[Federal Register: December 23, 2008 (Volume 73, Number 247)]
[Proposed Rules]
[Page 78680-78705]
[DOCID:fr23de08-28]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[EPA-HQ-OAR-2008-0496; FRL-8752-7]
RIN 2060-A076

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 for control of
U.S. consumption and production of

hydrochlorofluorocarbons (HCFCs) by apportioning baselines and
allocating production and consumption allowances for several HCFCs for
which the Agency previously allocated allowances and other HCFCs that
were not allocated allowances previously, for the control periods 2010-
2014. The HCFC allowance system is part of EPA's Clean Air Act program
to phase out ozone-depleting substances (ODSs) to protect the
stratospheric ozone layer. Protection of the stratospheric ozone layer
helps reduce rates of skin cancer and cataracts, as well as other
health and ecological effects. The U.S. is obligated under the Montreal
Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol)
to limit HCFC consumption and production to a specific level and, using
stepwise reductions, to decrease the specific level culminating in a
complete HCFC phaseout in 2030. The next major milestone, to occur on
January 1, 2010, is a 75 percent reduction from the aggregate U.S. HCFC
baseline for production and consumption. In this action EPA proposes to
allocate the allowances for 2010-2014 that will ensure compliance with
the international stepwise reduction, consistent with the 1990 Clean
Air Act Amendments. In addition, EPA proposes to amend the regulatory
provisions concerning allowances for HCFC production for developing
countries' basic domestic needs to be consistent with the September
2007 adjustments to the Montreal Protocol. Also, the Agency is
providing its interpretation of a self-effectuating ban on introduction
into interstate commerce and use of HCFCs contained in section 605(a)
of the Clean Air Act and proposes to amend existing regulatory
provisions to facilitate implementation of the statutory requirements.

DATES: Comments must be received on or before February 23, 2009, unless
a public hearing is requested. If a public hearing is requested,
comments must then be received on or before March 9, 2009. Any party
requesting a public hearing must notify the contact listed below under
FOR FURTHER INFORMATION CONTACT by 5 p.m. Eastern Daylight Time on
January 2, 2009. If a hearing is held, it will take place on January 7,
2009 and the comment period will then close on March 9, 2009.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2008-0496, by one of the following methods:
     http://www.regulations.gov: Follow the on-line
instructions for submitting comments.
     E-mail<EMAIL_ADDRESS>     Fax:<PHONE_NUMBER>.
     Mail: Docket , 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-2008-0496 Air
and Radiation Docket at EPA West, 1301 Constitution Avenue, NW., Room
B108, Mail Code 6102T, Washington, DC 20460. Such deliveries are only
accepted during the Docket's normal hours of operation, and special
arrangements should be made for deliveries of boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2008-0496. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
http://www.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 e-mail. The http://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 e-mail comment directly to EPA without going through http://
www.regulations.gov your e-mail address will be automatically captured
and included as part of the comment that is placed in the public docket
and made available on the Internet. If you submit an electronic
comment, EPA recommends that you include your name and other contact
information in the body of your comment and with any disk or CD-ROM you
submit. If EPA cannot read your comment due to technical difficulties
and cannot contact you for clarification, EPA may not be able to
consider your comment. Electronic files should avoid the use of special
characters, any form of encryption, and be free of any defects or
viruses. For additional information about EPA's public docket visit the
EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

FOR FURTHER INFORMATION CONTACT: Cindy Axinn Newberg, EPA,
Stratospheric Protection Division, Office of Atmospheric Programs,
Office of Air and Radiation (6205J), 1200 Pennsylvania Avenue, NW.,
Washington, DC 20460,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Under the Montreal Protocol on Substances
that Deplete the Ozone Layer (Montreal Protocol), as amended, the U.S.
and other industrialized countries that are Parties to the Protocol
have agreed to limit production and consumption of
hydrochlorofluorocarbons (HCFCs), and to phase out production and
consumption in a step-wise fashion over time, culminating in a general
phaseout by 2020 while permitting a small amount of HCFC production to
continue solely for servicing existing appliances until 2030. Title VI
of the Clean Air Act Amendments of 1990 (CAAA of 1990) also mandates
restrictions on HCFCs, culminating in a complete production and
consumption phaseout in 2030. For purposes of both the Montreal
Protocol and the Clean Air Act, ``consumption'' is defined as
production plus imports minus exports. Sections 605 and 606 of the
Clean Air Act authorize EPA to promulgate regulations to manage the
consumption and production of HCFCs until the terminal phaseout. In
1993 EPA established a chemical-by-chemical, ``worst-first,'' approach
to implement the Montreal Protocol's graduated phaseout in overall HCFC
levels (58 FR 65018). Key concepts in the ``worst-first'' approach
included ``distinguishing among HCFCs based on their [ozone depletion
potential (ODP)] and phasing out use in new equipment prior to use for
servicing existing equipment'' (58 FR 65026). The consumption cap
became effective in 1996, and HCFC consumption in the U.S. remained
about 15 percent below the cap for the first two years. In 1998 and
1999, consumption rose to levels that approached the cap. On January
21, 2003, EPA established an allowance tracking system for HCFCs (68 FR
2820), noting at that time that EPA would again pursue a notice-and-
comment rulemaking to implement a 2010 stepwise reduction. EPA
promulgated minor amendments to these regulations on June 17, 2004 (69
FR 34024), and July 20, 2006 (71 FR 41163).
    In this action, EPA proposes the next step in the chemical-by-
chemical phaseout the United States uses to meet its international
obligations. Specifically, EPA proposes for HCFC-141b, HCFC-22, and
HCFC-142b, to grant specified percentages of the consumption and
production baselines for the control periods 2010-2014; and for other
HCFCs to apportion company-by-company consumption and production
baselines as well as grant

specified percentages of the consumption and production baselines for
the control periods 2010-2014. EPA is also proposing to amend the
provisions for HCFC production allowances to meet the basic domestic
needs of developing countries. In addition, EPA is proposing regulatory
changes to complete the implementation of the section 605(a) ban on
introduction into interstate commerce or use of HCFCs and clarifies its
interpretation of this Clean Air Act provision.

Abbreviations and Acronyms Used in this Document

CAA--Clean Air Act
CAAA--Clean Air Act Amendments of 1990
CFC--chlorofluorocarbon
EPA--Environmental Protection Agency
HCFC--hydrochlorofluorocarbon
Montreal Protocol--Montreal Protocol on Substances that Deplete the
Ozone Layer
NPRM--Notice of Proposed Rulemaking
ODP--ozone depletion potential
ODS--ozone-depleting substance
Party--States and regional economic integration organizations that have
consented to be bound by the Montreal Protocol on Substances that
Deplete the Ozone Layer
SNAP--Significant New Alternatives Policy
UNEP--United Nations Environment Programme

Tips for Preparing Your Comments

    When submitting comments, remember to:
     Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
     Follow directions--The Agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns, and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the comment period
deadline identified.

Table of Contents

I. Regulated Entities
II. Background
    A. How Do the Montreal Protocol and Clean Air Act Phase Out
HCFCs?
    B. What Sections of the Clean Air Act Apply to This Rulemaking?
III. This Proposal
    A. How Does EPA Propose to Issue Production and Consumption
Allowances for 2010-2014?
    1. What Actions Did EPA Take in the 2003 Allocation Rule?
    2. How Will EPA Allocate 2010-2014 Allowances for HCFC-22 and
HCFC-142b?
    3. How Should EPA Consider Servicing Needs for Existing
Equipment?
    4. How Will the Allocated Allowances Appear in the Regulations?
    5. What Other Methods Could Be Used to Determine the Allocation
for HCFC-22 and HCFC-142b Allowances?
    6. How Important Is HCFC-22 in Determining the Allocation of
Allowances?
    7. HCFC-22 Allowances for 2010-2014
    8. HCFC-142b Allowances for 2010-2014
    9. How Does the Aggregate for HCFC-22 and HCFC-142b Translate to
Entity-by-Entity?
    10. Baselines for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb
    11. What Percentage of the Baseline Will EPA Allocate for HCFC-
123, HCFC-124, HCFC-225ca, and HCFC-225cb for the Control Periods
2010-2014?
    12. What About Other HCFCs?
    B. Does the Article 5 Allowance Provision Change Given the
Adjustments to the Montreal Protocol?
    C. How Does EPA Interpret ``Introduce into Interstate Commerce
or Use?''
IV. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and 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 Advancement Act
    J. Executive Order 12898: Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations

I. Regulated Entities

    These proposed amendments will affect the following categories:

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                  Category                     NAICS code       SIC code        Examples of regulated entities
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Chlorofluorocarbon gas manufacturing.......          325120            2869  Chlorodifluoromethane
                                                                              manufacturers;
                                                                              Dichlorofluoroethane
                                                                              manufacturers;
                                                                              Chlorodifluoroethane
                                                                              manufacturers.
Chlorofluorocarbon gas importers...........          325120            2869  Chlorodifluoromethane importers;
                                                                              Dichlorofluoroethane importers;
                                                                              Chlorodifluoroethane importers.
Chlorofluorocarbon gas exporters...........          325120            2869  Chlorodifluoromethane exporters;
                                                                              Dichlorofluoroethane exporters;
                                                                              Chlorodifluoroethane exporters.
Manufacturers of air conditioners and                333415  ..............  Air-Conditioning Equipment and
 refrigerators.                                                               Commercial and Industrial
                                                                              Refrigeration Equipment
                                                                              manufacturers.
Importers of air conditioners and                    333415            3585  Air-Conditioning Equipment and
 refrigerators.                                                               Commercial and Industrial
                                                                              Refrigeration Equipment importers.
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    This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. This table lists the types of entities that EPA is now aware
potentially could be regulated by this action. Other types of entities
not listed in this table could also be affected. To determine whether
your facility, company, business organization, or other entity is
regulated by this action, you should carefully examine these
regulations. If you have questions regarding the applicability of this
action to a particular entity, consult the person listed in the FOR
FURTHER INFORMATION CONTACT section.

