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### MEMORANDUM

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SUBJECT: Development of 2003 Nomination for a Critical Use Exemption for Methyl Bromide from the United States of America

FROM: U.S. Environmental Protection Agency/Office of Air and Radiation/Office of Atmospheric Programs/Global Programs Division

TO: E-Docket OAR-2003-0230

This Memorandum serves as a follow-up document explaining the U.S. government process for development of the 2003 Nomination for a Critical Use Exemption for Methyl Bromide from the United States of America

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The Montreal Protocol on Substances that Deplete the Ozone Layer (Protocol) calls for the phaseout of methyl bromide production and importation in 2005 for industrialized nations, but allows for exemptions to the phaseout for authorized critical uses. Each Party to the Protocol may submit an annual nomination for a Critical Use Exemption (CUE), which is reviewed by two independent advisory bodies to the Protocol: (1) the Methyl Bromide Technical Options Committee (MBTOC), and (2) the Technical and Economic Assessment Panel (TEAP). These bodies then make recommendations to the Parties regarding the nominations, specifically the amount of methyl bromide to be exempted from the phaseout.

In the U.S., the nomination process initially began in March 2000, when EPA and USDA met to initially discuss the CUE process. During 2001, EPA facilitated ten different stakeholder meetings and conference calls, some of which were held with specific sectors, such as strawberries, tomatoes, cut flowers, and nurseries. In January 2002, EPA held an all-day “Methyl Bromide Critical Use Exemption Program Meeting” that was widely attended by agricultural stakeholders and industry representatives. Records of these meetings show stakeholders were opposed to the idea of including individual farm data in their applications for a CUE. In May 2002, through a notice in the Federal Register

, EPA solicited applications for CUEs for 2005, 2006 and 2007 from methyl bromide users. EPA solicited data for years after 1995 because it was not known at the time whether exemptions would last for one or more years. EPA’s Office of Pesticide Programs (OPP) took the lead in coordinating the U.S. government review of the applications that were submitted. In accordance with the TEAP Handbook on Critical Use Nominations for Methyl Bromide , published in May 2002, the substantive criteria for a Critical Use Exemption were agreed to by the Parties at the Seventh Meeting in Decision

IX/6:

Decision IX/6: Critical-use exemptions for methyl bromide-2- 1. To apply the following criteria and procedure in assessing a critical methyl bromide use for the purposes of control measures in Article 2 of the Protocol:

(a) That a use of methyl bromide should qualif y as “critical” only if the nominating Party

determines that:

(i) The specific use is critical because the lack of availability of methyl bromide for that use would result in significant market disruption; and

(ii) There are no technically and economically feasible alternatives or substitutes available to the user that are acceptabl e from the standpoint of environment and health and are suitable to the crops and circumstances of the nomination,”

(b) That production and consumption, if any , of methyl bromide for critical uses should be permitted only if:

(i) All technically and economically feasible steps have been taken to minimize the critical use and any associated emission of methyl bromide;

(ii) Methyl bromide is not available in sufficient quantity and quality from existing stocks of banked or recycled methyl bromide, also bearing in mind the developing countries’ need for methyl bromide;

(iii) It is demonstrated that an appropriate effort is being made to evaluate, commercialize and secure national regulatory approval of alternatives and substitutes, taking into consideration the circumstances of the particular nomination and the special needs of Article 5 Parties, including lack of financial and expert resources, institutional capacity, and information. Non-Article 5

Parties must demonstrate that research programmes are in place to develop and deploy alternatives and substitutes. Ar ticle 5 Parties must demonstrate that feasible alternatives shall be adopted as soon as they are confirmed as suitable to the Party’s specific conditions and/or that they have applied to the Multilateral Fund or other sources for assistance in identifying, evaluating, adapting, and demonstrating such options;

2. To request the Technology and Economic A ssessment Panel to review nominations and make recommendations based on the criteria established in paragraphs 1 (a) (ii) and 1 (b) of the present decision;

3. That the present decision will apply to Pa rties operating under Article 5 and Parties not so operating only after the phase-out date applicable to those Parties;-3- While conducting the U.S. government review, which included 45 scientists from EPA, the U.S. Department of Agriculture, and, land-grant universities, EPA chose to assess critical uses from applications on a case-by-case basis. However, the applications were often aggregated into sectors, generally by crop. Each application was then assigned a primary biologist and a primary economist.

To assess technical feasibility of methyl bromide alternatives, the biologists compiled an initial assessment of alternatives and considered the best alternative regime to methyl bromide for the crop/commodity, reviewed the target pest list, determined the likely crop yields in the absence of methyl bromide using both chemical and non-chemical alternatives, considered time lost through use of alternatives, reviewed the alternatives list provided by MBTOC, and determined where additional data, if any, was needed. In addition, the biologists reviewed related items such as planting/harvesting time changes, application rates for methyl bromide, weed control, impacts of temperature and soil type, as relevant to the crop/commodity

under review.

The assessment of economic feasibility of alternatives involved carefully weighing five economic factors, specifically: (1) loss per hectare, (2) loss per kilogram of methyl bromide, (3) loss as a percent of gross revenue, (4) loss as a percent of net cash returns, and (5) change in profit margins. Using an approach involving multiple measures allowed for a more complete understanding of the potential economic impacts of using alternatives to methyl bromide. In addition, some environmental benefits not captured by traditional cost measures were considered. For example, in the forest seedling sector, applications were for bare root seedlings to be used predominately for reforestation. While it is technically feasible to grow these seedlings in containers, the cost is three to four times higher and the higher the seedling cost, the lower the rate of reforestation. Other non-cost measures incorporated into the analysis included regulatory constraints, such as buffer zones near inhabited areas.

