This advance notice of proposed rulemaking is issued under authority of section 407 of the P&S Act (7 U.S.C. 228(a)).

GIPSA enforces the Packers and Stockyards Act. Under authority granted the Secretary of Agriculture (Secretary) and delegated to us, we are authorized (7 U.S.C. 228) to make those regulations necessary to carry out the provisions of the Act.

A statutory provision that supplements the P&S Act (7 U.S.C. 204) authorizes the Secretary to require reasonable bonds from market agencies, packers and dealers, with an exemption for packers whose average annual livestock purchases are less than $500,000. The bonds are intended to secure the performance of the bonded entities' monetary obligations to livestock sellers and consignors. Entities required to be bonded may fulfill this requirement by filing a surety bond issued by a surety company which is currently approved by the United States Treasury Department for bonds executed to the United States; or in whole or partial substitution for a surety bond, a trust agreement governing one or more irrevocable, transferable, standby letters of credit issued by a Federally-insured bank or institution and physically received and retained by a named trustee; or a trust fund agreement governing funds deposited or invested in fully negotiable obligations of the United States or Federally-insured deposits or accounts in the name of and readily convertible to currency by a trustee (9 CFR 201.27). The trustee named on a bond or bond equivalent (trust agreement or trust fund agreement) must be a financially responsible, disinterested person satisfactory to the GIPSA Administrator (9 CFR 201.32).

A bonded entity fails to meet its monetary obligations to livestock sellers or consignors when it fails to pay for livestock within the time and manner specified in the P&S Act and regulations. Payment is usually due to the seller or consignor by the close of the next business day after the sale or purchase of livestock.

A bond or bond equivalent allows any person damaged by failure of the bonded entity to comply with any condition clause of the bond (see 9 CFR 201.31) to file a claim for damages against the bond, even if the person or persons are not named on the bond (9 CFR 201.33). Once we become aware of non-payment, we notify and instruct potential claimants of the proper procedures for filing valid claims against the bond. All claims for damages must be filed in writing with either the surety, the trustee, or the GIPSA Administrator within 60 days after the date of the transaction on which the claim is based. Under the P&S Act and regulations, a claimant may not file a lawsuit in U.S. District Court to collect damages owed by a bonded entity within the first 120 days, or more than 547 days from the date of the transaction on which the claim is based; otherwise, the claimant will lose eligibility to receive funds from the bond (9 CFR 210.33).

Upon receipt of the first claim against a bond, the surety on the bond or the trustee on the bond equivalent is required to terminate the bond or bond equivalent and collect any funds covered by the bond or bond equivalent up to its face amount. Once the period for filing claims has expired, the surety or the trustee is responsible for determining 1) if the claims involved transactions covered by the bond or bond equivalent, and 2) if the claims were filed timely. Claims that meet both tests are eligible to receive a pro-rata share of the proceeds from the bond or bond equivalent up to its face amount. The surety or the trustee is responsible for distributing the proceeds accordingly. The proceeds from the bond may not be used to pay fees, salaries, or expenses for legal representation of the surety or the bonded entity.

Section 201.30 of the regulations (9 CFR 201.30) describes the current formulas we use to calculate the required bond amount for each bonded market agency, packer, and dealer. We have found that the bond amounts based on the current formulas, last updated in 1983, frequently do not cover the total amount of money that is owed to livestock sellers and consignors when a bonded entity fails.

In 2006, approximately 5,407 dealers and market agencies, and 295 packers were bonded under the P&S Act. From 1997 to 2007, there was an average of 10 dealer, 5 market agency, and 4 packer business failures per year. During the same time period, payments from bonds or bond equivalents to livestock sellers and consignors averaged 15 percent of the amount of money owed when a dealer operation failed, 29 percent of the debt when a market agency failed, and 21 percent of the debt when a packer failed. Based on this data, the bond formulas in section 201.30 of the P&S Act regulations (9 CFR 201.30) often do not provide sufficient financial coverage of the full monetary obligations of market agencies, dealers, and packers to livestock sellers and consignors.

We considered different ways to increase the percentage of debt recovered by unpaid livestock sellers and consignors from the bonds of delinquent bonded entities. One option we considered was to establish a livestock indemnity fund similar to one currently in existence in a province of Canada. However, it was determined that we lack the statutory authority to pursue that option. Therefore, we turned our focus to other options. We believe that in order to better protect the financial interests of livestock sellers and consignors, the bond calculation formulas in section 201.30 of the P&S regulations (9 CFR 210.30) must be revised.

Through this ANPR, we are soliciting public comment and information on several alternatives that we have identified for calculating bond amounts required for bonded entities that are reasonable as stated in 7 U.S.C. 204. We invite comments from livestock sellers and consignors; insurance companies and banks that issue bonds and bond equivalents; other governmental entities that regulate market agencies, dealers, and packers at the State, regional or local level; market agencies, dealers, and packers subject to the bond requirement; and other interested persons or organizations.

In order for us to evaluate which alternative(s) would best secure obligations to livestock sellers and consignors without exceeding a reasonable amount of bond coverage for the bonded entities, please consider the following questions when commenting:

1. Which alternative, if any, do you prefer and why?

2. How would you recommend that we implement your preferred alternative?

3. What are the benefits and relative costs of each alternative? Do the benefits outweigh the costs and, if so, why?

4. What would be the impact of each alternative on small or new businesses in this industry?

5. What would be the impact of each alternative on large or more established businesses in this industry?

6. Is there a benefit to combining one or more of these alternatives and, if so, which ones?

7. What are the relative costs of combining one or more of these alternatives?

8. What would be the impact of combining one or more of these alternatives on small or new businesses in this industry?

9. What would be the impact of combining one or more of these alternatives on large or more established businesses?

10. Are there other alternatives that we should consider and, if so, what are they?

One alternative we have identified involves adding a risk factor to the formulas used to calculate the reasonable bond coverage amount. We believe that the addition of a risk factor to the formulas would be one way to better protect livestock sellers and consignors. If we implement this alternative, we would require bonded entities at higher risk of failing to carry higher bonds than similar entities with a lower risk of failing. We may need to collect additional information, not now collected, to assess the risk factor. The risk factor would function in a manner similar to those used by insurance companies to calculate the rate a person pays for automobile or home owners' insurance. We could apply the risk factor to all bonded entities; to bonded entities whose overall risk exceeds a certain threshold; to those who have previously demonstrated problems with non-payment and/or insolvency; or to some combination of the above options.

Another alternative would be to revise the factors in the current formulas to increase the resulting bond amount. Bond amounts are currently calculated using the following factors:

1. The total dollar value of livestock sold (for a market agency selling livestock on commission) or the total dollar value of livestock purchased (by a market agency buying on commission, a dealer, or a packer, or by all persons for whom a market agency acting as a clearing agent served as a clearor) during the preceding business year, or substantial part of that business year, in which the bonded entity operated.

2. The number of days on which livestock was sold, not to exceed 130 (for a market agency selling livestock on commission) or half the number of days in any business year, not to exceed 130 (for a market agency buying on commission, a dealer, a market agency acting as a clearing agency, or a packer).

3. The result of dividing factor 1 by factor 2 for a market agency selling livestock on commission is the average sales per sale day (until the number of days on which livestock were sold exceeds 130). The results for market agencies buying on commission, dealers, or packers is the average purchases for 2 business days.

4. If the average sales per sale day or the average purchases for 2 business days exceeds a specific threshold amount ($50,000 for market agencies selling livestock on commission, or $75,000 for market agencies buying on commission and dealers), the amount of bond coverage need not exceed the threshold plus 10 percent, raised to the next $5,000 multiple.

5. Otherwise, bond coverage must be the next multiple of $5,000 above the average sales or purchase volume for 2 business days.

6. The minimum bond required is $10,000, unless a higher amount is required under State law.

We are seeking comment on which of these factors or combination of factors should be revised and in what way.

A third alternative would change how bonds are calculated when market agencies and dealers merge or are acquired by another entity. Under the current formulas, the required bond amount decreases for the larger merged entity due to the threshold and percent discount in factor 4 (discussed in alternative 2). To remedy this, we could change that factor as discussed in alternative 2. Or, we could require that the bond posted by the merged entity equal the combination of the amount that would have been required of each individual entity involved in the merger or acquisition.

We also invite the submission of suggestions on other alternatives to replace or supplement these proposed changes in the bond formulas because reasonable bonds alone that are posted by market agencies, packers and dealers may not ensure that the financial interests of livestock sellers and consignors are protected. We expect that any revision to the formulas for calculating bond amounts will increase the cost to market agencies, dealers, and packers to maintain the determined reasonable bond coverage.

This advance notice of proposed rulemaking has been determined to be not significant for the purposes of Executive Order 12866, and therefore, has not been reviewed by the Office of Management and Budget.

GIPSA is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

Section 942 of the Energy Policy Act of 2005, Public Law No. 109-58 (August 8, 2005), requires the Secretary of Energy (Secretary), in consultation with the Secretary of Agriculture, the Secretary of Defense, and the Administrator of the Environmental Protection Agency, to establish an incentive program for the production of cellulosic biofuels and to implement that program by means of a “reverse auction.” Section 942(a) states that the purposes of the program are to: “(1) Accelerate deployment and commercialization of biofuels; (2) deliver the first 1 billion gallons of annual cellulosic biofuel production by 2015; (3) ensure biofuels produced after 2015 are cost competitive with gasoline and diesel; and (4) ensure that small feedstock producers and rural small businesses are full participants in the development of the cellulosic biofuels industry.” In order to achieve these purposes, the Secretary is to award production incentives on a per gallon basis to eligible entities by means of a reverse auction. Under section 942, the first reverse auction is required annually until the earlier of the first year that annual production of cellulosic biofuels in the United States reaches 1 billion gallons or 10 years after enactment of EPAct 2005, i.e. , August 8, 2015.

However, pursuant to section 202 of the Energy Independence and Security Act of 2007 (Pub. L. 110-140) (EISA), the Administrator of the Environmental Protection Agency is required to issue regulations that implement certain Renewable Fuel Standards, including regulations to ensure that transportation fuel sold or introduced into commerce in the United States (except in noncontiguous States or territories), on an annual average basis, contains at least 1 billion gallons of cellulosic biofuel by calendar year 2013. Consequently, if the Renewable Fuel Standard for cellulosic biofuel under EISA is achieved, the last reverse auction under section 942 of EPAct 2005 would occur in 2013.

The proposed rule would establish procedures for the reverse auction and standards for making production incentive awards. The eligibility standards include both pre-auction requirements which must be met prior to an entity's participation in a reverse auction under section 942 and several post-auction standards which must be met as a condition of receiving an award. The post-auction standards are especially necessary if the Nation is to achieve the long-term goals of section 942, including delivery of the first one billion gallons of annual cellulosic biofuel production by 2015, and establishment of a biofuels industry after 2015 that is cost competitive with gasoline and diesel. The post-auction standards are thus intended to ensure that successful bidders make real and meaningful progress toward the production of cellulosic biofuels in commercially significant quantities. DOE believes that as successive auctions yield more and more production of cellulosic biofuels, the Nation will move closer to achieving section 942's long-term national goal of a commercially viable production capability after 2015. In addition, by setting forth clear pre-auction and post-auction standards, DOE believes that only the most serious entities will seek to participate in each reverse auction.

More particularly, section 452.2 of the proposed rule defines key terms used in the proposed regulations. Section 452.3 describes the proposed rule's pre-auction eligibility standards, reverse auction procedures, and post-auction standards that must be met as a condition of receiving production incentive awards. Section 452.4 sets forth proposed terms of and limitations on the incentive production awards that will be issued under the program.

Section 942 of EPAct 2005 defines “ cellulosic biofuels ” as “any fuel that is produced from cellulosic feedstocks.” 42 U.S.C. 16251(b)(1). Because the incentives authorized by section 942 are based on a gallon measure, DOE proposes in section 452.2 of the regulations to refine the statutory definition of “cellulosic biofuel” by requiring the production of a liquid fuel. Additionally, the proposed rule would define “cellulosic feedstock” as any lignocellulosic feedstock as so defined by EPAct, section 932(a)(2). This serves to make the proposed rule consistent with and complementary to the Department's existing Bioenergy Program under section 932 of EPAct and supports the Renewable Fuels Standard for biofuels originally in EPAct 2005, section 1501, which was enhanced by the Energy Independence and Security Act of 2007.

As explained above, the goals of section 942 include the delivery of the first one billion gallons of annual cellulosic biofuel production by 2015 and establishment of a biofuels industry after 2015 that is cost competitive with gasoline and diesel. In addition, section 942(c)(4)(C) requires that, as a condition of receiving an award, successful bidders must enter into an agreement with the Secretary to begin production of cellulosic biofuels not later than three years after the date of the reverse auction in which they participated. Taking the aforementioned goals together with the contractual requirement of section 942(c)(4)(C), DOE proposes to require successful bidders to commit to production of a commercially significant quantity within three years of the reverse auction in which they submitted their successful bid. This requirement is necessary if the Nation is to be able to achieve delivery of the first one billion gallons of annual cellulosic biofuel production by 2015 and the establishment of a commercially viable cellulosic biofuels production capability after 2015. Accordingly, “Commercially Significant Quantity” is defined in the proposed rule as 10 million or greater gallons of cellulosic biofuels produced in one year. This volume is an estimate of the volume necessary to operate a commercial scale refinery at approximately 60 percent of nameplate capacity; it is a level adequate to make such a facility commercially viable and is based on the size (15 to 20 million gallons per year) of commercial scale corn ethanol biorefineries when they were first commercialized. See, Funding Opportunity Announcement (FOA) DE-PS36-06GO96016, “Commercial Demonstration of an Integrated Biorefinery System for Production of Liquid Transportation Biofuels, Biobased Chemicals, Substitutes for Petroleum-based Feedstocks and Products, and Biomass-based Heat/Power.”

Two other proposed definitions similarly reflect DOE's intent to assure that the goals of section 942 are achieved. First, “ eligible biofuels producer ” is defined as a business association, including but not limited to a sole proprietorship, partnership, joint venture, corporation, or other business entity that owns and operates, or plans to own and operate, an eligible cellulosic biofuels production facility and that meets all other eligibility requirements that are conditions on the receipt of production incentives under this part. These eligibility requirements are discussed in Section II.C.

Secondly, DOE proposes to define the term “ eligible cellulosic biofuels production facility ” as a facility that: (1) Is or will be located in the United States (including U.S. territories and possessions); (2) meets or will meet all applicable Federal and State permitting requirements; and (3) meets any financial criteria established by the Secretary.

DOE encourages interested persons to submit comments on the above definitions and to make recommendations regarding other terms that may warrant definition in the final rule.

Solicitations. Under the proposed rule, the reverse auction process commences with DOE's issuance of a solicitation. DOE proposes to issue the solicitation by publication in the Federal Register and by posting the solicitation on its Web site at http://www.eere.energy.gov no later than 60 days before the reverse auction. The solicitation would invite interested persons and businesses to file eligibility submissions, as described herein, and set forth the terms on which bids will be accepted.

Eligibility. As discussed above, the proposed rule includes both pre-auction and post-auction eligibility requirements intended to ensure that the goals of section 942 are met. The result is a three-step eligibility process. First, the proposed rule would require entities seeking to participate in a reverse auction to make a pre-auction eligibility submission that includes an implementation plan demonstrating at a minimum that they own and operate, or plan to own and operate, an eligible cellulosic biofuels production facility; identifies the site or proposed site for the facility; identifies one or more proposed sources of financing for the construction or expansion of the facility; and provides any other additional information specified in the applicable solicitation. The proposed rule would require the pre-auction eligibility submission, including the implementation plan, at a time to be specified in the solicitation prior to the reverse auction.

Second, the proposed rule would require that, within one year of a reverse auction, the successful bidder(s) submit a progress report. The progress report must demonstrate that the successful bidder has acquired the site where its proposed eligible cellulosic biofuels production facility will be located; it has obtained secure financing commitments for the facility's construction or expansion thereof; a licensed construction/design firm has entered into a written engineering, procurement, and construction (EPC) agreement for design and construction of the facility or facility expansion; and the EPC agreement provides for completion of the facility or facility expansion such that production operations at the facility are likely to be completed in order to commence production of commercially significant quantities within three years of the date of the reverse auction.

Third, as a condition of receiving the award, the proposed rule would require the successful bidder, within 90 days after the reverse auction, to enter into an agreement with the Secretary to begin production of commercially significant quantities of cellulosic biofuel in an eligible cellulosic biofuels production facility within three years of the date of the reverse auction in which it made a successful bid. The successful bidder must fulfill the terms of its agreement or else lose the award.

Upon meeting the above three eligibility requirements on a timely basis, including the timely commencement of production in commercially significant quantities, the successful bidder will begin to receive production incentives on a volumetric basis, as per the terms of its bid. DOE believes that these three eligibility requirements are necessary in order to make meaningful progress toward the goals of section 942 and to meet the requirements of a production agreement with the Secretary, entered into pursuant to section 942(c)(4)(C) of EPAct 2005.

Notification of Eligibility Status. The proposed rule provides that all parties who make pre-auction eligibility submissions will be notified by DOE of their eligibility status no later than 15 days before the relevant reverse auction. Similarly, all successful bidders will be duly notified of the acceptability of their progress reports and contract submissions in the second and third steps of eligibility determinations required under the proposed rule.

Bidding Procedures. The proposed rule provides that following DOE's review of pre-auction eligibility submissions and notifications of pre-auction eligibility status, DOE will conduct an electronic reverse auction through a limited duration single bid auction process open only to eligible biofuels producers. The proposed rule would require bids to be submitted electronically to a Web site specified in the solicitation. The “open window” period for bid submissions would consist of a single continuous, minimum four-hour period for each auction. Eligible biofuels producers would submit their electronic bids for production incentives, as specified in DOE's regulations and the relevant solicitation. Only electronic bids received from pre-auction eligible biofuels producers during the open window period would be accepted. The proposed rule would require bids to specify a desired level of production incentive on a per gallon basis and an estimated annual production amount in gallons.

Bid Evaluation and Incentive Awards Selection and Notification. The proposed rule provides that DOE will review the bids received during the open window period and, within 45 days following the close of the open window for submission of bids, announce on its Web site and by direct mail the names of the successful bidders and the terms of their bids. As required by section 942(c)(4)(A)(iii) of EPAct 2005, the proposed rule states that DOE will issue awards for the bid production amounts beginning with the bidder that submitted the bid for the lowest level of production incentive on a per gallon basis.

DOE encourages comments and recommendations regarding the advisability of using the above-described electronic single bidding process or, alternatively, whether the reverse auction would be improved by use of an open iterative process allowing eligible entities to submit multiple bids in real-time during the open window period of the live auction. In particular, DOE is interested in comments as to whether a transparent iterative process, where several rounds of bids are posted, would tend to increase economic efficiency by driving down the production incentives to a market-clearing level. DOE also invites comments regarding the optimum duration of the open window period for bidding.

