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


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

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


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

AGENCY: Environmental Protection Agency [EPA].

ACTION: Proposed rule.

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

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

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

[[Page 238]]

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

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

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

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

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

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

I. General Information

A. Does this action apply to me?

    This rule will affect the following categories:

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

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

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

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

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

II. Background

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

A. How does the Montreal Protocol phase out HCFCs?

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

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

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

[[Page 241]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 244]]

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

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

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

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

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

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

[[Page 246]]

B. What factors did EPA consider in proposing allocation amounts for 
HCFC-22 and HCFC-142b?

    In the 2009 Final Rule, EPA decided 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. EPA is not changing that 
approach in this proposed rulemaking and continues to believe it is 
necessary to promote use of reused, recycled, and reclaimed material in 
anticipation of the 2015 phasedown step. However, EPA is proposing to 
allocate fewer consumption allowances for HCFC-22 relative to the 2009 
Final Rule based on analysis of updated market conditions. The proposed 
allocation and the supporting documentation are discussed in section 
III.B.2. Regardless of the extent to which the total number of 
consumption allowances differs from the total number allocated in the 
2009 Final Rule, the specific amounts allocated per company will be 
different than the 2009 Final Rule. In accordance with the Court's 
decision in Arkema v. EPA, the Agency is proposing to reflect the 2008 
inter-pollutant transfers in companies' baselines, and EPA therefore 
needs to allocate a different percentage of company baselines in order 
for the aggregate number of annual HCFC consumption allowances to be 
less than (or equal to) the 2009 Final Rule. EPA is also proposing to 
allocate different percentages of baseline for annual consumption than 
for annual production (described in the rest of the preamble as 
``decoupling'').
    Separate from the proposed allocation change, EPA is taking comment 
on whether or not to provide more HCFC-22 and/or HCFC-142b consumption 
and/or production through this rulemaking than it did in the 2009 Final 
Rule as a result of the unforeseen circumstances presented by the 
Court's decision in Arkema v. EPA. While the Agency's preference is not 
to provide recoupment, EPA is considering an approach to the 2013 
allocation or 2013 and 2014 allocations that could allocate allowances 
to account for lost opportunities to produce and consume in 2010, given 
that 2010 allowance levels were based on baselines that are 
inconsistent with the Court's finding (section III.B.4. discusses this 
in more depth).
1. How important is HCFC-22 relative to HCFC-142b for servicing 
existing equipment?
    HCFC-22 is the most widely-used HCFC. The demand for its use in 
servicing existing equipment was the primary factor affecting EPA's 
allocation of production and consumption allowances of HCFCs for the 
current regulatory period. Prior to issuing the 2009 Final Rule and the 
2009 Servicing Tail Report, EPA issued and sought comment on three 
versions of a draft report analyzing servicing demand for the HCFC 
appliances in the U.S. refrigeration and air-conditioning sector 
projected to be in service from 2010-2019 (all versions available at 
Docket EPA-HQ-OAR-2008-0496: Published November 4, 2005 at 70 FR 67172; 
released at a stakeholder meeting on September 29, 2006; published 
December 23, 2008, with 2008 Proposed Rule). The Servicing Tail Report 
focuses on air-conditioning and refrigeration appliances because such 
equipment represents 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. Under 40 CFR 82.15(g) 
nearly all other uses of newly produced material for these two HCFCs 
were banned effective January 1, 2010. HCFC-142b has primarily been 
used as a foam blowing agent, a use that was prohibited beginning in 
2010 (40 CFR 82.15(g)). The projected servicing demand for existing 
refrigeration equipment containing HCFC-142b is extremely low: 
Approximately 100 MT. EPA therefore focused the analysis on HCFC-22 
because that compound is the predominant HCFC in the installed base of 
air-conditioning and refrigerant equipment for which servicing in the 
U.S. will likely continue.
    As discussed in the 2009 Final Rule, the majority of HCFC-22 
equipment that is projected to be in use from this point onward will be 
air-conditioning applications, including window units, packaged 
terminal units, unitary air-conditioning, chillers, dehumidifiers, 
water and ground source heat pumps, and motor vehicle air-conditioning 
in buses and trains. The report projected that approximately 145.6 
million units of all such types of HCFC-22 air-conditioning equipment 
were in use in 2010, decreasing by about 41 percent in 2015 and 86 
percent in 2020. In addition, approximately 3.8 million units of HCFC-
22 refrigeration equipment were in use in 2010. The installed base of 
HCFC-22 refrigeration equipment is projected to decrease from 2010 
levels by about 44 percent in 2015 and 75 percent in 2020. For more on 
the Servicing Tail Report, see 74 FR 66424 and the Servicing Tail 
Report included in the docket.
    EPA estimates that the servicing need for HCFC-22 will continue to 
decrease each year, and consistent with the 2009 Final Rule, EPA 
proposes to account for this by allocating a smaller amount for 2012 
than was allocated for 2011. This approach is described in section 
III.B.3. of this action, along with more recent market data on the need 
for, and availability of, HCFC-22.
2. Can servicing needs be met with virgin and recovered material?
    In the 2009 Final Rule, the Agency recognized that servicing demand 
can be met with a combination of newly-manufactured or imported HCFCs 
(virgin HCFCs) and HCFCs that have been recovered and either reused, 
recycled or reclaimed. Therefore, EPA did not anticipate that virgin 
HCFC-22 would need to be produced or imported to meet the entire HCFC-
22 servicing demand in each year between 2010 and 2014. The Servicing 
Tail Report analyzes various scenarios regarding reclamation. EPA 
continues to believe that reused, recycled, and reclaimed material can 
help meet HCFC-22 servicing needs and is therefore proposing to 
maintain the same approach to meeting servicing needs at this time. 
While the Agency is not changing its approach, EPA believes that the 
percentage of overall demand that can be met by reclaimed material is 
higher than originally projected. EPA is taking comment on the new 
projections of reclaim capabilities outlined in the memo included in 
the docket for this rulemaking titled, ``Analysis of HCFC-22 Servicing 
Needs in the U.S. Air Conditioning and Refrigeration Sector: Additional 
Considerations for Estimating Virgin Demand,'' (Adjustment Memo).
3. How would the allocation decline?
    As explained in the preamble to the 2009 Final Rule, without year-
to-year reductions in the allocations for virgin HCFC-22, the HCFC-22 
market could be oversaturated, and the contribution of reused, 
recycled, and reclaimed refrigerant would decrease, both in the total 
number of kilograms and as the proportion of overall need.
    EPA is particularly concerned with encouraging a smooth transition 
to the 2015 stepdown. At that date, the U.S. must meet a 90 percent 
reduction below the baseline for all HCFCs. EPA's Servicing Tail Report 
shows that even a 20 percent recovery rate would be insufficient to 
meet the demand for

[[Page 247]]

HCFC-22 in 2015. As shown in Table 4-5 in the report, demand for HCFC-
22 in 2015 was projected to be 38,800 MT while the cap for all HCFCs 
equates to 27,709 MT of HCFC-22 (assuming no allocation for any other 
HCFCs). In developing the 2009 Final Rule, EPA calculated that to meet 
the total demand in 2015, the recovery rate would have to increase to 
26 percent (representing 29 percent of total servicing demand).
    EPA determined in the 2009 Final Rule a level of allocation 
projected to meet the servicing demand over 2010-2014. In addition to 
EPA's request for comment on whether to address or not address 2010 
allowances (see section III.B.4.), the Agency is proposing to establish 
lower overall HCFC-22 consumption allocation levels for 2012-2014 than 
those the Agency determined were appropriate in the 2009 Final Rule. 
The Adjustment Memo in the docket to this rulemaking discusses recent 
data and stakeholder feedback that indicate that demand for virgin 
HCFC-22 is lower than originally projected, and that the number of 
consumption allowances should be 11 to 47 percent lower relative to the 
2009 Final Rule. Specifically, the memo examines (1) surplus inventory 
of HCFC-22 from past years, (2) reclaimer capacity, and (3) increased 
recovery and re-use of HCFC-22 from the large retail food sector. EPA 
is taking comment on the analysis, supporting data, and assumptions 
presented in the Adjustment Memo.
    Since EPA is continuing to allow the use of existing HCFC-22 
appliances manufactured prior to January 1, 2010, reused, recycled, and 
reclaimed HCFC-22 will become more valuable as the phaseout progresses. 
The demand for HCFC-22 to service existing equipment will provide an 
economic incentive to increase the quantities of recovered HCFC-22 
available for reuse, recycling, and reclamation. Therefore, the Agency 
believes that establishing a lower aggregate HCFC-22 consumption 
allocation for 2012-2014 than in the 2009 Final Rule is not only 
justified by decreased demand and the availability of surplus inventory 
from past years, but also because a lower virgin supply will further 
incentivize recovery and reclamation. The docket for the 2009 Final 
Rule (EPA-HQ-OAR-2008-0496) provides information on EPA's past 
assumptions regarding the availability of reused, recycled and 
reclaimed HCFC-22 to meet servicing demand, while the Adjustment Memo 
to this docket discusses recent changes in the HCFC-22 market.
    In the 2009 Final Rule, EPA determined it was appropriate to 
establish an annual step-down with the assumption that the total demand 
to be met from recovered HCFC-22 would equal 12,500 MT each year. This 
is approximately the amount EPA projected would be needed to meet the 
servicing demand in 2015. Using this approach, the aggregate allocation 
for consumption would equal approximately 40,700 MT in 2012, and 
decrease each year after, as shown in Table 1. These values are derived 
by subtracting 12,500 MT from the estimated servicing demand each year. 
However, in light of changes to both virgin demand and reclaimer 
capabilities, EPA believes that the portion of demand met by recovered 
HCFC-22 could range from 12,500 MT to 19,700 MT each year (see the 
Adjustment Memo), and that reduced demand, along with surplus inventory 
estimates, warrant a significantly lower total allocation for 2012, 
2013 and 2014. While Table 1 shows how the total allocation in the 2009 
Final Rule was determined, the Agency is now proposing to allocate 
between 11 and 47 percent fewer consumption allowances for 2012 to 
2014. EPA will not issue HCFC-22 and HCFC-142b allowances for 2015 or 
later until a future rulemaking.