The economists also verified the worksheets submitted by the applicants and incorporated yield information for alternative regimens as submitted by the biologists ; calculated fixed, overhead, and operating costs ; and conducted additional sensitivity analyses when necessary. Other calculations included increased pest control costs, and price analysis.

The issue of “significant market disruption” is left to the discretion of each Party to the Protocol to define. When considering the evaluation of “market disruption,” EPA defined “market” in terms of agricultural commodities. Markets are partially defined by the interaction between supply and demand, which determines the price and quantity of a good traded in a market. EPA’s position is that a disruption to either side of a commodity market, demand or supply, would result in market disruption. EPA believes that disruptions to domestic supply of agricultural commodities would be a disruption to the market; thus, driving out domestic production, even if it were replaced by imports so that consumers would not experience a reduction in the amount supplied. This situation may constitute a significant market disruption.-4- As a result, any loss of crop production due to a disruption in the domestic supply of methyl bromide would constitute significant market disruption. Though the original Decision language distinguished between the economic feasibility of alternatives and significant market disruption, EPA considered the two criteria together and used the same factors that it used to determine economic feasibility of methyl bromide alternatives when evaluating significant market disruption. Further, the absence of economically feasible alternatives would result in significant market disruption if methyl bromide could not be used. For the aforementioned reasons, significant market disruption was not given independent weight but instead linked with economic infeasibilty of alternatives to methyl bromide.

The evaluation of each individual application was rigorous. In addition to the team of the primary biologist and economist, each application was also assigned to a secondary biologist and

economist.

The responsibility of the primary team was to determine if some portion of the sector described in an application would likely warrant a CUE because that portion does not have technically or economically feasible alternatives available for the specific circumstances of use. In addition, the primary team assessed whether or not the crops in specific areas were affected by key pests (pests not controlled by alternative methods), what yield changes (such as quantity, quality, and timing of the crops) might be expected when alternative methods of pest control were used, as well as what cost and revenue changes might be anticipated. The reviewers assumed that if the alternatives were economically infeasible, or if no alternatives existed for the commodity under review, then significant market disruption would result. The reviewers used the information provided by the applicants as well as information from peer-reviewed articles, research reports, crop budgets, contractor reports, as well as data from other sources and their own field experience with both research and regulatory impacts.

The responsibility of the secondary team was to ensure the thoroughness of the primary review and add any additional necessary information. Additionally, the secondary review team reviewed any spreadsheets compiled for the economic analysis as well as other key issues related to the crop/commodity under review.

Once both the primary and secondary teams had reviewed the applications, the application was discussed among the 45 reviewers during a weekly conference call. (These calls occurred from September-December 2002). The primary review team facilitated the discussion of each application. After a thorough discussion and overview of the applicant’s situation, consensus was sought as to whether applicants had made a case that there were no technically or economically feasible alternatives to methyl bromide for use in their particular situation. During the process of reaching consensus, significant market disruption was equated with economic infeasibility of alternatives. If consensus could not be reached, participants in the conference call raised issues that would need resolution before consensus could be reached. In those cases, the primary review team was given the responsibility of gathering any additional information or data

that would allow all the reviewers to reach consensus.-5- The purpose of this process was to determine if an applicant had made a case that at least some portion of their requested use could be considered ‘critical’ in the sense that there were no technically or economically feasible alternatives, and if significant market disruption would result. A second step of the process was used to determine the amount that the U.S. government would put forward to the Parties to the Montreal Protocol as its request for methyl bromide

CUEs.

The fact that the applications were aggregated into sectors by crop enabled the reviewers to carefully scrutinize many different user groups. This classification also allowed the reviewers to remove the following factors, thus strengthening the case for ‘critical’ uses:

• Double counting

• Any requested growth beyond historical acreage planted

• Requested amounts that fall under the quarantine and pre-shipment (QPS) uses.

In addition, the amount of methyl bromide requested, per each applicant and then aggregated by sector, in the U.S. nomination was adjusted to account for additional measures such as:

• Only the area where pest pressure cannot be controlled by alternatives

• The area where regulatory constraints, such as buffer zones near inhabited areas limit the

use of certain alternatives

• The area where soil/geological features limits the use of certain alternatives, such as groundwater contamination with Karst topography.

The amount of methyl bromide requested in the U.S. nomination also incorporates minimumefficacious use rates, mixtures of methyl bromide with chloropicrin when applicable for preplant soil fumigation uses, the use of tarps to improve efficacy and reduce emissions, and also builds in a small margin of error into the U.S. request.

The final nomination was submitted to the Ozone Secretariat of the United Nations Environment Program in February 2003, and can be viewed on E-Docket OAR-2003-0017, on documents numbered 0091-0111. The responses to requests for clarification by MBTOC are

documents numbered 0113-0126. These documents can also be viewed on E-Docket OAR2003-0230. This series of documents provides additional clarification as they contain spreadsheets, with footnotes, of the analyses and references used in the development of the

nomination.