Statutory Priorities. Section 942(e) of EPAct 2005 requires the Secretary to give award priority to projects that: “(1) Demonstrate outstanding potential for local and regional economic development; (2) include agricultural producers or cooperatives of agricultural producers as equity partners in the ventures; and (3) have a strategic agreement in place to fairly reward feedstock suppliers.” 42 U.S.C. 16251(e).

In order to implement this statutory priority scheme in a manner that also complies with the statutory requirement to issue awards beginning with the eligible entity that submits a bid for lowest level of production incentive, DOE proposes to use the priorities in section 942(e) as a tie-breaker device. Specifically, the proposed rule provides in section 452.5(c)(3) that in the event of a tie among the lowest bids, preference will be given to the lowest tied bidder based on DOE's evaluation of the extent to which of the tied bids best meets one or more of the three statutory priority standards. In the event more than one lowest tied bid is found to meet the priority standards to an equal extent, section 452.5(c)(4) of the proposed rule states that the award will be distributed equally on a per capita basis among such bidders.

For example, assume the available funds for section 942 incentive awards pursuant to congressional appropriations under a solicitation and reverse auction are $2,500,000; assume further that there are two pre-qualified lowest bidders, both of which are agricultural producers. Assume further that these two bidders submitted identical low bids of $.65 per gallon and the two bidders meet the statutory preference standards to the same extent; but one of these bidders (Bidder A) sought an incentive for 10,000,000 gallons of biofuels production, while the other (Bidder B) sought an incentive for 5,000,000 gallons of biofuels production. The total production incentive sought under these circumstances for Bidder A is $6,500,000 and the total production incentive sought by Bidder B is $3,250,000. Under these assumed facts, DOE intends to make half of the appropriated funds ($1,250,000) available for awards to each of the two lowest successful bidders. Bidder A would not receive a greater award than Bidder B even though its bid was based on double the production of Bidder B. This approach would distribute incentives on the widest scale among lowest successful bidders that qualify for statutory preferences.

DOE invites comments on its proposed method for determining the successful bid. DOE is particularly interested in knowing whether it would be advisable to apply the statutory priorities not as a tie breaker device but as a pre-qualification preference or evaluation point preference. With respect to the tie breaker approach proposed in this NOPR, DOE is interested in receiving comments from the public about the proposed prorating of awards among successful bids that meet the statutory priority standards. DOE invites public comment on whether it would be preferable for DOE to make a determination of which bidder among those who have tied best meets the statutory priority standards, thereby obviating the need to prorate awards. DOE is concerned that the auction process could be “gamed,” i.e. , there is a potential for undisclosed business or investment interests to “front” a bidder that qualifies for a statutory priority to the disadvantage of other bidders that do not qualify for a statutory priority. DOE encourages parties to comment on the likelihood of such abuses and how to best prevent them.

1. Amount of Incentive. As required by section 942(c)(4)(B) of EPAct 2005 and subject to appropriations, the proposed rule states that an auction participant selected to receive an award shall receive the amount of the production incentive on the per gallon basis requested in the auction solicitation for each gallon produced and sold by the entity during the first six years of operation.

2. Failure to Commence Production. As discussed above, the proposed rule provides in section 452.4(d) that a successful bidder must enter into an agreement with DOE under which the successful bidder agrees to begin production of cellulosic biofuels not later than three years after the date of the reverse auction in which it submitted a successful bid. This is a statutory requirement contained in section 942(c)(4)(C) of EPAct 2005. Section 452.6(b) of the proposed rule provides that failure of a successful bidder to fulfill the terms of this agreement by actually commencing production of commercially significant quantities of cellulosic biofuels within three years after the date of the auction shall result in the immediate revocation of the award. DOE invites comments and recommendations concerning the appropriateness of this remedy.

3. Limitations. Section 942(d) of EPAct 2005 establishes five types of limitations on the cellulosic biofuels production incentives, including: (1) A per gallon amount determined by the Secretary may be awarded during the first four years of the program; (2) a declining per gallon cap on the incentives awarded over the remaining lifetime of the program, to be established by the Secretary, so that cellulosic biofuels produced after the first year of annual cellulosic biofuels production in the United States in excess of one billion gallons are cost competitive with gasoline and diesel; (3) not more than 25 percent of the funds committed within each reverse auction may be awarded to any one project; (4) not more than $100 million may be awarded in any one year; and (5) not more than $1 billion may be awarded over the lifetime of the program.

The proposed rule would implement the foregoing limitations at section 452.6(c). In particular, the proposed rule provides that the first of the above limitations shall be $1.00 per gallon during the first four years of the program. For these purposes, the program would be deemed to have commenced on the date that the first solicitation for a reverse auction is issued. DOE's intent is to create an incentive for early commencement of operations that yield commercially significant production volumes in the near term. Because the second limitation described above (the declining per gallon cap) will result in lower incentive awards in years after the first four years of the program, an earlier program commencement date should hasten the period during which the higher limitation ceiling will be available. However, DOE solicits comments and recommendations regarding its selection of the program commencement date.

4. Transferability of Awards. The proposed rule would permit awards to be transferred to successor entities that meet all eligibility requirements for the program, as set forth in the proposed rule, and enter into an agreement with the Secretary to commence production within three years of the date of the reverse auction. DOE encourages interested persons to submit comments and recommendations regarding these proposed transferability restrictions. In addition, DOE requests comments regarding any other transfer-related issues. For example, should awards (including the right to the awards and the underlying obligation to commence production within three years of the auction) be transferable at all? If the awards should be transferable, should the awards be transferable prior to the time that production commences? Should the awards be transferable to entities not engaged in the production of cellulosic biofuels, i.e. , should DOE permit the creation of a securitized interest and secondary market in production incentive awards, or should DOE (as proposed in this NOPR) only permit entities actually engaged in cellulosic ethanol production to receive the awards?

Today's proposed rule has been determined to be a significant regulatory action under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993). Accordingly, this action was subject to review under that Executive Order by the Office of Information and Regulatory Affairs of the Office of Management and Budget (OMB).

DOE has determined that this proposed rule is covered under the Categorical Exclusion found in the DOE's National Environmental Policy Act (NEPA) regulations at paragraph A6 of Appendix A to Subpart D, 10 CFR Part 1021, which applies to rulemakings that are strictly procedural. DOE notes that the procedures proposed in this NOPR do not afford DOE discretion to determine whether or how a facility will be constructed or operated. DOE's prescribed role under section 942, that is, awarding production incentives to the lowest bidder in a reverse auction, is strictly procedural. Accordingly, neither an environmental assessment nor an environmental impact statement is required for the proposed rule or for an award that DOE gives or proposes to give to a successful bidder. If DOE subsequently proposes to take any additional actions with respect to successful bidders, separate from the award of funds under section 942 of EPAct 2005, DOE will separately evaluate the need for NEPA review of those new proposed actions.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990). DOE has made its procedures and policies available on the Office of General Counsel's Web site: http://www.gc.doe.gov .

DOE has reviewed today's proposed rule under the provisions of the Regulatory Flexibility Act and the procedures and policies published on February 19, 2003. The proposed rule will only affect biofuels producers if they choose to participate in the reverse auction. Moreover, the proposed rule would provide an economic benefit without imposing any regulatory requirements on producers of cellulosic biofuels. On the basis of the foregoing, DOE certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities. Accordingly, DOE has not prepared a regulatory flexibility analysis for this rulemaking. This certification and supporting statement of factual basis will be provided to the Chief Counsel for Advocacy of the Small Business Administration pursuant to 5 U.S.C. 605(b).

Proposed section 452.4(a) provides that entities that intend to participate in a reverse auction must file a pre-auction eligibility submission. The pre-auction eligibility submission must contain certain information, including an implementation plan, as described above. This information will be used by DOE to determine if an entity that files a pre-auction eligibility submission will be accepted to participate in the reverse auction.

In addition, proposed section 452.4(c) provides that a bidder must submit a progress report. The progress report must contain the additional information described above. DOE will use this information to evaluate the bidder's progress in the production of cellulosic biofuels. DOE has submitted this collection of information to the Office of Management and Budget for approval pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) and the procedures implementing that Act, 5 CFR 1320.1 et seq.

DOE estimates that the annual reporting and recordkeeping burden for this collection of information will be 30 hours per year (10 bidders × 3 hours) at a total annual cost of $2250 (10 bidders × $225 per auction). 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. 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.

Interested parties are invited to submit comments to OMB addressed to: Department of Energy Desk Officer, Office of Information and Regulatory Affairs, OMB, 725 17th Street, NW., Washington, DC 20503. Persons submitting comments to OMB also are requested to send a copy to the DOE contact person at the address given in the ADDRESSES section of this notice. OMB is particularly interested in comments on (1) The necessity of the proposed information collection requirements, including whether the information will have practical utility; (2) the accuracy of DOE's estimates of the burden; (3) ways to enhance the quality, utility, and clarity of the information to be maintained; and (4) ways to minimize the burden of the requirements on respondents.

The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally requires Federal agencies to examine closely the impacts of regulatory actions on State, local, and tribal governments. Subsection 101(5) of title I of that law defines a Federal intergovernmental mandate to include any regulation that would impose upon State, local, or tribal governments an enforceable duty, except a condition of Federal assistance or a duty arising from participating in a voluntary federal program. Title II of that law requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and tribal governments, in the aggregate, or to the private sector, other than to the extent such actions merely incorporate requirements specifically set forth in a statute. Section 202 of that title requires a Federal agency to perform a detailed assessment of the anticipated costs and benefits of any rule that includes a Federal mandate which may result in costs to State, local, or tribal governments, or to the private sector, of $100 million or more in any one year (adjusted annually for inflation). 2 U.S.C. 1532(a) and (b). Section 204 of that title requires each agency that proposes a rule containing a significant Federal intergovernmental mandate to develop an effective process for obtaining meaningful and timely input from elected officers of State, local, and tribal governments. 2 U.S.C. 1534.

This proposed rule would not impose a Federal mandate on State, local, or tribal governments or on the private sector. Accordingly, no assessment or analysis is required under the Unfunded Mandates Reform Act of 1995.

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule that may affect family wellbeing. The proposed rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. DOE has examined this proposed rule and has determined that it would not preempt State law and would not have a substantial direct effect 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. No further action is required by Executive Order 13132.

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) Clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, the proposed rule meets the relevant standards of Executive Order 12988.

The Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB.

OMB's guidelines were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). DOE has reviewed today's proposed rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that: (1) Is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. Today's regulatory action would not have a significant adverse effect on the supply, distribution, or use of energy and is therefore not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects.

Pursuant to section 942(c)(1) of EPAct 2005, DOE will consult with the Secretary of Agriculture, the Secretary of Defense, and the Administrator of the Environmental Protection Agency prior to issuing a final rule.

The issuance of this proposed rule has been approved by the Office of the Secretary.

For the reasons stated in the preamble, DOE proposes to amend chapter II of title 10 of the Code of Federal Regulations by adding a new part 452 as set forth below:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-1327; Directorate Identifier 2008-NM-161-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2008-0151, dated August 5, 2008 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Airbus has issued Service Bulletin A320-25-1444, Revision 02, dated August 1, 2006. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the proposed AD.

Based on the service information, we estimate that this proposed AD would affect about 620 products of U.S. registry. We also estimate that it would take about 6 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $80 per work-hour. Required parts would cost about $0 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these costs. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $297,600, or $480 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-1326; Directorate Identifier 2008-NM-141-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

We received several reports of problems associated with the uncommanded operation of the forward, aft, and nose cargo doors of Boeing Model 747 airplanes that had accumulated between 9,390 and 22,529 total flight cycles; and cargo doors 1 and 2 of Boeing Model 757 airplanes that had accumulated between 4,300 and 30,000 total flight cycles. Tests of the cargo door control switches have shown that the control switches remained in the closed position after they were released, which caused the cargo doors to continue moving. The cause of the switch failure is related to the rated switch operation life cycle. This condition, if not corrected, could result in injuries to persons and damage to the airplane and equipment.

We have reviewed Boeing Special Attention Service Bulletin 747-52-2286, dated September 28, 2007 (for Model 747 airplanes). This service bulletin describes procedures for replacing the control switches of the forward, aft, and nose cargo doors with new control switches.

We have also reviewed Boeing Special Attention Service Bulletin 757-52-0090, dated September 21, 2007 (for Model 757 airplanes). This service bulletin describes procedures for replacing the control switches of cargo doors 1 and 2 with new control switches.

Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition.

We are proposing this AD because we evaluated all relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of these same type designs. This proposed AD would require accomplishing the actions specified in the service information described previously.

We estimate that this proposed AD would affect 765 airplanes of U.S. registry. We also estimate that it would take about 2 to 3 work-hours per product to comply with this proposed AD. The average labor rate is $80 per work-hour. Required parts would cost about $130 to $195 per airplane. Based on these figures, we estimate the cost of this proposed AD to U.S. operators up to $332,775 fleet cost, or between $290 and $435 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866,

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979), and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

You can find our regulatory evaluation and the estimated costs of compliance in the AD Docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-1330; Directorate Identifier 2008-NM-138-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2008-27, dated July 4, 2008 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Viking Air Limited has issued Service Bulletin V7-33-01, dated February 28, 2008. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the proposed AD.

Based on the service information, we estimate that this proposed AD would affect about 21 products of U.S. registry. We also estimate that it would take about 1 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $1,680, or $80 per product, per inspection cycle.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-1325; Directorate Identifier 2008-NM-157-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The FAA has examined the underlying safety issues involved in fuel tank explosions on several large transport airplanes, including the adequacy of existing regulations, the service history of airplanes subject to those regulations, and existing maintenance practices for fuel tank systems. As a result of those findings, we issued a regulation titled “Transport Airplane Fuel Tank System Design Review, Flammability Reduction and Maintenance and Inspection Requirements” (67 FR 23086, May 7, 2001). In addition to new airworthiness standards for transport airplanes and new maintenance requirements, this rule included Special Federal Aviation Regulation No. 88 (“SFAR 88,” Amendment 21-78, and subsequent Amendments 21-82 and 21-83).

Among other actions, SFAR 88 requires certain type design (i.e., type certificate (TC) and supplemental type certificate (STC) design approval) holders to substantiate that their fuel tank systems can prevent ignition sources in the fuel tanks. This requirement applies to design approval holders for large turbine-powered transport airplanes and for subsequent modifications to those airplanes. It requires them to perform design reviews and to develop design changes and maintenance procedures if their designs do not meet the new fuel tank safety standards. As explained in the preamble to the rule, we intended to adopt airworthiness directives to mandate any changes found necessary to address unsafe conditions identified as a result of these reviews.

In evaluating these design reviews, we have established four criteria intended to define the unsafe conditions associated with fuel tank systems that require corrective actions. The percentage of operating time during which fuel tanks are exposed to flammable conditions is one of these criteria. The other three criteria address the failure types under evaluation: single failures, single failures in combination with another latent condition(s), and in-service failure experience. For all four criteria, the evaluations included consideration of previous actions taken that may mitigate the need for further action.

We have determined that the actions identified in this proposed AD are necessary to reduce the potential of ignition sources inside fuel tanks, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane.

The auxiliary fuel tank STCs on affected airplanes are cylindrical and double walled. These tanks use pneumatic air pressure to empty into the airplane center wing tank. All auxiliary tanks use some type of electrical fuel quantity indication system (FQIS), flight deck control and annunciation panels, float level switches, valves and venting systems, electrical wiring connections in the dry bay area, and electrical bonding methods.

During the SFAR 88 safety assessment, it was determined that the Rogerson Aircraft Corporation FQIS and float level switch did not meet intrinsically safe electrical energy levels as described in the guidelines of advisory circular (AC) 25.981-1B, Fuel Tank Ignition Source Prevention Guidelines. Rogerson identified potential ignition sources resulting from a combination of single and latent failures for the Rogerson fuel tank subsystems. To prevent high electrical energy levels from the FQIS and float level switch from entering the auxiliary fuel tank, we have determined that the appropriate solution (depending on the type of auxiliary tank) for continued use is a combination of actions. First, installing a transient suppression device (TSD) in the FQIS and float level switches would be needed. In order to maximize wire separation, the TSD must be installed as close as possible to the points where the FQIS and float level switch wires enter the auxiliary tank. Other actions might include replacing high-energy FQISs, and float level switches that are impractical for TSD application, with intrinsically safe FQISs, providing wire separation, conducting a one time inspection and/or replacing aging float level switch conduit assemblies, periodically inspecting the external dry bay system components and wires, and testing the integrity of bonding resistances.

Furthermore, to reduce fuel vapor ignition risks associated with dry running of fuel pumps and fuel pump failures, operational limitations are needed to ensure that the fuel pumps are turned off when the auxiliary tank is emptied. An inspection to detect fuel leakage in the dry bay and vent pipe shrouds needs to be included in the operator's maintenance program. Rogerson Aircraft Corporation has declared all STCs as high-flammability exposure installations, and has reported a few service difficulties with fuel leakage and damage to tank bladders during maintenance activities.

Rogerson has not provided the service information required under SFAR 88 that would lead the FAA to make a finding of compliance; therefore, we must mandate the deactivation of all Rogerson Aircraft Corporation auxiliary fuel tanks.

If operators do not wish to deactivate their auxiliary fuel tanks, we will consider requests for alternative methods of compliance (AMOCs). The most likely requests would be to allow continued use of the tanks by showing compliance with SFAR 88. This would involve obtaining STCs and developing maintenance procedures to address the safety issues identified above.

Once an operator has deactivated the tank as specified in this proposed AD, the operator might wish to remove the tank. This would require a separate design approval, if an approved tank removal procedure does not exist.

AD 2008-12-03, amendment 39-15546 (73 FR 31749, June 4, 2008) applies to various transport category airplanes equipped with auxiliary fuel tanks installed in accordance with the identified Rogerson fuel tank STCs. That AD requires deactivation of Rogerson Aircraft Corporation auxiliary fuel tanks.

We have determined that AD 2008-12-03 does not include STC SA3449NM, which is also subject to the identified unsafe condition, and might be installed on Boeing Model 727-281 airplanes.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. For this reason, we are proposing this AD, which would require deactivation to prevent usage of auxiliary fuel tanks.

