```

[Federal Register Volume 78, Number 64 (Wednesday, April 3, 2013)]
[Rules and Regulations]
[Pages 20004-20029]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07758]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[EPA-HQ-OAR-2011-0354; FRL-9797-5]
RIN 2060-AQ98

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

AGENCY: Environmental Protection Agency [EPA].

ACTION: Final rule.

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SUMMARY: EPA is adjusting the allowance system controlling U.S. 
consumption and production of hydrochlorofluorocarbons (HCFCs) as a 
result of a 2010 Court decision vacating a portion of the 2009 final 
rule titled ``Protection of Stratospheric Ozone: Adjustments to the 
Allowance System for Controlling HCFC Production, 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 allowances for 2011. Today's action 
relieves the regulatory ban on production and consumption of these two 
chemicals following the Court's vacatur by establishing company-by-
company HCFC-22 and HCFC-142b baselines and allocating production and 
consumption allowances for 2012-2014.

DATES: This final rule is effective April 3, 2013.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2011-0354. All documents in the docket are listed on the 
www.regulations.gov Web site. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically through 
www.regulations.gov or in hard copy at the Air and Radiation Docket and 
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., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744, and the 
telephone number for the Air and Radiation Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Luke H. Hall-Jordan by telephone at 
(202) 343-9591, or by email at hall-jordan.luke@epa.gov, or by mail at 
U.S. Environmental Protection Agency, Stratospheric Protection Division 
(6205J), 1200 Pennsylvania Ave. NW., Washington, DC 20460. You may also 
visit the Web site of EPA's Stratospheric Protection Division at 
www.epa.gov/ozone/strathome.html for further information about EPA's 
Stratospheric Ozone Protection regulations, the science 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 than 30 days after they are published in 
the Federal Register. EPA is issuing this final rule under section 
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 nevertheless acting consistently with the policies underlying 
APA section 553(d) in making this rule effective April 3, 2013. APA 
section 553(d) allows an effective date less than 30 days after 
publication for any action ``that grants or recognizes 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 ensure the 
availability of these HCFCs for servicing air conditioning and 
refrigeration equipment.
    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 
Ozone Layer

[[Page 20005]]

MOP--Meeting of the Parties
MT--Metric Ton
ODP--Ozone Depletion Potential
ODS--Ozone-Depleting Substances
Party--States and regional economic integration organizations that 
have consented to be bound by the Montreal Protocol on Substances 
that Deplete the Ozone Layer

    Organization of This Document. The following outline is provided to 
aid in locating information in this preamble.

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 this rulemaking?
    D. How does this action relate to the 2010 court decision?
IV. How is EPA allocating HCFC-22 and HCFC-142b allowances for 2012-
2014?
    A. What baselines is EPA using for HCFC-22 and HCFC-142b 
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 allocation 
amounts for HCFC-22 and HCFC-142b?
    1. How is EPA adjusting estimated servicing need to account for 
surplus inventory from past years?
    2. How is EPA adjusting allowances to encourage recovery, 
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 businesses in 
this final action?
    5. Does the installation of dry-shipped HCFC-22 equipment 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 allowances?
    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 allocating in 
2012-2014?
    3. How many HCFC-142b consumption and production allowances is 
EPA allocating in 2012-2014?
    4. How does the aggregate allocation for HCFC-22 and HCFC-142b 
translate entity-by-entity?
V. How is EPA changing the regulations governing transfers of Class 
II allowances?
    A. How is EPA changing the regulations governing permanent 
transfers of Class II allowances?
    B. How is EPA changing the regulations governing transfers of 
Article 5 Class II allowances?
VI. Statutory and Executive Order Reviews
    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 Coordination with 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children from 
Environmental Health and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
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 325120), including 
fluorinated hydrocarbon gases manufacturers and reclaimers;
--Other Chemical and Allied Products Merchant Wholesalers (NAICS code 
422690), including chemical gases and compressed gases merchant 
wholesalers;
--Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing entities (NAICS code 
333415), including air-conditioning equipment and commercial and 
industrial refrigeration equipment manufacturers;
--Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS 
code 423730), including air-conditioning (condensing unit, compressors) 
merchant wholesalers;
--Electrical and Electronic Appliance, Television, and Radio Set 
Merchant Wholesalers (NAICS code 423620), including air-conditioning 
(room units) merchant wholesalers; and
--Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 
238220), including central air-conditioning system and commercial 
refrigeration installation; HVAC contractors.

This list is not intended to be exhaustive, but rather provides a guide 
for readers regarding entities likely to be regulated by this action. 
This table lists the types of entities that could potentially be 
regulated by this action. Other types of entities not listed in this 
table could also be affected. To determine whether your facility, 
company, business organization, or other entity is regulated by this 
action, you should carefully examine these regulations. If you have 
questions regarding the applicability of this action to a particular 
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 HCFC-142b 
allowances for the years 2012, 2013 and 2014 in the wake of the U.S. 
Court of 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 
allowances for 2012-2014. Baselines and calendar-year allowances for 
these two substances were originally finalized in a December 15, 2009, 
rule (``2009 Final Rule,'' 74 FR 66412).
    EPA is finalizing HCFC-22 and HCFC-142b baseline allowances that 
incorporate the inter-pollutant transfers made by Arkema, Inc., Solvay 
Fluorides, LLC, and Solvay Solexis, Inc., (Arkema and Solvay) in 2008, 
and is setting calendar-year allowances for the 2012-2014 control 
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 allowances accordingly. EPA 
anticipates this adjustment will foster a smooth transition away from 
ozone-depleting HCFC-22. While EPA is reducing domestic consumption 
(i.e. production and import for U.S. use), under the recalculated 
baselines, the overall production allowances will increase. Because 
other countries have different approaches to phasing out HCFC-22, EPA 
considers that this increase in the number of production allowances 
will also ensure that U.S. companies can continue to meet demand for 
HCFCs in global markets. This supports the

[[Page 20006]]

Montreal Protocol's overall goal of limiting need for new production 
capacity for controlled 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 vacatur of 
the baselines in the 2009 Final Rule, it must provide meaningful 
compensation for 2010 calendar-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.
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    \1\ Consumption allowances permit an entity to produce and/or 
import virgin HCFCs in a given control period (i.e., calendar year).
    \2\ Production allowances permit an entity to produce virgin 
HCFCs in a given control period. Domestic production of HCFCs 
requires the use of both production and consumption allowances.
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    EPA is also updating HCFC-142b baselines and annual allowances and 
is allocating approximately the same amount of calendar-year 
consumption allowances as in the 2009 Final Rule. Due to the 
recalculation of HCFC-142b baselines, calendar-year HCFC-142b 
production allowances are higher than in the 2009 Final Rule, but have 
been calculated using the same methodology. Therefore, while the 
percentage of baseline issued for HCFC-142b is the same for both 
consumption and production allowances, the recalculated production 
baseline is now significantly larger than the consumption baseline, 
resulting in an overall increase in calendar-year production allowances 
compared with the 2009 Final Rule.
    Finally, EPA is modifying the transfer language at 40 CFR 82.23 to 
more explicitly reflect EPA's policy on inter-pollutant HCFC allowance 
transfers; that is, that inter-pollutant HCFC transfers can occur only 
on an annual basis going forward.
    All other aspects of the 2009 Final Rule not addressed 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-year 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 
response to the proposed rule, as well as comments to the 2011 Interim 
Final Rule that are relevant to this current rulemaking. A full 
response to comments document (``Response to Comments'') is available 
in the docket for this rulemaking.

III. Background

    EPA is undertaking this rulemaking as a result of the decision 
issued by the Court in Arkema v. EPA (618 F.3d 1, D.C. Cir. 2010) 
regarding the December 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 petitions for judicial review of the rule under 
section 307(b) of the Clean Air Act. Among other arguments, the 
petitioners contended that the rule was impermissibly retroactive 
because in setting the baselines for the new regulatory period, EPA did 
not take into account certain inter-pollutant baseline transfers that 
petitioners had performed during the prior regulatory period.
    The Court issued a decision on August 27, 2010, agreeing 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 ``for 
prompt resolution,'' (618 F.3d at 10). The 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: 
Adjustments to the Allowance System for Controlling HCFC Production, 
Import, and Export,'' (``2011 Interim Final Rule,'' 76 FR 47451). 
Today's final rule follows that action, and establishes a path 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 Ozone Layer 
(Montreal Protocol) is the international agreement aimed at reducing 
and eventually eliminating the production and consumption of 
stratospheric ozone-depleting substances (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 includes restrictions on production, consumption, 
and use of ODS that are subject to acceleration 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 Sec.  606). Both the Montreal 
Protocol and the Clean Air Act (CAA) define consumption as production 
plus imports minus exports.
    In 1990, as part of the London Amendment to the Montreal Protocol, 
the Parties identified HCFCs as ``transitional substances'' to serve as 
temporary, lower ozone depletion 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 Amendment to the Montreal Protocol, the Parties created a 
detailed phaseout 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 which 
the U.S. adheres. The consumption cap for each non-Article 5 Party was 
set at 3.1 percent (later 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 ODP-weighted metric tons (MT), effective 
January 1, 1996. This became the U.S. consumption baseline for HCFCs.
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    \3\ Class I refers to the controlled substances listed in 
appendix A to 40 CFR part 82 subpart A. Class II refers to the 
controlled substances listed in appendix B to 40 CFR part 82 subpart 
A.
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    The 1992 Copenhagen Amendment created a schedule of graduated 
reductions and provided for the eventual phaseout of HCFC consumption 
(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 cap in 2004, followed 
by 35 percent in 2010, 10 percent in 2015, 0.5 percent in 2020 for the 
servicing of existing refrigeration and air-conditioning equipment, and 
a total phaseout in 2030.
    The Copenhagen Amendment did not cap HCFC production. In 1999, the 
Parties created a cap on production for non-Article 5 Parties through 
an amendment to the Montreal Protocol agreed by the Eleventh Meeting of 
the Parties (Beijing, 29 November--3 December, 1999, Decision XI/5). 
The cap on production was set at the average of: (a) 1989 HCFC 
production plus 2.8 percent of 1989 CFC production, and (b) 1989 HCFC 
consumption plus 2.8

[[Page 20007]]

percent of 1989 CFC consumption. Based on this formula, the U.S. HCFC 
production cap was 15,537 ODP-weighted MT, effective January 1, 2004. 
This became the U.S. production baseline for HCFCs.
    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 19th 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, 2008.\4\
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    \4\ Under Article 2(9)(d) of the Montreal Protocol, an 
adjustment enters into force six months from the date the depositary 
(the Ozone Secretariat) circulates it to the Parties. The depositary 
accepts all notifications and documents related to the Protocol and 
examines whether all formal requirements are met. In accordance with 
the procedure in Article 2(9)(d), the depositary communicated the 
adjustment to all Parties on November 14, 2007. The adjustment 
entered into force and became binding for all Parties on May 14, 
2008.
