Agency should use as an offset for international transfers and, if at a
different level than other offsets, why a different level is warranted.

B. How is EPA proposing to address destruction of regulated HFCs?

1. Which destruction technologies is EPA proposing to approve for the
destruction of regulated HFCs?
    The AIM Act in subsection (b)(7) defines the term produce to
exclude the destruction of HFCs if the destruction occurs through use
of a technology approved by the Administrator. This section proposes a
list of destruction technologies that would be considered approved for
purposes of the AIM Act.
    Many of the destruction technologies previously approved by EPA to
destroy ODS have also been found capable of destroying HFCs to a
minimum destruction and removal efficiency (DRE) of 99.99 percent.\58\
EPA proposes to find that technologies that destroy HFCs to a DRE of
99.99 percent are appropriate to list for approval under the AIM Act.
There are three broad categories of destruction technologies: Thermal
oxidation (incineration), plasma, and conversion (other, non-
incineration) technologies. There are twelve destruction technologies
capable of destroying HFCs other than HFC-23 to a DRE of 99.99 percent,
and eight technologies capable of destroying HFC-23 to a DRE of 99.99
percent.
---------------------------------------------------------------------------

    \58\ 2018 TEAP Report, Volume 2: Decision XXIX/4 TEAP Task Force
Report on Destruction Technologies for Controlled Substances. March
15, 2021. https://ozone.unep.org/sites/default/files/2019-04/TEAP-DecXXIX4-TF-Report-April2018.pdf.
---------------------------------------------------------------------------

    The 12 technologies that destroy HFCs other than HFC-23 to a DRE of
99.99 percent are:
     Incineration (6 technologies): Cement kilns, gaseous/fume
oxidation, liquid injection incineration, porous thermal reactor,
reactor cracking, and rotary kiln incineration.
     Plasma (3): Argon plasma arc, nitrogen plasma arc, and
portable plasma arc.

     Conversion (3): Chemical reaction with hydrogen
(H2) and CO2, gas phase catalytic de-
halogenation, and superheated steam reactor.

The eight technologies that destroy HFC-23 to a DRE of 99.99 percent
are:

     Incineration (4): Gaseous/fume oxidation, liquid injection
incineration, reactor cracking, and rotary kiln incineration.
     Plasma (2): Argon plasma arc and nitrogen plasma arc.
     Conversion (2): Chemical reaction with H2 and
CO2 and superheated steam reactor.
    EPA proposes creating two lists of approved destruction
technologies--one for HFC-23, which is more difficult to destroy, and
one for all other regulated substances. These technologies provide a
variety of technological options for the destruction of HFCs and are
capable of either destroying HFCs at a DRE of at least 99.99 percent or
converting them into non-regulated substances.
    EPA solicits comment on whether the list of destruction
technologies is appropriate, whether any additional destruction
technology should be considered, and notes that the Agency intends to
consider adding additional destruction processes to the list of
approved destruction technologies in the future as further technologies
are developed. EPA also solicits comment on whether it should only
establish one list containing only the eight technologies that can
destroy HFC-23. This would ensure the technologies can adequately
destroy the HFC with the highest exchange value. EPA is concerned that
HFC-23 could be mistakenly taken to a destruction facility that is
incapable of destroying the compound, such as when HFC-23 is contained
in a mixture of other HFCs. This could be avoided by approving only
destruction technologies that can destroy all HFCs.

VIII. What enforcement and compliance provisions is EPA proposing?

    Based on EPA's experience with the ODS phaseout in the United
States,\59\ the global experience phasing out ODS,\60\ and the recent
experiences in countries that have already begun phasing down HFCs,\61\
the incentive to illegally trade HFCs will likely increase as HFC
production and consumption become regulated and as allowances that
authorize import and production of HFCs decline. It is EPA's intent to
establish mechanisms that discourage and prevent illegal production,
import, and subsequent sales of illegally produced or imported HFCs.
These proposals are designed, when taken together, to deter
noncompliance, incentivize future compliance, and ensure that companies
that are complying with statutory and regulatory obligations are not
put at a competitive disadvantage.
---------------------------------------------------------------------------

    \59\ See, e.g., Goldberg, Carey. ``A Chilling Change in the
Contraband Being Seized at Borders.'' The New York Times, The New
York Times, 10 Nov. 1996, www.nytimes.com/1996/11/10/us/a-chilling-change-in-the-contraband-being-seized-at-borders.html and
``Enforcement Actions under Title VI of the Clean Air Act.'' EPA,
Environmental Protection Agency, 17 Dec. 2020, www.epa.gov/ozone-layer-protection/enforcement-actions-under-title-vi-clean-air-act#2011.
    \60\ See, e.g., Montzka, S.A., Geoff S. Dutton, G.S., Yu, P.,
Ray, E., Portmann, R.W., Daniel, J.S., Kuijpers, L., Hall, B.D.,
Mondeel, D., Siso, C., Nance, J.D., Rigby, M., Manning, A.J., Hu,
L., Moore, F., Miller, B.R., and Elkins, J.W. (2018) ``An unexpected
and persistent increase in global emissions of ozone-depleting CFC-
11'' Nature 557: 413-417, available at: https://www.nature.com/articles/s41586-018-0106-2; WMO (World Meteorological Organization),
Scientific Assessment of Ozone Depletion: 2014, World Meteorological
Organization, Global Ozone Research and Monitoring Project-Report
No. 55, 416 pp., Geneva, Switzerland, 2014, available at https://www.esrl.noaa.gov/csd/assessments/ozone/2014/report.html;
Environmental Investigation Agency (EIA) (2018) Blowing It: Illegal
Production and Use of Banned CFC-11 in China's Foam Blowing
Industry, available at: https://eia-global.org/reports/20180709-blowing-it-illegal-production-and-use-of-banned-cfc-11-in-chinas-foam-blowing-industry; and Rigby, M. et al. ``Increase in CFC-11
emissions from eastern China based on atmospheric observations''
Nature 569 7757: 546-550, available at: https://www.nature.com/articles/s41586-019-1193-4.
    \61\ ``Doors Wide Open.'' Eia-International.org, Environmental
Investigation Agency, Apr. 2019, https://reports.eia-international.org/doorswideopen. ``Resources.'' Alliancepolicy.org,
The Alliance for Responsible Atmospheric Policy, 1 Nov. 2020,
www.alliancepolicy.org/ref-imports/resources-2.
---------------------------------------------------------------------------

    In developing this proposal, EPA reviewed in detail the challenges
faced by the European Union (EU) in preventing illegal imports of HFCs.
Assessments available in the docket from HFC producers, industry
associations, and environmental non-governmental organizations (NGOs)
provide evidence of significant non-compliance with the EU F-gas rule
(Regulation (EU) No 517/2014), which establishes a schedule to phase
down HFC production and consumption over time, similar in concept to
the HFC phasedown in the AIM Act albeit on a different schedule. These
assessments suggest that noncompliance in the EU occurs primarily
through illegal imports, which can be grouped into two categories: (1)
``Open smuggling'' through the normal customs channels (e.g., correct
commodity codes without proper allowances to do so) and, (2)
``traditional smuggling'' where the importer seeks to avoid the typical
customs channels altogether or where HFCs are concealed (e.g.,
mislabeling). Reports show significant awareness in the industry of
illegal activity. A 2019 report by the Environmental Investigation
Agency (EIA) \62\ provided results of surveys conducted with industry
stakeholders in Europe. More than 80 percent of companies surveyed were
aware of or suspected illegal HFC trade and 72 percent had seen or been
offered refrigerants in disposable cylinders--a common feature of
illegally imported HFCs despite the EU requirement that HFCs be sold in
refillable containers.
---------------------------------------------------------------------------

    \62\ ``Doors Wide Open.'' Eia-International.org, Environmental
Investigation Agency, Apr. 2019, https://reports.eia-international.org/doorswideopen.
---------------------------------------------------------------------------

    The review of European customs data presented in the EIA report and
others back up this perception. EIA found that ``bulk HFC imports in
2018 were too high for compliance with the 2018 quota.'' \63\ EIA
estimated that the amount of HFCs placed on the market in 2018 could be
16.3 MMTCO2e (or 16 percent) above the quota amount (i.e.,
the amount allocated) through ``open smuggling of HFCs (i.e. imports
openly shipped through customs without quota).'' \64\ Honeywell
estimated that illegal imports were equivalent to more than five
percent of the total CO2-weighted quota in 2015.\65\ The law
firm King & Spaulding, on behalf of the Alliance for Responsible
Atmospheric Policy, found that reported imports to European customs
officials exceeded the quota amount by 16 percent in 2019 and 33
percent in 2020.\66\ The European FluoroCarbons Technical Committee
(EFCTC) cited analysis of customs records done by Oxera, who found a
significant disagreement in trade data on HFCs shipped from China to
the EU. Oxera created a database using data from the EU statistics
agency Eurostat, the United Nations' trading statistics database
Comtrade, and Chinese export data to calculate the amount of HFCs that
was illegally imported (above the quota amount). They found that what
was reported as exported from China alone was 16 percent higher than
the amounts reported as imported into the

EU during 2016, six percent higher in 2017, and 21 percent higher in
2018.\67\
---------------------------------------------------------------------------

    \63\ Ibid.
    \64\ Ibid.
    \65\ ``10m Tonnes of Illegal F-Gas Enters Europe.''
Coolingpost.com, Cooling Post, 1 May 2016, www.coolingpost.com/world-news/over-10m-tonnes-of-illegal-F-gas-enters-europe/www.coolingpost.com/world-news/over-10m-tonnes-of-illegal-F-gas-enters-europe/.
    \66\ See King & Spaulding, on behalf of the Alliance for
Responsible Atmospheric Policy, Side Event presentation at COP12/
MOP32 (November 23, 2020), available in the docket and online at
https://www.alliancepolicy.org/site/usermedia/application/10/Bradford%20KS%20HFC%20Presentation%2023%20Nov%202020%20v4.pdf.
    \67\ ``The Black Market for HFC Refrigerant Gas Is Thriving
across Europe.'' Webinar on Illegal Trade of HFCs--2020.06.26,
European Fluorocarbons Technical Committee, 17 Sept. 2020,
www.youtube.com/watch?v=qqO8IuEt7eg and https://stopillegalcooling.eu/wp-content/uploads/Oxera-webinar-slides.pdf?utm_source=webinar&utm_medium=email&utm_campaign=oxera.
---------------------------------------------------------------------------

    These reports also indicate the likelihood of more covert smuggling
activity, though the scale is not fully known. Reported seizures of
illegally imported material in EU member states between 2018 and 2020
range from a few cylinders to more than 76 MT of HFCs.\68\ These
reports show significant growth in legal HFC imports from China into
countries neighboring the EU. King & Spaulding cites a 2020 report by
Oxera showing a 40 percent increase in HFC exports from China to EU
neighbor countries from 2016-2018.\69\ They note the dramatic increase
in 2018 coincides with a stepdown under the EU's HFC allocation
program, and that the increase in legal imports to neighbor countries
could be associated with smuggling HFCs into the EU. They also ``noted
that various reports found smuggled imports [into the EU] were 20 to
30% of the quota.'' \70\
---------------------------------------------------------------------------

    \68\ See EFCTC, Tracking, Training, Tracing: Trade Enforcement
on Illegal HFC Imports, Side Event presentation at COP12/MOP32
(November 23, 2020), available in the docket and online at https://www.alliancepolicy.org/site/usermedia/application/3/Angelica%20Candido%20EFCTC%20Alliance%20Side%20Event%202020.pdf.
    \69\ See King & Spaulding (on behalf of Arkema Inc., The
Chemours Company, Honeywell International Inc., and Mexichem Fluor
Inc.), Comments Regarding Foreign Trade Barriers to U.S. Exports of
Hydrofluorocarbons, submitted to the Office of the United States
Trade Representative (October 26, 2020), available in the docket.
    \70\ Ibid.
---------------------------------------------------------------------------

    While not definitive, the reports note this growth may be because
the HFCs are being illegally imported into the EU through neighboring
countries, such as with fraudulent import declarations, disguised as
something else, or through shipment in hidden compartments. The reports
also note that illegally imported HFCs that are caught are shipped
primarily in disposable cylinders. King & Spaulding cites a report from
an international investigation agency called Kroll, which was hired by
the EFCTC to investigate HFC trade in the EU. In addition to finding
that illegal HFCs travel through EU neighbor countries, illegal
shipments are often sold through online market platforms or arrive
through misdirected transhipments, allocation abuse, open smuggling,
and counterfeit material.\71\
---------------------------------------------------------------------------

