To : David Donaldson/DC/USEPA/US@EPA, Luke Hall-Jordan/DC/USEPA/US@EPA, Elizabeth Whiteley/DC/USEPA/US@EPA, Cc: Bcc:

Subject: Fw: Summary of Interagency Comments under EO 12866/13563 -- Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export From: Jeremy Arling/DC/USEPA/US - Tuesday 09/27/2011 10:20 AM History: This message has been replied to and forwarded.

----- Forwarded by Jeremy Arling/DC/USEPA/US on 09/27/2011 10:19 AM -----

From: "Frey, Nathan J." <Nathan

_ J.

_ Frey@omb.eop.gov> To: Jeremy Arling/DC/USEPA/US@EPA Cc: Drusilla Hufford/DC/USEPA/US@EPA, Cindy Newberg/DC/USEPA/US@EPA Date: 09/27/2011 10:17 AM Subject: Summary of Interagency Comments under EO 12866/13563 -- Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export

Attached please find a summary of interagency comments on the draft proposed rule, Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export for 2012. Also attached are several letters from stakeholders referenced in the summary of interagency comments.

Scan_Attachment-330155656-000.pd f EPA letter - Comments to Interim Final Rule August 5, 2011.pd f EPAletter.pd f

Letter to EPA re ICOR.PDF

Summary of Interagency Comments_2060-AQ98 HCFC Allowance Adjustments 2012.docx

# ATTACHMENT 1

Scan_Attachment-330155656-000.pdf

# ATTACHMENT 2

EPA letter – Comments to Interim Final Rule August 5, 2011.pdf10640 East 59th Street • Indianapolis, IN 46236 • 317.826.3200 • 800.497.6805 www.icorinternational.com • icorinfo@icorinternational.com September 6, 2011

Air and Radiation Docket and Information Center U.S. Environmental Protection Agency Mail code: 6102T 1200 Pennsylvania Avenue, NW Washington, DC 20460

Docket ID No. EPA-HQ-OAR-2010-1040

Docket Title: Protection of Stratospheric Ozone: Adjustment of the Allowance System for Controlling HCFC Production, Import, and Export

ICOR International, Inc. submits these comments on the Interim final rule dated August 5, 2011 “Protection of Stratospheric Ozone: Adjustment of the Allowance System for Controlling HCFC Production, Import, and Export; Interim Final Rule.”

We would like to thank the agency for the opportunity to provide comments on the above stated ruling. ICOR International, Inc. is a chemical company located in Indianapolis, Indiana with twenty-five employees and three facilities located in Indiana and Nevada. While we realize that the EPA’s Interim Final Rule is th e result of decision issued by the U.S. Court of Appeals for the District of Columbia Circuit Court in Arkema v. EPA (618 F. 3d 1, DC Cir. 2010) regarding the December 15, 2009 final ruling titled “Protection of Stratospheric Ozone: Adjustment of the Allowance System for Controlling HCFC Production, Import, and Export” we would like to address inequities within the December 15, 2009 final rule which have created an unleveled playing field in the refrigerant industry. Add itionally, we will address how the above stated ruling is created a disincentive for the reclamation of HCFC-22 and other refrigerants used in the air conditioning and refrigeration industry.

On April 24, 2011 we met with EPA staff to di scuss the current HCFC allocation system and its negative effects on the industry and our company. During that meeting we were encouraged, by EPA staff, to submit comments to the Interim Fi nal Rule, which was due to be issued in the coming weeks. On May 17, 2011 we delivered a letter addressed to Drusilla Hufford, Director, Stratospheric Protection Division, Office of Atmospheric Programs discussing solutions that we believe will address the dysfunc tional effects of the current HCFC allocation system. As of the drafting of this comment letter, our letter dated May 17, 2011 has not received a serious response from the EPA; therefore we would like to resubmit the content of that letter as our comments to the recently issued Interim Final rule.10640 East 59th Street • Indianapolis, IN 46236 • 317.826.3200 • 800.497.6805 www.icorinternational.com • icorinfo@icorinternational.com To recap, we asked, during our meeting, that EPA revise and recalibrate the baseline allocations to grant additional allo cation to ICOR under the HCFC al location system. Such allocation recalibration would reflect a small part of HCFC stocks which are currently permitted under the Montreal protocol allowances but not used by allocation holders. The granting to ICOR of such additional allocation is not prohibited either by the Montreal protocol or the Clean Air Act. Most importantly, our request would allow EPA to remedy an allocation system which has effectively become a cap and NO trade system, to the detriment of innovative smaller firms and the consumers they serve. During the meeting we reviewed several points:

ICOR is a small business founded in 1989 by Jim and Karen Tieken. ICOR employs 25 people in Indianapolis, Indiana, and Hender son, Nevada. ICOR manufactures both HCFC and HFC refrigerant blends, and is also an EPA approved refrigerant reclaimer.

ICOR’s flagship product, Hot Shot (R-414B), has been manufactured by ICOR since 1995, and is now the number one selling blende d refrigerant replacement for R-12 in the United States and Canada. Sales of Hot Shot are the majority of ICOR’s total sales volume.

Hot Shot is an HCFC refrigerant blend, and as such, the availability of the components to manufacture the product are controlled by EPA’s HCFC allocation rules designed to meet U.S. obligations under the Montreal Protocol to phase out ozone depleting substances.

ICOR has very few allocation allowances to import the components it needs to manufacture Hot Shot. Although ICOR was making the product during the baseline periods designated in the rule, it was buying the components from domestic producers, and not importing the products, therefore the allocation allowances were awarded to the companies that either produced the components, or in one case, imported them for ICOR.

During the last several years we have repeatedly warned EPA that the three companies that received approximately 90% of the total HCFC allocation would use the extraordinary competitive advantage that the HCFC allocation rule gave them to put small businesses like ICOR out of business by denying them the components to make products, or effectively reclaim HCFC refrigerants.

This has come to pass and ICOR is at the breaking point. We have been starved of HCFC components. Two of three companies will not sell to ICOR, and the other will only sell one component, and has doubled the price this year. ICOR’s price for allocation is 130% of the cost of the refrigerant.

This sorry situation is entirely a consequence of the mechanics of EPA’s allocation system, and completely unnecessary and irrelevant to meeting Montreal protocol standards. The adjustment ICOR seeks does not upset the current rule in which EPA grants HCFC import allowances depending if a firm produced or imported refrigerant during the baseline years. The allocation locked in an EPA sanctioned oligopoly, in which three firms control (but do not fully use) nearly all the consumption allowances for key refrigerants granted by EPA. Now a decade after the baseline years we merely are requesting an updated recalibration, recognizing that millions of10640 East 59th Street • Indianapolis, IN 46236 • 317.826.3200 • 800.497.6805 www.icorinternational.com • icorinfo@icorinternational.com pounds of U.S. HCFC allowance is left unused every year. Failure to use some flexibility in applying these rules to a successful small innovative firm will yield the loss of the number one blended R-12 replacement in the industry, with forced conversion of hundreds of thousands of pieces of equipment to a less efficient, more costly alternative.

The 2009 HCFC allocation rule considered five proposals to modify the 2003 rule. The 2003 rule was a cap and trade system - the allowances EPA allocated could be traded among companies producing and using the regulated HCFCs. The 2009 proposal reflected EPA’s intent to further phase down total U.S. baseline HCFC production and consumption. But to do this EPA adopted the option that most benefited the legacy chemical producers, effectively a continuation of the existing cap and trade system for R-22 and R-142b with further reductions in the caps, and extending the allocations to R 124 and other substances.

The 2009 rule allocated nearly 120 million kg in R 22 consumption allowances, 87% of which is held by only three firms. The rule allocated about 21 million kg in R 142b allowances, all held by just four companies. As explained above, because the 2003 allocation system focused on legacy firms, our firm has no consumption allocation of its own for either substance under the 2003 or 2009 rule. The 2009 rule did grant ICOR an allowance for R 124, 3.3% of the total allotted. Three companies received more than 94% of the R 124 allocation.

