that 
were produced under the exemptions for quarantine and preshipment and 
with expended Article 5 allowances to meet the basic domestic needs of 
Article 5 countries. The information, judgments, and assumptions we 
used to quantify each of the factors in the methodology described above 
are further elaborated below and also in a Technical Support Document 
that can be obtained following the specific instructions below.
    Although the discussion of the methodology and factors above and 
below are specific to the proposed determination of available stocks 
for 2005, EPA is proposing this methodology as part of the regulatory 
framework that EPA will use in each control period after 2005 for the 
U.S. determinations of available stocks.
    Export is an important global consideration in determining the 
level of available stocks for domestic critical uses. The U.S. faces 
different circumstances from many other Parties because it is a methyl 
bromide producer country as well as a user country. Unlike the majority 
of the Parties that have authorized critical uses for 2005, the U.S. 
has stocks of methyl bromide to meet global demands in 2004 for methyl 
bromide not just for developing countries but for developed countries 
as well. Therefore, particularly in the case of the U.S., stocks held 
by U.S. companies are not necessarily available for U.S. users. This is 
a different case from Parties that satisfy their demand for methyl 
bromide strictly through imports. Any stocks available in the 
distribution chain of an importing country are presumably imported for 
the express purpose of meeting the demands of domestic end users. EPA 
believes that an accurate accounting of available stocks must take into 
account the global demand for the product in both developed (E2) and 
developing (E1) countries as authorized under the Protocol.
    Furthermore, the U.S. is the world's largest supplier of methyl 
bromide. In the event of an unforeseen catastrophe such as the 
destruction of a production plant, EPA believes that a strategic buffer 
should be held in reserve in order to meet real time global demand for 
methyl bromide. Since U.S. companies supply a significant portion of 
the world, a catastrophe in the U.S. would not only affect U.S. users 
but would affect those users who have authorized critical uses in 
developed countries as well as the users in developing countries who 
have not yet phased out methyl bromide. EPA estimates that a 
catastrophic plant incident that resulted in unforeseen shutdown could 
result in a three month supply disruption and that a catastrophic 
buffer (C) equal to the amount of methyl bromide produced for both 
domestic and overseas markets for transformation, quarantine and 
preshipment, and critical uses for that period of time is necessary to 
prevent a significant impact on many industrial sectors using methyl 
bromide as a feedstock, on global trade that relies on methyl bromide 
to protect the introduction of invasive species, and on agricultural 
sectors globally that have recognized critical needs to fumigate with 
methyl bromide.
    In addition, some entities in the U.S. did not apply for a critical 
use exemption because they intend to meet their small, limited needs 
through existing U.S. inventories of methyl bromide. EPA therefore 
would set aside an amount (N) from the existing stockpile to meet the 
needs of end users who did not apply for an exemption but who are still 
using methyl bromide during their transition to alternatives.
    Finally, stocks in the United States will continue to be sold and 
used by domestic and international consumers throughout the 2004 
calendar year, in advance of the January 1, 2005 phaseout date. This 
drawdown (D) should be considered in determining the amount of stocks 
available for critical uses in 2005.
    EPA is proposing to use the methodology described above to develop 
an estimate of the portion of existing stocks available for critical 
uses. In Decision Ex. I/3, the Parties agreed that for 2005 the United 
States had demonstrated a level of critical use of 8,942,214 kilograms 
of methyl bromide. However, the Parties only authorized the United 
States to produce up to 7,659,000 kilograms of methyl bromide for 
critical uses in 2005 with the understanding that the United States

[[Page 52375]]

would likely have stocks available. EPA is proposing to issue critical 
use allowances (CUAs) for new production and import for the agreed 
critical-use categories at a level not to exceed any amounts of methyl 
bromide authorized by the Parties to be produced and imported to 
satisfy critical uses. In the event that EPA determines that the 
available stocks are greater than the difference between critical use 
levels and authorized production, EPA is proposing to adjust the CUAs 
issued by the additional amount of available stocks relative to the 
level of production and import authorized by the Parties.
    As discussed in the Technical Support Document, this methodology 
(AS = (ES + B)-E1-E2-C-N-D), yields a range of methyl bromide available 
from existing stocks from 5 percent to 9 percent of U.S. consumption 
baseline (1,283,214 to 2,326,000 kilograms). Therefore EPA proposes to 
allocate critical use allowances (CUAs) authorizing 7,659,000 to 
6,616,214 kilograms of new methyl bromide production or import for the 
agreed critical-use categories in 2005. This proposed quantity of new 
production or import is the difference between the total amount of 
methyl bromide use authorized by the Parties for the agreed critical-
use categories in Decision Ex I/3, an amount of 8,942,214 kilograms, 
and the amount of available stocks of 1,283,214 to 2,326,000 kilograms. 
Since EPA is proposing a range of available stocks equal to or greater 
than 1,283,214 kilograms, which is equal to five percent of the U.S. 
baseline, final action may allocate somewhat less than the full amount 
of new production and import that was authorized by the Parties in Ex 
I/3.
    In making the proposed determination of available stocks described 
above, EPA derived the total amount of existing stocks (ES) from 
information that EPA currently has on the amount of methyl bromide 
stocks held by a small number of companies in the United States as of 
the end of 2003. As described above, EPA is seeking to update its 
information on existing stocks (ES). Because no methyl bromide has been 
produced to date under the critical use exemption, the quantity of 
banked critical use methyl bromide (B) is zero in 2005.
    The majority of the information EPA currently has on existing 
stocks was obtained through responses to Section 114 requests that EPA 
sent to a small group of companies. However, each of these companies 
claimed their responses to EPA's request to be Confidential Business 
Information. As a result, EPA is not authorized to release this 
information until it completes the process for evaluating these claims 
prescribed by the Agency's CBI regulations at 40 CFR part 2, subpart B. 
EPA is currently evaluating the merits of these claims in accordance 
with these procedures and expects to make a final determination on the 
CBI claims prior to finalizing the proposed critical use exemption 
regulation. Pending the completion of the process required under 40 CFR 
part 2, subpart B, EPA is treating the companies' methyl bromide 
stockpile information as CBI. In addition, EPA is treating the 
aggregate total of the stocks held by these companies as CBI because of 
concerns that publication of the aggregate amount could allow the small 
number of producers, imports, and distributors who know the size of 
their own holdings to calculate the amounts claimed as CBI by their 
competitors.
    Because EPA has not yet completed its review of these CBI claims 
regarding methyl bromide stocks, this notice does not include the total 
amount of existing stocks (ES) and other quantitative values that EPA 
derived to determine available stocks using the methodology set forth 
above. EPA is concerned that the amount of existing stocks (ES) could 
be revealed by simple arithmetic if EPA were to publish its methodology 
for determining available stocks and quantify all the values used to 
derive the amount of available stocks except for the amount of existing 
stocks.
    However, to provide the public with a meaningful opportunity to 
comment on its approach, EPA has published the estimated amount of 
available stocks in this notice and described the methodology used to 
derive this figure. EPA has also prepared a detailed Technical Support 
Document which elaborates on the reasoning and methodology that EPA 
used in developing estimates for each of the factors described above. 
Interested parties may find a copy of this document within EPA's 
electronic docket, Electronic Air Docket ID No. OAR-2003-0230, and 
EPA's paper docket, Air Docket ID No. A-2000-24. If, in accordance with 
the procedures set forth in 40 CFR part 2, subpart B, EPA determines 
that all or part of the information on existing stocks of methyl 
bromide stocks may be released to the public, EPA will place this 
information in the docket and quantify the other values in the formula.
    To implement this limitation on total methyl bromide use in 
critical use categories on a national basis in 2005, EPA proposes to 
prohibit entities holding stocks of methyl bromide from selling or 
distributing such material to critical use categories for which new 
production and import is authorized under Decision Ex I/3, unless that 
entity holds a ``critical stock allowance'' allocated by EPA. EPA 
proposes to allocate ``critical stock allowances'' (CSAs) in an amount 
between 1,283,214 to 1,987,000 kilograms estimated by EPA to be 
available from stocks for the agreed critical-use categories. In the 
event that market forces reveal that EPA has under-predicted the amount 
of material available from stocks, EPA proposes that holders of 
critical use allowances (CUAs) may retire such allowances in exchange 
for additional critical stock allowances (CSAs) which would be issued 
by EPA.
    The Agency seeks comment on an additional option for making the 
determination regarding the amount of methyl bromide available from 
existing stocks and seeks comments on this option and the proposal. For 
the 2005 calendar year, the Agency could make a determination that the 
amount of methyl bromide available from existing stocks is simply based 
on the difference between the limit on methyl bromide for critical uses 
(8,942 metric tons) and the limit on new production and import (7,659 
metric tons) in the Decision Ex. I/3. This approach would reflect the 
fact that the Decision anticipates that each Party will determine how 
to take into account methyl bromide available from existing stocks.
    EPA seeks comment on the amounts of critical use allowances (CUAs) 
and critical stock allowances (CSAs) proposed for allocation under the 
critical use exemption framework. EPA also seeks comment on its 
methodology for quantifying available stocks for 2005. In particular, 
EPA requests comment on whether it should employ the methodology for 
identifying available methyl bromide from existing stocks in a more 
qualitative than quantitative manner.

B. What Is the Proposed Regulatory Framework for Implementing the 
Critical Use Exemption and What Is a Critical Use Allowance (CUA) and a 
Critical Stock Allowance (CSA)?

    EPA proposes to implement the critical use exemption by using an 
allowance system.
    EPA believes an allowance system that regulates the production and 
import of critical use methyl bromide, as opposed to regulating the 
actual users of methyl bromide, is the simplest and most transparent 
method available for ensuring U.S. compliance with Protocol 
obligations. There are relatively few entities that produce and import 
methyl bromide that EPA regulates under the CAA and these entities are 
already

[[Page 52376]]

providing high quality reporting data to EPA that is verifiable and 
easy to track. In accordance with Protocol obligations and CAA 
requirements the EPA primarily regulates production and consumption 
(defined as production plus imports minus exports) of ozone-depleting 
substances. Given that the universe of producers and importers is 
considerably smaller than the universe of end users, and that producers 
and importers generally have more infrastructure for regulatory 
compliance than end users, this method of regulation is proven to be 
cost effective for ensuring U.S. compliance with obligations under the 
Montreal Protocol and requirements under the CAA.
    Thus, EPA proposes to create critical use allowances (CUA) which 
would entitle the allowance holder (producer or importer) to produce or 
import 1 kilogram of methyl bromide for the exclusive purpose of 
satisfying the needs in agreed critical-use categories during the 2005 
control period (calendar year). A CUA holder would expend one allowance 
for producing or importing one kilogram of methyl bromide.
    In addition, in order to implement its obligations under the 
Protocol to control the amount of methyl bromide used in 2005 in the 
agreed critical use categories, EPA is also proposing to create 
critical stock allowances (CSAs). A CSA would entitle the allowance 
holder (producer, importer, distributor or applicator) to sell 1 
kilogram of methyl bromide of available stockpiled material to an 
approved critical user. For example, a distributor with 100 CSAs may 
sell 100 kilograms of stockpiled methyl bromide to an approved critical 
user for use in an agreed critical use category of fumigation. EPA is 
proposing to prohibit the sale of methyl bromide stocks to an approved 
critical user for critical uses without a critical stock allowance. 
Thus, EPA would control the total amount of stocks that can be sold or 
distributed to the critical use categories authorized by the Parties 
through the allocation of a limited number of critical stock 
allowances.
    The issuance of critical stock allowances (CSAs) does not obligate 
holders of stocks to make these quantities available to critical uses 
if they choose for practical or business reasons not to sell or 
distribute stocks to critical uses. However, EPA believes that these 
firms will respond to market conditions.
    The CSA would be expended upon the sale of methyl bromide to an 
approved critical user, which would include instances where an approved 
critical user contracts with a distributor to provide fumigation 
services. A CSA would not be expended upon the transfer of methyl 
bromide from producers or importers to a distributor. See the 
additional discussion below on transfers of CSAs.
    EPA seeks comments on the proposed allowance allocation framework 
for implementing the ``double cap'' agreed to in Decision Ex I/3 by the 
Parties to the Protocol

C. How Will Critical Use Allowances (CUAs) Be Distributed?

    With today's action, EPA is proposing to allocate critical use 
allowances (CUAs) to producers and importers of methyl bromide on a 
pro-rata basis based on their 1991 consumption baseline levels. EPA 
proposes using historic 1991 baseline levels of consumption allowances 
to allocate CUAs because it is consistent with the method of allocation 
currently in place under the phaseout of methyl bromide and because EPA 
has easily verifiable baseline data for 1991.
    EPA is proposing to use consumption baselines and not production 
baselines because critical use methyl bromide can be legally sourced in 
the U.S. through either domestic production or import. A critical use 
allowance (CUA), as described in Section VI..B. of this proposed rule, 
entitles the allowance holder either to produce or to import one (1) 
kilogram of methyl bromide. Therefore, EPA believes that the production 
baseline would be inappropriate to use since it would exclude importers 
from meeting the needs of critical uses.
    Although EPA is proposing to distribute allowances to producers and 
importers based on the 1991 baseline, EPA recognizes an option of 
allocating allowances to producers and importers based on the volume of 
material marketed over a previous historic period, such as the 
immediate past four years. EPA does not have adequate data to create a 
new baseline of marketed material for methyl bromide producers and 
importers. EPA believes that acquiring sufficient, credible data of 
this nature would require the Agency to review all transaction records 
for each sale made by a methyl bromide producer or importer to a 
distributor, other supplier, or directly to end users. The Agency is 
concerned that it would take a long time to compile, receive and 
analyze such detailed information. In addition, such a process of 
compiling and submitting the information to make a new baseline 
determination would impose additional burden on the regulated 
community. This burden would likely be annual since the volumes of 
marketed material would not remain static from year-to-year after 2005.
    EPA also recognizes another allocation method that would equally 
divide the number of allowances amongst those entities with historic 
production and consumption. EPA believes that this would be the 
simplest approach to allocating allowances. However, a simple division 
of the critical use allowances (CUAs) based on the number of entities 
involved would grossly distort historic and current relative market 
shares of the regulated entities; some would receive far more than 
their historic production and consumption and others would receive far 
less. Allocating allowances based on volume of recently marketed 
material may more closely reflect current market shares for each 
company, but, for reasons involving the annual burden on industry and 
government discussed above, this is not a desirable distributional 
mechanism. Therefore, EPA is proposing to allocate allowances based on 
the 1991 historic baseline that has been used for more than a decade in 
the U.S. to determine relative market shares among producers and 
importers. Allocating CUAs based on each company's 1991 baseline 
allowances (on a pro-rata basis) is a better reflection of market share 
than simply dividing the number of allowances by the total number of 
entities, and would be less burdensome than conducting a detailed 
recent historical market share analysis on a an annual basis. Using the 
1991 historic baseline method for distributing CUAs is consistent with 
how EPA has allocated methyl bromide production and consumption 
allowances for the past decade under the methyl bromide phaseout.
    During stakeholder meetings prior to development of this rule, one 
stakeholder suggested that EPA give the allowances to a third party 
not-for-profit entity who would in turn auction the allowances to the 
producers, importers, and distributors. After the producer, importer 
and distributor purchased the requisite number of allowances, these 
entities could then expend the allowances as described in Sections 
VI.B. and VI.N. of this proposed rule. The revenue derived from the 
auction would be used by the not-for-profit entity to fund transitions 
to alternatives where the alternatives are technically available but 
not economically feasible and research into alternatives to methyl 
bromide where no technically feasible alternatives exist to date. Under 
the allowance auction approach, no additional activities would be 
required of the end users but they would receive

[[Page 52377]]

a substantial benefit in the form of the transition fund described 
above in this paragraph. One of the economic benefits of the auction 
would be the redistribution of windfall profits that the producers and 
importers of methyl bromide currently receive under the phaseout of 
methyl bromide and that will be extended under the proposed critical 
use exemption. There are relatively few producers and importers of 
methyl bromide and the regulatory-induced scarcity created by the 
Protocol and CAA means higher prices can be charged and the additional 
profits are then received and kept by the producer and importer 
companies. Under an auction however, producers and importers would pay 
for the right to produce or import methyl bromide, thereby decreasing 
their windfall profits. Apart from a small amount of money to maintain 
operations of the not-for-profit entity, in theory the revenues derived 
from the auction could be transferred to end users of methyl bromide to 
ease the economic burden of their phaseouts.
    A second stakeholder commented that an auction could be established 
as follows. EPA would distribute allowances to producers and importers 
as described in this NPRM which would entitle the companies to take two 
actions (a) produce and import kilograms of methyl bromide up to the 
number of allowances held, or (b) auction the allowances to critical 
end users. The end users would then turn in their allowances to the 
methyl bromide supplier at the time of purchase.
    A similar allocation method that would address the windfall profit 
issue is as follows. EPA would distribute CUAs to end users. The users 
would then sell the allowances to producers and importers who would 
then be able to produce or import critical use methyl bromide. This 
distribution system would allow windfall profits to be captured by the 
users. Problems with this system are the same ones discussed with 
distributing allowances to a not-for profit entity as described in the 
preceding paragraph.
    EPA seeks comments on today's proposed method for allocating 
critical use allowances (CUAs) and the many other options for 
allocating CUAs described above, as well as the magnitude of burden 
associated with any of the options that would adjust existing 
baselines.

D. How Are Critical Stock Allowances (CSAs) Distributed?

    EPA proposes to allocate CSAs on a pro-rata basis between each of 
the identified entities that holds stocks. EPA will pro-rate the total 
amount of stocks that the Agency has determined are available between 
each known entity relative to the percentage of the total existing 
stocks they hold. For example, if company A holds one percent of all 
existing stocks and EPA determines that 1,000 kilograms of stocks are 
available, EPA will issue that company 10 critical stock allowances 
(CSAs). EPA believes this is the most equitable and least arbitrary 
method available for allocating CSAs.
    Based on information currently available, EPA proposes to issue 
CSA's to the small group of companies that had stocks of methyl bromide 
in 2003. The amount allocated to each of these companies (and any other 
company that may come forward) will be determined in the final rule on 
the basis of comments and additional information collected by EPA. EPA 
proposes to allocate critical stock allowances (CSAs) on a pro-rata 
basis to the companies based on the amount of stocks held by each 
entity and the Agency's assessment of the available methyl bromide from 
stocks for critical uses.
    In today's Federal Register, EPA is requesting additional 
information on the amount of available stocks in the United States. 
Elsewhere in today's Federal Register EPA is publishing a notice under 
Section 114 of the CAA calling for every entity to submit to EPA by 
September 23, 2004, information on their stocks of methyl bromide that 
are unrestricted (not for quarantine and preshipment and produced 
solely for export to Article 5 countries). An entity that does not 
submit information to EPA regarding stocks of methyl bromide they hold 
for sale or transfer to another entity as of August 25, 2004, will not 
receive critical stock allowances (CSAs) in the allocation made in the 
final rule. Such entities will not, therefore, be able to sell methyl 
bromide to any of the approved critical users in the 16 agreed 
critical-use categories defined in Decision Ex I/3 by the Parties to 
the Protocol.
    As noted above, EPA is currently evaluating (in accordance with the 
procedures in 40 CFR part 2, subpart B) whether the inventory amounts 
held by individual entities are entitled to be withheld from the public 
as confidential business information. If EPA makes a final 
determination that the amount of stocks held by each entity is not 
confidential business information, then the final rule will contain the 
specific amounts of CSAs allocated to each entity on the basis of the 
information submitted to EPA. However, if EPA determines that 
individual company holdings of methyl bromide stocks are CBI, then the 
final rule will list the names of the entities issued CSAs without 
including the amounts. EPA would then confidentially inform each party 
of amount of CSAs allocated to them for 2005. Alternatively, EPA might 
be able to allocate CSAs on a pro-rata basis without revealing the 
amount of existing stocks held by each party. This is because the CSA 
allocation would be a pro-rata percentage of ``available'' stocks, 
which may be a lesser amount than the aggregate of existing stocks held 
by all the companies, and therefore would not reveal the actual amount 
held by each of the companies.

