[Federal Register Volume 87, Number 212 (Thursday, November 3, 2022)]
[Proposed Rules]
[Pages 66372-66409]
[FR Doc No: 2022-23269]

Vol. 87

Thursday,

No. 212

November 3, 2022

Part II

Environmental Protection Agency

-----------------------------------------------------------------------

40 CFR Part 84

Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology for
2024 and Later Years; Proposed Rule

Federal Register / Vol. 87, No. 212 / Thursday, November 3, 2022 /
Proposed Rules

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 84

[EPA-HQ-OAR-2022-0430; FRL-8838-01-OAR]
RIN 2060-AV45

Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology
for 2024 and Later Years

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The U.S. Environmental Protection Agency is proposing to amend
existing regulations to implement certain provisions of the American
Innovation and Manufacturing Act, as enacted on December 27, 2020. This
rulemaking proposes to establish the methodology for allocating
hydrofluorocarbon production and consumption allowances for the
calendar years of 2024 through 2028. EPA is also proposing to amend the
consumption baseline to reflect updated data and to make other
adjustments based on lessons learned from implementation of the
hydrofluorocarbon phasedown program thus far, including proposing to:
codify the existing approach of how allowances must be expended for
import of regulated substances; revise recordkeeping and reporting
requirements; and implement other modifications to the existing
regulations.

DATES: Comments on this notice of proposed rulemaking must be received
on or before December 19, 2022. Under the Paperwork Reduction Act
(PRA), comments on the information collection provisions are best
ensured of consideration if the Office of Management and Budget (OMB)
receives a copy of your comments on or before December 5, 2022. Any
party requesting a public hearing must notify the contact listed below
under FOR FURTHER INFORMATION CONTACT by 5 p.m. Eastern Daylight Time
on November 8, 2022. If a virtual public hearing is held, it will take
place on or before November 18, 2022 and further information will be
provided at https://www.epa.gov/climate-hfcs-reduction.

ADDRESSES: You may send comments, identified by Docket ID No. EPA-HQ-
OAR-2022-0430, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov
(our preferred method). Follow the online instructions for submitting
comments.
     Mail: U.S. Environmental Protection Agency, EPA Docket
Center, Air and Radiation Docket, Mail Code 28221T, 1200 Pennsylvania
Avenue NW, Washington, DC 20460.
     Hand Delivery or Courier: EPA Docket Center, WJC West
Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004.
The Docket Center's hours of operations are 8:30 a.m.-4:30 p.m.,
Monday-Friday (except Federal Holidays).
    Instructions: All submissions received must include the Docket ID
No. for this rulemaking. Comments received may be posted without change
to https://www.regulations.gov, including any personal information
provided. For further information on EPA Docket Center services and the
current status, please visit us online at https://www.epa.gov/dockets.
    You may find the following suggestions helpful for preparing your
comments: direct your comments to specific sections of this proposed
rulemaking and note where your comments may apply to future separate
actions where possible; explain your views as clearly as possible;
describe any assumptions that you used; provide any technical
information or data you used that support your views; provide specific
examples to illustrate your concerns; offer alternatives; and, make
sure to submit your comments by the comment period deadline. Please
provide any published studies or raw data supporting your position.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. EPA will
generally not consider comments or comment contents located outside of
the primary submission (e.g., on the web, cloud, or other file sharing
system).
    EPA recognizes that given the nature of this proposed rulemaking,
potentially affected entities may wish to submit Confidential Business
Information (CBI) or other confidential information. CBI should not be
submitted through https://www.regulations.gov. For submission of
confidential comments or data, please work with the person listed in
the FOR FURTHER INFORMATION CONTACT section. For additional submission
methods, the full EPA public comment policy, information about CBI or
multimedia submissions, and general guidance on making effective
comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: John Feather, U.S. Environmental
Protection Agency, Stratospheric Protection Division, telephone number:
202-564-1230; or email address: [email protected]. You may also
visit EPA's website at https://www.epa.gov/climate-hfcs-reduction for
further information.

SUPPLEMENTARY INFORMATION: Throughout this document, whenever ``we,''
``us,'' ``the Agency,'' or ``our'' is used, we mean EPA. Acronyms that
are used in this rulemaking that may be helpful include:

ABI--Automated Broker Interface
AES--Automated Export System
AHRI--Air-Conditioning, Heating, and Refrigeration Institute
AIM Act--American Innovation and Manufacturing Act of 2020
ASHRAE--American Society of Heating, Refrigerating and Air-
Conditioning Engineers
CAA--Clean Air Act
CBI--Confidential Business Information
CBP--U.S. Customs and Border Protection
CFR--Code of Federal Regulations
CO2--Carbon Dioxide
DBA--Doing Business As
e-GGRT--Electronic Greenhouse Gas Reporting Tool
EEI--Electronic Export Information
EPA--U.S. Environmental Protection Agency
EVe--Exchange Value Equivalent
FR--Federal Register
GHG--Greenhouse Gas
GHGRP--Greenhouse Gas Reporting Program
GWP--Global Warming Potential
HAP--Hazardous Air Pollutants
HTS--Harmonized Tariff Schedule
HCFC--Hydrochlorofluorocarbon
HFC--Hydrofluorocarbon
HFO--Hydrofluoroolefin
HTS--Harmonized Tariff Schedule
ICR--Information Collection Request
IEC--International Electrotechnical Commission
IMO--International Maritime Organization
IPCC--Intergovernmental Panel on Climate Change
ISO--International Organization for Standardization
ITN--Internal Transaction Number
JCGM--Joint Committee for Guides in Metrology
LCD--Liquid Carbon Dioxide
MMTCO2 e--Million Metric Tons of Carbon Dioxide
Equivalent
MMTEVe--Million Metric Tons of Exchange Value Equivalent
MTEve--Metric Tons of Exchange Value Equivalent
NAAQS--National Ambient Air Quality Standards
NAICS--North American Industry Classification System
NATA--National Air Toxics Assessment
NEI--National Emissions Inventory
ODS--Ozone-Depleting Substances
PRA--Paperwork Reduction Act
RACA--Request for Additional Consumption Allowances
RFA--Regulatory Flexibility Act
RIA--Regulatory Impact Analysis

SISNOSE--Significant Economic Impact on a Substantial Number of
Small Entities
TRI--Toxics Release Inventory
XPS--Extruded Polystyrene

Table of Contents

I. General Information
    A. Does this proposed action apply to me?
    B. What is the AIM Act, and what authority does it provide to
EPA as it relates to this proposed action?
    C. What are HFCs?
II. What is the summary of this proposed action?
III. How is EPA proposing to determine allowance allocations
starting in 2024?
    A. For which years is EPA proposing to establish the allocation
methodology?
    B. What is EPA's proposed framework for determining how many
allowances each entity receives?
    1. Which methodology is EPA proposing to use as the basis for
allocations?
    2. What other allocation methodologies did EPA consider?
    3. What did EPA consider in developing its proposal as to the
appropriate entities to be allocated allowances?
    C. How is EPA accounting for past production or import activity
to determine allocation eligibility?
    D. Can allowances be transferred or conferred prior to the
calendar year?
IV. How is EPA proposing to update the consumption baseline?
    A. How did EPA determine the consumption baseline in the
Framework Rule?
    B. How is EPA proposing to adjust the consumption baseline?
    C. What other opportunities is EPA providing to further update
data?
V. How is EPA proposing to revise requirements related to allowances
for import?
    A. Codifying the Point in Time That an Allowance Must Be
Expended To Import Regulated Substances
    B. Who must expend allowances for import?
    C. Existing Requirement To Expend Allowances for Regulated
Substance Components of Blends
    D. Establish Presumed Amount for Heel Imports of Unknown
Quantity
VI. How is EPA proposing to clarify and revise recordkeeping and
reporting requirements?
    A. How is EPA proposing to modify the import reporting
requirements?
    1. Specify Reporting Obligations on the Importer of Record
    2. Modify Advance Notification of Import Requirements
    3. Clarify the Reporting of Heels
    4. Changes to and Requirement of Importer of Record Information
    5. Joint and Several Liability for Importer Reporting
Requirements
    B. Modify Recordkeeping and Reporting Requirements Regarding
Expending Allowances
    C. Modify the Reporting of Regulated Substances Produced for
Transformation, Destruction or Use as a Process Agent at a Different
Facility Under the Same Owner
    D. Additional HFC Production Facility Emissions Reporting
Requirements
VII. How is EPA proposing to revise sampling and testing
requirements?
    A. Use of Appendix A to 40 CFR Part 82 and EPA Method 18 in
Appendix A-6 to 40 CFR Part 60 for Sampling and Testing
    B. Recordkeeping of Tests
    C. Define ``Batch'' and ``Representative Sample'' and Clarify
the Relationship Between These Terms
    D. Laboratory Methods and Accreditation
    E. Certificate of Analysis for Imports of Regulated Substances
VIII. What other revisions is EPA proposing?
    A. Define the Term ``Expend''
    B. Modify Labeling Requirements
    C. Clarify Ability To Move Allowances Among Companies With
Certain Affiliation Without a Transfer
    D. Revise Required Elements To Request Additional Consumption
Allowances
    E. Petitions To Import Regulated Substances for Laboratory
Testing With Eventual Destruction
IX. What are the costs and benefits of this proposed action?
X. How is EPA considering environmental justice?
XI. Statutory and Executive Order Review
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    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 Risks and Safety Risks
    H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA) and
Incorporation by Reference
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations

I. General Information

A. Does this proposed action apply to me?

    You may be potentially affected by this proposal if you produce,
import, export, destroy, use as a feedstock or process agent, reclaim,
or recycle HFCs. Potentially affected categories, North American
Industry Classification System (NAICS) codes, and examples of
potentially affected entities are included in Table 1.

     Table 1--NAICS Classification of Potentially Affected Entities
------------------------------------------------------------------------
            NAICS code                   NAICS industry description
------------------------------------------------------------------------
325120............................  Industrial Gas Manufacturing.
325199............................  All Other Basic Organic Chemical
                                     Manufacturing.
325211............................  Plastics Material and Resin
                                     Manufacturing.
325412 *..........................  Pharmaceutical Preparation
                                     Manufacturing.
325414 *..........................  Biological Product (except
                                     Diagnostic) Manufacturing.
325998............................  All Other Miscellaneous Chemical
                                     Product and Preparation
                                     Manufacturing.
326220............................  Rubber and Plastics Hoses and
                                     Belting Manufacturing.
326150 *..........................  Urethane and Other Foam Product.
326299............................  All Other Rubber Product
                                     Manufacturing.
333415............................  Air[dash]Conditioning and Warm Air
                                     Heating Equipment and Commercial
                                     and Industrial Refrigeration
                                     Equipment Manufacturing.
333511............................  Industrial Mold Manufacturing.
334413 *..........................  Semiconductor and Related Device
                                     Manufacturing.
334419 **.........................  Other Electronic Component
                                     Manufacturing.
334510............................  Electromedical and
                                     Electrotherapeutic Apparatus
                                     Manufacturing.
336212 *..........................  Truck Trailer Manufacturing.
336214 *..........................  Travel Trailer and Camper
                                     Manufacturing.
336411 *..........................  Aircraft Manufacturing.
336611 *..........................  Ship Building and Repairing.
336612 *..........................  Boat Building.
339112............................  Surgical and Medical Instrument
                                     Manufacturing.
423720............................  Plumbing and Heating Equipment and
                                     Supplies (Hydronics) Merchant
                                     Wholesalers.
423730............................  Warm Air Heating and
                                     Air[dash]Conditioning Equipment and
                                     Supplies Merchant Wholesalers.

423740............................  Refrigeration Equipment and Supplies
                                     Merchant Wholesalers.
423830............................  Industrial Machinery and Equipment
                                     Merchant Wholesalers.
423840............................  Industrial Supplies Merchant
                                     Wholesalers.
423860 *..........................  Transportation Equipment and
                                     Supplies (except Motor Vehicle)
                                     Merchant Wholesalers.
424690............................  Other Chemical and Allied Products
                                     Merchant Wholesalers.
488510............................  Freight Transportation Arrangement.
541380............................  Testing Laboratories.
541714............................  Research and Technology in
                                     Biotechnology (except
                                     Nanobiotechnology).\11\
562111............................  Solid Waste Collection.
562211............................  Hazardous Waste Treatment and
                                     Disposal.
562920............................  Materials Recovery Facilities.
922160 *..........................  Fire Protection.
------------------------------------------------------------------------
 Codes marked with an asterisk may apply to sectors that receive
  application-specific allowances under the American Innovation and
  Manufacturing Act of 2020 (AIM Act).

