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### May 21, 2012

VIA ELECTRONIC MAIL AND FIRST CLASS MAIL

David Donaldson Team Leader Environmental Protection Agency Biological and Economic Analysis Division 1200 Pennsylvania Avenue, NW Mail Code: 6205J Washington, DC 20460-0001 donaldson.david@epa.gov Jeremy Arling Environmental Protection Specialist Environmental Protection Agency Stratospheric Protection Division 1200 Pennsylvania Avenue, NW Mail Code 6205J Washington, DC 20460-0001 arling.jeremy@epa.gov

Re: EPA’s Method for Calculat ing the Supply Chain Factor

Dear Messrs. Donaldson and Arling:

I write on behalf of the Methyl Bromide Industry Panel (MBIP) to follow-up on one of the issues that we discussed at ou r May 2, 2012 meeting which affects the level of CUAs and CSAs allocated under the fi nal 2012 Critical Use Exemption From the Phaseout of Methyl Bromide (2012 CUE Rule) and future rulemakings for 2013 and beyond. We appreciated the opportunity to discuss this issue with you and your
team.

We were glad to see that the final 2012 CUE Rule was published last week and that it allocated CUAs and CSAs at levels consistent with the 2012 proposed rule. While we are relieved that EPA did not re duce the CUAs in the final rule, we are still concerned that EPA has made an erro r in its calculation of the Supply Chain Factor (SCF), which if corrected would ha ve resulted in a higher level of CUAs in the final rule. 1 

### Even if it is too late to correct the error for 2012, it is imperative that this issue is examined because EPA will likely calculate a SCF for determining CUAs for 2013 and beyond.

Per your request, this letter provides more detail regarding the problem with EPA’s calculation of the Supply Chain Factor. As we explained at the meeting, the percentage that EPA used to calculate the SCF for the 2012 CUE Rule – 42% – is

1 As we explained at the meeting, the MBIP disc overed the error when it reexamined the calculation of CUAs and CSAs for the 2012 CUE Rule following Arysta’s recent decision to cease all U.S. sales of iodomethane – the primary soil alternative to me thyl bromide – and EPA’s release of the pre-2005 inventory level at the end of 2011.

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 2

too low based on data from the two prio r years, and does not reflect current production cycles.

The SCF percentage is based on the proportion of annual production that historically has occurred during the 15-weeks of peak production in a given calendar year. Because the vast majo rity of production occurs in the 1 st 

### quarter of each year and has become more concentrated in that period over time, there should not be such a large difference between the SCF percentage determined for 2012 (42%) and the percentages determined fo r the two prior years (58% and 62%).

Since our meeting, we have conducted additi onal analyses that further throw into doubt the validity of the SCF percentage derived for the 2012 CUE Rule. As explained in detail below, it appears that the SCF percentage for the 2012 CUE Rule should have been at least 66.5% using EPA’s methodology. Even this percentage is suspect, however, because it is derived from older, irre levant production data. If only the most recent two years of produc tion data (which would more accurately reflect current production pract ices) are used as inputs, the SCF percentage for 2012 would have been 91.1%.

To be clear, the MBIP con tinues to believe that the SC F should equal at a minimum a one-year supply of critical use need, as noted in our comments on the proposed rule. 2 

### However, if EPA insists on using hist orical production data to derive the SCF value, then it must correct the error in its derivation of the SCF percentage to ensure that there is not a disrupti on in the domestic supply of methyl bromide in future years. Such a disruption would have a devastating impact on American growers, especially in light of the dw indling level of pre-2005 stoc ks and Arysta’s decision to pull iodomethane from the U.S. market.

The remainder of this letter and the en closed attachment outline the MBIP’s methodology and calculations of the SCF pe rcentage and provides details on the apparent error. We would be happy to di scuss these issues fu rther if EPA needs additional information or has any questions.

2 The MBIP has repeatedly expressed this view in its comments on the Agency’s proposed CUE rules. See, e.g. , MBIP Comments on EPA’s Proposed Rule for The 2012 Critical Use Exemption From the Phaseout of Methyl Bromide: EPA Do cket OAR-2009-0277, at 6 (submitted Nov. 21, 2011).

