[Federal Register: July 20, 2001 (Volume 66, Number 140)]
[Proposed Rules]               
[Page 38063-38105]                         

[[Page 38063]]

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

Part II

Environmental Protection Agency

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

40 CFR Part 82

Protection of Stratospheric Ozone; Allowance System for Controlling 
HCFC Production, Import and Export; Proposed Rule

[[Page 38064]]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[FRL-6929-9]
RIN 2060-AH67

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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: EPA is seeking comment on a proposed allowance system to 
control the United States (U.S.) production and consumption of class II 
controlled substances, the hydrochlorofluorocarbons (HCFCs), in 
accordance with U.S. obligations under the Montreal Protocol on 
Substances that Deplete the Ozone Layer (Protocol). Under the Protocol, 
the U.S. is obligated to limit HCFC consumption (defined by the 
Protocol and this document as production plus imports, minus exports) 
under a specific cap, which will be reduced in a step-wise fashion over 
time. The U.S. is also a signatory to amendments to freeze HCFC 
production on January 1, 2004. EPA published an Advance Notice of 
Proposed Rulemaking (ANPRM) on April 5, 1999, laying out a variety of 
options for developing an allowance system. Having fully considered 
comments on the ANPRM, EPA is today proposing an HCFC allowance system, 
similar in many respects to the class I allowance system in place 
before January 1, 1996. Instituting such a system for HCFCs would allow 
EPA to ensure that the U.S. maintains compliance with the Protocol 
caps, while providing certainty and predictability to allowance 
holders. In addition, the Clean Air Act (CAA) requires EPA to establish 
an allowance system for HCFCs.
    A slightly different version of this document was signed on 
December 28, 2000, by then Administrator Carol Browner. It was sent 
forward to the Federal Register and made available on the EPA Web site. 
It was not published in the Federal Register, but rather was recalled 
to EPA for review by the incoming Administration. In the interim, EPA 
was alerted to some potential discrepancies in baseline allocations; 
this led to the discovery that the tracking databases manifested some 
correlation errors. EPA reviewed all paper records to determine 
accurate baseline numbers, and the corrected numbers are included in 
this document.

DATES: Comments on this proposed rule must be received on or before 
September 4, 2001, unless a public hearing is requested. Comments must 
then be received on or before 45 days following the public hearing. Any 
party requesting a public hearing must notify the Stratospheric Ozone 
Protection Hotline listed below by 5 p.m. Eastern Standard Time on July 
30, 2001. Following the period for requesting a hearing, you may call 
the Stratospheric Ozone Protection Hotline to find out whether a 
hearing will be held, and if a hearing is held, the date and location 
it will take place.

ADDRESSES: Comments on this proposed rule should be submitted in 
duplicate to: The Air and Radiation Docket (6102), Air Docket No. A-98-
33, U.S. Environmental Protection Agency, 401 M Street, SW., 
Washington, DC, 20460. Inquiries regarding a public hearing should be 
directed to the Stratospheric Ozone Protection Hotline at 1-800-269-
1996.
    Materials relevant to this rulemaking are contained in Docket No. 
A-98-33. The Docket is located in Room M-1500, First Floor, Waterside 
Mall at the address above. The materials may be inspected from 8 am 
until 4 p.m. Monday through Friday. A reasonable fee may be charged by 
EPA for copying docket materials.

FOR FURTHER INFORMATION CONTACT: Vera Au, EPA, Global Programs 
Division, Office of Atmospheric Programs, Office of Air and Radiation 
(6205-J), Ariel Rios Building, 1200 Pennsylvania Avenue, NW., 
Washington, DC, 20460, (202) 564-2216 or the Stratospheric Protection 
Hotline at (800) 296-1996.

SUPPLEMENTARY INFORMATION:

Regulated Entities

    The HCFC allowance allocation system would affect the following 
categories:

----------------------------------------------------------------------------------------------------------------
                   Category                      NAICS code    SIC code       Examples of regulated entities
----------------------------------------------------------------------------------------------------------------
Chlorofluorocarbon gas manufacturing..........       325120         2869  Chlorodifluoromethane manufacturers;
                                                                           Dichlorofluoroethane manufacturers;
                                                                           Chlorodifluoroethane manufacturers.
Chlorofluorocarbon gas importers..............  ...........  ...........  Chlorodifluoromethane importers;
                                                                           Dichlorofluoroethane importers;
                                                                           Chlorodifluoroethane importers.
Chlorofluorocarbon gas importers..............  ...........  ...........  Chlorodifluoromethane exporters;
                                                                           Dichlorofluoroethane exporters;
                                                                           Chlorodifluoroethane exporters.
Urethane and Other Foam Product (Except              326150         3086  Insulation and cushioning, foam
 Polystyrene) Manufacturing.                                               plastics (except polystyrene)
                                                                           manufacturing.
----------------------------------------------------------------------------------------------------------------

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

Abbreviations and Acronyms Used in This Document

Act--Clean Air Act
ANPRM--Advance Notice of Proposed Rulemaking
Article 2 countries--industrialized countries
Article 5 countries--developing countries
CAA--Clean Air Act
Cap--limitation in level of production or consumption
CFC--chlorofluorocarbon
CFR--Code of Federal Regulations
EPA--Environmental Protection Agency
FDA--Food and Drug Administration
HCFC--hydrochlorofluorocarbon
NASA--National Aeronautics and Space Administration
ODP--ozone depletion potential (CFR 40, Part 82)
ODS--ozone-depleting substance
Party--Signatory country to the Montreal Protocol on Substances that 
Deplete the Ozone Layer
Protocol--Montreal Protocol on Substances that Deplete the Ozone Layer
SBREFA--Small Business Regulatory Enforcement Fairness Act
SNAP--Significant New Alternatives Policy
UNEP--United Nations Environment Program

[[Page 38065]]

U.S.--United States

Table of Contents

I. Background
    A. How Does the Montreal Protocol Phase Out HCFCs?
    B. How Does Title VI of the CAA Amendments of 1990 Phase Out 
HCFCs?
    C. How Is Today's Document Arranged?
II. Response to Comments on the April 5, 1999 ANPRM
    A. When Would the Allowance System Go Into Effect?
    B. What Types of Allowances Would be Available?
    C. What Would be the Unit of Measure for Allowances?
    D. How Would Allowances Be Distributed Each Year?
    E. What Percentage of the Cap and What Percentage of the 
Baseline Would Be Distributed?
    1. Consumption Allowances
    2. Production Allowances
    F. How Would EPA Establish an Equitable Baseline?
    G. Would Production for Export be Allowed After Each Phaseout?
    1. Exports to Parties
    2. Exports to Article 5 Countries
    H. Would There Be Any Critical Needs Allowances?
    I. Would I Be Able to Transfer Allowances?
    1. Transfers Within Groups of HCFCs
    2. Inter-Pollutant Transfers
    3. Inter-Company Transfers
    4. Inter-pollutant Transfers Combined with Inter-Company 
Transfers
    5. International Trades of Current-Year Allowances
    6. Transfers of Current-Year Allowances
    7. Permanent Transfers of Baseline Allowances
    8. Offset for a Transfer of Allowances
    J. Would Other Regulatory Options Be Used to Control HCFCs?
    1. Labeling
    2. SNAP Approval and Restrictions
    3. Non-Essential Products Ban
III. Additional Proposed Provisions
    A. Would There Be Changes in Definitions?
    1. Modifications
    2. Additions
    B. What Type of Allowances Would be Available for Space Vehicles 
and Defense Needs?
    C. Would There Be a Petition System for Importing Used HCFCs?
    1. Petition for Each Individual Shipment
    2. Threshold Quantity Requiring a Petition
    3. Information Requirements
    4. Timing for Review of a Petition
    5. Reasons for Issuing an Objection Notice
    6. Petition and Non-Objection Letter to Accompany the Shipment
    D. Would There be New Restrictions on Imports to and Exports 
from Specific Parties?
    E. Should There Be Consumption Allowance Credits for Reductions 
of HCFC Production By-products Regulated by Title VI?
IV. Summary of Today's Proposal
    A. How Would Allowances be Calculated and Allocated?
    B. Would There be Additional Import or Export Restrictions?
    C. How Would Transfers Function?
    D. What Would the Reporting and Recordkeeping Requirements 
Change?
V. Administrative Requirements
    A. Executive Order 12866
    B. Regulatory Flexibility Act
    C. Executive Order 13045: Children's Health Protection
    D. National Technology Transfer and Advancement Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination with 
Indian Tribal Governments
    G. Unfunded Mandates Reform Act
    H. Paperwork Reduction Act
    I. Executive Order 13211: Energy Effects

I. Background

A. How Does the Montreal Protocol Phase Out HCFCs?

    Signatory countries that are Parties to the international agreement 
called the Montreal Protocol on Substances that Deplete the Ozone Layer 
(Protocol) identified HCFCs as transitional substitutes for CFCs and 
other more destructive ODSs during their second meeting in London in 
1990. At the Parties' fourth meeting in Copenhagen in 1992, a detailed 
phaseout schedule for HCFCs (listed in Annex C, Group I of the 
Protocol) was created. The Parties established a cap on the consumption 
of HCFCs for developed countries, or what the Protocol refers to as 
Article 2 countries, at the same meeting. Note that consumption is 
defined by the Protocol as production plus imports minus exports. The 
cap on HCFC consumption for Article 2 countries went into effect on 
January 1, 1996, and was derived from the formula of 3.1 percent 
(reduced to 2.8 percent at the seventh meeting of the Parties) of a 
Party's CFC consumption in 1989, plus the Party's consumption of HCFCs 
in 1989. This formula puts the current U.S. cap for HCFC consumption at 
15,240 ODP-weighted metric tons. The Parties to the Protocol then 
created a schedule for the gradual reduction and eventual phaseout of 
the consumption of HCFCs by 2030. The Copenhagen Amendments to the 
Protocol call for a 35 percent reduction of the cap in 2004, followed 
by a 65 percent reduction in 2010, a 90 percent reduction in 2015, a 
99.5 percent reduction in 2020, and a total phaseout in 2030. The U.S. 
must, at a minimum, comply with this phaseout schedule under the 
Protocol.
    A freeze on HCFC production for Article 2 countries was agreed to 
at the eleventh Meeting of the Parties in 1999. This level of 
production is derived from the average of the Party's consumption cap 
(2.8 percent of a Party's CFC consumption in 1989, plus the Party's 
HCFC consumption in 1989) and the result of the same formula for 
production (2.8 percent of the Party's CFC production in 1989, plus the 
Party's HCFC production in 1989). The cap for the U.S. for the HCFC 
production freeze is 15,537 metric tons with each different HCFC 
chemical being weighted according to its ODP. The ODP of a chemical is 
determined according to its ability to destroy ozone molecules in the 
stratosphere. The higher the ODP, the more destructive the chemical is 
to stratospheric ozone.
    EPA was petitioned by environmental organizations and industry 
groups in 1993 to phase out the most ozone-depleting HCFCs first (58 FR 
65018, December 10, 1993; 58 FR 15014, March 18, 1993). Based on the 
available data at the time, EPA determined that the U.S. could meet, if 
not exceed, the required Protocol reductions by the specified dates 
through a chemical-by-chemical phaseout. Therefore, the U.S., as 
authorized under the CAA, implemented a phaseout schedule carried out 
on a chemical-by-chemical basis for HCFCs (58 FR 65018), which was 
intended to meet or exceed the Protocol reductions required. U.S. 
implementation of the HCFC phaseout is described below in section I.B 
of this document.

B. How Does Title VI of the CAA Amendments of 1990 Phase Out HCFCs?

    Section 605(c) of the CAA Amendments of 1990 requires the 
Administrator to promulgate, by December 31, 1999, regulations phasing 
out the production, and restricting the use of, class II substances, in 
accordance with the schedule in that section and subject to any 
acceleration of the phaseout of production under section 606. Section 
605(c) further states that the Administrator shall promulgate 
regulations to ensure that the consumption of class II substances is 
phased out and terminated in accordance with the same schedule. The 
original phaseout schedule established in the Act has since been 
accelerated as authorized under section 606 and is outlined below.
    Section 605 of the Act established the original U.S. phaseout 
schedule for class II substances. Section 605(a) states that, 
``Effective January 1, 2015, it shall be unlawful for any person to 
introduce into interstate commerce or use any class II substance unless 
such substance: (1) Has been used, recovered and recycled; (2) is used 
and entirely consumed (except for trace quantities) in the production 
of other chemicals; or (3) is used as a refrigerant in appliances 
manufactured prior to January 1, 2020.'' Section 605(b) states that, 
``Effective

[[Page 38066]]

January 1, 2015, it shall be unlawful for any person to produce any 
class II substance in an annual quantity greater than the quantity of 
such substance produced by such person during the baseline year. 
Effective January 1, 2030, it shall be unlawful for any person to 
produce any class II substance.'' This phaseout schedule has since been 
accelerated under authority of Section 606.
    Section 606(a) specifically requires the Administrator to 
promulgate regulations accelerating the phaseout of production and 
consumption of ozone-depleting substances, ``if (1) based on an 
assessment of credible current scientific information (including any 
assessment under the Montreal Protocol) regarding harmful effects on 
the stratospheric ozone layer associated with a class I or class II 
substance, the Administrator determines that such more stringent 
schedule may be necessary to protect human health and the environment 
against such effects, (2) based on the availability of substitutes for 
listed substances, the Administrator determines that such more 
stringent schedule is practicable * * *, or (3) the Montreal Protocol 
is modified to include a schedule to control or reduce production, 
consumption, or use of any substance more rapidly than the applicable 
schedule under this title.''
    Thus, section 606(a)(3) requires EPA to accelerate the phaseout to 
conform to any acceleration under the Protocol. In addition, section 
614(b) provides that in the case of a conflict between Title VI of the 
Act and the Protocol, the more stringent provision shall govern. Based 
on scientific evidence that losses of stratospheric ozone were 
occurring more rapidly than anticipated, the Parties accelerated the 
phaseout of class I substances and established the phaseout schedule 
for class II substances at the fourth Meeting of the Parties in 
Copenhagen in 1992.
    Pursuant to authorities provided by Title VI, EPA amended its 
regulations on December 10, 1993 (58 FR 65018) to provide for these 
accelerations. Targeting the phaseout set by the Protocol, EPA chose to 
phase out production and consumption of HCFCs on a chemical-by-chemical 
basis, beginning with those with the highest ODP. EPA accelerated the 
phaseout of production and import of HCFC-22, HCFC-141b and HCFC-142b, 
the three HCFCs with the highest ODPs. Specifically, EPA's rule bans 
the production and import of HCFC-141b as of January 1, 2003. HCFC-141b 
has an ODP of 0.11. The production and import of HCFC-142b, with an ODP 
of 0.065, and HCFC-22, with an ODP of 0.055, are prohibited effective 
January 1, 2010, except for use in equipment manufactured prior to 
January 1, 2010. Beginning January 1, 2020, the production and import 
of HCFC-142b and HCFC-22 are banned. Production and import of the 
remaining HCFCs will be prohibited beginning January 1, 2015, except as 
a refrigerant in equipment manufactured before January 1, 2020. All 
HCFCs will be completely phased out by January 1, 2030. Because HCFC 
consumption did not approach the Protocol cap for the U.S. during mid-
1990, EPA did not at that time establish an allocation system for class 
II substances, as it did for class I substances.
    Section 605(d) of the Act speaks to exceptions to the original 
phaseout schedule for HCFCs. Beginning in 2030, EPA can authorize up to 
10 percent of the baseline per year for production of class II 
substances for medical products considered essential by the U.S. FDA 
and for which no safe and effective alternative has been developed and 
approved. In addition, EPA can authorize use of these quantities 
beginning in 2015 as an exception to the use restrictions contained in 
605(a). EPA can authorize this limited amount of production and use, to 
the extent consistent with the Protocol, if FDA, in consultation with 
EPA, determines that it is necessary. In addition, beginning in 2015, 
and continuing up until 2030, EPA may authorize production of up to 110 
percent of the baseline per year solely for export to and use in 
developing countries, referred to as Article 5 countries in the 
Protocol. This production is intended to be solely for the purpose of 
satisfying basic domestic needs of the importing developing country. 
Between 2030 and 2040, no more than 15 percent of the baseline can be 
produced annually for export to Article 5 countries. Section 605(d) 
does not permit any production for export to and use in Article 5 
countries after January 1, 2040.
    Per section 602(b) of the Act, EPA published a list of class II 
substances in 40 CFR part 82, subpart A, appendix B. All HCFCs fall 
into one grouping under class II controlled substances, and, since 
publication of the initial list, no new class II substances have been 
added to the list.
    Section 602(e) requires EPA to assign numerical values representing 
the ODP of all class II substances; Section 602(e) further states that, 
``Where the ozone depletion potential of a substance is specified in 
the Montreal Protocol, the ozone depletion potential specified for that 
substance under this section shall be consistent with the Montreal 
Protocol.'' Appendix B to part 82, subpart A in the regulatory text of 
this document lists the ODPs for all class II substances as currently 
specified by the Protocol. Note that some of the ODPs listed under 
Appendix B to Part 82, Subpart A of this document vary slightly from 
those listed under the current Appendix B to 40 CFR part 82, subpart A, 
due to revisions of those ODPs under the Protocol since May 10, 1995. 
Today's document proposes to amend the list of ODPs currently presented 
in 40 CFR Part 82, by reflecting the current Protocol list. Unless 
there are future revisions of the ODPs for class II substances under 
the Protocol, entities involved in the HCFC market can expect to use 
the ODPs listed in appendix B to part 82 subpart A of this document for 
any ODP-weighted calculations that may be necessary as part of an HCFC 
allowance system.
    Section 607(b) of the Act requires EPA to permit the transfer of 
any class I or class II allowances, within each group or class, on an 
ozone depletion potential (ODP)-weighted basis. In allowing transfers, 
under section 607(a) of the Act, EPA must ensure that ``the 
transactions under the authority of this section will result in greater 
total reductions in the production in each year of class I and class II 
substances than would occur in that year in the absence of such 
transactions.'' In other words, transfers cannot be made at a 1:1 
ratio. Under the class I allowance system, EPA required an offset of 
one percent in any U.S. transfer to achieve the environmental benefit 
required by section 607. Those transfer requirements are set forth in 
40 CFR part 82, subpart A, Sec. 82.12 (60 FR 24970, May 10, 1995). 
Transfers of class II allowances between entities and inter-pollutant 
transfers on an ODP-weighted basis, along with an appropriate offset, 
are addressed under Section II.I.8 of today's document.
    Section 616 of the Act states that the U.S. may transfer allowances 
to another Party, under certain conditions. Few countries currently 
have a system in place for allocating, trading and expending HCFC 
consumption allowances. As discussed in today's document, differences 
exist between the manners in which the Protocol and the U.S. have 
structured their respective HCFC phaseout systems. In addition, the 
Protocol language in paragraph 5 bis of Article 2 restricts the U.S. 
from trading away HCFC consumption to another Party because the U.S. 
per capita consumption of CFCs in 1989 was well above the per capita 
limit set by the Protocol for transferring HCFC consumption. A trading 
regime similar

[[Page 38067]]

to that implemented by EPA for transferring class I production 
allowances (40 CFR 82.9) (60 FR 24970, May 10, 1995), however, is 
possible, since the Parties established a cap on HCFC production for 
Article 2 countries during the eleventh meeting of the Parties in 1999. 
A proposed system for international trades of production allowances of 
class II substances is discussed in Section II.I.5 of this document.
    Reporting requirements mandated in section 603 relative to HCFCs 
are currently in place in 40 CFR 82.13(n) and (o).

C. How Is Today's Document Arranged?

    Because this proposed rulemaking follows an ANPRM on which we have 
received comments, we both respond to those comments and outline the 
provisions EPA is proposing today. The document is divided by issues. 
For each issue, we outline options presented in the ANPRM, discuss any 
relevant comments we received, then present and request comment on the 
related provision proposed by EPA. Next we propose several provisions 
that have arisen since the ANPRM was published and request comment on 
these provisions. Following these sections, we summarize the complete 
proposal. Proposed regulatory text follows this preamble.
    It should be noted that the regulatory text of the class II 
allowance allocation system is found in the definitions of Sec. 82.3, 
as well as the new sections being proposed today, Secs. 82.15 through 
82.24.
    In this proposed rulemaking, the word ``you'' may be interpreted as 
``producer'', ``importer'', or ``exporter'', depending on the situation 
under discussion.

II. Response to Comments on the April 5, 1999 ANPRM

    Section 607 of the Act requires EPA to issue allowances for the 
production and consumption of class II substances. With this document, 
EPA is proposing an allowance system, similar in many respects to that 
of the class I system, with an allocation of baseline allowances, 
transfer capability, appropriate exemptions, and recordkeeping and 
reporting requirements. The proposed allowance system would ensure that 
U.S. consumption of class II substances does not exceed the consumption 
cap (currently at 15,240 ODP-weighted metric tons to be reduced over 
time) agreed to under the Protocol, and that U.S. production of class 
II substances does not exceed the production cap of 15,537 ODP-weighted 
metric tons agreed to at the eleventh Meeting of the Parties in 1999. 
It is important to remember when reading this proposal that consumption 
in the context of the Protocol, the CAA, and EPA regulations 
implementing Title VI of the CAA, does not mean use, but instead, 
represents a formula: Production + Imports - Exports=Consumption. When 
we speak of consumption allowances, then, we are referring to 
allowances for the calculated amount of production plus imports, minus 
exports.
    For the class I substances, EPA considered many methods for 
achieving the required reductions that were agreed to under the 
Protocol (53 FR 30566, August 12, 1988). The approaches distinguished 
between economic incentives and engineering controls or bans. EPA 
concluded that the most economically efficient, market-based, and 
relatively simple to administer system for achieving the Protocol's 
required reductions for class I ODSs was a marketable allowance system. 
EPA established such a system for the class I ODSs, which proved highly 
successful. By January 1, 1996, the production and import of class I 
substances (other than methyl bromide, slated for phaseout in 2005) 
were completely phased out, except for narrow exemptions granted by the 
Parties to the Protocol. Anecdotal evidence from producers and 
importers indicated that the reduction steps and phaseout of class I 
ODSs through the allowance system was smooth and had minimal economic 
impact.

A. When Would the Allowance System Go Into Effect?

    In the ANPRM, EPA considered an approach whereby an allowance 
system for class II substances would only become effective if a certain 
threshold (i.e., a certain percentage of the total U.S. cap set by the 
Protocol for class II substances) were reached or exceeded. However, 
the U.S. HCFC consumption in 1998 jumped to 92 percent. This percentage 
had been discussed in the ANPRM as a possible threshold that would 
allow for implementation of the allowance system. Because the average 
consumption was up to 95.5 percent of the cap by mid-1999, EPA believes 
we reached and could surpass that threshold unexpectedly. Therefore we 
are not proposing a threshold point.
    Since publication of a final rule is expected during the last 
quarter of 2001, the requirements of the HCFC allowance system would 
likely take effect the quarter beginning January 1, 2002. EPA requests 
comment on any impact of allocating HCFC allowances for less than four 
quarters of 2002, if necessary, to ensure that EPA remains below the 
U.S. annual consumption cap. In this event, EPA would propose to 
allocate the remaining quarters of each entity's allowance allocation 
for 2002, unless that entity has exceeded past quarters of its 
allocation during 2002. In the case of an entity having exceeded the 
relevant quarter(s) of its allocation for 2002, the exceedance would be 
subtracted from the remaining quarters on a pro rata basis. EPA 
requests comment on this proposed HCFC allocation for the remaining 
quarters of 2002, if necessary. EPA also requests comment on the time 
needed to implement the new recordkeeping and reporting requirements, 
given their similarity to the class I recordkeeping and reporting.

B. What Types of Allowances Would Be Available?

    Under the control system for class I substances, EPA created a unit 
of measure called an allowance. An allowance, for a class I substance, 
represented the marketable rights and privileges granted to a company 
to produce or import a specific quantity of that class I substance. 
Under the class I allowance program, there were two types of 
allowances: production allowances and consumption allowances. One 
allowance in the regulatory program for class I substances was equal to 
one kilogram of an ODS.
    Under the class I phaseout regulations, a company was required to 
expend both production and consumption allowances to be able to 
produce. To be able to import a class I controlled substance, a company 
was required to expend consumption allowances (see 40 CFR 82.4). After 
proper documentation was presented to EPA reflecting an export of a 
class I controlled substance, consumption allowances were refunded or 
returned to the exporting company for future use (see 40 CFR 82.10).
    In the ANPRM, EPA discussed two options: Allocating both production 
and consumption allowances, to be expended in the same manner as those 
in the class I system, as discussed above; and allocating only a 
consumption allowance, whereby one consumption allowance would be used 
to produce or to import one kilogram. One consumption allowance would 
be returned per kilogram exported.
    Twelve commenters addressed this issue, with ten of the twelve 
favoring consumption allowances only. The proponents cited simplicity, 
and thus decreased regulatory burden. One commenter had no preference; 
however, the commenter stated that whichever type of allowance is used 
should be flexible enough to accommodate any

[[Page 38068]]

changes arising from ongoing international negotiations. Another 
commenter expressed a preference for production and consumption 
allowances, since this system worked well for class I substances; the 
commenter also felt that implementation of a proven and familiar system 
would promote simplification.
    One commenter claimed that the use of two types of allowances could 
artificially alter the marketplace if capacity in the United States was 
underutilized but companies were not allowed to use other allowance 
holders' unused production rights for import of the class II substances 
domestically. This same commenter claimed that it would be equally a 
problem if import rights could not be used to obtain class II 
substances from a domestic supplier if the production capacity were 
available. EPA believes that the continued use of both allowances will 
not result in marketplace disruption. Under the class I system, 
companies that produced and imported were granted production and 
consumption allowances to continue producing and importing in response 
to market fluctuations; rather than disrupting the marketplace, the 
allowance system allowed market forces to prevail. EPA believes that 
import rights would not be necessary to obtain class II substances from 
a domestic supplier; a U.S. importer could purchase class II substances 
from any domestic supplier without using allowances. The Agency tried 
to assign baseline allowances as closely representative of each 
company's production and consumption as possible.
    EPA considered the benefits of using one kind of allowance, the 
consumption allowance, and found that, on its face, such a system would 
be administratively easier. However, at the 1999 Beijing meeting of the 
Parties to the Protocol, the Parties agreed to a cap on production, in 
addition to the current cap on consumption of class II substances. This 
will require that EPA allocate both production and consumption 
allowances.
    Additionally, because the majority of companies to whom allowances 
will be allocated in this action are familiar with expending, trading, 
reviewing, and reporting allowances according to the class I system, 
staying with the known and proven method is in many ways simpler for 
the companies. For example, reporting forms would not change 
significantly, negating the need to re-learn calculation and reporting 
of allowances.
    For these reasons, EPA proposes to use both production and 
consumption allowances in its class II allocation system. EPA seeks 
comment on including both production and consumption allowances in a 
class II allowance allocation system. EPA also seeks input from 
commenters on the potential value of an allowance, taking into account 
the differing values of each HCFC and the proximity in time to that 
HCFC's phaseout.