This NPRM proposes the same requirements as AD 2008-12-03, but for airplanes that were not included in the applicability of that AD. In determining whether to supersede that AD or issue a new AD action, we considered the effect on the fleet of superseding AD 2008-12-03, and the consequent workload associated with revising maintenance record entries. In light of this, we have determined that a less burdensome approach is to issue a separate AD action for just the additional airplanes. This proposed AD would therefore not supersede AD 2008-12-03. Airplanes listed in the applicability of AD 2008-12-03 must be in compliance with its requirements. This proposed AD is a separate AD action and applies only to Boeing Model 727-281 airplanes, certificated in any category and equipped with auxiliary fuel tanks installed in accordance with STC SA3449NM.

This proposed AD would affect about 17 U.S.-registered airplanes. The following table provides the estimated costs to comply with this proposed AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify that the proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-1324; Directorate Identifier 2008-NM-101-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The FAA has examined the underlying safety issues involved in fuel tank explosions on several large transport airplanes, including the adequacy of existing regulations, the service history of airplanes subject to those regulations, and existing maintenance practices for fuel tank systems. As a result of those findings, we issued a regulation titled “Transport Airplane Fuel Tank System Design Review, Flammability Reduction and Maintenance and Inspection Requirements” (66 FR 23086, May 7, 2001). In addition to new airworthiness standards for transport airplanes and new maintenance requirements, this rule included Special Federal Aviation Regulation No. 88 (“SFAR 88,” Amendment 21-78, and subsequent Amendments 21-82 and 21-83).

Among other actions, SFAR 88 requires certain type design (i.e., type certificate (TC) and supplemental type certificate (STC)) holders to substantiate that their fuel tank systems can prevent ignition sources in the fuel tanks. This requirement applies to type design holders for large turbine-powered transport airplanes and for subsequent modifications to those airplanes. It requires them to perform design reviews and to develop design changes and maintenance procedures if their designs do not meet the new fuel tank safety standards. As explained in the preamble to the rule, we intended to adopt airworthiness directives to mandate any changes found necessary to address unsafe conditions identified as a result of these reviews.

In evaluating these design reviews, we have established four criteria intended to define the unsafe conditions associated with fuel tank systems that require corrective actions. The percentage of operating time during which fuel tanks are exposed to flammable conditions is one of these criteria. The other three criteria address the failure types under evaluation: Single failures, single failures in combination with a latent condition(s), and in-service failure experience. For all four criteria, the evaluations included consideration of previous actions taken that may mitigate the need for further action.

We have determined that the actions identified in this AD are necessary to reduce the potential of ignition sources inside fuel tanks, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane. We have received a report indicating that the fuel pumps of the center wing fuel tank and alternate fuel tank on McDonnell Douglas Model DC-8 airplanes could be subject to pump inlet friction (i.e., overheating or sparking) when the fuel pumps are continually run as the center wing fuel tank becomes empty, and/or electrical arc burnthrough. These conditions, if not corrected, could result in a fuel tank fire or explosion.

We are proposing this AD because we evaluated all relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the(se) same type design(s). This proposed AD would require revising the Certificate Limitations section of the DC-8 Airplane Flight Manual (AFM) to provide the flightcrew with procedures to preclude dry running of the fuel pumps.

We estimate that this proposed AD would affect 156 airplanes of U.S. registry. We also estimate that it would take about 1 work-hour per product to comply with this proposed AD. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of this proposed AD to the U.S. operators to be $12,480, or $80 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866,

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979), and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

You can find our regulatory evaluation and the estimated costs of compliance in the AD Docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Under the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol), as amended, the U.S. and other industrialized countries that are Parties to the Protocol have agreed to limit production and consumption of hydrochlorofluorocarbons (HCFCs), and to phase out production and consumption in a step-wise fashion over time, culminating in a general phaseout by 2020 while permitting a small amount of HCFC production to continue solely for servicing existing appliances until 2030. Title VI of the Clean Air Act Amendments of 1990 (CAAA of 1990) also mandates restrictions on HCFCs, culminating in a complete production and consumption phaseout in 2030. For purposes of both the Montreal Protocol and the Clean Air Act, “consumption” is defined as production plus imports minus exports. Sections 605 and 606 of the Clean Air Act authorize EPA to promulgate regulations to manage the consumption and production of HCFCs until the terminal phaseout. In 1993 EPA established a chemical-by-chemical, “worst-first,” approach to implement the Montreal Protocol's graduated phaseout in overall HCFC levels (58 FR 65018). Key concepts in the “worst-first” approach included “distinguishing among HCFCs based on their [ozone depletion potential (ODP)] and phasing out use in new equipment prior to use for servicing existing equipment” (58 FR 65026). The consumption cap became effective in 1996, and HCFC consumption in the U.S. remained about 15 percent below the cap for the first two years. In 1998 and 1999, consumption rose to levels that approached the cap. On January 21, 2003, EPA established an allowance tracking system for HCFCs (68 FR 2820), noting at that time that EPA would again pursue a notice-and-comment rulemaking to implement a 2010 stepwise reduction. EPA promulgated minor amendments to these regulations on June 17, 2004 (69 FR 34024), and July 20, 2006 (71 FR 41163).

In this action, EPA proposes the next step in the chemical-by-chemical phaseout the United States uses to meet its international obligations. Specifically, EPA proposes for HCFC-141b, HCFC-22, and HCFC-142b, to grant specified percentages of the consumption and production baselines for the control periods 2010-2014; and for other HCFCs to apportion company-by-company consumption and production baselines as well as grant specified percentages of the consumption and production baselines for the control periods 2010-2014. EPA is also proposing to amend the provisions for HCFC production allowances to meet the basic domestic needs of developing countries. In addition, EPA is proposing regulatory changes to complete the implementation of the section 605(a) ban on introduction into interstate commerce or use of HCFCs and clarifies its interpretation of this Clean Air Act provision.

When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

• Follow directions—The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

These proposed amendments will affect the following categories:

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

The Montreal Protocol on Substances that Deplete the Ozone Layer is the international agreement aimed at reducing and eventually eliminating the production and consumption of stratospheric ozone-depleting substances. The U.S. was one of the original signatories to the 1987 Montreal Protocol and the U.S. ratified the Protocol on April 12, 1988. Congress then enacted, and President George H.W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA of 1990), which included Title VI on Stratospheric Ozone Protection, codified as 42 U.S.C. Chapter 85, Subchapter VI, to ensure that the United States could satisfy its obligations under the Montreal Protocol. Title VI includes restrictions on production, consumption, and use of ozone-depleting substances that are subject to acceleration if “the Montreal Protocol is modified to include a schedule to control or reduce production, consumption, or use * * * more rapidly than the applicable schedule” prescribed by the statute. Both the Montreal Protocol and the Clean Air Act define consumption as production plus imports minus exports.

In 1990, as part of the London Amendment to the Montreal Protocol, the Parties identified HCFCs as “transitional substances” to serve as temporary, lower-ODP substitutes for CFCs and other ODSs. EPA similarly viewed HCFCs as “important interim substitutes that will allow for the earliest possible phaseout of CFCs and other Class I substances”  1 (58 FR 65026). In 1992, through the Copenhagen Amendment to the Montreal Protocol, the Parties created a detailed phaseout schedule for HCFCs beginning with a cap on consumption for industrialized (Article 2) Parties, a schedule to which the United States adheres. The consumption cap for each Article 2 Party was set at 3.1 percent (later tightened to 2.8 percent) of a Party's CFC consumption in 1989, plus a Party's consumption of HCFCs in 1989 (weighted on an ODP basis). Based on this formula, the HCFC consumption cap for the U.S. was 15,240 ODP-weighted metric tons, effective January 1, 1996. This became the U.S. consumption baseline for HCFCs.

The 1992 Copenhagen Amendment created a schedule with graduated reductions and the eventual phaseout of HCFC consumption (Copenhagen, 23-25 November, 1992, Decision IV/4). Prior to the 2007 adjustment, the schedule called for a 35 percent reduction of the consumption cap in 2004, followed by a 65 percent reduction in 2010, a 90 percent reduction in 2015, a 99.5 percent reduction in 2020 (restricting the remaining 0.5 percent of baseline to the servicing of existing refrigeration and air-conditioning equipment), with a total phaseout in 2030.

The Copenhagen Amendment did not cap HCFC production. In 1999, however, the Parties created a cap on production for Article 2 Parties through an amendment to the Montreal Protocol agreed by the Eleventh Meeting of the Parties (Beijing, 29 November—3 December 1999, Decision XI/5). The cap on production was set at the average of: (a) 1989 HCFC production plus 2.8 percent of 1989 CFC production, and (b) 1989 HCFC consumption plus 2.8 percent of 1989 CFC consumption. Based on this formula, the HCFC production cap for the U.S. was 15,537 ODP-weighted metric tons, effective January 1, 2004. This became the U.S. production baseline for HCFCs.

The U.S. has chosen to implement the Montreal Protocol phaseout schedule on a chemical-by-chemical basis. In 1992, environmental and industry groups petitioned EPA to implement the required phaseout by eliminating the most ozone-depleting HCFCs first. Based on the available data at that time, EPA believed that the U.S. could meet, and possibly exceed, the required Montreal Protocol reductions through a chemical-by-chemical phaseout that employed a “worst-first” approach focusing on certain chemicals earlier than others. In 1993, as authorized by section 606 of the CAA, the U.S. established a phaseout schedule that eliminated HCFC-141b first and would greatly restrict HCFC-142b and HCFC-22 next, followed by restrictions on all other HCFCs and ultimately a complete phaseout. (58 FR 15014, March 18, 1993; 58 FR 65018, December 10, 1993). EPA explained that its action modified the schedule contained in paragraphs (a) and (b) of section 605 (58 FR 65025). Paragraph (a) addresses use and introduction into interstate commerce, while paragraph (b) addresses production.

On January 21, 2003 (68 FR 2820), EPA promulgated regulations to ensure compliance with the first milestone in the HCFC phaseout: the requirement that, by January 1, 2004, the U.S. reduce HCFC consumption by 35 percent and freeze HCFC production. In that rule EPA established chemical-specific consumption and production baselines for HCFC-141b, HCFC-22, and HCFC-142b. To further carry out the 1993 phaseout schedule, EPA issued calendar-year allowances equal to 100 percent of baseline for HCFC-22 and HCFC-142b for each control period  2 from 2003 through 2009. For those same control periods EPA issued calendar-year allowances equal to zero for HCFC-141b; under the 1993 rule HCFC-141b was subject to a complete phaseout on January 1, 2003, which allowed the United States to meet and exceed the 2004 stepwise reduction of 35 percent below the baseline for all HCFCs. EPA did, however, create a petition process to allow applicants to request very small amounts of HCFC-141b beyond the phaseout. EPA considered establishing baselines for all HCFCs in that rule but deferred such action for all but HCFC-141b, HCFC-142b, and HCFC-22. These regulations were amended with a technical correction on July 16, 2003 (68 FR 41925), and with direct final rules adopting minor amendments on June 17, 2004 (69 FR 34024) and July 20, 2006 (71 FR 41163).

To further protect human health and the environment, the Parties to the Montreal Protocol adjusted the Montreal Protocol's phaseout schedule for HCFCs at the 19th Meeting of the Parties in September 2007. In accordance with Article 2(9)(d) of the Montreal Protocol, the adjustment to the phaseout schedule was effective on May 14, 2008. 3

As a result of the 2007 Montreal Adjustment (reflected in Decision XIX/6), the United States and other industrialized countries are obligated to reduce HCFC production and consumption 75 percent below the established baseline by 2010, rather than 65 percent as was the previous requirement. The other milestones remain the same: 90 percent below the baseline by 2015, and 99.5 percent below the baseline by 2020—allowing, during 2020 to 2030, production and consumption at only 0.5 percent of baseline solely for servicing existing air-conditioning and refrigeration equipment. The adjustment also resulted in a phaseout schedule for HCFC production that parallels the consumption phaseout schedule. All production and consumption for Article 2 Parties is phased out by 2030.

Decision XIX/6 also adjusted the provisions for Parties operating under paragraph 1 of Article 5 (developing countries): (1) To set production and consumption baselines based on the average 2009-2010 production and consumption, respectively; (2) to freeze production and consumption at those baselines in 2013; and (3) to add stepwise reductions of 10 percent below baselines by 2015, 35 percent by 2020, 67.5 percent by 2025, and 97.5 percent by 2030—allowing, between 2030 and 2040, an annual average of no more than 2.5 percent to be produced or imported solely for servicing existing air-conditioning and refrigeration equipment. All production and consumption for Article 5 Parties is phased out by 2040.

In addition, Decision XIX/6 adjusted Article 2F to allow industrialized countries to produce “up to 10 percent of baseline levels” for export to Article 5 countries “in order to satisfy basic domestic needs” until 2020. 4 Paragraph 14 of Decision XIX/6 notes that no later than 2015 the Parties would consider “further reduction of production for basic domestic needs” in 2020 and beyond. Under paragraph 13 of Decision XIX/6, the Parties will review in 2015 and 2025, respectively, the need for the “servicing tails” for industrialized and developing countries. The term “servicing tail” refers to an amount of HCFCs used to service existing equipment, such as certain types of air-conditioning and refrigeration appliances.

Several sections of the Clean Air Act apply to this proposed rulemaking. Section 605 of the Clean Air Act phases out production and consumption and restricts the use of HCFCs in accordance with the schedule set forth in that section. Section 606 provides for acceleration of the schedule in section 605 based on a determination by EPA regarding current scientific information or the availability of substitutes, or to conform to any acceleration under the Montreal Protocol. EPA has previously accelerated the section 605 schedule through a rulemaking published December 10, 1993 (58 FR 65018). Though this action, EPA is further accelerating the section 605 HCFC production and consumption phaseouts.

Section 606 provides authority for EPA to promulgate regulations that establish a schedule for production and consumption that is more stringent than what is set forth in section 605 if: “(1) Based on an assessment of credible current scientific information (including any assessment under the Montreal Protocol) regarding harmful effects on the stratospheric ozone layer associated with a Class I or Class II substance, the Administrator determines that such more stringent schedule may be necessary to protect human health and the environment against such effects, (2) based on the availability of substitutes for listed substances, the Administrator determines that such more stringent schedule is practicable, taking into account technological achievability, safety, and other relevant factors, or (3) the Montreal Protocol is modified to include a schedule to control or reduce production, consumption, or use of any substance more rapidly than the applicable schedule under this title.” It is only necessary to meet one of the three criteria. EPA believes that in this instance, all three criteria have been met.

The first criterion allows the Administrator, based on an assessment of credible current scientific information, to determine that a more stringent schedule may be necessary to protect human health. The recent scientific findings by the Montreal Protocol's Science Assessment Panel, Science Assessment of Ozone Depletion: 2006, available in the docket for this rulemaking, were initially presented to the Parties to the Montreal Protocol in October 2006 at the 18th Meeting of the Parties in New Delhi, India. The Assessment was published in March 2007, and hard copies were available to the Parties in advance of the 26th Open-Ended Working Group Meeting held in June 2007 in Nairobi, Kenya. The assessment report shows that notwithstanding the evidence of a healing of the ozone layer, there continue to be human health and environmental effects associated with ozone depletion and that recovery continues to rely on a successful total global phaseout of ODSs. The report includes scenarios where additional actions taken by the Parties would result in a faster recovery. While these specific scenarios (including complete phaseout by the end of that calendar year) were not all necessarily deemed to be practical, they demonstrated to the Parties what could be achieved with additional actions and contributed in part to the willingness of many Parties, including the United States, to consider the adjustments to the Montreal Protocol's HCFC phaseout schedule that were successfully negotiated in September 2007. EPA published a notice of data availability (72 FR 35230) concerning the potential changes in HCFC consumption from proposed adjustments to the Montreal Protocol submitted by the United States for consideration at the 19th Meeting of the Parties held in Montreal September 2007. The data made available through that notice were specific to the United States' proposal but had general applicability to the other five proposals submitted by various Parties to the Protocol and to what was ultimately agreed to by the Parties at the 19th Meeting.

Reductions in stratospheric ozone levels lead to higher levels of ultraviolet radiation reaching the Earth's surface, and a higher risk of negative health effects. According to the American Cancer Society, one in five Americans will develop skin cancer in their lifetime, and one American dies every hour from this disease. While medical research continues to improve the understanding of the causes and effects of skin cancer, many health and education groups are working to reduce the incidence of this disease. EPA believes the recent scientific findings on stratospheric ozone depletion, together with the well-established relationship between ozone depletion and increased risk of human health effects, support a determination that a more stringent HCFC phaseout schedule may be necessary to protect against such effects.

The second criterion allows the Administrator to determine a more stringent schedule is practicable based on the availability of substitutes for ODS, taking into account technological achievability, safety, and other relevant factors. Since the establishment of the domestic chemical-by-chemical phaseout in the United States, advances by industry have resulted in the availability of substitutes for a large variety of end-use applications. Under section 612 of the CAA, EPA's Significant New Alternatives Policy (SNAP) program evaluates and lists alternatives for ODSs that reduce overall risk to human health and the environment and are currently or potentially available. Alternatives include chemical replacements, product substitutes, and alternative technologies. The SNAP program has reviewed approximately 450 combinations of alternatives and end uses to date. EPA makes information available concerning potential alternatives for various end-use applications. Suitable alternatives—in many cases, multiple suitable alternatives—are available for all end-use applications for the HCFCs considered in this action. The SNAP program has reviewed substitutes for the following industrial sectors:

• Refrigeration & Air Conditioning.

• Foam Blowing Agents.

• Cleaning Solvents.

• Fire Suppression and Explosion Protection.

• Aerosols.

• Sterilants.

• Tobacco Expansion.

• Adhesives, Coatings & Inks.

HCFCs have been used in almost all of these industrial sectors. For example, within the air conditioning and refrigeration industrial sector, end uses where HCFCs have been used include chillers, industrial process refrigeration systems, ice skating rinks, cold storage warehouses, refrigerated transport, retail food refrigeration, household appliances, and residential and light commercial air conditioning and heat pumps. The SNAP program lists substitutes for each of the end uses. (For a complete list of substitutes the reader is directed to: http://www.epa.gov/ozone/snap/lists/index.html. ) EPA believes that given the availability of substitutes, a more stringent HCFC phaseout schedule now is practicable.

The last criterion is that the Montreal Protocol be modified to include a schedule to control or reduce production, consumption, or use of any substance more rapidly than section 605 would dictate. The United States submitted a proposal to adjust the Montreal Protocol in March 2007 to accelerate the phaseout of HCFCs. This was one of six proposals considered by the Parties at their 19th Meeting. Due to the efforts of the United States and others, the Parties agreed to adjustments that result in a more aggressive phaseout schedule for both developed and developing countries. Therefore, this third criterion has been met. Through this action, EPA is proposing to incorporate a schedule that reflects the 2007 Montreal Adjustment in its regulations. In order to meet the 2010 stepdown, EPA is proposing to allocate HCFC allowances for the years 2010 through 2014 at a level that will ensure the aggregate HCFC production and consumption will not exceed 25 percent of the U.S. baselines.