    \71\ See EFCTC, New Kroll findings reveal how illegal imports of
HFCs continue to enter EU (April 15, 2020), available in the docket
and online at https://www.fluorocarbons.org/wp-content/uploads/2020/04/2020-04-15_Press-release-Kroll_final_website-1.pdf.
---------------------------------------------------------------------------

    In summary, there is significant evidence of noncompliance with HFC
quotas in the EU, which suggests that similar attempts will be made to
evade legal requirements in the United States. By comparison, if the
United States were to see similar noncompliance of five to 33 percent
of the total U.S. allocation, that would equate to 13-90 MMTEVe of
additional consumption than should happen under the statutorily
provided phasedown step for 2022 alone with accompanying long term
emissions and environmental and public health costs associated with
that level of consumption. This level of noncompliance would put
businesses complying with regulatory requirements at a competitive
disadvantage and could inhibit companies from investing in research and
development to identify new alternatives. In addition, illegal imports
of HFCs have consequences for other U.S. agencies, such as Customs and
Border Protection who collect duties on imports of HFCs.
    Consistent with the documented experience in the EU, EPA has also
seen situations where material that appears to be illegally imported is
advertised as one chemical, but the contents of the container are
something different. EPA recently identified imports of small cans that
were advertised as ``Cool Penguin F-12'' (or CFC-12) in small cans for
use in motor vehicle air conditioners.\72\ While the cans contained
some CFC-12, they also contained an inconsistent mixture of numerous
other chemicals, including R-40 (chloromethane) which is toxic and has
the potential to explode. Given this experience with imports of
fluorocarbons that are mislabeled, there are consumer and worker safety
concerns.
---------------------------------------------------------------------------

    \72\ See Mobile Air Climate Systems Association (MACS), Safety
Alert: Online Sales of Cool Penguin F-12 in Action (November/
December 2020), available in the docket.
---------------------------------------------------------------------------

    Through the proposed requirements that follow, EPA is proposing to
put in place strong enforcement and compliance measures at the outset
of this new regulatory program developed pursuant to AIM Act authority
to prevent or identify illegal activity in the United States and ensure
compliance with the obligations under the AIM Act. Failure to do so
could significantly harm the environment, the U.S. economy, and
consumer and worker safety.
    The experience in the EU and the grounded belief that a similar
scenario could come to fruition in the United States calls for robust
enforcement, compliance, and transparency provisions to ensure EPA can
meet the statutory directive in AIM Act subsection (e)(2)(B) that ``the
Administrator shall ensure that the annual quantity of all regulated
substances produced or consumed in the United States does not exceed''
the levels prescribed in the AIM Act. EPA understands this directive,
as well as the prescriptive schedule established in subsection (e) of
the AIM Act and the inclusion of application-specific allowances within
the overall cap, as indications that Congress intended for the
statutorily required reductions in HFC consumption and production to
occur. EPA is accordingly proposing comprehensive compliance and
enforcement measures to help ensure that it can implement the allowance
program so that it achieves these reductions.
    EPA is proposing a multifaceted approach to prevent and identify
noncompliance in order to ensure the Agency can meet the statutory
directive in subsection (e)(2)(B) and to create a level playing field
for the regulated community. Each element is intended to deter illegal
activity and address such activity when it is identified. The key
components of this proposal include:
     Administrative consequences to deter noncompliance and
create pathways to address the impacts of noncompliance;
     Packaging (including requiring use of refillable
cylinders) and labeling requirements;
     Increased oversight of imports including requiring
consumption allowances to import heels and U.S. goods returned,
petitioning to import regulated substances for transformation or
destruction processes, reporting of transhipments, and prohibiting the
import of virgin HFCs for disposal.
     Establishment of a comprehensive certification ID tracking
system using QR codes or similar digital technology to track the
movement of HFCs through commerce, including requiring anyone that
introduces into interstate commerce or sells HFCs to be registered in
the system;
     Recordkeeping and reporting;
     Third-party auditing; and
     Data transparency.
    EPA intends to work with CBP to institute an automated electronic
mechanism to check in real-time if an importer has sufficient
allowances for a particular shipment. EPA and CBP have established
working relationships regarding the imports of various goods subject to
domestic regulation, including ODS. EPA intends to modify the Agency's
electronic database

monitoring HFC allowances such that the most current available
information is up to date to allow for real-time or near real-time
electronic confirmation by CBP of whether a company seeking to import
HFCs is an allowance holder and has sufficient allowances for that
specific import.

A. What are the proposed administrative consequences available to EPA
with respect to allowances?

    As noted elsewhere in this rulemaking, production allowances,
consumption allowances, and application-specific allowances do not
constitute property rights. The AIM Act gives the Administrator
significant authority to determine an appropriate allowance system,
which EPA proposes would include the authority to retire, revoke, or
withhold allowances at the discretion of the Administrator under
certain defined circumstances. For clarity and consistency, EPA intends
to treat each of these potential consequences in the following manner:
     A retired allowance would be one that EPA would have
otherwise issued to an entity for the next calendar year, but instead,
may not be expended in the following calendar year by that entity, nor
be transferred to any other entity. A retired allowance would
effectively expire unused in the next calendar year. If an entity does
not have sufficient allowances to retire, it would need to acquire
those allowances (e.g., through a transfer) and retire them.
     A revoked allowance would be one that EPA rescinds after
issuance to an entity. EPA proposes that any unexpended allowances held
by an entity may be revoked as described below and then redistributed
on a pro rata basis to the general pool.
     A withheld allowance would be one that EPA would have
otherwise issued to that entity for the next calendar year, but
instead, is redistributed on a pro rata basis to the general pool.
Similar to a retired allowance, the entity that would have received the
allowance would not be able to expend it nor transfer it; however,
unlike a retired allowance which would expire unused, an allowance that
is withheld from an entity would be redistributed.
    EPA also proposes that there may be circumstances where the
potential administrative consequence could be a ban on a company and/or
its owner(s) receiving future allowances. In this scenario, EPA
proposes that the company and/or its owner(s) would not be eligible to
receive or obtain allowances by way of allocation or transfer, and such
a ban would effectively render the company and/or owner(s) unable to
produce or import HFCs regulated under the AIM Act. If EPA were to ban
the company, EPA proposes that any allowances that the company has
already received would be revoked, and any allowances that the company
might have otherwise received in the future would be withheld and
redistributed on a pro rata basis to the general pool. If EPA were to
ban the owner(s), EPA proposes that any allowances that the owner(s)
has already received, either through the company at fault or a
different company, would be revoked, and any allowances that the
owner(s) might have otherwise received in the future, either through
the company at fault or a different company, would be withheld and
redistributed on a pro rata basis to the general pool. EPA proposes
this potential consequence both as a deterrent to prevent illegal
production and import, but also to ensure that, if illegal activity
occurs, bad actors are removed from the HFC allocation system such that
EPA can ensure production and consumption caps are met moving forward
in line with the AIM Act's Congressional directive.
    These proposed administrative consequences for allowances are not
intended to supplant or replace any enforcement action taken under the
AIM Act. Instead, such consequences would be in addition to any
applicable enforcement action.

B. What practices could warrant EPA's proposed administrative action
for allowances?

    EPA has identified the following types of practices that could
warrant the Agency exercising its discretion to levy administrative
consequences for allowances: falsifying information or data; not
disclosing financial conflicts of interest or familial relationships in
certain circumstances; noncompliance with the AIM Act or proposed
prohibitions under Sec.  84.5; and noncompliance with Department of
Commerce (DoC) and CBP HFC trade provisions. Discussion of each of
these categories as well as EPA's proposal regarding what
administrative consequences may be taken for allowances follows. Any
administrative action taken is not intended to supplant or replace any
enforcement action taken under the AIM Act. Instead, such consequences
would be in addition to any applicable enforcement action. In all
cases, EPA could also ban a company and its owner(s) receiving future
allowances for such action, depending on the severity of the
noncompliance.
1. Falsifying or Failing To Disclose Relevant Information
    As discussed previously in this rulemaking and detailed here, EPA
is proposing that falsifying information with respect to application-
specific allowances may warrant one or more administrative consequences
for allowances. Specifically for application-specific allowances, EPA
proposes that if future information reveals a company applying for
application-specific allowances has provided false information, EPA
reserves the right to revoke allowances and/or require future
retirement of allowances at a greater level than the number of
application-specific allowances allocated.
    Falsifying or failing to disclose relevant information as described
in the preamble section, ``What is EPA's Proposed Set Aside Pool of
Allowances'' could warrant EPA exercising the right to revoke
allowances and requiring the company to retire a greater number of
allowances than those received through the set aside pool. If the
company receiving set aside allowances is later determined to be
financially connected or have a familial relationship with another
company receiving set aside allowances or another allowance holder, EPA
proposes to also have the ability to apply these provisions regarding
revoking, withholding, and retiring allowances (with a premium as
discussed elsewhere in this proposal), as well as banning all the
companies and owner(s) involved from receiving future allowances.
2. Compliance With the AIM Act
    EPA is proposing that the Agency could revoke or withhold
allowances from an entity that has been found, through a concluded
enforcement action, to have unlawfully produced or imported, or
attempted to unlawfully produce or import, HFCs. EPA is also proposing
that it could ban a company and its owner(s) receiving future
allowances for such action, depending on the severity of noncompliance.
    EPA is also proposing that if an allowance holder produces or
imports, or attempts to produce or import, HFCs in excess of their
allowances under the AIM Act, such as if an import arrives at a port
without the appropriate allowances or there is production at a facility
whose parent company does not have allowances, the allowance holder
would be required to retire that amount in the following year. This
administrative action would not be contingent on a concluded
enforcement case. Instead it would be based on information available to
EPA, such as

allowance availability at the time of production or import, or evidence
from the QR code tracking system that a company is selling material
that was produced or imported without allowances. EPA would have
discretion to add a range of premiums based on the case specific
factors such as the egregiousness of the violation and whether there
are repeated violations. EPA is proposing a range of between 20 percent
and 200 percent and welcomes comment on this range. In cases where the
amount required to be retired in the following year exceeds the
allowances held by the importing entity for the next year, EPA proposes
that the allowance holder may be subject to complete revocation or
retirement of its HFC allowances, or may not be issued allowances in
future years or may receive a reduced allocation.
    EPA is proposing these potential administrative consequences to
deter illegal production and import. Illegal production and import
undermine EPA's ability to meet the AIM Act requirement that EPA ensure
that the United States' HFC production and consumption do not exceed
the statutorily defined cap. The proposal to retire allowances also
ensures there is an environmental benefit to account for noncompliance
that could result in production and/or consumption above the permitted
levels.
3. Violation of Department of Commerce and Customs and Border
Protection Trade Provisions
    EPA is aware of potential concerns with allocating allowances to
entities that DoC has determined are dumping HFCs onto the U.S. market.
Dumping refers to ``when a foreign producer sells a product in the
United States at a price that is below that producer's sales price in
the country of origin, (``home market''), or at a price that is lower
than the cost of production.'' \73\ Foreign governments may subsidize
industries by providing financial assistance to benefit the production,
manufacture, or exportation of goods, thereby unfairly undercutting
domestic producers. The DoC attempts to eliminate the unfair pricing or
subsidies or the injury caused by such imports by imposing additional
duties, termed Anti-Dumping/Countervailing Duties (AD/CVD). The amount
of subsidies the foreign producer receives from the government is the
basis for the subsidy rate by which the subsidy is offset, or
``countervailed,'' through these higher import duties. Anti-dumping and
countervailing subsidy duties are two ways that the U.S. government
addresses dumping and unfair foreign subsidies. The U.S. government can
require that foreign companies involved in dumping and/or benefitting
from subsidization are charged a fee collected by CBP each time they
import products into the United States. This helps negate the value of
the dumping/subsidization and creates a fairer competition for U.S.
companies. In findings of dumping, DoC issues a ``Final Determination''
that requires importing entities to pay AD/CVD before the case is
considered resolved. EPA has placed a memo in the docket summarizing
actions taken to date, as well as the HFC-relevant Final Determinations
that it is aware of.
---------------------------------------------------------------------------

    \73\ ``U.S. Antidumping and Countervailing Duties.'' Trade.gov,
International Trade Administration, www.trade.gov/us-antidumping-and-countervailing-duties.
---------------------------------------------------------------------------

    EPA is proposing that any entity that is subject to a DoC Final
Determination and is requesting allowances for 2022 or 2023 must
provide documentation of payment of the AD/CVD for HFC imported in 2017
through the date of this proposed rule, or provide evidence that those
imports were not required to pay AD/CVD for those years. EPA is
proposing not to allocate to companies in 2022 or 2023 that CBP
determines are not in compliance with or are otherwise in arrears with
their AD/CVD during those years. After an entity is issued allowances,
if it is subject to a DoC Final Determination and does not pay the
required AD/CVD within the required time frame, as determined by CBP,
EPA proposes that the company may have its allowances for that year
revoked or retired, or may not be issued future allowances or may
receive a reduced allocation. EPA proposes that it could, after
consulting with CBP, also ban a company from receiving allowances in
the future as a result of noncompliance with the regulations governing
payment of AD/CVD.
    EPA is also proposing that the Agency would have the discretion to
revoke, retire, or withhold allowances for companies that fail to use
the correct Harmonized Tariff Schedule (HTS) codes with each shipment
of HFCs or HFC blends. Intentionally misdeclaring the HFC or HFC blend
in a shipment is one way importers may attempt to illegally import HFCs
without allowances or with fewer allowances. As noted earlier, EPA
intends to work with CBP to institute an automated electronic mechanism
to check in real-time if an importer has sufficient allowances for a
particular shipment. Errors on customs forms would inhibit EPA's
ability to conduct this crosscheck to ensure accuracy in and compliance
with EPA's allowance system. EPA is also proposing that the Agency
would have the discretion to ban a company or the company owner(s) from
receiving future allowances if the company repeatedly misreports HTS
codes.