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    As a result of the 2007 Montreal Adjustment (reflected in Decision 
XIX/6), the U.S. and other non-Article 5 countries may only consume 25 
percent of their HCFC baseline beginning in 2010, rather than 35 
percent. Other milestones remain the same. The adjustment also resulted 
in a phaseout schedule for HCFC production that parallels the 
consumption phaseout schedule. All production and consumption for non-
Article 5 Parties is phased out by 2030.
    Decision XIX/6 also adjusted the provisions for Parties operating 
under paragraph 1 of Article 5 (developing countries): (1) To set HCFC 
production and consumption baselines based on the average of 2009-2010 
production and consumption, respectively; (2) to freeze HCFC production 
and consumption at those baselines in 2013; 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 average 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 
Parties 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 
percent of baseline levels'' for export to Article 5 countries ``in 
order to satisfy basic domestic needs'' until 2020. Paragraph 14 of 
Decision XIX/6 notes that by no later than 2015, the Parties would 
consider ``further reduction of production for basic domestic needs'' 
in 2020 and beyond. Under paragraph 13 of Decision XIX/6, the Parties 
will review in 2015 and 2025, respectively, the need 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 of air-conditioning and 
refrigeration appliances.

B. How does the Clean Air Act phase out HCFCs?

    The U.S. has chosen to implement the Montreal Protocol 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 
chemical-by-chemical phaseout that employed a ``worst-first'' approach, 
which focuses on phasing out 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 and ultimately a complete phaseout (58 
FR 15014, March 18, 1993; 58 FR 65018, December 10, 1993).
    On January 21, 2003, EPA promulgated regulations (``2003 Final 
Rule,'' 68 FR 2820) to ensure compliance with the first reduction 
milestone in the HCFC phaseout: the requirement that by January 1, 
2004, the U.S. reduce HCFC consumption 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 HCFC-
142b for the initial regulatory period ending December 31, 2009. 
Section 601(2) states 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 allowances 
had differing production and import histories, no single year was 
representative for all companies. Therefore, EPA assigned an individual 
consumption baseline year to each company 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 provided 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 ensure that small 
businesses that might not have been aware of the impending rulemaking 
would be able to continue in the HCFC market.
    The 2003 Final Rule apportioned production and consumption 
baselines to each company in amounts equal to the company's highest 
``production year'' or ``consumption year,'' as described above. It 
completely phased out the production and import of HCFC-141b by 
granting zero percent of that substance's baseline for production 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 granted 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 complete phaseout of HCFC-141b, the 
allocations for HCFC-22 and HCFC-142b, combined with projections for 
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., calendar 
year). Prior to December 15, 2009, EPA had not allocated any HCFC 
allowances for 2010 or beyond. 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 
allowances, 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 production and consumption, at specified 
amounts, of HCFC-142b, HCFC-22, and other HCFCs not previously included 
in the allowance system, for the 2010-2014 control periods.
    In the U.S., an allowance is the unit of measure that controls 
production and consumption of ODS. EPA establishes company-by-company 
baselines (also known as ``baseline allowances'') and allocates 
calendar-year allowances equal to a percentage of the baseline for 
specified control periods. A calendar-

[[Page 20008]]

year allowance represents the privilege granted to a company to produce 
or import one kilogram (not ODP-weighted) of the specific substance. 
EPA allocates two types of calendar-year allowances--production 
allowances and 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 may request a refund of 
those consumption allowances by submitting proper documentation and 
receiving approval from EPA.
    Since EPA is implementing the phaseout on a chemical-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 may transfer calendar-year allowances of one type of 
HCFC for calendar-year allowances of another type of HCFC, with 
transactions weighted according to the ODP of the chemicals involved. 
Pursuant to section 607 of the CAA, EPA applies an offset to each HCFC 
transfer by deducting 0.1 percent from the transferor's allowance 
balance. The offset benefits the ozone layer since it ``results 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'' (42 U.S.C. 7671f).
    The U.S. remained comfortably below the aggregate HCFC cap through 
2009. The 2003 Final Rule announced that EPA would allocate allowances 
for 2010-2014 in a subsequent action and that those allowances would be 
lower in aggregate than for 2003-2009, consistent with the next 
stepwise reduction for HCFCs under the Montreal Protocol. EPA stated 
its intention to determine the number of allowances that would be 
needed for HCFC-22 and HCFC-142b, bearing in mind that other HCFCs 
would also contribute to total HCFC consumption. EPA noted that it 
would likely achieve the 2010 stepwise reduction by applying a 
percentage reduction to the HCFC-22 and HCFC-142b baselines. EPA 
subsequently 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 Final 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 need allocated in the form of 
allowances should not remain constant from year to year but rather 
should 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 
for which there was no allocation, and therefore would need to be met 
through recycling and reclamation, rose from 20 percent in 2010 to 29 
percent in 2014 to ensure the U.S. market would have a viable 
reclamation industry and could meet the 2015 stepwise reduction under 
the Montreal Protocol.
    As explained in the Background section, EPA is undertaking 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 rulemaking. Section 605 
of the CAA phases out production and consumption and restricts the use 
of HCFCs in accordance with the schedule set forth in that section. As 
discussed in the 2009 Final Rule (74 FR 66416), section 606 provides 
EPA authority to set a more stringent phaseout schedule than the 
schedule in section 605 based on an EPA determination regarding current 
scientific information or the availability of substitutes, or to 
conform to any acceleration under the Montreal Protocol. EPA previously 
set a more stringent schedule than the section 605 schedule through a 
rule published December 10, 1993 (58 FR 65018). Through the 2009 Final 
Rule, EPA accelerated the section 605 schedule to reflect the 
acceleration under the Montreal Protocol as agreed to under the 
Montreal Protocol in September 2007. The more stringent schedule 
established in that rule is unaffected by the 2010 Court decision and 
is therefore still in effect.
    Section 606 provides EPA authority to promulgate regulations that 
establish a schedule for production and consumption that is more 
stringent than what is set forth in section 605 if: ``(1) based on an 
assessment of credible current scientific information (including any 
assessment under the Montreal Protocol) regarding harmful effects on 
the stratospheric ozone layer associated with a class I or class II 
substance, the Administrator determines that such more stringent 
schedule may be necessary to protect human health and the environment 
against such effects, (2) based on the availability of substitutes for 
listed substances, the Administrator determines that such more 
stringent schedule is practicable, 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 title.'' It is only necessary to meet 
one of the three criteria. In the 2009 Final Rule, EPA determined that 
all three criteria had been met with respect to the schedule for 
phasing out production and consumption 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 phaseout schedule, section 614(b) of the CAA provides that in the 
case of a conflict between the CAA and the Montreal Protocol, the more 
stringent provision shall govern. Thus, section 614(b) requires the 
agency to establish phaseout schedules at least as stringent as the 
schedules contained in the Montreal Protocol. To meet the 2010 stepdown 
requirement, EPA is continuing to allocate HCFC allowances at a level 
that will ensure the aggregate HCFC production and consumption will not 
exceed 25 percent of the U.S. baselines. For more discussion of this 
point, see 74 FR 66416.
    Finally, section 607 addresses transfers of allowances 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 change to the regulations governing inter-pollutant 
transfers to provide additional clarity to stakeholders.

D. How does this action relate to the 2010 court decision?

    Certain allowance holders affected by the 2009 Final 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, and Solvay Solexis, Inc., contended that the 
rule was impermissibly retroactive because in setting the baselines for 
the new regulatory period, EPA did not take

[[Page 20009]]

into account certain inter-pollutant baseline transfers that 
petitioners had performed during the prior regulatory period. The 2011 
Interim Final Rule contained a description of those transfers and the 
EPA approvals 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 April 18, 2008. Each 
company requested EPA's approval to convert HCFC-142b allowances to 
HCFC-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 Solvay Fluorides, LLC 
on February 21, 2008, and March 20, 2008, and to Arkema, Inc. in April 
2008. The transfer requests and EPA's non-objection notices were 
attached to petitioners' court filings and are available in the docket 
for this action.
    In the Notice of Proposed Rulemaking titled ``Protection 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 for the 2010-
2014 regulatory period ``with or without'' taking into account baseline 
inter-pollutant transfers made during the 2003-2009 regulatory period 
(73 FR 78687). The proposed regulatory 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 Proposed 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 inter-pollutant transfers from one regulatory period to 
become a part of the baseline in the next regulatory period could 
undermine the agency's chemical-by-chemical phaseout approach and 
encourage market manipulation. EPA also concluded that section 607 of 
the CAA was best read as limiting inter-pollutant transfers to those 
conducted 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, agreeing 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 part, ``insofar as it 
operates retroactively,'' and remanded to EPA ``for prompt 
resolution,'' (618 F.3d at 10). The Court withheld the mandate for the 
decision pending the disposition of any petition for rehearing. On 
November 12, 2010, EPA filed a petition for rehearing, which was denied 
on January 21, 2011. The mandate issued on February 4, 2011.
    EPA presented its interpretation of the Court's decision with 
regard to baseline allowances and 2011-2014 calendar-year allowances in 
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, and because various parts of 
the rule are intertwined, EPA relied on its expertise in administering 
the HCFC phaseout regulations under Title VI of the CAA to determine 
how to apply the vacatur within the confines of the balance of the 
rule, which was not vacated. First, EPA noted that the rule contains 
elements that were not at issue in the litigation. EPA concluded that 
the vacatur 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 
introduction into interstate commerce, were unaffected by the vacatur.
    The baselines for HCFC-142b and HCFC-22 were clearly at issue in 
the litigation and indeed are the focus of the Court's opinion. The 
Court 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). Because baseline and 
calendar-year allowances are inextricably linked,\5\ EPA determined 
that the Court's vacatur voided the HCFC-22 and HCFC-142b 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 companies listed 
in those sections.\6\ This meant that in the absence of this rule, 
production and import of these two substances were prohibited under 40 
CFR 82.15. Recognizing this scenario, EPA sent letters in January 2012 
and January 2013 to affected stakeholders informing them that the 
agency would exercise enforcement discretion for a limited period 
provided their production and import did not exceed specified levels 
and provided that they adhered to additional conditions.
---------------------------------------------------------------------------

    \5\ Baseline and calendar-year allocations are inextricable 
because calendar-year allocations are expressed as a percentage of 
baseline, and the percentage of baseline allocated for a specific 
substance varies depending on the sum of all company baselines for 
that substance. The process is described in greater detail in 
section IV.
    \6\ The companies' allocations are inter-related because, as 
noted in footnote 5, the percentage of baseline allocated varies 
according to the sum of the company-specific baselines.