While section 606 is sufficient authority for this acceleration of the section 605 phaseout schedule, EPA also notes that section 614(b) of the Clean Air Act provides that in the case of a conflict between the Act and the Protocol, the more stringent provision shall govern. Thus, section 614(b) requires the Agency to establish phaseout schedules at least as stringent as the schedules contained in the Protocol.

In addition to implementing the 2007 Montreal Adjustment, today's proposed rule would also address provisions in section 605 of the Clean Air Act that relate to use and introduction intro interstate commerce of class II substances. In today's action, EPA is proposing to complete its implementation (begun in 1993) of the section 605 provisions on use of class II substances. EPA is also proposing regulatory language to reflect the section 605 provisions on introduction into interstate commerce of class II substances. EPA previously addressed the provisions concerning use of class II substances in a 1993 rulemaking that accelerated the phaseout schedule for HCFC-22 and HCFC-142b (58 FR 15014, 58 FR 65018). The intent of the 1993 rulemaking was to accelerate not only the production and consumption schedule, but also the use restrictions for those two substances. In the March 18, 1993 notice of proposed rulemaking, EPA stated that the effect of this acceleration was “to prohibit the use of the chemicals (virgin material only) for any use except as a feedstock or as a refrigerant in existing equipment as of January 1, 2010” (58 FR 15028). EPA noted in the December 10, 1993 notice of final rulemaking that “HCFC restrictions and the approach included in today's final rule have not changed from those proposed by the Agency in March” (58 FR 65028). The regulatory prohibitions included with that notice, however, did not control use directly, but instead banned production and import for most uses. In today's action, EPA is proposing to add the direct use prohibitions contemplated in the 1993 rule as well as the corresponding prohibitions on introduction into interstate commerce. EPA is also clarifying its interpretation of section 605(a).

EPA is proposing to adjust existing regulations to address the next major milestone in the HCFC phaseout. As a Party to the Montreal Protocol, and having ratified the Montreal Protocol and all of its amendments, the United States is required to decrease its amount of HCFC consumption and production to 25 percent of the U.S. baseline by 2010. Our domestic chemical-by-chemical approach results in differing schedules for the phaseout of individual HCFC compounds. EPA believes that the chemical-by-chemical HCFC allocation of allowances proposed in this notice of proposed rulemaking (NPRM) will ensure that the United States continues to maintain an overall HCFC production and consumption level that is below the 2010 cap specified by the September 2007 Montreal Adjustment, while at the same time ensuring that servicing needs consistent with Section 605(a) of the Clean Air Act and EPA's implementing regulations continue to be met. Thus the aggregate allowances for all U.S. HCFC consumption in the years 2010-2014 will not exceed 3,810 ODP-weighted metric tons (25 percent of the aggregate U.S. consumption baseline) annually and the aggregate allowances for all U.S. HCFC production in the years 2010-2014 will not exceed 3,884.25 ODP-weighted metric tons (25 percent of the aggregate U.S. production baseline) annually.

To meet the 2010 cap for the 2010-2014 control periods, EPA is proposing to continue its past practice of apportioning company-specific production and consumption baselines for individual HCFCs, and granting a certain percent of that baseline as necessary to achieve compliance with the cap. For HCFC-141b, HCFC-22, and HCFC-142b, EPA is proposing to apportion company-specific baselines in amounts that are equivalent to those currently published at § 82.17 (for production) and § 82.19 (for consumption), adjusted as necessary to reflect permanent transfers of baseline allowances and changes to the names of entities identified in the tables at § 82.17 and § 82.19. Companies are currently granted, in § 82.16, 0 percent of baseline for HCFC-141b and 100 percent of baseline for HCFC-22 and HCFC-142b. For 2010-2014, given the previous phaseout of HCFC-141b, EPA will continue to allocate zero percent for HCFC-141b, continuing to allow only limited amounts of production via an EPA petition process. 5 EPA is proposing to allocate less than 100 percent of baseline for HCFC-22 and HCFC-142b to meet our obligations under the Montreal Protocol and reflecting the use restrictions under section 605(a) that are discussed later in this proposal while providing for servicing needs consistent with those restrictions.

EPA is proposing a similar approach for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb, which currently do not have baselines. EPA is proposing to apportion company-specific baselines for these HCFCs based on production and import data available to the Agency. For control periods 2010-2014, EPA is proposing to grant 125 percent of baseline for these HCFCs.

The allocations described above for HCFC-22, HCFC-142b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb reflect EPA's analysis of market data for these chemicals. The proposed allocations were developed to allow the need for virgin material to be met and to avoid shortages during the affected control periods, as well as to accommodate some market growth for HCFCs-123, -124, -225ca, and -225cb, for which baselines were not developed in the 2003 allocation rule. The total proposed allocation of HCFC allowances to meet the U.S. need for virgin material is less than the 3,810 ODP-ton cap. The differential between the cap and the total proposed allocation will have the effect of accommodating minor adjustments in the market, particularly to allow potential market growth for HCFCs that have not been produced or imported since 2003 (and which are therefore not reflected here). In summary, of the 3,810 ODP tons of consumption and 3,884.25 ODP tons of production allowable for the 2010-2014 control periods as established by the Montreal Protocol, EPA is proposing to allocate allowances, in aggregate, for 2,920 ODP tons of consumption and 2,646 ODP tons of production.

These proposed allocations represent 77 percent of the consumption cap and 68 percent of the production cap established by the Montreal Protocol for 2010. EPA seeks comment on whether the proposed allocations, together with the amounts assumed to be available from reclaimed refrigerant, will suffice to meet HCFC needs for the existing uses (primarily refrigerant servicing) that will still be permitted in 2010, as well as potential adjustments in the HCFC market. Please provide information and documentation on newly emerging uses of HCFCs and other uses of HCFCs, if any, that are not accounted for by EPA currently. EPA is especially interested in information pertaining to the years 2010 through 2014.

EPA is proposing two other changes in this proposed rule. First, to reflect the September 2007 Montreal Adjustments, EPA is proposing to adjust the amount of Article 5 allowances for control periods 2010-2019. Second, EPA is completing its implementation of the provisions in section 605 of the Clean Air Act that relate to use and introduction into interstate commerce of class II substances.

EPA is not proposing changes to other provisions of 40 CFR part 82 subpart A, such as the recordkeeping and reporting obligations, the essential use and critical use provisions, and the HCFC-141b petition process. EPA is only seeking comments on the portions of 40 CFR part 82 subpart A that are specifically addressed by this proposal.

In the United States, an allowance is the unit of measure that controls production and consumption of ozone-depleting substances. An allowance represents the privilege granted to a company to produce or import one kilogram (not ODP-weighted) of the specific substance. EPA establishes company-by-company baselines (also known as “baseline allowances”) and allocates calendar-year allowances equal to a percentage of the baseline for specified control periods. EPA has allocated two types of calendar-year allowances—production allowances and consumption allowances—for HCFC-22 and HCFC-142b. “Production allowance” and “consumption allowance” are defined at 40 CFR 82.3. To produce an HCFC for which allowances have been allocated, an allowance holder must expend both production and consumption allowances. To import an HCFC for which allowances have been allocated, an allowance holder must expend consumption allowances. An allowance holder exporting HCFCs for which it has expended consumption allowances may obtain a refund of those consumption allowances upon submittal of proper documentation to EPA.

Since EPA is implementing the phaseout on a chemical-by-chemical basis, it allocates and tracks production and consumption allowances on an absolute kilogram basis for each chemical. Upon EPA approval, an allowance holder may trade allowances for one type of HCFC for allowances of another type of HCFC, with transactions weighted according to the ozone depletion potential of the chemicals involved. Pursuant to section 607 of the Clean Air Act, EPA applies an offset to each HCFC trade by deducting 0.1 percent from the transferor's allowance balance. The offset is viewed as a benefit to the ozone layer since it “results in greater total reductions in the production in each year of * * * class II substances than would occur in that year in the absence of such transactions” (42 U.S.C. 7671f).

Under current regulations at 40 CFR 82.15(a) and (b), HCFC-22 and HCFC-142b may not be produced or imported in excess of the calendar-year allowances held by the producer or importer. EPA has not yet allocated any calendar-year allowances for HCFC-142b or HCFC-22 to cover the 2010 control period and beyond. Absent a grant of calendar-year allowances for these HCFCs, § 82.15 would prohibit their production and import after December 31, 2009. EPA intends to avoid that result by issuing a final rule in advance of that date that will allocate calendar-year allowances for 2010-2014.

In the January 21, 2003, allocation rule, EPA established baselines for HCFC-141b, HCFC-22, and HCFC-142b. Section 601(2) states that EPA may select “a representative calendar year” to serve as the baseline for HCFCs. In the 2003 allocation rule, however, EPA concluded that because the entities eligible for allowances had differing production and import histories, no one year was representative for all companies. Therefore, in the 2003 allocation rule EPA assigned an individual consumption baseline year to each company by selecting its highest ODP-weighted consumption year from among the years 1994 through 1997. EPA assigned individual production baseline years in the same manner. EPA did not consider years after 1997 to avoid creating an uneven playing field that would skew allocations to those companies with ample resources and good access to information regarding the impending phaseout. EPA is not proposing to revisit decisions made in the 2003 allocation rule, such as the Agency's discretion to consider data from multiple years in establishing a baseline.

The 2003 allocation rule apportioned production and consumption baselines to each company in amounts equal to the amounts in the company's highest “production year” or “consumption year,” as described above. It completely phased out the production and import of HCFC-141b, with the limited exception described above, by granting 0 percent of that chemical's baseline for production and consumption in the table at § 82.16. The rule granted 100 percent of baseline for production and consumption of HCFC-22 and HCFC-142b. EPA was able to allocate allowances for HCFC-22 and HCFC-142b at 100 percent of baseline because, in light of the concurrent complete phaseout of HCFC-141b, the allocations for HCFC-22 and HCFC-142b, combined with projections for consumption of all other HCFCs, remained below the 2004 cap of 65 percent of the baseline.

Because EPA has allocated the same amount of allowances every year from 2004 to 2009—with minor changes reflecting permanent trades of baseline allowances—and because EPA tracks the production and consumption of all HCFCs (including those for which baselines are not allocated), the Agency can ascertain that the U.S. will remain comfortably below the cap through 2009. The January 2003 allocation rule announced that EPA would allocate allowances for 2010-2014 in a subsequent action and that those allowances would be lower in aggregate than for 2003-2009, consistent with the next stepwise reduction for HCFCs under the Montreal Protocol. EPA stated its intention to determine the exact amount of allowances that would be needed for HCFC-22 and HCFC-142b, bearing in mind that other HCFCs would also contribute to total HCFC consumption. EPA stated that it would likely achieve the 2010 reduction step by applying a percentage reduction to the HCFC-22 and HCFC-142b baseline allowances. EPA has monitored the market to ascertain servicing needs and market adjustments in the use of HCFCs, including HCFCs for which EPA did not establish baselines in the 2003 allocation rule.

This proposal identifies five primary options for allocating HCFC-22 and HCFC-142b allowances for the control periods 2010-2014: (1) Allocating a percentage of the baseline allowances (§§ 82.17 and 82.19) for each HCFC respectively with or without considering any permanent baseline transfers and/or inter-pollutant transfers that resulted in a different amount of production or consumption for a specific HCFC; (2) allocating allowances based on evaluation of the most recent three years of production, import, and/or export data as reported to EPA; (3) allocating allowances based on evaluation of past sales of HCFCs by allowance holders by considering how the HCFCs were ultimately used ( e.g., servicing refrigeration or air-conditioning, original manufacture of refrigeration or air-conditioning equipment, foam blowing); (4) allocating allowances based on aggregated ODP tons; or (5) allocating a total amount of allowances and allowing for purchase by establishing an auction system. These options are described in more detail in section III.A.9 of this preamble. Each of these five methods offers advantages and disadvantages for potential allowance holders which vary according to whether a particular entity is predominantly a producer or importer; whether it currently sells HCFC-22 and HCFC-142b to original equipment manufacturers, wholesalers, retailers, or companies that service appliances; whether the portion of its business that is ODS-based is expanding or contracting as the next major milestone in the phaseout approaches; its liquidity; whether it holds both HCFC-142b and HCFC-22 allowances and/or engages in inter-pollutant transfers; and whether it sold HCFCs for applications that do not lend themselves to servicing. Without regard to the practices of individual entities, each of the potential allocation schemes also offers advantages and disadvantages associated with the ease of implementation and other administrative burdens. EPA has placed in the docket to this NPRM a memorandum titled “Draft Regulatory Options for Allocating HCFC Allowances after 2009” that explores the advantages and disadvantages of the various options. In addition to the memorandum, EPA has also placed in the docket written correspondence by entities that also discusses various options for allocating HCFC allowances.

EPA provided notice of the leading option for implementing the 2010 milestone in the preamble to the 2003 allocation rule by indicating that EPA “intends to achieve this reduction step through notice and comment prior to 2010 and will likely implement the reduction by simply listing a percent of baseline allowances to be granted in § 82.16 for the years after 2009” (68 FR 2823). The Agency said that it would allocate allowances for HCFC-22 and HCFC-142b at less than 100 percent of the respective baselines during the control periods 2010-2014. EPA continues to believe that this option is the most appropriate, but seeks comment on other options. This approach offers a transparent design and provides stability in that it uses a well-vetted baseline. EPA believes this option also is the least burdensome because it would not require additional one-time or periodic reporting obligations that may be necessary if EPA were to adopt a different option. Producers and importers have adapted to the current HCFC allocation method and aligned their business activities around the baselines set forth in the 2003 allocation rule. Currently, EPA manages a tracking system and issues calendar-year allowances per control period to specific entities listed in § 82.17 and § 82.19. An option that utilizes this system would limit administrative burdens for the Agency and allowance holders.

In the 2003 allocation rule, EPA did not forecast the amount of reduction for HCFC-22 and HCFC-142b that would be needed to ensure that the United States stayed sufficiently below the 2010 stepwise reduction, which at the time was a reduction of 65 percent from the Montreal Protocol baseline. EPA did not determine whether it would reduce the allocations for the two substances by the same percentage or by different percentages. Several factors affect determination of the appropriate percentage of the HCFC-22 and HCFC-142b production and consumption baselines to allocate for 2010-2014. Factors include the percentage of the aggregate U.S. production and consumption caps that other HCFCs comprise as well as provisions in the Clean Air Act and implementing regulations that include use restrictions (discussed in section III.C of this NPRM).

EPA uses information from quarterly, annual, and other periodic reporting requirements to monitor consumption, production, imports, and exports of all HCFCs. EPA uses this information to ensure companies' compliance with regulatory requirements and to develop reports that are requested by the Parties to the Montreal Protocol, including reports ascertaining U.S. compliance with the phaseout caps. The information enables EPA to monitor production and consumption for all HCFCs, including HCFCs for which baselines have not yet been established and for which allowances have not yet been allocated.

Although EPA's July 20, 2001, proposed HCFC allocation rulemaking would have allocated production and consumption allowances for all HCFCs, the January 2003 final rule apportioned company-specific baselines, and allocated a specific percentage of baseline allowances for the 2003-2009 control periods, only for HCFC-141b, HCFC-22, and HCFC-142b. EPA applied a “worst-first” approach to these HCFCs since they are the most damaging to the stratospheric ozone layer. The 2003 final rule noted that the HCFC market was continuing to evolve. At that time, the market for HCFCs with lower ODPs did not reflect rapid expansion and thus it was not necessary to establish specific baselines by chemical and issue allowances to ensure that the United States remained below its cap. Later in this proposal, EPA further discusses establishing and apportioning baselines as well as allocating calendar-year allowances for these lower-ODP HCFCs for the control periods 2010-2014.

EPA is proposing to use projected servicing needs in its determination of the amounts of HCFC-22 and HCFC-142b allowances to be allocated for the 2010-2014 control periods. EPA is focusing on servicing needs because under section 605(a) of the Clean Air Act and EPA's implementing regulations, nearly all other uses of these two HCFCs will be banned effective January 1, 2010. EPA has previously issued a draft analysis of servicing demand for the HCFC appliances in the U.S. refrigeration and air-conditioning sector projected to be in service from 2010-2019. The report is titled The U.S. Phaseout of HCFCs: Projected Servicing Needs in the U.S. Air-Conditioning and Refrigeration Sector (the “Servicing Tail” report). On November 4, 2005, EPA published a notice of data availability (70 FR 67172) making a draft of the report available for public review and comment. On September 29, 2006, EPA held a stakeholder meeting presenting the findings of a revision to the Servicing Tail report along with other important information regarding the next major milestones in the HCFC phaseout. EPA solicited comments on the findings presented at the meeting. Some stakeholders, including representatives of manufacturers, chemical producers, importers, reclaimers, industry associations, and environmental organizations, commented on the projected amount of HCFCs needed to service this installed base of equipment and on the amounts expected to be available from reclamation.

EPA focused the analysis on air-conditioning and refrigeration appliances because such equipment will represent the bulk of the servicing need. In addition, the servicing exception to the use ban for HCFC-22 and HCFC-142b pertains only to use as a refrigerant in such equipment. EPA also focused the analysis on HCFC-22 because HCFC-22 is the predominant HCFC in the installed base of air-conditioning and refrigerant equipment for which servicing in the U.S. will likely continue. The findings in the Servicing Tail report have helped to shape EPA's views regarding the allocation for the control periods 2010-2014.

The majority of HCFC-22 equipment that is projected to be in use from 2010 onward will be air-conditioning applications, including window units, packaged terminal units, residential and commercial unitary air-conditioning, chillers, dehumidifiers, water and ground source heat pumps, and non-light duty mobile air-conditioning in buses and trains. Approximately 147.5 million units of all such types of HCFC-22 air-conditioning equipment will be in use in 2010, decreasing from 2010 levels by about 41 percent by 2015 and 76 percent by 2020. In 2010, approximately 2.2 million units of HCFC-22 refrigeration equipment will be in use, including retail food, industrial process refrigeration, and transport refrigeration equipment (but not including cold storage warehouses). The installed base of HCFC-22 refrigeration equipment is projected to decrease from 2010 levels by about 29 percent by 2015 and 51 percent by 2020. EPA developed these estimates using its Vintaging Model, a tool for estimating the annual chemical emissions from industrial sectors that have historically used ozone-depleting substances in their products. Additional information on the Vintaging Model is available in the docket for this rulemaking.