II. Background

A. How Do the Montreal Protocol and Clean Air Act 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. The U.S. was one of the
original signatories to the 1987 Montreal Protocol and the U.S.
ratified the Protocol on April 12, 1988. Congress then enacted, and
President George H.W. Bush signed into law, the Clean Air Act
Amendments of 1990 (CAAA of 1990), which included Title VI on
Stratospheric Ozone Protection, codified as 42 U.S.C. Chapter 85,
Subchapter VI, to ensure that the United States could satisfy its
obligations under the Montreal Protocol. Title VI includes restrictions
on production, consumption, and use of ozone-depleting substances that
are subject to acceleration if ``the Montreal Protocol is modified to
include a schedule to control or reduce production, consumption, or use
* * * more rapidly than the applicable schedule'' prescribed by the
statute. Both the Montreal Protocol and the Clean Air Act define
consumption as production plus imports minus exports.
    In 1990, as part of the London Amendment to the Montreal Protocol,
the Parties identified HCFCs as ``transitional substances'' to serve as
temporary, lower-ODP substitutes for CFCs and other ODSs. EPA similarly
viewed HCFCs as ``important interim substitutes that will allow for the
earliest possible phaseout of CFCs and other Class I substances'' \1\
(58 FR 65026). In 1992, through the Copenhagen Amendment to the
Montreal Protocol, the Parties created a detailed phaseout schedule for
HCFCs beginning with a cap on consumption for industrialized (Article
2) Parties, a schedule to which the United States adheres. The
consumption cap for each Article 2 Party was set at 3.1 percent (later
tightened to 2.8 percent) of a Party's CFC consumption in 1989, plus a
Party's consumption of HCFCs in 1989 (weighted on an ODP basis). Based
on this formula, the HCFC consumption cap for the U.S. was 15,240 ODP-
weighted metric tons, effective January 1, 1996. This became the U.S.
consumption baseline for HCFCs.
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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 the 2007 adjustment, the
schedule called for a 35 percent reduction of the consumption cap in
2004, followed by a 65 percent reduction in 2010, a 90 percent
reduction in 2015, a 99.5 percent reduction in 2020 (restricting the
remaining 0.5 percent of baseline to the servicing of existing
refrigeration and air-conditioning equipment), with a total phaseout in
2030.
    The Copenhagen Amendment did not cap HCFC production. In 1999,
however, the Parties created a cap on production for Article 2 Parties
through an amendment to the Montreal Protocol agreed by the Eleventh
Meeting of the Parties (Beijing, 29 November--3 December 1999, Decision
XI/5). The cap on production was set at the average of: (a) 1989 HCFC
production plus 2.8 percent of 1989 CFC production, and (b) 1989 HCFC
consumption plus 2.8 percent of 1989 CFC consumption. Based on this
formula, the HCFC production cap for the U.S. was 15,537 ODP-weighted
metric tons, effective January 1, 2004. This became the U.S. production
baseline for HCFCs.
    The U.S. has chosen to implement the Montreal Protocol phaseout
schedule on a chemical-by-chemical basis. In 1992, environmental and
industry groups petitioned EPA to implement the required phaseout by
eliminating the most ozone-depleting HCFCs first. Based on the
available data at that time, EPA believed that the U.S. could meet, and
possibly exceed, the required Montreal Protocol reductions through a
chemical-by-chemical phaseout that employed a ``worst-first'' approach
focusing on certain chemicals earlier than others. In 1993, as
authorized by section 606 of the CAA, the U.S. established a phaseout
schedule that eliminated HCFC-141b first and would greatly restrict
HCFC-142b and HCFC-22 next, followed by restrictions on all other HCFCs
and ultimately a complete phaseout. (58 FR 15014, March 18, 1993; 58 FR
65018, December 10, 1993). EPA explained that its action modified the
schedule contained in paragraphs (a) and (b) of section 605 (58 FR
65025). Paragraph (a) addresses use and introduction into interstate
commerce, while paragraph (b) addresses production.
    On January 21, 2003 (68 FR 2820), EPA promulgated regulations to
ensure compliance with the first milestone in the HCFC phaseout: the
requirement that, by January 1, 2004, the U.S. reduce HCFC consumption
by 35 percent and freeze HCFC production. In that rule EPA established
chemical-specific consumption and production baselines for HCFC-141b,
HCFC-22, and HCFC-142b. To further carry out the 1993 phaseout
schedule, EPA issued calendar-year allowances equal to 100 percent of
baseline for HCFC-22 and HCFC-142b for each control period \2\ from
2003 through 2009. For those same control periods EPA issued calendar-
year allowances equal to zero for HCFC-141b; under the 1993 rule HCFC-
141b was subject to a complete phaseout on January 1, 2003, which
allowed the United States to meet and exceed the 2004 stepwise
reduction of 35 percent below the baseline for all HCFCs. EPA did,
however, create a petition process to allow applicants to request very
small amounts of HCFC-141b beyond the phaseout. EPA considered
establishing baselines for all HCFCs in that rule but deferred such
action for all but HCFC-141b, HCFC-142b, and HCFC-22. These regulations
were amended with a technical correction on July 16, 2003 (68 FR
41925), and with direct final rules adopting minor amendments on June
17, 2004 (69 FR 34024) and July 20, 2006 (71 FR 41163).
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    \2\ A control period, as defined at 40 CFR 82.3, is a twelve-
month period from January 1 through December 31.
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    To further protect human health and the environment, the Parties to
the Montreal Protocol adjusted the Montreal Protocol's phaseout
schedule for HCFCs at the 19th Meeting of the Parties in September
2007. In accordance with Article 2(9)(d) of the Montreal Protocol, the
adjustment to the phaseout schedule was effective on May 14, 2008.\3\
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    \3\ 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 become 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 United States and other industrialized countries are
obligated to reduce HCFC production and consumption 75 percent below
the established baseline by 2010, rather than 65 percent as was the
previous requirement. The other milestones remain the same: 90 percent
below the baseline by 2015, and 99.5 percent below the baseline by
2020--allowing, during 2020 to 2030, production and consumption at only
0.5 percent of baseline solely for servicing existing air-conditioning
and refrigeration equipment. The adjustment also resulted in a phaseout
schedule for HCFC production that parallels the consumption phaseout
schedule. All production and consumption for Article 2 Parties is
phased out by 2030.
    Decision XIX/6 also adjusted the provisions for Parties operating
under

paragraph 1 of Article 5 (developing countries): (1) To set production
and consumption baselines based on the average 2009-2010 production and
consumption, respectively; (2) to freeze production and consumption at
those baselines in 2013; and (3) to add stepwise reductions of 10
percent below baselines by 2015, 35 percent by 2020, 67.5 percent by
2025, and 97.5 percent by 2030--allowing, between 2030 and 2040, an
annual average of no more than 2.5 percent to be produced or imported
solely for servicing existing air-conditioning and refrigeration
equipment. All production and consumption for Article 5 Parties is
phased out by 2040.
    In addition, Decision XIX/6 adjusted Article 2F to allow
industrialized countries to produce ``up to 10 percent of baseline
levels'' for export to Article 5 countries ``in order to satisfy basic
domestic needs'' until 2020.\4\ Paragraph 14 of Decision XIX/6 notes
that no later than 2015 the Parties would consider ``further reduction
of production for basic domestic needs'' in 2020 and beyond. Under
paragraph 13 of Decision XIX/6, the Parties will review in 2015 and
2025, respectively, the need for the ``servicing tails'' for
industrialized and developing countries. The term ``servicing tail''
refers to an amount of HCFCs used to service existing equipment, such
as certain types of air-conditioning and refrigeration appliances.
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    \4\ 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. What Sections of the Clean Air Act Apply to This Rulemaking?

    Several sections of the Clean Air Act apply to this proposed
rulemaking. Section 605 of the Clean Air Act phases out production and
consumption and restricts the use of HCFCs in accordance with the
schedule set forth in that section. Section 606 provides for
acceleration of the schedule in section 605 based on a determination by
EPA regarding current scientific information or the availability of
substitutes, or to conform to any acceleration under the Montreal
Protocol. EPA has previously accelerated the section 605 schedule
through a rulemaking published December 10, 1993 (58 FR 65018). Though
this action, EPA is further accelerating the section 605 HCFC
production and consumption phaseouts.
    Section 606 provides authority for EPA to promulgate regulations
that establish a schedule for production and consumption that is more
stringent than what is set forth in section 605 if: ``(1) Based on an
assessment of credible current scientific information (including any
assessment under the Montreal Protocol) regarding harmful effects on
the stratospheric ozone layer associated with a Class I or Class II
substance, the Administrator determines that such more stringent
schedule may be necessary to protect human health and the environment
against such effects, (2) based on the availability of substitutes for
listed substances, the Administrator determines that such more
stringent schedule is practicable, taking into account technological
achievability, safety, and other relevant factors, or (3) the Montreal
Protocol is modified to include a schedule to control or reduce
production, consumption, or use of any substance more rapidly than the
applicable schedule under this title.'' It is only necessary to meet
one of the three criteria. EPA believes that in this instance, all
three criteria have been met.
    The first criterion allows the Administrator, based on an
assessment of credible current scientific information, to determine
that a more stringent schedule may be necessary to protect human
health. The recent scientific findings by the Montreal Protocol's
Science Assessment Panel, Science Assessment of Ozone Depletion: 2006,
available in the docket for this rulemaking, were initially presented
to the Parties to the Montreal Protocol in October 2006 at the 18th
Meeting of the Parties in New Delhi, India. The Assessment was
published in March 2007, and hard copies were available to the Parties
in advance of the 26th Open-Ended Working Group Meeting held in June
2007 in Nairobi, Kenya. The assessment report shows that
notwithstanding the evidence of a healing of the ozone layer, there
continue to be human health and environmental effects associated with
ozone depletion and that recovery continues to rely on a successful
total global phaseout of ODSs. The report includes scenarios where
additional actions taken by the Parties would result in a faster
recovery. While these specific scenarios (including complete phaseout
by the end of that calendar year) were not all necessarily deemed to be
practical, they demonstrated to the Parties what could be achieved with
additional actions and contributed in part to the willingness of many
Parties, including the United States, to consider the adjustments to
the Montreal Protocol's HCFC phaseout schedule that were successfully
negotiated in September 2007. EPA published a notice of data
availability (72 FR 35230) concerning the potential changes in HCFC
consumption from proposed adjustments to the Montreal Protocol
submitted by the United States for consideration at the 19th Meeting of
the Parties held in Montreal September 2007. The data made available
through that notice were specific to the United States' proposal but
had general applicability to the other five proposals submitted by
various Parties to the Protocol and to what was ultimately agreed to by
the Parties at the 19th Meeting.
    Reductions in stratospheric ozone levels lead to higher levels of
ultraviolet radiation reaching the Earth's surface, and a higher risk
of negative health

effects. According to the American Cancer Society, one in five
Americans will develop skin cancer in their lifetime, and one American
dies every hour from this disease. While medical research continues to
improve the understanding of the causes and effects of skin cancer,
many health and education groups are working to reduce the incidence of
this disease. EPA believes the recent scientific findings on
stratospheric ozone depletion, together with the well-established
relationship between ozone depletion and increased risk of human health
effects, support a determination that a more stringent HCFC phaseout
schedule may be necessary to protect against such effects.
    The second criterion allows the Administrator to determine a more
stringent schedule is practicable based on the availability of
substitutes for ODS, taking into account technological achievability,
safety, and other relevant factors. Since the establishment of the
domestic chemical-by-chemical phaseout in the United States, advances
by industry have resulted in the availability of substitutes for a
large variety of end-use applications. Under section 612 of the CAA,
EPA's Significant New Alternatives Policy (SNAP) program evaluates and
lists alternatives for ODSs that reduce overall risk to human health
and the environment and are currently or potentially available.
Alternatives include chemical replacements, product substitutes, and
alternative technologies. The SNAP program has reviewed approximately
450 combinations of alternatives and end uses to date. EPA makes
information available concerning potential alternatives for various
end-use applications. Suitable alternatives--in many cases, multiple
suitable alternatives--are available for all end-use applications for
the HCFCs considered in this action. The SNAP program has reviewed
substitutes for the following industrial sectors:
     Refrigeration & Air Conditioning.
     Foam Blowing Agents.
     Cleaning Solvents.
     Fire Suppression and Explosion Protection.
     Aerosols.
     Sterilants.
     Tobacco Expansion.
     Adhesives, Coatings & Inks.
    HCFCs have been used in almost all of these industrial sectors. For
example, within the air conditioning and refrigeration industrial
sector, end uses where HCFCs have been used include chillers,
industrial process refrigeration systems, ice skating rinks, cold
storage warehouses, refrigerated transport, retail food refrigeration,
household appliances, and residential and light commercial air
conditioning and heat pumps. The SNAP program lists substitutes for
each of the end uses. (For a complete list of substitutes the reader is
directed to: http://www.epa.gov/ozone/snap/lists/index.html.) EPA
believes that given the availability of substitutes, a more stringent
HCFC phaseout schedule now is practicable.
    The last criterion is that the Montreal Protocol be modified to
include a schedule to control or reduce production, consumption, or use
of any substance more rapidly than section 605 would dictate. The
United States submitted a proposal to adjust the Montreal Protocol in
March 2007 to accelerate the phaseout of HCFCs. This was one of six
proposals considered by the Parties at their 19th Meeting. Due to the
efforts of the United States and others, the Parties agreed to
adjustments that result in a more aggressive phaseout schedule for both
developed and developing countries. Therefore, this third criterion has
been met. Through this action, EPA is proposing to incorporate a
schedule that reflects the 2007 Montreal Adjustment in its regulations.
In order to meet the 2010 stepdown, EPA is proposing to allocate HCFC
allowances for the years 2010 through 2014 at a level that will ensure
the aggregate HCFC production and consumption will not exceed 25
percent of the U.S. baselines.
    While section 606 is sufficient authority for this acceleration of
the section 605 phaseout schedule, EPA also notes that section 614(b)
of the Clean Air Act provides that in the case of a conflict between
the Act and the Protocol, the more stringent provision shall govern.
Thus, section 614(b) requires the Agency to establish phaseout
schedules at least as stringent as the schedules contained in the
Protocol.
    In addition to implementing the 2007 Montreal Adjustment, today's
proposed rule would also address provisions in section 605 of the Clean
Air Act that relate to use and introduction intro interstate commerce
of class II substances. In today's action, EPA is proposing to complete
its implementation (begun in 1993) of the section 605 provisions on use
of class II substances. EPA is also proposing regulatory language to
reflect the section 605 provisions on introduction into interstate
commerce of class II substances. EPA previously addressed the
provisions concerning use of class II substances in a 1993 rulemaking
that accelerated the phaseout schedule for HCFC-22 and HCFC-142b (58 FR
15014, 58 FR 65018). The intent of the 1993 rulemaking was to
accelerate not only the production and consumption schedule, but also
the use restrictions for those two substances. In the March 18, 1993
notice of proposed rulemaking, EPA stated that the effect of this
acceleration was ``to prohibit the use of the chemicals (virgin
material only) for any use except as a feedstock or as a refrigerant in
existing equipment as of January 1, 2010'' (58 FR 15028). EPA noted in
the December 10, 1993 notice of final rulemaking that ``HCFC
restrictions and the approach included in today's final rule have not
changed from those proposed by the Agency in March'' (58 FR 65028). The
regulatory prohibitions included with that notice, however, did not
control use directly, but instead banned production and import for most
uses. In today's action, EPA is proposing to add the direct use
prohibitions contemplated in the 1993 rule as well as the corresponding
prohibitions on introduction into interstate commerce. EPA is also
clarifying its interpretation of section 605(a).