---------------------------------------------------------------------------

    In determining the meaning of the Court's vacatur, EPA considered 
whether this interpretation was consistent with what the Court intended 
and a good fit for the specific circumstances, which include the goals 
and design of 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 more 
appropriate in a case involving a program with different goals, design, 
or structure.
    EPA's initial response to the Court's partial vacatur 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 allowances for 2012-
2014?

    EPA is continuing the system established in previous 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 baselines listed in the tables at 40 CFR 82.17 and 
82.19 are added to determine the aggregate amount of baseline 
production and consumption, respectively. Second, EPA determines how 
many consumption 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

[[Page 20010]]

amount of baseline allowances. The resulting percentage is listed in 
the table at section 82.16 and becomes what each company is allowed to 
consume in a given control period. For example, a company with 100,000 
kg of HCFC-22 baseline consumption allowances would multiply that 
number by the percentage allowed for the year (for example, 17.7 
percent in 2012) to determine its calendar-year consumption allowance 
is 17,700 kg.
    In this rulemaking EPA is (1) establishing 2012-2014 company-by-
company consumption and production baselines for HCFC-22 and HCFC-142b 
in the tables at 40 CFR 82.17 and 82.19 identical to the baselines 
established in the 2011 Interim Final Rule (76 FR 47468); (2) 
allocating company-by-company production and consumption allowances for 
these substances for 2012-2014 by establishing allowed percentages of 
production and consumption baselines in two tables at section 82.16; 
and (3) revising the regulatory text at 40 CFR 82.23 to make the 
procedure for all future inter-pollutant transfers 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, section 605 of the 
CAA prohibits the use and introduction into interstate commerce of any 
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 listed 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 
introduction into interstate commerce of HCFC-141b, HCFC-142b, and 
HCFC-22 beginning in 2010, with limited exceptions.

A. What baselines is EPA using for HCFC-22 and HCFC-142b allowances?

    In the January 4, 2012, notice, EPA proposed to establish 2012-2014 
company-by-company consumption and production baselines for HCFC-22 and 
HCFC-142b that were identical to the baselines established in the 2011 
Interim Final Rule (see 40 CFR 82.17 and 82.19). EPA also provided 
advance notice that it would consider updating baselines for the 2015-
2019 regulatory period, especially if there is an environmental 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 inclusion of past inter-pollutant transfers of baseline 
allowances, and believe that the proposed baselines are fully 
consistent with the Arkema decision. On the other hand, DuPont and 
Honeywell state that Arkema does not require EPA to recognize the 
inter-pollutant baseline transfers beyond 2009, nor does it address the 
validity of the 2008 transfers. 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 
regulations for chemicals that are being phased down. In addition, they 
assert that if EPA does take those transfers 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 effect of increasing the 
baseline share of the petitioners in Arkema and reducing the share of 
other companies in violation 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 set 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 rulemaking and in the 2011 Interim Final Rule (76 
FR 47451). These considerations remain important, and are the basis for 
EPA's policy on future inter-pollutant transfers, which is discussed in 
section V of this notice. However, EPA must act in accordance with the 
Court's holding regarding the 2008 transfers. In Arkema, the Court 
concluded that EPA's non-objection notices for the 2008 transfers 
created ``vested rights'' in the transferred baselines, which EPA must 
reflect in rules governing the current regulatory period, at least to 
the extent such rules continue to use the historical production and 
consumption baselines. The Court explicitly held that ``the Agency'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 Arkema decision, and 
given the recent decision in Honeywell International, Inc. v. EPA, DC 
Cir. No. 10-1347 (January 22, 2013) (``Honeywell''), EPA is recognizing 
the 2008 transfers in establishing the baselines through 2014. Thus, 
the baselines finalized for 2012-2014 in today's rule are identical to 
the HCFC-22 and 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 
authority to approve permanent inter-pollutant baseline transfers, that 
the 2008 transfers as characterized by the Court are thus invalid, and 
that EPA should not recognize them in setting baselines. The validity 
of the 2008 transfer approvals was challenged in Honeywell. The brief 
filed by the agency on January 30, 2012, provides further 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 authority to approve 
inter-pollutant transfers whose effects were limited to the regulatory 
period ending in 2009. Rather, they assert that EPA lacked authority to 
approve inter-pollutant transfers with effects lasting beyond 2009. 
They state that Arkema did not determine the validity of such 
transfers. Yet the Arkema Court found contrary to the Agency's 
position, that EPA had ``approved permanent changes to the baseline as 
a result of inter-pollutant transfers'' and that the Agency could not 
``undo these completed transactions,'' (Arkema, 618 F.3d at 23). It is 
not plausible that the Court 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-pollutant 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 have 
permanent effects that carry forward to subsequent regulatory periods. 
EPA has discretion under section 607 to determine how to treat such 
transfers. While EPA did not intend its non-objection notices to confer 
permanence to the 2008 inter-pollutant transfers, EPA disagrees with

[[Page 20011]]

commenters' implication that under section 607, the agency could not 
have done so. That would be true only if section 607 expressly 
prohibited permanent inter-pollutant transfers, which it does not. As 
discussed in more detail in section V.A. of this preamble, for policy 
reasons EPA will approve only annual inter-pollutant transfers in the 
future. EPA also believes that while 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 track the statutory 
mandate,'' (Arkema, 618 F.3d at 22).
    Commenters assert that EPA has departed from its own 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 regulations. EPA's intent in the 2003 Rule, 
which established the transfer provisions, was to preclude permanent 
inter-pollutant transfers of baseline allowances (see 68 FR 2835). EPA 
notes that until the rulemaking that resulted in the 2009 Final Rule, 
the agency did not specifically develop a policy on whether inter-
pollutant transfers could ever carry forward to a new regulatory 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 transfers forward to a new regulatory 
period ``departed from the policy it had adopted in the 2003 Rule,'' 
(Arkema, 618 F.3d at 6). EPA cannot disregard the Court's holding on 
the ground that the 2003 Rule prohibited permanent inter-pollutant 
transfers where the Court has found otherwise.
    The commenters are also incorrect that EPA previously interpreted 
its regulations as creating a ``phasedown follows the allowance'' 
principle. 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 principle. Preamble 
statements leading up to and accompanying the 2003 Rule refer to the 
elimination of HCFC-141b baseline upon the chemical's complete 
phaseout, ``regardless of what inter-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 violated 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 vested right (i.e., a specific share of allowances) is not 
in fact a vested right, nor is it protected under the due process 
clause. The Court held that EPA's actions in approving the 2008 
transfers created vested rights in the transferred baselines. The Court 
placed particular emphasis on the fact that the Agency took affirmative 
actions that appeared to ratify the transfers: ``The Agency's approval 
and acknowledgement of Petitioners' actions distinguishes this case 
from situations where a company's unilateral business expectations are 
thwarted by a change in the regulatory framework,'' (Arkema, 618 F.3d 
at 20). The Court did not examine the issue of whether companies 
possessed vested rights in baseline or calendar-year allowances 
generally, or in a specific 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 Clause. Furthermore, it did not state that companies had any 
right to a specific number of production or consumption allowances. On 
the contrary, the Court noted that ``the 2010 stepdown gave the EPA 
occasion to adjust its distribution of allowances,'' (Arkema, 618 F.3d 
at 25).
    EPA's regulatory definitions specify that production 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, culminating in a complete phaseout 
in 2030. EPA's regulations prohibit production and consumption 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 entitlement 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 
allocation rules. Recognition of the 2008 transfers in the aggregate 
HCFC-22 consumption baseline does not require EPA to extract baseline 
allowances from other companies.
    From a procedural perspective, commenters were given multiple 
opportunities to comment on or challenge the effects of the 2008 
transfers 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 the 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. A more 
detailed summary of the comments on this issue, 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 agency received 
four comments on whether it should use more recent production and 
import 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 newly-controlled HCFCs 
(74 FR 66412). In addition, using the highest production and import 
levels 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. 
Another commenter believes that updating baselines would avoid 
rewarding companies for attempting 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 baselines. One of the 
commenters believes that the current allocation method is the fairest 
method because it is transparent and well understood by all market 
participants. The other commenter sees no benefit to updating 
baselines, but says future reductions in allocations will benefit the 
environment by promoting reclamation.
    Since EPA did not propose to establish baselines for 2015-2019, the 
agency will continue to assess the merits of using a more recent set of

[[Page 20012]]

years to establish baselines in a later rulemaking. The agency is still 
receptive to the idea of updating baselines in 2015, but notes that it 
did not receive any evidence that there is an environmental benefit to 
doing so.

B. What factors did EPA consider in determining allocation amounts for 
HCFC-22 and HCFC-142b?

    In the 2009 Final Rule, EPA decided to allocate HCFC-22 and HCFC-
142b allowances based on the projected servicing needs for those 
substances, taking into account the portion of need that can be met 
through recycling and reclamation. 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, baselines that 
reflect 2008 inter-pollutant baseline transfers. This approach 
necessitates issuing a different percentage of company baselines in 
order for the aggregate number of calendar-year HCFC-22 consumption 
allowances to be less than or equal to the 2009 Final 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) 
increased 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 Considerations for 
Estimating Virgin Demand'' (Adjustment Memo), included in the docket to 
this rulemaking. In the Adjustment Memo, EPA considers a higher and a 
lower HCFC-22 allocation scenario for each year. In the larger 
allocation scenario: (1) Surplus inventory from past years (hereinafter 
called ``existing inventory'') meets 6,000 MT of estimated need each 
year; (2) recovery and reclamation meet 12,500 MT of need, the same 
amount as in the 2009 Final 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 MT of estimated need each year; (2) recovery and reclamation meet 
19,700 MT of estimated servicing need; and (3) 70 percent of total need 
in the large retail food sector is met by in-house recovery and reuse.
    As shown in Table 4 of the Adjustment Memo, the agency proposed to 
issue HCFC-22 consumption allowances as follows: (1) Between 25,100 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 16,400 and 26,300 MT in 2014 (a 
decrease of 15 to 47 percent). These proposed amounts correspond to 
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 
supermarket industry. EPA also asked for comment on potential 
difficulties faced by small businesses and on whether or not the 
installation of dry-shipped HCFC-22 condensing units affects the 
phaseout.
    Between the 2011 Interim Final Rule and the proposed 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-22 to service existing 
equipment is the primary factor affecting EPA's overall allocation of 
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 primarily on HCFC-22.
    Additionally, EPA received 13 comments, four from the Interim Final 
Rule and nine from the proposed rule, on whether or not to provide more 
HCFC-22 and/or HCFC-142b consumption and/or production allowances as 
compensation for lost opportunities during 2010 (``recoupment''). 
Lastly, the agency proposed to allocate different annual percentages of 
baseline for consumption than for production (``decoupling''). Without 
decoupling the baselines, the percentage of baseline allocated for 
production would be the same as that for consumption for a given HCFC. 