As a result of the September 2007 Montreal Adjustment, in which the Parties agreed to adjust the stepwise reduction in 2010 from 65 percent of baseline to 75 percent of baseline for non-Article 5 Parties, and recognizing the overall advances by industry in transitioning to non-ODS substitutes, EPA has prepared a draft revised Servicing Tail report to: (1) Reflect the 75 percent reduction in 2010; (2) consider more recent production and consumption data in the United States; and (3) consider more recent trends in the air-conditioning and refrigeration sectors. This revised draft report is available in the docket for this rulemaking. EPA is accepting comments on the analysis and the draft findings until February 23, 2009 or March 9, 2009 if a hearing regarding this rulemaking is held.

The Servicing Tail report utilizes production, import, and export data reported to the Agency on a quarterly, annual, and transactional basis, as required by § 82.24. EPA's analysis of the reported data confirms that the United States is satisfying its obligations as it phases out ODSs and enables EPA to consider trends in the HCFC markets on a chemical-by-chemical basis. EPA also uses this information to submit an annual report to the Ozone Secretariat as requested by the Parties to the Montreal Protocol.

Using the reported data, the draft revised Servicing Tail report, and the comments provided at the September 2006 stakeholder meeting and submitted in subsequent correspondence (available in the docket), EPA believes it has sufficient information to propose through this action to allocate a percentage of baseline allowances for HCFC-22 and for HCFC-142b for production and consumption for the control periods 2010-2014 that will address servicing needs. The specific percentage of baseline for each of the affected compounds is discussed below. EPA requests comments regarding whether it should consider other sources of information in addition to the required reports, the Servicing Tail report, and stakeholder comments. In particular, EPA is interested in whether these sources provide sufficient information to allow EPA to reasonably estimate servicing needs for 2010-2014, especially for HCFC-22, which accounts for the majority of the market.

EPA is proposing to revise two types of tables in 40 CFR part 82 that together specify the production and consumption allowances available to allowance holders during specified control periods. Tables at § 82.17 and § 82.19 apportion baseline production and consumption amounts (also referred to as baseline production allowances and baseline consumption allowances), respectively, to individual companies for individual HCFCs. Complementing these tables, the table at § 82.16 lists the percentage of baseline allocated to allowance holders for specific control periods. EPA is proposing to retain this framework of complementary tables, revising them to reflect adjustments to baselines, and to grant percentages of baselines in a manner that achieves the 2010 phasedown goal.

Currently the table at § 82.16 allocates zero percent of baseline to HCFC-141b and 100 percent of baseline to HCFC-22 and HCFC-142b (combined in a single column) for each control period spanning 2003-2009. EPA is proposing to amend the table by including control periods 2010-2014, by continuing to allocate zero percent to HCFC-141b, and by allocating specified percentages (in separate columns) to HCFC-22, HCFC-142b, and—as will be discussed later—other HCFCs.

The proposed percentages for HCFC-22 and HCFC-142b differ because EPA projects that the needs will differ for servicing air-conditioning and refrigeration appliances during the 2010-2014 control periods. EPA's analysis shows that there will be a significantly greater need for HCFC-22 than for HCFC-142b during the control periods 2010-2014. Based on the Servicing Tail report and reporting information already required by EPA (which includes inter-pollutant transfers), the needs for individual HCFCs are not uniform.

EPA believes that allocating the same percentage of baseline for HCFC-22 and HCFC-142b would result in too few allowances for HCFC-22 and too many allowances for HCFC-142b. 6 While inter-pollutant transfers in accordance with § 82.23(b) could continue to be used as a means to trade allowances for one HCFC for another, EPA is not planning to rely on such transfers as a mechanism for large-scale corrections. Instead, EPA anticipates that the continued availability of inter-pollutant transfers will permit the market to self-correct for unforeseen changes in demand and allow individuals to consider a range of options for their allowances. EPA seeks to avoid unnecessary disruptions in the marketplace. EPA's goal is to promote a smooth transition for industry.

EPA requests comments on allocating different percentages of baseline production allowances and baseline consumption allowances for HCFC-22 and HCFC-142b.

EPA is proposing to allocate HCFC-22 and HCFC-142b allowances based on the projected servicing needs for those compounds, taking into account the amount of those needs that can be met through recycling and reclamation. However, EPA can envision other methods for determining how many allowances to allocate for the control periods 2010-2014 for these two compounds, including allocating the maximum amount that ensures compliance under the Montreal Protocol aggregate 2010 cap without room for other HCFCs. EPA notes above that HCFCs other than HCFC-22 and HCFC-142b are likely to be needed during the control periods 2010-2014. Thus EPA favors an approach that includes other HCFCs, recognizing that for such HCFCs baselines must be established and apportioned for each substance, and a percentage of the baseline must be allocated for these control periods. EPA believes it would not be appropriate to allocate the full 3,810 ODP-weighted metric tons of consumption and 3,884.25 ODP-weighted metric tons of production solely to HCFC-22 and HCFC-142b, given the projected needs for other HCFCs as discussed in section III.B.11 of this preamble.

Approaches that do not consider servicing needs could result in shortages of HCFC-22. EPA considered, but is not proposing, allocating a percentage of the 2010 aggregate HCFC consumption and production caps for HCFC-22 and HCFC-142b respectively equal to the same overall percentage of the aggregate HCFC consumption and production caps allocated for each substance in the 2003 allocation rule. Under this approach, EPA would start with the percentage of the total allowable HCFC consumption and production level attributable to each HCFC in the 2003 rule. For example, beginning in 2004, the total allowable HCFC consumption level was 9,906 ODP-weighted metric tons. Using the consumption data for each company's highest ODP-weighted consumption year, EPA allocated HCFC-22 allowances equal to 66 percent of 9,906 ODP tons and HCFC-142b allowances equal to 13 percent of 9,906 ODP tons. We could apply the same percentages to the total allowable HCFC consumption level for 2010-2014 of 3,810 ODP-weighted metric tons. This would provide congruence for the overall “pie.” EPA is concerned, however, that such an approach would provide significantly fewer HCFC-22 allowances in 2010 than would be needed for servicing. Sixty-six percent of the aggregate HCFC cap for the control periods 2010-2014 equals 2,515 ODP-weighted metric tons, which is approximately equal to 46,000 metric tons of HCFC-22. The Servicing Tail report, however, estimates that approximately 62,500 metric tons of HCFC-22 will be needed for servicing in 2010. EPA is concerned that if large quantities of recycled or reclaimed  7 HCFC-22 are not available, the need to make up the almost 20,000-metric-ton shortfall could trigger illegal activities such as imports of HCFC-22 by those that do not hold consumption allowances. As noted elsewhere in this NPRM, EPA does not believe it should rely on inter-pollutant transfers to secure such a significant amount of HCFC-22 allowances.

While EPA regulations aim at maximizing refrigerant reuse, EPA believes that reclamation rates in 2010-2014 would not be sufficient to avert a shortfall if EPA were to issue 46,000 metric tons of consumption allowances to HCFC-22 using this option. This shortfall would equal approximately 30 percent of the total projected servicing need for 2010-2014. As explained in the next section, amounts reported to EPA of reclaimed refrigerant coupled with estimates for available recycled refrigerants indicate that currently less than 30 percent of the servicing need can be met through refrigerant recovery and reuse during these control periods. Thus, EPA has rejected this method as a basis for deciding the relative amounts of HCFC-22 and HCFC-142b allowances to issue for the 2010-2014 control periods. A memorandum to the docket entitled “Summary: EPA Analysis of U.S. Reclamation Practices and Trends” provides additional information on reclamation practices underlying the assumptions in EPA's analysis.

EPA's primary objective is to ensure compliance with the obligation under the Montreal Protocol to reduce the ODP-weighted “basket” of HCFCs to 75 percent below the baseline for production and consumption beginning January 1, 2010. Various options, alone or in combination, could be used to meet this objective. EPA believes, however, that the proposed option provides the best assurance that allocations will be available to meet the projected needs for all HCFCs during the 2010-2014 control periods.

HCFC-22 is the HCFC most widely produced and used in applications for which servicing of existing equipment will occur during 2010-2019. The Servicing Tail analysis focused on HCFC-22, which represents a majority of the market, but also includes information on other refrigerants and components of blends including HCFC-142b and HCFC-123. The report included in the docket focuses on two major equipment types: refrigeration and air conditioning.

Refrigeration equipment can be broken down into four categories: (1) Domestic refrigeration, (2) refrigerated transport, (3) industrial process refrigeration (IPR), and (4) commercial refrigeration. Domestic refrigeration includes household refrigerators, household freezers, combination refrigerator/freezer units, and water coolers. With the exception of certain older household freezers that use HCFC-22, this category typically does not use HCFCs or blends containing HCFCs. Refrigerated transport includes refrigeration used in equipment that moves products from one place to another and includes refrigerated ship holds, truck trailers ( i.e. , reefer trucks), railway freight cars, and other shipping containers. Industrial process refrigeration systems are complex, customized systems used to cool process streams in the chemical, food processing, pharmaceutical, petrochemical, and manufacturing industries. This sector also includes industrial ice machines, equipment used directly in the generation of electricity, and ice rinks. Commercial refrigeration can be further broken down into three end-uses: cold storage warehouses, retail food systems, and ice makers.

EPA estimates that HCFC-22 use in air-conditioning and refrigeration equipment was approximately 115,000 metric tons in 2006. Approximately 66 percent—about 76,000 metric tons—was for servicing existing equipment, with the percentage higher for the refrigeration industry than the air-conditioning industry. The majority of HCFC-22 consumption for servicing is currently attributed to residential and small commercial unitary equipment and retail food refrigeration equipment.

The projected servicing need for HCFC-22 in 2010 is approximately 62,500 MT (3,438 ODP-weighted metric tons) or approximately 90 percent of the consumption cap for all HCFCs in 2010, which is 3,810 ODP-weighted metric tons. Although EPA estimates that the servicing need for HCFC-22 will decrease each year beginning in 2010, EPA is not convinced that there is enough room under the aggregate HCFC cap to consider any scenario where the allocation of allowances for HCFC-22 production or consumption is substantially higher than the projected servicing need, given the need to allocate allowances for other HCFCs as discussed elsewhere in this NPRM.

In the 2003 allocation rule, EPA issued baseline consumption allowances for HCFC-22 equaling 119,384,852 kilograms (119,385 metric tons, or 6,566 ODP-weighted metric tons) and allocated 100 percent of the baseline for the 2003-2009 control periods. The Montreal Protocol cap for all U.S. HCFC consumption beginning in 2004 was 9,906 ODP-weighted metric tons. The baseline allowances for HCFC-22 consumption represented approximately 66 percent of the Montreal Protocol HCFC consumption cap for the United States.

In the 2003 allocation rule EPA issued baseline production allowances for HCFC-22 equaling 110,619,359 kilograms (110,619 metric tons, or 6,084 ODP-weighted metric tons) and allocated 100 percent of the baseline for the 2003-2009 control periods. The Montreal Protocol cap for all U.S. HCFC production beginning in 2004 was 10,999 ODP-weighted metric tons. The baseline allowances for HCFC-22 production represented approximately 70 percent of the Montreal Protocol HCFC production cap for the United States.

In the 2003 allocation rule EPA issued baseline consumption allowances for HCFC-142b equaling 21,088,677 kilograms (21,089 metric tons, or 1,371 ODP-weighted metric tons) and allocated 100 percent of the baseline for the 2003-2009 control periods. This represented approximately 14 percent of the Montreal Protocol HCFC consumption cap of 9,906 ODP-weighted metric tons for the United States.

In the 2003 allocation rule EPA issued baseline production allowances for HCFC-142b equaling 25,090,394 kilograms (25,090 metric tons, or 1,631 ODP-weighted metric tons) and allocated 100 percent of the baseline for the 2003-2009 control periods. This represented approximately 15 percent of the 10,999 ODP-weighted metric tons allowed for the United States under the Montreal Protocol HCFC cap.

In the 2003 allocation rule EPA issued baseline consumption and production allowances for HCFC-141b, and under its “worst first” chemical-specific approach allocated 0 percent of baseline for consumption and production—eliminating, with certain narrow exemptions, the production and import of HCFC-141b. EPA projects that a minimal amount of HCFC-141b will continue to be needed for exempted HCFC-141b production until 2015. Although EPA does not intend to allocate HCFC-141b production or consumption allowances, EPA must account for continued consumption and production of minimal exempted amounts of HCFC-141b to ensure compliance with the 2010 caps.

In addition, EPA must ensure that production and consumption of HCFCs for which baselines were not established in the 2003 allocation rule does not result in an aggregate allocation exceeding the HCFC production or HCFC consumption caps established by the Montreal Protocol.

Air-conditioning and refrigeration equipment commonly requires servicing, which may include the need to add refrigerant to account for refrigerant losses that occur over time. The limited amount of production and import of HCFC-22 and HCFC-142b beginning January 1, 2010, will be allowed only for servicing equipment manufactured prior to January 1, 2010. Later in this proposal, EPA will consider what is meant by “manufactured.”

The Agency recognizes that servicing needs can be met with a combination of newly manufactured HCFCs (virgin HCFCs) and HCFCs that have been recovered and either recycled or reclaimed. Therefore, EPA does not anticipate that the entire projected HCFC-22 servicing need (3,438 ODP tons) will need to be produced or imported to meet the anticipated demand. A percentage of that servicing need will be met by recovering used HCFC-22 from existing equipment. The “servicing tail” report provides analysis of various scenarios regarding reclamation. In addition, EPA's memo to the docket “Summary: EPA Analysis of U.S. Reclamation Practices and Trends” provides background on the reclamation industry, which includes information concerning capacity to reclaim greater amounts of refrigerants, and projects that more than 20 percent of the servicing need can be met by recovering used HCFC-22 from existing equipment.

Recycled and reclaimed HCFCs offset the need for newly-manufactured HCFCs and after the terminal phaseout, as with the CFC phaseout, will become the sole source of HCFCs for servicing existing equipment. EPA regulations at 40 CFR part 82 Subpart F manage the recovery, recycling, reclamation, and reuse of HCFCs under section 608 of the CAAA. Under those regulations, HCFCs may not be vented and must be recovered and are then generally either recycled, reclaimed, or in some cases destroyed. Therefore, it is reasonable to assume that some amount of used HCFCs will be available to meet servicing needs. In accordance with the chemical-by-chemical phaseout regime adopted by the United States, after 2020 only recycled, reclaimed, and stockpiled HCFC-22 and HCFC-142b will be available to service appliances that require those substances. EPA's existing regulations at § 82.16 terminate HCFC-22 and HCFC-142b production and consumption at the end of 2019, and EPA is not proposing to modify that provision. The very small amount of additional production and consumption of HCFCs allowed under Article 2F of the Montreal Protocol between 2020 and 2030 for servicing existing appliances (0.5 percent of baseline) will only be permitted for HCFCs other than HCFC-141b, HCFC-22, and HCFC-142b, per § 82.16(e), and restricted to servicing only air-conditioning and refrigeration equipment manufactured prior to January 1, 2020 per § 82.16(d).

Given its previous experience with the Class I phaseout, EPA believes that over time a larger percentage of recovered HCFCs will be available for reuse. For example, after the 1996 CFC phaseout, motor vehicles with CFC-12 air-conditioning systems continued to be serviced with used CFC-12. In fact, even today recovered CFC refrigerants are still in use for servicing a range of older equipment.

The Servicing Tail report used EPA's Vintaging Model to determine the quantities of HCFC-22 from existing (recycled or reclaimed) sources that can meet post-2010 servicing needs with the remaining quantities required through virgin manufacture (expending allowances). For a given year, the Vintaging Model assumes that a certain percentage of refrigerants, which varies by end-use, is recovered from discarded equipment. The model aggregates the quantities recovered but does not distinguish the “pool” of refrigerant between quantities that are reclaimed versus those that are recycled. EPA's Vintaging Model was the primary tool used to launch the analysis and form the basis for quantitative estimates of projected HCFC consumption. The Vintaging Model estimates the annual chemical emissions from industry sectors that have historically used ODS, including air conditioning, refrigeration, foams, solvents, aerosols, and fire protection. Within these industry sectors, there are over 50 independently modeled end-uses. The model uses information on the market size and growth for each of the end-uses, as well as a history and projections of the market transition from ODS to alternatives. As ODS are phased out, a percentage of the market share originally filled by the ODS is allocated to each of its substitutes. The model tracks emissions of annual “vintages” of new equipment that enter into operation by incorporating information on estimates of the quantity of equipment or products sold, serviced, and retired or converted each year, and the quantity of the compound required to manufacture, charge, and/or maintain the equipment. EPA's Vintaging Model makes use of this market information to build an annual inventory of in-use stocks of equipment and the ODS refrigerant and non-ODS substitutes in each of the end-uses.

For purposes of analysis, the Servicing Tail report considers scenarios for HCFC-22 and HCFC-142b where differing amounts of servicing needs were met by recycled and reclaimed refrigerants. For example, the report examines scenarios in which 10 percent, 15 percent, 20 percent, 25 percent, 50 percent, and 75 percent of the total amount of HCFC-22 in retired or converted equipment is recovered. These analyses depict the potential ratios of new and recovered HCFCs that could be available during the years 2010-2019 to meet the overall servicing needs recognizing that the higher recovery rates are less likely for the earlier control periods.

EPA has anecdotal and reported information concerning recovery rates for refrigerants. Commenters at the September 2006 stakeholder meeting indicated that approximately 10 percent of HCFC-22 in current use was recovered and either reclaimed or recycled. Data reported to EPA consistent with 40 CFR Part 82 Subpart F shows that approximately 3716 metric tons (204 ODP tons) of HCFC-22 was reclaimed in 2007. EPA does not track recycled refrigerants, since recycled refrigerant (unlike reclaimed refrigerant) typically is charged back into equipment with the same ownership rather than re-entering the market. Readers interested in additional information concerning recovery and recycling should review the Servicing Tail report. Given the regulatory requirements for recycling and reclamation (at 40 CFR part 82 subpart F), experience with the CFC phaseout, and industry practices, EPA estimates that during the period 2010-2014, an amount greater than 20 percent of the total servicing need for HCFC-22 can be met with HCFC-22 that has been recovered and either recycled or reclaimed. Since EPA is not banning the use of HCFC-22 equipment, recovered and reclaimed HCFC-22 will become a more valuable commodity as the U.S. approaches the January 1, 2015, stepdown. The demand for HCFC-22 to service existing equipment should provide an economic incentive for an increase in the quantities of used HCFC-22 available for reclamation. As an indicator, EPA notes that several reclamation companies have recently started offering financial payments for used HCFC-22. The docket for this NPRM provides further information regarding EPA's assumptions regarding the availability of recycled or reclaimed HCFC-22 to meet servicing needs.