E. Are Allowances To Be Allocated on a Sector-Specific Basis or as One 
Lump Sum for All Sectors?

    Decision Ex I/3 (4) states that, ``Parties should endeavor to 
allocate quantities of methyl bromide'' in accordance with the 
recommendations made by the Technology and Economic Assessment Panel 
(TEAP) as listed in agreed critical-use categories. EPA is therefore 
requesting comment on a sector-based allocation of allowances, as well 
as several other more flexible methods for making allocations.
1. Sector-Specific Allocation
    EPA seeks comments on a sector-specific allocation of critical-use 
allowances (CUAs) and also a sector-specific allocation of critical 
stock allowances (CSAs). Under a sector-specific option, in 2005 EPA 
would create and allocate 16 different types of CUAs, one type for each 
critical use category authorized by the Parties. End users of methyl 
bromide made applications to EPA for an exemption and the U.S. 
government created a nomination of uses with similar circumstances to 
be considered by the Parties. The nomination aggregated similar 
circumstances of methyl bromide use into sectors. In a sector-specific 
allocation scheme, each producer and importer of methyl bromide would 
be allocated 16 different types of CUAs on a pro-rata basis in relation 
to their overall 1991 consumption baseline. For example, assume 
producer A has a consumption baseline that equals 50% of total 
allowable U.S. consumption. If the Parties authorized new production of 
100 kilograms of methyl bromide for tomatoes and 20 kilograms of methyl 
bromide for flower nurseries, EPA would allocate 50 tomato critical use 
allowances (tomato CUAs) and 10 flower nursery critical use allowances 
(flower nursery CUAs) to company A. See Section VI.F. below for the 
proposed sector-specific allocation of

[[Page 52378]]

CUAs to individual producers and importers. The methyl bromide produced 
or imported with a tomato CUA could only be sold and used for growing 
tomatoes by an approved critical user that has the limiting critical 
conditions cited as the basis for the critical methyl bromide need in 
the nomination that was subsequently authorized by the Parties.
    EPA recognizes that not all allowance holders (producer/importers) 
may want or need allowances of all types. For example, some allowance 
holders may supply only certain geographic markets or certain sectors. 
If EPA were to implement an allocation scheme, such as a sector-
specific system, that is more restrictive than the current market, EPA 
would permit allowance trading amongst allowance holders. For instance, 
a tomato CUA holder in Region A would be able to trade with a tomato 
CUA holder in Region B; however, a tomato CUA holder would not be 
allowed to trade with a strawberry CUA holder in Regions A and B. 
Section 607 of the CAA allows for trading in part to encourage 
rationalization in the industry. It would be difficult for EPA to know 
exactly which company services which particular group of end users. 
However, the market-based mechanisms (transfers of allowances) 
described later in this preamble may rectify such issues under a 
sector-specific allocation scheme.
    EPA believes that an allocation scheme that is more restrictive 
than the ``lump sum'' approach described below, such as the sector-or 
applicant-specific allocation, would provide greater assurance to each 
sector or group of applicants that some defined amount of methyl 
bromide would be available for that particular user group. However, 
under a sector-or applicant-specific system, if the user group did not 
use its entire allowable amount of methyl bromide, it would not be 
available for other approved critical users. So too, if a group needed 
more methyl bromide because they had a particularly bad pest 
infestation or demand for their product suddenly increased, the group 
would not be able to secure additional quantities without first seeking 
approval from the Parties during the annual nomination process and 
obtaining a higher allocation through EPA's subsequent notice-and-
comment rulemaking which is resource and time intensive. A more 
restrictive sector-or applicant-specific allocation provides more 
certainty to each group but at the cost of flexibility.
2. Lump Sum Allocation
    EPA requests comment on the option of creating one pool of CUAs and 
one pool of CSAs that can be used to supply critical use methyl bromide 
across sectors in what is known as a ``lump sum'' or ``universal'' 
approach. This means that critical use methyl bromide produced or 
imported with CUAs could be used for any of the agreed critical-use 
categories. Likewise, with a lump sum allocation of critical stock 
allowances (CSAs), the limited inventory that is available for sale 
into the critical use market would be for any of the agreed critical-
use categories.
    Under a universal allocation system, EPA anticipates that the 
actual critical use will closely follow the sector breakout listed by 
the TEAP and incorporated into Decision Ex I/3. The TEAP 
recommendations are based on data submitted by the U.S. which in turn 
are based on recent historic use data under the current methyl bromide 
phaseout market which is a ``universal'' system. In other words, the 
TEAP recommendations agreed to by the Parties are based on current use 
and the current uses are taking place in a marketplace where all methyl 
bromide users compete for the lump sum. Thus, EPA expects that 2005 use 
under a universal approach will look similar to the TEAP 
recommendations and annex II a in Decision Ex I/3. To the extent that 
any discrepancies between expected and actual use in 2005 occurs, a 
later section of today's proposed rulemaking describes tracking and 
reporting requirements that will help verify actual use by sector and 
help refine future U.S. nominations for critical use exemptions by 
highlighting differences between amounts nominated for a sector, 
recommended by TEAP, and agreed by the Parties and the actual use by 
that sector during the 2005 control period.
    EPA would like to note that currently the methyl bromide market 
under the phaseout reductions (since 1994) operates as a ``universal'' 
or ``lump sum'' system. All end users of methyl bromide compete in the 
same marketplace for methyl bromide under the phaseout regulations. EPA 
believes that no critical user will face a situation where they cannot 
access approximately the same levels of methyl bromide that they have 
historically been able to access during the years of the phaseout 
because the U.S. government used recent historic data (1997-2001) in 
determining how much to nominate for each sectors critical use and this 
use data is based on amounts of methyl bromide obtained under a 
universal market.
    In addition to the logistic and administrative reasons for 
implementing a universal allocation scheme, there are significant 
economic reasons to implement such a lump sum approach. The more 
restrictive the methyl bromide caps are, the less efficient the 
distribution of methyl bromide one would expect in the market. 
According to economic theory, under a universal cap, methyl bromide 
would go to those users with the highest marginal cost of substitution 
who would set the price of methyl bromide. This price of methyl bromide 
would lead those users with marginal costs of substitution lower than 
the price of methyl bromide to move instead to an alternative that may 
not have been previously economically feasible, thus resulting in a 
comparatively more efficient distribution of material and an overall 
lower cost of compliance for the regulated community as a whole. EPA 
estimates that the cost savings to the regulated entities of an 
illustrative sector-specific approach may be between $20 to $27 million 
when compared to a complete phase out of methyl bromide; the cost 
savings under an illustrative universal approach may be $22 to $31 
million (see section VII a for more information on this analysis). 
Thus, the universal approach results in a greater cost savings to the 
regulated entities overall. A full discussion of this cost estimate may 
be found in the docket for today's rulemaking.
3. Applicant-Specific Allocation
    EPA requests comment on making allowances specific to critical use 
exemption applicants. Under this option, in 2005 EPA would create and 
allocate 51 different types of CUAs and 51 different types of CSAs, one 
for each authorized critical use exemption applicant. Again, these 
allowances would be distributed to producers and importers in a pro-
rated fashion and would be tradable amongst them. EPA recognizes that 
the more types of allowances we create, the more administratively and 
logistically complex the regulation becomes for the regulated 
community. With added administrative complexity generally comes a 
higher cost of implementation which may include costs associated with 
generating more specific information and greater inflexibility in the 
market.
4. Hybrid Allocation Options
    EPA also is requesting comment on a hybrid approach that would 
create sector- or applicant-specific CUAs and universal or ``lump sum'' 
CSAs. EPA realizes that stocks may be held by

[[Page 52379]]

distributors and applicators. Unlike producers and importers whom EPA 
has historically regulated, some of these entities are smaller or more 
specialized. For example, EPA is aware of a distributor and custom 
applicator based on the East Coast that only services customers in the 
eastern part of the U.S. It is unlikely that this East Coast 
distributor and applicator will have any customers from the California 
fruit tree nursery sector that was authorized for critical use methyl 
bromide, since this is a region the distributor and applicator does not 
service. Thus, an allocation of fruit tree nursery CSAs would be of 
little practical use to this company. If the allocation were sector-
specific, the company could trade its fruit tree nursery CSAs with one 
of the distributor/applicator companies that operate in California. 
However, if the company on the east coast was allocated only a small 
number of fruit tree nursery CSAs, it may not be worth the time and 
cost to find a suitable trading partner and engage in the trade. 
Therefore, EPA recognizes a hybrid option that would allocate sector-
specific or even applicant-specific CUAs, but universal CSAs. The 
universal CSAs would alleviate problems associated with dividing small 
quantities of inventories scattered throughout the distribution system 
into many different types of end uses that may be of little use to a 
distributor in a specific geographic location. In addition, the 
universal CSAs would provide some flexibility to the end user community 
in the event that unanticipated market forces drive up demand in a 
particular commodity area or pest outbreaks in a particular crop are 
unusually high in a particular growing season.
    EPA recognizes that another option would be to make CUAs and CSAs 
universal but require distributors and others who sell methyl bromide 
directly to end users to ``endeavor'' to make quantities of critical 
use methyl bromide available to their customers as prescribed in 
Decision Ex I/3 annex IIA. This option would rely on entities at the 
point of sale to ration methyl bromide to their customers the same way 
they have been doing under the phaseout--based on each client's 
historical purchases--in essence giving each sector (customer) the 
right of first refusal to a specific quantity of methyl bromide. 
However, under a scheme where distributors endeavor to make the 
critical use methyl bromide available in accordance with the quantities 
associated with specific-sectors in annex IIA of Decision Ex I/3, the 
methyl bromide, whether from CUAs or CSAs would still be ``universal,'' 
and distributors would have the flexibility to move quantities of 
critical use methyl bromide from one sector that does not need their 
full amount, to another sector that may have higher than anticipated 
need.
    Finally, regarding the allocation of critical use allowances (CUAs) 
for new production and import of methyl bromide after the January 1, 
2005, phaseout, EPA recognizes another hybrid option that would 
allocate a percentage on a sector-specific basis and a percentage on a 
universal, lump sum basis. This option of allocating a percentage of 
the CUAs as sector-specific and a percentage of CUAs as universal would 
provide some measure of assurance for each applicant as well as 
providing flexibility if a few of the sectors faced greater need for 
methyl bromide in the 2005 control period.
    EPA wishes to note that the circumstances that are the basis for 
the U.S. sector nominations and the TEAP recommendations for specific 
sectors may have changed since that data was submitted. However, since 
EPA will not issue allowances for more critical use methyl bromide than 
the amount authorized by the Parties, this proposed rulemaking provides 
stakeholders with the opportunity to request flexibility in how 
allowances are distributed to accommodate changes in the marketplace 
that have transpired since the TEAP review. This NPRM represents part 
of EPA's endeavor to allocate methyl bromide in accordance with TEAP's 
recommendations. Thus, EPA seeks comment on the universal, sector-
specific, applicant-specific, and hybrid methods for allocating CUAs 
and CSAs. In addition, for the hybrid approaches, EPA also requests 
comment on the portion of the authorized quantity that should be made 
sector- or applicant-specific, if any, and what portion should be made 
universal. EPA will evaluate and reconcile these comments and then 
publish a final rule that describes how allowances will be distributed.

F. How Many Critical Use Allowances (CUAs) and Critical Stockpile 
Allowances (CSAs) Will Producers, Importers and Distributors Be 
Allocated?

    EPA proposes using one of the options described in the immediately 
preceding sections of this rulemaking notice to allocate critical use 
allowances and critical stock allowances to producers, importers, and 
distributers. We described two basic options for making the allocation 
of critical use allowances (CUAs)--a sector-specific allocation or a 
universal allocation--and hybrids of these two options. In addition, we 
propose a universal allocation of critical stock allowances (CSAs).
    The Tables immediately below are illustrative examples of how a CUA 
allocation would appear under a universal allowance allocation scheme 
(Table I) as compared to a sector-specific allowance allocation scheme 
(Table II). For purposes of this illustration, we assumed an overall 
allocation of critical use allowances equal to 7,285,414 kilograms, 
which is approximately the middle of the range that we are proposing. 
When we take final action on this proposal, the individual allocations 
reflected in the following tables may increase or decrease by a 
proportionate amount depending on whether the total amount of critical 
use allowances that we issue is on the higher or lower end of the 
proposed range. Likewise, the amounts in the tables would differ if we 
were to employ one of the hybrid options to allocate allowances. In 
addition, the Agency is still collecting information in a Section 114 
Information Request being published concurrently with today's action, 
so the final rule will take into account updated data on the amount of 
inventory that is available for critical uses.
    The distribution of CUAs to specific producers and importers of 
methyl bromide for a universal allocation may appear as in Table I. The 
distribution of CUAs to specific producers and importers of methyl 
bromide for a sector-specific allocation may appear as in Table II. The 
proposed distribution of CSAs would be as follows for a universal 
allocation (Table III).

 Table I.--Critical Use Allowance Allocation for the Calendar Year 2005
                               (Universal)
------------------------------------------------------------------------
                                                             Number of
                                                           critical use
              Company/universal allocation                  allowances
                                                            (kilograms)
------------------------------------------------------------------------
Great Lakes Chemical Corporation........................       4,427,693
Albemarle Corporation...................................       1,820,736
AmeriBrom, Inc..........................................       1,005,814
Trical, Inc.............................................          31,171
                                                         ---------------
    Total...............................................       7,285,414
------------------------------------------------------------------------


[[Page 52380]]


            Table II.--Critical Use Allowance Allocation for the Calendar Year 2005 (Sector Specific)
----------------------------------------------------------------------------------------------------------------
                                                 Number of critical use allowances (kilograms) for each company
                                                                         for each sector
Sector-specific allocation;  approved critical------------------------------------------------------------------
                  use sectors                     Great Lakes
                                                   Chemical        Albemarle     AmeriBrom, Inc.   Trical, Inc.
                                                  Corporation     Corporation
----------------------------------------------------------------------------------------------------------------
Chrysanthemum cuttings--rose plants...........          14,563           5,989             3,308             103
Curcurbits--field.............................         588,133         241,850           133,603           4,141
Dried fruit, beans and nuts...................          42,955          17,664             9,758             302
Eggplant--field...............................          36,423          14,978             8,274             256
Forest tree nurseries.........................          95,323          39,198            21,654             671
Fruit tree nurseries..........................          22,678           9,325             5,152             160
Ginger production--field......................           4,555           1,873             1,035              32
Mills and processors..........................         239,155          98,344            54,327           1,684
Orchard replant...............................         349,660         143,785            79,430           2,462
Peppers--field................................         537,381         220,979           122,074           3,783
Smokehouse ham................................             449             185               102               3
Strawberry fruit--field.......................         908,020         373,392           206,269           6,393
Strawberry runners............................          27,227          11,196             6,185             192
Sweet potato-- field..........................          40,023          16,458             9,092             282
Tomato--field.................................       1,418,739         583,408           322,287           9,988
Turfgrass.....................................         102,409          42,112            23,264             721
 
    Total.....................................       4,427,693       1,820,736         1,005,814          31,173
----------------------------------------------------------------------------------------------------------------


             Table III.--Critical Stock Allowance Allocation
------------------------------------------------------------------------
                                           Number of critical stock
               Company                      allowances (kilograms)
------------------------------------------------------------------------
Company A...........................  Reserved, pending resolution of
                                       CBI claim and Section 114
                                       request.
Company B...........................  Reserved, pending resolution of
                                       CBI claim and Section 114
                                       request.
    Total...........................  1,656,800
------------------------------------------------------------------------

G. What Are the Tracking Requirements for a Sector- or Applicant-
Specific Allocation?

    In the event that EPA puts in place a final rule that issues 
sector- or applicant-specific allowances, EPA must devise a system that 
would ensure compliance with the sector/applicant level caps. EPA 
believes that tracking types of allowances expended (e.g. pepper CUAs) 
in order to ensure compliance with a sector cap is essentially an 
accounting question and therefore describes a system that controls 
production and import at a sector- or applicant-level through different 
types of CUAs. EPA is proposing a system where entities in the supply 
chain such as producers, importers, and distributors would create and 
keep an on-going log of the amount and, if the final rule allocates on 
a sector- or applicant-specific basis, the type of critical use methyl 
bromide (i.e., eggplant CUAs), on a per kilogram basis, acquired and 
sold during the year. In addition, entities that acquire critical use 
methyl bromide from a supplier would sign a self certification form 
indicating that they understand they are taking possession of a certain 
number of kilograms of critical use methyl bromide of a specific type. 
EPA believes that it is the responsibility of the distributor or other 
supplier to place orders with producers or importers for critical use 
methyl bromide of the appropriate type to meet the needs of their 
customers which means that a distributor may have to call more than one 
company to find the correct type of material in sufficient quantity to 
meet demand (see Sections VI.L. and VI.M. for more information on 
record keeping and reporting requirements).
    During the public meetings on potential allocation framework 
options held during the summer of 2003, a participant suggested that 
EPA require the use of a database system to track critical use methyl 
bromide. Currently, a real time database system is being used in the 
state of California to track the use of 1,3-dichloropropene and ensure 
that the township caps are not exceeded. Under this option, EPA would 
require registrants to populate the database with information on the 
allowable critical uses, the approved critical users, and the amount of 
critical use methyl bromide produced, imported or available from 
critical stockpiles. Distributors and applicators would consult the 
database and reserve a specific amount of critical use methyl bromide 
when an order is placed for the material or for fumigation with 
critical use methyl bromide. The reservation would freeze the amounts 
of critical use methyl bromide for 14 days--at which point the company 
that made the reservation would lose its reservation unless it 
indicated that the material had already been used in a fumigation. This 
database could be created by EPA through a contractor or EPA could 
require regulated entities to utilize existing commercial database 
programs. EPA believes that producers, importers, distributors, and 
applicators would likely have to make some capital expenditures to be 
able to use the database for tracking purposes. EPA believes that the 
database approach would provide high quality use data on critical use 
of methyl bromide and that it could be used under a sector specific or 
applicant specific approach to ensure that distributors and other 
points of sale do not exceed total allowable amounts of critical use 
methyl bromide for that particular use. EPA seeks comment on the use of 
a commercially available database system to track the sale of critical 
use methyl bromide.