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 3

Background on the Methodology Used to Calculate the SCF

The SCF represents the Agency’s technica l estimate of the amount of pre-phaseout inventory that would be ade quate to meet a need for critical use methyl bromide after an unforeseen domestic production failure . The Agency has explained that this estimate assumes such a production failure will occur during the peak supply period and that it will take 15 weeks for significan t imports of replacement methyl bromide to reach the U.S. Accordingly, to calc ulate the SCF, EPA first determines the percentage of annual producti on that would be lost if th e domestic supply disruption were to occur during the 15 w eeks of the year when most new material is produced.

Unfortunately, the manner in which the Agen cy calculates this percentage is not entirely transparent. Although there is an explanation of the calculation methodology in the Technical Support Document for the Proposed 2012 CUE Rule, 3 

### it is both incomplete and confusing. However, based on the limited description available, it appears that EPA uses the following three-step process to determine the SCF percentage:

Step 1 The Agency calculates the per centage of annual production that was produced weekly in each calendar quarter for 2005 through the most recent year for which the Agency has complete production data. It does this by first determining the per centage of annual production that occurred in a given calendar quarter , and then dividing this value by 13 (i.e., the number of weeks in each qu arter). For example, if 39 MT of methyl bromide was produced in the first quarter of 2005 and 100 MT was produced in total that year, th e percentage of annual production produced weekly in the fi rst quarter would be 3%.

Step 2 EPA averages the percentages it calculated in Step 1 for each calendar quarter. It does this by totaling the pe rcentages calculated in Step 1 for a given calendar quarter and dividing the sum by th e appropriate number of years. For example, if the pe rcentages of annual production for each week in the first quarters of 2005, 2006, and 2007 were 3%, 6%, and 3%, respectively, the average percen tage of annual production that was produced weekly in the first quarter over this three-year period would be 4%.

3 See Docket No. EPA-HQ-OAR-2009-0277-0042, at 5.

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 4

Step 3 The Agency selects the maximum average percentage calculated in Step 2 and multiplies it by 15 – the le ngth in weeks that it would take for significant imports to reach the U. S. in the event of a catastrophic domestic supply failure. The result ing product is the percentage that EPA uses to calculate the SCF.

Using the above process, EPA determined that the SCF percentage should be 42% for 2012 (i.e., that approximately 42% of annual critical use methyl bromide demand would need to be met from pre-pha seout stocks in 2012 in the event of a domestic production failure during the peak 15-week supply period). 76 Fed. Reg. 65139, 65145 (Oct. 20, 2011). In contrast, the same process yielded an SCF percentage of 58% for 2011.

The MBIP’s Concerns with the SCF Calculation

As a result of large decline in the SCF percentage from 2011 to 2012, the MBIP suspected that there was an error in EPA’ s calculations and decided to conduct its own analysis to see if it coul d replicate the SCF percentage of 42% that EPA used in the proposed 2012 CUE Rule. To that end, the MBIP gathered quarterly production and import data from its members and calcu lated the percentage of annual critical use methyl bromide produced weekly in each quarter for 2005 through 2011 (Step 1). The results of those calculations are presented below:

Percent of Annual Production Produced Weekly Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 3.14% 2.57% 1.33% 0.65%

2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

2009 2.63% 2.68% 2.38% 0.00%

2010 7.00% 0.65% 0.04% 0.00%

2011 5.14% 1.86% 0.42% 0.27%

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 5

Using these data as inputs in the three- step process outlined above, the MBIP was able to verify the accuracy of the SC F percentages used in the 2010 CUE Rule (62%) and the 2011 CUE Rule (58%). Speci fically, the MBIP calculated an SCF percentage of approximately 63% for th e 2010 CUE Rule (which based the SCF on production data from 2005 through 2008) a nd an SCF percentage of 58% for the 2011 CUE Rule (which based the SC F on production data from 2005 through 2009). 4



### However, the MBIP could not verify the accuracy of EPA’s proposed SCF percentage for 2012 with thes e data. In fact, using th e above data for 2005 through 2010, the SCF percentage that EPA should have derived for the 2012 CUE Rule is 66.5%. If the 2011 production data are included, the SCF percentage for 2012 increases to 68.0%.