C. What Would Be the Unit of Measure for Allowances?

    In the class I allowance system, EPA assigned each allowance a 
value of one kilogram of a class I substance. To produce or import, 
allowances were expended by kilograms. Because ODSs have different 
potentials to cause ozone depletion, numbers are assigned to each 
chemical according to the ODP assigned by the Parties, calculated on 
the basis of CFC-11 having a potential of one (1.0). Since each 
chemical has its own ODP, any trades that took place between class I 
chemicals took into account the difference in ODPs, weighting the 
resulting allowances accordingly.
    In the ANPRM, EPA discussed two options for the unit of measure to 
be used in allocating allowances and implementing the class II 
allowance system. One option is to retain the class I allocation and 
tracking on an absolute chemical-by-chemical basis, which relies on 
ODP-weighting for any inter-pollutant transfers that may occur. 
Expending, reporting and tracking of allowances would also be on a 
chemical-specific basis, with any trades between chemicals reflecting 
the differences in ODPs.
    The second option for an allowance unit of measure discussed in the 
ANPRM was an ODP-weighted unit, tied to no specific chemical. To expend 
allowances, you would determine the chemical to be produced or 
imported, multiply it by its ODP and subtract the result from the total 
allowance units.
    EPA received fourteen comments on the unit of measure to be used in 
allocating and tracking allowances. Ten of the commenters favored an 
ODP-weighted system, primarily due to the flexibility they believed it 
would allow. They argued that such a system would simplify transfers, 
respond to the needs of the marketplace without added burden, and 
provide for more trading. Three commenters stated their preference for 
an absolute chemical-by-chemical basis for allocation and transferring. 
One of those commenters believed that the class I system worked well on 
a chemical-by-chemical basis and that extending it to the class II 
system would likely succeed. One of the three commenters claimed that 
an entity should not be able to trade HCFC-141b for HCFC-22, because 
they serve two distinct and non-interchangeable markets. The same 
commenter stated that EPA could allow for revisions after the 2003 
phaseout of HCFC-141b. Another of the three stated that both methods 
are flexible with no real difference, but expressed a preference for 
chemical-specific allocation. One commenter indicated no preference for 
either unit of measure but emphasized the importance of a flexible 
inter-company trading scheme.
    One of the commenters who favored the ODP-weighted system 
elaborated that reporting would still need to happen on a chemical-by-
chemical basis and that, should the 2003 phaseout of HCFC-141b result 
in a reduction greater than 35 percent, EPA should ensure that total 
allowances available in 2004 be at the 65 percent level.
    After reviewing the comments and analyzing the potential outcomes 
in using each unit of measure for allowances, EPA is proposing to 
institute a chemical-by-chemical absolute kilogram system for 
allocating and transferring allowances. The baseline allocation for 
each company would be the total or a percentage of the number of 
kilograms of each chemical produced and consumed during the baseline 
year. To ensure compliance with the requirements of trading and to be 
able to report accurately to the Parties to the Protocol on production 
and importation of each of the class II substances, EPA would need 
allowance holder reports that included the kilograms of specific 
chemicals for which allowances are traded and expended. Tracking the 
associated chemicals, along with its associated ODP weighting, is 
imperative for reasons described below.
    As noted in the Background section of today's document, the U.S. is 
slated to phase out HCFC-141b in 2003, HCFC-22 and HCFC-142b in 2010 
(with some exceptions), and the remaining HCFCs in 2015 (with some 
exceptions). A complete phaseout is required in 2030. Because the U.S. 
is making reductions in class II substances by phasing out chemicals, 
EPA will need to have in its database the baseline allocation of 
kilograms of each of the chemicals as they are being phased out. On the 
first HCFC phaseout date of 2003, those companies that received 
baseline consumption allocations (or received a permanent baseline 
transfer) (see section II.I.7 of this document) of HCFC-141b would 
subtract that portion from their total consumption allocation. If 
permanent inter-pollutant trades had been made, an amount equal to the

[[Page 38069]]

ODP-weighted kilograms of baseline HCFC-141b allowances that had been 
received in the transfer would be deducted from the baseline 
allocation. Similarly, the person who transferred HCFC-141b permanent 
baseline allowances to someone else would no longer be responsible for 
deducting them from their allocation. That should have happened when 
the trade was made.
    The same would occur in 2010 and 2015 for the relevant chemicals 
being phased out. Without chemicals associated with the various ODPs, 
EPA would be unable to enforce the regulation adequately. Furthermore, 
the U.S. would be unable to fulfill its obligation to report under the 
Protocol the volume of each chemical produced, imported and exported.
    Under a chemical-by-chemical approach, allowances representing 
kilograms of the specific chemical expended would be the only 
information required, unless an inter-pollutant trade is made, as 
referenced above. The more rigorous reporting required under an ODP-
weighted system would mean deciding which chemicals would be associated 
with which ODP units. This could both increase the regulatory and 
recordkeeping burden on companies and EPA and likely lead to 
inaccuracies. Blends could present further complication by requiring a 
calculation of the percentage of each HCFC in a substance (e.g., R-
401A), that would need to be multiplied by its applicable ODP, then 
included in the total reported ODP and chemical produced or imported 
for a quarter. Reporting properly under the ODP-weighted system brings 
the reporter full-circle to a chemical-by-chemical analysis.
    Proponents of an ODP-weighted system extol the ease of tracking and 
expending generic ODPs, as well as the advantages of avoiding an 
environmental offset for intra-company transfers, because an ODP-
weighted system allows you to expend allowances for any chemical 
without actually trading internally. However, for the lesser ozone-
depleting ODSs, such as HCFCs, EPA is proposing to impose an offset 
much lower than the one percent required in the class I system. (See 
discussion on proposed offset in section II.I.8 of today's action.) 
Therefore, the offset should not be a burden in transferring chemical-
specific allowances.
    Today's action thus proposes a chemical-by-chemical, absolute 
kilogram allocation system, whereby the amount of each HCFC produced 
and each HCFC consumed (production + imports - exports) would require 
the expending of one (1) allowance for one (1) kilogram of a specific 
substance. Inter-pollutant trades would involve calculating the ODP of 
each chemical and translating accordingly. EPA seeks comments on using 
an absolute chemical-by-chemical approach as presented above for 
implementing a class II allowance system, as well as on alternatives, 
including the ODP-weighting scheme described above.

D. How Would Allowances Be Distributed Each Year?

    In the ANPRM, EPA discussed three methods for allocating 
allowances: a one-time allocation, a changing allocation on a periodic 
rolling basis, and a changing allocation on a year-by-year basis. The 
first method allocates baseline allowances on a one-time basis; these 
allowances continue until the time each associated chemical is phased 
out, unless adjustments are necessary to meet required Protocol 
reductions. Any distribution system must take into account: the 
approach of U.S. accelerated phaseouts for individual chemicals (e.g., 
those for HCFC-141b, HCFC-22 and HCFC-142b); the step-wise reduction of 
the consumption cap as mandated under the Protocol; and the new 
production cap agreed upon by the Protocol Parties. For example, in 
2003, all production and consumption allowances associated with the 
HCFC-141b baseline allocation would be subtracted from holders' 
allowances. The same would happen as other chemicals are phased out in 
the specified years. At each phaseout, EPA must determine whether the 
aggregate chemical-specific phaseouts to that date are equal or greater 
than the reductions required by the Protocol in those years. If 
chemical-specific reductions are less than the Protocol requirement, 
EPA would then need to reduce the percentage of baselines to be 
allocated accordingly.
    The one-time allocation of allowances was the method followed in 
the regulatory program for class I substances. For class I substances, 
a specified historical quantity of allowances was allocated to listed 
companies as a baseline in the Federal Register. Allocating allowances 
for the full time period until a phaseout date for a particular 
chemical provides certainty and stability for the market. Assuming the 
regulatory program includes smooth procedures for trading allowances, 
the full-term allocation of allowances establishes the basis for a 
``marketable permit'' system.
    The second option considered was a system for re-calculating and 
re-allocating allowances on a ``rolling basis.'' This would essentially 
move the baseline forward in time so that the baseline would presumably 
be the most accurate reflection of the current HCFC market. Under this 
option, EPA would review data on the production, import and export of 
HCFCs on some periodic basis, establish a new baseline for each entity, 
and re-allocate the allowances accordingly. A re-allocation of 
allowances could require an amendment to the original list in the 
regulation of entities with their respective baseline allowances. 
Alternatively, an administrative mechanism could be established to re-
allocate allowances automatically at regular intervals.
    A final option discussed would involve re-allocating allowances on 
a year-by-year basis. Under the year-by-year approach, actual 
recalculation of baselines and re-allocations based on past year 
activity would take place prior to January 1 of each control period.
    EPA received fifteen comments on the method of allowance 
distribution. All of the commenters favored allocating one time, such 
that allocations are consistent from control period to control period 
(except for reductions associated with phaseouts). One commenter stated 
that anything other than the one-time allocation would result in market 
uncertainty and complicate production planning processes. Another 
stated a dislike for using a rolling basis, because it encourages 
speculation, whereas a one-time allocation for the class I system was 
perceived as fair and unchanging.
    EPA agrees with commenters on the disadvantages of using a rolling 
average. EPA believes that any rolling average allocation system would 
create administrative complications for both EPA and the regulated 
community, as well as introduce uncertainty into the market between 
periods when the allocation would roll over, and thus, change. The 
ability of producers, importers and exporters to plan for the longer 
term would also be hampered, and markets could be disrupted. EPA 
believes that if the regulatory system includes smooth procedures for 
trading allowances, shifts in demand and changes in market share will 
be addressed by individual companies, thus avoiding a need to re-
allocate allowances. EPA chose not to propose a rolling average 
allocation system for these reasons.
    EPA believes that re-allocating allowances on a year-by-year basis 
would create administrative complications for EPA and for the regulated 
community, similar to the reasons cited above regarding the rolling

[[Page 38070]]

basis allocation system. Consequently, EPA also chose not to propose 
allocations on a year-by-year basis.
    EPA is proposing a baseline on a one-time basis, whereby the 
allowance allocations would remain consistent (or be moved through 
permanent trades) from control period to control period (one calendar 
year to the next), until each chemical is phased out via subtraction of 
its commensurate allowances, or until the percentage of baseline 
allocated is changed to ensure compliance with the Protocol cap. As in 
the class I allocation system, a baseline is based on one year of a 
company's production and consumption (as discussed in section II.F 
below). At the beginning of each year, EPA would notify each allowance 
holder in writing of the number and type of allowances it had for that 
control period. If the allowance holder believed there was a 
discrepancy in the number of allowances it should have for that control 
period, EPA would work with that entity to resolve the discrepancy. As 
under the class I system, the allowances for any control period can 
only be used during that control period and cannot be carried over into 
the following calendar year.
    Because of uncertainties associated with current projections of 
actual reductions that will be realized through the 2010 phaseout of 
HCFC-142b and HCFC-22, EPA will likely need to re-evaluate allowance 
allocations prior to 2010, to ensure that the U.S. can meet the 65 
percent reduction of the consumption cap required by the Protocol 
beginning in 2010. The least certain factor is the demand for these two 
chemicals after 2010 to be used in equipment manufactured before 2010. 
Neither the core regulations nor the baseline year would likely change, 
but the amount of allocations themselves could be adjusted on a pro 
rata or some other basis to account for any shortfall in reduction that 
might become imminent. Consequently, throughout the rule, we refer to 
specific allocation provisions as in effect until 2010. If EPA 
determines that the U.S. will meet its 65 percent reduction obligation 
in 2010 with the current allocation, then there may be no reason to 
adjust the percentage of baseline to be allocated, until it is 
necessary to re-evaluate them for the 2015 phaseout.
    EPA is seeking comment on its proposal to distribute HCFC 
allowances on a one-time basis, to be adjusted accordingly as 
individual chemicals are phased out.

E. What Percentage of the Cap and What Percentage of the Baseline Would 
Be Distributed?

1. Consumption Allowances
    As discussed in section I.A of this document, the current U.S. cap 
for HCFC consumption is 15,240 ODP-weighted metric tons. In the ANPRM, 
EPA considered a number of options for the percentage of baseline 
allowances to be allocated under the U.S. HCFC consumption cap. These 
options included 100 percent allocation under the consumption cap, 100 
percent allocation of the baseline production and import, or any 
percentage under 100 percent. In the latter option, the remaining 
percentage could be allocated pro rata to those with production or 
importation activity in the baseline year, allowed to lapse by EPA to 
ensure a cushion if violations threatened to push the U.S. over its 
cap, or be set aside for some special situation allocation.
    Because the sum of the individual companies' consumption baseline 
activity could fall under the 15,240-metric-ton consumption cap, the 
issue arises as to whether and how to allocate any remaining class II 
consumption allowances falling between the U.S. consumption cap and the 
sum of baseline consumption allowances (discussed in section II.F of 
this document). For example, if the year 1996 were chosen as the 
baseline for consumption allowances, this allocation would represent 
about 82 percent of the U.S. consumption cap, thus leaving open the 
question of how to allocate the remaining 18 percent, and also whether 
the remaining 18 percent should be allocated in its entirety. This 
remaining percentage, or a lower percentage that would provide for a 
margin of error, could be auctioned. Alternatively, it could be added 
pro rata to the allocated baseline consumption allowances of those 
companies that participated in the HCFC market in the baseline year. It 
could alternatively be set aside to offset any potential overruns, or 
it could be used as a set-aside for a specific allocation purpose.
    EPA received fifteen comments from producers, importers, and trade 
associations on how much of the cap should be allocated. Thirteen 
commenters supported a 100 percent allocation. They stated that the 100 
percent allocation under the class I system was successful; therefore, 
we should anticipate the same allocation for a class II system being 
successful. Two commenters claimed that companies keep their own 
allowance buffers, so EPA did not also need to retain a buffer. One 
commenter believed that EPA's penalties are enough of an incentive to 
remain within one's allocation. Another commenter said that any amount 
less than 100 percent would create artificial shortages. One commenter 
believed no allowances should be held back for new entrants into the 
market, because there is no certainty these entities will emerge in the 
future.
    EPA agrees with the commenters that a 100 percent allocation of 
baseline consumption is likely to maintain compliance with the cap. A 
100 percent baseline allocation worked well for the class I allocation 
system, the penalties discouraged people from exceeding their 
individual allocations, and many allowance holders consciously 
maintained individual allowance buffers to ensure compliance.
    The current aggregate of individual baseline consumption allowances 
anticipated to be allocated is below the cap of 15,240 ODP-weighted 
metric tons. EPA believes that it would be prudent to allow the 
remaining percentage below the cap to be set aside for allocations 
specifically for narrow situational exemptions from the baseline. As 
described in Section F below, EPA is proposing a narrow exception for 
certain new entrants into the HCFC imports market: those businesses 
newly importing after the end of 1997 and before April 5, 1999, when 
the publication of the ANPRM put all potential stakeholders on notice 
of this rulemaking. The necessary portions of the remaining percentage 
below the cap could be available for allocations to those new entrants 
according to historical data. See the detailed discussion of this 
proposed exemption and allocation in the section addressing baseline in 
Section F.
    Given the good faith evidenced by compliance throughout the class I 
system, EPA believes that allocating the full amount of baseline 
allowances, as permitted under the Protocol HCFC cap for the U.S. is 
prudent and equitable to both the allowance holders and their 
customers. By this action, EPA is proposing to allocate 100 percent of 
the listed individual companies' consumption baselines under the class 
II cap established under the Protocol. In 2010, the date at which the 
Copenhagen Amendments to the Protocol call for a 65 percent reduction 
in HCFC consumption, as stated earlier in this proposal, it may be 
necessary to reduce each allowance holder's allocations accordingly, in 
order to maintain U.S. consumption of HCFCs within limits and avoid 
possible violation of the cap.
    EPA is not proposing to allocate the difference between the 
Protocol

[[Page 38071]]

consumption cap and the aggregate of the baseline consumption 
allowances on a pro rata basis, for the following reasons. The 
remaining amount above the aggregate baseline and below the consumption 
cap is small, and EPA believes it can best be used to allocate 
allowances to companies described in section F as eligible late 
entrants, and possibly as credits for reductions of substitutes 
regulated under Title VI that are created as by-product(s) in the 
manufacture of an HCFC, as discussed in section IV.E. Because EPA is 
proposing to individually assign a baseline to each company based on 
its highest ODP-weighted consumption year among 1989, 1994, 1995, 1996, 
and 1997 (see section II.F), EPA emphasizes that companies should 
receive their highest recorded consumption from among those years.
    EPA is seeking comments on its proposal to allocate 100 percent of 
baseline consumption activity. EPA also seeks comment on its proposal 
to allocate portions of the remaining amount above the aggregate 
baseline and below the consumption cap to companies described in 
section F as eligible recent entrants.
2. Production Allowances
    The Parties to the Protocol at the recent meeting in late 1999 in 
Beijing adopted a production cap, in addition to the existing 
consumption cap. Using the formula agreed to by the Parties for 
calculating the cap, the U.S. production is frozen at 15,537 metric 
tons beginning January 1, 2004.
    The recent Protocol amendment maintains the production cap at this 
level through the various phaseout years. Some anticipate that the 
Parties may make changes in future meetings, which would likely reduce 
production in a step-wise fashion. If such a change occurs, EPA will 
amend its regulation to reflect the Protocol requirements.
    In the case of production allowances, 100 percent of production 
activity in the aggregate of all baseline consumption years, as 
discussed in section II.F. below, is below the production cap allowed 
by the Protocol. EPA can allocate 100 percent of the production in the 
baseline year and remain in compliance with the Protocol. The aggregate 
allocation will equal less than 100 percent of the production cap 
allowed by the Protocol.
    Because production is currently frozen at a constant level that 
will continue over time, EPA is proposing that entities with baseline 
production allowances could produce the phased-out HCFC following the 
respective phaseouts, using export production allowances, for export 
only to Parties listed in Appendix C as having ratified the Copenhagen 
Amendments. These entities would be allocated their full production 
baseline for that chemical in export production allowances, for export 
only. Following individual HCFC phaseouts, 15 percent of production 
baseline for that chemical is reserved for export to Article 5 
countries to be used for their domestic needs. The manner in which 
these post-phaseout production allowances for export would be allocated 
and expended is discussed below in Section II.G.
    EPA did not discuss a detailed process for allocating production 
allowances in the April 1999 ANPRM, because the production freeze had 
not yet been adopted by the Parties. Therefore, there are no comments 
in response to the ANPRM on this issue.

F. How Would EPA Establish an Equitable Baseline?

    In developing the regulatory program for class I controlled 
substances, EPA collected information on the amounts of each class I 
substance produced, imported, and exported during a given calendar year 
that was established as a baseline in accordance with the CAA. EPA 
collected the data by publishing two notices in the Federal Register 
under authority of section 114 of the Act (52 FR 47489 (December 14, 
1987) and 55 FR 49116 (November 26, 1990)). The data requested from 
U.S. companies included reports on production runs, quantities of 
feedstock chemicals used in production, bills of lading, invoices, and 
other documents for a specific calendar year. The data submitted to EPA 
was used to assign company-specific class I production and consumption 
rights (allowances) to companies.
    The CAA does not prescribe one specific year to serve as the 
baseline for allowance allocations for class II substances. For class 
II substances, the definition of ``baseline year'' in the CAA is ``* * 
*  a representative calendar year selected by the Administrator.'' EPA 
explored a variety of options for establishing a baseline for HCFC 
allowances, analyzing available historical data for each company's 
production and consumption activities (reported to EPA) to identify a 
representative proposed class II baseline. EPA has been collecting 
quarterly reports on all HCFCs produced, imported and exported from 
1994 on. Reliable data is thus available for years between 1994 and the 
present. Accurate data also exists for 1989 due to information 
gathering EPA conducted for class I baseline determinations, as 
discussed above.
    In the ANPRM, EPA discussed some of the multiple options for 
establishing baseline allowances for class II controlled substances. 
The familiar use of historical information from one year, using an 
average of multiple years, or using some type of formula for combining 
multiple years were all covered in the ANPRM. EPA stated its belief 
that the process of establishing the baseline should take into account, 
inter alia, the agreements by the Parties to the Protocol to control 
and phase out class II substances, the 1990 CAA Amendments, the 
regulations under Title VI of the Act governing the phaseout of class 
II substances, and the development of the current HCFC market in the 
U.S. In arriving at the proposed baseline years for HCFC allowances, we 
believe we have taken into account each of the legal and policy guides 
considered above.
    It is important to review the recent history of public notification 
and participation related to development of a class II allowance 
allocation rule. During the two stakeholder meetings in January and 
February, 1998, EPA stated that it would not consider the year 1998 or 
later years in baseline calculations and allocations. A primary reason 
was that once public discussion on a potential allowance system began, 
companies had much to gain by significantly increasing 1998 and 1999 
activity--or entering the HCFC import market during those years to have 
activity on record--and subsequently advocating the use of those years 
as baseline years. EPA's opening the process to the public should not 
give unfair advantage to some and allow artificial market changes and 
baseline increases based on anticipated profit potentials. 
Consequently, EPA announced its intention not to include 1998 or later 
years in baseline calculations at both stakeholder meetings, in its 
subsequent ANPRM publication of April 1999, and in individual 
discussions with stakeholders.
    All seventeen commenters stated their preferences for establishing 
a baseline. One company preferred 1989 as the baseline year. Five 
commenters believe that 1998 is most representative of the HCFC market. 
Two companies stated that 1997 reflects the current situation. Two 
commenters preferred 1996, one of them leaving open the option of 1996 
or 1997 or an average of both. The second of the two commenters 
preferred 1996, because they stated that 1997, 1998, and 1999 include 
uncharacteristically high production and import for many

[[Page 38072]]

companies. Another commenter cited the growing HCFC market as we 
transition away from CFCs, and claimed that using an earlier year than 
1998, which was a year of particularly high consumption, would not 
accurately reflect the continuing transition away from CFCs.
    One commenter suggested recent years on a weighted basis, giving as 
an example, 100 percent of 1997 consumption plus 50 percent of 1996 
consumption. This commenter also suggested that in 1998, industry may 
have artificially increased consumption in response to early EPA 
stakeholder meetings exploring the possibility of an ANPRM on this 
topic. Therefore, this commenter believed only 50 percent of 1998 
numbers should be used. Two commenters believed that a single year 
baseline is necessary, one to avoid excessive record compilation and 
processing and the other because an averaged allocation would not 
adequately reflect the continuing transition away from CFCs. Four 
commenters preferred the average of 1996-1998 if the averaging option 
were selected; one commenter selected an even weighting of the years 
1989, 1992, and 1995.
    EPA did receive one general comment on allocations, however. Three 
commenters believed that producers exiting the HCFC market early should 
be required to return the unused allowances to EPA for distribution 
among the remaining allowance-holders on a pro rata basis. EPA believes 
otherwise. Under today's proposal, the allowances granted to the 
various companies would be the companies' to do with what they will.
    If a company decides to decrease production, or importation, from 
its baseline, EPA believes the market should drive the outcome, in that 
the company can choose to transfer its excess allowances for the year 
or let those allowances lapse, and thereby benefit the environment. One 
advantage of the one-time allocation favored by commenters is that it 
provides certainty to all the players. Having EPA taking allowances 
from those who decrease production or import from their baseline and 
re-distributing allowances to other allowance holders would disrupt the 
market forces. It would also defeat the environmental purpose of 
encouraging companies to move toward substitutes. Consequently, EPA is 
proposing not to re-distribute unexpended allowances resulting from a 
company's decision to decrease or stop its production or importation of 
HCFCs.
    EPA believes that because it is allocating to entities who have had 
very different production and import histories, there is no one year 
that is representative for all companies. Picking only one year, 
regardless of the year, could disadvantage many. EPA's intent is to 
find the most representative baseline possible within the constraints 
of the consumption cap and production freeze. EPA disagrees with the 
comments opposing an averaging or formula of multiple years. Once a 
multi-year allocation is made, using a one-time, or permanent 
allocation would require no additional data compilation over a single-
year system. Once a baseline is determined for each company, EPA is 
proposing that the baseline remain unchanged through the duration of 
the program, with allocation reductions made according to the phaseout 
schedule and necessary increases in reductions to ensure the U.S. meets 
the 65 percent and later Protocol step-wise reductions.
    In reviewing the consumption figures for the years before 1994, EPA 
believes that only one year can reasonably be considered. With the 
Protocol signed and the CAA close to passage and enactment in 1989, EPA 
has accurate data for that year. Additionally, the year 1989 was 
designated as the baseline year used for the allocations of several of 
the class I substances (Groups III, IV, and V), thus providing a 
complete database of ODS production, import, and export (when combined, 
equaling consumption) activity during that year.
    Reviewing the production and consumption data on HCFCs from the 
most reliable reporting years, EPA found a wide spectrum of years that 
benefitted different companies. Looking at the available information 
from 1989, 1994, 1995, 1996, and 1997, EPA calculated that if it 
allocated allowances to every company based on their individual highest 
ODP-weighted consumption year among those five years, the U.S. would be 
able to remain just under the Protocol consumption cap. Any producers 
or importers entering the HCFC market for the first time in 1998 or 
1999 would not be eligible to receive an allocation, except for a 
situation outlined later in this section. However, under the proposed 
transfer provisions, such a company could purchase allowances from 
another company that held allowances.
    As discussed earlier in today's action, EPA is proposing to 
allocate and track on a chemical-by-chemical basis. However, for 
purposes of arriving at the baseline, EPA examined total ODP-weighted 
consumption in determining the highest year for each company. That way, 
the highest number of ODP-weighted kilograms, rather than highest 
number of absolute kilograms, could determine the most beneficial 
allocation for each entity. Actual allocations will be distributed and 
tracked on an absolute kilogram, chemical-by-chemical basis for 
production and for consumption.
    Using the individual baseline approach based on the highest ODP-
weighted consumption year brings total U.S. consumption to a small 
percentage below the cap of 15,240 metric tons. Total ODP-weighted 
production, aggregated from production in each relevant individual 
baseline year as proposed, brings the U.S. to below the U.S. production 
cap of 15,537 metric tons. Because the consumption baseline years 
include the highest production for each producer, EPA believes that 
using the same baseline year for production for each company is still 
the most equitable. EPA's proposed production baseline and allocations 
would be in compliance with the new Protocol production cap.
    In exploring baseline years after 1997, EPA believes it is possible 
that, as two other commenters have noted, recent years' consumption is 
inflated, due to stockpiling in anticipation of an impending 
rulemaking. EPA does not believe, as discussed above, that 1998, when 
we began publicly discussing an allocation system, can serve as a truly 
representative baseline year or as an equitable factor in a multi-year 
baseline. Instead, the escalating 1998 figures may reflect an effort by 
some to dramatically increase consumption not only to stockpile, but 
also to ensure a high HCFC allowance allocation for those companies in 
the hopes that 1998 or 1999 would be selected. Such an aggregate number 
would likely place the U.S. in violation of the Protocol cap.
    EPA recognizes that, in assigning a year or years prior to 1998, 
those with their highest consumption falling in 1998 or 1999 would 
receive fewer allowances from EPA than their most recent consumption 
would reflect. However, with transfers of allowances and the ability to 
import used HCFCs, the transition could likely be made without 
significantly disrupting consumption trends. Additionally, data on 
increased 1998 and 1999 consumption, as compared to earlier years, 
seems to indicate significant stockpiling, which should allow customer 
demand to be met.
    For these reasons and the fact that using the most recent years 
could skew the market and disadvantage those who did not significantly 
increase consumption in those years, EPA is not proposing to use 1998 
production or consumption in the HCFC baseline