C. What process is EPA proposing to apply administrative consequences
for allowances?

    EPA has provided examples where retirement, revocation, or future
withholding of allowances may be warranted, including: falsifying or
not disclosing relevant information in the case of application-specific
allowances or new entrants; producing or importing, or attempting to
produce or import, HFCs in excess of AIM Act allowances or otherwise
not in compliance with AIM Act regulations (e.g., using HFCs claimed to
be for feedstocks or in transhipments for other purposes); and an
entity in arrears for any AD/CVD. These situations are not meant to be
exhaustive, but instead are intended as examples of when EPA might
exercise discretion to apply one or more administrative consequences
for allowances. Additionally, any practice or combination of practices
specified in the proposed regulatory text in Sec.  84.5 ``Prohibitions
for regulated substances'' may warrant EPA exercising discretion to
apply one or more administrative consequences for allowances. EPA seeks
comment on whether there are additional non-compliant activities it
should explicitly list as instances where the Agency could retire,
revoke, or withhold allowances. EPA has also described what a ban on a
company and its owner(s) would entail with respect to allowances. As
stated earlier, these administrative consequences are not meant to
replace or supplant any applicable enforcement action that may be taken
under any available statutory authority; rather, such consequences
would be in addition to any applicable enforcement action.
    EPA is proposing the following general process for retiring,
revoking, or withholding allowances, and for banning a company or its
owner(s) from receiving or obtaining allowances:
     Upon evidence or suspicion of practices including but not
limited to the examples provided earlier, EPA would provide notice of
impending allowance retirement, revocation, or withholding, or notice
of impending ban, to the company that would set forth the facts or
conduct that provide the basis for action. Notice would be provided no
less than 30 days before the impending action. During this 30-day
period, EPA proposes that the company would not be allowed to expend or
transfer its allowances.

     Any company that receives such a notice of impending
allowance retirement, revocation, or withholding, or notice of
impending ban may choose to provide any information or data to support
why their allowances should not be retired, revoked, or withheld, or
why they should not be subject to a ban from receiving or obtaining
allowances, within 14 days of the date of the Agency's notice. If EPA
does not receive a response within 14 days, the impending action would
be effective on the date specified in the notice, but not sooner than
the expiration of the 14-day window.
    After review of the supporting data or information provided by the
company receiving notice, EPA could decide to revoke or modify its
notification, continue with the retirement, revocation, or withholding
of allowances, or continue with the implementation of a ban from
receiving or obtaining allowances. EPA's decision would occur within 30
days of the date of the Agency's notice. Should EPA revoke its
notification, the company's allowances would be unfrozen; and, should
EPA continue with its impending action, the company's allowances would
remain frozen until the effective date of the retirement, revocation,
withholding, or permanent ban.

D. What is EPA proposing for packaging and labeling requirements?

    This section discusses EPA's proposals to require: (1) A ban on
disposable cylinders, such as DOT-39 cylinders, with limited
exceptions, (2) the accurate labeling of the contents of cylinders, and
(3) the use of tracking or identification technology. Together these
requirements would disincentivize illegal imports, facilitate discovery
of illegal imports, provide for better tracking of HFCs, and ensure
that companies that have successfully maintained good standing are not
put at a competitive disadvantage.
1. Ban on Disposable Cylinders
    EPA is proposing a ban on the import and placement of HFCs in
disposable cylinders with limited exceptions. The vast majority of HFCs
packaged for sale to contractors are currently in DOT-39 disposable
cylinders. A DOT-39 cylinder is strictly non-refillable and thus is
designed for single use unlike refillable cylinders. A number of
countries, including the EU member states, Australia, India, and
Canada, have banned disposable cylinders in their countries.
    Losses from all cylinders can occur under a variety of
circumstances during transport, storage, and disposal, the frequency
and severity of which depends in part on the type of cylinder. However,
HFC losses are most likely to occur and in the most significant
quantities from disposable cylinders, including the residual amount of
HFCs (heels) that remain in the cylinders. With disposable cylinders,
these heels, which can measure up to eight percent of the quantity that
was originally stored in the container, unless recovered would be
released to the atmosphere when the cylinder is disposed of, with
associated adverse consequences on the environment.
    EPA is proposing to prohibit the import and placement of HFCs in
disposable cylinders beginning July 1, 2023. Prohibiting the use of
disposable cylinders, such as DOT-39 non-refillable cylinders, would
increase environmental benefit including by ensuring the heels left in
a cylinder are not released to the atmosphere when disposable cylinders
are discarded. At least on two occasions, Congress has requested that
EPA study the use of refillable cylinders. EPA reviewed previous
studies and has provided updated analysis in a technical support
document that can be found in the docket for this rulemaking. EPA
estimates that replacing disposable cylinders with refillable cylinders
in the United States would prevent the release of up to 5.2
MMTCO2e of HFCs per year.
    In addition to the potential environmental benefit, adding a
prohibition on the import and placement of HFCs in disposable cylinders
would help ensure compliance with the consumption allowance system. EPA
understands that other countries, such as the EU member states, have
found advantages to prohibiting disposable cylinders including a
recognition that often HFCs entering their markets illegally are
contained in disposable cylinders. Several studies have found that
illegal HFCs are entering European markets in disposable cylinders.\74\
Prohibiting the use of disposable cylinders in the United States would
provide CBP officers the ability to conduct a quick visual inspection
to identify potentially illegal imports for follow-up.
---------------------------------------------------------------------------

    \74\ ``Illegal Refrigerant Imports Could Be as Much as One Third
of EU Market.'' Fluorocarbons.org, The European FluoroCarbons
Technical Committee, June 26, 2020. www.fluorocarbons.org/wp-content/uploads/2020/09/EFCTC_Press-Release_EN-2.pdf. ``Doors Wide
Open.'' Eia-International.org, Environmental Investigation Agency,
Apr. 2019, https://reports.eia-international.org/doorswideopen.
---------------------------------------------------------------------------

    EPA recognizes that the vast majority of HFCs packaged in 25-pound
cylinders currently use DOT-39 disposable cylinders. Therefore, EPA is
proposing to prohibit the import and placement of HFCs in disposable
cylinders beginning July 1, 2023. Since similar prohibitions have been
successfully implemented in many other countries, EPA does not consider
a longer lead time necessary but does recognize that a prohibition
consistent with the effective date of the final rule may be too short
to allow for an orderly transition.
    In developing this proposal, EPA considered one to two years from
the publication of the final rule to transition to refillable
cylinders. EPA is proposing that a compliance date of July 1, 2023,
would provide appropriate time but is requesting comment on a shorter
timeframe. EPA is not proposing a compliance date after January 1,
2024, since EPA wants to ensure that HFCs in heels are not vented or
otherwise go unused in order to meet demand when the next stepwise
reduction in production and consumption occurs. Therefore, EPA is
proposing to prohibit the import and placement of HFCs in DOT-39 and
other disposable cylinders starting July 1, 2023, in advance of the
step down in production and consumption that occurs on January 1, 2024.
This timing also supports the proposal to establish a certification
system for tracking legally imported and produced HFCs. EPA is also
proposing to require that all refillable cylinders have a unique etched
serial number. As noted later in the proposal, this etched number would
be useful under the proposed certification identification and labeling
requirements.
    Following the July 1, 2023, ban on disposable cylinders, EPA is
proposing to still allow certain disposable containers, such as small
cans of refrigerant with a self-sealing valve, that meet the
requirements in 40 CFR 82.154(c)(2). These containers have a mechanism
in place to reduce emissions, so there would not be the same
environmental benefit from their ban as EPA perceives in banning all
other disposable cylinders. For a more complete discussion of the ways
self-sealing valves reduce emissions of refrigerant, see 81 FR 82272
(November 18, 2016).
    EPA is considering how best to address disposable cylinders that
are in existing inventory on July 1, 2023, and invites comment on this
issue. This compliance date may provide sufficient time and notice to
this industry to transition into refillable cylinders such that no
special accommodation is needed. However, EPA could establish a limited
sell-through provision, such as for six months, on the condition that

anyone wishing to sell HFCs in a disposable cylinder after January 1,
2024, from their existing inventory would have to register each
cylinder with EPA no later than November 15, 2023, and provide
information on the HFC or HFC blend in each cylinder and the origin of
the cylinders (e.g., imported, purchased from supplier X on Y date) to
distinguish them from new refrigerant cylinders entering the market. To
support effective enforcement and compliance of the ban, EPA is
proposing that as of January 1, 2025, 18 months after the disposable
cylinders ban takes effect, EPA would prohibit the sale or offer for
sale of regulated substances contained in disposable cylinders.
Eighteen months should be sufficient to allow for existing inventory of
regulated substances contained in disposable cylinders to be sold or
transferred to refillable cylinders. EPA requests comment on whether 18
months is an appropriate length of time for cylinders to work their way
through the market, or if more or less time is warranted.
2. Ban on Importing HFCs To Be Used in Feedstocks in Cylinders
    EPA is proposing to prohibit the import of HFCs intended for use in
a process resulting in their transformation or destruction in cylinders
designed to hold 100 pounds or less of a regulated substance. As
discussed in section VIII.F. of this preamble, EPA is proposing that
such HFCs may be imported without a consumption allowance. These HFCs
are typically imported, and used, in large volumes at specific
facilities. EPA does not anticipate this proposal would affect current
business practice. Instead, this proposal is intended to deter attempts
to claim that imports of HFCs in cylinders do not require allowances
because they are for transformation or destruction processes. EPA
requests comment on the typical container size for HFCs sold for use in
a process resulting in their transformation or destruction, and whether
100 pounds is an appropriate threshold for this requirement. The Agency
expects it could be higher than 100 pounds, but takes comment on
whether to finalize a higher or lower threshold.
3. Labeling
    EPA is proposing that all containers that contain a regulated
substance in bulk (e.g., ISO tanks, drums, cylinders of any size, or
small cans) must have an affixed label or other marking that indicates
the specific HFC(s) in that container. Specifically, EPA is proposing
that all containers of bulk regulated substances should state, legibly
and indelibly, in numbers and letters at least \1/8\ inch high, the
common name of the HFC or HFC blend contained, and the composition and
ratios of the HFCs if a blend. This font size is consistent with the
DOT-39 labeling standards (see 49 CFR 178.65). EPA seeks comment on
whether the label should also include the quantity of HFC in the
container. EPA does not anticipate that this proposal would result in
any additional burden on refrigerant distributors or importers as such
identification is the current practice. EPA requests comment on this
presumption and whether there would be any burden associated with this
proposal.
    This proposal is intended to facilitate more effective enforcement
and deter future noncompliance. EPA anticipates that smugglers will
misidentify HFCs as some other compressed gas to evade import
restrictions. One method used to illegally import ODS refrigerants was
to identify it as an HFC, since allowances were not required to import
HFCs at that time. Under this method of illegal import, once the
unidentified or misidentified regulated substance entered the United
States a domestic counterpart who knew the true identity of the
compressed gas would relabel the cylinder with the correct substance so
that it could be commercially useful. As such, EPA is also proposing
that repackaging material that was initially unlabeled or mislabeled
would be considered a knowing violation of this subpart.
    EPA is also aware that some virgin material may not contain
components in ratios that match that required of the blend. While
historically that may have been due to the refrigerant being of low
quality, there are now incentives for importers to intentionally
misstate the contents which has implications for the allocation system.
Mislabeling a blend that has a high EVe as a blend with a lower EVe or
labeling a cylinder with a random mixture of HFCs as a particular blend
both are misrepresentations that would cost allowances that do not
reflect the actual contents of the cylinder. Such violations would
hinder the Agency in meeting the requirement under subsection (e)(2)(B)
of the AIM Act that EPA is charged with ``ensur[ing] that the annual
quantity of all regulated substances produced or consumed in the United
States does not exceed'' the statutorily prescribed phasedown schedule.
This proposal is aimed at helping ensure EPA meets the directive of
subsection (e)(2)(B).
    To provide a way to check the accuracy of the label, EPA is
proposing to require producers and importers to batch test their
product and retain records indicating the results of the batch testing.
EPA invites comment on how to best implement this proposal.
    EPA also requests comment on whether to require that containers
purporting to contain a specific HFC or an ASHRAE designated blend with
an HFC component meet the specifications in Appendix A to subpart F of
part 82--Specifications for Refrigerants. Currently, under the CAA
section 608 regulations, reclaimed refrigerant is required to meet
specifications based in large part on the AHRI-700 standard for purity
before it can be released into the market. Based on input from
industry, EPA is now aware that virgin material potentially could
include impurities or that the ratio of components in a blend do not
match that required of the blend.\75\
---------------------------------------------------------------------------