III. This Proposal

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

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

    \5\ EPA is not proposing any changes and thus is not seeking
comment with regard to the HCFC-141b petition process for the 2010-
2014 control periods.
---------------------------------------------------------------------------

    EPA is proposing a similar approach for HCFC-123, HCFC-124, HCFC-
225ca, and HCFC-225cb, which currently do not have baselines. EPA is
proposing to apportion company-specific baselines for these HCFCs based
on production and import data available to the Agency. For control
periods 2010-2014, EPA is proposing to grant 125 percent of baseline
for these HCFCs.
    The allocations described above for HCFC-22, HCFC-142b, HCFC-123,
HCFC-124, HCFC-225ca, and HCFC-225cb reflect EPA's analysis of market
data for these chemicals. The proposed allocations were developed to
allow the need for virgin material to be met and to avoid shortages
during the affected control periods, as well as to accommodate some
market growth for HCFCs-123, -124, -225ca, and -225cb, for which
baselines were not developed in the 2003 allocation rule. The total
proposed allocation of HCFC allowances to meet the U.S. need for virgin
material is less than the 3,810 ODP-ton cap. The differential between
the cap and the total proposed allocation will have the effect of
accommodating minor adjustments in the market, particularly to allow
potential market growth for HCFCs that have not been produced or
imported since 2003 (and which are therefore not reflected here). In
summary, of the 3,810 ODP tons of consumption and 3,884.25 ODP tons of
production allowable for the 2010-2014 control periods as established
by the Montreal Protocol, EPA is proposing to allocate allowances, in
aggregate, for 2,920 ODP tons of consumption and 2,646 ODP tons of
production.
    These proposed allocations represent 77 percent of the consumption
cap and 68 percent of the production cap established by the Montreal
Protocol for 2010. EPA seeks comment on whether the proposed
allocations, together with the amounts assumed to be available from
reclaimed refrigerant, will suffice to meet HCFC needs for the existing
uses (primarily refrigerant servicing) that will still be permitted in
2010, as well as potential adjustments in the HCFC market. Please
provide information and documentation on newly emerging uses of HCFCs
and other uses of HCFCs, if any, that are not accounted for by EPA
currently. EPA is especially interested in information pertaining to
the years 2010 through 2014.
    EPA is proposing two other changes in this proposed rule. First, to
reflect the September 2007 Montreal Adjustments, EPA is proposing to
adjust the amount of Article 5 allowances for control periods 2010-
2019. Second, EPA is completing its implementation of the provisions in
section 605 of the Clean Air Act that relate to use and introduction
into interstate commerce of class II substances.
    EPA is not proposing changes to other provisions of 40 CFR part 82
subpart A, such as the recordkeeping and reporting obligations, the
essential use and critical use provisions, and the HCFC-141b petition
process. EPA is only seeking comments on the portions of 40 CFR part 82
subpart A that are specifically addressed by this proposal.

A. How Does EPA Propose to Issue Production and Consumption Allowances
for 2010-2014?

    In the United States, an allowance is the unit of measure that
controls production and consumption of ozone-depleting substances. An
allowance represents the privilege granted to a company to produce or
import one kilogram (not ODP-weighted) of the specific substance. EPA
establishes company-by-company baselines (also known as ``baseline
allowances'') and allocates calendar-year allowances equal to a
percentage of the baseline for specified control periods. EPA has
allocated two types of calendar-year allowances--production allowances
and consumption allowances--for HCFC-22 and HCFC-142b. ``Production
allowance'' and ``consumption allowance'' are defined at 40 CFR 82.3.
To produce an HCFC for which allowances have been allocated, an
allowance holder must expend both production and consumption
allowances. To import an HCFC for which allowances have been allocated,
an allowance holder must expend consumption allowances. An allowance
holder exporting HCFCs for which it has expended consumption allowances
may obtain a refund of those consumption allowances upon submittal of
proper documentation to EPA.
    Since EPA is implementing the phaseout on a chemical-by-chemical
basis, it allocates and tracks production and consumption allowances on
an absolute kilogram basis for each chemical. Upon EPA approval, an
allowance holder may trade allowances for one type of HCFC for
allowances of another type of HCFC, with transactions weighted
according to the ozone depletion potential of the chemicals involved.
Pursuant to section 607 of the Clean Air Act, EPA applies an offset to
each HCFC trade by deducting 0.1 percent from the transferor's
allowance balance. The offset is viewed as a benefit to the ozone layer
since it ``results in greater total reductions in the production in
each year of * * * class II substances than would occur in that year in
the absence of such transactions'' (42 U.S.C. 7671f).
    Under current regulations at 40 CFR 82.15(a) and (b), HCFC-22 and
HCFC-142b may not be produced or imported in excess of the calendar-
year allowances held by the producer or importer. EPA has not yet
allocated any calendar-year allowances for HCFC-142b or HCFC-22 to
cover the 2010 control period and beyond. Absent a grant of calendar-
year allowances for these HCFCs, Sec.  82.15 would prohibit their
production and import after December 31, 2009. EPA intends to avoid
that result by issuing a final rule in advance of that date that will
allocate calendar-year allowances for 2010-2014.
1. What Actions Did EPA Take in the 2003 Allocation Rule?
    In the January 21, 2003, allocation rule, EPA established baselines
for HCFC-141b, HCFC-22, and HCFC-142b. Section 601(2) states that EPA
may select ``a representative calendar year'' to serve as the baseline
for HCFCs. In the 2003 allocation rule, however,

EPA concluded that because the entities eligible for allowances had
differing production and import histories, no one year was
representative for all companies. Therefore, in the 2003 allocation
rule EPA assigned an individual consumption baseline year to each
company by selecting its highest ODP-weighted consumption year from
among the years 1994 through 1997. EPA assigned individual production
baseline years in the same manner. EPA did not consider years after
1997 to avoid creating an uneven playing field that would skew
allocations to those companies with ample resources and good access to
information regarding the impending phaseout. EPA is not proposing to
revisit decisions made in the 2003 allocation rule, such as the
Agency's discretion to consider data from multiple years in
establishing a baseline.
    The 2003 allocation rule apportioned production and consumption
baselines to each company in amounts equal to the amounts in the
company's highest ``production year'' or ``consumption year,'' as
described above. It completely phased out the production and import of
HCFC-141b, with the limited exception described above, by granting 0
percent of that chemical's baseline for production and consumption in
the table at Sec.  82.16. The rule granted 100 percent of baseline for
production and consumption of HCFC-22 and HCFC-142b. EPA was able to
allocate allowances for HCFC-22 and HCFC-142b at 100 percent of
baseline because, in light of the concurrent complete phaseout of HCFC-
141b, the allocations for HCFC-22 and HCFC-142b, combined with
projections for consumption of all other HCFCs, remained below the 2004
cap of 65 percent of the baseline.
    Because EPA has allocated the same amount of allowances every year
from 2004 to 2009--with minor changes reflecting permanent trades of
baseline allowances--and because EPA tracks the production and
consumption of all HCFCs (including those for which baselines are not
allocated), the Agency can ascertain that the U.S. will remain
comfortably below the cap through 2009. The January 2003 allocation
rule announced that EPA would allocate allowances for 2010-2014 in a
subsequent action and that those allowances would be lower in aggregate
than for 2003-2009, consistent with the next stepwise reduction for
HCFCs under the Montreal Protocol. EPA stated its intention to
determine the exact amount of allowances that would be needed for HCFC-
22 and HCFC-142b, bearing in mind that other HCFCs would also
contribute to total HCFC consumption. EPA stated that it would likely
achieve the 2010 reduction step by applying a percentage reduction to
the HCFC-22 and HCFC-142b baseline allowances. EPA has monitored the
market to ascertain servicing needs and market adjustments in the use
of HCFCs, including HCFCs for which EPA did not establish baselines in
the 2003 allocation rule.
2. How Will EPA Allocate 2010-2014 Allowances for HCFC-22 and HCFC-
142b?
    This proposal identifies five primary options for allocating HCFC-
22 and HCFC-142b allowances for the control periods 2010-2014: (1)
Allocating a percentage of the baseline allowances (Sec. Sec.  82.17
and 82.19) for each HCFC respectively with or without considering any
permanent baseline transfers and/or inter-pollutant transfers that
resulted in a different amount of production or consumption for a
specific HCFC; (2) allocating allowances based on evaluation of the
most recent three years of production, import, and/or export data as
reported to EPA; (3) allocating allowances based on evaluation of past
sales of HCFCs by allowance holders by considering how the HCFCs were
ultimately used (e.g., servicing refrigeration or air-conditioning,
original manufacture of refrigeration or air-conditioning equipment,
foam blowing); (4) allocating allowances based on aggregated ODP tons;
or (5) allocating a total amount of allowances and allowing for
purchase by establishing an auction system. These options are described
in more detail in section III.A.9 of this preamble. Each of these five
methods offers advantages and disadvantages for potential allowance
holders which vary according to whether a particular entity is
predominantly a producer or importer; whether it currently sells HCFC-
22 and HCFC-142b to original equipment manufacturers, wholesalers,
retailers, or companies that service appliances; whether the portion of
its business that is ODS-based is expanding or contracting as the next
major milestone in the phaseout approaches; its liquidity; whether it
holds both HCFC-142b and HCFC-22 allowances and/or engages in inter-
pollutant transfers; and whether it sold HCFCs for applications that do
not lend themselves to servicing. Without regard to the practices of
individual entities, each of the potential allocation schemes also
offers advantages and disadvantages associated with the ease of
implementation and other administrative burdens. EPA has placed in the
docket to this NPRM a memorandum titled ``Draft Regulatory Options for
Allocating HCFC Allowances after 2009'' that explores the advantages
and disadvantages of the various options. In addition to the
memorandum, EPA has also placed in the docket written correspondence by
entities that also discusses various options for allocating HCFC
allowances.
    EPA provided notice of the leading option for implementing the 2010
milestone in the preamble to the 2003 allocation rule by indicating
that EPA ``intends to achieve this reduction step through notice and
comment prior to 2010 and will likely implement the reduction by simply
listing a percent of baseline allowances to be granted in Sec.  82.16
for the years after 2009'' (68 FR 2823). The Agency said that it would
allocate allowances for HCFC-22 and HCFC-142b at less than 100 percent
of the respective baselines during the control periods 2010-2014. EPA
continues to believe that this option is the most appropriate, but
seeks comment on other options. This approach offers a transparent
design and provides stability in that it uses a well-vetted baseline.
EPA believes this option also is the least burdensome because it would
not require additional one-time or periodic reporting obligations that
may be necessary if EPA were to adopt a different option. Producers and
importers have adapted to the current HCFC allocation method and
aligned their business activities around the baselines set forth in the
2003 allocation rule. Currently, EPA manages a tracking system and
issues calendar-year allowances per control period to specific entities
listed in Sec.  82.17 and Sec.  82.19. An option that utilizes this
system would limit administrative burdens for the Agency and allowance
holders.
    In the 2003 allocation rule, EPA did not forecast the amount of
reduction for HCFC-22 and HCFC-142b that would be needed to ensure that
the United States stayed sufficiently below the 2010 stepwise
reduction, which at the time was a reduction of 65 percent from the
Montreal Protocol baseline. EPA did not determine whether it would
reduce the allocations for the two substances by the same percentage or
by different percentages. Several factors affect determination of the
appropriate percentage of the HCFC-22 and HCFC-142b production and
consumption baselines to allocate for 2010-2014. Factors include the
percentage of the aggregate U.S. production and consumption caps that
other HCFCs comprise as well as provisions in the Clean Air Act and
implementing