These percentages are far more consistent with the SCF percentages for 2010 (62%) and 2011 (58%) than is the SCF percenta ge of 42% that EPA derived for 2012. Moreover, an SCF percentage of 42% doe sn’t comport with the actual production data or basic math principles. The SCF per centage is directly related to the average percentage of annual produc tion that is produced weekly during the first calendar quarter. 5 

### The average percentage in the 2011 CUE Rule was based on first quarter production data from 2005 through 2009, a nd the average percentage in the proposed 2012 CUE Rule was based on data from 2005 through 2010. Mathematically, then, the only way the SCF percentage could have fallen from 58% to 42% in 2012 is if the amount of annua l production produced w eekly in the first quarter of 2010 was less than the average for this quarter during 2005 to 2009. But this was not the case. Indeed, the first quarter of 2010 has the highest percent of annual production produced weekly of any quarter since the phaseout of methyl bromide began. Thus, one would expect the SCF percentage to increase from 2011 to 2012, which is precisely what the MBIP’s calculations show.

A further flaw in the methodology that EPA uses to determine the SCF percentage is the Agency’s reliance on production da ta going back to 2005. As explained

4 Further information on the MBIP’s calculation of these values can be found in the attachment to this letter.

5 As the MBIP has explained on numerous occasi ons, the vast majority of critical use methyl bromide is produced in the first calendar quarter of the year.

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 6

below, production data that are older than two years should not be used to derive the SCF percentage because such data do not accurately reflect current production practices. However, if EPA insists on using production data back to 2005 when calculating the SCF percentage, it should exclude the data for 2006. The final 2006 CUE Rule was not promulgated until Fe bruary 6, 2006, and EPA did not issue a no action assurance that permitted the production of new material prior to this date. Thus, the production numbers for the first qua rter of 2006 are artificially low due to the inability of any manufacturer to produce material before February 6, 2006. If the production data for 2006 are exclude d, the SCF percentage for 2012 is 70.4% (without 2011 production data) or 71.5% (with 2011 production data).

EPA Must Change How it Calculates the SCF in Future CUE Rules

Aside from the apparent errors in EPA’ s calculation of the SCF, the manner in which the Agency is using historic producti on data to derive the SCF percentage is problematic and should be changed in future CUE rules. As we explained at the May 2 meeting, methyl bromide manufactur ers have made significant changes in their production schedules since 2009. At the beginning of the phaseout, manufacturers would produce material th roughout the first three quarters of each year in a continuous production cycle. But in the last 2- 3 years, manufacturers have produced nearly their entire annual supply of methyl bromide in small batches during the first quarter of the year. Conse quently, production data for years prior to 2010 are not representative of current production practi ces and do not accurately reflect the percentage of a nnual production that would be lost if the domestic supply disruption were to occur during the first 15 weeks of the year.

To account for the change in production practices, EPA should calculate the SCF percentage using only the two most recen t years of production data. If EPA had followed this approach for the 2012 CUE Rule and used only 2010 and 2011 production data as calculation inputs, the SCF percentage would have been 91.1%. This value more accurately represents th e percentage of annual production that would need to be met from pre-phaseout stocks in the event of a catastrophic domestic supply failure in the first quarter of the year.

As we stressed at the May 2, meeting, it is imperative that EPA correct the SCF percentage. By understating the SCF per centage, EPA overstate s the amount of “available stocks.” This, in turn, leads to less new production and creates a risk that

### Mr. David Donaldson Mr. Jeremy Arling May 21, 2012 Page 7

there will be a shortfall in the amount of me thyl bromide available to satisfy critical user needs in the event of a domestic pr oduction failure. Such a shortfall could result in serious supply constraints and a significant market disruption, particularly given the fact that critical users will not be able to use iodomethane as an alternative.



# * * * * * * *

If you have any further questions about th e issues outlined above, please contact me at (202) 719-7106.

Sincerely,

Tracy Heinzman

Attachment cc: MBIP Members

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# ATTACHMENTMBIP Calculation of th e SCF Percentage for 2010

Step 1. Calculate the percentage of annual production that was produced weekly in each calendar quarter for 2005 through 2008 – the most recent year for which EPA had complete production data as of the date the proposed 2010 CUE rule was published.

The following describes in mathematical terms how the MBIP calculated this percentage:

Q1 Prod = Total amount of CUE material produced/imported in Q1 2005 by all mfrs.

Q2 Prod = Total amount of CUE material produced/imported in Q2 2005 by all mfrs.

Q3 Prod = Total amount of CUE material produced/imported in Q3 2005 by all mfrs.

Q4 Prod = Total amount of CUE material produced/imported in Q4 2005 by all mfrs.

