# ATTACHMENT 1

Response to Comments 2.14.2013.docx

# Response to Comments

For the Notice of Proposed Rulemaking: 

# Protection of the Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export

Docket: EPA-HQ-OAR-2011-0354

March 2013

U.S. Environmental Protection Agency Office of Air and Radiation Stratospheric Protection Division 1200 Pennsylvania Avenue, NW Washington, DC 20460i



## Table of Contents

GENERAL SUMMARY OF COMMENTS .......................

................................................... ................................. 1 1. BASELINES FOR HCFC-22 AND HCFC-142B ALLOWANCES .

................................................... .................... 7 1.1. Establishing baselines for 2012–2014 that refl ect past inter-pollutant baseline transfers ....... .......... 7 1.2. Using more recent production and import data t o establish baselines for 2015–2019, and whether there would be an environmental benefit to doing so

.................................................. ...................... 9 1.3. Whether EPA should approve future inter-pollut ant baseline transfers ............................ ............... 11 2. FACTORS CONSIDERED IN ALLOCATING AMOUNTS FOR HCF C-22 AND HCFC-142B .............................. 1 1 2.1 Surplus inventory of HCFC-22 ..................

................................................... ....................................... 13 2.2 Adjustments for recovery, reclamation, and reus e ................................................. .......................... 14 2.2.1 Projections of reclaim capabilities in the Ad justment Memo ..................................... ..... 14 2.2.2 Comments from or about large end users of ref rigerant, including supermarkets ......... 18 2.3 Estimated servicing need for HCFC-22 as present ed in the Adjustment Memo.......................... ...... 19 2.4 Effects of dry-shipped HCFC-22 equipment on th e HCFC phaseout ................................... ............... 21 3. ISSUES RELATED TO THE **ARKEMA V. EPA** DECISION ......................................... ..................................... 27 3.1 Whether EPA should provide recoupment .........

................................................... ............................ 28 3.1.1 Whether the **Arkema v. EPA** decision should be interpreted as applying to the 2010

allocation (i.e., recoupment) .....................

................................................... .................... 28 3.1.2 Whether EPA should provide recoupment for HCF C–22 and HCFC–142b, or just HCFC–22

allowances ........................................

................................................... ............................. 33 3.1.3 Whether EPA should provide recoupment for pr oduction and consumption, or just

consumption allowances ............................

................................................... ................... 33 3.2 Whether EPA should finalize option 1, 2, 3 or 4 to adjust allowances in future control periods to reflect the **Arkema v. EPA** decision (i.e., recoupment) ...................... ................................................ 33 3.2.1 Providing recoupment allowances in 2013 in ad dition to the aggregate level of

production and consumption specified in the Final R ule (i.e., option 1) ......................... 34 3.2.2. Allocating recoupment allowances over two ye ars (2013–2014) in addition to the

aggregate level of production and consumption speci fied in the Final Rule (i.e., option 2)

.................................................. ................................................... ..................................... 35 3.2.3 Allocating recoupment allowances from the agg regate level of production and

consumption specified in the Final Rule over two ye ars (2013–2014) (i.e., option 3) ..... 36 3.2.4 Treating missed allowances from 2010 as impos sible to recoup (i.e., option 4) ............. 37 4. HCFC-22 AND HCFC-142B ALLOCATIONS IN 2012-2014 .

................................................... ..................... 38 4.1 Decreasing HCFC-22 consumption allowances relat ive to the 2009 Final Rule ........................ ......... 40 4.2 Amount of HCFC-22 production allowances relati ve to the 2009 Final Rule ......................... ............ 50 4.2.1 Whether EPA can decouple the percentage of ba seline allocated for production and

consumption .......................................

................................................... ........................... 50 4.2.2 Whether EPA should increase the percentage of baseline allocated for production ..... 51ii

4.2.3 Whether an increase in the number of HCFC–22 production allowances would result in

an increase in HCFC consumption and production ....

................................................... .... 53 4.3 HCFC-142b consumption and production allowance allocations ....................................... ............... 54 5. OTHER ISSUES ...................................

................................................... ................................................... 55 5.1 HCFC supply, price, and economic conditions ...

................................................... ............................. 57 5.2 Providing allowances to reclaimers.............

................................................... .................................... 63 5.3 Providing allowances to manufacturers of HCFC b lends ............................................. ...................... 66 5.4 Potential impacts of the proposed rule on small entities and consumers ........................... ............. 67 5.5 Timely completion of the rule .................

................................................... ........................................ 71 5.6 Compliance and enforcement issues .............

................................................... ................................. 731 

## GENERAL SUMMARY OF COMMENTS This document summarizes comments on the proposed r ule, **Protection of the Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Produc**  **tion, Import, and Export** , which are found in EPA’s docket, EPA-HQ-OAR-2011-0354. A total of 124 comments were submitted and are listed in Table 1 by document ID and organization. Thirteen of these comments were submi tted after the close of the comment period on Febru ary 3, 2012. Another 14 are comments that EPA received fol lowing publication of the August 5, 2011 Interim Fi nal Rule, which has the same name as the proposed rule and covers related issues. The docket also contains comments with multiple sig natories. These signatories are listed individually in the table below. In the comments sections, two comments are listed by their group name, “Group of EPA Cert ified ODS Reclaimers,” and “Rapid Recovery Franchise Part ners,” and contain 20 and 21 signatories, respectiv ely. In addition, the docket contains multiple comments tha t were submitted by individuals associated with Joh nstone Supply. Table 1. Public Comments Received by EPA on the Adj ustments to the Allowance System for Controlling HC FC Production, Import, and Export Count Document ID Organization 1 A & M Heating, Air Conditioning & Refrigeration, In c. EPA-HQ-OAR-2011-0354-0077 2 Able Distributors EPA-HQ-OAR-2011-0354-0147 3 Air Conditioning Contractors of America (ACCA) EPA- HQ-OAR-2011-0354-0081 4 Air-Conditioning, Heating, and Refrigeration Instit ute (AHRI) EPA-HQ-OAR-2011-0354-0072 5 Airgas, Inc. EPA-HQ-OAR-2010-1040-0022 a 6 EPA-HQ-OAR-2011-0354-0079 7 APR Supply Co. EPA-HQ-OAR-2011-0354-0148 8 Arkema Inc. EPA-HQ-OAR-2010-1040-0028 a 9 EPA-HQ-OAR-2011-0354-0073 10 AZ Refrigerant Abatement, Inc EPA-HQ-OAR-2011-0354-0053 11 Bay Area Refrigerant Recovery, Inc EPA-HQ-OAR-2011- 0354-0080 12 Bettcher Enterprises, Inc EPA-HQ-OAR-2011-0354-0056 13 BRYANS UNITED AIR CONDITIONING EPA-HQ-OAR-2011-0354 -0118 14 Bryson Insurance EPA-HQ-OAR-2011-0354-0135 15 Carroll Area Development Corporation EPA-HQ-OAR-201 1-0354-0159 b 16 Center for Energy Efficiency and Sustainability, In gersoll Rand EPA-HQ-OAR-2011-0354-0063 17 Certified Refrigerant Services Inc. EPA-HQ-OAR-2011-0354-0057 18 Coburn Supply Company, Inc. EPA-HQ-OAR-2011-0354-0149 19 Consolidated Refrigerant Reclaim EPA-HQ-OAR-2011-0354-0083 20 Coolgas, Inc. EPA-HQ-OAR-2011-0354-0088 b

21 Cottongim Heating & Cooling EPA-HQ-OAR-2011-0354-0154 22 DALHOUSIE UNIVERSITY EPA-HQ-OAR-2011-0354-0091 23 Delta Ice Air & Heat, Inc. EPA-HQ-OAR-2011-0354-0138Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 2 Count Document ID Organization 24 Dermid Enterprises, LLC EPA-HQ-OAR-2011-0354-0113 25 Doug's Refrigeration EPA-HQ-OAR-2011-0354-0116 26 DuPont EPA-HQ-OAR-2010-1040-0020 a 27 EPA-HQ-OAR-2011-0354-0070 28 E.A.S.E. LLC EPA-HQ-OAR-2011-0354-0107 29 Energy Specialists Air Conditioning Co. EPA-HQ-OAR- 2011-0354-0109 30 Express Heating and Air Conditioning Services LLC E PA-HQ-OAR-2011-0354-0137 31 Express Recovery, Inc EPA-HQ-OAR-2011-0354-0050 c 32 EPA-HQ-OAR-2011-0354-0075 33 Food Marketing Institute (FMI) EPA-HQ-OAR-2011-0354-0157 b 34 EPA-HQ-OAR-2011-0354-0158 b 35 Fountainbleau Management Services, LLC EPA-HQ-OAR-2 011-0354-0139 36 Golden Refrigerant EPA-HQ-OAR-2011-0354-0054 37 EPA-HQ-OAR-2010-1040-0025 a 38 Goodman Global, Inc. EPA-HQ-OAR-2011-0354-0084 39 Greens Services Inc. EPA-HQ-OAR-2011-0354-0090 40 Greer Holdings, LLC EPA-HQ-OAR-2011-0354-0052

41 Group of EPA Certified ODS Reclaimers

EPA-HQ-OAR-2011-0354-0085 d

**Aerosys Inc. Airgas Refrigerants, Inc.**  **AllCool Refrigerant Reclaim American Refrigerants, Inc.**  **Certified Refrigerant Services, Inc. Consolidated Refrigerant Reclaim**  **Coolgas, Inc. ICOR International**  **J.R.’s Appliance Disposal Novent Refrigerant Services**  **Refrigerant Exchange Corp. Refrigerants Inc.**  **REMTEC International Perfect Cycle CFC Group**  **Pure Chem Separation LP RMS of Georgia**  **Safe Disposal Systems, Inc. SpecGas Inc.** Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 3 Count Document ID Organization

**Summit Refrigerants Total Reclaim, Inc.**  42 Harrell's A/C & Heating Services EPA-HQ-OAR-2011-0354-0104 43 Heating, Air-Conditioning and Refrigeration Distrib utors International EPA-HQ-OAR-2011-0354-0069 44 Highland Electric Heat & Air LLC EPA-HQ-OAR-2011-0354-0096 45 Hinton A/C Services EPA-HQ-OAR-2011-0354-0106 46 Honeywell EPA-HQ-OAR-2011-0354-0082 47 EPA-HQ-OAR-2010-1040-0029 a 48 Houston Refrigerant Recovery, LLC EPA-HQ-OAR-2011-0 354-0060 49 Hudson Technologies Company EPA-HQ-OAR-2010-1040-0027 a 50 EPA-HQ-OAR-2011-0354-0071 51 HVAC Service Solutions EPA-HQ-OAR-2011-0354-0115 52 ICOR International Inc. EPA-HQ-OAR-2010-1040-0031 a 53

Johnstone Supply EPA-HQ-OAR-2011-0354-0095 54 EPA-HQ-OAR-2011-0354-0097 55 EPA-HQ-OAR-2011-0354-0098 56 EPA-HQ-OAR-2011-0354-0099 57 EPA-HQ-OAR-2011-0354-0101 58 EPA-HQ-OAR-2011-0354-0120 b 59 EPA-HQ-OAR-2011-0354-0124 60 EPA-HQ-OAR-2011-0354-0132 61 EPA-HQ-OAR-2011-0354-0133 62 EPA-HQ-OAR-2011-0354-0136 63 EPA-HQ-OAR-2011-0354-0140 64 EPA-HQ-OAR-2011-0354-0145 65 EPA-HQ-OAR-2011-0354-0153 66 LA Refrigerant Recovery, Inc EPA-HQ-OAR-2011-0354-0051 67 Lemoine Marine Refrigeration, Inc EPA-HQ-OAR-2011-0 354-0127 68 Lennox International Inc. EPA-HQ-OAR-2011-0354-0061 69 Mayeux's A/C & Heating, Inc. EPA-HQ-OAR-2011-0354-0093 70 EPA-HQ-OAR-2011-0354-0094 71 MDA Manufacturing, Inc. EPA-HQ-OAR-2010-1040-0030 a 72 Mexichem Fluor Inc. EPA-HQ-OAR-2011-0354-0066 73 Mondy Global, Inc. EPA-HQ-OAR-2011-0354-0055

74 National Multi Housing Council (NMHC) EPA-HQ-OAR-2011-0354-0156 b,e National Apartment Association (NAA)Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 4 Count Document ID Organization 75 National Refrigerants, Inc. (NRI) EPA-HQ-OAR-2011-0354-0068

76 Natural Resources Defense Council (NRDC) EPA-HQ-OAR-2011-0354-0067 f Institute for Governance & Sustainable Development (IGSD) Environmental Investigation Agency (EIA) 77 Natural Resources Defense Council (NRDC) EPA-HQ- OAR-2010-1040-0033 a 78 NORDYNE EPA-HQ-OAR-2011-0354-0089 79 Perfect Score Technologies, LLC EPA-HQ-OAR-2011-0354-0150 b 80 Perry’s Electric, Inc. EPA-HQ-OAR-2011-0354-0131 81 Polar Technology EPA-HQ-OAR-2011-0354-0076 82

Private Citizen Comment EPA-HQ-OAR-2011-0354-0100 83 EPA-HQ-OAR-2011-0354-0102 84 EPA-HQ-OAR-2011-0354-0103 85 EPA-HQ-OAR-2011-0354-0110 86 EPA-HQ-OAR-2011-0354-0111 87 EPA-HQ-OAR-2011-0354-0112 88 EPA-HQ-OAR-2011-0354-0119 b

89 EPA-HQ-OAR-2011-0354-0121 b

90 EPA-HQ-OAR-2011-0354-0123 b

91 EPA-HQ-OAR-2011-0354-0125 92 EPA-HQ-OAR-2011-0354-0126 93 EPA-HQ-OAR-2011-0354-0128 94 EPA-HQ-OAR-2011-0354-0129 95 EPA-HQ-OAR-2011-0354-0130 96 EPA-HQ-OAR-2011-0354-0134 97 EPA-HQ-OAR-2011-0354-0142 98 EPA-HQ-OAR-2011-0354-0143 b

99 EPA-HQ-OAR-2011-0354-0144 b

100 EPA-HQ-OAR-2011-0354-0146 101 EPA-HQ-OAR-2011-0354-0151 102 EPA-HQ-OAR-2011-0354-0152 103 EPA-HQ-OAR-2011-0354-0155

104 Rapid Recovery Franchise Partners

EPA-HQ-OAR-2011-0354-0086 g

**Georgia Carolina Refrigerant Recovery, Inc. AZ Refrigerant Abatement, Inc.**  **SLC Abatement, Inc. Abatement and Recovery Services of WA, Inc.** Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 5 Count Document ID Organization

**Southeast Refrigerant Recovery, Inc. Bay Area Refrigerant Recovery, Inc.**  **Mid-South Refrigerant Abatement, LLC Sacramento Refrigerant Recovery, Inc**  **Houston Refrigerant Recovery, LLC Greer Holdings, LLC**  **Express Recovery, Inc. Bettcher Enterprises, Inc.**  **KC Refrigerant Recovery Services, Inc SAMCOM, Inc.**  **Rocky Mountain Refrigerant Abatement, LLC Refrigerant Recovery, Inc.**  **Landco Industrial Services, LLC Rhynard and White Enterprises, Inc.**  **LA Refrigerant Recovery, Inc. RR Operations, LLC**  **John Thompson** 105 Regional Mechanical EPA-HQ-OAR-2011-0354-0117 106 RemTec International EPA-HQ-OAR-2010-1040-0024 a 107 Rheem Manufacturing Company EPA-HQ-OAR-2011-0354-0087 108 Rhynard and White Enterprises, Inc. EPA-HQ-OAR- 2011-0354-0058 109 RMS of Georgia, LLC EPA-HQ-OAR-2011-0354-0078 110 Rocky Mountain Refrigerant Abatement, LLC EPA- HQ-OAR-2011-0354-0059 111 RSS Realtors EPA-HQ-OAR-2011-0354-0105 112 Solvay Fluorides, LLC EPA-HQ-OAR-2010-1040-0026 a,h

113 EPA-HQ-OAR-2011-0354-0064 a,h 114 Southeast Refrigerant Recovery, Inc. EPA-HQ-OAR -2011-0354-0074 115 Summit Refrigerants EPA-HQ-OAR-2011-0354-0062 116 Surgi's Heating and Air Conditioning EPA-HQ-OAR -2011-0354-0114 117 Sustainable Energy Solutions LLC EPA-HQ-OAR-2011-0354-0141 118 T.L. Maintenance HVAC EPA-HQ-OAR-2011-0354-0092 119 Thermal Solutions LLC EPA-HQ-OAR-2011-0354-0108 120 Tri-Parish A/C & Refrigeration, L.L.C. EPA-HQ-O AR-2011-0354-0122 b

121 USA Refrigerants EPA-HQ-OAR-2010-1040-0021 a

122 EPA-HQ-OAR-2010-1040-0023 a 123 UTC Climate EPA-HQ-OAR-2011-0354-0065Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 6 Count Document ID Organization 124 Williams & Associates EPA-HQ-OAR-2010-1040-0032 a

a. Comment on 2011 Interim Final Rule. b. Comment was submitted after the close of the commen t period on February 3, 2012.

c. Duplicate copy of EPA-HQ-OAR-2011-0354-0075. All Ex press Recovery, Inc. comments are listed under EPA- HQ-OAR2011-0354-0075 in the following sections. d. For the remainder of the document, the collective g roup of 20 reclaimer signatories will be referred t o as “Group of

EPA Certified ODS Reclaimers.”

e. EPA-HQ-OAR-2011-0354-0156 was collectively submitte d by the National Multi Housing Council (NMHC) and Na tional Apartment Association (NAA). f. EPA-HQ-OAR-2011-0354-0067 was collectively submitte d by the Natural Resources Defense Council (NRDC), the

Institute for Governance & Sustainable Development (IGSD), and the Environmental Investigation Agency (EIA). g. For the remainder of the document, the collective g roup of 21 reclaimer signatories will be referred t o as “Rapid

Recovery Franchise Partners.” h. This comment was submitted on behalf of Solvay Fluo rides, LLC and Solvay Solexis. All comments have been reviewed, summarized, and or ganized by main topics within the remainder of this document to highlight major issues and clarify requ ests pertinent to the rule. Summaries are organized by the following main topics of stakeholder concern:

• Section 1 – Baselines for HCFC-22 and HCFC-142b All owances

• Section 2 – Factors Considered in Allocating Amount s for HCFC-22 and HCFC-142b

• Section 3 – Issues Related to the **Arkema v. EPA** Decision

• Section 4 – HCFC-22 and HCFC-142b Allocations in 20 12-2014

• Section 5 – Other Issues For the purpose of this comment summary, section or ganization does not exactly follow the outline esta blished in the proposed rule, but follows a logical order o f discussion; the selection and organization of the se section topics are based on topic frequency and whether EPA sought specific comments on the issue. At the beginning of each section, an outline of top ics is provided followed by a table detailing comme nters that contributed comments, which is organized by documen t ID. Below each individual topic heading of a sect ion, a bulleted list of comments is provided. Special atte ntion was paid to ensure that comments were properl y addressed with sufficient and relevant detail extra cted from their submittal. Commenters are listed at the beginning and Docket ID numbers are provided in par entheses at the end of each comment. The majority of comments submitted to EPA express s upport for EPA in its commitment to the Montreal Protocol and reduction of ozone-depleting substance s for public and environmental health interests. Co mments deal primarily with EPA’s request for comments rega rding HCFC allocations in 2012-2014. Commenters wer e split between supporting a reduction and opposing a reduction. However, a slight majority of the organ izations commenting supported the reduction of HCFC-22 consu mption allowances relative to the 2009 Final Rule, with many of those commenters supporting at least a 20 p ercent or greater reduction. Commenters also genera lly supported the decoupling of production and consumpt ion allowances. In addition, of the nine entities commenting on recoupment, seven were in opposition. Comments regarding the Adjustment Memo generally supported the concept that the reclamation industry is able to increase its current capacity, and many commenters also noted concerns about an oversupply and low price for HCFC-22. Several commenters expressed concern regarding the timing of the propo sed and final rules’ release and effect on the HVAC R industry and consumers. Commenters requested swift and clear direction from EPA. Commenters further expressed the need for enforcement to ensure a smoo th phaseout.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 7 

## 1. BASELINES FOR HCFC-22 AND HCFC-142B ALLOWANCES

1.1 Establishing baselines for 2012–2014 that refle ct past inter-pollutant baseline transfers 1.2 Using more recent production and import data to establish baselines for 2015–2019, and whether there would be an environmental benefit to doing so 1.3 Whether EPA should approve future inter-polluta nt baseline transfers

Count Commenter Organization Document ID No 1 Diran Yegparian Mondy Global, Inc. EPA-HQ-OAR-201 1-0354-0055 2 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2011-0 354-0064 3 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2011-035 4-0082 4 Mack McFarland DuPont EPA-HQ-OAR-2011-0354-0070 5 William J. Hamel Arkema Inc. EPA-HQ-OAR-2011-0354 -0073 6 Mack McFarland DuPont EPA-HQ-OAR-2010-1040-0020 7 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2010-104 0-0029 8 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2010-1 040-0026



## 0.1. Establishing baselines for 2012–2014 that reflect p ast inter-pollutant baseline transfers EPA received comments from two companies that suppo rt the baselines used in the proposal for 2012-2014

. Two other companies do not support the proposed bas elines. Arkema and Solvay support EPA’s inclusion of past i nter-pollutant transfers of baseline allowances.  Arkema and Solvay support EPA’s interpretation of the D.C. Circuit’s decision in **Arkema** v **. EPA** with regard to baseline allowances. Arkema states that the ques tion of baseline allowances was a straightforward problem and was correctly settled in the Interim Fi nal Rule providing 2011 HCFC-22 and HCFC-142b basel ine allowances, published on August 5, 2011.[0073, 0064 ] **EPA Response:** EPA agrees with the commenters that the baselines used in the proposed rule are consistent with the U.S. Court of Appeals for the D.C. Circuit’s de cision in **Arkema** v **. EPA** . A more complete discussion of the baselines used in the final rule is available in se ction IV.A.1. of the preamble and in the 2011 Inter im Final Rule (76 FR 47451). DuPont and Honeywell expressed concern and oppositi on regarding EPA’s proposed method for establishing baselines.  DuPont is concerned with the proposed readjustments in baselines and the economic harm it will cause DuPont. DuPont asserts that the U.S. Court of Appea ls for the District of Columbia Circuit decision in **Arkema v. EPA**  did not address the validity of Arkema's and Solva y's 2008 transfers, but rather simply assumed they were valid for purposes of the challenge to the 200 9 Final Rule. Thus, DuPont comments that the Arkema decision does not mandate that EPA simply assume th e validity of those transfers. The commenter believ es that amending Arkema’s and Solvay’s baselines to ac count for their 2008 inter-pollutant transfers viol ates the CAA and DuPont’s due process rights. DuPont bel ieves a more prudent course would be for EPA to gra nt the pending joint petition for reconsideration of t he approval of those 2008 transfers filed by DuPont and Honeywell. DuPont comments that granting this petit ion would not prevent the agency from adopting its proposed decoupling and reductions in consumption a llowances, and would result only in the proper readjustment of individual company baselines. [0070 , 0020]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 8 Honeywell objects to the Proposed Rule’s method for establishing baselines. According to the commenter , EPA’s underlying assumption in the Proposed Rule is that the D.C. Circuit’s decision in **Arkema** mandates the establishment of baselines that recognize the 2008 transfers by Arkema and Solvay of HCFC-142b into HC FC22 on a permanent basis. Honeywell believes both th e Clean Air Act and EPA policy prohibit such perman ent transfers. Furthermore, Honeywell believes that the method and allocation EPA now proposes violates th e **Arkema** decision and fundamental concepts of due process. Honeywell also incorporated its previous comments on this issue (a petition to EPA submitted Oct. 6, 2010, and the petitioners’ briefs in **Honeywell International Inc.**  v **. EPA** ) by reference. [0082] Honeywell believes the D.C. Circuit decision in **Arkema** did not address the validity of the 2008 interpollutant transfers by Arkema and Solvay, but rathe r assumed they were valid for purposes of the chall enge to the 2009 Final Rule. Thus, Honeywell does not be lieve that EPA is mandated by that decision simply to recognize the validity of those transfers. Instead, Honeywell believes EPA should grant the pending pe tition for reconsideration of these transfers filed jointl y by Honeywell and DuPont. Honeywell states that if EPA determines that the transfers are void **ab initio** , EPA’s justification for the Interim Rule’s alloca tion of baseline would be moot. The commenter states that v ery issue is the subject of pending litigation invo lving Honeywell and EPA before the D.C. Circuit. Honeywel l notes that were the Court to vacate the four 2008 transfers, EPA would have no choice but to begin an other rulemaking, as the Proposed Rule is erroneous ly premised on the legitimacy of those transfers. [008 2, 0029] Honeywell comments that EPA’s decision to approve i nter-pollutant transfers in 2008 was not consistent with the CAA or EPA’s own regulations. Honeywell no tes that inter-pollutant transfers and inter-compan y transfers are treated quite differently under the t erms of the CAA statute. Under §607(b) of the CAA, interpollutant transfers of allowances may occur only on a current year basis. The provision governing inte rcompany transfers – § 607(c) – contains no such tem poral restriction. Honeywell states that EPA’s regulations are consistent with this view of § 607( b). Honeywell notes the subsection dealing with int erpollutant transfers refers repeatedly to the “contr ol period,” which is defined in EPA regulations as a calendar year. Honeywell further comments that in the Proposed Rul e, EPA has departed from the clear language of the statute and the provisions of its own regulatio ns that distinguish inter-pollutant transfers from intercompany intra-pollutant transfers on the grounds th at inter-pollutant transfers are available only for the current “control period” (i.e., year). Honeywell ur ges EPA to change its approach and act consistently with the statute and EPA’s regulations. [0082] Honeywell comments that EPA’s approach fails to fol low the agency’s original interpretation of its tra nsfer regulations that the “phase-down follows the allowa nce” – in other words, that any inter-pollutant tra nsfer is subject to the phase-down of the transferred che mical. Honeywell states that EPA may not change thi s interpretation without notice-and-comment rulemakin g. Honeywell believes that to the extent that EPA intends to grant Arkema and Solvay additional allow ances in 2012-2014 to reflect the 2008 transfers, i t must reduce those allowances by the same percent that th e agency is phasing out HCFC-142b. Honeywell comments that only in that way will the transferred allowances fairly reflect EPA’s ongoing effort to meet the Clean Air Act’s mandate to accelerate the phase out of HCFCs. [0082] Honeywell further notes that EPA’s authority to pro mulgate regulations is limited to those which are reasonable and not arbitrary and capricious, citing **Chevron U.S.A. Inc.** v **. Natural Res. Def. Council** , 467 U.S. 837, 842-844 (1984). Under the Court decision, HCFC -22 baseline transferred from HCFC-142b is consider ed “vested.” The Proposed Rule responds to the Arkema ruling by increasing the share of the baseline awar ded to Arkema and Solvay. The share of the baseline awa rded to Honeywell and other holders of baseline is accordingly reduced. Honeywell believes this result is arbitrary and capricious: Honeywell and others' shareResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 9 of the baseline is vested and therefore Honeywell d oes not think it may be invaded by EPA to award to other participants. Honeywell comments that they are inju red by the Proposed Rule, which increases the annua l allocation of HCFC-22 allowances to Arkema and Solv ay. As a consequence of these transfers, Honeywell notes that they suffer a decrease in the total numb er of HCFC-22 annual production and/or consumption allowances allocated to them, a dilution in the val ue of those HCFC-22 production and consumption allowances, a decrease in their share of the demand market, and other potential injuries. Honeywell ur ges EPA to adopt an allocation scheme that does not tak e from the vested rights of Honeywell and other baseline holders to give to Arkema and Solvay to pr otect their vested rights. [0082] EPA Response: As discussed in this final rule and the 2011 Interi m Final Rule (76 FR 47451), the decision in **Arkema** v **. EPA** required EPA to consider the 2008 inter-pollutant transfers in setting the baselines for future allocations, at least to the extent EPA continues t o use the historical production and consumption bas elines. The D.C. Circuit recently held that **Arkema v. EPA** forecloses challenges to the 2008 transfers **. Honeywell International, Inc. v. EPA**  , D.C. Cir. No. 10-1347 (January 22 nd , 2013). A more complete discussion of the baseline s used in the final rule is available in section IV.A .1. of the preamble and in the 2011 Interim Final R ule (76 FR 47451). The full response to this comment is in sec tion IV.A.1. of the preamble. 

## 0.2. Using more recent production and import data to est ablish baselines for 2015–2019, and whether there would be an environmen tal benefit to doing so EPA received two comments supporting the use of 200 5-2007 production and import data to establish base lines for 2015-2019 and two other comments stating that E PA should not revise company baselines.

Honeywell and DuPont believe that 2005-2007 data sh ould be used to establish baselines.  Honeywell and DuPont support the idea that the 2015 -2019 allocation period should use the highest production and import levels for HCFC-22 between 20 05-2007 rather than the 1994-1997 baseline. Honeywell believes baselines should be updated to m ore accurately reflect current market conditions. Honeywell suggests that EPA should revise each prod ucer’s and importer’s production and consumption baselines by allowing each entity to select its hig hest year of actual production and consumption from among the calendar years 2005, 2006, and 2007. Hone ywell states that EPA has set a precedent for using the period 2005-2007 since it chose to use that sam e period as the baseline for newly-controlled HCFCs . (74 Fed. Reg. 66412 (Dec. 15, 2009)). Honeywell believe s those three years are best suited to be the basel ine here, too, because they are the three years nearest in time to the present that both represent relativ ely stable market conditions and were not influenced by the 2009 Final Rule. Honeywell believes using more recent years would be inappropriate: 2008 and 2009 production and consumption were negatively impacted by the economic downturn and are not fairly represe ntative years; 2010 and 2011 are inappropriate as t hey fell under the 2009 Final Rule and thus already ref lect the initial 2010-2014 step-down period reducti ons. Honeywell notes that allowing each baseline allowan ce holder to select the highest year of the three y ears allows for the smoothing of year-to-year variabilit y. [0070, 0082] DuPont notes that to assign company baselines for t he HCFCs for which no baselines had been establishe d in the 2003 Final Rule, EPA utilized 2005-2007 data to "ensure that the baseline reflects the current mar ket as closely as possible...” in the 2009 Final Rule. This methodology followed past practice with respect to establishing baselines for HCFC-141b, HCFC-22 and H CFC-142b. DuPont notes that EPA has also chosen to implement a "worst first" policy for HCFCs, integra l to which is a limited lifespan for HCFC allowance s and allowances derived from an HCFC subject to 100 perc ent phase-out. HCFC allowances, even if transferred from one HCFC to another every calendar year do not live on in perpetuity; instead, when the underlyin g HCFC source of an allowance is completely phased ou t, so too are all allowances derived from the HCFC.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 10 DuPont believes the agency should continue to follo w these past practices and take further action to r evise all HCFC baselines through consideration of a compa ny's highest reported consumption and production of such HCFCs during the years 2005-2007. DuPont notes that this action would reset baselines to reflect the current market as closely as possible and avoid rew arding companies for attempting to manipulate their baselines by converting allowances from HCFCs that they knew would have no future value to HCFC allowances they knew would retain value in the curr ent step down period and beyond. [0070] DuPont notes that in discussion of **Arkema** , the Court stated that "the Agency is certainly en titled to ... institute a program that forbids baseline inter-pol lutant transfers in the future.” The Court in **Arkema** also agreed that EPA "may interpret what constraints, if any, Congress placed on the establishment of basel ines for each step-down period.” DuPont notes that EPA t hus has ample discretion under the CAA to update HCFC-22 baselines and encourages the agency to unde rtake this action utilizing the 2005-2007 productio n and consumption period. Given that EPA has consider ed different baseline allocation methodologies sinc e 2001 and reconsidered updating baselines in 2008-20 09 as part of the 2009 Final Rule, DuPont sees no reason why EPA cannot act in a more expeditious man ner. DuPont urges EPA to take action on this matter at the earliest possible time and not to consider real location of HCFC allowances as inextricably tied to the next regulatory step down period of 2015-2019. [0070] EPA Response: EPA is not updating the baselines for 2012-14. In t he notice of proposed rulemaking, the agency did not take comment on changing baselines in 2012- 2014. This was because the agency did not believe t here would be adequate time to make a significant change to baselines or to adopt other allocation options in the current regulatory period. In addition, evaluating and implementing such a change could have injected additional uncertainty into the market in the short term. For these reasons, EPA did not propose, and is not finalizing, changed baselines for 2012-14. EPA remains open to revising the allowance system a nd baselines in the future. Several options EPA cou ld use were discussed in the 2009 Final Rule (74 FR 66412) and could be explored in more detail. However, EPA would want to weigh whether updating baselines or changin g the allocation system five years before the compl ete phaseout of HCFC-22 would provide sufficient benefi t (particularly environmental benefit) to justify t he time and potential burden. In addition, if EPA were to consi der updating baselines, EPA would want to assess wh ether and how the 2008 inter-pollutant transfers should be ta ken into account. EPA agrees that it has made past statements indicating that once an HCFC is phased o ut (not phased down), all baseline allowances assoc iated with that HCFC are also phased out (as discussed fu rther in section V.A. of the preamble to the final rule). EPA will continue to review these issues as it develops the proposed 2015-2019 HCFC allocation. Solvay and Mondy Global Inc. state that EPA should continue to use existing baselines.  Mondy Global Inc. comments that EPA should not revi se company baselines for the 2015-2019 allocation period. They believe that EPA’s current allocation method is the fairest way to allocate allowances be cause it is transparent and clear. Market participants kn ow what their baselines are and thus can anticipate their share of the allocation in relation to other compan ies, which is critical for business planning. There fore, continuing to use existing baselines would be the l east disruptive to the market. [0055] Solvay believes there is no benefit to using more r ecent data to establish baselines for 2015-2019, an d no benefit to a lengthy process to potentially distrib ute the same number of allowances. However, Solvay believes that further reductions in the number of a llowances that EPA issues in future calendar years will benefit the environment by promoting reclamation. [ 0064] EPA Response: See previous response. Additionally, no comments we re received indicating there is an environmental benefit to revising baselines in the future. However, the agency will continue to evalua te all options before establishing allowances for the 2015 -2019 regulatory period.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 11 

## 0.3. Whether EPA should approve future inter-pollutant b aseline transfers EPA received two comments on EPA’s proposed changes to the regulatory text covering future allowance transfers. Mondy Global Inc. supports EPA’s propose d changes, while Solvay does not.  Mondy Global Inc. supports EPA’s proposed changes t o the regulatory text prohibiting permanent transfe rs of baseline allowances because it will prevent futu re manipulation of the allowance program. According to the commenter, the CAA plainly prohibits permanent inter-pollutant transfers. [0055] EPA Response: As discussed in the proposed rule and in the 2011 Interim Final Rule, EPA is concerned that allowing inter-pollutant baseline transfers could u ndermine the HCFC phaseout program and is therefore finalizing the changes to the regulatory text. EPA believes the CAA language is ambiguous but is best read as prohibiting permanent inter-pollutant transfers. A more complete response is available in section V. o f the preamble to the final rule.  Solvay comments that EPA should revisit its thinkin g on future inter-pollutant baseline transfers. Sol vay disagrees with EPA’s statement in the preamble that EPA will not recognize inter-pollutant transfers w hen it updates the baseline in preparation for the 2015-20 19 step-down period. Solvay disagrees with EPA’s concern that by recognizing permanent inter-polluta nt transfers in future baseline calculations, compa nies could ‘game’ the system by making transfers from su bstances that are being phased out into allowances for substances that may still be used. Solvay notes tha t in 2008 and 2009 it converted the vast majority o f its HCFC-142b allowances into HCFC-22 allowances for sa le to US customers, continuing a practice it began in 2006 and which EPA acknowledged in 2009. Solvay com ments that they made these inter-pollutant transfer s because it was in Solvay and its customers’ interes t to engage in those transactions. Solvay notes the se were market-driven transactions, which EPA seeks to prom ote. [0064] Solvay suggests that for 2015-2019, EPA could permi t permanent inter-pollutant transfers to be convert ed from one control period to another only if substant ial allowance conversions and market activity has t aken place before the last year of a control period. Sol vay believes that mere paper transactions should be disallowed, but transactions that have actually tak en place in the market should be recognized. Solvay notes that it has considered the precedent such a blanket rule [i.e. not recognizing inter-pollutant transfe rs] might have on any future cap-and-trade policy administere d by EPA. Solvay envisions a scenario where an allowance holder could change the focus of its busi ness to produce and sell a substance that is relati vely less harmful to the environment. However, Solvay believe s that if a company cannot be guaranteed allowances in future years, the company may decide that the co st is too great to justify production of that subst ance for just a limited time. The result would be greater pr oduction and sale of a substance that is more harmf ul to the environment and a lack of competition and innov ation. [0064] EPA Response: EPA is not considering in this action whether perma nent inter-pollutant transfers should be allowed in other current or future cap-and-trade pr ograms. EPA’s policy and legal interpretation regar ding interpollutant transfers in the stratospheric ozone prog ram are specific to the structure of the program an d the language of section 607 of the CAA. A response to t he remainder of this comment is available in sectio n V. of the preamble to the final rule.



## 2. FACTORS CONSIDERED IN ALLOCATING AMOUNTS FOR HCF C-22 AND HCFC-142B EPA received 43 comments (signed by multiple commen ters) on factors considered in allocating HCFC allowances. Comments were in reference to four main topics:Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 12 2.1 Surplus inventory of HCFC-22 2.2 Adjustments for recovery, reclamation, and reus e 2.2.1 Projections of reclaim capabilities in the Ad justment Memo 2.2.2 Comments from or about large end users of ref rigerant, including supermarkets 2.3 Estimated servicing need for HCFC-22 as present ed in the Adjustment Memo 2.4 Effects of dry-shipped HCFC-22 equipment on the HCFC phaseout

Count Commenter Organization Document ID No 1 David Doniger Natural Resources Defense Council ( NRDC) EPA-HQ-OAR-2011-0354-0067 2 William J. Hamel Arkema Inc. EPA-HQ-OAR-2011-0354 -0073 3 Rick Roland Certified Refrigerant Services Inc. E PA-HQ-OAR-2011-0354-0057 4 Karim Amrane AHRI EPA-HQ-OAR-2011-0354-0072 5 Rich Dykstra Consolidated Refrigerant Reclaim EPA -HQ-OAR-2011-0354-0083 6 Gary L. Clark Goodman Global, Inc. EPA-HQ-OAR-201 1-0354-0084 7 RemTec International Group of EPA Certified ODS Reclaimers EPA-HQ-OAR-2011-0354-0085 8 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2011-0354-0082 9 Stephen P. Mandracchia Hudson Technologies Compan y EPA-HQ-OAR-2011-0354-0071 10 Jerry Dykstra Rapid Recovery Franchise Partners EPA-HQ-OAR-2011-0354-0086 11 A. Stephen Trevino Summit Refrigerants EPA-HQ-O AR-2011-0354-0062 12 Mack McFarland DuPont EPA-HQ-OAR-2011-0354-0070 13 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2011- 0354-0064 14 Walt Baker Polar Technology EPA-HQ-OAR-2011-0354 -0076 15 Michael Bleier Able Distributors EPA-HQ-OAR-2011 -0354-0147 16 Charles McCrudden ACCA EPA-HQ-OAR-2011-0354-0081 17 John Tice APR Supply Co. EPA-HQ-OAR-2011-0354-01 48 18 Jeff Moe Center for Energy Efficiency and Sustainability, Ingersoll Rand EPA-HQ-OAR-2011-0354-0063 19 Don Maloney Coburn Supply Company, Inc. EPA-HQ-O AR-2011-0354-0149 20 Colt Anderson Cottongim Heating & Cooling EPA-HQ -OAR-2011-0354-0154 21 Jonathan Melchi Heating, Air-Conditioning and Refrigeration Distributors International EPA-HQ-OAR-2011-0354-0069 22 Kyle E. Gilley Lennox International Inc. EPA-HQ- OAR-2011-0354-0061 23 David Lambert NA EPA-HQ-OAR-2011-0354-0126 24 Maureen Beatty National Refrigerants, Inc. (NRI) EPA-HQ-OAR-2011-0354-0068 25 Michael Seabaugh NORDYNE EPA-HQ-OAR-2011-0354-0089 26 Karen B. Meyers Rheem Manufacturing Company EPA- HQ-OAR-2011-0354-0087 27 John Mandyck UTC Climate EPA-HQ-OAR-2011-0354-00 65 28 M. J. Dermid Dermid Enterprises, LLC EPA-HQ-OAR- 2011-0354-0113 29 John M. Batt Airgas, Inc. EPA-HQ-OAR-2011-0354-0079 30 Joel K. French Coolgas, Inc. EPA-HQ-OAR-2011-035 4-0088 31 Erik R. Lieberman Food Marketing Institute (FMI) EPA-HQ-OAR-2011-0354-0157 32 Mack McFarland DuPont EPA-HQ-OAR-2010-1040-0020 33 Theodore Broudy; James Burke USA Refrigerants EPA-HQ-OAR-2010-1040-0023 34 Richard Marcus RemTec International EPA-HQ-OAR-2 010-1040-0024 35 Carl Grolle Golden Refrigerant EPA-HQ-OAR-2010-1 040-0025 36 Stephen Mandracchia Hudson Technologies EPA-HQ-O AR-2010-1040-0027 37 Pete Williams Williams & Associates EPA-HQ-OAR-2 010-1040-0032 38 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2010- 1040-0026Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 13 Count Commenter Organization Document ID No 39 Erik R. Lieberman Food Market Institute EPA-HQ-O AR-2010-1040-0158 40 Kenneth M. Ponder RMS of Georgia, LLC EPA-HQ-OAR -2011-0354-0078 41 David P. Huet Johnstone Supply EPA-HQ-OAR-2011-0 354-0101 42 Terry Deppe Johnstone Supply EPA-HQ-OAR-2011-035 4-0140 43 Peter M. Geosits Mexichem Fluor Inc. EPA-HQ-OAR- 2011-0354-0066 

## 2.1 Surplus inventory of HCFC-22 EPA received ten comments on its estimate of surplu s HCFC-22 production from past years that is in exi sting inventory.

 NRDC, IGSD, and EIA comment that the 45,400 MT stoc kpile and the 6,000 MT annual drawdown should reasonably be regarded as minimum, not maximum, est imates. They state that the Adjustment Memo indicates that the stockpile may be an underestimat e due to greater stockpiling during an unexpectedly cool summer in 2009 and “in anticipation of higher price s” during the 2010-2014 period. [0067]  Hudson believes that there are significant volumes of HCFC-22 stockpiled and available to meet demand. Hudson comments that EPA’s assessment of stockpiled inventory in the Adjustment Memo, and its effect o n the aftermarket, is essential for supporting recove ry and reclamation. [0071, 0027]  Coolgas strongly supports EPA’s consideration of HC FC-22 stockpiles. However, based on the amount of stockpiled HCFC-22 Coolgas holds and based upon its own independent estimates of industry stockpiles, the company believes that the quantity of inventory sur plus used in the Vintaging Model may be underestimated. [0088]  Solvay urges EPA to reduce allowances in 2013 and 2 014. Solvay notes that the amount of HCFC-22 in inventory is likely greater than one year's supply of virgin material based on the "Adjustment Memo" included in the Docket, which estimates current inv entory of HCFC-22 as high as 45,400 MT. Reducing fu ture allowances should reduce this inventory overhang, s upporting the sustainable reclamation industry whil e ensuring that sufficient supply is available for al l consumers. Solvay also notes that they have no fi rst-hand knowledge of any company having a problem sourcing virgin material. [0064, 0026]  Williams & Associates comments that all indicators suggest that there is too much HCFC-22 available in the U.S. market. Williams & Associates commends EPA’s a ggressive approach to phase-down HCFCS and believes that EPA must consider and adjust for the effects that oversupply is having throughout the in dustry. [0032] EPA Response: All comments on the amount of existing inventory, a s well as confidential comments, indicate EPA’s estimate of surplus inventory is reasonable. While some comments suggested a larger annual adjus tment, EPA did not receive enough data to support a larger change. EPA is finalizing the rule with the 6,000 MT adjustment for surplus inventory. More information and further response is provided in section IV.B.2. of the preamble to the final rule.  USA Refrigerants comments that it is well known tha t HCFC-22 is being stockpiled and relates the stock piles back to an over-supply of HCFC-22 and low prices. I t offers the following three suggestions to fix the problem:

• EPA has an auction option in which HCFC allocation would be purchased, thus increasing the virgin gas price.

• Give the allocation to whomever EPA chooses, chargi ng a per pound fee ($3-$7 per pound). USA Refrigerants is aware that EPA has a dilemma with r eceiving monies. They also respectfully disagree with EPA that it is difficult to collect fees. They believe that the allocation holders are well knownResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 14 and could be put on the honor system. USA Refrigera nts believes that this will ensure that if there is a glut, they will not produce, and if there is a sh ortage, they will produce.

• Do nothing (i.e. do not allocate allowances) until the market price of R-22 is stable above $8 per pound. [0023] EPA Response: As discussed in the response to NRDC, Hudson, Coolg as and Solvay, comments indicate EPA’s estimate of surplus inventory is reasonable. Howeve r, the three options presented are not within the s cope of the proposed rule for 2012-2014. EPA will consider whether to propose these options as it develops the 2015- 2019 rule.  Golden Refrigerants asks that EPA review the curren t state of the HCFC market before issuing allocatio ns for 2012 and future years. The amount of HCFC’s availab le in the marketplace is in excess of what is requi red for servicing existing units. The oversupply is causing the price of HCFC-22 to fall and leading to a lack of concern for recovery and reclamation. [0025] EPA Response: EPA agrees with the commenter that the 2009 Final R ule, which originally governed 2012-2014, provided more allowances than were needed to meet s ervicing need. The proposed rule considered issuing fewer allowances for this very reason. However, EPA does not believe it is in the best interest of the industry to issue annual rulemakings, nor would it promote a sm ooth transition out of HCFC-22. As evidenced by the timing of the 2011 Interim Final Rule and this rule, provi ding allowances for the reminder of the regulatory period provides more certainty to industry than an annual approach. Additionally, EPA has previously addresse d this issue in past rulemakings and reiterates its suppor t for providing the annual allocations as far in ad vance as possible.  Ingersoll Rand notes that from discussions with the ir dealers, parts centers, contractors, and other i ndustry stakeholders, there is currently an oversupply of H CFC-22 in the marketplace relative to demand. [0063 ] EPA Response : See previous response to NRDC and others.  AHRI comments that there is an excess supply of vir gin HCFC-22. [0072] EPA Response : See previous response in this section to NRDC oth ers. 