   Table 1--2009 Final Rule Projection of Amount of Annual HCFC-22 Demand To Be Met by Allocated and Recovered
                                                    Material
----------------------------------------------------------------------------------------------------------------
                                                                  2012              2013              2014
----------------------------------------------------------------------------------------------------------------
Estimated Demand (MT).....................................            53,200            48,400            43,600
Recovered Amount (MT).....................................            12,500            12,500            12,500
                                                           -----------------------------------------------------
    Total Allocation (MT).................................            40,700            35,900            31,100
----------------------------------------------------------------------------------------------------------------

    As the total servicing demand decreases, assuming the supply of 
recovered HCFCs stays at a constant level results in recovered material 
comprising a greater proportion of the total demand each year. Using 
this assumption and the projected demand level from the 2009 Final 
Rule, the percentage of the total servicing demand to be met with 
recovered material would rise from 21.6 percent of total demand in 2011 
to 28.7 percent in 2014, though the total amount of recovered material 
needed would remain at 12,500 MT for each year. In the Adjustment Memo, 
EPA considers two HCFC-22 allocation scenarios for each year. The 
larger allocation scenario considers: (1) An annual surplus inventory 
drawdown of 6,000 MT; (2) the same 12,500 MT of annual recovery and 
reclamation used in the 2009 Final Rule; and (3) a minimum expected 
recovery and reuse rate of 20 percent of total demand in the large 
retail food sector each year. The smaller allocation scenario 
considers: (1) The same surplus inventory drawdown of 6,000 MT; (2) an 
annual reclamation amount of 19,700 MT, or 35 percent of estimated 
servicing demand in 2012; and (3) a maximum expected recovery and reuse 
rate of 70 percent of total demand in the large retail food sector. 
These two scenarios indicate that EPA should decrease annual 
allocations relative to the 2009 Final Rule by between 11 and 47 
percent each year--with the exact range varying slightly year by year. 
As summarized in Table 4 of the Adjustment Memo, the Agency is 
proposing to issue HCFC-22 consumption allowances as follows: Between 
25,100 and 36,200 MT in 2012 (a decrease of 11 to 38 percent); between 
20,800 and 31,400 MT in 2013 (a decrease of 13 to 42 percent) and 
between 16,400 and 26,300 MT in 2014 (a decrease of 15 to 47 percent). 
As percentages of baseline, these proposed amounts correspond to 
allocations of 17.7 to 25.5 percent in 2012, 14.7 to 22.1 percent in 
2013, and 11.6 to 18.5 percent in 2014.
    In summary, the Agency is proposing to reduce consumption 
allowances relative to the 2009 Final Rule. The Agency is also 
proposing to decouple production allowances and allocate either the 
same amount of production as in the 2009 Final Rule or the same 
percentage of baseline as in the 2009 Final Rule. A memo included in 
the docket for this rulemaking provides an overview of the various 
scenarios (see the Overview Memo).

[[Page 248]]

4. How will EPA address the court's decision with regard to 2010 HCFC 
allowances?
    EPA's first step in addressing the Court's decision was to 
establish baselines for 2011 that reflected the 2008 inter-pollutant 
transfers that were at issue in the litigation and to allocate 
allowances for 2011 as a percentage of those baselines. As noted in the 
Interim Final Rule (76 FR 47451), EPA interprets the Court's decision 
as applying, at a minimum, to the baseline and calendar-year allowances 
for 2011-2014. The Agency is taking comment on whether to interpret the 
decision as applying to the 2010 allocation, and if so, how allowances 
in future control periods might be adjusted to reflect this. The 
petitioners in the case, Arkema and Solvay, have stated that EPA should 
``restore the allowances of which Arkema and Solvay were deprived 
unlawfully in 2010,'' or ``provide a method to compensate Arkema and 
Solvay for year 2010 allowances that rightfully should have been 
available'' (February 4, 2011 letter to Drusilla Hufford, EPA, from 
William Hamel, Arkema, and March 7, 2011 letter to Drusilla Hufford, 
EPA, from Don Magid, Solvay, both available in the docket for this 
rulemaking). As a result of these requests, EPA is considering whether 
to grant additional allowances for all companies that would have 
received higher allocations in 2010 if the 2008 inter-pollutant 
transfers had been reflected in the baselines published in the 2009 
Final Rule. The companies affected, and the additional allowances they 
would have received (hereinafter described as ``recoupment 
allowances''), are included in Table 2, below.

                                     Table 2--Proposed Recoupment Allowances
----------------------------------------------------------------------------------------------------------------
                                                                                 Consumption
                   Company                               Chemical                   (kg)        Production  (kg)
----------------------------------------------------------------------------------------------------------------
Arkema......................................  HCFC-22.......................         4,749,692         4,611,848
DuPont......................................  HCFC-142b.....................             2,339                 0
Honeywell...................................  HCFC-142b.....................            58,291           107,097
Solvay Fluorides............................  HCFC-22.......................         1,157,895                 0
Solvay Solexis..............................  HCFC-142b.....................                 0           289,800
----------------------------------------------------------------------------------------------------------------

    EPA is taking comment on four possible options with regard to this 
issue: (1) Providing recoupment allowances in 2013 in addition to the 
aggregate level of production and consumption specified in the 2009 
Final Rule; (2) allocating recoupment allowances over two years (2013-
2014) in addition to the aggregate level of production and consumption 
specified in the 2009 Final Rule; (3) allocating recoupment allowances 
from the aggregate level of production and consumption specified in the 
2009 Final Rule over two years (2013-2014); and (4) treating missed 
allowances from 2010 as impossible to recoup. EPA is also taking 
comment on: (1) Whether it should provide recoupment for HCFC-22 and 
HCFC-142b, or just HCFC-22 allowances; and (2) whether it should 
provide recoupment for production and consumption, or just consumption 
allowances. EPA is seeking comment on these two points because: (1) The 
Court's decision only addresses the losses of the petitioners Arkema 
and Solvay, who appear to be most concerned with recoupment for HCFC-22 
allowances; (2) neither of the petitioners has specifically requested 
recoupment for production allowances; and (3) while Solvay Solexis 
could receive recoupment allowances for HCFC-142b production (see Table 
2), it would receive nearly ten times more HCFC-142b production 
allowances under this proposed rule absent recoupment than the 2009 
Final Rule, which could avoid the need for HCFC-142b production 
allowance recoupment. When considering the options included in this 
section, commenters should consider options 1-4 providing or not 
providing recoupment for HCFC-142b and providing or not providing 
recoupment for production allowances. Additionally, EPA recognizes that 
any option to provide recoupment in addition to the aggregate level of 
consumption is, to some extent, in tension with the proposal to 
decrease the aggregate allocation and might impede the intended effects 
of allocating fewer HCFC-22 allowances.
    If EPA provides recoupment, the Agency is proposing to address this 
issue in addition to the proposed establishment of baselines reflecting 
the Court's decision on past inter-pollutant transfers, and the 
proposed allocation of HCFC-22 production and consumption allowances. 
Under each of these approaches, the U.S. would still be well below its 
HCFC cap under the Montreal Protocol. EPA is not proposing a recoupment 
option that would begin in 2012 because waiting until 2013 provides 
companies that may receive recoupment allowances time to prepare for 
the increase in calendar-year allowances.
    Under option 1, each company would get the percentage of baseline 
listed in proposed section 82.16(a)(1). The companies listed in Table 2 
would receive an additional one-time allocation in 2013 of the amount 
specified in the table. Granting recoupment allowances under option 1 
would add 329 ODP-weighted MT of allowed HCFC consumption and 280 ODP-
weighted MT of allowed HCFC production in 2013. The result is an 
increase in allowed HCFC consumption and production (ODP-weighted) by 
17 percent and 15 percent, respectively, beyond that allowed in the 
2009 Final Rule, assuming constant levels of overall consumption and 
production. While the number of allowances would be higher in 2013 than 
envisioned in the 2009 Final Rule, it would not increase environmental 
damage during the regulatory period from 2010-2014 relative to the 
projections in the 2009 Final Rule: Approximately 425 ODP-weighted MT 
of HCFC consumption allowances and approximately 930 ODP-weighted MT of 
HCFC production allowances were not used by allowance holders in 2010 
(source: EPA's ODS Tracking System). This one-year increase in 
allowances in 2013 would keep the aggregate level of consumption and 
production for 2010-2014 below the level envisioned in the 2009 Final 
Rule. Since the 2014 allocation would be unchanged from (or less than) 
the 2009 Final Rule level, option 1 could be preferable to a two-year 
recoupment option because it could smooth the transition to the 2015 
stepdown under the Montreal Protocol. Option 1 would also restore the 
companies' lost opportunity to produce or consume in 2010 without 
reducing the amount of allowances other companies receive further.
    Option 1 is not without disadvantages. First, it would increase the 
number of allowances available for use in 2013, which might impede the