H. How Do ``Approved Critical Users'' Acquire Methyl Bromide Under 
Today's Proposal?

    With today's action, EPA is proposing that approved critical users 
(end users) within an agreed critical-use sector, that also have the 
``limiting critical conditions'' for their specific circumstances of 
use, acquire methyl bromide following a system nearly identical to the 
existing procedures under the quarantine and preshipment exemption 
(QPS) to the phaseout of methyl bromide (68 FR 237 (January 2, 2003)). 
The phrases ``approved critical user'' and ``limiting critical 
condition'' are further discussed below in Sections I. and K., 
respectively. EPA proposes that approved critical users of methyl 
bromide who wish to acquire critical use methyl bromide, or who 
contract for

[[Page 52381]]

fumigation with critical use methyl bromide, will self certify that 
they are approved critical users at the time of purchase. The 
certification requirement would be part of the reporting and 
recordkeeping requirements set forth in section 82.13 of its 
regulation.
    To implement this regulation, EPA will create a form that an 
approved critical user will complete with basic information about the 
user (name, location of fumigation, consortium, etc), the number of 
kilograms to be purchased and the area to be treated, the agreed 
critical-use category (i.e. tomatoes, bean storage, etc.), and a check 
list of the applicable limiting critical conditions approved by EPA and 
the Parties (e.g. karst topography, heavy to moderate nutsedge 
infestation). The form would be signed by the approved critical user 
(purchaser) of the methyl bromide and given to the supplier of methyl 
bromide to indicate that the purchaser is acquiring exempted critical 
use methyl bromide from the supplier to use in accordance with the 
exemption and bears the full penalty of law for providing false 
information or for use that is not in accordance with the critical use 
exemption regulations.
    EPA is proposing that producers, importers, and distributors will 
be prohibited from selling methyl bromide in critical use categories 
without obtaining a self-certification from an approved critical user. 
If an approved critical user seeks methyl bromide from stocks existing 
prior to 2005, then the user must find a supplier who holds a 
sufficient amount of critical stock allowances (CSAs) to sell methyl 
bromide to an agreed critical-use category. To obtain methyl bromide 
produced or imported in 2005 under the exemption, the approved critical 
user must go to a supplier who has methyl bromide newly produced or 
imported through expended 2005 critical use allowances (CUAs).

I. Who Is an Approved Critical User?

    An approved critical user is entity who obtains the benefit of 
acquiring newly produced or imported methyl bromide that is dedicated 
for use in those use categories that have been agreed to be critical. 
Such users benefit under the critical use exemption because they have 
certainty that methyl bromide will be available for their critical 
needs because this newly produced and imported methyl bromide cannot be 
used for other purposes or by non-critical users. However, a condition 
for obtaining the benefit of this dedicated supply of methyl bromide 
after the phaseout date is that approved critical users will see their 
access to existing, previously unrestricted stocks of methyl bromide 
limited when necessary to ensure that total use of methyl bromide in 
critical use categories does not exceed the overall critical use cap 
established in Decision Ex. I/3.
    EPA is proposing to define an ``approved critical user'' as an 
entity whose circumstance of methyl bromide use is covered by an 
application that is included in the U.S. nomination and subsequently 
authorized by a Decision of the Parties to the Montreal Protocol for a 
critical use exemption and then determined, through this EPA notice-
and-comment rulemaking, to be eligible for exempted critical use methyl 
bromide (see Section A. of this notice of proposed rulemaking). Thus, 
EPA proposes to define an ``approved critical user'' as a person 
meeting the following two criteria:
    (1) The user, for the applicable control period, applied to EPA for 
a critical use exemption or is a member of a consortium that applied 
for a critical use exemption for a use and location of use that was 
included in the U.S. nomination, authorized by a Decision of the 
Parties to the Montreal Protocol, and then finally determined by EPA in 
a notice-and-comment rulemaking to be a critical use in that location, 
AND
    (2) The user has an area in the applicable location of use that 
requires methyl bromide fumigation because the area is subject to a 
limiting critical condition.
    To summarize, EPA proposes that in order to qualify as an approved 
critical user, you must satisfy the following conditions: (1) You must 
have submitted or belong to a group that submitted an application to 
EPA for a critical use exemption for the specific control period; (2) 
the use and circumstances of use included in your application must have 
been nominated by the U.S. for a critical use exemption; (3) the 
Parties to the Protocol must agree in a Decision that your use and 
circumstance is a critical use and then, (4) through this notice-and-
comment rulemaking EPA must identify your use as a critical use and 
your circumstance as a limiting critical condition. EPA requests 
comment on the proposed criteria for being an ``approved critical 
user'' described above and, in particular, comment that addresses these 
criteria in the context of the language of Decision IX/6 and Decision 
Ex I/3.
    The Agency recognizes there may be other ways of defining an 
``approved critical user'' in the context of Decision IX/6 and Decision 
Ex I/3, such as the following: (1) Not including criterion number two 
above (the limiting critical condition); (2) not including criteria 
numbers one and two above and instead defining approved critical user 
broadly to include any user in one of the agreed critical-use 
categories in Annex II.A. of Decision Ex I/3. We request comment on 
whether such an alternative definition of ``approved critical user'' 
would be more appropriate and consistent with Decisions IX/6 and Ex. I/
3.

J. Can New Market Entrants or New Consortia Members Be Approved 
Critical Users?

    EPA proposes that an approved critical user can include a member of 
a consortium during the control period even if the user was not a 
member at the time the application was submitted to EPA. In today's 
proposal, EPA is defining consortium as an organization representing a 
group of methyl bromide users that has collectively submitted an 
application for a critical use exemption on behalf of all members of 
the group. The members of a consortium would be determined by the rules 
established by the consortium. Members could either be required to 
formally join the consortium (i.e., by submitting an application or 
paying dues) or may automatically become members upon meeting 
particular criteria (i.e. a grower of a specific crop in a particular 
region). EPA does not believe that it is up to the Agency or to 
distributors and third party applicators of methyl bromide to discern 
between different types of consortium members.
    For example, the Southern Forest Nursery Management Cooperative 
consists of a certain number of forest seedling nursery operators. The 
Cooperative made an application to EPA for a critical use exemption 
that only included its members. Therefore, only members of the 
Cooperative would qualify as approved critical users pursuant to the 
consortium's application. However, if a company that was not a member 
of the Cooperative at the time of the application in 2002 decided to 
join the cooperative in 2004, EPA is proposing that the company be 
eligible to access critical use methyl bromide available to members of 
the consortium once the exemption takes effect in 2005 since the 
company would be a member of the Cooperative during the control period.
    A second example is the California Strawberry Commission, which 
made an application to EPA to cover all strawberry growers in the state 
of California. Because the initial application was made on behalf of 
all growers in that state, any strawberry grower in California 
regardless of the

[[Page 52382]]

date when he first entered the market is considered by EPA to be a 
member of the consortium. Thus, a new strawberry grower who enters the 
market in California in 2005 and who meets the limiting critical 
condition for the agreed critical-use category would be able to access 
the critical use methyl bromide under the framework set forth in 
today's proposal.
    In summary, EPA proposes that an approved critical user may include 
an entity who newly enters the market of a crop/use that has a limiting 
critical condition; an entity who switches to a crop/use that has a 
limiting critical condition; an entity who increases production of a 
crop/use that has a limiting critical condition; or an entity who 
switches production of a crop/use with a limiting critical condition 
from one physical location to another. In each instance, such an entity 
would need to meet the limiting critical condition and qualify as a 
member of consortium that applied for and obtained a critical use 
exemption.
    Under the second example described above, any consortium that 
applied for an exemption for a broad geographic group of users may in 
fact be encouraging free riders. However, EPA believes that those 
consortia that applied on behalf of an entire state or region in their 
initial application believe that all users in that location need a 
critical use exemption based on technical and economic criteria. 
Therefore, if a new user enters the market place in that same location, 
EPA believes that the user would have automatically become a member of 
the consortium as if he had entered the market at the time the 
application was made. Therefore, the only remaining relevant question 
is whether or not the new market entrant in the geographic area meets 
the limiting critical condition and therefore may be an approved 
critical user.
    In public meetings, EPA received a suggestion from the affected 
community which called for allowing critical use exemptions to only be 
made available to those users who are ``users of record.'' A user of 
record was suggested to be an approved critical user who was engaged in 
production of a crop or commodity in a critically-exempted sector 
immediately prior to the control period. The effect of such a provision 
would be to require any entity that was not a user of record to use an 
alternative to methyl bromide for the first year it engages in crop or 
commodity production. After the first year, the new market entrant 
would become a user of record and would be able to avail himself of 
critical use methyl bromide. EPA believes that this system may provide 
an incentive for new entrants to try alternatives to methyl bromide. 
However, this system would be difficult to administer outside of the 
state of California where such information is already tracked by state 
regulators. In addition, critical use methyl bromide will only be 
available for those users who do not have any technically and 
economically feasible alternatives available to them; therefore, a 
requirement such as the one suggested would foreclose any new entrants 
altogether.
    EPA believes that in order to accommodate the ever shifting 
marketplace, growers and other users of methyl bromide should be 
allowed to increase or move production as needed so long as total U.S. 
production and import of methyl bromide for use in a given sector 
remains under the limits authorized by the Parties and determined to be 
a critical use in the U.S. through notice-and-comment rulemaking. 
Therefore, EPA is proposing an option in today's notice that allows for 
shifts in the marketplace (market entry and exit, and rotation into new 
production areas) while still ensuring fairness to those groups who 
applied for a CUE. It is important to note that the amount of methyl 
bromide that may be supplied for critical uses in a calendar year 
(control period) will not increase even if the number of users or 
treated area increases. The only way the amount of methyl bromide 
available for critical uses will be increased is if the Parties 
authorize such an increase and EPA incorporates the increase into its 
phaseout regulation through notice-and-comment rulemaking.
    Under the proposed framework outlined in this section, users who 
have the limiting critical condition but who are not users or members 
of a group of users that submitted an application to EPA, are not 
eligible critical users. For example, a consortium applied on behalf of 
certain raspberry nurseries in California and Washington. This use was 
determined by EPA to qualify for an exemption because of the limiting 
critical condition that there are no technically feasible alternatives 
which provide adequate control of pests for raspberry nursery 
propagative stock. If a raspberry nursery operator in California met 
the limiting critical condition but was not a member of the consortium 
and needed to buy methyl bromide, under the proposed option, they would 
not be an approved critical user because the application that was made 
to EPA was not on behalf of all growers in California, only certain 
identified companies. EPA did consider allowing such a person to 
acquire critically exempted material. EPA decided not to propose this 
option in order to discourage free riders who did not invest the time 
and effort to apply for an exemption or even join a consortium that 
submitted an application. EPA understands that users who applied for an 
exemption sometimes spent hundreds of hours preparing an application 
for a critical use exemption. EPA recommends that users who did not 
submit an application or are not part of a consortium, consult with 
USDA or EPA immediately to determine if they could be included in the 
next U.S. nomination of critical users. Such users should also consider 
contacting any consortium that applied for an exemption for their use 
category. EPA is seeking comment on this manner of treating new market 
entrants and users of methyl bromide that were not part of the 
consortia or companies that submitted applications for critical use 
exemptions.

K. What Uses and ``Limiting Critical Conditions'' Are Permitted Access 
to the Methyl Bromide Under the Critical Use Exemption?

    A ``limiting critical condition'' is the basis on which the 
critical need for methyl bromide is demonstrated and authorized. The 
limiting critical condition placed on a use category reflects certain 
regulatory, technical or economic factors that either prohibit the use 
of feasible alternatives or represent the lack of a technically or 
economically feasible alternative for that use or circumstance. For 
example, EPA may determine that a critical use exemption for tomatoes 
is only necessary for areas of tomato production in karst topography 
even if the EPA received applications for all of U.S. fresh market 
tomato production. In this example, not all tomato growers would be 
eligible to acquire exempted critical use methyl bromide. Only those 
growers with production in an area with the limiting critical condition 
of karst topography would have access to the methyl bromide under the 
critical use exemption. Another example is as follows: EPA received 
applications for exemptions for all U.S. grain milling companies that 
are members of the North American Milling Association (NAMA). The 
Parties authorized the exemption because grain milling companies have a 
critical need for methyl bromide because the alternatives can not be 
used, in part, due to corrosivity to electronic equipment. Thus, one of 
the limiting critical conditions for this critical use category is the 
presence of sensitive electronic equipment subject to corrosivity from

[[Page 52383]]

fumigation with the alternative. All grain mills that are members of 
NAMA that have sensitive electronic equipment would be able to acquire 
and use critical use methyl bromide.
    Some approved critical users have limiting critical conditions that 
are contingent. These ``contingent critical uses'' are those uses of 
methyl bromide which qualify as an approved critical use only if a 
specified condition has been met. For example, a number of potential 
critical use needs for methyl bromide in California currently use the 
alternative 1,3-Dichloropropene (1,3-D) in various formulations. This 
chemical is regulated by the state of California so that specific 
townships have limits on the amount of 1,3-D that can be used over a 
given time period. Certain of the agreed critical-use categories in 
Decision Ex I/3 may have a contingent need for critical use methyl 
bromide in the event that the township cap for 1,3-D has been reached 
or exceeded.
    EPA proposes that producers and importers be allowed to produce and 
import critical use methyl bromide for contingent uses at any time 
during the control period. However, EPA is proposing that unused methyl 
bromide produced or imported for such contingent purposes will be 
deducted from the total number of CUAs that EPA makes available for the 
following control period (as it would be included in the consideration 
of inventory as factor B, because the unused methyl bromide would be 
considered in the estimation of available stocks for the subsequent 
control period).
    Below EPA proposes the ``limiting critical conditions'' for each of 
the agreed critical-use categories in Decision Ex I/3 and refers 
commenters to the E-Docket where the U.S. nominations, additional 
responses to MBTOC, and a memo describing the determination process are 
available. EPA wishes to note that while we may, in response to 
comments, reduce the types and conditions of a critical use compared to 
what has been authorized by the Parties, EPA will not increase the 
quantities, and sectors, beyond those authorized by the Parties. 
Section 2H(5) of the Protocol limits the critical use exemption to 
those uses agreed upon by the Parties. The agreed critical uses for 
2005 are reflected in Decision Ex I/3.
    EPA based the proposed ``limiting critical conditions'' on the data 
submitted by critical use exemption applicants, as well as public and 
propriety data sources. The U.S. government, in developing the 
nomination, defined the limiting critical conditions for which exempted 
methyl bromide was being sought. The U.S. government used this data to 
determine if (a) the lack of availability of methyl bromide for a 
particular use would result in significant market disruption, and (b) 
if there were any technically and economically feasible methyl bromide 
substitutes available to the user. The analysis was conducted and 
described in the U.S. nomination of critical uses. This nomination was 
then sent to the Parties to the Protocol, and the Parties used this 
information as the basis for the decision which authorized critical 
uses.
    Based on the data described above, EPA determined that the 
following uses with the limiting critical conditions specified below 
qualify to obtain and use critical use methyl bromide.
    EPA proposes, based on the determination described in the U.S. 
nomination and its supporting documents, that users who are in a 
specific geographic location, identified below, or who are members of a 
specific industry consortia, identified below, or companies 
specifically identified below, are approved critical users provided 
that such users are subject to the specified limiting critical 
condition.
Pre-Plant Uses
Cucurbits
    (a) Michigan growers with moderate to severe fungal pathogen 
infestation;
    (b) Alabama, Arkansas, Georgia, North Carolina, South Carolina, 
Tennessee, and Virginia growers with moderate to severe yellow or 
purple nutsedge infestation.
Eggplant
    (a) Georgia growers with one or more of the following limiting 
critical conditions: Moderate to severe yellow or purple nutsedge 
infestation, moderate to severe nematode infestation and/or moderate to 
severe fungal pathogen infestation;
    (b) Florida growers with limiting critical conditions: Moderate to 
severe yellow or purple nutsedge infestation and/or moderate to severe 
nematode infestation and/or moderate to severe fungal pathogen 
infestation and/or karst topography.
Forest Seedlings
    Approved critical users listed below with one or more of the 
following limiting critical conditions: Moderate to severe fungal 
pathogen infestation, moderate to severe yellow or purple nutsedge 
infestation, and/or moderate to severe disease infestation.
    (a) Members of the Southern Forest Nursery Management Cooperative 
limited to growing locations in Alabama, Arkansas, Florida, Georgia, 
Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, 
Tennessee, Texas, and Virginia;
    (b) International Paper and its subsidiaries limited to growing 
locations in Arkansas, Alabama, Georgia, South Carolina and, Texas;
    (c) Weyerhaeuser Company and its subsidiaries limited to growing 
locations in Alabama, Arkansas, North Carolina, South Carolina, Oregon 
and, Washington;
    (d) Public (government owned) seedling nurseries in the states of 
California, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, 
Missouri, Nebraska, New Jersey, Ohio, Oregon, Pennsylvania, Utah, 
Washington, West Virginia and, Wisconsin;
    (e) Members of the Nursery Technology Cooperative limited to 
growing locations in Oregon and Washington; and
    (f) Michigan seedling nurseries.
Ginger
    (a) Hawaii growers with the limiting critical condition of moderate 
to severe nematode infestation and/or moderate to severe bacterial wilt 
infestation.
Orchard Nursery Seedlings
    Approved critical users listed below with one or more of the 
following limiting critical conditions: Moderate to severe nematode 
infestation, medium to heavy clay soils, and/or a prohibition on the 
use of 1,3-dichloropropene products due to reaching local township 
limits on the use of this alternative;
    (a) Members of the Western Raspberry Nursery Consortium limited to 
growing locations in California and Washington (Driscoll's raspberries 
and their contract growers in California and Washington).
    (b) Members of the California Association of Nurserymen-Deciduous 
Fruit and Nut Tree Growers.
    (c) Members of the California Association of Nurserymen-Citrus and 
Avocado Growers.
Orchard Replant
    Approved critical users listed below with one or more of the 
following limiting critical conditions: Replanted (non-virgin) orchard 
soils to prevent orchard replant disease, and/or medium to heavy soils, 
and/or a prohibition on the use of 1,3-dichloropropene products because 
local township limits for this alternative have been reached.
    (a) California stone fruit growers.
    (b) California table and raisin grape growers.
    (c) California walnut growers.
    (d) California Almond growers.
Ornamentals
    (a) Yoder Brothers Inc. for use in chrysanthemum production.