regulations that include use restrictions (discussed in section III.C
of this NPRM).
    EPA uses information from quarterly, annual, and other periodic
reporting requirements to monitor consumption, production, imports, and
exports of all HCFCs. EPA uses this information to ensure companies'
compliance with regulatory requirements and to develop reports that are
requested by the Parties to the Montreal Protocol, including reports
ascertaining U.S. compliance with the phaseout caps. The information
enables EPA to monitor production and consumption for all HCFCs,
including HCFCs for which baselines have not yet been established and
for which allowances have not yet been allocated.
    Although EPA's July 20, 2001, proposed HCFC allocation rulemaking
would have allocated production and consumption allowances for all
HCFCs, the January 2003 final rule apportioned company-specific
baselines, and allocated a specific percentage of baseline allowances
for the 2003-2009 control periods, only for HCFC-141b, HCFC-22, and
HCFC-142b. EPA applied a ``worst-first'' approach to these HCFCs since
they are the most damaging to the stratospheric ozone layer. The 2003
final rule noted that the HCFC market was continuing to evolve. At that
time, the market for HCFCs with lower ODPs did not reflect rapid
expansion and thus it was not necessary to establish specific baselines
by chemical and issue allowances to ensure that the United States
remained below its cap. Later in this proposal, EPA further discusses
establishing and apportioning baselines as well as allocating calendar-
year allowances for these lower-ODP HCFCs for the control periods 2010-
2014.
3. How Should EPA Consider Servicing Needs for Existing Equipment?
    EPA is proposing to use projected servicing needs in its
determination of the amounts of HCFC-22 and HCFC-142b allowances to be
allocated for the 2010-2014 control periods. EPA is focusing on
servicing needs because under section 605(a) of the Clean Air Act and
EPA's implementing regulations, nearly all other uses of these two
HCFCs will be banned effective January 1, 2010. EPA has previously
issued a draft analysis of servicing demand for the HCFC appliances in
the U.S. refrigeration and air-conditioning sector projected to be in
service from 2010-2019. The report is titled The U.S. Phaseout of
HCFCs: Projected Servicing Needs in the U.S. Air-Conditioning and
Refrigeration Sector (the ``Servicing Tail'' report). On November 4,
2005, EPA published a notice of data availability (70 FR 67172) making
a draft of the report available for public review and comment. On
September 29, 2006, EPA held a stakeholder meeting presenting the
findings of a revision to the Servicing Tail report along with other
important information regarding the next major milestones in the HCFC
phaseout. EPA solicited comments on the findings presented at the
meeting. Some stakeholders, including representatives of manufacturers,
chemical producers, importers, reclaimers, industry associations, and
environmental organizations, commented on the projected amount of HCFCs
needed to service this installed base of equipment and on the amounts
expected to be available from reclamation.
    EPA focused the analysis on air-conditioning and refrigeration
appliances because such equipment will represent the bulk of the
servicing need. In addition, the servicing exception to the use ban for
HCFC-22 and HCFC-142b pertains only to use as a refrigerant in such
equipment. EPA also focused the analysis on HCFC-22 because HCFC-22 is
the predominant HCFC in the installed base of air-conditioning and
refrigerant equipment for which servicing in the U.S. will likely
continue. The findings in the Servicing Tail report have helped to
shape EPA's views regarding the allocation for the control periods
2010-2014.
    The majority of HCFC-22 equipment that is projected to be in use
from 2010 onward will be air-conditioning applications, including
window units, packaged terminal units, residential and commercial
unitary air-conditioning, chillers, dehumidifiers, water and ground
source heat pumps, and non-light duty mobile air-conditioning in buses
and trains. Approximately 147.5 million units of all such types of
HCFC-22 air-conditioning equipment will be in use in 2010, decreasing
from 2010 levels by about 41 percent by 2015 and 76 percent by 2020. In
2010, approximately 2.2 million units of HCFC-22 refrigeration
equipment will be in use, including retail food, industrial process
refrigeration, and transport refrigeration equipment (but not including
cold storage warehouses). The installed base of HCFC-22 refrigeration
equipment is projected to decrease from 2010 levels by about 29 percent
by 2015 and 51 percent by 2020. EPA developed these estimates using its
Vintaging Model, a tool for estimating the annual chemical emissions
from industrial sectors that have historically used ozone-depleting
substances in their products. Additional information on the Vintaging
Model is available in the docket for this rulemaking.
    As a result of the September 2007 Montreal Adjustment, in which the
Parties agreed to adjust the stepwise reduction in 2010 from 65 percent
of baseline to 75 percent of baseline for non-Article 5 Parties, and
recognizing the overall advances by industry in transitioning to non-
ODS substitutes, EPA has prepared a draft revised Servicing Tail report
to: (1) Reflect the 75 percent reduction in 2010; (2) consider more
recent production and consumption data in the United States; and (3)
consider more recent trends in the air-conditioning and refrigeration
sectors. This revised draft report is available in the docket for this
rulemaking. EPA is accepting comments on the analysis and the draft
findings until February 23, 2009 or March 9, 2009 if a hearing
regarding this rulemaking is held.
    The Servicing Tail report utilizes production, import, and export
data reported to the Agency on a quarterly, annual, and transactional
basis, as required by Sec.  82.24. EPA's analysis of the reported data
confirms that the United States is satisfying its obligations as it
phases out ODSs and enables EPA to consider trends in the HCFC markets
on a chemical-by-chemical basis. EPA also uses this information to
submit an annual report to the Ozone Secretariat as requested by the
Parties to the Montreal Protocol.
    Using the reported data, the draft revised Servicing Tail report,
and the comments provided at the September 2006 stakeholder meeting and
submitted in subsequent correspondence (available in the docket), EPA
believes it has sufficient information to propose through this action
to allocate a percentage of baseline allowances for HCFC-22 and for
HCFC-142b for production and consumption for the control periods 2010-
2014 that will address servicing needs. The specific percentage of
baseline for each of the affected compounds is discussed below. EPA
requests comments regarding whether it should consider other sources of
information in addition to the required reports, the Servicing Tail
report, and stakeholder comments. In particular, EPA is interested in
whether these sources provide sufficient information to allow EPA to
reasonably estimate servicing needs for 2010-2014, especially for HCFC-
22, which accounts for the majority of the market.
4. How Will the Allocated Allowances Appear in the Regulations?
    EPA is proposing to revise two types of tables in 40 CFR part 82
that together

specify the production and consumption allowances available to
allowance holders during specified control periods. Tables at Sec.
82.17 and Sec.  82.19 apportion baseline production and consumption
amounts (also referred to as baseline production allowances and
baseline consumption allowances), respectively, to individual companies
for individual HCFCs. Complementing these tables, the table at Sec.
82.16 lists the percentage of baseline allocated to allowance holders
for specific control periods. EPA is proposing to retain this framework
of complementary tables, revising them to reflect adjustments to
baselines, and to grant percentages of baselines in a manner that
achieves the 2010 phasedown goal.
    Currently the table at Sec.  82.16 allocates zero percent of
baseline to HCFC-141b and 100 percent of baseline to HCFC-22 and HCFC-
142b (combined in a single column) for each control period spanning
2003-2009. EPA is proposing to amend the table by including control
periods 2010-2014, by continuing to allocate zero percent to HCFC-141b,
and by allocating specified percentages (in separate columns) to HCFC-
22, HCFC-142b, and--as will be discussed later--other HCFCs.
    The proposed percentages for HCFC-22 and HCFC-142b differ because
EPA projects that the needs will differ for servicing air-conditioning
and refrigeration appliances during the 2010-2014 control periods.
EPA's analysis shows that there will be a significantly greater need
for HCFC-22 than for HCFC-142b during the control periods 2010-2014.
Based on the Servicing Tail report and reporting information already
required by EPA (which includes inter-pollutant transfers), the needs
for individual HCFCs are not uniform.
    EPA believes that allocating the same percentage of baseline for
HCFC-22 and HCFC-142b would result in too few allowances for HCFC-22
and too many allowances for HCFC-142b.\6\ While inter-pollutant
transfers in accordance with Sec.  82.23(b) could continue to be used
as a means to trade allowances for one HCFC for another, EPA is not
planning to rely on such transfers as a mechanism for large-scale
corrections. Instead, EPA anticipates that the continued availability
of inter-pollutant transfers will permit the market to self-correct for
unforeseen changes in demand and allow individuals to consider a range
of options for their allowances. EPA seeks to avoid unnecessary
disruptions in the marketplace. EPA's goal is to promote a smooth
transition for industry.
---------------------------------------------------------------------------

    \6\ EPA estimates that to stay below the aggregate cap while
reducing HCFC-22 and HCFC-142b by equal percentages, the resulting
HCFC-22 allowances would equal less than two-thirds of the projected
demand for HCFC-22.
---------------------------------------------------------------------------