[[Page 249]]

development of a viable reclamation industry and hamper the transition 
to the 2015 stepdown. Second, this option significantly increases the 
number of allowances in 2013 for certain companies receiving 
recoupment, meaning that those companies arguably could have difficulty 
selling the full amount of HCFC-22 produced or imported with allowances 
that year. However, if companies receiving extra allowances all in one 
year cannot sell the full amount in that year, they may store produced 
and/or imported material for sale or use in later years, or sell the 
allowances to other producers or importers for use in that same year. 
Third, companies not receiving recoupment would have the same number of 
allowances as they would under a no-recoupment scenario, but they would 
have a smaller share of all allowances allocated under this option 
compared to a no recoupment scenario.
    Under the second option, recoupment allowances would be provided 
over two years (2013-2014) instead of one year as in option 1. Each 
entity listed in Table 2 would receive half of the amount listed in the 
table in 2013 and 2014 in addition to the percentage of baseline as 
listed in proposed section 82.16(a)(1). Option 2 would increase allowed 
consumption and production relative to the 2009 Final Rule levels by 8 
percent in 2013 and by 10 percent and 9 percent, respectively, in 2014. 
This options shares some of the advantages of option 1: (1) The amount 
allocated between 2010 and 2014 is still below the amount envisioned as 
total usage during that period in the 2009 Final Rule when taking into 
consideration the number of allowances not used in 2010, and (2) it 
restores the companies' lost opportunity to produce or consume in 2010 
without reducing the amount of allowances other companies would receive 
under no recoupment.
    A significant downside to this option is that it increases the 
number of allowances available in 2013 and 2014, and may hamper the 
smooth transition in 2015 to 10 percent of baseline under the Montreal 
Protocol, since the decrease between the 2014 allocation and 2015 
allocation for HCFC-22 would be larger under this option than in option 
1. Also, like option 1, companies who would not receive recoupment 
would have a smaller share of all allowances compared to a no 
recoupment scenario.
    Under option 3, EPA could provide recoupment allowances as part of 
the aggregate allocation level. The letters included in the docket from 
Don Magid, Solvay Fluorides, to Drusilla Hufford, EPA, dated March 7, 
2011, and from William Hamel, Arkema, to Drusilla Hufford, EPA, dated 
February 4, 2011, express support for this option. One way to do this 
would be to allocate HCFC-22 allowances (both recoupment for 2010 and 
their allotted percentage of baseline for 2013 and 2014) to the 
companies listed in Table 2, and then allocate the remainder to all 
other allowance holders by revising the percentage of baseline 
allocated. A memo to the docket explains this approach in more detail 
(see ``Memo: Recoupment Options''). Providing all recoupment from the 
allocated level in the 2009 Final Rule (or a lesser amount) in one year 
is not possible because there are too few allowances to provide 
recoupment and regular allowances for HCFC-142b. Additionally, the memo 
explains that if the Agency provides recoupment for HCFC-142b 
production allowances, the Agency will have no choice but to increase 
the aggregate number of production allowances.
    The primary benefit of option 3 is that it keeps the overall 
consumption allocation at the same level (or less) as that in the 2009 
Final Rule, and should therefore not negatively affect the transition 
to the 2015 stepdown or recovery and reclamation. However, for the 
years during which recoupment occurred, companies not receiving 
recoupment under this option would receive fewer allowances, and a 
smaller share of overall allowances, than under the other recoupment 
scenarios. The amount of allowances received by these companies also 
would be smaller than the amount they would have received under the 
2008 Proposed Rule, and would decrease further if EPA decides to 
allocate less than the amounts in the 2009 Final Rule.
    EPA is also considering option 4, under which the Agency would not 
provide recoupment allowances. As part of the evaluation of this 
option, EPA is considering the effect of the Court's partial vacatur 
and remand on the 2010 allocation. The Court issued its decision on 
August 27, 2010, but stayed the mandate pending resolution of any 
petition for rehearing. The 2009 Final Rule remained in effect during 
2010. EPA's petition for rehearing was denied on January 21, 2011, and 
the mandate issued on February 4, 2011. While EPA has not interpreted 
the vacatur as nullifying 2010 allowances, EPA is considering whether 
to address the 2010 allocation on remand even if the partial vacatur 
does not apply to 2010.
    EPA notes that all 2010 allowances expired on December 31, 2010 and 
therefore have no value in later years. See 74 FR 66415 (``EPA 
allocates allowances for specific years; they are valid between January 
1 and December 31 of a given control period (i.e., calendar year)''). 
40 CFR Part 82 also makes it clear that allowances are tied to a 
specified control period. Section 82.16(a) states that ``In each 
control period * * * each person is granted the specified percentage of 
baseline production allowances and baseline consumption allowances for 
the specified class II controlled substances apportioned under 
Sec. Sec.  82.17 and 82.19.'' Furthermore, the definitions of 
unexpended allowances in section 82.3 specify that allowances are valid 
for specific control periods. The protection of stratospheric ozone 
allowance system at 40 CFR part 82 does not allow banking or borrowing 
of allowances. Since the Court's mandate issued on February 4, 2011, no 
company could have possessed 2010 allowances on the date the mandate 
issued, because all unexpended 2010 allowances had already expired.
    EPA seeks comment on whether it is possible to put the petitioners 
in Arkema v. EPA in the position they would have been in had they 
received the full amount of 2010 allowances to which they believed they 
were entitled. If EPA were to grant the petitioners additional 2010 
allowances now, those allowances would have no value, as 2010 
allowances can be expended only in 2010. The three recoupment options 
discussed above assume that by providing recoupment allowances in 2013, 
or 2013-2014, EPA can make up for the lost opportunity to provide or 
consume a specific amount of HCFC, which might either have been sold 
during 2010 or placed in inventory for sale during a subsequent year. 
Advantages of not providing recoupment allowances include (1) not 
increasing the amount of HCFC-22 on the market, which has advantages 
for the environment, public health, and for fostering a viable 
reclamation industry in advance of the 2015 stepdown, and (2) not 
decreasing the actual number or share of allowances for other allowance 
holders. Given the considerations above, including the structure of the 
program and the policy advantages noted, EPA's preference is not to 
provide recoupment allowances.
    If EPA decides to provide recoupment, the Agency prefers option 1 
because it has a minimal impact on the 2015 stepdown to 10 percent of 
baseline, addresses the Court's decision in the simplest manner, and 
does not further decrease the number of allowances companies would have 
received had EPA taken the 2008 inter-pollutant transfers into account 
in its 2009 Final Rule. EPA welcomes

[[Page 250]]

comment on the matter. A memo in the docket for this rulemaking shows 
how EPA would effectuate each of the options in the regulatory text at 
40 CFR part 82 (see ``Memo: Recoupment Options''). To effectuate this 
option, the regulatory text at 40 CFR 82.16(a) would be amended to add 
paragraph (a)(2) as set forth in the regulatory text of this proposed 
rule.
    Any recoupment allowances allocated for 2013 or 2014 would function 
in the same way as other calendar-year allowances: For example, they 
could be used only in the calendar year for which they were issued and 
would expire at the end of that calendar year.