## 2.2 Adjustments for recovery, reclamation, and reus e 2.2.1 Projections of reclaim capabilities in the Ad justment Memo Out of the 15 comments EPA received on reclaim capa bilities, 14 comments (some signed by multiple organizations) stated that the reclamation industry is able to increase its current capacity, although some commenters noted that sufficient supply of recovere d HCFC-22 would be the limiting factor. One comment (from Goodman) stated that the infrastructure to ef fectively and efficiently recover, recycle, redistr ibute, and reuse HCFC-22 likely will take several years to dev elop into a viable source for the market. In additi on, Polar Technology agreed that the industry has the capacit y to meet reclaim needs, but disagreed with the bas e assumption that this activity will automatically ta ke place.  NRDC, IGSD, and EIA state that the 19,700 MT figure should be a minimum, rather than a maximum because established companies that reclaim refrigerants hav e the technical capacity to recover between 12,500 and 19,700 MT per year in 2012 and could easily expand capacity to meet demand. NRDC, IGSD, and EIA note their support of EPA’s analysis of the impact on re clamation of the HCFC-22 over-supply and support th e agency’s proposal to reduce the over-supply and res tore the conditions needed to build the necessary reclamation and reuse capacity. NRDC and IGSD support the reclamation and reuse of HCFC-22 for two reasons: 1) every ton of reclaimed and reused HCFC-22 avoids the need to pro duce a ton of new HCFC-22, thus reducing theResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 15 total amount of HCFC-22 that will ultimately be lea ked into the atmosphere; and 2) a robust reclamatio n industry will be needed post-2015 to meet the deman d for HCFC-22 to service existing equipment. [0067] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. EPA agrees with NRDC’s re asons for supporting the adjustment. In addition, comments from the reclamation industry confirm that many reclaimers could quickly increase capacity, a nd that the 19,700 MT adjustment is a reasonable change. Wh ile the reclamation industry may be able to increas e capacity to even more than 19,700 MT, EPA did not r eceive sufficient data to warrant making an adjustm ent higher than the maximum 19,700 MT that was proposed . EPA’s estimates of recovered refrigerant also sup port finalizing this adjustment for recovery and reclama tion (see the Recovery Memo included in the docket)

. Additionally, the commenter did not provide data su pporting an upward adjustment. A complete response is available in section IV.B.2. of the preamble to the final rule.  Based on discussions with its members, AHRI believe s that the industry is capable of reclaiming HCFC-2 2 in excess of 12,500 MT. [0072] EPA Response: The agency is finalizing the proposed 19,700 MT adj ustment to foster increased HCFC-22 recovery and reclamation. A complete response is av ailable in section IV.B.2. of the preamble to the f inal rule.  Certified Refrigerant Services, Inc. comments that as the demand for capacity grows, reclaim companies will be able to expand to cover the need that will ultim ately be driven by higher prices and a decrease in supply. The commenter notes that they reclaimed 135,000 lbs of HCFC-22 in 2011 with only a 35% utilization of their current equipment. Full utilization could yie ld 400,000 lbs of reclaim in one year, and could ea sily double production volumes if recovery becomes aggre ssive. However, companies will not expand until the re is a need. Further, the commenter states that of al l refrigerant reclaiming businesses, none are opera ting at greater than 60% of their capacity. The solution wo uld be to reduce availability, forcing the price to go up, and therefore forcing contractors to participate in recycle and reuse programs. [0057] EPA Response: EPA agrees with the commenter that as the allowance s for virgin HCFC-22 decrease, there will be an increased incentive to recover and reclaim the g as. A more complete response is available in sectio n IV.B.2. of the preamble to the final rule.  Hudson believes that the reclamation industry will easily support the maximum proposed reduction level s, as calculated in the Adjustment Memo. Hudson agrees that 25% to 80% of servicing need could be met, noting that Hudson can easily triple its current ca pacity and believes that this is typical amongst mo st reclaimers. Hudson believes that the issue is not w hether the industry can supply but whether the mark et will recover and return sufficient product for recl amation. According to the commenter, with emphasis on responsible use and handling and a limitation on vi rgin supply, reclamation and recycling could serve 80% or more of the aftermarket. The commenter believes tha t a vibrant reclamation industry is a key component for the HCFC phaseout. Hudson states that unless th e supply of new refrigerant is reduced and the valu e of the refrigerant increases, the volume of reclamatio n simply will not increase. The commenter believes this can be achieved by limiting the production of HCFC- 22. [0071, 0027] Airgas believes that U.S. reclaimers have sufficien t capacity to achieve and exceed the target of 12,5 00 MT. The commenter notes that having reclamation capacit y, however, does not equate to having reclaimed product to supply the market. Current market pricin g and economics do not support profitable reclamati on. Airgas notes that instead of increasing, nationally reclaimed volumes of HCFC-22 have remained relativ ely flat for the last two years. [0079] Summit Refrigerants notes that capacity exists in t he reclamation industry to handle increased reclama tion volume. The commenter has made a significant invest ment in equipment, facilities, personnel, and train ing to handle a much greater volume of reclamation, inc luding the packaging and sale of reclaimed refriger antResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 16 to the HVAC service industry. The commenter notes t hat they are willing to make additional capital investments. Summit Refrigerants has been informed that other refrigerant reclaimers throughout the country also have capacity to handle a greater volu me of reclamation activity. [0062] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule.  A group of 20 EPA Certified ODS Reclaimers comment that they believe reclaimers can meet the projected demands of the industry if allocations are reduced to the maximum extent in 2012-2014. They agree that the amount of HCFC-22 that they reclaimed was well below their capacity mainly due to the price and am ple supply of virgin manufactured and imported HCFC-22. [0085] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule.  Honeywell believes it is important to make clear to EPA that there is sufficient recovery and reclamat ion capability today. The supply chain from equipment-i n-use to reclamation facilities is highly fragmente d and complex, however, so it will continue to take time to get this supply chain up-to-speed. [0082] EPA Response: While EPA agrees that reclamation will not increas e overnight, the agency is finalizing the proposed 19,700 MT adjustment to foster increased H CFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the pre amble to the final rule.  Rapid Recovery Franchise Partners comment that it w ill be necessary to increase the quantity of high q uality reclaimed R-22. The commenter believes that existin g reclaimers have the capacity to process more than enough R-22 to meet the industry needs, but are not convinced that given the present situation, there will be enough used R-22 recovered to meet the raw mater ial needs of the reclaimers. The commenter states that HVAC contractors are currently not recovering enough R-22 to meet the level necessary to sustain the industry for the long term. [0086] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule.  Consolidated comments that it has been well documen ted that the reclaim industry has both the capacity and the willingness to significantly increase the a mount of R-22 it processes. Consolidated notes they could easily double their capacity immediately and if nec essary add to their equipment and staffing to tripl e or quadruple the amount of refrigerants they reclaim e ach year. Consolidated believes the ability to incr ease processing capacity is not the real issue. If the i ndustry expects to significantly increase the amoun t of R-22 and other refrigerants available for reclamation, t he concern will need to shift away from those who r eclaim refrigerants to those involved in the recovery proc ess. Consolidated notes that additional reclaimed R -22 is, and will continue to be, directly proportional to t he quantity of refrigerant that is captured and mad e available to the reclaimers. [0083] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule.  Polar Technology agrees that the industry has the c apacity to meet whatever increases in reclamation activity that may occur. However, they disagree wit h the base assumption that this activity will automatically take place. They believe history indi cates that system owners/technicians/contractors do not become actively engaged in reclaiming R-22 as a res ult of reduced allocations. The commenter believes theResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 17 industry does not have concern for the environment, doing the right thing, or over the diminishing sup ply and rising prices. Polar Technology states that all ocation reductions actually may not significantly i mpact existing reclamation activities and economics is on e of the strongest factors. They believe the antici pated increase in reclamation volume of R-22 will not occ ur for the following four reasons:

• Enforcement or lack thereof. Technicians, contracto rs, and system owners do not fear that the failure to properly recover will be met with punish ment. There are too many systems and technicians to monitor and hold accountable. Polar Technology cites California’s AB32 that according to them was created based on the failure of the CAA. AB32 holds the system owner accountable for refrigerants in their control. With out enforcement, there is no motivating reason for anyone to adhere to regulations.

• New revenue opportunities. Small R-22 system owners are forced to buy new and costly systems before their current system has naturally worn out because they are at the mercy of technicians and contractors. In this case, the manufacturers and co ntractors profit and the consumers (system owners) lose.

• Reclamation rates. The commenter states that accord ing to EPA, reclaimed refrigerant activity has remained the same since the CAA was implemented. Th e commenter states that reclamation capacity has increased, just not the amount of used refrigerants to reclaim. They believe it is easier to manufacture and buy new gas than it is to reclai m. Because they are at the mercy of the market, system owners will pay for poor recovery practices.

• History. The commenter points to the phaseout of CF C-12 and states that price and volume do not correlate. The applications are different and more widespread than was the case with CFC-12. Polar Technology believes that as the price increases, te chnicians will hoard more refrigerant, which will lead to dirty refrigerants going into existing syst ems, creating inefficient cooling and other compromises. [0076] EPA Response: The agency recognizes that assuming 19,700 MT of an nual servicing need can be met by recovered and reclaimed material—instead of 12,500 MT—does not mean that amount will actually be reclaimed each year. EPA’s adjustment to encourage recovery and reclamation could also encourage trans ition to HCFC-22 alternatives and more recovery and reuse of HCFC-22 in systems that require a large refrige rant charge. EPA believes adjusting allowances to encour age reclamation will still send the desired market signal to incentivize recovery and reclamation. As the supply of virgin HCFC-22 decreases, the value of the gas and the incentive to recover and reclaim it will likely inc rease. In response to the commenter’s statement about enfo rcement, EPA encourages anyone to report potential Clean Air Act violations and to send EPA concrete e vidence when possible to help in enforcement. EPA r eminds the industry that intentional venting is illegal un der EPA regulations. In addition to the current ven ting prohibition, EPA is incentivizing the proper handli ng and recovery of all existing HCFC-22 by reducing allowances. Fewer allowances results in each allowance, and the refore each pound of HCFC-22, having higher value. Reclaimers can use this increase in value to provid e a financial incentive for contractors and system owners to recover more used HCFC-22. In response to the comment on decisions system owne rs are making with their contractors, EPA does not have data or evidence to verify or rebut the commenters’ assertion. EPA encourages system owners to find a contractor that they trust using ENERGY STAR tips o n How to Find a Good Heating and Cooling Contractor and to work with their contractor to determine the best pa th forward when deciding to repair or replace syste ms. In response to the commenter’s assertion that recla mation has remained the same since the CAA was implemented, EPA disagrees. The average reclamation amount for HCFC-22 in 2000-2003 was about 5.2 mill ionResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 18 lbs per year compared to about 8.5 million lbs per year in 2008-2011 (source: **Summary of Refrigerant Reclamation 2000-2011**  , available at http://www.epa.gov/ozone/title6/608/reclamation/rec sum.pdf ). Additionally, EPA does not have data on the price o f CFC-12 to verify the statements made about the CF C-12 phaseout’s effect on reclamation. EPA is aware that CFC-12 equipment is still in use even though the p roduction and import of CFC-12 stopped in 1996.  RMS Georgia commented that it had the capacity and resources to increase the quantity of reclamation i f the demand for reclaimed material increases. RMS Ge orgia has invested resources into increasing the infrastructure to prepare for the need for higher r eclamation. [0078] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule.  Goodman believes that EPA relies far too much on th e potential for recovery and reuse as a means of servicing existing HCFC-22 during the time period 2 012-2014. Due to the comparatively small amount of HCFC-22 typically used in a residential air conditi oning system (approximately 6 to 8 pounds), Goodman believes the infrastructure to effectively and effi ciently recover, recycle, redistribute, and reuse H CFC-22 likely will take several years to develop into a vi able source for the market. [0084] EPA Response: EPA disagrees with the comment. Even with lower recovery in the residential AC mark et, there is enough recoverable HCFC-22 in existing HCFC-22 equi pment to increase the adjustment for recovery and r euse from 12,500 MT to 19,700 MT, especially in light of the 2015 Montreal Protocol cap and the 2020 phaseo ut of HCFC-22 production and import. EPA believes it need s to encourage recovery and reuse now to ensure a s mooth transition. While recovery and reclamation may not increase immediately, other sources (e.g., transiti on to alternatives, use of existing inventory, and in-hou se recovery and reuse) can help meet current needs. A more complete response is available in section IV.B.2. o f the preamble to this final rule.  RemTec International comments that the capacity is available by reclaimers to meet or exceed the 20 percent target. Further, they believe that in the p ast, reclaimers have not been able to fully utilize their capacity due to the economics or pricing issues to incentivize the recovery efforts and then compete w ith low cost imported products. [0024] EPA Response: The agency is finalizing the proposed 19,700 MT ad justment to foster increased HCFC-22 recovery and reclamation. A more complete response is available in section IV.B.2. of the preamble to the final rule. 2.2.2 Comments from or about large end users of ref rigerant, including supermarkets  Honeywell notes that there is another high volume s ource that EPA should continue to recognize and quantify. Large users that are retiring equipment c an efficiently and effectively capture the majority of refrigerant from commercial refrigeration and air c onditioning units by recovery for future reuse for service needs in other equipment owned by these users. Thes e users do not require reclamation technology or equipment. Such recovery and reuse should continue to be considered as a source of HCFC-22 service refrigerant. [0082] EPA Response: EPA agrees there are other large end users, in addi tion to supermarkets, that can be a source for recovered HCFC-22. The extent to which large end-us ers meet their needs with refrigerant recovered in- house is unclear. The agency accounts for the recovery pract ices of large end-users in its Vintaging Model and is using its estimates of recoverable refrigerant to support the maximum proposed reduction for recycling and recla mation.  The Food Marketing Institute (FMI) states that the proposed rule will impose substantial burdens on fo od retailers and wholesalers. The commenter believes a lack of true equal capacity HCFC replacement ‘drop -in’ refrigerants for packaged HVAC units will result in higher energy usage and increased carbon emissionsResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 19 while lowering the ability of the system to meet st ore condition requirements. They believe that the i nability to meet store requirements will additionally increa se refrigeration system energy usage. [0157] EPA Response: EPA agrees with the commenter that refrigeration an d AC systems are typically most efficient when using the refrigerant they were designed to ru n on. EPA encourages HCFC-22 system owners to trans ition to equipment designed for alternatives when it make s sense for them, keeping in mind that virgin HCFC- 22 can no longer be imported or produced beginning in 2020 . Recovered and recycled refrigerant can be used as long as it is available.  FMI also submitted a late comment, asking EPA to im mediately increase HCFC-22 production and consumption allowances in order to provide relief t o grocery retailers. FMI proposes a phaseout schedu le of 65,000 MT of both consumption and production allowa nces in 2012, followed by 50,000 MT in 2013 and 40,000 MT in 2014. The commenter suggests that its proposed phaseout schedule would meet the requirements for the heads of executive departments and agencies to consider the cumulative effects of regulations, pursuant to Executive Order 13563. The comment also included information from individual FMI members:

• HCFC-22 prices have increased, but it is available.

• Supermarkets have begun to retrofit some stores, bu t still rely on HCFC-22 in many systems.

• Supermarkets vary in the extent to which they recov er HCFC-22 and bank it, with some chains utilizing all of their recovered refrigerant, and o thers selling HCFC-22 to a recovery or reclamation company [0158]. EPA Response : See previous responses to FMI and Honeywell. EPA appreciates the concerns raised by FMI. However, FMI’s request for EPA to increase the allo wed amount of HCFC-22 consumption beyond the level allowed under the 2009 Final Rule, rather than redu ce consumption allowances or keep them the same, is counter to EPA’s understanding of the broader HCFC- 22 market as presented in the Adjustment Memo. As s uch, the agency is finalizing what it believes to be an appropriate amount of allowances based on its analy sis of the market and the comments supporting that analysis. T he rationale and support for the finalized allocati ons is provided in the preamble to the rule. Additionally, Supervalu, Food Lion and Weis Market contributed to EPA’s research and analysis presente d in the Adjustment Memo. Based on conversations with th ese stores, EPA found that some supermarkets have converted a substantial proportion of their HCFC-22 equipment and that many have sufficient recovered HCFC-22 in stock for servicing such that they do no t anticipate a need to purchase any more virgin mat erial in the future. Other supermarkets that have not con verted from HCFC-22 equipment as aggressively indicated that as low as 10% to 20% of their servic ing needs are met by material recovered from retrof itted stores they own. The agency recognizes that some stores are able to meet much of their HCFC-22 needs with refrigerant t hat is recovered and reused in-house; however, EPA also recognizes that some supermarket stores are not ab le to meet a significant portion of their servicing ne eds with in-house recovery, especially smaller chai ns or independent store owners. Since the agency does not have sufficient data on in-house reuse, EPA is not accounting for supermarket reuse as its own categor y. However, the agency’s Vintaging Model has reasonable estimates for actual recoverable materia l for various sectors, and EPA is using those model ed recovery rates for supermarkets to help support ove rall recovery and reuse estimates in this rule (see the Recovery Memo for specifics on modeled recovery rat es).  NRCD, IGSC, and EIA suggest downward adjustments fo r supermarkets by reducing leakage and by sourcing through recovery and reuse, in line with the Adjust ment Memo. [0067] EPA Response: See previous responses in this section. 

## 2.3 Estimated servicing need for HCFC-22 as present ed in the AdjustmentResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 20 

## Memo EPA received four additional comments on the Adjust ment Memo, all related to the estimated servicing n eed for HCFC-22.  Airgas commented that servicing need for HCFC-22 wa s overstated in the 2009 Final Rule and that the ne w estimates for 2012-2014 are even higher in the Adju stment Memo, meaning that the reduction in allowances will have to be even greater to arrive a t where the market must be in 2015. [0079] EPA Response: Vintaging Model estimates of servicing need are hig her in the Adjustment Memo than in the Servicing Tail Report published with the 2009 Final Rule. The Adjustment Memo discusses the reasons fo r the change. The adjustments in this proposed rule (77 F R 237) were made to the updated servicing need esti mate. EPA will revisit this estimate again as it develops the allocations for 2015-2019.  Certified Refrigerant Services, Inc. noted that EPA did a reasonable job of forecasting service demand , but is concerned that the economic recession (2009) has im pacted the service demand forecasts from 2007. The recession resulted in a drop in demand, while the i mportation and production became excessive, negativ ely impacting refrigerant reclaimers. [0057] EPA Response: EPA discusses several reasons why the allocation in the 2009 Final Rule likely resulted in an oversupply of virgin HCFC-22 in the Adjustment Memo . The adjustments proposed in this rulemaking are a n attempt to remedy that over-allocation, and to ince ntivize proper handling of HCFC-22 and transition t o alternatives.  DuPont comments that as a result of the proposed re ductions in total HCFC-22 allowances and the supporting Adjustment Memo, it initiated a review o f its market assessment and what it believes will b e needed to move the market to where it must be in 20 15 and 2020 to comply with Montreal Protocol requirements. DuPont’s assessment supports the agen cy's HCFC-22 “smaller allocation scenario,” even though its assessment of the market differs in deta il from that in the Adjustment Memo. DuPont comment s that the primary difference between its assessment and the Adjustment Memo is that market demand for HCFC-22 is significantly lower than the agency has estimated. DuPont believes that as supply shrinks, service practices will improve, emissions will decrease, an d overall demand for newly produced, inventoried an d reclaimed HCFC-22 will decrease. In addition, DuPon t comments that it is informed that service technic ians and end users are increasingly using HFC retrofit o ptions that will further reduce demand for HCFC-22. DuPont’s analysis concludes that the maximum propos ed reductions in allocations can be achieved withou t causing a significant disruption in the market plac e. [0070] EPA Response: EPA is continually updating the Vintaging Model bas ed on new market information. Before issuing the 2009 Final Rule and the 2009 **Servicing Tail Report** (using Vintaging Model results), EPA issued and sought comment on three versions of a draft report. The report analyzes servicing need for HCFC applia nces in the U.S. refrigeration and air-conditioning sector projected to be in service from 2010-2019. All vers ions are available at Docket EPA-HQ-OAR-2008-0496: published November 4, 2005 at 70 FR 67172; released at a stakeholder meeting on September 29, 2006; publishe d December 23, 2008, with 2008 Proposed Rule. The **Servicing Tail Report**

focuses on air-conditioning and refrigeration appl iances because such equipment represents the bulk of the servicing need. EPA gene rally agrees with the commenter that the amount pro vided in the 2009 Final Rule was too high to foster an or derly transition away from HCFC-22. Several possibl e contributing factors and supporting indicators of t his over-allocation are discussed in the Adjustment Memo. EPA will revisit this estimate again as it develops allowances for 2015-2019.  Arkema comments that that the estimates from EPA’s Vintaging Model of 56,200 MT of HCFC-22 in 2012, 51,200 MT in 2013 and 45,900 MT in 2014 are reasona ble projections. Arkema also believes providing theResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 21 lowest number of HCFC-22 allowances would foster re clamation without disrupting equipment servicing. [0073] EPA Response: See previous responses in this section.



## 2.4 Effects of dry-shipped HCFC-22 equipment on th e HCFC phaseout EPA received 20 comments on whether repairing an ex isting system with dry-shipped HCFC-22 equipment affects the HCFC phaseout. Eight commenters believe repairs with dry-shipped HCFC-22 condensing units is affecting the phaseout and/or should be stopped.  Lennox comments that EPA should prohibit the sale a nd distribution of dry-shipped HCFC-22 air conditio ning condensing units. The commenter states that the con tinued installation of dry-shipped HCFC-22 condensi ng units for air-conditioning systems is impacting the HCFC-22 phase-out in significant, negative ways. T he continued installation of dry-shipped condensing un its effectively allows the manufacture of otherwise banned HCFC-22 air-conditioning systems, which unde rcuts the market for new, more environmentallyfriendly air-conditioning equipment. It maintains d emand for HCFC-22 refrigerant that otherwise would not exist. [0061] Lennox further comments that EPA should grant the C arrier petition and that whatever action EPA may take in tightening the HCFC-22 allocations is likel y insufficient to address the issue. The commenter states that HCFC-22 air conditioning condensing sys tems create a source of demand for HCFC-22 that is known to be significant but difficult to predict, w hich could create undue volatility in the HCFC-22 market. Despite what appears to be a current suffic ient supply of HCFC-22 refrigerant, future shortage s may nonetheless result if HCFC-22 air conditioning equipment remains in use that EPA had expected to be replaced. Lennox notes that the exact scale of t he problem is difficult to determine because there is no public reporting on HCFC-22 condensing unit ship ments, but millions of units are believed to be at issue. [0061] The commenter further states that if EPA does not c hange its policy, it is encouraging manufacturers t o avoid promoting environmentally-friendly equipment. The commenter expressed concern that, in the future, manufacturers may refrain from developing m ore environmentally-friendly equipment, driving up the costs of more advanced equipment and impedin g the transition away from ozone-depleting substances. Accepting the Carrier petition should h elp EPA to more accurately predict how significantl y it may reduce HCFC-22 allocations pursuant to the P roposed Rule. [0061]  EPA Response: EPA agrees with the commenter that servicing of app liances that have been repaired through the installation of dry-shipped HCFC-22 con densing units does make up part of HCFC-22 servicin g need and that there is no consensus on how much of total servicing need is due to repairing existing s ystems with new condensing units. Given the paucity of con crete quantifiable information on this subject curr ently available to the agency, EPA is not ready to determ ine whether the installation of dry-shipped HCFC-22 condensing units will affect EPA’s ability to phase out HCFC-22 by 2020. The limited data received to date suggest that it will not. Two documents, which serv e as an example of the data received to date, are available in the docket: a September 24, 2010 lette r with supporting analysis from AHRI and a market update from analysts at Credit Suisse. More informa tion about how EPA is approaching this issue is ava ilable in the preamble. However, since banning the manufac ture of HCFC-22 condensing units is beyond the scop e of this rulemaking (i.e., EPA didn’t propose to ban condensing units in this rule), EPA will continue to evaluate the issue as it develops future regulation s. The agency continues to seek quantifiable inform ation on the number of dry-shipped condensing units being shipped, whether they are being used as a repair i nResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 22 lieu of a compressor or motor replacement, and whet her they will hinder EPA’s ability to phase out HCF C-22 by 2020.  United Technologies, the parent company of Carrier, supports banning the manufacture of uncharged HCFC

22 condensing units. They believe the installation of newly-manufactured, uncharged HCFC-22 condensing units does affect the phaseout of virgin HCFC-22 pr oduction and import. United Technologies states “th ere is no doubt” that EPA’s policy on dry-shipped HCFC- 22 condensing units perpetuates the demand for HCFC

22 and hampers the transition to alternatives. Unit ed Technologies states that the proposed reduction in allocations will not address their concerns. The commenter estimates that approximately 74 milli on AC systems are operating today with HCFC-22, with enough refrigerant to perpetuate newly install ed HCFC-22 condensing units for the next decade or more. United Technology comments that new condensin g units can extend the lifetime of HCFC-22 equipment by over 100%. The company states that 25- 30% of equipment replacements are dry-shipped condensing units and that these replacements are be ing sold in lieu of alternatives; the company suggests that if this is left unchecked, HCFC-22 pr ojections would increase rather than decrease. United Technologies requests that EPA invite commen ts on all aspects of Carrier’s petition and expresses concern about the continued delay in acti ng on Carrier’s position. The commenter states that if the Carrier petition is not accepted before the end of the upcoming peak sales season, the potentia l exists for more than one million additional replace ment units to be sold this year and manufacturers w ill continue to ramp up production capacity and invento ries. Further, the commenter believes that EPA has sufficient information to grant the petition now. U nited Technologies believes that the information readily available to EPA shows that 1) dry-shipped HCFC-22 units newly produced to take advantage of existing regulations is a substantial and growing s egment of the market; 2) the installations of dryshipped units greatly extend the useful lives of ex isting HCFC-22 systems and therefore will perpetuat e the demand for HCFC-22 well into the next regulator y step-down period; 3) additional emissions of HCFC-22 into the atmosphere will occur due to the r esulting increase in the installed base of HCFC-22 units and additional servicing of the equipment; an d 4) the next result of the exemption undermines th e smooth phase-out of HCFCs and the use of newer, mor e energy efficient technologies. United Technologies further asserts that if AHRI’s projections are accurate, which contrast sharply wi th the Servicing Tail report, at the end of the curren t regulatory step-down period, between 5 and 10 million more HCFC-22 units than originally forecast ed will be in service as a result of EPA’s current policy. According to United Technologies, EPA should invite comments on all aspects of Carrier petition. EPA has only solicited comments on whether the dry-ship ped HCFC-22 condensing unit policy affects the phase-out of virgin HCFC-22. While the commenter be lieves this issue is important, they state that the re are many other important issues relevant to whether EPA should eliminate the dry-shipped condensing unit loophole. Further, the commenter states that t he agency’s view of the use of HCFC-22 is contrary to how EPA viewed the issue in the Pre-charged Applian ce Rule. United Technologies believes that EPA now has evidence that dry units are being marketed and sold not as repair parts, but as cheaper alternatives to installing new, more energy efficie nt equipment. The commenter states that EPA has a responsibility to examine whether the expressed int ention of its 2009 Pre-charged Appliance Rule is being met. Carrier’s petition explains that by focu sing solely on production and import versus actual emissions of HCFC-22, EPA’s rules ignores the impor tant issue of maintaining the production of dry-fil led units throughout the phase-out of HCFC-22 productio n and consumption. According to the commenter, more HCFC-22 units being manufactured equate to mor e emissions over time regardless of whether aResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 23 refrigerant is newly produced or recaptured and reu sed. They believe that this is contrary to the goal s of the CAA and Montreal Protocol. United Technologies comments that if Carrier’s peti tion is granted it will not affect the ability of consumers to service existing HCFC-22 equipment. Th eir petition seeks to prohibit only the sale, marketing, and distribution of entirely new HCFC-22 condensing units. United Technologies supports EPA’s recent decision to update home air-conditioni ng resources for consumers. They strongly believe that EPA should not in any way delay the transition to newer, more efficient and environmentally beneficial air conditioning systems. [0065] EPA Response: See the above response to Lennox International. United Technologies asserts that there is an adequa te amount of refrigerant in existing systems “to pe rpetuate newly installed HCFC-22 condensing units for the ne xt decade or more.” EPA understands this comment to mean that repairing current systems with dry components, including condensing units, may not affect EPA’s a bility to phaseout HCFC-22 by 2020 due to the large amount of HCFC-22 in existing systems. EPA agrees that there is a significant amount of HCFC-22 in existing systems t hat can be recovered and reused to repair systems b oth now and in the future. As discussed in section IV.B.2. of the preamble, EPA anticipates that reclaimed and reused material can meet a significant portion of estimate d servicing need over the coming years. United Technologies also comments that dry condensi ng units can extend the lifetime of an existing sys tem by 100% or more. EPA welcomes data to verify this clai m. EPA disagrees with United Technologies’ statement t hat repairing systems by replacing condensing units increases the installed base of HCFC-22 equipment. EPA’s prohibition on the manufacture of new HCFC-22 systems with virgin refrigerant began January 1, 20 10—capping the installed HCFC-22 equipment base, wi th limited exceptions. As a result, the installed base of residential HCFC-22 systems should not be growi ng, unless reclaimed HCFC-22 is being used to install large nu mbers of new systems or illegal activity is occurri ng. If United Technologies or any other entity has knowledge of n ew systems being installed with virgin HCFC-22, the y should report the violation to EPA. EPA seeks more information from the commenter on ho w allowing repairs of existing systems with dry-shi pped condensing units results in increased emissions, es pecially in light of EPA’s venting prohibition and EPA’s control of potential emissions through the allocation of an nual production and consumption allowances. United Technologies questions whether the intent of the Pre-Charged Appliance rule (74 FR 66450) is be ing met, considering the marketing and sales of dry-shipped units. EPA’s intent in the Pre-Charged Appliance ru le was clear: the Pre-Charged Appliance rule focuses on **pre-charged** appliances and components. To the best of the agency’s knowledge, the intent of the rule is being realized. However, as stated previously, EPA seeks quantifiable data and will continue to review this issue as it develops future regulations.  Ingersoll Rand does not believe the issue of dry ch arged condensing unit production can be properly addressed through a reduction in HCFC-22 allocation levels. Ingersoll Rand believes a direct regulator y approach is needed to properly address the growing penetration of dry charge HCFC-22 unit volume in th e residential and commercial markets. According to th e commenter, end-users who are making service or replacement decisions today on their existing HCFC- 22 systems are not aware of the specifics associate d with the supply/demand of HCFC-22, especially when trying to predict what the future supply/demand market dynamics might be and how this may impact th e cost of continued service of their systems. Consumers tend to make the decision based on the di rect cost of the change-out. The portion of this di rect cost associated with the HCFC-22 refrigerant needed for the re-charging of the HCFC-22 system is quite small (<5%) of the total cost so even a significant inflation on the cost of HCFC-22 will still have a minimal impact on the end-user decision. [0063]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 24 EPA Response: EPA agrees with the commenter that the price and av ailability of HCFC-22 is not the only factor affecting the practice of repairing existing system s with dry-shipped HCFC-22 condensing units. Howeve r, the reduction in allowances does send a strong market s ignal about the future availability of HCFC-22. Abs ent any change to current EPA policy on repairing pre-2010 systems, as the allocation for HCFC-22 production a nd importation decreases, consumers, in consultation w ith their AC and refrigeration contractor, will hav e to decide when to transition to a non-HCFC alternative. See t he response to Lennox and United Technologies for m ore detail on several of the points raised in the comme nt.  NRDC, IGSD, and EIA comment that the market for dry -shipped HCFC-22 condensing units is expanding rapidly. The commenters express concern that becaus e newly-produced HCFC-22 is so cheap, service technicians are venting HCFC-22 from broken units, installing dry-ship condensing units in their place , and then charging the unit with virgin HCFC-22. [0067] EPA Response: EPA has received conflicting reports on where the market for dry-shipped HCFC-22 repair units is moving. However, through this rule EPA is reducing HCFC-22 allowances to adjust for recent market chan ges and to encourage proper handling and recycling of HCFC- 22. EPA encourages everyone to report potential Cle an Air Act violations and when possible, to send EPA concr ete evidence to help with enforcement. EPA reminds the industry that intentional venting is illegal under existing EPA regulations.  One commenter urges EPA to consider ending the manu facture of HCFC-22 dry shipped condensers instead of reducing the HCFC-22 production beyond what has already been planned. [0126] EPA Response: EPA did not propose to ban repairs with condensing units in this rule, but will continue to evaluate the issue as it develops future regulation s. The agency continues to seek quantifiable inform ation on the number of dry-shipped condensing units being sh ipped, whether they are being used as a repair in l ieu of a compressor or motor replacement, and whether they w ill hinder EPA’s ability to phaseout the production and import of virgin HCFC-22 by 2020.  Cottongim Heating & Cooling is concerned that dry s hip condensing units are creating more harm than go od with regard to overall equipment efficiency. They s tate that too many companies are using dry ship uni ts to replace older systems and leaving the inside unit w ith a lower SEER rating. According to the commenter , a dry ship system is not going to last long in a mism atched configuration. Instead, energy consumption c an be decreased with a newly matched R-410a system. [0154 ] EPA Response: EPA encourages all system owners to install matched systems using non-ozone-depleting refrigerants when their existing system needs to be replaced. ENERGY STAR offers information on when t o consider replacing a system and encourages the inst allation of systems with higher energy efficiency ( see www.energystar.gov/index.cfm?c=heat_cool.pr_checkli st_consumers ).  One commenter from Johnstone Supply urges EPA to st op allowing the manufacture of dry charged R-22 condensing units. The commenter believes this conce rn was initially brought to EPA’s attention, but wa s ignored. [0101] EPA Response: Since banning the manufacture of HCFC-22 condensing units is beyond the scope of this rulemaking, EPA will continue to evaluate the issue as it develops future regulations. Additionally, EPA disagrees with the assertion that the agency has ignored this concern. The agency ha s been reviewing the Carrier petition since its arrival, h as discussed the issue with numerous stakeholders w ithin the industry, and sent a preliminary response on Januar y 24, 2012. The agency continues to seek quantifiab le information on the number of dry-shipped condensing units being shipped, whether they are being used a s a repair in lieu of a compressor replacement, and whe ther they will hinder EPA’s ability to phase out th e production and import of virgin HCFC-22 by 2020.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 25  One commenter from Johnstone supply comments that t he cost to fill and continuously operate the dry units currently in the market will be disastrous. [ 0140] EPA Response: EPA will continue to evaluate the issue as it devel ops future regulations. The agency continues to seek quantifiable information on the number of dry- shipped condensing units being shipped, whether the y are being used as a repair in lieu of a compressor repl acement, and whether they will hinder EPA’s ability to phaseout the production and import of virgin HCFC-2 2 by 2020. Also, the amount of refrigerant that a new condensi ng unit will need over its lifetime depends signifi cantly on installation and servicing practices. EPA notes tha t a well-installed, properly serviced system should not need additional refrigerant added on a regular basis unl ess it develops a leak.

Seven commenters do not believe repairs with dry-sh ipped condensing units significantly affect the pha seout and/or do not believe repairs using dry-shipped HCF C-22 condensing units should be banned.  Goodman disagrees with the view that the sale of dr y condensing units must be prohibited, or else use of HCFC-22 will continue practically in perpetuity. Go odman estimates that the HVAC industry ships betwee n 5 million and 6 million units annually, only a small percentage of which are dry, uncharged HCFC-22 components. Goodman estimates that the amount of HC FC-22 used to install these dry components into systems is well below 10 percent of the total HCFC- 22 that is used by the industry in a given year. In contrast, the vast amount of HCFC-22 is used each y ear to service and/or repair existing systems that may have a small leak or simply are in need of normal s ervicing. Thus, Goodman believes the agency’s propo sed reduction in allowances for 2012-2014 would have an acute, negative impact on those homeowners who need to have their existing systems serviced. Goodm an believes it is abundantly clear that the availab ility of dry, uncharged HCFC-22 components is not materially affecting the amount of HCFC-22 used each year. [0084] Goodman also believes that Carrier’s estimate that dry-shipped units constitute 25-30 percent of the total replacement market is significantly overstate d. Goodman believes that Carrier’s projections and claims regarding a purported “growth industry” in u ncharged HCFC-22 components, and resulting energy efficiency losses and greater HCFC-22 emissi ons are wildly speculative at best. [0084] Goodman further notes that if an installer or contr actor determines that a homeowner’s existing HCFC22 system can be repaired through installation of a new, uncharged HCFC-22 condensing unit (a repair that is permissible under EPA regulations), the rep air and replacement would cost about $1,000 to $2,000. In contrast, a homeowner who is forced to r eplace an existing HCFC-22 system with a new system would have to spend about $4,000 to $5,000. [0084] EPA Response: See previous responses to Lennox and United Technol ogies, in particular EPA’s request for additional data. Additionally, EPA believes the num ber of HCFC-22 allowances needed in 2012-2014 is significantly lower than the amount provided in the partially-vacated 2009 Final Rule. As discussed in sections 2.1 and 2.2 of this Response to Comments and sectio ns IV.B.1-3. of the preamble to the final rule, the re is adequate reclamation capacity and a large amount of HCFC-22 available in inventory to help meet servic ing need in 2012-2014.  NORDYNE disagrees with Carrier’s position in the Ca rrier petition, disagrees with EPA’s response to th e Carrier petition requesting a rulemaking to ban the sale of residential split system air conditioners that use HCFC-22, and supports maintaining the availability of uncharged HCFC-22 replacement condensing units f or the marketplace. NORDYNE disagrees with an assumpti on within some of the HVAC industry that uncharged HCFC-22 replacement condensing units are displacing charged HFC-410A units. NORDYNE contends that the primary application of the uncharged HCFC-22 replac ement condensing units is to provide consumers anResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 26 affordable, more reliable and environmentally frien dly service option to major failures of compressors and coils. NORDYNE states that historical AHRI shipment data clearly demonstrates the volume of repairs th at have been occurring and continue in today’s economi c climate. NORDYNE notes there is no negative environmental impact caused by consumers choosing t o service their unit with an uncharged HCFC-22 replacement condensing unit instead of replacing a compressor; the defined cap on HCFC-22 is unaffecte d. NORDYNE believes that the market demand for uncharg ed HCFC-22 replacement condensing units will heavily contract in conjunction with the prescribed phase down. [0089] Able Distributors, APR Supply Co. and Coburn Supply Company all contend that the primary application o f the uncharged HCFC-22 replacement condensing units is to provide consumers with an affordable, reliabl e and environmentally friendly service option to majo r failures of compressors and coils. All three comp anies state their position is contrary to that of the Car rier petition. All three companies believe that the market demand for uncharged HCFC-22 replacement condensing units will heavily contract in conjunction with th e prescribed phase down. [0147, 0148, 0149] EPA Response: See previous response to Goodman, United Technologi es and Lennox, in particular EPA’s request for additional data. Banning repairs of existing HC FC-22 systems using dry condensing units is beyond the scope of this rulemaking; EPA did not propose to ban cond ensing units in this rule. However, EPA will contin ue to evaluate the issue as it develops future regulation s.  Rheem does not agree that the installation of dry-s hipped HCFC-22 condensing units will have a negativ e effect on the phase-out of virgin HCFC-22 productio n and import. Rheem believes that addressing the availability of the refrigerant is the appropriate driver; it is the declining availability of the ref rigerant itself that matters. [0087] EPA Response: See previous responses in this section.  NRI does not believe that dry shipped condensing un its will affect the phaseout of virgin HCFC-22 prod uction and import. They also do not believe that all appli ance problems result in loss of the refrigerant. If EPA has verifiable evidence that the servicing or repair of HCFC-22 appliances is resulting in increased emiss ions of the refrigerant, then EPA should consider extending the leak repair requirements to all appliances, no t just appliances with a refrigerant charge greater than 5 0 lbs. NRI believes that there will be a direct and immediate impact on consumer behavior by refining t he allocation system. [0068] EPA Response: See previous responses in this section. Additionall y, revising the leak repair regulations for systems with a refrigerant charge below 50 pounds i s beyond the scope of this rulemaking. Five additional comments discuss HCFC-22 condensing units in more general terms:  HARDI suggests that EPA consider that most dry-ship ped condensing units are being sold and installed w ith multi-year warranties which may require a revision to EPA servicing tail analyses if HCFC-22 replaceme nt refrigerants are not approved by the compressor and equipment manufacturers for warranty servicing beyond 2015. HARDI states its non-support of the Ca rrier petition. [0069] EPA Response: EPA will review service practices in the HCFC-22 ma rket as it revises its servicing need estimates for future regulatory periods.  Mexichem Fluor states that in determining the reduc tion of consumption allowances, the increased installation of dry-shipped HCFC-22 condensing unit s should be considered. [0066] ACCA commented that dry-charged units are affecting the demand for R-22. This is based on AHRI shipmen t data which suggests that dry charged units are in h igh demand yet prices of R-22 remained low up until the proposed ruling. [0081]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 27 EPA Response: See previous responses in this section. The effect of repairs using dry-shipped HCFC-22 condensing units was not directly estimated for thi s rulemaking, largely because EPA has not received enough quantifiable data to determine how large an effect, if any, this practice has on current and future se rvicing need.  One contractor notes that if the economy had been h ealthy, manufacturers would not have been coerced b y a repair-minded public into producing a dry-ship co ndensing unit designed to operate on R-407 that jus t happens to operate with HCFC-22. The contractor sta tes that contractors want to sell R-410a systems in lieu of repairing older systems, since it is much more p rofitable, but that American consumers have other b ills to pay. [0113] EPA Response: EPA understands that consumers face a number of cho ices when deciding to repair or replace their existing AC system and will continue to provi de information on the pros and cons of different re pair options.  DuPont comments that further reductions in consumpt ion allowances might discourage installation and fi eld charging of new condensing units with HCFC-22. They believe that continued installation of such units will only increase the challenge of meeting the 2015 ste pdown and increase emissions of HCFC-22 to the atmosphere. [0020] EPA Response: See responses to earlier comments in this section. EPA is not attempting to stop repairs using dry-shipped HCFC-22 condensing units in this rulema king. EPA will review service practices in the HCFC -22 market as it revises its servicing need estimates f or future regulatory periods. 

## 3. ISSUES RELATED TO THE ARKEMA V. EPA DECISION EPA received 13 comments in response to the request for comments on issues related to the **Arkema v. EPA** decision. 3.1 Whether EPA should provide recoupment 3.1.1 Whether the Arkema v. EPA decision should be interpreted as applying to the 2 010 allocation (i.e., recoupment) 3.1.2 Whether EPA should provide recoupment for HCF C-22 and HCFC-142b, or just HCFC-22 allowances 3.1.3 Whether EPA should provide recoupment for pro duction and consumption, or just consumption allowances 3.2 Whether EPA should finalize option 1, 2, 3 or 4 to adjust allowances in future control periods to reflect the Arkema v. EPA decision (i.e., recoupment) 3.2.1 Providing recoupment allowances in 2013 in ad dition to the aggregate level of production and consumption specified in the Final R ule (option 1) 3.2.2 Allocating recoupment allowances over two yea rs (2013-14) in addition to the aggregate level of production and consumption speci fied in the Final Rule (option 2) 3.2.3 Allocating recoupment allowances from the agg regate level of production and consumption specified in the Final Rule over two ye ars (2013-14) (option 3) 3.2.4 Treating allowances from 2010 as impossible t o recoup (option 4)

Count Commenter Organization Document ID No 1 William J. Hamel Arkema Inc. EPA-HQ-OAR-2011-0354 -0073 2 Joel K. French Coolgas, Inc. EPA-HQ-OAR-2011-0354 -0088 3 Mack McFarland DuPont EPA-HQ-OAR-2011-0354-0070 4 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2011-035 4-0082 5 Peter M. Geosits Mexichem Fluor Inc. EPA-HQ-OAR-2 011-0354-0066Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 28 6 Diran Yegparian Mondy Global, Inc. EPA-HQ-OAR-201 1-0354-0055 7 Maureen Beatty National Refrigerants, Inc. (NRI) EPA-HQ-OAR-2011-0354-0068 8 David Doniger Natural Resources Defense Council ( NRDC) EPA-HQ-OAR-2011-0354-0067 9 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2011-0 354-0064 10 Mack McFarland DuPont EPA-HQ-OAR-2010-1040-0020 11 William J. Hamel Arkema Inc. EPA-HQ-OAR-2010-104 0-0028 12 Stephen Bernhardt Honeywell EPA-HQ-OAR-2010-1040 -0029 13 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2010- 1040-0026 

## 3.1 Whether EPA should provide recoupment

3.1.1 Whether the Arkema v. EPA decision should be interpreted as applying to the 2 010 allocation (i.e., recoupment) EPA received 13 comments in opposition to recoupmen t, stating that EPA should not interpret the court decision as applying to the 2010 allocation. Two co mmenters, Solvay and Arkema, believe that the decis ion should be interpreted as applying to the 2010 alloc ation and that EPA should issue recoupment.  Mexichem Fluor expects that a reduction of consumpt ion allowances combined with recoupment allowances would lead to a distorted market and unf air treatment of allowance holders. Companies receiving recoupment would have an additional econo mic advantage compared to 2010. The commenter notes that market conditions and price expectations were different in 2010 due to the absence of the 2 012- 2014 proposed rule. Mexichem Fluor further comments that EPA should als o consider whether companies actually used all of their consumption allowances in 2010; only 86% (app roximately) of allowances were used in 2010. According to the commenter, not taking into account unused allowances might also lead to an overcompensation for loss and be unfair to other co mpanies without recoupment allowances, given that the market conditions and price expectations were d ifferent in 2010 due to the absence of this proposed rule. [0066] EPA Response: See section IV.B.6. of the preamble to the final ru le for a full response. EPA is issuing recoupment allowances in this final action in response to the Court’s finding that the agency had committed legal error. The grant of additional allowances is limited to this p articular circumstance. EPA is not changing its sta ndard policies regarding the issuance of allowances and the period of time during which allowances may be used. For e xample, EPA’s policy that allowances may not be banked for future years is not affected by this final action.  NRDC, IGSD, and EIA oppose all of the recoupment pr oposals and strongly support the no recoupment option. They oppose any option for implementing **Arkema** that increases the total number of allowances, which would only increase harm to the ozone layer a nd to public health and welfare. The commenters not e that the mandate from the Court of Appeals did not issue until late 2010, which is too late to affect allocations in that year and that further annual al locations cannot be “banked” from year to year. The commenters state that it is too late for an allocat ion in 2012-2014 to recoup for supposed shortfalls in 2010. According to the commenters, there is no market nee d to justify this additional increment of allocatio ns, and EPA has documented an extensive stockpile of un used HCFC-22 carried over from 2010. The commenters stated that recoupment options would onl y give a few companies a financial advantage at the expense of public health. [0067] EPA Response: EPA is reducing the total number of HCFC-22 consump tion allowances by more than 31,000 MT over the three years. As a result, providing recoup ment does not increase the allowed amount of HCFC-2 2 produced and imported for U.S. use relative to the 2009 Final Rule. See section IV.B.6. of the preambl e to the final rule for a full response on this portion of t he comment.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 29 EPA does not believe that the mere fact that the Co urt’s mandate issued in 2011 is sufficient reason t o decline to issue recoupment allowances. As a general matter, “ the decision of a federal court must be given retro active effect regardless whether it is being applied by a court or an agency.” Nat’l Fuel Gas Supply Corp. v. FERC , 59 F.3d 1281, 1289 (D.C. Cir. 1995). EPA noted in the proposal for this action that all 2010 allowances h ad expired at the time the vacatur occurred and raised the que stion of whether an expired portion of a rule can b e vacated. EPA did not receive any analysis of that specific i ssue. However, it is not necessary to resolve that specific issue here, because although the 2010 allowances had expi red, the **baselines** had not. EPA concluded in the preamble to the Interim Final Rule that the Court’s vacatur applied at a minimum to the baselines and the 2011- 2014 allowances. The Court’s finding of legal error with respect to the baselines means that the agency has an obligation to allocate additional allowances repres enting the difference between what the affected par ties would have received in 2010 under the 2008 proposed rule, which reflected the 2008 transfers, and what they actually received under the 2009 final rule, which did not.