    EPA requests comments on allocating different percentages of
baseline production allowances and baseline consumption allowances for
HCFC-22 and HCFC-142b.
5. What Other Methods Could Be Used to Determine the Allocation for
HCFC-22 and HCFC-142b Allowances?
    EPA is proposing to allocate HCFC-22 and HCFC-142b allowances based
on the projected servicing needs for those compounds, taking into
account the amount of those needs that can be met through recycling and
reclamation. However, EPA can envision other methods for determining
how many allowances to allocate for the control periods 2010-2014 for
these two compounds, including allocating the maximum amount that
ensures compliance under the Montreal Protocol aggregate 2010 cap
without room for other HCFCs. EPA notes above that HCFCs other than
HCFC-22 and HCFC-142b are likely to be needed during the control
periods 2010-2014. Thus EPA favors an approach that includes other
HCFCs, recognizing that for such HCFCs baselines must be established
and apportioned for each substance, and a percentage of the baseline
must be allocated for these control periods. EPA believes it would not
be appropriate to allocate the full 3,810 ODP-weighted metric tons of
consumption and 3,884.25 ODP-weighted metric tons of production solely
to HCFC-22 and HCFC-142b, given the projected needs for other HCFCs as
discussed in section III.B.11 of this preamble.
    Approaches that do not consider servicing needs could result in
shortages of HCFC-22. EPA considered, but is not proposing, allocating
a percentage of the 2010 aggregate HCFC consumption and production caps
for HCFC-22 and HCFC-142b respectively equal to the same overall
percentage of the aggregate HCFC consumption and production caps
allocated for each substance in the 2003 allocation rule. Under this
approach, EPA would start with the percentage of the total allowable
HCFC consumption and production level attributable to each HCFC in the
2003 rule. For example, beginning in 2004, the total allowable HCFC
consumption level was 9,906 ODP-weighted metric tons. Using the
consumption data for each company's highest ODP-weighted consumption
year, EPA allocated HCFC-22 allowances equal to 66 percent of 9,906 ODP
tons and HCFC-142b allowances equal to 13 percent of 9,906 ODP tons. We
could apply the same percentages to the total allowable HCFC
consumption level for 2010-2014 of 3,810 ODP-weighted metric tons. This
would provide congruence for the overall ``pie.'' EPA is concerned,
however, that such an approach would provide significantly fewer HCFC-
22 allowances in 2010 than would be needed for servicing. Sixty-six
percent of the aggregate HCFC cap for the control periods 2010-2014
equals 2,515 ODP-weighted metric tons, which is approximately equal to
46,000 metric tons of HCFC-22. The Servicing Tail report, however,
estimates that approximately 62,500 metric tons of HCFC-22 will be
needed for servicing in 2010. EPA is concerned that if large quantities
of recycled or reclaimed \7\ HCFC-22 are not available, the need to
make up the almost 20,000-metric-ton shortfall could trigger illegal
activities such as imports of HCFC-22 by those that do not hold
consumption allowances. As noted elsewhere in this NPRM, EPA does not
believe it should rely on inter-pollutant transfers to secure such a
significant amount of HCFC-22 allowances.
---------------------------------------------------------------------------

    \7\ EPA has defined Reclaim, Recover and Recycle at Sec.  82.152
as follows: (1) Reclaim refrigerant means to reprocess refrigerant
to all of the specifications in appendix A to 40 CFR part 82,
subpart F (based on ARI Standard 700-1995, Specification for
Fluorocarbons and other Refrigerants) that are applicable to that
refrigerant and to verify that the refrigerant meets these
specifications using the analytical methodology prescribed in
section 5 of appendix A of 40 CFR part 82, subpart F; (2) recover
refrigerant means to remove refrigerant in any condition from an
appliance and to store it in a external container without
necessarily testing or reprocessing it in any way; (3) recycle
refrigerant means to extract refrigerant from an appliance and clean
refrigerant for reuse without meeting all of the requirements for
reclamation. In general, recycled refrigerant is refrigerant that is
cleaned using oil separation and singe or multiple passes through
devices, such as replaceable core filter-driers, which reduce
moisture, acidity, and particulate matter. These procedures are
usually implemented at the field job site.
---------------------------------------------------------------------------

    While EPA regulations aim at maximizing refrigerant reuse, EPA
believes that reclamation rates in 2010-2014 would not be sufficient to
avert a shortfall if EPA were to issue 46,000 metric tons of
consumption allowances to HCFC-22 using this option. This shortfall
would equal approximately 30 percent of the total projected servicing
need for 2010-2014. As explained in the next section, amounts reported
to EPA of reclaimed refrigerant coupled with estimates for available
recycled refrigerants indicate that currently less than 30 percent of
the servicing need can be met through refrigerant recovery and reuse
during these control periods. Thus, EPA has rejected this method as a
basis for deciding the relative amounts

of HCFC-22 and HCFC-142b allowances to issue for the 2010-2014 control
periods. A memorandum to the docket entitled ``Summary: EPA Analysis of
U.S. Reclamation Practices and Trends'' provides additional information
on reclamation practices underlying the assumptions in EPA's analysis.
    EPA's primary objective is to ensure compliance with the obligation
under the Montreal Protocol to reduce the ODP-weighted ``basket'' of
HCFCs to 75 percent below the baseline for production and consumption
beginning January 1, 2010. Various options, alone or in combination,
could be used to meet this objective. EPA believes, however, that the
proposed option provides the best assurance that allocations will be
available to meet the projected needs for all HCFCs during the 2010-
2014 control periods.
6. How Important Is HCFC-22 in Determining the Allocation of
Allowances?
    HCFC-22 is the HCFC most widely produced and used in applications
for which servicing of existing equipment will occur during 2010-2019.
The Servicing Tail analysis focused on HCFC-22, which represents a
majority of the market, but also includes information on other
refrigerants and components of blends including HCFC-142b and HCFC-123.
The report included in the docket focuses on two major equipment types:
refrigeration and air conditioning.
    Refrigeration equipment can be broken down into four categories:
(1) Domestic refrigeration, (2) refrigerated transport, (3) industrial
process refrigeration (IPR), and (4) commercial refrigeration. Domestic
refrigeration includes household refrigerators, household freezers,
combination refrigerator/freezer units, and water coolers. With the
exception of certain older household freezers that use HCFC-22, this
category typically does not use HCFCs or blends containing HCFCs.
Refrigerated transport includes refrigeration used in equipment that
moves products from one place to another and includes refrigerated ship
holds, truck trailers (i.e., reefer trucks), railway freight cars, and
other shipping containers. Industrial process refrigeration systems are
complex, customized systems used to cool process streams in the
chemical, food processing, pharmaceutical, petrochemical, and
manufacturing industries. This sector also includes industrial ice
machines, equipment used directly in the generation of electricity, and
ice rinks. Commercial refrigeration can be further broken down into
three end-uses: cold storage warehouses, retail food systems, and ice
makers.
    EPA estimates that HCFC-22 use in air-conditioning and
refrigeration equipment was approximately 115,000 metric tons in 2006.
Approximately 66 percent--about 76,000 metric tons--was for servicing
existing equipment, with the percentage higher for the refrigeration
industry than the air-conditioning industry. The majority of HCFC-22
consumption for servicing is currently attributed to residential and
small commercial unitary equipment and retail food refrigeration
equipment.
    The projected servicing need for HCFC-22 in 2010 is approximately
62,500 MT (3,438 ODP-weighted metric tons) or approximately 90 percent
of the consumption cap for all HCFCs in 2010, which is 3,810 ODP-
weighted metric tons. Although EPA estimates that the servicing need
for HCFC-22 will decrease each year beginning in 2010, EPA is not
convinced that there is enough room under the aggregate HCFC cap to
consider any scenario where the allocation of allowances for HCFC-22
production or consumption is substantially higher than the projected
servicing need, given the need to allocate allowances for other HCFCs
as discussed elsewhere in this NPRM.
    In the 2003 allocation rule, EPA issued baseline consumption
allowances for HCFC-22 equaling 119,384,852 kilograms (119,385 metric
tons, or 6,566 ODP-weighted metric tons) and allocated 100 percent of
the baseline for the 2003-2009 control periods. The Montreal Protocol
cap for all U.S. HCFC consumption beginning in 2004 was 9,906 ODP-
weighted metric tons. The baseline allowances for HCFC-22 consumption
represented approximately 66 percent of the Montreal Protocol HCFC
consumption cap for the United States.
    In the 2003 allocation rule EPA issued baseline production
allowances for HCFC-22 equaling 110,619,359 kilograms (110,619 metric
tons, or 6,084 ODP-weighted metric tons) and allocated 100 percent of
the baseline for the 2003-2009 control periods. The Montreal Protocol
cap for all U.S. HCFC production beginning in 2004 was 10,999 ODP-
weighted metric tons. The baseline allowances for HCFC-22 production
represented approximately 70 percent of the Montreal Protocol HCFC
production cap for the United States.
    In the 2003 allocation rule EPA issued baseline consumption
allowances for HCFC-142b equaling 21,088,677 kilograms (21,089 metric
tons, or 1,371 ODP-weighted metric tons) and allocated 100 percent of
the baseline for the 2003-2009 control periods. This represented
approximately 14 percent of the Montreal Protocol HCFC consumption cap
of 9,906 ODP-weighted metric tons for the United States.
    In the 2003 allocation rule EPA issued baseline production
allowances for HCFC-142b equaling 25,090,394 kilograms (25,090 metric
tons, or 1,631 ODP-weighted metric tons) and allocated 100 percent of
the baseline for the 2003-2009 control periods. This represented
approximately 15 percent of the 10,999 ODP-weighted metric tons allowed
for the United States under the Montreal Protocol HCFC cap.
    In the 2003 allocation rule EPA issued baseline consumption and
production allowances for HCFC-141b, and under its ``worst first''
chemical-specific approach allocated 0 percent of baseline for
consumption and production--eliminating, with certain narrow
exemptions, the production and import of HCFC-141b. EPA projects that a
minimal amount of HCFC-141b will continue to be needed for exempted
HCFC-141b production until 2015. Although EPA does not intend to
allocate HCFC-141b production or consumption allowances, EPA must
account for continued consumption and production of minimal exempted
amounts of HCFC-141b to ensure compliance with the 2010 caps.
    In addition, EPA must ensure that production and consumption of
HCFCs for which baselines were not established in the 2003 allocation
rule does not result in an aggregate allocation exceeding the HCFC
production or HCFC consumption caps established by the Montreal
Protocol.
    Air-conditioning and refrigeration equipment commonly requires
servicing, which may include the need to add refrigerant to account for
refrigerant losses that occur over time. The limited amount of
production and import of HCFC-22 and HCFC-142b beginning January 1,
2010, will be allowed only for servicing equipment manufactured prior
to January 1, 2010. Later in this proposal, EPA will consider what is
meant by ``manufactured.''
    The Agency recognizes that servicing needs can be met with a
combination of newly manufactured HCFCs (virgin HCFCs) and HCFCs that
have been recovered and either recycled or reclaimed. Therefore, EPA
does not anticipate that the entire projected HCFC-22 servicing need
(3,438 ODP tons) will need to be produced or imported to meet the
anticipated