C. How much HCFC-22 and HCFC-142b would be allocated in 2012-2014?

    As discussed previously, EPA is proposing to revise the tables in 
40 CFR 82 that together specify the production and consumption 
allowances available during specified control periods. The tables at 
sections 82.17 and 82.19 apportion baseline production allowances and 
baseline consumption allowances, respectively, to individual companies 
for specific HCFCs during a particular regulatory period. Complementing 
these tables, the table at section 82.16 lists the percentage of 
baseline allocated to allowance holders for specific control periods. 
EPA is proposing to (1) retain this framework of complementary tables, 
(2) respond to the Court's remand by establishing baselines for 2012-
2014 identical to those established in the 2011 Interim Final Rule (76 
FR 47451), and (3) grant allowances based on percentages of baselines 
in a manner that achieves the 2010 phaseout step and lays the 
groundwork for the next phaseout step in 2015 (which could mean fewer 
2012-2014 consumption allowances with or without fewer 2012-2014 
production allowances as compared to the 2009 Final Rule). EPA has 
published an Overview Memo in the docket clarifying how the various 
options presented in this proposed rule might work separately or in 
combination.
    In the 2009 Final Rule, 34.1 percent, 30.1 percent, and 26.1 
percent of each company's HCFC-22 baselines were allocated for 2012, 
2013, and 2014, respectively. As discussed above, EPA interprets the 
Court's vacatur as applying to the HCFC-22 and HCFC-142b allocations 
for each of these years. EPA intends to put in place new allocations 
through this rulemaking. EPA is proposing, at maximum, to allocate 28.7 
percent, 25.3 percent and 21.9 percent of the HCFC-22 baseline for 
2012, 2013 and 2014 consumption, respectively. EPA is also proposing an 
11 to 47 percent reduction to this maximum amount for each year, which 
would correspond to annual consumption allowances of 17.7 to 25.5 
percent of baseline in 2012, 14.7 to 22.1 percent in 2013, and 11.6 to 
18.5 percent in 2014. The reduction could apply to consumption only or 
to consumption and production, if EPA chooses not to decouple 
consumption and production allowances.
    The percent allocation for HCFC-142b was 0.47 percent of baseline 
in the 2009 Final Rule for 2012-2014. EPA is proposing to allocate 4.9 
percent of HCFC-142b baseline for 2012-2014. As a reminder, the 
percentages allocated for 2013 and 2014 could be different if EPA 
decides to provide recoupment.
    The 2009 Final Rule, which did not include the 2008 transfers of 
HCFC-142b to HCFC-22 baseline allowances in the baselines for the next 
regulatory period, had a total HCFC-22 consumption baseline of 119,384 
MT. EPA is reflecting the baseline transfers in section 82.17 and 82.19 
in accordance with the Court's decision. As a result, the aggregate 
HCFC-22 consumption baseline has increased to 141,865 MT. Since the 
aggregate HCFC-22 baseline is now higher due to the increase in the 
number of HCFC-22 baseline allowances for Arkema, Inc. and Solvay 
Fluorides, LLC, EPA is allocating a smaller percentage of the company-
specific baselines (even without the proposed decrease in allocation) 
than in the 2009 Final Rule to achieve the same total number of HCFC-22 
allowances. Thus, 40,700 MT of HCFC-22 consumption (the aggregate 
allocation amount for 2012 in the 2009 Final Rule) is equal to 34.1 
percent of 119,384 MT (baseline) of HCFC-22 in the 2009 Final Rule, and 
28.7 percent of 141,865 MT (baseline) for 2012 in this proposed rule. 
An 11 to 47 percent reduction in consumption allowances would change 
the percentage of baseline allocated to between 17.7 and 25.5 percent 
for 2012. The aggregate HCFC-22 production baseline is also increasing, 
from 110,619 MT in the 2009 Final Rule to 129,093 MT, to reflect 
Arkema, Inc.'s transfer of HCFC-142b baseline production allowances to 
HCFC-22 baseline production allowances.
    The opposite is true for HCFC-142b, which had a larger aggregate 
consumption baseline in the proposed rule (21,089 MT), but now has a 
smaller consumption baseline (2,047 MT) since EPA is accounting for 
inter-pollutant transfers from HCFC-142b to HCFC-22. Thus, 100 MT of 
HCFC-142b consumption allowances (the aggregate allocation amount in 
each year between 2012 and 2014) is equal to 0.47 percent of 21,089 MT 
of HCFC-142b in the 2009 Final Rule, and 4.9 percent of 2,047 MT in 
this proposed rule. Aggregate HCFC-142b baseline production allowances 
are decreasing from 25,090 MT in the 2009 Final Rule to 9,444 MT in 
this proposed rule to reflect Arkema, Inc.'s transfer of HCFC-142b 
baseline production allowances.
    In summary, EPA is proposing (1) to establish production and 
consumption baselines for 2012-2014 identical to those established in 
the 2011 Interim Final Rule (76 FR 47451) for HCFC-22 and HCFC-142b in 
the tables at sections 82.17 and 82.19. EPA is also proposing (2) to 
add new specified percentages of baseline for those substances to the 
table in section 82.16 for the 2012-2014 control periods. Without 
recoupment, the maximum proposed allocation amounts for consumption are 
specified in Table 1. Relative to the 2009 Final Rule, EPA is proposing 
to (3) allocate fewer HCFC-22 consumption allowances, the same amount 
or more HCFC-22 production allowances, and the same amount of HCFC-142b 
production and consumption allowances. If EPA chooses to provide 
recoupment allowances, the percentage of HCFC-22 baseline allocated to 
consumption could be 3.3 percent lower if EPA decides to provide 
recoupment from the total allocation in 2013 and 2014--regardless of 
the total allocation. The percentage of HCFC-22 baseline allocated to 
production could be 2.8 percent lower. The percentage of HCFC-142b 
baseline allocated to production and consumption could be 4.5 percent 
lower. Table 3 reflects the range of allocation percentages, including 
recoupment.

[[Page 251]]



                                 Table 3--Proposed Phaseout Schedule for HCFC-22 and HCFC-142b Between 2012 and 2014 \6\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      HCFC-22 Consumption                 HCFC-22 Production               HCFC-142b Consumption and
                                             ------------------------------------------------------------------------             production
               Control period                                                                                        -----------------------------------
                                                   High %             Low %            High %             Low %            High %             Low %
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................              28.7              17.7              34.1              17.7               4.9               4.9
2013........................................              25.3              11.4              30.1              11.4               4.9               0.4
2014........................................              21.9               8.3              26.1               8.3               4.9               0.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Consistent with the 2009 Final Rule, EPA is allocating different 
baseline percentages for HCFC-22 and HCFC-142b because EPA projects 
that the needs will differ for servicing air-conditioning and 
refrigeration appliances during the 2012-2014 control periods.
---------------------------------------------------------------------------

    \6\ Table 3 shows the highest and lowest percentage of baseline 
allocated being proposed in this rule. The high HCFC-22 consumption 
scenario shows the percentage allocated if EPA provides the same 
number of allowances relative to the 2009 Final Rule. The high HCFC-
22 production scenario shows an increase in overall production 
allowances if EPA allocates the same percentage of baseline as in 
the 2009 Final Rule. The low HCFC-22 production and consumption 
scenarios take into consideration a reduction in allowances relative 
to the 2009 Final Rule and recoupment from the aggregate allocation 
in 2013 and 2014. Additionally, the low scenario for HCFC-22 
production shows the percentage allocated if EPA does not decouple 
production and consumption. For HCFC-142b, the high percentage 
reflects the same thinking used in the 2011 Interim Final Rule. The 
low scenario incorporates consumption recoupment from the aggregate 
amount for 2013 and 2014.
---------------------------------------------------------------------------

1. How does EPA propose to allocate HCFC-22 consumption allowances for 
2012-2014?
    For 2012, the 2009 Final Rule allocated HCFC-22 consumption 
allowances to meet about 76.5 percent of the servicing need, which 
translated into approximately 40,700 MT, or 59 percent of the total 
HCFC consumption cap for the 2012 control period. In this rulemaking, 
EPA is proposing to allocate 11 to 47 percent less for 2012 relative to 
the 2009 Final Rule; see the Adjustment Memo in the docket for a 
discussion of recent updates to estimated servicing demand and how much 
of that demand could reasonably be met by recovered or reclaimed 
refrigerant. In the 2009 Final Rule, 2013 and 2014 consumption 
allocations were 35,900 MT and 31,100 MT, respectively. The Agency is 
proposing to allocate 11 to 47 percent less for those years as well. 
Along with any reduction in consumption allowances, the final 
allocations in 2013 and 2014 will depend on which recoupment option the 
Agency chooses (including no recoupment). If the Agency issues 
recoupment, its preferred option is to allocate all recoupment (5,907 
MT) in 2013 and do so in addition to the overall consumption 
allocation--regardless of whether the annual allocations are decreased 
relative to the 2009 Final Rule or not. In each year between 2012 and 
2014, EPA's total HCFC consumption allocation including recoupment 
would be at least 36 percent below the Montreal Protocol cap, and would 
be below servicing demand as estimated in the Servicing Tail Report. 
Section III.B.4. of this preamble also discusses other recoupment 
options.
2. How does EPA propose to allocate HCFC-22 production allowances for 
2012-2014?
    In the 2009 Final Rule, EPA decided to use the same percentages for 
production and consumption allocations--deriving the percentages based 
on estimated need for each individual HCFC. In this rulemaking, EPA is 
proposing to decouple the percentage of baseline allocated for 
production and consumption allowances. The Agency is taking comment on 
two options with regard to decoupling production allowances: (1) 
Allocating the same aggregate number of HCFC-22 production allowances 
as in the 2009 Final Rule for 2012-2014, and (2) using the same 
baseline percentages as in the 2009 Final Rule to allocate HCFC-22 
production allowances in 2012-2014. The proposal to decrease 
consumption allowances by 11 to 47 percent relative to the 2009 Final 
Rule would also apply to production allowances should the Agency decide 
not to decouple production allowances from consumption allowances.
    Under option 1, EPA would decouple the percentage of baseline 
allocated for production from the percentage of baseline allocated for 
consumption. A range of percentages is provided in Table 3. EPA would 
effectuate this change in its regulations by replacing the table at 40 
CFR 82.16 with two tables. One would allocate a percent of baseline for 
consumption allowances. In the other, EPA would allocate 28.7 percent 
of production baseline in 2012, 25.3 percent in 2013, and 21.9 percent 
in 2014. The resulting allocation would provide 37,050 MT of HCFC-22 
production allowances in 2012. This aggregate allocation in 2012 is 
approximately two percent lower than the amount allocated in the 2009 
Final Rule (37,050 MT in this proposed rule vs. 37,721 MT in the 2009 
Final Rule) because the aggregate amount of baseline production 
allowances in this rulemaking did not increase by the same relative 
amount as aggregate baseline consumption allowances. Because Solvay did 
not transfer its HCFC-142b production allowances to HCFC-22 production 
allowances, HCFC-22 baseline consumption allowances are 18.8 percent 
higher in this rule, while baseline production allowances are only 16.7 
percent higher. The memo to the docket for this rulemaking titled 
``Effects of HCFC-22 and HCFC-142b Baseline Changes: 2009 Final Rule 
vs. 2011 Proposed Rule,'' (Baseline Memo) discusses the slight 
differences in allocation amounts in more detail. Absent recoupment, 
EPA would allocate 32,660 MT of HCFC-22 production allowances in 2013, 
and 28,271 MT of HCFC-22 production allowances in 2014 under option 1.
    Under option 2, EPA would also decouple the percentage of baseline 
allocated for production from the percentage of baseline allocated for 
consumption. EPA would effectuate this change in its regulations by 
replacing the table at 40 CFR 82.16 with two tables. One would allocate 
a percentage of baseline for consumption allowances. The other would 
allocate 34.1 percent, 30.1 percent and 26.1 percent of baseline for 
production allowances in 2012, 2013, and 2014, respectively, consistent 
with the 2009 Final Rule. This approach would still provide the 
petitioners in Arkema v. EPA the benefit of their 2008 baseline 
transfers while giving other companies with production baselines 
approximately the same number of production allowances as they received 
in the 2009 Final Rule. Compared to the 2009 Final Rule, the net result 
of this option would increase allowed production by 6,299 MT in 2012, 
5,560 MT in 2013, and 4,821 MT in 2014.