[[Page 52384]]

    (b) California rose nurseries prohibited from using 1,3-
dichloropropene products because local township limits for this 
alternative have been reached;
Peppers
    (a) California growers with the limiting critical conditions of 
moderate to severe fungal pathogens, and/or moderate to sever disease 
infestation, and/or moderate to sever nematode infestation, and/or 
moderate to severe yellow or purple nutsedge infestation, and/or a 
prohibition on the use of 1,3-dichloropropene products because local 
township limits for this alternative have been reached;
    (b) Alabama, Arkansas, Georgia, North Carolina, South Carolina, 
Tennessee and Virginia growers with one or more of the following 
limiting critical conditions: moderate to severe yellow or purple 
nutsedge infestation, and/or the presence of an occupied structure 
within 76 meters of a grower's field the size of 100 acres or less;
    (c) Florida growers with one or more of the following limiting 
critical conditions: moderate to severe yellow or purple nutsedge 
infestation, and/or karst topography;
Strawberry Nurseries
    (a) California growers with one or more of the following limiting 
critical conditions: moderate to severe black root rot or crown rot, 
moderate to severe nematode infestation, and/or moderate to severe 
yellow or purple nutsedge infestation;
    (b) North Carolina and Tennessee growers with the presence of an 
occupied structure within 76 meters of a grower's field the size of 100 
acres or less;
Strawberry Fruit
    (a) California growers with one or more of the following limiting 
critical conditions: moderate to severe black root rot or crown rot, 
moderate to severe nematode infestation, moderate to severe yellow or 
purple nutsedge infestation, a prohibition of the use of 1,3-
dichloropropene products because local township limits for this 
alternative have been reached;
    (b) Florida growers with one or more of the following limiting 
critical conditions: moderate to severe yellow or purple nutsedge, and/
or karst topography;
    (c) Alabama, Arkansas, Georgia, North Carolina, South Carolina, 
Tennessee, Virginia, Ohio and, New Jersey growers with one or more of 
the following limiting critical conditions: moderate to severe yellow 
or purple nutsedge, and/or the presence of an occupied structure within 
76 meters of a grower's field the size of 100 acres or less;
Sweet Potatoes
    (a) California growers with the contingent limiting critical 
condition of a prohibition on the use of 1,3-dichloropropene products 
because local township limits for this alternative have been reached;
Tomatoes
    (a) Michigan growers with moderate to severe disease and/or fungal 
pathogens;
    (b) Alabama, Arkansas, Georgia, North Carolina, South Carolina, 
Tennessee and Virginia growers with one or more of the following 
limiting critical conditions: moderate to severe yellow or purple 
nutsedge infestation, and/or the presence of an occupied structure 
within 76 meters of a grower's field the size of 100 acres or less;
    (c) Florida growers with one or more of the following limiting 
critical conditions: moderate to severe yellow or purple nutsedge 
infestation, and/or karst topography;
Turfgrass
    (a) U.S. turfgrass sod nursery producers for the production of 
industry certified pure sod.
    (b) U.S. golf courses establishing sod in the construction of new 
golf courses or the renovation of putting greens, tees, and fairways.
Post-Harvest Uses
Food Processing
    Approved critical users listed below with one or more of the 
following limiting critical conditions: older structures that can not 
be properly sealed to use an alternative to methyl bromide, and/or the 
presence of sensitive electronic equipment subject to corrosivity;
    (a) Rice millers in Arkansas, California Louisiana, Florida, 
Missouri, and Mississippi.
    (b) Pet food manufacturing facilities in the U.S.
    (c) Kraft Foods.
    (d) Members of the North American Millers' Association.
Commodity Storage
    (a) Smokehouse ham curing in facilities owned by Gwaltney of 
Smithfield.
    (b) Entities storing walnuts, beans, dried plums, and pistachios in 
California with one or more of the following limiting critical 
conditions: rapid fumigation is required to meet a critical market 
window, such as during the holiday season, rapid fumigation is required 
when a buyer provides short (2 days or less) notification for a 
purchase, and/or there is a short period after harvest in which to 
fumigate and there is limited silo availability for using alternatives.

L. What Are the Reporting Requirements?

    In today's action, EPA is proposing that producers and importers of 
critical use methyl bromide submit quarterly reports to EPA on the 
number of kilograms of critical use allowances (CUAs) expended and 
unexpended. In addition, those entities that sell critical use methyl 
bromide to end users shall report to EPA on an annual basis, the total 
amount of methyl bromide sold to each sector during the control period. 
For example, a distributor would submit an annual report to EPA that he 
sold 1,000 kilograms of critical use methyl bromide for pre-plant 
tomato fumigation and 500 kilograms of critical use methyl bromide for 
pre-plant strawberry fumigation. EPA is proposing this reporting on 
sale of methyl bromide to end-users on a sector-by-sector basis 
regardless of whether the final rule makes CUA and CSA allocations on a 
lump sum or sector-specific basis, because the Agency believes the 
sector-specific sales information will help improve the quality of data 
in future U.S. nominations for critical use exemptions. EPA is also 
proposing that data on sales be reported on a sector-specific basis to 
ease the burden for future applicants for critical use exemptions and 
to simplify U.S. government efforts to assemble and verify data 
concerning the amount of methyl bromide used in a sector and/or 
geographic region. EPA is further proposing that producers, importers, 
distributors and applicators allocated critical stock allowances (CSAs) 
file quarterly reports to EPA on the number of expended and unexpended 
CSAs based on the amount of methyl bromide stocks sold during the 
quarter to an approved critical user (from whom a self-certification 
was received).
    Information collection as proposed above is authorized under 
Sections 603(b), 603(d) and 614(b) of the CAAA. EPA believes the 
reporting requirements outlined above are necessary in order to meet 
U.S. reporting obligations under Article 7 of the Protocol and CAAA 
reporting requirements to Congress under Section 603(d).

M. What Are the Record-Keeping Requirements?

    EPA proposes that producers, importers, and distributors of 
critical

[[Page 52385]]

use methyl bromide maintain self certification records from buyers 
(typically wholesale buyers) for 3 years, along with other 
transactional records such as invoices and order forms. EPA proposes 
that distributors, third party applicators, and any other entities that 
directly sell critical use methyl bromide or fumigation services to 
approved critical users, keep self-certification records signed by the 
buyer of the critical use methyl bromide (whether from expended CUAs or 
from expended CSAs) on file for 3 years, along with other transactional 
records such as invoices and order forms.
    EPA believes that mandatory record keeping requirements create a 
disincentive for the illegal traffic of controlled ozone depleting 
substances (ODS). In some instances, the phaseout of other chemicals 
regulated under Subchapter VI of the Clean Air Act (CAA) has resulted 
in a vigorous black market for the illegal sale of ODSs. The United 
States is in close proximity to developing countries who have not yet 
phased out of methyl bromide and who therefore may have supplies of 
methyl bromide available to them at a lower price than methyl bromide 
in the U.S. This price disparity between physically nearby markets 
could result in an incentive to illegally re-import methyl bromide into 
the United States. Unlike other ODS, the shipment, sale, and use of 
methyl bromide is tightly controlled under other statutes such as FIFRA 
making such activities not only dangerous but difficult to undertake. 
Therefore, EPA does not anticipate that a significant black market will 
develop in the United States for illegally produced or imported methyl 
bromide. Stringent record-keeping requirements under the CAAA that bear 
stiff penalties for violation on the creation, import, and sale of 
methyl bromide for critical uses will, EPA believes, further dampen 
interest in the illegal trade of methyl bromide. EPA seeks comment on 
the ways to discourage the development of a significant black market 
through record-keeping activities.

N. How Often Will Critical Use Allowances (CUAs) Be Distributed and How 
Are Allowances Expended?

    EPA proposes to allocate critical use allowances (CUAs), through 
notice-and-comment rulemaking, on an annual basis (calendar year) 
consistent with authorizations by the Parties and Section 604(d)(6)of 
the CAAA. To the extent that the Parties continue to identify a need 
for controls on available stocks, the Agency will also allocate 
critical stock allowances (CSAs) on an annual basis. EPA proposes to 
allow producers and importers to expend their critical use allowances 
(CUAs) for production and import of methyl bromide at any time during 
the control period (calendar year) so as to avoid disruptions in the 
supply of methyl bromide. However, as with other allowances under EPA's 
phaseout program for ozone-depleting substances, EPA is proposing that 
companies would only be able to expend CUAs during the specified 
control period (calendar year)--for today's proposed action that would 
be during 2005. In other words, there would not be any banking of 
unused critical use allowances (CUAs) from control period to control 
period. If the Parties' decision authorizing 2006 critical use 
exemptions is specific about controls of available stocks, then the 
Agency would discuss such a control in its notice-and-comment 
rulemaking for the 2006 allocations.
    In developing today's action, EPA also recognizes other options for 
addressing concerns about the need for mid-year adjustments in 
allocations of CUAs and CSAs. One option would issue half of the 
allowances at the beginning of the control period and then the 
remainder of the allowances six months into the control period, or, 
some other percentage split for two separate allocations. Under this 
option, EPA would publish an annual rulemaking before the start of the 
control period indicating how many allowances of each type could be 
expended in the first two quarters of the year and how many allowances 
of each type could be expended in the later two quarters of the year. 
EPA also notes that complete information on stocks of methyl bromide 
held on December 31st for a given year would not be reported to the 
Agency until 45 days after December 31st, which might mean the 
determination of available stocks could be designed as a two-step 
process that could result in mid-year allocations for a control period. 
In this second allocation of the remainder of allowances, EPA could, if 
necessary, adjust the relative percentages of critical use allowances 
and critical stock allowances to ensure that critical needs are 
satisfied for the control period if EPA's initial projection of 
available stocks is later found to be inaccurate. The combined total of 
critical use allowances issued for the control period would not exceed 
the cap on new production and consumption set forth in a Decision of 
the Parties. Another option would be to allocate both CSAs and CUAs at 
the beginning of a control period but the CSAs would expire in a short 
time frame and the unexpended CSAs would, through rulemaking, be 
allocated as additional CUAs up to the limit for new production and 
import authorized by the Parties. EPA notes there are many steps in 
publishing rulemakings, many of which can be time consuming. Publishing 
two rulemakings to allocate allowances for a given year might result in 
a lapse in available allowances and therefore a disruption in supply. 
Publishing two rulemakings for each calendar year would also introduce 
much greater uncertainty into the market. The Agency recognizes that an 
alternative approach might be to base the determination of available 
stocks on a ``fiscal'' year from September 31st to September 31st, and 
then publish a single allocation rulemaking for the subsequent calendar 
year. EPA requests comment on these options and whether any of them 
address concerns regarding the availability of sufficient critical use 
methyl bromide that were raised by entities in sectors who fumigate 
later in the calendar year and other issues regarding the supply chain 
for methyl bromide and the data available for subsequent allocation 
rulemakings.
    EPA proposes to allow producers and importers to expend (use) their 
allowances for production and import of methyl bromide at any time 
during the control period so as to avoid disruptions in the supply of 
methyl bromide (see Section VI B. above regarding ``expending'' 
allowances). However, EPA also recognizes an option that would permit 
allowances to be expended only when an order for methyl bromide had 
been placed by a distributor or some other purchaser of methyl bromide, 
making a so-called ``redeemable'' allowance system (see Section VII. on 
a redeemable allowance system). However, EPA believes that such an 
approach is unlikely to result in significantly less critical use 
methyl bromide production, importation and stockpile draw down, and 
would be more disruptive to the methyl bromide market.
    EPA is proposing to allow producers, importers, distributors, 
applicators, and other entities that hold critical stock allowances 
(CSAs) to expend their stockpile allowances by selling a corresponding 
amount of methyl bromide stocks, at any point during the control 
period. Likewise, the Agency is proposing that producers and importers 
allocated critical use allowances (CUAs) would be able to expend their 
allowances to produce or import methyl bromide for the agreed critical-
use categories at any time during the control period (calendar year). 
This approach is preferred because producers and importers need a 
certain amount of time

[[Page 52386]]

to actually manufacture, and bring to market, quantities of methyl 
bromide. Furthermore, producers and importers need to make business 
decisions regarding manufacturing and marketing well before an order is 
actually placed in order to efficiently batch their production and 
import operations. EPA will allocate CUAs and CSAs before the control 
period and the allowances, under today's proposal, may be expended at 
any point during the one year control period. On December 31st of the 
pertinent year, unexpended CUAs and CSAs disappear and the companies 
must be re-allocated allowances for the subsequent calendar year 
(control period). EPA seeks comments on today's proposal and the other 
options described above regarding when allowances are allocated and 
when allowances can be expended.

O. Can Allowances Be Traded?

    In accordance with CAAA section 607, EPA proposes that producers 
and importers allocated critical use allowances (CUAs) be permitted to 
trade or transfer those allowances. EPA is proposing that CUAs would be 
transferable as other allowances for controlled ozone-depleting 
substances can be traded under existing regulatory provisions of the 40 
CFR part 82, subpart A. Section 607 of the CAAA governs the allocation 
of allowances for the production and consumption of class I and class 
II ozone depleting substances and the transfers (trades) of such 
allowances. Paragraph (c) of section 607 requires that such transfers 
of allowances result in a lower level of production than if the trade 
had not occurred. In accordance with the requirements of section 607 of 
the CAAA, EPA is proposing an offset of one tenth of one percent of the 
amount of CUAs being traded that would be deducted from the 
transferor's allowance balance at the time of a trade. A one tenth of 
one percent offset is consistent with the offset required for the 
transfer of essential use allowances under the phaseout program for 
class I controlled ozone-depleting substances, which, like critical use 
allowances, permit the exempted production or import of ozone-depleting 
substances beyond a phaseout date.
    Critical stock allowances (CSAs) are not used in order to produce 
or import methyl bromide but rather are rights to allowance holders to 
sell pre-existing supplies of methyl bromide to the critical use 
market. Because CSAs govern the amount of existing material that can be 
sold, EPA is not proposing to require an offset associated with 
transfers of CSAs. If the holder of a CSA does not wish to sell his 
inventoried methyl bromide to the critical use market, he may sell his 
critical stock allowances (CSAs) to another CSA holder. The second CSA 
holder may then sell additional amounts of his methyl bromide inventory 
to the agreed critical-use categories specified in the rulemaking. 
There will be no offsets with trades of CSAs.
    As noted earlier, a CSA is only expended when methyl bromide stocks 
are sold to an approved critical user. Thus, normal distribution of 
stocks of methyl bromide from a producer or importer to a distributor 
does not require a CSA. For example, if a producer sends a distributor 
10,000 kilograms of methyl bromide stocks for sale to approved critical 
users, the producer would not need to expend CSAs to sell methyl 
bromide to a distributor. However, if the distributor intended to sell 
the methyl bromide to an approved critical user, the distributor would 
need to have sufficient CSAs to sell to a self-certifying approved 
critical user. If the distributor did not have sufficient CSAs, it 
might request that the producer transfer CSAs to the distributor as 
part of the sales transaction of stocks manufactured prior to January 
1, 2005.
    For consistency with the requirements governing other types of 
allowance transfers under the stratospheric ozone phaseout regulations, 
EPA proposes that the entity that is selling or giving allowances to 
another entity must file an allowance transfer form with EPA, which the 
existing regulation requires EPA process within 3 business days of 
receipt. The current regulation states that trades not processed by EPA 
in 3 working days are automatically approved. EPA established this 
short review period to encourage trading and ensure the Agency does not 
impede a fluid market. Today's action proposes that the information to 
be provided to EPA would include the total number of CUAs to be 
transferred and the name of the entity who is acquiring the allowances. 
See 40 CFR 82.9, 82.10 and 82.12 under the current regulations and 
below in the proposed regulatory text.
    EPA is proposing an additional, special type of transfer for the 
methyl bromide critical use exemption program. EPA is proposing that a 
person holding critical use allowances (CUAs) could exchange them for 
additional critical stock allowances (CSAs) and this exchange would not 
require an offset. Under this option, the CUAs would be retired and EPA 
would issue additional CSAs in an amount equal to the amount of retired 
CUAs. This type of an exchange is consistent with Decision IX/6 and 
section 607 of the Clean Air Act because it results in use of more 
stocks and less production in a given control period. Because the 
Parties specified the maximum amount of critical use methyl bromide 
that may be derived from new production or import in Decision Ex I/3, 
EPA is proposing that CUAs may be converted into CSAs in this manner, 
but not vice versa. The Protocol and CAAA have no restriction on 
meeting more critical use needs from stocks. However, because Decision 
Ex I/3 limits the total amount of new production or import in 2005, 
there cannot be an exchange that would increase the number of CUAs.
    EPA is seeking comments on the programs proposed for trading 
allowances and the options that are described above.

P. Are Allowances Bankable From One Year to the Next?

    EPA proposes to prohibit banking of allowances (both CUAs and CSAs) 
from one year to the next because the controls under the Montreal 
Protocol and the Clean Air Act are calendar year ``control periods''. 
The U.S. has obligations under the Montreal Protocol and the Clean Air 
Act to control the production and consumption of ozone-depleting 
``controlled substances'' on an annual, calendar year basis. To date, 
the authorization for exempted production and import of methyl bromide 
for agreed critical-use categories (Decision Ex I/3) is only for the 
2005 calendar year. For the 2005 calendar year (control period), methyl 
bromide production and import is prohibited, except where otherwise 
exempted. In addition, the controls on the use of stocks by critical 
use sectors are also limited to only the 2005 calendar year.
    The Parties may allow for multiple year exemptions in the future 
which may possibly allow for banking of allowances from one year to the 
next so long as it is within the duration of the exemption authorized 
by the Parties. In addition, it is not clear whether future Decisions 
on the critical use exemption will employ the double cap concept and 
effectively limit the amount of material that may be obtained from 
stocks for critical uses. EPA will revisit the issue of banking 
allowances under a multi-year scenario to reflect any framework changes 
agreed to by the Parties in future decisions.

Q. How Is Unused Critical Use Methyl Bromide Treated at the End of the 
Compliance Period?

    The critical use exemption is currently an annual exemption 
program. The amount of new production and

[[Page 52387]]

import authorized by the Parties for 2005 must be produced or imported 
during that calendar year (control period) and not beyond December 31st 
of the pertinent year. However, methyl bromide produced or imported 
under the authorized exemption for a given year may still be unused at 
the end of the compliance control period, and could be used in 
subsequent years for critical uses. In the event there are inventories 
of methyl bromide produced or imported with CUAs remaining at the end 
of the control period, EPA proposes to include these quantities in the 
calculation of available stocks (factor B) in the determination of 
total CUAs to be allocated for the subsequent year.
    EPA is proposing that if critical use allowances (CUAs) are 
allocated on a sector-specific basis, and the methyl bromide is 
produced or imported but unused in the control period, the material 
could be used only for the approved critical uses in the subsequent 
control period. This proposal would mean quantities produced or 
imported with expended CUAs not used in the relevant control period 
would, as stated in today's proposal, be taken into account in the 
calculation of available stocks for determining the level of new 
production or import for the subsequent control period (factor B in the 
algorithm discussed in Section VI.A. above). EPA proposes including 
unused critical use methyl bromide in the calculation of available 
stocks for the subsequent year. EPA also proposes restricting the use 
of critical use methyl bromide produced or imported with expended 
sector-or applicant-specific allowances, if allocated in that manner in 
the final rule, so that it could only be used in the sector for which 
it was allocated. For example, if methyl bromide was produced in a 
given year with expended eggplant CUAs, EPA could limit the use of 
unused quantities to only approved critical use eggplant uses in the 
subsequent control period. EPA seeks comments on the proposed method 
for accounting for unused critical use methyl bromide and the other 
options discussed above.