    This table is not intended to be exhaustive, but rather provide a
guide for readers regarding entities likely to be affected by this
action. Other types of entities not listed in this section could also
be affected. If you have any questions regarding the applicability of
this action to a particular entity, consult the person listed under FOR
FURTHER INFORMATION CONTACT.

B. What is the AIM Act, and what authority does it provide to EPA as it
relates to this proposed action?

    On December 27, 2020, the AIM Act was enacted as section 103 in
Division S, Innovation for the Environment, of the Consolidated
Appropriations Act, 2021 (42 U.S.C. 7675). The AIM Act authorizes EPA
to address HFCs in three main ways: phasing down HFC production and
consumption through an allowance allocation program; facilitating
sector-based transitions to next-generation technologies; and
promulgating certain regulations for purposes of maximizing reclamation
and minimizing releases of HFCs and their substitutes from equipment.
This rulemaking focuses on the first area--the phasedown of the
production and consumption of HFCs.
    Subsection (e) of the AIM Act gives EPA authority to phase down the
production and consumption of listed HFCs through an allowance
allocation and trading program. Subsection (c)(1) of the AIM Act lists
18 saturated HFCs, and by reference any of their isomers not so listed,
that are covered by the statute's provisions, referred to as
``regulated substances'' under the Act. Congress also assigned an
``exchange value'' 1 2 to each regulated substance (along
with other chemicals that are used to calculate the baseline). EPA has
codified the list of the 18 regulated substances and their exchange
values in appendix A to 40 CFR part 84.
---------------------------------------------------------------------------

    \1\ EPA has determined that the exchange values included in
subsection (c) of the AIM Act are identical to the global warming
potentials (GWPs) included in the Intergovernmental Panel on Climate
Change (IPCC) (2007). EPA uses the terms ``global warming
potential'' and ``exchange value'' interchangeably in this proposal.
    \2\ IPCC (2007): Solomon, S., D. Qin, M. Manning, R.B. Alley, T.
Berntsen, N.L. Bindoff, Z. Chen, A. Chidthaisong, J.M. Gregory, G.C.
Hegerl, M. Heimann, B. Hewitson, B.J. Hoskins, F. Joos, J. Jouzel,
V. Kattsov, U. Lohmann, T. Matsuno, M. Molina, N. Nicholls, J.
Overpeck, G. Raga, V. Ramaswamy, J. Ren, M. Rusticucci, R.
Somerville, T.F. Stocker, P. Whetton, R.A. Wood and D. Wratt, 2007:
Technical Summary. In: Climate Change 2007: The Physical Science
Basis. Contribution of Working Group I to the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change [Solomon,
S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor
and H.L. Miller (eds.)]. Cambridge University Press, Cambridge,
United Kingdom and New York, NY, USA https://www.ipcc.ch/report/ar4/wg1.
---------------------------------------------------------------------------

    The AIM Act requires EPA to phase down the consumption and
production of the statutorily listed HFCs on an exchange value-weighted
basis according to the schedule in subsection (e)(2)(C) of the AIM Act.
The AIM Act requires that the EPA Administrator ensures the annual
quantity of all regulated substances produced or consumed \3\ in the
United States does not exceed the applicable percentage listed for the
production or consumption baseline. EPA has codified the phasedown
schedule at 40 CFR 84.7.
---------------------------------------------------------------------------

    \3\ In the context of allocating and expending allowances, EPA
interprets the word ``consume'' as the verb form of the defined term
``consumption.'' For example, subsection (e)(2)(A), states the
phasedown consumption prohibition as ``no person shall . . . consume
a quantity of a regulated substance without a corresponding quantity
of consumption allowances.'' While a common usage of the word
``consume'' means ``use,'' EPA does not believe that Congress
intended for everyone who charges an appliance or fills an aerosol
can with an HFC to expend allowances.
---------------------------------------------------------------------------

    To implement the directive that the production and consumption of
regulated substances in the United States does not exceed the statutory
targets, the AIM Act in subsection (e)(3) requires EPA to issue
regulations establishing an allowance allocation and trading program to
phase down the production and consumption of the listed HFCs. These
allowances are limited authorizations for the production or consumption
of regulated substances. Subsection (e)(2) of the Act has a general
prohibition that no person \4\ shall produce or consume a quantity of
regulated substances in the United States without a corresponding
quantity of allowances.
---------------------------------------------------------------------------

    \4\ Under the Act's term, this general prohibition applies to
any ``person.'' Because EPA anticipates that the parties that
produce or consume HFCs--and that would thus be subject to the Act's
production and consumption controls--are companies or other
entities, we frequently use those terms to refer to regulated
parties in this proposal. Using this shorthand, however, does not
alter the applicability of the Act's or regulation's requirements
and prohibitions. Similarly, in certain instances EPA may use these
terms interchangeably in this rule preamble, but such differences in
terminology should not be viewed to carry a material distinction in
how EPA interprets or is planning to apply the requirements
discussed herein.
---------------------------------------------------------------------------

    EPA published a final rule on October 5, 2021 (86 FR 55116;
hereinafter called the Framework Rule), that, among other things:
established the HFC production and consumption baselines; determined an
initial approach to allocating production and consumption allowances
for 2022 and 2023, identifying both the entities receiving allowances
and how to determine what quantities of allowances they would receive;
established a process for issuing ``application-specific'' allowances
to entities in six specific applications listed in subsection
(e)(4)(B)(iv) of the AIM Act; created a set-aside pool of allowances
for new entrants and entities for which the Agency did not have
verifiable data prior to the finalization of the rule; established
provisions for the transfer of allowances; established recordkeeping
and reporting requirements; and established a suite of

compliance and enforcement-related provisions. Unless otherwise stated
in the proposal sections included in this notice, EPA's proposed
requirements and revisions are based on the same interpretations of the
AIM Act, and the Clean Air Act as applicable under subsection (k) of
the AIM Act, as discussed in the Framework Rule. EPA also has inherent
authority to prevent and identify noncompliance, to ensure the Agency
can meet the statutory directive in subsection (e)(2)(B), and to create
a level playing field for the regulated community.

C. What are HFCs?

    HFCs are anthropogenic \5\ fluorinated chemicals that have no known
natural sources. HFCs are used in a variety of applications such as
refrigeration and air conditioning, foam blowing agents, solvents,
aerosols, and fire suppression. HFCs are potent greenhouse gases (GHGs)
with 100-year GWPs (a measure of the relative climatic impact of a GHG)
that can be hundreds to thousands of times that of carbon dioxide
(CO2).
---------------------------------------------------------------------------

    \5\ While the overwhelming majority of HFC production is
intentional, EPA is aware that HFC-23 can be a byproduct associated
with the production of other chemicals, including but not limited to
hydrochlorofluorocarbon (HCFC)-22.
---------------------------------------------------------------------------

    HFC use and emissions,\6\ have been growing worldwide due to the
global phaseout of ozone-depleting substances (ODS) under the Montreal
Protocol on Substances that Deplete the Ozone Layer (Montreal
Protocol), and the increasing use of refrigeration and air-conditioning
equipment globally. HFC emissions had previously been projected to
increase substantially over the next several decades. In 2016, in
Kigali, Rwanda, countries agreed to adopt an amendment to the Montreal
Protocol, known as the Kigali Amendment, which provides for a global
phasedown of the production and consumption of HFCs. Global adherence
to the Kigali Amendment would substantially reduce future emissions,
leading to a peaking of HFC emissions before 2040.7 8
---------------------------------------------------------------------------

    \6\ World Meteorological Organization (WMO), Scientific
Assessment of Ozone Depletion: 2018, World Meteorological
Organization, Global Ozone Research and Monitoring Project--Report
No. 58, 67 pp., Geneva, Switzerland, 2018. https://ozone.unep.org/sites/default/files/2019-05/SAP-2018-Assessment-report.pdf.
    \7\ Ibid.
    \8\ A recent study estimated that global compliance with the
Kigali Amendment is expected to lower 2050 annual emissions by 3.0-
4.4 Million Metric Tons of Carbon Dioxide Equivalent
(MMTCO2e). Guus J.M. Velders et al. Projections of
hydrofluorocarbon (HFC) emissions and the resulting global warming
based on recent trends in observed abundances and current policies.
Atmos. Chem. Phys., 22, 6087-6101, 2022. Available at https://doi.org/10.5194/acp-22-6087-2022.
---------------------------------------------------------------------------

    Atmospheric observations of most currently measured HFCs confirm
their abundances are increasing at accelerating rates. Total emissions
of HFCs increased by 23 percent from 2012 to 2016 and the four most
abundant HFCs in the atmosphere, in GWP-weighted terms, are HFC-134a,
HFC-125, HFC-23, and HFC-143a.\9\
---------------------------------------------------------------------------

    \9\ WMO, 2018.
---------------------------------------------------------------------------

    In 2016, HFCs, excluding HFC-23, accounted for a radiative forcing
\10\ of 0.025 W/m\2\: This is a 36 percent increase in total HFC
forcing relative to 2012. Under status quo conditions, this radiative
forcing was projected to increase by an order of magnitude to 0.25 W/
m\2\ by 2050.\11\ If the Kigali Amendment were to be fully implemented,
it would be expected to reduce the future radiative forcing due to HFCs
(excluding HFC-23) to 0.13 W/m\2\ in 2050 which is a reduction of about
50 percent compared with the radiative forcing projected in the
business-as-usual scenario of uncontrolled HFCs.\12\
---------------------------------------------------------------------------

    \10\ Radiative forcing is expressed in units of watts per square
meter (W/m\2\) and is defined by the IPCC as ``a measure of the
influence a factor has in altering the balance of incoming and
outgoing energy in the Earth-atmosphere system and is an index of
the importance of the factor as a potential climate change
mechanism.'' IPCC, 2007: Climate Change 2007: Synthesis Report.
Contribution of Working Groups I, II and III to the Fourth
Assessment Report of the Intergovernmental Panel on Climate Change
[Core Writing Team, Pachauri, R.K and Reisinger, A. (eds.)]. IPCC,
Geneva, Switzerland, 104 pp. https://www.ipcc.ch/report/ar4/syr/.
    \11\ Guus J.M. Velders, David W. Fahey, John S. Daniel, Stephen
O. Andersen, Mack McFarland, Future atmospheric abundances and
climate forcings from scenarios of global and regional
hydrofluorocarbon (HFCs) emissions, Atmospheric Environment,
doi:10.1016/j.atmosenv.2015.10.071, 2015.
    \12\ Ibid.
---------------------------------------------------------------------------

    There are hundreds of possible HFC compounds. The 18 HFCs listed as
regulated substances by the AIM Act are some of the most commonly used
HFCs and have high impacts as measured by the quantity of each
substance emitted multiplied by their respective GWPs. These 18 HFCs
are all saturated, meaning they have only single bonds between their
atoms and therefore have longer atmospheric lifetimes.
    In the United States, HFCs are primarily used in refrigeration and
air-conditioning equipment in homes, commercial buildings, and
industrial operations (approximately 75 percent of total HFC use in
2018) and in air conditioning in vehicles and refrigerated transport
(approximately 8 percent). Smaller amounts are used in foam products
(approximately 11 percent), aerosols (approximately 4 percent), fire
protection systems (approximately 1 percent) and solvents
(approximately 1 percent).\13\
---------------------------------------------------------------------------

    \13\ Calculations based on EPA's Vintaging Model, which
estimates the annual chemical emissions from industry sectors that
historically used ODS, including refrigeration and air-conditioning,
foam blowing agents, solvents, aerosols, and fire suppression. The
model uses information on the market size and growth for each end
use, as well as a history and projections of the market transition
from ODS to alternatives. The model tracks emissions of annual
``vintages'' of new equipment that enter into operation by
incorporating information on estimates of the quantity of equipment
or products sold, serviced, and retired or converted each year, and
the quantity of the compound required to manufacture, charge, and/or
maintain the equipment. Additional information on these estimates is
available in U.S. EPA, April 2016. EPA Report EPA-430-R-16-002.
Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2014.
Available at https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks-1990-2014.
---------------------------------------------------------------------------

    More detailed information on HFCs, their uses, and their impacts is
available in the Framework Rule and its associated supporting
documentation. We also discuss costs and benefits associated with this
action in section IX of this preamble, and consider potential
environmental justice impacts in section X of this preamble.