[[Page 252]]

    EPA is interested in comments on a number of issues with regard to 
these two options. From a policy perspective, EPA is interested in 
comments on whether an increase in the total number of HCFC-22 
production allowances would result in greater total HCFC production, 
either in the U.S. or globally. EPA notes that production of 1 kilogram 
of an HCFC requires both a production allowance and a consumption 
allowance (82.15(a)(1), (2)). Thus, an increase in production 
allowances without a corresponding increase in consumption allowances 
does not automatically result in greater production. The most likely 
scenario is that an increase in production allowances would result in 
greater U.S. production for export. This is because as stated in 
82.20(a), ``A person may obtain at any time during the control period * 
* * consumption allowances equivalent to the quantity of class II 
controlled substances that the person exported from the U.S. and its 
territories to a foreign state * * * when that quantity of class II 
controlled substance was produced in the U.S. * * * with expended 
consumption allowances.'' In effect, current EPA regulations allow 
exporters to receive a refund of one consumption allowance for each 
kilogram they export if they show one consumption and one production 
allowance were expended for the material exported. Therefore, an 
increase in production allowances would not be expected to result in 
greater HCFC consumption in the U.S. As an aside, the Agency also 
allows for additional production for export to Article 5 countries 
under the Montreal Protocol through its allotment of Article 5 
allowances. Until December 31, 2019, companies are allowed to produce 
up to 10 percent of their HCFC-22, HCFC-141b and HCFC-142b production 
baselines annually so long as the produced material is exported to an 
Article 5 country. Article 5 allowances and their proper use are 
described in more detail at 82.18(a)(2).
    EPA welcomes comment on whether, relative to the 2009 Final Rule, 
an increase in the total number of production allowances, as proposed 
under option 2, would result in (1) an increase in U.S. consumption, 
(2) an increase in U.S. production, either for domestic use or for 
export, and/or (3) an increase in worldwide production and/or 
consumption of HCFCs. Moreover, given that one potential outcome might 
be an increase in U.S. exports of HCFC-22, EPA invites comment on the 
implications of such an increase for the U.S. economy and the global 
environment, particularly as it relates to the smooth U.S. phaseout of 
HCFC-22.
    EPA also requests comments on whether section 605(c) would preclude 
allocating a different percentage of baseline for production than for 
consumption. Section 605(c) states that EPA must ``promulgate 
regulations phasing out the production * * * of class II substances in 
accordance with [section 605],'' subject to any acceleration under 
section 606. It further states that EPA must ``promulgate regulations 
to insure that the consumption of class II substances in the United 
States is phased out and terminated in accordance with the same 
schedule * * * as is applicable to the phase-out and termination of 
production of class II substances under [Title VI].'' EPA is 
considering three possible interpretations of the term ``schedule'' as 
referenced in section 605(c): (1) The schedule that appears on the face 
of section 605, which contains no deadlines until 2015; (2) the 
schedule that appears on the face of section 605, as accelerated under 
section 606; and (3) the specific allocation percentages or amounts 
established by EPA through rulemaking for each control period. EPA 
believes that the second interpretation is the most consistent with the 
statutory language and purpose. The Agency requested comment on this 
issue in the 2011 Interim Final Rule (76 FR 47451) and received four 
comments in favor of increasing production allowances, and two comments 
in opposition. Only one commenter responded specifically to EPA's 
interpretation of section 605, and the commenter agreed with the second 
interpretation presented.
    In past actions, the Agency has made the initial schedule in 
section 605 more stringent to reflect modifications to the Montreal 
Protocol phaseout schedule for HCFCs. Under the 2007 Montreal 
Adjustment (reflected in Decision XIX/6), the U.S. is obligated to 
reduce HCFC production and consumption 75 percent below its aggregate 
baseline by 2010. EPA is not proposing to increase production to an 
amount that would be inconsistent with that obligation. Instead, EPA is 
taking comment on whether to allow production to increase relative to 
consumption, without encroaching on the cap.
    Under option 2, the U.S. would still be below the Montreal 
Protocol's production cap (when all HCFCs are included) by at least 33 
percent in each year, even when including recoupment (the memo to the 
docket entitled, ``Montreal Protocol Compliance,'' contains more 
detailed information on the implications of each option relative to the 
Montreal Protocol cap).
    In summary, EPA seeks comment on whether to decouple production 
from consumption, and if so, which decoupling option to choose. EPA is 
also seeking comment on whether increasing production allowances above 
the 2009 Final Rule level, as in option 2, would negatively affect the 
transition to the 2015 phaseout step, under which the U.S. is obligated 
to reduce HCFC production and consumption 90 percent below its 
aggregate baseline.
3. How does EPA propose to allocate HCFC-142b allowances for 2012-2014?
    Establishing HCFC-142b baseline allowances that take into account 
the 2008 inter-pollutant transfers discussed in section II.D. results 
in 2,047 MT of aggregate baseline consumption allowances and 9,444 MT 
of aggregate baseline production allowances. Consistent with the 2009 
Final Rule, EPA is proposing to allocate 100 percent of the projected 
servicing need for HCFC-142b identified in that rule: 100 MT of 
consumption. To get to that level of consumption, EPA is proposing to 
allocate 4.9 percent of the aggregate consumption baseline, as 
reflected in the table at section 82.16. The aggregate allocation 
number for consumption is the same as in the 2009 Final Rule.
    Using the same percentage (4.9 percent), EPA is proposing to 
allocate 463 MT of HCFC-142b production allowances for each control 
period between 2012 and 2014. The aggregate allocation for production 
is higher than the amount allocated in the 2009 Final Rule (463 MT in 
this proposed rule vs. 118 MT in the 2009 Final Rule). The proposed 
allocation is 292 percent higher than in the 2009 Final Rule because 
the aggregate amount of baseline HCFC-142b consumption allowances in 
this rulemaking decreased by a significantly larger amount than 
aggregate baseline HCFC-142b production allowances. HCFC-142b baseline 
consumption allowances are 90.3 percent lower in this rule, while 
baseline production allowances are only 62.4 percent lower. The 
difference between the change in production and consumption baselines 
is a result of Arkema trading most of its HCFC-142b production 
allowances, while Solvay did not. This higher amount of calendar-year 
production does not affect the U.S.'s ability to meet its obligations 
under the Montreal Protocol. The Baseline Memo in the docket for this 
rulemaking discusses the differences in more detail.
    As discussed in section III.B.4. of this preamble, EPA is 
considering options to

[[Page 253]]

allocate recoupment allowances in 2013 or 2013-2014 in addition to the 
4.9 percent of baseline described above. If finalized, the 2013 option 
would result in an additional 61 MT of HCFC-142b consumption allowances 
and 397 MT of HCFC-142b production allowances. The 2013-2014 option 
would result in 30 MT of additional HCFC-142b consumption allowances 
and 198 MT of HCFC-142b production allowances each year.
4. How would the aggregate for HCFC-22 and HCFC-142b translate entity-
by-entity?
    For 2012, EPA is proposing to allocate (1) at maximum, 
approximately 40,700 MT of HCFC-22 consumption allowances, (2) 37,050 
MT of HCFC-22 production allowances (with possible adjustments), (3) 
approximately 100 MT of HCFC-142b consumption allowances and (4) 463 MT 
of HCFC-142b production allowances. However, EPA actually allocates 
allowances to individual companies (i.e., legal entities). Company-
specific production and consumption baselines (also referred to as 
``baseline allowances'') for HCFC-142b and HCFC-22 are listed at 
sections 82.17 and 82.19, respectively. The range of percentages of 
baseline each entity would receive for HCFC-22 and HCFC-142b in 2012 
through 2014 is shown in Table 3 above. For the low percentage of 
baseline allocated, Table 3 shows how the proposed allocation combined 
with recoupment option 3 (recoupment provided from the total 
allocation, not in addition to the allocation) would affect allowances. 
For the high percentage of baseline allocated, Table 3 shows no change 
relative to the 2009 Final Rule on the consumption side and an increase 
in allowances on the production side. The percentages included in the 
proposed regulatory text at the end of this preamble are at the lower 
end of the range EPA is proposing to allocate.
    Allowances allocated for individual control periods are called 
``calendar-year allowances'' to distinguish them from the baseline 
production or consumption allowances. For 2012-2014, EPA is proposing 
to apportion production and consumption baselines for HCFC-22 and HCFC-
142b on the same basis as in the 2009 Final Rule, except that EPA is 
making adjustments to reflect (1) the 2008 inter-pollutant transfers of 
baseline allowances deemed permanent by the Court, (2) inter-company, 
single-pollutant transfers of baseline allowances that occurred in 
2010, and (3) changes in company names that occurred after the 2009 
Final Rule was signed. All of these changes were made in the 2011 
Interim Final Rule (76 FR 47451), and EPA is proposing to do the same 
for 2012-2014. Applying the approach described above, EPA would 
apportion production and consumption baselines for HCFC-22 and HCFC-
142b to the following entities in the following amounts:

                Table 4--Baseline Production Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.17
----------------------------------------------------------------------------------------------------------------
                    Person                                  Controlled substance                Allowances (kg)
----------------------------------------------------------------------------------------------------------------
Arkema........................................  HCFC-22.....................................          46,692,336
                                                HCFC-142b...................................             484,369
DuPont........................................  HCFC-22.....................................          42,638,049
Honeywell.....................................  HCFC-22.....................................          37,378,252
                                                HCFC-142b...................................           2,417,534
MDA Manufacturing.............................  HCFC-22.....................................           2,383,835
Solvay Solexis................................  HCFC-142b...................................           6,541,764
----------------------------------------------------------------------------------------------------------------