Nine comments specifically addressed decoupling 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 inventory of HCFC-22 
produced in previous years by making downward adjustments to the 
consumption allocation of 6,000 MT each year. EPA's analysis indicated 
the amount of existing inventory was between 22,700 MT and 45,400 MT. 
Including relevant comments received on the 2011 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 inventory 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 stockpile 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 proposed rule may be 
too low based on their own inventory and their own estimates of 
industry-wide inventory.
    All comments on EPA's analysis, including confidential comments, 
indicate EPA's estimate of existing inventory is reasonable and that an 
annual adjustment to the estimated servicing need of 6,000 MT is 
supportable. EPA considered a wide range of existing inventory (between 
22,700 MT and 45,500 MT), but comments support 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 estimate 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 decommissioned. EPA provides a full summary of comments and 
agency responses in the Response to Comments, but notes here that all 
commenters who addressed the proposed 6,000 MT adjustment specifically 
were in support of an adjustment at least that large. EPA is finalizing 
the consumption allocation with the proposed adjustment for existing 
inventory.
2. How is EPA adjusting allowances to encourage recovery, 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 reclaimed. The 2009 Servicing Tail Report analyzed various 
reclamation scenarios, and after several 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

[[Page 20013]]

estimated need. EPA continues to believe that reused, recycled, and 
reclaimed material can help meet HCFC-22 servicing needs. The agency 
published new projections of reclaim capabilities in the Adjustment 
Memo, and took comment on those projections via this rulemaking.
    Out of the 15 comments EPA received on reclaim capabilities, 14 
comments (some signed by multiple organizations) supported EPA's 
analysis that the reclamation industry has the capacity to reclaim more 
than 19,700 MT per year. One comment stated that the infrastructure to 
effectively and efficiently recover, recycle, redistribute, 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 assumption that this activity will 
automatically take place.
    In the Adjustment Memo, EPA considered annual reclamation 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 reclamation 
companies will be able to expand to cover the need that will ultimately 
be driven by higher prices and a decrease in supply. However, companies 
will not expand until there is a need. Another 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 encourage an increase in reclamation capacity 
and volume. These commenters, including 20 EPA-certified reclaimers 
that submitted a single comment, all believe that the capacity exists 
to handle 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 industry needs, but are not convinced 
that given the present situation, there will be enough refrigerant 
recovered to meet the raw material needs of the reclaimers. However, a 
group of recovery companies that focuses exclusively in recovering used 
refrigerant from retiring equipment does believe reducing allowances 
will change the incentives for recovery. Finally, one company believes 
that EPA's estimate of the potential for recovery and reuse is too 
optimistic during 2012-2014, 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 
Memo, is supported by most of the comments received. The amount of used 
refrigerant that can be recovered from retiring equipment is sufficient 
to allow for the reclamation of 19,700 MT per year, based on expected 
recovery rates used in the Vintaging Model.\7\ Included in the docket 
for this rulemaking is a new supporting memo titled ``Recovered HCFC-22 
Available to Meet Servicing 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. In 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 recovery 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% Recovery 
Rate,'' which was also presented in the 2009 Servicing Tail Report. In 
the second scenario, EPA assumes all HCFC-22 is 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 conditioning systems--the largest use for HCFC-22.
---------------------------------------------------------------------------

    \7\ The Vintaging Model is the primary tool that EPA uses to 
estimate projected HCFC consumption. The Vintaging Model estimates 
the annual chemical emissions from industry sectors that have 
historically used ODS, including air conditioning, refrigeration, 
foams, solvents, aerosols, and fire protection. Within these 
industry sectors, there are over fifty independently-modeled end 
uses. The model uses information on the market size and growth for 
each of the end uses, as well as a history and projections of the 
market transition from ODS to alternatives. As ODS are phased out, a 
percentage of the market share originally 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 
incorporating information on estimates of the quantity of equipment 
or products sold, serviced, and retired or converted each year, and 
the quantity of the compound required to manufacture, charge, and/or 
maintain the equipment. EPA's Vintaging Model uses this market 
information to build an annual 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 servicing 
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.
---------------------------------------------------------------------------

    However, EPA agrees with some commenters that the amount of 
refrigerant that is available to be recovered does not necessarily 
equal the amount that is recovered in practice, and that it will take 
time for recovery practices to change. The agency recognizes that 
assuming 19,700 MT of annual 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 transition to HCFC-22 
alternatives and more recovery and reuse of HCFC-22 in systems that 
require a large refrigerant charge. Although both of these outcomes are 
difficult to measure and predict, EPA expects that these outcomes will 
sufficiently deal with any gap between the adjustment in allocation and 
realized reclamation levels. EPA adopted the same general approach in 
the 2009 Final Rule (using 12,500 MT instead of 19,700 MT) to foster 
recovery and reclamation. In addition, EPA has received anecdotal 
information from stakeholders that reclaimers 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 refrigerant 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 should preclude the 
agency from increasing the adjustment for reclamation from 12,500 MT to 
19,700 MT to foster reclamation, especially in light of the 2015 
Montreal Protocol cap and the 2020 phaseout of HCFC-22 production and 
import. EPA believes increased recovery and reclamation is necessary to 
ensure a smooth transition between now and 2020 and is increasing the 
difference (relative to the 2009 Final Rule) between estimated 
servicing need and the allocation for virgin production and import. The 
agency is finalizing the proposed 19,700 MT adjustment to

[[Page 20014]]

foster increased HCFC-22 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 recovery 
and reuse practices in the supermarket industry. Specifically, the 
agency estimated that between 20 percent and 70 percent of annual 
servicing need in the large retail food sector could be met by HCFC-22 
recovered and reused in-house. In addition to the analysis conducted to 
develop 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 Adjustment Memo, indicate 
that supermarkets deal with recovered refrigerant in a variety of ways. 
Some appear to meet 10-20 percent of their 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 
material.
    EPA received an additional comment on reuse by large end users, but 
not specifically supermarkets. The commenter notes that large users 
retiring equipment can efficiently and effectively capture the majority 
of refrigerant from commercial refrigeration and air conditioning 
units. These users can recover refrigerant for future servicing of 
other equipment they own. These users do not require reclamation 
technology or equipment, and can recover and reuse significant volumes 
of refrigerant. Such recovery and reuse should continue to be 
considered as a source of HCFC-22 service refrigerant.
    EPA agrees that large end users, including supermarkets 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 sufficient data on in-house 
reuse, EPA is not accounting for supermarket reuse as its own category. 
However, the agency's Vintaging Model has reasonable estimates for 
actual recoverable material for various sectors, and EPA is using those 
modeled recovery rates for supermarkets to help support overall 
recovery and reuse estimates in this rule (see the Recovery Memo for 
specifics on modeled recovery rates).
4. Did EPA consider providing allowances to small businesses in this 
final action?
    In response to the 2011 Interim Final Rule, one small business 
informed EPA that it could not acquire either HCFC allowances or the 
HCFCs it needs to manufacture its HCFC blend (see the letters from ICOR 
dated May 17, 2011 and September 6, 2011, available in the docket for 
this action). To remedy this situation, the commenter 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 HCFCs 
themselves does not appear to be a widespread problem, as numerous 
companies have made a significant number of transfers over the last 
year alone, and no other company has commented that it cannot acquire 
HCFCs. However, EPA 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 
system.
    EPA received four comments on providing allowances to manufactures 
of HCFC blends, all of which were in opposition. Two companies point to 
the flexibility for companies without baselines to obtain HCFCs or HCFC 
allowances by purchasing 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 in support of 
providing HCFC allowances to manufacturers of HCFC blends, and because 
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 received 
eight comments on this topic: four in opposition and four in support. 
Comments in opposition state that providing allowances to reclaimers 
could encourage blending of refrigerant, instead of reclaiming 
refrigerant. They also cite administrative hurdles in establishing 
allowances for reclaimers and their skepticism that reclaimers would 
actually use the allowances to reclaim more material. All three 
commenters state that the proposed reduction in allowed production and 
import will encourage recovery and reclamation (without providing 
allowances).
    One comment in support encouraged EPA to provide allowances to 
reclaimers as a reward for reclamation activities. The commenter also 
stated that manufacturers create a difficult working environment for 
reclaimers, claiming, for example:
     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 account back 
by offering a higher price for the used refrigerants than justified.

The commenter argues that the desire of manufacturers to promote their 
own best self-interest results in a difficult environment for a 
refrigerant reclaimer to prosper.
    EPA continues to have serious concerns about providing 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 agency's primary concern is that providing allowances for 
reclaimers could foster unsustainable reclamation practices that rely 
on blending, instead of investment in the technology to fully reclaim 
HCFCs. Reclamation through separation and distillation will be more 
important in 2015 when the HCFC-22 allocation must drop by at least 45 
percent from 2010 levels, and it will be absolutely 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 to virgin HCFCs or have made investments to 
reclaim HCFCs in a sustainable way, without a direct allocation of 
allowances.
    EPA continues to believe that allocating fewer allowances--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 recovery and reclamation by providing fewer HCFC-22 
consumption allowances. Fewer allowances for new production and import 
increases the

[[Page 20015]]

value of existing HCFCs, which in turn increases 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 there are 
more than 50. Given the considerations above, the agency is not 
providing allowances to reclaimers at this time.
5. Does the installation of dry-shipped HCFC-22 equipment affect the 
phaseout of HCFC-22?
    In the proposed rule, EPA took comment on whether allowing repairs 
using HCFC-22 dry-shipped condensing units affects the phaseout of 
HCFC-22. Eight commenters believe the repairs of existing equipment 
that involve installation of dry-shipped HCFC-22 condensing units is 
affecting the phaseout and/or should be stopped. They claim that 
continued installation of dry-shipped condensing units effectively 
allows the manufacture of otherwise banned HCFC-22 air-conditioning 
systems, increasing demand for HCFC-22 and undercutting the market for 
alternative refrigerants. One company does not believe dry-shipped 
condensing unit repairs can be properly addressed through a reduction 
in HCFC-22 allocation levels. Cost associated with the HCFC-22 
refrigerant needed for the re-charging of the HCFC-22 system is quite 
small (or that 
dry-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 thus not actually increasing 
demand for HCFC-22 or displacing the sale of new systems. They contend 
that the primary application of the uncharged HCFC-22 replacement 
condensing units is as a service option to major compressor and coil 
failures. While two of the equipment manufacturers who do not support a 
ban on dry-shipped unit repairs also do not support reduced allocations 
of HCFC-22, another equipment manufacturer believes that addressing the 
availability of the refrigerant is the appropriate driver for phasing 
out virgin HCFC-22, and that the installation of dry-shipped HCFC-22 
condensing units does not have a negative effect on the phaseout. 