R. What Are the Enforcement Provisions Governing Critical Uses?

    Section 113 of the CAAA controls enforcement activities for 
violations of requirements under Title VI. Under the Stratospheric 
Ozone Program regulations, EPA has historically defined each kilogram 
of unauthorized production or importation of controlled substances to 
be a separate violation of its regulations. See e.g. 40 CFR 82.4(a)(1) 
(``Every kilogram of excess production constitutes a separate violation 
of this subpart.''). Likewise, for the restricted distribution under 
exemption programs of controlled substances, the Stratospheric Ozone 
Program has also considered each kilogram of inappropriate sale for a 
use other than the designated specific exempted purpose to be a 
separate violation. To ensure U.S. compliance under the Montreal 
Protocol, EPA believes this approach remains justified for enforcement 
against producers, importers, and distributors of methyl bromide 
because these are large companies that have an ability to pay higher 
penalties and should face a substantial deterrent against producing, 
importing, and selling large quantities of controlled substances in 
excess of allowances or application limitations. In addition, these 
producers, importers and distributors are larger companies that 
typically have government affairs staff and retain legal counsel to 
advise them on their regulatory requirements. Thus, EPA will continue 
to define violations involving the unauthorized production, import, or 
sale of critical use methyl bromide on a per kilogram basis.
    In the case of methyl bromide end-users, defining each violation on 
a per kilogram basis could mean a small farmer might face the potential 
of a very high penalty if she applied critical use methyl bromide in an 
unauthorized fashion. However, in assessing penalties under any 
enforcement action, the Agency takes into consideration the size of the 
violator, the economic benefit or advantage achieved from the violation 
and the ability of the violator to pay a penalty. Farmers in many of 
the agreed critical use categories typically use several hundred 
kilograms of methyl bromide to treat a single acre. If the Agency were 
to maintain that each kilogram that is wrongly used is a separate 
violation, then a farmer ordering and applying 3,000 kilogram in error 
to her 10 acre farm would face a potential maximum penalty of more than 
$97 million.
    EPA recognizes that there is a difference in scale of possible 
violations and impact on compliance with U.S. obligations under the 
Protocol and is therefore proposing to define each single violation for 
the mis-use of critical use methyl bromide by an end-user differently 
than a violation by a holder of a CUA or CSA so it reflects the typical 
farm size and application rate of a person in the approved critical-use 
categories, and also reflects the economic benefit/advantage that 
accrues due to a mis-use violation by an end-user. EPA is proposing to 
define each violation associated with the improper use of critical use 
methyl bromide in increments of 200 kilograms. Taking the example of 
the farmer described above, who ordered and submitted a self-
certification to use 3,000 kilograms of critical use methyl bromide in 
accordance with today's proposed restrictions, but then wrongfully 
applied the material, she would face 15 separate violations for this 
mis-use with a potential maximum penalty of $487,000. EPA wishes to 
note again that in assessing penalties, the Agency takes into account 
the circumstances of the violation, the size of the violator and their 
ability to pay. EPA believes it is important to retain a sizable 
potential maximum penalty so there is a deterrent against abuse of this 
exemption from the phaseout. EPA also notes that larger farms (that 
might be operated by sizable agricultural corporations) will also be 
ordering and certifying the proper use of large quantities of critical 
use methyl bromide and if the material were to be mis-used they should 
continue to face large potential maximum penalties. EPA requests 
comments on whether the proposed definition for an end-user's violation 
is appropriate for enforcement, especially in light of the fact that 
the person is self-certifying that they will use the critical use 
methyl bromide in accordance with today's proposed restrictions for the 
exemption.
    Under today's action, EPA is not proposing to use the Federal 
Insecticide, Fungicide, and Rodenticide Act (FIFRA) authorities or 
mechanisms to implement or enforce the critical use exemption. However, 
under today's action, nothing precludes parallel implementation and 
enforcement under FIFRA and other Federal, State, and local pesticide 
regulations.

VII. What Are Other Options on Which EPA Seeks Comment?

    In the section below, EPA describes other options for creating and 
regulating the exemption for critical use methyl bromide beyond the 
phaseout through the allocation of ``permits'' directly to end-users of 
methyl bromide, in contrast to today's proposal to distribute critical 
use allowances (CUAs) to producers and importers, and critical stock 
allowances (CSAs) to all suppliers of methyl bromide. These permits, 
hereafter referred to as ``critical user permits'' (CUPs) would differ 
from the critical use allowances in the following manner. Critical user 
permits would be redeemed to buy one (1) kilogram of methyl bromide for 
an approved critical use whereas a critical use allowance (CUA) would 
be an allowance for the production or import of one (1) kilogram

[[Page 52388]]

of methyl bromide by a manufacturer or importer of methyl bromide.
    EPA believes that the options described in Section VII of this 
proposed rulemaking would create a new burden on approved critical 
users of methyl bromide. A full analysis of the burden associated with 
providing permits to end users is described in the supporting 
analytical documents that accompany this rule. The supporting analysis 
primarily analyzed two options for who could hold critical use 
allowances, producers and importers or end users. Under a system that 
creates permits distributed to methyl bromide end-users, EPA estimated 
that the annual burden would be about $6.4 million per year. In 
contrast, a system designed to provide allowances only to producers and 
importers would cost about $2.2 million. For a more complete discussion 
of the supporting analysis, please see Section VIII.A of this proposal.
    In conducting the analysis, in some cases EPA made only qualitative 
assessments due to uncertainty about the future price of methyl bromide 
and other unknown factors. In other instances, it was difficult to 
create a direct quantitative comparison on the de-regulatory benefit of 
one option compared to the other. EPA believes the options in Section 
VII would be substantially more burdensome for approved critical users 
(end-users) than the proposed option in Section VI. At the stakeholder 
meetings held over the previous year EPA received public comment to 
this effect. To the degree that not all potentially interested parties 
were able to attend these stakeholder meetings, EPA requests comment on 
these options to better understand if the benefits of these options 
outweigh the additional regulatory burden.

A. Distribution of Critical User Permits (CUPs) to End Users of Methyl 
Bromide?

    Under the option of regulating downstream distribution of critical 
use methyl bromide through the allocation of critical user permits 
(CUPs) to methyl bromide end-users there are two options for initial 
distribution of CUPs.
    One option, similar to the method used in Canada under their 
phaseout of methyl bromide, would involve the distribution of permits 
to end users. The second option would employ an auction system whereby 
the allowances would be sold to the user with the highest bid.
    The first option, would involve distributing CUPs to end users 
based on historical information and would require individual farms and 
companies to provide data to EPA (see Section VIII.E for more detail on 
distribution of permits). EPA would then examine the data and would 
write an additional notice-and-comment rulemaking to distribute permits 
to each entity. This process would take between one and two years to 
complete, due the large number of critical use methyl bromide end-users 
(approximately 2,000 farmers or companies), so permits would not be 
available to end users until after the phaseout takes effect. In such a 
scenario, EPA would implement the CUPs beginning in 2007 and rely on an 
upstream system as described in Section VI as an interim control 
measure until 2007.
    The second method to distribute CUPs would be an auction; which 
would circumvent the burden and time involved with directly 
distributing permits to end-users based on historitical data. However, 
the auction of CUPs, similar to a method where EPA uses historical data 
to distribute CUPs, would impose more requirements on end users than 
the proposed option. End users under the auction would be required to 
familiarize themselves with auction procedures, participate in the 
auction, keep records of all auction and CUP activities for three 
years, and report to EPA annually on the use of CUPs acquired. Under 
the proposed option, end users would not have any reporting or 
recordkeeping obligations except self-certification when placing a 
purchasing order. Again, similar to using historical data to distribute 
CUPs, there are timing concerns regarding the auction. The time taken 
to implement an auction would cause an implementation delay past 
January 2005.
    In stakeholder meetings held by EPA over the summer of 2003, 
stakeholders universally commented that they wanted a simple regulation 
and one that would impose minimum burden on end users. This comment was 
regularly made in association with the two end-user permit options (CUP 
options), which stakeholders viewed as presenting significant burden on 
end-users without sufficient accompanying benefits.
    Under either CUP scenario, EPA would abide by the parameters set by 
the Parties in the authorization of critical use exemptions. Decision 
Ex I/3 requests that Parties endeavor to allocate critical use permits 
according to the use categories recommended by the TEAP. The two types 
of auctions for distribution of CUPs could be an auction where all 
critical users would vie for permits or it could be separate sector-
level auctions by approved critical use category. EPA may propose to be 
more restrictive than required under the Protocol, as interpreted by 
the Parties, but not less.

B. What Is a Critical User Permit (CUP) and Can It Be Traded?

    A critical user permit (CUP) is a permit which would entitle the 
holder to obtain one kilogram of methyl bromide for use for approved 
critical uses. Once a user acquires an initial allocation of permits, 
whether through rulemaking or auction, EPA would allow the user to 
either redeem the permit to buy methyl bromide, hold that permit 
unredeemed until the end of the control period when it would expire, or 
sell the permit to another entity.
    Although only approved critical users would be given CUPs 
initially, EPA could restrict the type of entity to whom approved 
critical users could sell permits. Allowing end-users to trade CUPs 
with brokers, trading firms, citizen groups and others might affect the 
methyl bromide market.
    EPA has identified three additional ways that trades of CUPs might 
be governed: (1) Allowing trades only within a sector (only allowing a 
tomato trade with a tomato grower), (2) allowing trades of CUPs across 
sectors (a tomato CUP for a strawberry CUP), or not allowing end-users 
to trade their CUPs after the initial allocation (resulting in a more 
command and control approach).

C. Who Is Eligible To Receive an Initial Allocation of CUPs and Who May 
Use CUPs?

    There are two options for who can receive an initial allocation of 
CUPs. The first option would only allow those entities included in an 
application to EPA to receive an initial allocation of CUPs. The second 
option would allow those users not explicitly covered by an application 
but who have the limiting critical condition to receive an initial 
allocation. Once an entity receives its CUP allocation, it can either 
use it to acquire critical use methyl bromide, or it can simply hold it 
(holding a CUP is addressed in Section VII. D below). There are also 
two options for who can use a CUP to acquire critical use methyl 
bromide, namely only allowing those entities included in an application 
to EPA to participate, or allowing those users not explicitly covered 
by an application but who have the limiting critical condition to 
redeem a CUP for methyl bromide.
    EPA believes that it would be unfair to those groups that invested 
the resources in applying to EPA for an exemption if EPA adopted an 
option that would make an initial allocation of permits available to 
users who meet the

[[Page 52389]]

limiting critical condition but are not covered by an application. 
However, EPA believes that a hybrid approach which allows any user who 
meets the limiting critical condition to buy permits after the initial 
allocation would be reasonable in that the right of first refusal has 
already been given to those that applied for the exemption.

D. Who May Hold a CUP?

    Even though only approved critical users would be able to obtain 
methyl bromide under the critical use exemption, EPA could allow any 
entity to hold permits. For example, EPA could allow citizen groups and 
brokers to hold permits, but not give such entities an initial 
allocation and not allow them to use or redeem the CUPs.

E. Methods for Distribution of Critical User Permits: Distribution 
Based on Data

    EPA recognizes several methods for distributing CUPs to the end 
user community using entity-level historic use and/or operational 
information. One method would use entity-level historic methyl bromide 
use data to create a baseline against which CUPs would be allocated. 
Under this option, individual end users would have to provide 3 years 
of historic use data and documentation to EPA which would include total 
quantity (kilograms) of methyl bromide used in each year, the hectares 
or cubic meters treated annually, the formulation rates, and data on 
efforts to minimize use and emissions. Using these data, EPA would 
establish a straight average baseline and would pro-rate amounts of 
methyl bromide available to the sector by the total treated area 
requested by entities that submitted the additional data.
    If a user has not been a historic grower or owner of the commodity 
for which he seeks an exemption but is now a member of a covered 
consortium, EPA is considering having that user submit documentation to 
support his plans to treat the specified acreage/volume. Alternatively, 
a new entrant might not be given an initial allocation but be allowed 
to buy and use CUPs from a willing seller so long as the entity met the 
limiting critical condition.
    Another method for distributing CUPs would involve economic 
considerations for each entity. For example, EPA could distribute 
permits to those users with the highest cost, in other words to those 
end users with the greatest economic need. Alternatively, EPA is 
considering distributing permits to end users with the lowest cost, who 
would then be inclined to sell their permits to users who have a higher 
cost. In order for EPA to make a determination as to how to distribute 
permits under a scenario using cost criteria, individual entities would 
have to submit historic use data to EPA and individual entity cost 
data.

F. Submitting Individual Entity Data To Obtain Critical User Permits 
(CUPs)

    Under an option involving the distribution of CUPs, users would be 
required to submit the additional data for baseline determination 
either with the annual critical use application or under separate cover 
to EPA. Each year, beginning in 2002, users interested in a critical 
use exemption have been required to submit a detailed application to 
EPA between August and September. A small number of users applied only 
on behalf of their operations alone and therefore for these users, EPA 
has sufficient use data on a per entity basis in order to create a 
historic baseline of methyl bromide use for a few entities.
    Most users however applied for a critical use exemption as groups 
of similar users (e.g. all of tomato growers in Michigan). In these 
instances, EPA does not have the bulk of the baseline data needed to 
create per entity historic baselines of methyl bromide use.
    Due to the amount of time it would take (a) for users to submit 
additional data and documentation to EPA and (b) for EPA to analyze the 
data and write a notice-and-comment regulation allocating baseline 
allocations, EPA would implement the CUPs beginning in 2007 and relying 
on an upstream system as described in Section VI of this proposal an 
interim control measure until 2007.

G. Methods for Distribution of Critical User Permits: Distribution 
Using Auctions

    EPA notes that an auction could be used for distributing critical 
use permits (CUPs) to operations (users) that meet the critical use 
criteria. EPA understands that affected entities have expressed a 
strong preference for a simple regulatory mechanism for the critical 
use exemption. EPA believes that of all the options, an auction may be 
by far the most complex to design, would be unlikely to be in place in 
time for the beginning of the critical use exemption, and may impose a 
steep learning curve on affected entities.
    EPA does not have statutory authority to set a price for methyl 
bromide under the Clean Air Act. Therefore, to implement an auction, 
EPA could only consider an option that did not have the government set 
a minimum or maximum price for material under the critical use 
exemption. EPA therefore is only considering auctions using a sealed 
bid method with no set minimum bid. Other bid options which EPA did not 
consider include the ascending bid or English auction and the declining 
bid or Dutch auction.
    In a sealed bid auction, each bidder discloses the maximum bid they 
would offer and the number of permits they are seeking. The auctioneer 
then opens all of the bids and awards the permits to the highest 
bidders until there are no more permits left. The price of the last 
permit awarded could be used to set the price of all of the bids 
awarded (clearing price) or the price could be determined by the bid 
set by the bidder (``pay as you bid''). In an ascending auction bid, 
the auctioneer offers a losing bidder the chance to increase his/her 
bid. When the bidding has ended, the permits are distributed to the 
highest bidders. In a declining bid auction, the auctioneer sets a 
price for the permit at the high end of the spectrum. Bidders can then 
accept the price and buy permits or can wait and see if the price comes 
down. EPA believes that it only has authority for a ``pay as you bid'' 
auction.
    To submit a bid, a user would first have to establish an account 
via a letter of credit or similar mechanism with the auctioneer or 
would have to submit a certified check for their maximum bid amount 
with their bid form. Information on the bid form would include name of 
bidder, contact information for bidder, name and contact information of 
the authorized representative if applicable, number of kilograms the 
bidder wishes to purchase at a given price, type of permits if 
applicable, location to be fumigated, a description of other crops or 
uses that would benefit from the fumigation (e.g. a double crop of 
peppers), and a certification form that any methyl bromide obtained 
will be used only for critical use purposes.
    The bid price could be structured to include just the cost of the 
permit (the bid premium) or the cost of the permit plus the price of 
the actual methyl bromide purchased. In the former, the bidder only 
obtains the right to buy methyl bromide at a price to be set by the 
supplier; in the latter option, the price paid by the successful bidder 
includes the right to buy methyl bromide and the cost of the methyl 
bromide. However, since EPA does not have the authority to redistribute 
revenues from the auction, EPA only considered a bid price that covers 
the cost of the CUP (the right to buy methyl bromide) alone.
    All revenues from the auction would be sent to the U.S. Treasury 
since EPA does not have statutory authority to capture the revenue for 
other purposes.

[[Page 52390]]

    EPA is considering running the auction in house, having another 
federal entity run the auction, or allowing a third party to administer 
the auction. Each of these implementation schemes for operating the 
bidding process would award the CUPs simply on the basis of price. In 
the event that a third party were to run the auction, EPA examined the 
options of having the party run the auction either for a fee or as a 
gratuitous service to the government. If the auction would be run as 
the latter, the third-party would then be able to charge a reasonable 
administration fee from those in the user community that elected to 
participate in the auction.

H. Frequency of Auctions and Set Asides

    In order to make the auction feasible, EPA believes that two 
auctions a year would be required, one shortly before the beginning of 
the control period and one three to four months after the new control 
period begins. The second, later auction would be required in order to 
ensure that quantities of methyl bromide authorized by the Parties to 
the Protocol in their meeting only two months before the control period 
and approved through rulemaking during the early part of the compliance 
period could be allocated to users.
    EPA recognizes that it could create a set-aside program to hold 
back CUPs from an auction and that there are options for the amount 
that could be held for the subsequent auction(s), and the numbers of 
times and dates during a year for subsequent auctions. Under such a 
program, between 10% and 50% of the total allowable amount, would be 
held in reserve for a second annual auction in order to accommodate 
those users who typically acquire methyl bromide later on in the 
season.

I. Other Methods for Distributing CUPs

    Other options for distributing critical use permits (CUPs) would 
not entail EPA giving permits directly to end users of methyl bromide, 
such as giving the CUPs to the consortium that applied for an 
exemption. The consortium could then determine how they would like to 
distribute allowances to individual users, either through use of data 
or through an auction. However, there are several consortia that do not 
have any infrastructure to receive and distribute the permits and some 
consortia are not even legally incorporated entities. Alternatively, 
EPA is considering giving allowances to State governments to re-
distribute using a method of their choosing. However, due to concerns 
about the possibility of creating an unfunded mandate, EPA has decided 
not to further consider such an option.

J. Tracking Permits

    EPA is evaluating the feasibility of developing a web-enabled 
database program to allow for the tracking and trading of CUPs. Since 
almost 10 million CUPs could be issued based on the number of kilograms 
requested by the U.S. government for critical uses in the 2003 
nomination, EPA believes that a new tracking system would have to be 
developed to facilitate the trading and tracking of CUPs. Each entity 
that applies for an initial allocation of CUPs would be required to 
create an account in the web-enabled database as well as entities that 
sell or distribute methyl bromide to end users and entities who acquire 
permits through trading. Once allocated, EPA would place CUPs in the 
account of the end user. All accounts would be frozen on an annual 
basis on December 31st for the annual true-up period during which time 
no transactions could take place.

K. Redeeming CUPs for Methyl Bromide

    A CUP holder may redeem his permit with a methyl bromide supplier 
such as a custom applicator or distributor by transferring his permits 
to the supplier's account. To transfer the permits, EPA would require 
the permit holder to electronically transfer his permits to the 
supplier's account indicating the number of acres/square feet to be 
treated, location of area to be treated (address, coordinates, parcel 
ID number) and whether a second crop will benefit from the fumigation. 
The permit holder would then transfer the permits electronically to the 
supplier's account, at which point the permits would be deactivated 
automatically by the system. Automatically, an electronic mail 
notification would be sent to the supplier notifying him that the 
specified CUPs have been transferred to his account. The user would 
then print out a certification form that the material would only be 
used for the specific critical use, sign it and send it to the supplier 
before he or she could receive the methyl bromide. A supplier or end 
user would have ten business days to dispute the transaction with EPA 
in the event that an error was made by the permit holder in the 
transfer of permits.

L. Reporting Requirements for CUP Holders

    CUP holders would be required to annually reconcile their accounts 
by submitting a written form to EPA no later than 15 days after the end 
of the control period, i.e. December 31st or the date when all 
unredeemed permits would expire. The form would be created by EPA and 
available on the EPA's methyl bromide website. CUP holders would be 
required to indicate how much critical use methyl bromide bought during 
the year has not been used and/or remains held in inventory for future 
use.