                Table 5--Baseline Consumption Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.19
----------------------------------------------------------------------------------------------------------------
                    Person                                  Controlled substance                Allowances (kg)
----------------------------------------------------------------------------------------------------------------
ABCO Refrigeration Supply.....................  HCFC-22.....................................             279,366
Altair Partners...............................  HCFC-22.....................................             302,011
Arkema........................................  HCFC-22.....................................          48,637,642
                                                HCFC-142b...................................             483,827
Carrier Corporation...........................  HCFC-22.....................................              54,088
Coolgas Investment Property...................  HCFC-22.....................................           1,040,458
DuPont........................................  HCFC-22.....................................          38,814,862
                                                HCFC-142b...................................              52,797
H.G. Refrigeration Supply.....................  HCFC-22.....................................              40,068
Honeywell.....................................  HCFC-22.....................................          35,392,492
                                                HCFC-142b...................................           1,315,819
Mexichem Fluor Inc............................  HCFC-22.....................................           2,546,305
Kivlan & Company..............................  HCFC-22.....................................           2,081,018
MDA Manufacturing.............................  HCFC-22.....................................           2,541,545
Mondy Global..................................  HCFC-22.....................................             281,824
National Refrigerants.........................  HCFC-22.....................................           5,528,316
Refricenter of Miami..........................  HCFC-22.....................................             381,293
Refricentro...................................  HCFC-22.....................................              45,979
R-Lines.......................................  HCFC-22.....................................              63,172
Saez Distributors.............................  HCFC-22.....................................              37,936
Solvay Fluorides..............................  HCFC-22.....................................           3,781,691
Solvay Solexis................................  HCFC-142b...................................             194,536
USA Refrigerants..............................  HCFC-22.....................................              14,865
----------------------------------------------------------------------------------------------------------------


[[Page 254]]

    The proposed baselines listed above are identical to the tables 
presented in the 2011 Interim Final Rule (76 FR 47451).

D. Are HCFC-141b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb 
allowances affected by this rulemaking?

    Since the Court's decision did not vacate this portion of the 2009 
Final Rule, EPA is not proposing to change baselines and percentages of 
baseline allocated as calendar-year allowances for HCFC-141b, HCFC-123, 
HCFC-124, HCFC-225ca, and HCFC-225cb, except to make adjustments for 
inter-company, single-pollutant transfers of baseline allowances, as 
reflected in the 2011 Interim Final Rule (76 FR 47451). In the case of 
HCFC-141b, EPA is continuing to allocate 0 percent of baseline for U.S. 
consumption and production, consistent with 40 CFR 82.16(b).

E. How will EPA allocate other HCFCs?

    As a result of EPA's allocation process, which is largely based on 
projected demand for HCFC-22 and HCFC-142b, minus an amount of HCFC-22 
that is assumed to be reused, recycled, or reclaimed, the total 
allocation is lower than the aggregate HCFC cap under the Montreal 
Protocol. EPA recognizes that there could be some additional need for 
HCFCs not specifically included in this rule. While some niche 
applications in the U.S. use other HCFCs, such as HCFC-21, EPA is not 
aware of additional need for production or import of these substances 
at this time, as adequate amounts appear to be in inventory. However, 
EPA is not foreclosing the possibility of additional production or 
import for these niche uses. Also, some amount of HCFC-141b will likely 
continue to be produced or imported via the petition process during 
2012-2014. EPA believes there is sufficient room under the cap for such 
continued production and import. The current regulations at 40 CFR 
82.15 ban the production and import of class II substances for which 
EPA has apportioned baseline production and consumption allowances in 
excess of allowances held by the producer or importer, but do not ban 
the production and import of class II substances for which EPA has not 
apportioned baseline production and consumption allowances. This rule 
does not alter the current regulations in that respect. The producer or 
importer of an HCFC that is not subject to the allowance system would 
be required to report to EPA consistent with the existing recordkeeping 
and reporting requirements. If necessary, EPA could amend the 
regulations to set and apportion baselines and issue allowances for 
these HCFCs. Therefore, retaining room under the cap could provide the 
benefit of accounting for unanticipated growth in HCFCs that do not 
have allocations or other unforeseen events. However, EPA is not 
reserving room under the cap for the above-described reasons. EPA is 
allocating allowances based on modeled demand for virgin and recovered 
material in preparation for the next major stepdown period under the 
Montreal Protocol in 2015.

IV. How does EPA propose to change the regulations governing allowance 
transfers of Class II Controlled Substances?

    The Agency is concerned about the possibility of companies 
undermining the HCFC chemical-by-chemical phaseout by performing inter-
pollutant transfers in advance of future phaseout steps. EPA interprets 
the 2003 Final Rule, which established the transfer provisions at 40 
CFR 82.23, as allowing only single-pollutant, inter-company transfers 
to be made on a permanent basis. Nevertheless, EPA recognizes that in 
Arkema v. EPA, the Court found that ``EPA's practice under the 2003 
Rule was to allow petitioners' baseline transfers of inter-pollutant 
allowances'' (618 F.3d at 8). Therefore, EPA clarified its current 
policy on inter-pollutant transfers in the 2011 Interim Final Rule (76 
FR 47459) and is repeating that clarification in this action. EPA is 
also proposing to modify the regulatory text in order to dispel any 
possibility of confusion in the future. In addition to modifying the 
regulatory text to address the duration of inter-pollutant transfers, 
EPA is also proposing to revise the regulatory text to reflect prior 
Agency statements pertaining to inter-pollutant transfers of Article 5 
allowances.

A. How does EPA propose to change the regulations governing permanent 
transfers of Class II Allowances?

    Sections 607(b) and (c) of the CAA address inter-pollutant and 
inter-company transfers of allowances, respectively. Inter-pollutant 
transfers are the transfer of an allowance of one substance to an 
allowance of another substance on an ODP-weighted basis. Inter-company 
transfers are transfers of allowances for the same ODS from one company 
to another company. Section 607(c) also authorizes inter-company 
transfers combined with inter-pollutant transfers, so long as the 
requirements of both are met. The corresponding regulatory provisions 
for HCFCs appear at 40 CFR 82.23.
    The 2009 Final Rule updated the baselines for HCFC-22 and HCFC-142b 
to reflect name changes and inter-company baseline transfers, i.e., 
transfers of baseline for a specific type of HCFC from one company to 
another. Doing so reflected the changes in the marketplace that had 
occurred since EPA promulgated the 2003 Final Rule. Inter-company 
baseline transfers provide a mechanism for new entrants to join the 
HCFC market and for other companies to expand their business. EPA 
recognizes that in some cases, entities are no longer actively involved 
in HCFC production, import, and/or export activities. EPA retained the 
baseline for such entities, noting that this had been a mechanism by 
which new entrants had entered the HCFC allowance system in the past.
    The 2009 Final Rule also addressed four inter-pollutant baseline 
transfers made during the prior regulatory period (see section II.D. 
and the transfer forms in the docket for this action for more detail). 
EPA had proposed to adjust the company baselines to reflect these four 
inter-pollutant baseline transfers in the 2008 Proposed Rule. Eight 
commenters opposed, and two commenters supported, these proposed 
adjustments. At issue was whether the inter-pollutant baseline 
transfers should be part of the companies' baseline allowances in the 
next regulatory period.
    After reviewing the comments, EPA concluded that adjusting the 
baselines to reflect inter-pollutant baseline transfers could create 
incentives for future manipulation of the allocation system in 
anticipation of future control periods. EPA remains concerned about the 
potential for such future manipulation if inter-pollutant baseline 
transfers during the current regulatory period change a company's 
baseline for future regulatory periods. For example, in 2020 EPA will 
no longer be issuing HCFC-22 production or consumption allowances (see 
section 82.16(e)). EPA expects that companies with HCFC-22 allowances 
would no longer be in the HCFC market at that date if they did not hold 
allowances for other HCFCs that may still be produced after 2020. If 
EPA were to allow inter-pollutant baseline transfers that carried 
forward into the new regulatory period, companies with HCFC-22 
baselines in 2019 could convert them all to baselines for HCFC-123. 
Perpetuating the HCFC-22 baselines in a new form would be counter to 
the design of the chemical-by-chemical phaseout, under which the 
baseline allowances for a particular chemical are intended to drop out 
of the system upon the phase-out of that chemical.