 Mondy Global Inc. agrees with EPA that the agency s hould not and cannot compensate companies for allowances they believe they were owed during 2010. Since allowances are allocated for a calendar year only, 2010 allowances would be of no value beyond t hat year. The Court’s mandate issued on February 4, 2011; 2010 allowances had already expired. Therefor e, EPA only needs to adhere to allocations for cale ndar years 2011 and after. [0055] EPA Response: See section IV.B.6. of the preamble to the final ru le and the response to the NRDC comment above for a full response.  Honeywell strongly supports EPA’s proposal to not p rovide additional allowances to Arkema and Solvay i n 2013-2014 as some form of “recoupment” for allowanc es that were allegedly due to Arkema and Solvay in 2010. Honeywell believes such recoupment would be b oth contrary to law and the public policy objective s of the stratospheric ozone program. [0082] Honeywell agrees with EPA that recoupment would eff ectively be a transfer from 2010 to later years, and that EPA’s own regulations preclude such a tran sfer. Honeywell notes that regulations require allocation of allowances only for a specific contro l period and that there is no provision for banking or borrowing of allowances in later years according to 40 C.F.R. § 82.3, 82.16(a). Honeywell believes tha t there is an even more fundamental objection to such a transfer: the Clean Air Act requires that any transfer of allowances “result in greater total red uctions in the production in each year of ... class I I substances than would occur in that year in the abs ence of such transactions,” 42 U.S.C. § 7671f (a), yet issuing additional recoupment allowances in 2013-20 14 would have the opposite effect. Honeywell notes that by definition, the provision of recoupme nt allowances in any given year will cause the sum of all allowances allocated in that year to be higher than it would have been had no recoupment allowances been allocated. Honeywell believes that both Title VI of the Clean Air Act and its implementing regulations prohibit the allocation of recoupment allowances. [0082] Honeywell also agrees with the policy reasons that EPA listed for not providing recoupment allowances to Arkema and Solvay. For instance, EPA stated that not providing recoupment allowances will benefit the environment and public health as well as promot ing the reclamation industry that is likely needed for the 2015 stepdown period. 77 Fed. Reg. at 249. EPA also stated that providing recoupment allowances would decrease the actual number of allo wances or the market share of all other allowance holders. 77 Fed. Reg. at 249. [0082] Honeywell believes that avoiding losses of allowanc es or market share is more than just good public policy. Under **Arkema** v **. EPA** , the Court announced that companies have vested ri ghts in their allowances. Honeywell believes EPA cannot simply re duce the number of shares held by companies, or degrade the value of those shares, without violatin g the principle underpinning the **Arkema** decision orResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 30 without due process of law. See, e.g., **Halbach** v. **Great-West Life & Annuity Ins. Co.,** 561 F.3d 872, 877 (8th Cir. 2009); **Bell** v. **Burson** , 402 U.S. 535 (1971) (licenses cannot be suspended or revoked without due process). Therefore, Honeywell strongly believe s that any action by EPA to provide additional allowances to Arkema and Solvay at the expense of o ther allowance-holding companies (whether via a reduction in the number of allowances or a dilution of their value) is unlawful. [0082] In addition to the legal and policy reasons mention ed above, Honeywell believes that there is no reaso n to provide recoupment allowances to either Arkema o r Solvay as a matter of fact. EPA acknowledged that a “large number of HCFC allowances ... were not used in 2010....” 77 Fed. Reg. at 245. Honeywell agrees that 2010 was marked by significant oversupp ly of HCFC-22 allowances with a significant portion not being used. There were more than ample allowanc es available for use and/or sale. Providing recoupment allowances would constitute an inequitab le windfall to companies that were never harmed. Arkema and Solvay already attempted, unsuccessfully , to show that they would be harmed by the 2009 Final Rule in 2010, citing estimates of money they thought they would lose in 2010. [See **Arkema v. EPA** , Motion of Petitioner Arkema Inc. for Partial Stay a nd for Expedited Consideration of Petition for Revi ew, No. 09-1318, Doc. No. 1222488 (D.C. Cir.) (filed De c. 28, 2009); Motion for Partial Stay and Expedited Consideration of Petition for Review, No. 09-1318, Doc. No. 1224774 (D.C. Cir.) (Filed Jan. 8, 2010). The Court denied the motions. Order, No. 09-1318, Doc. No. 1226756 (Filed Jan. 21, 2010).] Honeywell sees no justification for providing recoupment allowance s under these facts. [0082] Honeywell comments that Arkema and Solvay have no l egal right to what is essentially the recovery of damages by way of rulemaking. If the companies beli eve they were deprived of their property and are entitled to compensation, they could file a claim f or compensation under the Tucker Act. [See 28 U.S.C

. § 1491(a)(1).] This is the exclusive avenue for the recovery of damages against the government, absent an alternative statutory mechanism for compensation . [See **United States** v **. Fausto** , 484 U.S. 439 (1988).] According to the commenter, any attempt to provide additional allowances to Arkema and Solvay as means of compensation for whatever moneta ry losses they allegedly suffered in 2010 raises serious legal questions. Honeywell believes EPA sho uld decline to provide recoupment allowances to Arkema and Solvay on these grounds alone. [0082, 00 29] EPA Response: See section IV.B.6. of the preamble to the final r ule for a full response to many of the points the commenter raises. See section IV.A.1. of the preamb le for additional discussion of “vested rights” and market share as it relates to the **Arkema** decision. Regarding the Tucker Act, the commenter appears to be saying that if Arkema and Solvay believe they ar e entitled to compensation for deprivation of propert y, their only potential recourse would be to file a claim under the Tucker Act for the recovery of damages. The Tuc ker Act states that the U.S. Court of Federal Claim s has jurisdiction over claims against the United States for “liquidated or unliquidated damages,” including takings claims. 28 U.S.C. 1491(a). This jurisdictional prov ision concerns **monetary** claims. See Bywaters v. U.S., 670 F.3d 1221, 1224 (Fed. Cir. 2012) ( “The United States Court of Federal Claims has excl usive jurisdiction over such claims where the amount in controversy is greater t han $10,000 . . . .”). EPA is not providing monetar y compensation. Instead, EPA is working within the co nstraints of its stratospheric protection program t o compensate for lost opportunities in 2010 by alloca ting additional allowances in 2013-2014. Issuance of recoupment allowances in this final act ion is well within EPA’s statutory authority. Secti on 605 of the CAA authorizes EPA to promulgate regulations phasin g out the production and consumption of class II substances in accordance with the phaseout schedule as accelerated pursuant to section 606. Section 60 7 authorizes EPA to issue production and consumption allowances. As long as EPA does not issue allowance s in excess of the accelerated phaseout schedule, the pr ecise quantity of allowances issued in any given co ntrol period is subject to the Agency’s discretion. In th e circumstance of the Court’s remand and vacatur, E PA canResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 31 correct the legal error found by the Court by issui ng additional allowances while at the same time ens uring that the total quantity remains consistent with the acce lerated phaseout schedule.  DuPont believes that it is unnecessary to consider any option with regard to "recoupment" of 2010 allowances since this action is not required by the CAA or the D.C. Circuit decision in **Arkema** . DuPont comments that while EPA discusses several related m atters in the Proposed Rule, including advantages f or the environment, public health and the reclamation industry in not providing any additional "recoupmen t" allowances, DuPont believes that the agency is unde r no legal duty to provide additional allowances to certain companies on a policy basis. DuPont comments that reducing their company’s allow ances in future allocation periods to provide "recoupment" would cause significant financial harm to DuPont. DuPont believes EPA has a duty to avoid such harm and no authority to impose it on th e basis that has been articulated by companies seeking additional allowances. DuPont further belie ves that EPA should not finalize any of the recoupment options outlined in the Proposed Rule or the regulatory language in 40 C.F.R. § 82.16(a)(2) providing such allowances for the 2013 calendar yea r. [0070, 0020] EPA Response: See section IV.B.6. of the preamble to the final ru le for a full response. See section IV.A.1. of the preamble for additional discussion of “vested right s” and market share as it relates to the **Arkema** decision.  Coolgas agrees with EPA and does not support recoup ment of 2010 allowances for those companies that benefited by the court’s decision in **Arkema** v **. EPA** . The court’s mandate issued on February 4, 2011, b y which time all of the 2010 HCFC allowances had expi red. Therefore, EPA is obligated to adhere to the c ourt’s mandate only with respect to HCFC allowances for 20 11-2014. According to the commenter, to provide additional allowances would be contrary to the Prop osed Rule’s efforts to reduce allocations for 2012- 2014. In addition, EPA has a long-standing policy against re-allocation of market share; the proposed recoup ment options would violate such policy. The proposed rec oupment would, in effect, re-allocate market share to the recoupment recipients at the expense of compani es not receiving recoupment. [0088] EPA Response: See section IV.B.6. of the preamble to the final ru le and previous responses in this section for a full response.  NRI does not support recoupment, noting that EPA ha s already stated that the 2010 control period has expired and 2010 allowances have no current or futu re value. [0068] EPA Response: See section IV.B.6. of the preamble to the final ru le and previous responses in this section for a full response. Two commenters, Solvay and Arkema, believe that the decision in **Arkema** v. **EPA** should be interpreted as applying to the 2010 allocation and support recoupm ent.  Solvay states that recoupment allowances must be is sued, and further states that there can be no doubt that the 2010 allowances were covered under the lit igation. The deprivation of rightful allowances beg inning in 2010 was the reason for the litigation, and the Court ordered EPA to "promptly" make these changes for the entire 2010-2014 control period. Solvay comment s that to comply with the Court order, recoupment i s essential to remedy the error made by the EPA in is suing the 2010 HCFC allowances. Solvay disagrees with EPA’s concern that as the num ber of allowances is lowered, providing the recoupment allowances could upset the market by dep riving other holders of the allowances they anticipate they will receive. Solvay also disagrees with EPA’s statement that if EPA were to literally follow the Court's order and provide the 2010 consu mption allowances, they could not be used to consume or produce product since these allowances h ave expired. Solvay quotes **AT&T Corp.** v **. FCC,** 448 F.3d 426, 433(D.C Cir. 2006) for the proposition th at when an agency “...commits legal error, the prop er remedy is one that puts the parties in the position they would have been in had the error not been made” (citing **Exxon Co** . v **. FERC** , 182 F.3d 30, 47 (D.C. Cir. 1999). Solvay notes th at the Court has furtherResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 32 held that the proper remedy to an error is “to put the victim of the agency error ‘in the economic position it would have occupied but for the error’. " [The correct citation for this quotation is Ethyl Corp. v. Browner, 67 F.3d 941, 945 (D.C. Cir. 1995) (quot ing Delta Data Sys. Corp. v. Webster, 744 F.2d 197, 206-07 (D.C. Cir. 1984).] Solvay notes that the faulty production and consump tion baselines determined individual company allowances not for the single year of 2010, but as EPA itself notes, for five years, 2010 through 2014

. Further, the Court ruled that absent a new act of C ongress, these 2010 allowances cannot be withheld. Solvay comments that there is still ample time to i mplement this remedy and Solvay has repeatedly suggested scenarios for recoupment, as well as remi nding the agency that it has an obligation to promptly issue these recoupment allowances. [0064, 0026] EPA Response: After reviewing comments and relevant case law, and considering the Agency’s ability to provide a remedy for the legal error identified by the Cour t, EPA has decided to provide recoupment for both H CFC-22 and HCFC-142b allowances. The agency believes this addresses any remaining issues arising from the **Arkema** v

**. EPA**  decision. See section IV.B.6. of the preamble to t he final rule and earlier responses in this section for a full response.  Arkema fully believes that EPA should provide recou pment. Further, Arkema comments that recoupment of allowances would not provide full compensation for Arkema’s losses in 2010. They believe that their shortfall in HCFC-22 allowances resulted in loss of sales of other refrigerants to their one-stop loya l customers. Arkema states that by vacating the 2009 Final Rule “insofar as it operates retroactively,” the D.C. Circuit annulled any and all portions reflecting th e invalid baseline allowance levels, including the 2010 allocations, and EPA cannot pick and choose the par ties or times to which the vacatur applies. Further , they believe that by questioning whether **Arkema** applies to 2010, EPA is indicating that it wants t o continue treating a vacated rule as binding and denying that effective judicial review of its action could be h ad. The commenter states that to deny them what they asked for in their original complaint would make a mocker y of the appellate review. [0073, 0028] Arkema believes that their losses were significant, and therefore cannot compete effectively in the after-market. They state that they expended practic ally all of their 2010 allowances and would have used more had they been freely available. Arkema co mments that even if EPA were to assume (incorrectly) that Arkema in 2010 could not have so ld all the HCFC-22 for which it should have receive d allowances, Arkema could have stockpiled the materi al for sale in later years. Arkema believes that EPA’s analysis of the current market indicates that allowance holders have done exactly that, and the agency expects those quantities of HCFC-22 to be so ld into the market in future years. Arkema believes they should have a fair opportunity to compete for those sales. Arkema believes that the D.C. Circuit precedent req uires reimbursement of Arkema and Solvay. Arkema states that the Court repeatedly has held, when an agency “commits legal error, the proper remedy is one that puts the parties in the position they woul d have been in had the error not been made.” Furthermore, it states that it would be an abuse of discretion for EPA not to provide Arkema and Solva y relief for the allowances denied them in 2010. Acco rding to Arkema, any claim that compensating Arkema and Solvay for their losses would require im proper retroactive action, or somehow resurrect expired 2010 allowances, is off the mark. [0073, 00 28] EPA Response: See previous responses in this section and section IV.B.6. of the preamble to the final rule.

 Arkema comments that EPA may act in excess of its s tatutory authority in providing a remedy for legal error, and may even impose retroactive changes. [0073, 002 8]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 33 EPA response: EPA is not acting in excess of its statutory autho rity. See response to Honeywell in this section. In addition, EPA is not acting retroactively. EPA is n ot assigning new legal consequences to acts of prod uction or import that occurred in 2010 using allowances alloc ated under the 2009 Final Rule. Nor is it taking aw ay allowances from any company in order to give them t o others. Rather, it is allocating additional allow ances to make up for the loss of opportunities to produce or import that would have existed had EPA finalized t he baselines as proposed in the regulatory text of the 2008 Proposed Rule.

3.1.2 Whether EPA should provide recoupment for HCF C–22 and HCFC–142b, or just HCFC–22 allowances EPA received two comments regarding whether EPA sho uld provide recoupment allowances for HCFC-22 and HCFC-142b, or just HCFC-22.  Arkema comments that EPA should not increase the al lowance pool for HCFC-142b production allowances when providing recoupment. Arkema suggests that EPA should provide recoupment based on the total allowance pool of 118 metric tons, rather than try to guess what it might have issued if the 2008 tran sfers had been honored in the 2009 Final Rule. According to the commenter, this means that the agency need only provide 69.8 metric tons of HCFC-142b producti on allowances in recoupment. [0073] EPA Response: EPA is providing recoupment production and consump tion allowances for both HCFC-142b and HCFC-22. See section IV.B.6. of the preamble to the final rule for a full response.  Solvay believes EPA should provide recoupment for b oth HCFC-22 and HCFC-142b allowances. Solvay notes that its focus on HCFC-22 allowances should not be interpreted as a lack of interest in recoupment of HCFC142b allowances. Solvay believes recoupment should be provided for 142b as well, in part because it ensures traceability. Solvay believes that it is im portant to be consistent, to establish practices th at benefit the environment and can serve as model both for fut ure environmental programs and for developing countries that are only now beginning to have to de sign their own systems. [0064] EPA Response: EPA is providing recoupment production and consumpt ion allowances for both HCFC-142b and HCFC-22. See section IV.B.6. of the preamble to the final rule for a full response.

3.1.3 Whether EPA should provide recoupment for pr oduction and consumption, or just consumption allowances The above comments from Arkema and Solvay indicate that they believe recoupment should be provided for production and consumption. EPA Response: EPA is providing recoupment production and consumpt ion allowances for both HCFC-142b and HCFC-22. See section IV.B.6. of the preamble to the final rule for a full response.



## 3.2 Whether EPA should finalize option 1, 2, 3 or 4 to adjust allowances in future control periods to reflect the Arkema v. EPA decision (i.e., recoupment) EPA received five comments in support of a specific option for recoupment. One comment supported optio n 1, two comments supported option 3, and two comments s upported option 4. An additional two comments did not support a specific option.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 34 3.2.1 Providing recoupment allowances in 2013 in ad dition to the aggregate level of production and consumption specified in the Final R ule (i.e., option 1) Out of the four comments provided on option 1, only Mexichem Fluor would support this option under cer tain conditions. Solvay, Honeywell, and Arkema do not su pport option 1.  Mexichem Fluor commented that, if recoupment allowa nces are issued, it would not object to this option as long as: overcompensation is avoided; unused 2010 a llowances are taken into account; and market distortions are minimized. [0066] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Solvay disagrees with this option. Solvay believes that expanding the number of allowances is in direc t contradiction with EPA’s stated goal of promoting a sustainable recycling industry, and that issuing f urther allowances is not necessary to correct EPA’s mistak e. Solvay aligns with the June 2, 2011 submission to t he Docket by the Natural Resources Defense Council: “...NRDC opposes any option that would increase the n umber of HCFC allowances issued for 2011 or subsequent years. That would increase the burden of ozone-depleting HCFC-22 in the atmosphere, and increase the risk of fatal and non-fatal skin cance rs, cataracts, and immunological disorders for all Americans and for billions of other people. EPA nee ds to find a solution to the allocation problem bef ore the agency that does not place any additional burde n on the stratosphere, on public health, or on the natural environment.” [0064] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Honeywell states that under EPA’s option 1, HCFC co nsumption and production would increase for 2013, which is prohibited by Title VI of the Clean Air Ac t. [0082] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See previous response to Honeywell on EPA’s statutory authority as well as section IV.B.6. of the preamble to the f inal rule for a full response.  Arkema states that option 1 ignores the D.C. Circui t’s holding by preserving benefits of the vacated 2 009 Final Rule to other allowance holders. Recoupment u nder option 1 would sustain the advantage of other allowance holders over Arkema and Solvay. In additi on, they state that option 1 would ignore the publi c interest, allow some parties to keep unlawful benef its, and result in increased environmental injury. Beyond that, Arkema states that EPA would obtain the extra allowances for recoupment by taking allowances fro m the “cushion” between the Montreal Protocol cap and the total allocation. Further, releasing extra allowances would defeat EPA’s goal of supporting th e reclamation industry. Arkema states that EPA shou ld not thwart the goals of the program solely for the sake of making sure that certain allowance holders retain advantages to which they never were entitled. Arkem a believes that recoupment on these terms would short-change Arkema and Solvay because it would per petuate the imbalance in the allowance shares created by the 2009 Final Rule. [0073] EPA Response: See section IV.B.6. of the preamble to the final ru le for a response to the commenter’s concern regarding the public interest and injury to the env ironment. The commenter contends that they should r eceive recoupment allowances at the expense of all other a llowance holders because other allowance holders re ceived a supposed “windfall” in 2010. EPA does not find th is argument convincing. While the commenter argues that all other allowance holders had more opportunity to pro duce or import than they would have had if the 2008 interpollutant transfers were included in the 2009 Final Rule, those opportunities were not in fact used in dustrywide. As stated in the preamble to the proposed rul e at 77 FR 248, 425 ODP-weighted MT of consumption allowances industry-wide were not used in 2010. Thi s amount is more than 20 percent larger than the nu mberResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 35 of consumption allowances EPA is providing in recou pment. The commenter is in effect arguing that comp anies who had the opportunity to produce or import in 201 0 and did not use it, should now have fewer allowan ces merely because they could have produced or imported more in 2010. EPA does n ot agree with this logic and is finalizing recoupment option 2.

3.2.2. Allocating recoupment allowances over two ye ars (2013–2014) in addition to the aggregate level of production and consumption speci fied in the Final Rule (i.e., option 2) EPA received five comments regarding option 2, all in opposition.  Mexichem Fluor comments that option 2 would lead to further unfair economic rewards for the companies receiving recoupment allowances. [0066] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Mondy Global Inc. states that to provide additional allowances to companies in the form of recoupment in 2013 and/or 2014 would reallocate market share in v iolation of long-standing EPA policy. The commenter supports EPA’s practice of allocating allowances ba sed on baseline. According to the commenter, if EPA were to provide companies additional allowances in the form of recoupment during this period, the mark et share will shift in favor of these companies and at the expense of those not receiving recoupment allowances. [0055] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Solvay disagrees with allocating recoupment allowan ces over two years in addition to the aggregate lev el of production and consumption specified in the 2009 Fi nal Rule. Solvay believes that expanding the number of allowances is in direct contradiction with EPA’s st ated goal of promoting a sustainable recycling indu stry, and that issuing further allowances is not necessar y to correct EPA’s mistake. [0064] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Honeywell states that under EPA’s option 2, HCFC co nsumption and production for both 2013 and 2014 would increase when compared to the 2009 Final Rule , which is prohibited by Title VI of the Clean Air Act. [0082] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns provided in the preamble. See section IV.B.6. of the preamble to the final rule for a ful l response.  Arkema states that option 2 ignores the D.C. Circui t’s holding by preserving benefits of the vacated 2 009 Final Rule to other allowance holders. Recoupment u nder option 2 would sustain the advantage of other allowance holders over Arkema and Solvay. In additi on, option 2 would ignore the public interest, allo w some parties to keep unlawful benefits, and result in increased environmental injury. Arkema believes that recoupment on these terms would short-change Arkema and Solvay because it would perpetuate the imbalance in the allowance shares created by the 20 09 Final Rule. [0073] EPA Response: EPA is finalizing recoupment option 2. See the response to Arkema’s comment on option one in section 3.2.1 of this RTC and section IV.B.6. of th e preamble to the final rule for a full response.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 36 3.2.3 Allocating recoupment allowances from the agg regate level of production and consumption specified in the Final Rule over two ye ars (2013–2014) (i.e., option 3) Three comments were received regarding option 3, wh ich was supported by Arkema and Solvay. Mexichem Fluor believes this option would lead to further un fair economic rewards for those receiving allowance s.  Arkema states that option 3 is the only recoupment alternative that satisfies the D.C. Circuit mandate to make Arkema and Solvay whole. Arkema believes that recoupment of both production and consumption allowances should be spread out over two years to m aximize Arkema and Solvay’s opportunity to utilize allowances and minimize disruption to other allowan ce holders. Arkema comments that a reduction in allowances for other allowance holders is not a dis advantage due to the fact that these parties had mo re HCFC-22 allowances in 2010 than they should have. A rkema states that any failure to provide full and prompt relief to Arkema and Solvay for 2010 would d isregard the **Arkema** mandate, ignore D.C. Circuit precedent, and compromise the integrity of EPA’s HC FC program by confirming that the underlying rules may be disregarded on a whim. [0073] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns given in the preamble. That option does spread out the recoupment over two years. See previous responses to Arkema comments in this s ection of the document and section IV.B.6. of the preamble to the final rule for a full response. In addition, see r esponse to Mexichem Fluor at section 3.1.1 of this document.  Solvay sees option 3, whereby EPA allocates HCFC-22 allowances (both recoupment for 2010 and their allotted percentage of baseline for 2013 and 2014) to Solvay and Arkema and then allocates the remaind er to all other allowance holders by revising the perc entage of baseline allocated, as the only available course of action. Solvay notes that because the number of HCFC allowa nces for 2010 was capped at an absolute number, the decision to issue Solvay and Arkema this lower quantity of allowances provided all other consumption and production allowance holders with 1 9 percent more allowances than they should have lawfully received. Thus, according to the commenter , Solvay, Arkema, and their customers were the only entities harmed when, as the Court ruled, they were unlawfully deprived of 22,481,543 metric tonnes of HCFC-22 baseline consumption allowances. As EPA not es in the preamble accompanying the Proposed Rule, the 2010 windfall allowances that other compa nies received over and above what they should have received were not consumed. The commenter note s that in 2010, these companies had the opportunity to consume these allowances or even use them to build inventory of HCFC-22 for future use, but as noted in the Preamble, this was not don e. In contrast, for both 2010 and 2011 Solvay consumed nearly all (>98%) of its HCFC allowances i ssued for use in those years. [0064] Solvay notes that their efforts to overturn EPA's F inal Rule commenced well in advance of the May 10, 2010 Court hearing. They believe that since their r equest for review and subsequent litigation was known within the industry, the possibility that the Court could rule in Solvay’s favor should have bee n a clear variable for all market participants to consi der. Since the Court issued its decision on August 27, 2010, these windfall allowance holders had four mon ths to digest the factual implications of the decision and decide what actions they would take. S olvay says that these companies cannot now look to the EPA to compensate them for their own market dec isions. [0064] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns given in the preamble. Regarding the concept of a windfall, see the response to Arkema a t section 3.2.1. of this document. The commenter also asserts that EPA is compensating companies for past market decisions by other allow ance holders. EPA is only providing recoupment allowance s to make up for lost opportunities for those compa nies that would have received more HCFC-22 or HCFC-142b allowances in 2010 if the 2008 inter-pollutant tran sfersResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 37 were accounted for in the 2009 Final Rule. EPA is i ssuing HCFC-22 recoupment allowances to Arkema and Solvay because they received fewer HCFC-22 allowances than they would have received if the Agency had reflect ed the 2008 inter-pollutant allowance transfers in the bas elines. EPA is issuing HCFC-142b recoupment allowan ces to all companies that received fewer HCFC-142b allowances than they would have received if the Agency had reflected the 2008 inter-pollutant transfers in the baselines. However, the Agency is not compensating any company for decisions not to use allowances they di d receive. In addition, EPA is not extracting futur e allowances from companies based on their 2010 produ ction and consumption levels for the reasons stated previously. See responses to Arkema earlier in this document and section IV.B.6. of the preamble to th e final rule for a full response.  Mexichem Fluor believes that option 3 would lead to further unfair economic rewards for the companies receiving recoupment allowances and would provide d istinct overcompensation due to the changed market conditions. [0066] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns given in the preamble. EPA does not believe providing the number of allowances “lost” i n 2010 in 2013 and 2014 is overcompensating the pet itioners in **Arkema** since (1) they received fewer allowances than they would have received had the 2008 inter-pollutant transfers been included in the 2009 Final Rule, and (2) they could have used those allowances to eithe r produce or import HCFC-22 in 2010 or stockpile it for later years when there are fewer HCFC-22 allowances. See previous responses in this section and section IV.B.6. of th e preamble to the final rule for a full response.

3.2.4 Treating missed allowances from 2010 as impos sible to recoup (i.e., option 4) Three comments were received regarding option 4. Tw o commenters supported this option and Arkema objected.  NRDC, IGSD, and EIA oppose all of the recoupment pr oposals and support the option of not allowing recoupment. The commenter states that they oppose a ny option for implementing **Arkema** that increases the total number of allowances, which would only in crease harm to the ozone layer and to public health and welfare. [0067] NRI supports option 4 for recoupment. EPA should no t further impair allowance holders who had no role in the reason for the litigation. It is the cleanest, simplest way to satisfy the Court’s ruling without causing further disruption to the industry. [0068] EPA Response: EPA is finalizing recoupment option 2 for the reaso ns given in the preamble. See responses to NRDC comment in section [ ] above and section IV.B. 6. of the preamble to the final rule for a full res ponse.  Arkema comments that EPA’s preferred position of op tion 4 contradicts previous decisions and court rul ings, as well as EPA’s position before the D.C. Circuit. During the **Arkema** litigation, EPA obtained more time for briefing by telling the Court that any economic los s to Arkema could be remedied by shifting additiona l allowances to Arkema and Solvay in future years. Ar kema states that concerns raised over the disadvant age that recoupment would bring to other allowance hold ers (who would receive a smaller proportional share of the total allowance pool) ignores the fact that the se same allowance holders received a correspondingl y larger proportion of the market in 2010 when the ag ency acted in violation of law in assigning those allocations. [0073] EPA Response: EPA is not finalizing recoupment option 4. See section IV.B.6. of the preamble to the final ru le for a full response.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 38 

## 4. HCFC-22 AND HCFC-142B ALLOCATIONS IN 2012-2014 EPA received 104 comments on HCFC allocations in 20 12-2014. Comments were in reference to three main topics: 4.1 Decreasing HCFC-22 consumption allowances relat ive to the 2009 Final Rule 4.2 Increasing HCFC-22 production allowances relat ive to the 2009 Final Rule

4.2.1 Whether EPA can decouple the percentage of ba seline allocated for production and consumption 4.2.2 Whether EPA should increase the percentage of baseline allocated for production 4.2.3 Whether an increase in the number of HCFC-22 production allowances would result in an increase in HCFC consumption and production 4.3 HCFC-142b consumption and production allowance allocations

Count Commenter Organization Document ID No 1 Tony Arceneaux A & M Heating, Air Conditioning & Refrigeration, Inc. EPA-HQ-OAR-2011-0354-0077 2 David Wallace AZ Refrigerant Abatement EPA-HQ-OAR -2011-0354-0053 3 Charles McCrudden ACCA EPA-HQ-OAR-2011-0354-0081 4 Karim Amrane AHRI EPA-HQ-OAR-2011-0354-0072 5 John M. Batt Airgas, Inc. EPA-HQ-OAR-2011-0354-0079 6 William J. Hamel Arkema Inc. EPA-HQ-OAR-2010-1040-0028 7 William J. Hamel Arkema Inc. EPA-HQ-OAR-2011-0354-0073 8 Matthew Jahn Bay Area Refrigerant Recovery, Inc E PA-HQ-OAR-2011-0354-0080 9 Rick Boettcher Bettcher Enterprises, Inc EPA-HQ-O AR-2011-0354-0056 10 Zachary T. Mouton BRYANS UNITED AIR CONDITIONING EPA-HQ-OAR-2011-0354-0118 11 Kelli K. Williams Bryson Insurance EPA-HQ-OAR-2 011-0354-0135 12 Jim Gossett Carroll Area Development Corp. EPA-H Q-OAR-2010-1040-0159 13 Jeff Moe Center for Energy Efficiency and Sustainability, Ingersoll Rand EPA-HQ-OAR-2011-0354-0063 14 Rick Roland Certified Refrigerant Services Inc. EPA-HQ-OAR-2011-0354-0057 15 Rich Dykstra Consolidated Refrigerant Reclaim EP A-HQ-OAR-2011-0354-0083 16 Joel K. French Coolgas, Inc. EPA-HQ-OAR-2011-0354-0088 17 Anonymous DALHOUSIE UNIVERSITY EPA-HQ-OAR-2011-03 54-0091 18 Larry N. Buras Delta Ice Air & Heat, Inc. EPA-HQ -OAR-2011-0354-0138 19 M. J. Dermid Dermid Enterprises, LLC EPA-HQ-OAR- 2011-0354-0113 20 Jeff Tauzin Doug's Refrigeration EPA-HQ-OAR-2011 -0354-0116 21 Mack McFarland DuPont EPA-HQ-OAR-2010-1040-0020 22 Mack McFarland DuPont EPA-HQ-OAR-2011-0354-0070 23 Dennis deBoisblanc Sr. E.A.S.E. LLC EPA-HQ-OAR-2011-0354-0107 24 Mike Falgout Energy Specialists Air Conditioning Co. EPA-HQ-OAR-2011-0354-0109 25 Terry Leonard Express Heating and Air Conditioni ng Services LLC EPA-HQ-OAR-2011-0354-0137 26 John Haynes Express Recovery, Inc EPA-HQ-OAR-201 1-0354-0075 27 Erik R. Lieberman Food Marketing Institute (FMI) EPA-HQ-OAR-2011-0354-0157 28 Sandra Benenate Fountainbleau Management Service s, LLC EPA-HQ-OAR-2011-0354-0139 29 Carl Grolle Golden Refrigerant EPA-HQ-OAR-2011-0 354-0054 30 Gary L. Clark Goodman Global, Inc. EPA-HQ-OAR-20 11-0354-0084 31 Anonymous Greens Services Inc. EPA-HQ-OAR-2011-0 354-0090 32 Jeff Greer Greer Holdings, LLC EPA-HQ-OAR-2011-0 354-0052 33 RemTec International Group of EPA Certified ODS Reclaimers EPA-HQ-OAR-2011-0354-0085 34 Jonathan Melchi Heating, Air-Conditioning and Re frigeration EPA-HQ-OAR-2011-0354-0069Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 39 Count Commenter Organization Document ID No Distributors International 35 Marsha D Fowler Highland Electric Heat & Air LLC EPA-HQ-OAR-2011-0354-0096 36 Leonard Tavlin Hinton A/C Services EPA-HQ-OAR-20 11-0354-0106 37 Stephen Bernhardt Honeywell EPA-HQ-OAR-2010-1040-0029 38 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2011-0354-0082 39 Dave Mann Houston Refrigerant Recovery, LLC EPA- HQ-OAR-2011-0354-0060 40 Stephen P. Mandracchia Hudson Technologies EPA-H Q-OAR-2010-1040-0027 41 Stephen P. Mandracchia Hudson Technologies Compa ny EPA-HQ-OAR-2011-0354-0071 42 David Murray HVAC Service Solutions EPA-HQ-OAR-20 11-0354-0115 43 Bill Sciacca Johnstone Supply EPA-HQ-OAR-2011-03 54-0095 44 Brad Campagna Johnstone Supply EPA-HQ-OAR-2011-0 354-0133 45 David P. Huet Johnstone Supply EPA-HQ-OAR-2011-0 354-0101 46 Barry Tumminello Johnstone Supply EPA-HQ-OAR-201 1-0354-0098 47 Joey Larson Johnston Supply EPA-HQ-OAR-2011-0354 -0136 48 Jim Cherry Johnstone Supply EPA-HQ-OAR-2011-0354 -0099 49 Dwayne Farbe Johnstone Supply EPA-HQ-OAR-2011-03 54-0097 50 Jim Gandy Johnstone Supply EPA-HQ-OAR-2011-0354- 0120 51 Joe Cardenas Johnstone Supply EPA-HQ-OAR-2011-03 54-0124 52 Terry Deppe Johnstone Supply EPA-HQ-OAR-2011-035 4-0140 53 Tommy Royer Johnstone Supply EPA-HQ-OAR-2011-035 4-0145 54 George Sexton Johnstone Supply EPA-HQ-OAR-2011- 0354-0132 55 Harold Petit, Jr Johnstone Supply EPA-HQ-OAR-20 11-0354-0153 56 Tim and Noemi Frazee LA Refrigerant Recovery, In c. EPA-HQ-OAR-2011-0354-0051 57 Paul Metzler Lemoine Marine Refrigeration, Inc E PA-HQ-OAR-2011-0354-0127 58 Kyle E. Gilley Lennox International Inc. EPA-HQ- OAR-2011-0354-0061 59 Dwayne A. Mayeux Mayeux's A/C & Heating, Inc. EP A-HQ-OAR-2011-0354-0094 60 Dianne Mayeux Mayeux's A/C & Heating, Inc. EPA-H Q-OAR-2011-0354-0093 61 Peter M. Geosits Mexichem Fluor Inc. EPA-HQ-OAR- 2011-0354-0066 62 Peter Koelsch MDA Manufacturing, Inc. EPA-HQ-OAR -2010-1040-0030 63 Diran Yegparian Mondy Global, Inc. EPA-HQ-OAR-20 11-0354-0055 64 Maureen Beatty National Refrigerants, Inc. (NRI) EPA-HQ-OAR-2011-0354-0068 65 David Doniger Natural Resources Defense Council (NRDC) EPA-HQ-OAR-2010-1040-0033 66 David Doniger Natural Resources Defense Council (NRDC) EPA-HQ-OAR-2011-0354-0067 67 Michael Seabaugh NORDYNE EPA-HQ-OAR-2011-0354-0089 68 Perry L. Pullen Perry’s Electric, Inc. EPA-HQ-OA R-2011-0354-0131 69 Kerry K. Private Citizen Comment EPA-HQ-OAR-2011 -0354-0103 70 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0102 71 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0110 72 R.A. Mika Private Citizen Comment EPA-HQ-OAR-2011-0354-0111 73 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0112 74 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0100 75 Kenny Peffer Private Citizen Comment EPA-HQ-OAR-2011-0354-0121 76 Ti-Joe Augustin Private Citizen Comment EPA-HQ-OAR-2011-0354-0123 77 Jaime Dheming Private Citizen Comment EPA-HQ-OAR-2011-0354-0119 78 Larry Burton Private Citizen Comment EPA-HQ-OAR-2011-0354-0125 79 J. Young Private Citizen Comment EPA-HQ-OAR-2011-0354-0142 80 B. Truse Private Citizen Comment EPA-HQ-OAR-2011-0354-0128 81 A. Russo Private Citizen Comment EPA-HQ-OAR-2011-0354-0146 82 E. E. Wellmeyer Private Citizen Comment EPA-HQ-OAR-2011-0354-0130Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 40 Count Commenter Organization Document ID No 83 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0129 84 C. Legendre Private Citizen Comment EPA-HQ-OAR-2011-0354-0134 85 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0151 86 B. Stephens Private Citizen Comment EPA-HQ-OAR-2011-0354-0152 87 J. Welsh Private Citizen Comment EPA-HQ-OAR-2011-0354-0155 88 J. Guidry II Private Citizen Comment EPA-HQ-OAR-2011-0354-0144 89 Jerry Dykstra Rapid Recovery Franchise Partners EPA-HQ-OAR-2011-0354-0086 90 Jeff Hudson Regional Mechanical EPA-HQ-OAR-2011- 0354-0117 91 Richard Marcus RemTec International EPA-HQ-OAR-2 010-1040-0024 92 Karen B. Meyers Rheem Manufacturing Company EPA- HQ-OAR-2011-0354-0087 93 John White Rhynard and White Enterprises, Inc. E PA-HQ-OAR-2011-0354-0058 94 Kenneth M. Ponder RMS of Georgia, LLC EPA-HQ-OAR -2011-0354-0078 95 Nick Thomas Rocky Mountain Refrigerant Abatement , LLC EPA-HQ-OAR-2011-0354-0059 96 Bruce MacMorran RSS Realtors EPA-HQ-OAR-2011-0354-0105 97 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2010- 1040-0026 98 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2011- 0354-0064 99 Chan Ritchie Southeast Refrigerant Recovery, Inc . EPA-HQ-OAR-2011-0354-0074 100 A. Stephen Trevino Summit Refrigerants EPA-HQ- OAR-2011-0354-0062 101 Craig Johnson Surgi's Heating and Air Condition ing EPA-HQ-OAR-2011-0354-0114 102 Timothy LeCoq T.L. Maintenance HVAC EPA-HQ-OAR- 2011-0354-0092 103 Joey Pittman Thermal Solutions LLC EPA-HQ-OAR-2 011-0354-0108 104 Michael Kelly Tri-Parish A/C & Refrigeration, L .L.C. EPA-HQ-OAR-2011-0354-0122 

## 4.1 Decreasing HCFC-22 consumption allowances relat ive to the 2009 Final Rule EPA received 55 comments (some signed by multiple o rganizations) related to the level of HCFC-22 consu mption allowances, with 42 comments supporting a decrease in allowances relative to the 2009 Final Rule, and 13 comments opposing a decrease. EPA received another 47 comments opposed to decreasing HCFC-22 production, but these comments are most likely usin g the term “production” in a general sense, and are in fact referring to the HCFC-22 consumption allocation. The following 42 comments support decreasing HCFC-2 2 consumption allowances relative to the 2009 Final Rule. The majority of commenters support the higher end of proposed reductions.  NRI supports EPA’s proposal to reduce baseline cons umption allocations to the lowest amount proposed f or 2012, 2013, and 2014. NRI believes a reduced HCFC-2 2 allocation will stimulate the recovery and reclamation of refrigerant installed in equipment.[ 0068] EPA Response: EPA is finalizing an amount of consumption allowanc es that is almost 30 percent below the consumption amount in the 2009 Final Rule. EPA is p roviding consumption allowances in this final rule based on its assessment of market conditions (see section IV .B.1-3. of the preamble for the specifics). For 201 2, the timing of this rule means that EPA is looking back at actu al events during 2012 rather than projecting future needs. The amount of consumption allowances EPA is finalizing for 2012 corresponds with the lowest proposed consumption amount for that year. In projecting fut ure needs during 2013-2014, EPA is taking into acco unt the ability to recover HCFC-22, the capacity for reclai ming or reusing HCFC-22, and the amount of existing inventory from past years, The agency is not finalizing the s mallest allocation proposed for 2013-2014 because E PA did not receive sufficient data on in-house supermarket reu se (see section IV.B.3 of the final rule preamble). EPAResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 41 believes that the amounts in this rulemaking will i ncrease market incentives to properly manage and re cover HCFC-22 while still allowing for servicing of exist ing HCFC-22 systems.  Arkema comments that a further reduction in HCFC-22 allowances is the best way to foster the necessary reclamation that is based on distillation. For HCFC -22 consumption allowances, Arkema believes that 25 ,100 MT in 2012, 20,800 MT in 2012, and 16,400 MT in 201 4 would be appropriate allocations. The company states that these allocation levels would help achi eve a strong, sustainable recycling industry, avoid market disruption in 2015 and also allow for continued equ ipment servicing. [0073, 0028] EPA Response: See previous response in this section to NRI.  RMS Georgia recommends a full 38% reduction in allo cation for 2012. It supports EPA’s statement in the proposed rule that a lower HCFC-22 consumption allo cation is justified by decreased demand and the availability of surplus inventory and the goal of f urther incentivizing recovery and reclamation.[0078 ] EPA Response: See previous response in this section to NRI.  Airgas suggests that EPA use the Lowest Annual Allo cations/Smaller Allocation Scenario due to the fact that U.S. reclaimers have the capacity to meet necessary volumes so long as enough used HCFC-22 is recovere d and returned for reclamation. [0079] EPA Response: See previous response in this section to NRI as wel l as EPA’s discussion of reclamation capacity in section IV.B.2 of the final rule.  Rocky Mountain Refrigeration Abatement encourages E PA to decrease the amount of HCFC-22 allowances to the fullest extent proposed in the new rule. As a small refrigerant recovery company, Rocky Mountai n Refrigerant Abatement has observed that contractors and technicians are more inclined to recover HCFC- 22 if they receive payment for the used gas, and at th e present price levels it is nearly impossible for a contractor to recover the costs involved in EPA com pliant recovery. The commenter states that many who could recover refrigerants are not doing so because of the additional costs involved. Rocky Mountain Refrigerant Abatement notes that EPA should decreas e the amount of virgin HCFC-22 available in the marketplace to increase the value of reclaimable us ed refrigerant. The commenter states that reducing the allowances to the fullest extent proposed will ulti mately decrease the quantity of available virgin HC FC-22 and increase the market value of recovered HCFC-22. [0059] EPA Response: See previous response in this section to NRI. EPA a grees that decreased availability of HCFC-22 should increase the value of used refrigerant. Addi tionally, since the publication of the proposed rul e, EPA has heard from stakeholders that some reclaimers are al ready offering increased incentives to return recov ered refrigerant.  Thermal Solutions, Surgi’s Heating and Air Conditio ning, and Doug’s Refrigeration support the proposed decrease in consumption allowances for HCFC-22. The y state that this will accelerate the adoption of t he more environmentally friendly R-410A. [0108, 0116, 0114] EPA Response: See previous response in this section to NRI.  Greer Holdings, Rhynard and White Enterprises, Bett cher Enterprises, Southeast Refrigerant Recovery, Express Recovery, and Bay Area Refrigerant Recovery encourage EPA to decrease the amount of HCFC-22 allowances as proposed in the new rule (some emphas izing their support for the maximum reduction). The y discuss the economics of refrigerant recovery: when the value of HCFC-22 is low, no incentives exist t o encourage recovery, and recovery may be more expens ive than simply venting the gas. Reducing the allocation will shrink the available supply of HCFC -22, and increased buyback prices will incentivize better recovery of HCFC-22. [0052, 0056, 0058, 0074, 0075, 0080] EPA Response: See previous response in this section to NRI.  Houston Refrigerant Recovery supports the proposed rule to reduce HCFC-22 allowances. The commenter states there is an oversupply of HCFC-22 on the mar ket today, and if the supply does not decrease, the priceResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 42 of both new and used HCFC-22 will remain low. As lo ng as it is less expensive to vent than to recover refrigerants, contractors have no financial incenti ve to recover. The commenter would like the overall supply of HCFC-22 to be reduced, so that the value of recl aimed refrigerant is high enough to encourage compliance by the industry. [0060] EPA Response: See previous response in this section to NRI.  Summit Refrigerants supports the maximum reduction in allocations for HCFC-22. Summit Refrigerant comments that significantly reduced allocations wil l result in greater recovery of used HCFC-22 refrig erant. The commenter notes that based on the decline in pr ices for HCFC-22 in 2011, they conclude that the availability of virgin HCFC-22 from U.S. manufactur ers and importers, together with the unknown supply of stockpiled HCFC-22, is greater than the demand for HCFC-22 by the HVAC service industry. A reduction i n the availability of virgin HCFC-22 will result in a n increase in value of both virgin and reclaimed HC FC-22, which will allow reclaimers to offer greater financ ial incentives to the HVAC service industry to reco ver used HCFC-22 and to wholesalers. Summit Refrigerants fur ther comments that greater recovery of used HCFC-22 will result in increased use of reclaimed HCFC-22, and reduce the need to manufacture and import virgi n HCFC-22. [0062] EPA Response: See previous response in this section to NRI.  Solvay supports a significant reduction in HCFC-22 allowances. EPA reports that approximately 20 perce nt of consumption allowances it issued in 2010 and 2011 w ent unused. Solvay therefore believes that a reduct ion of at least this magnitude should be applied to fut ure allowances. [0064] EPA Response: See previous response in this section to NRI. The c ommenter’s statement about 2011 consumption is not accurate. EPA had not released 2 011 consumption data prior to publishing the propos ed rule. The agency releases U.S. HCFC consumption dat a through the Montreal Protocol Article 7 report to the United Nations Environment Programme. Historically, EPA has also announced the final annual consumptio n of HCFC-22, specifically, once all of the data has bee n reviewed. In 2010, reported HCFC-22 consumption w as approximately 85 percent of the total HCFC-22 consu mption allocation for that year.  A group of 20 EPA Certified ODS Reclaimers recommen d that EPA reduce allowances as far as legally possible: a full 38% reduction in allocations for 2 012, 42% in 2013, and 47% in 2014. The reclaimers unanimously support EPA’s belief “that establishing a lower aggregate HCFC-22 consumption allocation f or 2012-2014 than in the 2009 Final Rule is not only j ustified by decreased demand and the availability o f surplus inventory from past years, but also because a lower virgin supply will further incentivize rec overy and reclamation.” They note that up to this point i n time, there is no incentive in the marketplace th at encourages recovery and reclamation, which is refle cted in the fact that a significant percentage of t he allowances authorized for 2010 and 2011 were unused in those two years. According to the commenters, further steep reductions in allocations are needed to incentivize recovery and reclamation. [0085] EPA Response: See previous response in this section to NRI.  NRDC, IGSD, and EIA strongly support reducing the e xisting allowance schedule by at least the maximum percentages proposed by EPA for 2012-2014. Specific ally, the consumption allocation for virgin HCFC-22 should be no larger than 25,100 MT in 2012, 20,800 MT in 2013 and 16,400 MT in 2014. NRDC, IGSD, and EIA support allocating no more consumption allowanc es than 17.7 percent of the revised baseline in 201 2, no more than 11.4 percent in 2013, and no more than 8.3 percent in 2014. Rather, the commenters strong ly believe reducing consumption allowance allocations below these values is both necessary and practicabl e under Section 606(a) of the CAA. They strongly oppo se any larger allocations. The basis for accelerati ng reductions is: 1) it is necessary to protect human health and the environment; and 2) it is practicabl e in terms of technology, safety, and availability of al ternatives. [0067, 0033]

• The commenter states that the recovery of the ozone layer has been delayed by the rapid increase in global HCFC production, most of which i s HCFC-22. In addition to destroying ozone,Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 43 HCFC-22 is a potent greenhouse gas contributing to climate change. The commenter also notes that a more rapid acceleration of reductions will h elp ensure a smooth transition to the 2015 step-down requirements of the Montreal Protocol. [0 067]

• The commenter states that containment, reclamation, reprocessing, and reuse of recovered HCFC-22 are all practicable with present technology . Additionally, alternatives are on the market and more are emerging. Accelerating the phaseout sc hedule would address the HCFC-22 market price issue by reducing over-supply. In effect, thi s would make containment, reclamation, processing and reuse more competitive and permit a larger percentage of HCFC-22 demand to be met with recovered materials. Similarly, it woul d reduce demand for HCFC-22 based equipment and encourage transition to appliances th at use available substitutes and achieve higher energy efficiency. The transition to new sub stances and improved recovery and recycle at service will create new well-paid jobs. [0067] EPA Response: See previous response in this section to NRI. EPA i s providing allowances in this final rule based on its assessment of market conditions. For 2012, t he timing of this rule means that EPA is looking ba ck at actual events during 2012 rather than projecting future ne eds. The amount of consumption allowances EPA is fi nalizing for 2012 corresponds with the lowest proposed consu mption amount for that year. For 2013-2014, EPA is taking the proposed reduction for existing inventory and t he maximum proposed reduction for reclamation and r euse. EPA is not reducing allowances for 2013-2014 to acc ount for recovery and reuse in the large retail foo d sector because the agency did not receive comments or data to sufficiently support such a reduction. However, expected supermarket recovery rates are incorporate d into Vintaging Model estimates of recoverable refrigerant; the model estimates that in 2012-2014 there is enough recovered refrigerant to support th e maximum proposed reduction for reclamation and reus e. The commenter requests that EPA accelerate the phas eout schedule under section 606 of the CAA. As noted in the January 4, 2012 notice of proposed rul emaking (77 FR 242), EPA accelerated the HCFC phaseout schedule through the 1993 Final Rule. EPA further accelerated the HCFC phaseout schedule through the 2009 Final Rule. The accelerated schedu le established through the 2009 Final Rule was unaffected by the Arkema decision and is therefore still in effect. EPA did not propose a further acceleration of the HCFC phaseout schedule in the J anuary 4, 2012 notice of proposed rulemaking. Rather, EPA stated: “To meet the 2010 stepdown requ irement, EPA is continuing to allocate HCFC allowances at a level that will ensure the aggregat e HCFC production and consumption will not exceed 25 percent of the U.S. baselines.” Because EPA did not propose an acceleration under section 606, and is not finalizing such an acceleration in this action, EPA did not specifically evaluate the factors list ed in section 606. EPA **did** propose and take comment on various options for th e aggregate consumption allocation in each of the years 2012-2014. All proposed amounts would have kept aggregate consumption below the amount required by the 2010 stepdown. As discussed in the preamble, EPA’s goal is to foster an orderly transition to the 2015 stepdown. The aggregate cons umption allocation in this final rule is designed t o further that goal.  Certified Refrigerant Services, Inc. supports a rad ical reduction of allowances to import and produce HCFC22, noting that currently there are too many import and production allocations. [0057] EPA Response: See previous response in this section to NRI.  Coolgas requests EPA to reduce the HCFC-22 allowanc es for 2012-2014 by the maximum alternative set forth in the Proposed Rule, i.e., 38% in 2012, 42% in 2013, and 47% in 2014. Coolgas believes that red ucing HCFC-22 allowances by the maximum amount proposed w ill not cause a shortage of, or disruption in, the supply of HCFC-22 required to meet future servicing need. Any reduction in supply caused by the reduct ion in HCFC-22 allowances over 2012-2014 can be met fro m HCFC-22 stockpiles (surplus inventory) and fromResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 44 current and future recovery and reclamation capacit y. Regarding the concern of some that the maximum proposed reduction would cause disruption in the ma rket and a lack of supply for future servicing need s, Coolgas points out that the phaseout of CFCs did no t result in a lack of supply. On the contrary, reco very and reclamation flourished, the market adjusted, and ov er the years there has been more than enough supply to meet the servicing needs. Coolgas believes that EPA ’s adoption of the maximum proposed reduction in HCFC-22 allowances for 2012-2014 will not cause a d isruption to the market or lack of supply similar t o the CFC phaseout. [0088] EPA Response: See previous response in this section to NRI. EPA a cknowledges that CFC equipment is still in use today, having been serviced exclusively with recove red material for well over a decade. By reducing th e HCFC-22 allocation, the agency hopes to incentivize recover y and encourage transition to new non-ODS equipment