II. What is the summary of this proposed action?

    EPA proposes to:
     Establish a methodology for issuing production and
consumption allowances for calendar years 2024 through 2028; \14\
---------------------------------------------------------------------------

    \14\ In the context of this proposal, ``2024 through 2028''
means ``2024 through, and including, 2028.''
---------------------------------------------------------------------------

     Confirm that entities may confer or transfer allowances as
soon as allowances are allocated;
     Adjust the consumption baseline to reflect corrected data;
     Codify requirements related to the expenditure of
allowances for import;
     Clarify and revise recordkeeping and reporting
requirements, including a new requirement to report emissions from HFC
production facilities; and
     Implement other revisions.
    EPA is also carrying out further analyses in light of these
proposed actions, including:
     Estimating incremental changes in costs and benefits of
the HFC phasedown from 2024 through 2050 due to the proposal to adjust
the consumption baseline and revising an abatement option used in the
analysis; and
     Providing further consideration of potential environmental
justice impacts, including updating the analysis with more recent data,
adding another facility, and providing more demographic detail on
potentially affected communities.

III. How is EPA proposing to determine allowance allocations starting
in 2024?

    This section provides an overview of EPA's proposal to establish a
methodology for issuing calendar year production and consumption
allowances starting in calendar year 2024. In the Framework Rule, EPA
codified an initial approach to allocating production and consumption
allowances for calendar years 2022 and 2023, and did not establish any
allocation methodology for further years. This rulemaking proposes an
approach to calculating production and consumption allowance
allocations for future calendar years, beginning with calendar year
2024 allowances. EPA is proposing that this methodology would apply for
calculating production and consumption allowances for calendar years
2024 through 2028.
    The Framework Rule established that application-specific allowances
would be available to identified entities for calendar years 2022,
2023, 2024, and 2025. EPA is not proposing to change the methodology
for issuing application-specific allowances through this rulemaking.
The existing application-specific allowance allocation methodology
codified at 40 CFR 84.13 will continue to apply as finalized in the
Framework Rule.
    Subsection (e)(3) of the AIM Act requires EPA to implement the
statutorily established phasedown of the production and consumption of
regulated substances through an allowance allocation program. Congress
established a cap on the number of allowances available each year (by
defining how to calculate the baseline and requiring a set percentage
reduction in specific years from that baseline) and requires EPA to
establish ``an allowance allocation and trading program.''
    In the Framework Rule, EPA made clear that the Agency intended to
revisit how to allocate production and consumption allowances for 2024
and beyond. EPA presented and took advance comment on ideas on
potential criteria and a framework for issuing allowances for 2024 and
later years. EPA stated that comments received on the elements noted
for advance comment would be taken under advisement by the Agency and
incorporated, as appropriate, in future and separate rulemakings with
an opportunity for public comment prior to finalization of any
provisions. Accordingly, EPA has considered the advance comments
provided on potential methodology for allocation methodologies starting
with calendar year 2024 allowances in development of this proposal.
Those comments can be found at Docket ID No. EPA-HQ-OAR-2021-0044. EPA
is not including those comments in the docket for this rule, does not
consider those advance comments to be part of this rulemaking record,
and does not anticipate providing any further response to them.

A. For which years is EPA proposing to establish the allocation
methodology?

    EPA is proposing to establish a methodology for allocating
production and consumption allowances for calendar year 2024 through
2028. During these five years, the annual production and consumption
caps established in the AIM Act are 60 percent of the baseline.\15\ EPA
is proposing to establish a consistent methodology for the duration of
this next phasedown step.
---------------------------------------------------------------------------

    \15\ In 2029, the production and consumption caps decline to 30
percent of baseline.
---------------------------------------------------------------------------

    In the phaseout of HCFCs, which EPA is implementing under Title VI
of the Clean Air Act, EPA has similarly used an approach of
periodically revisiting its allocation methodology and has found that a
periodic revisiting of the allowance allocation methodology allowed the
Agency to respond to changing market conditions or challenges in
program implementation. Examples of changes in market conditions that
the Agency could potentially consider in revisiting its methodology in
the HFC phasedown include, among other things, companies entering or
exiting the market, corporate mergers and acquisitions, significant
quantities of allowances unexpended at the end of the year, and/or
supply shortages for specific HFCs. EPA is proposing to implement the
current methodology through allocation of calendar year 2028 allowances
to align the next periodic revisiting of the methodology with the next
phasedown step, which occurs in 2029. This allows EPA to consider
lessons learned from implementation, prior year use of allowances, and
any concerns surrounding distribution of allowances prior to the next
reduction in the production and consumption caps. For example, EPA
might want to adjust the allocation methodology if certain allowance
allocations are not being expended, leading to supply constraints, or
if there are concerns of market disruptions tied to the next phasedown
step that EPA could alleviate through a change in allocation
methodology. Establishing a methodology for these five years, as
opposed to a shorter period of time, is intended to provide allowance
holders a predictable understanding of a likely range of allocation
levels for these five years so they can make longer term decisions and
plans about how to deploy their allowances (e.g., whether to transfer
or produce or import directly).
    While the Agency's primary proposal is to establish an allowance
methodology through 2028 and reassess the methodology for allocation of
calendar year 2029 production and consumption allowances, EPA is also
considering whether it may be less disruptive to the market to reassess
and potentially change methodologies in a year prior to or after a
phasedown step (e.g., alter the methodology for allocation of calendar
year 2028 or 2030 allowances, instead of aligning with the next
phasedown step in 2029). EPA is also interested in commenters' input on
whether it is appropriate to establish the methodology through a
different phasedown step, such as through the allocation of calendar
year 2036 allowances when the production and consumption caps reach 15
percent of baseline.

B. What is EPA's proposed framework for determining how many allowances
each entity receives?

    This section discusses how EPA proposes to determine the quantity
of production and consumption allowances each entity would receive. As
in the Framework Rule, EPA seeks to provide as seamless a transition as
possible as HFCs are phased down, ensure that the methodology is in
place before October 1, 2023,\16\ and develop a methodology that
utilizes robust data. EPA is proposing to use a similar methodology to
calculate allocation quantities as the initial framework used for
allocating calendar year 2022 and 2023 production and consumption
allowances, with adjustments to accommodate new market entrants \17\
that received allowances from EPA on March 31, 2022, pursuant to 40 CFR
84.15(e)(3). EPA is not proposing to establish another pool of set-
aside allowances. Nor is EPA proposing any change to the methodology
outlined in

40 CFR 84.13 for determining application-specific allowance allocations
and accordingly is not reopening that methodology in this
rulemaking.\18\
---------------------------------------------------------------------------

    \16\ Under the AIM Act, by October 1 of each calendar year EPA
must calculate and determine the quantity of production and
consumption allowances for the following year. EPA intends to issue
allowances for the 2024 calendar year no later than October 1, 2023,
using the procedure established through this rulemaking.
    \17\ EPA allocated calendar year 2022 and 2023 consumption
allowances to entities that met the criteria of 40 CFR 84.15(c)(2)
as part of the initial pool of set-aside allowances. In the context
of this proposal, EPA generally refers to these entities as new
market entrants. As discussed in this section, EPA is not proposing
to establish another pool of set-aside allowances or to extend 40
CFR 84.15(c)(2) to future new market entrants.
    \18\ As noted previously, the existing methodology in 40 CFR
84.13 makes application-specific allowances available to identified
entities for calendar years 2022, 2023, 2024, and 2025. The existing
application-specific allowance allocation methodology codified at 40
CFR 84.13 will continue to apply as finalized in the Framework Rule.
EPA will consider any comments on this methodology outside the scope
of this rulemaking.
---------------------------------------------------------------------------

1. Which methodology is EPA proposing to use as the basis for
allocations?
    EPA is proposing to base production allowance allocations on an
entity's market share derived from the average of the three highest
years (not necessarily consecutive) of production of regulated
substances \19\ between 2011 and 2019. EPA is proposing to base
consumption allowance allocations on an entity's market share derived
from the average of the three highest years (not necessarily
consecutive) of consumption of regulated substances between 2011 and
2019.\20\ For new market entrants that were allocated allowances in
2022 and 2023, EPA is proposing an approach that would allocate
consumption allowances such that they would see an equivalent reduction
in allowances between the 2022-2023 and 2024-2028 timeframes as general
pool allowance holders. Since new market entrants do not receive
allowances based on prior import history between 2011 and 2019, EPA is
proposing to create a value that can serve as a stand in for an average
of the three highest years of consumption of regulated substances
between 2011 and 2019 for each new market entrant.
---------------------------------------------------------------------------

    \19\ The Agency is not, at this time, proposing to designate any
new regulated substances under subsection (c)(3), just as the Agency
did not designate any new regulated substances under subsection
(c)(3) in the Framework Rule (Response to Comments on the Framework
Rule at page 193).
    \20\ If a company did not have three years of data, EPA took the
average of the years between 2011 and 2019 for which the company
produced or imported HFCs, assuming the company was active in 2020
or applied for and received special consideration (86 FR 55146).
---------------------------------------------------------------------------

    EPA would determine this based on the number of allowances
allocated to each new market entrant in calendar year 2023 (which is
identical to the number of allowances allocated for calendar year 2022)
and the percent reduction all general pool allowance holders experience
in calendar year 2023 relative to the average of their three highest
years of consumption. For reference, each general pool allowance holder
received allowances at a level 32.1 percent below their individual high
three-year average in calendar year 2022. The reduction in calendar
2023 will likely be different, assuming the number of application-
specific allowances allocated is different, and will be determined by
October 1, 2023. EPA would divide each new market entrant's calendar
year 2023 allowance value by the proportion of allowances received by
general pool allowance holders relative to their high three-year
average in calendar year 2023. For example, if general pool allowance
holders receive allowances equivalent to 67.9 percent of their high
three-year average identical to calendar year 2022, a new market
entrant that received 200,000 MTEVe of allowances in 2023 would be
credited with approximately 294,435 MTEVe as the stand in for their
high three-year average.
    EPA would then add the high three-year average values for historic
producers and importers with the stand in values for new market
entrants to determine an aggregate total across all eligible allowance
holders. This approach is intended to ensure that new market entrants
and general pool allowance holders would experience the same
proportionate reduction between their 2023 allocation and their 2024
allocation. If any entity qualifies under both the new market entrant
and historic producer or importer methodologies, the Agency will
allocate with the methodology that issues the greater number of
allowances. EPA is proposing that if a company that has prior
production and/or import activity during the relevant timeframe
acquires a new market entrant, the Agency would add the new market
entrant's high three-year average stand-in value to the acquiring
entity's high three-year average consumption value and would use this
value for future allocation determinations.
    After determining entities' market share and eligibility (see
section III.C of this preamble), EPA is proposing to then use the same
steps as described in the Framework Rule (86 FR 55147) and codified at
40 CFR 84.9(a)(2)-(4) and 40 CFR 84.11(a)(2)-(4) that currently apply
for purposes of allocations for calendar years 2022 and 2023.
Independently for production and consumption allowances, EPA would add
every entity's average to determine a percentage market share of
production and consumption allowances, respectively, for each entity.
EPA would multiply each entity's percentage market share by the total
amount of general pool calendar-year allowances available to determine
each entity's production or consumption allocation.
    EPA is proposing to continue using historic production and
consumption data from 2011 to 2019, matching the approach taken for
allocating calendar year 2022 and 2023 allowances, for many of the
reasons described in the Framework Rule (86 FR 55145-55147). Among
these reasons is that a broad range of years such as 2011-2019 accounts
for changes in market behavior (e.g., actively commercializing
alternatives to high-GWP HFCs) that took place earlier in the
transition as a result of the global agreement to the Kigali Amendment
or other countries enacting HFC phasedown regulations.
    Beyond the rationales detailed in the Framework Rule, EPA is
proposing to continue to use 2011-2019 data for additional reasons.
First, using the same timeframe as finalized in the Framework Rule
would minimize disruption to the market in 2024. EPA is seeking to
provide a smooth transition from HFCs through the next phasedown step.
Over the past year, allowance holders and their supply chains have been
adjusting to the HFC Allocation Program, and more specifically, entity-
specific allocation levels. Continuing to use the same set of years
reduces the disruption to the market. This is especially valuable since
reducing U.S. production and import from 90 percent of baseline to 60
percent of baseline will result in other changes to business practices,
such as the increased use and changes in production or import of
alternatives and reclaimed HFCs. Using the same methodology would
provide continuity between the 2022 to 2023 timeframe and the 2024 to
2028 timeframe, and would allow producers and importers to estimate
their anticipated allocation and plan accordingly. Since EPA has
already gone through the process of identifying entities' high three
years of historic data, averaged those, and calculated respective
market shares, entities have more specific insight on what proportion
of available production and/or consumption allowances they would be
allocated if EPA continued with the same methodology, although EPA does
anticipate some entity-specific revisions due to corrected historic
data. In comments received on the Framework Rule, EPA heard from
regulated entities that they have long planning horizons and would
prefer allowances be allocated consistently for as long as possible.
Establishing a methodology for five years that continues forward an
approach that is similar to the one used for the calendar year 2022 and
2023 allocation provides a longer-term planning horizon for HFC
producers and importers. This will help enable entities to make
decisions about which HFCs, and HFC alternatives, to produce