demand. A percentage of that servicing need will be met by recovering
used HCFC-22 from existing equipment. The ``servicing tail'' report
provides analysis of various scenarios regarding reclamation. In
addition, EPA's memo to the docket ``Summary: EPA Analysis of U.S.
Reclamation Practices and Trends'' provides background on the
reclamation industry, which includes information concerning capacity to
reclaim greater amounts of refrigerants, and projects that more than 20
percent of the servicing need can be met by recovering used HCFC-22
from existing equipment.
    Recycled and reclaimed HCFCs offset the need for newly-manufactured
HCFCs and after the terminal phaseout, as with the CFC phaseout, will
become the sole source of HCFCs for servicing existing equipment. EPA
regulations at 40 CFR part 82 Subpart F manage the recovery, recycling,
reclamation, and reuse of HCFCs under section 608 of the CAAA. Under
those regulations, HCFCs may not be vented and must be recovered and
are then generally either recycled, reclaimed, or in some cases
destroyed. Therefore, it is reasonable to assume that some amount of
used HCFCs will be available to meet servicing needs. In accordance
with the chemical-by-chemical phaseout regime adopted by the United
States, after 2020 only recycled, reclaimed, and stockpiled HCFC-22 and
HCFC-142b will be available to service appliances that require those
substances. EPA's existing regulations at Sec.  82.16 terminate HCFC-22
and HCFC-142b production and consumption at the end of 2019, and EPA is
not proposing to modify that provision. The very small amount of
additional production and consumption of HCFCs allowed under Article 2F
of the Montreal Protocol between 2020 and 2030 for servicing existing
appliances (0.5 percent of baseline) will only be permitted for HCFCs
other than HCFC-141b, HCFC-22, and HCFC-142b, per Sec.  82.16(e), and
restricted to servicing only air-conditioning and refrigeration
equipment manufactured prior to January 1, 2020 per Sec.  82.16(d).
    Given its previous experience with the Class I phaseout, EPA
believes that over time a larger percentage of recovered HCFCs will be
available for reuse. For example, after the 1996 CFC phaseout, motor
vehicles with CFC-12 air-conditioning systems continued to be serviced
with used CFC-12. In fact, even today recovered CFC refrigerants are
still in use for servicing a range of older equipment.
    The Servicing Tail report used EPA's Vintaging Model to determine
the quantities of HCFC-22 from existing (recycled or reclaimed) sources
that can meet post-2010 servicing needs with the remaining quantities
required through virgin manufacture (expending allowances). For a given
year, the Vintaging Model assumes that a certain percentage of
refrigerants, which varies by end-use, is recovered from discarded
equipment. The model aggregates the quantities recovered but does not
distinguish the ``pool'' of refrigerant between quantities that are
reclaimed versus those that are recycled. EPA's Vintaging Model was the
primary tool used to launch the analysis and form the basis for
quantitative estimates of projected HCFC consumption. The Vintaging
Model estimates the annual chemical emissions from industry sectors
that have historically used ODS, including air conditioning,
refrigeration, foams, solvents, aerosols, and fire protection. Within
these industry sectors, there are over 50 independently modeled end-
uses. The model uses information on the market size and growth for each
of the end-uses, as well as a history and projections of the market
transition from ODS to alternatives. As ODS are phased out, a
percentage of the market share originally filled by the ODS is
allocated to each of its substitutes. The model tracks emissions of
annual ``vintages'' of new equipment that enter into operation by
incorporating information on estimates of the quantity of equipment or
products sold, serviced, and retired or converted each year, and the
quantity of the compound required to manufacture, charge, and/or
maintain the equipment. EPA's Vintaging Model makes use of this market
information to build an annual inventory of in-use stocks of equipment
and the ODS refrigerant and non-ODS substitutes in each of the end-
uses.
    For purposes of analysis, the Servicing Tail report considers
scenarios for HCFC-22 and HCFC-142b where differing amounts of
servicing needs were met by recycled and reclaimed refrigerants. For
example, the report examines scenarios in which 10 percent, 15 percent,
20 percent, 25 percent, 50 percent, and 75 percent of the total amount
of HCFC-22 in retired or converted equipment is recovered. These
analyses depict the potential ratios of new and recovered HCFCs that
could be available during the years 2010-2019 to meet the overall
servicing needs recognizing that the higher recovery rates are less
likely for the earlier control periods.
    EPA has anecdotal and reported information concerning recovery
rates for refrigerants. Commenters at the September 2006 stakeholder
meeting indicated that approximately 10 percent of HCFC-22 in current
use was recovered and either reclaimed or recycled. Data reported to
EPA consistent with 40 CFR Part 82 Subpart F shows that approximately
3716 metric tons (204 ODP tons) of HCFC-22 was reclaimed in 2007. EPA
does not track recycled refrigerants, since recycled refrigerant
(unlike reclaimed refrigerant) typically is charged back into equipment
with the same ownership rather than re-entering the market. Readers
interested in additional information concerning recovery and recycling
should review the Servicing Tail report. Given the regulatory
requirements for recycling and reclamation (at 40 CFR part 82 subpart
F), experience with the CFC phaseout, and industry practices, EPA
estimates that during the period 2010-2014, an amount greater than 20
percent of the total servicing need for HCFC-22 can be met with HCFC-22
that has been recovered and either recycled or reclaimed. Since EPA is
not banning the use of HCFC-22 equipment, recovered and reclaimed HCFC-
22 will become a more valuable commodity as the U.S. approaches the
January 1, 2015, stepdown. The demand for HCFC-22 to service existing
equipment should provide an economic incentive for an increase in the
quantities of used HCFC-22 available for reclamation. As an indicator,
EPA notes that several reclamation companies have recently started
offering financial payments for used HCFC-22. The docket for this NPRM
provides further information regarding EPA's assumptions regarding the
availability of recycled or reclaimed HCFC-22 to meet servicing needs.
    EPA has considered, but is proposing to reject, using an increasing
number to represent the contribution of recycled and reclaimed
refrigerant for each of the control periods from 2010-2014 and thus
simultaneously reducing the amount of allowances needed for HCFC-22.
EPA believes for these control periods, maintaining a constant number
of allowances would reduce the overall burden for the allowance holders
and would ease business practices. EPA notes that recovery rates could
fluctuate yearly and thus holding steady for control periods 2010-2014
is an appropriate approach. In addition, the step downs in the expected
recycling and reclamation rates then more closely reflect the
international commitments in Decision XIX/6. EPA expects that for the
2015-2019 control periods, the percent of servicing need met by
recovered refrigerants will increase and, as noted above, beginning in
2020 all servicing needs for HCFC-22 will be met with

recovered refrigerants. EPA will address the percent of servicing need
to be met by recovered refrigerants in 2015-2019 in a subsequent
rulemaking to reflect the 2015 stepdown required by Article 2F:

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 1 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 the controlled substances in Group 1 of
Annex C does not exceed zero. However, * * * each Party may exceed
that limit on consumption by up to zero point five percent 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.

EPA believes that meeting demand after 2010 will require the reuse of
HCFC-22, and is particularly concerned with ensuring that demand is met
during the first years of the 2010-2014 control periods when a large
number of appliances using HCFC-22 will still be suitable for use. EPA
notes that a smooth transition for stakeholders--including continued
availability of needed material for approved uses--has historically
been an essential aspect of the U.S.'s success in implementing the
Montreal Protocol and Clean Air Act requirements. For purposes of the
2010-2014 control periods, EPA is proposing to use a number in the
range of 15--25 percent to represent the contribution of recovered
refrigerant to the total servicing need. EPA requests comments on the
amount of the total servicing need for HCFC-22 that can be met with
recovered refrigerants, which is between 15 and 25 percent of total
estimated servicing need.
7. HCFC-22 Allowances for 2010-2014
    EPA is proposing to allocate HCFC-22 consumption allowances to meet
80 percent of the servicing need, assuming that the remaining 20
percent will be met by recovered HCFC-22 that is either recycled or
reclaimed. This translates into approximately 50,000 metric tons (2,750
ODP-weighted metric tons), or approximately 72 percent of the total
HCFC consumption cap for each of the control periods from 2010 through
2014.
    As it did in the 2003 allocation rule, EPA is proposing to allocate
production allowances among different chemicals using the same
percentage breakdown as for consumption allowances. This would allocate
45,498 metric tons (2,502 ODP tons) of the 3,884.25-ODP-ton production
cap to HCFC-22 production. This is consistent with section 605(c) of
the Clean Air Act, which states that EPA shall promulgate a phaseout
schedule for HCFC consumption that is the same as that applicable to
HCFC production. EPA recognizes that there is a difference between the
amount of imported and produced HCFCs and that the degree of difference
may vary over time. However, EPA does not believe it is necessary to
use two different chemical-by-chemical percentage breakdowns (i.e., one
for consumption allowances and another for production allowances) to
ensure compliance with the production and consumption caps. Therefore,
for simplicity and for consistency with section 605(c), EPA is
proposing to use the same percentages for production and consumption
allocations--deriving the percentages based on estimated need for each
individual HCFC.
    If more HCFC-22 is recovered, recycled, and reclaimed than assumed
in this proposed rule, EPA anticipates that the demand for virgin HCFC-
22 will decrease. Thus it is possible that not all the production and
consumption allowances will be used. It is also possible that any
``extra'' HCFC-22 allowances could be converted via inter-pollutant
transfers to meet other HCFC needs.
    EPA requests comments on its application of a 20 percent rate of
availability of recovered (recycled or reclaimed) HCFC-22. As discussed
above, EPA estimates that at least 20 percent of the 2010-2014
servicing need can be met from recycled or reclaimed material. EPA
believes that by the January 1, 2010, effective date of this rule, 20
percent of the 2010-2014 servicing needs should be available from
recycled or reclaimed material, and that the availability of recycled
or reclaimed material would be expected to increase as the phaseout
progresses. EPA notes that in 2020 all HCFC-22 and HCFC-142b used to
service air-conditioning and refrigerant equipment will need to be
recycled or reclaimed, in light of the nearly-complete phasedown of
production and import of virgin material that is scheduled to occur by
that date. Additionally, EPA regulations already prohibit the
intentional venting of refrigerants and require refrigerant recovery,
and the market for recycled and reclaimed refrigerant is predicted to
grow as the phaseout progresses. EPA is interested in other data
regarding the actual and projected rates of refrigerant recycling and
reclamation in the U.S., as well as whether it should consider
allocating allowances for HCFC-22 at other levels, such as
approximately 100 percent, 90 percent, 80 percent, or 75 percent of the
aggregate 2010 cap.
8. HCFC-142b Allowances for 2010-2014
    After subtracting out the proposed 72 percent of the 2010 cap for
HCFC-22, 28 percent remains to meet all other HCFC needs. EPA believes
that the remaining 28 percent is more than the projected HCFC-142b
servicing needs, the amounts of HCFC-141b that EPA expects to allow
based on the petition process, and all other likely HCFC consumption
for the 2010-2014 control periods. This is based on a review of
required quarterly, annual, and periodic reports; the Servicing Tail
analysis; and comments submitted to EPA by stakeholders in advance of
this proposed rulemaking. As described below, the amounts allocated for
these substances reflect these assumptions.
    As discussed in the Servicing Tail report described above, the
projected servicing need for HCFC-142b is extremely low: Approximately
100 metric tons (7 ODP tons). In estimating the need for 2010-2014, EPA
has considered the amount of HCFC-142b produced and imported into the
United States as reported to EPA in recent years under the existing
requirements. Whereas earlier versions of the Servicing Tail analysis
focused on HCFC-22, the most recent version--which is included in the
docket for this rulemaking--also projects the demand for all other
HCFCs for which consumption and production are likely to occur: HCFC-
142b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb. The recovery,
recycling, and reclamation requirements apply to HCFC-142b as they do
to all refrigerants, but recovery rates for HCFC-142b are considerably
lower than for HCFC-22, largely because HCFC-142b is typically used in
blended refrigerants. The limited amount of data available to EPA
indicates that less than 1 percent of HCFC-142b is recycled or
reclaimed. In light of the limited data available, and the extremely
low estimate of recycling and reclamation, EPA is proposing to allocate
100 percent of the projected HCFC-142b servicing need rather than
assuming that a specified percentage of the need will be met through
the use of recycled or reclaimed amounts. EPA is proposing to issue
consumption allowances for HCFC-142b of 100 metric tons (7 ODP tons).
Allocating 72 percent of the consumption cap to HCFC-22 and less than 1
percent to HCFC-142b allows up to 27 percent to be allocated to other
HCFCs.