M. Interaction Between CUPs and CUAs

    EPA could implement the CUP program as a stand alone program or in 
conjunction with a CUA and CSA program. If the CUP program were to be 
implemented as a stand alone program, CUP holders would sell their 
permits to producers and importers of methyl bromide at a time of their 
choosing. The producers and importers would not be able to produce or 
import methyl bromide until they held sufficient CUPs to match their 
production or import decisions. EPA believes that under such a system, 
it is likely that producers and importers would solicit CUPs early in 
the year in order to bundle them for planning the year's production or 
import. Producers and importers might be likely to pay more for permits 
they obtain early in the year since they seek certainty on the amounts 
they will be able to produce and import during the year.
    Under the stand alone CUP program, EPA is considering two options 
for how permit holders would obtain methyl bromide. Under the first 
option, the permit holder would be entitled to receive 1 kilogram of 
methyl bromide for each permit sold. EPA believes that under this 
scenario, the price producers and importers would be willing to pay is 
likely to be lower than under the second option. Under the second 
option, a permit holder would sell his permit to a producer or importer 
and would then purchase methyl bromide at a later date through his 
normal supplier as a separate transaction following the procedures 
proposed in today's notice-and-comment rulemaking.
    Under the stand alone CUP program, the reporting and recordkeeping 
requirements for producers, importers, distributors, custom applicators 
and fumigators would be required as described in Sections VI of this 
preamble. EPA understands that creating a stand alone CUP system for 
the creation of exempted methyl bromide could place some strain on the 
methyl bromide production system unless producers and importers were 
able to buy CUPs from permit holders several months in advance of the 
control period. However, due to the time it would take to allocate CUPs 
through a notice-and-comment rulemaking, it would be unlikely that 
sufficient time

[[Page 52391]]

would be available before the control period for producers and 
importers of methyl bromide to have sufficient certainty to make 
production decisions.
    Under a combined option, in which EPA might allocate CUPs, as well 
as CUAs, and CSAs (as in the program described in Section VI of today's 
notice) the tracking requirements on usage and sector-specific 
limitations on CUAs and/or CSAs by sector might be able to be 
eliminated since these requirements, in part, are designed to ensure 
that the U.S. does not exceed the recommended amounts for each sector.

VIII. What Conforming Amendments Is EPA Proposing With Respect to 
Essential Use Allowances?

    To make it easier for the public to read and EPA to update the 
allocation of critical use allowances and critical stock allowance each 
year, EPA proposes to create a new regulation at 40 CFR 82.8. This 
section number is currently reserved. EPA proposes to place the list of 
critical use allowance and critical stock allowance allocations in this 
section.
    In addition, to be consistent with this improved formatting for the 
critical use exemption regulations, EPA also proposes to include the 
essential use allowance allocations in section 82.8. Moving these 
essential use allowance allocations to section 82.8 requires certain 
conforming amendments to sections 82.3 and 82.4(n) as reflected in the 
proposed regulatory text below.

IX. Statutory and Executive Order Reviews

A. Executive Order No. 12866: Regulatory Planning and Review

    Under Executive Order No. 12866, (58 FR 51735, October 4, 1993) the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to OMB review and the requirements of the 
Executive Order. The Order defines ``significant regulatory action'' as 
one 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
    (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.
    OMB has notified EPA that it considers this a ``significant 
regulatory action'' under Executive Order No. 12866 and EPA has 
submitted it to OMB for review. We will document changes made in 
response to OMB suggestions or recommendations in the public record.
    EPA conducted an economic impact analysis (Economic Impact Analysis 
for Methyl Bromide Allocation in the United States, hereafter EIA) that 
attempts to assess the effect of allowing critical use exemptions on 
the regulated entities. The analysis is conducted relative to the 
complete phaseout of methyl bromide production and consumption in 2005 
(consumption is defined as production plus imports minus exports). 
Therefore, any change in the existing regulations that allows for 
continued production and import of methyl bromide may be considered de-
regulatory in nature, and will likely result in overall cost savings to 
the regulated entities. Note that this analysis focuses only on the 
effects to the regulated entities.
    EPA looked at three illustrative alternatives for implementing the 
critical use exemption: (1) An upstream cap and trade allowance system 
which would give critical use allowances to producers and importers of 
methyl bromide; (2) an upstream cap and trade system with a downstream 
permit trading system where the permits are distributed to end users 
and; (3) an upstream cap and trade system with a downstream permit 
trading system where the permits are initially obtained through an 
auction. Alternative 1 mirrors the Agency's proposal; Alternatives 2 
and 3 mirror the CUP option.
    Given the illustrative nature of these alternatives, many 
assumptions are invoked. One of the critical assumptions used to 
generate the analysis is the assumed phaseout schedule. The analysis 
assumes that in 2005, the CUE exemption would equal 39 percent of the 
1991 U.S. baseline consumption. By 2018, the analysis assumes that 
methyl bromide production and consumption would be phased out 
completely.
    EPA also assumes that under a universal approach, 80 percent of the 
total available amount of methyl bromide would go to the two largest 
groups of end users, tomatoes and strawberries. Eighty percent was used 
to reflect the total amount of methyl bromide originally requested by 
these applicants as a proportion of the amount requested by other 
applicants. See EIA for more discussion.
    The incremental cost savings estimated for today's proposed rule 
includes two general components: cost savings from the continued use of 
methyl bromide as compared to use of a more expensive substitute (under 
the baseline), and the economic benefit associated with the increased 
crop yield obtained through use of methyl bromide instead of a less 
effective substitute (under the baseline). The analysis also estimates 
the administrative costs associated with each option (e.g., reporting 
and recordkeeping).
    The estimated cost savings are approximately $19 million to $31 
million on an annual basis and $380 million to $600 million on a Net 
Present Value basis depending on the particular option and discount 
rate used (EIA, p. 126).

        Table I.--Annualized and Net Present Value of Private Sector Compliance Costs for Alternative 1*
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                      Annualized costs               Net present value costs
                                             -------------------------------------------------------------------
                Discount rate                      Sector        Illustrative        Sector        Illustrative
                                                  specific        universal         specific        universal
                                                  approach         approach         approach         approach
----------------------------------------------------------------------------------------------------------------
3%..........................................           -$19.5           -$21.9          -$616.6          -$695.6
7%..........................................            -26.8            -31.3           -382.7          -446.8
----------------------------------------------------------------------------------------------------------------
* Timeline: 2005-2018.


[[Page 52392]]

    There are two factors which affect these estimates: the size of the 
cap (i.e. the amount of critical use methyl bromide exempted) and how 
the cap is constrained (i.e. if there is one ``universal'' amount of 
methyl bromide made available to all approved critical users or if 
there is a sub-cap for each sector/commodity group).
    The EIA addresses the question of whether or not a framework option 
that would create either an upstream cap and trade system (Alternative 
1) or a downstream tradable permit system (Alternative 2) is more 
economically efficient (Alternative 3, the auction approach for 
allocating allowances, was not quantitatively analyzed in this EIA). 
The EIA concluded that in fact who holds the allowances has relatively 
little impact on the efficiency of compliance costs per se and that 
such costs are impacted more by the size of the cap and constraints on 
the cap as identified in the preceding paragraphs. Under both options, 
methyl bromide is ultimately purchased by the user of methyl bromide 
with the highest willingness to pay. The main driver of efficiency is 
whether or not methyl bromide goes to the highest value use within a 
commodity sector or if it goes to the use with the highest value across 
sectors. According to Chapter 5 of the EIA, however, there are some 
factors that could affect whether or not the options produce the same 
result in terms of consumption of methyl bromide by end users and in 
control costs, namely how smoothly the market functions under either 
option. For more information on the qualitative factors that would 
impact either option for who holds the allowances, as well as a 
discussion of the limitations associated with the analysis, please 
refer to the EIA available in docket OAR-2003-0230.
    While option two is better than option one in compensating end 
users who give up their de facto ``rights'' to methyl bromide, the 
drawback to option two is the additional complexity in both 
administering the system and in complying with the system. The EIA 
estimates that the administrative burden for the regulated community 
and EPA under options one and two as follows:

         Table 2.--Administrative Burden of Alternatives 1 and 2
------------------------------------------------------------------------
                                       EPA  burden      Industry burden
------------------------------------------------------------------------
Alternative One..................  \1\ $25 k           \1\ $2,200
                                   \2\ 15 k            \2\ 86 k
Alternative Two..................  \1\ 2,100 k         \1\ 6,400 k
                                   \2\ 53 k            \2\ 2,000 k
------------------------------------------------------------------------
 Source: EIA pages 102 and 117.
\1\ Annual.
\2\ One time.

    Because the general methodological framework of the model used for 
the analysis of the 2000 Phaseout Rule was retained to calculate the 
costs for today's proposed rule, and because the phaseout model relies 
on an engineering approach, the EIA is not well suited to predict the 
distribution of methyl bromide. In addition to this limitation, the 
analysis does not take into account the full array of alternatives to 
methyl bromide that are under development. Also, due to the limited 
nature of the analysis, the EIA does not explore how the costs savings 
would pass through the economy, and who (consumers and/or regulated 
entities) will eventually realize the cost savings.
    Further details regarding the de-regulatory benefits of the 
proposed critical use exemption and a discussion on the relative merits 
of the two main options are available in the EIA which is docketed with 
this proposed rulemaking.

B. Paperwork Reduction Act

    The information collection requirements in this 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. The 
information collection requirements are not enforceable until OMB 
approves them.
    EPA submitted an ICR to OMB concurrent with today's proposed rule. 
In the ICR, EPA characterizes the paperwork burden that industry may 
face as a result of today's proposed action. The Information Collection 
Request (ICR) document prepared by EPA has been assigned EPA ICR number 
1432.23.
    The information collection under this rule is authorized under 
sections 603(b), 603(d) and 614(b) of the Clean Air Act (CAA).
    The mandatory reporting requirements included in this rule are 
intended to:
    (1) Satisfy U.S. obligations under the international treaty, the 
Montreal Protocol on Substances that Deplete the Ozone Layer 
(Protocol), to report data under Article 7;
    (2) Fulfill statutory obligations under section 603(b) of Title VI 
of the Clean Air Act (CAA) for reporting and monitoring;
    (3) Provide information to report to Congress on the production, 
use and consumption of class I controlled substances as statutorily 
required in section 603(d) of the CAA.
    Information will be collected through quarterly reporting by 
producers and importers and annual reporting by distributors and third 
party applicators of methyl bromide. In addition, distributors and 
third party applicators would be required to provide quarterly updates 
on the availability of critical use exempted methyl bromide.

----------------------------------------------------------------------------------------------------------------
                                                     Number of     Total  number     Hours per
               Collection activity                  respondents    of  responses     response       Total hours
----------------------------------------------------------------------------------------------------------------
Rule Familiarization............................              54              54            4                216
Report Inventory Data (one time)................              54              54            2.5              135
Data Compilation (quarterly basis)..............               4              16            4                 64
Data Compilation (annual basis).................              50              50            8                400
Data Reporting (quarterly basis)................               4              16             .5                8
Data Reporting (annual basis)...................              50              50             .5               25
Reporting on Allowance Trading Activities.......               4              16             .5                8
Self Certification Activities by Producers,                   54             100             .25              25
 Importers, and Distributors....................
Self Certification Activities by End Users......           2,000           2,500             .25             625
                                                 -----------------
    Total Burden Hours..........................  ..............  ..............           18              1,505
----------------------------------------------------------------------------------------------------------------

    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

[[Page 52393]]

information; process and maintain information; disclose and provide 
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.
    To comment on the Agency's need for this information, the accuracy 
of the provided burden estimates, and any suggested methods for 
minimizing respondent burden, including the use of automated collection 
techniques, EPA has established a public docket for this rule, which 
includes this ICR, under Electronic Docket ID number OAR-2003-0230. 
Submit any comments related to the rule ICR for this proposed rule to 
EPA and OMB. See ADDRESSES section at the beginning of this notice for 
where to submit comments to EPA. Send comments to OMB at the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
725 17th Street, NW., Washington, DC 20503 attn: Desk Officer for EPA. 
Include the EPA ICR number (1432.23) in correspondence related to this 
ICR.
    EPA informs respondents that they may assert claims of business 
confidentiality for any of the information they submit. Information 
claimed confidential will be treated in accordance with the procedures 
for handling information claimed as confidential under 40 CFR part 2, 
subpart B, and will be disclosed only to the extent, and by means of 
the procedures, set forth in that subpart. If no claim of 
confidentiality is asserted when the information is received by EPA, it 
may be made available to the public without further notice to the 
respondents (40 CFR 2.203).

C. Regulatory Flexibility Act (RFA)

    The 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 is identified by the North American Industry 
Classification System (NAICS) Code in the Table below; (2) A small 
governmental jurisdiction that is a government of a city, county, town, 
school district or special district with a population of less that 
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.

----------------------------------------------------------------------------------------------------------------
                                                                                   NAICS Small  business size
              Category                      NAICS code            SIC code     standard  (in number of employees
                                                                                    or millions of dollars)
----------------------------------------------------------------------------------------------------------------
Agricultural production.............  1112--Vegetable and     0171--Berry      $0.75 million.
                                       Melon farming.          Crops.
                                      1113--Fruit and Nut     0172--Grapes
                                       Tree Farming.          0173--Tree Nuts
                                      1114--Greenhouse,       0175--Deciduous
                                       Nursery, and            Tree Fruits
                                       Floriculture            (except apple
                                       Production.             orchards and
                                                               farms).
                                                              0179--Fruit and
                                                               Tree Nuts,
                                                               NEC.
                                                              0181--Ornamenta
                                                               l Floriculture
                                                               and Nursery
                                                               Products.
                                      ......................  0831--Forest
                                                               Nurseries and
                                                               Gathering of
                                                               Forest
                                                               Products.
Storage Uses........................  ......................  2041--Flour and
                                                               Other Grain
                                                               Mill Products.
                                      115114--Postharvest     2044--Rice       $6 million.
                                       Crop activities         Milling.
                                       (except Cotton
                                       Ginning).
                                      311211--Flour Milling.  ...............  .................................
                                      311212--Rice Milling..  ...............  .................................
                                      ......................  4221--Farm
                                                               Product
                                                               Warehousing
                                                               and Storage.
                                      493110--General         ...............  $21.5 million.
                                       Warehousing and
                                       Storage.

[[Page 52394]]

 
                                      493130--Farm Product    4225--General    .................................
                                       Warehousing and         Warehousing
                                       Storage.                and Storage.
----------------------------------------------------------------------------------------------------------------

    Agricultural producers of minor crops and entities that store 
agricultural commodities are categories of affected entities that 
contain small entities. This rule only affects entities that applied to 
EPA for a de-regulatory exemption. In most cases, EPA received 
aggregated requests for exemptions from industry consortia. On the 
exemption application, EPA asked consortia to describe the number and 
size distribution of entities their application covered. Based on the 
data provided, EPA estimates that there are 3,218 entities that 
petitioned EPA for an exemption. Since many applicants did not provide 
information on the distribution of sizes of entities covered in their 
applications, EPA estimated that between \1/4\ to \1/3\ of the entities 
may be small businesses based on the definition given above. In 
addition, other categories of affected entities do not contain small 
businesses based on the above description.
    After considering the economic impacts of today's proposed rule on 
small entities, EPA certifies that this action will not have a 
significant economic impact on a substantial number of small entities. 
In determining whether a rule has a significant economic impact on a 
substantial number of small entities, the impact of concern is any 
significant adverse economic impact on small entities, since the 
primary purpose of the regulatory flexibility analyses is to identify 
and address regulatory alternatives ``which minimize any significant 
economic impact of the proposed rule on small entities.'' (5 U.S.C. 
603-604). Thus, an Agency may certify that a rule will not have a 
significant economic impact on a substantial number of small entities 
if the rule relieves a regulatory burden, or otherwise has a positive 
economic effect on all of the small entities subject to the rule. Since 
this rule will make methyl bromide available for approved critical uses 
after the phaseout date of January 1, 2005, this is a de-regulatory 
action which will confer a benefit to users of methyl bromide. EPA 
believes the estimated de-regulatory value for users of methyl bromide 
is between $20 million to $30 million annually. We have therefore 
concluded that today's proposed rule will relieve regulatory burden for 
all small entities. 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.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 
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 by State, local and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year. If a written statement is required under section 202, 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, unless the Agency explains why 
this alternative is not selected or the selection of this alternative 
is inconsistent with law.
    Section 203 of the UMRA requires the Agency to establish a plan for 
obtaining input from and informing, educating, and advising any small 
governments that may be significantly or uniquely affected by the rule. 
Section 204 of the UMRA requires the Agency to develop a process to 
allow elected State, local, and tribal government officials to provide 
input in the development of any proposal containing a significant 
Federal intergovernmental mandate.
    EPA has determined that this rule does not contain a Federal 
mandate that may result in expenditures of $100 million or more by 
State, local and tribal governments, in the aggregate, or by the 
private sector, in any one year. Today's proposed rule seeks to obtain 
comment on provisions authorized under the international treaty, the 
Montreal Protocol on Substances that Deplete the Ozone Layer, as well 
as authorizations set forth by Congress in section 604(d)(6) of the 
Clean Air Act. Viewed as a whole, all of today's amendments do not 
create a Federal mandate resulting in costs of $100 million or more in 
any one year for State, local and tribal governments, in the aggregate, 
or for the private sector. Thus, today's proposed rule is not subject 
to the requirements of sections 202 and 205 of the UMRA. EPA has also 
determined that this proposed rule contains no regulatory requirements 
that might significantly or uniquely affect small governments; 
therefore, EPA is not required to develop a plan with regard to small 
governments under section 203. Finally, because this proposal does not 
contain a significant intergovernmental mandate, the Agency is not 
required to develop a process to obtain input from elected State, 
local, and tribal officials under section 204.

E. Executive Order No. 13132: Federalism

    Executive Order No. 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.'' The phrase ``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 No. 13132, EPA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct control costs, and that is not required by statute, unless the 
Federal government provides the funds necessary to pay the direct 
control costs incurred by State and local governments, or EPA consults 
with State and local officials early in the process of developing the 
regulation. EPA also may not issue a regulation that has federalism 
implications and that

[[Page 52395]]

preempts State law, unless the Agency consults with State and local 
officials early in the process of developing the 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 No. 13132. Today's proposed rule is 
expected to primarily affect producers, suppliers, importers and 
exporters and users of methyl bromide. Thus, the requirements of 
Section 6 of the Executive Order do not apply to this proposed rule.

F. Executive Order No. 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order No. 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 9, 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.'' This proposed rule does not 
have tribal implications, as specified in Executive Order No. 13175. 
Today's proposed rule does not significantly or uniquely affect the 
communities of Indian tribal governments. The proposed rule does not 
impose any enforceable duties on communities of Indian tribal 
governments. Thus, Executive Order No. 13175 does not apply to this 
proposed rule.

G. Executive Order No. 13045: Protection of Children From Environmental 
Health & Safety Risks

    Executive Order No. 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 does not establish an 
environmental standard intended to mitigate health or safety risks.

H. Executive Order No. 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This rule is not a ``significant energy action'' as defined in 
Executive Order No. 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. This rule does 
not pertain to any segment of the energy production economy nor does it 
regulate any manner of energy use. Therefore, we have concluded that 
this rule is not likely to have any adverse energy effects.