and import as the market transitions away from high exchange value
equivalent (EVe) regulated substances. Second, EPA has conducted
multiple rounds of outreach and review and most entities have reviewed
and corrected their data, if needed. EPA has reviewed 2011-2019 data
against information available through other systems, such as import
paperwork filed with U.S. Customs and Border Protection (CBP), and
conducted outreach where significant inconsistencies were identified.
If a significant inconsistency was identified, EPA requested entities
correct the data or provide source materials to verify previously
provided figures. As such, the 2011-2019 dataset is well understood and
has received more review than any other set of years. Further, after
implementing this approach through the Framework Rule, EPA has not
identified any reasons that merit significantly changing course at this
time, especially given the regulated community has recently adjusted to
this new allocation program.
    Since the Agency is proposing to look at entity-specific data from
such a wide range of years, EPA is proposing to average an entity's
three highest years of data (not necessarily consecutive), as opposed
to going with a single high year. Taking an average of multiple years
minimizes the effect of market fluctuations and mitigates the
possibility of an entity receiving a large share of allocations based
on a single very high year. Using an average of the three highest years
during the 2011-2019 period incorporates consideration of both industry
history and ongoing growth and market change. EPA recognizes that there
is no single year that is ``better'' for all market participants. There
is no year in which a forward-looking entity may not have been
stockpiling in preparation for a restriction on HFCs or new duties that
were imposed by the Department of Commerce. Though countries agreed to
the Kigali Amendment in 2016, efforts to amend the Montreal Protocol
took the better part of a decade. As such, taking an average of a wider
range of years is more equitable to all entities in the market. Each
entity receives its ``best'' years regardless of actions taken by other
entities.
    To determine entity-specific consumption data and an entity's three
highest years, EPA intends to rely on production, import, export,
destruction, and transformation data reported to the Greenhouse Gas
Reporting Program (GHGRP),\21\ which parallels the approach taken in
the Framework Rule and in the Agency's allocation of calendar year 2022
general pool allowances. EPA acknowledges that the definition of
``importer'' under GHGRP could apply to multiple entities, such that
more than one entity could be considered an ``importer'' for purposes
of GHGRP. As a result, entities could have played varying roles in the
import activity, but still been appropriately considered an
``importer'' under GHGRP definitions. Importantly, the GHGRP definition
of importer is substantially similar to the definition of importer in
the 40 CFR part 84 regulations.\22\
---------------------------------------------------------------------------

    \21\ The GHGRP requires various facilities and suppliers to
annually report data related to GHGs to EPA (see 40 CFR part 98).
Subpart OO, ``Suppliers of Industrial Greenhouse Gases,'' is the
section relevant to reporting on HFC production and consumption.
Because the HFCs listed as regulated substances under the AIM Act
are industrial GHGs, EPA has collected data relevant to HFC
production and consumption as defined under the AIM Act. Further
discussion of the GHGRP can be found in the notices and dockets
related to the Framework Rule.
    \22\ Compare 40 CFR 98.6 to 40 CFR 84.3.
---------------------------------------------------------------------------

    It is critical to develop an approach to allocation that helps
ensure that only one entity receives credit as the ``entity that
imported'' particular HFCs. For example, if both a consignee and an
importer of record received credit for the same historically imported
HFCs, this would double-allocate allowances for that single shipment.
This double-allocation would distort the allowance system such that it
was not a best available reflection of historic patterns. For purposes
of determining historic import levels, EPA intends to rely on the
entity that has historically reported the imports for a shipment. If
two or more entities report the same import to GHGRP, EPA would include
that import in the allowance allocation calculation of the entity that
first reported the import to GHGRP. EPA considers historic reporting to
GHGRP as indicative of the entity that took primary responsibility for
complying with EPA requirements for that import and considers this a
critical data point to determining who to credit that import to. EPA is
concerned that entities who took limited if any responsibility for the
import, including complying with EPA reporting requirements, may
attempt to claim that they are in fact the importer now that EPA has
begun implementing the AIM Act.
    EPA is also considering whether to include more recent data in
determining allocation levels given that more recent data may be a more
accurate reflection of the current state of the HFC production and
import market. EPA requests comment on whether to expand the range of
years to use to develop each allowance holder's high three-year average
to include 2020 and 2021. EPA has not included these years in its
primary proposal because the Agency recognizes that production and
importation of HFCs in 2020 and 2021 were likely influenced by external
factors such as the COVID-19 pandemic, and supply chain disruptions. In
addition, EPA is concerned that data from 2020 and 2021 could be
distorted due to an entity's awareness that the AIM Act may be, or had
been, passed. Data from 2021, in particular, may be skewed given the
likelihood of stockpiling in advance of the Framework Rule becoming
effective and the associated restrictions on production and import of
regulated substances that began on January 1, 2022. Expanding the range
of years could also significantly change each entity's market share,
which could disrupt the market and negatively affect ongoing
adjustments to the HFC Allocation Program that have taken place in 2022
and 2023. Further, EPA is unaware of any environmental benefit
associated with changing the years used to determine allowance
allocations. For the reasons described, EPA's primary proposal is to
not use 2020 and 2021 data to determine entity-specific allocation
amounts. However, EPA requests comment on whether there are advantages
and disadvantages of including 2020 and 2021 data, and if so, what
those would be.
    EPA is proposing to include data that dates as far back as 2011
because of potential concerns that data from more recent years,
particularly 2017-2021, could reflect attempts at market manipulation,
stockpiling, or other system gaming by some entities that were aware of
agreement of the Kigali Amendment to the Montreal Protocol on October
15, 2016, and/or development and consideration of the AIM Act by
Congress. By using only later years of data, and not data from the
earlier timeline, EPA could potentially unfairly give additional weight
to entities that had inflated numbers due to attempts at artificial
market positioning or stockpiling behavior ahead of the HFC phasedown.
    EPA also considered using a rolling set of years, such as
allocating based on entities' prior three years of production or
consumption data, but decided against proposing this as an option.
Using a rolling average based on the most recent production or
consumption data would allow allocations for additional new entrants
beyond entities that are allocated allowances based on historic
production and import and as new market entrants from the set-aside
pool. Under EPA's Framework Rule, 40

CFR 84.15, and our primary proposal in this rule, any entity that did
not receive allowances as a new market entrant to import going forward
or that lacked production or import history from 2011-2019, would have
to purchase allowances from an entity willing to engage in a transfer.
As currently established, each transfer is a one-off transaction that
only applies to the year of the transfer. Unless an entity acquires a
different entity that holds allowances outright and receives a regular
allocation, this approach does not allow for an entity to secure
allowances for the duration of the allocation period. However, there
are many advantages of using a stable set of past years instead of
using more recent data, especially data from after the start of the HFC
Allocation Program. Many stakeholders have expressed concerns that if
EPA were to base allocations on production and import volumes in 2022
and later years, entities that transferred their allowances would
effectively reduce their market share and receive fewer allowances in a
future allocation. Likewise, entities that receive allowances through
an inter-company transfer would be gaining market share that could
increase their future allocation. In the proposal prior to the
finalized Framework Rule (86 FR 27203, May 19, 2021), EPA sought
advance input on what approaches to consider for 2024 and later years,
indicating that the methodology used to determine allowance allocations
for calendar years 2022 and 2023 may not be used for the 2024
allocation. Uncertainty about whether EPA may decide to allocate future
allowances on the basis of data from a rolling set of years rather than
from a fixed historical period may have contributed to reluctance from
some allowance holders to engage in transfers. This uncertainty would
be resolved over the intermediate future if EPA finalizes the approach
of continuing to use historic production and consumption data to
determine allowance allocations for calendar years 2024 through 2028.
Transfers are important for an efficiently functioning market and
ensuring the opportunity for full utilization of allowances. Basing
allowance allocations on data from a rolling set of years during this
timeframe could promote uncertainty among allowance holders and inhibit
the efficient transfer of allowances. EPA is concerned about finalizing
an allocation methodology that would disincentivize transfers unless
there were other compelling reasons to argue for such a methodology and
is therefore not proposing to use a rolling set of years to determine
entity-specific allocation amounts for the 2024 through 2028
allocations.
2. What other allocation methodologies did EPA consider?
    As indicated in the proposal to the Framework Rule (86 FR 27150),
including in the section seeking advance comment to inform future
rulemakings, EPA has been considering other ways to undertake allowance
allocation beyond allocating allowances to entities based on historic
production and import activity at no cost (86 FR 27203). In considering
different allocation mechanisms, EPA considered multiple factors,
including ease of implementation for both the regulated community and
the U.S. government; consistency with the AIM Act; facilitating an
efficient market, such as by collecting and releasing data on
production, import, and inventories of HFCs; transparency and certainty
for regulated entities and the public; distributional effects, such as
on new entrants; responsiveness to changing market conditions (e.g.,
companies entering or existing the market, corporate mergers and
acquisitions, significant quantities of allowances unexpended at the
end of the year, or supply shortages or market disruptions for specific
HFCs); small business implications; minimizing the opportunity for
fraud; and other factors.
    In developing this proposed rulemaking, the Agency considered
charging a fee for allowances or establishing a system to auction
allowances. These approaches have advantages, including returning value
to taxpayers and setting a visible price signal, which could provide
useful price information for the public and for market participants. A
fee or auction would be aimed at further incentivizing the highest
economically valued use due to the upfront expenditures needed for all
entities seeking allowances to produce and import HFCs. There is
extensive literature discussing the conditions where auctions may be
more suitable than other allocation methods.\23\ The academic
literature indicates that auctions may have potential advantages in
addressing challenges such as new entrants, ensuring efficient and
equitable allocations as market conditions change, and encouraging
competition and innovation.\24\ Both EPA, and the federal government
overall (for example, the Federal Communication Commissions' spectrum
auctions and the U.S. Treasury Department's sealed pay as bid and
uniform bid auctions on debt of various maturities), have experience
administering auctions of various formats.
---------------------------------------------------------------------------

    \23\ See, e.g., Administrative Conference of the United States,
Recommendation 2017-4: Marketable Permits (2017), https://www.acus.gov/sites/default/files/documents/Recommendation%202017-4%20%28Marketable%20Permits%29.pdf (citing relevant literature,
including the consultant's report, which further summarizes the
literature, available at https://www.acus.gov/sites/default/files/documents/Marketable%20Permits%20Report-final.pdf).
    \24\ The 2017 review conducted by the Administrative Conference
of the United States also notes that ``even when an agency has
statutory discretion to use [an auction] program, such a program may
not be the most suitable regulatory tool to achieve an agency's
goal.'' See https://www.acus.gov/sites/default/files/documents/Recommendation%202017-4%20%28Marketable%20Permits%29.pdf.
---------------------------------------------------------------------------

    However, EPA also anticipates challenges with establishing a
potential fee-based or auction system and is not proposing to use these
methods of allocation in this proposed rulemaking. EPA and regulated
entities have experience implementing the allocation methodology set
for the calendar years of 2022 and 2023, which is similar to the system
that many entities also participated in for the phaseout of ODS under
Title VI of the Clean Air Act (CAA).\25\ Creating and administering a
different system would result in additional burden on EPA and
uncertainty for those involved in the early stages of the HFC
phasedown. EPA is also concerned that smaller entities with less
available capital may not be able to bear the initial costs of
purchasing allowances either through a fee system or through an
auction. EPA would also need to consider what safeguards would be
appropriate to deter or prevent efforts by well-capitalized entities,
particularly in an auction system, to artificially corner a portion of
the HFC market for their overall business gains.
---------------------------------------------------------------------------