[[Page 38073]]

calculation. For similar reasons, and because complete data for the 
year 1999 will not be available during the drafting of this rule, EPA 
also does not propose to use 1999 as part of the calculation for 
baseline.
    EPA is, however, proposing one exception to its policy to not use 
1998 or later years as part of a person's baseline. EPA proposes to 
grant available HCFC consumption allowances to late entrants into the 
HCFC import market that meet the following qualifications: the HCFC 
import market is their primary source of business income; they began 
importing HCFCs after the end of 1997 but before the publication of the 
ANPRM on April 5, 1999; and they have accurately reported all relevant 
required quarterly import information to EPA prior to publication of 
today's proposal. Businesses meeting these qualifications would be 
eligible to receive consumption allowances based on a full year's data, 
if available. If a full year's data is not available because the entity 
has not been in business for a complete year by April 5, 1999, EPA 
proposes to extrapolate based on the available reports for one, two, or 
three quarters.
    EPA believes that such new entrants into the market during that 
time would likely be small businesses whose owners and operators were 
unfamiliar with EPA's plans to begin work on an allowance allocation 
system for HCFCs until the ANPRM appeared in the Federal Register on 
April 5, 1999. These businesses that began importing HCFCs after 1997 
and before the ANPRM publication date might have had less access to 
information from standard industry sources and might not have heard the 
announcements at the stakeholders' meetings; they might not have had 
reason to know of an imminent rulemaking allocating allowances based on 
historical production and importation. In a case where a person, acting 
in good faith and prior to the publication of the ANPRM, established a 
business whose primary income was derived from importing HCFCs, EPA 
believes that it is appropriate to make an exception. Once public 
notice was given via the published ANPRM, businesses that desired an 
allocation of HCFC allowances would have known the risks of jumping 
into the business at this juncture. Prior to April 5, 1999, imperfect 
information left the door open for small new companies to observe the 
potential market in HCFCs and begin importing HCFCs as a new business. 
Therefore, EPA is today proposing to grant available allowances to any 
business who can successfully demonstrate that it meets these criteria. 
However, EPA will not allocate allowances in excess of the consumption 
cap. Although EPA does not anticipate an outpouring of new entrants who 
fit this description, to forestall the possibility of exceeding the cap 
as a result of allocations to new entrants, we will consider 
submissions on a pro rata basis, if necessary.
    Through today's proposal, EPA requests notification from any 
business that fits the outlined criteria and wishes to request 
allowances by submitting a demonstration of eligibility during the 45-
day comment period following publication of this proposal. This will 
allow EPA to process the submissions and include allocations for 
eligible new entrants in the final rulemaking. No submissions for 
eligibility will be accepted after September 4, 2001. To adequately 
demonstrate the eligibility of such a business, EPA requests the 
following information: records showing the date the first HCFC imports 
took place; business records showing that imported HCFCs are the 
primary source of the business's income; quantities (in kilograms) of 
each chemical imported; exporting country of each shipment; and port of 
entry of imported HCFC shipments, accompanied by bills of lading, 
invoices and Customs entry forms.
    The Administrator will review only the complete submissions that 
meet the criteria outlined above. Incomplete submissions will not be 
considered. EPA will conduct a thorough review of the details of those 
submissions. The final rule will contain allowance allocations for new 
entrants that EPA has determined to be eligible.
    EPA also considered the possibility of new entrants that entered or 
wish to enter the market following publication of the ANPRM in April of 
1999. EPA believes that once the ANPRM was published, the public 
possessed adequate notice that an allocation system for HCFC allowances 
was in the development phase and that EPA was seriously discussing a 
period of historical data that would be used in the baseline 
designations. It was evident at that time that new entrants were 
unlikely to receive an allocation of allowances. Simultaneously, EPA 
emphasized its intention to phase out HCFCs in order to meet U.S. 
obligations under the Protocol and the CAA. Encouraging new companies 
to join the business after the ANPRM would counter the efforts of 
moving people out of HCFCs into more environmentally sound substitutes.
    EPA believes that any new entrants following the ANPRM publication 
would not be precluded from entering the market, because they could 
purchase allowances from existing allowance holders who may not intend 
to use their full amount of allowances. They also have the opportunity 
to import used HCFCs through EPA's petition system or deal in 
substitutes to HCFCs, which would benefit the ozone layer and provide 
longer-term business security. Accordingly, EPA believes that the 
market will sufficiently allow for any new entrants after April 5, 
1999, as appropriate.
    It is important to note that, under any scenario, when the phaseout 
date for HCFC-141b is reached in 2003, all HCFC-141b import and 
production for domestic purposes will cease. Those who were not 
allocated HCFC-141b consumption allowances will not be affected in 
2003, unless they had gained baseline allowances for HCFC-141b through 
a permanent trade (Section II.I.6-II.I.7). However, those who were 
allocated consumption allowances to produce or import HCFC-141b would 
no longer have annual consumption allowances associated with their 
baseline HCFC-141b activity, and thus have no authorization to produce 
or import HCFC-141b for domestic purposes (where both production and 
consumption allowances are necessary). EPA is proposing to allow 
production for export following phaseout, however, up to 115 percent of 
producers' HCFC-141b production baseline, as discussed below in Section 
II.G.
    Any company that, through a baseline (or permanent) trade, received 
HCFC-141b consumption allowances associated with historic HCFC-141b 
consumption, would no longer have the consumption allowances associated 
with the baseline trade in 2003. However, that company's total 
baseline, for purposes of determining the amount of export production 
allowances and Article 5 allowances for which it would be eligible 
following the phaseout, would reflect the baseline trade.
    In 2004, when the Protocol requires that the HCFC consumption cap 
be reduced from its current level by 35 percent, it is possible that 
holders of allowances for HCFCs other than HCFC-141b would be affected 
if the 35 percent reduction cannot be met. EPA does not intend to 
subtract both baseline HCFC-141b consumption allowances in 2003 and an 
additional 35 percent of the remaining consumption allowances in 2004. 
Instead, it intends, as laid out in its accelerated phaseout rule 
published December 10, 1993, to subtract the baseline HCFC-141b 
consumption allowances to fulfill the required 35 percent reduction. If 
a 35 percent reduction could not be achieved

[[Page 38074]]

through subtraction of baseline HCFC-141b consumption allowances, then 
EPA would need to reduce the remaining HCFC consumption allowances by 
the requisite percentage to achieve the full 35 percent reduction.
    EPA wishes to clarify that allowances can only be allocated for 
which we were supplied verifying documentation, such as invoices, bills 
of lading, Customs documents, and/or canceled checks. Many companies 
supplied such information along with each quarterly report, and thus 
EPA had the information on record. We requested that companies without 
the information on file with EPA supply this information to us by mid-
January of 2000, so that EPA could determine accurate production and 
consumption figures for purposes of allocating allowances. Allowance 
allocations, then, are based on verified production and consumption in 
each company's respective baseline year.
    Additionally, allocations are listed in the proposal only for those 
companies that gave EPA permission to publish production and 
consumption figures for each HCFC in their baseline year. Because EPA 
considers individual company's production and consumption data to be 
Confidential Business Information, permission to publish these numbers 
is necessary.
    EPA expects to receive additional verification from a small number 
of companies, permission from companies that have not yet permitted EPA 
to publish their potential allocation data, and new entrants as 
described above, before the final rule is completed and published. 
Consequently, additional companies and their allocations not in this 
proposal may be added to the final rulemaking and that potential 
allocation information would be reflected in the rulemaking docket.
    EPA requests comment on its proposal to assign individual baseline 
years by company, using one of the years 1989, 1994, 1995, 1996, or 
1997, in which the highest ODP-weighted consumption was accurately 
reported. EPA also seeks comment on its proposal to use data from the 
same year for production. EPA requests comment on allowing certain new 
HCFC importers established after 1997 and before April 5, 1999 to be 
eligible for allowances as discussed above.

G. Would Production for Export Be Allowed After Each Phaseout?

    Because the U.S. adopted a different approach from the Protocol in 
phasing out HCFCs, i.e., chemical-specific phaseouts rather than by 
percentage, the continued ability to export to other countries after 
each HCFC is phased out becomes of interest. One factor driving foreign 
demand for HCFC-141b is the number of HCFC-141b projects being funded 
by the Multilateral Fund (MLF) that are intended to move Article 5 
countries out of class I substances. The MLF was established by the 
1992 London Amendment to the Protocol to enable developing countries to 
meet the requirements of the Protocol. The MLF helps pay for the 
incremental cost of projects that replace use of ODSs with ozone-
friendly substances. Because HCFC-141b (ODP of 0.11) is intended to 
replace CFC-11 (ODP of 1.0) in most of these projects, the 
environmental benefit of these substitutions comes to a reduction of 
0.89 in ODP weight per kilogram.
    Another factor is the approach by which other developed countries 
are choosing to meet their Protocol reductions, i.e., by percentage (as 
outlined by the Protocol) rather than chemical-by-chemical (as in the 
U.S.). Consequently, there will likely be a continuing demand for HCFC-
141b by Article 2 countries after the U.S. 2003 phaseout date for that 
chemical.
    The decision by the Parties in Beijing in late 1999 to freeze 
production provides a vehicle for a suitable resolution to the export 
concern. In 2003, while production and import for domestic use of HCFC-
141b is eliminated, production for exports and narrow domestic 
exceptions can continue at baseline levels. Because consumption 
allowances, necessary for production and importation, would no longer 
be available, production after January 1, 2003 of HCFC-141b for 
domestic sale or use would no longer take place. However, because 
production for export continues to be allowed under the Protocol 
production cap, EPA is proposing to allow production for export only to 
Parties listed in Appendix C (those who also have ratified the 
Copenhagen Amendments) after the phaseout of HCFC-141b on January 1, 
2003.
    Under the Montreal Protocol, 15 percent of production baseline 
would be available for export to Article 5 countries (listed in 
Appendix E) only for their domestic needs, while 100 percent of 
baseline of the phased-out chemical would be allowed for export to 
Article 2 or Article 5 countries, or any combination of the two. After 
all the export production allowances have been allocated, some of the 
production remaining between the aggregate export production allowances 
and the HCFC production cap could be allocated for production or import 
of HCFC-141b for space vehicle or defense needs, as discussed in 
Section III.B. Allowing an additional 15 percent of HCFC-141b 
production baseline for Article 5 countries ensures that developing 
countries will have adequate access to supplies to transition to class 
II ODSs before turning to non-ODP substances. The 15 percent of HCFC-
141b production baseline for Article 5 countries is discussed in detail 
below.
1. Exports to Parties
    Prior to each phaseout, EPA's allowance system would require that 
both production and consumption allowances be used for any production, 
with consumption allowances being returned when a chemical is exported. 
As with the class I allowance system, one kilogram of production 
allowance and one kilogram of consumption allowance would be expended 
to produce one kilogram of an HCFC. Under today's proposal, post-
phaseout production could occur beginning January 1, 2003 up to 100 
percent of HCFC-141b production baseline for export only to Parties 
listed in the third column of Appendix C (those who have ratified the 
Copenhagen Amendments). To distinguish between these post-phaseout 
production allowances and pre-phaseout allowances, EPA proposes calling 
the former ``export production allowances.''
    Reporting provisions associated with production for export only 
after the relevant HCFC phaseout would require similar information and 
documentation as export reporting prior to a relevant phaseout. This 
requirement is outlined in the Recordkeeping and Reporting Section of 
today's proposal.
    EPA requests comment on the proposed allocation of export 
production allowances equal to 100 percent of HCFC-141b production 
baseline, allowing production of phased-out HCFCs with these allowances 
for export only to Parties who have ratified the Copenhagen Amendments 
(Appendix C to Subpart A). EPA also requests comment on allocating some 
of the production remaining between the aggregate of export production 
allowances and the HCFC production cap for production or import of 
space vehicle/defense uses of HCFC-141b, as discussed in Section III.B.
2. Exports to Article 5 Countries
    In the class I phaseout and allowance system, EPA allowed 15 
percent of baseline to be produced after phaseout for export to Article 
5 countries to satisfy their basic domestic needs. With the recent 
decision of the Protocol to freeze the production of HCFCs, the

[[Page 38075]]

Parties also decided to provide an additional 15 percent of baseline 
production for export to Article 5 countries. The 15 percent that EPA 
is proposing today would only be available for those HCFCs that have 
been phased out, would be over and above the production cap, and would 
differ from export production allowances in that exports could go only 
to Article 5 countries for their domestic need.
    As in the class I system, Article 5 allowances would be expended, 
without accompanying consumption allowances, for production 
specifically for Article 5 countries. Because they are to be used 
specifically for the importing countries' basic domestic needs, these 
exports are not expected to compete with U.S. markets using 
substitutes.
    EPA believes it is appropriate, following chemical-specific 
phaseouts, to permit production specifically for export only to Article 
5 countries that may require the chemical to facilitate their 
transition to less ozone-depleting chemicals. In deciding to propose 
this approach, we have considered the current volume of U.S. exports to 
other Parties, the projected increased demand by Article 5 countries, 
the Protocol requirement that exports to Article 5 countries be used 
only for their domestic needs, and the precedent of allowing 15 percent 
of baseline production for export only in the class I system. EPA is 
proposing that 15 percent of each company's production baseline of 
phased-out HCFCs can be used for production for export only to any 
Article 5 country for their domestic needs, following the phaseout of 
each chemical, until 2030. For example, in 2003, when production and 
consumption allowances associated with HCFC-141b are eliminated, 
fifteen percent of HCFC-141b production baseline would be available 
after phaseout to enable HCFC-141b production for export to Article 5 
countries for their domestic needs. As in the class I system, these 
post-phaseout production allowances would be called ``Article 5 
allowances.''
    EPA seeks comment on its proposal to allocate Article 5 allowances 
equal to 15 percent of a phased-out HCFC's baseline production after 
phaseout for export to Article 5 countries.

H. Would There Be Any Critical Needs Allowances?

    EPA is proposing a narrow exception in Section III of today's 
action regarding continued production of HCFC-141b where necessary, for 
critical space vehicle and defense uses. A variety of criteria would 
need to be met for this exemption to be granted, e.g., a lack of 
availability of viable alternatives or substitutes. See Section III.B 
below for a detailed discussion.

I. Would I Be Able To Transfer Allowances?

    In establishing the allowance program for class I controlled 
substances, EPA included provisions that permit the transfer of 
allowances. The provisions for trades and transfers of class I 
allowances are 40 CFR 82.9, 82.10, 82.11 and 82.12 as promulgated in 
the final rule published on May 10, 1995 (60 FR 24970). Today's 
document describes the many different types of transfers permitted for 
class II allowances, as well as other variations discussed in the 
ANPRM.
    Under the current class I regulatory program, EPA is required to 
process all transfers of allowances within three working days from when 
EPA receives the request for an inter-pollutant or inter-company trade. 
Companies fax or send the request for a trade to EPA and within three 
working days EPA faxes a reply showing the new balance of unexpended 
allowances (See 40 CFR 82.12(a)(1), (b)(4)). EPA proposes to retain the 
above process schedule for class II trades and requests comment on the 
proposed process for requesting EPA approval of trades of class II 
substances and the three-day turnaround time for such requests.
1. Transfers Within Groups of HCFCs
    To facilitate transfers among class II substances, EPA is 
permitted, under Section 607(b)(3) of the Act, to establish groups of 
HCFCs. Under such a framework, inter-pollutant transfers of allowances 
would be limited to chemicals within an assigned group. Class I 
controlled substances are listed in the Act in groups, and inter-
pollutant transfers of class I allowances are restricted to transfers 
within each group. While class I substances are listed in groups in the 
Act, no such grouping exists for class II substances. One option 
discussed in the ANPRM was to establish HCFC groups based on each 
chemical's ODP. Another option was establishment of HCFC groups based 
on the U.S. phaseout dates. A third option would be not to group HCFCs 
at all.
    Two of the eleven who commented on transfers indicated a preference 
for no grouping of HCFCs at all or for including all HCFCs in one 
single group. They both felt that grouping would reduce the flexibility 
necessary in inter-pollutant transfers. The remaining nine commenters 
did not address the grouping issues. Since transfers were limited to 
CFCs of the same group in the class I allowance system, allowance 
holders experienced some restrictions in their trading. EPA agrees that 
imposing a grouping system for HCFCs would unnecessarily restrict 
flexibility in inter-pollutant transfers.
    EPA is not proposing to group the HCFCs. This will provide the 
greatest flexibility for allowance holders to transfer among chemicals.
2. Inter-Pollutant Transfers
    Section 607(b) of the Act states that inter-pollutant transfers of 
ozone-depleting substance allowances shall be permitted. An inter-
pollutant transfer is the transfer of an allowance of one substance to 
an allowance of another substance on an ODP-weighted basis. As an 
example, under the class I system, a company would transfer allowances 
for CFC-12 to allowances for CFC-115, taking into account ODP 
differences between the two chemicals. If a company wanted to transfer 
1000 kilograms of their CFC-12 production allowances to CFC-115 
production allowances, paperwork would be submitted with the following 
calculation: the 1000 kilograms of CFC-12 allowances are multiplied by 
the ODP of CFC-12 (1.0) and then divided by the lower ODP of CFC-115 
(0.6), yielding 1667 kilograms of new CFC-115 production allowances 
minus the required offset. Section 607 of the CAA requires that any 
trade of ozone-depleting substance allowances result in a benefit to 
the environment. The offset is intended to fulfill this mandate.
    Inter-pollutant transfers are sometimes called intra-company 
transfers or trades because a company might shift allowances internally 
from one substance to another to react to shifts in demand. Inter-
pollutant transfers of allowances were fairly common for class I 
substances. There were an average of 95 inter-pollutant transfers for 
class I substances each year from 1992 through 1995.
    For class II substances in the chemical-by-chemical allocation 
system proposed in section II.C, an example of an inter-pollutant 
transfer would be a transfer of 10,000 kilograms of HCFC-142b 
allowances for HCFC-141b allowances, which would result in 5,909 
kilograms of HCFC-141b allowances because of the adjustment for the 
ODPs of the two chemicals. This calculation does not take into account 
the required offset for transfers as proposed and discussed in section 
II.I.8 of this document.
    All eleven commenters advocated maximum flexibility in transfers. 
Two commenters were in favor of transfers with as little regulatory 
oversight as

[[Page 38076]]

possible. One felt no need for EPA permission prior to the trade, 
provided the actual amounts of individual HCFCs are shown in the 
quarterly reports.
    EPA proposes to allow inter-pollutant transfers (or intra-company 
trades) in tandem with the proposed chemical-by-chemical system in 
section II.C above, similar to the program for the class I substances. 
As in the class I system, companies would fax or send the request for a 
trade to EPA and within three working days of receipt, EPA would fax a 
reply showing the new balance of unexpended allowances. EPA's oversight 
should ensure that the company making the transfer has the requisite 
number of unexpended allowances. EPA requests comment on the proposed 
inter-pollutant transfers (also referred to as intra-company trades) in 
tandem with the proposed chemical-by-chemical system, and the three-day 
turnaround time associated with such trades.
    A major difference in the class II proposed system should be noted. 
Because the allowances for production and consumption fall away as of 
the phaseout date of an individual HCFC, inter-pollutant and inter-
company trades among production and consumption allowances for that 
HCFC can no longer be made. For example, after HCFC-141b is phased out 
in 2003, a person cannot trade ODP-weighted HCFC-22 production 
allowances for HCFC-141b production allowances. No production or 
consumption allowances for HCFC-141b should exist (except for narrowly 
stated exemptions).
    However, two new and separate sets of allowances--export production 
allowances and Article 5 allowances--would be available to that 
allowance holder once HCFC-141b is phased out. Export production 
allowances could only be used for production for export to countries 
that are Party to the Copenhagen Amendments. Article 5 allowances could 
only be used for production to export to Article 5 countries. Because 
HCFC-141b will be the only chemical with export production allowances 
and Article 5 allowances between 2003 and 2010, inter-pollutant trading 
of HCFC-141b would not be possible. Inter-company trades of each type 
of allowance could take place, to be used in the manner specified under 
that allowance.
3. Inter-Company Transfers
    Another example of trades of class II allowances that EPA permits 
are inter-company transfers under Section 607(c) of the Act. Inter-
company transfers are trades of allowances, for the same substance 
under a chemical-by-chemical system, from one company to another 
company. Under such a system, Company A would simply transfer its 
allowances for production of a class II substance to Company B who 
wished to have more allowances for production of that particular class 
II substance. The requisite offset would be deducted by EPA when 
processing the trade. It would be necessary for both companies to 
record and report the chemical(s) associated with that trade. The 
proposed chemical-by-chemical system (Section II.C) would eliminate any 
need for conversion in reporting the trade.
    Of the eleven commenters in favor of maximum flexibility in 
transfers, two specifically recommended free inter-company trades.
    EPA proposes to allow inter-company trades, with an environmental 
offset as described in Section II.I.8. EPA also proposes to process all 
transfer requests within three working days from when EPA receives the 
request, similar to the process used for the class I system. Companies 
fax or send the request for a trade to EPA and within three working 
days EPA faxes a reply showing the new balance of unexpended 
allowances.
4. Inter-Pollutant Transfers Combined With Inter-Company Transfers
    Both inter-company and inter-pollutant transfers could be combined 
in the same transaction for class I substances, and EPA is planning to 
allow the same possibility for class II substances. Section 607(c) of 
the CAA states that EPA's transfer regulations for class I and class II 
substances shall permit combined inter-company and inter-pollutant 
transfers, subject to certain requirements. As an example of how this 
worked under the class I system, Company A would trade 35,000 kilograms 
of CFC-11 allowances to Company B who needed allowances to produce CFC-
115. In the information submitted to EPA, the two companies would agree 
that Company A would deduct 35,000 allowances for CFC-11 from its 
balance and Company B would receive 58,333 kilograms of CFC-115, due to 
the ODP difference between the two chemicals. An additional 0.1 percent 
offset would be required in this calculation as discussed in Section 
II.I.8.
    Under this combined system for class II substances in a chemical-
by-chemical allocation system, a company that wishes, for example, to 
increase its production of HCFC-141b before the 2003 phaseout could: 
(1) Re-distribute its own allowances that have been allocated for 
another class II substance to HCFC-141b (inter-pollutant transfer); (2) 
purchase more HCFC-141b allowances from another company (an inter-
company transfer); or (3) purchase more allowances from another company 
of a substance other than HCFC-141b and conduct a simultaneous inter-
pollutant transfer for HCFC-141b production, making the related ODP 
adjustments (an inter-company/inter-pollutant transfer). After the 2003 
phaseout of HCFC-141b, a company receiving export production allowances 
and Article 5 allowances for HCFC-141b could engage in inter-company 
transfers of those allowances, but could not engage in inter-pollutant 
transfers until 2010, when export production allowances and Article 5 
allowances for HCFC-22 and HCFC-142b become available and thus, 
tradeable with the ones for HCFC-141b (Section II.I.2).
    Only one commenter out of the eleven commenters discussing 
transfers singled out inter-pollutant transfers with inter-company 
transfers for special favorable mention. The remaining ten commenters 
generally advocated maximum flexibility in transfers without 
emphasizing inter-pollutant transfers with inter-company transfers.
    EPA proposes to allow inter-pollutant transfers combined with 
inter-company transfers for class II substances, similar to what it 
allows in the system used for class I substances. EPA requests comment 
on its proposal to allow inter-pollutant transfers combined with inter-
company transfers.
5. International Trades of Current-Year Allowances
    Under the Protocol, international trades are recognized as a part 
of a process called ``industrial rationalization.'' In Article 1 of the 
Protocol, industrial rationalization is defined as ``the transfer of 
all or a portion of the calculated level of production of one Party to 
another, for the purpose of achieving economic efficiencies or 
responding to anticipated shortfalls in supply as a result of plant 
closures.'' International trades of production and consumption are 
permitted under the Protocol so Parties can consolidate the 
manufacturing of a chemical in order to be able to achieve economies of 
scale as demand shrinks. International trades of production and 
consumption allowances are permitted under EPA's current regulations 
for class I controlled substances (40 CFR 82.9(c)). The procedures for 
international trades involve more review than the procedures for inter-
pollutant and inter-company trades.
    The Protocol includes the following language in Article 2, 
paragraph 5 bis: ``Any Party not operating under paragraph 1 of Article 
5 [an

[[Page 38077]]

industrialized country] may, for one or more control periods, transfer 
to another such Party any portion of its calculated level of 
consumption set out in Article 2F [pertaining to HCFCs], provided that 
the calculated level of consumption of controlled substances in Group I 
of Annex A [CFCs] of the Party transferring the portion of its 
calculated level of consumption did not exceed 0.25 kilograms per 
capita in 1989 and that the total combined calculated levels of 
consumption of the Parties concerned do not exceed the consumption 
limits set out in Article 2F. Such transfer of consumption shall be 
notified to the Secretariat by each of the Parties concerned, stating 
the terms of such transfer and the period for which it is to apply.''
    The Protocol language in paragraph 5 bis of Article 2 discussed 
above clearly restricts the U.S. from trading away HCFC consumption to 
another Party. The U.S. per capita consumption of CFCs in 1989 was 1.28 
kilograms, well above the 0.25 kilogram per capita limit for 
transferring HCFC consumption. However, the Protocol language allows 
the U.S. to potentially receive a transfer of HCFC consumption from 
another Party. Only two Article 2 countries, Norway and Poland, had a 
per capita consumption of CFCs in 1989 less than 0.25 kilograms. Thus, 
these are the only Parties from which the U.S. could potentially 
receive a transfer of HCFC consumption. EPA considered the likelihood 
of such international trades, and whether or not the establishment of 
provisions for class II international consumption trades is warranted.
    During the eleventh Meeting of the Parties in 1999, with the 
adoption of a production cap, came the potential for transfers of 
production between Parties. The restrictions that exist for 
international consumption trades do not exist for production. Thus 
international production allowance trades may be of greater interest to 
U.S. entities.
    Of the eleven commenters on transfers, only two addressed the issue 
of international trades. One commenter acknowledged that industrial 
rationalization is important and is a mechanism that tends to reduce 
overall consumption but stated that the absence of production 
allowances (comment submitted prior to Protocol adoption of production 
cap in late 1999) would mean that international trades must take place 
on a different basis than that established for class I substances. This 
commenter suggested that the material for U.S. consumption be produced 
``under license'' in another country but was unsure how this would fit 
with international and foreign country regulations. The commenter's 
concern regarding the lack of production allowances would be answered 
by today's proposal to establish production allowances in addition to 
consumption allowances (Section II.B). The second commenter stated that 
although the Protocol supports such international trades, the 
limitations are severe and clearly discriminatory to multinationals 
operating in developed countries. EPA believes that this comment gives 
an indication of the possibility of international trades of consumption 
allowances occurring in view of the limitations imposed by the 
Protocol.
    In light of the constraints on international trade of HCFC 
consumption described above, EPA is not proposing any provisions for 
international trades of consumption allowances. If the U.S. cannot 
transfer its consumption allowances to any other Party, and the only 
nations from which it could receive consumption rights to import are 
Norway and Poland, EPA believes that it appears unlikely that any such 
consumption trade would be desired or beneficial. Consequently, EPA has 
not included any such provisions in this proposal. EPA requests comment 
on its decision not to include provisions for international trades of 
consumption allowances. EPA also requests comment on provisions for 
transfer of consumption rights from Norway or Poland should the 
situation arise.
    The Parties have placed a cap on production, in addition to the 
current cap on consumption of class II substances. This would allow for 
the possibility of transfers of production allowances. Because of the 
minimal restrictions placed on the trade of HCFC production between 
certain Parties, EPA proposes to allow such production transfers, using 
a process very similar to the class I process for international trades 
(see 40 CFR 82.9(c)).
    Such transfers are authorized under section 616 of the CAA. The 
proposed regulations in today's document that would implement this 
authority are arranged consistent with international trades under the 
class I allowance system. For trades from a Party, EPA proposes that 
the person must obtain from the principal diplomatic representative in 
that nation's embassy in the U.S. a signed document stating that the 
appropriate authority within that nation has revised production limits 
for that nation equal to the lesser of: The maximum production that the 
nation is allowed under the Protocol minus the amount transferred; the 
maximum production that is allowed under the nation's applicable 
domestic law minus the amount transferred; or the average of the 
nation's actual national production level for the three years prior to 
the transfer minus the production allowances allowed. The person would 
need to submit to EPA information on the contact person and Party 
authorizing the transfer; the chemical being transferred; the control 
period for that transfer; and a signed statement that the increased 
production is intended as an export to the relevant Party.
    For trades to a Party, the person must submit to EPA the same 
information outlined, except for the signed statement. For these 
trades, the allowance revisions would be reflected at the individual 
trader level, as discussed below. In reviewing submissions for trades 
to a Party, the Administrator would have the discretion to take factors 
into account relating to possible economic hardships created by a 
trade, potential effects on trade, potential environmental 
implications, and the total amount of unexpended allowances held by 
entities in the U.S.
    For both trades from and to Parties, the Administrator, following 
review, would issue a notice either granting or deducting the 
appropriate production allowances and specifying the affected control 
period(s), provided she determines it meets the proposed required 
conditions.
    In approving an international trade, the Administrator would also 
need to ensure that the individual person or entity involved in the 
trade has made the appropriate revisions to his/her allowance balance. 
For trades from a Party, the Administrator would issue a notice 
revising the allowances of that entity to equal the unexpended 
production allowances held by the entity plus the level of allowable 
production transferred from the Party.
    For a trade to a Party, section 616 of the CAA does not limit the 
quantity of production allowances that may be transferred but the 
Administrator is given the option to disapprove the proposed transfer 
if she/he believes the transfer is not consistent with domestic policy 
or if the transferor did not possess sufficient allowances to permit 
the reduction in aggregate domestic production to be reflected in the 
transferor's revised production limits. If EPA approves the proposed 
transfer, the Administrator is required to establish revised production 
limits for the transferor so that the aggregate domestic production 
permitted after the transfer reflects the effect of the transfer of 
production allowances because such trades cannot result in an increase 
in

[[Page 38078]]

production over what would have occurred in the absence of the trade. 
In certain circumstances, following a transfer of allowances to another 
Party, Section 616 requires that the aggregate national U.S. production 
of HCFCs be reduced by an additional amount beyond a simple deduction 
of the number of allowances transferred to another Party. Specifically, 
if the average U.S. production during the previous three years for the 
controlled substance transferred is less than the total allowable U.S. 
production under Sec. 82.18(h) and (i), then following a transfer, U.S. 
production would need to be revised downward to equal the three-year 
average minus the amount transferred. This additional reduction would 
also need to be reflected in the revised production limits for U.S. 
production allowance holders. EPA believes that in these circumstances, 
it is appropriate for the required reduction in U.S. production to be 
allocated among all the transferors in the same control period in 
proportion to the number of allowances transferred by each entity. EPA 
would notify each transferor of the revised production limit after 
approving the transfer of production allowances to a Party rather than 
waiting to the end of the control period; the transferor would then be 
able to make timely market decisions with the remaining production 
allowances. Although there are perhaps other methods of revising 
production limits, EPA is proposing the following method to determine 
the transferor's balance of production allowances after a trade to a 
Party. Under today's proposal, the Administrator would issue a notice 
revising the transferor's balance of production allowances to equal the 
lesser of: (a) The unexpended production allowances held by the 
transferor minus the quantity of production allowances transferred; or 
(b) the quantity derived from (a) minus the quantity derived from the 
following calculation: the total U.S. allowable production for the HCFC 
being traded minus the U.S. average annual production of the HCFC for 
the three years prior to the transfer.
    For those more comfortable with formulas, the proposed method could 
be expressed in this manner:

    f = (a-d)-(c-b), if c > b
    a-d, if c  b

Where a = the person's unexpended production allowances, b = the 
U.S. 3-year average production for that HCFC, c = the total 
allowable U.S. production for that HCFC, and d = the actual quantity 
being transferred, and f = the person's revised production allowance 
level.