Another commenter suggests that if EPA has verifiable evidence that the 
servicing or repair of HCFC-22 appliances is resulting in increased 
emissions of the refrigerant, then EPA should 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 condensing units in more 
general terms. One organization suggests that EPA consider that most 
dry-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 not approved by the 
compressor and equipment manufacturers for warranty servicing beyond 
2015. Two other commenters state that the installation of HCFC-22 
condensing units affects the need for HCFC-22. One commenter states 
that contractors prefer selling new R-410a systems 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 consumption allowances might discourage 
installation and field charging of new condensing units with HCFC-22. 
The commenter also states that continued installation of such units 
will only increase the challenge of meeting the 2015 stepdown and in 
turn increase emissions of HCFC-22 to the atmosphere.
    The issue of whether repairs involving the installation of dry-
shipped HCFC-22 condensing units ``affects the phaseout'' can be broken 
into several questions. First, do repairs involving installation of 
dry-shipped HCFC-22 condensing units increase demand for HCFC-22? 
Second, do such repairs slow transition from HCFC-22 equipment to 
equipment using non-ODS alternatives? And finally, does this practice 
affect 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 on each of these 
questions. Specific responses to each comment are included in the 
Response to Comments found in the docket for this rulemaking. However, 
given the paucity of concrete quantifiable information on this subject 
currently available to the Agency, EPA is not ready to determine 
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. 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 quantifiable information on the number of dry-
shipped condensing units being shipped, whether they 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 continue 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 allowances 
for 2011-2014. The agency took comment on whether to interpret the 
decision as applying to the 2010 allocation, and if so, how allowances 
in future control periods might be adjusted 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 provide recoupment for production and consumption, or just 
consumption allowances. In this final action, EPA concludes that it has 
an obligation to consider 2010 allowances in responding to the Court's 
remand and that recoupment for both HCFC-22 and HCFC-142b production 
and consumption allowances is an appropriate response to the Court's 
holding that the agency committed legal error in deciding not to carry 
the 2008 transfers forward when it established the baselines for the 
current regulatory period.
    EPA received 13 comments in opposition to recoupment. Four comments 
specifically state that it is too

[[Page 20016]]

late to address 2010 allowances, 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 
allowances 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 in 2010 
actually went unused in that year, and that EPA's current proposal to 
reduce allowances in 2012-2014 is further rationale for not providing 
additional allowances to compensate for any perceived lost opportunity 
in 2010. They point to EPA's statement in the proposal that not 
providing 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 2010, that Arkema and Solvay 
were not harmed in 2010, and that recoupment allowances would 
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 must 
file a claim for compensation under the Tucker Act, 28 U.S.C. 1491. 
Finally, four comments cite that providing recoupment distorts market 
share, in contradiction to past EPA policy and the Arkema decision as 
it relates to vested rights.
    On the other hand, the two companies that would benefit most from 
recoupment, Solvay and Arkema, state that EPA should provide recoupment 
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 rightful 
allowances by failing to recognize its permanent inter-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-
stop shoppers.
    The primary rationale the commenters present in favor 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 been 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 losses 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 whole, 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 
circumstance EPA may go beyond its otherwise applicable statutory 
authority. The commenter states that each agency has ``general 
discretionary authority to correct its legal errors,'' which extends to 
imposing retroactive changes, even when the statute does not expressly 
and affirmatively authorize 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 
comments and considered the policy and legal aspects of providing or 
not providing recoupment. In particular, EPA considered the following 
questions: (1) Does EPA have the obligation 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 aspects of the 2009 Final Rule with respect to 2010? EPA 
believes that the answer to both questions 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 structure 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 Clean 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 allowance holders in the position they would have 
occupied had the agency reflected the Petitioners' 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 decision had the effect 
of vacating the 2010 allowances. The Court clearly held that the 
baselines used in the 2009 Final Rule were invalid, and the 2010 
allocation relied on those baselines.
    Second, EPA believes it is feasible to provide compensation 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 proposed rule, EPA allocates HCFC production and 
consumption allowances for specific calendar years: 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 allowances 
in later years to make up for the 2010 allowances that companies would 
have received if EPA had reflected the Petitioners' inter-pollutant 
baseline transfers in the 2009 Final Rule. These recoupment allowances 
are designed to compensate for lost opportunities to produce or import 
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 allowances and 
then storing the material over time. Companies receiving recoupment 
were deprived of their ability to import and/or produce HCFCs in 2010 
at a level consistent with the 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 until 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 years. 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 allowances. The commenter quotes section 
607(a), which states that EPA regulations must ensure

[[Page 20017]]

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 would have been if no recoupment were provided. 
However, EPA disagrees that section 607(a), which is titled 
``Transfers,'' has any application to this situation. Section 607(a) 
refers specifically to ``transactions under the authority of this 
section.'' An EPA rulemaking providing allowances is not such a 
transaction. The transactions in question are the ``transfers'' and 
``trades'' within or between companies explicitly discussed in section 
607. EPA has implemented section 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 recoupment 
allowances would mean taking allowances away from others or distorting 
market 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 vested 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 consumption 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 allocating more to a 
different company. EPA is allocating a fixed percentage of baseline to 
each baseline holder at a level that in the aggregate is expected to 
meet servicing demand, taking into account the amount of such demand 
that can be met through other sources. EPA is then allocating 
recoupment allowances to certain companies on top of that fixed 
percentage allocation. Regarding market share, the allocation of 
recoupment allowances is limited to two years; thus, as a practical 
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 or 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 transferred baselines where EPA had taken 
affirmative steps to approve the transfers by issuing non-objection 
notices. The commenter attempts to broaden the decision to state that 
allowance holders have vested rights in any and all allowances issued 
under the stratospheric 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 section 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 situations and business plans may differ. Also, although the 
commenter cites the Court's denial of the motions to stay the 2009 
Final Rule as evidence that petitioners were not harmed in 2010, 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 recoupment allowances 
would harm human health or the environment; however, this action as a 
whole protects human health and the environment by allocating 
significantly fewer allowances 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 recoupment 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 consumption also increases the incentives for 
recovery and reclamation. In addition, as noted in the proposal, the 
amount of recoupment being granted (329 ODP-weighted MT of allowed HCFC 
consumption and 280 ODP-weighted MT of allowed HCFC production) is 
smaller than the number of allowances 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 production 
allowances). EPA's response to additional comments on whether to 
provide recoupment can be found in the Response to Comments.
    The agency presented four possible options with regard 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 recoupment allowances over two years (2013-
2014) in addition to (i.e., on top of) the aggregate level of 
production and consumption; (3) allocating recoupment allowances from 
the aggregate level of production and consumption over two years (2013-
2014); and (4) not issuing recoupment allowances. 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 comments 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 considering 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.
    Option 1 could flood the market in 2013, providing significantly 
more allowances in that one year than in either 2012 or 2014, creating 
an even more significant drop-off in the number of allowances between 
2013 and 2014. EPA also has serious concerns about option 3. Commenters 
in support of option 3 state that companies were ``on notice'' that 
2010 allowances were in dispute before the Court, so EPA should reduce 
allowances 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 that 
produced or

[[Page 20018]]

imported HCFCs during 2010 using consumption and production allowances 
received under the 2009 Final Rule were acting in accordance with the 
regulations in effect at that time.
    Commenters in support of option 3 also claim that since refrigerant 
customers prefer to purchase all refrigerants from one supplier, and 
they 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 that if a company 
loses its ability to sell to one-stop shoppers when it loses 
allowances, the inverse should also be true: Providing additional 
allowances in 2013 and 2014 equal to the amounts lost in 2010 should 
provide approximately the same ability to compete for sales to one-stop 
shoppers as was lost in 2010.
    Only two comments addressed whether EPA should provide recoupment 
for both HCFC-22 and HCFC-142b, or just HCFC-22. One commenter 
supported providing recoupment for both substances, as it ensures 
traceability and consistency. The other commenter believes EPA should 
provide recoupment for HCFC-142b based on a total allowance 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 baselines, 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.
    EPA does not agree with the commenter that it should scale HCFC-
142b recoupment production allowances to match the exact amount 
allocated in 2010. The agency is providing recoupment production 
allowances based on what it proposed in 2008 (73 FR 78680). In 2008, 
the percent of baseline was the same for both consumption and 
production. EPA is therefore using the baseline amount and percentage 
proposed in 2008 to calculate recoupment for HCFC-142b 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 production allowances. 
Since manufacturing HCFC-142b in the U.S. for domestic use requires 
production 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 company's unused 
allowances from 2010 if EPA is providing that company with recoupment 
allowances. To do this, EPA would need to divulge information about how 
each company uses its allowances: such company-specific information has 
never been disclosed in the HCFC phaseout program, and EPA would need 
to consider claims of confidentiality before taking such a step. Also, 
EPA does not believe it is necessary to account for a company's unused 
allowances 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 adjusting 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 amending the regulatory text at 40 CFR 82.16(a) 
accordingly. Recoupment allowances allocated for 2013 and 2014 will 
function in the same way as other calendar year allowances: They can 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 allowances:

                                      Table 1--Final Recoupment Allowances
----------------------------------------------------------------------------------------------------------------
                                                                                    Consumption     Production
                    Company                                 Chemical                   (kg)            (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 baseline for 
production allowances as it does for consumption allowances?
    In considering how to allocate HCFC-22 production allowances for 
2012-2014, the agency proposed to decouple production and consumption 
baseline percentages. Historically, there has only been one table at 40 
CFR 82.16, which lists the percentage of baseline (both production and 
consumption) that every baseline allowance holder is issued each year. 
EPA proposed to create two tables, and to allocate a different 
percentage of baseline for production than for consumption. Decoupling 
would allow the agency to reduce consumption allowances in relation to 
the 2009 Final Rule without having to make the same reductions to 
production allowances. EPA stated its interpretation that section 
605(c) of the CAA does not preclude EPA from decoupling baseline 
percentages and requested comment on this issue. EPA received two 
comments specifically addressing whether the statute precludes 
decoupling.
    Section 605(c) states that EPA must ``promulgate regulations 
phasing out the production * * * of class II substances in accordance 
with [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 States 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 under [Title VI].'' Because the 
phrase ``same schedule'' is not clear on its face, the agency 
considered three possible interpretations of the phrase ``same 
schedule,'' as explained in the proposal

[[Page 20019]]

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, would 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 not proposing to allow production in an amount 
that would be inconsistent with those phasedown 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 and 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, the commenter states that production and 
consumption are tied to the same statutory and treaty schedule, and 
that the agency should provide for increased production.
    The other comment on decoupling was from a group of environmental 
organizations, who supported 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 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 the 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 calendar-year consumption and production 
allowances to keep the allowance quantities the same 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 single ``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 the word ``schedule'' to refer to a more-stringent schedule than 
the schedule set forth in section 605: ``The Administrator shall 
promulgate regulations * * * which establish a schedule 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 limited 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 more-stringent schedule established under section 606 to have a 
similar structure: That is, to 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 allowance system to achieve this schedule. Therefore, the 
agency believes it can issue calendar-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 section 606.