    \25\ A key difference between the phaseout of ODS and this
program is that consumption and production of HFCs will not be
phased out entirely.
---------------------------------------------------------------------------

    For these reasons, EPA is not proposing to establish a fee-based or
auction system to allocate allowances in this proposed rule. These
considerations may change as the phasedown proceeds. EPA recognizes
that the market may face scarcity as HFC production and consumption is
phased down, and we may also see allowances unused as new alternatives
not subject to allocations replace HFCs. The use of an EV-weighted
system rather than chemical-by-chemical allocation in part addresses
these different market forces by providing flexibility about which HFCs
are produced and imported. EPA intends to consider all relevant
information when developing future rulemaking. To facilitate our
continued

consideration, separate and apart from this current rulemaking, EPA
invites advance comments on whether there are any current or potential
future disadvantages with the currently proposed allocation system that
could be addressed by an alternate allocation mechanism, as well as
comments on design features or timing options for alternate allocation
mechanisms that EPA could consider were the Agency to determine at a
future point that changes are warranted.
3. What did EPA consider in developing its proposal as to the
appropriate entities to be allocated allowances?
    As outlined in section III.B.1 of this preamble, EPA is proposing
to use a similar methodology to calculate allocation quantities as the
initial framework used for allocating calendar year 2022 and 2023
production and consumption allowances, with adjustments to accommodate
new market entrants that received allowances from EPA on March 31,
2022. In developing this proposed approach, EPA has considered whether
to allocate production and consumption allowances to entities beyond
those that have historic production and import data.
    As part of this deliberation, EPA has considered whether allowance
allocations can be used to incentivize certain behavior such as to
maximize reclamation and minimize releases of regulated substances.
Some commenters to the Framework Rule encouraged EPA to issue
allowances to reclaimers. The result of this suggestion could be that
reclaimers have allowances available to directly import virgin
regulated substances that they could use to rebalance refrigerant
blends that are slightly off specification after reprocessing recovered
refrigerant. The allowances could be transferred to another entity to
import or produce on the reclaimer's behalf, or could be used to ease a
reclaimer's ability to purchase regulated substances from another
entity. This could be an indirect way to foster the development of HFC
reclamation operations. However, EPA notes that reclaimers that have
historically directly imported were included in the Framework Rule
methodology and would be included under the primary proposed
methodology for this rule. EPA notes as well that several reclaimers
applied for, and received, new market entrant allowances from the set-
aside pool for calendar years 2022 and 2023. EPA does not view issuing
allowances to reclaimers that are not eligible based on the methodology
EPA is proposing to use for 2024 through 2028 (i.e., similar to the
methodology used for 2022 and 2023 including the additional allowances
issued to new market entrants) as a meaningful way to increase
opportunities for reclamation and recognizes that by doing so, EPA
would reduce the number of allowances available to other market
participants including other reclaimers. Moreover, EPA is exploring
options to promote reclamation under other sections of the AIM act
(e.g., under subsection (h) Management of regulated substances).
Further, the phasedown of HFCs increases opportunities for use of
reclaimed HFCs by restricting the amount of newly produced and imported
HFCs that can enter U.S. commerce.
    As noted previously in this section, EPA is not proposing to
establish a set-aside pool of allowances for calendar years 2024
through 2028. In the Framework Rule, EPA created a set-aside pool of
allowances to be allocated no later than March 31, 2022. The prior set-
aside pool was created for three types of entities: application-
specific allowance holders, historic importers that were under the
GHGRP reporting threshold and did not receive general pool allowances,
and new market entrants. The first two categories were created for
entities that may not have known of or fully understood the regulatory
system created in the Framework Rule given that the Agency undertook
the rulemaking in 270 days at Congress's direction and was implementing
a program under a new statute. This concern is no longer applicable.
Under 40 CFR part 84, entities are required to expend allowances for
import and production of regulated substances as of January 1, 2022;
therefore, EPA anticipates that entities active in the HFC market are
now well aware of EPA's HFC phasedown program. The third group eligible
for set-aside allowances was new market entrants. EPA determined in the
Framework Rule it was appropriate to exercise its discretion to create
a small set-aside pool of allowances for entities looking to enter the
HFC import market. It was appropriate to consider this as a one-time
opportunity at the initiation of the HFC phasedown program. EPA is not
privy to individual entities' decisions on whether to apply for new
market entrant allowances, but entities were provided notice of the
opportunity and many applied. While the number of consumption allowance
holders doubled from the initial allocation with the addition of the
eligible new market entrants, these new entrants hold a small
percentage of the overall number of allowances issued. EPA recognizes
that the goal of the AIM Act is to establish a national phase down of
HFC production and consumption by 85 percent by 2036, and therefore,
while the Agency did offer this one-time opportunity, EPA does not view
further allocations for a set-aside pool and/or allowances for entities
who have not previously produced and imported HFCs as supporting the
AIM Act's objectives.

C. How is EPA accounting for past production or import activity to
determine allocation eligibility?

    In order to be eligible to receive general pool allowances for 2024
through 2028 based on historic production and import activity (i.e.,
for entities that produced and imported regulated substances in 2011
through 2019), EPA is proposing that an entity must have produced (for
production and consumption allowances) or imported (for entities only
receiving consumption allowances) HFCs in 2021 or 2022. EPA had a
similar requirement in the Framework Rule, specifically requiring
production or import in 2020.\26\ This additional eligibility
requirement, that an entity has demonstrated import or production
activity in recent years, is intended to exclude entities from
receiving allocations that are no longer undertaking the activities for
which allowances are required. EPA is interested in avoiding allocating
to entities that had historic import or production data in the 2011-
2019 timeframe, and have since ceased operations or transitioned away
from HFC production or import. Allocating allowances to entities that
cannot or will not use them could be disruptive to the market during
the phasedown if allowances go unexpended or could result in windfall
profits to an entity that will only use the allowances to transfer for
a price. The practical effect of not allocating allowances to an entity
due to their inactivity would be a pro rata increase of allocation
levels to other entities receiving allowances from the general pool
allocation.
---------------------------------------------------------------------------

    \26\ EPA also allowed for an entity to identify individual
circumstances for not importing in that year due to the COVID-19
pandemic, which is no longer applicable. EPA is not proposing a
mechanism to allow an entity to request unique consideration if they
did not produce or import in 2021 or 2022.
---------------------------------------------------------------------------

    Relying on information from 2021 or 2022 would incorporate more
recent activity than was used for the calendar year 2022 and 2023
allocations, which required production or import in 2020,

or for purposes of allocating consumption allowances, an entity to
identify individual circumstances for not importing or producing in
2020, given that it was an unusual year due to the COVID-19 pandemic.
Allowing two years, as opposed to a single year, provides additional
time to demonstrate activity in the market, and is intended to reduce
the impacts of supply chain delays, temporary changes in demand, or
other business decisions. Some entities also import small volumes of
HFCs and may not need to import every year. EPA is proposing to use a
fixed set of years (i.e., 2021 and 2022) to determine eligibility for
entities to be allocated allowances for calendar years 2024 through
2028 to provide a degree of clarity and certainty to entities during
this period in order to minimize disruption to existing supply chains
that have adjusted to the 2022 and 2023 allowance allocations. If this
approach is finalized as proposed, all market participants will be able
to generally understand their own and other allowance holders' market
share for the 2024 through 2028 period as of October 1, 2023, because
there would not generally be shifts in how many entities EPA is
allocating allowances to and the relative share of allowances going to
those entities. EPA considered proposing to use a rolling set of years
to confirm activity, but using a rolling set of years would not provide
the same stability since allowance holders could come into and out of
the allocation system, hereby affecting everyone's relative share of
available allowances. EPA also does not want to incentivize entities in
each subsequent rolling set of years' entities to continue importing or
producing small quantities that would otherwise be outside the entity's
plans in future years just to maintain position to receive future
calendar year HFC allowances. Looking to behavior in 2021 or 2022 would
also have administrative benefits to EPA. For example, determining
annual allocations would be more streamlined because EPA would be
relying on data that has been vetted and reviewed at a single point in
time that is in advance of the calendar year 2024 allocation as well as
all allocations through calendar year 2028.
    EPA's primary proposal is to not apply this eligibility criteria
for new market entrants, and instead allocate allowances to all new
market entrants as described in section III.B.1 of this preamble, but
EPA is considering and taking comment on whether EPA should require
that new market entrants import in 2022 to be eligible for allocation
of allowances for calendar years 2024 through 2028. Most new market
entrants are, as their name suggests, new to the HFC import market and
would not reasonably be expected to have any import activity in 2021.
Therefore, if the Agency applies eligibility criteria to new market
entrants at all, it seems reasonable to look to 2022 for import
activity. Accordingly, for these entities, EPA would not be able to
look across two years for import for most new market entrants, unlike
for general pool participants. EPA anticipates that most new market
entrants would make use of allocated allowances and import regulated
substances in 2022, so it may be reasonable to look for this action to
determine whether the new entrants did in fact enter the market and if
they should maintain future eligibility. On the other hand, EPA
previously recognized that new market entrants might have difficulty
operationalizing their business to begin importing regulated substances
in 2022 if the entity was fully new to this aspect of the import
business. As a result, in the Framework Rule the Agency took the
position that EPA would ``not reduc[e] allowances to new market
entrants in 2023 for failing to use all the allowances issued in
2022,'' (86 FR 55159).
    If the approach to determining eligibility for general pool
allowances from 2024 through 2028 is finalized as proposed, for
purposes of determining whether an entity imported or produced
regulated substances in 2021, the Agency intends to rely on data that
have been reported to EPA under the GHGRP.\27\ Entities who imported
HFCs in quantities below the GHGRP reporting threshold (i.e., 25,000
MTCO2e for the year) who wish to be considered for
allowances, should report their import and export activity data through
the electronic Greenhouse Gas Reporting Tool (e-GGRT) no later than the
close of the comment period on December 19, 2022. EPA will not consider
data submitted after this date for purposes of issuing allowances under
the AIM Act for 2024 and later years. For purposes of determining
whether an entity imported or produced regulated substances in 2022,
EPA intends to rely on data that have been reported pursuant to the 40
CFR part 84 requirements. EPA intends to rely on data reported no later
than February 14, 2023, which aligns with the reporting deadline for
fourth quarter calendar year 2022 HFC reports under the HFC allocation
requirements at 40 CFR part 84, subpart A.\28\ Further, EPA is
proposing that in cases where allowances were not expended at the time
of production and/or import of HFCs in 2022, that production and import
would not count as activity in 2022 for eligibility purposes. In other
words, for 2022, EPA would only consider production and import of HFCs
where allowances were expended as required when determining whether an
entity is eligible for allowances. EPA has established a GHGRP Help
Desk to assist potential reporters with issues related to registering
and electronic reporting. The hotline can be reached at
[email protected] or 1-877-444-1188 (toll free).
---------------------------------------------------------------------------

    \27\ In the limited situations where data on certain HFCs are
not required to or cannot be reported to the GHGRP, e.g., production
of HFC-23 that is created during production of HCFC-22, EPA would
continue to rely on verified submissions from entities no later than
the close of the comment period on December 19, 2022.
    \28\ For more information, visit https://www.epa.gov/climate-hfcs-reduction/hfc-allocation-rule-reporting-and-recordkeeping.
---------------------------------------------------------------------------

    Alternatively, EPA is taking comment on simply basing allocations
on historic reported data between 2011 and 2019, without including an
additional eligibility requirement relating to whether the entity
produced or imported HFCs in recent years, such as 2021 or 2022. As
noted previously, EPA is concerned that this approach would result in
allocating to entities that are no longer in the HFC production or
import business, and may no longer be in business at all.