    EPA requests comment on the proposed method used to calculate 
revised production limits for those wishing to trade production 
allowances internationally; EPA requests comment on possible 
alternative methods to calculate revised production limits.
    If more than one transfer of production allowances occurs in the 
same control period, the Administrator will need to issue revised 
production limits for all the transferors after each transfer. Each 
transferor's balance of production allowances previous to the current 
transfer would be adjusted upwards retroactively after each transfer 
and each transferor would be notified after the approved transfer 
rather than towards the end of the control period. Under EPA's 
proposal, if more than one company trades production of an HCFC to 
another Party or Parties in one control period, they would all 
equitably share the burden of absorbing any shortfall in national 
production. Although there are perhaps other methods of revising 
production limits, EPA is proposing the following method to determine 
the revised production limits for all transferors in the same control 
period since EPA believes that the potential allowance decrease, (c-b), 
would be allocated among all transferors. EPA is proposing that the 
formula for revising allocations after a transfer would be:

    a-[(c-b)  x (d/D)]-d,
where D = the total amount of allowances transferred by all domestic 
producers in that control period.

    EPA requests comment on the proposed method used to calculate 
revised production limits for all transferors transferring production 
allowances in the same control period; EPA requests comment on possible 
alternative methods to calculate these revised production limits.
6. Transfers of Current-Year Allowances
    In the ANPRM, EPA considered approaches for permitting transfers of 
current-year allowances for class II controlled substances. A transfer 
of current-year allowances means the allowances being traded can only 
be expended for production or import in that specific control period, 
or calendar year. Transfers of current-year allowances do not change 
the quantity of baseline allowances assigned to a company. A trade of 
current-year allowances is a temporary trade, only reflected in a 
company's balance of allowances for that control period (calendar year) 
in which the trade occurs. Trades of current-year allowances were 
permitted in the class I regulatory program. From 1992 to 1995, many 
companies took advantage of the opportunity to trade current-year 
allowances for class I controlled substances.
    Six of the eleven commenters on transfers were in favor of the free 
trade of current-year allowances. One commenter generally supported 
transfer of current-year allowances because it was consistent with the 
class I regulatory program. A commenter felt that it should be allowed 
while another commenter noted that the bureaucratic burden on companies 
and on EPA would not be too large and that such flexibility would be as 
complete as it could be within a system of controls. The remaining five 
commenters were silent on the issue. EPA agrees that trades of current-
year allowances would allow companies the flexibility to respond to 
market forces and achieve economies of scale in production and import.
    EPA proposes to allow trades of current year allowances similar to 
those permitted in the class I regulatory system and seeks comment on 
allowing current-year trades.
7. Permanent Transfers of Baseline Allowances
    EPA also considered the merits of permitting permanent transfers of 
baseline allowances for class II substances in the ANPRM. A transfer of 
baseline allowances is a permanent shift of some quantity of a 
company's baseline allowances to another company. The permanent nature 
of the transfer of baseline allowances makes the trade different from 
the transfer of current-year allowances. For example, if Company A 
produced 1,000 kilograms of HCFC-22 in the baseline year, it would 
receive 1,000 baseline allowances of HCFC-22. Company A could in turn 
permanently trade away these baseline allowances to Company B. In all 
relevant subsequent years, Company A's quantity of baseline allowances 
would be permanently reduced, while Company B's quantity of baseline 
allowances would be permanently increased. At the 2010 phaseout of 
HCFC-22 and HCFC-142b, Company B would be responsible for deducting the 
HCFC-22 that it permanently received from Company A from its baseline 
allocation.
    Under a chemical-by-chemical allocation approach, the historic 
consumption baseline amount for a given chemical would be deducted from 
the current holder of the permanent allowances in the relevant phaseout 
year for that chemical (e.g. 2003 for HCFC-141b). If a person purchases 
permanent baseline allowances, of

[[Page 38079]]

HCFC-141b, for example, then conducts an inter-pollutant trade within 
the company, that person would deduct the ODP-weighted equivalent 
consumption of the HCFC-141b that was traded to them on a permanent 
basis. In our example, in 2003, the purchaser of allowances associated 
with HCFC-141b would have that number of ODP-weighted allowances 
associated with HCFC-141b deducted, even if it had conducted an inter-
pollutant trade within the company for another HCFC.
    Six of the eleven commenters discussing transfers favored allowing 
permanent transfers of baseline allowances. Five of the eleven 
commenters did not discuss permanent transfers.
    EPA proposes to allow permanent trades of allowances for class II 
substances. EPA requests comment on its proposal to allow these 
permanent trades.
8. Offset for a Transfer of Allowances
    The final aspect of trades of class II allowances discussed in the 
ANPRM and considered in today's document is the manner of achieving 
greater total reductions than would occur in the absence of a trade, as 
required by section 607(a) of the Act. EPA believes that the offset 
required by section 607 of the Act is intended for inter-pollutant and 
inter-company transfers. Therefore, in the allowance program for class 
I substances, an offset was not included for international trades. 
International trades are governed by section 616 of the Act, rather 
than section 607.
    Section 607(a) states that, ``transactions under the authority of 
this section will result in greater total reductions in the production 
in each year of class I and class II substances than would occur in 
that year in the absence of such transactions.'' For the class I 
allowance program, EPA adopted a one percent offset, deducted from the 
transferor's allowance balance, for all inter-pollutant trades and all 
inter-company trades (40 CFR 82.12(a)(1)(i)(H), 82.12(b)(4)(i)(F)). 
However, for inter-pollutant trades combined with inter-company trades, 
only one offset was applied to the transfer of allowances.
    Nine commenters on possible offset options preferred a lower offset 
than the one for the class I system, because CFCs are more ozone-
depleting than HCFCs. There were two suggestions for an offset of 0.1 
percent and there were two for an offset of 0.05 percent. Because the 
class II substances are less ozone-depleting than class I substances, 
EPA considered a smaller offset for trades of HCFC allowances. Yet, EPA 
recognizes that the offset must provide an environmental benefit, as 
called for by Congress. For class II controlled substances, EPA is 
therefore proposing a 0.1 percent offset for inter-company transfers. 
This 0.1 percent offset would simplify calculations for the affected 
companies and reflect the lower ODP of HCFCs compared to CFCs. This 
offset would still provide the environmental benefit intended by 
Congress without hampering market forces. If allocations are made and 
implemented on a chemical-by-chemical basis, both inter-pollutant 
trades and inter-company domestic trades would be affected.
    EPA requests comment on its proposal to impose a 0.1 percent offset 
to afford an environmental benefit associated with domestic trades, in 
compliance with section 607 of the CAA.

J. Would Other Regulatory Options Be Used To Control HCFCs?

    In the ANPRM, EPA also discussed other authorities under Title VI 
that are available to ensure that the U.S. adheres to its phaseout 
schedule for class II substances. The discussion outlined relevant 
provisions of EPA's current labeling program for products made with 
ODSs, its SNAP program and the nonessential products ban. These 
provisions would affect the sale and/or use of HCFCs rather than their 
production, import and export, which an allowance system would control 
directly. The purpose of including these regulatory tools in the ANPRM 
discussion of controlling HCFC emissions was to make readers aware of 
the variety of paths EPA could take in sustaining compliance with the 
Protocol.
    Because EPA is proposing an allowance allocation system in today's 
action that it believes would be effective in maintaining compliance 
with the Protocol, it is not proposing today to include any amendments 
to these provisions to further control HCFCs. The approaches discussed 
briefly below however, could provide further options for HCFC control, 
if needed to ensure U.S. compliance.
    Thirteen commenters were generally opposed to the imposition of any 
of the following regulatory tools.
1. Labeling
    Under section 611 of the Act, EPA could require labels on products 
containing or made with specified class II substances. These labels 
would read as follows:

    Warning: Contains/manufactured with [insert name of substance], 
a substance which harms public health and environment by destroying 
ozone in the upper atmosphere.

    As a prerequisite to imposing such a labeling requirement, the 
Administrator would have to determine, ``after notice and opportunity 
for public comment, that there are substitute products or manufacturing 
processes (A) that do not rely on the use of such class II substance, 
(B) that reduce the overall risk to human health and the environment, 
and (C) that are currently or potentially available. ``Beginning 
January 1, 2015, all products containing or manufactured with a class 
II substance must bear the specified label regardless of whether the 
Administrator has made a determination regarding the availability of 
substitutes (Section 611(c)(2) and 611(e)(5)). Therefore, the issue 
upon which EPA is requesting comment is whether EPA should, prior to 
January 1, 2015, require labels on certain products containing or 
manufactured with class II substances.
    Eleven commenters felt that imposing labeling requirements before 
2015 would be undesirable and unnecessary. A couple of commenters 
stated that such labeling requirements might precipitate what they 
characterized as confusing labeling that occurred with CFCs, requiring 
the intervention of the Federal Trade Commission. This statement 
represents the commenters' characterization only, and not that of EPA. 
The commenter has apparently confused the Title VI labeling regulations 
with a different labeling rule issued by another federal agency. EPA 
was consulted on several cases where potentially deceptive ``positive 
labeling'' appeared on a product. Typically, such a label would read, 
``ozone-friendly'' or ``environmentally safe,'' while the product 
contained an ozone-depleting substance that may have had a lower ODP 
than found in other products in its category. These specific labels 
were not associated with the Section 611 labeling requirements of the 
CAA, and were subsequently referred to the Federal Trade Commission, 
because consumers were being sold products under potentially inaccurate 
labeling.
    EPA does not currently see a need to use labeling to ensure 
compliance with the Protocol and is therefore not proposing in today's 
action to use this regulatory tool to control HCFC emissions.
2. SNAP Approval and Restrictions
    Section 612 of the Act requires EPA to promulgate rules making it 
unlawful to replace any class I or class II substance with any 
substitute substance that may present adverse effects to

[[Page 38080]]

human health or the environment, where EPA has identified an 
alternative to such replacement that ``(1) reduces the overall risk to 
human health and the environment; and (2) is currently or potentially 
available.'' In accordance with Section 612 of the Act, and under the 
SNAP program, EPA publishes lists of acceptable and unacceptable 
substitutes for class I and class II substances. In some SNAP sector 
end-uses, class II substances have been listed as acceptable 
substitutes. Class II substances are viewed by the Agency as transition 
chemicals that facilitate the transition out of more harmful class I 
chemicals. Since 1994, availability of zero-ODP alternatives has 
increased in a number of end-uses. It is therefore possible that SNAP 
determinations regarding existing HCFC acceptable uses could be 
revised. This could happen through three mechanisms.
    First, EPA could receive a petition from a company to add a 
substance to or delete a substance from the SNAP list of acceptable and 
unacceptable alternatives (See section 612(d)). Second, EPA could 
receive notification from a company before introduction of a substitute 
into interstate commerce for significant new use as an alternative to 
an ODS (See section 612(e)). Finally, EPA can initiate changes to the 
SNAP determinations independent of any petitions or notifications 
received. Such changes could be based on new data either on additional 
substitutes or on characteristics of substitutes previously reviewed.
    Thirteen commenters opposed the use of SNAP to control the use of 
HCFCs to sustain compliance with the Protocol. Four commenters 
supported delisting only if the alternative significantly reduced risk 
to human health and the environment. Seven commenters were concerned 
about the possibility of creating an unfair competitive advantage for 
the new alternative and impacting small businesses adversely.
    Under this rulemaking, EPA believes that the tracking of 
consumption of HCFCs will allow the U.S. to remain under the cap. 
Therefore, in this rule, we are not including any SNAP-related 
provisions. It is possible, that on their own, SNAP approvals and 
restrictions might affect HCFC production and consumption sometime in 
the future.
3. Non-Essential Products Ban
    Section 610(d) of the Act prohibits the sale, distribution, or 
offer for sale or distribution in interstate commerce, of certain 
nonessential products that contain or are made with class II 
substances. EPA is authorized to grant exceptions to the ban under 
certain conditions. Since the issuance of the final rule providing 
exemptions from the statutory class II nonessential products ban (58 FR 
69638, December 30, 1993), EPA has received information, including 
information on new substitutes for making certain products, indicating 
that it may be necessary to reconsider the continued appropriateness of 
those exemptions. The Agency also is aware that since the issuance of 
that initial final rulemaking, there has been further substitution away 
from ozone-depleting substances in aerosols and pressurized dispensers. 
EPA is currently reviewing information concerning the aerosol products 
and pressurized dispensers that were given exemptions in the December 
30, 1993 rulemaking, independent of the goals of this rulemaking. In 
particular, the Agency is evaluating whether there are technologically 
available substitutes for the HCFCs used in these products.
    Two of the four commenters were opposed to the use of the ban to 
control use of HCFCs and thus sustain compliance with the Protocol. One 
commenter supported use of the ban to ensure the U.S. does not exceed 
its consumption and production caps for class II substances.
    EPA does not currently see a need to use the nonessential products 
ban to ensure compliance with the Protocol and is therefore not 
proposing to use this regulatory tool to control HCFC use. It is 
possible, that on its own, the nonessential products ban might affect 
HCFC production and consumption sometime in the future.

III. Additional Proposed Provisions

    EPA is proposing several provisions that were not discussed in the 
ANPRM. Some are definitions, necessary to implement portions of the 
class II allowance system discussed in the ANPRM. Others are additional 
issues that have arisen since publication of the ANPRM. EPA seeks 
comment on each of the proposed provisions below.

A. Would There Be Changes in Definitions?

    To effectively establish an allowance allocation system for HCFCs, 
EPA is proposing to change and add several definitions to Sec. 82.3 of 
the existing phaseout regulation. We are proposing modifications that 
will clarify throughout this proposal where a provision would apply 
only to a class I substance or to both class I and class II substances.
1. Modifications
    EPA is proposing to modify the definitions for ``baseline 
consumption allowances'' and ``baseline production allowances'' to 
include class II ODSs, in addition to currently covered class I ODSs. 
EPA is also proposing to modify the definitions of ``consumption 
allowances,'' ``production allowances,'' and ``Article 5 allowances'' 
to include class II ODSs.
    The definitions for ``destruction credit'' and ``transformation 
credit'' would not apply to the class II allowance system. To date, no 
one under the class I system has requested destruction or 
transformation credits after production allowances have been expended 
for a chemical that was later found to be destroyed or transformed in 
the manufacture of another chemical or product. EPA believes that, with 
less HCFCs being used in manufacturing systems that ultimately 
transform or destroy them than the earlier class I ODSs, the likelihood 
that any company would need or want to use these credits is minuscule. 
Normally, destruction or transformation is anticipated prior to 
production. Companies need not expend production allowances when 
producing ODSs specifically for destruction or transformation. EPA 
requests comment on its decision to follow suit with the accelerated 
phaseout program for class I substances (60 FR 24970, May 10, 1995) and 
not include the definitions for ``destruction credit'' and 
``transformation credit.''
    At this time, the definitions for ``essential use allowances'' and 
``unexpended essential use allowances'' would not apply to the class II 
allowance system and EPA is proposing to modify them to make them 
explicitly apply to class I substances only. If the Parties approve any 
essential use exemptions for class II substances, EPA would consider 
such exemptions in light of the domestic phaseout and revisit these 
definitions as necessary.
2. Additions
    EPA is proposing to add a definition of ``export production 
allowances.'' Companies could use these allowances, calculated at 100 
percent of their phased-out HCFC's production baseline, to produce 
certain HCFCs after the relevant phaseout date, for export only to any 
Party that has ratified the Copenhagen Amendments (such Parties would 
be listed in Appendix C). These export production allowances would 
become available to HCFC-141b producers on January 1, 2003 (the 
phaseout date for that chemical), and remain available at least until 
December 31, 2009. EPA expects to re-evaluate the possibility of export 
production allowances in 2009 in view of the 65 percent reduction in 
consumption in

[[Page 38081]]

2010. An export production allowance could be used for production for 
purposes of export only, where net consumption equals zero. A 
definition of ``unexpended export production allowances'' is also being 
proposed. It is not clear at this time the amount of export production 
allowances that would be available for HCFC-141b, as well as HCFC-22 
and HCFC-142b, after January 1, 2010, when a 65 percent reduction in 
consumption of HCFCs is mandated by the Protocol. Following notice and 
comment, EPA plans to issue a rule prior to 2010, which would allocate 
relevant allowances, beginning in 2010, taking into account the 
declining consumption cap, the refrigerant servicing exemptions after 
2010, and any relevant modifications to the Protocol or the CAA.
    In proposing a class II petition system for used ODSs imports, EPA 
is proposing adding three definitions that will allow EPA to closely 
track used imports and make accurate determinations on the eligibility 
to import the used HCFCs. Three new definitions are proposed to help 
facilitate a rigorous petition system: ``individual shipment,'' to 
distinguish one separate shipment from another; ``non-objection 
notice,'' to indicate when a person is granted privileges to import an 
individual shipment of used HCFCs; and ``source facility,'' to explain 
exactly what information the petitioner must provide regarding the 
equipment and place from which the used HCFC was recovered.
    Definitions of ``space vehicle/defense allowances'' and of 
``unexpended space vehicle/defense allowances'' are added to permit 
U.S. Federal government entities and certain other entities to import 
or order the production of HCFC-141b for critical uses related to space 
vehicle or narrow defense needs, where no substitute for HCFC-141b is 
viable. These allowances would not be tradeable.

B. What Type of Allowances Would Be Available for Space Vehicles and 
Defense Needs?

    EPA is proposing to provide space vehicle/defense allowances to a 
U.S. agency, department or instrumentality, or related entities 
involved in space vehicle endeavors, for extremely narrow needs after 
demonstrating by petition to EPA that no viable alternative exists for 
HCFC-141b and that space vehicle or national security viability is at 
issue if HCFC-141b cannot be used for the specified purpose. NASA first 
brought this need to EPA's attention because space launch vehicles 
currently use HCFC-141b-blown foam as the only workable thermal 
protection system for several different areas of the space vehicle 
system. EPA is also proposing to provide allowances to U.S. military 
departments for extremely narrow needs after demonstrating by petition 
to EPA that no viable alternative exists for HCFC-141b in narrow 
defense uses such as cleaning of oxygen equipment and aircraft parts.
    EPA believes U.S. government space vehicle entities, other space 
vehicle service entities and military departments have vital needs for 
small quantities of HCFC-141b for very specific needs beyond the 
phaseout date contained in Sec. 82.15(a)(4) of today's rulemaking. 
These uses would include unique thermal protection system needs of 
space vehicles designed to travel beyond the limit of the earth's 
atmosphere (e.g., satellites, space stations, space transportation 
systems such as the Space Shuttle system), and the cleaning of oxygen 
equipment and aircraft parts. EPA believes that the new 
Secs. 82.15(a)(1) and 82.18(e) will not adversely affect compliance 
with the provisions of the CAA Amendments of 1990 or the U.S. 
obligations under the Protocol as amended.
    EPA considered other approaches to an exemption for the production 
and import of HCFCs critically needed for space vehicles intended to 
travel outside the earth's atmosphere or for narrow defense needs. EPA 
considered whether the exemption should be specific for one, or two, or 
all of the HCFCs (e.g., specific exemptions only for HCFC-141b, HCFC-
22, or HCFC-142b for national security purposes.) To date, EPA has 
received only specific requests for space vehicle and defense 
exemptions for HCFC-141b. Therefore, EPA believes there is no need for 
a broader exemption and accordingly is proposing to limit the exemption 
to HCFC-141b. EPA requests comment on its proposal to limit a space 
vehicle/defense exemption to HCFC-141b.
    A person seeking an exemption for the production and import of 
HCFC-141b for space vehicle purposes and for narrow defense needs under 
Sec. 82.15(a)(1)would need to apply for the exemption under Sec. 82.18. 
Today's action proposes a streamlined application and review process 
under Sec. 82.18(e) for space vehicle/defense allowances. The 
application process would require a U.S. government or other entity 
involved in space vehicle endeavors or narrow defense uses to submit 
the following information to EPA prior to July 1, 2002: (a) Name and 
address of the entity; name of contact person and phone and fax numbers 
and e-mail address; (b) quantity (in kilograms) of HCFC-141b needed for 
each relevant control period for the space vehicle or defense interest; 
(c) a detailed description of the space vehicle or defense need met by 
the use of HCFC-141b; (d) a technical description of the processes in 
which HCFC-141b is being used; (e) a technical description of the area 
where the product will be applied; (f) a technical description of why 
alternatives and substitutes are not sufficient to eliminate the space 
vehicle or defense use of HCFC-141b; (g) a detailed analysis showing 
why stockpiled, recovered or recycled quantities are deemed to be 
technically infeasible for use; (h) an estimate of the number of 
control periods over which such an exemption would be necessary; and 
(i) a detailed description of continuing investigations into and 
progress on possible alternatives and substitutes.
    EPA would review the application in order to determine whether to 
grant space vehicle/defense allowances for the specific quantity of 
HCFC-141b for the specified control period. If more information is 
needed, EPA would contact the applicant and specify the necessary 
information. EPA would retain the right to disallow the space vehicle/
defense allowances based on information received regarding, inter alia, 
fraud, misrepresentation, inconsistency with Articles and Decisions 
under the Montreal Protocol, inconsistency with the CAA Amendments of 
1990, or other reasons related to human health and the environment.
    EPA is proposing a specific application period ending July 1, 2002. 
By limiting the time frame for accepting applications, EPA is providing 
a strong incentive for U.S. government and other space vehicle entities 
to periodically review their HCFC-141b needs for long-term planning. By 
limiting the time frame for the review of applications, EPA would also 
be reducing the Agency's long-term burden to continually review claims 
of space vehicle or defense interest.
    EPA considered conducting a one-time period of review of petitions 
for space vehicle/defense allowances to be finalized by publication of 
a notice with a list of acceptable and unacceptable space vehicle/
defense exemptions to the class II phaseout dates. EPA is not proposing 
this approach because the Agency expects very few applications for 
space vehicle/defense allowances for HCFC-141b, and EPA believes it is 
important for petitioners to periodically reassess the critical nature 
of continued HCFC-141b need. EPA expects that no more than one percent 
of the total

[[Page 38082]]

HCFC-141b allocations would be needed for this exemption. EPA is also 
proposing that the allocation be updated every three years, via 
submission of an update report which indicates the following: whether 
the entity has found no viable substitute and will need to extend their 
exemption for the next three years; why the entity believes no 
alternatives are viable for their application; and the efforts 
undertaken by that entity to find alternatives. The first period would 
provide allocations for January 1, 2003 through December 31, 2005. 
Updates would be due to EPA by March 1, of 2005 for the three-year 
period of 2006 through 2008, and so on until 2010. EPA would make a 
determination on the update within 90 days of receipt and notify the 
submitting entity accordingly.
    Another option in the implementation of an exemption for the 
production and import of HCFCs beyond the accelerated phaseout would be 
a limit on the total quantity of HCFC-141b that one U.S. government 
entity or other space vehicle entity could request and obtain in a 
control period. Finally, EPA could limit the number of control periods 
for which a U.S. government or other space vehicle entity with these 
interests may apply for an HCFC-141b exemption. EPA is not proposing 
these options to limit the quantity of material or the control periods 
because the Agency expects the numbers of requests and the quantities 
to be very small. However, EPA is proposing to limit the total quantity 
of HCFC-141b produced or imported for space vehicle or narrow defense 
needs to one (1) percent of the aggregate of HCFC-141b baselines per 
year. This would reflect the expected small number of requests for 
small quantities while still allowing for export to Parties and Article 
5 countries.
    EPA is today proposing to create an exemption process for the 
continued production or import of HCFC-141b up to January 1, 2010, for 
applications related to critical space vehicle needs or narrow defense 
needs in cases where alternatives and stockpiled, recovered or recycled 
quantities are deemed to be technically infeasible for use. Upon 
request by the appropriate Agency or entity, the Administrator may 
grant authorization for production or import of a specified quantity, 
for a three year period, beginning on January 1, 2003. If need for 
HCFC-141b remains critical past 2005, exempted entities may renew their 
submission for an additional three years by updating the information 
submitted in the original application to EPA. Approval for production 
or import does not imply or mandate production; each user must locate a 
willing supplier and negotiate supply. It should be noted that the 
Parties at the 1999 Meeting of the Parties in Beijing adopted a 
production freeze, which requires that all production, which would 
include space vehicle/defense exemptions, remain below the cap. The 65 
percent reduction in consumption in 2010 may preclude continued 
availability of this exemption; the more current consumption figures in 
the years leading up to 2010 may provide EPA with a more realistic 
picture of the possibility of granting the exemption for the years 
after 2010. The availability of this exemption will be revisited in the 
rulemaking implementing the January 1, 2010 phaseout. Consequently, 
today's action proposes that the exemption be available until January 
1, 2010. EPA requests comment on its proposal to make the space 
vehicle/defense exemption available until January 1, 2010.
    The Agency believes technically feasible alternatives will likely 
be available for commercial and the vast majority of non-commercial 
uses of HCFCs prior to their phaseout dates. However, there may be 
specialized uses where stockpiled, recovered, or recycled quantities 
are technically inadequate. At this time, the only foreseeable use of 
this authorization is for the thermal protection system used for space 
exploration and satellite launches and for cleaning applications in 
certain defense equipment.
    Section 605 of the CAA contains certain constraints on use, 
production, and consumption of HCFCs. This exemption is limited by 
these constraints. For example, under CAA Section 605(a), effective 
January 1, 2015, no person may introduce into interstate commerce or 
use any virgin class II substance unless the substance is either used 
and entirely consumed (except for trace quantities) in the production 
of other chemicals, or the substance is used as a refrigerant in 
appliances manufactured prior to January 1, 2020. In addition, CAA 
section 605(b)(2) prohibits production of class II substances on or 
after January 1, 2030. Finally, EPA will not authorize quantities of 
HCFCs under the space vehicle/defense exemption that would cause the 
U.S. to exceed the HCFC consumption cap as agreed under the Montreal 
Protocol.
    To facilitate accurate tracking of exempted HCFC-141b production 
and use, EPA proposes requiring the manufacturer of the applicable foam 
(or the formulation for spray foam) or the cleaning product to submit 
information quarterly to EPA delineating the quantity of HCFC-141b 
received; the quantity of HCFC-141b used or contained in the product; 
the identity of the producer or importer supplying the HCFC-141b; the 
identity of the recipient of the product made with or containing HCFC-
141b; and the quantity of HCFC-141b used or contained in the product 
sent to the recipient. Additionally, the entity requesting allowances 
of the exempted material in space vehicles or defense purposes would 
report quarterly to EPA on: the type of product made with or containing 
HCFC-141b; the specific application of the product; the quantity of 
HCFC-141b used or contained in the product; and the identity of the 
manufacturer of the product.