    Discussion of EPA's policy decision to decouple baseline 
percentages is found in section IV.C.2.

C. How many HCFC-22 and HCFC-142b allowances is EPA allocating in 2012-
2014?

    The agency is revising the tables in 40 CFR 82 that together 
specify the production and consumption allowances available during 
specified control 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 47451), (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 percent, and 26.1 
percent of each company's HCFC-22 baselines were allocated for 2012, 
2013, and 2014, respectively. The allocation for HCFC-142b was 0.47 
percent of baseline. As discussed 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 putting 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 allocating 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 estimating the amount of servicing need, taking recovery 
and reclamation into consideration. EPA then finalized an allocation 
that was 12,500 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 the Adjustment Memo in the docket for the rationale 
behind the proposed reduction). In the 2009 Final Rule, 2013 and 2014 
consumption allocations were 35,900 MT and 31,100 MT, respectively. The 
agency proposed to allocate 13 to 42 percent less in 2013 and 15 to 47 
percent less in 2014.
    As discussed in sections IV.B.1. and IV.B.2., comments directly 
addressing reclamation, recovery, and reuse, and the availability of 
existing inventory from past years generally support EPA's estimates of 
the inventory and recoverable material 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 relative 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 the 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 state that a lower 
allocation will increase the value of HCFC-22, resulting in more 
reclamation and increased incentives to recover HCFC-22 from existing 
systems. A lower allocation encourages an orderly phaseout and still 
provides enough allowances to meet servicing needs. Supporters of a 
lower allocation state

[[Page 20020]]

that a reduction is justified because of lower-than-expected need for 
HCFC-22 and the availability of existing inventory from past years. 
Three environmental organizations state that a reduction is (1) 
necessary to protect human health and the environment, and (2) 
practicable in terms of technology, safety, and availability of 
alternatives.
    Comments supporting a higher HCFC-22 consumption allocation cite 
concerns about higher price, limited access to refrigerant and 
unexpected costs, all of which could lead to 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 2009 
Final Rule was too high to foster an orderly transition. In 2015, the 
U.S. must reduce its production and consumption of all HCFCs to below 
10 percent of its historic HCFC baseline under the Montreal Protocol. 
By 2020, HCFC production and consumption must be below 0.5 percent 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 allocation for 2012-2014 that 
fosters the market transition necessary to prevent future disruptions.
    Considering that objective, EPA is providing allowances in this 
final rule based on its assessment of market conditions. For 2012, the 
timing of this rule means that EPA is looking back at actual events 
during 2012 rather than projecting future needs. The agency is issuing 
2012 HCFC-22 consumption allowances at the lowest proposed 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 level 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 Action 
Assurance level enables companies to account for consumption that 
occurred in 2012 in accordance with the No Action Assurance. As stated 
in the No Action Assurance, any HCFCs produced and imported in 2012 
pursuant to the No Action Assurance count towards a company's 
allocation and require the expenditure of 2012 allowances.
    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 allowances 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 consumption 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 properly 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 approximately 25,100 MT
2013: 18.0 percent of baseline, plus 2,954 MT of recoupment, totaling 
approximately 28,500 MT
2014: 14.2 percent of baseline, plus 2,954 MT of recoupment, totaling 
approximately 23,100 MT

    With this amount, EPA's total HCFC consumption allocation in 2012-
2014, including recoupment, is at least 55 percent below the Montreal 
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 allocating in 2012-
2014?
    In the proposed rule, EPA described three options for providing 
production allowances. In considering each of these options, EPA 
recognized 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 well. Two options 
would have decoupled baseline percentage allocated for production and 
consumption. These options provided (1) approximately the same amount 
of production allowances as the 2009 Final Rule or (2) the same 
percentage of baseline as the 2009 Final Rule. The third option would 
have kept production and consumption allowances at the same percentage 
of baseline, so the resulting production allocation would be dependent 
on the final consumption baseline percentage. Option 3 is reflected in 
the January 2012 and January 2013,\8\ No Action Assurances sent to 
allowance holders by the Assistant Administrator for Enforcement and 
Compliance Assurance. EPA took comment on providing the following 
percentages of baseline production in 40 CFR 82.16:
---------------------------------------------------------------------------

    \8\ The January 2013 No Action Assurance also preserved all 
recoupment options.

Option 1: 28.7% in 2012, 25.3% in 2013, 21.9% in 2014
Option 2: 34.1% in 2012, 30.1% in 2013, 26.1% in 2014
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 would be about two 
percent lower than in the 2009 Final Rule (37,050 MT in the proposed 
rule vs. 37,721 MT in the 2009 Final Rule). The intent would be to keep 
the aggregate number of allowances at about the same level as the 
amount finalized in the 2009 Final Rule. The memo to the docket for 
this rulemaking titled ``Effects of HCFC-22 and HCFC-142b Baseline 
Changes: 2009 Final Rule vs. 2011 Proposed Rule,'' (Baseline Memo) 
explains these slight differences. While this option would keep the 
aggregate number of allowances at about the 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\
---------------------------------------------------------------------------

    \9\ Data submitted to the Greenhouse Gas Reporting program on 
byproducts of the HCFC-22 production process indicates that only 
three of the four companies holding production allowances produced 
HCFC-22 in 2010 and 2011 (see http://ghgdata.epa.gov/ghgp/main.do 
and the memo in the docket titled ``2010-2011 Greenhouse Gas 
Reporting Program Data on HCFC-22 Production Byproducts''). While 
this company can transfer its allowances to another producer, the 
fact that they do not produce in the U.S. makes it unlikely that all 
calendar-year production allowances will be used.
---------------------------------------------------------------------------

    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 transfers; other companies with 
production baselines would get the same number of production allowances 
as they received in the 2009 Final Rule, since their baselines did not 
change. While the percentage is the same as the 2009 Final Rule, since 
the aggregate production baseline is higher, the number of production 
allowances increases by

[[Page 20021]]

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 proposed decoupling 
options, the agency also asked for comment on several related matters. 
EPA asked for comment on whether, relative to the 2009 Final Rule, 
allocating the 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, either for domestic 
use or for export, and/or (3) an increase in worldwide production and/
or consumption of HCFCs. EPA also invited comment on the implications 
of any such increase for the U.S. economy and the global environment, 
particularly as it relates to the smooth U.S. phaseout of HCFC-22.
    EPA received nine comments on EPA's proposed production allocation. 
Six comments support a higher level of production allowances than 
consumption allowances (options 1 and 2) and three comments oppose a 
higher 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 specific production 
option. However, two commenters specifically support option 2, which 
provides for the same percentage of baseline as provided in the 2009 
Final Rule. Five commenters are in support of options 1 and 2 so that 
domestic companies can remain competitive in the global market. One 
commenter indicates U.S. companies could lose global market share if 
production allowances were not decoupled. Four commenters point out 
that allocating more production allowances than consumption allowances 
could allow for the possibility of more export, but will not lead to 
increased domestic consumption since consumption allowances limit the 
amount of newly-produced 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 
warming potential of 14,800.\10\ The comment cites the growth of HFC-23 
emissions globally and indicates 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 other countries, could actually result in lower 
greenhouse gas emissions.
---------------------------------------------------------------------------

    \10\ Source for the GWP of HFC-23: Intergovernmental Panel on 
Climate Change (IPCC) Fourth Assessment Report: Climate Change 2007 
(AR4)
---------------------------------------------------------------------------

    Comments opposing 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 handling 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, so is a decrease in production allowances for the same 
reason.
    EPA does not agree that options 1 and 2 increase environmental harm 
relative to the 2009 Final Rule. First, EPA would only be providing the 
same number of overall production allowances or the same percentage of 
baseline for production as in the 2009 Final Rule. In the proposal, EPA 
also noted that production of one kilogram of an HCFC requires both a 
production allowance and a consumption allowance (82.15(a)(1), (2)). 
Thus, leaving production allowances at the same percentage or at the 
same overall amount without a corresponding increase in consumption 
allowances cannot result in greater U.S. consumption. Also, in order to 
produce for export, a company must submit documentation to verify the 
export of an HCFC for which consumption allowances were expended in 
order to request a reimbursement of spent consumption allowances. The 
agency reviews the documentation and issues a notice to either deny or 
grant the request. Therefore, a company would 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 globally under the Montreal Protocol, 
companies exporting HCFCs are constrained by the consumption caps 
established in the country receiving the material.
    With regard to HFC-23, EPA has worked with industry through its 
HFC-23 Emission Reduction Partnership to encourage companies to reduce 
HFC-23 byproduct emissions from the manufacture of HCFC-22. In the 2010 
U.S. Climate Action 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 emissions 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 
through Clean Development Mechanism (CDM) projects using destruction 
technologies, namely thermal 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 
installed. There are about 26 plants producing HCFC-22 in Article 5 
countries. Approximately 17 plants have CDM projects that control HFC-
23 byproduct emissions. The remaining nine plants may not have 
emissions control technologies installed. HCFC-22 production in the 
United States may provide environmental benefits in reduced HFC-23 
emissions to the extent U.S. production supplants the Article 5 
production in those specific plants that do not have HFC-23 byproduct 
destruction technologies installed.
    Some commenters argue that EPA will increase the global supply of 
HCFC-22 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 least 9,800 MT less than the allocations provided in 
the 2009 Final Rule if all other factors are constant. 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 2013, Article 5 countries' 
consumption of HCFCs is capped, which further limits global HCFC-22 
demand (see Montreal Protocol Art. 5, para. 8 ter.). As noted below, 
EPA is issuing 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 allowances for the

[[Page 20022]]

remainder of the current regulatory period could deprive certain U.S. 
manufacturers of existing global business. Article 5 allowances already 
allow the export of HCFC-22; but only to Article 5 countries. Providing 
more production than consumption allowances could allow companies to 
continue exporting to non-Article 5 countries, which have the same 
overall 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 same percentage of baseline as 
the 2009 Final Rule should allow companies to continue their exports to 
Article 5 countries, which are just beginning to phase out HCFCs. Since 
consumption allowances already limit production for U.S. use, EPA is 
providing the same percentage of baseline for HCFC-22 production as in 
the 2009 Final Rule beginning in 2013 to avoid a scenario in which U.S. 
manufacturers might have to decrease their production for global 
markets relative to the amount allowed under the 2009 Final Rule. As 
noted previously, U.S. production 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, and the fact that 
Article 5 countries' HCFC consumption is not capped until 2013, the 
agency 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 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 level is commensurate with the amount of production 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 Action Assurance level enables companies to 
account for production 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 Assurance 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 providing the same percentage of baseline 
as used in the 2009 Final Rule for production allowances in 2013-2014 
(1) cannot lead to an increase in U.S. consumption, (2) allows U.S. 
producers to produce the same amount as under the 2009 Final Rule, with 
potential environmental benefits to the extent that production might 
otherwise occur in plants that lack 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 Protocol. In addition, the environmental benefits achieved 
by the reduction in consumption allowances outweigh any potential 
increase in U.S. production. As such, EPA is 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 recoupment, resulting in 
approximately 41,200 MT of HCFC-22 production
--2014: 26.1% of baseline, plus 2,306 MT of recoupment, resulting in 
approximately 36,000 MT of HCFC-22 production

Combined with allowed production for other HCFCs, these 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 allowances is EPA 
allocating in 2012-2014?