. Recovery and reclamation are essential to ensuring that the transition is smooth, and that HCFC-equipm ent can still be serviced.  Honeywell supports EPA’s proposal to make large red uctions in the number of consumption allowances. Honeywell believe reductions on the higher end of t he 11 to 47 percent range set forth in the Proposed Rule will strike the appropriate balance between the nee ds of the marketplace and the urgent need to encour age transition and recovery and reclamation. [0082, 002 9] EPA Response: See previous response in this section to NRI.  Rapid Recovery Franchise Partners comment that EPA should reduce baseline consumption allowances by no less than 45%. The commenters believe that doing so will result in an immediate and significant inc rease in the market price of virgin and reclaimed R-22, a nd that, in very short order, the price of used, re claimable R-22 will rise to the level that contractors will q uickly adapt their business practices by recovering significantly greater quantities for reclamation. A ccording to the commenters, however, increasing the price by reducing the available quantity of R-22 is only part of the solution because regardless of the pric e, the recovery of small quantities of R-22 will continue to be economically impractical. Rapid Recovery Franchise Partners concur with the a gency’s encouragement of increased recovery and note that the agency has focused much of its attent ion on production and consumption of virgin gas and reclaimed gas, a wise but incomplete approach. Acco rding to the commenter, simply reducing the available R-22 without increasing the amount of rec laimed gas will ultimately result in a severe short age of R-22 for the service and repair industry in the future. Currently, HVAC contractors are not recover ing enough R-2 to meet the level necessary to sustain t he industry for the long term. [0086] EPA Response: See previous response in this section to NRI, and s ection IV.B.2. of the preamble for a more complete response.  Consolidated agrees with EPA that there is too much R-22 available in the market place today. Therefor e Consolidated urges the EPA to enact the proposed ru le and implement a reduction of 38% in 2012, 42% in 2013, and 47% in 2014. [0083] EPA Response: See previous response in this section to NRI.  DuPont fully supports EPA's objective of encouragin g a smooth transition to the 2015 step-down (to 10% of baseline HCFC consumption) and the 2020 elimination of HCFC-22 consumption required under the Montreal Protocol and previous rulemakings. DuPont’ s market assessment supports EPA's conclusion that a significant reduction in HCFC-22 allocations is nec essary to meet that objective. Specifically, DuPont supports the agency's suggested maximum reduction o f total allowances proposed in the Proposed Rule; a total allocation of 25,100 MT in 2012, 20,800 MT in 2013, and 16,400 MT in 2014. [0070, 0020] EPA Response: See previous response in this section to NRI.  HARDI supports an aggressive and orderly phase down of HCFC-22, as well as EPA’s efforts to expedite t he reduction HCFC-22 in this rulemaking. [0069]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 45 EPA Response: See previous response in this section to NRI.  Golden Refrigerant states that EPA should cut the a llocations at least to the level where the allocati ons plus the available amount of material coming from reclam ation is less than the estimated demand for 2011. [0054] EPA Response: See previous response in this section to NRI. The HCFC-22 allocation in the final rule is less than estimated need—accounting for sources other than ne wly-produced HCFC-22 that will meet that need (i.e. recovered or reclaimed refrigerant and surplus mate rial from prior years).  LA Refrigerant Recovery, Inc and AZ Refrigerant Abat ement, Inc both were in support of EPA’s proposed r ule to further limit the importation of virgin HCFC-22 refrigerant. [0051, 0053] EPA Response: See previous response in this section to NRI.  RemTec International comments that the allocation p ercentages promulgated in the 2009 Final Rule were too high and therefore have not affected additional recovery and reclamation. They believe that curren t allocations should be reduced to 2015 levels in ord er to eliminate excess supplies of virgin R-22. [00 24] EPA Response: See previous response in this section to NRI, whic h explains how and why EPA set the final allocation level. EPA considered the 2015 allocatio n cap when setting the allowances for 2012-2014. In fact, the 2014 allocation is less than the maximum allowed am ount in 2015, which helps support EPA’s overall goa l of increasing recovery and reclamation in order to hel p ensure a smooth transition to alternatives.  Rheem stated their support of the EPA in the step-d own of allocation levels to accelerate the move to nonfluorinated refrigerants. The company agrees that a reduction in allocations from 2012-2014 is appropr iate given that industry is moving away from HCFCs. Rhee m states that such an action may spur recovery and recycling efforts. The company comments that it is important that no action be taken that will limit t he useful life of appliances that are already fielded by customers. [0087] EPA Response: See previous response in this section to NRI. EPA also notes that it is not imposing any additional appliance use restrictions through this rule.  Lennox supports the reduction of HCFC-22 allocation s to the extent that the reduction constitutes reasonable regulation, and allows the orderly phase down and ultimate phaseout of HCFC-22 without market disruption. [0061] EPA Response: See previous response in this section to NRI.  AHRI supports EPA’s efforts to adjust the consumpti on allowances for HCFC-22 based on the evidence tha t supply has exceeded demand for 2010 and 2011. AHRI recognizes that the goal of 20% reclamation set by EPA has not been met, mainly due to the excess supp ly. [0072] EPA Response: See previous response in this section to NRI.  Mexichem Fluor supports EPA’s proposal to reduce co nsumption allowances relative to the 2009 Final Rul e. According to the commenter, in determining the redu ction, the need to expand reclamation activity and the increased installation of dry-shipped HCFC-22 conde nsing units should both be considered. Further, Mexichem Fluor supports the position set out in the Alliance for Responsible Atmospheric Policy to the EPA dated December 1, 2011, which indicates support for a 20% reduction in consumption allowances relative to the 2009 Final Rule. [0066] EPA Response: See previous response in this section to NRI, as w ell as the responses in section 2.4 of this document, which respond to comments on dry-shipped condensing units.  Hudson Technologies comments that their assessment of the market fully supports EPA’s conclusion that a significant reduction in HCFC-22 allocations is nec essary to transition to the 2015 stepdown. Hudson recommends the maximum reduction of total allowance s to ensure the continued viability of the reclamation industry: 25,100 MT in 2012, 20,800 MT in 2012, and 16,400 MT in 2014. [0071, 0027]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 46 EPA Response: See previous response in this section to NRI.  Ingersoll Rand supports measured reduction in the a llocation levels from the 2009 Final Rule in order to provide an incentive for increased recovery for re- use or reclamation without dramatically altering th e dynamics of the HCFC-22 production market. Ingersol l Rand believes reductions should be toward the les s aggressive end of the range defined by EPA in the p roposed rule. Ingersoll Rand supports the 20% reduc tion target for each year 2012, 2013, and 2014 relative to the original allocation levels established in th e 2009 HCFC Allocation outlined in a December 1, 2011 lett er from the Alliance for Responsible Atmospheric Po licy. The commenter believes a 20% reduction is a signifi cant move and is more than sufficient to provide an incentive for increased recovery for re-use and rec lamation. Ingersoll Rand further comments that there is no co nsensus understanding based on industry data of the actual amount of virgin or used refrigerant in the marketplace today. The existing inventory is a critical element of understanding the balance betwe en current and future demand relative to supply, so reductions more aggressive than 20% for each year c ould be considered more of a wild guess than a reasoned estimate. A more aggressive reduction risk s overly constraining supply and the potential impact this could have on end-users is too negative to represent a reasonable balance with the value o f a more compelling incentive for re-use and reclamat ion. [0063] EPA Response: See previous response in this section to NRI, as w ell as section IV.B.1. of the preamble for a more complete response.  ACCA, in light of price volatility, suggests limiti ng any allocation adjustments to the Larger Allocat ion Scenario until the next stepdown in 2015. [0081] EPA Response: See previous response in this section to NRI. The following 13 comments do not support EPA’s prop osal to decrease HCFC-22 consumption allowances relative to the 2009 Final Rule.  Mondy Global, Inc. comments that EPA should not red uce the total number of consumption allowances allocated. The commenter states that none of the pr oposed allocation levels are adequate or appropriat e for today’s market. The commenter has not seen a de crease in demand for HCFC-22, rather, Mondy could import more and customers would purchase it. Since EPA already reduced the cap on the total HCFC-22 consumptions allowances in the 2009 Final Rule, the commenter sees no need to make further reductions at this time. [0055] EPA Response: EPA is providing allowances in this final rule base d on its assessment of market conditions. EPA presented its market research in the Adjustment Mem o that accompanied the proposed rule. Comments on t he memo, along with additional market data submitted d uring the comment period, helped EPA determine the final allocation amount. Taking into account the ca pacity for recovering and reclaiming or reusing HCF C-22 and the amount of existing inventory from past years, t he final allocation is sufficient to meet servicing needs, as estimated by EPA’s Vintaging Model. Changes in serv icing need projections from the 2009 Final Rule to this rulemaking are explained in the Adjustment Memo. Th e Recovery Memo, which is accompanying this final r ule, shows the recovery estimates used in the Vintaging Model, and supports the agency’s decision to adjust the 2009 allocations to further account for recovery an d reclamation. EPA is finalizing an allowed amount of production and/or import that is almost 30 percent below the amounts finalized for 2012-2014 in the 20 09 Final Rule. EPA believes that the amounts in this rulemak ing will increase market incentives to properly man age and recover HCFC-22 while still allowing for servicing of existing HCFC-22 systems.  One commenter is concerned with the panic over the HCFC-22 phaseout. They believe that full allocation should remain for this year. [0120] EPA Response: See previous response in this section to Mondy Glo bal.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 47  Carroll Area Development Corporation is not asking EPA to reverse its decision to eliminate HCFC-22 bu t rather do it at a more stable and consistent rate s o that the market can adjust to the new reduced production levels in a managed way, reducing uncert ainty in the marketplace and lessening the impact o n rural Iowa employers like American Home Shield, the ir employees and customers. The commenter requests the EPA to reevaluate their proposed reduction sche dule and introduce a more consistent reduction schedule of HCFC-22 of 11% each year from 2012-2014 . [0159] EPA Response: See previous response in this section to Mondy Glo bal. In the 2009 Final Rule EPA issued HCFC22 consumption allowances such that the allocation decreased by about 4,000-5,000 MT each year from 20 10- 2014. In this rulemaking EPA is unable to provide a constant reduction amount from year to year due to factors including the provision of recoupment allowances an d a revised assessment of market needs.  One air conditioning contractor opposes decreasing HCFC-22 consumption allowances relative to the 2009 Final Rule. The contractor requests that EPA leave the present phaseout as planned. [0092] EPA Response: See previous response in this section to Mondy Glo bal. EPA is not adjusting the phaseout schedule but is allocating fewer HCFC-22 consumptio n allowances than in the 2009 Final Rule for the re asons discussed in the preamble.  One commenter urges EPA to leave the schedule as it is. The commenter notes that the phaseout of HCFC22 was scheduled, and everyone in the industry had made plans to deal with it. [0115] EPA Response: See previous response in this section to Mondy Glo bal. EPA is not adjusting the phaseout schedule but is allocating fewer HCFC-22 consumptio n allowances than in the 2009 Final Rule for the re asons discussed in the preamble.  NORDYNE does not support reducing the 2012 allocati on relative to the 2009 Final Rule. NORDYNE believe s due diligence and process was followed during the 2 009 Final Rule writing and throughout the previous reassessment conducted for the last rule. [0089] EPA Response: See previous response in this section to Mondy Glo bal. The agency did follow due diligence and process during the development of the 2009 Final Ru le; however, market conditions have changed drastic ally since that time. For this rulemaking, EPA conducted market research, which is presented in the Adjustm ent Memo, and took comment on the proposed allocation r ange. EPA again followed due diligence and process in this rulemaking, and carefully considered all submi tted comments and data when finalizing the allocati on amounts for 2012-2014.  One commenter urges EPA to delay the phaseout of HC FC-22. [0112] EPA Response: In 2015, the U.S. must reduce its HCFC production a nd consumption below 10 percent of its historic HCFC baseline under the Montreal Protocol on Substances that Deplete the Ozone Layer. By 2020 , HCFC production and consumption must be below 0.5 percen t of the historic baseline. EPA has previously acce lerated the domestic HCFC phaseout schedule to reflect thes e reduction steps. Under long-established EPA regul ations, HCFC-22 may not be produced or imported at all in 2 020 or beyond. Rather than create a drastic cut-off in 2015, the finalized allocation for 2012-2014 fosters the market transition necessary to prevent future disru ptions.  Goodman strongly opposes EPA’s latest Proposed Rule regarding HCFC-22 allowances. Goodman believes the proposed rule is contrary to EPA’s public commi tment to a smooth transition to alternative refrige rants. Goodman notes that EPA has stated repeatedly that i t believes it is necessary to continue to permit th e servicing of air-conditioning and refrigeration app liances manufactured prior to January 1, 2010, to e nsure a smooth transition to non-ozone depleting alternativ es. Goodman believes that EPA’s most recent proposa l to reduce HCFC-22 allowances by 11 to 47 percent in 2012-2014 would have the very effect that EPA has stated that it wants to avoid. Goodman recognizes t hat the agency must address the Court decision in **Arkema vs. EPA** , but Goodman believes the proposed reduction in al lowances of HCFC-22 for 2012-2014 appears to go well beyond any result envisioned by the Court decision. [0084]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 48 EPA Response: See previous response in this section to Mondy Glo bal. Additionally, EPA’s assessment of the market as outlined in the preamble and in the adjus tment memo indicates the allocation being establish ed in this final rule will allow for servicing of existin g systems both now and into the future and foster a smooth transition to non-ODS alternatives.  Four similar comments were received from representa tives of Johnstone Supply in opposition to the proposed decrease in HCFC-22 allocations. The comme nters cite economic considerations as the reason fo r their opposition. [099, 0101, 0152, 0136] One commenter specifically asks that EPA reconsider s the drastic cuts in R-22 to get the economy restarted and cost consumers less money. [0099] One commenter believes that the proposed rulings ha ve created chaos in their industry. They state that these decisions regarding the accelerated phaseout have been made without regard to the impact on manufacturers, distributors, contractors, and consu mers. They strongly recommend that EPA returns to the original plan for the phaseout of R-22. Because of uncertainty about what lies ahead, the commenter states that R-22 is being hoarded and cau tiously sold with increased prices to ensure adequate inventory levels over time. [0101] One commenter specifically states that significant reductions in the R-22 allocation will close busine sses and create unfair hardships to the HVAC industry. T hey are concerned that EPA is not considering the people. [0152] One commenter from Johnstone Supply requests that E PA leave the original reductions of R-22. The current proposed change has caused R-22 prices to i ncrease and shortages in the industry. The commenter states that the majority of units in the field are still under warranty. They believe that t he consumer does not have the money to replace these s ystems and they shouldn’t have to if the unit is under warranty. The commenter does not think anyone wants to raise prices during these hard economic times and the proposed change in HCFC-22 r eductions is another example of why the American people have no faith in the government. [0 136] EPA Response: See previous response in this section to Mondy Glo bal. Since the close of the comment period, EPA has heard from numerous stakeholders, including the late comments from the Food Marketing Institut e, that there is an ample supply of HCFC-22 to meet se rvicing need. EPA strives to provide an amount of H CFC-22 consumption that allows system owners to service th eir systems while encouraging a gradual transition to nonODS alternatives. Additionally, signature of the fi nal rule for 2012-2014 establishes market certainty , and allows more HCFC-22 in 2013 and 2014 than the minimum amou nt proposed. Providing recoupment allowances in addition to the allowances provided to meet estimat ed servicing need provides additional refrigerant t hat can be used to service equipment. To the extent that HC FC-22 prices rose due to regulatory uncertainty, pu blication of the final rule provides market stability through 2014.  The Food Marketing Institute (FMI) comments that ac cording to the UNEP Synthesis Report, “HFCs: A Crit ical Link in Protecting Climate and the Ozone Layer,” th e Montreal Protocol is working as intended and expected. The existing allowance system provides ad equate protection and the accelerated schedule in t he proposed rule is not necessary. They state that the accelerated schedule will negatively impact the re tail food industry by increasing the cost of HCFC-22 ref rigerant and rushing retrofits.FMI urges the agency to revisit the proposed rule. [0157] EPA Response: See previous responses in this section to Mondy Gl obal and Johnstone Supply. EPA notes that it is not adjusting the phaseout schedule but is alloc ating fewer HCFC-22 consumption allowances than in the 2009 Final Rule for the reasons discussed in the preambl e. Additionally, this action should not rush retrof its, as all reports, including a later comment from FMI, indica te there is a significant supply of HCFC-22. There are numerous retrofit options available that can lead t o improved energy efficiency and smaller leak rates . If supermarkets are considering retrofitting their exi sting system, EPA encourages them to review the Gre enChillResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 49 Retrofit Guidelines available at www.epa.gov/greenchill . This report was originally introduced in 2008 and was recently updated.

EPA received 47 comments opposed to decreasing HCFC -22 production, but that use “production” as a gene ral term to cover production and import for U.S. use. S ince new production (and import) in a given year is limited by the consumption allocation, EPA interprets these co mments as opposition to the proposed decrease in consumption allowances. For clarity, the agency sep arated these comments from the previous 13 that are opposed to a decrease in consumption allowances eve n though EPA believes all 60 commenters share the s ame opinions about consumption.

 One commenter urges EPA not to limit the production of HCFC-22, as that will place an undue burden on consumers. [0155]  34 commenters do not support the proposed decrease in production allowances. They stated that further production restrictions will cause an unnatural and unplanned shift in the market, thus resulting in unnecessary hardships to U.S. citizens. Further, th ey state that the cost of this plan will ultimately be the burden of U.S. citizens as they will pay inflated c osts for HCFC-22 repairs. One commenter was concern ed about the impact this may have on senior citizens. [0090, 0142, 0100, 0096, 0093, 0129, 0139, 0128, 01 38, 0125, 0137, 0134, 0111, 0110, 0109, 0131, 0130, 011 8, 0117, 0106, 0105, 0103, 0077, 0091, 0107, 0113, 0119, 0123, 0122, 0121, 0144, 0135, 0097, 0095]  One contractor urges EPA to leave the HCFC-22 phase out plan in place with original production restrict ions and not to accelerate it. [0113]  Four commenters urge EPA to leave the HCFC-22 phase out plan in place with current production restrictions. [0094, 0127, 0135, 0097]  Two commenters request EPA to allow the full 2012 a llocation to produce that was originally planned. T he commenter believes that EPA is not considering the large amount of HCFC-22 that was produced and purchased in the last quarter of 2010 that was not sold until 2011. [0102, 0153]  Nine similar comments were received from representa tives of Johnstone Supply in opposition to the proposed decrease in HCFC-22 allocations. All comme nters cite economic hardship and burden on small businesses and citizens as the reason for their opp osition. They ask that EPA considers that if HCFC-2 2 is not produced as planned, all HVAC businesses and their customers will suffer due to the large price increa se in HCFC-22. Further, one of the commenters specificall y states that due to tough economic times, customer s are opting to repair and not replace their systems. The current shortage and the concurrent rise in pr ice will cost a consumer approximately double to repair a un it. The commenter believes this will be very hard o n lower income persons who cannot afford to switch to new alternatives and should not have to if their u nit is still under warranty. [0140, 0145, 0146, 0151, 0153 , 0132, 0124, 0095, 0098]  Commenters from Johnstone Supply support the origin al planned ruling for HCFC-22 allocation in 2012. T hey comment that the total amount of HCFC-22 that was o riginally scheduled for production in 2012 should stand, and ask EPA to reconsider the proposed decre ase in production. [0124, 0132, 0133, 0097] EPA Response: See previous responses in this section, especially those to Mondy Global, Johnstone Supply, and The Food Marketing Institute. In regards to small b usiness concerns, EPA is required under the Regulat ory Flexibility Act to consider whether this rule will have a significant economic impact on a substantial number of small entities. This rule was determined to not hav e a significant impact on small business because it relieves the regulatory ban on production and import of HCFC-22 that would otherwise apply in the wake of the Court ’s vacatur.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 50 EPA disagrees with the two comments that assert tha t EPA did not consider what was produced and purcha sed in the last quarter of 2010 and sold for servicing in 2011. EPA understands that material produced in one year is often actually used in later years. Regardless of w hen the material was produced or sold, leaving 15 p ercent of allowances unused in 2010 indicates (1) there was e nough material in inventory to cover the early part of 2011 without additional production in 2010, (2) the serv icing need in 2011 was anticipated to be significan tly lower than anticipated in EPA’s original analysis, or (3) a combination of the two would result in lower nec essity for production. All three scenarios, coupled with recen t industry feedback, still indicate there is an amp le supply of R-22 to service existing equipment. 

## 4.2 Amount of HCFC-22 production allowances relativ e to the 2009 Final Rule 4.2.1 Whether EPA can decouple the percentage of ba seline allocated for production and consumption EPA received four comments on whether EPA can decou ple production and consumption baselines. DuPont an d NRDC were the only two commenters that explicitly a ddressed EPA’s statutory authority to decouple base line percentages, and did so in their responses to both the Interim Final Rule and the proposed rule.  DuPont comments on the statutory authority for deco upling. DuPont notes that CAA§ 605 requires that regulations phasing out class II substances need on ly implement restrictions on production and consump tion that meet (or are greater than) those required by t he statutory schedule provided within CAA Title VI and any acceleration of that schedule pursuant to the a uthority granted EPA in CAA § 606. DuPont notes tha t the agency has previously utilized its CAA § 606 author ity to accelerate the statutory schedule contained in CAA § 605. DuPont comments that the "schedule" as refer enced in CAA § 605 is the "schedule" established in the CAA and through operation of the Montreal Protocol that is "applicable to the phaseout and termination of production of class II substances." The use of the term is constrained by this statutory context and d oes not encompass other schedules as may be defined in regu lation or elsewhere. Thus, DuPont believes the "sam e schedule" as contained in the second sentence of CA A § 605(c) and as applied to consumption means no more than the schedule contained in the CAA and the schedule altered by EPA through subsequent action using the authority in CAA § 606. DuPont does not b elieve it means that production and consumption allowances are somehow tied to the same regulatory schedule established by EPA and must be identical i n terms of number of allowances, but rather that prod uction and consumption are tied to the same statuto ry and treaty schedule. DuPont comments that EPA thus has legal authority to allocate differing amounts o f production and consumption allowances. DuPont suppo rts EPA’s view that the second interpretation is mo st consistent with the statutory language and purpose, and believes that there is no statutory provision or Congressional intent for rules implemented under ti tle VI of the CAA to disadvantage domestic HCFC producers to the advantage of offshore producers. D uPont comments that EPA may use its discretion unde r CAA §§ 605 and 606 to provide for increased domesti c production, especially in the situation contempla ted in the Proposed Rule where there will be no environ mental disadvantage to allocating different levels of production and consumption allowances. [0020, 0070] EPA Response: EPA is decoupling baseline percentages for producti on and consumption in the final rule. EPA responds fully to comments on decoupling, its statu tory authority, and its policy decision n section I V.B.7. and IV.C.2. of the preamble to the final rule. EPA received two comments from a group of environme ntal organizations that believe EPA does not have t he statutory authority to decouple.  NRDC, IGSD, and EIA do not support decoupling. The commenters believe that the language presented in CAA section 605(c) equates the quantity of consumpt ion and production allowances and cannot be interpreted to allow more production allowances tha n consumption allowances in any given year. [0033, 0067]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 51 EPA Response: EPA is decoupling baseline percentages for producti on and consumption in the final rule. EPA responds fully to comments on decoupling, its statu tory authority, and its policy decision in section IV.B.7. and IV.C.2. of the preamble to the final rule. 4.2.2 Whether EPA should provide the same percentag e of baseline production as in the 2009 Final Rule EPA received six comments supporting the issuance o f more production than consumption allowances. Huds on and DuPont specifically express support for EPA’s p roposed option 2, which would decouple baselines an d provide the same percentage of the production basel ine as in the 2009 Final Rule. This would have the effect of increasing the number of production allowances abov e the amount allocated in the 2009 Final Rule. Thre e comments do not support issuing more production tha n consumption allowances.  Solvay comments that since the production of HCFCs requires both a production allowance and a consumption allowance, the availability of HCFC con sumption allowances will be the limiting factor for the sale of HCFCs in the U.S. Solvay believes decouplin g would be appropriate so that companies that consu me HCFC production allowances can effectively compete in export markets where these products will otherwi se be secured from other sources. Solvay notes that th is decoupling becomes especially important as the c ap in consumption allowances continues to decline in the U.S. in the years ahead, thereby reducing producers ’ opportunities to sell these products domestically. [0064] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule.  Honeywell comments that if there are additional pro duction allowances, then U.S. producers can export HCFC-22 for non-Article 5 Parties demand if they ch oose. Honeywell notes that this allows U.S. produce rs to compete with other global sources, will have no imp act on domestic consumption, and is unlikely to add to global consumption. Honeywell notes that U.S. produ cers do not enjoy Clean Development Mechanism benefits for HFC-23 destruction allowed to Korean, Chinese and Indian manufacturers and so increased production will not likely cause a reduction in glo bal pricing of HCFC-22 and will not contribute to i ncreased consumption. Honeywell believes the U.S. should als o continue to allow a separate allocation to U.S. producers for export to meet needs of Article 5 Par ties to a level consistent with what is allowed und er the restrictions imposed by the Montreal Protocol. [008 2] EPA Response: For 2013-14, the agency is providing the same perc entage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule. The age ncy is also continuing to allocate Article 5 allowances as prov ided in 40 CR 82.18.  MDA Manufacturing supports action to restore produc tion allowance allocation to 38 percent of baseline in 2011 and apply similarly proportionate levels to pr oduction allowance allocations for the years 2012-2 014. They state that an increase in available production allowances will provide broader options for expend ing those consumption allowances through U.S. productio n vs. import of the associated R-22 material. [0030 ] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule.  DuPont supports EPA’s proposed option 2 for “decoup ling” production allowances. DuPont comments that not decoupling production allowances will only pena lize domestic producers to the benefit of producers in other countries, which could have negative environm ental consequences. DuPont notes that without decoupling, production al lowances would be less than consumption allowances. Because making product requires both a production and a consumption allowance, to make product equivalent to consumption allowances, allow ance holders must either import HCFC-22 or transfer additional production allowances to the U. S. DuPont notes that this situation is exacerbated by the fact that a significant quantity of production allowances is held by an entity that no longer has HCFC-Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 52 22 production facilities in the U.S. DuPont believe s that if the EPA does not "decouple" HCFC-22 production and consumption allowances, the ability of U.S. suppliers to export to Article 5 countries will be restricted, allowing offshore competitors to tak e market share from U.S. producers. DuPont further comments that to the extent that, as a result of decoupling, demand for HCFC-22 can be met by U.S. production rather than by facilities in other countries with higher pollutant emissions, e .g. higher HFC-23 emissions, then the environmental imp act of decoupling is also positive. DuPont cites published analyses of increasing atmospheric concen trations ofHFC-23 that show increasing emissions of HFC-23 despite significant abatement in non-Arti cle 5 countries and in Article 5 countries as a res ult of CDM projects. DuPont notes that this result sugg ests that newer HCFC-22 facilities are emitting significant quantities of HFC-23 and, in the absenc e of decoupling, it is probable that these faciliti es (that would produce the HCFC-22 that could not be sourced from the U.S. facilities) would produce more HFC23 emissions than U.S. facilities where HFC-23 emis sions are largely abated. DuPont notes that reducin g production allowances could therefore lead to incre ased global emissions ofHFC-23 and its corresponding negative effects. DuPont also comments that the net effect of decoupl ing is positive for the U.S. economy, to the extent that it results in preservation of existing markets or additional market opportunities. [0020,0070] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule.  Hudson supports EPA’s option 2 for “decoupling” pro duction allowances. Hudson comments that not decoupling production allowances would penalize dom estic producers to the benefit of producers in othe r countries. [0071] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule.

Two commenters do not support providing more produc tion than consumption allowances.  NRDC, IGSD, and EIA do not support allocating an in crement of production for export. They note that th e Protocol and domestic regulations already provide a production allocation above and beyond U.S. production and consumption allocations to serve exp ort markets. The commenters express that they canno t support a further production allocation to enable f urther exports, unless EPA is able to demonstrate w ith transparent data that the production allocation for basic domestic need is insufficient to serve forei gn markets. NRDC, IGSD, and EIA strongly support reduc ing the existing allowance schedule by at least the maximum percentages proposed by EPA for 2012-2014. The commenters do not support the “high %” production allocation values in Table 3, but they n ote the production column reflects an annual produc tion increment of approximately 5 percent of baseline ov er the consumption column. [0067, 0033] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to this final rule. EPA’s rationale for allowing an increase in production allowances relat ive to the 2009 Final Rule is discussed in the foll owing section of this document (section 4.2.3).  Arkema comments that EPA’s suggestion to leave the total HCFC-22 production allowance pool at its 2009 level, or even increase it, is misaligned with EPA’ s observed changes to the market since 2009. Eviden ce suggests that a reduction of production allowances is justified, rather than an increase. [0073] EPA Response: For 2013-14, the agency is providing the same perce ntage of the production baseline as in the 2009 Final Rule for the reasons provided in section IV.C.2. of the preamble to the final rule and sect ion 4.2.3. of this document.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 53 4.2.3 Whether an increase in the number of HCFC–22 production allowances would result in an increase in HCFC consumption and production Eight comments addressed EPA’s request for comment on whether an increase in the number of HCC-22 production allowances would result in an increase i n HCFC consumption and production. Four comments st ated that an increase in the number of HCFC-22 productio n allowances would result in an increase in HCFC consumption and production.  NRDC, IGSD, and EIA express concern that allowing m ore production allocations than consumption allocations will only worsen the surplus of HCFC-22 on the global market, further decrease HCFC-22 pri ces, and discourage the adoption of leak prevention meas ures, reclamation, and adoption of alternatives in other countries. NRDC believes that increasing prod uction allocations will not result in net environme ntal benefits. They state that increasing exports of HCF C-22 will only worsen the glut on the market and fu rther depress prices. [0067, 0033] EPA Response: The agency disagrees with the commenter’s assertion that increasing production allowances increases the global supply of HCFC-22. See section IV.C.2. of the preamble to the final rule for a co mplete discussion of why EPA believes it is appropriate to allow an increase in the number of production allo wances in 2013 and 2014.  Arkema comments that by increasing production allow ances, EPA would be contributing to an increase in the use and release of HCFC-22. Even if all extra p roduction allowances would be used for export, addi tional supplies in overseas markets would be available, wh ile domestic supplies would be the same, which woul d drive down foreign prices and increase demand, and thus, environmental damage. According to the commenter, if HCFC-22 production allowances are inc reased, the ill-effects of oversupply will simply b e exported. [0073] EPA Response: See the above response to NRDC and the preamble to the final rule for a full discussion of this issue.  MDA Manufacturing states that the potential increas e in production allowances for domestic use could result in a slight relative increase in U.S. R-22 p roduction. However, all or part of the increase wou ld be counterbalanced by a decrease in R-22 importation. MDA believes that it is unlikely that greater U.S. production of R-22 for export would result in a sig nificant increase in R-22 exports. [0030] EPA Response: This comment appears to be based on a scenario wher e a company with production allowances and a company with consumption allowances pair up t o produce HCFC-22 domestically. EPA does not believe this is a likely scenario. See the above response t o NRDC and the preamble to the final rule for a ful l discussion of EPA’s decision to finalize production option 2. The following two comments noted that the quantity of consumption allowances is the limiting factor fo r U.S. consumption of HCFCs:  DuPont notes that the quantity of consumption allow ances allocated, not production allowances allocate d, determines U.S. consumption of HCFCs. Therefore, im plementation of option 2 for decoupling production allowances cannot increase U.S. consumption or impa ct the smooth U.S. phaseout of HCFC-22. DuPont comments that an increase of production allo wances could result in more U.S. production for both domestic use and for export. DuPont believes t hat because making product requires both a production and consumption allowance, to make a pro duct equivalent to consumption allowances an allowance holder must either import HCFC-22 or tran sfer additional production allowances to the U.S. DuPont notes that additional U.S. HCFC-22 productio n allowances that would result from implementation of option 2 will not result in great er worldwide production or consumption of HCFCs and, hence, will not have a negative impact on the global environment. Total HCFC-22 use is determined by market demand and/or consumption allocations, no t the ability to produce. DuPont believes thatResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 54 additional U.S. HCFC-22 production allowances will only allow U.S. producers to meet existing demand domestically and in Article 5 countries in accordan ce with the CAA and the Montreal Protocol. DuPont comments that additional allowances will not increa se demand, but rather, afford U.S. producers the opportunity to compete to service existing demand. Further, DuPont believes that if EPA does not allocate additional HCFC-22 production allowances o r worse yet, further decreases those production allowances, the ability of U.S. suppliers to export to developing country markets will be restricted, allowing offshore competitors to take market share from U.S. producers. DuPont comments that additional U.S. HCFC-22 produc tion for export will not result in greater worldwide production of HCFCs. DuPont believe that additional allowances will not serve to increase demand but merely help determine which global produ cers have an opportunity to compete to service that demand. [0070, 0020] EPA Response: See the above response to NRDC and the preamble to the final rule for a full discussion of this issue.  Solvay comments that since the production of HCFCs requires both a production allowance and a consumption allowance, the availability of HCFC con sumption allowances will be the limiting factor for the sale of HCFCs in the U.S. As such, Solvay does not believe that increasing U.S. HCFC-22 production for export will lead to greater global HCFC-22 consumption tha n would otherwise take place. [0064, 0026] EPA Response: See the above response to NRDC and the preamble to the final rule for a full discussion of this issue. 

## 4.3 HCFC-142b consumption and production allowance allocations Four comments were received on HCFC-142b consumptio n and production allowance allocations, three in support of reducing allocation levels.  DuPont comments that they support a reduction in ca lendar year production and consumption allowances for HCFC-142b. Lesser amounts of HCFC-142b than pro vided in the Proposed Rule are needed on a goingforward basis. DuPont urges EPA to further examine this issue with the possibility of phasing out this substance. DuPont notes that HCFC-142b is used only in blends to service old CFC equipment. By 2015, a ny CFC equipment still in service will be at least two decades old and replacement with new and more effi cient equipment is a far better option than keeping the o ld inefficient equipment in operation. [0070] EPA Response: EPA did not propose to decrease HCFC-142b allowanc es in this rulemaking. The agency assessed the need for the chemical in the 2009 Final Rule an d will revisit the need for HCFC-142b for servicing during the rulemaking for the next regulatory period.  Arkema agrees with EPA’s proposal to make 100 metri c tons of HCFC-142b consumption allowances available each year from 2012-2014, especially sinc e HCFC-142b continues to be a critical component of R409a used to service refrigeration equipment. For HCFC-142b, Arkema states that no increase to the amount of allowed production in both 2013 and 2014 is necessary. Further, the commenter states that th e agency need only provide 69.8 metric tons of 142b p roduction allowances in recoupment. [0073] EPA Response : EPA is providing 100 MT of HCFC-142b consumption allowances and approximately 463 MT of HCFC-142b production allowances, excluding recoupme nt, in 2012, 2013 and 2014. Similar to the rational e for providing more HCFC-22 production allowances, EPA i s providing a higher number of HCFC-142b production allowances.  NRDC, IGSD, and EIA strongly support reducing the e xisting HCFC-142b production and consumption allowance schedule by at least the maximum percenta ges proposed by EPA for 2012-2014. [0067] EPA Response : EPA is finalizing the same number of HCFC-142b al lowances as proposed.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 55  Solvay states that EPA should not lower the HCFC-14 2b production allowances to compensate for any increase in total U.S. HCFC-22 production. [0026] EPA Response : EPA is finalizing the same number of HCFC-142b al lowances as proposed.



## 5. OTHER ISSUES EPA received 72 comments concerning other issues as sociated with the Proposed Rule. Comments were in reference to six main topics: 5.1 HCFC supply, price, and economic conditions 5.2 Providing allowances to reclaimers 5.3 Providing allowances to manufacturers of HCFC b lends 5.4 Potential impacts of the proposed rule on small entities and consumers 5.5 Timely completion of the rule 5.6 Compliance and enforcement issues

Count Commenter Organization Document ID No 1 Michael Bleier Able Distributors EPA-HQ-OAR-2011-03 54-0147 2 Charles McCrudden ACCA EPA-HQ-OAR-2011-0354-0081 3 Karim Amrane AHRI EPA-HQ-OAR-2011-0354-0072 4 John Tice APR Supply Co. EPA-HQ-OAR-2011-0354-0148 5 William J. Hamel Arkema Inc. EPA-HQ-OAR-2011-0354-0073 6 David Wallace AZ Refrigerant Abatement, Inc EPA-HQ- OAR-2011-0354-0053 7 Matthew Jahn Bay Area Refrigerant Recovery, Inc EPA -HQ-OAR-2011-0354-0080 8 Rick Boettcher Bettcher Enterprises, Inc EPA-HQ-O AR-2011-0354-0056 9 Kelli K. Williams Bryson Insurance EPA-HQ-OAR-20 11-0354-0135

10 Jeff Moe Center for Energy Efficiency and Sustainability, Ingersoll Rand EPA-HQ-OAR-2011-0354-0063 11 Rick Roland Certified Refrigerant Services Inc. EPA-HQ-OAR-2011-0354-0057 12 Don Maloney Coburn Supply Company, Inc. EPA-HQ-O AR-2011-0354-0149 13 Rich Dykstra Consolidated Refrigerant Reclaim EP A-HQ-OAR-2011-0354-0083 14 Joel K. French Coolgas, Inc. EPA-HQ-OAR-2011-0354-0088 15 M. J. Dermid Dermid Enterprises, LLC EPA-HQ-OAR- 2011-0354-0113 16 Mack McFarland DuPont EPA-HQ-OAR-2011-0354-0070 17 John Haynes Express Recovery, Inc EPA-HQ-OAR-201 1-0354-0075 18 Carl Grolle Golden Refrigerant EPA-HQ-OAR-2011-0 354-0054 19 Gary L. Clark Goodman Global, Inc. EPA-HQ-OAR-20 11-0354-0084 20 Jeff Greer Greer Holdings, LLC EPA-HQ-OAR-2011-0 354-0052 21 RemTec International Group of EPA Certified OD S Reclaimers EPA-HQ-OAR-2011-0354-0085 22 Jerry T. Harrell Harrell's A/C & Heating Service s EPA-HQ-OAR-2011-0354-0104

23 Jonathan Melchi Heating, Air-Conditioning and Refrigeration Distributors International EPA-HQ-OAR-2011-0354-006 9 24 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2011-0354-0082 25 Dave Mann Houston Refrigerant Recovery, LLC EPA- HQ-OAR-2011-0354-0060 26 Stephen P. Mandracchia Hudson Technologies Compa ny EPA-HQ-OAR-2011-0354-0071 27 David Murray HVAC Service Solutions EPA-HQ-OAR-20 11-0354-0115 28 Brad Campagna Johnstone Supply EPA-HQ-OAR-2011-0 354-0133 29 Dwayne Farbe Johnstone Supply EPA-HQ-OAR-2011-03 54-0097Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 56 Count Commenter Organization Document ID No 30 Bill Sciacca Johnstone Supply EPA-HQ-OAR-2011-03 54-0095 31 Barry Tumminello Johnstone Supply EPA-HQ-OAR-201 1-0354-0098 32 Joe Cardenas Johnstone Supply EPA-HQ-OAR-2011-03 54-0124 33 Joey Larson Johnstone Supply EPA-HQ-OAR-2011-035 4-0136 34 George Sexton Johnstone Supply EPA-HQ-OAR-2011- 0354-0132 35 Tim and Noemi Frazee LA Refrigerant Recovery, In c EPA-HQ-OAR-2011-0354-0051 36 Paul Metzler Lemoine Marine Refrigeration, Inc E PA-HQ-OAR-2011-0354-0127 37 Dwayne A. Mayeux Mayeux's A/C & Heating, Inc. EP A-HQ-OAR-2011-0354-0094 38 Dianne Mayeux Mayeux's A/C & Heating, Inc. EPA-H Q-OAR-2011-0354-0093 39 Peter M. Geosits Mexichem Fluor Inc. EPA-HQ-OAR- 2011-0354-0066 40 Diran Yegparian Mondy Global, Inc. EPA-HQ-OAR-20 11-0354-0055 41 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0102 42 Anonymous Private Citizen Comment EPA-HQ-OAR-2011-0354-0112 43 B. Truse Private Citizen Comment EPA-HQ-OAR-2011-0354-0128 44 Warren Private Citizen Comment EPA-HQ-OAR-2011-0354-0143 45 E. E. Wellmeyer Private Citizen Comment EPA-HQ-OAR-2011-0354-0130 46 J. Welsh Private Citizen Comment EPA-HQ-OAR-2011 -0354-0155

47 Cindy V. Chetti and Gregory Brown National Multi Housing Council (NMHC) and National Apartment Association (NAA) EPA-HQ-OAR-20 11-0354-0156 48 Maureen Beatty National Refrigerants, Inc. (NRI) EPA-HQ-OAR-2011-0354-0068 49 Michael Seabaugh NORDYNE EPA-HQ-OAR-2011-0354-0089 50 David Doniger Natural Resources Defense Council (NRDC) EPA-HQ-OAR-2011-0354-0067 51 David Andrew Perfect Score Technologies, LLC EPA -HQ-OAR-2011-0354-0150 52 Walt Baker Polar Technology EPA-HQ-OAR-2011-0354 -0076 53 Jerry Dykstra Rapid Recovery Franchise Partners EPA-HQ-OAR-2011-0354-0086 54 John White Rhynard and White Enterprises, Inc. E PA-HQ-OAR-2011-0354-0058 55 Nick Thomas Rocky Mountain Refrigerant Abatement , LLC EPA-HQ-OAR-2011-0354-0059 56 Bruce MacMorran RSS Realtors EPA-HQ-OAR-2011-0354-0105 57 Don Magid Solvay Fluorides, LLC EPA-HQ-OAR-2011- 0354-0064 58 Chan Ritchie Southeast Refrigerant Recovery, Inc . EPA-HQ-OAR-2011-0354-0074 59 Ray Diaz Sustainable Energy Solutions LLC EPA-HQ -OAR-2011-0354-0141 60 Timothy LeCoq T.L. Maintenance HVAC EPA-HQ-OAR-2 011-0354-0092 61 Erik R. Lieberman Food Marketing Institute (FMI) EPA-HQ-OAR-2011-0354-0157 62 Michael Mulligan USA Refrigerants EPA-HQ-OAR-201 0-1040-0021 63 John M. Batt Airgas, Inc. EPA-HQ-OAR-2010-1040-0022 64 Richard Marcus RemTec International EPA-HQ-OAR-2 010-1040-0024 65 Carl Grolle Golden Refrigerant EPA-HQ-OAR-2010-1 040-0025 66 Stephen Mandracchia Hudson Technologies EPA-HQ-O AR-2010-1040-0027 67 William J. Hamel Arkema Inc. EPA-HQ-OAR-2010-1040-0028 68 Pete Williams Williams & Associates EPA-HQ-OAR-2 010-1040-0032 69 Milton J. Cuevas II ICOR International EPA-HQ-OA R-2010-1040-0031 70 David Doniger Natural Resources Defense Council (NRDC) EPA-HQ-OAR-2010-1040-0033 71 Dave Mann Houston Refrigerant Recovery, LLC EPA- HQ-OAR-2010-1040-0060 72 Jim Gossett Carroll Area Development Corp. EPA-H Q-OAR-2010-1040-0159Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 57 

## 5.1 HCFC supply, price, and economic conditions EPA received 40 comments regarding HCFC supply, pri ce, and economic conditions. Many are concerned wit h the impacts of the oversupply and low price of HCFC -22. In addition, five commenters have concerns reg arding how the Proposed Rule relates to the current status of the U.S. economy.  NRDC, IGSD, and EIA are concerned about the followi ng negative effects of the oversupply and low price of HCFC-22. First, the commenters note that oversupply and low price is hurting the development of indust rial capacity to reclaim and reuse HCFCs. Second, the co mmenters state that the glut of HCFC-22 is encourag ing higher HCFC leakage by discouraging the adoption of leak prevention practices. NRDC, IGSD, and EIA bel ieve that the situation is undermining compliance and en forcement of current anti-venting requirements to t he detriment of the atmosphere and to the detriment of public health and the environment. According to th e commenters, higher HCFC-22 prices will increase emp loyment in the equipment service sector that will b e paid for from revenue of recycle and recovery. Thir d, the oversupply and low price of HCFC-22 is hurti ng the development and adoption of alternatives and substi tutes to HCFCs. The commenters note that the phaseout approach is undermined if the reduction in supply is so slow that prices do not rise, since t his situation stymies the development and deployment of substitutes and alternatives. [0067, 0033] EPA Response : EPA considers market conditions along with estima ted servicing need when it determines allocations for HCFCs, and HCFC-22 in particular. I ndustry concern over low price and over-supply prom pted the agency to conduct additional market analysis prior to issuing the proposed rule. As explained in the A djustment Memo (included in the docket) and in sections IV.B. 1-3. of the preamble to the final rule, market cond itions are different now than they were during development of the 2009 Final Rule. EPA used its analysis to propo se a reduction in HCFC-22 consumption allocations for 20 12-2014, relative to the allocations in the 2009 Fi nal Rule. A reduced consumption allocation increases the value of new and existing HCFC-22; as the value of HCFC-2 2 increases, so do the incentives to recover and recl aim the gas, and also to replace equipment that has reached the end of its life. Since production and import of HCFC-22 must cease by 2020, both of these actions must become more frequent between now and then to ensure a smooth transition out of HCFC-22 with minimal market disruption. The final allocation for 2012-20 14 balances the needs of consumers to service their air conditioning and refrigeration systems while also i ncentivizing greater recovery and recycling of HCFC -22 and transition to non-ODS alternatives.  Ingersoll Rand comments that the economy has been a nd remains weak and sluggish. This has had a dampening effect on demand for HCFC-22 and an expan sion of the economy in the future will most certain ly cause an increase in demand. An aggressive reductio n in HCFC-22 levels coincident with a market reboun d could have devastating effects on consumers of the product. [0063] EPA Response : See previous response in this section to NRDC. On e additional important point to note is that EPA has not decreased its estimate of HCFC-22 servi cing need. In fact, the estimate presented in the A djustment Memo prepared for this rulemaking is higher than th e estimated need presented in the **Servicing Tail Report** , which was developed for the rulemaking resulting in the 2009 Final Rule.  Coolgas states that there has been and there curren tly is an oversupply of virgin HCFC-22 in the marke t that has suppressed recovery and reclamation. [0088] EPA Response : See previous response in this section to NRDC and section IV.B.2. of the preamble.  Mexichem Fluor states that the 2010 allocations and reduction schedule for consumption allowances through 2014 resulted in a notable increase in mark et price for HCFC-22. [0066] EPA Response : See previous response in this section to NRDC.  NRI comments that a reduction in the supply of HCFC -22 production and import allocation will stimulate the recovery and reclamation of HCFC-22 installed in eq uipment. NRI states that the proposed reduction in the supply of newly manufactured HCFC-22 will provide r eclaimers with the economic incentive necessary toResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 58 make the collection and distillation of used refrig erant a viable business without adversely affecting the phaseout. [0068] EPA Response : See previous response in this section to NRDC.  LA Refrigerant Recovery, Inc and AZ Refrigerant Abat ement, Inc both were in support of EPA’s proposed r ule to further limit the production and importation of virgin HCFC-22 refrigerant. They state that if the supply does not decrease, the price will continue to remai n low. Their greatest concern is that the value of reclaimed refrigerant is high enough to encourage c ompliance by the industry, which will only occur wh en the overall supply of HCFC-22 is significantly redu ced. Both commenters note two factors that motivate customers to recover rather than vent HCFC-22:

• The first factor is that contractors do not believe that EPA will actually enforce the CAA Section 608 regulations. Contractors are ignoring the regul ations because they believe EPA has no interest in compliance.

• The second factor is that as long as it is less exp ensive to vent than to recover refrigerants, contractors have no financial incentive to recover. The contractors that are concerned about the negative environmental impacts of venting find them selves at a significant disadvantage in competitive bidding situations. [0051, 0053] EPA Response : See previous response in this section to NRDC. En forcement-related responses are covered in section 5.6 of this document.  Certified Refrigerant Services, Inc. comments that the price of HCFC-22 is currently very soft for the following reasons:

• Excessive inventory, largely due to too much virgin product and too many import and production allocations.

• There is less demand for HCFC-22 due to the economi c recession.

• Contractors are not using alternative refrigerants and they will not until HCFC-22 is either not available or too expensive.