I. The National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law No. 104-113, section 12(d) (15 
U.S.C. 272 note) directs EPA to use voluntary consensus standards in 
its regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g., materials specifications, test methods, 
sampling procedures, and business practices) that are developed or 
adopted by voluntary consensus standards bodies. The NTTAA directs EPA 
to provide Congress, through OMB, explanations when the Agency decides 
not to use available and applicable voluntary consensus standards. This 
rulemaking does not involve technical standards. Therefore, EPA is not 
considering the use of any voluntary consensus standards.

List of Subjects in 40 CFR Part 82

    Environmental protection, Chemicals, Exports, Imports, Methyl 
bromide, Ozone, Production, Reporting and recordkeeping requirements, 
and Treaties.

    Dated: August 11, 2004.
Michael O. Leavitt,
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. Section 82.3 is amended as follows:
    a. By adding definitions in alphabetical order for the terms, 
``Approved critical use,'' ``Approved critical user,'' ``Consortium,'' 
``Critical stock allowance,'' ``Critical stock allowance holder,'' 
``Critical use,'' ``Critical use allowance,'' ``Critical use allowance 
holder,'' ``Critical use methyl bromide,'' ``End user,'' ``Limiting 
critical condition,'' ``Location of use,'' ``Sell to approved critical 
users,'' ``Third party applicator,'' ``Unexpended critical stock 
allowance,'' and ``Unexpended critical use allowance;''
    b. By revising definition of ``Confer.''


Sec.  82.3  Definitions for class I and class II controlled substances.

* * * * *
    Approved critical use(s) means those uses of methyl bromide listed 
in Appendix L to this subpart that have a limiting critical condition.
* * * * *
    Approved critical user(s) means a person who:
    (1) For the applicable control period, applied to EPA for a 
critical use exemption or is a member of a consortium that applied for 
a critical use exemption for a use and location of use that was 
included in the U.S. nomination, authorized by a Decision of the 
Parties to the Montreal Protocol, and then finally determined by EPA in 
a notice-and-comment rulemaking to be a critical use in that location; 
and
    (2) Has an area in the applicable location of use that requires 
methyl bromide fumigation because the area is subject to a limiting 
critical condition.
* * * * *
    Confer means to shift the essential-use allowances obtained under 
Sec.  82.8 from the holder of the unexpended essential-use allowances 
to a person for the production of a specified controlled substance, or 
to shift the HCFC-141b exemption allowances granted under Sec.  
82.16(h) from the holder of the unexpended HCFC-141b exemption 
allowances to a person for the production or import of the controlled 
substance.
* * * * *
    Consortium means an organization representing a group of methyl 
bromide

[[Page 52396]]

users that has collectively submitted an application for a critical use 
exemption on behalf of all members of the group. The members of a 
consortium shall be determined on the basis of the rules established by 
the organization. Members may either be required to formally join the 
consortium (i.e., by submitting an application or paying dues) or may 
automatically become members upon meeting particular criteria (i.e. a 
grower of a specific crop in a particular region).
* * * * *
    Critical stock allowance (CSA) means the privilege granted by this 
subpart to sell one (1) kilogram of methyl bromide to an approved 
critical user during the specified control period to the extent 
permitted by federal and state pesticide statutes and regulations other 
than the Clean Air Act and regulations in this part. A person's 
critical stock allowances are the total of the allowances obtained 
under Sec.  82.8(c) as may be modified under Sec.  82.12 (transfer of 
allowances).
    Critical stock allowance (CSA) holder means an entity to which EPA 
allocates a quantity of critical stock allowances as reflected under 
Sec.  82.8(c).
    Critical use means a circumstance in which the following two 
conditions are satisfied:
    (1) There are no technically and economically feasible alternatives 
or substitutes for methyl bromide available to end users that are 
acceptable from the standpoint of environment and health and are 
suitable to the crops and circumstances involved, and
    (2) The lack of availability of methyl bromide for a particular use 
would result in significant market disruption in the United States.
    Critical use allowance (CUA) means the privilege granted by this 
subpart to produce or import on (1) kilogram of methyl bromide for an 
approved critical user during the specified control period. A person's 
critical use allowances are the total of the allowances obtained under 
Sec.  82.8(c) as may be modified under Sec.  82.12 (transfer of 
allowances).
    Critical use allowance (CUA) holder means an entity to which EPA 
allocates a quantity of critical use allowances as reflected in Sec.  
82.8(c).
    Critical use methyl bromide means the class I, Group VI controlled 
substance produced and imported through expending a critical use 
allowance.
* * * * *
    End user means a person that treats or fumigates commodities, 
crops, structures or land in his possession with methyl bromide or 
contracts with a third party applicator for such treatment or 
fumigation.
* * * * *
    Limiting critical condition means the regulatory, technical, and 
economic circumstances listed in Appendix L to this subpart that 
establish conditions of critical use for methyl bromide in a fumigation 
area. Such conditions may include, but are not limited, to:
    (1) The absence of technically and economically feasible 
alternatives to methyl bromide for a specific use;
    (2) Regulatory restrictions that prohibit the use of available 
alternatives in a specific fumigation area;
    (3) Terrain, soil, or climatological conditions that render use of 
available alternatives technically or economically infeasible in a 
specific fumigation area.
* * * * *
    Location of use means the geographic area (such as a state, region, 
or the entire United States) covered by an application for a critical 
use exemption in which the limiting critical condition may occur.
* * * * *
    Sell to approved critical users means to sell quantities of methyl 
bromide to an end user or to contract with an end user to provide 
treatment or fumigation services on commodities, structures, crops, or 
land in the possession of the end user.
* * * * *
    Third party applicator means an applicator of critical use methyl 
bromide who fumigates or treats commodities, structures, crops, or land 
in the possession of an end user.
* * * * *
    Unexpended critical stock allowances (CSA) means critical stock 
allowances against which methyl bromide has not yet been sold or 
distributed to approved critical uses. At any time in any control 
period a person's unexpended critical stock allowances are the total of 
the level of critical stock allowances the person has authorization 
under this subpart to hold at that time for that control period, minus 
the level of class I, Group VI controlled substances that the person 
has sold or distributed to approved critical users in that control 
period until that time.
* * * * *
    Unexpended critical use allowances (CUA) means critical use 
allowances against which methyl bromide has not yet been produced or 
imported. At any time in any control period a person's unexpended 
critical use allowances are the total of the level of critical use 
allowances the person has authorization under this subpart to hold at 
that time for that control period, minus the level of class I, Group VI 
controlled substances that the person has produced or has imported 
solely for approved critical uses in that control period until that 
time.
* * * * *
    3. Section 82.4 is amended by revising paragraphs (b), (d) and (n), 
and by adding paragraph (p) as follows:


Sec.  82.4  Prohibitions for class I controlled substances.

* * * * *
    (b) Effective January 1, 1996, for any class I, Group I, Group II, 
Group III, Group IV, Group V, or Group VII controlled substances, and 
effective January 1, 2005, for any class I, Group VI controlled 
substance, and effective August 18, 2003, for any class I, Group VIII 
controlled substance, no person may produce, at any time in any control 
period, (except that are transformed or destroyed domestically or by a 
person of another Party) in excess of the amount of conferred 
unexpended essential use allowances or exemptions under this subpart, 
or the amount of unexpended critical use allowances allocated under 
this subpart, or the amount of unexpended Article 5 allowances as 
allocated under Sec.  82.9, for that substance held by that person 
under the authority of this subpart at that time for that control 
period. Every kilogram of excess production constitutes a separate 
violation of this subpart.
* * * * *
    (d) Effective January 1, 1996, for any class I, Group I, Group II, 
Group III, Group IV, Group V, or Group VII controlled substances, and 
effective January 1, 2005, for any class I, Group VI controlled 
substance, and effective August 18, 2003, for any class I, Group VIII 
controlled substance, no person may import (except for transhipments or 
heels), at any time in any control period, (except for controlled 
substances that are transformed or destroyed) in excess of the amount 
of unexpended essential use allowances or exemptions, or unexpended 
critical use allowances, allocated in this subpart for that substance 
held by that person under the authority of this subpart at that time 
for that control period. Every kilogram of excess importation (other 
than transhipments or heels) constitutes a separate violation of this 
subpart. It is a violation of this subpart to obtain unused class I 
controlled substances under the general laboratory exemption in excess 
of actual need and to recycle that material for sale into other 
markets.
* * * * *
    (n) No person may use class I controlled substances produced or

[[Page 52397]]

imported under the essential use exemption for any purpose other than 
those set forth in this paragraph. Effective January 1, 1996, 
essential-use allowances are apportioned to a person under Sec.  
82.8(a) and (b) for the exempted production or importation of specified 
class I controlled substances solely for the purposes listed in 
paragraphs (n)(1)(i) through (iii) of this section.
    (1) Essential-uses for the production or importation of controlled 
substances as agreed to by the Parties to the Protocol and subject to 
the periodic revision of the Parties are:
    (i) Metered dose inhalers (MDIs) for the treatment of asthma and 
chronic obstructive pulmonary disease that were approved by the Food 
and Drug Administration before December 31, 2000.
    (ii) Space Shuttle--solvents.
    (iii) Essential laboratory and analytical uses (defined in Appendix 
G of this subpart).
    (2) Any person acquiring unused class I controlled substances 
produced or imported under the authority of essential-use allowances or 
the essential-use exemption granted in Sec.  82.8 to this subpart for 
use in anything other than an essential-use (i.e., for uses other than 
those specifically listed in paragraph (n)(1) of this section) is in 
violation of this subpart. Each kilogram of unused class I controlled 
substance produced or imported under the authority of essential-use 
allowances or the essential-use exemption and used for a non-essential 
uses is a separate violation of this subpart. Any person selling unused 
class I controlled substances produced or imported under authority of 
essential-use allowances or the essential-use exemption for uses other 
than an essential-use is in violation of this subpart. Each kilogram of 
unused class I controlled substances produced or imported under 
authority of essential-use allowances or the essential-use exemption 
and sold for a use other than an essential-use is a separate violation 
of this subpart. It is a violation of this subpart to obtain unused 
class I controlled substances under the exemption for laboratory and 
analytical uses in excess of actual need and to recycle that material 
for sale into other markets.
* * * * *
    (p) Critical use exemption. With respect to class I, Group VI 
substances (methyl bromide):
    (1) No person shall sell critical use methyl bromide to an end user 
who is not an approved critical user. Every kilogram of critical use 
methyl bromide sold to an end user that is not an approved critical use 
constitutes a separate violation of this subpart.
    (2) No person who acquires critical use methyl bromide may use such 
quantities for a use other than the specified critical use listed in 
Column A of Appendix L to this subpart. No person who acquires critical 
use methyl bromide produced under an allowance for a specific use 
sector listed in Appendix L to this subpart, if applicable, may use 
such quantities in a different use sector. No person who acquires 
critical use methyl bromide may use such material unless he meets a 
limiting critical condition listed in Appendix L to this subpart. No 
approved critical user shall take possession of quantities of critical 
use methyl bromide or acquire fumigation services using quantities of 
critical use methyl bromide without first certifying that they are 
approved critical users in accordance with the requirements in Sec.  
82.13. Every 200 kilograms of methyl bromide certified by an end user 
to be acquired for an approved critical use that is used for a use 
other than the specified critical use listed in Column A of Appendix L 
to this subpart constitutes a separate violation of this subpart .
    (3) No person shall sell critical use methyl bromide to an approved 
critical user without first obtaining a signed certification form from 
the approved critical user. Every kilogram of critical use methyl 
bromide sold to an approved critical user without first obtaining 
certification constitutes a separate violation of this subpart.
    (4) No person shall sell methyl bromide produced or imported before 
the phaseout date of January 1, 2005, to an approved critical user for 
a critical use and location of use listed in Appendix L to this subpart 
unless the person holds a critical stock allowance (CSA). Every 
kilogram of methyl bromide sold to an approved critical user for 
critical use in excess of the number of critical stock allowances held 
by the seller constitutes a separate violation of this subpart.
    (5) No person shall sell methyl bromide produced or imported before 
the phaseout date of January 1, 2005, for a critical use listed in 
Column A to an end user listed in Column B of Appendix L to this 
subpart who is not an approved critical user because the end user does 
not have an area subject to the limiting critical condition in Column C 
of Appendix L.
* * * * *
    4. Section 82.8 is added to read as follows:


Sec.  82.8  Grant of essential use allowances and critical use 
allowances.

    (a) Effective January 1, 1996, persons in the following list are 
allocated essential-use allowances or exemptions for quantities of a 
specific class I controlled substance for a specific essential-use (the 
Administrator reserves the right to revise the allocations based on 
future decisions of the Parties).

                            Table I.--Essential Use Allowances for Calendar Year 2004
----------------------------------------------------------------------------------------------------------------
                                                                                                     Quantity
                Company                                         Chemical                           (metric tons)
----------------------------------------------------------------------------------------------------------------
    (i) Metered Dose Inhalers (for oral inhalation) for Treatment of Asthma and Chronic Obstructive Pulmonary
                                                     Disease
----------------------------------------------------------------------------------------------------------------
Armstrong Pharmaceuticals.............  CFC-11 or CFC-12 or CFC-114                                      390.60
Aventis Pharmaceutical Products.......  CFC-11 or CFC-12 or CFC-114                                       48.40
Boehringer Ingelheim Pharmaceuticals..  CFC-11 or CFC-12 or CFC-114                                      500.20
PLIVA Inc.............................  CFC-11 or CFC-12 or CFC-114                                      136.00
Schering-Plough Corporation...........  CFC-11 or CFC-12 or CFC-114                                      918.00
3M Pharmaceuticals....................  CFC-11 or CFC-12 or CFC-114                                       84.71
---------------------------------------
   (ii) Cleaning, Bonding and Surface Activation Applications for the Space Shuttle Rockets and Titan Rockets
----------------------------------------------------------------------------------------------------------------
National Aeronautics and Space          Methyl Chloroform                                                141.877
 Administration (NASA)/Thiokol Rocket.
----------------------------------------------------------------------------------------------------------------


[[Page 52398]]

    (b) A global exemption for class I controlled substances for 
essential laboratory and analytical uses shall be in effect through 
December 31, 2005 subject to the restrictions in Appendix G of this 
subpart, and subject to the record-keeping and reporting requirements 
at Sec.  82.13(u) through (x). There is no amount specified for this 
exemption.
    (c) Effective January 1, 2005, critical use allowances are 
apportioned as set forth in paragraph (c)(1) of this section for the 
exempted production and import of class I, Group VI controlled 
substances specifically for those approved critical uses listed in 
Appendix L to this subpart for the applicable control period. Every 
kilogram of production and import in excess of the total number and 
type of unexpended critical use allowances held for a particular type 
of use constitutes a separate violation of this subpart. Effective 
January 1, 2005, critical stock allowances of a specific number are 
apportioned as set forth in paragraph (c)(2) of this section, for those 
uses listed in Appendix L to this subpart for the applicable control 
period, for the sale to approved critical users of class I, Group VI 
controlled substances held in inventory that were produced or imported 
before the January 1, 2005 phaseout date. Every kilogram of sale to 
approved critical users in excess of the total number of unexpended 
critical stock allowances held constitutes a separate violation of this 
subpart.
    (1) Allocated critical use allowances for annual control period. 
[Reserved]
    (2) Allocated critical stock allowances for annual control period. 
[Reserved]
    5. Section 82.12 is amended by revising paragraph (a)(1) 
introductory text, (a)(1)(i)(H), (a)(1)(ii) introductory text, and 
(a)(1)(iii), and by adding paragraph (e) to read as follows:


Sec.  82.12  Transfers of allowances for class I controlled substances.

    (a) Inter-company transfers. (1) Until January 1, 1996, for all 
class I controlled substances, except for Group VI, and until January 
1, 2005, for Group VI, any person (``transferor'') may transfer to any 
other person (``transferee'') any amount of the transferor's 
consumption allowances or production allowances, and effective January 
1, 1995, for all class I controlled substances any person 
(``transferor'') may transfer to any other person (``transferee'') any 
amount of the transferor's Article 5 allowances. After January 1, 2002, 
any essential-use allowance holder (including those persons that hold 
essential-use allowances issued by a Party other than the United 
States) (``transferor'') may transfer essential-use allowances for CFCs 
to a metered dose inhaler company solely for the manufacture of 
essential MDIs. After January 1, 2005, any critical use allowance 
holder (``transferor'') may transfer critical use allowances to any 
other person (``transferee''). After January 1, 2005, any critical 
stock allowance holder (``transferor'') may transfer critical stock 
allowances to any critical stock allowance holder (``transferee'').
    (i) * * *
    (H) The one percent offset applied to the unweighted amount traded 
will be deducted from the transferor's production or consumption 
allowance balance (except for trades from transformers and destroyers 
to producers or importers for the purpose of allowance reimbursement). 
In the case of transferring essential use allowances, the amount of one 
tenth of one percent of the amount traded will be deducted from the 
transferor's allowance balance. In the case of transferring critical 
use allowances, the amount of one tenth of one percent of the amount 
traded will be deducted from the transferor's critical use allowance 
balance.
* * * * *
    (ii) The Administrator will determine whether the records 
maintained by EPA, taking into account any previous transfers and any 
production, allowable imports and exports of controlled substances 
reported by the transferor, indicate that the transferor possesses, as 
of the date the transfer claim is processed, unexpended allowances 
sufficient to cover the transfer claim (i.e., the amount to be 
transferred plus, in the case of transferors of essential use 
allowances and critical use allowances, one tenth of one percent of the 
transferred amount). Within three working days of receiving a complete 
transfer claim, the Administrator will take action to notify the 
transferor and transferee as follows:
* * * * *
    (iii) In the event that the Administrator does not respond to a 
transfer claim within the three working days specified in paragraph 
(a)(1)(ii) of this section the transferor and transferee may proceed 
with the transfer. EPA will reduce the transferor's balance of 
unexpended allowances by the amount to be transferred plus, in the case 
of transfers of production or consumption allowances, one percent of 
that amount, and in the case of essential use allowances and critical 
use allowances, one tenth of one percent of that amount. However if EPA 
ultimately finds that the transferor did not have sufficient unexpended 
allowances to cover the claim, the transferor and transferee 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.
* * * * *
    (e) Exchange of critical use allowances for critical stock 
allowances. (1) Critical use allowance holders may petition the 
Administrator to exchange a quantity of their unexpended critical use 
allowances for an equivalent amount of critical stock allowances 
provided they hold this equivalent amount of class I, Group VI 
controlled substance that was produced or imported in a prior control 
period either with production allowances and consumption allowances or 
critical use allowances. A person allocated critical stock allowances 
may not petition to exchange unexpended critical stock allowances for 
critical use allowances.
    (2) [Reserved]
    6. Section 82.13 is amended as follows:
    a. By revising paragraphs (a), (f)(3)(iv) and (g)(4)(vii).
    b. By adding paragraphs (f)(2)(xx) through (f)(2)(xxi), 
(f)(3)(xvi), (g)(1)(xx) through (g)(1)(xxi), (g)(4)(xviii), and (bb) 
through (dd).


Sec.  82.13  Recordkeeping and reporting requirements for class I 
controlled susntances.