EPA has considered, but is proposing to reject, using an increasing number to represent the contribution of recycled and reclaimed refrigerant for each of the control periods from 2010-2014 and thus simultaneously reducing the amount of allowances needed for HCFC-22. EPA believes for these control periods, maintaining a constant number of allowances would reduce the overall burden for the allowance holders and would ease business practices. EPA notes that recovery rates could fluctuate yearly and thus holding steady for control periods 2010-2014 is an appropriate approach. In addition, the step downs in the expected recycling and reclamation rates then more closely reflect the international commitments in Decision XIX/6. EPA expects that for the 2015-2019 control periods, the percent of servicing need met by recovered refrigerants will increase and, as noted above, beginning in 2020 all servicing needs for HCFC-22 will be met with recovered refrigerants. EPA will address the percent of servicing need to be met by recovered refrigerants in 2015-2019 in a subsequent rulemaking to reflect the 2015 stepdown required by Article 2F:

EPA is proposing to allocate HCFC-22 consumption allowances to meet 80 percent of the servicing need, assuming that the remaining 20 percent will be met by recovered HCFC-22 that is either recycled or reclaimed. This translates into approximately 50,000 metric tons (2,750 ODP-weighted metric tons), or approximately 72 percent of the total HCFC consumption cap for each of the control periods from 2010 through 2014.

As it did in the 2003 allocation rule, EPA is proposing to allocate production allowances among different chemicals using the same percentage breakdown as for consumption allowances. This would allocate 45,498 metric tons (2,502 ODP tons) of the 3,884.25-ODP-ton production cap to HCFC-22 production. This is consistent with section 605(c) of the Clean Air Act, which states that EPA shall promulgate a phaseout schedule for HCFC consumption that is the same as that applicable to HCFC production. EPA recognizes that there is a difference between the amount of imported and produced HCFCs and that the degree of difference may vary over time. However, EPA does not believe it is necessary to use two different chemical-by-chemical percentage breakdowns ( i.e. , one for consumption allowances and another for production allowances) to ensure compliance with the production and consumption caps. Therefore, for simplicity and for consistency with section 605(c), EPA is proposing to use the same percentages for production and consumption allocations—deriving the percentages based on estimated need for each individual HCFC.

If more HCFC-22 is recovered, recycled, and reclaimed than assumed in this proposed rule, EPA anticipates that the demand for virgin HCFC-22 will decrease. Thus it is possible that not all the production and consumption allowances will be used. It is also possible that any “extra” HCFC-22 allowances could be converted via inter-pollutant transfers to meet other HCFC needs.

EPA requests comments on its application of a 20 percent rate of availability of recovered (recycled or reclaimed) HCFC-22. As discussed above, EPA estimates that at least 20 percent of the 2010-2014 servicing need can be met from recycled or reclaimed material. EPA believes that by the January 1, 2010, effective date of this rule, 20 percent of the 2010-2014 servicing needs should be available from recycled or reclaimed material, and that the availability of recycled or reclaimed material would be expected to increase as the phaseout progresses. EPA notes that in 2020 all HCFC-22 and HCFC-142b used to service air-conditioning and refrigerant equipment will need to be recycled or reclaimed, in light of the nearly-complete phasedown of production and import of virgin material that is scheduled to occur by that date. Additionally, EPA regulations already prohibit the intentional venting of refrigerants and require refrigerant recovery, and the market for recycled and reclaimed refrigerant is predicted to grow as the phaseout progresses. EPA is interested in other data regarding the actual and projected rates of refrigerant recycling and reclamation in the U.S., as well as whether it should consider allocating allowances for HCFC-22 at other levels, such as approximately 100 percent, 90 percent, 80 percent, or 75 percent of the aggregate 2010 cap.

After subtracting out the proposed 72 percent of the 2010 cap for HCFC-22, 28 percent remains to meet all other HCFC needs. EPA believes that the remaining 28 percent is more than the projected HCFC-142b servicing needs, the amounts of HCFC-141b that EPA expects to allow based on the petition process, and all other likely HCFC consumption for the 2010-2014 control periods. This is based on a review of required quarterly, annual, and periodic reports; the Servicing Tail analysis; and comments submitted to EPA by stakeholders in advance of this proposed rulemaking. As described below, the amounts allocated for these substances reflect these assumptions.

As discussed in the Servicing Tail report described above, the projected servicing need for HCFC-142b is extremely low: Approximately 100 metric tons (7 ODP tons). In estimating the need for 2010-2014, EPA has considered the amount of HCFC-142b produced and imported into the United States as reported to EPA in recent years under the existing requirements. Whereas earlier versions of the Servicing Tail analysis focused on HCFC-22, the most recent version—which is included in the docket for this rulemaking—also projects the demand for all other HCFCs for which consumption and production are likely to occur: HCFC-142b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb. The recovery, recycling, and reclamation requirements apply to HCFC-142b as they do to all refrigerants, but recovery rates for HCFC-142b are considerably lower than for HCFC-22, largely because HCFC-142b is typically used in blended refrigerants. The limited amount of data available to EPA indicates that less than 1 percent of HCFC-142b is recycled or reclaimed. In light of the limited data available, and the extremely low estimate of recycling and reclamation, EPA is proposing to allocate 100 percent of the projected HCFC-142b servicing need rather than assuming that a specified percentage of the need will be met through the use of recycled or reclaimed amounts. EPA is proposing to issue consumption allowances for HCFC-142b of 100 metric tons (7 ODP tons). Allocating 72 percent of the consumption cap to HCFC-22 and less than 1 percent to HCFC-142b allows up to 27 percent to be allocated to other HCFCs.

EPA is proposing to allocate production allowances for HCFC-142b at the same proportion of the production cap as was used to allocate consumption allowances as a proportion of the consumption cap. Thus EPA is proposing to allocate production allowances for HCFC-142b at 142 metric tons (9.2 ODP tons).

EPA is proposing to allocate up to a total of no more than 50,000 metric tons of HCFC-22 consumption allowances, 45,498 metric tons of HCFC-22 production allowances, 100 metric tons of HCFC-142b consumption allowances, and 142 metric tons of HCFC-142b production allowances. However, EPA actually allocates allowances to individual persons ( i.e., legal entities). As discussed in section III.A.2 of this preamble, EPA's preferred approach is to apportion baselines and allocate allowances on a pro-rata basis to the entities that received baseline allowances in the 2003 allocation rule. Nevertheless, the Agency is taking comment on other allocation options, which are discussed below.

Company-specific production and consumption baselines (also referred to as “baseline allowances”) for HCFC-141b, HCFC-22, and HCFC-142b are listed at §§ 82.17 and 82.19(a), respectively. The percentage of baseline each entity receives in each control period from 2003 through 2009 appears at § 82.16(a). EPA is proposing to amend § 82.16(a) to include the 2010-2014 control periods. For the years 2010-2014, as for the years 2003-2009, EPA's preferred approach is to specify the same percentage of baseline for each entity. EPA considers allocation of the same percentage to each entity listed at § 82.17 and § 82.19 to be the most equitable approach. EPA does not believe that its allocation of baseline allowances should reflect sales of controlled substances that would subsequently occur. EPA believes that the market for HCFCs that the allowance holders sell to, will evolve to reflect these restrictions as it would evolve other market conditions. This approach is consistent with EPA's previous approach to allocations. However, EPA does note that there have been and continue to be restrictions on use of controlled substances. EPA considered alternative approaches such as evaluating sales information for HCFCs where allowances were expended and considering the differences between expended allowances versus allowances acquired via inter-pollutant transfers. EPA has included in the docket to this rulemaking a memorandum titled Draft Regulatory Options for Allocating HCFC Allowances after 2009 as well as comments submitted by stakeholders describing alternative approaches that the Agency may consider.

As previously noted, allowances allocated for individual control periods may be thought of as “calendar-year allowances” to distinguish them from the apportioned baseline production or consumption allowances (§ 82.17 and § 82.19). For 2010-2014, EPA is proposing to apportion production and consumption baselines for HCFC-22 and HCFC-142b to the same entities that were apportioned HCFC-22 and HCFC-142b baselines in the 2003 allocation rule. EPA is proposing to amend that list of entities and their baselines to reflect changes in the entities' names as well as mergers and acquisitions, but only where EPA has been notified of changes in writing before or during the comment period for this rulemaking, which closes February 23, 2009 or March 9, 2009 if a hearing is held.

The proposed company-specific baselines also reflect adjustments resulting from approved inter-pollutant and/or inter-company transfers of baseline allowances ( i.e. , permanent rather than calendar-year allowances) through the process described in § 82.23. To be reflected in the final apportionment of baselines in the final rule, such transfers must have occurred, with EPA approval, before or during the second quarter of the 2008 control period ( i.e. , by June 16, 2008). As noted in the 2003 allocation rulemaking, EPA is sensitive to the need to avoid creating an “uneven playing field” that could potentially skew allocations to entities with ample resources and good access to information. EPA held a public meeting on June 16, 2008. As it did in the 2003 allocation rulemaking when determining which years to use for establishing a baseline, EPA is using the date of the public meeting as a cutoff date for inter-pollutant and inter-company transfers of permanent baseline allowances that would be reflected in the revised tables shown in this NPRM. EPA believes that since allowance transfers affect the pool of allowances for each controlled substance and thus the amounts apportioned company-by-company, a cutoff date in advance of the issuance of the NPRM is necessary and thus selected a date based on availability and access to information.

EPA recognizes that in some cases entities are no longer actively involved in HCFC production, import, and/or export activities. EPA is seeking comment on whether it should retain the baselines for such entities (the preferred approach) or whether it should retire, auction, or redistribute the baselines among the active entities. EPA has placed in the docket to this proposed rule a memorandum that considers and evaluates each of these options, discussing both the advantages and disadvantages, titled Draft Regulatory Options for Adjusting the HCFC Baseline for Allowance Allocations . For example, apportioning a baseline to an entity that is no longer active means that its allowances might not be expended, resulting in a net environmental benefit. Allocating allowances via an auction may allow for new entrants to purchase allowances or for allowances to be purchased and intentionally retired. However, EPA currently does not use an auction for allocating allowances and anticipates that designing and deploying an auction system could cause administrative delays. An auction system could impose costs on new participants, which would be borne by non-participants who received allowances for the 2003-2009 control periods without charge. EPA notes, however, that under the current allowance system for new entrants to acquire allowances, allowances must be transferred from an existing allowance holder and that when such a transfer occurs, costs are likely to arise from the purchase price and any transaction costs. Allocating allowances to entities that are no longer active in the field may provide an option for new entrants and for entities seeking to purchase and retire allowances, as the inactive entities would presumably be willing sellers. EPA is proposing to retain the baselines for HCFC-22 and HCFC-142b as previously apportioned, subject to updates to reflect name changes and permanent inter-company and inter-pollutant transfers.

Consistent with past practice, EPA is publishing baseline allowance information in this NPRM, having first notified the affected companies of its intention to do so.

Applying the approach described above, EPA proposes to apportion production and consumption baselines for HCFC-141b, HCFC-22, and HCFC-142b to the following entities in the following amounts:

EPA requests comments on the proposed method and calculations for allocating allowances on an entity-by-entity basis for HCFC-22 and HCFC-142b production and consumption.

EPA is proposing to establish and apportion baselines for other HCFCs that have been produced or imported in recent years by using information on production, import, export, and other transactions that has been reported to the Agency under existing regulations. EPA requires recordkeeping and reporting for production, import, export, and trade of all ozone-depleting substances, including HCFCs for which baseline allowances have not yet been established. The recordkeeping and reporting requirements implement section 603 of the Clean Air Act and ensure that companies are in compliance with regulatory and Clean Air Act requirements and that the United States is able to meet international obligations. EPA is not proposing any changes to these requirements.

EPA reviewed HCFC production, import, and export data for the years leading up to the 2003 allocation rule, and chose to establish baselines and allocate allowances for the highest-ODP HCFCs ( e.g. , a “worst-first” approach) in a manner that ensured U.S. compliance with the 2004 cap (35 percent below the U.S. baseline). Prior to the tightening of the 2010 HCFC cap at the 19th Meeting of the Parties to the Montreal Protocol in September 2007, EPA anticipated that limiting production and consumption of HCFC-22 and HCFC-142b for the 2010-2014 control periods would ensure sufficient room under the then-effective 65 percent reduction cap without the need to restrict production and consumption of other HCFCs. Prior to attending the 19th Meeting of the Parties where agreement was reached to reduce the 2010 cap from a 65 percent reduction to a 75 percent reduction, EPA conducted analysis which was shared with stakeholders to ensure that the U.S. could consider changes to our obligations that were both meaningful for ozone layer protection and achievable, allowing servicing needs to continue to be met. Considering that the September 2007 Montreal Adjustment provides for adjustment of the cap from a 65 percent to a 75 percent reduction, EPA is proposing additional precautions to ensure that the more stringent cap will not be exceeded. These precautions include establishing and apportioning baselines for the 2010-2014 control periods for other HCFCs that were produced or imported during the 2003-2007 control periods.

EPA is proposing to apportion baselines for the other HCFCs by amending §§ 82.17 and 82.19 to include company-specific production and consumption baselines for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb. EPA data indicate that those four HCFCs were produced, imported, or exported during the 2003-2007 control periods.

In the 2003 allocation rule, EPA did not issue allowances for all HCFCs, noting in part “that the continuously developing HCFC market would be hampered by such distribution” and that the market proportions at that time “of these lower-ODP HCFCs do not reflect the rapidly expanding market and that distributing allowances for these HCFCs at [that] time would unnecessarily restrict their supply and impede transition to less ozone-depleting substances” (68 FR 2823). Considering the recent adjustments to the Montreal Protocol and the evolution in the HCFC market, EPA believes it is now appropriate to establish a baseline and apportion baseline allowances for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb.

All HCFCs are covered under the Montreal Protocol stepwise reductions, and EPA must consider all HCFC production and import in ensuring that the United States continues to meet its international obligations. The four HCFCs identified in this proposal are the only remaining HCFCs commonly used in the United States that do not currently have established baselines. EPA does not expect that establishing baseline allowances for these four HCFCs would trigger additional recordkeeping or reporting obligations, since companies that produce, import, or export any HCFC already report production and consumption data to EPA. The impacts stem from the years chosen for establishing a baseline, the apportionment of the baseline among companies, and the percentage of baseline allocated for the control years 2010-2014. EPA discusses these issues more specifically below.

EPA recognizes that many different methods and data sources can be used to establish baseline allowances. EPA believes that the best data to use for this purpose are the data reported to the Agency under § 82.24. Entities that have not reported data would not be included in the baseline calculations and would not receive baseline allowances. If necessary, EPA could augment the data for completeness or to verify accuracy by issuing requests for information under section 114 of the CAA. EPA seeks comment on its proposal to use data reported under § 82.24 as the basis for identifying the entities to which allowances should be allocated.

In the 2003 allocation rule, EPA calculated each entity's HCFC-141b, HCFC-22, and HCFC-142b baseline from that entity's highest reported consumption and production from the years 1994-1997. EPA chose that particular range of years because beginning in 1998, some entities were aware of the impending rulemaking and could have increased production or import in an effort to secure higher baseline allowances. EPA stated in the 2003 allocation rulemaking that “by not selecting a year after 1997 it will avoid creating an uneven playing field that skews allocations to those companies with ample resources and good access to information” (68 FR 2832). EPA is proposing to follow a similar approach for these four HCFCs by considering the highest reported data from a range of years rather than selecting a single baseline year. EPA is proposing to use the data reported for the 2005-2007 control periods to calculate baselines for the four additional HCFCs, based on an entity's highest reported consumption and production for the 2005-2007 control periods. By using past years, EPA avoids any ramp-up in the level of production and consumption resulting from a desire to maximize individual baselines in anticipation of this rule going into effect. By using recent data, EPA ensures the baseline reflects the current market as closely as possible, and issues raised when EPA decided to postpone allocating baseline allowances for these HCFCs in 2003.

EPA requests comment on the need to establish baselines for these four additional HCFCs at this time. In particular, EPA is interested in comments concerning whether establishing and apportioning a baseline for these four HCFCs, and allocating a percentage of that baseline for the 2010-2014 control periods, is necessary to ensure that the United States does not exceed the 25 percent HCFC cap under the 2007 Montreal Adjustment. EPA requests comments on the appropriateness of using each company's highest reported consumption and production for 2005-2007 rather than the lowest or an average.

EPA is proposing to establish baseline production and consumption allowances for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb, and to allocate 125 percent of these baselines for the 2010-2014 control periods. By establishing these baseline production and consumption allowances, EPA would be creating a mechanism for limiting growth in production and consumption for these HCFCs during those control periods. Regardless of any action by EPA, given the 605(a) self-effectuating provisions, further growth for these HCFCs will be constrained in 2015 by the provisions on use. For example, given the characteristics of HCFC-225ca and HCFC-225cb, they are generally used as solvents. As of January 1, 2015 that application will be restricted. Thus any growth in the use of these HCFCs will be balanced to some extent by the self-effectuating provisions. Thus EPA is recognizing that other limiting factors, such as section 605(a) of the CAA, will considerably affect how these HCFCs can be used in subsequent control periods. While it is appropriate and necessary for EPA to allocate less than 100 percent of the baseline allowances for HCFC-22 and HCFC-142b, given the use restrictions that apply beginning January 1, 2010, these four low-ODP HCFCs are not subject to domestic use restrictions until a later date. For example, while newly manufactured HCFC-22 cannot be produced or imported for charging into new air-conditioning and refrigeration appliances as of January 1, 2010 (40 CFR 82.16(c)), HCFC-123 can be produced or imported for new appliances until 2020 (40 CFR 82.16(d)). Therefore, EPA believes that it is not appropriate to allocate less than 100 percent of baseline for these compounds in this action. EPA has included information and analysis on these HCFCs in Chapter 3 of the Servicing Tail analysis, which is in the docket for this rulemaking. After reviewing trends in the production, import, export, and trade data submitted to EPA since 2003, EPA believes that allocating 100 percent of the baseline should be sufficient to meet current demand. The Servicing Tail analysis available in the docket provides additional information concerning trends based on the Vintaging Model and additional information provided by stakeholders. However, EPA has heard from stakeholders that some amount of market expansion for these low-ODP HCFCs is possible during the 2010-2014 control periods. Given the low ODPs for these HCFCs, EPA believes that if it were to allocate 125 percent of the baseline for 2010-2014, the United States could still meet the overall HCFC cap of 75 percent below the baseline during these control periods. EPA believes that any continued growth for these HCFCs will be considerably affected by section 605(a) as of January 1, 2015.