D. Can allowances be transferred or conferred prior to the calendar
year?

    EPA is proposing to clarify that entities may confer or transfer
allowances at any point after they are allocated until the allowance
expires at the end of the calendar year for which it was allocated.
Allowances can only be expended to cover imports or production in the
calendar year for which they are allocated, but entities can confer or
transfer allowances before January 1 of the calendar year. 40 CFR
84.5(d) provides that all production, consumption, and application-
specific allowances are valid only for the calendar year for which they
are allocated (i.e., January 1 through December 31). The intent of this
provision was to state that allowances could only be expended in the
calendar year for which they were issued. However, use of the term
``valid'' could be read as ambiguous with regard to whether it allows
for transfers and conferrals before the calendar year. EPA is proposing
to amend this prohibition to more clearly state that entities may
transfer and confer their allowances upon their allocation, including
ahead

of January 1 of the calendar year for which the allowances were
allocated.
    The Agency hopes that this added clarity would facilitate allowance
holders' planning for that upcoming year. EPA encourages allowance
holders to undertake transfers and conferrals early in the year and,
where possible, well in advance of when regulated substances would need
to be produced or imported. Under the existing 40 CFR part 84
regulations, the entity that is producing or importing the regulated
substances must have the allowances in their possession as required
(see section V.A of this preamble) and at the time that allowances are
required to be expended.

IV. How is EPA proposing to update the consumption baseline?

    This section explains how EPA determined the consumption baseline
in the Framework Rule, how it proposes to update the baseline, and how
it plans to further update associated data. Subsection (e)(1) of the
AIM Act directs EPA to establish a production baseline and a
consumption baseline and provides the equations for doing so. In the
Framework Rule, EPA calculated and codified the production and
consumption baselines according to the formulas outlined in subsection
(e)(1) of the AIM Act. After EPA finalized these baselines, a company
informed EPA that they had misreported data previously reported to EPA
that factors into the consumption baseline. EPA is now proposing to
update the consumption baseline and associated phasedown schedule with
this corrected dataset. Separate and in parallel to this action, EPA is
also providing a final opportunity for entities to revise their HFC
data from 2011 through 2021 for purposes of issuing allowances under
the AIM Act.

A. How did EPA determine the consumption baseline in the Framework
Rule?

    The AIM Act instructs EPA to calculate the consumption baseline by,
among other things, using the average annual quantity of all regulated
substances consumed in the United States from January 1, 2011, through
December 31, 2013. EPA used multiple sources of data to calculate HFC
consumption figures for 2011 through 2013: (1) Data reported to EPA's
GHGRP; (2) data received in response to the notice of data availability
published February 11, 2021 (86 FR 9059); (3) data from the Automated
Commercial Environment (ACE) and confirmed through letters sent out
under CAA section 114 (EPA ICR 2685.01); and (4) data received in
response to the notice of proposed rulemaking for the Framework Rule by
the comment due date. Through these sources, EPA received new or
revised production, import, export, and destruction data, all of which
affected the final baseline values. Based on the data reviewed and
collected through these robust efforts, EPA codified the final
consumption baseline as 303,887,017 Metric Tons of Exchange Value
Equivalent (MTEVe) (40 CFR 84.7(b)(2)). A complete description of EPA's
process in developing the codified baseline figure can be found in the
Framework Rule at 86 FR 55137--55142.
    In subsection (e)(2)(C) of the AIM Act, Congress provided the HFC
phasedown schedule measured as a percentage of the baseline. In the
Framework Rule, EPA codified this phasedown schedule at 40 CFR 84.7(a).
EPA also codified the total production and consumption in MTEVe for
regulated substances in the United States in each year by multiplying
the finalized production and consumption baselines by the percentages
of the phasedown schedule. EPA codified total production and
consumption allowance quantities that could be allocated at 40 CFR
84.7(b)(3).

B. How is EPA proposing to adjust the consumption baseline?

    After EPA finalized the Framework Rule, one company informed EPA
that the 2011 and 2012 HFC import data that it had reported to the
GHGRP and certified per 40 CFR 98.4(e)(1) as true, accurate, and
complete under penalty of law, was, in fact, significantly more than
its actual import quantities. Because EPA used the company's 2011 and
2012 HFC import data in the calculation of the consumption baseline,
the Agency's calculated and codified consumption baseline was high. The
company has since submitted and certified revised reports. EPA has
verified the amended data by reviewing the importer's invoices and
comparing the reported data to import data provided by CBP. EPA is
proposing to update the codified consumption baseline with the
corrected data. Specifically, EPA is proposing to revise the
consumption baseline from 303,887,017 MTEVe to 300,257,386 MTEVe, which
is a decrease of 3,629,631 MTEVe to account for this error. Because the
erroneous data related only to imports, the Agency's previously
calculated production baseline is not affected and EPA is not proposing
to reopen the production baseline in this rulemaking. There are only
nine known HFC production facilities and given EPA's experience with
these reporters, the Agency does not expect that there are material
errors in their data submissions from the 2011-2013 timeframe.
    The proposed revision of the baseline amounts to about a one
percent change in the baseline. This is not an insignificant
difference, but once EPA applies the relevant phasedown step to the
baseline and then allocates the resulting allowances among eligible
recipients, the change in baseline is expected to have a small effect
on individual entities' allocations. Further, this revised baseline, if
finalized, would start affecting allowance allocations for calendar
year 2024. Because of the prior framing of EPA's regulations,
specifically the fact that there was no prior allocation methodology
that would apply to calendar year 2024 allowances and beyond, no
entities should have had a realistic expectation of allowance
allocation levels. Therefore, EPA expects that this alteration of
baseline would not affect the regulated communities' reasonable
reliance interests.
    As outlined in section IV.C of this preamble, EPA is going through
a process under the AIM Act to provide a final opportunity for entities
to confirm, and if necessary correct, the data available to EPA on
those entities' historic consumption activities to inform future
allocation calculations. Should other entities identify misreporting in
2011 through 2013 through that process, and sufficiently certify and
verify the corrected numbers to EPA, the Agency would include those
revised figures in the proposed revision to the consumption baseline in
addition to the revision outlined in the prior paragraph.
    Data that are submitted under the GHGRP in e-GGRT already have
undergone a variety of verification checks during and after report
submission. Facilities are sent messages about potential errors in
their report; they can either reply with an explanation of the unusual
values, or they can resubmit their report to correct any errors and
certify the accuracy of the submission. EPA may also request copies of
bills of lading, invoices, or CBP entry forms in order to verify
reports.
    In 2021 in order to verify accurate data for calculation of the AIM
Act baseline and allocation of allowances, EPA compared import data
submitted to GHGRP to import data from CBP as an additional form of
verification. If the sum of metric tons of HFCs reported to e-GGRT
diverged significantly from the sum of metric tons of imports under
HFC-related Harmonized Tariff Schedule (HTS) codes in CBP records,

these submissions were flagged for possible issues. The Agency
generally contacted each facility that was flagged requesting that they
either:
     Provide documentation (e.g., bills of lading, invoices,
and/or CBP Entry Forms substantiating their imports), or
     Resubmit their report to GHGRP to correct potential errors
that would account for why the reported GHGRP data did not more closely
align with data reported to CBP.
    EPA staff reviewed resubmitted reports and supporting
documentation. Any issues found in the documentation review resulted in
additional messages sent to the facility to verify reported data.
Additional steps taken to verify the data include quality assurance
reviews by EPA staff and steps to confirm corporate or common ownership
of reporting entities for each allowance holder.
    Revising the consumption baseline would change the total
consumption cap in MTEVe for regulated substances in the United States
in each year after the revision takes effect. In subsection (e)(2)(C)
of the AIM Act, Congress provided the HFC phasedown schedule measured
as a percentage of the baseline, which EPA codified at 40 CFR 84.7(a).
EPA also codified the total production and consumption in MTEVe for
regulated substances in the United States in each year by multiplying
the finalized production and consumption baselines by the percentages
of the phasedown schedule. Therefore, EPA proposes to revise the table
of production and consumption limits at 40 CFR 84.7(b)(3) by replacing
the current values in Table 2, column 3 of this preamble with the
values in column 4.

                      Table 2--Revised Limit of Total Production and Consumption Allowances
----------------------------------------------------------------------------------------------------------------
                                                                                Previously
                                                          Total production    codified total    Proposed revised
                          Year                                (MTEVe)          consumption     total consumption
                                                                                (MTEVe)             (MTEVe)
----------------------------------------------------------------------------------------------------------------
2024-2028..............................................        229,532,771        182,332,210        180,154,432
2029-2033..............................................        114,766,386         91,166,105         90,077,216
2034-2035..............................................         76,510,924         60,777,403         60,051,477
2036 and thereafter....................................         57,383,193         45,583,053         45,038,608
----------------------------------------------------------------------------------------------------------------

    For additional context and transparency, we note that separate from
this rulemaking process, EPA has recalculated the number of allowances
that should have been allocated to the company that had reported
erroneous data. EPA took administrative consequences to retire portions
of that company's allocated calendar year 2022 and 2023 consumption
allowances equal to the difference between the allocation level based
on the updated historical import data and what was previously
calculated by the Agency based on misreported data.

C. What other opportunities is EPA providing to further update data?

    Separate from this action, EPA is providing a final opportunity for
entities to verify, and if necessary correct, the data available to EPA
on those entities' historic consumption activities from 2011 through
2021 for purposes of the AIM Act. EPA sent an electronic communication
or letter to all entities that were known, or likely, to have had
consumption activity of regulated substances from 2011 through 2021
that they had until September 26, 2022, to verify, and if necessary
correct, the data available to EPA on those entities' historic
consumption activities from 2011 through 2021.\29\ EPA is providing
this final opportunity to entities to make any corrections to historic
data; after this point, EPA does not intend to consider any data
revisions in allocation decisions.\30\
---------------------------------------------------------------------------

    \29\ This request was for purposes of implementing the AIM Act.
Nothing in this letter or in the complementary process described
below relieves any entity of obligations under the GHGRP regulations
codified in 40 CFR part 98.
    \30\ These revisions would be taken into account when
determining the annual allocation issued by October 1 of each year
for 2024 and future year allocations. If information reveals an
entity has provided false, inaccurate, or misleading information,
EPA reserves the right to issue administrative consequences to
adjust allowances downward (in the same year or a subsequent year).
Regardless of whether or not EPA applies an administrative
consequence, EPA may also pursue any and all appropriate enforcement
action.
---------------------------------------------------------------------------

    If there is any entity that did not receive a letter or electronic
communication from EPA that had consumption activity of regulated
substances from 2011 through 2021, EPA is hereby providing notice that
for the purposes of future HFC allowance allocations under the AIM Act,
EPA will not consider any data unless submitted to EPA through e-GGRT
by the close of the comment period on December 19, 2022. To allow EPA
to verify the reported data in a timely manner, anyone reporting past
consumption data for the first time must provide transactional records
(e.g., bills of lading, invoices, or CBP entry forms). Failure to
provide EPA with sufficient documentation at the time of submission to
verify these reports may prevent EPA from considering the data in
allowance allocations.
    This final opportunity for AIM Act purposes would help ensure that
allowance allocations are based on the most accurate data available.
EPA notes that entities may be referred to EPA's enforcement office for
potential reporting violations under the CAA and EPA may issue
administrative consequences to adjust 2022 and/or 2023 allowances where
appropriate.

V. How is EPA proposing to revise requirements related to allowances
for import?

    EPA is proposing to make amendments that codify our existing
practice for determining which calendar year allowances must be
expended for an import as well as who can expend allowances.
Additionally, EPA is proposing to specify the requirements for the
importation of heels \31\ when the precise quantity remaining is
uncertain. EPA is making these proposals based on the experience gained
in implementing the HFC phasedown program to date under the existing 40
CFR part 84 regulations and establishing a system for consistent
implementation and enforcement.
---------------------------------------------------------------------------

    \31\ ``Heel'' is defined at 40 CFR 84.3 as ``the amount of a
regulated substance that remains in a container after the container
is discharged or offloaded (that is no more than 10 percent of the
volume of the container).'' EPA views this as an amount that is no
more than 10 percent by weight of the amount of that same substance
that is typically sold in a ``full'' container of that size. For
example, if a ``full'' cylinder of HFC-134a typically contains 25
pounds of HFC-134a, then 2.5 pounds or less of HFC-134a remaining in
the cylinder would be considered a heel.