• Enforcement prohibiting venting is virtually nonexi stent. [0057] EPA Response : See previous response in this section to NRDC. En forcement-related responses are covered in section 5.6 of this document.  One commenter stated that the present price levels are too low for contractors to recover the costs in volved in EPA compliant recovery. Refrigerants that could be recovered are not being recovered because of the additional costs involved. There is no price incent ive to recover used gas at the current time. [0075] EPA Response : See previous response in this section to NRDC. En forcement-related responses are covered in section 5.6 of this document.  ACCA commented that the proposed rule has caused gr eat uncertainty and prices to increase 200-300%. Th e price increase is paid by contractors who then pass costs along to consumers. ACCA also states that dr ycharged condensing units affect the demand for HCFC -22. [0081] EPA Response : See previous response in this section to NRDC and responses to comments on dry-shipped condensing units in section 2.4 of this document. A dditionally, any uncertainty caused by not having a n allocation at the beginning of 2012 is eliminated w ith publication of the final rule. The final rule a lso allows for an amount of consumption (i.e., production and impo rt for U.S. use) that is above the minimum proposed allocation.  Hudson Technologies commented that reclamation is n ot viable with excess supplies of virgin refrigeran ts. The price to reclaim in 2011 was more than 20% high er than the suppressed price of virgin material. Reclaimers would need to reduce the buyback price t o be competitive and this would result in lessResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 59 refrigerant being recovered. Reducing virgin availa bility will promote reclamation and ensure an adequ ate aftermarket supply of HCFC-22. They believe that re covery and reuse will not grow until the contractor performing the recovery has an economic incentive t o perform the work. Hudson states that as long as t here is ample supply of low-priced virgin refrigerants, the economics of vent and replace will prevail. Hud son encourages EPA to assess the impact of the current economic and industry conditions and information on its past assumptions on the dynamics and size of the ma rket in future rulemakings. [0071, 0027] EPA Response : See previous response in this section to NRDC.  Solvay comments that the viability of the reclamati on process is linked to higher prices for competing virgin material. Solvay comments that too much virgin HCFC -22 on the market depresses demand for reclaimed or recycled HCFC-22. Solvay believes EPA must signific antly reduce allowances in order to raise prices to levels that make EPA's preferred mode of reclaiming used H CFC-22 price competitive. The viability of the reclamation process is linked to higher prices for competing virgin material. By cutting allowances significantly, EPA can make the supply of product s ourced from the reclaiming industry competitive wit h virgin production. [0064] EPA Response : See previous response in this section to NRDC.  A group of 20 EPA Certified ODS Reclaimers commente d that the cost to reclaim recovered HCFC-22 from the field exceeds the cost of newly manufactured ma terial. Processing the refrigerant in order to retu rn it to ARI700 Standards is only a small part of the overal l cost of recovery and reclaiming operations. In co llecting the necessary amounts of R-22, reclaimers incur tre mendous recovery related expenses in raw material purchasing, tanks, transportation and significant p rogram expenses to entice refrigerant to be returne d, i.e. advertising, promotions, seminars, education, and f ocused sales efforts. Additionally, once the used refrigerant arrives at the reclaimer facility, it m ust be identified, segregated, documented, transfer red and held for processing. From there the recovered refri gerant is reclaimed using a number of steps includi ng: filtration, distillation, oil separation, moisture removal, final blending, packaging, and documentati on. This process is costly compared to the newly manufacture d or imported virgin product production costs. [008 5] EPA Response : See previous response in this section to NRDC.  A group of 20 EPA Certified ODS Reclaimers commente d that in some cases, capacity was idle in 2010 and 2011 due to oversupply of HCFC virgin products avai lable to the market. They noted that it makes no economic sense to reclaim any product that could no t be sold at a profit. As long as virgin material i s available in quantities greater than demand, recove ry will not be worth the effort for many contractor s. Significantly reducing HCFC allocations will rectif y this situation and encourage reclamation to level s that are needed to avoid future disruptions in the market pl ace. [0085] EPA Response : See previous response in this section to NRDC.  Rocky Mountain Refrigerant Abatement, Greer Holding s, Bettcher Enterprises, Rhynard and White Enterprises, Southeast Refrigerant Recovery, and Ba y Area Refrigerant Recovery comment that at the present price level it is nearly impossible for any reclaimer to offer a buyback price that will meet the cost of recovery on most projects, much less a profit for t he contractor. If the availability of HCFC-22 were to decrease, the value of reclaimed product would incr ease. The result would be more recoveries, more product for reclaimers, and far less refrigerant ve nted into the atmosphere. [0052, 0051, 0056, 0058, 0059, 0060, 0074, 0075, 0080] EPA Response : See previous response in this section to NRDC.  One company states that in a recent week, their com pany had to more than double the price they charge customers for HCFC-22. Their cost went from $145/cy linder to $399/cylinder. The company believes this is a direct result of the government phaseout. The compa ny urges EPA to consider the economic impact to US citizens from the phaseout. [0112]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 60 EPA Response : See previous responses in this section to NRDC an d ACCA.  Honeywell agrees with EPA that an over-supply of HC FC-22 exists and that the estimates of market deman d upon which the 2009 Final Rule were based are out-d ated. Honeywell believes the factors that have influenced these market dynamics include lower pric ing of HCFC-22, built-up channel inventory, and increased installation of dry-ship condensing units , among other things. Honeywell agrees with EPA tha t the price of HCFC-22 must rise to a point to make recov ery and reclamation economically attractive, and th at limitations on supply will accomplish this goal. [0 082] EPA Response : See previous response in this section to NRDC.  Bay Area Refrigerant Recovery comments that if the amount of HCFC-22 were to decrease, the value of th e reclaimed product would almost certainly increase ( as Bay Area Refrigerant Recovery has already observ ed in Northern California), reclaimers would be able t o increase the buyback price paid to contractors, a nd contractors would find profit in selling their othe rwise worthless, dirty refrigerants. [0080] EPA Response : See previous response in this section to NRDC.  Goodman notes that this year, as a result of EPA’s actions, refrigerant manufacturers have more than doubled the price of HCFC-22 for sale, and prices a re likely to go even higher. [0084] EPA Response : See previous responses in this section to NRDC an d ACCA.  One commenter notes that in the days following the announcement that HCFC-22 supplies may be reduced sooner than later, the price of HCFC-22 increased t hreefold, based simply on the speculation. [0127] EPA Response : See previous responses in this section to NRDC an d ACCA.  Rapid Recovery Franchise Partners comment that at t he present price levels, it is not economically fea sible for a contractor to invest in the resources involve d in recovery. It is far more profitable to simply vent refrigerants. Though the industry recognizes that s uch practices are illegal, the risk of prosecution is less than the perceived costs involved. While it is impo ssible to accurately measure the amount of refriger ant that is vented, the commenters’ many years of exper ience across the nation have convinced them that fa r more refrigerant is vented or lost through improper recoveries than is actually recovered for recyclin g or reclamation. [0086] EPA Response : See previous response in this section to NRDC. En forcement-related responses are covered in section 5.6 of this document.  Consolidated comments that at the present price poi nt for R-22, there is little or no financial incent ive for refrigerant contractors to expend the time, energy, or equipment necessary to recover used product. As long as venting is the most cost effective way to d eal with R-22, many contractors will refuse to reco ver. This will ultimately result in a dwindling supply of pro duct available to reclaimers for processing. Consol idated believes the proposed decrease in allocations of pr oduction and importation of virgin R-22 should significantly address this situation. As the rule c hange suggests, decreasing the quantity of virgin R -22 will create an increase in the value of reclaimed R-22. This will in turn increase the value of the used ga s that is the feedstock for the reclaim industry. Consolidate d notes that as the value of recovered R-22 climbs, contractors and their technicians will be more like ly to recover and sell these refrigerants. In this process, the industry will need to find ways to assure that contractors actually receive fair compensation for the refrigerants they recover. Consolidated believes th e incentives will only work if everyone – contracto rs, wholesale houses, recovery companies, and reclaimer s all share in the increase in value created by the reduction of available virgin R-22.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 61 Consolidated estimates that 80% of R-22 available f or recovery and reclaim is found in AC systems containing less than 10 pounds of refrigerant. They believe it is unlikely that recovering R-22 will e ver be cost-effective in small residential AC units, of wh ich there are 115 million in the U.S. Consolidated notes that this subset represents approximately 600 milli on pounds of R-22 that has yet to be recovered. Consolidated comments that while there are signific ant quantities of R-22 for reclaim, those who handl e such appliances will need to be motivated with more than higher prices for recovered refrigerant. [008 3] EPA Response : See previous response in this section to NRDC. En forcement-related comments are included in section 5.6 of this document.  Perfect Score Technologies, LLC comments that the r ecent recession in combination with low cost HCFC-2 2 being imported decreased reclaim demand and profita bility. However, with the recent increase in virgin HCFC-22 prices this month, profitability and stabil ity have returned. With these fluctuations, they ar e concerned with maintaining a stable and growing dem and for small reclaim businesses. According to the commenter, the percentage of mixed HCFC-22 will inc rease this year compared to prior years which will drive customers to alternative systems. This will c omplicate repairs for AC contractors. Therefore, ha ving virgin HCFC-22 for blending will simplify the proce ssing while lowering the cost of handling mixed refrigerant. [0150] EPA Response : See previous response in this section to NRDC.  The National Multi Housing Council (NMHC) and the N ational Apartment Association (NAA) are primarily concerned with the price and availability of HCFC-2 2, stating that several of their members have said that long-standing service contracts have been voided du e to the agency’s action. They note that the price of the refrigerant has more than doubled and will likely i ncrease until EPA establishes a final allocation fi gure. These prices have large impacts on affordable housi ng providers. Property owners cannot access the cap ital to replace existing equipment in the near term with out having planned in advance and neither can they pass the burden to their residents. Therefore, they call upon EPA to promulgate the final rule within 60 da ys to ease supply disruptions and facilitate routine main tenance on equipment before the nationwide peak demand for air conditioning. Further, they urge EPA to consider the impacts that the interim allocatio n final rule had on the economy at large, the housing secto r, property owners, and residents. They state that establishing an allocation figure that provides for a steady supply of HCFC-22 to meet the servicing n eeds of existing equipment at an affordable price should be the agency’s goal. [0156] NMHC further comments that the apartment industry i s aware that R-22 refrigerant is being phased out and that after 2020, only recycled product will be available to service existing equipment. They are extremely concerned about the market distortions wh ich are fueled by manufacturers who are concerned about the market price of R-22. NMHC comm ents that many apartment owners and managers are transitioning to higher performing equ ipment with alternative refrigerants, but that thei r industry’s experience with products offered as alte rnatives to R-22 has been mixed. Many owners have reported less than satisfactory results having made the costly switch to alternatives such as 410A. [0 156] EPA Response : See previous responses in this section to NRDC an d ACCA. EPA also would be interested to learn more about the “less than satisfactory results” apa rtment owners have had with HFC-410A.  Golden Refrigerants asks that EPA reviews the curre nt state of the HCFC market before issuing allocati ons for 2012 and beyond. The amount of HCFC’s available in the marketplace is in excess of what is require d for servicing existing units. The oversupply is causing the price of HCFC-22 to fall and leading to a lack of concern for recovery and reclamation. Due to the co sts associated with changing refrigerant types, Gol den Refrigerant is skeptical that a large percentage of HCFC-22 units would be replaced under natural attr ition in the first 5 to 10 years of the phaseout. The commen ter asks that EPA looks at the faulty change-out projections made for the CFC units and verify that any needed corrections were made to the HCFC projections. They suggest that EPA issue 2012 allow ances as quickly as possible and review the marketResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 62 conditions, setting the allowances for the followin g years by September of the previous year. They are concerned that if the phaseout is ill-structured, i t will have a negative effect on the industry and w ill bring a lot of criticism from outside parties. They state t hat the first shot at the allowances were off the m ark and want to be certain that EPA has the numbers right t his time. [0054] EPA Response : See previous response in this section to NRDC.  Houston Refrigerant Recovery comments that those co ntractors who are concerned about the environment find themselves at a significant disadvantage in co mpetitive bidding situations, since it is more expe nsive to recover refrigerant than to vent it. The commenter notes that customers are very willing to recover wh en the value of the recovered refrigerant at least equ als the cost of recovery. [0060] EPA Response : See previous response in this section to NRDC.  Bay Area Refrigerant Recovery comments that competi tion for refrigerant jobs is greater than at any ti me in recent history, and competitive advantage is everyt hing today. [0080] EPA Response : See previous response in this section to NRDC.  One commenter notes that some people will profit fr om even a rumor of an unscheduled reduction in production. The commenter notes that the industry i s shaky enough right now, without surprises. They believe that the reduction EPA is proposing will ca use great financial turmoil. The commenter states t hat HCFC-22 prices have already jumped by 30%. [0115] EPA Response : See previous responses in this section to NRDC an d ACCA.  The Food Marketing Institute (FMI) believes that th e proposed rule will impose substantial burdens on food retailers and wholesalers. They state that because refrigeration equipment is among the most expensive in the store, increased costs for refrigeration operat ions can have a very significant impact on the bott om line. FMI comments that the publication of the proposed r ule has resulted in an enormous spike in the cost o f HCFC-22 refrigerant. They believe that the price of HCFC-22 has increased by 200-300 percent since Jan uary and it is become difficult to find any R-22. FMI co mments that if the proposed rule is not significant ly changed, many retailers and wholesalers will face h undreds or thousands or millions of dollars of new costs. According to FMI, one of the smaller retailers in t he commercial refrigeration sector, has notified FM I that the uncertainty in production quotas for 2012 as a consequence of the proposed rule will likely increa se operating costs by more than $500,000. FMI comments that potential 2012 HCFC shortages wil l likely result in large sales disruptions caused b y extended system downtimes or higher refrigerant pri ces due to unavailable HCFC refrigerants. They stat e that shortages could even result in higher leak rat es due to emergency or expedited retrofits under no nideal conditions. Further, FMI believes that emerge ncy retrofits will require additional capital thus negatively impacting available capital for retro-commissioning and planned system maintenance, resulting in highe r energy usage and higher long-term operational costs

. FMI further comments that the proposed rule could r equire retailers to retrofit many of their systems, which often costs $50,000 per system. They believe that t hese costs could easily range from $5-10 millions d ollars depending on the size of the retailer. Further, the y believe that expedited retrofits may be funded at the expense of other maintenance leak reduction initiat ives and energy improvement projects. [0157] EPA Response : See previous response in this section to NRDC and ACCA. In regards to potential shortages in 2012, EPA has heard from numerous stakeholders, inc luding a later comment from FMI, that there is an a mple supply of HCFC-22 to meet servicing need.  USA Refrigerants comments that the necessity for re clamation of R-22 is non-existent from a supply perspective. They believe it is far less expensive to purchase newly manufactured, packaged virgin mat erial within the U.S. than it is to recover, consolidate, transport, reclaim, repackage, inventory, and redi stribute R-Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 63 22. They state that currently there are no incentiv es to reclaim. Further, USA Refrigerants states tha t R-22 replacements will not sell until their price point is lower than R-22. [0021] EPA Response : See previous response in this section to NRDC.  Airgas comments that the demand for HCFC-22 has cha nged from the estimate EPA used in 2008/9 and has continued to drop each year. Airgas believes that s ince the supply continued to exceed demand, pricing has continued to drop. They are concerned that the low pricing has kept some applications from switching t o alternative refrigerants. Airgas further comments t hat individuals, contractors, and equipment manufacturers all believe that there will not be an y supply shortage of HCFC-22 in the foreseeable fut ure. Airgas believes that EPA’s allowance allocations ma de in the 2009 Final Rule have unexpectedly resulte d in an ample supply of virgin HCFC-22 in the market. Th ey state that EPA needs to make more aggressive reductions in supply of virgin material to spur a s witch to alternative refrigerants and increased rec lamation. [0022] EPA Response : See previous response in this section to NRDC.  RemTec International is concerned that there is too much R-22 being manufactured and sold on the marke t, which deflates the price of R-22 to levels that mak e it impossible for reclaimed R-22 to compete with newly manufactured material. They would like to see an in centive based system for end-users to reclaim. RemT ec International believes that there is no need to ame nd the HCFC Pre-charged Appliance Rule unless the supply of R-22 is substantially reduced. [0024] EPA Response : See previous response in this section to NRDC.  Williams & Associates comments that no reclaim faci lity can process recovered product anywhere near th e cost of virgin product. The commenter states that a ll indicators suggest that there is too much HCFC-2 2 available in the U.S. market. They commend EPA’s ag gressive approach to phase-down HCFCS. They believe that EPA must consider and adjust for the effects t hat over supply of HCFC-22 is having throughout the industry. [0032] EPA Response : See previous response in this section to NRDC. 

## 5.2 Providing allowances to reclaimers EPA received eight comments related to providing al lowances to reclaimers, four in support and four in opposition.

Four commenters believe that EPA should issue allow ances to reclaimers:  Golden Refrigerant believes that significant allowa nces should be provided to reclaimers. The commente r suggests that allowances could be distributed to re claimers based on an average of their past three ye ars reported HCFC-22 reclamation totals or some other m echanism that directs the allowances in proportion to the actual amount of reclamation being provided by the entity to directly reward reclamation actions. To help prevent “gaming” the numbers, reclaimers could be required by EPA to submit (confidentially) both a transactional list of received HCFC-22 and producti on tracking documents showing yields and losses. In order to promote good practices, reclaimers that ar e not able to provide such data should not qualify for allowances. Golden Refrigerant suggests a pound of consumption allowance for each pound of average reclamation yield for HCFC-22, which is approximately 10% to 15 % of the total allowances for 2012, and the percentage would increase as the phaseout progresse s. The reclaimers would buy the material from the manufacturers and importers, which will provide a s trong incentive for the manufacturers and other allowance holders to work cooperatively with the re clamation industry. As HCFC-22 becomes scarce, the commenter believes that reclaimers will likely dist ribute their product back first to the wholesalers and contractors that provide the reclaimer with the rec overed and used refrigerant. According to GoldenResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 64 Refrigerant, this will provide a strong incentive t o the wholesalers and contractors to participate in good recovery practices since it will allow them greater access to supplies of HCFC-22 moving forward. Therefore, by providing allowances to reclaimers, a ll parties will have their best interests aligned w ith EPA in addition to strengthening the reclamation in dustry, fostering a competitive environment for reclamation, and leading to a smoother transition f rom HCFCs. [0054] Golden Refrigerant notes that a large majority of t he current reclaimers do not have access to any of the allocations and that most allowances are given to a few manufacturers, putting the reclamation industr y in a weak position. The commenter provides a few ex amples of how manufacturers provide a difficult working environment for reclaimers:

• The manufacturers exert pressure on wholesalers and contractors not to return their used refrigerants to a reclaimer, using their supply of virgin refrigerants as leverage.

• The manufacturers seldom work cooperatively with re claimers and often expect reclamation work to be done for a low number (50 cents/lb) that would not allow the reinvesting of any profits into new technology.

• The manufacturers have threatened legal action agai nst reclaimers attempting to work on newer patented blends.

• The manufacturers have refused to sell components o r allow reclaimers a method to work with them to restore fractionated blends back to specifi cation.

• The manufacturers have asked cylinder manufacturers not to sell pre-labeled DOT 39 cylinders for their blends to reclaimers.

• The manufacturers will offer cash bounties to whole salers collecting their used refrigerant but will not offer any incentive to reclaimers to do th e same.

• The manufacturers or their agents will buy an accou nt back by offering cash for the used refrigerants higher than justified.

• The desire of manufacturers to promote their own be st self-interest results in a difficult environment for a refrigerant reclaimer to prosper. For these reasons, Golden Refrigerant believes that EPA should assign a portion of total pool of allowances to the reclaimers to build a strong recl amation industry that is profitable enough to make investments in the technology to fully reclaim HCFC refrigerants as well as other refrigerants. According to the commenter, EPA is only providing t he main instrument of financial benefit to a portion of the needed participants. Further, the commenter believes it would be appropr iate to subtract any stockpiles from the allowances of any of the allowance holders in their next years’ allowances. Allowance holders could choose whether allowances or stockpiles serve their best interests. This would result in a more predictable supply of material into the marketplace , which would also allow EPA to better understand the market to adjust allocations moving forward. Golden Refrigerant comments that they are also conc erned about the demand for the reclaimed product. They state that the problem occurs when th ere is an oversupply in the market. Because reclaimers work on a fairly low margin, it is criti cal to sell quickly to recover expenses and fund th e next round of purchases and production. When demand is low, reclaimers are forced to lower prices, which strain the business. Therefore, the c ommenter suggests that EPA cuts the allocations at least to the level that the allocations plus the available amount of material coming from reclamation is less than the demand amount for 2011 . [0054, 0025] EPA Response : See section IV.B.4. of the preamble to the final rule and section 4.1 of this document for a full response to comments on this issue.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 65  USA Refrigerants asks that EPA gives reclaimers an opportunity and level the playing field. They comme nt that the acquisition price, whether imported or pro duced domestically, of R-22 for allocation holders has remained virtually unchanged, despite the years of touting price increases, increased manufacturing co sts, shortages, etc. [0021] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.  ICOR International believes that EPA’s refusal to e stablish reclamation credit allocation was bad poli cy. They state that EPA should provide each EPA certified re claimer, currently not holding HCFC-22 allocation, HCFC22 consumption allocation equal to two times their previous year’s HCFC-22 recovery activity. They bel ieve this process should begin in 2012, using 2011 recla mation data and continue until 2014. [0031] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue. EPA received four comments in opposition of issuing allowances to reclaimers:  NRI does not believe that EPA should issue allowanc es to reclaimers. There is no precedent for EPA to do so. The commenter states that advocating the blending o f newly manufactured refrigerant with used refriger ant is irresponsible and will adversely affect the repu tation of reclaimed refrigerant. Further, they stat e that it does not make economic sense to dilute the supply o f newly manufactured refrigerant. NRI disagrees wit h EPA’s assertion that “reclaiming without significan t blending further increases the costs of reclamati on.” The commenter believes that if a reclaimer cannot prope rly remove impurities in used refrigerant, it shoul d be sent to a reclaimer to destroy it. [0068] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.  Honeywell does not support the allocation of allowa nces to reclaimers. According to the commenter, to provide allowances to reclaimers would give them th e ability to contaminate virgin product with recove red (but not reclaimed) material and then sell this ble nd for use. The commenter believes that EPA should not encourage such actions, and that reclaimers need to upgrade recovered material to specification by reclamation, not by blending contaminants to a lowe r concentration through the use of virgin-22. Moreover, for several reasons, Honeywell does not b elieve that allocations of consumption allowances to reclaimers will have the effect of encouraging g reater recycling and reclamation in the marketplace

. First, Honeywell believes that sufficient reclamati on capacity to meet greater future demand already exists today, and is aware of several reclaimers, i ncluding Honeywell, with capacity to accept large additional future volumes of reclamation material. Second, Honeywell notes that additional consumption allowances are not needed by reclaimers , because virgin HCFC-22 is not required to reclaim product. Reclamation of product can easily be accomplished by distillation processes that do n ot require the use of virgin HCFC-22. Finally, Honeywe ll states that allocating allowances to reclaimers creates a myriad of administrative and practical pr oblems. EPA would face difficult questions relating to the amount of allowances to allocate, to whom it sh ould allocate those allowances, and how to prevent the virgin HCFC-22 produced or imported with “Recla mation” allocation from simply being sold in the marketplace. Honeywell expresses concern that devel oping, vetting, and implementing these new procedures would only further delay the Final Rule. Honeywell believes the continued success of efforts to encourage more recycling and reclamation does not depend upon the capacity of the reclamation ind ustry (of which there already is plenty), but inste ad depends upon incentives for users to recycle and se nd more product for reclamation. This has been accomplished by limiting the proposed number of HCF C-22 allowances to a volume that is well short of EPA demand estimates. Honeywell believes the EPA’s current proposal fully encourages recycling and reclamation and there is no need to allocate allowa nces to reclaimers. [0082] EPA Response: See section IV.B.4. of the preamble to the final ru le for a full response to comments on this issue.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 66  DuPont does not support providing allowances to rec laimers. DuPont comments that it is clear from the definition of "refrigerant reclamation" contained i n a report referenced in the Proposed Rule that ble nding used HCFC-22 with new HCFC-22 is not reclamation. D uPont comments that it is critical that the reclama tion industry be ready for the 2020 elimination of HCFC- 22 consumption by developing the infrastructure to reclaim HCFCs. DuPont believes that providing allow ances to reclaimers would be counterproductive in achieving this objective. [0070] EPA Response: See section IV.B.4. of the preamble to the final ru le for a full response to comments on this issue.  HARDI believes that refrigerant reclaimers should n ot be provided allowances. HARDI states it is suppo rtive of refrigerant reclamation and maintains that the E PA should continue to support reclamation through distillation, which is a much more viable option in the long run and does not require allocation right s for refrigerant reclaimers. [0069] EPA Response: See section IV.B.4. of the preamble to the final ru le for a full response to comments on this issue.  Arkema comments that new entrants to the HCFC marke t should not receive HCFC allowances. Arkema is not aware of any reason to believe that the market has prevented any party, including especially blend ers, from acquiring unused allowances at a fair price. G iven the assumption that the market is saturated wi th HCFC-22, there is no reason to suspect that allowan ce holders would rather keep and allow allowances t o expire than to sell them. Arkema notes that it has not been in a position to sell allowances in 2010 a nd 2011. [0073] EPA response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue. 

## 5.3 Providing allowances to manufacturers of HCFC b lends EPA received five comments on the provision of allo wances to manufacturers of HCFC blends. Four commen ters are opposed while one commenter, on the Interim Fin al Rule, would like EPA to consider redistribution of allowances to assist small HCFC blenders.  NRI does not believe that EPA should issue allowanc es to manufacturers of HCFC blends. The commenter notes EPA’s provision for new entrants when establi shing the HCFC allocation system in 2003, and state s that this provision plus EPA’s intent to accelerate the phaseout of HCFC-22 does not support a request to increase the overall allocation. [0068] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.  Honeywell does not support providing allowances to manufacturers of HCFC blends. Blend preparers are n ot manufacturers and have no history of production or consumption. In Honeywell’s experience, these entit ies have been able to obtain HCFCs – in fact; Honeywell has been a supplier to parties involved in such bl ending operations. Honeywell believes blend preparers shou ld experience the same market dynamics as the rest of the user community. [0082] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.  DuPont does not support providing additional allowa nces to manufacturers of HCFC blends. DuPont notes that some manufacturers of HCFC blends have baselin e allowances and would have HCFC allowances under any of the options in the Proposed Rule. For any ot her company, DuPont supports the agency's conclusio n that "[c]ompanies can transfer allowances between c ompanies and, on a temporary basis, between chemicals ... [and] can also purchase HCFCs at the wholesale price.” DuPont notes that others are not prevented from entering the market but can purchase HCFC baseline allowances in accordance with the established practices. [0070] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 67  Arkema comments that new entrants to the HCFC marke t should not receive HCFC allowances. Arkema is not aware of any reason to believe that the market has prevented any party, including especially blend ers, from acquiring unused allowances at a fair price. G iven the assumption that the market is saturated wi th HCFC-22, there is no reason to suspect that allowan ce holders would rather keep and allow allowances t o expire than to sell them. Arkema notes that it has not been in a position to sell allowances in 2010 a nd 2011. [0073] EPA response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue.  ICOR International requests an updated recalibratio n of allowances, recognizing that millions of pound s of U.S. HCFC allowances are left unused every year. Th ey believe that EPA’s current allocation system put s small firms that are producing HCFC refrigerant ble nds out of business. [0031] EPA Response : See section IV.B.4. of the preamble to the final rule for a full response to comments on this issue. 

## 5.4 Potential impacts of the proposed rule on small entities and consumers EPA received 33 comments expressing concern about t he impact of the proposed rule on small entities an d consumers.  Goodman comments that if the proposed rule is made final, American consumers would find it increasingl y difficult and more expensive to service their exist ing HCFC-22 systems, and in many instances would be forced to purchase new, more expensive systems that use a different refrigerant. Goodman does not beli eve that EPA should promulgate a Final Rule on allowanc es that penalizes consumers who want to service existing equipment. Goodman comments that EPA’s proposed rule is creati ng uncertainty and chaos within the industry, and increasing costs to American consumers. Goodman not es that the first few months of every year is the period during which air conditioning manufacturers ramp up production for the coming cooling season. The increased uncertainty as to the availability of HCFC-22 is making the manufacturing process much more difficult to manage and speculative, which Goo dman believes is inconsistent with EPA’s desire for a “smooth transition” away from HCFC-22. Goodman comments that American businesses that util ize HCFC-22 equipment, as well as consumers who need to service their existing HCFC-22 systems, will bear the brunt of these higher prices. Goodma n notes that if industry stakeholders do not have ade quate assurances regarding the availability of HCFC

22 in 2012 and beyond, distributors and installers will increasingly recommend the installation of mor e costly air conditioning systems that utilize other refrigerants. Goodman believes that by accelerating the phase-down of HCFC-22 allowances, EPA’s proposed ru le would make the repair and servicing of existing HCFC-22 systems much more expensive and difficult, which is at cross purposes with the interests of American consumers. [0084] EPA Respons e : While EPA does not set the price, the agency is a ware that the price of HCFC-22 has risen. As explained in the preambles to the proposed rule and the final rule, EPA proposed adjustments in the HC FC-22 consumption allocation because of industry feedback and data. Ample existing supply and low price were not encouraging transition to alternatives or recovery and recycling of existing refrigerant. EPA notes th at the phaseout schedule is already in place and that the agency is not altering it. This final rule simply p repares industry and consumers for the 2015 stepdown, and t he complete HCFC-22 phaseout in 2020. EPA is strivi ng to encourage a smooth transition out of HCFC-22 over t ime and believes that a smooth transition is suppor ted by strong incentives to properly manage and recover re frigerant, which is less likely to happen when the value of the refrigerant is low. The allocation in the final rule balances the needs of consumers to service th eir air conditioning and refrigeration systems while also i ncentivizing greater recovery and recycling of HCFC -22 and transition to non-ODS alternatives. The continued a llocation of allowances for production and import f orResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 68 servicing existing equipment helps consumers and sm all businesses who cannot currently afford to buy n ew equipment. Additionally, the final rule relieves th e regulatory uncertainty that some commenters feel was linked to price fluctuations, and the final rule also allo ws for an amount of consumption (i.e., production a nd import for U.S. use) that is above the minimum proposed alloca tion.  Mayeaux’s A/C & Heating, Inc. commented that small businesses as well as end-users would be hurt by decreasing current production allowances. The comme nter further states that decreasing current production allowances will result in an aggressive push of the market for R-410A. [0093] EPA Response: See previous response in this section to Goodman.  One commenter is concerned about the cost increases associated with further production restrictions. T hey state restrictions will cause hardships to low and middle class citizens and state “the small people n eed a break.” [0128] EPA Response: See previous response in this section to Goodman.  One commenter noted that further restrictions on HC FC-22 production will cause unnecessary hardships t o citizen, as they pay inflated costs for R-22 repair . [0130] EPA Response: See previous response in this section to Goodman.  One commenter is concerned about the economic burde n on landlords and tenants that may result from a decrease in current production allowances. The comm enter asks that EPA considers how this action could increase the cost of housing. [0105] EPA Response: See previous response in this section to Goodman.  One commenter is concerned the price escalation [of HCFC-22] will eventually find its way to the end consumer, many who are elderly and on fixed incomes and can least afford to do without air conditionin g or who can absorb unnecessary price escalations. [0159 ] EPA Response: See previous response in this section to Goodman.  Mondy Global Inc. states that reducing consumption allowances would threaten small businesses like the m and is not warranted by the current market situatio n. [0055] EPA Response: See previous response in this section to Goodman.  One commenter stated that the economic realities of the past few years has been difficult for small businesses and that contractors who want to follow the law find themselves at a disadvantage by those who vent. Reducing R-22 availability would increase the value of reclaimed product, thus incentivizing rec overy. [0075] EPA Response: See previous response in this section to Goodman.  HARDI states its belief that EPA erred in limiting the production and importation on the basis of a pr oposed rule and this could have a negative impact on small businesses. According to the commenter, there coul d be financial harm and devaluation of inventory for dis tributors who purchased HCFC-22 during the interim period if the allocation is higher than at the leve l prescribed in the non-enforcement letter. [0069] EPA Response: See previous response in this section to Goodman. E PA notes that without the No Action Assurance (which allowed limited production and imp ort based on the minimum amounts proposed), no impo rt or production could have occurred. Without prejudgi ng the outcome of the final rule, EPA’s No Action A ssurance limited the extent of market disruption that could have otherwise occurred under a complete regulatory ban on production and import.  One commenter stated that a reduction in production levels will impose an undue burden on many working Americans who would have to go without AC. The comm enter suggested a phaseout during better economic conditions. [0141]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 69 EPA Response: See previous response in this section to Goodman. A dditionally, the rationale for the rule, as well as the requirements under the Montreal Protocol and Clean Air Act are discussed in sections III.A. and III.B. of the preamble to the final rule.  Rocky Mountain Refrigerant Abatement, Greer Holding s, Rhynard and White Enterprises, Bettcher Enterprises, Southeast Refrigerant Recovery, and Ba y Area Refrigerant Recovery comment that the economic realities of the past few years have been difficult for small businesses. Most commenters sta te that contractors who follow the law and recover HCF C-22 find themselves disadvantaged because venting refrigerant is easier and more profitable. The comm enters encourage EPA to reduce consumption allowances to the fullest extent, to decrease the a vailability of HCFC-22 and increase the buyback pri ce paid to contractors. [0052, 0056, 0058, 0059, 0074, 0075 , 0080] EPA Response: See previous response in this section to Goodman.  One commenter urges EPA to consider the small busin esses and consumers that will suffer with a large p rice increase on HCFC-22. [0102] EPA Response: See previous response in this section to Goodman.  One air conditioning contractor comments that an in creased phaseout will create extreme hardship on al l those with HCFC-22 systems since it is costly to ch ange to a R-410a system due to the type of line set s, oil, etc. that must be changed when conversion to R-410a systems are installed. The contractor urges EPA to remember that R-410a components and HCFC-22 compone nts are not interchangeable, and complete systems must be installed with new copper line sets as needed. The commenter notes that most people cannot pay for a simple HCFC-22 condenser change ou t, which costs significantly less than a complete system change-out conversion to R-410a. [0092] EPA Response: See previous response in this section to Goodman.  One commenter states that a reduction of the magnit ude EPA is considering will cause great financial turmoil. Consumers have planned their change-over w ith the phaseout schedule as their guide. Some businesses have spent large sums of money on repair s of their HCFC-22 equipment with the phaseout schedule in mind, to get the most from their existi ng equipment. [0115] EPA Response: See previous response in this section to Goodman.  One contractor noted that economic burdens are bein g placed on American households at rates never seen before, and any acceleration of the impending phase out of HCFC-22 would be disastrous to the critical ly fragile American economy because it would cause an unnatural and unplanned shift in the market. The commenter believes the cost will ultimately be born e by the citizens as they will pay inflated cost fo r HCFC22 repair. [0113] EPA Response: See previous response in this section to Goodman.  Three commenters state that further restrictions on HCFC-22 will cause an unnatural and unplanned shif t in the market. The commenter believes the cost will ul timately be borne by citizens as they will pay infl ated cost for HCFC-22 repair. [0135, 0094, 0097] EPA Response: See previous response in this section to Goodman.  One commenter states that running a small business is hard enough without increasing prices of consumable goods. [0094] EPA Response: See previous response in this section to Goodman.  Commenters from Johnstone Supply note that EPA’s pr oposed ruling to reduce the quantity of HCFC-22 for production and import in 2012 will only hurt small businesses and consumers. The commenters urge EPA t o consider that if the total amount of HCFC-22 is not produced as planned, HVAC businesses and their customers will suffer due to a large price increase on HCFC-22. [0124, 0132, 0098]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 70 EPA Response: See previous response in this section to Goodman.  One commenter from Johnstone Supply notes that this proposed rule not only affects distributors that h ave produced equipment, wholesalers inventorying stagna te product, customers buying power to allow a product at a lower cost, and the consumer having to absorb a high price in an economy that is steadily sinking. The commenter states that the whole U.S. i s affected by this move. [0133] EPA Response: See previous response in this section to Goodman.  One commenter notes that HVAC is one of the greates t expenses a property owner has. The commenter states that raising the cost of maintenance will ca use property expenses to increase, raising rents an d further creating economic hardship on the ultimate consumer. [0155] EPA Response: See previous response in this section to Goodman.  One company comments that the cost of the phaseout presents an additional hardship to people already struggling in the current economy. [0112] EPA Response: See previous response in this section to Goodman.  One commenter notes that the increase in price is b eing paid by the consumer, which seems unfair in today’s economy. The commenter believes homeowners will not be able to pay their air conditioning serv ice bills because the fear of higher prices has driven the cost of HCFC-22 beyond reason. In the commercia l market, decisions were made to retrofit or not base d on the government’s published plans, and changing the plans overnight after years of notification of a set schedule unduly affects all business plans. T he commenter believes further production restrictions will result in unnecessary hardships to citizens. [ 0127] EPA Response: See previous response in this section to Goodman.  Two commenters note that with the difficult economi c times, many consumers are opting to repair and no t replace their systems. The commenter states that ma ny of the systems in use are under warranty, so the HCFC-22 will have to be replaced, and with the curr ent shortage and the concurrent rise in price, the cost to a consumer has now doubled to repair a unit. The co mmenters do not want to raise prices in these economic times [0095, 0136] EPA Response: See previous response in this section to Goodman.  One commenter notes that reducing production of HCF C-22 will place an undue and perhaps unmeant burden on the consumer. The commenter notes that th is will be an especially hard burden on lower incom e individuals who cannot afford to switch over to ano ther refrigerant and should not have to if their un it is still under warranty [0095]. EPA Response: See previous response in this section to Goodman.  One commenter is concerned with how the rulemaking will affect the lower and middle class U.S. citizen s. They state that after the ruling was made, the pric e of HCFC-22 greatly increased in just one day prim arily affecting those who cannot afford to switch systems . They believe that EPA is disconnected with these citizens. [0143] EPA Response: See previous response in this section to Goodman.  One commenter suggested that Nu-22B be used to avoi d an expensive change in systems for the consumer. In the commenter’s experience, the transition from HCFC-22 to R-410a has been very challenging in the field since a lot of citizens are not aware of the phaseo ut and therefore don’t understand why those in the HVAC industry have no choice to change refrigerants. Fur ther, the commenter has concerns about the safety o f R410a and the time it takes to service. The commente r also expresses concern about the welfare of citiz ens in warm climates and what would happen to them without AC, and suggests that environmental damage from refrigerants should not be the biggest of concerns. The commenter states that either more R-22 should be sold, or Nu-22B should be pushed as a replacement. [0104]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 71 EPA Response: See previous response in this section to Goodman. E PA’s SNAP program has approved numerous alternatives to HCFC-22 for this end use. A full li st of approved alternatives is available at http://www.epa.gov/ozone/snap/refrigerants/index.ht ml

.  ICOR International believes that the phase down tot al U.S. baseline HCFC production and consumption mo st benefited the legacy chemical producers. They state that the three companies that received approximate ly 90% of the total HCFC allocation would use the extr aordinary competitive advantage that the HCFC allocation rule gave them to put small businesses l ike ICOR out of business by denying them the compon ents to make products, or effectively reclaim HCFC refri gerants. They point out that the three producers wi th the majority of allocation are not using all their allo cation, but now refuse to trade. ICOR International is concerned that EPA did not allow flexibility to emp ower small refrigerant manufacturers. [0031] EPA Response: See section IV.B.4. of the preamble to the final ru le for the full response. 

## 5.5 Timely completion of the rule EPA received 18 comments related to timely completi on of the rule.  NRI comments that EPA’s timing for releasing the pr oposed rule was a disservice to the industry that h as worked tirelessly over the years with EPA to accomp lish the mutually beneficial goal of protecting the ozone layer. [0068] EPA Response : The agency recognizes the importance of regulator y certainty in order for companies to plan and be prepared for the eventual phaseout of HCFCs. The 2009 Final Rule covered HCFC allocations for 2010- 2014, but was partially vacated by the D.C. Court of Appe als for the District of Columbia Circuit. In respon se to that partial vacatur, EPA worked as quickly as possible to issue the 2011 Interim Final Rule and the 2012-2 014 Final Rule, and hopes to establish allowances for 2015-20 19 well before that regulatory period begins.  Arkema comments that EPA has created market disrupt ions by changing the rules mid-stream, starting wit h the 2009 Final Rule. The IFR set allowance levels f or 2011 that did not take effect until August of th at year and the current rule is not expected until later 20 12. Arkema states that these types of delays have increased cost and injected unnecessary uncertainty into the economy. They believe that by failing to re-set 2012 allowances in a timely manner, EPA is denying to Solvay and Arkema the relief mandated by the D.C

. Circuit. [0073, 0028] EPA Response: See previous response in this section to NRI. EPA d oes not agree that the timing of this rule means it is denying Solvay and Arkema appropriate r elief. Realizing that the final rule would be issue d late, EPA allowed companies to produce and import at the lowe r end of the proposed range through No Action Assurance. That authorized amount was proportional to the baseline allowances which EPA established in the 2011 Interim Final Rule, in direct response to the Court’s ruling. In addition, any costs or uncertain ty associated with the timing of the 2012-14 rule fall equally on all allowance holders, not on Solvay and Arkema un iquely.  ACCA comments that the proposed rule must be promul gated quickly to reduce the uncertainty in the market. ACCA urges EPA to send a signal to industry to communicate intentions before the summer season

. [0081] EPA Response: See previous response in this section to NRI.  AHRI urges EPA to finalize the rulemaking as soon a s feasible to avoid uncertainty and restore confide nce in the marketplace. [0072] EPA Response: See previous response in this section to NRI.  While HARDI is supportive of EPA efforts in reducin g HCFC-22, they are concerned that EPA’s delay in publishing the proposed rule has negatively impacte d distributors and caused a great deal of confusion . The commenter recommends that in the future, EPA should consider extending the prior year’s allocation lev el ifResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 72 the rulemaking for the next control period is delay ed and pro-rate the allocations established in the new rule for remainder of the new control period once t he rule is complete. HARDI states that there are concerns within its mem bership that EPA’s delay in publishing the proposed rule and delay in issuing non-enforcement letters h as negatively impacted distributors. HARDI discourages EPA from further consideration of adjus tments to caps or allocations established by this r ule after its effective date. HARDI does not support re troactive enforcement actions. HARDI comments on the risk for market confusion due to the lateness o f the rulemaking and encourages EPA to complete subsequent rulemakings prior to the control period which they are intended to govern. Further, the commenter has concerns with the non-en forcement letter process. They question why there was such a delay in providing this letter to the producers and importers of HCFC-22. The commenter believes that this three week delay in pr oviding the non-enforcement letter to producers and importers caused market uncertainty and should have been avoided. HARDI emphasizes that this delay has caused (and continues to cause) significa nt harm to many HARDI members. HARDI recommends that in the future, a posting in the Fed eral Register, followed by a communication to all stakeholders would suffice, noting that impacts are felt in the marketplace far beyond just the alloca tion holders. [0069] EPA Response: See previous response in this section to NRI. Addit ionally, EPA will keep HARDI’s comments in mind if future No Action Assurance letters are issu ed to authorize production and consumption in the a bsence of a final rule.  Solvay comments that a timely decision by EPA to is sue recoupment allowances and make other necessary adjustments will give all market participants suffi cient notice that Solvay believes they were denied in 2010. Solvay notes that EPA issued the Final Rule governi ng HCFC production and consumption for 2010-2014 on December 15, 2009, giving Solvay and customers less than two weeks to adjust to the loss of 90 percent of the allowances that the company had anticipated rec eiving. Solvay comments that a timely decision by E PA to issue recoupment allowances will provide the pre cise allowance shares to all participants as EPA or iginally intended to do over the life of the control period, and allow the market to function smoothly. [0064] EPA Response: See previous response in this section to NRI.  Two commenters request EPA to allow the full alloca tion to be produced for 2012 that was originally planned since changing the allocation at such late notice will put an unreasonable hardship on HVAC businesses and customers. [0102, 0098] EPA Response: See previous response in this section to NRI.  NORDYNE does not support reducing the 2012 allocati on since 2012 has already started. NORDYNE notes that the possibility of reducing this allocation is already creating significant issues in the marketp lace. Pricing has become extremely volatile and significant inven tory concerns are commonly discussed. Manufacturers have already planned their production for 2012. NOR DYNE believes that to change the rules mid-year is unfair, disruptive, and will create significant unn ecessary burdens on the industry. [0089] EPA Response: See previous response in this section to NRI. In ad dition, the court vacated the allocations. As a result, EPA is not changing an existing allocation but rather issuing a new allocation.  Goodman comments that this proposed rule is tantamo unt to changing the rules in the middle of the game as industry stakeholders prepare to meet the next s cheduled phase-down of HCFC-22 in 2015. Goodman is disconcerted that EPA is now promulgating a rule fo r 2012 that will not provide allowances for HCFC-22 until well into calendar year 2012. Goodman notes that if last year’s experience is any guide, a final rule or interim final rule may not be published until the t raditional cooling system is practically over. Good man states that while EPA’s No Action Assurance letters have given refrigerant manufactures certainty that theyResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 73 may permissibly produce specified quantities of HCF C-22, industry stakeholders already have seen the p rice of HCFC-22 double, and in the upcoming weeks and mo nths, prices will potentially increase further. [00 84] EPA Response: See previous responses in this section to NRI and N ORDYNE.  Able Distributors, APR Supply Co. and Coburn Supply Company state their opposition to the proposed 201 2 allocation reduction since 2012 has already started . According to the commenters, the possibility of reducing this allocation has already created signif icant issues in the market place and created price volatility. The three companies comment that manufacturers have already planned their production for 2012 and regard a change in rules to be unfair, disruptive a nd will create unnecessary burdens. [0147, 0148, 01 49] EPA Response: See previous responses in this section to NRI and N ORDYNE.  One commenter noted that industry has already made plans and purchases according to the guidelines tha t were advertised. [0130] EPA Response: See previous responses in this section to NRI and N ORDYNE.  Golden Refrigerant suggests that EPA issue 2012 all owances as quickly as possible and review the marke t conditions, setting the allowances for the followin g years by September of the previous year. [0054] EPA Response: See previous response in this section to NRI.  The National Multi Housing Council (NMHC) and the N ational Apartment Association (NAA) call upon EPA t o promulgate the final rule within 60 days to ease su pply disruptions and facilitate routine maintenance on equipment before the nationwide peak demand for air conditioning. [0156] EPA Response: See previous response in this section to NRI.  The Food Marketing Institute (FMI) states that lack of time to assess options will lead to suboptimal results. Accelerated retrofits will likely result in higher energy usage as retailers are forced to retrofit wi thout complete evaluation of all potential refrigerants. They believe that the pricing pressures imposed by the proposed rule will cause a rush to implement new an d unproven technologies to reduce refrigerant charg e. This will likely result in additional emissions due to unproven technology (e.g., micro channel conden ser leaks). [0157] EPA Response: See previous response in this section to NRI as wel l as the previous response to FMI in section 4.1 of this document.  Hudson Technologies comments that further delay in the finalization of a final rule for subsequent con trol periods will create confusion and disruption in the industry, will adversely affect the market, and wi ll likely further damage an already withering reclamation ind ustry. [0027] EPA Response: See previous response in this section to NRI. 

## 5.6 Compliance and enforcement issues EPA received 13 comments regarding compliance and e nforcement of regulations, generally urging EPA to increase the level of enforcement for refrigerant r ecovery.  Rapid Recovery Franchise Partners comment that if t here is to be a significant reduction in venting an d a corresponding increase in the amount of R-22 recove red and made available for reclamation, EPA will ne ed to significantly increase both the level of enforce ment of Section 608 of the CAA and the visibility o f that enforcement. As the national refrigerant recovery e xperts, the commenters meet every day with HVAC and demolition contractors as well as recycling and dis posal companies. The commenters hear two different perspectives from these companies. Those who are co mplying with EPA regulations, many of whom are Rapid Recovery customers, express frustration that they are at a significant competitive disadvantage when bidding against those companies who do not comply. They believe that increased enforcement will create a level playing field. On the other hand, those who a re not presently in compliance, advise Rapid Recove ryResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 74 that they have never been contacted by the EPA and they know of no one in their particular industry wh o has been. In the commenters’ experience there are no regular audits and often the commenters are told that even when violations have been reported to the EPA, ther e has been no follow up. The franchise partners of Rapid Recovery note, however, that in those few sit uations that some enforcement or even threat of enforcement has taken place, there has been immedia te and wide-spread compliance for a time. The commenters believe that if EPA desires a significan t increase in both compliance and additional recovered R-22, enforcement must be a significant p art of the process. [0086] EPA Response : EPA encourages all industry participants and priv ate citizens to report any illicit activity. EPA takes enforcement of its regulations seriously, and encourages all industry players to maintain accura te records that document appropriate handling and use of refri gerant. To report a violation online, visit http://epa.gov/tips/ . Additionally, EPA’s enforcement history of ODS ca ses can be found at http://www.epa.gov/ozone/enforce/index.html  Certified Refrigerant Services, Inc. is concerned t hat participation in the reclaiming effort is taken too lightly and are not satisfied with the estimated 10% compli ance with the regulations. Further, they state that money is the only real motivator for participation in the reclamation effort. [0057] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners. Additionally, see the response to NRDC in section 5.1 of this document.  One commenter stated that enforcement is necessary for compliance with Section 608. Increased visibili ty of enforcement efforts may increase the level of re clamation. [0075] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  Rocky Mountain Refrigerant Abatement notes that EPA should increase the level and visibility of its enforcement efforts so that contractors comply with EPA regulations to recover refrigerant. [0059] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  LA Refrigerant Recovery, AZ Refrigerant Abatement, R hynard and White Enterprises, and Houston Refrigerant Recovery, all comment that customers ar e best motivated to recover refrigerant by publiciz ed enforcement. The commenter states that contractors do not believe EPA will enforce the CAA Section 608 regulations, they have never been visited by the EP A, and they believe that no one cares about venting . The commenter notes that contractors are therefore igno ring the regulations. [0051, 0053, 0058, 0060] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  NRDC, IGSD, and EIA believe that the over-supply an d low price of virgin HCFC-22 is undermining compli ance and enforcement of current anti-venting requirement s to the detriment of the atmosphere and to the detriment of the public health and the environment. [0067] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  A group of 20 EPA Certified ODS Reclaimers apprecia te EPA's desire to promote a viable recovery and reclamation industry. They comment that by reducing allocations, EPA and reclaimers have a joint opportunity to utilize the existing "Recovery and R eclamation Network", which is needed to meet the ne eds of2015 and beyond. To do this the EPA must help tho se who provide recovered refrigerants to reclaimers develop a "culture" of recovery for reclamation. Th e twenty certified refrigerant reclaimers note that EPA must enforce existing regulations, especially “no v enting” rules. They comment that as a result of the se efforts, a positive value for the recovered product will be established and maintained, not just in 20 12, but throughout the phaseout period. [0085] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  Bay Area Refrigerant Recovery comments that that an y enforcement taken by the EPA has a significant impact on the industry and that the number of compa nies that recover refrigerants increases greatly. T heResponse to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 75 commenter believes that gentle reminders of the rul es and the threat of enforcement would go a long wa y toward increasing the amount of recovered and subse quently reclaimed refrigerants. Bay Area Refrigeran t Recovery urges the EPA to consider new and creative ways in which it might engage in appropriate enforcement. Bay Area Refrigerant Recovery would we lcome the opportunity to discuss some ideas with those in the San Francisco office who are responsib le for this important part of the process. [0080] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners. EPA is always interested in effective ways to improve compliance, and encourages the commenter to contact EPA headquarters to discuss ideas.  Consolidated comments that there are three potentia l motivators for recovering refrigerant, the first of which is doing the right thing. The commenter belie ves a program similar to GreenChill that encourages government and industry partnerships that will reco gnize and reward good recovery practices, would lea d to greater compliance and additional available recover ed refrigerants. Consolidated continues that the se cond motivator is economic incentive (aggressive allotme nt adjustments which impact price will address this ), and the third is enforcement by the EPA. Consolidated n otes that it appears that the EPA does not have the resources necessary to police the industry. Until s uch time that contractors actually believe they ris k enforcement and penalties, the only tangible incent ive is the buyback they receive from reclamation an d/or recovery companies. A letter from the EPA to stakeh olders reminding them of the laws and penalties for violations would go a long way toward compliance. C onsolidated believes publicized cases of enforcemen t on the average sized company would also result in c ompliance. Consolidated believes that EPA can publi cize its work and enforcement through News Releases. Con solidated also believes that contractors in complia nce are at a disadvantage contractors not in compliance and think enforcement would level the playing fiel d. [0083] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners and Bay Area Refrigerant Recovery. The agency appreciates sugges tions for encouraging better compliance and will co nsider ways it can improve compliance. EPA also lists all ODS enforcement cases at http://www.epa.gov/ozone/enforce/index.html.  NRI agrees with EPA that refrigerant should be recl aimed using distillation and separation and encoura ges EPA to require third party certification of reclaim ers so that consumers can have as much confidence i n reclaimed refrigerant as they do newly manufactured refrigerant. [0068] EPA Response : This comment is beyond the scope of this rulemaki ng. However, EPA will consider this comment as it develops future regulations. Reclaimers are c urrently required to follow the certification provi sions in 40 CFR 82.164.  Polar Technology believes that proper reclamation o f R-22 will not occur because of the lack of enforcement. They state that technicians, contracto rs, and system owners do not fear that the failure to properly recover will be met with punishment; there are too many systems and technicians to monitor an d hold accountable. Polar Technology cites California ’s AB32 that, according to the commenter, was creat ed based on the failure of the CAA. AB32 holds the sys tem owner accountable for refrigerants in their con trol. Without enforcement, there is no motivating reason for anyone to adhere to regulations. [0076] EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.  Golden Refrigerant is concerned about where additio nal HCFC-22 that will be reclaimed will come from. The commenter believes additional HCFC-22 will come fro m increased compliance and increased retrofits. The y believe that the majority of non-compliance comes f rom smaller heating and cooling contractors, smalle r demolition contractors, and individuals because the ir prices are too low for legitimate contractors to match and they do not want to pay the cost or take the ti me to correctly recover the refrigerant. They sugge st that EPA dramatically increases enforcement, or it is do ubtful that there will be a dramatic increase in th e returned refrigerant from this source. [0054]Response to Comments on the 2012-2014 HCFC Allocati on Rulemaking

Page 76 EPA Response : See previous response in this section to Rapid Re covery Franchise Partners.