C. Would There Be a Petition System for Importing Used HCFCs?

    With today's action, EPA is proposing a petition system for use in 
importing used HCFCs. The Protocol allows used ODSs to be imported 
outside of the process required under the cap. Because the potential 
for abusing this exception was high in imports of class I substances 
(for example, by claiming that a CFC was used when in fact it was 
virgin, thus requiring allowances), EPA instituted a petition process 
in 1995 that requires those wanting to import used class I ODSs into 
the U.S. to petition EPA for approval before making the import. To 
ensure that relevant class II imports are legitimately used previous to 
import, EPA proposes a petition system for the import of used HCFCs. 
EPA will make a definitive determination that a shipment contains used 
HCFCs before granting a non-objection notice allowing the import. A 
description of the petition system that EPA is proposing is discussed 
below.
    The original reason the Parties to the Protocol agreed to permit 
international trade in previously used ozone-depleting substances was 
to ease the transition to alternatives. In addition, the Parties 
believed that allowing trade in quantities of already existing used 
material would offset the need for new global production.
    Evidence has increasingly indicated that new production overseas of 
class I material has been clandestinely diverted to the U.S. and other 
non-Article 5 countries as imports of ``used'' material. EPA 
anticipates that a similar situation will evolve as HCFCs are phased 
out and supply diminishes in the face of continued demands.
    EPA is proposing today's petition system in the hopes that the 
provisions of the process can guard against abuses and guarantee that 
imported material is truly previously used, thus setting the stage for 
an effective class II petition

[[Page 38083]]

system for used imports. EPA requests comment on all aspects of the 
proposed petition system for the import of used HCFCs.
1. Petition for Each Individual Shipment
    EPA is proposing that a petition to import used HCFCs may only be 
submitted on a shipment-by-shipment basis. The information in a 
petition and the quantity a person wishes to import into the U.S. must 
be limited to a specific shipment and a single U.S. Customs entry. If 
an importer cannot arrange for the entire quantity to be shipped as one 
entry through U.S. Customs, the importer would be required to submit 
more than one petition for the quantity in each individual Customs 
entry.
2. Threshold Quantity Requiring a Petition
    EPA is proposing a threshold quantity of used HCFCs for an 
individual shipment for which a person is required to submit a petition 
to import. EPA is proposing that individual shipments of five (5) 
pounds or more require submitting a petition to import. A threshold 
quantity of five pounds allows a company to take three samples from a 
large ISO-tank for laboratory analysis and send those samples to a 
testing facility in the U.S. without being subject to the petition 
requirements. In developing today's proposal, EPA also considered 
requiring that a person who wishes to import any quantity of used 
HCFCs, regardless of the size, be required to submit a petition, 
thereby eliminating the threshold level altogether. EPA is not 
proposing to eliminate the threshold level altogether in order to 
minimize burden on the regulated community and conserve Agency 
resources.
3. Information Requirements
    EPA is proposing that petitions to import used HCFCs include a 
comprehensive and detailed list of information. This reflects the type 
of information that EPA needs to independently verify the previous use 
of the HCFC. Today's action proposes under Sec. 82.24 (c)(3) that 
contact information for the entire chain of custody of the used HCFC be 
provided in the petition. For example, a petition must include complete 
contact information for: every source equipment from which the used 
controlled substance was originally recovered; every company that 
collected the material from the equipment; every previous owner of the 
material; and every company that will be exporting the used controlled 
substance. EPA seeks comment on the effectiveness and potential burden 
associated with requiring such contact information.
    Today's proposal calls for providing a copy of a contract for the 
purchase of the used HCFC in addition to the intended use. In light of 
efforts by Parties to the Protocol to implement a licensing system for 
exports as well as imports, EPA is proposing that the petitioner 
provide an export license from the appropriate government agency in the 
country of export. EPA requests comment on its proposal for detailed 
information to accompany each petition to import used HCFCs.
    EPA also considered proposing that the petition to import used 
HCFCs include the name, make and model number of the equipment from 
which the HCFC was as a means to verify that the shipment of HCFC had 
been truly used to operate equipment. EPA requests comment on the 
likely utility and burden of requiring this information about the 
equipment from which the material was removed.
4. Timing for Review of a Petition
    EPA considered many time frames for the review of petitions to 
import used HCFCs, including a complete elimination of any time limit 
for EPA's review of a petition. EPA also considered whether to include 
an automatic approval provision with any of these time limits. Through 
experience and the unexpected volume of petitions in the class I 
petition system to import used CFCs, EPA learned that the 15 working-
day time limit for petitions was too short for a thorough review. Given 
the large number of petitions used being submitted (192 in 1997, 160 in 
1998, and 120 in 1999), combined with the fact that EPA will likely 
require more time to independently verify the information required with 
today's document, EPA is proposing a time limit for the review of a 
petition by EPA of forty (40) working days. EPA believes that 40 
working days allows it the time to thoroughly verify the information in 
the petition and decide whether to allow or disallow the petition. EPA 
requests comment on whether the 40 working-day time limit is 
practicable and appropriate or whether another time limit would be more 
appropriate.
    EPA is specifying that the time for review begins on the working 
day after EPA's Global Programs Division actually receives the 
petition. EPA is proposing that a 40-day time frame with no automatic 
approval would allow the Agency to balance the goals of responsiveness 
to legitimate requests and thoroughness in identifying abuses of the 
petition process. EPA additionally proposes, that while EPA will make 
every effort to respond to the petitioner within the 40 working-day 
period, a lack of response does not constitute a grant of authority to 
import. EPA requests comment on the need for a definitive response from 
EPA before a person may import the used HCFCs.
5. Reasons for Issuing an Objection Notice
    Under the class I petition process, EPA attempts to independently 
verify the information contained in a petition to import used HCFCs, 
with special attention given to confirming the prior use of the 
material. EPA's effort to confirm the information in a petition is 
conducted with support from other government agencies that are members 
of the inter-agency task force combating illegal imports of ozone-
depleting substances. Since 1994, EPA has worked with the inter-agency 
task force members who include the Department of Justice, the Internal 
Revenue Service, the Customs Service, the State Department, and the 
Department of Defense. In the six years of implementing the petition 
process to import used class I controlled substances, EPA has received 
a variety of petitions. Many of the petitions provided insufficient 
information or provided information that EPA had reason to doubt was 
sufficient to confirm that the material was, in fact, previously used.
    To adequately process class II petitions, EPA is proposing a list 
of reasons for which the Agency might issue an objection notice to a 
petition to import used HCFCs.
    The first reason for disallowing a petition is a lack of sufficient 
information. If the importer of used HCFCs fails to supply the required 
information in Sec. 82.24(c)(3), this would be a basis for disallowing 
a petition.
    The second reason for disallowing a petition is if the Agency 
determines that the petition contains, or is believed to contain, false 
or misleading information.
    EPA may issue objection notices for petitions to import used HCFCs 
if the transaction appears to be contrary to provisions of the Vienna 
Convention on Substances that Deplete the Ozone Layer, the Montreal 
Protocol and Decisions by the Parties, or the non-compliance procedures 
outlined and instituted by the Implementation Committee of the Montreal 
Protocol. Section 614(b) of the CAA states that in the case of conflict 
between the CAA and the Montreal Protocol, the more stringent provision 
shall govern. Thus, EPA proposes that if a petition contains 
information about a transaction that

[[Page 38084]]

indicates the transaction is contrary to the provisions of the 
Convention or the Protocol, including Decisions by the Parties to the 
Protocol or the Protocol's non-compliance procedures, that shall be 
grounds for issuing an objection notice.
    If a country states that it is no longer allowing exports or if it 
reports that it has not granted any export licenses, EPA will treat 
this as grounds for issuing an objection notice for a petition to 
import from that country. EPA proposes to disallow a petition if the 
appropriate government agency in the exporting country has not agreed 
to issue any required export license for the individual shipment of 
used HCFCs that is cited in the petition.
    Today's action also proposes that EPA may issue an objection notice 
for a petition when the Agency receives information indicating that a 
person listed in the petition has produced false or misleading 
information regarding transactions in ozone-depleting substances. In 
the past, EPA has received information from other U.S. government 
agencies, from other petitioners, from non-governmental organizations 
and from foreign governments that have implicated companies or 
individuals in activities designed to mislead government authorities 
about activities related to ozone-depleting substances.
    Another proposed reason for disallowing a petition is the receipt 
by the Administrator of information regarding activities contrary to 
EPA regulations by any individual or company listed in a petition. 
Activities contrary to EPA regulations that have been reported to EPA 
or discovered by EPA personnel and that are related to ozone-depleting 
substances include, but are not limited to, un-certified recovery; un-
certified reclamation; reclamation that does not meet the required 
specifications; improper labeling; diverted transhipment; mis-
identification during import; forgery of EPA documents; and fraudulent 
claims regarding these activities. This action proposes that EPA may 
disallow a petition if the Agency receives information that any person 
or company listed in the petition is involved in an activity that is a 
potential violation any 40 CFR part 82 regulation or any evidence of 
false statements.
    EPA also believes that conditions established for disbursing monies 
to specific country projects by the Executive Committee of the Montreal 
Protocol's Multilateral Fund may provide a basis for objecting to 
petitions. EPA believes as a general rule that no used HCFCs should be 
imported from Article 5 countries where reclamation capacity, for that 
specific controlled substance, has been or is being installed through 
assistance of the Multilateral Fund. The U.S. contributes approximately 
one fourth of all funds going to the Multilateral Fund, the general 
purpose of which is to assist countries operating under Article 5(1) of 
the Protocol to make the transition away from ozone-depleting 
substances; and a transition policy includes the development of 
reclamation facilities in order to optimize the use of existing ozone-
depleting substances so as to avoid unnecessary production of virgin 
materials. Thus, EPA views the importation of used HCFCs from countries 
where reclamation capacity has been supported by the Multilateral Fund 
to run counter to U.S. interest, and counter to the aims of a global 
phaseout strategy. EPA requests comment on its proposal that 
importation of used HCFCs from Article 5 countries where reclamation 
facilities have been funded by the Multilateral Fund for reclaiming 
ODSs to be used for that country's basic domestic needs may provide a 
basis for objection to a petition.
    EPA is proposing an appeals process through re-petitioning within 
10 working days after the date of an objection notice from the 
Administrator, if the basis for the objection notice is ``insufficient 
information.'' EPA proposes to allow only one re-petition for any 
original petition received by EPA. EPA requests comment on the 
appropriateness of the aspects proposed above for an appeals process.
6. Petition and Non-Objection Letter to Accompany the Shipment
    EPA is proposing a requirement in Sec. 82.24(c)(3) that the 
petition and the non-objection notice from EPA, approving the import of 
a used class II controlled substance, accompany each shipment through 
U.S. Customs. EPA believes that presenting the petition and EPA-
approval letter with a shipment will facilitate the clearance through 
U.S. Customs.

D. Would There Be New Restrictions on Imports to and Exports From 
Specific Parties?

    EPA is proposing a restriction on Parties to whom you (as defined 
in Section II.C) can export HCFCs and from whom you can import HCFCs, 
beginning in 2004, to comply with an amendment to the Protocol that the 
Parties agreed to at the eleventh meeting in late 1999. This amendment 
states that as of January 1, 2004, each Party shall ban imports from 
and exports to countries that have not ratified the 1992 Copenhagen 
Amendments, in addition to the original Montreal Protocol (1987) and 
London Amendments (1990). These bans on imports from and exports to 
non-Parties reflect an agreed strategy by Parties for encouraging 
ratification of the Protocol and each successive package of amendments.
    Appendix C of this rulemaking will include all Parties to the 
Copenhagen Amendments as of the promulgation date of the final rule. 
The UNEP web site maintains a real-time list of current Parties to the 
Protocol and all its amendments, for those wishing to ensure they are 
viewing the most current list. The Internet address is: http://
www.unep.org/ozone/ratif.htm.

E. Should There Be Consumption Allowance Credits for Reductions of HCFC 
Production By-products Regulated by Title VI?

    In addressing emissions reductions with a view toward also avoiding 
increases in, and encouraging reductions of, other regulated emissions, 
EPA realizes that there is at least one case where the production of an 
HCFC creates a by-product that is also regulated under Title VI of the 
CAA. In an effort to encourage emissions reductions of other chemicals 
regulated under the CAA, EPA has in the past explored the ideas of 
reduction credits or offsets. Such an approach may be appropriately 
used in ensuring that a by-product (regulated under Title VI), created 
in the production process of an HCFC regulated under Title VI, is 
voluntarily controlled to the greatest extent possible. One option to 
consider is granting one available consumption allowance (one kilogram) 
and one available production allowance of the HCFC whose production 
creates the Title VI regulated by-product, for each kilogram of the by-
product that is reduced as of a certain date from an established 
baseline. EPA believes that portions of the consumption allowances 
remaining below the U.S. cap, after allocations are made to eligible 
new entrants, could be available for such a program. Allowances could 
be granted only to the extent available under the cap.
    EPA seeks comments on an incentive approach of providing allowance 
credits to producers of an HCFC who reduce emissions of that HCFC 
production's by-product that is also regulated under Title VI. EPA 
specifically requests comments on the advantages and disadvantages of 
this type of program and how such a program might work, if instituted.

[[Page 38085]]

    EPA requests comments on any or all of the above additional 
provisions not discussed in the ANPRM.

IV. Summary of Today's Proposal

A. How Would Allowances Be Calculated and Allocated?

    Both production and consumption allowances would be allocated to 
those with production and/or import activity in their individual 
baseline year (highest ODP-consumption year among 1989, 1994, 1995, 
1996, and 1997). The recent decision by the Parties to freeze 
production of HCFCs requires two kinds of allowances: production and 
consumption. As in the class I system, a person would expend production 
allowances and consumption allowances to produce prior to the relevant 
HCFC phaseout. A person would need only to expend consumption 
allowances to import, and would receive consumption allowances in 
return following proof of export.
    New entrants to the HCFC importing market, who began importing 
HCFCs after the end of 1997 and before April 5, 1999, when the ANPRM 
was published, may request allowances from EPA for historical HCFC 
importation during that time. These new entrants would be eligible for 
allowances if they submitted appropriate required quarterly reports to 
EPA prior to publication of this proposal; sent proper documentation of 
HCFC imports to EPA; and if the HCFC import market is their primary 
source of business income. EPA will issue available allowances to those 
companies determined eligible by EPA after review of the documentation.
    EPA proposes to allocate and track allowances on a chemical-by-
chemical basis, as done in the class I allowance system. Although EPA 
would analyze total baseline ODP-weighted consumption units to 
determine individual baseline years, the actual detailed allocations 
would be listed chemical-by-chemical. Consumption allowances would be 
allocated in the total amount of consumption in the baseline year. 
Production allowances would be allocated using total production for 
that same year. Tracking would work in the same way as under the class 
I system--any trades between chemicals would be ODP-weighted. Although 
many commenters prefer an ODP-weighted unit for allocation, trading and 
expenditure, EPA has studied its reporting obligations to the Protocol 
and its ability to ensure adequate compliance. To ensure company and 
U.S. compliance, EPA would need to know specific chemicals produced and 
consumed in order to maintain a chemical-by-chemical tracking system. 
EPA's required offset of 0.1 percent for inter-pollutant and inter-
company trades would be significantly lower than the 1 percent used for 
class I substances. Therefore, the offset should not create an undue 
burden on trades.
    EPA would annually allocate, based on the relevant baseline(s), for 
the entire period of time prior to each chemical's phaseout, unless the 
U.S. is unable to meet its 35 percent reduction by 2004. In that case, 
EPA would need to adjust allowances accordingly, on a pro rata basis. 
Before 2010, EPA would re-evaluate the percentage allocated from the 
baseline to determine whether modifications are necessary to meet the 
65 percent consumption reduction required in 2010 by the Protocol. If 
reductions of HCFC-22 and HCFC-142b are not sufficient to reach the 
Protocol-required 65 percent reduction for 2010, EPA would allocate a 
lesser percentage of baseline. Any post-phaseout exceptions would be 
re-evaluated similarly.
    At the beginning of each control period, EPA would officially 
notify each allowance holder of the amount available for that year, 
based on the relevant baseline. Between now and 2003, each allowance 
holder would receive 100 percent of their baseline consumption, and 100 
percent of their historic production in the same baseline year as 
consumption, unless permanent trades occur that would transfer the 
traded portion of the allowance to the purchasing entity, or unless the 
U.S. would be unable to meet its 2004 35 percent reduction, as 
explained above. In 2003, HCFC-141b consumption allowances would be 
subtracted from the holders' allocations (other than any potential 
exceptions).
    Because the Protocol freezes production at baseline but does not 
currently require further reductions, EPA is proposing to allow 
production after relevant phaseouts only for very narrow space vehicle 
or defense uses of HCFC-141b, and for export to any Party listed in 
Appendix C to Subpart A (Parties that have ratified the Copenhagen 
Amendments) after January 1, 2003. At that same time, an additional 15 
percent of production baseline allocation of the phased out HCFC, over 
and above the Protocol production cap, would be allocated for 
production for export only to Article 5 countries for their basic 
domestic needs. This post-phaseout production (100 percent of 
production baseline to Parties that have ratified the Copenhagen 
Amendments plus 15 percent of baseline for Article 5 countries) would 
not require accompanying consumption allowances, only ``export 
production allowances'' or ``Article 5 allowances,'' respectively. When 
EPA re-evaluates baseline allocations before the HCFC-22 and HCFC-142b 
phaseout to determine 2010 compliance with Protocol reductions, it 
would also evaluate the continued possibility of offering export 
production allowances and Article 5 allowances for HCFC-22 and HCFC-
142b.
    EPA is proposing to allocate 100 percent of the consumption 
baseline, which is below the U.S. consumption cap of 15,240 ODP-
weighted metric tons. The total baseline figure for consumption 
represents the aggregate of companies' baselines, as described below. 
The baseline EPA is proposing in today's action would be as follows: 
each company with baseline production and/or consumption in 1989, 1994, 
1995, 1996, and/or 1997 would take their highest ODP-weighted 
consumption year as their baseline. Both production and consumption 
allowances would be derived from the relevant individual baselines in 
the applicable year. The allowances remaining between the aggregate 
baseline and the consumption cap could be used for allocations for 
those eligible entrants new to the HCFC market between January 1, 1998 
and April 5, 1999.
    EPA is proposing to use 100 percent of the baseline years' 
production, which would keep the U.S. in line with its production cap.
    We propose to include 1989 as a potential baseline year because we 
have very good numbers from our earlier requests for baseline data, and 
class II substances began to increase their presence in the market 
during that time. In 1990-1993, our data on consumption was poor, 
because reporting was not yet required on a regular basis. To obtain 
accurate numbers from those years, we would need to request the data 
from each participating company, along with invoices, bills of lading, 
and other documents that could help verify the accuracy of the 
production and consumption numbers submitted. The time entailed and the 
uncertainty of receiving complete and accurate information rules out 
attempting to obtain figures from 1990 to 1993. Detailed reporting, for 
which we have supporting documentation and/or which we have verified 
with individual companies, began in 1994. Additionally, activity in 
class II ODSs grew significantly from 1994 to 1997. Therefore, 
including those years beginning with 1994 is reasonable. The years 1998 
and later would not be included, except for certain eligible new 
entrants as discussed above, because

[[Page 38086]]

they would likely be artificially high, reflecting companies' 
anticipation of EPA's allocation system and the desire to stockpile.

B. Would There Be Additional Import or Export Restrictions?

    We are proposing a restriction on importing and exporting HCFCs to 
comply with the Beijing Amendments to the Montreal Protocol. The 
proposed restriction would ban imports from and exports to countries 
that have not ratified the Copenhagen Amendments, in addition to the 
original Protocol and the London Amendments. These bans are further 
discussed in Section III.D. of today's proposal.
    We are also proposing a petition system--similar to the one 
provided for used class I ODSs, with strengthening modifications--for 
the import of used HCFCs. A person wishing to import a used HCFC into 
the U.S. would need to petition EPA by providing detailed information 
on the import, including: specific name and amounts of the HCFC; source 
from which it was recovered; contact information for that source; 
intended shipper; intended port; date of import; intended reclamation 
and use in the U.S., and more. EPA would thoroughly verify information 
in the petition, and either issue a ``non-objection notice'' allowing 
the person to import the shipment, or an ``objection notice'' 
disallowing the import. See Section III.C. of this action for further 
discussion.

C. How Would Transfers Function?

    The proposal would allow intra-company, inter-pollutant transfers, 
using ODP-weighting to account for differing ODPs between chemicals. 
The proposal would also allow inter-company trading (both same 
pollutant and inter-pollutant trading) with ODP-weighting required if 
two or more different chemicals are involved. International transfer of 
production allowances only would be permitted. An environmental offset, 
required by the CAA, is proposed at 0.1 percent for inter-pollutant and 
inter-company trades. At one-tenth of one percent, EPA believes the 
burden on inter-pollutant and inter-company trades would be minimal.
    Transfers could be made on a temporary basis, to be applied within 
the control period (1/1 through 12/31) in which the trade is made. EPA 
also proposes to allow permanent baseline trades, which would transfer 
the allowances for the remaining period prior to phaseout. The 
recipient of the allowances would add those to its baseline, while the 
transferor would subtract them from his/her baseline. For example, if a 
company was allocated 150 allowances of HCFC-141b as part of its 
baseline, and that company then received 100 HCFC-141b permanent 
baseline allowances from a transferring company, the receiving company 
could expend 250 HCFC-141b allowances each year until 2003, at which 
time that company would subtract the entire 250 HCFC-141b (or 
commensurate ODP-weighted equivalent) allowances from its baseline 
allowances. The company that transferred the 100 allowances to the 
receiving company would not subtract those 100 HCFC-141b allowances 
from its baseline in 2003, because it already subtracted those 
allowances when it transferred them on a permanent basis to the 
receiving company.
    EPA is not proposing to supplement an allocation system with 
further regulation under sections 610, 611, or 612 of the CAA at this 
time. EPA believes that compliance with the consumption and production 
caps can be assured through the proposed allocation system of class II 
allowances.

D. How Would the Reporting and Recordkeeping Requirements Change?

    Recordkeeping and reporting would be similar to that used for class 
I. EPA would require quarterly reports, outlining each chemical and the 
amounts produced, imported, transformed, destroyed, and exported. These 
forms would be intended for use between the effective date of the final 
rule and the next reporting changes made to the phaseout regulations by 
EPA, or modifications made to address the incremental phaseouts past 
2010, whichever is earlier.
    EPA is proposing that failure by producers to keep records on their 
production or to submit reports regarding their production would lead 
the Administrator to assume that the producer has produced at full 
capacity during the period for which records were not kept, for 
purposes of determining possible violations. EPA requests comment on 
this proposal to account for missing records or reports in order to 
determine possible violations.
    EPA is proposing that reporting for exports be conducted quarterly, 
as is reporting for all other activities. Under the class I system, 
reporting on exports was required annually. However, due to the recent 
adjustment to the Protocol banning trade with non-Parties to the 
Copenhagen Amendments, EPA needs data that is more current for review. 
Forms for recording exports made using export production allowances 
after a phaseout would require information on the chemical and the 
volume, with accompanying copies of the bills of lading and invoices. 
Trades of class II substances would be reported in the same manner as 
class I trades. ODP-weighting and calculation of the environmental 
offset would need to be accounted for in the transfer calculations, as 
they were for class I substances.
    Entities granted space vehicle/defense allowances would report 
quarterly on the quantity of exempted HCFC-141b that was received and 
used, and how it was used. The foam formulator/supplier would also 
report quarterly on the producer from whom the exempted HCFC-141b was 
received, the amount received, the amount used in fulfilling space 
vehicle or defense needs, and the amount sold to whom in which 
products. The same entities granted the allowances would certify to EPA 
before the beginning of each year that a viable alternative to HCFC-
141b, or stockpiled, recovered, or recycled HCFC-141b was not adequate 
or not commercially available.
    EPA is currently exploring the possibility of having reports filled 
out and submitted to the Agency over a secure Web site. If and when 
electronic reporting would occur, EPA would change its guidance 
document and its Information Collection Request to indicate a change in 
burden hours.
    EPA requests comment on any and all portions of today's proposal.

V. Administrative Requirements

A. Executive Order 12866

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency must determine whether this regulatory action is ``significant'' 
and therefore subject to Office of Management and Budget (OMB) review 
and the requirements of the Executive Order. The Executive Order 
defines ``significant regulatory action'' as any regulatory action 
(including an advance notice of proposed rulemaking) that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or,

[[Page 38087]]

    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    It has been determined by OMB and EPA that this action is a 
``significant regulatory action'' under the terms of Executive Order 
12866 and is therefore subject to OMB review under the Executive Order 
even though the annual effect on the economy is expected to be less 
than $100 million. This document was reviewed by OMB and changes 
recommended by OMB have been made and documented for the public record.

B. Regulatory Flexibility Act (RFA), as Amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et 
seq.

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small 
entities, small entity is defined as: (1) A small business that employs 
1000 employees or less; (2) a small governmental jurisdiction that is a 
government of a city, county, town, school district or special district 
with a population of less than 50,000; and (3) a small organization 
that is any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.
    After considering the economic impacts of today's proposed rule on 
small entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities.
    We have determined that 13 small businesses, or 50 percent of the 
total businesses addressed, would receive allowances, for which 
recordkeeping and reporting to EPA is required. The administrative 
recordkeeping and reporting these small businesses will experience will 
amount to an impact of between 0.01 and 0.02 percent of their HCFC 
revenues alone. When considering that the vast majority deal in 
numerous chemicals and/or also obtain revenues from services provided, 
this percentage for the majority would be significantly lower.
    Although this proposed rule would not have a significant economic 
impact on a substantial number of small entities, EPA nonetheless has 
tried to reduce the impact of this rule on small entities. Although 
small entities receiving allowance allocations would be subject to the 
same recordkeeping and reporting requirements as the larger entities, 
for purposes of tracking allowance trades and expenditures, the small 
entities would be on the same footing as the larger entities; they 
would be receiving their best year of activity in the range of years 
discussed above as a baseline year for determining allowance 
allocations, and would be able to conduct their business with a degree 
of certainty in a competitive market. Like the large entities, the 
small entities would receive allowances for the entire phaseout period, 
with the necessary adjustments each calendar year to accommodate the 
required reductions in consumption agreed to by the Parties to the 
Protocol and the phaseouts of HCFC-141b, HCFC-22, and HCFC-142b.
    EPA believes that the ability to transfer allowances among HCFCs 
provides the greatest flexibility for small entities to manage their 
allocation. Unlike the class I system for transfers, there is no 
restriction to limit inter-pollutant transfers to groups of substances. 
Inter-pollutant transfers, also known as intra-company transfers or 
trades, would allow a company to shift allowances internally from one 
HCFC to another to respond to market forces, e.g. HCFC-142b allowances 
for HCFC-22 allowances. Inter-company transfers of allowances would 
also be possible, either on a current-year basis or on a permanent 
basis. Current-year trades are temporary trades and are reflected in a 
company's balance of allowances in the control period in which the 
trade occurs.
    By using the phaseout schedules and the option for current-year or 
permanent trades, a small entity could opt for short-term decisions or 
long-term decisions concerning the allowances it holds after evaluating 
its place in the market. In addition, the offset required by the CAA is 
proposed at 0.1 percent, 0.9 percent less than that required under the 
class I allowance trading system; such an offset would still provide 
the environmental benefit required by Congress without penalizing small 
entities should they wish to avail themselves of transfers. EPA 
estimates that the burden would be negligible on small businesses, 
while those same small businesses would gain a marketable asset in 
their allocated allowances. The actual burden would consist of 
quarterly reports on production, imports, exports, and allowance 
trades, as well as paperwork describing any trades in which the 
business decides to engage. The estimated recordkeeping and quarterly 
reporting burden on the affected small businesses would be about 40 
hours per year per business, at an estimated cost of $3,070. Each trade 
made at the discretion of the small business would add a burden of 4 
hours at a cost of $307, basing the calculation on a cost of $76.88 per 
hour.
    EPA has also carefully reviewed the quarterly reports submitted by 
small entities for the baseline years under consideration to ensure 
that the correct quantities have been ascribed to each entity for each 
year. EPA consulted with the small entities in order to reconcile any 
disparities encountered during the record review.
    We continue to be interested in the potential impacts of the 
proposed rule on small entities and welcome comments on issues related 
to such impacts.

C. Executive Order 13045: Children's Health Protection

    Executive Order 13045: ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that: (1) is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, the Agency must evaluate the environmental health 
or safety effects of the planned rule on children, and explain why the 
planned regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by the Agency.
    EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that are based on health or safety risks, such that 
the analysis required under Section 5-501 of the Order has the 
potential to influence the regulation. This proposed rule is not 
subject to Executive Order 13045 because it implements specific 
phaseout schedules established under the CAA and the Montreal Protocol.

D. National Technology Transfer and Advancement Act

    The National Technology Transfer and Advancement Act of 1995 
(NTTAA), Section 12(d), Public Law 104-113, requires federal agencies 
and departments to use technical standards that are developed or 
adopted by voluntary consensus standards bodies, using such technical 
standards as a means to carry out policy objectives or

[[Page 38088]]

activities determined by the agencies and departments. If use of such 
technical standards is inconsistent with applicable law or otherwise 
impractical, a federal agency or department may elect to use technical 
standards that are not developed or adopted by voluntary consensus 
standards bodies if the head of the agency or department transmits to 
the Office of Management and Budget an explanation of the reasons for 
using such standards.
    This proposed rule does not mandate the use of any technical 
standards; accordingly, the NTTAA does not apply to this action.