    EPA is proposing to allocate production allowances for HCFC-142b at
the same proportion of the production cap as was used to allocate
consumption allowances as a proportion of the consumption cap. Thus EPA
is proposing to allocate production allowances for HCFC-142b at 142
metric tons (9.2 ODP tons).
9. How Does the Aggregate for HCFC-22 and HCFC-142b Translate to
Entity-by-Entity?
    EPA is proposing to allocate up to a total of no more than 50,000
metric tons of HCFC-22 consumption allowances, 45,498 metric tons of
HCFC-22 production allowances, 100 metric tons of HCFC-142b consumption
allowances, and 142 metric tons of HCFC-142b production allowances.
However, EPA actually allocates allowances to individual persons (i.e.,
legal entities). As discussed in section III.A.2 of this preamble,
EPA's preferred approach is to apportion baselines and allocate
allowances on a pro-rata basis to the entities that received baseline
allowances in the 2003 allocation rule. Nevertheless, the Agency is
taking comment on other allocation options, which are discussed below.
    Company-specific production and consumption baselines (also
referred to as ``baseline allowances'') for HCFC-141b, HCFC-22, and
HCFC-142b are listed at Sec. Sec.  82.17 and 82.19(a), respectively.
The percentage of baseline each entity receives in each control period
from 2003 through 2009 appears at Sec.  82.16(a). EPA is proposing to
amend Sec.  82.16(a) to include the 2010-2014 control periods. For the
years 2010-2014, as for the years 2003-2009, EPA's preferred approach
is to specify the same percentage of baseline for each entity. EPA
considers allocation of the same percentage to each entity listed at
Sec.  82.17 and Sec.  82.19 to be the most equitable approach. EPA does
not believe that its allocation of baseline allowances should reflect
sales of controlled substances that would subsequently occur. EPA
believes that the market for HCFCs that the allowance holders sell to,
will evolve to reflect these restrictions as it would evolve other
market conditions. This approach is consistent with EPA's previous
approach to allocations. However, EPA does note that there have been
and continue to be restrictions on use of controlled substances. EPA
considered alternative approaches such as evaluating sales information
for HCFCs where allowances were expended and considering the
differences between expended allowances versus allowances acquired via
inter-pollutant transfers. EPA has included in the docket to this
rulemaking a memorandum titled Draft Regulatory Options for Allocating
HCFC Allowances after 2009 as well as comments submitted by
stakeholders describing alternative approaches that the Agency may
consider.
    As previously noted, allowances allocated for individual control
periods may be thought of as ``calendar-year allowances'' to
distinguish them from the apportioned baseline production or
consumption allowances (Sec.  82.17 and Sec.  82.19). For 2010-2014,
EPA is proposing to apportion production and consumption baselines for
HCFC-22 and HCFC-142b to the same entities that were apportioned HCFC-
22 and HCFC-142b baselines in the 2003 allocation rule. EPA is
proposing to amend that list of entities and their baselines to reflect
changes in the entities' names as well as mergers and acquisitions, but
only where EPA has been notified of changes in writing before or during
the comment period for this rulemaking, which closes February 23, 2009
or March 9, 2009 if a hearing is held.
    The proposed company-specific baselines also reflect adjustments
resulting from approved inter-pollutant and/or inter-company transfers
of baseline allowances (i.e., permanent rather than calendar-year
allowances) through the process described in Sec.  82.23. To be
reflected in the final apportionment of baselines in the final rule,
such transfers must have occurred, with EPA approval, before or during
the second quarter of the 2008 control period (i.e., by June 16, 2008).
As noted in the 2003 allocation rulemaking, EPA is sensitive to the
need to avoid creating an ``uneven playing field'' that could
potentially skew allocations to entities with ample resources and good
access to information. EPA held a public meeting on June 16, 2008. As
it did in the 2003 allocation rulemaking when determining which years
to use for establishing a baseline, EPA is using the date of the public
meeting as a cutoff date for inter-pollutant and inter-company
transfers of permanent baseline allowances that would be reflected in
the revised tables shown in this NPRM. EPA believes that since
allowance transfers affect the pool of allowances for each controlled
substance and thus the amounts apportioned company-by-company, a cutoff
date in advance of the issuance of the NPRM is necessary and thus
selected a date based on availability and access to information.
    EPA recognizes that in some cases entities are no longer actively
involved in HCFC production, import, and/or export activities. EPA is
seeking comment on whether it should retain the baselines for such
entities (the preferred approach) or whether it should retire, auction,
or redistribute the baselines among the active entities. EPA has placed
in the docket to this proposed rule a memorandum that considers and
evaluates each of these options, discussing both the advantages and
disadvantages, titled Draft Regulatory Options for Adjusting the HCFC
Baseline for Allowance Allocations. For example, apportioning a
baseline to an entity that is no longer active means that its
allowances might not be expended, resulting in a net environmental
benefit. Allocating allowances via an auction may allow for new
entrants to purchase allowances or for allowances to be purchased and
intentionally retired. However, EPA currently does not use an auction
for allocating allowances and anticipates that designing and deploying
an auction system could cause administrative delays. An auction system
could impose costs on new participants, which would be borne by non-
participants who received allowances for the 2003-2009 control periods
without charge. EPA notes, however, that under the current allowance
system for new entrants to acquire allowances, allowances must be
transferred from an existing allowance holder and that when such a
transfer occurs, costs are likely to arise from the purchase price and
any transaction costs. Allocating allowances to entities that are no
longer active in the field may provide an option for new entrants and
for entities seeking to purchase and retire allowances, as the inactive
entities would presumably be willing sellers. EPA is proposing to
retain the baselines for HCFC-22 and HCFC-142b as previously
apportioned, subject to updates to reflect name changes and permanent
inter-company and inter-pollutant transfers.
    Consistent with past practice, EPA is publishing baseline allowance
information in this NPRM, having first notified the affected companies
of its intention to do so.
    Applying the approach described above, EPA proposes to apportion
production and consumption baselines for HCFC-141b, HCFC-22, and HCFC-
142b to the following entities in the following amounts:

Table

------------------------------------------------------------------------
                                                            Allowances
              Person                Controlled substance       (kg)
------------------------------------------------------------------------
                     Production Allowance Allocation
------------------------------------------------------------------------
Arkema............................  HCFC-22.............      46,692,336
                                    HCFC-141b...........      24,647,925
                                    HCFC-142b...........         484,369
DuPont............................  HCFC-22.............      42,638,049
Honeywell.........................  HCFC-22.............      37,378,252
                                    HCFC-141b...........      28,705,200
                                    HCFC-142b...........       2,417,534
MDA Manufacturing.................  HCFC-22.............       2,383,835
Solvay Solexis....................  HCFC-142b...........       6,541,764
------------------------------------------------------------------------
                    Consumption Allowance Allocation
------------------------------------------------------------------------
ABCO Refrigeration Supply.........  HCFC-22.............         279,366
Altair Partners...................  HCFC-22.............         302,011
Arkema............................  HCFC-22.............      48,637,642
                                    HCFC-141b...........      25,405,570
                                    HCFC-142b...........         483,827
Automatic Equipment Sales.........  HCFC-22.............          54,088
Condor Products...................  HCFC-22.............          74,843
Continental Industrial Group......  HCFC-141b...........          20,315
Coolgas, Inc......................  HCFC-141b...........      16,097,869
Coolgas Investment Property.......  HCFC-22.............         590,737
Discount Refrigerants.............  HCFC-22.............         375,328
                                    HCFC-141b...........             994
Dupont............................  HCFC-22.............      38,814,862
                                    HCFC-141b...........           9,049
                                    HCFC-142b...........          52,797
Full Circle.......................  HCFC-22.............          14,865
H.G. Refrigeration Supply.........  HCFC-22.............          40,068
Honeywell.........................  HCFC-22.............      35,392,492
                                    HCFC-141b...........      20,749,489
                                    HCFC-142b...........       1,315,819
ICC Chemical Corp.................  HCFC-141b...........          81,225
Ineos Fluor Americas..............  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
                                    HCFC-141b...........       3,940,115
Solvay Solexis....................  HCFC-142b...........         194,536
Tulstar Products..................  HCFC-141b...........          89,913
------------------------------------------------------------------------

    EPA requests comments on the proposed method and calculations for
allocating allowances on an entity-by-entity basis for HCFC-22 and
HCFC-142b production and consumption.
10. Baselines for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb
    EPA is proposing to establish and apportion baselines for other
HCFCs that have been produced or imported in recent years by using
information on production, import, export, and other transactions that
has been reported to the Agency under existing regulations. EPA
requires recordkeeping and reporting for production, import, export,
and trade of all ozone-depleting substances, including HCFCs for which
baseline allowances have not yet been established. The recordkeeping
and reporting requirements implement section 603 of the Clean Air Act
and ensure that companies are in compliance with regulatory and Clean
Air Act requirements and that the United States is able to meet
international obligations. EPA is not proposing any changes to these
requirements.
    EPA reviewed HCFC production, import, and export data for the years
leading up to the 2003 allocation rule, and chose to establish
baselines and allocate allowances for the highest-ODP HCFCs (e.g., a
``worst-first'' approach) in a manner that ensured U.S. compliance with
the 2004 cap (35 percent below the U.S. baseline). Prior to the
tightening of the 2010 HCFC cap at the 19th Meeting of the Parties to
the Montreal Protocol in September 2007, EPA anticipated that limiting
production and consumption of HCFC-22 and HCFC-142b for the 2010-2014
control periods would ensure sufficient room under the then-effective
65 percent reduction cap without the need to restrict production and
consumption of other HCFCs. Prior to attending the 19th Meeting of the
Parties where agreement was reached to reduce the 2010 cap from a 65
percent reduction to a 75 percent reduction, EPA conducted analysis
which was shared with stakeholders to ensure that the U.S. could
consider changes to our obligations that were both meaningful for ozone
layer protection and achievable, allowing servicing needs to continue
to be met. Considering that the