    \75\ See Air Conditioning, Heating, and Refrigeration Institute
(2013). Reports of R-134a Contaminated with R-40 and Other
Refrigerants [White paper]. https://www.ahrinet.org/App_Content/ahri/files/News%20Room/Press%20Releases/2013/AHRI_R_40_Contamination_white_paper.pdf.
---------------------------------------------------------------------------

    If the bill of lading or other evidence suggests that cylinders
contain HFCs but the cylinder itself is not labeled or the labeling is
illegible, EPA is proposing to presume that the container is completely
full of HFC-23, unless the importer verifies the contents with
independent laboratory testing results and fixes the label on the
container before the container enters interstate commerce. Under this
proposal, a company would have to expend the requisite allowances to
import HFC-23 in order to be able to legally bring the unlabeled HFCs
into interstate commerce (i.e., clear Customs). The company could also
choose to have the shipment held at port until they can arrange for
testing to show what the contents are and would need to relabel the
container before clearing Customs and enter interstate commerce. The
goal of this presumption is to deter illegal activity and promote
accurate and clear labeling, while also simplifying the process for
EPA, in coordination with CBP for imports, to deduct a sufficient
number of allowances at the point of import. HFC identifiers and a
certified laboratory to verify the contents of a container may not be
available, for example at a port, so providing a clear presumption that
could be used in such circumstances would facilitate compliance and
enforcement efforts. This proposal would reduce the safety risk of
having unlabeled cylinders at Customs or in commerce. It would also
reduce the potential to damage

equipment resulting in the release of refrigerant and harm to the
environment. EPA requests comment on appropriate measures to deter the
import of unlabeled cylinders. EPA also requests comment on whether the
agency should instead simply deny entry or ban import of such unlabeled
cylinders.

E. What is EPA proposing to require for auditing?

    EPA is proposing to require external audits performed by certified
public accountants (CPAs) on an annual basis for all producers,
importers and reclaimers to improve the integrity of the allocation
program. An audit would be a systematic review of financial records and
other transaction documents to verify that the annual reports provided
to EPA are accurate. EPA is proposing to require external audits
conducted by an independent accountant or auditor in the United States
that is certified by the American Institute of Certified Public
Accountants. EPA is soliciting comments on additional ways to ensure
the independence of auditors and integrity of the auditing process,
including potential compliance-related efforts.
    Numerous economic studies have found that third-party auditing
improves company and individual compliance with the
law.76 77 78 EPA has used third-party auditing to improve
regulatory compliance in rules, including the Renewable Fuels Standard
(79 FR 42080). As noted in the Renewable Fuels Standard rulemaking,
there is expert consensus that well-implemented third-party auditing is
a good use of limited enforcement and oversight resources. Independent
and objective audits are a valuable tool to improve compliance and
accuracy among all companies, not just those with covert malicious
intent to be inaccurate or unfair in their auditing or reporting.
---------------------------------------------------------------------------

    \76\ Esther Duflo, Michael Greenstone, Rohini Pande, and
Nicholas Ryan, ``Truth-Telling by Third-Party Auditors and the
Response of Polluting Firms: Experimental Evidence from India,''
Journal of Economics (2013), 1499-1545. doi:10.1093/qje/qjt024.
    \77\ Henrik Kleven, Martin Knudsen, Claus Kreiner, S[oslash]ren
Pedersen, and Emmanuel Saez, ``Unwilling or Unable to Cheat?
Evidence From a Tax Audit Experiment in Denmark.'' Econometrica, 79:
651-692. (2011) https://doi.org/10.3982/ECTA9113.
    \78\ Marcelo B[eacute]rgolo, Rodrigo Ceni, Guillermo Cruces,
Matias Giaccobasso, and Ricardo Perez-Truglia, ``Tax Audits as
Scarecrows: Evidence from a Large-Scale Field Experiment,'' NBER
Working Paper No. 23631 July 2017, Revised January 2020 JEL No. C93,
H26, K42.
---------------------------------------------------------------------------

    EPA is proposing that entities subject to the reporting requirement
have auditors review the reports they provide to the Agency, and the
inputs for developing those reports, to ensure that they were complete
and accurate. At a minimum, reporters would have auditors review, as
appropriate:
     The amount of production and consumption allowances
allocated;
     The amount, timing, and parties to allowance transfers,
and the associated documentation and offset amount;
     The amount of HFCs imported, exported, produced,
destroyed, transformed, or reclaimed;
     For allocation-specific allowances, the amounts of
allowances conferred, HFCs purchased, the specific application for
which the HFCs were provided, and the names, telephone numbers, and
email addresses for contact persons for the recipient companies;
     The date and the port from which HFCs were imported or
exported;
     A copy of the bill of lading and the invoice indicating
the quantity of HFCs imported or exported;
     Relevant commodity codes;
     The number and type of railcars, ISO tanks, individual
cylinders or drums, small cans, or other containers used to store and
transport HFCs;
     List of QR codes used and the digital transaction history
associated with those codes; and
     Other information deemed relevant.
     EPA is proposing that the third-party auditor would send
the results of their audit directly to EPA no later than May 31 of the
subsequent year. EPA is proposing May 31st because it should allow
sufficient time after the annual reports are due to conduct an audit.
    EPA solicits comments on requiring an annual audit performed by a
CPA covering the elements listed in this section. Among other topics,
the Agency is interested in comments on the frequency of the audits,
the qualifications of the auditors, and the timing for submission of
the audits to EPA. Recognizing there is a cost for an audit regardless
of the size and there may be less environmental value in requiring an
audit for a company reporting small volumes of HFCs, EPA also seeks
comment on whether it should limit the frequency of audits for
companies that report less than 25,000 MTEVe. EPA also seeks comment on
whether the auditor should review additional records, such as records
of raw materials and feedstock chemicals used at each facility for the
production of regulated substances, or whether that type of review
would be more appropriate for an engineer.

F. Petitions To Import HFCs as a Feedstock or for Destruction

    EPA is proposing that all bulk imports of HFCs into the United
States either require the expenditure of consumption allowances or be
authorized through a non-objection notice issued by EPA. This section
discusses EPA's proposal to establish a petition process to authorize
entities to import HFCs without expending allowances. There are two
types of shipments addressed in this subsection. First, virgin HFCs are
imported for use in a process resulting in their transformation (i.e.,
as feedstocks) or destruction. Second, used HFCs are imported into the
United States to be disposed of at a destruction facility using an
approved destruction technology.
    The definition of ``produce'' in section (b) of the AIM Act
excludes the manufacture of a regulated substance that is used and
entirely consumed (except for trace quantities) in the manufacture of
another chemical. The process is known as transformation and the
regulated substances used and consumed are called feedstocks. HFCs used
for transformation are exempt from production, and therefore
consumption, and do not require allowances. Typically, companies that
need HFCs for feedstock use create the HFCs at the same facility, but
HFCs can also be transported from another location. This is called
second-party transformation. This proposal addresses the risk of
unlawful behavior associated with transporting feedstock HFCs.
    With respect to destruction of HFCs that have been used and
recovered, these chemicals can become contaminated beyond the point
that reclamation is economical. Providing a pathway for proper disposal
of these used HFCs within the United States can benefit the environment
and the domestic destruction industry. EPA is proposing to limit the
petition process for destruction to used HFCs, and require consumption
allowances to be expended to import virgin HFCs, to keep this process
narrow and tailored in an effort to reduce the potential for illegal
imports.
    EPA is proposing a petition process based in large part on the one
found in 40 CFR 82.13(g)(5) and 82.24(c)(6) for the import of used ODS
for destruction. EPA proposes to require the importer of HFCs for
feedstocks or destruction to submit a petition to EPA at least 30
working days before the shipment's departure from the foreign port. EPA
is proposing other elements to verify that these imports will in fact
be transformed or destroyed.

    Specifically, EPA proposes that the petition would include the
following elements: (i) Name, commodity code, and quantity in kilograms
of each regulated substance to be imported; (ii) name and address of
the importer, the importer ID number, and the contact person's name,
email address, and phone number; (iii) name and address of the
consignee and the contact person's name, email address, and phone
number; (iv) source country; (v) the U.S. port of entry for the import,
the expected date of import, and the vessel transporting the material.
If at the time of submitting the petition the importer does not know
the U.S. port of entry, the expected date of shipment and the vessel
transporting the material, and the importer receives a non-objection
notice for the individual shipment in the petition, the importer is
required to notify the relevant Agency official of this information
prior to the entry of the individual shipment into the United States;
(vi) name and address of any intermediary who will hold the material
before the HFCs are transformed or destroyed; and (vi) name, address,
contact person, email address, and phone number of the responsible
party at the transformation or destruction facility; and (vii) an
English translation, if needed, of the export license (or application
for an export license) from the appropriate government agency in the
country of export.
    Within 30 working days of receiving a complete petition, EPA would
send either a non-objection notice or an objection notice to the
petitioner. The Agency may object to the petition if the petition
provides insufficient information or if it contains or is suspected to
contain false or misleading information. A petitioner may re-petition
once if the Agency indicated ``insufficient information'' as the basis
for the objection notice.
    EPA is proposing that HFCs imported under this process for
transformation or destruction be transformed or destroyed, as
applicable, within 60 days of being imported into the United States.
EPA is taking comment on whether it should consider a longer timeframe
such as 90 days. EPA is also taking comment on whether it is
appropriate to allow a longer timeframe for regulated substances to be
used as feedstocks, up to 12 months. EPA is also proposing to require
that the petitioner submit records indicating that the substance has
been transformed or destroyed within 45 days after its transformation
or destruction. EPA is also proposing supporting prohibitions in Sec.
84.5 for provisions that will be similar to 40 CFR 82.4(j)(2) and
82.15(b)(3) to prohibit the import of HFCs for processes that result in
their transformation or destruction, or disposal by destruction,
without having received a non-objection notice consistent with this
petition process.
    By providing an importer with documentation that the import is
authorized, this proposal would both expedite Customs clearance and
result in a more secure border. It would prevent an importer from
falsely claiming that their shipment does not require allowances or
authorization from EPA because it is exempted. It also would track the
movement of the import after entering the United States by attaching
reporting obligations of the transformer or destruction facility.
    EPA requests comment on other approaches to prevent the import of
HFCs mislabeled as feedstock or intended for disposal by destruction.
For example, EPA is considering whether a notification to EPA, rather
than a petition, could be sufficient in preventing unlawful trade.
Alternatively, EPA could require importers to register with the agency
to be able to import HFCs for transformation and destruction uses or
disposal and/or participate in the QR code tracking system.

