### Flexibility in the HCFC Allowance System

The EPA established the framework for the HCFC allo wance system on January 21, 2003 (68 FR 2820). The rule (referred to as the 2003 Final Rule) estab lished an allowance transfer mechanism to provide flexibility to the regulated community and laid the groundwork for the flexible mechanisms within the HCFC phaseout program today. In preparation for the 2003 Final Rule, EPA issued an advanced notice of proposed rulemaking (ANPRM) and a notice of prop osed rulemaking (NPRM). The preambles to the ANPRM, NPRM and 2003 Final Rule provide detailed in sight into the development of the HCFC allowance system. While companies should always ref er to the most recent regulations for formal requirements and specific information, this fact sh eet highlights the flexibilities incorporated into the HCFC allowance system.

Abbreviations

CAA – Clean Air Act ODS – Ozone-depleting substance ODP – Ozone depletion potential

Inter-pollutant Transfers Any allowance holder may transfer their current yea r allowances for one HCFC into allowances for another HCFC in that same year (40 CFR 82.23(b)). E very transfer is weighted by the ozone depletion potential (ODP) of the two chemicals involved in th e transfer. As stated in the preamble to the 2003 Final Rule, “inter-pollutant transfers allow compan ies to respond to market forces and achieve economies of scale in production and import.”An off set of 0.1 percent is required for any inter-pollut ant transfer as a way to meet requirements in section 6 07 of the Clean Air Act (CAA), which says that transfers must result in less production or consump tion than would occur in the absence of such a

transfer.

Example of an inter-pollutant transfer : A company has 10,000 kilograms of HCFC-142b allow ances, and it wishes to transfer those allowances into HCF C-22 for a specific year. The result of the transfe r would be 11,806 kilograms of HCFC-22, based on the ODPs of the two chemicals (0.065 and 0.055, respectively), and the 0.1 percent offset.

Step 1: Convert based on ODP

10,000 kg HCFC– 142b x 0.065

0.055  11,818 kg HCFC– 22

Step 2: Subtract the 0.1 percent offset

11,818 kg   0.001  11,818 kg   11,806 kg HCFC– 22

EPA intends to approve inter-pollutant transfers, i ncluding those between companies, only on a year-by

year basis. The EPA will process inter-pollutant tr ansfers within three working days after receiving t he complete request. EPA will send a reply showing the new balance of unexpended allowances. EPA’s decision to provide such a fast processing time was intended to ensure that transfers are easy and EPA ’s role is not disruptive to market transactions.Inter-company Transfers

Inter-company transfers are transfers of allowances from one company to another company (40 CFR 82.23(a)). For example, Company A would transfer it s allowances to Company B who wished to have more allowances. Production, consumption and Articl e 5 allowances all may be transferred on a calendar-year basis. Additionally, one company may permanently transfer its baseline allocation to another company. EPA processes all transfer request s, with the requisite 0.1 percent offset, within th ree working days of receiving the complete request.

Inter-company and Inter-pollutant Transfers Companies can conduct both an inter-company and int er-pollutant transfer simultaneously (40 CFR 82.23(c)). For example, Company A, who holds HCFC-1 23 allowances, can transfer its HCFC-123 allowances to Company B, who then transfers the all owances to HCFC-22 based on the relative ODPs. In this instance, if Company B wanted HCFC-22 (ODP= 0.055), Company A would have to transfer 2.75 kg of HCFC-123 (ODP=0.02) for each kg of HCFC-22, p lus a 0.1 percent offset. If Company B wanted 100,000 kg of HCFC-22, the resultant transfer would be:

Company A transfers 275,000 kg of HCFC-123, plus th e 0.1 percent offset of 275 kg

Company B receives 100,000 kg of HCFC-22

EPA intends to approve inter-pollutant transfers, i ncluding those between companies, only on a year-by

year basis. EPA processes all transfer requests, wi th the requisite 0.1 percent offset, within three working days of receiving the complete request.

Refund of Consumption Allowances for Exported HCFCs The EPA requires a company to expend both consumpti on and production allowances to be able to domestically produce HCFCs (40 CFR 82.15(a)(2)). To be able to import, the EPA requires a company to expend consumption allowances (40 CFR 82.15(b)). A company may submit the proper documentation for review to the agency to verify th e export of an HCFC for which consumption allowances were expended and request a reimbursemen t of such consumption allowances (See 40 CFR 82.20 for details). The agency will review the docu mentation and issue a notice to either deny the request or grant the request. If the agency reimbur ses consumption allowances, the granting of such

allowances will be effective on the date the notice is issued. In the case of HCFC blends, allowances would be refunded for each HCFC in the blend, weigh ted by the percentage of that chemical within the blend. All refunds of consumption allowances for ex ported HCFCs are only valid for the year in which the HCFCs were exported.

Additional Flexibilities

• EPA decided in the 2003 Final Rule not to group Cla ss II HCFCs in order to allow for maximum transfer flexibility within Class II substances. In contrast, Class I substances were grouped and transfers were only permitted between substances in the same group.

• The offset required in accordance with section 607 of the CAA is only 0.1 percent for HCFCs, in contrast to one percent for Class I substances. Com menters to the proposed 2003 rule said that an offset ratio no higher than the proposed 0.1 percen t would contribute to flexibility in the system.

• International transfers of production and consumpti on allowances are allowed, with certain specifications as laid out in 40 CFR 82.18(c) and 8 2.20(b).Reporting and Recordkeeping Requirements

In addition to requesting permission for inter-poll utant and/or inter-company transfers, companies mus t report to EPA on a quarterly basis. Quarterly and a nnual reports document the quantity (in kilograms) of HCFCs produced, imported, exported, transformed and /or destroyed. EPA encourages electronic reporting, which is utilized by many companies as a means of reducing reporting and recordkeeping costs. The full recordkeeping and reporting require ments appear at 40 CFR 82.24. All relevant reportin g forms, along with instructions for electronic repor ting, can be found at http://www.epa.gov/ozone/record/classtwo.html

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For More Information Please visit EPA’s website (http://www.epa.gov/ozon e/title6/ ) for more information, including the HCFC rulemaking notices referenced in this document , as well as additional fact sheets and guidance. This document is provided solely for informational purposes. It does not provide legal advice, have legally binding effect, or expressly or implicitly create, expand, or limit any legal rights, obligati ons, responsibilities, expectations, or benefits in rega rd to any person. It is intended to assist companie s in understanding key provisions of the HCFC allowance system.

Updated on 3/15/2012