    Establishing HCFC-142b baseline allowances that take into account 
the 2008 inter-pollutant transfers results in 2,047 MT of aggregate 
baseline consumption allowances and 9,444 MT of aggregate baseline 
production allowances. Consistent with the 2009 Final Rule, EPA 
proposed to allocate 100 MT of consumption allowances. To get to that 
level, EPA would allocate 4.9 percent of the aggregate consumption 
baseline, as reflected in the table at section 82.16.
    Using the same percentage (4.9 percent) of the aggregate 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 rule vs. 118 MT in the 2009 Final 
Rule). This is because the 2008 transfers out of HCFC-142b involved 
significantly more consumption allowances than production allowances. 
Taking those transfers into account decreases the HCFC-142b consumption 
baseline substantially but has a lesser impact on the HCFC-142b 
production baseline.
    The agency received only four comments on HCFC-142b allocations. 
Two comments strongly support reducing HCFC-142b consumption and 
production allowances; one of these commenters states that HCFC-142b is 
only used in blends to service old CFC equipment. Of the other two 
comments, one supports the consumption allocation of 100 MT, noting 
that HCFC-142b is a critical component of a refrigerant blend, but that 
production allowances need not increase. The other commenter asks that 
EPA not lower the HCFC-142b production allocation to compensate for any 
increase in HCFC-22 production.
    EPA did not propose to decrease HCFC-142b allowances in the 
proposed rule. The agency assessed the need for the chemical in the 
2009 Final Rule and will revisit the need for HCFC-142b for servicing 
during the rulemaking for the next regulatory period. For this reason, 
the agency is finalizing 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 issued 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.
    To provide recoupment to companies for lost opportunities 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 baseline issued. Since the agency is providing recoupment 
over two years, there will be an additional 30 MT of consumption 
allowances and 198 MT of production allowances in 2013 and 2014. See 
section IV.B.6. of this preamble for more discussion on recoupment 
allowances.
4. How does the aggregate allocation for HCFC-22 and HCFC-142b 
translate entity-by-entity?
    For 2012-2014, EPA is setting production and consumption baselines 
for HCFC-22 and HCFC-142b on the same basis as in the 2009 Final Rule, 
except that EPA is making adjustments to reflect (1) the 2008 inter-
pollutant transfers of baseline allowances deemed permanent by the 
Court, (2) inter-

[[Page 20023]]

company, single-pollutant transfers of baseline allowances that 
occurred in 2010, and (3) changes in company names that occurred after 
the 2009 Final Rule was signed. All of these changes were made in the 
2011 Interim Final Rule (76 FR 47451), and EPA proposed to do the same 
for 2012-2014. Applying the approach described above, EPA is 
apportioning production and consumption baselines for HCFC-22 and 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
------------------------------------------------------------------------
                                                              Allowances
               Person                  Controlled substance      (kg)
------------------------------------------------------------------------
Arkema..............................  HCFC-22..............   46,692,336
                                      HCFC-142b............      484,369
DuPont..............................  HCFC-22..............   42,638,049
Honeywell...........................  HCFC-22..............   37,378,252
                                      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
------------------------------------------------------------------------
                                                              Allowances
               Person                  Controlled substance      (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
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 transfers of Class II 
allowances?

    The agency is concerned about the possibility of companies 
undermining the HCFC chemical-by-chemical phaseout by performing inter-
pollutant 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, inter-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 petitioners' baseline transfers of inter-pollutant 
allowances'' (618 F.3d at 8). Therefore, EPA clarified its current 
policy on inter-pollutant transfers in the 2011 Interim Final Rule (76 
FR 47459). In January 2012, EPA proposed to modify the regulatory text 
to dispel any possibility 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 permanent transfers of 
Class II allowances?

    Sections 607(b) and (c) of the CAA address inter-pollutant and 
inter-company transfers of allowances, respectively. Inter-pollutant 
transfers are the transfer (or conversion) of an allowance of one 
substance to an allowance of another 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 
inter-company transfers combined with inter-pollutant 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 that the agency 
will not approve future inter-pollutant transfers of baseline 
production allowances or baseline consumption allowances. EPA received 
two comments directly referring to this proposal. One comment supports 
EPA's proposed changes because it will prevent future manipulation 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 historically made the 
transfers. EPA also received two comments on the 2012-2014 baselines 
that are relevant. Both commenters state that section 607 of the CAA 
prohibits baseline inter-pollutant transfers.
    As discussed in the proposed rule, EPA remains concerned about the 
potential for future manipulation of the allocation system if inter-
pollutant baseline transfers are allowed to affect a company's baseline 
in future regulatory periods. For example, a HCFC-22 producer or 
importer could dominate the HCFC-123 market in 2015 by converting its 
HCFC-22 baseline to HCFC-123 baseline in 2014. Given the different ODPs 
of HCFC-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 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 producing or importing HCFCs at that date. If EPA were to 
allow inter-pollutant baseline transfers that carried forward into the 
new regulatory period, companies with HCFC-22 baselines could convert 
them all to baselines for HCFC-123 in 2019. Perpetuating the HCFC-22 
baselines in a new form would be counter to the design of the chemical-
by-chemical phaseout, under which the baseline allowances for a 
particular chemical are intended to drop out of the system upon the 
phase-out of that chemical. Thus, there are important policy reasons 
for not taking inter-pollutant transfers from prior regulatory periods 
into account in

[[Page 20024]]

establishing baselines for new regulatory periods.
    EPA has been clear in its past statements about its 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 establishing the HCFC allocation system. 
Referring to HCFC-141b, which was phased out in 2003. EPA stated at 64 
FR 16378:

    It is important to note that, under any scenario, when the 
phaseout date for HCFC-141b is reached in 2003, all HCFC-141b 
consumption (production + imports-exports) will cease. Those who did 
not participate in the HCFC-141b market will not be affected in 
2003. However, those who did participate in the HCFC-141b market--
through, for example, producing or importing HCFC-141b--would no 
longer receive any allowances associated with their historic HCFC-
141b activity, and thus any authorization to produce or import HCFC-
141b. Likewise, any company that, through a baseline trade, received 
allowances associated with historic HCFC-141b would no longer 
receive any allowances 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 38068-69:

    On the first HCFC phaseout date of 2003, those companies that 
received baseline consumption allocations (or received a permanent 
baseline transfer) * * * of HCFC-141b would subtract that portion 
from their total consumption allocation. If permanent inter-
pollutant trades had been made, an amount equal to the ODP-weighted 
kilograms of baseline HCFC-141b allowances that had been received in 
the transfer would be deducted from the baseline allocation * * * 
The same would occur in [later years] for the relevant chemicals 
being phased out (emphasis added).

    Finally, in the 2003 Final Rule establishing the HCFC 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 the specific HCFC, regardless of what inter-pollutant 
transfers had taken place.'' Because EPA has been clear on this point 
that baseline allowances associated with a specific HCFC--regardless of 
their current owner or current status--disappear when that HCFC is 
phased out, the agency continues to believe allowing inter-pollutant 
baseline transfers only on an annual basis is appropriate.
    The commenter objecting to the proposed changes to the transfer 
regulations cited several issues that EPA should consider. The 
commenter cites 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 prohibiting inter-
pollutant baseline transfers in no way precludes the commenter, or any 
allowance holder, from continuing to make annual inter-pollutant 
transfers. However, when EPA established the ``worst-first'' HCFC 
phaseout, the goal was to encourage companies to move out of HCFCs, not 
to continually produce or import HCFCs by switching from one chemical 
to another.
    Additionally, the commenter envisions a scenario where an allowance 
holder could change the focus of its business to produce and sell a 
substance that does less harm to the environment. While an allowance 
holder could move to 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 used. 
Since transfers are weighted based on their ODP, moving from a higher 
ODP chemical to a lower ODP chemical would result in more allowances 
for the lower ODP chemical and an equal environmental footprint.
    Further, if EPA were to allocate allowances for the next regulatory 
period taking inter-pollutant transfers into account, those transfers 
would only affect aggregate company baselines in specific chemicals, 
not the total amount allocated. In the case of the 2011 Interim Final 
Rule, when EPA updated baselines to include past inter-pollutant 
transfers, there was no environmental benefit to doing so. The way EPA 
allocates allowances 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 (see 
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 does nothing for the 
environment. As described above, EPA sees this use of inter-pollutant 
transfers 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 section 607 of the CAA allows EPA to approve inter-pollutant 
transfers of allowances only on a year-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 allowance for another substance for the same year on 
an ozone depletion weighted basis.'' Similar arguments were made in 
comments submitted on the 2008 Proposed Rule and on the 2011 Interim 
Final Rule.
    EPA does not agree with the comment that the language 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-pollutant transfers. 
EPA continues to believe that this is the best interpretation of the 
statutory language. Section 607(b) states that EPA's rules are to 
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 appears 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 entitled 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 transfers to be conducted on a yearly--
and thus temporary--basis going forward is the approach most consistent 
with the wording of section 607(b). Further discussion of the reasons 
for limiting inter-pollutant transfers to those conducted on a 
calendar-year basis is available in the Response 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 baseline transfers. EPA is clarifying, 
however, that it has not approved any inter-pollutant transfers 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

[[Page 20025]]

not expect that any future inter-pollutant transfers they conduct will 
affect their baselines either in the current regulatory period or any 
future regulatory period.
    EPA is revising the regulations to avoid any further dispute about 
the agency's position on this issue. The new language clarifies that 
permanent inter-pollutant transfers of baseline allowances will not be 
approved. In addition, EPA is clarifying that the procedures in section 
82.23(a) apply to permanent, single-pollutant transfers.

B. How is EPA changing the regulations governing transfers of Article 5 
Class II allowances?