G. How is EPA proposing to track the movement of HFCs in commerce?

    The Agency is proposing to establish a certification program that
would use tracking or identification technology such as QR codes \79\
or some other tracking identifier to track the sale and distribution of
HFCs starting January 1, 2024. This proposal seeks to ensure that HFCs
introduced into and distributed or sold in the United States are
covered by an allowance or were reclaimed. Distribution and sale of
HFCs that did not enter the market legally would lack a certification
and thus could be easily identified. This program would support
compliance and, where needed, enforcement action. Buyers would also be
able to know that they are purchasing legal HFCs. EPA is taking comment
on the proposals related to this electronic tracking system including
ways to make it simple and not burdensome to use, while maintaining the
same functionality including the ability to report electronically.
---------------------------------------------------------------------------

    \79\ A QR code is a type of matrix barcode that contains data
for a locator, identifier, or tracker that points to a website or
application using standardized encoding modes to store data. It is
recognizable as black squares arranged in a square grid on a white
background, which can be read by an imaging device such as a camera.
In this proposed rule we use the phrase QR code as a stand-in for
'physical media that facilitate digital inventory tracking'. The
final rule may or may not require QR codes specifically (bar codes
and RFID chips are other possibilities, for example).
---------------------------------------------------------------------------

    Under this proposal, EPA would assign certification IDs to
producers and importers based on the quantity of production and
consumption allowances they have. As allowances are expended, the
certification IDs associated with those allowances would be assigned to
the corresponding HFCs, prior to the shipment of HFCs clearing Customs
or being readied for transport from a production facility. For imports,
the appropriate QR code would need to be affixed prior to clearing
Customs so the certificates could be confirmed by Customs while still
at the port. The certification system would be linked to the allowance
allocation to ensure that allowances were obtained for each MTEVe
produced or imported. The certification would be tracked using a
physical label containing a QR code affixed to the container in which
the material was sold after being produced in the United States or
imported. When the QR code is scanned it would point to a website with
a database that would indicate at least the initial allowance holder,
the quantity and common name of the HFC, the name it is currently being
marketed under, and the date of production or import.
    Each time the material is bought/sold, or partitioned into another
container, the tracking information would be updated. If HFCs are
blended, the database entry for the identifier for that container would
be updated by the blender to reflect that new information. EPA would
establish protocols that ensure once the tracking information is
entered, the system would not allow the data to be altered
retroactively, thereby preserving the integrity of the information. EPA
is proposing that the certification continue to be tracked until it is
sold to the final customer. The final customer will differ depending on
the use of the HFCs. For example, EPA would consider an aerosol filler
to be the final customer given the HFCs are being incorporated into a
product. Similarly, a factory charging HFC refrigerant into an
appliance would be the final customer. HFCs used in field charged or
field serviced applications would continue to have the certification
accompany them until they are sold to a contractor or technician.
    EPA's general understanding of the supply chain is that HFCs (from
production or import) are shipped in large ISO tanks, individual
cylinders or drums, and small cans. The material is then sold to
entities that would be considered part of the distribution chain--that
is, the entity is neither the importer nor the end user (such as a

refrigeration or air conditioning contractor). The material may change
hands one or more times before it is purchased by the final entity in
the distribution chain and subsequently sold to the final customer. EPA
is proposing that anyone selling HFCs would need to be registered in
the system to allow for legal HFC to be tracked from the point of
introduction into commerce to the point of sale to the final customer
(i.e., the person that will use the HFC) so that any illegal HFC
offered for sale at any point in the distribution chain could be
identified. Sellers would need to scan the containers as they are sold,
and buyers who intend to sell the HFCs, other than the final customer,
would need to do the same. EPA seeks comment on ways it could minimize
burden for users, such as allowing for whole purchases or pallets to be
scanned under one code, or having the system capture the information in
a way where no or limited data entry is required once logged into the
system.
    Anyone who is filling a container or cylinder, whether for the
first time or when transferring HFC from one container to one or more
smaller or larger containers, would be required to enter information in
the system and generate a new QR code for the new containers and add
information on: the brand it would be sold under, the quantity and
composition of HFC(s) in the container, the date it was packaged or
repackaged, the certification IDs associated with the HFCs (if being
repackaged), the quantity of containers it was packaged in, and the
size of the containers. EPA is providing additional information in the
docket concerning the supply chain for HFCs and the entities we believe
are potentially affected by this system, and seeks comment on whether
there are other entities that are not reflected in the memo. EPA also
seeks comment on whether exporters should have to register and note
when they export HFCs, such as destination, date of export, the
certification IDs associated with the containers exported, and other
Customs records (including bills of lading), to support the proposed
reimbursement of allowances when HFCs produced or imported with
allowances are exported.
    EPA recognizes that not all HFCs would enter the market through the
expenditure of an allowance. Most significantly, HFCs recovered in the
field (e.g., refrigerants) are sent for reclamation and can be resold
into the market after they meet specific purity standards. Under the
CAA section 608 regulations, reclaimers must be certified by EPA and
report the amounts and names of the HFCs reclaimed on an annual basis.
EPA would generate certification IDs for the reclaimer in an amount
equal to the quantity reclaimed in the previous year plus an amount
based on the average annual growth in total U.S. HFC reclamation in the
prior three years or five percent, whichever is higher. EPA anticipates
reclamation will increase over time. Reclaimers could request
additional certification IDs from EPA if the initial distribution was
insufficient and the reclaimer provides information to the Agency that
can allow the Agency to confirm that additional reclamation is
occuring. The data behind that QR code would be similar to that for
HFCs produced or imported with allowances but would indicate that it is
reclaimed and list the reclaimer.
    To ensure regulated HFCs sold by reclaimers are legally reclaimed
material and eligible for sale, EPA is proposing that reclaimers would
need to log into the certification ID tracking system and, for each
container of HFCs prior to selling regulated substances, provide
information like the date the HFC was reclaimed and by whom; what
regulated substance(s) (and/or the blend containing regulated
substances) is in the container; how many kilograms were put in the
container and on what date the container was filled; whether the purity
of the batch was confirmed to meet the specifications in appendix A to
40 CFR part 82, subpart F; on what date the batch was tested; and who
certified it met the specifications. If a container is filled with
reclaimed and virgin HFC(s), EPA proposes that the reclaimer would have
to also provide information on how much virgin HFC was used and what
the origin of that material was (e.g., the certificate IDs associated
with that material). EPA expects there could be a way to build in a
batch feature so the reclaimer could enter a total mass of HFCs that
are reclaimed and a total mass of HFCs that are virgin and the
certification IDs associated with the QR code on each of the containers
would reflect the relative percentage of reclaimed and virgin material
associated with each container, assuming the virgin and reclaimed HFCs
were evenly mixed before being put into the new containers.
    EPA is also aware that under CAA sections 608 and 609, recovered
HFC refrigerant can be resold if it was used only in a motor vehicle
air conditioner (MVAC) or MVAC-like appliance and is to be used only in
an MVAC or MVAC-like appliance and recycled in accordance with 40 CFR
part 82, subpart B (see 40 CFR 82.154(d)). EPA is proposing to allow
this practice to continue without requiring registration in the
certification identification system. EPA requests comment on whether
additional recordkeeping and/or reporting should be required, such as
the total quantity of HFCs purchased, recovered, recycled on-site, sent
off-site for reclamation or destruction, and charged into MVACs. If
someone is selling bulk HFC, other than for use by that company for
servicing MVACs, for example to another auto shop, they would need to
be registered in the certification ID tracking system.
    EPA recognizes that a large quantity of HFCs will already be in the
United States market prior to the finalization of this rule. Therefore,
the Agency is proposing a compliance date of January 1, 2024, for these
provisions. That would allow time for much of the HFCs in the
distribution chain prior to that date to work its way through the
supply chain. EPA is proposing that as of January 1, 2024, it would be
unlawful to sell or distribute HFCs in a container that does not bear a
legible QR code. The sale and purchase of uncertified HFC (or HFC in a
container without a legible QR code) would be illegal and subject to
civil and criminal enforcement to prevent smuggling and/or bypassing of
the exchange system.
    EPA proposes that anyone wishing to sell HFCs produced, imported,
or reclaimed prior to January 1, 2024, must register each container of
HFC with EPA no later than November 15, 2023, for EPA to assign a
certification ID for each container. The registration must provide
information on the amount(s) and type(s) of HFCs and HFC blends, the
containers the HFC material is in, any unique identification numbers
assigned to the containers, and the origin of the HFC(s) (e.g.,
imported, purchased from supplier ``X'' on Y date) to verify they were
legally imported. EPA would assign the appropriate certification ID for
each container of HFCs if sufficient documentation is provided. EPA is
concerned that smugglers could attempt to register illegally imported
material through the process and seeks comment on whether additional
requirements are needed to ensure illegal HFCs are not receiving
certification IDs that would in effect make them legal. EPA is
proposing to require a one-time report for anyone who requests
certification IDs for previously imported, produced, or reclaimed HFCs
including the company's inventory levels as of December 31 for the
prior three to five years, so EPA could assess whether there was
significant upward growth during that time. EPA could also require a
random audit of the company's

records to ensure the information provided to EPA is accurate. EPA
could also establish administrative consequences for suppliers that are
found to not be in compliance or who have misrepresented information to
EPA.
    Most buyers desire to purchase only legal HFCs. However, in the
absence of a way to distinguish between legal and illegal HFCs, buyers
could unwittingly buy illegal HFCs and may be unintentionally
supporting the demand for and trade in illegal HFCs. For example, in an
enforcement case that concluded in 2018,\80\ there was evidence that
cylinders likely imported without allowances were bought and sold by
multiple suppliers before they were finally determined to be
counterfeit and likely illegally imported. There was no evidence that
anyone in the supply chain knew the material was likely illegally
imported other than the importer until the final purchaser noticed the
refrigerant was off-spec and in a cylinder that did not match the
typical packaging for that brand of product. For this reason, it is
important to involve both the buyer and seller in the accountability
process and provide the buyer with accurate information on the origin
of the HFCs they intend to purchase.
---------------------------------------------------------------------------

    \80\ ``O.C. Man Pleads Guilty to Illegal Sales of Ozone-
Depleting Refrigerant.'' The Orange County Register, Nov. 2018,
www.ocregister.com/2018/03/08/o-c-man-pleads-guilty-to-illegal-sales-of-ozone-depleting-refrigerant.
---------------------------------------------------------------------------