E. Executive Order 13132: Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''
    Under section 6 of Executive Order 13132, EPA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal government provides the funds necessary to pay the direct 
compliance costs incurred by State and local governments, or EPA 
consults with State and local officials early in the process of 
developing the proposed regulation. EPA also may not issue a regulation 
that has federalism implications and that preempts State law unless the 
Agency consults with State and local officials early in the process of 
developing the proposed regulation.
    This proposed rule does not have Federalism implications. It will 
not have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132. The proposals discussed in this 
document are directed to economic entities that either produce, import, 
export, transform, or destroy class II controlled substances, and not 
to State or local governments. Thus, the requirements of Section 6 of 
the Executive Order do not apply to this rule.

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

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by tribal officials in the development of regulatory 
policies that have tribal implications.'' ``Policies that have tribal 
implications'' is defined in the Executive Order to include regulations 
that have ``substantial direct effects on one or more Indian tribes, on 
the relationship between the Federal government and the Indian tribes, 
or on the distribution of power and responsibilities between the 
Federal government and Indian tribes.''
    This proposed rule does not have tribal implications. It will not 
have substantial direct effects on tribal governments, on the 
relationship between the Federal government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
government and Indian tribes, as specified in Executive Order 13175.
    Today's rule does not significantly or uniquely affect the 
communities of Indian tribal governments. The options discussed are 
directed to entities that either produce, import, export, transform, or 
destroy HCFCs, and not to Indian tribal governments or their 
communities. Thus, Executive Order 13175 does not apply to this rule.
    In the spirit of Executive Order 13175, and consistent with EPA 
policy to promote communications between EPA and tribal governments, 
EPA specifically solicits additional comment on this proposed rule from 
tribal officials.

G. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under Section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, Section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective or least burdensome alternative 
that achieves the objectives of the rule. The provisions of Section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
Section 205 allows EPA to adopt an alternative other than the least 
costly, most cost-effective or least burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative was not adopted. Before EPA establishes any regulatory 
requirements that may significantly or uniquely affect small 
governments, including tribal governments, it must have developed under 
Section 203 of the UMRA a small government agency plan. The plan must 
provide for notifying potentially affected small governments, enabling 
officials of affected small governments to have meaningful and timely 
input in the development of EPA regulatory proposals with significant 
Federal intergovernmental mandates, development of EPA regulatory 
proposals with significant Federal intergovernmental mandates, and 
informing, educating, and advising small governments on compliance with 
the regulatory requirements.
    EPA has determined that this rule does not contain a Federal 
mandate that may result in expenditures of $100 million or more for 
State, local, and tribal governments, in the aggregate, or the private 
sector in any one year. Entities in the private sector that either 
produce, import, export, transform, or destroy HCFCs will be operating 
under an allowance allocation system very similar to the system 
selected for CFCs (53 FR 30566, August 12, 1988), which was determined 
to be the most economically efficient, market-based, and simple to 
administer in meeting the requirements of the Protocol. Recordkeeping 
would be somewhat simplified due to the absence of essential use 
allowances and destruction credits. The experience gained by those 
entities familiar with the class I allowance allocation system would 
carry over in the class II allowance allocation system. Thus, today's 
rule is not subject to the requirements of Section s 202 and 205 of the 
UMRA.

H. Paperwork Reduction Act

    The information collection requirements in this proposed rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An 
Information Collection Request (ICR) document has been prepared by EPA 
(ICR No. 2014) and a copy may be

[[Page 38089]]

obtained from Sandy Farmer by mail at Collection Strategies Division; 
U.S. Environmental Protection Agency (2822); 1200 Pennsylvania Avenue, 
NW, Washington, DC 20460, by email at farmer.sandy@epamail.epa.gov, or 
by calling (202) 260-2740. A copy may also be downloaded off the 
Internet at http://www/epa.gov/icr.
    The recordkeeping and reporting requirements proposed in this rule 
are similar to those used in the class I allowance system that has been 
in place for several years. The information collected will be utilized 
to monitor business compliance with the proposed class II allowance 
system. The information will also be used to comply with the reporting 
requirements agreed to by the Parties to the Montreal Protocol on 
Substances that Deplete the Ozone Layer. The information is intended to 
ensure that the U.S. meets its obligations to control and administer 
the phaseouts of class II substances under the Protocol and the CAA 
Amendments of 1990.
    Reporting requirements mandated in Section 603 of the CAA relative 
to class II substances are currently in place in 40 CFR 82.13(n) and 
(o). New recordkeeping requirements and expanded reporting requirements 
to ensure accurate expenditures of allowances and trades of allowances 
are proposed. Responses to the collection of information are mandatory 
pursuant to Section 114 of the CAA.
    Information collected from businesses may be claimed as 
confidential by clearly identifying the material as confidential. Such 
information will be treated in accordance with EPA's procedures for 
handling information claimed as confidential under 40 CFR Part 2, 
Subpart B and will only be disclosed by the means set forth in that 
subpart.
    It is estimated that the annual reporting burden for producers is 
1,132 hours and for importers it is 1,800 hours. This includes 
maintaining records, preparing and submitting quarterly reports on 
production, import, exports, and claims for transfers of allowances and 
offsets. The average burden hours per response is estimated to be 
between 283 and 450 hours. The proposed frequency of response is four 
times per year and the likely number of respondents will be 7 producers 
and 14 importers, although some of the producers and some of the 
importers also function as exporters. The only industry requirements 
for the start-up phase are an evaluation of the impact of the allowance 
system and the development of a plan of action. The start-up burden is 
estimated to be 910 hours for producers and 1,820 hours for importers.
    Start-up costs are estimated to amount to $209,882, after which 
annual industry cost is estimated to be $225,412 to maintain records of 
production, import, and export; submit quarterly reports to EPA on 
production, import and export; provide additional information requested 
by EPA; prepare transfer claims; and submit petitions to import used 
HCFCs. The latter two functions are not periodical tasks but are 
initiated by the person based on business decisions.
    U.S. agencies, departments or instrumentalities, or related 
entities involved in space vehicle endeavors, are being asked in the 
initial application for an exemption to produce or import HCFC-141b for 
space vehicle or narrow defense needs to identify the quantity of HCFC-
141b needed for each control period, an estimate of the number of 
control periods over which such an exemption would be necessary, and a 
detailed description of the need met by HCFC-141b in this proposal. EPA 
is proposing that the entities supply technical descriptions of the 
processes in which HCFC-141b is being used, the areas where the product 
will be applied, and why alternatives and substitutes are not 
sufficient to eliminate the use of HCFC-141b. EPA is also proposing 
that entities supply a detailed analysis showing why stockpiled, 
recovered, or recycled quantities are not technically feasible for use 
and a detailed description of continuing investigations into and 
progress on possible alternatives and substitutes by the applicants.
    Entities granted space vehicle/defense allowances for the 
production of HCFC-141b products would be required to report quarterly 
to EPA on the type and application of the products received from the 
manufacturer and the quantity of HCFC-141b contained in the products. 
The manufacturer would report quarterly to EPA the quantity and 
supplier of HCFC-141b received because of space vehicle/defense 
allowances; the identity of the recipient of the products; and the 
quantity of HCFC-141b used or contained in the products. It is 
estimated that the annual reporting burden for the recipient of the 
allowances is about 20 hours at a cost of about $864 and the burden for 
the manufacturer is about 20 hours at a cost of about $1,538.
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR part 9 and 48 CFR Chapter 15.
    Comments are requested on the Agency's need for this information, 
the accuracy of the provided burden estimates, and any suggested 
methods for minimizing respondent burden, including through the use of 
automated collection techniques. Send comments on the ICR to the 
Director; Collection Strategies Division; U.S. Environmental Protection 
Agency (2822); 1200 Pennsylvania Ave., NW; Washington, DC 20460; and to 
the Office of Information and Regulatory Affairs; Office of Management 
and Budget; 725 17th St., NW; Washington, DC 20503, marked ``Attention: 
Desk Officer for EPA.'' Include the ICR number in any correspondence. 
Since OMB is required to make a decision concerning the ICR between 30 
and 60 days after July 20, 2001, a comment to OMB is best assured of 
having its full effect if OMB receives it by August 20, 2001. The final 
rule will respond to any OMB or public comments on the information 
collection requirements contained in this proposal.

I. Executive Order 13211: Energy Effects

    This rule is not subject to Executive Order 13211, ``Actions 
Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use'' (66 FR 28355, May 22, 2001) because it is not a 
significant regulatory action under Executive Order 12866.

List of Subjects in 40 CFR Part 82

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Chemicals, Chlorofluorocarbons, Exports, 
Hydrochlorofluorocarbons, Imports, Reporting and recordkeeping 
requirements.

[[Page 38090]]

    Dated: July 2, 2001.
Christine Todd Whitman,
Administrator.
    For the reasons stated in the preamble, 40 CFR part 82 is proposed 
to be amended as follows:

PART 82--PROTECTION OF STRATOSPHERIC OZONE

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

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

Subpart A--Production and Consumption Controls

    2. Amend Sec. 82.3 as follows:
    a. Revise the section heading;
    b. Revise the following definitions: ``Article 5 allowances'', 
``Baseline consumption allowances'', ``Baseline production 
allowances'', ``Consumption allowances'', ``Destruction credits'', 
``Party'', ``Production allowances'', and ``Transformation credits';
    c. Add new definitions in alphabetical order for the terms ``Export 
production allowances'', ``Individual shipment'', ``Non-objection 
notice'', ``Source facility'', ``Space vehicle/defense allowances'', 
``Unexpended space vehicle/defense allowances'', and ``Unexpended 
export production allowances''.
    The revisions and additions read as follows:

Sec. 82.3  Definitions for class I and class II controlled substances.

* * * * *
    Article 5 allowances means the allowances apportioned under 
Sec. 82.9(a) and Sec. 82.18(a).
    Baseline consumption allowances means the consumption allowances 
apportioned under Sec. 82.6 and Sec. 82.19.
    Baseline production allowances means the production allowances 
apportioned under Sec. 82.5 and Sec. 82.17.
* * * * *
    Consumption allowances means the privileges granted by this subpart 
to produce and import controlled substances; however, consumption 
allowances may be used to produce controlled substances only in 
conjunction with production allowances. A person's consumption 
allowances for class I substances are the total of the allowances 
obtained under Secs. 82.6 and 82.7 and 82.10, as may be modified under 
Sec. 82.12 (transfer of allowances). A person's consumption allowances 
for class II substances are the total of the allowances obtained under 
Secs. 82.19 and 82.20, as may be modified under Sec. 82.23.
* * * * *
    Destruction credits means those privileges that may be obtained 
under Sec. 82.9 to produce class I controlled substances.
* * * * *
    Export production allowances means the privileges granted by 
Sec. 82.18 to produce HCFC-141b for export following the phaseout of 
HCFC-141b on January 1, 2003.
* * * * *
    Individual Shipment means the kilograms of a used controlled 
substance for which a person may make one (1) U.S. Customs entry, not 
to be dis-aggregated, as identified in the non-objection letter from 
the Administrator under Sec. 82.13(g) and Sec. 82.24(c)(4).
* * * * *
    Non-Objection Notice means the privilege granted by the 
Administrator to import a specific individual shipment of used 
controlled substance in accordance with Sec. 82.13(g) and Sec. 82.24(c) 
(3) and (4).
* * * * *
    Party means any foreign state that is listed in Appendix C to this 
subpart (pursuant to instruments of ratification, acceptance, or 
approval deposited with the Depositary of the United Nations 
Secretariat), as having ratified the specified control measure in 
effect under the Montreal Protocol. Thus, for purposes of the trade 
bans specified in Sec. 82.4(l)(2) pursuant to the London Amendments, 
only those foreign states that are listed in Appendix C to this subpart 
as having ratified both the 1987 Montreal Protocol and the London 
Amendments shall be deemed to be Parties. For purposes of the trade 
bans specified in Secs. 82.15(e)(1) pursuant to the 1999 Beijing 
Amendment, only those foreign states that are listed in the third 
column of Appendix C to this subpart as having ratified the Copenhagen 
Amendments shall be deemed to be Parties.
* * * * *
    Production allowances means the privileges granted by this subpart 
to produce controlled substances; however, production allowances may be 
used to produce controlled substances only in conjunction with 
consumption allowances. A person's production allowances for class I 
substances are the total of the allowances obtained under Secs. 82.7, 
82.5 and 82.9, and as may be modified under Sec. 82.12 (transfer of 
allowances). A person's production allowances for class II substances 
are the total of the allowances obtained under Sec. 82.17 and as may be 
modified under Secs. 82.18 and 82.23.
* * * * *
    Source Facility means the exact location at which a used controlled 
substance was recovered from a piece of equipment, including the name 
of the company responsible for, or owning the location, a contact 
person at the location, the mailing address for that specific location, 
and a phone number and a fax number for the contact person at the 
location.
    Space vehicle/defense allowances means the privileges granted to 
space vehicle program or a defense entity by this subpart to order 
production of or to import HCFC-141b, deemed critical by the 
Administrator for use on space vehicles intended for travel beyond the 
earth's atmosphere or for narrow defense needs, as determined by the 
Administrator in accordance with Sec. 82.18(j).
* * * * *
    Transformation Credits means those privileges that may be obtained 
under Sec. 82.9 to produce class I controlled substances.
* * * * *
    Unexpended export production allowances means export production 
allowances that have not been used. A person's unexpended export 
production allowances are the total of the quantity of the export 
production allowances the person has authorization under Sec. 82.18(b) 
to hold for that control period, minus the quantity of class II 
substances that the person has produced at that time during the same 
control period.
* * * * *
    Unexpended space vehicle/defense allowances means space vehicle/
defense allowances that have not been used. A person's unexpended space 
vehicle/defense allowances are the total of the quantity of the space 
vehicle/defense allowances the person has authorization under 
Sec. 82.18(j) to hold for that control period, minus the quantity of 
HCFC-141b that the person has had produced or has had imported at that 
time during the same control period.
* * * * *
    3. Amend Sec. 82.4 as follows:
    a. Revise the section heading;
    b. Remove paragraphs (n) through (s) and paragraph (u).
    c. Redesignate paragraph (t) as (n).

Sec. 82.4  Prohibitions for class I controlled substances.

* * * * *
    4. Amend Sec. 82.5 as follows:
    a. Revise the section heading;
    b. Remove paragraph (h).

[[Page 38091]]

Sec. 82.5  Apportionment of baseline production allowances for class I 
controlled substances.

* * * * *
    5. Amend Sec. 82.6 as follows:
    a. Revise the section heading;
    b. Remove paragraph (h).

Sec. 82.6  Apportionment of baseline consumption allowances for class I 
controlled substances.

Sec. 82.8  [Removed]

    6. Section 82.8 is removed.
    7. Section 82.9 is amended by revising the section heading as 
follows:

Sec. 82.9  Availability of production allowances in addition to 
baseline production allowances for class I controlled substances.

    8. Section 82.10 is amended by revising the section heading as 
follows:

Sec. 82.10  Availability of consumption allowances in addition to 
baseline consumption allowances for class I controlled substances.

    9. Section 82.11 is amended by revising the section heading as 
follows:

Sec. 82.11  Exports of class I controlled substances to Article 5 
Parties.

    10. Section 82.12 is amended by revising the section heading as 
follows:

Sec. 82.12  Transfers of allowances for class I controlled substances.

    11. Amend Sec. 82.13 as follows:
    a. Revise the section heading;
    b. Remove paragraphs (n) and (o).
    c. Redesignate paragraphs (p) through (z) as (n) through (x)

Sec. 82.13  Recordkeeping and reporting requirements for class I 
controlled substances.

    12. Add Secs. 82.15 through 82.24 to subpart A to read as follows:

Sec. 82.15  Prohibitions for class II controlled substances.

    (a) Production. (1) Effective January 1, 2002, no person may 
produce class II substances in excess of the quantity of unexpended 
production allowances, unexpended Article 5 allowances, unexpended 
export production allowances, or unexpended space vehicle/defense 
allowances held by that person for that substance under the authority 
of this subpart at any time in any control period, unless the 
substances are transformed or destroyed domestically or by a person of 
another Party. Every kilogram of excess production constitutes a 
separate violation of this subpart.
    (2) Effective January 1, 2002, no person may produce class II 
substances in excess of the quantity of unexpended consumption 
allowances, unexpended Article 5 allowances, unexpended export 
production allowances, or unexpended space vehicle/defense allowances 
held by that person under the authority of this subpart at any time in 
any control period, unless the substances are transformed or destroyed 
domestically or by a person of another Party, or unless they are 
produced using an exception granted in paragraph (f) of this section. 
Every kilogram of excess production constitutes a separate violation of 
this subpart.
    (3) Effective January 1, 2002, no person may use production 
allowances to produce a quantity of class II substance unless that 
person holds under the authority of this subpart at the same time 
consumption allowances sufficient to cover that quantity of class II 
substances. No person may use consumption allowances to produce a 
quantity of class II substances unless the person holds under authority 
of this subpart at the same time production allowances sufficient to 
cover that quantity of class II substances.
    (4) Effective January 1, 2003, no person may produce HCFC-141b 
except for use in a process resulting in its transformation or its 
destruction, for export under Sec. 82.18(a) using unexpended Article 5 
allowances, for export under Sec. 82.18(b) using unexpended export 
production allowances, for space vehicle/defense needs using unexpended 
space vehicle/defense allowances, or for exceptions permitted in 
paragraph (f) of this section.
    (5) Effective January 1, 2010, no person may produce HCFC-22 or 
HCFC-142b for any purpose other than for use in a process resulting in 
their transformation or their destruction, for use in equipment 
manufactured before January 1, 2010, for export under Sec. 82.18(a) 
using unexpended Article 5 allowances, or for exceptions permitted in 
paragraph (f) of this section.
    (6) Effective January 1, 2015, no person may produce class II 
substances not previously controlled, for any purpose other than for 
use in a process resulting in their transformation or their 
destruction, for use as a refrigerant in equipment manufactured before 
January 1, 2020, for export under Sec. 82.18(a) using unexpended 
Article 5 allowances, or for exceptions permitted in paragraph (f) of 
this section.
    (7) Effective January 1, 2020, no person may produce HCFC-22 or 
HCFC-142b for any purpose other than for use in a process resulting in 
their transformation or their destruction, for export under 
Sec. 82.18(a) using unexpended Article 5 allowances, or for exceptions 
permitted in paragraph (f) of this section.
    (8) Effective January 1, 2030, no person may produce class II 
substances, for any purpose other than for use in a process resulting 
in their transformation or their destruction, for export under 
Sec. 82.18(a) using unexpended Article 5 allowances, or for exceptions 
permitted in paragraph (f) of this section.
    (9) Effective January 1, 2040, no person may produce class II 
substances for any purpose other than for use in a process resulting in 
their transformation or their destruction, or for exceptions permitted 
in paragraph (f) of this section.
    (b) Import. (1) Effective January 1, 2002, no person may import 
class II substances (other than transhipments, heels or used class II 
substances), except for use in a process resulting in their 
transformation or their destruction, in excess of the quantity of 
unexpended consumption allowances held by that person under the 
authority of this subpart, at any time in any control period. Every 
kilogram of excess importation constitutes a separate violation of this 
subpart.
    (2) Effective January 1, 2002, no person may import, at any time in 
any control period, a used class II substance, without having submitted 
a petition to the Administrator and received a non-objection notice 
from the Administrator in accordance with Sec. 82.24(c)(3) and (4). A 
person issued a non-objection notice for the import of an individual 
shipment of used class II substances may not transfer or confer the 
right to import, and may not import any more than the exact quantity 
(in kilograms) of the used class II substance stated in the non-
objection notice. Every kilogram of importation of used class II 
substance in excess of the quantity stated in the non-objection notice 
issued by the Administrator in accordance with Sec. 82.24(c)(3) and (4) 
constitutes a separate violation.
    (3) Effective January 1, 2003, no person may import HCFC-141b 
(other than transhipments, heels or used class II substances) in excess 
of the quantity of unexpended space vehicle/defense allowances held by 
that person except for use in a process resulting in its transformation 
or its destruction, or for exceptions permitted in paragraph (f) of 
this section.
    (4) Effective January 1, 2010, no person may import HCFC-22 or 
HCFC-142b (other than transhipments, heels or used class II substances) 
for any purpose other than for use in a process resulting in their 
transformation or their destruction, for exceptions permitted in 
paragraph (f) of this section, or for use

[[Page 38092]]

in equipment manufactured prior to January 1, 2010.
    (5) Effective January 1, 2015, no person may import class II 
substances not subject to the requirements of paragraph (b)(3) or (4) 
of this section (other than transhipments, heels or used class II 
substances) for any purpose other than for use in a process resulting 
in their transformation or their destruction, for exceptions permitted 
in paragraph (f) of this section, or for use as a refrigerant in 
equipment manufactured prior to January 1, 2020.
    (6) Effective January 1, 2020, no person may import HCFC-22 or 
HCFC-142b for any purpose other than for use in a process resulting in 
their transformation or their destruction, or for exceptions permitted 
in paragraph (f) of this section.
    (7) Effective January 1, 2030, no person may import class II 
substances not subject to the requirements of paragraph (b)(3) or (4) 
of this section for any purpose other than for use in a process 
resulting in their transformation or their destruction, or for 
exceptions permitted in paragraph (f) of this section.
    (c) Post-phaseout limits to Article 5 countries. Effective January 
1, 2003 for HCFC-141b; January 1, 2010 for HCFC-22 and HCFC-142b; and 
January 1, 2015 for all other HCFCs, no person may produce class II 
substances for export to Article 5 countries in excess of unexpended 
Article 5 allowances, as allocated under Sec. 82.18(a), and unexpended 
export allowances, as allocated under Sec. 82.18(b). No person may 
introduce into interstate commerce in the U.S. any class II substance 
produced explicitly for export to an Article 5 country.
    (d) Post-phaseout limits to non-Article 5 countries. Effective 
January 1, 2003, no person may produce HCFC-141b for export to non-
Article 5 countries in excess of unexpended export production 
allowances, as allocated under Sec. 82.18(b). No person may introduce 
into interstate commerce in the U.S. any HCFC-141b produced using 
export production allowances.
    (e) Violations. Every kilogram of a class II substance, and every 
class II product, imported or exported in contravention of this subpart 
constitutes a separate violation of this subpart. No person may:
    (1) Import or export any quantity of a controlled substance listed 
as class II, in Appendix A to this subpart, from or to any foreign 
state not Party to the Copenhagen Amendments (as noted in Appendix C, 
Annex l, to this subpart), unless that foreign state is complying with 
the Copenhagen Amendments.
    (2) [Reserved]
    (f) Exemptions.
    (1) Medical devices.
    (2) [Reserved]

Sec. 82.16  Phaseout schedule of class II controlled substances.

    (a) Effective January 1, 2002, each person is granted the specified 
percentage of the baseline production and consumption allowances 
allocated under Secs. 82.17 and 82.19 in each control period as 
indicated in the table at the end of this section.
    (b) On January 1 of the phaseout year designated for each class II 
substance, EPA will deduct from each company all baseline consumption 
and production allowances granted in 2002 for that substance. EPA will 
also deduct baseline consumption and production allowances received in 
a permanent trade after January 1, 2002 for that substance. Deductions 
do not include:
    (1) Article 5 allowances granted under Sec. 82.18(a).
    (2) Export production allowances granted under Sec. 82.18(b).
    (3) Space vehicle/defense allowances granted under Sec. 82.18(j).
    (4) Baseline consumption and production allowances traded away 
permanently after January 1, 2002.
    (5) Any other allowances associated with exceptions to production 
and import bans for class II substances.
    (c) The following table lists the phase out schedule of class II 
controlled substances:

----------------------------------------------------------------------------------------------------------------
                                                                    Percent of
                                                                   HCFCs (except    Percent of      Percent of
                         Control period                            for 141b, 22,     HCFC-141b    HCFC-22 & HCFC-
                                                                     and 142b)                         142b
----------------------------------------------------------------------------------------------------------------
2002............................................................             100             100             100
2003............................................................             100             d 0             100
2004............................................................            100a             d 0             100
2005............................................................           a 100             d 0             100
2006............................................................           a 100             d 0             100
2007............................................................           a 100             d 0             100
2008............................................................           a 100             d 0             100
2009............................................................           a 100             d 0             100
2010............................................................           a 100             d 0           b d 0
2011............................................................           a 100             d 0             d 0
2012............................................................           a 100             d 0             d 0
2013............................................................           a 100             d 0             d 0
2014............................................................           a 100             d 0             d 0
2015............................................................             c 0             d 0            d 0
----------------------------------------------------------------------------------------------------------------
a Allocations may be reduced pro rata for these years if EPA determines that Montreal Protocol consumption
  reduction requirements cannot be met through this schedule.
b On and after January 1, 2010, HCFC-22 and HCFC-142b may still be produced for use in equipment manufactured
  before January 1, 2010, providing the producer has adequate production and consumption allowances.
c On and after January 1, 2015, all other HCFCs, not previously phased out, may still be produced as a
  refrigerant for use in refrigeration equipment manufactured before January 1, 2020, providing the producer has
  adequate production and consumption allowances.
d Export production allowances may be available after the phaseout under Sec.  82.18.

Sec. 82.17  Apportionment of baseline production allowances for class 
II controlled substances.

    Effective January 1, 2002, a person who produced class II 
substances in any of the years 1989, 1994, 1995, 1996, and 1997, and 
who accurately reported such activity as required by EPA, is 
apportioned baseline production allowances based on the person's year 
of highest total ODP-weighted consumption as set forth in the following 
table. Companies whose names have been changed are listed under their 
official name in effect during the baseline year. Additional companies 
for whom EPA does not have complete information as of this

[[Page 38093]]

proposal, or who EPA determines are eligible for a late entrant 
exemption, may be listed with allocations in the final rule, pending 
receipt of such information or EPA determination:

------------------------------------------------------------------------
                                                            Allowances
             Person                Controlled substance        (kg.)
------------------------------------------------------------------------
Allied (Honeywell)..............  HCFC-22                     36,094,556
                                  HCFC-124                     3,227,086
                                  HCFC-141b                   27,719,366
                                  HCFC-142b                    2,334,508
Ausimont........................  HCFC-142b                    4,418,767
DuPont..........................  HCFC-22                     52,072,484
                                  HCFC-123                        10,410
                                  HCFC-124                         6,390
                                  HCFC-141b                       10,464
                                  HCFC-142b                       53,978
Elf Atochem (ATOFINA Chemicals).  HCFC-22                     22,230,306
                                  HCFC-141b                   23,801,431
                                  HCFC-142b                   15,577,099
MDA.............................  HCFC-22                      2,301,966
------------------------------------------------------------------------

Sec. 82.18  Availability of production allowances in addition to 
baseline production allowances for class II controlled substances.