---------------------------------------------------------------------------

A. Codifying the Point in Time That an Allowance Must Be Expended to
Import Regulated Substances

    Currently in 40 CFR 84.5(b)(1)(i) EPA prohibits persons from
importing bulk \32\ regulated substances except, among other conditions
and with limited exceptions, ``[b]y expending, at the time of the
import, consumption or application-specific allowances in a quantity
equal to the exchange value-weighted equivalent of the regulated
substances imported.'' Through implementing the HFC allocation system,
EPA has described the exact point in time used to determine which
calendar year allowance would need to be expended for each import of a
regulated substance. EPA has spoken explicitly to this issue, including
through a December 21, 2021, post on our HFC phasedown Frequently Asked
Questions web page.\33\ EPA stated that a marine vessel waiting off the
coast of the United States in December 2021, that berthed in January
2022, would be required to expend a calendar year 2022 allowance for
any HFCs that berth at a port in the United States in 2022. EPA is
proposing to incorporate this previously stated interpretation into the
40 CFR part 84 regulatory text. Providing specificity on this point in
the regulations would help ensure consistent and accurate accounting
associated with allowance use for all importers.
---------------------------------------------------------------------------

    \32\ ``Bulk'' is defined at 40 CFR 84.3 as ``a regulated
substance of any amount that is in a container for the
transportation or storage of that substance such as cylinders,
drums, ISO tanks, and small cans. A regulated substance that must
first be transferred from a container to another container, vessel,
or piece of equipment in order to realize its intended use is a bulk
substance. A regulated substance contained in a manufactured product
such as an appliance, an aerosol can, or a foam is not a bulk
substance.''
    \33\ EPA. Phasedown of Hydrofluorocarbons Final Rule Frequently
Asked Questions. https://www.epa.gov/climate-hfcs-reduction/phasedown-hydrofluorocarbons-final-rule-frequently-asked-questions.
---------------------------------------------------------------------------

    The AIM Act and EPA's implementing regulations define ``import''
\34\ broadly to mean:
---------------------------------------------------------------------------

    \34\ The definition of ``import'' is intended to allow for
effective implementation of the AIM Act's HFC phasedown provisions
and does not, nor was it intended to, match CBP's definition. The
definition of ``import'' is similar to, but different from, the
definition of ``date of importation,'' which is a CBP defined term
and is discussed later in section VI.A.1 of this preamble.

to land on, bring into, or introduce into, or attempt to land on,
bring into, or introduce into, any place subject to the jurisdiction
of the United States, regardless of whether that landing, bringing,
or introduction constitutes an importation within the meaning of the
customs laws of the United States. Offloading used regulated
substances \35\ recovered from equipment aboard a marine vessel,
aircraft, or other aerospace vehicle during servicing is not
considered an import.
---------------------------------------------------------------------------

    \35\ EPA defines ``used regulated substances'' (or used HFCs) in
40 CFR 84.3 as ``regulated substances that have been recovered from
their intended use systems (including regulated substances that have
been, or may be subsequently, recycled or reclaimed).''

EPA is not proposing to amend this regulatory definition given that it
matches the definition provided by Congress in the AIM Act. However,
EPA is proposing a specific regulatory definition of when an allowance
must be expended for the import of bulk regulated substances. Under
this proposed approach, EPA would revise the prohibition language in 40
CFR 84.5(b)(1)(i) to remove the point that an allowance must be
expended ``at the time of import'' and instead require that an
allowance be expended at the time of ship berthing \36\ for vessel
arrivals, border crossing for land arrivals such as trucks, rail, and
autos, and first point of terminus in U.S. jurisdiction for arrivals
via air.
---------------------------------------------------------------------------

    \36\ EPA has and continues to interpret berth to mean ``to moor
(a ship) in its allotted place at a wharf or dock.''
---------------------------------------------------------------------------

    If EPA were to finalize this proposed regulatory revision, EPA
proposes to also require that the importer of record for the purposes
of compliance with the final rule be in possession of allowances in the
amount that will need to be expended at the time of filing their
advance report under 40 CFR 84.31(c)(7). As explained in the Framework
Rule, this advance notice reporting requirement is intended to allow
``EPA to verify if allowances are available or the HFCs have prior
approval for import in the case of HFCs imported for destruction or
transformation under 40 CFR 84.25, or imported for transshipment under
40 CFR 84.31(c)(3), and confirm whether a shipment should be allowed to
clear Customs or not'' (86 FR 55186). If an entity does not possess
requisite allowances for the import of bulk regulated substances at the
time of the advance notice reporting, EPA will not be able to verify if
allowances are available and whether the shipment meets EPA's HFC
requirements to be released from CBP's custody. Given that advance
reporting is required, no later than fourteen days \37\ before
allowances must be expended, EPA does not anticipate this proposed
requirement would be a burden on regulated entities and would have
significant benefits for EPA implementation and enforcement efforts.
---------------------------------------------------------------------------

    \37\ Currently under EPA's regulations, importers are required
to provide advance notification of import no later than 14 days
prior to import. As explained in a subsequent section, EPA is
proposing to modify and take comment on these requirements based on
the mode of transportation.
---------------------------------------------------------------------------

    For context, the point in time that a vessel berths, a truck
crosses the border or the first point of terminus in U.S. jurisdiction
for planes may be reflected as the ``Conveyance Arrival'' date for
shipments, which importers or their brokers with access to the
Automated Broker Interface (ABI) may find through an ACE Cargo
Manifest/In-Bond/Entry Status Query. However, regardless of the date
identified in ABI as the ``Conveyance Arrival,'' it is the importer's
obligation, or it would be the importer of record's obligation as
proposed in this rulemaking and discussed below in section V.B of this
preamble, to ensure that it has expended the appropriate calendar year
allowances in the appropriate quantity to align with regulatory
requirements.
    The Framework Rule at 40 CFR 84.5(b)(1)(i) prohibits the
importation of bulk regulated substances without expending the required
allowances, with limited exceptions. Since the definition of ``import''
in the AIM Act and the 40 CFR part 84 regulations finalized in the
Framework Rule includes an ``attempt to land on, bring into, or
introduce into, any place subject to the jurisdiction of the United
States,'' it is clear that the existing statutory and regulatory
framework prohibit an entity from attempting to land, bring, or
introduce regulated substances into the United States without expending
the required allowances, unless the importer meets one of the limited
exceptions in the regulations. EPA does not intend to narrow prohibited
behavior as defined under the AIM Act and the associated scope of
liability with attempts to land, bring, or introduce regulated
substances into the United States. We are proposing to add language at
40 CFR 84.5(b) that states: ``No person may attempt to land bulk
regulated substances on, bring regulated substances into, or introduce
regulated substances into, any place subject to the jurisdiction of the
United States without meeting one of the categories set forth in 40 CFR
84.5(b)(1).'' These proposed changes to 40 CFR 84.5(b) maintain
liability for attempting to land, bring, or introduce regulated
substances into the United States without requisite allowances.
    It is possible at the final rulemaking stage for EPA to not amend
the general prohibition provided in 40 CFR 84.5(b)(1)(i). However, EPA
identified a need through implementation of the Framework Rule to
describe to importers which calendar year

allowance must be expended for a specific import. Since the process of
importing has multiple different events that play out over a period of
days, weeks, and months, EPA previously described which year's
allowances would be needed in case-specific examples as well as through
the above-cited post on our web page to provide direction as to which
year's allowances an individual import would be counted against for
compliance purposes.
    As an alternative proposal, EPA is considering revising text at 40
CFR 84.5(b)(1)(i) to specify that the calendar year allowances that
must be expended are based on the time of ship berthing for vessel
arrivals, border crossing for land arrivals such as trucks, rail, and
autos, and first point of terminus in U.S. jurisdiction for arrivals
via air. Such specificity is appropriate given that identifying a
single point in time facilitates determination of which calendar year
allowances must be expended.

B. Who must expend allowances for import?

    EPA proposes to specify that only the importer of record can expend
allowances for an import of regulated substances. Under CBP
requirements, the importer of record is ultimately responsible for the
correctness of the entry documentation and all associated duties,
taxes, and fees.\38\ Specifying that only the importer of record can
expend allowances for an import would facilitate clarity, transparency,
and accountability. It can be difficult for EPA to compare import
records and other filings from CBP against advance notification records
and the balance sheet of existing allowance holders without a clear
expectation of how the entity that will expend allowances for an import
of regulated substances would be identified in CBP filings. This can
slow down EPA and CBP processing of imports at a minimum,\39\ and in
the worst-case scenarios can hamper EPA's ability to identify shipments
to be held at the border to halt potentially illegal shipments from
entering the United States. Requiring that only the importer of record
may expend allowances for a shipment would address this difficulty
because EPA would be able to advise CBP to hold or deny entry of
merchandise where the importer of record is not an allowance holder or
had not filed appropriate reports for the destruction, transformation,
or transhipment of imported merchandise.
---------------------------------------------------------------------------

    \38\ CBP. Tips for New Importers and Exporters. https://www.cbp.gov/trade/basic-import-export/importer-exporter-tips.
    \39\ As a real-world example, during EPA review of HFC imports,
there was a single import entry with six unique entities (referred
to as parties), where at least three parties, based on their named
roles in the entry, could expend allowances to cover the import
under EPA's existing regulations. This situation can be particularly
confusing and lead to uncertainty if multiple listed parties in an
entry are allowance holders.
---------------------------------------------------------------------------

    The Agency is also concerned about instances where allowance
holders may try to circumvent the requirements in 40 CFR 84.19,
including but not limited to the requisite offset for inter-company
transfers of allowances. EPA has received inquiries from entities
seeking to facilitate imports on an allowance holder's behalf where the
facilitating entity would be listed on all available CBP paperwork and
appear in meaningful ways to be the ``importer.'' In such instances, it
would seem that the facilitating entity is truly importing regulated
substances, and using a separate entity's allowances to do so. In such
an instance, it seems more in line with existing EPA regulations and
the AIM Act that either the allowance holder act more directly in the
act of importing or for the allowance holder to transfer allowances to
the facilitating entity. Making the regulatory change proposed in this
section would help lead to such an outcome and would strengthen EPA's
ability to track the importation of regulated substances and
expenditure of allowances and support compliance assurance.
    The Framework Rule at 40 CFR 84.3 defines ``importer'' broadly to
include the importer of record and any person who imports a regulated
substance into the United States, the person primarily liable for the
payment of any duties on the merchandise or an authorized agent acting
on his or her behalf, the consignee, the actual owner, and the
transferee, if the right to draw merchandise in a bonded warehouse has
been transferred. The Framework Rule at 40 CFR 84.5(b)(2) states that
``[e]ach person meeting the definition of importer for a particular
regulated substance import transaction is jointly and severally liable
for a violation of paragraph (b)(1) of this section, unless they can
demonstrate that another party who meets the definition of an importer
met one of the exceptions set forth in paragraph (b)(1).''
    These two sections of the regulations help EPA maintain the
integrity of the HFC Allocation Program by imposing broad liability on
parties involved in importing HFCs while providing regulated parties
with a flexible approach to contractually allocate risk. Without this
approach, EPA could be forced to pursue enforcement actions for illegal
imports against insolvent entities or entities without assets in the
United States.
    In order to align the proposal to only allow the importer of record
to expend allowances with the existing regulations, we are also
proposing to amend 40 CFR 84.5(b)(2) to make it clear that a person who
meets the definition of an importer will be liable unless they can
demonstrate that the importer of record possessed and expended the
appropriate allowances. This would clarify that while the importer of
record must be the entity possessing and expending allowances for
imports of bulk regulated substances, if this requirement is not met,
EPA has discretion to pursue enforcement action and/or administrative
consequences on all entities that meet the definition of importer for
violations of those requirements. This approach will encourage all
parties who meet the definition of importer under EPA's regulations to
ensure compliance with the HFC Allocation Program, provide regulated
parties with a flexible approach to contractually allocate risk, and
facilitate EPA's compliance evaluations.
    Nothing in this proposal is intended To alter the liability
provision at 40 CFR 84.5(b)(2).