    EPA views the use of QR codes that would be generated by EPA for
production, import, and reclamation of HFCs as an alternative to a more
burdensome recordkeeping option described below in this paragraph. EPA
seeks comment on whether such a recordkeeping and reporting provision,
that would not be not backed up by an EPA electronic system, would be
appropriate in lieu of a system based on electronic reporting. EPA
seeks comment on whether such a recordkeeping and reporting provision,
which would not be backed up by an EPA electronic system, would be
appropriate in lieu of a system based on electronic reporting. This
type of approach might still require a QR code, additional label, or
other identifier be affixed on each container at the point of import,
to allow for CBP to verify the contents of the container and/or to
identify the importer, or once the produced or reclaimed material is
first put into a container. But the movement of HFC material would not
necessarily be reported in real-time by market actors by scanning those
codes. Instead, detailed recordkeeping, and potentially reporting
requirements, would be used to document every sale of HFCs to verify
the chain of custody from the point of production, import, or
reclamation to the end user or final seller of the HFC. EPA could also
require a signed statement between the buyer and the seller verifying
that the material being sold was acquired legally (e.g., imported or
produced with allowances). As part of the paperwork, the seller would
have to maintain records of the prior seller(s) back to the point of
production, import or reclamation. EPA could also require this
information be reported regularly to the Agency, similar to the
requirements for Renewable Identification Numbers (RINs) under the
Renewable Fuels Standard. If EPA were to require substantial
recordkeeping and reporting it could create additional burden for all
parties, and those at the end of the distribution chain, frequently
small businesses, could be disproportionately impacted. As a result,
EPA is proposing a more streamlined approach and would develop an IT
system that could simplify this process and store the appropriate
records and data needed to verify the chain of custody of HFCs.
    EPA is soliciting comment on establishing a certification program
that would follow the HFC through the supply chain including instances
where the HFCs are repackaged and/or blended as described above. EPA
solicits comment on alternatives to the proposed QR code mechanism,
including not relying on physical media attached to the shipment, and
other means to access a database. EPA understands that many companies,
including companies producing, importing, and reclaiming HFCs already
use digital inventory systems. EPA welcomes feedback on how it could
set up such a system. EPA also welcomes comments on how to streamline
data entry by entities that subsequently purchase the material after
the legal HFCs are assigned a tracking ID, including the use of QR
codes, starting January 1, 2024. EPA is also requesting comment on the
January 1, 2024, compliance date, which would align with the proposed
2024 reduction in production and consumption and would follow closely
behind the proposed prohibition on the use of disposable cylinders.
    If EPA were to finalize a certification ID tracking system with QR
codes, EPA is proposing to release several data elements associated
with each container of HFCs to potential buyers of HFC material, to
support this system. To allow buyers of HFCs to determine whether the
HFC they are purchasing is legal to buy, EPA proposes to release the
following information: (1) Whether the HFC being sold is legal to
purchase based on existing records; (2) when the HFC was produced,
imported, or reclaimed and by whom; (3) what HFCs are included in the
container; (4) if reclaimed HFC, whether the purity of the batch was
confirmed to meet the refrigerant purity standard in appendix A to 40
CFR part 82, subpart F (based on AHRI 700-2016), when was that
confirmed, and by whom; (5) what the brand name associated with the
container is; and (6) all prior sales of the certification ID
associated with a container of HFCs.
    As noted previously, certification-specific data would accompany
each kilogram of HFC moving through commerce (as tracked with a QR
code). While EPA sees value in releasing all of these data to the
general public in a comprehensive database both for transparency and to
enable the certification ID tracking system to fully operate in support
of overall program compliance, EPA anticipates that if all information
was publicly available in the database, item (6) could potentially
divulge information submitters customarily keep private or closely
held. For example, if all the data in the database were available
publicly without the need to scan every container of HFCs, someone
could identify the total amount of each HFC produced or imported by a
company in a given year and all the customers associated with a given
producer or importer. EPA is seeking comment on whether submitters
consider the information submitted for item (6) to be information they
customarily keep private or closely held. If so, the Agency will make a
decision in the final rule as to whether the Agency will provide an
express assurance of confidentiality for the information and how it
will protect that information from unauthorized disclosure.
    Alternatively, to protect information submitters may customarily
consider to be private or closely held, and to assuage concerns about
divulging information in item (6), EPA proposes to not to make the full
dataset available publicly. The Agency could limit the ability to view
the data for a single container (or full shipment of containers) to the
current buyer and seller. EPA sees several ways this could work. The
Agency could restrict access to the system, so only registered users
could scan a QR code, and a user would only be able to view active
codes that they had scanned into their ``inventory.'' EPA could also
limit the ability of an individual to view data in the system to within
a certain time

period after scanning the code. EPA seeks comment on other ways to
prevent the release of information submitters customarily consider
confidential from such a system. If the Agency cannot identify a way to
protect item (6), it could withhold that data element from inclusion in
the publicly available data associated with the certificate tracking
system.

IX. What are the proposed recordkeeping and reporting requirements?

    Subsection (d)(1)(A) of the AIM Act specifies that on a periodic
basis, but not less than annually, each company that, within the
applicable reporting period, produces, imports, exports, destroys,
transforms, uses as a process agent, or reclaims a regulated substance
shall submit to EPA a report that describes, as applicable, the
quantity of the regulated substance that the company: produced,
imported, and exported; reclaimed; destroyed by a technology approved
by the Administrator; used and entirely consumed (except for trace
quantities) in the manufacture of another chemical; or, used as a
process agent.

A. What generally applicable recordkeeping and reporting provisions is
EPA proposing?

    EPA is proposing recordkeeping and reporting requirements for any
company that produces, imports, exports, transforms, uses as a process
agent, reclaims, or destroys regulated substances as well as any
company that receives an application-specific allowance. Given that the
AIM Act controls all production and consumption of HFCs in the United
States, and data on import, export, destruction, reclaim, feedstock,
and process agent use are relevant to determining national production
and consumption figures, all companies would be subject to the proposed
recordkeeping and reporting requirements. In other words, under this
proposal, there would be no minimum threshold for reporting. The AIM
Act in subsection (d)(1)(A) provides EPA with clear authority to
establish reporting requirements that apply to ``each person who,
within the applicable reporting period, produces, imports, exports,
destroys, transforms, uses as a process agent, or reclaims a regulated
substance'' (emphasis added).
    Unless otherwise specified, such as for application-specific
allowance holders, EPA is proposing to require quarterly reporting.
Quarterly reporting helps to ensure that annual production and
consumption limits are not exceeded. The proposed frequency is
necessary for the Agency to review allowance transfer requests, of
which remaining allowances is a major component of the Agency's
decision. In EPA's experience, many companies have expressed their
preference for and found it easier to compile reports for a given
quarter than to compile an annual report.
    EPA is proposing that reports required by this section be submitted
to the Administrator within 45 days of the end of the applicable
reporting period, unless otherwise specified. Quantities would be
stated in terms of kilograms for each regulated substance unless
otherwise specified. The report would need to be signed and attested by
a responsible officer (EPA is proposing to consider an appropriate
responsibility officer to match the meaning of the CAA (42 U.S.C. 7401
et seq.)) and copies of records and reports would need to be retained
for five years.
    EPA is proposing that reports required by any regulations finalized
in this rulemaking be submitted electronically using the EPA's Central
Data Exchange (CDX) through e-GGRT. EPA is working to minimize
duplicative reporting between the AIM Act and the GHGRP and having
reporting done through e-GGRT will aid in the synchronization of these
systems. EPA is also proposing that reports be at the facility-level,
and not at the corporate-level, which will also add in synchronization
between these two programs and better allow utilization of the e-GGRT
system. Reporting at the facility-level will also provide finer detail
to aid in EPA's review of compliance throughout the system.

B. What recordkeeping and reporting is EPA proposing that is applicable
to specific types of entities?

    This section presents a general overview of the types of records
and reports EPA is proposing. EPA encourages readers to review the
proposed regulatory text for the full reporting requirements.
Producers
    EPA is proposing to require a one-time report from producers to
allow the Agency to understand how production volumes are measured, the
quantity of fugitive losses, the efficiency of the production process
for the regulated substance, the production capacity of their
facilities, and a description of any use of a regulated substance as a
process agent. Such information will allow EPA to better understand the
monitoring in place, the accuracy of reporting, and the likelihood of
emissions associated with production.
    EPA is proposing to require quarterly reporting of data that
includes the quantity of each regulated substance produced, the
quantity of allowances expended, and quantities produced for
transformation or destruction. EPA is proposing quarterly reporting to
ensure that annual production and consumption limits are not exceeded.
It is also needed for EPA to be able to review allowance transfer
requests, of which remaining allowances is a major component of EPA's
review. EPA is taking comment on whether these reports need to be
submitted quarterly or could be submitted less frequently.
    EPA is proposing that producers report any companies that conferred
application-specific allowances to the producer and the quantity
conferred. Producers would also report the quantities of regulated
substances sold for those applications, specifying amounts produced
using conferred application-specific allowances and amounts produced
with production and consumption allowances. This additional reporting
on production for allocation-specific allowances would allow the Agency
to track the use of application-specific allowances to confirm their
appropriate use and calculate the level of production allowances needed
in future years for the statutorily listed applications to ensure that
EPA is allocating an appropriate amount.
    EPA is proposing that companies that produce regulated substances
maintain records similar to those for the ODS program. This includes,
among other things: records of the quantity of each regulated substance
produced at each facility; copies of invoices or receipts documenting
sale of regulated substances for use in processes that result in their
transformation or destruction, or use as a process agent; and records
of raw materials and feedstock chemicals used at each facility for the
production of regulated substances. In addition, EPA is proposing that
producers keep records that distinguish between regulated substances
produced with application-specific allowances and those produced with
general pool production and consumption allowances for an application
listed in (e)(4)(B)(iv) and the quantity sold for use in those
applications. As outlined in the application-specific allowance
section, EPA is proposing that end users that are allocated
application-specific allowances certify that the regulated substances
purchased through conferral of application-specific allowances were

purchased solely for use in the application listed on the allowance and
will not be resold or used in any other manufacturing process. Similar
to the essential use provisions for ODS, EPA is proposing that
producers maintain copies of those certifications for all conferred
application-specific allowances. EPA is also proposing that producers
maintain dated records of the quantity of each regulated substance used
at each facility as a process agent.
    EPA is proposing that if a producer fails to keep records on their
production or to submit reports regarding their production, EPA may
determine that the producer produced at full capacity during the period
for which records were not kept or reports were not submitted for
purposes of determining possible violations. Producers would
additionally be subject to enforcement for failure to keep records or
submit reports.
Importers
    EPA is proposing that companies that import regulated substances
provide quarterly reports that include, among other things, the total
quantity imported of each regulated substance for that quarter
distinguishing between quantities of consumption allowances expended
and quantities imported under the exemptions for processes resulting in
transformation or destruction or used HFCs intended for destruction.
Separating these categories is necessary to determine whether the HFCs
imported count towards the consumption cap. EPA is also proposing that
reports include the amount imported using conferred application-
specific allowances to confirm their appropriate use and calculate the
level of allowances needed in future years to ensure that EPA is
allocating an appropriate amount. EPA is proposing quarterly reporting
to ensure that annual production and consumption limits are not
exceeded. It is also needed for EPA to be able to review allowance
transfer requests, of which remaining allowances is a major component
of EPA's review. EPA is taking comment on whether these reports need to
be submitted quarterly or could be submitted less frequently.
    EPA is proposing that companies that import regulated substances
maintain records that form the basis of the reports outlined in the
prior paragraph. For each shipment EPA is proposing that importers keep
records of the following: the date on which the regulated substances
were imported, the port of entry, the country of export, the importer
number, the bill of lading, the invoice for the import, and the U.S.
Customs entry number. EPA is proposing that the information on the bill
of lading include the specific HFC(s) in the shipment, the volume of
each HFC, and the correct HTS code to properly identify the HFC or HFC
blend (i.e., ``mixtures,'' in the terminology of the International
Trade Commission). EPA notes that these codes are in the process of
being updated so that most commonly traded HFCs will have their own
code (or be grouped with minimally traded HFCs) and most major HFC
blends will fall under separate codes. EPA is also proposing
recordkeeping requirements for imports of used regulated substances for
destruction under the process in Sec.  84.25 including a copy of the
petition to import for destruction, EPA non-objection notice, and
documentation necessary to show that the regulated substance was
destroyed.
Importers of Used HFCs for Destruction
    EPA is proposing that entities that import used HFCs for
destruction without expending consumption allowances in accordance with
the procedures outlined in Sec.  84.25 maintain for five years: a copy
of the petition to import for destruction; the non-objection notice; a
copy of the export license or export license application including an
English translation thereof; U.S. Customs entry documents for the
import that must include the commodity codes; records of that date,
amount, and names of the regulated substance sent for destruction per
shipment; an invoice from the destruction facility verifying shipment
was received; and records from the destruction facility indicating the
substances were destroyed.
Aggregators of Used HFCs Imported for Destruction
    EPA is proposing that companies that aggregate used HFCs that were
imported for destruction under the process in Sec.  84.25 maintain
documentation necessary to show that the regulated substance was
destroyed, such as chain of custody information.
Transhipments
    EPA is proposing reporting and recordkeeping requirements for any
company that tranships a regulated substance through the United States.
EPA is proposing to require that the company notify EPA 30 days prior
to a transhipment arriving at a U.S. port. The arrival notification
must include the following information: (i) Name, commodity code, and
quantity in kilograms of each regulated substance to be transhipped;
(ii) name and address of the importer, the importer ID number, and the
contact person's name, email address, and phone number; and (iii) the
U.S. port of entry, the expected date of entry, and the vessel
transporting the material. If at the time of submitting the petition
the importer does not know this information, the importer is required
to notify the Administrator of this information prior to the entry of
the individual shipment into the United States.
    Once the material has left the United States, EPA is proposing that
the company provide a second notification indicating as such. The
departure notification must include (i) name, commodity code, and
quantity in kilograms of each regulated substance to be transhipped;
and (ii) date and vessel transporting the material.
    EPA is also proposing that the company maintain records that
indicate that the regulated substance shipment (i) originated in a
foreign country; (ii) is destined for another foreign country; and
(iii) did not enter interstate commerce within the United States. EPA
requests comment on whether EPA should also require monthly reporting
(or other reporting frequencies) on the status of the HFCs held at a
bonded warehouse.
Exporters
    EPA is proposing that exporters provide a quarterly report that,
among other things, includes the name, quantity, and commodity code of
each regulated substance exported, the date on which, and the port from
which, the regulated substances were exported from the United States,
and the country to which the regulated substances were exported. EPA is
proposing that any exporter of used regulated substances must indicate
on the bill of lading or invoice that the regulated substance is used.
Second-Party Transformation or Destruction
    EPA is proposing that any company that transforms or destroys
regulated substances produced or imported by another company without
expending allowances report annually on the names and quantities of the
regulated substances transformed or destroyed for that year, and who
they acquired those HFCs from. Companies would maintain records
documenting, among other things, amounts purchased, transformed or
destroyed, transformation or destruction verifications, and the names,
commercial use, and quantities of the resulting chemical(s) when the
regulated substances are transformed.