    (a) Unless otherwise specified, the recordkeeping and reporting 
requirements set forth in this section take effect on January 1, 1995. 
For class I, Group VIII controlled substances, the recordkeeping and 
reporting requirements set forth in this section take effect on August 
18, 2003. For class I, Group VI critical use methyl bromide, the 
recordkeeping and reporting requirements set forth in this section take 
effect January 1, 2005.
    (f) * * *
    (2) * * *
    (xx) For class I, Group VI controlled substances, dated records 
such as invoices and order forms, and a log of the quantity of 
controlled substances produced for critical use, by specified critical 
use if applicable as per Appendix L of this subpart, and the quantity 
sold for critical use, by specified critical use if applicable as per 
Appendix L of this subpart, and;
    (xxi) Written certifications that quantities of class I, Group VI 
controlled substances produced for critical use were purchased by 
distributors, applicators, or end users to be used or sold only for 
critical use in accordance with the definitions and prohibitions in

[[Page 52399]]

this subpart. Certifications must be maintained by a producer for a 
minimum of three years.
    (3) * * *
    (iv) The producer's total of expended and unexpended production 
allowances, consumption allowances, Article 5 allowances, critical use 
allowances by specified critical use if applicable, critical stock 
allowances, and amount of essential-use allowances and destruction and 
transformation credits conferred at the end of that quarter;
* * * * *
    (xvi) For critical uses of class I, Group VI controlled substances, 
an annual list of the total amount of critical use methyl bromide by 
specified critical use, if applicable as per Appendix L of this 
subpart, that was produced, bought, and sold as well as the amounts of 
critical use methyl bromide held in inventory by the reporting entity 
or held in inventory by the reporting entity on behalf of another 
entity.
    (g) * * *
    (1) * * *
    (xx) For class I, Group VI controlled substances, dated records 
such as invoices and order forms, of the quantity of controlled 
substances imported for critical use, by specified critical use if 
applicable per Appendix L of this subpart, and the quantity sold for 
critical use, by specified critical use if applicable as per Appendix L 
of this subpart, and;
    (xxi) Written certifications that quantities of class I, Group VI 
controlled substances imported for critical use were purchased by 
distributors, applicators, or end users to be used or sold only for 
critical use in accordance with the definitions and prohibitions in 
this subpart. Certifications must be maintained by an importer for a 
minimum of three years.
    (4) * * *
    (vii) The importer's total sum of expended and unexpended 
consumption allowances by chemical as of the end of that quarter and 
the total sum of expended and unexpended critical use allowances by 
specified critical use, if applicable, as per Appendix L of this 
subpart;
* * * * *
    (xviii) For critical uses of class I, Group VI controlled 
substances, an annual list of the total amount of critical use methyl 
bromide by specified critical use if applicable, as per Appendix L of 
this subpart, that was imported, bought, and sold as well as the 
amounts of critical use methyl bromide held in inventory by the 
reporting entity or held in inventory by the reporting entity on behalf 
of another entity.
* * * * *
    (bb) Every distributor of methyl bromide (class I, Group VI 
controlled substances) who purchases or receives a quantity of critical 
use methyl bromide must comply with recordkeeping and reporting 
requirements specified in this paragraph.
    (1) Recordkeeping--Every distributor of critical use methyl bromide 
must certify to the producer or importer or other entity from which 
they are acquiring quantities of critical use methyl bromide that such 
quantities received will be sold or used only for approved critical 
use(s) in accordance with the definitions and prohibitions in this 
subpart.
    (i) Every distributor of a quantity of critical use methyl bromide 
must receive from an applicator, or any other entity to whom they sell 
critical use methyl bromide, a certification of the quantity of 
critical use methyl bromide ordered, prior to delivery of the quantity, 
stating that the quantity will be sold or used only for approved 
critical uses in accordance with definitions and prohibitions in this 
subpart.
    (ii) Every distributor of methyl bromide who receives a 
certification from an applicator or any other entity to which they sell 
critical use methyl bromide must maintain the certifications as records 
for 3 years.
    (iii) Every distributor of a quantity of critical use methyl 
bromide must maintain invoice and order records related to the sale of 
such material for 3 years.
    (2) Reporting--Every distributor of critical use methyl bromide 
must report to the Administrator annually, the following items:
    (i) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide bought, 
organized by specified critical use if applicable as per Appendix L of 
this subpart, and;
    (ii) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide sold 
organized by specified critical use and;
    (iii) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide held by the 
reporting entity or held by the reporting entity on behalf of another 
entity, organized by specified critical use if applicable as per 
Appendix L of this subpart.
    (cc) Every third party applicator of methyl bromide (class I, Group 
VI controlled substances) that purchases or receives critical use 
methyl bromide must comply with recordkeeping and reporting 
requirements specified in this paragraph.
    (1) Recordkeeping--Every third party applicator of methyl bromide 
must certify to the producer or importer or other entity from whom they 
are acquiring quantities of critical use methyl bromide that such 
quantities received will be sold or used only for approved critical use 
in accordance with the definitions and prohibitions in this subpart.
    (i) Every third party applicator of a quantity of critical use 
methyl bromide must receive from an end user or any other entity, to 
whom they sell critical use methyl bromide or for whom they fumigate an 
area, a certification that the quantity of class I, Group VI controlled 
substances ordered, prior to delivery of the quantity or prior to 
providing fumigation services, will only be sold or used for critical 
uses in accordance with definitions and prohibitions in this subpart.
    (ii) Every third party applicator of methyl bromide who receives a 
certification from an entity to which they sell critical use methyl 
bromide must maintain the certifications as records for 3 years.
    (iii) Every third party applicator of a quantity of critical use 
methyl bromide must maintain invoice and order records related to the 
sale of such material for three years.
    (2) Reporting--Every third party applicator of critical use methyl 
bromide must report to the Administrator annually, the following items:
    (i) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide bought, and 
from whom, organized by specified end use if applicable as per Appendix 
L of this subpart and;
    (ii) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide sold 
organized by specified end use and;
    (iii) For critical uses of class I, Group VI controlled substances, 
an annual list of the amount of critical use methyl bromide held for 
the reporting entity or held by the reporting entity on behalf of 
another entity, organized by specified end use if applicable as per 
Appendix L of this subpart.
    (dd) Every approved critical user purchasing an amount of critical 
use methyl bromide or purchasing fumigation services with critical use 
methyl bromide must, for each request,

[[Page 52400]]

certify knowledge of the requirements associated with the exemption for 
critical use in this subpart and provide such information that 
identifies the use as a critical use and the user as an approved 
critical user. The certification will state, in part: ``I certify, 
under penalty of law, knowledge of the requirements associated with the 
exempted critical use published in 40 CFR part 82, including the 
requirement that this letter cite basic information identifying the end 
use as an approved critical use and the end user as an approved 
critical user.''
    7. Add Appendix L to subpart A to read as follows:

Appendix L to Subpart A of Part 82--Approved Critical Uses, and 
Limiting Critical Conditions for Those Uses for the 2005 Control Period

----------------------------------------------------------------------------------------------------------------
                                                    Column B--End user and        Column C--Limiting critical
         Column A--Approved critical use                location of use                   conditions
----------------------------------------------------------------------------------------------------------------
                                                 Pre-Plant Uses
----------------------------------------------------------------------------------------------------------------
Cucurbits.......................................  (a) Michigan growers......  with moderate to severe fungal
                                                                               pathogen infestation.
-------------------------------------------------
                                                  (b) Alabama, Arkansas,      with moderate to severe yellow or
                                                   Georgia, North Carolina,    purple nutsedge infestation.
                                                   South Carolina,
                                                   Tennessee, and Virginia
                                                   growers.
Eggplant........................................  (a) Georgia growers.......  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe yellow or
                                                                               purple nutsedge infestation,
                                                                               moderate to severe nematode
                                                                               infestation, or moderate severe
                                                                               fungal pathogen infestation.
                                                  (b) Florida growers.......  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe yellow or
                                                                               purple nutsedge infestation, or
                                                                               moderate to severe nematode
                                                                               infestation, or moderate to
                                                                               severe fungal pathogen
                                                                               infestation, or karst topography.
Forest Seedlings................................  (a) Members of the          with one or more of the following
                                                   Southern Forest Nursery     limiting critical conditions:
                                                   Management Cooperative      moderate to severe fungal
                                                   limited to growing          pathogen infestation, moderate to
                                                   locations in Alabama,       severe yellow or purple nutsedge
                                                   Arkansas, Florida,          infestation, or moderate to
                                                   Georgia, Louisiana,         severe disease infestation.
                                                   Mississippi, North
                                                   Carolina, Oklahoma, South
                                                   Carolina, Tennessee,
                                                   Texas, and Virginia.
                                                  (b) International Paper     with one or more of the following
                                                   and its subsidiaries        limiting critical conditions:
                                                   limited to growing          moderate to severe fungal
                                                   locations in Arkansas,      pathogen infestation, moderate to
                                                   Alabama, Georgia, South     severe yellow or purple nutsedge
                                                   Carolina and Texas.         infestation, or moderate to
                                                                               severe disease infestation.
                                                  (c) Weyerhaeuser Company    with one or more of the following
                                                   and its subsidiaries        limiting critical conditions:
                                                   limited to growing          moderate to severe fungal
                                                   locations in Alabama,       pathogen infestation, moderate to
                                                   Arkansas, North Carolina,   severe yellow or purple nutsedge
                                                   South Carolina, Oregon,     infestation, or moderate to
                                                   and Washington.             severe disease infestation.
                                                  (d) Public (government      with one or more of the following
                                                   owned) seedling nurseries   limiting critical conditions:
                                                   in the states of            moderate to severe fungal
                                                   California, Idaho,          pathogen infestation, moderate to
                                                   Illinois, Indiana,          severe yellow or purple nutsedge
                                                   Kansas, Kentucky,           infestation, or moderate to
                                                   Maryland, Missouri,         severe disease infestation.
                                                   Nebraska, New Jersey,
                                                   Ohio, Oregon,
                                                   Pennsylvania, Utah,
                                                   Washington, West Virginia
                                                   and Wisconsin.
                                                  (e) Members of the Nursery  with one or more of the following
                                                   Technology Cooperative      limiting critical conditions:
                                                   limited to growing          moderate to severe fungal
                                                   locations in Oregon and     pathogen infestation, moderate to
                                                   Washington.                 severe yellow or purple nutsedge
                                                                               infestation, or moderate to
                                                                               severe disease infestation.
                                                  (f) Michigan seedling       with one or more of the following
                                                   nurseries.                  limiting critical conditions:
                                                                               moderate to severe fungal
                                                                               pathogen infestation, moderate to
                                                                               severe yellow or purple nutsedge
                                                                               infestation, or moderate to
                                                                               severe disease infestation.
Ginger..........................................  Hawaii growers............  with the limiting critical
                                                                               condition of moderate to severe
                                                                               nematode infestation, or moderate
                                                                               to severe bacterial wilt
                                                                               infestation.
Orchard Nursery Seedlings.......................  (a) Members of the Western  with one or more of the following
                                                   Raspberry Nursery           limiting critical conditions:
                                                   Consortium limited to       moderate to severe nematode
                                                   growing locations in        infestation, medium to heavy clay
                                                   California and Washington   soils, or a prohibition of on the
                                                   (Driscoll's raspberries     use of 1,3-dichloropropene
                                                   and their contract          products due to reaching local
                                                   growers in California and   township limits on the use of
                                                   Washington).                this alternative.
                                                  (b) Members of the          with one or more of the following
                                                   California Association of   limiting critical conditions:
                                                   Nurserymen-Deciduous        moderate to severe nematode
                                                   Fruit and Nut Tree          infestation, medium to heavy clay
                                                   Growers.                    soils, or a prohibition of on the
                                                                               use of 1,3-dichloropropene
                                                                               products due to reaching local
                                                                               township limits on the use of
                                                                               this alternative.
                                                  (c) Members of the          with one or more of the following
                                                   California Association of   limiting critical conditions:
                                                   Nurserymen-Citrus and       moderate to severe nematode
                                                   Avocado Growers.            infestation, medium to heavy clay
                                                                               soils, or a prohibition of on the
                                                                               use of 1,3-dichloropropene
                                                                               products due to reaching local
                                                                               township limits on the use of
                                                                               this alternative.

[[Page 52401]]

 
Orchard Replant.................................  (a) California stone fruit  with one or more of the following
                                                   growers.                    limiting critical conditions:
                                                                               replanted (non-virgin) orchard
                                                                               soils to prevent orchard replant
                                                                               disease, or medium to heavy
                                                                               soils, or a prohibition on the
                                                                               use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
                                                  (b) California table and    with one or more of the following
                                                   raisin grape growers.       limiting critical conditions:
                                                                               replanted (non-virgin) orchard
                                                                               soils to prevent orchard replant
                                                                               disease, or medium to heavy
                                                                               soils, or a prohibition on the
                                                                               use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
                                                  (c) California walnut       with one or more of the following
                                                   growers.                    limiting critical conditions:
                                                                               replanted (non-virgin) orchard
                                                                               soils to prevent orchard replant
                                                                               disease, or medium to heavy
                                                                               soils, or a prohibition on the
                                                                               use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
                                                  (d) California almond       with one or more of the following
                                                   growers.                    limiting critical conditions:
                                                                               replanted (non-virgin) orchard
                                                                               soils to prevent orchard replant
                                                                               disease, or medium to heavy
                                                                               soils, or a prohibition on the
                                                                               use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
Ornamentals.....................................  (a) Yoder Brothers Inc. in  for use in chrysanthemum
                                                   Florida.                    production.
                                                  (b) California rose         prohibited from using 1,3-
                                                   nurseries.                  dichloropropene products because
                                                                               local township limits for this
                                                                               alternative have been reached.
Peppers.........................................  (a) California growers....  with the limiting critical
                                                                               conditions of moderate to severe
                                                                               fungal pathogens, or moderate to
                                                                               sever disease infestation, or
                                                                               moderate to sever nematode
                                                                               infestation, or moderate to
                                                                               severe yellow or purple nutsedge
                                                                               infestation, or a prohibition on
                                                                               the use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
                                                  (b) Alabama, Arkansas,      with one or more of the following
                                                   Georgia, North Carolina,    limiting critical conditions:
                                                   South Carolina, Tennessee   moderate to severe yellow or
                                                   and Virginia growers.       purple nutsedge infestation, or
                                                                               the presence of an occupied
                                                                               structure within 76 meters of a
                                                                               grower's field the size of 100
                                                                               acres or less.
                                                  (c) Florida growers.......  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe yellow or
                                                                               purple nutsedge infestation, or
                                                                               karst topography.
Strawberry Nurseries............................  (a) California growers....  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe black root rot
                                                                               or crown rot, moderate to severe
                                                                               nematode infestation, or moderate
                                                                               to severe yellow or purple
                                                                               nutsedge infestation.
                                                  (b) North Carolina and      with the presence of an occupied
                                                   Tennessee growers.          structure within 76 meters of a
                                                                               grower's field the size of 100
                                                                               acres or less.
Strawberry Fruit................................  (a) California growers....  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe black root rot
                                                                               or crown rot, moderate severe
                                                                               nematode infestation, moderate to
                                                                               severe yellow or purple nutsedge
                                                                               infestation, a prohibition of the
                                                                               use of 1,3-dichloropropene
                                                                               products because local township
                                                                               limits for this alternative have
                                                                               been reached.
                                                  (b) Florida growers.......  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe yellow or
                                                                               purple nutsedge, or karst
                                                                               topography.
                                                  (c) Alabama, Arkansas,      with one or more of the following
                                                   Georgia, North Carolina,    limiting critical conditions:
                                                   South Carolina,             moderate to severe yellow or
                                                   Tennessee, Virginia, Ohio   purple nutsedge, or the presence
                                                   and New Jersey growers.     of an occupied structure within
                                                                               76 meters of a grower's field the
                                                                               size of 100 acres or less.
Sweet Potatoes..................................  California growers........  with the contingent limiting
                                                                               critical condition of a
                                                                               prohibition on the use of 1,3-
                                                                               dichloropropene products because
                                                                               local township limits for this
                                                                               alternative have been reached.
Tomatoes........................................  (a) Michigan growers......  with moderate to severe disease,
                                                                               or fungal pathogens.
                                                  (b) Alabama, Arkansas,      with one or more of the following
                                                   Georgia, North Carolina,    limiting critical conditions:
                                                   South Carolina, Tennessee   moderate to severe yellow or
                                                   and Virginia growers.       purple nutsedge infestation, or
                                                                               the presence of an occupied
                                                                               structure within 76 meters of a
                                                                               grower's field the size of 100
                                                                               acres or less.
                                                  (c) Florida growers.......  with one or more of the following
                                                                               limiting critical conditions:
                                                                               moderate to severe yellow or
                                                                               purple nutsedge infestation, or
                                                                               karst topography.
Turfgrass.......................................  (a) U.S. turfgrass sod      for the production of industry
                                                   nursery producers.          certified pure sod.
                                                  (b) U.S. golf courses.....  for establishing sod in the
                                                                               construction of new golf courses
                                                                               or the renovation of putting
                                                                               greens, tees, and fairways.
-------------------------------------------------

[[Page 52402]]

 
                                                Post-Harvest Uses
----------------------------------------------------------------------------------------------------------------
Food Processing.................................  (a) Rice millers in         with one or more of the following
                                                   Arkansas, California,       limiting critical conditions:
                                                   Louisiana, Florida,         older structures that can not be
                                                   Missouri, and Mississippi.  properly sealed to use an
                                                                               alternative to methyl bromide, or
                                                                               the presence of sensitive
                                                                               electronic equipment subject to
                                                                               corrosivity.
                                                  (b) Pet food manufacturing  with one or more of the following
                                                   facilities in the U.S.      limiting critical conditions:
                                                                               older structures that can not be
                                                                               properly sealed to use an
                                                                               alternative to methyl bromide, or
                                                                               the presence of sensitive
                                                                               electronic equipment subject to
                                                                               corrosivity.
                                                  (c) Kraft Foods in the      with one or more of the following
                                                   U.S..                       limiting critical conditions:
                                                                               older structures that can not be
                                                                               properly sealed to use an
                                                                               alternative to methyl bromide, or
                                                                               the presence of sensitive
                                                                               electronic equipment subject to
                                                                               corrosivity.
                                                  (d) Members of the North    with one or more of the following
                                                   American Millers'           limiting critical conditions:
                                                   Association in the U.S.     older structures that can not be
                                                                               properly sealed to use an
                                                                               alternative methyl bromide, or
                                                                               the presence of sensitive
                                                                               electronic equipment subject to
                                                                               corrosivity.
Commodity Storage...............................  (a) Gwaltney of Smithfield  for smokehouse ham curing
                                                   in the U.S..                facilities owned by the company.
                                                  (b) California entities     with one or more of the following
                                                   storing walnuts, beans,     limiting critical conditions:
                                                   dried plums, and            rapid fumigation is required to
                                                   pistachios in California.   meet a critical market window,
                                                                               such as during the holiday
                                                                               season, rapid fumigation is
                                                                               required when a buyer provides
                                                                               short (2 days or less)
                                                                               notification for a purchase, or
                                                                               there is a short period after
                                                                               harvest in which to fumigate and
                                                                               there is limited silo
                                                                               availability for using
                                                                               alternatives.
----------------------------------------------------------------------------------------------------------------

[FR Doc. 04-18933 Filed 8-24-04; 8:45 am]
BILLING CODE 6560-50-P