    (a) Effective January 1, 2003 for HCFC-141b; January 1, 2010 for 
HCFC-22 and HCFC-142b; and 2015 for all other HCFCs, a person 
apportioned baseline production allowances under Sec. 82.17 is also 
apportioned Article 5 allowances, equal to 15 percent of their baseline 
production allowances for the specified HCFC or HCFCs for each control 
period up until January 1, 2030, to be used for the production of the 
specified HCFC or HCFCs for export only to foreign states listed in 
Appendix E to this subpart. The quantity produced for export under this 
paragraph must not exceed the quantity of Article 5 allowances held by 
that person. Inter-pollutant trades of Article 5 allowances may only be 
made for other Article 5 allowances.
    (1) Each person who exports a class II substance that was produced 
with an Article 5 allowance to an Article 5 country must submit a 
notice to the Administrator of such exports (except exports of used 
class II substances) at the end of the quarter, as set forth in 
Sec. 82.24(d)(1) and (d)(3).
    (2) [Reserved]
    (b) Effective January 1, 2003, a person apportioned baseline 
production allowances for HCFC-141b under Sec. 82.17 is also 
apportioned export production allowances equal to 100 percent of their 
baseline production allowances for HCFC-141b for each control period up 
until December 31, 2009, to be used for the production of HCFC-141b for 
export only, to foreign states listed in the third column of Appendix C 
to this subpart (Parties to the Copenhagen Amendments). The quantity 
produced for export under this paragraph must not exceed the quantity 
of unexpended export production allowances held by that person at that 
time for that control period. Inter-pollutant trades of export 
production allowances may only be made for other export production 
allowances.
    (1) Each person who exports HCFC-141b that was produced with export 
production allowances must submit a notice to the Administrator of such 
exports at the end of the quarter, as set forth in Sec. 82.24(d)(2).
    (2) [Reserved]
    (c) Effective January 1, 2002, a person may increase or decrease 
production allowances through trading allowed under Sec. 82.23(a), (b), 
(c) and (d). Trades cannot be made for production of any substance 
after that class II substance's phaseout date, except as provided under 
paragraphs (a) and (b) of this section.
    (d) Effective January 1, 2002, a person may increase its production 
allowances, its export production allowances, or its Article 5 
allowances, through trades with another Party to the Protocol as set 
forth in this paragraph (d), and as allowed under Sec. 82.23(d). Trades 
cannot be made for production of any substance after that class II 
substance's phaseout date, except as provided under paragraph (a) of 
this section (regarding Article 5 allowances) and paragraph (b) of this 
section (regarding export production allowances). A nation listed in 
the third column of Appendix C to this subpart (Parties to the 
Copenhagen Amendments) must agree either to transfer to the person for 
the current control period some quantity of production that the nation 
is permitted under the Montreal Protocol or to receive from the person 
for the current control period some quantity of production that the 
person is permitted under this subpart. If the class II substance is to 
be sold to the Party from whom the allowances are received, the person 
need not expend its consumption allowances allocated under Sec. 82.19 
in order to produce with the additional production allowances. If the 
class II substance is to be sold in the U.S. or to another Party (not 
the Party transferring the allowances), the person need not expend its 
consumption allowances allocated under Sec. 82.19 in order to produce 
with the additional production allowances.
    (e) Trade from a Party--Information Requirements. A person must 
submit the following information to the Administrator:
    (1) A signed document from the principal diplomatic representative 
in that nation's embassy in the U.S. stating that the appropriate 
authority within that nation has established or revised production 
limits for the nation. The production limit must be equal to the lowest 
of the following three production quantities:
    (i) The maximum production that the nation is allowed under the 
Protocol minus the quantity (in kilograms) transferred;
    (ii) The maximum production that is allowed under the nation's 
applicable domestic law minus the quantity (in kilograms) transferred; 
or
    (iii) The average of the nation's actual national production level 
for the three years prior to the transfer minus the production 
transferred.
    (2) A transfer request that includes a true copy of this document 
and that sets forth the following:
    (i) The identity and address of the person;
    (ii) The identity of the Party;
    (iii) The names and telephone numbers of contact persons for the 
person and for the Party;

[[Page 38094]]

    (iv) The chemical type and quantity (in kilograms) of production 
being transferred;
    (v) Documentation that the Party possesses the necessary quantity 
of unexpended production rights;
    (vi) The control period(s) to which the transfer applies; and
    (vii) For increased production intended for export to the Party 
from whom the allowances would be received, a signed statement of 
intent to export to the Party.
    (f) Trade to a Party--Information Requirements. A person must 
submit the following information to the Administrator:
    (1) A transfer request that sets forth the following:
    (i) The identity and address of the person;
    (ii) The identity of the Party;
    (iii) The names and telephone numbers of contact persons for the 
person and for the Party;
    (iv) The chemical type and quantity (in kilograms) of allowable 
production being transferred; and
    (v) The control period(s) to which the transfer applies.
    (g) Review of transfer request to a Party. After receiving a 
transfer request that meets the requirements of paragraph (f) of this 
section, the Administrator may, at his/her discretion, consider the 
following factors in deciding whether to approve such a transfer:
    (1) Possible creation of domestic economic hardship;
    (2) Possible effects on trade;
    (3) Potential environmental implications; and
    (4) The total quantity of unexpended production allowances held by 
U.S. entities.
    (h) Notice of trade. If the request meets the requirement of 
paragraph (e) of this section for trades from Parties and paragraphs 
(f) and (g) of this section for trades to Parties, the Administrator 
will issue the person a notice. The notice will either grant or deduct 
production allowances or export production allowances or Article 5 
allowances and specify the control period to which the transfer 
applies. The Administrator may disapprove the transfer request 
contingent on the consideration of factors listed in paragraph (d)(3) 
of this section for trades to Parties.
    (1) Trade from a Party. The Administrator will issue a notice 
revising the allowances held by the transferee to equal the unexpended 
production allowances or unexpended Article 5 allowances held by the 
transferee under this subpart plus the quantity of allowable production 
transferred from the Party.
    (2) Trade to a Party. The Administrator will issue a notice 
revising the production limit for the transferor to equal the lesser 
of:
    (i) The unexpended production allowances, unexpended export 
production allowances or unexpended Article 5 allowances held by the 
transferor minus the quantity transferred; or
    (ii) The quantity derived in paragraph (i) of this section, minus 
the amount derived from the following calculation:
    (A) The total U.S. allowable production of the class II substance 
being traded minus the three-year average of the actual annual U.S. 
production of the class II substance prior to the control period of the 
transfer.
    (B) [Reserved]
    (i) Revised notices of production limits. If after one person 
obtains approval of a trade of allowable production of a class II 
substance to a Party and other persons obtain approval for trades of 
the same class II substance during the same control period, the 
Administrator will issue revised notices.
    (1) Production limit for subsequent transferors. The notices will 
revise the production limits for each of the other persons trading to 
equal the lesser of:
    (i) The unexpended production allowances, unexpended export 
production allowances or unexpended Article 5 allowances held by the 
transferor under this subpart minus the quantity transferred; or
    (ii) The result of the following set of calculations:
    (A) The total U.S. allowable production of the class II substance 
minus the three-year average of the actual annual U.S. production of 
the class II substance prior to the control period of the transfer;
    (B) The quantity transferred divided by the total quantity 
transferred by all the other persons trading the same class II 
substance in the same control period;
    (C) The result of paragraph (i)(1)(ii)(A) of this section 
multiplied by the result of paragraph (i)(1)(ii)(B) of this section;
    (D) The quantity derived in paragraph (i) of this section, minus 
the result of paragraph (i)(1)(ii)(C) of this section;
    (2) Production limit for previous transferors. The Administrator 
will also issue a notice revising the production limit for each 
transferor who previously obtained approval of a trade of the class II 
substance in the same control period to equal the result of the 
following set of calculations:
    (i) The total U.S. allowable production of the class II substance 
minus the three-year average of the actual annual U.S. production of 
the class II substance prior to the control period of the transfer;
    (ii) The quantity transferred by the person divided by the quantity 
transferred by all the persons who have traded that class II substance 
in that control period;
    (iii) The result of paragraph (i)(2)(i) of this section multiplied 
by the result of paragraph (i)(2)(ii) of this section.
    (iv) The unexpended production allowances, unexpended export 
production allowances or unexpended Article 5 allowances held by the 
person plus the result of paragraph (i)(2)(iii) of this section;
    (3) Effective date of revised production limits. The change in 
production allowances, export production allowances or Article 5 
allowances will be effective on the date that the notice is issued.
    (j) Petition for space vehicle/defense allowances. Effective 
January 1, 2002, an agency, department, or instrumentality of the U.S., 
or a non-governmental space vehicle entity, may petition the Director 
of the Office of Atmospheric Programs for space vehicle/defense 
allowances for HCFC-141b in accordance with this paragraph (j) and with 
Sec. 82.15(a)(4).
    (1) The agency, department, or instrumentality of the U.S., or a 
non-governmental space vehicle entity must submit the following 
information to the EPA HCFC Manager prior to July 1, 2002:
    (i) Name and address of U.S. government entity or non-governmental 
space vehicle entity; name of contact person, phone number, fax number 
and e-mail address;
    (ii) Quantity (in kilograms) of HCFC-141b needed for the control 
period beginning January 1, 2003 until December 31, 2005;
    (iii) A description of the space vehicle/defense need met by the 
use of HCFC-141b;
    (iv) A technical description of the processes in which HCFC-141b is 
being used;
    (v) A technical description of the area where the product will be 
applied;
    (vi) A technical description of why alternatives and substitutes 
are not sufficient to eliminate the space vehicle/defense use of HCFC-
141b;
    (vii) A detailed analysis showing why stockpiled, recovered or 
recycled quantities are deemed to be technically infeasible for use;
    (viii) An estimate of the number of control periods over which such 
an exemption would be necessary; and

[[Page 38095]]

    (ix) A detailed description of continuing investigations into 
possible alternatives and substitutes.
    (2) Within 90 days of receipt of the petition, the Director of the 
Office of Atmospheric Programs will issue to an agency, department, or 
instrumentality of the U.S., or non-governmental space vehicle entity 
that has petitioned for space vehicle/defense allowances for HCFC-141b, 
based on information received in accordance with paragraph (j)(1) of 
this section, a notice indicating one of the following:
    (i) The Director of the Office of Atmospheric Programs may decide 
to grant space vehicle/defense allowances if he/she determines that the 
space vehicle/defense allowances are necessary to maintain either 
safety or operational viability:
    (A) The notice will indicate the quantity (in kilograms) that he/
she will grant for the specified 3-year control period; and
    (B) The grant of space vehicle/defense allowances will be effective 
on the date that the notice specified in paragraph (j)(2) of this 
section is issued, and shall not be applicable after December 31, 2009, 
unless otherwise authorized by EPA.
    (ii) The Director of the Office of Atmospheric Programs may request 
additional information if he/she determines:
    (A) The information received in accordance with paragraph (j)(1) of 
this section is not sufficient to make a determination.
    (B) [Reserved]
    (iii) The Director of the Office of Atmospheric Programs may decide 
not to grant space vehicle/defense allowances if he/she determines:
    (A) The space vehicle/defense interest can be met by the use of a 
substance other than HCFC-141b;
    (B) The space vehicle/defense interest can be met by the use of 
existing supplies of HCFC-141b;
    (C) There is evidence of fraud or misrepresentation;
    (D) Approval of the allowances would be inconsistent with the 
Montreal Protocol or Decisions of the Parties;
    (E) Approval of the allowances would be inconsistent with the Clean 
Air Act Amendments of 1990; or
    (F) Approval of the allowances may reasonably be expected to 
endanger human health or the environment.
    (3) If the Director of the Office of Atmospheric Programs decides 
not to grant the request for space vehicle/defense allowances for any 
of the reasons stated in paragraph (j)(2)(iii) of this section, the 
Director of the Office of Atmospheric Programs will issue an objection 
letter disallowing the request for space vehicle/defense allowances. 
Within ten working days after receipt of the objection letter, the 
requestor may file a one-time appeal, with supporting reasons, with the 
Director of the Office of Atmospheric Programs. The Director of the 
Office of Atmospheric Programs may affirm the disallowance or grant an 
allowance, as she/he finds appropriate in light of the available 
evidence. If no appeal is taken by the tenth day after receipt of the 
objection letter, the disallowance will be final on that day.
    (4) The total quantity of HCFC-141b produced or imported for space 
vehicle or narrow defense needs during each year is not to exceed 1 
percent of the aggregate of HCFC-141b baselines for one year.
    (5) The space vehicle/defense allowance allocation may be renewed 
every three years after the original petition and the petition for 
renewal must contain the following information:
    (i) Name and address of U.S. government entity or non-governmental 
space vehicle/defense entity; name of contact person and phone and fax 
numbers and e-mail address;
    (ii) Quantity (in kilograms) of HCFC-141b needed for the control 
period;
    (iii) A description of the space vehicle/defense need met by the 
use of HCFC-141b;
    (iv) A technical description of the process in which HCFC-141b is 
still being used;
    (v) A technical description of the area where the product is still 
being applied;
    (vi) A technical description of why alternatives and substitutes 
are still not sufficient to eliminate the space vehicle/defense use of 
HCFC-141b;
    (vii) A detailed analysis showing why stockpiled, recovered or 
recycled quantities are still deemed to be technically and economically 
infeasible for use; and
    (viii) A detailed description of continuing investigations into 
possible alternatives and substitutes.
    (6) For the control period from January 1, 2006 through December 
31, 2008, the agency, department, or instrumentality of the U.S., or a 
non-governmental space vehicle entity must submit the petition for 
renewal by March 1, 2005.

Sec. 82.19  Apportionment of baseline consumption allowances for class 
II controlled substances.

    (a) Effective January 1, 2002, a person who produced, imported, or 
produced and imported class II substances, and accurately reported such 
activity to EPA as required, in any of the years 1989, 1994, 1995, 
1996, and 1997, is apportioned baseline consumption allowances based on 
the year of the person's highest total ODP-weighted consumption as set 
forth in paragraphs (1) through (28) of this section. Companies whose 
names have been changed are listed under their official name in effect 
during the baseline year. Additional companies for whom EPA does not 
have complete information as of July 20, 2001, or who EPA determines 
are eligible for a late entrant exemption, may be listed with 
allocations in the final rule, pending receipt of such information or 
EPA determination:

------------------------------------------------------------------------
                                                            Allowances
             Person                Controlled substance        (kg)
------------------------------------------------------------------------
ABCO............................  HCFC-22                        253,032
AGA.............................  HCFC-225ca                     109,653
                                  HCFC-225cb                     134,024
Air Systems.....................  HCFC-22                         12,240
Allied (Honeywell)..............  HCFC-22                     32,056,219
                                  HCFC-124                     2,958,382
                                  HCFC-141b                   18,793,538
                                  HCFC-142b                    1,191,783
Altair..........................  HCFC-22                        241,367
Ausimont........................  HCFC-142b                    4,418,767
Automatic Equipment.............  HCFC-22                         48,989
Condor..........................  HCFC-22                        603,374
Continental.....................  HCFC-141b                       18,400
DuPont..........................  HCFC-22                     46,599,488

[[Page 38096]]

                                  HCFC-123                        71,063
                                  HCFC-124                         6,302
                                  HCFC-141b                        8,196
                                  HCFC-142b                       47,820
Elf Atochem.....................  HCFC-22                     26,741,356
(ATOFINA Chemicals).............  HCFC-141b                   23,010,714
                                  HCFC-142b                   15,101,025
HG Refrigeration................  HCFC-22                         36,291
ICC.............................  HCFC-141b                       73,568
ICI.............................  HCFC-22                      2,306,278
Kivlan (Dynatemp)...............  HCFC-22                      1,837,718
Klomar..........................  HCFC-22                          7,776
MDA.............................  HCFC-22                      2,301,966
Mondy-Global....................  HCFC-22                        255,258
National Refrigerants...........  HCFC-22                      4,963,713
                                  HCFC-123                        76,520
                                  HCFC-124                       204,980
Refricenter.....................  HCFC-22                        345,350
Refricentro.....................  HCFC-22                         41,645
Rhone-Poulenc...................  HCFC-22                         47,180
R-Lines.........................  HCFC-22                         57,217
Saez............................  HCFC-22                         34,360
Solvay..........................  HCFC-22                        284,370
                                  HCFC-124                       274,990
                                  HCFC-141b                    3,568,700
Tesco...........................  HCFC-22                         43,520
Tulstar.........................  HCFC-141b                       78,720
------------------------------------------------------------------------

    (b) [Reserved]

Sec. 82.20  Availability of consumption allowances in addition to 
baseline consumption allowances for class II controlled substances.

    (a) Effective January 1, 2002, a person may obtain at any time 
during the control period, in accordance with the provisions of this 
subsection, consumption allowances equivalent to the quantity of class 
II substances (other than used class II substances or transhipments) 
that the person has exported from the U.S. and its territories to a 
foreign state listed in the third column of Appendix C to this subpart 
(Parties to the Copenhagen Amendments).
    (1) The exporter must submit to the Administrator a request for 
consumption allowances setting forth the following:
    (i) The identities and addresses of the exporter and the recipient 
of the exports;
    (ii) The exporter's Employer Identification Number;
    (iii) The names and telephone numbers of contact persons for the 
exporter and the recipient;
    (iv) The quantity (in kilograms) and type of class II substances 
reported;
    (v) The source of the class II substances and the date purchased;
    (vi) The date on which, and the port from which, the class II 
substances were exported from the U.S. or its territories;
    (vii) The country to which the class II substances were exported;
    (viii) A copy of the bill of lading and the invoice indicating the 
net quantity (in kilograms) of class II substances shipped and 
documenting the sale of the class II substances to the purchaser;
    (ix) The commodity code of the class II substances reported; and
    (x) A written statement from the producer that the class II 
substances were produced with expended allowances.
    (2) The Administrator will review the information and documentation 
submitted under paragraph (a)(1) of this section and will issue a 
notice.
    (i) The Administrator will determine the quantity of class II 
substances that the documentation verifies was exported and issue 
consumption allowances equivalent to the quantity of class II 
substances that were exported.
    (A) The grant of the consumption allowances will be effective on 
the date the notice is issued.
    (B) The consumption allowances will be granted to the person the 
exporter indicates, whether it is the producer or the exporter.
    (ii) The Administrator will issue a notice that the consumption 
allowances are not granted if the Administrator determines that the 
information and documentation do not satisfactorily substantiate the 
exporter's claims.
    (b) Effective January 1, 2002, a person may increase consumption 
allowances through trading allowed under Sec. 82.23(a), (b), and (c).

Sec. 82.21  [Reserved]

Sec. 82.22  [Reserved]

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

    (a) Inter-company transfers. (1) Effective January 1, 2002, a 
person (``transferor'') may transfer to any other person 
(``transferee'') any quantity of the transferor's class II consumption 
allowances, production allowances, export production allowances, or 
Article 5 allowances, as follows:
    (i) The transferor must submit to the Administrator a transfer 
claim setting forth the following:
    (A) The identities and addresses of the transferor and the 
transferee;
    (B) The name and telephone numbers of contact persons for the 
transferor and the transferee;
    (C) The type of allowances being transferred, including the names 
of the class II substances for which allowances are to be transferred;
    (D) The quantity (in kilograms) of allowances being transferred;
    (E) The control period(s) for which the allowances are being 
transferred;
    (F) The quantity of unexpended allowances of the type and for the 
control period being transferred that the transferor holds under 
authority of this subpart on the date the claim is submitted to EPA; 
and
    (G) For trades of consumption allowances, production allowances, 
export production allowances, or Article 5 allowances, the quantity of 
the 0.1

[[Page 38097]]

percent offset applied to the unweighted quantity traded that will be 
deducted from the transferor's allowance balance.
    (ii) The Administrator will determine whether the records 
maintained by EPA indicate that the transferor possesses unexpended 
allowances sufficient to cover the transfer claim on the date the 
transfer claim is processed. The transfer claim is the quantity (in 
kilograms) to be transferred plus, in the case of transfers of 
production or consumption allowances, 0.1 percent of that quantity. The 
Administrator will take into account any previous transfers, any 
production, and allowable imports and exports of class II substances 
reported by the transferor. Within three working days of receiving a 
complete transfer claim, the Administrator will take action to notify 
the transferor and transferee as follows:
    (A) The Administrator will issue a notice indicating that EPA does 
not object to the transfer if EPA's records show that the transferor 
has sufficient unexpended allowances to cover the transfer claim. In 
the case of transfers of production or consumption allowances, EPA will 
reduce the transferor's balance of unexpended allowances by the 
quantity to be transferred plus 0.1 percent of that quantity. In the 
case of transfers of export production or Article 5 allowances, EPA 
will reduce the transferor's balance of unexpended allowances, 
respectively, by the quantity to be transferred. The transferor and the 
transferee may proceed with the transfer when EPA issues a no objection 
notice. However, if EPA ultimately finds that the transferor did not 
have sufficient unexpended allowances to cover the claim, the 
transferor and transferee, where applicable, will be held liable for 
any knowing violations of the regulations of this subpart that occur as 
a result of, or in conjunction with, the improper transfer.
    (B) The Administrator will issue a notice disallowing the transfer 
if EPA's records show that the transferor has insufficient unexpended 
allowances to cover the transfer claim, or that the transferor has 
failed to respond to one or more Agency requests to supply information 
needed to make a determination. Either party may file a notice of 
appeal, with supporting reasons, with the Administrator within 10 
working days after receipt of notification. The Administrator may 
affirm or vacate the disallowance. If no appeal is taken by the tenth 
working day after notification, the disallowance shall be final on that 
day.
    (iii) The transferor and transferee may proceed with the transfer 
if the Administrator does not respond to a transfer claim within the 
three working days specified in paragraph (a)(1)(ii) of this section. 
In the case of transfers of production or consumption allowances, EPA 
will reduce the transferor's balance of unexpended allowances by the 
quantity to be transferred plus 0.1 percent of that quantity. In the 
case of transfers of export production allowances or Article 5 
allowances, EPA will reduce the transferor's balance of unexpended 
allowances by the quantity to be transferred plus 0.1 percent of that 
quantity. If EPA ultimately finds that the transferor did not have 
sufficient unexpended allowances to cover the claim, the transferor 
and/or the transferee, where applicable, will be held liable for any 
knowing violations of the regulations of this subpart that occur as a 
result of, or in conjunction with, the improper transfer.
    (b) Inter-pollutant transfers. (1) Effective January 1, 2002, a 
person (transferor) may convert consumption allowances or production 
allowances for one class II substance to the same type of allowance for 
another class II substance listed in Appendix B of this subpart, 
following the procedures described in paragraph (b)(3) of this section.
    (2) Inter-pollutant transfers will be permitted at any time during 
the control period and during the 45 days after the end of a control 
period.
    (3) The transferor must submit to the Administrator a transfer 
claim that includes the following:
    (i) The identity and address of the transferor;
    (ii) The name and telephone number of a contact person for the 
transferor;
    (iii) The type of allowances being converted, including the names 
of the class II substances for which allowances are to be converted;
    (iv) The quantity (in kilograms) and type of allowances to be 
converted;
    (v) The quantity (in kilograms) of allowances to be subtracted from 
the transferor's unexpended allowances for the first class II 
substance, to be equal to 100.1 percent of the quantity of allowances 
converted;
    (vi) The quantity (in kilograms) of allowances to be added to the 
transferor's unexpended allowances for the second class II substance, 
to be equal to the quantity (in kilograms) of allowances for the first 
class II substance being converted multiplied by the quotient of the 
ozone depletion potential of the first class II substance divided by 
the ozone depletion potential of the second class II substance, as 
listed in Appendix B to this subpart;
    (vii) The control period(s) for which the allowances are being 
converted; and
    (viii) The quantity (in kilograms) of unexpended allowances of the 
type and for the control period being converted that the transferor 
holds under authority of this subpart as of the date the claim is 
submitted to EPA.
    (4) The Administrator will determine whether the records maintained 
by EPA indicate that the convertor possesses unexpended allowances 
sufficient to cover the transfer claim on the date the transfer claim 
is processed (i.e., the quantity (in kilograms) to be converted plus 
0.1 percent of that quantity (in kilograms)). EPA will take into 
account any previous transfers, any transfers, and any production, 
imports (not including transshipments or used class II substances), or 
exports (not including transhipments or used class II substances) of 
class II substances reported by the convertor. Within three working 
days of receiving a complete transfer claim, the Administrator will 
take action to notify the convertor as follows:
    (i) The Administrator will issue a notice indicating that EPA does 
not object to the transfer if EPA's records show that the convertor has 
sufficient unexpended allowances to cover the transfer claim. EPA will 
reduce the transferor's balance of unexpended allowances by the 
quantity to be converted plus 0.1 percent of that quantity (in 
kilograms). When EPA issues a no objection notice, the transferor may 
proceed with the transfer. However, if EPA ultimately finds that the 
transferor did not have sufficient unexpended allowances to cover the 
claim, the transferor will be held liable for any violations of the 
regulations of this subpart that occur as a result of, or in 
conjunction with, the improper transfer.
    (ii) The Administrator will issue a notice disallowing the transfer 
if EPA's records show that the transferor has insufficient unexpended 
allowances to cover the transfer claim, or that the transferor has 
failed to respond to one or more Agency requests to supply information 
needed to make a determination. The transferor may file a notice of 
appeal, with supporting reasons, with the Administrator within 10 
working days after receipt of notification. The Administrator may 
affirm or vacate the disallowance. If no appeal is taken by the tenth 
working day after notification, the disallowance shall be final on that 
day.
    (iii) The transferor may proceed with the transfer if the 
Administrator does not respond to a transfer claim within the three 
working days specified in

[[Page 38098]]

paragraph (b)(4) of this section. EPA will reduce the transferor's 
balance of unexpended allowances by the quantity (in kilograms) to be 
converted plus 0.1 percent of that quantity (in kilograms). The 
transferor will be held liable for any violations of the regulations of 
this subpart that occur as a result of, or in conjunction with, the 
improper transfer if EPA ultimately finds that the transferor did not 
have sufficient unexpended allowances or credits to cover the claim.
    (c) Inter-company transfers and Inter-pollutant transfers. (1) If a 
person requests an inter-company transfer and an inter-pollutant 
transfer simultaneously, the quantity (in kilograms) subtracted from 
the transferor's unexpended production or consumption allowances for 
the first class II substance will be equal to 100.1 percent of the 
quantity (in kilograms) of allowances that are being converted and 
transferred.
    (2) [Reserved]
    (d) Transfers of class II production between Parties. (1) A person 
may increase or decrease its production allowances, export production 
allowances, or Article 5 allowances by trading such allowances with 
another Party to the Protocol, in accordance with the provisions in 
Sec. 82.18(d).
    (2) [Reserved]

Sec. 82.24  Recordkeeping and reporting requirements for class II 
controlled substances.