September 2007 Montreal Adjustment provides for adjustment of the cap
from a 65 percent to a 75 percent reduction, EPA is proposing
additional precautions to ensure that the more stringent cap will not
be exceeded. These precautions include establishing and apportioning
baselines for the 2010-2014 control periods for other HCFCs that were
produced or imported during the 2003-2007 control periods.
    EPA is proposing to apportion baselines for the other HCFCs by
amending Sec. Sec.  82.17 and 82.19 to include company-specific
production and consumption baselines for HCFC-123, HCFC-124, HCFC-
225ca, and HCFC-225cb. EPA data indicate that those four HCFCs were
produced, imported, or exported during the 2003-2007 control periods.
    In the 2003 allocation rule, EPA did not issue allowances for all
HCFCs, noting in part ``that the continuously developing HCFC market
would be hampered by such distribution'' and that the market
proportions at that time ``of these lower-ODP HCFCs do not reflect the
rapidly expanding market and that distributing allowances for these
HCFCs at [that] time would unnecessarily restrict their supply and
impede transition to less ozone-depleting substances'' (68 FR 2823).
Considering the recent adjustments to the Montreal Protocol and the
evolution in the HCFC market, EPA believes it is now appropriate to
establish a baseline and apportion baseline allowances for HCFC-123,
HCFC-124, HCFC-225ca, and HCFC-225cb.
    All HCFCs are covered under the Montreal Protocol stepwise
reductions, and EPA must consider all HCFC production and import in
ensuring that the United States continues to meet its international
obligations. The four HCFCs identified in this proposal are the only
remaining HCFCs commonly used in the United States that do not
currently have established baselines. EPA does not expect that
establishing baseline allowances for these four HCFCs would trigger
additional recordkeeping or reporting obligations, since companies that
produce, import, or export any HCFC already report production and
consumption data to EPA. The impacts stem from the years chosen for
establishing a baseline, the apportionment of the baseline among
companies, and the percentage of baseline allocated for the control
years 2010-2014. EPA discusses these issues more specifically below.
    EPA recognizes that many different methods and data sources can be
used to establish baseline allowances. EPA believes that the best data
to use for this purpose are the data reported to the Agency under Sec.
82.24. Entities that have not reported data would not be included in
the baseline calculations and would not receive baseline allowances. If
necessary, EPA could augment the data for completeness or to verify
accuracy by issuing requests for information under section 114 of the
CAA. EPA seeks comment on its proposal to use data reported under Sec.
82.24 as the basis for identifying the entities to which allowances
should be allocated.
    In the 2003 allocation rule, EPA calculated each entity's HCFC-
141b, HCFC-22, and HCFC-142b baseline from that entity's highest
reported consumption and production from the years 1994-1997. EPA chose
that particular range of years because beginning in 1998, some entities
were aware of the impending rulemaking and could have increased
production or import in an effort to secure higher baseline allowances.
EPA stated in the 2003 allocation rulemaking that ``by not selecting a
year after 1997 it will avoid creating an uneven playing field that
skews allocations to those companies with ample resources and good
access to information'' (68 FR 2832). EPA is proposing to follow a
similar approach for these four HCFCs by considering the highest
reported data from a range of years rather than selecting a single
baseline year. EPA is proposing to use the data reported for the 2005-
2007 control periods to calculate baselines for the four additional
HCFCs, based on an entity's highest reported consumption and production
for the 2005-2007 control periods. By using past years, EPA avoids any
ramp-up in the level of production and consumption resulting from a
desire to maximize individual baselines in anticipation of this rule
going into effect. By using recent data, EPA ensures the baseline
reflects the current market as closely as possible, and issues raised
when EPA decided to postpone allocating baseline allowances for these
HCFCs in 2003.
    EPA requests comment on the need to establish baselines for these
four additional HCFCs at this time. In particular, EPA is interested in
comments concerning whether establishing and apportioning a baseline
for these four HCFCs, and allocating a percentage of that baseline for
the 2010-2014 control periods, is necessary to ensure that the United
States does not exceed the 25 percent HCFC cap under the 2007 Montreal
Adjustment. EPA requests comments on the appropriateness of using each
company's highest reported consumption and production for 2005-2007
rather than the lowest or an average.
11. What Percentage of the Baseline Will EPA Allocate for HCFC-123,
HCFC-124, HCFC-225ca, and HCFC-225cb for the Control Periods 2010-2014?
    EPA is proposing to establish baseline production and consumption
allowances for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb, and to
allocate 125 percent of these baselines for the 2010-2014 control
periods. By establishing these baseline production and consumption
allowances, EPA would be creating a mechanism for limiting growth in
production and consumption for these HCFCs during those control
periods. Regardless of any action by EPA, given the 605(a) self-
effectuating provisions, further growth for these HCFCs will be
constrained in 2015 by the provisions on use. For example, given the
characteristics of HCFC-225ca and HCFC-225cb, they are generally used
as solvents. As of January 1, 2015 that application will be restricted.
Thus any growth in the use of these HCFCs will be balanced to some
extent by the self-effectuating provisions. Thus EPA is recognizing
that other limiting factors, such as section 605(a) of the CAA, will
considerably affect how these HCFCs can be used in subsequent control
periods. While it is appropriate and necessary for EPA to allocate less
than 100 percent of the baseline allowances for HCFC-22 and HCFC-142b,
given the use restrictions that apply beginning January 1, 2010, these
four low-ODP HCFCs are not subject to domestic use restrictions until a
later date. For example, while newly manufactured HCFC-22 cannot be
produced or imported for charging into new air-conditioning and
refrigeration appliances as of January 1, 2010 (40 CFR 82.16(c)), HCFC-
123 can be produced or imported for new appliances until 2020 (40 CFR
82.16(d)). Therefore, EPA believes that it is not appropriate to
allocate less than 100 percent of baseline for these compounds in this
action. EPA has included information and analysis on these HCFCs in
Chapter 3 of the Servicing Tail analysis, which is in the docket for
this rulemaking. After reviewing trends in the production, import,
export, and trade data submitted to EPA since 2003, EPA believes that
allocating 100 percent of the baseline should be sufficient to meet
current demand. The Servicing Tail analysis available in the docket
provides additional information concerning trends based on the
Vintaging Model and additional information provided by stakeholders.
However, EPA has heard

from stakeholders that some amount of market expansion for these low-
ODP HCFCs is possible during the 2010-2014 control periods. Given the
low ODPs for these HCFCs, EPA believes that if it were to allocate 125
percent of the baseline for 2010-2014, the United States could still
meet the overall HCFC cap of 75 percent below the baseline during these
control periods. EPA believes that any continued growth for these HCFCs
will be considerably affected by section 605(a) as of January 1, 2015.
    Through this action, EPA is proposing to allocate allowances
equaling 125 percent of the baseline for HCFC-123, HCFC-124, HCFC-
225ca, and HCFC-225cb for the 2010-2014 control periods. If rapid
growth were to occur, creating the need for additional amounts of these
HCFCs, EPA believes that inter-pollutant transfers could be used to
make adjustments. If the full amount of allowances is not needed, then
some allowances may go unused. In accordance with the next stepdown
under the Montreal Protocol, EPA will issue a rule prior to the 2015
HCFC milestone to limit aggregate production and consumption of all
HCFCs to no more than 10 percent of the U.S. baselines for production
and consumption. At that time, EPA plans to consider the appropriate
level of allowances for 2015 and beyond based on market demand and the
section 605(a) restrictions on introduction into interstate commerce
and use discussed elsewhere in this NPRM. Examples of uses that will be
limited by section 605(a) beginning in 2015 are solvent uses and fire
suppression. EPA anticipates other changes as well. For example, EPA's
proposed allowance level for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-
225cb does not assume a specified level of recycling and reclamation.
For HCFCs used in non-refrigeration applications, such as those used as
solvents (i.e., HCFC-225ca and HCFC-225cb), the section 608 ``no
venting'' prohibition is not applicable. HCFC-123 is used in chillers
that in some cases are replacing CFC chillers. Given that in many cases
these appliances will last a long time, it will be some time before
significant amounts of HCFC-123 are recovered and recycled or
reclaimed. In future rulemakings, however, EPA may estimate the amount
of the total need for HCFC-123 that can be met through recycling and
reclamation. As the HCFC-123 market matures, the refrigerant recovery,
recycling, and reclamation requirements in 40 CFR part 82 subpart F,
will result in a greater amount of reusable HCFC-123. Recognizing that
the HCFC market will continue to evolve, subject to the constraints in
section 605(a), EPA is proposing to establish and apportion baseline
allowances and provide calendar-year allowances for the control periods
2010-2014 for these HCFCs.
    EPA has established company baselines for these four low-ODP HCFCs
by choosing each company's highest production and consumption years
from 2005, 2006, and 2007. This is the same approach EPA used to
establish the company baselines for HCFC-141b, HCFC-22, and HCFC-142b
in the 2003 allocation rule.
    Data show that 125 percent of the highest year's consumption of
HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb for all the companies
combined equals 163 ODP-weighted metric tons, which is slightly more
than 4 percent of the total HCFC consumption cap of 3,810 ODP tons.
    EPA data also show that 125 percent of the highest year's
production of HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb for all
the companies combined equals 135 ODP-weighted metric tons, which is
slightly more than 3 percent of the total HCFC production cap of
3,884.25 ODP tons.
    EPA proposes to allocate production allowances to the following
entities for the following amounts:

------------------------------------------------------------------------
                                                            Allowances
              Person                Controlled substance       (kg.)
------------------------------------------------------------------------
AGC Chemicals Americas............  HCFC-225ca..........         266,608
                                    HCFC-225cb..........         373,952
DuPont............................  HCFC-124............       2,269,210
Honeywell.........................  HCFC-124............       1,804,121
------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                                            Allowances
              Person                Controlled substance       (kg.)
------------------------------------------------------------------------
AGC Chemicals Americas............  HCFC-225ca..........         285,328
                                    HCFC-225cb..........         286,832
Arkema............................  HCFC-124............           3,719
Condor Products...................  HCFC-124............           3,746
Coolgas, Inc......................  HCFC-123............          20,000
Dupont............................  HCFC-123............       2,933,906
                                    HCFC-124............         743,312
Honeywell.........................  HCFC-124............       1,284,265
ICOR..............................  HCFC-124............          81,220
National Refrigerants.............  HCFC-123............          72,600
                                    HCFC-124............          50,380
Tulstar Products..................  HCFC-123............          34,800
                                    HCFC-124............         229,582
------------------------------------------------------------------------

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

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

B. Does the Article 5 Allowance Provision Change Given the Adjustments
to the Montreal Protocol?

    Under the Montreal Protocol, industrialized countries and
developing countries have different schedules for phasing out ODS
production and consumption. Developing countries operating under
Article 5, paragraph 1 of the Montreal Protocol in most cases have
additional time in which to phase out ODSs. Recognizing that it would
be inadvisable for developing countries to spend their scarce resources
to build new ODS manufacturing facilities to meet basic domestic needs
for chemicals they would ultimately phase out, the Parties to the
Montreal Protocol decided to permit a small amount of production in
industrialized countries, in addition to the amounts otherwise
permitted for such countries under the relevant phaseout schedules, for
export to meet the basic domestic needs of developing countries. As
discussed above, at the 19th Meeting of the Parties (MOP) to the
Montreal Protocol held in September 2007, the Parties agreed to a
revised phaseout schedule for both Article 5 and non-Article 5 Parties.
Included with the changes to the phaseout schedule were changes to the
amount of production in industrialized countries that would be
permitted to meet the basic domestic needs of Article 5 Parties. These
changes were in keeping with the more stringent phaseout schedule for
developing countries. Previously, the Montreal Protocol had allowed
non-Article 5 countries to produce at 15 percent of their baseline
levels for export to Article 5 countries from 2016, the year in which
Article 5 countries were required to freeze consumption, through the
terminal phaseout in 2040. At the 19th MOP the Parties agreed that to
satisfy basic domestic needs of Article 5 countries, non-Article 5
Parties would be allowed to produce up to 10 percent of baseline levels
until 2020. For the period after 2020, the Parties agreed to consider
further reduction of the production for basic domestic needs no later
than 2015 (UNEP/Ozl.Pro.19/7 Decision XIX/6: Adjustments to the
Montreal Protocol with regard to Annex C, Group I, substances
(hydrochlorofluorocarbons)).
    Section 605(d)(2) of the Clean Air Act states that notwithstanding
the restrictions on production, use, and introduction into interstate
commerce set forth in paragraphs (a) and (b) of that section, EPA ``may
authorize the production of limited quantities of a class II substance
in excess of the quantities otherwise permitted under such provisions
solely for export to and use in developing countries that are Parties
to the Montreal Protocol, as determined by the Administrator'' (42
U.S.C. 7671d(d)(2)). EPA's implementing regulation at 40 CFR Sec.
82.18(a) provides for allocation of ``Article 5 allowances'' for
production of specified ODSs solely for export to Article 5 Parties to
meet those countries' basic domestic needs. The ``Article 5'' Parties
are listed at 40 CFR part 82, subpart A, appendix E. Currently under
Sec.  82.18(a) an entity that is apportioned baseline HCFC production
allowances receives an amount of Article 5 allowances equal to 15
percent of that production baseline.
    EPA is proposing to amend Sec.  82.18(a) to reflect the adjustment
to the Montreal Protocol at the 19th MOP and to ensure that the United
States does not permit a level of production to meet basic domestic
needs in Article 5 Parties that exceeds the level specified in the
adjustments. EPA is taking this action in accordance with section
606(a)(3) of the Clean Air Act. EPA is also proposing minor changes to
82.15(c) to clarify that HCFCs produced with Article 5 allowances may
be introduced into interstate commerce if destined for export.
    Section 82.18(a)(1) currently states that a person apportioned
baseline production allowances for specified HCFCs is also apportioned
Article 5 allowances for the specified HCFCs equal to the following
percentages of that person's baseline: For control periods through
2014, 15 percent; for control periods from 2015 through 2029, 10
percent; and for control periods from 2020 through 2039, 15 percent.
While the Montreal Protocol previously permitted production for the
basic domestic needs of Article 5 countries equal to 15 percent of the
U.S. production baseline for each control period until 2040, section
605(d)(2)(B) of the Clean Air Act requires that for the period between
2015 and 2030 the production for Article 5 countries be limited to 10
percent of baseline. Thus EPA regulations at Sec.  82.18(a) currently
restrict Article 5 allowances to 10 percent of production baseline from
January 1, 2015, through December 31, 2029, but otherwise allow the
full 15 percent previously permitted by the Protocol.
    EPA is proposing to amend Sec.  82.18(a) to allocate Article 5
allowances for the HCFCs covered by this rulemaking, for the period
2010-2019, consistent with the recent changes to the Montreal Protocol.
Prior to 2015, exports to Article 5 Parties of HCFC-123, HCFC-124,