What has resulted, as ICOR predicted, is now a system of cap and NO trade . The three producers with the majority of allocation are no t using all their allocation, but now refuse to trade. EPA allowed no flexibility to empower small refrigerant manufacturers like ICOR to fill the consumer demand in existing equipment for our product or innovate new products.

Further, EPA stated its intent that the allocation decrease would “promote recycling andreclamation, which in turn should prevent shortages which might otherwise occur upon the stepdown in 2015.” 74 Fed. Reg. 66418. Unfortunately, EPA did nothing to follow through that intent and ignored the opportunity to encourage refrigerant reclaimers by granting them HCFC allowance. This lack of action on reclaimers effectively allows large refrigerant producers to default into control of the reclamation industry, as a reclaimer must align itself with a producer to obtain the material to economically reclaim HCFCs.

The 2009 rule was based on incorrect assumptions. They were incorrect at the time, and the inaccuracy has since been amply demonstrated by ICOR’s plight. In 2009 EPA stated

“Option 1 does not automatically prohibit new entrants, as they could acquire allowances from existing allowance holders under the existing regulatory framework”

“EPA believes that any new entrants following the ANPRM publication would not be precluded from entering the market, because they could purchase allowances from existing allowance holders who may not intend to use their full amount of allowances.”

EPA was incorrect. There are millions of poun ds of allowances unused every year which theoretically could be acquired by ICOR or other new entrants, but they are not for sale by the holders who benefitted from EPA’s original allocati on grant. Additionally the effect of the large10640 East 59th Street • Indianapolis, IN 46236 • 317.826.3200 • 800.497.6805 www.icorinternational.com • icorinfo@icorinternational.com refrigerant producers sitting on unused allocation has been a steep increase in the market price of the relatively small remaining allocation which is for sale by small allocation holders. In 2011 ICOR cannot purchase that unused allocation.

As to reclamation, the EPA admitted in the 2009 rule that “Forty five commenters encouraged EPA to allocate HCFC-22 consumption allowances to reclaimers...” and that “...EPA also received two comments stating that allocations to reclaimers are not necessary...” One of the reasons EPA advanced to justify no reclaimer credit was that such a system would reduce the allocations of current allowance holders. 74 Fed.Reg. 66423. Of course it would, but is that a problem if new companies are providing valuab le reclamation services! Isn't reclamation a responsible refrigerant policy goal, more important than slavish protection of the full allocation of the status quo companies? It is now very clear that the 45 supporters of allowing reclaimers HCFC allocation were correct, and that EPA's refusal to establish reclamation credit allocation was bad policy.

The United States agreed to the Montreal Protocol, and use of the allotted amount of HCFCs should not be exclusive to the few companies selected by EPA. The companies given allotment should use it or lose it. The EPA’s HCFC allocation system has already shut down three refrigerant blenders this year, shuttered multiple reclamation facilities, and is going to put the employees of ICOR in the United States in the unemployment line if something is not changed in the HCFC allocation system. More importantly to our economy, the allocation system is preventing us and other independent producers from developing innovative products and moving to the next generation of refrigerants.

The industry can live with the lower Montreal production and consumption levels, as long as there is trade in the caps, to meet demands and op portunities for innovation. By establishing in 2003 and then further encouraging in 2009 a rigid system giving all advantages to a handful of large legacy producers, EPA is picking winners and losers, driving any innovative spark or energy from this line of commerce, and depriving US consumes of products which are more efficient and competitive than those produced by the EPA blessed allocation holders.

The proper solution would be for the EPA to utilize 2008 and 2009 Consumption data and reallocate all unused HCFC Cons umption Allowances from thos e not fully utilizing them to those manufacturers of HCFC products who either purchased HCFC products or the HCFC Consumption Allowances during 2008 and 2009. Additionally, the EPA should provide each EPA certified reclaimer, currently not holding HCFC-22 Allocation, HCFC-22 Consumption Allocation equal to two times their previous ye ar’s HCFC-22 recovery activity. This process should begin in 2012, using 2011 reclamation data and continue until 2014. By implementing these two solutions the EPA would provide a more functional supply of HCFCs for domestic consumption of products that consumers demand.