Q1 Prod 2005 Q1 Percent = Q1 Prod + Q2 Prod + Q3 Prod + Q4 Prod
2005 Q1 Percent 2005 Q1 WeeklyPct = Number of Weeks in a Calendar Quarter

The below table shows the results of this calculation for each calendar quarter from 2005 through 2008:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 3.14% 2.57% 1.33% 0.65%

2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

Step 2. For each quarter, calculate the average of the per centages that were derived in Step 1. Here is an example calculation expressed in mathematical terms:

2005 Q1 Percent + 2006 Q1 Percent + 2007 Q1 Percent + 2008 Q1 Percent Q1 Average = 4

The below table shows the results of this calculation for each calendar quarter from 2005 through 2008:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 3.14% 2.57% 1.33% 0.65%

2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%
Average 4.24% 1.54% 1.45% 0.47%Step 3. Select the maximum average percentage calculated in Step 2 and multiply it by 15, which is the length in weeks that it would take for significant imports to r each the U.S. in the event of a catastrophic domestic supply failure. The resulting product is the percentage that EPA uses to estimate the SCF.

SCF Percent = Maximum Average Percentage from Step 2 x 15

= Q1 Average x 15

= 4.24% x 15

= 63.6%MBIP Calculation of th e SCF Percentage for 2011

Step 1. Calculate the percentage of annual production that was produced weekly in each calendar quarter for 2005 through 2009 – the most recent year for which EPA had complete production data as of the date the proposed 2011 CUE rule was published.

The below table shows the results of this calculation for each calendar quarter from 2005 through 2009:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 3.14% 2.57% 1.33% 0.65%

2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

2009 2.63% 2.68% 2.38% 0.00%

Step 2. For each quarter, calculate the average of th e percentages that were derived in Step 1.

The below table shows the results of this calculation for each calendar quarter from 2005 through 2009:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 3.14% 2.57% 1.33% 0.65%

2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

2009 2.63% 2.68% 2.38% 0.00%
Average 3.92% 1.76% 1.63% 0.38%

Step 3. Select the maximum average percentage calculated in Step 2 and multiply it by 15.

SCF Percent = Maximum Average Percentage from Step 2 x 15

= Q1 Average x 15

= 3.92% x 15

= 58.8%MBIP Calculation of the SCF Percentage for 2012 Based on All Historical Production Data Except 2006

Step 1. Calculate the percentage of annual production that was produced weekly in each calendar quarter for 2005 and 2007 through 2010 – the most recent year for which EPA had complete production data as of the date the proposed 2012 CUE rule was published.

The below table shows the results of this calculation for each calendar quarter:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 -- -- -- --
2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

2009 2.63% 2.68% 2.38% 0.00%

2010 7.00% 0.65% 0.04% 0.00%

Step 2. For each quarter, calculate the average of th e percentages that were derived in Step 1.

The below table shows the results of this calculation for each calendar quarter:

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2005 4.24% 0.50% 2.20% 0.75%

2006 -- -- -- --
2007 4.06% 1.64% 1.58% 0.41%

2008 5.52% 1.43% 0.67% 0.07%

2009 2.63% 2.68% 2.38% 0.00%

2010 7.00% 0.65% 0.04% 0.00%
Average 4.69% 1.38% 1.37% 0.25%

Step 3. Select the maximum average percentage calculated in Step 2 and multiply it by 15, which is the length in weeks that it would take for significant imports to r each the U.S. in the event of a catastrophic domestic supply failure. The resulting product is the percentage that EPA uses to estimate the SCF.

SCF Percent = Maximum Average Percentage from Step 2 x 15

= Q1 Average x 15

= 4.69% x 15

= 70.4%MBIP Calculation of the SCF Percentage for 2012 Based on Two Most Recent Years of Production Data

Step 1. Calculate the percentage of annual production that was produced weekly in each calendar quarter for 2010 and 2011.

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2010 7.00% 0.65% 0.04% 0.00%

2011 5.14% 1.86% 0.42% 0.27%

Step 2. For each quarter, calculate the average of th e percentages that were derived in Step 1.

Percent of Annual Production Produced Weekly
Q1 Q2 Q3 Q4

2010 7.00% 0.65% 0.04% 0.00%

2011 5.14% 1.86% 0.42% 0.27%
Average 6.07% 1.26% 0.23% 0.14%

Step 3. Select the maximum average percentage calculated in Step 2 and multiply it by 15.

SCF Percent = Maximum Average Percentage from Step 2 x 15

= Q1 Average x 15

= 6.07% x 15

= 91.1%

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