[Federal Register Volume 77, Number 2 (Wednesday, January 4, 2012)]
[Proposed Rules]
[Pages 237-259]
[FR Doc No: 2011-33456]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

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

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

AGENCY: Environmental Protection Agency [EPA].

ACTION: Proposed rule.

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

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

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

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

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

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

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

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

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

I. General Information

A. Does this action apply to me?

    This rule will affect the following categories:

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

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

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

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

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

II. Background

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

A. How does the Montreal Protocol phase out HCFCs?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

E. How will EPA allocate other HCFCs?

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

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

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

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