    Transformation--EPA is proposing that any company that acquires
regulated substances for purposes of transformation must provide the
producer or importer with a transformation verification that the
regulated substances are to be used in processes that result in their
transformation. To ensure the accuracy of the verification, EPA is
proposing that verifications only be valid for 60 days. However, EPA is
taking comment on whether that should be extended to 12 months to
provide more flexibility to companies transforming HFCs. EPA proposes
that the transformation verification would include the following: (i)
The identity, address, and contact information of the company intending
to transform the regulated substances; (ii) the quantity of regulated
substances intended for transformation; (iii) the identity of shipments
by purchase order number(s), purchaser account number(s), location(s),
or other means of identification; and, (iv) the period of time over
which the company intends to transform the regulated substances.
    Destruction--EPA is proposing that any company that purchases or
receives and subsequently destroys regulated substances that were
originally produced or imported without expending allowances shall
provide the producer or importer from whom it purchased or received the
regulated substances with a verification that the regulated substances
will be used in processes that result in their destruction. EPA is
proposing that the destruction verification include the following: (i)
Identity and address of the company intending to destroy regulated
substances; (ii) the destruction efficiency at which such substances
will be destroyed; and, (iii) period of time over which the company
intends to destroy regulated substances.
    Transformation--In addition to the requirements outlined for
entities undertaking second party transformation, EPA is proposing that
any company that transforms a regulated substance provide EPA with a
one-time report containing the following information: (i) A description
of the transformation use; (ii) a description of all technologies and
actions taken to minimize emissions of regulated substances; (iii) the
name of the product manufactured in the process; (iv) a list of any
coproducts, byproducts, or emissions from the production line of any
regulated substance that are other regulated substances, ozone-
depleting substances listed in 40 CFR part 82, subpart A, or hazardous
air pollutants initially identified in Section 112 of the Clean Air
Act, and as revised through rulemaking and codified in 40 CFR 63; (v)
the estimated annual fugitive emissions by chemical associated with the
transformation process; (vi) the anticipated ratio of regulated
substance used for transformation to the amount of end product
manufactured; and (vii) a mass balance equation of the transformation
reaction.
    Destruction--In addition to the requirements outlined for entities
undertaking second party transformation, EPA is proposing that any
company that destroys regulated substances, whether as part of a
process or as a disposal method of used substances, provide EPA with a
one-time report containing the following information: (i) The
destruction unit's destruction efficiency; (ii) the methods used to
record the volume destroyed; (iii) the methods used to determine
destruction efficiency; and, (iv) the name of other relevant federal or
state regulations that may apply to the destruction process. Any
changes to the information in paragraphs (e)(4)(i), (ii), and (iii) of
this section must be reflected in a revision to be submitted to EPA
within 60 days of the change(s).
Companies That Transfer Allowances
    As discussed in section VI.D. of this preamble, EPA is proposing to
allow the transfer of allowances between companies. EPA proposes that
both the transferer and transferee maintain a copy of the transfer
request and a copy of EPA's non-objection notice.
Holders of Application-Specific Allowances
    EPA is proposing recordkeeping and reporting provisions for holders
of application-specific allowances that builds on EPA's experience with
the requirements for ODS essential-use allowance holders.
    Certification--EPA is proposing that any company issued
application-specific allowances, or that receives application-specific
allowances through a transfer, must certify to producers and importers
when purchasing HFCs produced or imported using those allowances that
the regulated substances were purchased solely for the specified
application in subsection (e)(4)(B)(iv) of the Act and will not be
resold or used for other purposes. A copy of the certification must
also be maintained by the company who uses the HFCs produced or
imported with those allowances.
    Biannual Reporting--EPA is proposing that recipients of
application-specific allowances report by July 31 and January 31 of
each year. EPA is proposing biannual reporting so as to gather the data
necessary to meet two objectives: To provide end-of-year accounting
that must be coordinated with other annual reporting processes, and
providing information early enough in the year for the Agency to
determine by October 1 the quantity of application-specific allowances
to allocate for the next year.
    Specifically, EPA is proposing that recipients of application-
specific allowances report the following information: (i) The quantity
of each regulated substance that was used for their application during
the previous six months; (ii) the quantity of regulated substances
acquired through conferring allowances that were imported during the
previous six months; (iii) the quantity of regulated substances
acquired through conferring allowances that were produced domestically
during the previous six months; (iv) the companies to which
application-specific allowances were conferred; (v) the quantity of
regulated substances purchased without expending application-specific
allowances during the previous six months (i.e., from the open market);
(vi) the quantity of inventory of each regulated substance held by the
reporting company or held under contract by another company for use on
the last day of the previous six-month period (i.e., December 31 and
June 30); (vii) the quantity of each regulated substance contained in
products exported by the company during the previous six months; and
(viii) the quantity of each regulated substance that was destroyed or
recycled during the previous six months.
    EPA is proposing that the report due by July 31 of each year also
include a request for application-specific allowances for the next
calendar year which would include: Total quantity (in kilograms) of all
regulated substances acquired and used in the previous three years;
information on suppliers; whether HFCs were acquired through domestic
production or import; whether HFCs were acquired through conferring
allowances or from the general market; quantities held in inventory;
and a description of any plans to transition to regulated substances
with a lower exchange value or alternatives to regulated substances.
    EPA is also proposing that entities allocated application-specific
allowances maintain the following records: Records necessary to develop
the biannual reports; a copy of certifications provided to producers
and/or importers when conferring allowances; a copy of the annual

submission requesting application-specific allowances; invoice and
order records related to the purchase of regulated substances; records
related to the transfer of allocation-specific allowances to other
entities; and records documenting the use of regulated substances.
Process Agents
    EPA is proposing that any company that uses a regulated substance
as a process agent provide EPA with a one-time report containing the
following information: A description of the process agent use which
includes details of the percentages of process agent retained within
the process, recovered after the process, and emitted or entrained in
the final product. The proposed one-time report would also include a
description of all technologies and actions taken to minimize emissions
of regulated substances; the name of the product and byproducts
manufactured in the process; and the anticipated ratio of process agent
emissions to end product manufactured.
    EPA is also proposing that any company that uses a regulated
substance as a process agent provide EPA with an annual report
containing the following information: An email address and phone number
for a primary contact person and for an alternate; the amount of
regulated substance used as a process agent; the amount of product and
the amount of byproducts manufactured (including amounts eventually
destroyed or used as feedstock); the stack point source emissions; and
a description of any HFC emission reduction actions planned or
currently under investigation.
Reclaimers of HFCs
    EPA is proposing that reclaimers report to EPA on the same schedule
as for producers and importers--45 days after the end of each quarter
(e.g., February 14 for the period ending on December 31 of the prior
year). The data elements would generally be the same as what they
report under 40 CFR 82.164(d), with some modifications. EPA is
proposing the reports contain information on the quantities of used,
reclaimed, and virgin HFCs held in inventory onsite at the end of each
quarter. EPA is also proposing that reclaimers submit a one-time report
with similar information on inventory, as well as the name of the
laboratory that conducts the batch testing and a signed statement from
that laboratory confirming there is an ongoing business relationship
with the reclaimer, providing the number of batches tested for each
regulated substance or blend containing a regulated substance in the
prior year, and providing the number of batches that did not meet the
specifications in appendix A of 40 CFR part 82, subpart F in the prior
year. Under this proposal, reclaimers would have to maintain those
records for five years, instead of the three years required under 40
CFR part 82, subpart F. EPA also seeks comment on whether there are
other entities that reprocess HFCs and resell them back into the market
and if the existing universe of HFC reclaimers would be sufficient to
satisfy the (d)(1)(A)(ii) requirements for reclaimers.
    Under the existing regulations in subpart F codified at 40 CFR
82.164 reclaimers must also maintain records of the analyses conducted
to verify that reclaimed refrigerant meets the necessary specifications
prescribed in appendix A to 40 CFR part 82, subpart F, based on AHRI
Standard 700-2016, and maintain records on a transaction basis for
three years of the names and addresses of persons sending them material
for reclamation and the quantity of the material (the combined mass of
refrigerant and contaminants) by refrigerant sent to them for
reclamation. EPA seeks comment on whether any reclaimers are selling
HFCs for use in any of the six applications listed in subsection
(e)(4)(B)(iv) of the AIM Act. EPA could consider finalizing additional
reporting requirements for such sales, similar to the requirements for
producers on the quantities of HFCs sold to users of HFCs for one of
the six applications listed in the AIM Act. EPA also seeks comment if
there are additional elements the Agency should be collecting such as
quantities sent for destruction, data on reclamation from 2011--2013,
quantity of inventory awaiting reclamation, or destruction to meet the
requirements under the AIM Act.
Inventory
    EPA is proposing that all producers, importers, exporters, and
reclaimers of HFCs annually report the quantity of each HFC they hold
in inventory as of December 31 of each year. For reclaimers, the report
must include inventory of reclaimed and used HFCs awaiting reclamation
or destruction. This information would be due 45 days after the end of
the calendar year (February 14). EPA is proposing that the first annual
inventory report be due by February 14, 2022, to provide data on
inventory held at the end of 2021.
    EPA is proposing to collect this information to help inform the
Agency in its evaluation of petitions and/or requests submitted under
the AIM Act. For example, subsection (e)(4)(B)(v) requires EPA to
``review the availability of substitutes, including any quantities of
the regulated substance available from reclaiming or prior
production,'' (emphasis added). Similar language is included in
subsections (f) and (i) of the AIM Act. Annual reporting would
facilitate the timely review of petitions and/or requests since this
information would already be in the Agency's possession.
HFC-23 Emissions
    For entities that own or operate facilities that generate HFC-23
beyond the exemption for insignificant quantities in the definition of
production, EPA is proposing a one-time report containing the following
information: (i) Information on the capacity to produce the intended
chemical on the line where HFC-23 is also produced; (ii) description of
actions taken at the facility to control the creation of HFC-23 and its
emissions; (iii) identification of approved destruction technology and
its location intended for use for HFC-23 destruction; and (iv) a copy
of the DRE report associated with the destruction technology. EPA is
further proposing that any changes to the information provided in the
one-time report be reflected in a revision submitted to EPA within 60
days of the change(s).
    EPA is also proposing to require annual reporting, to be submitted
45 days after the control period, for production line data on HFC-23
amounts: (i) Emitted; (ii) generated, whether captured or not; (iii)
generated and captured for all uses; (iv) generated and captured for
feedstock use in the United States; (v) generated and captured for
destruction; (vi) used for feedstock without prior capture; and (vii)
destroyed without prior capture. EPA is also soliciting comment on the
frequency that this information should be submitted.
    If captured HFC-23 is destroyed in a subsequent control period
(e.g., it is created and captured December 15 and destroyed January 15
in the following year), EPA is further proposing to require the entity
that produced the HFC-23 submit records indicating the HFC-23 has been
destroyed within 45 days after destruction occurs.
    To ensure that reported values for HFC-23 generation, capture,
transformation, and destruction are reliable, EPA is proposing to
require entities to comply with certain monitoring and calculation
provisions. Specifically, EPA is proposing to require entities to meet
the same requirements as outlined in 40 CFR part 98, subpart

L or subpart OO, depending on the quantity being reported. These
provisions include validated methods for measuring concentrations of
HFC-23 in process streams and the mass flow rates of those streams;
accuracy, precision, and calibration requirements for instrumentation;
and specific calculation methods for uncontrolled emissions and for
quantities transformed and destroyed. EPA proposes to include these
reporting requirements to ensure that reported data are accurate,
precise, and comparable over time and across facilities and companies.
Offramp
    Subsection (d)(1)(C) of the AIM Act specifies that reporting is no
longer required if a company notifies EPA that they have permanently
ceased production, import, export, destruction, transformation, use as
a process agent, or reclamation of all regulated substances. Any
activity that occurs earlier in that year before the cessation of
activities must still be reported for that year.
Other
    Section (d)(1)(C)(iii) of the AIM Act states that each periodic
report shall include, as applicable, the information described for the
baseline period of 2011 through 2013. EPA interprets this provision as
allowing the Agency to collect information necessary to establish the
United States' production and consumption baselines. EPA reads the
phrase ``as applicable'' to mean that every quarterly report does not
need to reiterate that baseline information, only an initial report.
    EPA discusses in section V. of this preamble methods by which EPA
has collected, and continues to collect, data from the relevant
entities. As noted previously, once the baselines are established, EPA
does not intend to amend the values and thus any reporting of baseline
data would be unnecessary.