Through this action, EPA is proposing to allocate allowances equaling 125 percent of the baseline for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb for the 2010-2014 control periods. If rapid growth were to occur, creating the need for additional amounts of these HCFCs, EPA believes that inter-pollutant transfers could be used to make adjustments. If the full amount of allowances is not needed, then some allowances may go unused. In accordance with the next stepdown under the Montreal Protocol, EPA will issue a rule prior to the 2015 HCFC milestone to limit aggregate production and consumption of all HCFCs to no more than 10 percent of the U.S. baselines for production and consumption. At that time, EPA plans to consider the appropriate level of allowances for 2015 and beyond based on market demand and the section 605(a) restrictions on introduction into interstate commerce and use discussed elsewhere in this NPRM. Examples of uses that will be limited by section 605(a) beginning in 2015 are solvent uses and fire suppression. EPA anticipates other changes as well. For example, EPA's proposed allowance level for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb does not assume a specified level of recycling and reclamation. For HCFCs used in non-refrigeration applications, such as those used as solvents ( i.e. , HCFC-225ca and HCFC-225cb), the section 608 “no venting” prohibition is not applicable. HCFC-123 is used in chillers that in some cases are replacing CFC chillers. Given that in many cases these appliances will last a long time, it will be some time before significant amounts of HCFC-123 are recovered and recycled or reclaimed. In future rulemakings, however, EPA may estimate the amount of the total need for HCFC-123 that can be met through recycling and reclamation. As the HCFC-123 market matures, the refrigerant recovery, recycling, and reclamation requirements in 40 CFR part 82 subpart F, will result in a greater amount of reusable HCFC-123. Recognizing that the HCFC market will continue to evolve, subject to the constraints in section 605(a), EPA is proposing to establish and apportion baseline allowances and provide calendar-year allowances for the control periods 2010-2014 for these HCFCs.

EPA has established company baselines for these four low-ODP HCFCs by choosing each company's highest production and consumption years from 2005, 2006, and 2007. This is the same approach EPA used to establish the company baselines for HCFC-141b, HCFC-22, and HCFC-142b in the 2003 allocation rule.

Data show that 125 percent of the highest year's consumption of HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb for all the companies combined equals 163 ODP-weighted metric tons, which is slightly more than 4 percent of the total HCFC consumption cap of 3,810 ODP tons.

EPA data also show that 125 percent of the highest year's production of HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb for all the companies combined equals 135 ODP-weighted metric tons, which is slightly more than 3 percent of the total HCFC production cap of 3,884.25 ODP tons.

EPA proposes to allocate production allowances to the following entities for the following amounts:

EPA also proposes to allocate consumption allowances to the following entities for the following amounts:

EPA is proposing to allocate 125 percent of each company's baseline for these low-ODP HCFCs for the 2010-2014 control periods. These allocations would appear as additions to the table at § 82.16. EPA requests comments on its proposal to grant 125 percent of baseline to companies for these HCFCs for the 2010-2014 control periods.

In addition to HCFC-141b, HCFC-22, and HCFC-142b, as well as newly addressed HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb, EPA recognizes that the list of HCFCs in appendix B to subpart A includes additional substances. EPA's proposed allocations, based on projected 2010-2014 need, have the effect of reserving some room under the 2010 aggregate HCFC cap for any HCFCs not specifically included in §§ 82.16, 82.18, and 82.19. Given the 4 percent of the 3,810 consumption cap EPA is proposing to allocate for the newly addressed HCFCs (-123, -124, -225ca and -225cb), room under the 2010 production and consumption caps still remains. EPA notes that some niche applications in the U.S. use other HCFCs, such as HCFC-21. However, EPA is not aware of additional need for production or import of these substances at this time. Also, some amount of HCFC-141b will likely continue to be produced or imported via the petition process during the 2010-2014 control periods. EPA believes it is appropriate to reserve some room in case circumstances were to change and users of another HCFC were to seek to acquire an amount either by production or by import. EPA notes that the producer or importer would be required to report to EPA consistent with the existing recordkeeping and reporting requirements. If necessary, EPA could subsequently propose amending the regulations to set and apportion baselines and issue allowances for these HCFCs. EPA requests comments on its proposed approach of allocating baseline allowances for HCFC-141b, HCFC-22, HCFC-142b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb based on the projected need for virgin material in the U.S., which would have the effect of not allocating allowances for the remaining amount under the 3,810 ODP-ton cap.

Under the Montreal Protocol, industrialized countries and developing countries have different schedules for phasing out ODS production and consumption. Developing countries operating under Article 5, paragraph 1 of the Montreal Protocol in most cases have additional time in which to phase out ODSs. Recognizing that it would be inadvisable for developing countries to spend their scarce resources to build new ODS manufacturing facilities to meet basic domestic needs for chemicals they would ultimately phase out, the Parties to the Montreal Protocol decided to permit a small amount of production in industrialized countries, in addition to the amounts otherwise permitted for such countries under the relevant phaseout schedules, for export to meet the basic domestic needs of developing countries. As discussed above, at the 19th Meeting of the Parties (MOP) to the Montreal Protocol held in September 2007, the Parties agreed to a revised phaseout schedule for both Article 5 and non-Article 5 Parties. Included with the changes to the phaseout schedule were changes to the amount of production in industrialized countries that would be permitted to meet the basic domestic needs of Article 5 Parties. These changes were in keeping with the more stringent phaseout schedule for developing countries. Previously, the Montreal Protocol had allowed non-Article 5 countries to produce at 15 percent of their baseline levels for export to Article 5 countries from 2016, the year in which Article 5 countries were required to freeze consumption, through the terminal phaseout in 2040. At the 19th MOP the Parties agreed that to satisfy basic domestic needs of Article 5 countries, non-Article 5 Parties would be allowed to produce up to 10 percent of baseline levels until 2020. For the period after 2020, the Parties agreed to consider further reduction of the production for basic domestic needs no later than 2015 ( UNEP/Ozl.Pro.19/7 Decision XIX/6: Adjustments to the Montreal Protocol with regard to Annex C, Group I, substances (hydrochlorofluorocarbons )).

Section 605(d)(2) of the Clean Air Act states that notwithstanding the restrictions on production, use, and introduction into interstate commerce set forth in paragraphs (a) and (b) of that section, EPA “may authorize the production of limited quantities of a class II substance in excess of the quantities otherwise permitted under such provisions solely for export to and use in developing countries that are Parties to the Montreal Protocol, as determined by the Administrator” (42 U.S.C. 7671d(d)(2)). EPA's implementing regulation at 40 CFR § 82.18(a) provides for allocation of “Article 5 allowances” for production of specified ODSs solely for export to Article 5 Parties to meet those countries' basic domestic needs. The “Article 5” Parties are listed at 40 CFR part 82, subpart A, appendix E. Currently under § 82.18(a) an entity that is apportioned baseline HCFC production allowances receives an amount of Article 5 allowances equal to 15 percent of that production baseline.

EPA is proposing to amend § 82.18(a) to reflect the adjustment to the Montreal Protocol at the 19th MOP and to ensure that the United States does not permit a level of production to meet basic domestic needs in Article 5 Parties that exceeds the level specified in the adjustments. EPA is taking this action in accordance with section 606(a)(3) of the Clean Air Act. EPA is also proposing minor changes to 82.15(c) to clarify that HCFCs produced with Article 5 allowances may be introduced into interstate commerce if destined for export.

Section 82.18(a)(1) currently states that a person apportioned baseline production allowances for specified HCFCs is also apportioned Article 5 allowances for the specified HCFCs equal to the following percentages of that person's baseline: For control periods through 2014, 15 percent; for control periods from 2015 through 2029, 10 percent; and for control periods from 2020 through 2039, 15 percent. While the Montreal Protocol previously permitted production for the basic domestic needs of Article 5 countries equal to 15 percent of the U.S. production baseline for each control period until 2040, section 605(d)(2)(B) of the Clean Air Act requires that for the period between 2015 and 2030 the production for Article 5 countries be limited to 10 percent of baseline. Thus EPA regulations at § 82.18(a) currently restrict Article 5 allowances to 10 percent of production baseline from January 1, 2015, through December 31, 2029, but otherwise allow the full 15 percent previously permitted by the Protocol.

EPA is proposing to amend § 82.18(a) to allocate Article 5 allowances for the HCFCs covered by this rulemaking, for the period 2010-2019, consistent with the recent changes to the Montreal Protocol. Prior to 2015, exports to Article 5 Parties of HCFC-123, HCFC-124, HCFC-225ca, or HCFC-225cb would not require expending Article 5 allowances.

Given that Article 2F of the Montreal Protocol, as adjusted in September 2007, does not provide for additional HCFC production to meet the basic domestic needs of Article 5 Parties past 2019, EPA is proposing to sunset the Article 5 allowance provision for all HCFCs at the end of 2019 in the absence of further adjustments to the Protocol. Decision XIX/6 paragraph 14 states “In order to satisfy basic domestic needs [the Parties] agree to allow for up to 10% of baseline until 2020, and for the period after that, to consider no later than 2015 further reductions of production for basic domestic needs.” If the Parties were to adjust the basic domestic needs provisions of the Protocol to permit continued production for such needs past 2019, EPA would evaluate that adjustment and consider issuing a proposed regulation to extend the availability of Article 5 allowances for basic domestic needs to the extent consistent with the Clean Air Act. Any such proposed regulations would include production levels and schedules that were at least as stringent as those specified in the Montreal Protocol, as adjusted.

EPA requests comments on its proposed revisions to § 82.18(a).

Section 605(a) is titled “Restriction of use of class II substances” and reads:

“Effective January 1, 2015, it shall be unlawful for any person to introduce into interstate commerce or use any Class II substance unless such substance—

(1) Has been used, recovered, and recycled;

(2) Is used and entirely consumed (except for trace quantities) in the production of other chemicals; or

(3) Is used as a refrigerant in appliances manufactured prior to January 1, 2020.

As used in this subsection, the term `refrigerant' means any class II substance used for heat transfer in a refrigerating system.”

Section 605(a) is self-effectuating, banning the introduction into interstate commerce and use of HCFCs by its own terms. In section 605(c), however, Congress directed EPA to promulgate regulations restricting the use of class II substances in accordance with section 605. In today's action, EPA is proposing to complete its implementation of the section 605 provisions on use of class II substances. EPA is also proposing regulatory language to reflect the section 605 provisions on introduction into interstate commerce of class II substances.

As discussed earlier in this notice, the provisions governing HCFC-22 and HCFC-142b promulgated as part of the 1993 phaseout rule were intended “to prohibit the use of the chemicals (virgin material only) for any use except as a feedstock or as a refrigerant in existing equipment as of January 1, 2010” (58 FR 15028). As promulgated, however, the regulatory prohibitions did not control use directly, but instead banned production and import for most uses. EPA is proposing to add the direct use prohibitions contemplated in the 1993 phaseout rule as well as the corresponding prohibitions on introduction into interstate commerce contained in section 605(a). Consistent with the schedule adopted in the 1993 phaseout rule, the section 605(a) use and interstate commerce restrictions would apply to HCFC-22 and HCFC-142b beginning in 2010 and to all other HCFCs beginning in 2015. 8 The restrictions on production and import, both in general and for particular uses, that were promulgated in 1993 are at 40 CFR 82.16(b)-(g). EPA is not proposing to change these provisions in this action. However, EPA is further implementing section 605(a) by proposing direct restrictions on use and introduction into interstate commerce to be codified at § 82.15 and by clarifying its interpretation of the statutory requirements.

Since the promulgation of the 2003 allocation rule, EPA has received questions from stakeholders regarding the Agency's interpretations of section 605(a). Based on these questions, EPA has decided to include in this proposed rule a discussion of how it interprets that section, particularly the terms “introduction into interstate commerce” and “use.” EPA is proposing to promulgate a definition of interstate commerce to facilitate the implementation of section 605(a).

Section 605(a) includes the phrase “introduction into interstate commerce.” Section 611 (Labeling) contains a similar phrase, noting that certain products shall not be “introduced into interstate commerce” unless the product bears a clearly legible and conspicuous warning label. EPA's definition of interstate commerce for section 611 purposes appears at 40 CFR 82.104(n):

After considering this regulatory definition, and noting the similarities in the statutory language, EPA proposes to amend § 82.3 to include a definition of “interstate commerce” that is identical to the definition at § 82.104(n), except that the phrase “controlled substance” would appear where the § 82.104(n) definition uses the term “product.” This is because section 605(a) addresses substances rather than products. Adding a definition of interstate commerce to § 82.3 will clarify the applicability of the section 605(a) provisions. Choosing a definition that is already well-established in the labeling program will minimize stakeholder confusion. EPA requests comments on adding this definition of interstate commerce to subpart A.

EPA notes that under this definition, “introduction into interstate commerce” would include release of HCFCs by the domestic manufacturer for distribution and transport prior to export. The section 605(a) ban thus has relevance to the export of HCFCs—limiting exports to HCFCs that are “used, recovered, and recycled” (section 605(a)(1)); HCFCs that are destined for transformation (section 605(a)(2)); HCFCs that will be used as a refrigerant in appliances manufactured before the date specified in the regulations (section 605(a)(3)); and HCFCs that will be exported to Article 5 Parties (section 605(d)(2)). As a result, HCFC exports to non-Article 5 Parties would be limited as of January 1, 2010, or January 1, 2015, depending on the specific HCFC.

In addition to banning “introduction into interstate commerce” of HCFCs, section 605(a) also bans “use,” subject to three statutory exceptions that inform EPA's understanding of the term “use.” While these exceptions apply to the “interstate commerce” ban as well as the “use” ban, the discussion below focuses on the “use” aspects of the exceptions. EPA is proposing to interpret the “use” ban as applying to the use of HCFCs in manufacturing and servicing HCFC products.

The first exception, which appears at section 605(a)(1), applies to class II substances that have been “used, recovered, and recycled.” This exception confirms EPA's understanding of the use ban as limited to the manufacture and servicing of HCFC products. If the ban applied to use of HCFCs by a consumer, such “use” might include the continued operation of an appliance ( e.g. , a residential air conditioner) where an HCFC acts as the refrigerant. Under this broad definition of “use,” there would be an incentive for consumers to hire servicing technicians to recover the HCFCs from appliances already in their homes and businesses, to recycle the HCFCs for reuse, and to charge the HCFCs back into the same appliances. These steps should not be necessary for continued operation of installed equipment. However, by taking these steps, consumers could avail themselves of the exception for “used, recovered, and recycled” substances at section 605(a)(1). There would be no environmental benefit to following such a procedure. There could even be an environmental detriment, given the potential for losses of refrigerant during the recovery and recycling process. EPA does not believe that Congress intended such a result. Moreover, EPA believes that Congress intended to permit the continued use of previously manufactured appliances, as indicated by the third exception to the use ban (section 605(a)(3)). Thus, EPA is not proposing an interpretation that would result in shortening the useful lifetime of appliances that were manufactured prior to the effective date of the use restriction. EPA concludes that the section 605(a) “use” ban does not apply to a consumer's operation of equipment that contains HCFCs. Rather, it applies to use during manufacture and servicing of equipment. EPA believes that Congress meant for the section 605(a)(1) exception to allow the use of “used, recovered, and recycled” HCFCs in appropriate instances by servicing technicians, reclaimers, and appliance manufacturers.

Section 605(a)(2) refers to HCFCs that are “used and entirely consumed (except for trace quantities) in the production of other chemicals.” Similar language appears as an exception to the definition of “production” at section 601(11). This type of use is referred to in EPA's regulations as “transformation” (see the definition of “transform” at 40 CFR 82.3). The current phaseout schedule for HCFC production and consumption already includes a transformation exception within § 82.16. EPA intends to implement the transformation exception in section 605(a)(2) consistent with the transformation exception to the HCFC production phaseout.

Section 605(a)(3) provides an exception for HCFCs that are “used as a refrigerant in appliances manufactured prior to January 1, 2020.” EPA reads this exception as allowing appliances manufactured before the specified date to be serviced with virgin HCFCs. This is consistent with the legislative history of the exception. The predecessor to section 605(a)(3) in the Senate bill was an exception for “other regulated substances” (such as HCFCs) that are “used to maintain and service household appliances or commercial refrigeration units manufactured prior to January 1, 2015.” The House amendment contained identical language. While the language that emerged in the Conference Agreement is less specific, we can infer that this exception was intended to address, at a minimum, maintenance and servicing needs.

As noted above, EPA interprets the 605(a) use ban to cover initial charges as well as maintenance and servicing. As written, the section 605(a)(3) exception would permit some newly manufactured appliances ( i.e. , those manufactured prior to January 1, 2020) to be charged with virgin HCFCs following the effective date of the use ban. In the 1993 phaseout rule, however, EPA banned production and import of HCFC-22 and HCFC-142b, effective January 1, 2010, for use in appliances manufactured after 2009. EPA also indicated that it intended to ban use of virgin HCFC-22 and HCFC-142b in such appliances. Consistent with decisions made in the 1993 rule, EPA is proposing, for HCFC-22 and HCFC-142b, to apply the section 605(a)(3) exception only to the use of these HCFCs in appliances manufactured before 2010. Such use would consist of servicing and maintenance of these appliances. EPA notes that servicing could entail a wide range of activities including replacing parts or components. For the low ODP-refrigerants covered by 82.16(d), however, EPA is proposing to apply the section 605(a)(3) exception to the use of HCFCs in equipment manufactured before January 1, 2020, which would allow initial charging of equipment for a limited period as well as servicing and maintenance uses. For those refrigerants, 82.16(d) bans production and import effective January 1, 2015 for use in appliances manufactured after 2019.

EPA notes that the exception at section 605(a)(3) limits introduction into interstate commerce and use to situations where the HCFC: “is used as a refrigerant in appliances manufactured prior to” the specified date. Section 601 defines appliance as “any device which contains and uses a class I or class II substance as a refrigerant and which is used for household or commercial purposes, including any air conditioner, refrigerator, chiller, or freezer.” EPA recognizes many devices meet the section 601 definition of appliance. For example, commercial refrigeration includes the retail food and cold storage sectors. Industrial process refrigeration includes customized appliances used in the chemical, pharmaceutical, petrochemical and manufacturing industries. Other types of appliances include household refrigerators and freezers; chillers; water coolers; vending machines; residential and light commercial heat pumps; residential dehumidifiers; unitary systems; and commercial ice machines. Under the SNAP program and regulations promulgated under § 608, EPA has recognized the differences in these appliances and in some cases has found substitute refrigerants acceptable for some appliances but not others or established different control thresholds such as different leak rate requirements. For the purposes of this action, EPA has considered the definition of appliance carefully, particularly evaluating at what point a device becomes a manufactured appliance. EPA believes that the difference in types of appliances affects the point when manufacture is complete.