C. Existing Requirement To Expend Allowances for Regulated Substance
Components of Blends

    In addition to clarifying when an allowance must be expended and
the entity permitted to expend allowances for import, EPA is proposing
revisions to 40 CFR part 84.5(b)(1) to reflect and further clarify the
existing requirement that allowances must be expended to import bulk
regulated substances regardless of whether the import is of an HFC that
is imported as a single component substance, i.e., neat substance, or
whether the HFC is part of a multicomponent substance, i.e., a blend or
mixture containing one or more regulated substances.
    The requirement to expend allowances equivalent to the EVe of a
regulated substance that is a component of a blend when the blend is
imported in bulk is based on a straightforward reading of the statutory
language and was already made clear in the Framework Rule (86 FR
55133). EPA stated in the Framework Rule ``allowances [are] necessary
to produce or import [a] blend, or more precisely, the regulated HFC
components contained in the blend'' (86 FR 55142). Under the Agency's
existing approach, the requisite number of allowances to import a
multicomponent substance in bulk is determined by the exchange

values of the blend components that are regulated substances. If a
blend contains multiple regulated substances, then the exchange values
of each component are used to determine the number of necessary
allowances (86 FR 55133-55134). If a blend contains components that are
not regulated substances, then those components are not included in
determining the number of necessary allowances. While the Framework
Rule already made this requirement clear, we are proposing to revise
the regulations so that they more explicitly reflect the already
existing requirement to expend allowances for import of bulk
multicomponent substances equivalent to the EVe quantity of regulated
substance components contained within the blend. This proposed change
to the regulations would therefore further enhance clarity but would
not further change the scope of existing requirements.

D. Establish Presumed Amount for Heel Imports of Unknown Quantity

    Many cylinders when ``empty'' still retain a residual amount of its
contents, and some cylinders contain more than a heel if not all the
contents are used. Removing this ``heel'' or remaining HFC requires the
use of recovery equipment, like that used to recover refrigerant from
an appliance. Through the Framework Rule, EPA has required that any
import of bulk regulated substances in any quantity, including heels,
requires the expenditure of allowances (86 FR 55183). In the Framework
Rule EPA defined a heel as ``the amount of a regulated substance that
remains in a container after the container is discharged or offloaded
(that is no more than 10 percent of the volume of the container)'' (40
CFR 84.3; 86 FR 55183).\40\ During early implementation of the
requirement that allowances are required for the importation of heels
of regulated substances, some entities have expressed concern that
there may be situations where an entity does not know the precise
weight of the heel imported until the container arrives at the entity's
U.S. facility. Because the heel is the residual remainder left in a
container, EPA understands that entities would know the type of
regulated substance of which the heel is composed, but may not know the
precise volume or weight of regulated substance remaining. Importers of
regulated substances must expend allowances corresponding to the
exchange-value weighted equivalent, which is obtained by multiplying
the mass of the regulated substance by the exchange value particular to
that given regulated substance. An entity needs to know the volume or
weight of the heel to calculate the amount of allowances necessary to
expend for the import of that heel.
---------------------------------------------------------------------------

    \40\ EPA views this as an amount that is no more than 10 percent
by weight of the amount of that same substance that is typically
sold in a ``full'' container of that size. For example, if a
``full'' cylinder of HFC-134a typically contains 25 pounds of HFC-
134a, then 2.5 pounds or less of HFC-134a remaining in the cylinder
would be considered a heel.
---------------------------------------------------------------------------

    To address this potential concern, EPA proposes to establish a
standard presumption of an HFC heel content of 10 percent of the total
potential volume of that container in EVe terms, if the heel weight has
not been measured or documented prior to import. This standard
presumption, by its terms, would only be available for the import of a
heel, which was previously defined in the Framework Rule as ``the
amount of a regulated substance that remains in a container after the
container is discharged or offloaded (that is no more than 10 percent
of the volume of the container)'' (40 CFR 84.3; 86 FR 55183). Because
10 percent is the upper bound of the volume of the container that a
regulated substance could comprise and still be considered to be a
``heel,'' and the standard presumption, if finalized, would only be
available for a shipment that meets the regulatory definition of a
``heel.'' EPA is proposing the standard presumption at the 10 percent
level as an inherently conservative estimate of what quantity would be
a heel in a container. If an entity wanted to take advantage of this
standard presumption, under the proposed approach that entity would be
required to expend allowances equivalent to 10 percent of the volume of
the container being comprised of the regulated substance that is
residual in the container. Under this proposed approach, the entity
would also utilize the 10 percent presumption for the advance
notification requirement of 40 CFR 84.31(c)(7). The proposed standard
presumption is intended to only apply in situations where an entity is
importing a heel of a regulated substance (i.e., the container contains
10 percent or less of the total potential volume of the container) and
the entity does not know the precise quantity, volume, or weight of the
heel. If the quantity of HFCs in the container is known (or the
importer should have had reason to know), then the regulations would
apply as for any other shipment, i.e., allowances would need to be
expended to cover the quantity of HFCs held in the container. Given the
possibility that an importer could use this provision as a way to
underreport how much HFC they are importing, EPA requests comment on
whether to set limits for the number of times an importer could use
this presumption or whether to limit the total quantity that could be
eligible in a given shipment, and if so, what the appropriate limits
should be. For example, EPA could limit the use of the presumption to a
set number of containers in a given year, to a set size category of
containers (e.g., for containers that have a maximum capacity under 7
kg), to shipments with a set number of containers (e.g., fewer than 20
containers in a shipment), and/or if the net weight of regulated
substances in a shipment is below a set weight (e.g., 200 kg).
Alternatively, EPA could presume the container is full unless the
importer demonstrates otherwise, such as with records documenting the
actual weight. EPA also requests comment on whether a provision like
this is needed or if importers have resolved the early concerns with
determining the heel weight prior to import.
    As an alternative, EPA is also considering an option of allowing
the importer of record to submit a provisional estimate of the quantity
of heel imported, but requiring within a two-week period that the
provisional estimate be corrected to match the exact amount of the
imported HFC heel content. EPA invites comment on how this alternative
option would align with the proposal in section V.A of this preamble.
In particular, EPA is unsure how and when allowances would be expended
under this provisional estimate model, and if allowances are expended
based on the provisional estimate, how expended allowances would be
reconciled with the corrected exact amount of imported heel. EPA is
also concerned what the enforcement implications of this approach would
be and seeks comment on whether such an approach would create avenues
for an entity to illegally import that are not currently present under
EPA's existing regulations.
    EPA notes that these proposals would only apply to imports of HFCs
that are heels and would not change the requirement to know the precise
quantity of HFCs in a heel for an export. Further, anyone requesting an
additional consumption allowance under 40 CFR 84.17 and anyone
exporting HFC heels must continue to report the actual weight of a heel
that is exported.

VI. How is EPA proposing to clarify and revise recordkeeping and
reporting requirements?

    EPA established recordkeeping and reporting requirements in the
Framework Rule, in accordance with subsection (d) of the AIM Act. These
requirements can be found in 40 CFR 84.31. EPA is proposing to make
amendments to certain recordkeeping and reporting requirements as well
as proposing new recordkeeping and reporting requirements based on the
experience gained in implementing the HFC phasedown program.

A. How is EPA proposing to modify the import reporting requirements?

    In the Framework Rule, EPA established reporting requirements for
importers at 40 CFR 84.31(c). EPA is proposing amendments which include
specifying reporting obligations that fall to the importer of record,
modifying elements of the advance notification requirement, clarifying
how to consider import of heels, and new application of joint and
several liability to quarterly and advance notification reporting
requirements. EPA proposes all these amendments to provide additional
detail on requirements and further promote transparency and consistency
in implementation and enforcement of the rule.
1. Specify Reporting Obligations on the Importer of Record
    To align with the proposal made elsewhere in this notice that only
the importer of record may expend allowances for the import of bulk
regulated substances, EPA is proposing to specify that certain
reporting obligations will fall to the importer of record.
Specifically, EPA is proposing that the importer of record, or their
authorized agent,\41\ would be required to file the advance
notification report pursuant to 40 CFR 84.31(c)(7), and the importer of
record will be required to make quarterly reports pursuant to 40 CFR
84.31(c)(1). EPA is making this proposal to improve clarity of who must
fulfill certain reporting requirements with the Agency and also ease
EPA implementation in aligning the reporting requirement with the
entity obligated to expend allowances for the import.
---------------------------------------------------------------------------

    \41\ For purposes of providing advance notification of import
through a system such as the ABI, the vast majority (if not all)
notifications for the imports of regulated HFCs have been filed by
customs brokers who are licensed and regulated by CBP to assist
importers and exporters in meeting Federal requirements governing
imports and exports. EPA included ``authorized agents'' as
permissible reporting entities to accommodate this standard business
practice.
---------------------------------------------------------------------------

2. Modify Advance Notification of Import Requirements
    EPA's regulations contained in 40 CFR 84.31(c)(7) require ``[a]
person importing a regulated substance, or their agent,'' to report
certain information ``no later than 14 days before importation.'' The
Agency requires reporting of data elements that are generally already
collected by CBP (e.g., cargo description, port of entry). This
approach simplifies the process for importers or their customs brokers
to provide such information to EPA on time. This would generally be at
least, and likely more than, 14 days before a vessel carrying HFCs
berths. EPA finalized these requirements because timely access to this
information helps the Agency ensure that annual production and
consumption in the United States are consistent with the reductions
established by Congress in the AIM Act. Under the AIM Act, some
entities will face burdens and costs associated with the
Congressionally mandated phasedown; those increased burdens and costs
create economic incentives to avoid compliance. That reality increases
EPA's statutory and policy imperative to identify and apply tools that
counter those incentives to increase the rate of compliance. Given the
risk of noncompliance, as described throughout section IX of the
Framework Rule, there is an imperative to develop reasonable tools to
ensure compliance and thus achieve the objectives of the AIM Act. EPA
has required entities to provide advance notification through ACE so
that EPA can conduct a real-time review of allowances before the
imported material is at a U.S. port or border. Given the serious
concerns about potential noncompliance and the undermining of
Congress's directive to ensure reductions in production and consumption
occur consistent with the statutory schedule, real-time review of
import data will support EPA's ability to effectively implement the
statute.
    The regulation enumerates several required elements that must be
included in an advance notification of import filed through the CBP-
authorized electronic data interchange system, such as the ABI. To
align with the proposal made elsewhere in this notice that only the
importer of record may expend allowances for the import of bulk
regulated substances, EPA is proposing to specify that the advance
notification reporting obligation falls to the importer of record, or
their authorized agent. If EPA finalizes this proposal, this should
improve clarity of who must submit the advance notification reports and
also ease EPA implementation in aligning the reporting requirement with
the entity obligated to expend allowances for the import.
    To support effective real-time review of regulated HFC imports,
including but not limited to using reported data to track imports using
CBP databases to determine when allowances must be expended, EPA is
proposing to add a required element to the report required pursuant to
40 CFR 84.31(c)(7), specifically the container number(s) of the
shipment (if applicable), for all modes of import. EPA is also
proposing that for maritime shipments, the vessel name and the
International Maritime Organization (IMO) number must be included as
part of the pre-importation notification.
    EPA's current regulations in 40 CFR 84.31(c)(7) require provision
of the ``quantity'' (in kilograms) of each import in the advance
notification of import. Some regulated entities have expressed
confusion over how to interpret this term. Under the current
``quantity'' requirement, some appear to be providing the net weight,
while others appear to be providing the gross weight. EPA is seeking to
resolve this ambiguity and standardize reporting. To improve clarity in
the Agency regulations and provide for consistent treatment across
regulated entities, EPA is proposing to specifically require the
provision of both the net weight (or net product weight) and gross
weight (net weight plus container weight), as well as unit of mass
(i.e., kilogram), for each container in the shipment in the pre-import
notification. EPA requests comment on any potential difficulties that
would be associated with meeting this revised requirement.
    Currently 40 CFR 84.31(c)(7) requires the submission of advance
notification ``no later than 14 days before importation'' of any
regulated substance. Footnote 97 of the preamble to the Framework Rule
states, in part: ``EPA is using the term `date of importation'
consistent with CBP's definition at 19 CFR 101.1. ``Date of
importation'' means ``in the case of merchandise imported otherwise
than by vessel, the date on which the merchandise arrives within the
Customs territory of the United States. In the case of merchandise
imported by vessel, ``date of importation'' means the date on which the
vessel arrives within the limits of a port in the United States with
intent then and there to unlade \42\ such

merchandise.'' To ensure consistency EPA proposes to amend 40 CFR
84.31(c)(7) to clarify that our reference to ``before importation'' in
the Framework Rule means ``before the date of importation (consistent
with the definition at 19 CFR 101.1).'' EPA also proposes to clarify in
40 CFR 84.25(a)(1)(v) and 40 CFR 84.31(c)(3)(i)(D) that these