[[Page 255]]

    As another example, in 2015, a producer or importer that previously 
had not participated in the HCFC-123 market could dominate that market 
by converting its HCFC-22 baseline in 2014 to HCFC-123 baseline. Given 
the different ODPs of HCFC-22 and HCFC-123 (0.055 and 0.02, 
respectively), converting one baseline allowance of HCFC-22 would 
result in 2.75 baseline allowances of HCFC-123. Also, since companies 
hold many more HCFC-22 baseline allowances than HCFC-123 baseline 
allowances, converting those HCFC-22 baseline allowances would have an 
overwhelming effect on the current HCFC-123 baseline allowance holders 
and the overall market. EPA agrees with commenters on the 2008 Proposed 
Rule that taking inter-pollutant baseline transfers into account in 
setting baselines could have the effect of moving the U.S. HCFC 
phasedown from a chemical-by-chemical phaseout, as established under 
the ``worst-first'' approach in the 1993 Final Rule, towards an ODP-
weighted phasedown. Thus, there are important policy reasons going 
forward for not taking inter-pollutant transfers into account in 
establishing baselines for new regulatory periods.
    Some commenters on the 2008 Proposed Rule stated that modifying the 
baselines by taking into account inter-pollutant transfers would be 
contrary to the CAA. One commenter argued that section 607 of the CAA 
allows EPA to approve inter-pollutant transfers of allowances only on a 
year-to-year basis. That commenter pointed to language in section 
607(b) stating that EPA regulations are to permit ``a production 
allowance for a substance for any year to be transferred for a 
production allowance for another substance for the same year on an 
ozone depletion weighted basis.'' The commenter also discussed the 
legislative history of the 1990 CAA Amendments.
    EPA does not agree with the commenter that the language of section 
607(b) is clear on its face. However, where the statutory language is 
ambiguous, EPA has discretion to choose a reasonable interpretation of 
that language. EPA determined in the 2009 Final Rule that section 
607(b) is best read as permitting only year-by-year inter-pollutant 
transfers. EPA continues to believe that this is the best 
interpretation of the statutory language. Section 607(b) states that 
EPA's rules are to permit ``a production allowance for a substance for 
any year to be transferred for a production allowance for another 
substance for the same year.'' This language emphasizes the year-by-
year nature of such transactions. No parallel language appears in 
section 607(c). That section does, however, provide that any inter-
pollutant transfers between two or more persons must meet the 
requirements of section 607(b).
    As the Court noted, ``the Agency is certainly entitled to * * * 
institute a program that forbids baseline inter-pollutant transfers in 
the future,'' (Arkema v. EPA, 618 F.3d at 9). Hence, EPA concludes that 
requiring all inter-pollutant transfers to be conducted on a yearly--
and thus temporary--basis going forward is the approach most consistent 
with the wording of section 607(b). Further discussion of the reasons 
for limiting inter-pollutant transfers to those conducted on a 
calendar-year basis is available in the Response to Comments on the 
2008 Proposed Rule (included in the docket for this rulemaking).
    Consistent with the Court's decision regarding past inter-pollutant 
transfers (those conducted during the prior regulatory period), the 
baselines established in this action for 2012-2014 take into account 
the 2008 inter-pollutant baseline transfers. EPA is clarifying, 
however, that it has not approved any inter-pollutant transfers of 
baseline allowances in the current regulatory period, and for the 
reasons given in the 2009 Final Rule and in this action, in the future, 
EPA intends to approve inter-pollutant transfers only on a year-by-year 
basis. Thus, in the context of the allowance system for protection of 
stratospheric ozone, companies should not expect that any inter-
pollutant transfers they conduct will affect their baselines either in 
the current regulatory period or any future regulatory period.
    EPA proposes to revise the regulations to avoid any further dispute 
about the Agency's position on this issue. In addition, EPA is 
proposing to clarify the procedures that apply to permanent, single-
pollutant transfers. Specifically, EPA proposes to add a sentence at 
the beginning and end of section 82.23(d) of 40 CFR Part 82, so the 
text reads: ``(d) Permanent transfers. The procedures in paragraph (a) 
of this section apply to permanent inter-company transfers of baseline 
production allowances or baseline consumption allowances. A person 
receiving a permanent transfer of baseline production allowances or 
baseline consumption allowances (the transferee) for a specific class 
II controlled substance will be the person who has their baseline 
allowances adjusted in accordance with phaseout schedules in this 
subpart. No person may conduct permanent inter-pollutant transfers of 
baseline production allowances or baseline consumption allowances.''

B. How does EPA propose to change the regulations governing transfers 
of Article 5 HCFC allowances?

    Article 5 allowances for Class II substances are the privileges 
granted under 40 CFR 82.18(a) to produce the specified HCFC for export 
only to countries listed in 40 CFR Subpart A, Appendix C, Annex 4. The 
countries listed in that annex are developing countries whose control 
obligations under the Montreal Protocol are addressed in Article 5 of 
the treaty and hence are referred to as ``Article 5 Parties.'' EPA is 
proposing to revise the regulations at 40 CFR 82.23(b) to reflect its 
previously stated intent to allow inter-pollutant transfers of Article 
5 allowances. The regulations currently provide clarity on inter-
company (single-pollutant) transfers of Article 5 allowances in section 
82.23(a) by stating ``a person * * * may transfer to any other person * 
* * any quantity of the transferor's class II * * * Article 5 
allowances for the same type of allowances * * *'' While 82.23(a) 
specifically includes Article 5 allowances in the list of allowances 
that may be transferred to another entity, 82.23(b), which governs 
inter-pollutant transfers, makes no mention of Article 5 allowances.
    Section 82.23 was promulgated as part of the 2003 Final Rule (68 FR 
2820). EPA specifically discussed the inter-pollutant transfer of 
Article 5 allowances at 68 FR 2834 stating, ``For example, after the 
2003 phaseout of HCFC-141b and before 2010, a company receiving * * * 
Article 5 allowances for HCFC-141b could engage in inter-company 
transfers of those allowances, but not in inter-pollutant transfers 
[because no other HCFC Article 5 allowances would be available during 
that period]. In 2010, when * * * Article 5 allowances for HCFC-22 and 
HCFC-142b become available, these allowances will be transferable with 
the ones for HCFC-141b.'' These statements indicate that the Agency 
intended for companies to be able to perform inter-pollutant transfers 
of Article 5 allowances. The omission of Article 5 allowances from 
section 82.23(b) appears to have been an oversight. Therefore, EPA is 
proposing to revise the regulations to specifically provide for the 
inter-pollutant transfers of Article 5 allowances through this 
rulemaking. As with other types of inter-pollutant transfers, these 
transfers would be limited in duration to a single year.

[[Page 256]]

    EPA is also proposing to change the text at 82.23(a)(ii) for 
consistency with its previously stated policy on offsets for transfers 
of Article 5 allowances. Section 607(a) requires that transfers of 
production allowances ``will result 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.'' In a November 10, 
1994, Federal Register notice, EPA stated its interpretation that the 
section 607 offset requirement applies to Article 5 allowance transfers 
(59 FR 56287): ``Inter-pollutant transfers of Article 5 allowances will 
continue to require a one percent offset, as required by section 607 of 
the CAA * * *'' In the May 10, 1995 final rule at 60 FR 24980, EPA 
stated that ``With today's action, EPA permits inter-pollutant and 
inter-company transfers of Article 5 allowances as proposed * * *'' 
meaning EPA intended to require an offset for transfers of Article 5 
allowances in the class I allowance system.
    This intent to require an offset is also reflected in certain 
provisions of the class II allowance system in 40 CFR 82. Section 
82.23(a)(i)(G) specifically requires an offset for Article 5 allowance 
inter-company transfers, stating that the transfer claim must set 
forth: ``For trades of consumption allowances, production allowances, 
export production allowances, or Article 5 allowances, the quantity of 
the 0.1 percent offset applied to the unweighted quantity traded that 
will be deducted from the transferor's allowance balance.'' The offset 
is also mentioned at section 82.23(a)(iii): ``In the case of transfers 
of * * * Article 5 allowances, EPA will reduce the transferor's balance 
of unexpended allowances by the quantity (in kilograms) to be converted 
plus 0.1 percent of that quantity.'' This contrasts with section 
82.23(a)(ii)(A), which states that in the case of Article 5 allowances, 
``EPA will reduce the transferor's balance of unexpended allowances * * 
* by the quantity to be transferred,'' with no mention of an offset. In 
addition, in the introductory text for 82.23(a)(ii), Article 5 
allowances are not mentioned: ``The transfer claim is the quantity (in 
kilograms) to be transferred plus, in the case of transfers of 
production or consumption allowances, 0.1 percent of that quantity;'' 
EPA is proposing to amend 82.23(a)(ii) and 82.23(a)(ii)(A) to require 
an offset for transfers of Article 5 allowances. This will make section 
82.23(a) consistent throughout. Section 82.23(b) currently requires an 
offset of 0.1 percent for all inter-pollutant transfers. Thus, if EPA 
adds Article 5 allowances to section 82.23(b), an offset will 
automatically apply.
    To reflect EPA's intent to allow inter-pollutant transfers of 
Article 5 allowances, and the requirement that an offset be deducted 
when an entity is transferring Article 5 allowances, the Agency is 
proposing to modify the regulatory text. EPA is proposing to modify the 
text at 40 CFR 82.23(a)(ii) to read as set forth in the regulatory text 
of this proposed rule.
    The Agency is also proposing to modify the text at 40 CFR 82.23(b) 
by adding Article 5 allowances to the list of allowances that can be 
traded between pollutants. The text would read as set forth in the 
regulatory text of this proposed rule.

V. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), 
this action is a ``significant regulatory action'' since it raises 
``novel legal or policy issues.'' Accordingly, EPA submitted this 
action to the Office of Management and Budget (OMB) for review under 
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) 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 action. 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.

A memorandum summarizing these analyses is available in the docket.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
EPA already requires recordkeeping and reporting for HCFCs, and this 
action does not amend those provisions. 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.

C. Regulatory Flexibility Act (RFA)

    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. We have 
considered the economic impacts of this proposed rule on small 
entities. For purposes of assessing the impacts of this rule on small 
entities, a 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 action will affect the following categories:

--Industrial Gas Manufacturing entities (NAICS code 325120), including 
fluorinated hydrocarbon gases manufacturers and reclaimers;
--Other Chemical and Allied Products Merchant Wholesalers (NAICS code 
422690), including chemical gases and compressed gases merchant 
wholesalers;
--Air-Conditioning and Warm Air Heating Equipment and Commercial

[[Page 257]]

and Industrial Refrigeration Equipment Manufacturing entities (NAICS 
code 333415), including air-conditioning equipment and commercial and 
industrial refrigeration equipment manufacturers;
--Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS 
code 423730), including air-conditioning (condensing unit, compressors) 
merchant wholesalers;
--Electrical and Electronic Appliance, Television, and Radio Set 
Merchant Wholesalers (NAICS code 423620), including air-conditioning 
(room units) merchant wholesalers; and
--Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 
238220), including Central air-conditioning system and commercial 
refrigeration installation; HVAC contractors.