    (a) Recordkeeping and reporting. Any person who produces, imports, 
exports, transforms, or destroys class II substances must comply with 
the following recordkeeping and reporting requirements:
    (1) Reports required by this section must be mailed to the 
Administrator within 15 days of the end of the applicable reporting 
period, unless otherwise specified.
    (2) Records and copies of reports required by this section must be 
retained for three years.
    (3) Quantities of class II substances must be stated in terms of 
kilograms in reports required by this section.
    (4) Reports and records required by this section may be used for 
purposes of compliance determinations. These requirements are not 
intended as a limitation on the use of other evidence admissible under 
the Federal Rules of Evidence. Failure to provide the reports, 
petitions and records required by this section and to certify the 
accuracy of the information in the reports, petitions and records 
required by this section, will be considered a violation of this 
subpart. False statements made in reports, petitions and records will 
be considered violations of Section 113 of the Clean Air Act and under 
18 U.S. Code Section 1001.
    (b) Producers. Persons (``producers'') who produce class II 
substances during a control period must comply with the following 
recordkeeping and reporting requirements:
    (1) Reporting--Producers. For each quarter, each producer of a 
class II substance must provide the Administrator with a report 
containing the following information:
    (i) The quantity (in kilograms) of production of each class II 
substance used in processes resulting in their transformation by the 
producer and the quantity (in kilograms) intended for transformation by 
a second party;
    (ii) The quantity (in kilograms) of production of each class II 
substance used in processes resulting in their destruction by the 
producer and the quantity (in kilograms) intended for destruction by a 
second party;
    (iii) The expended allowances for each class II substance;
    (iv) The producer's total of expended and unexpended production 
allowances, consumption allowances, export production allowances, and 
Article 5 allowances at the end of that quarter;
    (v) The quantity (in kilograms) of class II substances sold or 
transferred during the quarter to a person other than the producer for 
use in processes resulting in their transformation or eventual 
destruction;
    (vi) A list of the quantities and names of class II substances 
exported, by the producer or by other U.S. persons, to a Party to the 
Protocol that will be transformed or destroyed and therefore were not 
produced expending production or consumption allowances;
    (vii) For transformation in the U.S. or by a person of another 
Party, one copy of a transformation verification from the transformer 
for a specific class II substance and a list of additional quantities 
shipped to that same transformer for the quarter;
    (viii) For destruction in the U.S. or by a person of another Party, 
one copy of a destruction verification paragraph (e) of this section 
for a particular destroyer, destroying the same class II substance, and 
a list of additional quantities shipped to that same destroyer for the 
quarter;
    (ix) In cases where the producer produced class II substances using 
export production allowances, a list of U.S. entities that purchased 
those class II substances and exported them to a Party to the Protocol;
    (x) In cases where the producer produced class II substances using 
Article 5 allowances, a list of U.S. entities that purchased those 
class II substances and exported them to Article 5 countries; and
    (xi) A list of the space vehicle/defense allowance holders from 
whom orders were placed and the quantity (in kilograms) of HCFC-141b 
requested and produced.
    (2) Recordkeeping--Producers. Every producer of a class II 
substance during a control period must maintain the following records:
    (i) Dated records of the quantity (in kilograms) of each class II 
substance produced at each facility;
    (ii) Dated records of the quantity (in kilograms) of class II 
substances produced for use in processes that result in their 
transformation or for use in processes that result in their 
destruction;
    (iii) Dated records of the quantity (in kilograms) of class II 
substances sold for use in processes that result in their 
transformation or for use in processes that result in their 
destruction;
    (iv) Dated records of the quantity (in kilograms) of class II 
substances produced with export production allowances or Article 5 
allowances;
    (v) Copies of invoices or receipts documenting sale of class II 
substances for use in processes that result in their transformation or 
for use in processes that result in their destruction;
    (vi) Dated records of the quantity (in kilograms) of each class II 
substance used at each facility as feedstocks or destroyed in the 
manufacture of a class II substance or in the manufacture of any other 
substance, and any class II substance introduced into the production 
process of the same class II substance at each facility;
    (vii) Dated records of the quantity (in kilograms) of raw materials 
and feedstock chemicals used at each facility for the production of 
class II substances;
    (ix) Dated records of the shipments of each class II substance 
produced at each plant;
    (x) The quantity (in kilograms) of class II substances, the date 
received, and names and addresses of the source of used materials 
containing class II substances which are recycled or reclaimed at each 
plant;
    (xi) Records of the date, the class II substance, and the estimated 
quantity of any spill or release of a class II substance that equals or 
exceeds 100 pounds;
    (xii) Transformation verification in the case of transformation, or 
the destruction verification in the case of destruction paragraph (e) 
of this section

[[Page 38099]]

showing that the purchaser or recipient of a class II substance, in the 
U.S. or in another country that is a Party, certifies the intent to 
either transform or destroy the class II substance, or sell the class 
II substance for transformation or destruction in cases when allowances 
were not expended;
    (xiii) Written verifications from a U.S. purchaser that the class 
II substance was exported to a Party to the Copenhagen Amendments, in 
cases where export production allowances were expended to produce the 
class II substance;
    (xiv) Written verifications from a U.S. purchaser that the class II 
substance was exported to an Article 5 country in cases where Article 5 
allowances were expended to produce the class II substance;
    (xv) Written verifications from a U.S. purchaser that HCFC-141b was 
manufactured for the express purpose of meeting critical space vehicle/
defense needs in accordance with information submitted under 
Sec. 82.18(j), in cases where space vehicle/defense allowances were 
expended to produce the HCFC-141b.
    (3) For any person who fails to maintain the records required by 
this paragraph, or to submit the report required by this paragraph, the 
Administrator may assume that the person has produced at full capacity 
during the period for which records were not kept, for purposes of 
determining whether the person has violated the prohibitions at 
Sec. 82.15.
    (c) Importers. Persons (``importers'') who import class II 
substances during a control period must comply with the following 
recordkeeping and reporting requirements:
    (1) Reporting--Importers. For each quarter, an importer of a class 
II substance (including importers of used class II substances) must 
submit to the Administrator a report containing the following 
information:
    (i) Summaries of the record required in paragraphs (c)(2)(i) 
through (xiv) of this section for the previous quarter;
    (ii) The total quantity (in kilograms) imported of each class II 
substance for that quarter;
    (iii) The commodity code for the class II substances imported, 
which must be one of those listed in Appendix K to this subpart;
    (iv) The quantity (in kilograms) of those class II substances 
imported that are used class II substances.
    (v) The quantity (in kilograms) of class II substances imported for 
that quarter and totaled by chemical for the control period to date;
    (vi) The importer's total sum of expended and unexpended 
consumption allowances by chemical as of the end of that quarter;
    (vii) The quantity (in kilograms) of class II substances imported 
for use in processes resulting in their transformation or destruction;
    (viii) The quantity (in kilograms) of class II substances sold or 
transferred during that quarter to each person for use in processes 
resulting in their transformation or eventual destruction; and
    (ix) Transformation verifications showing that the purchaser or 
recipient of imported class II substances intends to transform those 
substances or destruction verifications showing that the purchaser or 
recipient intends to destroy the class II substances (as provided in 
paragraph (e) of this section).
    (2) Recordkeeping--Importers. An importer of a class II substance 
(including used class II substances) must maintain the following 
records:
    (i) The quantity (in kilograms) of each class II substance 
imported, either alone or in mixtures, including the percentage of each 
mixture which consists of a class II substance;
    (ii) The quantity (in kilograms) of those class II substances 
imported that are used and the information provided with the petition 
as required under paragraph (c)(3) of this section;
    (iii) The quantity (in kilograms) of class II substances other than 
transhipments or used substances imported for use in processes 
resulting in their transformation or destruction;
    (iv) The quantity (in kilograms) of class II substances other than 
transhipments or used substances imported and sold for use in processes 
that result in their destruction or transformation;
    (v) The date on which the class II substances were imported;
    (vi) The port of entry through which the class II substances 
passed;
    (vii) The country from which the imported class II substances were 
imported;
    (viii) The commodity code for the class II substances shipped, 
which must be one of those listed in Appendix K to this subpart;
    (ix) The importer number for the shipment;
    (x) A copy of the bill of lading for the import;
    (xi) The invoice for the import;
    (xii) The quantity (in kilograms) of imports of used class II 
substances;
    (xiii) The U.S. Customs entry form;
    (iv) Dated records documenting the sale or transfer of class II 
substances for use in processes resulting in their transformation or 
destruction;
    (xiv) Copies of transformation verifications or destruction 
verifications indicating that the class II substances will be 
transformed or destroyed (as provided in paragraph (e) of this section.
    (3) Petition to Import Used Class II Controlled Substances and 
Transhipments--Importers. For each individual shipment (not to be 
aggregated) over 5 pounds of a used class II substance as defined in 
Sec. 82.3, an importer must submit directly to the Administrator, at 
least 40 working days before the shipment is to leave the foreign port 
of export, the following information in a petition:
    (i) The name and quantity (in kilograms) of the used class II 
substance to be imported;
    (ii) The name and address of the importer, the importer ID number, 
the contact person, and the phone and fax numbers;
    (iii) Name, address, contact person, phone number and fax number of 
all previous source equipment from which the used class II substance 
was recovered;
    (iv) A detailed description of the previous use of the class II 
substance at each source facility and dated documents indicating the 
date the material was put into the equipment at each source facility 
(material must have remained in the equipment at least 24 months prior 
to recovery to be considered previously used);
    (v) Name, address, contact person, phone number and fax number of 
the exporter and of all persons to whom the material was transferred or 
sold after it was recovered from the source facility;
    (vi) The U.S. port of entry for the import, the expected date of 
shipment and the vessel transporting the chemical. If at the time of 
submitting a petition the importer does not know the U.S. port of 
entry, the expected date of shipment and the vessel transporting the 
chemical, and the importer receives a non-objection notice for the 
individual shipment in the petition, the importer is required to notify 
the Administrator of this information prior to the actual U.S. Customs 
entry of the individual shipment;
    (vii) A description of the intended use of the used class II 
substance, and a copy of the contract for the purchase of the class II 
substance that includes the name, address, contact person, phone number 
and fax number of the purchaser;
    (viii) The name, address, contact person, phone number and fax 
number of the U.S. reclamation facility, where applicable;

[[Page 38100]]

    (ix) If someone at the source facility recovered the class II 
substance from the equipment, the name and phone and fax numbers of 
that person;
    (x) If the imported class II substance was reclaimed in a foreign 
Party, the name, address, contact person, phone number and fax number 
of any or all foreign reclamation facility(ies) responsible for 
reclaiming the cited shipment;
    (xi) An export license from the appropriate government agency in 
the country of export and, if recovered in another country, the export 
license from the appropriate government agency in that country;
    (xii) If the imported used class II substance is intended to be 
sold as a refrigerant in the U.S., the name and address of the U.S. 
reclaimer who will bring the material to the standard required under 
Subpart F of this Part, if not already reclaimed to those 
specifications; and
    (xiii) A certification of accuracy of the information submitted in 
the petition.
    (4) Review of Petition to Import Used Class II Controlled 
Substances and Transhipments--Importers. Starting on the first working 
day following receipt by the Administrator of a petition to import a 
used class II substance, the Administrator will initiate a review of 
the information submitted under paragraph (c)(3) of this section and 
take action within 40 working days to issue either an objection-notice 
or a non-objection notice for the individual shipment to the person who 
submitted the petition to import the used class II substance.
    (i) For the reasons listed below, the Administrator may issue an 
objection notice to a petition:
    (A) If the Administrator determines that the information is 
insufficient, that is, if the petition lacks or appears to lack any of 
the information required under paragraph (c)(3) of this section;
    (B) If the Administrator determines that any portion of the 
petition contains false or misleading information or has reason to 
believe that the petition contains false or misleading information;
    (C) If the transaction appears to be contrary to provisions of the 
Vienna Convention on Substances that Deplete the Ozone Layer, the 
Montreal Protocol and Decisions by the Parties, or the non-compliance 
procedures outlined and instituted by the Implementation Committee of 
the Montreal Protocol;
    (D) If the appropriate government agency in the exporting country 
has not agreed to issue an export license for the cited individual 
shipment of used class II substance;
    (E) If the exporting country states that it is no longer allowing 
exports or if it reports that it has not granted any export licenses;
    (F) If the Administrator has received information indicating that a 
person listed in the petition has produced at any time false 
information regarding trade in class II substances as defined in this 
subpart, including information required by EPA or required by the 
appropriate government agency in the exporting country;
    (G) If the Administrator has received information indicating that a 
person listed in the petition is in violation of a requirement in any 
regulation under Title VI of the Clean Air Act;
    (H) If reclamation capacity is installed or is being installed for 
that specific class II substance in the country of recovery or country 
of export and the capacity is funded in full or in part through the 
Multilateral Fund.
    (ii) Within ten (10) working days after receipt of the objection 
notice, the importer may re-petition the Administrator, only if the 
Administrator indicated ``insufficient information'' as the basis for 
the objection notice. If no appeal is taken by the tenth working day 
after the date on the objection notice, the objection shall become 
final. Only one re-petition will be accepted for any original petition 
received by EPA.
    (iii) Any information contained in the re-petition which is 
inconsistent with the original petition must be identified and a 
description of the reason for the inconsistency must accompany the re-
petition.
    (iv) In cases where the Administrator has no reason to object to 
the petition based on the criteria listed in paragraph (c)(4)(i) of 
this section, the Administrator will issue a non-objection notice.
    (v) To pass the approved used class II substances through U.S. 
Customs, the petition and the non-objection notice issued by EPA must 
accompany the shipment through U.S. Customs.
    (vi) If for some reason, following EPA's issuance of a non-
objection notice, new information is brought to EPA's attention which 
shows that the non-objection notice was issued based on false 
information, then EPA has the right to:
    (A) Revoke the non-objection notice;
    (B) Pursue all means to ensure that the class II substance is not 
imported into the U.S.; and
    (C) Take appropriate enforcement actions.
    (vii) Once the Administrator issues a non-objection notice, the 
person receiving the non-objection notice is permitted to import the 
individual shipment of used class II substance only within the same 
control period as the date stamped on the non-objection notice.
    (viii) A person receiving a non-objection notice from the 
Administrator for a petition to import used class II substances must 
maintain the following records:
    (A) A copy of the petition;
    (B) The EPA non-objection notice;
    (C) The bill of lading for the import; and
    (D) U.S. Customs entry documents for the import that must include 
one of the commodity codes from Appendix K to this subpart.
    (5) Recordkeeping for Transhipments--Importers. Any person who 
tranships a class II substance must maintain records that indicate:
    (i) That the class II substance shipment originated in a foreign 
country;
    (ii) That the class II substance shipment is destined for another 
foreign country; and
    (iii) That the class II substance shipment will not enter 
interstate commerce within the U.S.
    (d) Exporters. Persons (``exporters'') who export class II 
substances during a control period must comply with the following 
reporting requirements:
    (1) Reporting--Exporters. For any exports of class II substances 
not reported under Sec. 82.20 (additional consumption allowances), or 
under paragraph (b)(2) of this section (reporting for producers of 
class II substances), each exporter who exported a class II substance 
must submit to the Administrator the following information within 15 
days after the end of each quarter in which the unreported exports left 
the U.S.:
    (i) The names and addresses of the exporter and the recipient of 
the exports;
    (ii) The exporter's Employer Identification Number;
    (iii) The type and quantity (in kilograms) of each class II 
substance exported and what percentage, if any of the class II 
substance is used;
    (iv) The date on which, and the port from which, the class II 
substances were exported from the U.S. or its territories;
    (v) The country to which the class II substances were exported;
    (vi) The quantity (in kilograms) exported to each Article 5 
country;
    (vii) The commodity code for the class II substances shipped, which 
must be one of those listed in Appendix K to this subpart;
    (viii) For persons reporting transformation or destruction, the 
invoice or sales agreement containing

[[Page 38101]]

language similar to the transformation verifications that the purchaser 
or recipient of imported class II substances intends to transform those 
substances, or destruction verifications showing that the purchaser or 
recipient intends to destroy the class II substances (as provided in 
paragraph (e) of this section).
    (2) Reporting Export Production Allowances--Exporters. In addition 
to the information required in paragraph (d)(1) of this section, any 
exporter using export production allowances must also provide the 
following to the Administrator:
    (i) The Employer Identification Number on the Shipper's Export 
Declaration Form or Employer Identification Number of the shipping 
agent shown on the U.S. Customs Form 7525;
    (ii) The exporting vessel on which the class II substances were 
shipped; and
    (iii) The quantity (in kilograms) exported to each Party.
    (3) Reporting Article 5 Allowances--Exporters. In addition to the 
information required in paragraph (d)(1) of this section, any exporter 
using Article 5 allowances must also provide the following to the 
Administrator:
    (i) The Employer Identification Number on the Shipper's Export 
Declaration Form or Employer Identification Number of the shipping 
agent shown on the U.S. Customs Form 7525; and
    (ii) The exporting vessel on which the class II substances were 
shipped.
    (4) Reporting Used Class II Controlled Substances--Exporters. Any 
exporter of used class II substances must indicate on the bill of 
lading or invoice that the class II substance is used, as defined in 
Sec. 82.3.
    (e) Transformation and Destruction. Any person who transforms or 
destroys class II substances must comply with the following 
recordkeeping and reporting requirements:
    (1) Recordkeeping--Transformation and Destruction. Any person who 
transforms or destroys class II substances produced or imported by 
another person must maintain the following:
    (i) Copies of the invoices or receipts documenting the sale or 
transfer of the class II substances to the person;
    (ii) Records identifying the producer or importer of the class II 
substances received by the person;
    (iii) Dated records of inventories of class II substances at each 
plant on the first day of each quarter;
    (iv) Dated records of the quantity (in kilograms) of each class II 
substance transformed or destroyed;
    (v) In the case where class II substances were purchased or 
transferred for transformation purposes, a copy of the person's 
transformation verification as provided under paragraph (e)(3)of this 
section.
    (vi) Dated records of the names, commercial use, and quantities (in 
kilograms) of the resulting chemical(s) when the class II substances 
are transformed; and
    (vii) Dated records of shipments to purchasers of the resulting 
chemical(s) when the class II substances are transformed.
    (viii) In the case where class II substances were purchased or 
transferred for destruction purposes, a copy of the person's 
destruction verification, as provided under paragraph (e)(5) of this 
section.
    (2) Reporting--Transformation and Destruction. Any person who 
transforms or destroys class II substances and who has submitted a 
transformation verification in paragraph (e)(3) of this section or a 
destruction verification in paragraph (e)(5) of this section to the 
producer or importer of the class II substances, must report the 
following:
    (i) the names and quantities (in kilograms) of the class II 
substances transformed for each control period within 45 days of the 
end of such control period; and
    (ii) the names and quantities (in kilograms) of the class II 
substances destroyed for each control period within 45 days of the end 
of such control period.
    (3) Reporting--Transformation. Any person who purchases class II 
substances for purposes of transformation must provide the producer or 
importer with a verification that the class II substances are to be 
used in processes that result in their transformation.
    (i) The transformation verification shall include the following:
    (A) Identity and address of the person intending to transform the 
class II substances;
    (B) The quantity (in kilograms) of class II substances intended for 
transformation;
    (C) Identity of shipments by purchase order number(s), purchaser 
account number(s), by location(s), or other means of identification;
    (D) Period of time over which the person intends to transform the 
class II substances; and
    (E) Signature of the verifying person.
    (ii) If any aspects of this verification change at any time, the 
person must submit a revised verification reflecting such changes to 
the producer from whom that person purchased class II substances 
intended for transformation.
    (4) Reporting--Destruction. Any person who destroys class II 
substances shall 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;
    (iv) The name of other relevant federal or state regulations that 
may apply to the destruction process;
    (v) 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).
    (5) Reporting--Destruction. Any person who purchases or receives 
and subsequently destroys class II substances that were originally 
produced without expending allowances shall provide the producer or 
importer from whom it purchased or received the class II substances 
with a verification that the class II substances will be used in 
processes that result in their destruction.
    (i) The destruction verification shall include the following:
    (A) Identity and address of the person intending to destroy class 
II substances;
    (B) Indication of whether those class II substances will be 
completely destroyed, as defined in Sec. 82.3, or less than completely 
destroyed, in which case the destruction efficiency at which such 
substances will be destroyed must be included;
    (C) Period of time over which the person intends to destroy class 
II substances; and
    (D) Signature of the verifying person.
    (ii) If any aspects of this verification change at any time, the 
person must submit a revised verification reflecting such changes to 
the producer from whom that person purchased class II substances 
intended for destruction.
    (f) Heels--Recordkeeping and Reporting. Any person who brings into 
the U.S. a container with a heel, as defined in Sec. 82.3, of class II 
substances, must comply with the following requirements:
    (1) Any person who brings a container with a heel must indicate on 
its bill of lading or invoice that the class II substance in the 
container is a heel.
    (2) Any person who brings a container with a heel must report 
quarterly the quantity (in kilograms) brought into the U.S. and 
certify:
    (i) That the residual quantity (in kilograms) in each shipment is 
no more

[[Page 38102]]

than 10 percent of the volume of the container;
    (ii) That the residual quantity (in kilograms) in each shipment 
will either:
    (A) Remain in the container and be included in a future shipment;
    (B) Be recovered and transformed;
    (C) Be recovered and destroyed; or
    (D) Be recovered for a non-emissive use.
    (3) Any person who brings a container with a heel into the U.S. 
must report on the final disposition of each shipment within 45 days of 
the end of the control period.
    (g) Space vehicle/defense allowances--Reporting.
    (1) Any person allocated space vehicle/defense allowances who 
submits an order to a producer or importer for a product made with or 
containing HCFC-141b must also submit quarterly reports to the 
Administrator containing the following information:
    (i) The type of product made with or containing HCFC-141b;
    (ii) The specific application of the product made with or 
containing HCFC-141b; and
    (iii) The quantity (in kilograms) of HCFC-141b used or contained in 
the product received from the manufacturer; and
    (iv) The identity of the manufacturer of the product made with or 
containing HCFC-141b.
    (2) Any manufacturer of a product made with or containing HCFC-141b 
produced or imported as a result of space vehicle/defense allowances 
must submit quarterly reports to the Administrator containing the 
following information:
    (i) The quantity (in kilograms) of HCFC-141b received;
    (ii) The identity of the producer or importer supplying the HCFC-
141b used or contained in the product;
    (iii) The identity of the recipient of the product made with or 
containing HCFC-141b; and
    (iv) The quantity (in kilograms) of HCFC-141b used or contained in 
the product sent to the recipient.
    13. Revise Appendix B to Subpart A to read as follows:

    Appendix B to Part 82 Subpart A--Class II Controlled Substances a
------------------------------------------------------------------------

------------------------------------------------------------------------
Dichlorofluoromethane (HCFC-21)...........................    0.04
Monochlorodifluoromethane (HCFC-22).......................   0.055
Monochlorofluoromethane (HCFC-31).........................    0.02
Tetrachlorofluoroethane (HCFC-121)........................  0.01-0.04
Trichlorodifluoroethane (HCFC-122)........................  0.02-0.08
Dichlorotrifluoroethane (HCFC-123)........................    0.02
Monochlorotetrafluoroethane (HCFC-124)....................   0.022
Trichlorofluoroethane (HCFC-131)..........................  0.007-0.05
Dichlorodifluoroethane (HCFC-132).........................  0.008-0.05
Monochlorotrifluoroethane (HCFC-133)......................  0.02-0.06
Dichlorofluoroethane (HCFC-141b)..........................    0.11
Monochlorodifluoroethane (HCFC-142b)......................   0.065
Hexachlorofluoropropane (HCFC-221)........................  0.015-0.07
Pentachlorodifluoropropane (HCFC-222).....................  0.01-0.09
Tetrachlorotrifluoropropane (HCFC-223)....................  0.01-0.08
Trichlorotetrafluoropropane (HCFC-224)....................  0.01-0.09
Dichloropentafluoropropane (HCFC-225ca)...................   0.025
Dichloropentafluoropropane (HCFC-225cb)...................   0.033
Monochlorohexafluoropropane (HCFC-226)....................  0.02-0.10
Pentachlorofluoropropane (HCFC-231).......................  0.05-0.09
Tetrachlorodifluoropropane (HCFC-232).....................  0.008-0.10
Trichlorotrifluoropropane (HCFC-233)......................  0.007-0.23
Dichlorotetrafluoropropane (HCFC-234).....................  0.01-0.28
Monochloropentafluoropropane (HCFC-235)...................  0.03-0.52
Tetrachlorofluoropropane (HCFC-241).......................  0.004-0.09
Trichlorodifluoropropane (HCFC-242).......................  0.005-0.13
Dichlorotrifluoropropane (HCFC-243).......................  0.007-0.12
Monochlorotetrafluoropropane (HCFC-244)...................  0.009-0.14
Trichlorofluoropropane (HCFC-251).........................  0.001-0.01
Dichlorodifluoropropane (HCFC-252)........................  0.005-0.04
Monochlorotrifluoropropane (HCFC-253).....................  0.003-0.03
Dichlorofluoropropane (HCFC-261)..........................  0.002-0.02
Monochlorodifluoropropane (HCFC-262)......................  0.002-0.02
Monochlorofluoropropane (HCFC-271)........................  0.001-0.03
------------------------------------------------------------------------
\a\ According to Annex C of the Protocol, ``Where a range of ODPs is
  indicated, the highest value in that range shall be used for the
  purposes of the Protocol. The ODPs listed as a single value have been
  determined from calculations based on laboratory measurements. Those
  listed as a range are based on estimates and are less certain. The
  range pertains to an isomeric group. The upper value is the estimate
  of the ODP of the isomer with the highest ODP, and the lower value is
  the estimate of the ODP of the isomer with the lowest ODP.''

    14. Appendix C to Subpart A is revised to read as follows:

Appendix C to Part 82 Subpart A--Parties to the Montreal Protocol 
(as of May 1, 2001)

    Updated lists of Parties to the Protocol and the Amendments can be 
located at: www.unep.org/ozone/ratif.htm. A check mark indicates 
ratification/accession/acceptance/approval of the agreement.

[[Page 38103]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Montreal          London         Copenhagen        Montreal         Beijing
                           Foreign state                                 protocol        amendments       amendments       amendments       amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Albania............................................................         
Algeria............................................................                             
Angola.............................................................         
Antigua and........................................................                                       
Barbuda............................................................
Argentina..........................................................                                       
Armenia............................................................         
Australia..........................................................                                       
Austria............................................................                                       
Azerbaijan.........................................................                             
Bahamas............................................................                             
Bahrain............................................................                                       
Bangladesh.........................................................                             
Barbados...........................................................                             
Belarus............................................................                   
Belgium............................................................                             
Belize.............................................................                             
Benin..............................................................                             
Bolivia............................................................                                       
Bosnia &...........................................................         
Herzegovina........................................................
Botswana...........................................................                             
Brazil.............................................................                             
Brunei Darussalam..................................................         
Bulgaria...........................................................                                       
Burkina Faso.......................................................                             
Burundi............................................................         
Cameroon...........................................................                             
Canada.............................................................                                                 
Central African....................................................         
Republic...........................................................
Chad...............................................................         
Chile..............................................................                                                 
China..............................................................                   
Colombia...........................................................                             
Comoros............................................................                   
Congo..............................................................                   
Congo, Democratic..................................................                             
Republic of........................................................
Costa Rica.........................................................                             
Cote d'Ivoire......................................................                   
Croatia............................................................                                       
Cuba...............................................................                             
Cyprus.............................................................                   
Czech Republic.....................................................                                       
Denmark............................................................                             
Djibouti...........................................................                                       
Dominica...........................................................                   
Dominican..........................................................         
Republic...........................................................
Ecuador............................................................                             
Egypt..............................................................                                       
El Salvador........................................................                                       
Estonia............................................................                             
Ethiopia...........................................................         
European...........................................................                                       
Community..........................................................
Federated States of Micronesia.....................................         
Fiji...............................................................                             
Finland............................................................                             
France.............................................................                             
Gabon..............................................................                                                 
Gambia.............................................................                   
Georgia............................................................                                       
Germany............................................................                                       
Ghana..............................................................                             
Greece.............................................................                             
Grenada............................................................                                       
Guatemala..........................................................         
Guinea.............................................................                   
Guyana.............................................................                                       
Haiti..............................................................                                       
Honduras...........................................................         

[[Page 38104]]

Hungary............................................................                                       
Iceland............................................................                                       
India..............................................................                   
Indonesia..........................................................                             
Iran, Islamic Republic of..........................................                             
Ireland............................................................                             
Israel.............................................................                             
Italy..............................................................                                       
Jamaica............................................................                             
Japan..............................................................                             
Jordan.............................................................                                                 
Kazakhstan.........................................................         
Kenya..............................................................                                       
Kiribati...........................................................         
Korea, Democratic People's Republic of.............................                             
Korea, Republic of.................................................                                       
Kuwait.............................................................                             
Kyrgyzstan.........................................................         
Lao, People's Democratic Republic..................................         
Latvia.............................................................                             
Lebanon............................................................                                       
Lesotho............................................................         
Liberia............................................................                             
Libyan Arab Jamahiriya.............................................         
Liechtenstein......................................................                             
Lithuania..........................................................                             
Luxembourg.........................................................                                                 
Madagascar.........................................................         
Malawi.............................................................                             
Malaysia...........................................................                             
Maldives...........................................................                   
Mali...............................................................                   
Malta..............................................................                   
Marshall Islands...................................................                             
Mauritania.........................................................         
Mauritius..........................................................                             
Mexico.............................................................                             
Moldova............................................................         
Monaco.............................................................                             
Mongolia...........................................................                             
Morocco............................................................                             
Mozambique.........................................................                             
Myanmar............................................................                   
Namibia............................................................                   
Nepal..............................................................                   
Netherlands........................................................                                       
New Zealand........................................................                                       
Nicaragua..........................................................                             
Niger..............................................................                                       
Nigeria............................................................         
Norway.............................................................                                       
Oman...............................................................                             
Pakistan...........................................................                             
Panama.............................................................                                       
Papua New Guinea...................................................                   
Paraguay...........................................................                                       
Peru...............................................................                             
Philippines........................................................                   
Poland.............................................................                                       
Portugal...........................................................                             
Qatar..............................................................                             
Romania............................................................                             
Russian Federation.................................................                   
Saint Kitts & Nevis................................................                                       
Saint Lucia........................................................                                       
Saint Vincent and the Grenadines...................................                             
Samoa..............................................................         
Saudi Arabia.......................................................                             
Senegal............................................................                                       
Seychelles.........................................................                             
Singapore..........................................................                                       
Slovakia...........................................................                                       
Slovenia...........................................................                                       

[[Page 38105]]

Solomon Islands....................................................                                       
South Africa.......................................................                             
Spain..............................................................                                       
Sri Lanka..........................................................                                       
Sudan..............................................................         
Suriname...........................................................         
Swaziland..........................................................         
Sweden.............................................................                                       
Switzerland........................................................                             
Syrian Arab Republic...............................................                                       
Tajikistan.........................................................                   
Tanzania, United Republic of.......................................                   
Thailand...........................................................                             
The Former Yugoslav Republic of Macedonia..........................                                       
Togo...............................................................                             
Tonga..............................................................         
Trinidad and Tobago................................................                                       
Tunisia............................................................                                       
Turkey.............................................................                             
Turkmenistan.......................................................                   
Tuvalu.............................................................                                       
Uganda.............................................................                                       
Ukraine............................................................                   
United Arab Emirates...............................................         
United Kingdom.....................................................                             
United States of America...........................................                             
Uruguay............................................................                                       
Uzbekistan.........................................................                             
Vanuatu............................................................                             
Venezuela..........................................................                             
Viet Nam...........................................................                             
Yemen..............................................................                                       
Yugoslavia.........................................................         
Zambia.............................................................                   
Zimbabwe...........................................................                             
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 01-17199 Filed 7-19-01; 8:45 am]
BILLING CODE 6560-50-P