# ATTACHMENT 2

EO12866_CAA Part 82A 2060 AQ98 FINAL_FRN_20130214_c hanges.docx*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

1 of 86 EO12866_CAA Part 82A 2060 AQ98 FINAL_FRN_20130214

BILLING CODE 6560–50–P

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82 [EPA-HQ-OAR-2011-0354; FRL-XXXX-X] RIN 2060-AQ98 Protection of Stratospheric Ozone: Adjustments to t he Allowance System for Controlling HCFC Production, Import, and Export

AGENCY: Environmental Protection Agency [EPA].

ACTION: Final rule.

SUMMARY: EPA is adjusting the allowance system controlling U .S. consumption and production of hydrochlorofluorocarbons (HCFCs) as a result of a recent 2010 Court decision vacating a portion of the 2009 final rule titled “P rotection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Produc tion, Import, and Export.” EPA interprets the Court’s vacatur as applying to the part of the rule that establishes the company-by-company baselines and calendar year allowances for HCFC-22 and HCFC-142b. On August 5, 2011, EPA published an interim final rule allocating allowanc es for 2011. Today’s action relieves the regulatory ban on production and consumption of the se two chemicals following the Court’s vacatur by establishing company-by-company HCFC-22 and HCFC-142b baselines and allocating production and consumption allowances fo r 2012-2014.

DATES: This final rule is effective upon [INSERT DATE OF PUBLICATION]].

ADDRESSES: EPA has established a docket for this action under Docket ID No. EPA-HQOAR-2011-0354 . All documents in the docket are listed on the www.regulations.gov website. Although listed in the index, some information is n ot publicly available, e.g., CBI or other information whose disclosure is restricted by statu te. Certain other material, such as copyrighted*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

2 of 86 material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available e ither electronically through www.regulations.gov or in hard copy at the Air and Radiation Docket an d Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave. , NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., M onday through Friday, excluding legal holidays. The telephone number for the Public Readi ng Room is (202) 566-1744, and the telephone number for the Air and Radiation Docket i s (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Luke H. Hall-Jordan by telephone at (202) 343-9591, or by e-mail at hall-jordan.luke@epa.gov, or by mail at U.S. Environmental Protection Agency, Stratospheric Protection Divisio n (6205J), 1200 Pennsylvania Ave., NW, Washington, DC, 20460. You may also visit the websi te of EPA’s Stratospheric Protection Division at www.epa.gov/ozone/strathome.html for further information about EPA’s Stratospheric Ozone Protection regulations, the sci ence of ozone layer depletion, and related topics.

SUPPLEMENTARY INFORMATION: Effective Date. This rule concerns Clean Air Act (CAA) restrictions on the consumption and production of hydrochlorofluorocarbon (HCFC)-22 and HCFC-142b during 2012-2014. Section 553(d) of the Administrative Procedure Act (APA), 5 U.S.C. Chapter 5, generally provides that rules may not take effect earlier tha n 30 days after they are published in the Federal Register. EPA is issuing this final rule under sect ion 307(d)(1) of the Clean Air Act, which states: “The provisions of section 553 through 557 . . . of Title 5 shall not, except as expressly provided in this section, apply to actions to which this subsection applies.” Thus, section 553(d) of the APA does not apply to this rule. EPA is neve rtheless acting consistently with the policies underlying APA section 553(d) in making this rule e ffective [INSERT DATE OF PUBLICATION]. APA section 553(d) allows an effectiv e date less than 30 days after*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

3 of 86 publication for any action “that grants or recogniz es an exemption or relieves a restriction,” (5 U.S.C. 553(d)(1)). Since today's action relieves a restriction from the regulatory ban on the production and consumption of HCFC-22 and HCFC-142b in the U.S., EPA is making this action effective immediately upon publication to en sure the availability of these HCFCs for servicing air conditioning and refrigeration equipm ent. Acronyms and Abbreviations. The following acronyms and abbreviations are used in this

document.

CAA – Clean Air Act

CAAA – Clean Air Act Amendments of 1990

CFC – Chlorofluorocarbon CDM – Clean Development Mechanism CFR – Code of Federal Regulations EPA – Environmental Protection Agency FR – Federal Register HCFC – Hydrochlorofluorocarbon HVAC – Heating, Ventilating, and Air Conditioning

Montreal Protocol – Montreal Protocol on Substances that Deplete the Oz one Layer MOP – Meeting of the Parties

MT – Metric Ton ODP – Ozone Depletion Potential ODS – Ozone-Depleting Substances Party – States and regional economic integration or ganizations that have consented to be bound by the Montreal Protocol on Substances that Deplete the Oz one Layer Organization of This Document. The following outline is provided to aid in locati ng information in this preamble.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

4 of 86 I. Does This Action Apply to Me? II. Summary of This Final Action III. Background A. How Does the Montreal Protocol Phase Out HCFCs? B. How Does the Clean Air Act Phase Out HCFCs? C. What Sections of the Clean Air Act Apply to Thi s Rulemaking? D. How Does This Action Relate to the Recent 2010 Court Decision? IV. How Is EPA Allocating HCFC-22 and HCFC-142b All owances for 2012-2014? A. What Baselines Is EPA Using for HCFC-22 and HCFC-14 2b Allowances? 1. What Baselines Is EPA Using for 2012-2014? 2. What Baselines Is EPA Considering for 2015-2019? B. What Factors Did EPA Consider in Determining Al location Amounts for HCFC22 and HCFC-142b? 1. How Is EPA Adjusting Estimated Servicing Need t o Account for Surplus Inventory from Past Years? 2. How Is EPA Adjusting Allowances to Encourage Rec overy, Reclamation and Reuse? 3. How Is EPA Accounting for Recovery and Reuse of HCFC-22 in the Supermarket Industry? 4. Did EPA Consider Providing Allowances to Small B usinesses in This Final Action? 5. Does the Installation of Dry-shipped HCFC-22 Equ ipment Affect the Phaseout of HCFC-22? 6. How Is EPA Addressing the Court’s Decision with Regard to 2010 HCFC Allowances? 7. Does EPA Have to Provide the Same Percentage of Baseline for Production Allowances as It Does for Consumption Al lowances? C. How Many HCFC-22 and HCFC-142b Allowances Is EPA Allocating in 2012- 2014?

1. How Many HCFC-22 Consumption Allowances Is EPA Allocating in 2012-2014? 2. How Many HCFC-22 Production Allowances Is EPA Al locating in 2012- 2014? 3. How Many HCFC-142b Consumption and Production Al lowances Is EPA Allocating in 2012-2014? 4. How Does the Aggregate Allocation for HCFC-22 an d HCFC-142b Translate Entity-by-Entity? V. How Is EPA Changing the Regulations Governing Tr ansfers of Class II Allowances? A. How Is EPA Changing the Regulations Governing Pe rmanent Transfers of Class II Allowances? B. How Is EPA Changing the Regulations Governing T ransfers of Article 5 Class II Allowances? VI. Statutory and Executive Order Reviews*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

5 of 86 A. Executive Order 12866: Regulatory Planning and Review and Executive Order

13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordi nation with Indian Tribal

Governments G. Executive Order 13045: Protection of Children from Environmental Health and

Safety Risks H. Executive Order 13211: Actions Concerning Regu lations That Significantly

Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement A ct J. Executive Order 12898: Federal Actions to Addre ss Environmental Justice in

Minority Populations and Low-Income Populations K. Congressional Review Act I. Does This Action Apply to Me? This rule may affect the following categories:

- Industrial Gas Manufacturing entities (NAICS code 3 25120), including fluorinated hydrocarbon gases manufacturers and rec laimers;

- Other Chemical and Allied Products Merchant Wholesa lers (NAICS code 422690), including chemical gases and compressed ga ses merchant wholesalers;

- Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing en tities (NAICS code 333415), including air-conditioning equipment and c ommercial and industrial refrigeration equipment manufacturers;

- Air-Conditioning Equipment and Supplies Merchant Wh olesalers (NAICS code 423730) , including air-conditioning (condensi ng unit, compressors) merchant wholesalers;*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

6 of 86 - Electrical and Electronic Appliance, Television, an d Radio Set Merchant Wholesalers (NAICS code 423620), including air-cond itioning (room units) merchant wholesalers; and

- Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 238220), including central air-conditioning system and comme rcial refrigeration installation; HVAC contractors. This list is not intended to be exhaustive, but rat her provides a guide for readers regarding entities likely to be regulated by this action. Thi s table lists the types of entities that could potentially be regulated by this action. Other type s of entities not listed in this table could also b e affected. To determine whether your facility, compa ny, business organization, or other entity is regulated by this action, you should carefully exam ine these regulations. If you have questions regarding the applicability of this action to a par ticular entity, consult the person listed in the

“ FOR FURTHER INFORMATION CONTACT ” section. II. Summary of This Final Action In today’s final rule, EPA is issuing HCFC-22 and H CFC-142b allowances for the years 2012, 2013 and 2014 in the wake of the U.S. Court o f Appeals for the District of Columbia Circuit (Court) decision in Arkema v. EPA (618 F.3d 1, D.C. Cir. 2010). As discussed in this preamble and in the proposed rule (77 FR 237), the Court vacated HCFC-22 and HCFC-142b company-by-company baseline and calendar-year allow ances for 2012-2014. Baselines and calendar-year allowances for these two substances w ere originally finalized in a December 15, 2009, rule (“2009 Final Rule,” 74 FR 66412). EPA is finalizing HCFC-22 and HCFC-142b baseline al lowances that incorporate the inter-pollutant transfers made by Arkema, Inc., Sol vay Fluorides, LLC, and Solvay Solexis, Inc., (Arkema and Solvay) in 2008, and is setting calenda r-year allowances for the 2012-2014 control*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

7 of 86 periods. EPA is providing fewer calendar-year HCFC- 22 consumption allowances 1 and more calendar-year HCFC-22 production allowances 2 than in the 2009 Final Rule. The agency determined that the need for virgin HCFC-22 in the U.S. is lower than EPA anticipated in the 2009 Final Rule and is adjusting consumption allowa nces accordingly. EPA anticipates this adjustment will foster a smooth transition away fro m ozone-depleting HCFC-22. While EPA is reducing domestic consumption (i.e. production and import for U.S. use), the agency recognizes that other countries have different approaches to p hasing out HCFC-22. As such, EPA is increasing the number of production allowances to e nsure that U.S. companies can continue to meet demand for HCFCs in global markets. This suppo rts the Montreal Protocol’s overall goal of limiting need for new production capacity for contr olled chemicals by allowing existing producers scope to better meet the needs of global markets. Additionally, EPA has determined

that in the narrow circumstance of the Court’s vaca tur of the baselines in the 2009 Final Rule, it must provide meaningful compensation for 2010 calen dar-year HCFC-22 and HCFC-142b allowances that companies would have received under the adjusted baselines. EPA will issue recoupment allowances for that purpose in 2013 and 2014. EPA is also updating HCFC-142b baselines and annua l allowances and is allocating approximately the same amount of calendar-year cons umption allowances as in the 2009 Final Rule. HCFC-142b calendar-year production allowances are higher than in the 2009 Final Rule, but are calculated using the same methodology. Whil e the percent of baseline issued for HCFC142b is the same for both consumption and productio n, the production baseline is now significantly larger than the consumption baseline, which is why there are more calendar-year production allowances than in the 2009 Final Rule.

1 Consumption allowances permit an entity to produce and/or import virgin HCFCs in a given control peri od (i.e., calendar year). 2 Production allowances permit an entity to produce virgin HCFCs in a given control period. Domestic pr oduction of HCFCs requires the use of both production and consu mption allowances.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

8 of 86 Finally, EPA is modifying the transfer language at 40 CFR 82.23 to more explicitly reflect EPA’s policy on inter-pollutant HCFC allowa nce transfers; that is, that inter-pollutant HCFC transfers can occur only on an annual basis go ing forward. All other aspects of the 2009 Final Rule not addre ssed in this rulemaking are unaffected, including, but not limited to: HCFC-123, HCFC-124, HCFC-225ca and HCFC-225cb allowances, the formula for determining calendar-ye ar Article 5 allowances, and the use and

introduction into interstate commerce restrictions on HCFC-22 and HCFC-142b. This preamble includes a summary of comments EPA received in resp onse to the proposed rule, as well as

comments to the 2011 Interim Final Rule that are re levant to this current rulemaking. A full response to comments document (“Response to Comment s”) is available in the docket for this rulemaking. III. Background EPA is undertaking this rulemaking as a result of t he decision issued by the Court in

Arkema v. EPA (618 F.3d 1, D.C. Cir. 2010) regarding the Decembe r 15, 2009, final rule titled “Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export,” (“2009 Final Rule,” 74 FR 66412). Certain allowance holders affected by the 2009 Final Rule filed petit ions for judicial review of the rule under section 307(b) of the Clean Air Act. Among other ar guments, the petitioners contended that the rule was impermissibly retroactive because in setti ng the baselines for the new regulatory period, EPA did not take into account certain inter-polluta nt baseline transfers that petitioners had performed during the prior regulatory period. The Court issued a decision on August 27, 2010, agr eeing with petitioners that “the [2009] Final Rule unacceptably alters transactions the EPA approved under the 2003 Rule,” ( Arkema v. EPA , 618 F.3d at 3). The Court vacated the 2009 Final Rule in part, “insofar as it operates retroactively,” and remanded it to EPA “fo r prompt resolution,” (618 F.3d at 10). The*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

9 of 86 Court withheld the mandate for the decision pending the disposition of any petition for rehearing. EPA’s petition for rehearing was denied on January 21, 2011. The mandate issued on February 4, 2011. More detail is provided on the case and EPA’s interpretation of the Court’s decision in section III.D. of this preamble. For 2011, EPA addressed the Court’s partial vacatur in an August 5, 2011, interim final rule, “Protection of Stratospheric Ozone: Adjustmen ts to the Allowance System for Controlling HCFC Production, Import, and Export,” (“2011 Interi m Final Rule,” 76 FR 47451). Today’s final rule follows that action, and establishes a p ath forward for the remainder of the regulatory period ending on December 31, 2014.

A. How Does the Montreal Protocol Phase Out HCFCs?

The Montreal Protocol on Substances that Deplete the Oz one Layer (Montreal Protocol) is the international agreement aimed at reducing an d eventually eliminating the production and consumption of stratospheric ozone-depleting substa nces (ODS). The U.S. was one of the original signatories to the 1987 Montreal Protocol and the U.S. ratified the Protocol on April 12, 1988. Congress then enacted, and President George H .W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA), which included Title VI on Stratospheric Ozone Protection, codified as 42 U.S.C. Chapter 85, Subchapter VI, to ensure that the U.S. could satisfy its obligations under the Montreal Protocol. Title VI i ncludes restrictions on production, consumption, and use of ODS that are subject to acc eleration if “the Montreal Protocol is

modified to include a schedule to control or reduce production, consumption, or use . . . more rapidly than the applicable schedule” prescribed by the statute (CAA §606). Both the Montreal Protocol and the Clean Air Act (CAA) define consump tion as production plus imports minus

exports. In 1990, as part of the London Amendment to the Mo ntreal Protocol, the Parties

identified HCFCs as “transitional substances” to se rve as temporary, lower ozone depletion*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

10 of 86 potential (ODP) substitutes for CFCs and other ODS. EPA similarly viewed HCFCs as “important interim substitutes that will allow for the earliest possible phaseout of CFCs and other

Class I substances” 3 (58 FR 65026). In 1992, through the Copenhagen Ame ndment to the Montreal Protocol, the Parties created a detailed p haseout schedule for HCFCs beginning with a cap on consumption for industrialized countries not operating under Article 5 of the Montreal Protocol (non-Article 5 Parties), a schedule to whi ch the U.S. adheres. The consumption cap for each non-Article 5 Party was set at 3.1 percent (la ter tightened to 2.8 percent) of a Party’s CFC consumption in 1989, plus a Party’s consumption of HCFCs in 1989 (weighted on an ODP basis). Based on this formula, the HCFC consumption cap for the U.S. was 15,240 ODPweighted metric tons (MT), effective January 1, 199 6. This became the U.S. consumption

baseline for HCFCs. The 1992 Copenhagen Amendment created a schedule of graduated reductions and provided for the eventual phaseout of HCFC consumpt ion (Copenhagen, 23-25 November, 1992, Decision IV/4). Prior to a later adjustment in 2007 , the schedule initially allowed a non-Article 5 country to consume 65 percent of its consumption ca p in 2004, followed by 35 percent in 2010, 10 percent in 2015, 0.5 percent in 2020 for the ser vicing of existing refrigeration and airconditioning equipment, and a total phaseout in 203 0. The Copenhagen Amendment did not cap HCFC productio n. In 1999, the Parties created a cap on production for non-Article 5 Parties throu gh an amendment to the Montreal Protocol agreed by the Eleventh Meeting of the Parties (Beij ing, 29 November – 3 December, 1999, Decision XI/5). The cap on production was set at th e average of: (a) 1989 HCFC production plus 2.8 percent of 1989 CFC production, and (b) 1989 HC FC consumption plus 2.8 percent of 1989 CFC consumption. Based on this formula, the U.S. HC FC production cap was 15,537 ODPweighted MT, effective January 1, 2004. This became the U.S. production baseline for HCFCs.

3 Class I refers to the controlled substances listed in appendix A to 40 CFR part 82 subpart A. Class I I refers to the controlled substances listed in appendix B to 40 CF R part 82 subpart A.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

11 of 86 To further protect human health and the environment , the Parties to the Montreal Protocol adjusted the Montreal Protocol’s phaseout schedule for HCFCs at the 19 th Meeting of the Parties in September 2007. In accordance with Article 2(9)( d) of the Montreal Protocol, the adjustment to the phaseout schedule was effective on May 14, 2 008. 4 As a result of the 2007 Montreal Adjustment (refle cted in Decision XIX/6), the U.S. and other non-Article 5 countries may only consume 25 p ercent of their HCFC baseline beginning in 2010, rather than 35 percent. Other milestones rema in the same. The adjustment also resulted in a phaseout schedule for HCFC production that parall els the consumption phaseout schedule. All production and consumption for non-Article 5 Partie s is phased out by 2030. Decision XIX/6 also adjusted the provisions for Pa rties operating under paragraph 1 of Article 5 (developing countries): (1) to set HCFC p roduction and consumption baselines based on the average of 2009-2010 production and consumpt ion, respectively; (2) to freeze HCFC production and consumption at those baselines in 20 13; and (3) to add stepwise reductions to 90 percent of baseline by 2015, 65 percent by 2020, 32 .5 percent by 2025, and 2.5 percent by 2030 – allowing, between 2030 and 2040, an annual averag e of no more than 2.5 percent to be produced or imported solely for servicing existing air-conditioning and refrigeration equipment. All production and consumption for Article 5 Partie s will be phased out by 2040. Decision XIX/6, included in the Report of the Nineteenth Meeting of the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer , is available in the docket for this rulemaking. In addition, in the Montreal Adjustments, Parties agreed to adjust Article 2F to allow non-Article 5 countries to produce “up to 10 percen t of baseline levels” for export to Article 5 countries “in order to satisfy basic domestic needs ” until 2020. Paragraph 14 of Decision XIX/6

4 Under Article 2(9)(d) of the Montreal Protocol, an adjustment enters into force six months from the d ate the depositary (the Ozone Secretariat) circulates it to the Parties. The depositary accepts all notificati ons and documents related to the Protocol and examines whether all fo rmal requirements are met. In accordance with the p rocedure in Article 2(9)(d), the depositary communicated the ad justment to all Parties on November 14, 2007. The a djustment entered into force and became binding for all Parti es on May 14, 2008.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

12 of 86 notes that by no later than 2015, the Parties would consider “further reduction of production for basic domestic needs” in 2020 and beyond. Under par agraph 13 of Decision XIX/6, the Parties will review in 2015 and 2025, respectively, the nee d for the “servicing tails” for non-Article 5 and Article 5 countries. The term “servicing tail” refers to an amount of HCFCs needed to service existing equipment, such as certain types o f air-conditioning and refrigeration appliances.

B. How Does the Clean Air Act Phase Out HCFCs? The U.S. has chosen to implement the Montreal Proto col phaseout schedule on a chemical-by-chemical basis. In 1992, environmental and industry groups petitioned EPA to implement the required phaseout by eliminating the most ozone-depleting HCFCs first. Based on the available data at that time, EPA believed the U .S. could meet, and possibly exceed, the required Montreal Protocol reductions through a che mical-by-chemical phaseout that employed a “worst-first” approach, which focuses on phasing ou t certain chemicals with higher ODP earlier than others. In 1993, as authorized by section 606 of the CAA, the U.S. established a phaseout

schedule that eliminated HCFC-141b first and would greatly restrict HCFC-142b and HCFC-22 next, followed by restrictions on all other HCFCs a nd ultimately a complete phaseout (58 FR 15014, March 18, 1993; 58 FR 65018, December 10, 19 93). On January 21, 2003, EPA promulgated regulations ( “2003 Final Rule,” 68 FR 2820) to ensure compliance with the first reduction mileston e in the HCFC phaseout: the requirement that by January 1, 2004, the U.S. reduce HCFC consumptio n by 35 percent and freeze HCFC production. In the 2003 Final Rule, EPA established chemical-specific consumption and production baselines for HCFC-141b, HCFC-22, and HC FC-142b for the initial regulatory period ending December 31, 2009. Section 601(2) sta tes that EPA may select “a representative calendar year” to serve as the company baseline for HCFCs. In the 2003 Final Rule, EPA concluded that because the entities eligible for al lowances had differing production and import histories, no single year was representative for al l companies. Therefore, EPA assigned an*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

13 of 86 individual consumption baseline year to each compan y by selecting its highest ODP-weighted consumption year from among the years 1994 through 1997. EPA assigned individual production baseline years in the same manner. EPA also provide d for new entrants that began importing after the end of 1997 but before April 5, 1999, the date the advanced notice of proposed rulemaking was published. EPA took this action to e nsure that small businesses that might not have been aware of the impending rulemaking would b e able to continue in the HCFC market. The 2003 Final Rule apportioned production and con sumption baselines to each company in amounts equal to the company’s highest “producti on year” or “consumption year,” as described above. It completely phased out the produ ction and import of HCFC-141b by granting zero percent of that substance’s baseline for produ ction and consumption in the table at 40 CFR 82.16. EPA did, however, create a petition process to allow applicants to request small amounts of HCFC-141b until 2015. The 2003 Final Rule also g ranted 100 percent of the baselines for production and consumption of HCFC-22 and HCFC-142b for each of the years 2003 through

2009. EPA was able to allocate allowances for HCFC- 22 and HCFC-142b at 100 percent of baseline because, in light of the concurrent comple te phaseout of HCFC-141b, the allocations for HCFC-22 and HCFC-142b, combined with projections fo r consumption of all other HCFCs, remained below the 2004 cap of 65 percent of the U. S. baseline. EPA allocates allowances for specific years; they are valid between January 1 and December 31 of a given control period (i.e., calend ar year). Prior to December 15, 2009, EPA had not allocated any HCFC allowances for 2010 or b eyond. The regulations at section 82.15(a) and (b) only addressed the production and import of HCFC-22 and HCFC-142b for the years 2003-2009. Absent the granting of calendar-year all owances, section 82.15 would have prohibited the production and import of HCFC-22 and HCFC-142b after December 31, 2009. The 2009 Final Rule allowed for continued productio n and consumption, at specified amounts,*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

14 of 86 of HCFC-142b, HCFC-22, and other HCFCs not previous ly included in the allowance system, for the 2010-2014 control periods. In the U.S., an allowance is the unit of measure t hat controls production and consumption of ODS. EPA establishes company-by-company baseline s (also known as “baseline allowances”) and allocates calendar-year allowances equal to a p ercentage of the baseline for specified control periods. A calendar-year allowance represents the p rivilege granted to a company to produce or import one kilogram (not ODP-weighted) of the speci fic substance. EPA allocates two types of calendar-year allowances – production allowances an d consumption allowances. “Production allowance” and “consumption allowance” are defined at section 82.3. To produce an HCFC for which allowances have been allocated, an allowance holder must expend both production and consumption allowances. To import an HCFC for which allowances have been allocated, an allowance holder must expend consumption allowances . An allowance holder exporting HCFCs for which it has expended consumption allowances ma y request a refund of those consumption allowances by submitting proper documentation and r eceiving approval from EPA. Since EPA is implementing the phaseout on a chemic al-by-chemical basis, it allocates and tracks production and consumption allowances on an absolute kilogram basis for each chemical. Upon EPA approval, an allowance holder ma y transfer calendar-year allowances of one type of HCFC for calendar-year allowances of an other type of HCFC, with transactions weighted according to the ODP of the chemicals invo lved. Pursuant to section 607 of the CAA, EPA applies an offset to each HCFC transfer by dedu cting 0.1 percent from the transferor’s

allowance balance. The offset benefits the ozone la yer since it “results in greater total reductions in the production in each year of . . . class II su bstances than would occur in that year in the absence of such transactions” (42 U.S.C. 7671f). The U.S. remained comfortably below the aggregate H CFC cap through 2009. The 2003

Final Rule announced that EPA would allocate allowa nces for 2010-2014 in a subsequent action*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

15 of 86 and that those allowances would be lower in aggrega te than for 2003-2009, consistent with the next stepwise reduction for HCFCs under the Montrea l Protocol. EPA stated its intention to

determine the number of allowances that would be ne eded for HCFC-22 and HCFC-142b, bearing in mind that other HCFCs would also contrib ute to total HCFC consumption. EPA noted that it would likely achieve the 2010 stepwise redu ction by applying a percentage reduction to the HCFC-22 and HCFC-142b baselines. EPA subsequent ly reviewed market conditions to estimate servicing needs and market adjustments in the use of HCFCs, including HCFCs for

which EPA did not establish baselines in the 2003 F inal Rule. In the 2009 Final Rule, EPA estimated the need for HCFC-22 during the 2010-2014 regulatory period, and determined the percentage of that need for which it was appropriate to

allocate allowances. As described in section IV.B.3 . of the proposed rule (77 FR 237), EPA determined that the percentage of the estimated nee d allocated in the form of allowances should not remain constant from year to year but rather sh ould decline on an annual basis. For 2010, EPA allocated allowances equal to 80 percent of the estimated need for HCFC-22, concluding that reused, recycled, and reclaimed material could meet the remaining 20 percent. Under the 2009 Final Rule, the percentage of estimated need f or which there was no allocation, and therefore would need to be met through recycling an d reclamation, rose from 20 percent in 2010 to 29 percent in 2014 to ensure the U.S. market wou ld have a viable reclamation industry and could meet the 2015 stepwise reduction under the Mo ntreal Protocol. As explained in the Background section, EPA is unde rtaking this rulemaking as a result of the decision issued by the Court in Arkema (618 F.3d 1, D.C. Cir. 2010), in which the Court vacated portions of the 2009 Final Rule. C. What Sections of the Clean Air Act Apply to This Rulemaking? Several sections of the CAA apply to this rulemaki ng. Section 605 of the CAA phases out production and consumption and restricts the use of HCFCs in accordance with the schedule set*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

16 of 86 forth in that section. As discussed in the 2009 Fin al Rule (74 FR 66416), section 606 provides EPA authority to set a more stringent phaseout sche dule than the schedule in section 605 based on an EPA determination regarding current scientifi c information or the availability of substitutes, or to conform to any acceleration unde r the Montreal Protocol. EPA previously set a more stringent schedule than the section 605 schedu le through a rule published December 10, 1993 (58 FR 65018). Through the 2009 Final Rule, EP A accelerated the section 605 schedule to

reflect the acceleration under the Montreal Protoco l as agreed to under the Montreal Protocol in September 2007. The more stringent schedule establi shed in that rule is unaffected by the

recent 2010 Court decision and is therefore still in effect. Section 606 provides EPA authority to promulgate re gulations that establish a schedule for production and consumption that is more stringe nt than what is set forth in section 605 if: “(1) based on an assessment of credible current sci entific information (including any assessment under the Montreal Protocol) regarding harmful effe cts on the stratospheric ozone layer associated with a class I or class II substance, th e Administrator determines that such more stringent schedule may be necessary to protect huma n health and the environment against such effects, (2) based on the availability of substitut es for listed substances, the Administrator determines that such more stringent schedule is pra cticable, taking into account technological achievability, safety, and other relevant factors, 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 tit le.” It is only necessary to meet one of the three criteria. In the 2009 Final Rule, EPA determined th at all three criteria had been met with respect to the schedule for phasing out production and cons umption of HCFC-22 and HCFC-142b. As noted in the 2009 Final Rule, while section 606 is sufficient authority for establishing a more stringent schedule than the section 605 phas eout schedule, section 614(b) of the CAA provides that in the case of a conflict between the CAA and the Montreal Protocol, the more*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

17 of 86 stringent provision shall govern. Thus, section 614 (b) requires the agency to establish phaseout schedules at least as stringent as the schedules co ntained in the Montreal Protocol. To meet the 2010 stepdown requirement, EPA is continuing to all ocate HCFC allowances at a level that will ensure the aggregate HCFC production and consumptio n will not exceed 25 percent of the U.S. baselines. For more discussion of this point, see 7 4 FR 66416. Finally, section 607 addresses transfers of allowan ces both between companies and chemicals. EPA is further clarifying the policy and procedures applicable to inter-pollutant transfers in this action, and is making a minor cha nge to the regulations governing inter-pollutant transfers to provide additional clarity to stakehol ders.

D. How Does This Action Relate to the Recent 2010 Court Decision? Certain allowance holders affected by the 2009 Fin al Rule filed petitions for review in the U.S. Court of Appeals for the District of Columbia Circuit. Among other arguments, the petitioners, Arkema, Inc., Solvay Fluorides, LLC, a nd Solvay Solexis, Inc., contended that the rule was impermissibly retroactive because in setti ng the baselines for the new regulatory period, EPA did not take into account certain inter-polluta nt baseline transfers that petitioners had performed during the prior regulatory period. The 2 011 Interim Final Rule contained a description of those transfers and the EPA approval s of those transfers. As explained in the 2011 Interim Final Rule, Solvay Solexis, Inc. submitted two Class II Controlled Substance Transfer Forms for consumption allowance transfers to Solvay Fluorides, LLC on February 15, 2008, and March 4, 2008. Arkema, Inc. submitted two Class II Controlled Substance Transfer Forms for consumption and production allowance transfers on A pril 18, 2008. Each company requested EPA’s approval to convert HCFC-142b allowances to H CFC-22 allowances, and checked a box on the EPA transfer form indicating that “baseline” allowances would be transferred. EPA sent non-objection notices to Solvay Solexis, Inc. and S olvay Fluorides, LLC on February 21, 2008, and March 20, 2008, and to Arkema, Inc. in April 20 08. The transfer requests and EPA’s non-*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

18 of 86 objection notices were attached to petitioners’ cou rt filings and are available in the docket for

this action. In the Notice of Proposed Rulemaking titled “Prote ction of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export,” published in the Federal Register at 73 FR 78680 on December 23, 2008 (2008 Proposed Rule), EPA requested comments on establishing baselines fo r the 2010-2014 regulatory period “with or without” taking into account baseline inter-polluta nt transfers made during the 2003-2009 regulatory period (73 FR 78687). The proposed regul atory text accounted for the inter-pollutant

transfers discussed above. The increase in HCFC-22 baseline allowances for Arkema, Inc. and Solvay Fluorides, LLC presented in the 2008 Propose d Rule resulted in a larger amount of

HCFC-22 baseline allowances overall and therefore a lower percentage of HCFC-22 baselines allocated across the board in each control period. Specifically, the proposed shift resulted in a 16 percent decrease in allocation share for all other HCFC-22 allowance holders, and increases for the petitioners: Arkema and Solvay. In the 2009 Final Rule, after considering comments, EPA determined that allowing interpollutant transfers from one regulatory period to b ecome a part of the baseline in the next regulatory period could undermine the agency’s chem ical-by-chemical phaseout approach and encourage market manipulation. EPA also concluded t hat section 607 of the CAA was best read as limiting inter-pollutant transfers to those cond ucted on an annual basis. For these reasons, EPA did not take the 2008 inter-pollutant transfers into account in establishing the baselines for the 2009 Final Rule covering 2010-2014. The Court issued a decision on August 27, 2010, agr eeing with petitioners that “the [2009] Final Rule unacceptably alters transactions the EPA approved under the 2003 Rule” ( Arkema v. EPA , 618 F.3d at 3). The Court vacated the rule in par t, “insofar as it operates retroactively,” and remanded to EPA “for prompt res olution,” (618 F.3d at 10). The Court*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

19 of 86 withheld the mandate for the decision pending the d isposition of any petition for rehearing. On November 12, 2010, EPA filed a petition for reheari ng, which was denied on January 21, 2011. The mandate issued on February 4, 2011. EPA presented its interpretation of the Court’s dec ision with regard to baseline allowances and 2011-2014 calendar-year allowances i n the 2011 Interim Final Rule (76 FR 47456). EPA has not changed that interpretation but is repeating it here for ease of reference. Because the Court vacated the rule only in part, an d because various parts of the rule are intertwined, EPA relied on its expertise in adminis tering the HCFC phaseout regulations under Title VI of the CAA to determine how to apply the v acatur within the confines of the balance of the rule, which was not vacated. First, EPA noted t hat the rule contains elements that were not at issue in the litigation. EPA concluded that the vac atur had no effect on allowances for any substances other than HCFC-142b and HCFC-22, since the petitioners’ claims and the opinion itself discuss only those two substances. Similarly , EPA concluded that other discrete portions of the rule, such as the provisions on use and introdu ction into interstate commerce, were unaffected by the vacatur.

The baselines for HCFC-142b and HCFC-22 were clearl y at issue in the litigation and indeed are the focus of the Court’s opinion. The Co urt found that “the agency’s refusal to

account for the Petitioners’ baseline transfers of inter-pollutant allowances in the Final Rule is impermissibly retroactive,” (618 F.3d at 9). Becaus e baseline and calendar-year allowances are inextricably linked, 5 EPA determined that the Court’s vacatur voided the HCFC-22 and HCFC142b baselines in 40 CFR 82.17 and 82.19 as well as the percentage of baseline allocated for those specific substances in 40 CFR 82.16 for all c ompanies listed in those sections. 6 This meant

5 Baseline and calendar-year allocations are inextri cable because calendar-year allocations are express ed as a percentage of baseline, and the percentage of basel ine allocated for a specific substance varies depen ding on the sum of all company baselines for that substance. The pr ocess is described in greater detail in section IV. 6 The companies’ allocations are inter-related becau se, as noted in footnote 5, the percentage of basel ine allocated varies according to the sum of the company-specific baselines.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

20 of 86 that in the absence of this rule, production and im port of these two substances in 2012 were prohibited under 40 CFR 82.15. Recognizing this sce nario, on January 2 0 , 201 2 , EPA sent letters in January 2012 and January 2013 to affected stakeholders informing them that the a gency would exercise enforcement discretion for a limited perio d provided their production and import did not exceed specified levels and provided that they adhe red to additional conditions. In determining the meaning of the Court’s vacatur, EPA considered whether this interpretation was consistent with what the Court i ntended and a good fit for the specific circumstances, which include the goals and design o f the HCFC allowance program and the

basic structure of the 2009 Final Rule. While this interpretation is appropriate in this instance, it is possible that another interpretation would be mo re appropriate in a case involving a program with different goals, design, or structure. EPA’s initial response to the Court’s partial vacat ur was to issue the 2011 Interim Final Rule (76 FR 47451). That rule allocated allowances for 2011 only. Through today’s notice, EPA is addressing the Court’s decision as it relates to the remainder of the regulatory period ending December 31, 2014. IV. How Is EPA Allocating HCFC-22 and HCFC-142b All owances for 2012-2014? EPA is continuing the system established in previou s rulemakings (68 FR 2820, 74 FR 66412, 76 FR 47451) for HCFC production and import in the U.S. The process works as follows for each HCFC: First, all the company-specific base lines listed in the tables at 40 CFR 82.17 and 82.19 are added to determine the aggregate amount o f baseline production and consumption, respectively. Second, EPA determines how many consu mption allowances the market needs for a given year, taking into account sources other than new production and import, and then divides that amount by the aggregate amount of baseline all owances. The resulting percentage is listed in

the table at section 82.16 and becomes what each co mpany is allowed to consume in a given control period. For example, a company with 100,000 kg of HCFC-22 baseline consumption*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

21 of 86 allowances would multiply that number by the percen tage allowed for the year (for example, 17.7 percent in 2012) to determine its calendar-yea r consumption allowance is 17,700 kg. In this rulemaking EPA is (1) establishing 2012-201 4 company-by-company consumption and production baselines for HCFC-22 an d HCFC-142b in the tables at 40 CFR

82.17 and 82.19 identical to the baselines establis hed in the 2011 Interim Final Rule (76 FR 47468); (2) allocating company-by-company productio n and consumption allowances for these substances for 2012-2014 by establishing allowed pe rcentages of production and consumption baselines in two tables at section 82.16; and (3) r evising the regulatory text at 40 CFR 82.23 to make the procedure for all future inter-pollutant t ransfers clear. EPA will address the baselines and allocations for the control periods beyond 2014 at a later date. All aspects of the 2009 Final Rule promulgated on December 15, 2009, (74 FR 66412 ) that are not addressed in this final rule are unchanged. EPA again notes that beginning January 1, 2015, sec tion 605 of the CAA prohibits the

use and introduction into interstate commerce of an y HCFC listed as a class II substance unless it “(1) has been used, recovered and recycled; (2) is used and entirely consumed (except for trace quantities) in the production of other chemicals; ( 3) is used as a refrigerant in appliances manufactured prior to January 1, 2020; or (4) is li sted as acceptable for use as a fire suppression agent for nonresidential applications in accordance with section 612(c).” In addition, EPA’s regulations at 40 CFR 82.15 restricted use and intr oduction into interstate commerce of HCFC141b, HCFC-142b, and HCFC-22 beginning in 2010, wit h limited exceptions. A. What Baselines Is EPA Using for HCFC-22 and HCFC -142b Allowances? In the January 4, 2012, notice, EPA proposed to es tablish 2012-2014 company-bycompany consumption and production baselines for HC FC-22 and HCFC-142b that were

identical to the baselines established in the 2011 Interim Final Rule (see 40 CFR 82.17 and*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

22 of 86 82.19). EPA also provided advance notice that it wo uld consider updating baselines for the 2015- 2019 regulatory period, especially if there is an e nvironmental benefit to doing so. 1. What Baselines Is EPA Using for 2012-2014? Four companies commented on how EPA should proceed with establishing baselines for 2012-2014. Arkema and Solvay both support EPA’s inc lusion of past inter-pollutant transfers of baseline allowances, and believe that the proposed baselines are fully consistent with the

Court Arkema decision. On the other hand, DuPont and Honeywell s tate that the C ourt’s decision

in Arkema does not require EPA to recognize the inter-pollut ant baseline transfers beyond 2009, nor does it address the validity of the 2008 transf ers. These commenters also state that recognizing these transfers beyond 2009 is contrary to section 607, EPA’s transfer regulations, and the agency’s interpretation of those regulation s for chemicals that are being phased down. In addition, they assert that if EPA does take those t ransfers into account in establishing baselines for 2012-2014, the agency should only allocate the percentage of the transferred baselines that

would be allocated if the baselines had never been converted from HCFC-142b to HCFC-22. They state that recognizing the transfers has the e ffect of increasing the baseline share of the petitioners in Arkema and reducing the share of other companies in viola tion of their due process rights. Finally, they state that under the Arkema decision, their share of the baseline is vested. EPA cited several reasons why it would prefer to s et baselines without taking into account inter-pollutant transfers in the 2009 Final Rule (74 FR 66420), in the Response to

Comments document included in the record for that r ulemaking and in the 2011 Interim Final Rule (76 FR 47451). These considerations remain imp ortant, and are the basis for EPA’s policy on future inter-pollutant transfers, which is discu ssed in section V of this notice. However, EPA must act in accordance with the Court’s holding reg arding the 2008 transfers. In Arkema , the Court concluded that EPA’s non-objection notices fo r the 2008 transfers created “vested rights” in the transferred baselines, which EPA must reflec t in rules governing the current regulatory Formatted: Font: Italic*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

23 of 86 period, at least to the extent such rules continue to use the historical production and consumption baselines. The Court explicitly held that “the Agen cy’s refusal to account for the Petitioners’ baseline transfers of interpollutant allowances in the Final Rule is impermissibly retroactive,” ( Arkema , 618 F.3d at 24). Given the Court’s Arkema decision, and after considering public

comment about given the scope and meaning of the recent decision , in Honeywell International,

Inc. v. EPA , D.C. Cir. No. 10-1347 (January 22, 2013) (“ Honeywell”) , EPA is recognizing the 2008 transfers in establishing the baselines throug h 2014. Thus, the baselines finalized for 2012- 2014 in today’s rule are identical to the HCFC-22 a nd HCFC-142b baselines established in the

2011 Interim Final Rule.

The commenters assert that the Arkema decision did not determine the validity of the transfers. They further assert that EPA lacked auth ority to approve permanent inter-pollutant baseline transfers, that the 2008 transfers as char acterized by the Court are thus invalid, and that EPA should not recognize them in setting baselines. The validity of the 2008 transfer approvals is being was challenged in a case being brought before the U.S. Court of Appea ls for the D.C. Circuit ( Honeywell International v. EPA , Case No. 10

- 1347).

. The brief filed by the agency on January 30, 2012, provides further discussion of response to several of the arguments that Honeywell and DuPont make in their comments on the proposed rule and is included in the docket for this rulemaking.