    Article 5 allowances for Class II substances are the privileges 
granted under 40 CFR 82.18(a) to produce the specified HCFC for export 
only to countries listed in 40 CFR Subpart A, Appendix C, Annex 4. The 
countries listed in that annex are developing countries whose control 
obligations under the Montreal Protocol are addressed 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 Final 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 transfers 
[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 allowances 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 allowances. The omission of Article 5 allowances from 
section 82.23(b) appears to have been an oversight. Therefore, EPA 
proposed to revise the regulations to specifically provide for the 
inter-pollutant transfers of Article 5 allowances through this 
rulemaking. As with other types of inter-pollutant transfers, these 
transfers would be limited in duration to a single year. The agency 
received 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)(ii) 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 each year of * * * class II substances than would occur 
in that year in the absence of such transactions.'' In a November 10, 
1994, Federal Register notice, EPA stated its interpretation that the 
section 607 offset requirement applies to Article 5 allowance transfers 
(59 FR 56287): ``Inter-pollutant transfers of Article 5 allowances will 
continue 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 inter-pollutant and 
inter-company transfers of Article 5 allowances as proposed* * * '' 
meaning, EPA intended to require an offset for transfers of Article 5 
allowances in the class I allowance system.
    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, stating that the transfer claim must set 
forth: ``For trades of consumption allowances, production allowances, 
export production allowances, or Article 5 allowances, the quantity of 
the 0.1 percent 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 allowances 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, 
``EPA will reduce the transferor's balance of unexpended allowances * * 
* by the quantity to be transferred,'' 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 of that quantity;'' 
EPA proposed to amend 82.23(a)(ii) and 82.23(a)(ii)(A) to require an 
offset 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) requires an offset of 0.1 
percent for all inter-pollutant transfers and since EPA is adding 
Article 5 allowances to section 82.23(b), an offset will automatically 
apply.
    To reflect EPA's intent to allow inter-pollutant transfers of 
Article 5 allowances, and the requirement that an offset be deducted 
when an entity 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 
``novel legal or policy issues.'' Accordingly, EPA submitted this 
action to the Office of Management and Budget (OMB) for review under 
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any 
changes made in response to OMB recommendations have been documented in 
the docket for this action.
    EPA did not conduct a specific analysis of the benefits 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 
Analysis: 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 Allocation System.
     The 2005 Memorandum Recommended Scenarios for HCFC 
Phaseout Costs Estimation.
     The 2006 ICR Reporting and Recordkeeping Requirements of 
the HCFC Allowance System.
     The 2007 Memorandum Preliminary Estimates of the 
Incremental Cost of the 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 Pre-charged Imports.

[[Page 20026]]

     The 2009 ICR Reporting and Recordkeeping Requirements of 
the HCFC Allowance System.
    A memorandum summarizing these analyses is available in the docket.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
EPA already requires recordkeeping and reporting for HCFCs, and this 
action does not amend those provisions. The Office of Management and 
Budget (OMB) has previously approved the information collection 
requirements contained in the existing regulations at 40 CFR part 82, 
subpart A under the provisions of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq. and has assigned OMB control number 2060-0498. The 
OMB control 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 requires 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 businesses, 
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) regulations at 13 CFR 121.201; 
(2) a small governmental jurisdiction that is a government of a city, 
county, town, school district or special district with a population of 
less than 50,000; and (3) a small organization that is any not-for-
profit enterprise 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 325120), including 
fluorinated hydrocarbon gases manufacturers and reclaimers;
--Other Chemical and Allied Products Merchant Wholesalers (NAICS code 
422690), including chemical gases and compressed gases merchant 
wholesalers;
--Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing entities (NAICS code 
333415), including air-conditioning equipment and commercial and 
industrial refrigeration equipment manufacturers;
--Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS 
code 423730), including air-conditioning (condensing unit, compressors) 
merchant wholesalers;
--Electrical and Electronic Appliance, Television, and Radio Set 
Merchant Wholesalers (NAICS code 423620), including air-conditioning 
(room units) merchant wholesalers; and
--Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 
238220), including central air-conditioning system and commercial 
refrigeration installation; HVAC contractors.

    After considering the economic impacts of this final rule on small 
entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. In 
determining whether a rule has a significant economic impact on a 
substantial number of small entities, the impact of concern is any 
significant adverse economic impact on small entities, since the 
primary purpose of the regulatory flexibility analyses is to identify 
and address regulatory alternatives ``which minimize any significant 
economic impact of the rule on small entities.'' 5 U.S.C. 603 and 604. 
Thus, an agency may certify that a rule will not have a significant 
economic impact on a substantial number of small entities 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 and consumption 
that would otherwise apply in the wake of the Court's vacatur. 
Additionally, 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 transfers of 
baseline allowances deemed permanent by the Court, (2) inter-company, 
single-pollutant 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 virgin 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 benefit 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. 
1531-1538 for State, local, or tribal governments or the private 
sector. UMRA does not apply to rules that are necessary for the 
ratification or implementation of international treaty obligations. 
This rule implements the 2010 milestone for the phase-out of HCFCs 
under the Montreal 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 requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments. This action 
apportions production and consumption allowances and establishes 
baselines for private entities, not small governments.

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 among 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, 
Executive Order 13132 does not apply to this action.

F. Executive Order 13175: Consultation and Coordination 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 significantly or uniquely affect the communities of Indian tribal 
governments. It does not impose any enforceable duties on communities 
of Indian tribal governments. Thus, Executive Order 13175 does not 
apply to this action.

G. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    This action is not subject to EO 13045 (62 F.R. 19885, April 23, 
1997) because it is not economically significant as defined in EO 
12866. The agency

[[Page 20027]]

nonetheless has reason to believe that the environmental health or 
safety risk addressed by this action may have a disproportionate effect 
on children. Depletion of stratospheric ozone results in greater 
transmission of the sun's 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 diseases,'' 1st ed. London, England: Blackwell Science, 1997: 
63-6; (4) Whiteman D., Green A. ``Melanoma and Sunburn,'' Cancer Causes 
Control, 1994: 5:564-72; (5) Heenan, PJ. ``Does intermittent sun 
exposure cause basal cell carcinoma? A case control study in Western 
Australia,'' Int J Cancer 1995; 60: 489-94; (6) Gallagher, RP, Hill, 
GB, Bajdik, CD, et al. ``Sunlight 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 reduce the total 
basket of HCFCs produced and imported to 25 percent of the respective 
baselines. While on an ODP-weighted basis, this is not as large a step 
as previous actions, such as the 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 decrease impacts on children's 
health from stratospheric ozone depletion.

H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This action is not a ``significant energy action'' as 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 issues allowances for the 
production and consumption of HCFCs.

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the agency decides not to use 
available and applicable voluntary consensus standards. This action 
does not involve technical standards. Therefore, EPA did not consider 
the use of any voluntary consensus standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
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 or 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 HCFCs produced and imported to 
a level that is more than 75 percent below the respective baselines. 
While on an ODP-weighted basis, this is not as large a step as previous 
actions, such as the 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, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
U.S. EPA will submit a report containing this rule and other required 
information 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 until 60 days 
after it is published in the Federal Register. This action is not a 
``major rule'' as defined by 5 U.S.C. 804(2). This rule will be 
effective April 3, 2013.

List of Subjects in 40 CFR Part 82

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Chemicals, Exports, Hydrochlorofluorocarbons, 
Imports.

    Dated: March 27, 2013.
Bob Perciasepe,
Acting Administrator.

    40 CFR part 82 is amended as follows:

PART 82--PROTECTION OF STRATOSPHERIC OZONE

0
1. The authority citation for part 82 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7601, 7671- 7671q.

0
2. Amend Sec.  82.16 by revising paragraph (a) to read as follows:

Sec.  82.16  Phaseout schedule of class II controlled substances.

    (a) Calendar-year allowances. (1) In each control period as 
indicated in the following tables, each person is granted the specified 
percentage of baseline production allowances and baseline consumption 
allowances for the specified class II controlled substances apportioned 
under Sec. Sec.  82.17 and 82.19:

[[Page 20028]]

                                                        Calendar-Year HCFC Production Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Percent of   Percent of   Percent of   Percent of   Percent of   Percent of   Percent of
                        Control period                          HCFC-141b     HCFC-22     HCFC-142b     HCFC-123     HCFC-124    HCFC-225ca   HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
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         30.1          4.9          125          125          125          125
2014.........................................................            0         26.1          4.9          125          125          125          125
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                        Calendar-Year HCFC Consumption Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Percent of   Percent of   Percent of   Percent of   Percent of   Percent of   Percent of
                        Control period                          HCFC-141b     HCFC-22     HCFC-142b     HCFC-123     HCFC-124    HCFC-225ca   HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

     (2) Recoupment allowances. In the control period beginning January 
1, 2013 and ending December 31, 2013, and again in the control period 
beginning January 1, 2014 and ending December 31, 2014, certain 
companies are granted HCFC consumption and production allowances in 
addition to the percentage of baseline listed in the table at paragraph 
(a)(1) of this section. The following companies will receive the 
amounts 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 consumption allowances to 
DuPont; 29,146 kg of HCFC-142b consumption allowances and 53,549 kg of 
HCFC-142b production allowances to Honeywell; 578,948 kg of HCFC-22 
consumption allowances to Solvay Fluorides; and 144,900 kg of HCFC-142b 
production allowances to Solvay Solexis.
* * * * *

0
3. Amend Sec.  82.23 by revising paragraphs (a)(ii) introductory text, 
(a)(ii)(A), (b)(1), and (d) to read as follows:

Sec.  82.23  Transfers of allowances of class II controlled substances.

    (a) * * * (ii) The Administrator will determine whether 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 imports 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 indicating that EPA does not object 
to the transfer if EPA's records show that the transferor has 
sufficient unexpended allowances to cover the transfer claim. In the 
case of transfers of production or consumption allowances, EPA will 
reduce the transferor's balance of unexpended allowances by the 
quantity to be transferred plus 0.1 percent of that quantity. In the 
case of transfers of export production or Article 5 allowances, EPA 
will reduce the transferor's balance of unexpended allowances, 
respectively, by the quantity 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 notice. However, if EPA 
ultimately finds that the transferor did not have sufficient unexpended 
allowances to cover the claim, the transferor and transferee, where 
applicable, will be held liable for any knowing violations of the 
regulations of this subpart that occur as a result of, or in 
conjunction with, the improper transfer.
* * * * *
    (b) * * * (1) Effective January 1, 2003, a person (transferor) may 
convert consumption allowances, production allowances or Article 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 procedures described in paragraph 
(b)(3) of this section.
* * * * *
    (d) Permanent transfers. The procedures in paragraph (a) of this 
section apply to permanent inter-company transfers of baseline

[[Page 20029]]

production allowances or baseline consumption allowances. A person 
receiving a permanent transfer of baseline production allowances or 
baseline consumption allowances (the transferee) for a specific class 
II controlled substance will be the person who has their baseline 
allowances adjusted in accordance with phaseout schedules in this 
subpart. No person may conduct permanent inter-pollutant transfers of 
baseline production allowances or baseline consumption allowances.

[FR Doc. 2013-07758 Filed 4-2-13; 8:45 am]
BILLING CODE 6560-50-P
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