C. How is EPA proposing to coordinate AIM Act reporting with other EPA
reporting requirements?

    Subsection (d)(2) of the AIM Act states that EPA may allow an
entity subject to the AIM Act's reporting requirements ``to combine and
include the information required to be reported under [the AIM Act]
with any other related information that the [company] is required to
report'' to EPA. This section of the notice will discuss which
reporting requirements established under other authorities EPA is
proposing to use instead of establishing new reporting obligations. EPA
is soliciting comment on whether any or all of these reporting
requirements should be established specifically under AIM Act authority
in the regulations created through this rulemaking.
    Some of the data elements EPA is proposing to collect are similar
to or the same as those required to be reported under the existing
requirements associated with the GHGRP (40 CFR part 98, subparts L and
OO). While the regulatory reporting requirements are separate, and EPA
is not proposing any changes to 40 CFR part 98 in this rulemaking, EPA
intends to coordinate reporting for similar or identical data elements
by using the same online portal for submitting both AIM and GHGRP data
(e-GGRT) and intends to reduce duplicative reporting by populating the
annual report submitted under GHGRP with data submitted under the AIM
Act. In the future, EPA would also consider harmonizing terms used
under both programs or providing a document clarifying how the data
collected under the AIM Act aligns with data collected under the GHGRP.

D. How does EPA propose to release HFC data collected under the AIM
Act?

    In order to effectively implement an enforceable allowance
allocation and trading program, proactively encourage compliance, and
enable third-party engagement to complement EPA enforcement efforts,
EPA is proposing several ways it intends to release data collected
under this proposed rule. Some data would be released to the Ozone
Secretariat at the United Nations Environment Programme and some data
would be released to the general public. The Agency has noted below the
intended audience for proposed data release. As a starting point, EPA
notes that if a data point is collected under the GHGRP and is already
released or determined under the GHGRP as not entitled to confidential
treatment, and that same data point is required to be reported under
these AIM Act regulations, it would not be given confidential treatment
and would be considered releasable under these AIM Act regulations.\81\
Additionally, emission data, including data used as inputs to emissions
equations, would generally be releasable under subsection (k)(1)(C),
because of the AIM Act's statement in that subsection that CAA section
114 applies to the AIM Act and any regulations promulgated under it as
if the AIM Act were part of Title VI of the CAA. In particular, under
subsection (k)(1)(C), CAA section 114(c), which provides that emission
data shall be available to the public, applies to the AIM Act and any
regulations promulgated under it.
---------------------------------------------------------------------------

    \81\ Nothing in this rulemaking is intended to change the
regulations EPA has established determining how EPA will maintain
data submitted in response to the GHGRP requirements. However, if
EPA determines it can release the same data that is currently
treated as CBI under the GHGRP, EPA would expect it could release
such data under the GHGRP as well after making a change to the
determination under the GHGRP consistent with 40 CFR 2.301(d)(4).
---------------------------------------------------------------------------

    To further support compliance efforts, in particular regarding
illegal imports, EPA is proposing to release more data than it has
historically released, some of which is currently determined to be CBI
under the GHGRP.\82\ With respect to other data EPA is proposing to
release, these data fall into several categories, including: Aggregated
data that would not divulge information submitters customarily keep
private or closely held; data to support the tracking and legal sale of
HFCs sold in commerce; and data on allowance levels to support
compliance and facilitate transfers of allowances.
---------------------------------------------------------------------------

    \82\ See ``Greenhouse Gas Reporting Program: Data Reported by
Facilities Subject to the Supplier Subparts LL, through QQ, Geologic
Sequestration Subject to Subpart RR*, and CO2 Injection
Subject to Subpart UU,'' available at https://www.epa.gov/sites/production/files/2020-09/documents/ghgrp_cbi_tables_for_suppliers_8-28-20_clean_v3_508c.pdf.
---------------------------------------------------------------------------

1. Which general data elements does EPA propose to publicly release?
    Building on EPA's experience implementing the ODS phaseout under
CAA Title VI, EPA is proposing to maximize transparency of the
allocation program under the AIM Act. Market transparency would
facilitate implementation of the allocation program and increase the
public and current market participants' ability to provide
complementary compliance assurances and pressure. It would allow the
public and the industry to identify market participants and volumes in
trade and thus enable them to alert EPA and other federal authorities
when they suspect HFCs may have been produced, imported, or sold in
violation of the regulations or of the AIM Act's prohibition in
subsection (e)(2).
(a) Company-Level Production and Consumption Data
    As noted earlier, Congress has required that the Administrator
``ensure that the annual quantity of all regulated substances produced
or consumed in the United States does not exceed'' the annual caps
described in subsection (e)(2)(B). To do that, EPA will need to employ
many different compliance tools. Research shows that making data

publicly available facilitates compliance. Qualitative studies have
found that ``public disclosure is [an] underutilized tool; there is
powerful evidence that publishing information about company performance
drives better behavior, as pressure is applied by customers, neighbors,
investors, and insurers.'' \83\ EPA has also acknowledged the
importance of data transparency in prior rulemakings. As the Agency
explained in the preamble to a proposed rule (78 FR 46006, July 30,
2013) concerning the National Pollutant Discharge Elimination System
(NPDES):
---------------------------------------------------------------------------

    \83\ David Hindin and Jon Silberman, ``Designing More Effective
Rules and Permits,'' George Washington Journal of Energy &
Environmental Law, Spring 2016 at 103, 117-120.

    To promote transparency and accountability, EPA intends to make
[a] more complete set of data available to the public, providing
communities and citizens with easily accessible information on
facility and government performance. Such data provides a powerful
incentive to improve performance by giving government, permittees,
and the public ready access to compliance information. This can
serve to elevate the importance of compliance information and
environmental performance within regulated entities, providing
---------------------------------------------------------------------------
opportunity for them to quickly address any noncompliance.

    The same principles apply in this situation to incentivize
compliance and allow the public and competing companies to identify and
report noncompliance to EPA. To promote transparency and
accountability, the Agency is taking comment on whether to release all
HFC data, unaggregated and in a format similar to how it would be
reported to EPA.\84\ This approach would allow for independent review
of these data, in addition to the auditing and reporting requirements
included in this proposal. EPA understands that many of the HFC supply
data elements that would be released under this approach have
previously been determined to be CBI (see, https://www.epa.gov/sites/production/files/2020-09/documents/ghgrp_cbi_tables_for_suppliers_8-28-20_clean_v3_508c.pdf),\85\ but still sees the value of releasing such
data.
---------------------------------------------------------------------------

    \84\ If EPA finalizes an approach to release a data element
collected through reporting required under the AIM Act, any of those
same data elements collected under GHGRP would be made public and
therefore would not be entitled to CBI protection regardless of any
previous determinations made under GHGRP. EPA anticipates that it
would subsequently make a corresponding change to the GHGRP CBI
determinations in accordance with 40 CFR 2.301(d)(4).
    \85\ Many of the data elements reported to subpart OO of the
GHGRP were determined to be, and are treated as, confidential by EPA
(see e.g., 76 FR 30782, May 26, 2011; 76 FR 73886, November 29,
2011; 77 FR 48072, August 13, 2012, 78 FR 71904, November 29, 2013;
and, 81 FR 89188, December 9, 2016).
---------------------------------------------------------------------------

    Releasing all HFC activity (e.g., transfers, production data,
transformation use) at the company and transaction level (e.g.,
chemical-specific production amounts) would be a significant divergence
from past treatment of data under the GHGRP. Given the U.S. HFC market
will have extensive regulation under the rulemakings implementing the
AIM Act, it would be reasonable for EPA to take a different approach
than has been taken for the GHGRP and release more disaggregated data
than was released under those programs. Ensuring compliance with a
regulatory phasedown program, where EPA is obligated to ensure that
domestic production and consumption aligns with a statutorily defined
schedule, is different than a reporting program where one company's
noncompliance would mean less accurate accounting, but it does not have
a statutorily defined target. It is reasonable for EPA to take all
necessary steps to ensure that the Agency can ensure compliance with
the consumption and production caps of subsection (e)(2)(B) as well as
creating a level playing field.
    If we were to finalize this approach, companies would know that
production and consumption information are not protected and therefore
companies would not have a reasonable expectation that the information
would be handled privately. Under recent Supreme Court case law,
Exemption 4 of the Freedom of Information Act would not apply to
information submitted with the expectation that the information would
be made public. See Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct.
2356, 2360 (2019). Companies have a choice if they want to continue
participating in the U.S. HFC market. EPA could also choose to release
some elements such as transfer data since allowance holders and their
allowance levels will be publicly available at the start of the year.
    As an alternative to the above proposal to release every data
element reported to the Agency under the regulatory reporting structure
being established through this rulemaking, EPA proposes to release any
and all data elements that are publicly available through a range of
datasets. Data that are already publicly available cannot be considered
privately held or merit confidential treatment. EPA has not been able
to identify a publicly available dataset on HFC production that is
complete, although EPA's Chemical Data Registry does provide some HFC
production and import data (https://chemview.epa.gov). EPA proposes to
release any information that is already publicly available through
EPA's Chemical Data Registry. EPA would not release production data
collected through the reporting regulations established through this
rulemaking, beyond what is available in the Chemical Data Registry,
unless commenters identify a source where complete production data is
available publicly.
    EPA is proposing to release all import data (e.g., transaction
level shipment data) because EPA does not expect that release of these
data would divulge information that is not already available through
privately developed global trade databases.\86\ These databases charge
a fee for access to information on imports at the transaction level
based on Customs data from the United States and other countries,
including bills of lading. There are also websites that provide
selected import data at no cost.\87\ A submission available in the
docket from First Continental International (NJ) Inc., dated March 12,
2021, shows the types of information that can be ascertained from these
databases. One of the key tests under the FOIA exemption in 40 CFR part
2 regarding CBI is whether the data is available publicly elsewhere.
---------------------------------------------------------------------------

    \86\ Examples include PIERS (https://ihsmarkit.com/products/piers.html), Panjiva (https://panjiva.com), Datamyne (https://www.datamyne.com), and ImportGenius (https://www.importgenius.com).
Mention of or referral to commercial products or services, and/or
links to non-EPA sites does not imply official EPA endorsement of or
responsibility for the opinions, ideas, data, or products presented
at those locations, or guarantee the validity of the information
provided. Mention of commercial products/services on non-EPA
websites is provided solely as a pointer to information on topics
related to environmental protection that may be useful to the public
as they review this proposed rulemaking.
    \87\ Enigma, a data science firm, makes available online what
appears to be the full Automated Manifest System import data from
2018-2020, including the names of shipment consignees and cargo
descriptions (https://aws.amazon.com/marketplace/pp/US-Imports-Automated-Manifest-System-AMS-Shipments/prodview-stk4wn3mbhx24).
Similarly, usimports.info makes a limited number of import database
queries free to users, allowing them to see data on individual bills
of lading (https://usimports.info).
---------------------------------------------------------------------------

    Given import data is already publicly available, albeit behind a
paywall, EPA is seeking comment on whether releasing import data
collected under the AIM Act would divulge any additional information
that could be claimed as CBI. Release of such data would also align
with EPA's particular concern over imports of HFCs, where there is
widespread global evidence of illegal activity, as outlined at the

beginning of section VIII of the preamble.
(b) Aggregated National Data
    As a separate alternative to the above-outlined approach, if EPA
does not finalize to release all data elements to the public, EPA
proposes to release all data that is already publicly available and
otherwise to release certain aggregated HFC production and consumption
data to the public. This approach would be similar to how EPA releases
aggregated data collected pursuant to CAA Title VI authorities to
implement the ODS phaseout. For example, as part of the ODS phaseout,
EPA has released annual halon 1301 import, export, and petition data;
\88\ aggregate inventory of pre-phaseout methyl bromide; aggregate
annual HCFC consumption; and chemical-specific aggregated consumption