The commenters do not assert that EPA lacked author ity to approve inter-pollutant transfers whose effects were limited to the regulat ory period ending in 2009. Rather, they assert that EPA lacked authority to approve inter-pollutan t transfers with effects lasting beyond 2009. They state that the Court

Arkema did not determine the validity of such transfers. Yet the Arkema

Court itself found , contrary to the Agency’s position, that EPA had “a pproved permanent changes to the baseline as a result of inter-pollut ant transfers” and that the Agency could not “undo these completed transactions,” ( Arkema , 618 F.3d at 23). It is not plausible that the Cou rt Formatted: Underline*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

24 of 86 would have reached this holding if it viewed EPA’s authority to approve inter-pollutant transfers with effects beyond the immediate regulatory period as open to debate. As the Court stated in Honeywell , “the Arkema Court necessarily concluded that permanent inter-p ollutant transfers were permissible under the statute” (slip op. at 7) . The Honeywell Court noted that it was bound by Arkema and denied commenters’ petition for review of the 2008 transfers. The Honeywell

decision is available in the docket for this action

. Contrary to the commenters’ assertions, section 607 of the CAA is ambiguous with regard to whether inter-pollutant transfers may hav e permanent effects that carry forward to subsequent regulatory periods. EPA has discretion u nder section 607 to determine how to treat

such transfers. While EPA did not intend its non-ob jection notices to confer permanence to the 2008 inter-pollutant transfers, EPA disagrees with commenters’ implication that under section 607, the agency could not have done so. That would be true only if section 607 exp ressly prohibited permanent inter-pollutant transfers, whi ch it does not. As discussed in more detail in section V.A. of this preamble, for policy reasons E PA will approve only annual inter-pollutant

transfers in the future. EPA also believes that whi le section 607 is not clear on its face, it is best interpreted as precluding permanent inter-pollutant transfers, as explained in section V.A. of this preamble. As noted by the Court in Arkema , interpreting section 607 to preclude permanent inter-pollutant transfers “may more accurately trac k the statutory mandate,” ( Arkema, 618 F.3d at 22). Commenters assert that EPA has departed from its o wn regulations in proposing to recognize the 2008 inter-pollutant transfers in the baselines for 2012-2014. Commenters ignore, however, the Court’s interpretation of those regula tions. EPA’s intent in the 2003 Rule, which established the transfer provisions, was to preclud e permanent inter-pollutant transfers of baseline allowances (see 68 FR 2835). EPA notes tha t until the rulemaking that resulted in the 2009 Final Rule, the agency did not specifically de velop a policy on whether inter-pollutant*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

25 of 86 transfers could ever carry forward to a new regulat ory period following one of the intermediate phasedown steps. Nonetheless, the Arkema decision found that the agency’s conclusion in the 2009 Final Rule not to carry inter-pollutant transf ers forward to a new regulatory period “departed from the policy it had adopted in the 200 3 Rule,” ( Arkema , 618 F.3d at 6). EPA cannot disregard the Court’s holding on the ground that th e 2003 Rule prohibited permanent interpollutant transfers where the Court has found other wise. The commenters are also incorrect that EPA previou sly interpreted its regulations as creating a “phasedown follows the allowance” princi ple. Commenters assert that under this principle, EPA should only allocate the percentage of the transferred baselines allocated for HCFC-142b. However, EPA has never adopted such a pr inciple. Preamble statements leading up to and accompanying the 2003 Rule refer to the elim ination of HCFC-141b baseline upon the chemical’s complete phaseout, “regardless of what i nter-pollutant transfers had taken place,” (68 FR 2835). That is a different matter from a partial phasedown, like the phasedown of HCFC-22 and HCFC-142b in 2010. Additionally, the commenters ’ approach runs counter to the way EPA

allocates allowances as described in section IV of this preamble. Finally, the commenters assert that EPA has violate d their due process rights by decreasing their market share, which they argue is a vested right under Arkema . From a substantive perspective, what they assert is a vest ed right (i.e., a specific share of allowances) is not in fact a vested right, nor is it protected und er the due process clause. The Court held that EPA’s actions in approving the 2008 transfers creat ed vested rights in the transferred baselines. The Court placed particular emphasis on the fact th at the Agency took affirmative actions that appeared to ratify the transfers: “The Agency’s app roval and acknowledgement of Petitioners’ actions distinguishes this case from situations whe re a company’s unilateral business expectations are thwarted by a change in the regula tory framework,” ( Arkema , 618 F.3d at 20). The Court did not examine the issue of whether comp anies possessed vested rights in baseline or*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

26 of 86 calendar-year allowances generally, or in a specifi c share of allowances. Nor did the Court hold that the transferred baselines, baseline allowances generally, or calendar-year allowances, are property rights protected under the Due Process Cla use. Furthermore, it did not state that companies had any right to a specific number of pro duction or consumption allowances. On the contrary, the Court noted that “the 2010 stepdown g ave the EPA occasion to adjust its distribution of allowances,” ( Arkema , 618 F.3d at 25). EPA’s regulatory definitions specify that productio n and consumption allowances are privileges, not rights ( see 40 CFR 82.3). As discussed in Section II, the U.S. is in the process of phasing out production and consumption of HCFCs, cu lminating in a complete phaseout in 2030. EPA’s regulations prohibit production and consumpti on of HCFCs without allowances (40 CFR 82.16(a), (b)). In the absence of this final rule, no allowances would exist for 2012 or beyond. In this regulatory environment, no company has an enti tlement to a specific number or share of

HCFC allowances. In addition, under this final rule, commenters are receiving the same number of baseline allowances they received under previous HCFC alloca tion rules. Recognition of the 2008 transfers in the aggregate HCFC-22 consumption base line does not require EPA to extract baseline allowances from other companies. From a procedural perspective, commenters were give n multiple opportunities to comment on or challenge the effects of the 2008 tra nsfers at issue in Arkema on baselines for the current regulatory period. As noted in Honeywell , they had “notice and an opportunity to present [their] views during EPA’s pre- Arkema regulatory proceedings, during the Arkema litigation, and during EPA’s subsequent post- Arkema proceedings” (slip op. at 7). They commented on the 2009 Final Rule, the 2011 Interim Final Rule and th e proposal for this final rule. They also had the opportunity to intervene in the Arkema lawsuit and the opportunity to challenge the 2011 Interim Final Rule, in which EPA actually reflected the 2008 transfers in establishing baselines.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

27 of 86 A more detailed summary of the comments on this iss ue, as well as the Agency’s response to issues not addressed in the preamble or the briefs, is included in the Response to Comments, found in the docket for this rulemaking. 2. What Baselines Is EPA Considering for 2015-2019? Looking ahead to the next regulatory period, the ag ency received four comments on whether it should use more recent production and im port data in establishing baselines for 2015- 2019. Two commenters recommend using data from 2005 -2007 because these years were used to

establish baselines in the 2009 Final Rule for newl y-controlled HCFCs (74 FR 66412). In addition, using the highest production and import l evels from 2005-2007 would reflect current and stable market conditions. One commenter points out that production and consumption in 2008 and 2009 were likely affected by the economic downturn, while 2010 and 2011 fall under the stepdown established by the 2009 Final Rule. An other commenter believes that updating baselines would avoid rewarding companies for attem pting to manipulate their baselines by converting allowances from HCFCs with lower future market value (i.e., HCFC-142b) to HCFC allowances they knew would retain value in the next regulatory period (i.e., HCFC-22). Two other commenters do not support revised baselin es. One of the commenters believes

that the current allocation method is the fairest m ethod because it is transparent and well understood by all market participants. The other co mmenter sees no benefit to updating baselines, but says future reductions in allocation s will benefit the environment by promoting

reclamation. Since EPA did not propose to establish baselines f or 2015-2019, the agency will continue to assess the merits of using a more recent set of years to establish baselines in a later rulemaking. The agency is still receptive to the id ea of updating baselines in 2015, but notes that it did not receive any evidence that there is an en vironmental benefit to doing so.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

28 of 86 B. What Factors Did EPA Consider in Determining All ocation Amounts for HCFC-22 and

HCFC-142b? In the 2009 Final Rule, EPA decided to allocate HCF C-22 and HCFC-142b allowances based on the projected servicing needs for those su bstances, taking into account the portion of need that can be met through recycling and reclamat ion. EPA is not changing that general approach, and continues to believe it is necessary in order to promote the use of used, recycled, and reclaimed material in anticipation of the 2015 phasedown step. In accordance with the

Court’s decision in Arkema , the agency proposed, and is now finalizing, basel ines that reflect 2008 inter-pollutant baseline transfers. This appro ach necessitates issuing a different percentage of company baselines in order for the aggregate num ber of calendar-year HCFC-22 consumption allowances to be less than or equal to the 2009 Fin al Rule. In fact, EPA proposed to allocate significantly fewer consumption allowances for HCFC -22 relative to the 2009 Final Rule based on an analysis of updated market conditions. Specifically, the agency considered to what extent servicing need can be met by (1) significant inventories of existing HCFC-22, (2) in creased reclamation capacity, and (3) re-use of HCFC-22 within supermarkets. See “Analysis of HCFC- 22 Servicing Needs in the U.S. Air Conditioning and Refrigeration Sector: Additional C onsiderations for Estimating Virgin Demand” (Adjustment Memo), included in the docket t o this rulemaking. In the Adjustment Memo, EPA considers a higher and a lower HCFC-22 al location scenario for each year. In the larger allocation scenario: (1) surplus inventory f rom past years (hereinafter called “existing inventory”) meets 6,000 MT of estimated need each y ear; (2) recovery and reclamation meet 12,500 MT of need, the same amount as in the 2009 F inal Rule; and (3) 20 percent of total need in the large retail food sector is met by in-house recovery and reuse. In the smaller allocation scenario: (1) existing inventory also meets 6,000 M T of estimated need each year; (2) recovery*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

29 of 86 and reclamation meet 19,700 MT of estimated servici ng need; and (3) 70 percent of total need in the large retail food sector is met by in-house rec overy and reuse. As shown in Table 4 of the Adjustment Memo, the age ncy proposed to issue HCFC-22 consumption allowances as follows: (1) between 25,1 00 and 36,200 MT in 2012 (a decrease of 11 to 38 percent relative to the 2009 Final Rule); (2) between 20,800 and 31,400 MT in 2013 (a decrease of 13 to 42 percent); and (3) between 16,4 00 and 26,300 MT in 2014 (a decrease of 15 to 47 percent). These proposed amounts correspond t o allocations of 17.7 to 25.5 percent of baseline in 2012, 14.7 to 22.1 percent in 2013, and 11.6 to 18.5 percent in 2014. The agency took comment on its analysis of market conditions, which specifically looked at existing inventory, reclamation capacity, and HCFC-22 reuse in the supe rmarket industry. EPA also asked for comment on potential difficulties faced by small bu sinesses and on whether or not the installation of dry-shipped HCFC-22 condensing unit s affects the phaseout. Between the 2011 Interim Final Rule and the propos ed rule, the agency received a total of 50 comments (some with multiple signatories) on the market conditions (see section 2 of the Response to Comments) considered in allocating HCFC -22 and HCFC-142b allowances. As discussed in the proposed rule, the need for HCFC-2 2 to service existing equipment is the primary factor affecting EPA’s overall allocation o f production and consumption allowances for the current regulatory period. Thus, the Adjustment Memo only discusses HCFC-22 and most comments, as well as the agency’s response, focus p rimarily on HCFC-22. Additionally, EPA received 13 comments, four from t he Interim Final Rule and nine from the proposed rule, on whether or not to provid e more HCFC-22 and/or HCFC-142b consumption and/or production allowances as compens ation for lost opportunities during 2010 (“recoupment”). Lastly, the agency proposed to allo cate different annual percentages of baseline for consumption than for production (“decoupling”). Without decoupling the baselines, the*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

30 of 86 percentage of baseline allocated for production wou ld be the same as that for consumption for a given HCFC. Nine comments specifically addressed de coupling of baseline percentages. 1. How Is EPA Adjusting Estimated Servicing Need to Account for Surplus Inventory from Past Years? The agency proposed to account for existing inven tory of HCFC-22 produced in previous years by making downward adjustments to the consump tion allocation of 6,000 MT each year. EPA’s analysis indicated the amount of existing inv entory was between 22,700 MT and 45,400 MT. Including relevant comments received on the 201 1 Interim Final Rule, EPA received eight comments on its assessment of existing inventory of HCFC-22. Seven comments state there are significant volumes of HCFC-22 in existing inventor y and that accounting for this inventory is essential for supporting recovery and reclamation. One of those commenters indicates the 6,000 MT proposed annual adjustment and the 45,400 MT sto ckpile estimate should be considered a minimum, not maximum amount. Another also supports EPA’s consideration of existing inventory, and believes the estimates used in the p roposed rule may be too low based on their own inventory and their own estimates of industry-w ide inventory. All comments on EPA’s analysis, including confiden tial comments, indicate EPA’s estimate of existing inventory is reasonable and th at an annual adjustment to the estimated servicing need of 6,000 MT is supportable. EPA cons idered a wide range of existing inventory (between 22,700 MT and 45,500 MT), but comments sup port the proposed 6,000 MT adjustment regardless of the total stock of existing inventory . Based on the information provided, the agency does not believe the annual adjustment or the estim ate of existing inventory should be increased. Overestimating the amount in inventory could limit the ability of consumers to service their equipment, resulting in systems being prematurely d ecommissioned. EPA provides a full summary of comments and agency responses in the Res ponse to Comments, but notes here that all commenters who addressed the proposed 6,000 MT adjustment specifically were in support of*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

31 of 86 an adjustment at least that large. EPA is finalizin g the consumption allocation with the proposed adjustment for existing inventory. 2. How Is EPA Adjusting Allowances to Encourage Rec overy, Reclamation and Reuse ? In the 2009 Final Rule, the agency recognized that servicing needs can be met with a combination of newly-manufactured or imported HCFCs (virgin HCFCs) and HCFCs that have been recovered and either reused, recycled, or recl aimed. The 2009 Servicing Tail Report analyzed various reclamation scenarios, and after s everal rounds of industry feedback, the agency decided to issue allowances 12,500 MT below estimated need in 2010-2014. For 2010, 12,500 MT was 20 percent of the estimated need. EPA continues to believe that reused, recycled, and reclaimed material can help meet HCFC-22 servic ing needs. The agency published new projections of reclaim capabilities in the Adjustme nt Memo, and took comment on those projections via this rulemaking. Out of the 15 comments EPA received on reclaim cap abilities, 14 comments (some signed by multiple organizations) supported EPA’s a nalysis that the reclamation industry has the capacity to reclaim more than 19,700 MT per year. O ne comment stated that the infrastructure to effectively and efficiently recover, recycle, redis tribute, and reuse HCFC-22 likely will take several years to develop. In addition, one company agreed that the industry has the capacity to meet reclaim needs, but disagreed with the base ass umption that this activity will automatically take place. In the Adjustment Memo, EPA considered annual recl amation levels of 12,500 MT and 19,700 MT. Several organizations state that the 19, 700 MT figure should be a minimum, rather than a maximum, because established companies that reclaim refrigerants have the technical capacity to recover 19,700 MT or more in 2012 alone and could easily expand capacity to meet additional need. One company comments that reclamat ion companies will be able to expand to cover the need that will ultimately be driven by hi gher prices and a decrease in supply. However,*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

32 of 86 companies will not expand until there is a need. An other company also states that it could easily triple its current capacity, and believes the same is true for many reclamation companies. Many companies support an allowance reduction to encoura ge an increase in reclamation capacity and volume. These commenters, including 20 EPA-certifie d reclaimers that submitted a single comment, all believe that the capacity exists to ha ndle increased reclamation volumes. Several commenters believe sufficient recovery and reclamation capacity exists, but that the supply chain of used refrigerant from equipment -in-use to reclamation facilities is fragmented and complex. The concern is not whether capacity exists, or whether reclaimers could quickly expand capacity, but whether material is actually being recovered and brought to reclaimers. A group of recovery companies believes that existing reclaimers have the capacity to process more than enough HCFC-22 to meet the indust ry needs, but are not convinced that given the present situation, there will be enough refrige rant recovered to meet the raw material needs of the reclaimers. However, a group of recovery compan ies that focuses exclusively in recovering used refrigerant from retiring equipment does belie ve reducing allowances will change the incentives for recovery. Finally, one company belie ves that EPA’s estimate of the potential for recovery and reuse is too optimistic during 2012-20 14, particularly because residential air conditioners use only small quantities of the gas. EPA’s assessment that the reclamation industry has the capacity to reclaim 19,700 MT of HCFC-22 per year, as presented in the Adjustment Me mo, is supported by most of the comments received. The amount of used refrigerant that can b e recovered from retiring equipment is sufficient to allow for the reclamation of 19,700 M T per year, based on expected recovery rates used in the Vintaging Model 7 . Included in the docket for this rulemaking is a n ew supporting

7 The Vintaging Model is the primary tool that EPA u ses to estimate projected HCFC consumption. The Vin taging Model estimates the annual chemical emissions from industry sectors that have historically used ODS, i ncluding air conditioning, refrigeration, foams, solvents, aeros ols, and fire protection. Within these industry sec tors, there are over fifty independently-modeled end uses. The mode l uses information on the market size and growth fo r each of the end uses, as well as a history and projections of the market transition from ODS to alternatives. As ODS are*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

33 of 86 memo titled “Recovered HCFC-22 Available to Meet Se rvicing Needs” (Recovery Memo). In

this memo EPA shows the amount of HCFC-22 that can be recovered from HCFC-22 equipment

that reaches its end of life under two scenarios. I n the first scenario, EPA uses the end-of-life assumptions in the Vintaging Model to determine how much HCFC-22 is recovered from retiring equipment. The Vintaging Model uses a 35 percent re covery rate in retiring residential air conditioning systems. The Recovery Memo details all the recovery assumptions used, which are nearly identical to those used in the 2009 Servicing Tail Report . These numbers are similar to those presented in table 4-5, “Scenario 50: 50% Rec overy Rate,” which was also presented in the 2009 Servicing Tail Report . In the second scenario, EPA assumes all HCFC-22 i s recovered at

the end-of-life. The intent of this memo is to show that it is technically feasible to recover and reclaim 19,700 MT of HCFC-22 per year between 2012- 2014, even when only 35 percent of the

HCFC-22 is recovered from residential air condition ing systems—the largest use for HCFC-22. However, EPA agrees with some commenters that the a mount of refrigerant that is available to be recovered does not necessarily equa l the amount that is recovered in practice, and that it will take time for recovery practices to ch ange. The agency recognizes that assuming 19,700 MT of annual servicing need can be met by re covered and reclaimed material—instead of 12,500 MT—does not mean that amount will actually b e reclaimed each year. EPA’s adjustment to encourage recovery and reclamation could also en courage transition to HCFC-22 alternatives and more recovery and reuse of HCFC-22 in systems t hat require a large refrigerant charge. Although both of these outcomes are difficult to me asure and predict, EPA expects that these outcomes will sufficiently deal with any gap betwee n the adjustment in allocation and realized

phased out, a percentage of the market share origin ally filled by the ODS is allocated to each of its substitutes. The model tracks emissions of annual “vintages” of new equipment that enter into operation by incorporatin g information on estimates of the quantity of equipme nt or products sold, serviced, and retired or conve rted each year, and the quantity of the compound required to manufa cture, charge, and/or maintain the equipment. EPA’s Vintaging Model uses this market information to build an annu al inventory of in-use stocks of equipment and the ODS refrigerant and non-ODS substitutes in each of the end uses. This information is used to project the s ervicing needs of ODS-containing equipment. Additional information on the Vintaging Model is available in the 2009 Servicing Tail Report , which can be found in the docket for this rulemaking.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

34 of 86 reclamation levels. EPA adopted the same general ap proach in the 2009 Final Rule (using 12,500 MT instead of 19,700 MT) to foster recovery and rec lamation. In addition, EPA has received

anecdotal information from stakeholders that reclai mers are already offering increased incentives to return recovered refrigerant and that this will continue as long as there is an economic incentive to do so. As the supply of virgin refrige rant shrinks, the incentive to recover and reclaim used refrigerant will likely increase. EPA provides a full summary of comments and agency response in the Response to Comments. EPA does not believe any of the concerns raised sho uld preclude the agency from increasing the adjustment for reclamation from 12,5 00 MT to 19,700 MT to foster reclamation, especially in light of the 2015 Montreal Protocol c ap and the 2020 phaseout of HCFC-22 production and import. EPA believes increased recov ery and reclamation is necessary to ensure a

smooth transition between now and 2020 and is incre asing the difference (relative to the 2009 Final Rule) between estimated servicing need and th e allocation for virgin production and import. The agency is finalizing the proposed 19,70 0 MT adjustment to foster increased HCFC22 recovery and reclamation. 3. How Is EPA Accounting for Recovery and Reuse of HCFC-22 in the Supermarket Industry? In the proposed rule, EPA considered adjusting the allocation for virgin HCFC-22 production and import to account for current recove ry and reuse practices in the supermarket industry. Specifically, the agency estimated that b etween 20 percent and 70 percent of annual servicing need in the large retail food sector coul d be met by HCFC-22 recovered and reused inhouse. In addition to the analysis conducted to dev elop the Adjustment Memo, EPA considered late comments that addressed recovery and reuse of HCFC-22 in supermarkets. The comments, combined with EPA’s findings presented in the Adjus tment Memo, indicate that supermarkets deal with recovered refrigerant in a variety of way s. Some appear to meet 10-20 percent of their*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

35 of 86 annual servicing need with material they recovered from internal existing prior uses. Others have the material reclaimed and do not reuse or bank any of the material. A third group meets 80 to 100 percent of their annual need with reused materi al. EPA received an additional comment on reuse by larg e end users, but not specifically supermarkets. The commenter notes that large users retiring equipment can efficiently and effectively capture the majority of refrigerant fro m commercial refrigeration and air conditioning units. These users can recover refrigerant for futu re servicing of other equipment they own. These users do not require reclamation technology o r equipment, and can recover and reuse significant volumes of refrigerant. Such recovery a nd reuse should continue to be considered as a source of HCFC-22 service refrigerant. EPA agrees that large end users, including supermar kets and other large commercial applications, can be a source for recovered HCFC-22 . However, the agency only received information on how six companies reuse refrigerant in-house, and their reuse percentages are very different. Since the agency does not have suff icient data on in-house reuse, EPA is not accounting for supermarket reuse as its own categor y. However, the agency’s Vintaging Model

has reasonable estimates for actual recoverable mat erial for various sectors, and EPA is using those modeled recovery rates for supermarkets to he lp support overall recovery and reuse estimates in this rule (see the Recovery Memo for s pecifics on modeled recovery rates). 4. Did EPA Consider Providing Allowances to Small B usinesses in This Final Action? In response to the 2011 Interim Final Rule, one sma ll business informed EPA that it could not acquire either HCFC allowances or the HCF Cs it needs to manufacture its HCFC blend (see the letters from ICOR dated May 17, 2011 and S eptember 6, 2011, available in the docket for this action). To remedy this situation, the com menter requested that EPA provide unused allowances to companies that purchased either HCFCs or HCFC consumption allowances in

2008 and 2009. In the proposed rule, EPA noted that the inability to acquire allowances and/or*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

36 of 86 HCFCs themselves does not appear to be a widespread problem, as numerous companies have made a significant number of transfers over the las t year alone, and no other company has commented that it cannot acquire HCFCs. However, EP A took comment on whether other companies were having difficulty acquiring HCFCs or HCFC allowances. In the proposed rule, the agency also provided some historical background on how EPA provided flexibility for small businesses when establishing the HCFC allocation sy stem. EPA received four comments on providing allowances to manufactures of HCFC blends, all of which were in opposition. Two companies poin t to the flexibility for companies without baselines to obtain HCFCs or HCFC allowances by pur chasing them from others. Another commenter notes that EPA provided for new entrants when it established the allocation system in

2003. Since EPA did not receive any additional comments i n support of providing HCFC allowances to manufacturers of HCFC blends, and bec ause the agency has previously stated its belief that the current allocation system provides significant flexibility for new entrants (as documented in the revised Flexibility Memo), EPA is not providing allowances for new entrants

at this time. EPA also sought comment on the concept of providing HCFC-22 allowances to reclaimers, but expressed reservations. EPA receive d eight comments on this topic: four in opposition and four in support. Comments in opposit ion state that providing allowances to reclaimers could encourage blending of refrigerant, instead of reclaiming refrigerant. They also cite administrative hurdles in establishing allowan ces for reclaimers and their skepticism that reclaimers would actually use the allowances to rec laim more material. All three commenters state that the proposed reduction in allowed produc tion and import will encourage recovery and reclamation (without providing allowances).*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

37 of 86 One comment in support encouraged EPA to provide al lowances to reclaimers as a

reward for reclamation activities. The commenter al so stated that manufacturers create a difficult working environment for reclaimers, claiming, for e xample:

• The manufacturers exert pressure on wholesalers and contractors not to return their used refrigerants to a reclaimer, using their supply of virgin refrigerants as leverage.

• The manufacturers have asked cylinder manufacturers not to sell pre-labeled DOT 39 cylinders for their blends to reclaimers.

• The manufacturers or their agents will buy an accou nt back by offering a higher price for the used refrigerants than justified. The commenter argues that the desire of manufacture rs to promote their own best self-interest results in a difficult environment for a refrigeran t reclaimer to prosper. EPA continues to have serious concerns about prov iding allowances to reclaimers that did not historically produce or import HCFC-22 and have not already acquired HCFC-22 allowances. As stated in the proposed rule, the age ncy’s primary concern is that providing

allowances for reclaimers could foster unsustainabl e reclamation practices that rely on blending, instead of investment in the technology to fully re claim HCFCs. Reclamation through separation and distillation will be more important in 2015 whe n the HCFC-22 allocation must drop by at least 45 percent from 2010 levels, and it will be a bsolutely necessary by 2020, at which time production and import of HCFC-22 must be phased out entirely. In addition, many businesses have either found a way to secure reliable access t o virgin HCFCs or have made investments to reclaim HCFCs in a sustainable way, without a direc t allocation of allowances. EPA continues to believe that allocating fewer allo wances—rather than providing allowances to reclaimers—is the best way to foster reclamation and recovery. In this final rule, EPA is taking significant steps to encourage recove ry and reclamation by providing fewer*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

38 of 86 HCFC-22 consumption allowances. Fewer allowances fo r new production and import increases the value of existing HCFCs, which in turn increase s the incentives for recovery and reclamation. While the agency appreciates the concerns raised by reclaimers about the difficulties they encounter in the refrigerant reclamation business, these barriers have not stopped companies from becoming EPA-certified reclaimers—currently th ere are more than 50. Given the considerations above, the agency is not providing a llowances to reclaimers at this time. 5. Does the Installation of Dry-shipped HCFC-22 Equ ipment Affect the Phaseout of

HCFC-22? In the proposed rule, EPA took comment on whether a llowing repairs using HCFC-22 dry-shipped condensing units affects the phaseout o f HCFC-22. Eight commenters believe the repairs of existing equipment that involve installa tion of dry-shipped HCFC-22 condensing units is affecting the phaseout and/or should be stopped. They claim that continued installation of dryshipped condensing units effectively allows the man ufacture of otherwise banned HCFC-22 airconditioning systems, increasing demand for HCFC-22 and undercutting the market for alternative refrigerants. One company does not beli eve dry-shipped condensing unit repairs can be properly addressed through a reduction in HCFC-2 2 allocation levels. Cost associated with the HCFC-22 refrigerant needed for the re-charging of the HCFC-22 system is quite small (<5% of the total servicing cost), so even a significant inflation of the cost of HCFC-22 will still have a minimal impact on the end-user’s decision. Two comm enters ask EPA to ban repairs using HCFC-22 dry-shipped condensing units, one explicitl y asking for this action in lieu of further reducing HCFC-22 production. Another commenter is c oncerned about the negative effects of dry-shipped condensing units on equipment efficienc y. One joint comment from several environmental groups indicated that the market for dryshipped HCFC-22 units is expanding rapidly; however , no data were provided. The commenters express concern that because newly-produced HCFC-22 is so cheap, service technicians are*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

39 of 86 venting HCFC-22 from broken units, installing dry-s hipped units in their place, and then charging the unit with virgin HCFC-22. EPA received seven comments saying installation of dry-shipped condensing units does not significantly affect the phaseout and/or that d ry-shipped HCFC-22 condensing unit repairs should not be banned. These commenters believe dry- shipped condensing units are providing consumers a legal, affordable repair option, and th us not actually increasing demand for HCFC22 or displacing the sale of new systems. They cont end that the primary application of the uncharged HCFC-22 replacement condensing units is a s a service option to major compressor and coil failures. While two of the equipment manufacturers who do not support a ban on dryshipped unit repairs also do not support reduced al locations of HCFC-22, another equipment manufacturer believes that addressing the availabil ity of the refrigerant is the appropriate driver for phasing out virgin HCFC-22, and that the instal lation of dry-shipped HCFC-22 condensing units does not have a negative effect on the phaseo ut. Another commenter suggests that if EPA has verifiable evidence that the servicing or repai r of HCFC-22 appliances is resulting in increased emissions of the refrigerant, then EPA sh ould consider extending the leak repair requirements to all appliances, not just appliances with a refrigerant charge greater than 50 lbs.

Five additional comments discuss HCFC-22 condensin g units in more general terms. One organization suggests that EPA consider that most d ry-shipped condensing units are being sold and installed with multi-year warranties, which may require a revision to EPA’s servicing tail analyses if HCFC-22 replacement refrigerants are no t approved by the compressor and equipment manufacturers for warranty servicing beyo nd 2015. Two other commenters state that the installation of HCFC-22 condensing units affect s the need for HCFC-22. One commenter states that contractors prefer selling new R-410a s ystems instead of repairing older systems, since it is much more profitable, but that American consumers are struggling to pay bills. One commenter states that further reductions in consump tion allowances might discourage*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

40 of 86 installation and field charging of new condensing u nits with HCFC-22. The commenter also

states that continued installation of such units wi ll only increase the challenge of meeting the 2015 stepdown and in turn increase emissions of HCF C-22 to the atmosphere. The issue of whether repairs involving the installa tion of dry-shipped HCFC-22 condensing units “affects the phaseout” can be brok en into several questions. First, do repairs involving installation of dry-shipped HCFC-22 conde nsing units increase demand for HCFC-22? Second, do such repairs slow transition from HCFC-2 2 equipment to equipment using non-ODS alternatives? And finally, does this practice affec t EPA’s ability to stop the production and importation of virgin HCFC-22 by January 1, 2020? Based on comments, there is no industry consensus o n each of these questions. Specific responses to each comment are included in the Respo nse to Comments found in the docket for this rulemaking. However, given the paucity of conc rete quantifiable information on this subject currently available to the Agency, EPA is not ready to determine whether the installation of dryshipped HCFC-22 condensing units will affect EPA’s ability to phase out HCFC-22 by 2020. The limited data received to date suggest that it w ill not. EPA did not propose to ban dry-shipped condensing units in the proposal and is not taking such action in this final rule. For purposes of future rulemakings, EPA is still interested in quan tifiable information on the number of dryshipped condensing units being shipped, whether the y are being used as a repair in lieu of a compressor or motor replacement, and whether and to what extent condensing unit replacements extend the life of an existing system. EPA will con tinue to evaluate the issue as it develops future regulations. 6. How Is EPA Addressing the Court’s Decision with Regard to 2010 HCFC Allowances? As noted in the proposed rule, EPA interprets the Arkema decision as applying, at a minimum, to the baseline and calendar-year allowanc es for 2011-2014. The agency took comment on whether to interpret the decision as app lying to the 2010 allocation, and if so, how*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

41 of 86 allowances in future control periods might be adjus ted to reflect this. EPA also took comment on (1) whether it should provide recoupment allowances for HCFC-22 and HCFC-142b, or just HCFC-22 allowances, and (2) whether it should provi de recoupment for production and consumption, or just consumption allowances. In thi s final action, EPA concludes that it has an obligation to consider 2010 allowances in respondin g to the Court’s remand and that recoupment for both HCFC-22 and HCFC-142b production and consu mption allowances is an appropriate response to the Court’s holding that the agency com mitted legal error in deciding not to carry the

2008 transfers forward when it established the base lines for the current regulatory period. EPA received 13 comments in opposition to recoupme nt. Four comments specifically

state that it is too late to address 2010 allowance s, since the Court’s mandate did not issue until 2011, and allowances are only good for the calendar year in which they are issued. Two comments assert that providing recoupment allowance s would allow for banking or transferring of allowances to later years, which is at odds with the CAA and EPA regulations. Most of these comments point out that some allowances conferred i n 2010 actually went unused in that year, and that EPA’s current proposal to reduce allowance s in 2012-2014 is further rationale for not providing additional allowances to compensate for a ny perceived lost opportunity in 2010. They point to EPA’s statement in the proposal that not p roviding recoupment would have advantages for the environment, public health, and the goal of encouraging reclamation. They assert that there was an oversupply of HCFC-22 allowances in 20 10, that Arkema and Solvay were not harmed in 2010, and that recoupment allowances woul d constitute a windfall. They refer to the Court’s denial of Arkema’s and Solvay’s motions for a stay of the 2009 Final Rule as evidence that these companies were not harmed. One commenter also asserts that if Arkema and Solvay believe they are entitled to compensation, they mus t file a claim for compensation under the Tucker Act, 28 U.S.C. 1491. Finally, four comments cite that providing recoupment distorts*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

42 of 86 market share, in contradiction to past EPA policy a nd the Arkema decision as it relates to vested rights. On the other hand, the two companies that would ben efit most from recoupment, Solvay and Arkema, state that EPA should provide recoupmen t and that the agency must do so in order to comply with the Court’s decision in Arkema . Solvay states that EPA deprived it of its rightfu l allowances by failing to recognize its permanent in ter-pollutant trades in the 2009 Final Rule and that recoupment is necessary to remedy that error. Arkema asserts that its losses were significant because of its inability to compete effectively in the after-market, stockpile material for sale in later years, and sell other refrigerants to one-sto p shoppers. The primary rationale the commenters present in fav or of providing recoupment is that when an agency “...commits legal error, the proper remedy is one that puts the parties in the position they would have been in had errors not bee n made,” ( AT&T Corp. v. FCC , 448 F.3d 426, 433 (D.C. Cir. 2006) ( quoting Exxon Co. v. FERC , 182 F.3d 30, 48 (D.C. Cir. 1999)). The Court has further held that the proper remedy to an error is “to put the victim of the agency ‘error in the economic position it would have occupied but for the error,’” (Ethyl Corp. v. Browner, 67 F.3d 941, 945 (D.C. Cir. 1995) ( quoting Delta Data Sys. Corp. v. Webster , 744 F.2d 197, 206-07 (D.C. Cir. 1984)). Arkema contends that providing recoupment for losse s would not require improper

retroactive action. It states that because there is a strong equitable presumption in favor of retroactivity that would make the injured party who le, EPA can make a correction that goes back to the time the agency error occurred ( Exxon Co. v. FERC , 182 F.3d 30, 48 (D.C. Cir. 1999)). In addition, the commenter argues that in this circums tance EPA may go beyond its otherwise applicable statutory authority. The commenter state s that each agency has “general discretionary authority to correct its legal errors,” which exten ds to imposing retroactive changes, even when*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

43 of 86 the statute does not expressly and affirmatively au thorize the agency to do so in the first instance ( Natural Gas Clearinghouse v. FERC , 965 F.2d 1066, 1073 (D.C. Cir. 1992)). As expressed in the proposed rule, EPA’s preferred approach to the 2010 allocation was not to provide recoupment. However, EPA reviewed co mments and considered the policy and legal aspects of providing or not providing recoupm ent. In particular, EPA considered the following questions: (1) does EPA have the obligati on to address 2010 allowances in light of the

Court’s decision in Arkema , and (2) does EPA have the ability to provide some form of compensation that would remedy the retroactive aspe cts of the 2009 Final Rule with respect to 2010? EPA believes that the answer to both question s is “yes.” First, EPA believes it has an obligation to address 2010 allowances in light of the Court’s

decision in Arkema , to the extent feasible given the design and struc ture of this program. The Court stated that the 2009 Final Rule was, in part, “impermissibly retroactive” because “it attempted to undo the Petitioners’ inter-pollutant baseline transfers” based on what the Court saw as a “new interpretation of section 607” of the Cle an Air Act. The Court vacated the rule “insofar as it operates retroactively” and remanded the case “for prompt resolution,” ( Arkema , 618 F.3d. at 25). EPA believes that on remand, it must put al lowance holders in the position they would have occupied had the agency reflected the Petition ers’ inter-pollutant baseline transfers in the 2009 Final Rule (

AT&T v. FCC , 448 F.3d 426 (D.C. Cir. 2006); Exxon Co. v. FERC , 182 F.3d 30 (D.C. Cir. 1999)). As noted in the proposal, it is appropriate for EPA to consider the 2010

allocation on remand whether or not the Court’s dec ision had the effect of vacating the 2010 allowances. The Court clearly held that the baselin es used in the 2009 Final Rule were invalid,

and the 2010 allocation relied on those baselines. Second, EPA believes it is feasible to provide comp ensation for lost 2010 allowances in the form of recoupment allowances, even though the 2010 period has ended and all 2010 allowances have expired. As explained in the propos ed rule, EPA allocates HCFC production*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

44 of 86 and consumption allowances for specific calendar ye ars: They are valid for that year only. Such allowances cannot be banked or borrowed. Therefore, EPA cannot provide meaningful compensation by issuing additional 2010 allowances since they would be void upon issuance. In the narrow circumstance of responding to the Court’ s decision, however, EPA finds it appropriate to issue a corresponding number of allo wances in later years to make up for the 2010 allowances that companies would have received if EP A had reflected the Petitioners’ interpollutant baseline transfers in the 2009 Final Rule . These recoupment allowances are designed to compensate for lost opportunities to produce or imp ort HCFCs during 2010 for sale in either 2010 or a later year. In responding to concerns that this is effectively allowing for banking or a transfer of allowances from 2010 to a later year, EPA disagrees . While EPA does not allow banking of

allowances beyond the control period in which they are issued , nothing in the regulations bans companies from producing or importing HCFCs with al lowances and then storing the material over time. Companies receiving recoupment were depr ived of their ability to import and/or produce HCFCs in 2010 at a level consistent with th e Court’s decision in Arkema . Had they received the requisite level of allowances in 2010, they could have expended them during 2010 to produce or import HCFCs and banked those HCFCs u ntil at least the years covered by this rulemaking. EPA also disagrees with one commenter’s characterization of recoupment as an effective transfer of 2010 allowances to later year s. Contrary to the commenter’s assertion, EPA did not adopt this characterization in the proposal , but instead simply pointed out that the regulations do not allow banking or borrowing of al lowances. The commenter quotes section 607(a), which states that EPA regulations must ensu re that transfers “will result in greater total reductions in the production in each year of . . . class II substances than would occur in that year

in the absence of such transactions.” The commenter asserts that if recoupment is provided, the aggregate allowance total will be higher than it wo uld have been if no recoupment were*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

45 of 86 provided. However, EPA disagrees that section 607(a ), which is titled “Transfers,” has any application to this situation. Section 607(a) refer s specifically to “transactions under the authority of this section.” An EPA rulemaking providing allow ances is not such a transaction. The transactions in question are the “transfers” and “t rades” within or between companies explicitly discussed in section 607. EPA has implemented secti on 607(a) by requiring an offset for all intra-company and inter-company transfers. See, e.g ., 40 CFR 82.23(a)(i)(G). Additionally, commenters assert that providing rec oupment allowances would mean taking allowances away from others or distorting ma rket share. One commenter said that providing recoupment is in violation of the Arkema decision, asserting that a company’s allowances, or its share of allowances, are a veste d right. EPA disagrees with this comment on both factual and legal grounds. First, as a result of the Arkema Court’s partial vacatur of the 2009 Final Rule, there are currently no production or co nsumption allowances for HCFC-22 in 2012- 2014. This final rule is filling a gap, rather than reshuffling existing allowances or existing market share. Second, even in the context of today’ s allocation, EPA is not allocating fewer allowances to one company for the purpose of alloca ting more to a different company. EPA is allocating a fixed percentage of baseline to each b aseline holder at a level that in the aggregate is expected to meet servicing demand, taking into acco unt the amount of such demand that can be met through other sources. EPA is then allocating r ecoupment allowances to certain companies on top of that fixed percentage allocation. Regardi ng market share, the allocation of recoupment allowances is limited to two years; thus, as a prac tical matter, it is unlikely to cause a permanent shift in market share. In addition, market share is not a simple reflection of EPA’s allocation of allowances: for example, some companies buy or sell allowances and thus increase or decrease the volume of their business in a particular HCFC o r HCFCs generally. Furthermore, EPA takes issue with the commenter’s characterization of the Arkema

decision. In Arkema, the Court held that the petitioners had a vested right in tra nsferred baselines*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

46 of 86 where EPA had taken affirmative steps to approve th e transfers by issuing non-objection notices. The commenter attempts to broaden the decision to s tate that allowance holders have vested rights in any and all allowances issued under the s tratospheric ozone program, and in addition, to a specific market share or value attached to those allowances. EPA disagrees with this broad reading and believes the Court’s ruling is closely tied to its factual findings concerning the 2008

transfers. This issue is discussed further at secti on IV.A.1. Two commenters state that there was a significant oversupply of HCFC allowances in 2010, that the petitioners in Arkema were not harmed by the 2010 allocation in the 2009 Final Rule, and that they would receive a windfall if EPA were to provide recoupment allowances. However, the fact that not all HCFC allowances were used in 2010 does not mean that particular companies were not harmed. Companies’ individual si tuations and business plans may differ. Also, although the commenter cites the Court’s deni al of the motions to stay the 2009 Final Rule as evidence that petitioners were not harmed in 201 0, harm to the moving party is only one of the criteria considered by a court in reviewing a stay motion. Thus, it is erroneous to assume that the Court’s denial equates to a ruling that petitioners suffered no harm. Several commenters stated that providing recoupmen t allowances would harm human health or the environment; however, this action as a whole protects human health and the environment by allocating significantly fewer allow ances in 2012-2014 than the agency allocated

in the 2009 Final Rule. Viewed in relation to that rule, EPA is reducing the total number of HCFC-22 consumption allowances (after providing for recoupment) by more than 31,100 MT over those three years. As a result, providing reco upment does not increase the allowed amount of HCFC-22 production and importation for U.S. use relative to the 2009 Final Rule. Even with recoupment, total U.S. consumption will be at least 55 percent below the Montreal Protocol consumption cap. This overall decrease in consumpti on also increases the incentives for recovery and reclamation. In addition, as noted in the propo sal, the amount of recoupment being granted*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

47 of 86 (329 ODP-weighted MT of allowed HCFC consumption an d 280 ODP-weighted MT of allowed HCFC production) is smaller than the number of allo wances that were not used by allowance holders in 2010 (approximately 425 ODP-weighted MT of HCFC consumption allowances and approximately 930 ODP-weighted MT of HCFC productio n allowances). EPA’s response to additional comments on whether to provide recoupmen t can be found in the Response to

Comments. The agency presented four possible options with re gard to recoupment for 2010: (1) providing recoupment allowances in 2013 in addition to (i.e., on top of) the aggregate level of production and consumption; (2) allocating recoupme nt allowances over two years (2013-2014)

in addition to (i.e., on top of) the aggregate level of produc tion and consumption; (3) allocating recoupment allowances from the aggregate level of production and consumption over two years (2013-2014); and (4) not issuing recoupment allowan ces. Five comments specifically support one or more of these options. One comment supports option 1, two comments support option 3, and two comments support option 4. Two additional c omments do not directly support an option, but raise concerns with options 1 and 2. EPA stated in the proposed rule that if it decided to issue recoupment, it would prefer option 1. However, after reviewing comment and cons idering the options further, the agency believes option 2 is the best approach for ensuring a smoother path towards 2015, when U.S. consumption and production of all HCFCs must be at or below 10% of baseline under the Montreal Protocol. In addition, it does not reduce the number of allowances available to companies not receiving recoupment. Also, in light of EPA’s decision to reduce the overall HCFC-22 allocation significantly in relation to the 2009 Final Rule, EPA can adopt option 2 while still issuing fewer consumption allowances in 2013 and 2014 than it did under the 2009

Final Rule.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

48 of 86 Option 1 could flood the market in 2013, providing significantly more allowances in that one year than in either 2012 or 2014, creating an e ven more significant drop-off in the number of

allowances between 2013 and 2014. EPA also has seri ous concerns about option 3. Commenters in support of option 3 state that companies were “o n notice” that 2010 allowances were in dispute before the Court, so EPA should reduce allo wances for companies not receiving recoupment to make Arkema and Solvay whole. However , the court rejected petitioners’ stay motion and stayed its own mandate, with the result that companies were operating under the 2009 Final Rule for all of 2010. Thus, companies th at produced or imported HCFCs during 2010 using consumption and production allowances receive d under the 2009 Final Rule were acting in accordance with the regulations in effect at that t ime. Commenters in support of option 3 also claim that since refrigerant customers prefer to purchase all refrigerants from one supplier, and th ey could not provide sufficient quantities of HCFC-22 to some of their customers, the 2009 Final Rule resulted in a loss of sales of other refrigerants during 2010. EPA strongly believes tha t if a company loses its ability to sell to onestop shoppers when it loses allowances, the inverse should also be true: Providing additional allowances in 2013 and 2014 equal to the amounts lo st in 2010 should provide approximately the same ability to compete for sales to one-stop shopp ers as was lost in 2010. Only two comments addressed whether EPA should pro vide recoupment for both HCFC22 and HCFC-142b, or just HCFC-22. One commenter su pported providing recoupment for both substances, as it ensures traceability and consiste ncy. The other commenter believes EPA should provide recoupment for HCFC-142b based on a total a llowance pool of 118 metric tons (the amount allocated for 2010 in the 2009 Final Rule), instead of using a total allowance pool of 463 MT (the amount that results from the revised baseli nes, which are the same as the baselines proposed in 2008). According to the commenter, this means that the agency need only provide 69.8 metric tons of HCFC-142b production allowances in recoupment.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

49 of 86 EPA does not agree with the commenter that it shou ld scale HCFC-142b recoupment production allowances to match the exact amount all ocated in 2010. The agency is providing recoupment production allowances based on what it p roposed in 2008 (73 FR 78680). In 2008, the percent of baseline was the same for both consu mption and production. EPA is therefore using the baseline amount and percentage proposed i n 2008 to calculate recoupment for HCFC142b production. The HCFC-142b production baseline is much larger than the consumption baseline (when accounting for the 2008 transfers), so the resulting 2010 allocation would have been much larger, while the consumption allocation would have been approximately the same under either baseline scenario. Issuing recoupment based on the 2008 proposal results in approximately 397 MT of additional HCFC-142b produc tion allowances. Since manufacturing HCFC-142b in the U.S. for domestic use requires pro duction and consumption allowances, the agency anticipates that the only potential increase in HCFC-142b production as a result of recoupment would be for export. One commenter encouraged EPA to account for a comp any’s unused allowances from 2010 if EPA is providing that company with recoupme nt allowances. To do this, EPA would need to divulge information about how each company uses its allowances: such companyspecific information has never been disclosed in th e HCFC phaseout program, and EPA would need to consider claims of confidentiality before t aking such a step. Also, EPA does not believe it is necessary to account for a company’s unused a llowances because the agency is providing allowances to make up for the lost opportunity to produce or import HCFCs, not the specific usage or lack thereof. As a result, EPA is not adju sting for a company’s unused allowances in

2010. To effectuate option 2, the agency is issuing half of the recoupment allowances for each company in 2013 and the other half in 2014 and is a mending the regulatory text at 40 CFR 82.16(a) accordingly. Recoupment allowances allocat ed for 2013 and 2014 will function in the*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

50 of 86 same way as other calendar year allowances: They ca n be used only in the calendar year for which they are issued and will expire at the end of that calendar year. The agency believes the issuance of these recoupment allowances discharges its obligation to consider the 2010 control period in responding to the remand in Arkema . Table 1 lists the companies receiving recoupment, the substance, and the total number of recoupment a llowances: Table 1 – Final Recoupment Allowances Company Chemical Consumption (kg) Production (kg) Arkema HCFC-22 4,749,692 4,611,848 DuPont HCFC-142b 2,339 0 Honeywell HCFC-142b 58,291 107,097 Solvay Fluorides HCFC-22 1,157,895 0 Solvay Solexis HCFC-142b 0 289,800

A full summary and response to all other comments are included in the Response to

Comments.

7. Does EPA Have to Provide the Same Percentage of Bas eline for Production Allowances as It Does for Consumption Allowances? In considering how to allocate HCFC-22 production a llowances for 2012-2014, the agency proposed to decouple production and consumpt ion baseline percentages. Historically, there has only been one table at 40 CFR 82.16, whic h lists the percentage of baseline (both production and consumption) that every baseline all owance holder is issued each year. EPA proposed to create two tables, and to allocate a di fferent percentage of baseline for production than for consumption. Decoupling would allow the ag ency to reduce consumption allowances in relation to the 2009 Final Rule without having to reduce make the same reductions to production allowances. EPA stated its interpretation that sect ion 605(c) of the CAA does not preclude EPA*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

51 of 86 from decoupling baseline percentages and requested comment on this issue. EPA received two comments specifically addressing whether the statut e precludes decoupling. Section 605(c) states that EPA must “promulgate reg ulations phasing out the production...of class II substances in accordance wit h [section 605],” subject to any acceleration

under section 606. It further states that EPA must “promulgate regulations to insure that the consumption of class II substances in the United St ates is phased out and terminated in

accordance with the same schedule (emphasis added)...as is applicable to the phase-out and termination of production of class II substances un der [Title VI].” Because the phrase “same schedule” is not clear on its face, the agency cons idered three possible interpretations of the phrase “same schedule,” as explained in the proposa l and in the 2011 Interim Final Rule. The agency stated that interpreting “same schedule” as referring to the phaseout schedule that appears in section 605, as accelerated under section 606, w ould be most consistent with the statutory language and purpose. Examples of milestones in the phaseout schedule are the 2010 and 2015 phasedown steps. The agency clarified that it was n ot proposing to allow production in an amount that would be inconsistent with those phased own steps, but simply proposing to allow a greater amount of production than consumption, with both amounts below the Montreal Protocol and CAA caps. The one company that provided comment on this matter agreed with the agency, and said that it does not believe that production a nd consumption allowances are somehow tied to the same regulatory schedule (requiring the same number of allowances or percentages of baseline for production and consumption). Rather, t he commenter states that production and consumption are tied to the same statutory and trea ty schedule, and that the agency should provide for increased production. The other comment on decoupling was from a group of environmental organizations,

none of which who supported an increase a decrease in production allowances relative to the 2009

Final Rule . They believe that the language in section 605(c) equates the quantity of consumption*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

52 of 86 and production allowances and cannot be interpreted to allow more production than consumption in a given year. EPA disagrees that the language in 605(c) equates t he quantity of consumption and production allowances. EPA has never allocated the same quantity of production and consumption allowances, only the same percentage of baseline. The agency would have to provide different percentages of baseline for calen dar-year consumption and production allowances to keep the allowance quantities the sam e since the number of aggregate baseline production allowances is not equal to the number of aggregate baseline consumption allowances. Additionally, EPA does not believe there is a singl e “natural reading” of section 605(c), as the comment suggests. Rather, the language is ambiguous . As explained in the proposed rule, there are at least three possible interpretations. EPA’s interpretation that the word “schedule” in section 605(c) refers to the schedule that appears in section 605, as accelerated under section 606, is reasonable. In section 606, Congress used t he word “schedule” to refer to a morestringent schedule than the schedule set forth in section 605 : “The Administrator shall promulgate regulations . . . which establish a sche dule for phasing out the production and consumption of . . . class II substances . . . that is more stringent than set forth in section 7671d [section 605].” The original section 605 schedule l imited production and consumption to baseline quantities in 2015 and required a complete phaseout (with some exceptions) in 2030. It is logical that Congress would have intended the mo re-stringent schedule established under section 606 to have a similar structure: That is, t o cap or eliminate production and consumption

on certain milestone dates. EPA in fact established just this type of schedule at 40 CFR 82. 16(b)-(g). EPA has discretion in managing the allow ance system to achieve this schedule. Therefore, the agency believes it can issue calenda r-year consumption and production allowances using different percentages of baseline, as long as it complies with the overall schedule set by Congress, as accelerated under sect ion 606.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

53 of 86 Discussion of EPA’s policy decision to decouple bas eline percentages is found in section

IV.C.2.

C. How Many HCFC-22 and HCFC-142b Allowances Is EPA Al locating in 2012-2014? The agency is revising the tables in 40 CFR 82 tha t together specify the production and consumption allowances available during specified c ontrol periods. The tables at sections 82.17 and 82.19 apportion baseline production allowances and baseline consumption allowances, respectively, to individual companies for specific HCFCs during a particular regulatory period. Complementing these tables, the table at section 82 .16 lists the percentage of baseline allocated to allowance holders for specific control periods. In this rulemaking, EPA is (1) retaining this framework of complementary tables, (2) establishing baselines for 2012-2014 identical to those established in the 2011 Interim Final Rule (76 FR 4 7451), (3) granting allowances based on percentages of baselines in a manner that achieves the 2010 phaseout step and lays the groundwork for the next phaseout step in 2015, and (4) providing recoupment allowances. In the 2009 Final Rule, 34.1 percent, 30.1 percen t, and 26.1 percent of each company’s HCFC-22 baselines were allocated for 2012, 2013, an d 2014, respectively. The allocation for HCFC-142b was 0.47 percent of baseline. As discusse d in section III.D. of this final rule, EPA interpreted the Court’s vacatur as applying to the HCFC-22 and HCFC-142b allocations for each of these years as well as the baselines. EPA is put ting in place new allocations through this rulemaking, and proposed various allocation amounts for consumption and production allowances during the remainder of this regulatory period. 1. How Many HCFC-22 Consumption Allowances Is EPA A llocating in 2012-2014? The 2009 Final Rule allocated 40,700 MT of HCFC-22 consumption allowances in 2012, which was 76.5 percent of estimated servicing need, and 59 percent of the total 2012 HCFC consumption cap. EPA arrived at this amount by esti mating the amount of servicing need, taking recovery and reclamation into consideration. EPA th en finalized an allocation that was 12,500*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

54 of 86 MT below estimated need. Using a similar approach, EPA proposed to allocate 11 to 38 percent less in 2012 relative to the 2009 Final Rule (see t he Adjustment Memo in the docket for the rationale behind the proposed reduction). In the 20 09 Final Rule, 2013 and 2014 consumption allocations were 35,900 MT and 31,100 MT, respectiv ely. The agency proposed to allocate 13 to 42 percent less in 2013 and 15 to 47 percent less i n 2014. As discussed in sections IV.B.1. and IV.B.2., comme nts directly addressing reclamation, recovery, and reuse, and the availability of existi ng inventory from past years generally support EPA’s estimates of the inventory and recoverable ma terial that are available each year to meet HCFC-22 servicing need. The agency also received 54 comments (some signed by multiple organizations) that address the overall consumption allocation in more general terms. Forty-two comments support the decrease in allowances relativ e to the 2009 Final Rule and 13 comments oppose the decrease. In addition to these comments, EPA received 47 additional comments that oppose a decrease in HCFC-22 production, but use th e word “production” in a general sense. Upon reading, EPA believes the intent was to oppose a decrease in consumption, or “production

for U.S. use.” Generally, comments in support of the reduction sta te that a lower allocation will increase the value of HCFC-22, resulting in more reclamation and increased incentives to recover HCFC22 from existing systems. A lower allocation encour ages an orderly phaseout and still provides enough allowances to meet servicing needs. Supporte rs of a lower allocation state that a reduction is justified because of lower-than-expect ed need for HCFC-22 and the availability of existing inventory from past years. Three environme ntal organizations state that a reduction is (1) necessary to protect human health and the envir onment, and (2) practicable in terms of technology, safety, and availability of alternative s. Comments supporting a higher HCFC-22 consumption al location cite concerns about higher price, limited access to refrigerant and une xpected costs, all of which could lead to*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

55 of 86 premature system retirements. Others point to U.S. compliance with the Montreal Protocol under the 2009 Final Rule, and are against any reductions to those allocation levels. EPA responds to individual comments in the Response to Comments, but generally agrees that the amount of HCFC-22 provided in the 2 009 Final Rule was too high to foster an orderly transition. In 2015, the U.S. must reduce i ts production and consumption of all HCFCs to below 10 percent of its historic HCFC baseline unde r the Montreal Protocol. By 2020, HCFC production and consumption must be below 0.5 percen t of the historic baseline and under EPA regulations HCFC-22 may not be produced or imported at all. Rather than create a drastic change in 2015, the agency’s goal is to finalize an alloca tion for 2012-2014 that fosters the market transition necessary to prevent future disruptions. Considering that objective, EPA is providing allowa nces in this final rule based on its assessment of market conditions. For 2012, the timi ng of this rule means that EPA is looking back at actual events during 2012 rather than proje cting future needs. The agency is issuing 2012 HCFC-22 consumption allowances at the lowest propos ed amount, because that amount is consistent with the industry’s actual operation in 2012. The appropriateness of this level is supported by the fact that EPA has not received any reports of HCFC shortages during the 2012 air-conditioning season. At the same time, this lev el is commensurate with the amount of consumption authorized in the January 20, 2012, No Action Assurance provided by Cynthia Giles, Assistant Administrator for Enforcement and Compliance Assurance. EPA selected this amount as reasonable for purposes of the No Action Assurance, recognizing that it was within the proposed range. Issuing allowances at the No Ac tion Assurance level enables companies to account for consumption that occurred in 2012 in ac cordance with the No Action Assurance. As stated in the No Action Assurance, any HCFCs produc ed and imported in 2012 pursuant to the No Action Assurance count towards a company’s alloc ation and require the expenditure of 2012

allowances.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

56 of 86 In 2013-2014, EPA is making reductions for existing inventory and for reclamation and reuse, given the support of comments on the agency’ s analysis and additional data provided during the comment period. EPA is not reducing allo wances to account for recovery and reuse in the large retail food sector because there were not sufficient comments or data, and the agency already accounts for supermarket recovery (but not in-house reuse) in its Vintaging Model. With these adjustments, the amount of allowed consumptio n in 2012-2014 is 29 percent below amounts in the 2009 Final Rule for the same period. The agency believes that the amounts in this rulemaking will increase market incentives to prope rly manage and recover HCFC-22 while still allowing for servicing of existing HCFC-22 systems. EPA is finalizing the following HCFC-22 consumption allocations for 2012-2014: 2012: 17.7 percent of baseline, totaling approximat ely 25,100 MT 2013: 18.0 percent of baseline, plus 2,954 MT of re coupment, totaling approximately 28,500 MT 2014: 14.2 percent of baseline, plus 2,954 MT of re coupment, totaling approximately 23,100 MT With this amount, EPA’s total HCFC consumption allo cation in 2012-2014, including recoupment, is at least 55 percent below the Montre al Protocol cap each year, and is below servicing need as estimated in the Servicing Tail Report

. 2. How Many HCFC-22 Production Allowances Is EPA Al locating in 2012-2014? In the proposed rule, EPA considered described three options for providing production

allowances. In considering each of these options, EPA recogniz ed that taking the 2008 transfers

into account in accordance with the Arkema decision affects not only the HCFC-22 consumption baseline, but the HCFC-22 production baseline as we ll. Two options would have decoupled baseline percentage allocated for production and co nsumption. These options provided (1) approximately the same amount of production allowan ces as the 2009 Final Rule or (2) the same*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

57 of 86 percentage of baseline as the 2009 Final Rule. The third option would have kept production and consumption allowances at the same percentage of ba seline, so the resulting production allocation would be dependent on the final consumpt ion baseline percentage. Option 3 is reflected in the January 20, 2012 and January 2013 8 , No Action Assurance Assurances sent to allowance holders by the Assistant Administrator fo r Enforcement and Compliance Assurance. EPA took comment on providing the following percent ages of baseline production in 40 CFR

82.16: Option 1: 28.7% in 2012, 25.3% in 2013, 21.9% in 20 14 Option 2: 34.1% in 2012, 30.1% in 2013, 26.1% in 20 14 Option 3: 17.7% to 25.5% in 2012, 14.7% to 22.1% in 2013, 11.6% to 18.5% in 2014 Under option 1, the aggregate allocation in 2012 wo uld be about two percent lower than in the 2009 Final Rule (37,050 MT in the proposed r ule vs. 37,721 MT in the 2009 Final Rule).