As requested, ICOR is providing the EPA with comm ents to the Interim Fina l rule. Over the past eight years ICOR has provided comments to EPA Proposed rulings, ICOR has communicated its view of the industry, ICOR has explained the impact of EPA regulations on the industry, and ICOR has shared information about the effects of the HCFC Allocation system. For the last eight years the EPA has also required that those with out HCFC Allocation must pay those with HCFC10640 East 59th Street • Indianapolis, IN 46236 • 317.826.3200 • 800.497.6805 www.icorinternational.com • icorinfo@icorinternational.com Allocation in order to compete in the same indu stry. During the past eight years the EPA has continued to tell ICOR that HCFCs would be plentiful and we would be able to obtain the necessary HCFCs from those with HCFC Allocation. During the past eight years the EPA has received numerous requests from ICOR and other companies requesting that the HCFC Allocation system be modified in order to provide for greater competition. On December 15, 2009 the EPA chose to maintain the status quo. On August 5, 2011 the EPA chose again to maintain the status quo. Now our industry has reached a point where EPA policy has caused some companies to discontinue offering their HCFC products.

As always, we appreciate the opportunity to comment and will continue to provide the EPA with a small business’ view of regulatory proposals.

Sincerely,

Milton J. Cuevas II Vice President, CFO & COO

Senator Daniel Coats B40E Dirksen Senate Office Building Washington DC 20510 Congressman Dan Burton 2308 Rayburn House Office Building Washington, D.C. 20515-0001

Senator Harry Reid 522 Hart Senate Office Building Washington DC 20510 Congressman Mike Pence 1431 Longworth HOB Washington, DC 20515

Senator Dean Heller 4 Russell Courtyard Washington, DC 20510 Congressman Joe Heck 132 Cannon HOB Washington, DC 20515 Senator Jon Cornyn 517 Hart Senate Office Building Washington DC 20510 Congressman Pete Sessions 2233 Rayburn House Office Building Washington, DC 20515-4332

Senator Kay Bailey Hutchinson 284 Russell Senate Office Building Washington DC 20510 Congressman Fred Upton 2183 Rayburn House Office Building Washington, D.C. 20515

Senator James M. Inhofe 205 Russell Senate Office Building Washington DC 20510 Congressman Darrell Issa 2347 Rayburn House Office Building Washington, DC 20515

# ATTACHMENT 3

EPAletter.pdfMay 17, 2011

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Letter to EPA re ICOR.pdf

# ATTACHMENT 5

Summary of Interagency Comments_2060-AQ98 HCFC Allowance Adjustments 2012.docx

## 	



	

 


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1. Some stakeholders have expressed concern that EPA’s system of allocations has allowed for the existence of an oligopoly that is artificially limiting HCFCs in the economy by refusing to engage in the trading that is essential to mitigating the economic effects of an HCFC phase

 out. If true, this should raise significant concerns that EPA’s program is contributing to the unnecessary stifling of the very innovation that EPA knows will be necessary in the post

 2015 environment. EPA should also be very wary of using current market conditions as a basis for speeding up the phase

 out schedule, since both the economic recessions and failure of the trading system would depress production and consumption of HCFCs.

It would be helpful to understand how EPA would respond to these concerns, including whether it can release production and consumption data to confirm ICOR’s allegations and how it will respond to ICOR’s petition for re

 allocation. It would also be helpful to better understand whether EPA has seen recycling and reclamation at the levels anticipated in the 2009 rulemaking and whether the misallocation of consumption allocations is impeding reclamation efforts.

2. We would like to encourage EPA to consider whether the rule could or should allow for flexibility to lower further the overall amount of HCFC consumption and production allowances authorized, particularly for HCFC

 22. Doing so would help to foster the growth of an HCFC reclamation industry and create the right incentives to ensure that the United States is able to be a leader in meeting and exceeding phaseout obligations under the Montreal Protocol in a way that is environmentally responsible. It seems advisable to provide for incentives for reuse/reclamation, recognizing it needs to be done in a practical and balanced way. Doing so would also put the United States in a better position to promote a faster phaseout of HCFCs in other countries, which would provide significant ozone and climate benefits.