    After considering the economic impacts of this proposed rule on 
small entities, I certify this action will not have a significant 
economic impact on a substantial number of small entities as it 
relieves a regulatory ban on production and consumption that would 
otherwise apply in the wake of the Court's vacatur. EPA is continuing 
to allocate production and consumption allowances using the same 
approach described in the 2009 Final Rule with adjustments to reflect 
(1) 2008 inter-pollutant transfers of baseline allowances deemed 
permanent by the Court, (2) inter-company, single-pollutant transfers 
of baseline allowances that occurred in 2010, (3) changes in company 
names that occurred after the 2009 Final Rule was signed and (4) an 
updated picture on the demand for HCFC-22. EPA is not modifying the 
recordkeeping or reporting provisions and thus is not increasing the 
burden to small businesses. EPA's HCFC Phaseout Benefits and Costs 
Memo, included in this docket, provides a summary of previous small 
business analyses, as well as the most recent cost and benefit data 
used for the 2009 Final Rule. We continue to be interested in the 
potential impacts of the proposed rule on small entities and welcome 
comments on issues related to such impacts.

D. Unfunded Mandates Reform Act

    This action contains no Federal mandates under the provisions of 
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 
1531-1538 for State, local, or tribal governments or the private 
sector. UMRA does not apply to rules that are necessary for the 
national security or the ratification or implementation of 
international treaty obligations. This rule implements the 2010 
milestone for the phase-out of HCFCs under the Montreal Protocol. 
Therefore, this action is not subject to the requirements of sections 
202 or 205 of the UMRA.
    This action 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 action 
apportions production and consumption allowances and establishes 
baselines for private entities, not small governments.

E. Executive Order 13132: Federalism

    Executive Order 13132, titled ``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 action does not have federalism implications. It does 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. This action is expected to 
primarily affect producers, importers, and exporters of HCFCs. Thus, 
the requirements of section 6 of the Executive Order do not apply.

F. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This action 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 action.

G. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    This action is not subject to EO 13045 (62 FR 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) Whiteman 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.
    This action implements the U.S. 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 U.S. 
can take to complete the overall phaseout of ODS and further decrease 
impacts on children's health from stratospheric ozone depletion.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This action is not a ``significant energy action'' as defined in 
Executive Order 13211 (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 rule issues allowances for the 
production and consumption of HCFCs.

[[Page 258]]

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 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 action 
does not involve technical standards. Therefore, EPA did not consider 
the use of any voluntary consensus standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    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 U.S.
    EPA has determined that this action will not have 
disproportionately high and adverse human health or environmental 
effects on minority or low-income populations because the 2010 phaseout 
step 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. This action continues the 
implementation of the U.S. 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 U.S. can take to 
complete the overall phaseout of ODS and further lessen the adverse 
human health effects for the entire population.

List of Subjects in 40 CFR Part 82

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Chemicals, Exports, Hydrochlorofluorocarbons, 
Imports.

    Dated: December 22, 2011.
Lisa P. Jackson,
Administrator.
    40 CFR part 82 is proposed to be amended to read as follows:

PART 82--PROTECTION OF STRATOSPHERIC OZONE

    1. The authority citation for part 82 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7601, 7671- 7671q.

    2. Amend Sec.  82.16 by revising paragraph (a) to read as follows:


Sec.  82.16  Phaseout schedule of class II controlled substances.

    (a) Calendar-year Allowances. (1) In each control period as 
indicated in the following tables, each person is granted the specified 
percentage of baseline production allowances and baseline consumption 
allowances for the specified class II controlled substances apportioned 
under Sec. Sec.  82.17 and 82.19:

                                                        Calendar-Year HCFC Production Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Percent of    Percent of HCFC-   Percent of      Percent of      Percent of      Percent of      Percent of
             Control period                 HCFC-141b           22           HCFC-142b       HCFC-123        HCFC-124       HCFC-225ca      HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003...................................               0            100            100     ..............  ..............  ..............  ..............
2004...................................               0            100            100     ..............  ..............  ..............  ..............
2005...................................               0            100            100     ..............  ..............  ..............  ..............
2006...................................               0            100            100     ..............  ..............  ..............  ..............
2007...................................               0            100            100     ..............  ..............  ..............  ..............
2008...................................               0            100            100     ..............  ..............  ..............  ..............
2009...................................               0            100            100     ..............  ..............  ..............  ..............
2010...................................               0             41.9            0.47             125             125             125             125
2011...................................               0             32.0            4.9              125             125             125             125
2012...................................               0             17.7            4.9              125             125             125             125
2013...................................               0             14.7            4.9              125             125             125             125
2014...................................               0             11.6            4.9              125             125             125             125
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                        Calendar-Year HCFC Consumption Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Percent of    Percent of HCFC-   Percent of      Percent of      Percent of      Percent of      Percent of
             Control period                 HCFC-141b           22           HCFC-142b       HCFC-123        HCFC-124       HCFC-225ca      HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003...................................               0            100            100     ..............  ..............  ..............  ..............
2004...................................               0            100            100     ..............  ..............  ..............  ..............
2005...................................               0            100            100     ..............  ..............  ..............  ..............
2006...................................               0            100            100     ..............  ..............  ..............  ..............
2007...................................               0            100            100     ..............  ..............  ..............  ..............
2008...................................               0            100            100     ..............  ..............  ..............  ..............
2009...................................               0            100            100     ..............  ..............  ..............  ..............
2010...................................               0             41.9            0.47             125             125             125             125
2011...................................               0             32.0            4.9              125             125             125             125
2012...................................               0             17.7            4.9              125             125             125             125
2013...................................               0             14.7            4.9              125             125             125             125
2014...................................               0             11.6            4.9              125             125             125             125
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 259]]

     (2) Recoupment allowances. In the control period beginning January 
1, 2013 and ending December 31, 2013, the following companies are 
granted a one-time amount of HCFC consumption and production allowances 
in addition to the percentage of baseline listed in the table at 
paragraph (a)(1) of this section: 4,749,692 kg of HCFC-22 consumption 
allowances and 4,611,848 kg of HCFC-22 production allowances to Arkema; 
2,339 kg of HCFC-142b consumption allowances to DuPont; 58,291 kg of 
HCFC-142b consumption allowances and 107,097 kg of production 
allowances to Honeywell; 1,157,895 kg of HCFC-22 consumption allowances 
to Solvay Fluorides; and 289,800 kg of HCFC-142b production allowances 
to Solvay Solexis.
* * * * *
    3. Amend Sec.  82.23 by revising paragraphs (a)(ii) introductory 
text, (a)(ii)(A), (b)(1), and (d) to read as follows:


Sec.  82.23  Transfers of allowances of class II controlled substances.

    (a) * * * (ii) The Administrator will determine whether the records 
maintained by EPA indicate that the transferor possesses unexpended 
allowances sufficient to cover the transfer claim on the date the 
transfer claim is processed. The transfer claim is the quantity (in 
kilograms) to be transferred plus 0.1 percent of that quantity. The 
Administrator will take into account any previous transfers, any 
production, and allowable imports and exports of class II controlled 
substances reported by the transferor. Within three working days of 
receiving a complete transfer claim, the Administrator will take action 
to notify the transferor and transferee as follows:
    (A) The Administrator will issue a notice indicating that EPA does 
not object to the transfer if EPA's records show that the transferor 
has sufficient unexpended allowances to cover the transfer claim. In 
the case of transfers of production or consumption allowances, EPA will 
reduce the transferor's balance of unexpended allowances by the 
quantity to be transferred plus 0.1 percent of that quantity. In the 
case of transfers of export production or Article 5 allowances, EPA 
will reduce the transferor's balance of unexpended allowances, 
respectively, by the quantity to be transferred plus 0.1 percent of 
that quantity. The transferor and the transferee may proceed with the 
transfer when EPA issues a no objection notice. However, if EPA 
ultimately finds that the transferor did not have sufficient unexpended 
allowances to cover the claim, the transferor and transferee, where 
applicable, will be held liable for any knowing violations of the 
regulations of this subpart that occur as a result of, or in 
conjunction with, the improper transfer.
* * * * *
    (b) Inter-pollutant transfers. (1) Effective January 1, 2003, a 
person (transferor) may convert consumption allowances, production 
allowances or Article 5 allowances for one class II controlled 
substance to the same type of allowance for another class II controlled 
substance listed in Appendix B of this subpart, following the 
procedures described in paragraph (b)(3) of this section.
* * * * *
    (d) Permanent transfers. The procedures in paragraph (a) of this 
section apply to permanent inter-company transfers of baseline 
production allowances or baseline consumption allowances. A person 
receiving a permanent transfer of baseline production allowances or 
baseline consumption allowances (the transferee) for a specific class 
II controlled substance will be the person who has their baseline 
allowances adjusted in accordance with phaseout schedules in this 
subpart. No person may conduct permanent inter-pollutant transfers of 
baseline production allowances or baseline consumption allowances.
* * * * *
[FR Doc. 2011-33456 Filed 1-3-12; 8:45 am]
BILLING CODE 6560-50-P