The intent was would be to keep production the aggregate number of allowances at about the same

level as the amount finalized in the 2009 Final Rul e. The memo to the docket for this rulemaking

titled “Effects of HCFC-22 and HCFC-142b Baseline C hanges: 2009 Final Rule vs. 2011 Proposed Rule,” (Baseline Memo) explains these slig ht differences. While this option would keep the aggregate number of allowances at about th e same level, U.S. production could actually fall under this option, because under Arkema a greater share of the allowances would go to a company that does not produce in the U.S. 9 Under option 2, the production baseline percentage would be the same as in the 2009 Final Rule. The petitioners in Arkema would receive the benefit of their 2008 baseline tr ansfers;

8 The January 2013 No Action Assurance also preserve d all recoupment options. 9 Data submitted to the Greenhouse Gas Reporting pro gram on byproducts of the HCFC-22 production proces s indicates that only three of the four companies hol ding production allowances produced HCFC-22 in 2010 and 2011 (see http://ghgdata.epa.gov/ghgp/main.do and the me mo in the docket titled “2010-2011 Greenhouse Gas R eporting Program Data on HCFC-22 Production Byproducts”). Wh ile this company can transfer its allowances to ano ther producer, the fact that they do not produce in the U.S. makes it unlikely that all calendar-year produ ction allowances will be used.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

58 of 86 other companies with production baselines would get the same number of production allowances as they received in the 2009 Final Rule, since thei r baselines did not change. Compared to While the percentage is the same as the 2009 Final Rule, this option would increase allowed since the

aggregate production baseline is higher, the number of production allowa nces increases by 6,299 MT in 2012, 5,560 MT in 2013, and 4,821 MT in 2014. However, as noted above, this would not necessarily translate to an increase in production. In addition to asking for comment on the two propos ed decoupling options, the agency

also asked for comment on several related matters. EPA asked for comment on whether, relative to the 2009 Final Rule, an increase in allocating the total number same percentage of baseline for production allowances, as proposed under option 2, would result in (1) an increase in U.S. consumption, (2) an increase in U.S. production, ei ther for domestic use or for export, and/or (3) an increase in worldwide production and/or consumpt ion of HCFCs. EPA also invited comment on the implications of any such an increase for the U.S. economy and the global envir onment, particularly as it relates to the smooth U.S. phase out of HCFC-22. EPA received nine comments on EPA’s proposed produc tion allocation. Six comments support a higher level of production allowances than consumption allowances (options 1 and 2) and three comments oppose a higher number level of production allowances. EPA provides a complete summary of and response to all comments in the Response to Comments, but highlights and responds to most of the comments in this preamble. Very few comments voiced a preference for a specifi c production option. However, two commenters specifically support option 2, which pro vides for an increas e the same percentage of baseline as provided

in production allowa nces

. the 2009 Final Rule. Five commenters are in support of higher production allowances options 1 and 2 so that domestic companies can remain competitive in the global market. One commenter ind icates U.S. companies could lose global market share if production allowances were not deco upled. Four commenters point out that*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

59 of 86 increasing allocating more production allowances will than consumption allowances could allow for the possibility of more export, but will not le ad to increased domestic consumption since consumption allowances limit the amount of newly-pr oduced HCFC-22 entering the U.S. market. Comments also indicate allowing production in the U.S. could be environmentally beneficial if it displaces production at facilities that do not control byproduct emissions of hydrofluorocarbon (HFC)-23, which has a global warm ing potential of 14,800 10 . The comment cites the growth of HFC-23 emissions globally and i ndicates that facilities in Article 5 countries do not control HFC-23 emissions to the same degree as companies operating in the U.S. Since U.S. producers of HCFC-22 largely control their HFC -23 byproduct emissions, the comment states that production in the U.S., as opposed to o ther countries, could actually result in lower greenhouse gas emissions. Comments opposing an increase in production allowances options 1 and 2 note that the Protocol and domestic regulations already allow for additional production in order to serve basic domestic needs of developing countries in the form of Article 5 allowances. They argue that allowing more production than consumption may increase the global surplus of HCFC-22 and decrease price, thus discouraging appropriate handl ing of the gas. They argue this could lead to an increase in global use and emissions of HCFC-22. One commenter also states that if a reduction in consumption allowances is justified, s o is a decrease in production allowances for

the same reason. EPA does not agree that increasing production a llowances increases options 1 and 2

increase environmental harm relative to the 2009 final rule

. Final Rule. First, EPA would only be providing the same number of overall production all owances or the same percentage of baseline for production as in the 2009 Final Rule. In the proposal, EPA also noted that production of 1

one kilogram of an HCFC requires both a production allo wance and a consumption allowance

10 Source for the GWP of HFC-23: Intergovernmental Pa nel on Climate Change (IPCC) Fourth Assessment Repo rt: Climate Change 2007 (AR4)*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

60 of 86 (82.15(a)(1), (2)). Thus, an increase in leaving production allowances at the same percentage or at

the same overall amount without a corresponding increase in consumption all owances does not automatically cannot result in greater production. A U.S. consumption. Also, in order to produce for export, a company must submit documentation to verify the ex port of an HCFC for which consumption allowances were expended in order to re quest a reimbursement of spent consumption allowances. The agency reviews the docu mentation and issues a notice to either deny or grant the request. Therefore, a company wou ld not be able to produce more HCFC-22 unless it had exported an equal amount of material and been granted a refund of spent consumption allowances. Additionally, since HCFC consumption is capped glo bally under the Montreal Protocol, companies exporting HCFCs are co nstrained by the consumption caps established in the country receiving the material. With regard to HFC-23, EPA has worked with industr y through its HFC-23 Emission Reduction Partnership to encourage companies to red uce HFC-23 byproduct emissions from the

manufacture of HCFC-22. In the 2010 U.S. Climate Ac tion Report, the agency noted that “despite a four percent increase in the production of HCFC-22 compared to 1990, EPA estimates that total HFC emissions in 2007 were significantly below 1990 levels. Compared to business as usual, EPA estimates the partnership reduced emissi ons by 17.8 Tg CO2 Eq. in 2007,” (see page

55 of the U.S. Climate Action Report 2010 , available in the docket). Currently, some HFC-23 emissions in Article 5 countries are mitigated thro ugh Clean Development Mechanism (CDM) projects using destruction technologies, namely the rmal oxidation or plasma arc. However, not all HCFC-22 facilities are eligible to earn credits under CDM; therefore, a number of facilities may not have emission reduction technology installe d. There are about 26 plants producing HCFC-22 in Article 5 countries. Approximately 17 pl ants have CDM projects that control HFC23 byproduct emissions. The remaining nine plants m ay not have emissions control technologies installed. HCFC-22 production in the United States may provide environmental benefits in*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

61 of 86 reduced HFC-23 emissions to the extent U.S. product ion supplants the Article 5 production in those specific plants that do not have HFC-23 bypro duct destruction technologies installed. Some commenters argue that EPA will increase the g lobal supply of HCFC-22 through

an increase in production allowances . EPA disagrees. First, the process for request ing additional consumption allowances, as described above, does no t give a company additional consumption allowances until after an export has taken place. A dditionally by allocating more production than consumption allowances. EPA disagrees. First , by decreasing consumption allowances relative to the 2009 Final Rule, EPA is decreasing potential U. S. consumption of virgin material by more than 31,100 MT over 2012-2014. Even if every single additional production allowance was used for export, global consumption would still be at le ast 9,800 MT less than the allocations provided

in the 2009 Final Rule if all other factors are con stant. Since Because at least one company holding production allowances does not produce HCFC -22 in the United States, it is unlikely that every production allowance will be used . As a result , the net reduction in global consumption of HCFC-22 may be even greater. Finally, starting in 2 013, Article 5 countries’ consumption of HCFCs is capped, which further limits global HCFC-2 2 demand ( see Montreal Protocol Art. 5, para. 8 ter .). As noted below, EPA is issuing additional production allowances using the same percentages as in the 2009 Final Rule only for the 2013 and 2014 control periods. EPA is also concerned that decreasing production al lowances for the remainder of the current regulatory period could deprive certain U.S . manufacturers of existing global business. Article 5 allowances already allow the export of HC FC-22; but only to Article 5 countries. Providing more production than consumption allowanc es could allow companies to

export continue exporting to non-Article 5 countries, which have the same ov erall Montreal Protocol phaseout schedule as the United States but may use a basket approach rather than a chemical-by-chemical approach to phasing out HCFCs. Also, using the additional production

allowances could assist same percentage of baseline as the 2009 Final Rule should allow*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

62 of 86 companies with to continue their exports to Article 5 countries, which are ju st beginning to phase out HCFCs. Since consumption allowances already lim it production for U.S. use, EPA is providing more the same percentage of baseline for HCFC-22 production than consumption

allowances as in the 2009 Final Rule beginning in 2013 to allow avoid a scenario in which U.S.

manufacturers might have to compete globally, and potentially reduce the need f or less

efficient decrease their production abroad

. for global markets relative to the amount allowed u nder the 2009 Final Rule. As noted previously, U.S. prod uction may provide environmental benefits when compared to production in plants that lack HFC -23 byproduct destruction technologies. Recognizing the timing of this rule’s signature, an d the fact that Article 5 countries’ HCFC consumption is not capped until 2013, the agen cy is adopting a different approach for 2012 than for 2013 and 2014. The agency is issuing 2012 HCFC-22 production allowances at the lowest proposed amount, because that amount is cons istent with the industry’s actual operation in 2012. The appropriateness of this level is suppo rted by the fact that EPA has not received any reports of HCFC shortages during the 2012 air-condi tioning season. At the same time, this level is commensurate with the amount of production autho rized in the January 20, 2012, No Action Assurance provided by Cynthia Giles, Assistant Admi nistrator for Enforcement and Compliance

Assurance. EPA selected this amount as reasonable f or purposes of the No Action Assurance, recognizing that it was within the proposed range. Issuing allowances at the No Action Assurance level enables companies to account for pr oduction that occurred in 2012 in

accordance with the No Action Assurance. As stated in the No Action Assurance, any HCFCs produced in 2012 pursuant to the No Action Assuranc e count towards a company’s allocation and require the expenditure of 2012 allowances. EPA is finalizing production option 2 for 2013

and 2014. In summary, EPA believes an increase in providing the percentage of baseline used in the

2009 Final Rule for production allowances in 2013-2014 (1) cannot lead to an increase in U.S.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

63 of 86 consumption, (2) could result in more U.S. production, particu larly for export allows U.S. producers to produce at the same level as under the 2009 Final Rule , with economic benefits for

the U.S. and potentially potential environmental benefits to the extent U.S. producers are more

efficient production might otherwise occur in plants that lac k HFC-23 byproduct destruction technologies , and (3) would not result in a global increase in production or consumption of

HCFC-22 beyond the limits agreed to under the Montreal Pro tocol . In addition, the environmental benefits achieved by the reduction in consumption allowances outweigh any potential increase in U.S. production for export . As such, EPA is providing allocating the following amounts of HCFC-22 production allowances in 2012-2014:

- 2012: 17.7% of baseline, resulting in approximately 22,800 MT of HCFC-22 production

- 2013: 30.1% of baseline, plus 2,306 MT of recoupmen t, resulting in approximately 41,200 MT of HCFC-22 production

- 2014: 26.1% of baseline, plus 2,306 MT of recoupmen t, resulting in approximately 36,000 MT of HCFC-22 production Combined with allowed production for other HCFCs, t hese finalized amounts are at least 36 percent below the Montreal Protocol production cap of 3,884.25 ODP-weighted MT. 3. How Many HCFC-142b Consumption and Production Al lowances Is EPA Allocating

in 2012-2014? Establishing HCFC-142b baseline allowances that ta ke into account the 2008 interpollutant transfers results in 2,047 MT of aggregat e baseline consumption allowances and 9,444 MT of aggregate baseline production allowances. Con sistent with the 2009 Final Rule, EPA proposed to allocate 100 MT of consumption allowanc es. To get to that level, EPA would allocate 4.9 percent of the aggregate consumption b aseline, as reflected in the table at section

82.16.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

64 of 86 Using the same percentage (4.9 percent) of the agg regate production baseline, EPA proposed to allocate 463 MT of HCFC-142b production allowances for each control period between 2012 and 2014. The aggregate allocation for production is higher than the amount allocated in the 2009 Final Rule (463 MT in this ru le vs. 118 MT in the 2009 Final Rule). This is

because the 2008 transfers out of HCFC-142b involve d significantly more consumption allowances than production allowances. Taking those transfers into account decreases the HCFC142b consumption baseline substantially but has a l esser impact on the HCFC-142b production

baseline. The agency received only four comments on HCFC-142 b allocations. Two comments strongly support reducing HCFC-142b consumption and production allowances; one of these commenters states that HCFC-142b is only used in bl ends to service old CFC equipment. Of the other two comments, one supports the consumption al location of 100 MT, noting that HCFC142b is a critical component of a refrigerant blend , but that production allowances need not

increase. The other commenter asks that EPA not low er the HCFC-142b production allocation to compensate for any increase in HCFC-22 production. EPA did not propose to decrease HCFC-142b allowanc es in the proposed rule. The agency assessed the need for the chemical in the 20 09 Final Rule and will revisit the need for HCFC-142b for servicing during the rulemaking for t he next regulatory period. Furthermore, as with HCFC-22, increased production allowances for H CFC-142b could result in more HCFC142b for export. Increased exports could benefit th e U.S. economy without increasing U.S. use of HCFC-142b. For these reasons, the agency is fina lizing its proposed consumption and production allocations for HCFC-142b. There will be 100 MT of HCFC-142b consumption allowances and 463 MT of production allowances issu ed in the years 2012, 2013, and 2014. These allowance amounts are 4.9 percent of the HCFC -142b baselines, and keep the HCFC-142b consumption allocation approximately the same as in the 2009 Final Rule.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

65 of 86 To provide recoupment to companies for lost opport unities in 2010, EPA is allocating a total of 61 MT of HCFC-142b consumption allowances and 397 MT of HCFC-142b production allowances in addition to the percentage of baselin e issued. Since the agency is providing recoupment over two years, there will be an additio nal 30 MT of consumption allowances and 198 MT of production allowances in 2013 and 2014. S ee section IV.B.6. of this preamble for more discussion on recoupment allowances. 4. How Does the Aggregate Allocation for HCFC-22 an d HCFC-142b Translate Entity-byEntity? For 2012-2014, EPA is setting production and consu mption baselines for HCFC-22 and

HCFC-142b on the same basis as in the 2009 Final Ru le, except that EPA is making adjustments to reflect (1) the 2008 inter-pollutant transfers o f baseline allowances deemed permanent by the Court, (2) inter-company, single-pollutant transfer s of baseline allowances that occurred in 2010, and (3) changes in company names that occurred afte r the 2009 Final Rule was signed. All of these changes were made in the 2011 Interim Final R ule (76 FR 47451), and EPA proposed to do the same for 2012-2014. Applying the approach descr ibed above, EPA is apportioning production and consumption baselines for HCFC-22 an d HCFC-142b to the following entities in the following amounts:

Table 2: Baseline Production Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.17

Person Controlled Substance Allowances (kg)

Arkema HCFC-22 46,692,336

HCFC-142b 484,369

DuPont HCFC-22 42,638,049 Honeywell HCFC-22 37,378,252*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

66 of 86 HCFC-142b 2,417,534 MDA Manufacturing HCFC-22 2,383,835 Solvay Solexis HCFC-142b 6,541,764

Table 3: Baseline Consumption Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.19

Person Controlled Substance Allowances (kg) ABCO Refrigeration Supply HCFC-22 279,366

Altair Partners HCFC-22 302,011

Arkema HCFC-22 48,637,642

HCFC-142b 483,827 Carrier Corporation HCFC-22 54,088 Coolgas Investment Property HCFC-22 1,040,458

DuPont HCFC-22 38,814,862

HCFC-142b 52,797 H.G. Refrigeration Supply HCFC-22 40,068

Honeywell HCFC-22 35,392,492

HCFC-142b 1,315,819

Mexichem Fluor Inc. HCFC-22 2,546,305 Kivlan & Company HCFC-22 2,081,018 MDA Manufacturing HCFC-22 2,541,545 Mondy Global HCFC-22 281,824 National Refrigerants HCFC-22 5,528,316

Refricenter of Miami HCFC-22 381,293

Refricentro HCFC-22 45,979*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

67 of 86 R-Lines HCFC-22 63,172

Saez Distributors HCFC-22 37,936 Solvay Fluorides HCFC-22 3,781,691 Solvay Solexis HCFC-142b 194,536 USA Refrigerants HCFC-22 14,865

The finalized baselines listed above are identical to the tables presented in the 2011 Interim Final Rule (76 FR 47451). V. How Is EPA Changing the Regulations Governing Tr ansfers of Class II

Allowances? The agency is concerned about the possibility of co mpanies undermining the HCFC chemical-by-chemical phaseout by performing inter-p ollutant transfers in advance of future phaseout steps. EPA interprets the 2003 Final Rule, which established the transfer provisions at 40 CFR 82.23, as allowing only single-pollutant, in ter-company transfers to be made on a permanent basis. Nevertheless, EPA recognizes that in Arkema , the Court found that “EPA’s practice under the 2003 Rule was to allow petitione rs’ baseline transfers of inter-pollutant allowances” (618 F.3d at 8). Therefore, EPA clarifi ed its current policy on inter-pollutant transfers in the 2011 Interim Final Rule (76 FR 474 59). In January 2012, EPA proposed to modify the regulatory text to dispel any possibilit y of confusion in the future. Through this final action, the agency is modifying 40 CFR 82.23 to address the duration of inter-pollutant transfers, and to reflect prior agency statements pertaining to inter-pollutant

transfers of Article 5 allowances. A. How Is EPA Changing the Regulations Governing P ermanent Transfers of Class II

Allowances?*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

68 of 86 Sections 607(b) and (c) of the CAA address inter-po llutant and inter-company transfers of allowances, respectively. Inter-pollutant transf ers are the transfer (or conversion) of an

allowance of one substance to an allowance of anoth er substance on an ODP-weighted basis. Inter-company transfers are transfers of allowances for the same ODS from one company to another company. Section 607(c) also authorizes int er-company transfers combined with interpollutant transfers, so long as the requirements of both are met. The corresponding regulatory provisions for HCFCs appear at 40 CFR 82.23. EPA proposed to modify section 82.23 to clarify tha t the agency will not approve future inter-pollutant transfers of baseline production al lowances or baseline consumption allowances. EPA received two comments directly referring to thi s proposal. One comment supports EPA’s proposed changes because it will prevent future man ipulation of the allowance program. The commenter also believes the CAA prohibits permanent inter-pollutant transfers. Another commenter encourages EPA to reconsider its proposed changes and to allow for inter-pollutant

baseline transfers if an allowance holder has histo rically made the transfers. EPA also received

two comments on the 2012-2014 baselines that are re levant. Both commenters state that section 607 of the CAA prohibits baseline inter-pollutant t ransfers. As discussed in the proposed rule, EPA remains con cerned about the potential for future manipulation of the allocation system if inter-poll utant baseline transfers are allowed to affect a company’s baseline in future regulatory periods. Fo r example, a HCFC-22 producer or importer could dominate the HCFC-123 market in 2015 by conve rting its HCFC-22 baseline to HCFC123 baseline in 2014. Given the different ODPs of H CFC-22 and HCFC-123 (0.055 and 0.02, respectively), converting one baseline allowance of HCFC-22 would result in 2.75 baseline allowances of HCFC-123. Also, since companies hold many more HCFC-22 baseline allowances than HCFC-123 baseline allowances, converting those HCFC-22 baseline allowances would*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

69 of 86 have an overwhelming effect on the current HCFC-123 baseline allowance holders and on the

overall market. As another example, in 2020 EPA will no longer be issuing HCFC-22 production or consumption allowances (see section 82.16(e)). EPA expects that companies with only HCFC-22 or HCFC-142b allowances would no longer be producin g or importing HCFCs at that date. If EPA were to allow inter-pollutant baseline transfer s that carried forward into the new regulatory period, companies with HCFC-22 baselines could conv ert them all to baselines for HCFC-123 in 2019. Perpetuating the HCFC-22 baselines in a new f orm would be counter to the design of the chemical-by-chemical phaseout, under which the base line allowances for a particular chemical are intended to drop out of the system upon the pha se-out of that chemical. Thus, there are important policy reasons for not taking inter-pollu tant transfers from prior regulatory periods into account in establishing baselines for new regulator y periods. EPA has been clear in its past statements about it s policy on what happens to allowances when a chemical is phased out. In the 1999 Advanced Notice of Proposed Rulemaking (“1999 ANPRM”, 64 FR 16373), EPA discussed options for est ablishing the HCFC allocation system. Referring to HCFC-141b, which was phased out in 200 3. EPA stated at 64 FR 16378: It is important to note that, under any scenario, w hen the phaseout date for HCFC141b is reached in 2003, all HCFC-141b consumption (production + importsexports) will cease. Those who did not participate in the HCFC-141b market will not be affected in 2003. However, those who did par ticipate in the HCFC-141b market— through, for example, producing or importin g HCFC-141b—would no longer receive any allowances associated with their historic HCFC-141b activity, and thus any authorization to produce or import HCF C-141b. Likewise, any company that, through a baseline trade, received al lowances associated with historic HCFC-141b would no longer receive any allo wances associated with the baseline trade in 2003 (emphasis added). In the 2001 Notice of Proposed Rulemaking for the HCFC allocation system (“2001 NPRM,” 66 FR 38064), EPA elaborated further on what happens when a chemical is phased out under a chemical-by-chemical phaseout at 66 FR 3806 8-69:*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

70 of 86 On the first HCFC phaseout date of 2003, those comp anies that received baseline consumption allocations (or received a permanent ba seline transfer)...of HCFC141b would subtract that portion from their total c onsumption allocation. If permanent inter-pollutant trades had been made, an amount equal to the ODPweighted kilograms of baseline HCFC–141b allowances that had been received in the transfer would be deducted from the baseline al location... The same would occur in [later years] for the relevant chemicals b eing phased out (emphasis added). Finally, in the 2003 Final Rule establishing the H CFC phaseout, EPA stated its position at 68 FR 2835: “EPA will allow permanent transfers of baseline allowances with those allowances disappearing at the phaseout date for th e specific HCFC, regardless of what interpollutant transfers had taken place.” Because EPA h as been clear on this point that baseline allowances associated with a specific HCFC—regardle ss of their current owner or current status—disappear when that HCFC is phased out, the agency continues to believe allowing interpollutant baseline transfers only on an annual basi s is appropriate. The commenter objecting to the proposed changes to the transfer regulations cited several

issues that EPA should consider. The commenter cite s its past practice of annually transferring

its HCFC-142b allowances to HCFC-22 and the need to consider the precedent this proposed change might have. The agency notes that prohibitin g inter-pollutant baseline transfers in no way precludes the commenter, or any allowance holder, from continuing to make annual interpollutant transfers. However, when EPA established the “worst-first” HCFC phaseout, the goal was to encourage companies to move out of HCFCs, no t to continually produce or import HCFCs by switching from one chemical to another. Additionally, the commenter envisions a scenario w here an allowance holder could change the focus of its business to produce and sel l a substance that does less harm to the

environment. While an allowance holder could move t o an HCFC that is less harmful to the ozone layer, the switch results in no environmental benefit (excepting the 0.1 percent transfer offset) if all of the transferred allowances are us ed. Since transfers are weighted based on their*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

71 of 86 ODP, moving from a higher ODP chemical to a lower O DP chemical would result in more allowances for the lower ODP chemical and an equal environmental footprint. Further, if EPA were to allocate allowances for th e next regulatory period taking interpollutant transfers into account, those transfers w ould only affect aggregate company baselines in specific chemicals, not the total amount allocat ed. In the case of the 2011 Interim Final Rule, when EPA updated baselines to include past inter-po llutant transfers, there was no environmental benefit to doing so. The way EPA allocates allowanc es relies on the estimate of market servicing need for a chemical and then divides that amount up proportionally based on a company’s baseline allowances for that particular chemical (s ee section IV

. of this preamble for the detailed description). While taking baseline inter-pollutant transfers into account may have tremendous benefits for the company making the transfers, it d oes nothing for the environment. As described above, EPA sees this use of inter-pollutant transfe rs as manipulating the system, and is clarifying that baseline inter-pollutant transfers will not be allowed in the future. Two commenters state that modifying the baselines by taking into account inter-pollutant transfers is contrary to the CAA. They argue that s ection 607 of the CAA allows EPA to approve inter-pollutant transfers of allowances only on a y ear-to-year basis, and point to language in section 607(b) stating that EPA regulations are to permit “a production allowance for a substance for any year to be transferred for a production all owance for another substance for the same year on an ozone depletion weighted basis.” Similar argu ments were made in comments submitted on the 2008 Proposed Rule and on the 2011 Interim Fina l Rule. EPA does not agree with the comment that the langu age of section 607(b) is clear on its face. The statutory language is ambiguous, and EPA has discretion to choose a reasonable interpretation of that language. EPA determined in the 2009 Final Rule that section 607(b) is best read as permitting only year-by-year inter-pollutan t transfers. EPA continues to believe that this is the best interpretation of the statutory languag e. Section 607(b) states that EPA’s rules are to*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

72 of 86 permit “a production allowance for a substance for any year to be transferred for a production allowance for another substance for the same year.” This language emphasizes the year-by-year nature of such transactions. No parallel language a ppears in section 607(c). That section does, however, provide that any inter-pollutant transfers between two or more persons must meet the requirements of section 607(b). As the Court noted, “the agency is certainly entit led to . . . institute a program that forbids baseline inter-pollutant transfers in the future,” ( Arkema v. EPA , 618 F.3d at 9). Hence, EPA concludes that requiring all inter-pollutant transf ers to be conducted on a yearly – and thus temporary – basis going forward is the approach mos t consistent with the wording of section 607(b). Further discussion of the reasons for limit ing inter-pollutant transfers to those conducted on a calendar-year basis is available in the Respon se to Comments for the 2009 Final Rule (included in the docket for this rulemaking). Consistent with the Court’s decision regarding past inter-pollutant transfers (those conducted during the prior regulatory period), the baselines established in this action for 2012- 2014 take into account the 2008 inter-pollutant bas eline transfers. EPA is clarifying, however, that it has not approved any inter-pollutant transf ers of baseline allowances in the current regulatory period, and for the reasons given in the 2009 Final Rule, the 2011 Interim Final Rule, and in this action, in the future, EPA will approve inter-pollutant transfers only on a year-by-year basis. Thus, in the context of the allowance system for protection of stratospheric ozone, companies should not expect that any future inter-p ollutant transfers they conduct will affect their baselines either in the current regulatory pe riod or any future regulatory period. EPA is revising the regulations to avoid any furth er dispute about the agency’s position on this issue. The new language clarifies that perm anent inter-pollutant transfers of baseline allowances will not be approved. In addition, EPA i s clarifying that the procedures in section 82.23(a) apply to permanent, single-pollutant trans fers.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

73 of 86 B. How Is EPA Changing the Regulations Governing Tr ansfers of Article 5 Class II

Allowances?

Article 5 allowances for Class II substances are t he privileges granted under 40 CFR 82.18(a) to produce the specified HCFC for export o nly to countries listed in 40 CFR Subpart A, Appendix C, Annex 4. The countries listed in that a nnex are developing countries whose control obligations under the Montreal Protocol are address ed in Article 5 of the treaty and hence are referred to as “Article 5 Parties.” EPA proposed to revise the regulations at 40 CFR 82.23(b) to reflect its previously stated intent to allow inter -pollutant transfers of Article 5 allowances. EPA promulgated section 82.23 as part of the 2003 F inal Rule (68 FR 2820). EPA specifically discussed the inter-pollutant transfer of Article 5 allowances at 68 FR 2834 stating, “For example, after the 2003 phaseout of HCFC-141b and before 2010, a company receiving...Article 5 allowances for HCFC-141b could engage in inter-company transfers of those allowances, but not in inter-pollutant transf ers [because no other HCFC Article 5 allowances would be available during that period]. In 2010, when...Article 5 allowances for HCFC-22 and HCFC-142b become available, these allow ances will be transferable with the ones

for HCFC-141b.” These statements indicate that the agency intended for companies to be able to perform inter-pollutant transfers of Article 5 allo wances. The omission of Article 5 allowances from section 82.23(b) appears to have been an overs ight. Therefore, EPA proposed to revise the regulations to specifically provide for the inter-p ollutant transfers of Article 5 allowances through this rulemaking. As with other types of int er-pollutant transfers, these transfers would be limited in duration to a single year. The agency re ceived two comments on its proposal to revise the text at section 82.23(b), which EPA responds to in the Response to Comments. EPA also proposed to change the text at 82.23(a)(i i) for consistency with its previously stated policy on offsets for transfers of Article 5 allowances. Section 607(a) requires that transfers of production allowances “will result in greater total reductions in the production in*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

74 of 86 each year of...class II substances than would occur i n that year in the absence of such transactions.” In a November 10, 1994, Federal Regi ster notice, EPA stated its interpretation that the section 607 offset requirement applies to Artic le 5 allowance transfers (59 FR 56287): “Interpollutant transfers of Article 5 allowances will co ntinue to require a one percent offset, as required by section 607 of the CAA...” In the May 10, 1995, final rule at 60 FR 24980, EPA stated that “[w]ith today's action, EPA permits int er-pollutant and inter-company transfers of Article 5 allowances as proposed...” meaning, EPA int ended to require an offset for transfers of Article 5 allowances in the class I allowance syste m. This intent to require an offset is also reflected in certain provisions of the class II allowance system in 40 CFR part 82. Section 82.23(a )(i)(G) specifically requires an offset for Article 5 allowance inter-company transfers, statin g that the transfer claim must set forth: “For trades of consumption allowances, production allowa nces, export production allowances, or Article 5 allowances, the quantity of the 0.1 perce nt offset applied to the unweighted quantity

traded that will be deducted from the transferor's allowance balance.” The offset is also mentioned at section 82.23(a)(iii): “In the case of transfers of...Article 5 allowances, EPA will reduce the transferor's balance of unexpended allow ances by the quantity (in kilograms) to be converted plus 0.1 percent of that quantity.” This contrasts with section 82.23(a)(ii)(A), which states that in the case of Article 5 allowances, “E PA will reduce the transferor’s balance of unexpended allowances...by the quantity to be transfe rred,” with no mention of an offset. In addition, in the introductory text for 82.23(a)(ii) , Article 5 allowances are not mentioned: “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 o f that quantity;” EPA proposed to amend 82.23(a)(ii) and 82.23(a)(ii)(A) to require an offs et for transfers of Article 5 allowances. EPA did not receive comments on this proposed clarification to the regulatory text, and is finalizing the clarification as proposed. Section 82.23(a) is now consistent throughout. Section 82.23(b)*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

75 of 86 requires an offset of 0.1 percent for all inter-pol lutant transfers and since EPA is adding Article 5 allowances to section 82.23(b), an offset will auto matically apply. To reflect EPA’s intent to allow inter-pollutant tr ansfers of Article 5 allowances, and the requirement that an offset be deducted when an enti ty is transferring Article 5 allowances, the agency is finalizing the proposed modifications to the regulatory text at 40 CFR 82.23(a)(ii), 82.23(a)(ii)(A), and 82.23(b). VI. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), this action is a “significant regulatory action” since it raises “no vel legal or policy issues.” Accordingly, EPA submitted this action to the Office of Management a nd Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, Janua ry 21, 2011) and any changes made in response to OMB recommendations have been documente d in the docket for this action. EPA did not conduct a specific analysis of the ben efits and costs associated with this action. Many previous analyses provide a wealth of information on the costs and benefits of the U.S. HCFC phaseout including:

• The 1993 Addendum to the 1992 Phaseout Regulatory Impact Ana lysis: Accelerating the Phaseout of CFCs, Halons, Methyl Chloroform, Carbon Tetrachloride, and HCFCs

.

• The 1999 Report Costs and Benefits of the HCFC Allowance Allocation System

.

• The 2000 Memorandum Cost/Benefit Comparison of the HCFC Allowance Allo cation System

.

• The 2005 Memorandum Recommended Scenarios for HCFC Phaseout Costs Esti mation

.

• The 2006 ICR

Reporting and Recordkeeping Requirements of the HC FC Allowance System

.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

76 of 86 • The 2007 Memorandum Preliminary Estimates of the Incremental Cost of th e HCFC

Phaseout in Article 5 Countries

.

• The 2007 Memorandum Revised Ozone and Climate Benefits Associated with the 2010 HCFC Production and Consumption Stepwise Reductions and a Ban on HCFC Precharged Imports

.

• The 2009 ICR

Reporting and Recordkeeping Requirements of the HC FC Allowance System

. A memorandum summarizing these analyses is availabl e in the docket. B. Paperwork Reduction Act This action does not impose any new information co llection burden. EPA already requires recordkeeping and reporting for HCFCs, and this action does not amend those provisions. The Office of Management and Budget (OM B) has previously approved the information collection requirements contained in th e existing regulations at 40 CFR part 82, subpart A under the provisions of the Paperwork Red uction Act, 44 U.S.C. 3501 et seq . and has assigned OMB control number 2060-0498. The OMB cont rol numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. C. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requ ires 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 busine sses, small organizations, and small governmental jurisdictions. We have considered the economic impacts of this final rule on small entities. For purposes of assessing the impacts of this rule on small entities, a small entity is defined as: (1) a small business as defined by the Small Business Administration’s (SBA)*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

77 of 86 regulations at 13 CFR 121.201; (2) a small governme ntal jurisdiction that is a government of a city, county, town, school district or special dist rict with a population of less than 50,000; and (3) a small organization that is any not-for-profit ent erprise which is independently owned and operated and is not dominant in its field. This action may affect the following categories:

- Industrial Gas Manufacturing entities (NAICS code 3 25120), including fluorinated hydrocarbon gases manufacturers and rec laimers;

- Other Chemical and Allied Products Merchant Wholesa lers (NAICS code 422690), including chemical gases and compressed ga ses merchant wholesalers;

- Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing en tities (NAICS code 333415), including air-conditioning equipment and c ommercial and industrial refrigeration equipment manufacturers;

- Air-Conditioning Equipment and Supplies Merchant Wh olesalers (NAICS code 423730) , including air-conditioning (condensi ng unit, compressors) merchant wholesalers;

- Electrical and Electronic Appliance, Television, an d Radio Set Merchant Wholesalers (NAICS code 423620), including air-cond itioning (room units) merchant wholesalers; and

- Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 238220), including central air-conditioning system and comme rcial refrigeration installation; HVAC contractors. After considering the economic impacts of this fin al rule on small entities, I certify that this action will not have a significant economic im pact on a substantial number of small entities.*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

78 of 86 In determining whether a rule has a significant eco nomic impact on a substantial number of small entities, the impact of concern is any signif icant adverse economic impact on small entities, since the primary purpose of the regulato ry flexibility analyses is to identify and address regulatory alternatives “which minimize any signifi cant economic impact of the rule on small entities.” 5 USC 603 and 604. Thus, an agency may c ertify that a rule will not have a significant economic impact on a substantial number of small en tities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This rule relieves a regulatory ban on production a nd consumption that would otherwise apply in the wake of the Court’s vacatur. Additiona lly, EPA is continuing to allocate production and consumption allowances using the same approach described in the 2009 Final Rule with adjustments to reflect (1) 2008 inter-pollutant tra nsfers of baseline allowances deemed permanent by the Court, (2) inter-company, single-p ollutant transfers of baseline allowances that occurred in 2010, (3) changes in company names that occurred after the 2009 Final Rule was signed and (4) an updated picture on the need for v irgin HCFC-22 as assessed in the Adjustment Memo and sections IV.B.1-3 of this preamble. EPA is not modifying the recordkeeping or reporting provisions and thus is not increasing the burden to small businesses. EPA’s HCFC Phaseout Benefits and Costs Memo, included in this docket, provides a summary of previous small business analyses, as well as the cost and be nefit data used for the 2009 Final Rule. We have therefore concluded that today's final rule will relieve regulatory burden for all

affected small entities. D. Unfunded Mandates Reform Act

This action contains no Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1 538 for State, local, or tribal governments or the private sector. UMRA does not ap ply to rules that are necessary for the ratification or implementation of international tre aty obligations. This rule implements the 2010*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

79 of 86 milestone for the phase-out of HCFCs under the Mont real Protocol. Therefore, this action is not subject to the requirements of sections 202 or 205 of UMRA. This action is also not subject to the requirement s of section 203 of UMRA because it contains no regulatory requirements that might sign ificantly or uniquely affect small governments. This action apportions production and consumption allowances and establishes baselines for private entities, not small governmen ts.

E. Executive Order 13132: Federalism This action 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 amon g the various levels of government, as specified in Executive Order 13132. This action is expected to primarily affect producers, importers, and exporters of HCFCs. Thus, the requir ements of section 6 of the Executive Order do not apply.

F. Executive Order 13175: Consultation and Coordin ation with Indian Tribal Governments This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This action does not s ignificantly or uniquely affect the communities of Indian tribal governments. It does n ot impose any enforceable duties on communities of Indian tribal governments. Thus, Exe cutive Order 13175 does not apply to this

action. G. Executive Order 13045: Protection of Children f rom Environmental Health and Safety

Risks This action is not subject to EO 13045 (62 F.R. 19 885, April 23, 1997) because it is not economically significant as defined in EO 12866. Th e agency nonetheless has reason to believe that the environmental health or safety risk addres sed by this action may have a disproportionate effect on children. Depletion of stratospheric ozon e results in greater transmission of the sun’s*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

80 of 86 ultraviolet (UV) radiation to the earth’s surface. The following studies describe the effects of excessive exposure to UV radiation on children: (1) Westerdahl J, Olsson H, Ingvar C. “At what age do sunburn episodes play a crucial role for the development of malignant melanoma,” Eur J Cancer 1994: 30A: 1647-54; (2) Elwood JM Japson J. “Melanoma and sun exposure: an overview of published studies,” Int J Cancer 1997; 73:198-203; (3) Armstrong BK, “Melanoma: childhood or lifelong sun exposure,” In: Grobb JJ, Stern RS Mackie RM, Weinstock WA, eds. “Epidemiology, causes and prevention of skin diseas es,” 1 st ed. London, England: Blackwell Science, 1997: 63-6; (4) Whiteman D., Green A. “Mel anoma and Sunburn,” Cancer Causes Control, 1994: 5:564-72; (5) Heenan, PJ. “Does inte rmittent sun exposure cause basal cell carcinoma? A case control study in Western Australi a,” Int J Cancer 1995; 60: 489-94; (6) Gallagher, RP, Hill, GB, Bajdik, CD, et. al. “Sunli ght exposure, pigmentary factors, and risk of nonmelanocytic skin cancer I, Basal cell carcinoma, ” Arch Dermatol 1995; 131: 157-63; (7) Armstrong, DK. “How sun exposure causes skin cancer : an epidemiological perspective,”

Prevention of Skin Cancer. 2004. 89-116. This action implements the U.S. commitment to redu ce the total basket of HCFCs produced and imported to 25 percent of the respecti ve baselines. While on an ODP-weighted basis, this is not as large a step as previous acti ons, such as the 1996 Class I phaseout, it is one o f the most significant remaining actions the U.S. can take to complete the overall phaseout of ODS and further decrease impacts on children’s health f rom stratospheric ozone depletion. H. Executive Order 13211: Actions Concerning Regul ations That Significantly Affect Energy Supply, Distribution, or Use This action is not a “significant energy action” a s defined in Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The rule is sues allowances for the production and*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

81 of 86 consumption of HCFCs. I. National Technology Transfer and Advancement Ac t Section 12(d) of the National Technology Transfer and Advancement Act of 1995 ("NTTAA"), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities un less to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, samp ling procedures, and business practices) that are developed or adopted by voluntary consensus standar ds bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the agency decides not to use available and applicable voluntary consensus standards. This acti on does not involve technical standards. Therefore, EPA did not consider the use of any volu ntary consensus standards.

J. Executive Order 12898: Federal Actions to Addre ss Environmental Justice in Minority Populations and Low-Income Populations Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 19 94)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environme ntal justice part of their mission by identifying and addressing, as appropriate, disprop ortionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and lowincome populations in the United States.

EPA has determined that this action will not have disproportionately high and adverse human health or environmental effects on minority o r low-income populations because it increases the level of environmental protection for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population

. This action continues the implementation of

the U.S. commitment to reduce the total basket of H CFCs produced and imported to a level that*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

82 of 86 is more than 75 percent below the respective baseli nes. While on an ODP-weighted basis, this is not as large a step as previous actions, such as th e 1996 Class I phaseout, it is one of the most significant remaining actions the U.S. can take to complete the overall phaseout of ODS and

further lessen the adverse human health effects for the entire population. K. The Congressional Review Act The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, genera lly provides that before a rule may take effect, the agency promulgating the rule must submi t a rule report, which includes a copy of the rule, to each House of the Congress and to the Comp troller General of the U.S. EPA will submit a report containing this rule and other required in formation to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the U.S. prior to publication of the rule in the Federal Register. A major rule cannot take effect u ntil 60 days after it is published in the Federal Register. This action is not a “major rule” as defi ned by 5 U.S.C. 804(2). This rule will be

effective [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER ]

. List of Subjects in 40 CFR Part 82 Environmental protection, Administrative practice a nd procedure, Air pollution control, Chemicals, Exports, Hydrochlorofluorocarbons, Impor ts

DATED: ___________________________

___________________________________ Lisa P. Jackson Bob Perciasepe , Acting Administrator. Protection of Stratospheric Ozone: Adjustments to t he Allowance System for Controlling HCFC Production, Import, and Export (Pa ge 8 1 2 of 8 5 6 )*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

83 of 86 40 CFR part 82 is to be amended to read 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. 2. Amend §82.16 by revising paragraph (a) to read as follows: §82.16 Phaseout schedule of class II controlled sub stances. (a) Calendar-year Allowances. (1) In each control period as indicated in the fol lowing tables, each person is granted the specified percentage of baseline production allowances and baseline consumption allowances for the specified class II c ontrolled substances apportioned under §§82.17 and 82.19: Calendar-year HCFC Production Allowances

Control

Period Percent of

HCFC141b Percent of

HCFC-22 Percent of

HCFC142b Percent of

HCFC-123 Percent of

HCFC-124 Percent of

HCFC225ca Percent of

HCFC225cb

2003 0 100 100 -- -- -- -- 2004 0 100 100 -- -- -- -- 2005 0 100 100 -- -- -- -- 2006 0 100 100 -- -- -- -- 2007 0 100 100 -- -- -- -- 2008 0 100 100 -- -- -- -- 2009 0 100 100 -- -- -- -- 2010 0 41.9 0.47 125 125 125 125

2011 0 32.0 4.9 125 125 125 125

2012 0 17.7 4.9 125 125 125 125*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

84 of 86 2013 0 30.1 4.9 125 125 125 125

2014 0 26.1 4.9 125 125 125 125

Calendar-year HCFC Consumption Allowances

Control

Period Percent of

HCFC141b Percent of

HCFC-22 Percent of

HCFC142b Percent of

HCFC-123 Percent of

HCFC-124 Percent of

HCFC225ca Percent of

HCFC225cb

2003 0 100 100 -- -- -- -- 2004 0 100 100 -- -- -- -- 2005 0 100 100 -- -- -- -- 2006 0 100 100 -- -- -- -- 2007 0 100 100 -- -- -- -- 2008 0 100 100 -- -- -- -- 2009 0 100 100 -- -- -- -- 2010 0 41.9 0.47 125 125 125 125

2011 0 32.0 4.9 125 125 125 125

2012 0 17.7 4.9 125 125 125 125

2013 0 18.0 4.9 125 125 125 125

2014 0 14.2 4.9 125 125 125 125

* * * * * 3. Amend §82.16(a) by inserting the following parag raph: §82.16 Phaseout schedule of class II controlled sub stances.

(a) * * * (2) Recoupment allowances. In the control period beginning January 1, 2013 an d ending December 31, 2013, and again in the control period beginning January 1, 2014 and*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

85 of 86 ending December 31, 2014, certain companies are gra nted HCFC consumption and production allowances in addition to the percentage of baselin e listed in the table at paragraph (a)(1) of this section. The following companies will receive the a mounts listed below in both 2013 and 2014: 2,374,846 kg of HCFC-22 consumption allowances and 2,305,924 kg of HCFC-22 production allowances to Arkema; 1,170 kg of HCFC-142b consump tion allowances to DuPont; 29,146 kg of HCFC-142b consumption allowances and 53,549 kg o f HCFC-142b production allowances to Honeywell; 578,948 kg of HCFC-22 consumption allowa nces to Solvay Fluorides; and 144,900 kg of HCFC-142b production allowances to Solvay Sol exis.

* * * * *

4. Amend §82.23 by revising paragraphs (a)(ii)(A), (b) , and (d) to read as follows: §82.23 Transfers of allowances of class II controll ed substances. (a) * * * (ii) The Administrator will determine whe ther 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 0.1 percent of that quantity. The Administrator will take into account any previous transfers, any production, and allowable i mports and exports of class II controlled 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 indicati ng that EPA does not object to the transfer if

EPA's records show that the transferor has sufficie nt unexpended allowances to cover the transfer claim. In the case of transfers of product ion or consumption allowances, EPA will reduce the transferor's balance of unexpended allow ances by the quantity to be transferred plus 0.1 percent of that quantity. In the case of transf ers of export production or Article 5 allowances, EPA will reduce the transferor's balance of unexpen ded allowances, respectively, by the quantity*** E.O. 12866 Review – Draft – Do Not Cite, Quote, or Release During Review***

86 of 86 to be transferred plus 0.1 percent of that quantity . The transferor and the transferee may proceed with the transfer when EPA issues a no objection no tice. However, if EPA ultimately finds that the transferor did not have sufficient unexpended a llowances to cover the claim, the transferor and transferee, where applicable, will be held liab le for any knowing violations of the regulations of this subpart that occur as a result of, or in co njunction with, the improper transfer.

* * * * * (b) Inter-pollutant transfers. (1) Effective January 1, 2003, a person (transfero r) may convert consumption allowances, production allowances or Ar ticle 5 allowances for one class II controlled substance to the same type of allowance for another class II controlled substance listed in Appendix B of this subpart, following the proced ures described in paragraph (b)(3) of this

section.

* * * * * (d) Permanent transfers. The procedures in paragra ph (a) of this section apply to permanent inter-company transfers of baseline production allo wances or baseline consumption allowances. A person receiving a permanent transfer of baseline production allowances or baseline consumption allowances (the transferee) for a speci fic class II controlled substance will be the person who has their baseline allowances adjusted i n accordance with phaseout schedules in this subpart. No person may conduct permanent inter-poll utant transfers of baseline production allowances or baseline consumption allowances.

* * * * *