Through this action, EPA is providing an interpretation of section 605(a) under which air-conditioning and refrigeration appliances are “manufactured” when the refrigerant loop is completed, the appliance can function, the appliance holds the complete and proper charge, and is ready for use for its intended purposes. For refrigerators and room air-conditioners, manufacture may be complete while the appliance is still at a manufacturing facility. For instance, if such an appliance has been pre-charged with the desired amount of refrigerant, has gone through the entire manufacturing line so that all mechanical, electrical, labeling and painting/marking procedures are complete, and is ready to be packaged and shipped, and is a “stand-alone” piece of equipment ( i.e. , it only needs to be plugged into an electrical outlet and turned on to function properly), then EPA would consider the appliance as “manufactured.” The situation differs, however, for other appliances, such as commercial refrigeration and industrial process refrigeration, involving more complex installation processes. Such devices are field charged with refrigerant; the refrigerant loop typically is completed onsite, and—particularly with industrial process refrigeration—the parts are custom-built. EPA would consider these field-charged appliances “manufactured” at the point installation of all parts is completed and fully charged refrigerant (whether or not the appliance had started operation). For some appliances, such as condensing (outside) units for split-system air conditioners, refrigerant charge is often included in the product during the manufacturing process but then is typically adjusted in the field to account for different line sizes and indoor unit configurations. EPA would consider the “manufacture” of this type of appliance similar to that for field-charged equipment; that is, manufacture would not be complete until the device is installed in the field, connected with the indoor unit, and charged to the proper level.

EPA does not interpret “use” to include destruction, recovery for disposal, discharge consistent with all other regulatory requirements or other similar actions where the substance is part of a disposal chain. At the point disposal-related actions occur, other statutory and regulatory provisions generally govern. For example, Congress addressed the issue of disposal under section 608. EPA has promulgated regulations to implement section 608 for appliances: These safe disposal requirements are codified at 40 CFR part 82 subpart F. In some instances, HCFCs may need to be introduced into interstate commerce in order to reach an appropriate destruction facility. Consistent with its interpretation of “use,” EPA is interpreting the interstate commerce prohibition to exclude introduction into interstate commerce for the purpose of destruction.

As noted above, the current regulatory provisions already preclude production or import of HCFC-22 and HCFC-142b in 2010 and beyond for purposes that are not exempted at § 82.16(c) consistent with section 605(a). 9 However, EPA is proposing through this action to amend § 82.15 to add prohibitions that specifically preclude any person from introducing into interstate commerce or using (according to the interpretations above) any HCFCs for purposes that are not consistent with section 605. EPA believes that this is appropriate because section 605(a) specifically bans use and introduction into interstate commerce. In addition, under the current regulatory structure the prohibitions apply to the producer or importer of the HCFC compounds. The provisions EPA is proposing to add to the regulations would apply to manufacturers of appliances and other HCFC products, as well as anyone who services such products. EPA requests comments on adding these prohibitions and on its interpretation of section 605(a).

Finally, EPA is proposing revisions to its regulations on export production allowances to ensure consistency with section 605(a). Export production allowances allow an HCFC that is subject to a domestic phaseout to be produced for export to Parties that continue to allow imports of that substance (40 CFR 82.18(b)). Currently, entities that hold baseline production allowances for HCFC-141b are allocated export production allowances equal to 100 percent of their baseline production allowances. EPA is proposing to sunset this provision on December 31, 2009, in order to avoid a conflict with the section 605(a) restrictions on use and introduction into interstate commerce. Under the proposed interstate commerce definition, “introduction into interstate commerce” would include release of HCFCs by the domestic manufacturer for distribution and transport prior to export. EPA is not proposing to allocate export production allowances for any other HCFCs. EPA seeks comment on the sunset of provisions for export production allowances.

Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), this action is a “significant regulatory action.” Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under EO 12866 and any changes made in response to OMB recommendations have been documented in the docket for this action.

EPA did not conduct a specific analysis of the benefits and costs associated with this NPRM. Many previous analyses provide a wealth of information on the costs and benefits of the U.S. HCFC phaseout including:

• The 1993 Addendum to the 1992 phaseout regulatory impact analysis: Accelerating the phaseout of CFCs, halons, methyl chloroform, carbon tetrachloride, and HCFCs .

• The 1999 Report Costs and Benefits of the HCFC Allowance Allocation System .

• The 2000 Memorandum Cost/Benefit comparison of the HCFC Allowance Allocation System .

• The 2005 Memorandum Recommended scenarios for HCFC phaseout costs estimation .

• The 2006 ICR Reporting and Recordkeeping Requirements of the HCFC Allowance System .

• The 2007 Memorandum Preliminary estimates of the incremental cost of the HCFC phaseout in Article 5 countries .

• The 2007 Memorandum Revised Ozone and Climate Benefits Associated with the 2010 HCFC Production and Consumption Stepwise Reductions and a Ban on HCFC Pre-charged Imports .

This action does not impose any new information collection burden. EPA already requires recordkeeping and reporting requirements and through this action is not proposing to amend those provisions. However, the Office of Management and Budget (OMB) has previously approved the information collection requirements contained in the existing regulations at 40 CFR part 82 subpart A under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control number 2060-0498. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of this proposal on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

This proposal will affect the following categories:

After considering the economic impacts of the proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. EPA is not proposing to change the methodology for the 2010-2014 control periods. Instead, EPA is continuing to allocate production and consumption allowances using the same approach currently used for control periods 2003-2009. Thus the 13 small businesses eligible for allowances for HCFC-22 and HCFC-142b identified in that rulemaking (68 FR 2845) are still eligible for allowances under this rule. In addition, small businesses eligible for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb using the same methodology, will also be eligible for allowances. EPA is not proposing any changes to the recordkeeping or reporting provisions and thus will not have any impact on the burden to these businesses.

While EPA does not believe this proposal will have a significant economic impact on a substantial number of small entities, nonetheless, EPA continues to try to reduce further any impacts on small entities. With respect to the allowance allocation system as a whole, EPA is proposing to continue to provide flexibility. Consistent with the methodology for establishing baselines for HCFC-141b, HCFC-22, and HCFC-142b, while small entities will be on the same footing as larger entities, EPA is again is proposing to use the highest year of consumption. EPA is also to limit consideration of company-specific baseline adjustments to reflect permanent inter-company or inter-pollutant transfers made prior to June 16, 2008 as discussed elsewhere in the preamble to avoiding skewing baselines to entities with ample resources or access to information. EPA also believes that the ability to transfer allowances among entities provides the greatest flexibility for small entities to manage their allocation. As noted in the 2003 allocation (68 FR 2846), unlike with the class I substances, there is no restriction to limit inter-pollutant transfers to groups of substances. Both inter-pollutant and inter-company transfers of allowances are possible, either on a calendar-year or permanent basis. A small entity can opt for short-term or long-term decisions concerning the allowances it holds after evaluating its place in the overall market. EPA continues to be interested in the potential impacts of the proposed rule on small entities and welcomes comments on issues related to such impacts.

This rule does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any one year. The requirements already established at 40 CFR part 82 subpart A already govern the production, import, and export of ODS. The regulatory changes for the next major milestone in the general phaseout continue to implement the same general framework previously established. EPA does not anticipate that this proposed rulemaking will have any significant direct impacts or State, local and tribal governments or private sector entities. Thus, this rule is not subject to the requirements of sections 202 or 205 of UMRA.

This rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. This proposed rule would apportion production and consumption allowances and establish baselines for private entities, not small governments.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

This proposed rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Today's proposal is expected to primarily affect producers, importers, and exporters of HCFCs. Thus, the requirements of section 6 of the Executive Order do not apply. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comment on this proposed rule from State and local officials.

Executive Order 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 13175. This proposal does not significantly or uniquely affect the communities of Indian tribal governments. It does not impose any enforceable duties on communities of Indian tribal governments. Thus, Executive Order 13175 does not apply to this proposed rule.

This action is not subject to EO 13045 (62 F.R. 19885, April 23, 1997) because it is not economically significant as defined in EO 12866. The Agency nonetheless has reason to believe that the environmental health or safety risk addressed by this action may have a disproportionate effect on children. Depletion of stratospheric ozone results in greater transmission of the sun's ultraviolet (UV) radiation to the earth's surface. The following studies describe the effects of excessive exposure to UV radiation on children: (1) Westerdahl J, Olsson H, Ingvar C. “At what age do sunburn episodes play a crucial role for the development of malignant melanoma,” Eur J Cancer 1994: 30A: 1647-54; (2) Elwood JM, Japson J. “Melanoma and sun exposure: an overview of published studies,” Int J Cancer 1997; 73:198-203; (3) Armstrong BK, “Melanoma: childhood or lifelong sun exposure,” In: Grobb JJ, Stern RS Mackie RM, Weinstock WA, eds. “Epidemiology, causes and prevention of skin diseases,” 1st ed. London, England: Blackwell Science, 1997: 63-6; (4) Whieman D., Green A. “Melanoma and Sunburn,” Cancer Causes Control, 1994: 5:564-72; (5) Heenan, PJ. “Does intermittent sun exposure cause basal cell carcinoma? A case control study in Western Australia,” Int J Cancer 1995; 60: 489-94; (6) Gallagher, RP, Hill, GB, Bajdik, CD, et al. “Sunlight exposure, pigmentary factors, and risk of nonmelanocytic skin cancer I, Basal cell carcinoma.” Arch Dermatol 1995; 131: 157-63; (7) Armstrong, DK. “How sun exposure causes skin cancer: an epidemiological perspective,” Prevention of Skin Cancer. 2004. 89-116. The public is invited to submit or identify peer-reviewed studies and data, of which EPA may not be aware, that assess results of early-life exposure to UV radiation.

This action proposes to reduce the potential continued use of Class II controlled substances and the emissions of such substances. It implements the United States commitment to reduce the total basket of HCFCs produced and imported to a level that is 75 percent below the respective baselines. While on an ODP-weighted basis, this is not as large a step as previous actions, such as the 1996 Class I phaseout, it is one of the most significant remaining actions the United States can take to complete the overall phaseout of ODS and further decrease impacts on children's health from stratospheric ozone depletion. EPA requests comments regarding the impacts of this proposal on the continued efforts to protect children's health.

This rule is not a “significant energy action” as defined in Executive Order 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. The proposed regulation predominately impacts HCFC production, imports, exports, and trades. The Agency has concluded that this rule is not likely to have any adverse energy effects.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113, 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 proposed rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it increases the level of environmental protection for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population. By allocating allowances for HCFCs and thus restricting the amount of HCFCs available as of January 1, 2010, this rule avoids emissions of these ozone-depleting substances, lessening the adverse human health effects for the entire population.

40 CFR part 82 is proposed to be amended as follows:

(1) Under the Montreal Protocol on Substances that Deplete the Ozone Layer (Protocol), as amended, the U.S. and other industrialized countries that are Parties to the Protocol have agreed to limit production and consumption of hydrochlorofluorocarbons (HCFCs) and to phase out consumption in a step-wise fashion over time, culminating in a complete phaseout in 2030. Title VI of the Clean Air Act Amendments of 1990 (CAAA) authorizes EPA to promulgate regulations to manage the consumption and production of HCFCs until the total phaseout in 2030. EPA promulgated final regulations establishing an allowance tracking system for HCFCs on January 21, 2003 (68 FR 2820). These regulations were amended on June 17, 2004 (69 FR 34024) and July 20, 2006 (71 FR 41163). This action proposes a ban on sale or distribution of air-conditioning and refrigeration appliances that contain HCFC-22, HCFC-142b, or blends containing one or both of these controlled substances. In addition, EPA is proposing to extend these requirements to air-conditioning and refrigeration appliances that are suitable only for use with newly produced HCFC-22, HCFC-142b, or blends containing one or both of these controlled substances as the refrigerant.

(2) Abbreviations and Acronyms Used in This Document.

(3) Tips for Preparing Your Comments.

When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

These proposed amendments will affect the following categories:

In 1973 chemists Frank Sherwood Rowland and Mario Molina at the University of California-Irvine began studying the impacts of chlorofluorocarbons (CFCs) in the earth's atmosphere. They discovered that CFC molecules were stable enough to migrate to the stratosphere and that the chorine atoms contained in these molecules could cause the breakdown of large amounts of ozone in the stratosphere. The Toxic Substances Control Act (TSCA), passed in 1976, included regulatory authority over CFCs. EPA's first regulatory response to the concerns for stratospheric ozone protection resulted in a ban on CFC aerosol propellants (43 FR 11301, March 17, 1978; 43 FR 11318, March 17, 1978).

EPA followed this initial regulatory approach with an Advance Notice of Proposed Rulemaking (ANPRM) which discussed a freeze on the production of certain CFCs and a system of marketable permits to allocate CFC consumption among industries (45 FR 66726; October 7, 1980). EPA did not act immediately on the 1980 ANPRM and was subsequently sued by the Natural Resources Defense Council ( NRDC v. Thomas , No. 84-3587 (D.D.C.)) for failure to regulate CFCs further. EPA and NRDC settled the case and agreed that EPA would propose further regulatory controls on CFCs, or state the reasons for deciding not to issue a proposal, by December 1, 1987, and would take final action by August 1, 1988.

On January 10, 1986 (51 FR 1257), EPA published its Stratospheric Ozone Protection Plan. That plan described the analytic basis for supporting negotiations for an international agreement to control CFCs and for reassessing the need for additional domestic regulations of CFCs and other ozone-depleting substances (ODS). The United States participated in negotiations organized by the United Nations Environment Programme (UNEP) to develop an international agreement to protect stratospheric ozone. These negotiations, preceded by the 1985 signing of the Vienna Convention, resulted in the signing of the Montreal Protocol in 1987. The United States ratified the Montreal Protocol on April 21, 1988. In 1988, EPA promulgated regulations implementing the requirements of the Montreal Protocol through a system of tradable allowances under section 157(b) of the Clean Air Act as amended in 1977. This section was subsequently modified by the 1990 Amendments and became CAAA § 615. The Senate Report on the 1990 Amendments, Senate Rep. No. 101-228: “Authority of the Administrator” notes that this section “is intended * * * to preserve the authority and responsibility of the Administrator as set forth in section 157 of the existing Clean Air Act,” although the Conference report to the 1990 CAAA is silent on this matter.

Since the CAAA were passed in 1990, EPA has promulgated regulations based on various provisions of Title VI. For example, EPA has promulgated a production and consumption phaseout schedule that included a revised trading regime for Class I ODS, a production and consumption phaseout schedule and trading regime for Class II ODS, servicing requirements for air-conditioning and refrigeration appliances, bans on nonessential products containing or manufactured with ODS, and labeling requirements.

Concern for ozone layer protection remains paramount for the global community. In an effort to further protect human health and the environment, the Parties to the Montreal Protocol adjusted the Montreal Protocol's phaseout schedule for HCFCs in September 2007. The Parties agreed that industrialized countries, including the United States, would reduce production and consumption of HCFCs to 75 percent below the established baseline in 2010, to 90 percent below the established baseline in 2015, and to 99.5 percent in 2020—allowing for only 0.5 percent production and consumption between 2020-2030 to be used solely for servicing existing appliances culminating in the terminal phaseout in 2030. In addition, the Parties adjusted the schedule for non-industrialized countries by agreeing to set production and consumption baselines based on the average values for 2009-2010 production and consumption, respectively; to freeze production and consumption in 2013; and to add stepwise reductions as follows: 10 percent below baselines in 2015, 35 percent below in 2020, 67.5 percent below in 2025 and allowing for a servicing tail to average no more than 2.5 percent between 2030-2040 to be used solely for servicing existing appliances, culminating in the terminal phaseout in 2040.

The requirements already established at § 82.16(c) will make it unlawful to produce or import HCFC-22 or HCFC-142b on or after January 1, 2010 for use in refrigeration or air-conditioning appliances manufactured on or after that date. The practical result of this provision is that effective January 1, 2010, domestic manufacturers of air-conditioning and refrigeration appliances will not be able to charge newly manufactured appliances with newly produced or imported HCFC-22 or HCFC-142b, and thus will not be introducing appliances containing these newly produced substances into interstate commerce. This regulatory provision does not lead to similar results for imported products, because these appliances are charged before entering the United States.

EPA is proposing to establish regulations that ban the sale or distribution or offer for sale or distribution in interstate commerce of all air-conditioning and refrigeration appliances containing HCFC-22, HCFC-142b, or blends containing one or both of these controlled substances, beginning January 1, 2010. The ban would cover imported appliances and appliances ultimately destined for export, as well as appliances manufactured in the United States for domestic use. In addition, EPA is proposing to extend these requirements to air-conditioning and refrigeration appliances that are suitable only for use with newly produced HCFC-22, HCFC-142b, or blends containing one or both of these controlled substances as the refrigerant, as well as pre-charged appliance components.

Over 9.7 million pre-charged air-conditioning and refrigeration appliances (e.g., window air conditioners, refrigerators) were imported into the United States in 2006. Coupled with any pre-charged appliances that were manufactured domestically, they represent a concern for ozone layer recovery after the January 1, 2010 restriction on production and import of HCFC-22 and HCFC-142b becomes effective. The United States is committed to protecting stratospheric ozone because a thinning of the ozone layer results in greater ultraviolet radiation, and more incidences of related human health damages, such as incidences of skin cancer.

Section 301(a) gives EPA statutory authority to promulgate regulations as are necessary to carry out its functions under the Clean Air Act, such as issuing prohibitions and standards. Further, § 615 of the CAAA states that:

As discussed in the Background section to this proposal, EPA acted under pre-1990 CAA authority that is substantially the same as the authority provided by CAAA § 615. 1 Various sections of Title VI of the CAAA include statutory language that is the same as, or similar to, the statutory authority that existed prior to 1990. Provisions contained in Title VI of the CAAA include specific legislative language pertaining to individual ODSs or specific programs while also including non-specific authority in § 615 to determine when action is necessary to ensure adequate protection of stratospheric ozone. For example, § 606 authorizes EPA to accelerate the phaseout requirements to take further action necessary to protect stratospheric ozone. The general authority in § 615 serves as a supplement to other more specific authority contained in Title VI.

This is a synopsis of the Commission's Notice of Proposed Rule Making, MB Docket No. 08-126, adopted December 8, 2008, and released December 10, 2008. The full text of this document is available for public inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 12th Street, SW., Washington, DC 20554. This document will also be available via ECFS ( http://www.fcc.gov/cgb/ecfs/ ). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) This document may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 1-800-478-3160 or via e-mail http://www.BCPIWEB.com. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an e-mail to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY). This document does not contain proposed information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, therefore, it does not contain any proposed information collection burden “for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Provisions of the Regulatory Flexibility Act of 1980 do not apply to this proceeding. Members of the public should note that from the time a Notice of Proposed Rule Making is issued until the matter is no longer subject to Commission consideration or court review, all ex parte contacts are prohibited in Commission proceedings, such as this one, which involve channel allotments. See 47 CFR 1.1204(b) for rules governing permissible ex parte contacts.

For information regarding proper filing procedures for comments, see 47 CFR 1.415 and 1.420.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 73 as follows: