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EO12866_CAA Part 82A 2060 AQ98 NPRM_FRN_20110630 

ENVIRONMENTAL PROTECTION AGENCY 

40 CFR Part 82 

[EPA-HQ-OAR-2011-0354; FRL-xxxx-x] 

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: Proposed rule. 

SUMMARY: EPA is proposing to adjust the allowance system controlling U.S. consumption 

and production of hydrochlorofluorocarbons (HCFCs) as a result of a recent court decision 

vacating a portion of the rule titled “Protection of Stratospheric Ozone: Adjustments to the 

Allowance System for Controlling HCFC Production, Import, and Export; Final Rule.” EPA 

interprets the court’s vacatur as applying to the part of the rule that establishes the company-bycompany baselines and calendar-year allowances for HCFC-22 and HCFC-142b. Following the 

(INSERT IFR PUBLISH DATE) interim final rule allocating allowances for 2011, this action 

proposes to relieve 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: Written comments on this proposed rule must be received by the EPA Docket on or 

before [INSERT DATE 30 DAYS AFTER PUBLICATION IN FEDERAL REGISTER], 

unless a public hearing is requested. Any party requesting a public hearing must notify the 

contact listed below under FOR FURTHER INFORMATION CONTACT by 5 p.m. Eastern 

Standard Time on [INSERT DATE 7 DAYS AFTER PUBLICATION IN FEDERAL 

REGISTER]. If a public hearing is requested, the hearing would be held on [INSERT DATE 
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15 DAYS AFTER PUBLICATION IN FEDERAL REGISTER] and commenters will have 

until [INSERT DATE 45 DAYS AFTER PUBLICATION IN FEDERAL REGISTER] to 

submit comments before the close of the comment period. If a hearing is held, it will take place 

at EPA headquarters in Washington, DC. EPA will post a notice on our website, 

http://www.epa.gov/ozone/strathome.html, announcing further information should a hearing take 

place. 

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2011-

0354, by one of the following methods: 

• www.regulations.gov: Follow the on-line instructions for submitting comments. 

• Email: a-and-r-docket@epa.gov 

• Mail: Docket # EPA-HQ-OAR-2011-0354, Air and Radiation Docket and 

Information Center, U.S. Environmental Protection Agency, Mail code: 6102T, 

1200 Pennsylvania Ave., NW, Washington, DC 20460. 

• Hand Delivery: Docket #EPA-HQ-OAR-2011-0354 Air and Radiation Docket at 

EPA West, 1301 Constitution Avenue NW, Room B108, Mail Code 6102T, 

Washington, D.C. 20004. Such deliveries are only accepted during the Docket’s 

normal hours of operation, and special arrangements should be made for 

deliveries of boxed information. 

Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-2011-0354. EPA's policy 

is that all comments received will be included in the public docket without change and may be 

made available online at www.regulations.gov, including any personal information provided, 

unless the comment includes information claimed to be Confidential Business Information (CBI) 

or other information whose disclosure is restricted by statute. Do not submit information that you 

consider to be CBI or otherwise protected through www.regulations.gov or e-mail. The 

www.regulations.gov website is an “anonymous access” system, which means EPA will not 
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know your identity or contact information unless you provide it in the body of your comment. If 

you send an e-mail comment directly to EPA without going through www.regulations.gov, your 

e-mail address will be automatically captured and included as part of the comment that is placed 

in the public docket and made available on the Internet. If you submit an electronic comment, 

EPA recommends that you include your name and other contact information in the body of your 

comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to 

technical difficulties and cannot contact you for clarification, EPA may not be able to consider 

your comment. Electronic files should avoid the use of special characters, any form of 

encryption, and be free of any defects or viruses. For additional information about EPA’s public 

docket, visit the EPA Docket Center homepage at www.epa.gov/epahome/dockets.htm. 

FOR FURTHER INFORMATION CONTACT: Luke H. Hall-Jordan by telephone at (202) 

343-9591, or by e-mail at hall-jordan.luke@epa.gov, or by mail at U.S. Environmental 

Protection Agency, Stratospheric Protection Division, Stratospheric Program Implementation 

Branch (6205J), 1200 Pennsylvania Avenue, NW, Washington, D.C., 20460. You may also visit 

the Ozone Protection website 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: 

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 

CFR – Code of Federal Regulations 

EPA – Environmental Protection Agency 
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FR – Federal Register 

HCFC – Hydrochlorofluorocarbon 

HVAC – Heating, Ventilating, and Air Conditioning 

Montreal Protocol – Montreal Protocol on Substances that Deplete the Ozone Layer 

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. General Information 

 A. Does This Action Apply to Me? 

B. What Should I Consider as I Prepare My Comments for EPA? 

 1. Confidential Business Information (CBI) 

 2. Tips for Preparing Your Comments 

II. 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 Recent Court Decision? 

III. How Does EPA Propose to Allocate HCFC-22 and HCFC-142b Allowances for 2012-

2014? 
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A. What Baselines Does EPA Propose to Use for HCFC-22 and HCFC-142b 

Allowances? 

B. What Factors Did EPA Consider in Proposing Allocation Amounts for HCFC-22 

and HCFC-142b? 

1. How Important is HCFC-22 Relative to HCFC-142b for Servicing 

Existing Equipment? 

2. Can Servicing Needs be Met with Virgin and Recovered Material? 

3. How Would EPA Reduce the Amount Allocated in 2012-2014? 

4. How Will EPA Address the Court’s Decision with Regard to 2010 HCFC 

Allowances? 

C. How Much HCFC-22 and HCFC-142b Would Be Allocated in 2012-2014? 

1. How Does EPA Propose to Allocate HCFC-22 Consumption Allowances 

for 2012-2014? 

2. How Does EPA Propose to Allocate HCFC-22 Production Allowances for 

2012-2014? 

3. How Does EPA Propose to Allocate HCFC-142b Consumption and 

Production Allowances for 2012-2014? 

4. How Would the Aggregate for HCFC-22 and HCFC-142b Translate 

Entity-by-Entity? 

D. Are HCFC-141b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb 

Allowances Affected by This Rulemaking? 

E. How Will EPA Allocate Other HCFCs? 

IV. How Does EPA Propose to Change the Regulations Governing Transfers of Allowances 

of Class II Controlled Substances? 
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A. How Does EPA Propose to Change the Regulations Governing Permanent 

Transfers of Class II Allowances? 

B. How Does EPA Propose to Change the Regulations Governing Transfers of 

Article 5 HCFC Allowances? 

V. 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 (RFA) 

 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 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 

I. General Information

A. Does This Action Apply to Me? 

This rule will affect the following categories: 

- Industrial Gas Manufacturing entities (NAICS code 325120), including 

fluorinated hydrocarbon gases manufacturers and reclaimers; 
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- 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. 

B. What Should I Consider as I Prepare My Comments for EPA? 

 1. Confidential Business Information (CBI) 
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 Do not submit confidential business information (CBI) to EPA through 

www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to 

be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of 

the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the 

specific information that is claimed as CBI. In addition to one complete version of the comment 

that includes information claimed as CBI, a copy of the comment that does not contain the 

information claimed as CBI must be submitted for inclusion in the public docket. Information so 

marked will not be disclosed except in accordance with procedures set forth in 40 CFR 2.2. 

 2. Tips for Preparing Your Comments 

 When submitting comments, remember to do the following: 

• Identify the rulemaking by docket number and other identifying information 

(subject heading, Federal Register date and page number). 

• Follow directions. The agency may ask you to respond to specific questions or 

organize comments by referencing a Code of Federal Regulations (CFR) part or 

section number. 

• Explain why you agree or disagree with the proposal; suggest alternatives and 

substitute language for your requested changes. 

• Describe any assumptions and provide any technical information and/or data that 

you used in preparing your comments. 

• If you estimate potential costs or burdens, explain how you arrived at your estimate 

in sufficient detail to allow for it to be reproduced. 

• Provide specific examples to illustrate your concerns, and suggest alternatives. 

• Explain your views as clearly as possible, avoiding the use of profanity or personal 

threats. 

• Make sure to submit your comments by the comment period deadline identified. 
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II. Background 

EPA is undertaking this rulemaking as a result of the decision issued by the U.S. Court of 

Appeals for the District of Columbia Circuit (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,” 

published at 74 FR 66413 (2009 Final Rule). 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 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. 

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 II.D. of this preamble. 

EPA addressed the Court’s partial vacatur as it relates to 2011 in a (INSERT PUBLISH 

DATE OF IFR) interim final rule, “Protection of Stratospheric Ozone: Adjustments to the 

Allowance System for Controlling HCFC Production, Import, and Export,” (2011 Interim Final 

Rule). This proposed rule is a follow-on to that action, and proposes a path forward for the 

remainder of the regulatory period ending on December 31, 2014. 

A. How Does the Montreal Protocol Phase Out HCFCs? 
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The Montreal Protocol on Substances that Deplete the Ozone Layer 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 §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 substances1” (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 (Article 2) Parties, a schedule to which the U.S. adheres. 

The consumption cap for each Article 2 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. 

 

1

 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 with graduated reductions and the 

eventual phaseout of HCFC consumption (Copenhagen, 23-25 November, 1992, Decision IV/4). 

Prior to a later adjustment in 2007, the schedule initially called for a 35 percent reduction of the 

consumption cap in 2004, followed by a 65 percent reduction in 2010, a 90 percent reduction in 

2015, a 99.5 percent reduction in 2020 (restricting the remaining 0.5 percent of baseline to the 

servicing of existing refrigeration and air-conditioning equipment), with a total phaseout in 2030. 

The Copenhagen Amendment did not cap HCFC production. In 1999, the Parties created 

a cap on production for Article 2 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 percent of 1989 CFC 

consumption. Based on this formula, the HCFC production cap for the U.S. was 15,537 ODPweighted 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, 2008.2

 As a result of the 2007 Montreal Adjustment (reflected in Decision XIX/6), the U.S. and 

other industrialized countries are obligated to reduce HCFC production and consumption 75 

percent below the established baseline by 2010, rather than 65 percent as previously required. 

The 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 Article 2 Parties is phased out by 2030. 

 

2

 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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 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 2009-2010 production and consumption, respectively; (2) to freeze HCFC 

production and consumption at those baselines in 2013; and (3) to add stepwise reductions of 10 

percent below baselines by 2015, 35 percent by 2020, 67.5 percent by 2025, and 97.5 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. 

 In addition, Decision XIX/6 adjusted Article 2F to allow industrialized countries to 

produce “up to 10 percent of baseline levels” for export to Article 5 countries “in order to satisfy 

basic domestic needs” until 2020.3

 Paragraph 14 of Decision XIX/6 notes that 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 industrialized and developing countries. The 

 

3

 Paragraphs 4-6 of adjusted Article 2F read as follows: 

 “4. Each Party shall ensure that for the twelve-month period commencing on 1 January 2010, and in each twelve-month period thereafter, its 

calculated level of consumption of the controlled substances in Group I of Annex C does not exceed, annually, twenty-five per cent of the 

sum referred to in paragraph 1 of this Article. Each Party producing one or more of these substances shall, for the same periods, ensure that 

its calculated level of production of the controlled substances in Group I of Annex C does not exceed, annually, twenty-five per cent of the 

calculated level referred to in paragraph 2 of this Article. However, in order to satisfy the basic domestic needs of the Parties operating under 

paragraph 1 of Article 5, its calculated level of production may exceed that limit by up to ten per cent of its calculated level of production of 

the controlled substances in Group I of Annex C as referred to in paragraph 2. 

5. Each Party shall ensure that for the twelve-month period commencing on 1 January 2015, and in each twelve-month period thereafter, its 

calculated level of consumption of the controlled substances in Group I of Annex C does not exceed, annually, ten per cent of the sum 

referred to in paragraph 1 of this Article. Each Party producing one or more of these substances shall, for the same periods, ensure that its 

calculated level of production of the controlled substances in Group I of Annex C does not exceed, annually, ten per cent of the calculated 

level referred to in paragraph 2 of this Article. However, in order to satisfy the basic domestic needs of the Parties operating under paragraph 

1 of Article 5, its calculated level of production may exceed that limit by up to ten per cent of its calculated level of production of the 

controlled substances in Group I of Annex C as referred to in paragraph 2. 

6. Each Party shall ensure that for the twelve-month period commencing on 1 January 2020, and in each twelve-month period thereafter, its 

calculated level of consumption of the controlled substances in Group I of Annex C does not exceed zero. Each Party producing one or more 

of these substances shall, for the same periods, ensure that its calculated level of production of the controlled substances in Group I of Annex 

C does not exceed zero. However: 

 i. each Party may exceed that limit on consumption by up to zero point five per cent of the sum referred to in paragraph 1 of this Article 

in any such twelve-month period ending before 1 January 2030, provided that such consumption shall be restricted to the servicing of 

refrigeration and air conditioning equipment existing on 1 January 2020; 

ii. each Party may exceed that limit on production by up to zero point five per cent of the average referred to in paragraph 2 of this 

Article in any such twelve-month period ending before 1 January 2030, provided that such production shall be restricted to the servicing of 

refrigeration and air conditioning equipment existing on 1 January 2020.”
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term “servicing tail” refers to an amount of HCFCs used 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 focusing on certain chemicals 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 (68 FR 2820), EPA promulgated regulations (2003 Final Rule) 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 
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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 amounts in 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 0 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 beyond the phaseout. 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 year 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. Through the 2009 Final Rule (74 FR 66412), EPA addressed the production 

and import of HCFC-22 and HCFC-142b for the 2010-2014 control periods. 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. 
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 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-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 obtain a refund of those consumption 

allowances upon submittal of proper documentation to 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 
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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 reduction step by applying a percentage reduction to the 

HCFC-22 and HCFC-142b baselines. EPA subsequently monitored the market 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 determined both the estimated demand for HCFC-22 during 

the 2010-2014 regulatory period and the percentage of that estimated demand for which it was 

appropriate to allocate allowances. As described in section III.B. of this action, EPA determined 

that the percentage of the estimated demand 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 demand 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 demand 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. 

The determinations EPA made in the 2009 Final Rule regarding (1) the total estimated 

demand for HCFC-22 in 2010-2014 and (2) the percentage of that estimated demand that EPA 

would address through an allowance allocation were not at issue in the litigation and are 

unaffected by the Court’s decision. As such, EPA did not revisit either determination with 

respect to 2011 in the 2011 Interim Final Rule (76 FR XXXXX), but rather relied on the existing 

record from the 2009 Final Rule (74 FR 66412). The 2011 Interim Final Rule established new 

baselines that (1) credited the 2008 inter-pollutant trades at issue in Arkema v. EPA based on the 

Court’s decision and (2) reflected inter-company, single-pollutant baseline transfers that 
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occurred since the 2009 Final Rule was signed. The 2011 Interim Final Rule also (3) allocated 

HCFC-22 and HCFC-142b allowances for 2011, (4) clarified EPA’s policy on all future interpollutant transfers, and (5) updated company names. 

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 made a further adjustment to the section 

605 schedule based on the acceleration under the Montreal Protocol as agreed to at the Meeting 

of the Parties in September 2007. The more stringent schedule established in that rule is 

unaffected by the recent Court decision and is therefore still in effect. 

Section 606 provides authority for EPA 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 
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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 permanent interpollutant transfers in this action, and is proposing a minor change to the regulations governing 

inter-pollutant transfers to provide additional clarity to stakeholders. 

D. How Does This Action Relate to the Recent 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 into account certain inter-pollutant baseline transfers that petitioners had 

performed during the prior regulatory period. The transfers at issue occurred in 2008. 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 
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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 both 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 approvals 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. For more detail on the effect of these transfers, see section 

III.C. of this preamble. 

In the 2009 Final Rule, after considering comments, EPA determined that allowing interpollutant 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 

could 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, 
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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. 

Because the Court vacated the rule only in part, without specifying which part or parts 

were vacated, EPA may adopt a reasonable interpretation of the vacatur’s extent. In doing so, 

EPA is relying on its expertise in administering the HCFC phaseout regulations under Title VI of 

the CAA. First, EPA notes that the rule contains elements that were not at issue in the litigation. 

EPA concludes that the vacatur has no effect on allowances for any substances other than HCFC142b and HCFC-22, since the petitioners’ claims and the opinion itself discuss only those two 

substances. Similarly, EPA concludes that other discrete portions of the rule, such as the 

provisions on use and introduction into interstate commerce, are 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 linked4

, EPA has determined that the Court’s vacatur voided the HCFC-22 and 

 

4

 The reason baseline and calendar-year allocations are inextricable is 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 works as follows for each specific 

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 recycled, reused, and 
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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.5

 This 

means that until EPA establishes new baselines and allocates new calendar-year allowances, 

production and import of these two substances is prohibited under 40 CFR 82.15. Recognizing 

this scenario, on January 28, 2011, EPA sent letters 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. 

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 XXXX). Through today’s notice, EPA is proposing a way to address the Court’s 

decision as it relates to the remainder of the regulatory period ending December 31, 2014. In 

addition, the Agency is taking comment on whether the vacatur and remand should be 

interpreted as applying to the 2010 allocations, and if so, how allowances might be adjusted to 

reflect this. See section III.B.4. for EPA’s proposed approach to address 2010 allowances. 

 

reclaimed material, and divides that amount by the aggregate amount of baseline allowances. The resulting 

percentage listed in the table at section 82.16 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 allowances would multiply that number by 

the percentage allowed for 2011 (for example, 32 percent) to determine its calendar-year allowance is 32,000 kg. 

Historically and in this proposed rule, EPA has allocated the same percentage of baseline allowances for production 

as it does for consumption. 

5

 The companies’ allocations are inter-related because, as noted in footnote 4, the percentage of baseline allocated 

varies according to the sum of the company-specific baselines. 
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III. How Does EPA Propose to Allocate HCFC-22 and HCFC-142b Allowances for 2012-

2014? 

EPA is proposing to continue the system established in previous rulemakings (68 FR 

2820, 74 FR 66412, INSERT FRNs for 2011 rule once published) to address HCFC production 

and import in the U.S. The process works as follows for each specific 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 recycled, reused, and reclaimed material, and divides that amount by the aggregate 

amount of baseline allowances. The resulting percentage listed in the table at section 82.16 

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 allowances would multiply that number by the 

percentage allowed for the year (for example, 32 percent in 2011) to determine its calendar-year 

allowance is 32,000 kg. Historically, EPA has allocated the same percentage of baseline 

allowances for production as it does for consumption. However, U.S. companies in aggregate 

typically use fewer of their consumption allowances than production allowances because 

consumption allowances are returned once companies document that they exported HCFCs. This 

process is described in more detail in 40 CFR 82.20. 

Specifically, EPA is proposing to (1) establish 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 (INSERT 

FRN CITATION once published), (2) allocate company-by-company production and 

consumption allowances for these substances for 2012-2014 by establishing percentages of 

baseline in the table at section 82.16, (3) provide additional allowances to the petitioners in 

Arkema v. EPA and others reflecting lost opportunities to produce or consume in 2010 and (4) 
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revise the regulatory text at 40 CFR 82.23 to make the procedure for all future inter-pollutant 

transfers clear. EPA will address the 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 proposed rule are unchanged. 

Additionally, EPA notes that beginning January 1, 2015, section 605 of the CAA 

prohibits the use and introduction into interstate commerce of any HCFC 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; or (3) is used as a refrigerant in appliances manufactured prior 

to January 1, 2020.” In addition, EPA’s regulations at 40 CFR 82.15 restrict use and introduction 

into interstate commerce of HCFC-141b, HCFC-142b, and HCFC-22 beginning in 2010, with 

limited exceptions. If entities will need HCFCs in 2015 and beyond for uses other than the 

exemptions contained in section 605, they should contact EPA prior to 2013. Entities should 

understand that the statutory prohibition in section 605 generally will prevent EPA from 

accommodating such needs, with the possible exception of de minimis quantities. 

A. What Baselines Does EPA Propose to Use for HCFC-22 and HCFC-142b Allowances? 

In the 2009 Final Rule, EPA presented the allocation structure for HCFC-22 and HCFC142b for the control periods 2010-2014: allocating a percentage of the baseline production and 

consumption allowances. The rationale for this system is discussed further at 74 FR 66412. The 

Court found no fault with EPA’s framework for allocating HCFCs in the 2009 Final Rule, except 

the aspects of the rule deemed to be retroactive, i.e., not taking into account inter-pollutant 

baseline transfers that occurred in the prior regulatory period in establishing company-specific 

baseline allowances. To address this, EPA is proposing to establish baselines for 2012-2014 

identical to the HCFC-22 and HCFC-142b baselines established in the 2011 Interim Final Rule 

(Insert FRN once published) that reflect past inter-pollutant baseline transfers deemed permanent 

by the Court. 
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 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), the Response to 

Comments document included in the record for that rulemaking, and the 2011 Interim Final Rule 

(INSERT FRN once published). However, EPA is recognizing the 2008 transfers in establishing 

the baselines through 2014 in accordance with the Court’s decision. The Agency is providing 

advance notice that for the 2015-2019 regulatory period, it would consider using more recent 

production and import data than the 1994-1997 data used to set baselines for the first time in the 

2003 Final Rule. 

B. What Factors Did EPA Consider in Proposing Allocation Amounts for HCFC-22 and HCFC142b? 

In the 2009 Final Rule, EPA decided to allocate HCFC-22 and HCFC-142b allowances 

based on the projected servicing needs for those compounds, taking into account the amount of 

those needs that can be met through recycling and reclamation. EPA is not changing that 

approach in this proposed rulemaking and continues to believe it is necessary to promote use of 

reused, recycled, and reclaimed material in anticipation of the 2015 phasedown step. However, 

the specific amounts allocated per company are different due to the changed baselines and the 

need to apply a different allocation percentage to company baselines in order to keep the 

aggregate amount allocated the same. While EPA is not changing its projection of servicing 

needs and the amount of those needs that can be met through recycling and reclamation at this 

time, EPA is proposing to allocate more HCFC-22 through this rulemaking than it did in the 

2009 Final Rule for a single year as a result of the unforeseen circumstances presented by the 

Court’s decision in Arkema v. EPA. Specifically, EPA is considering an approach to the 2013 

allocation intended to allocate allowances to account for lost opportunities to produce and 

consume in 2010, given that 2010 allowance levels were based on baselines that are inconsistent 

with the Court’s finding (section III.B.4. discusses this in more depth). 
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1. How Important is HCFC-22 Relative to HCFC-142b for Servicing Existing 

Equipment? 

HCFC-22 is the most widely-used HCFC. The demand for its use in servicing existing 

equipment was the primary factor affecting EPA’s allocation of production and consumption 

allowances of HCFCs for the current regulatory period. Prior to issuing the 2009 Final Rule and 

the 2009 Servicing Tail Report, EPA issued and sought comment on three versions of a draft 

report analyzing servicing demand for the HCFC appliances in the U.S. refrigeration and airconditioning sector projected to be in service from 2010-2019 (all versions available at Docket 

EPA-HQ-OAR-2008-0496: published November 4, 2005 at 70 FR 67172; released at a 

stakeholder meeting on September 29, 2006; published December 23, 2008, with 2008 Proposed 

Rule). The Servicing Tail Report focuses on air-conditioning and refrigeration appliances 

because such equipment represents the bulk of the servicing need. In addition, the servicing 

exception to the use ban for HCFC-22 and HCFC-142b pertains only to use as a refrigerant in 

such equipment. Under 40 CFR 82.15(g) nearly all other uses of newly produced material for 

these two HCFCs were banned effective January 1, 2010. The projected servicing need for 

HCFC-22 in 2012 is approximately 53,200 MT. HCFC-142b has primarily been used as a foam 

blowing agent, a use that was prohibited beginning in 2010 (40 CFR 82.15(g)). The projected 

servicing demand for existing refrigeration equipment containing HCFC-142b is extremely low: 

approximately 100 MT. EPA therefore focused the analysis on HCFC-22 because that compound 

is the predominant HCFC in the installed base of air-conditioning and refrigerant equipment for 

which servicing in the U.S. will likely continue. 

As discussed in the 2009 Final Rule, the majority of HCFC-22 equipment that is 

projected to be in use from this point onward will be air-conditioning applications, including 

window units, packaged terminal units, unitary air-conditioning, chillers, dehumidifiers, water 

and ground source heat pumps, and motor vehicle air-conditioning in buses and trains. The report 
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projected that approximately 145.6 million units of all such types of HCFC-22 air-conditioning 

equipment were in use in 2010, decreasing by about 41 percent in 2015 and 86 percent in 2020. 

In addition, approximately 3.8 million units of HCFC-22 refrigeration equipment were in use in 

2010. The installed base of HCFC-22 refrigeration equipment is projected to decrease from 2010 

levels by about 44 percent in 2015 and 75 percent in 2020. For more on the Servicing Tail 

Report, see 74 FR 66424 and the Servicing Tail Report included in the docket. 

 EPA estimates that the servicing need for HCFC-22 will continue to decrease each year, 

and consistent with the 2009 Final Rule, EPA proposes to account for this by allocating a smaller 

amount for 2012 than was allocated for 2011. This approach is described in section III.B.3. of 

this action. 

2. Can Servicing Needs be Met with Virgin and Recovered Material? 

In the 2009 Final Rule, the Agency recognized that servicing demand 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. Therefore, EPA did not anticipate that 

virgin HCFC-22 would need to be produced or imported to meet the entire HCFC-22 servicing 

demand in each year between 2010 and 2014. The Servicing Tail Report analyzes various 

scenarios regarding reclamation. EPA continues to believe that reused, recycled, and reclaimed 

material can help meet HCFC-22 servicing needs and is therefore proposing to maintain the same 

approach to meeting servicing needs at this time. 

3. How Would EPA Reduce the Amount Allocated in 2012-2014?

As explained in the preamble to the 2009 Final Rule, without year-to-year reductions in 

the allocations for virgin HCFC-22, the HCFC-22 market could be oversaturated, and the 

contribution of reused, recycled, and reclaimed refrigerant would decrease, both in the total 

number of kilograms and as the proportion of overall need. 
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EPA is particularly concerned with encouraging a smooth transition to the 2015 

stepdown. At that date, the U.S. must meet a 90 percent reduction below the baseline for all 

HCFCs. EPA’s Servicing Tail Report shows that even a 20 percent recovery rate would be 

insufficient to meet the demand for HCFC-22 in 2015. As shown in Table 4-5 in the report, 

demand for HCFC-22 in 2015 is projected to be 38,800 MT while the cap for all HCFCs equates 

to 27,709 MT of HCFC-22 (assuming no allocation for any other HCFCs). In developing the 

2009 Final Rule, EPA calculated that to meet the total demand in 2015, the recovery rate would 

have to increase to 26 percent (representing 29 percent of total servicing demand). 

 EPA determined in the 2009 Final Rule the level of allocation that would meet the 

servicing demand over 2010-2014. Excluding EPA’s proposal to address 2010 allowances (see 

section III.B.4.), the Agency is proposing to maintain the overall HCFC-22 allocation levels for 

2012-2014 that the Agency determined were appropriate in the 2009 Final Rule. Should new 

data become available indicating there is a surplus of HCFC-22 on the U.S. market, EPA would 

consider addressing this in the future. 

Since EPA is continuing to allow the use of existing HCFC-22 appliances manufactured 

prior to January 1, 2010, reused, recycled, and reclaimed HCFC-22 will become more valuable 

as the phaseout progresses. The demand for HCFC-22 to service existing equipment will provide 

an economic incentive to increase the quantities of recovered HCFC-22 available for reuse, 

recycling, and reclamation. The docket for the 2009 Final Rule (EPA-HQ-OAR-2008-0496) 

provides further information on EPA’s assumptions regarding the availability of reused, recycled 

and reclaimed HCFC-22 to meet servicing demand. 

In the 2009 Final Rule, EPA determined it was appropriate to establish an annual stepdown with the assumption that the total demand to be met from recovered HCFC-22 would equal 

12,500 MT each year. This is approximately the amount EPA projected would be needed to meet 

the servicing demand in 2015. EPA is proposing to retain this approach for 2012-14. Under this 
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approach, the aggregate allocation for consumption would equal approximately 40,700 MT in 

2012, and decrease each year after. These values, shown in Table 1, are derived by subtracting 

12,500 MT from the estimated servicing demand each year. EPA will not issue HCFC-22 and 

HCFC-142b allowances for 2015 or later until a future rulemaking. 

Table 1 – Proposed Amount of Annual HCFC-22 Demand to be Met by Allocated and 

Recovered Material 

2010 2011 2012 2013 2014 

Estimated Demand (MT) 62,500 57,900 53,200 48,400 43,600 

Total Allocation (MT) 50,000 45,400 40,700 35,900 31,100 

Recovered Amount (MT) 12,500 12,500 12,500 12,500 12,500 

As the total servicing demand decreases, assuming the supply of recovered HCFCs stays 

at a constant level results in recovered material comprising a greater proportion of the total 

demand each year. Using this assumption, the percentage of the total servicing demand to be met 

with recovered material will rise from 21.6 percent of total demand in 2011 to 28.7 percent in 

2014, though the total amount of recovered material needed remains at 12,500 MT for each year. 

EPA still believes this is appropriate as it facilitates meeting the demand in 2015, of which at 

least 29 percent must be met with recovered material. 

4. How Will EPA Address the Court’s Decision with Regard to 2010 HCFC Allowances? 

 EPA’s first step in addressing the Court’s decision was to establish baselines for 2011 

that reflected the 2008 inter-pollutant transfers that were at issue in the litigation and to allocate 

allowances for 2011 as a percentage of those baselines. As noted in the Interim Final Rule 

(INSERT FRN once published), EPA interprets the Court’s decision as applying, at a minimum, 

to the baseline and calendar-year allowances for 2011-2014. The Agency is taking 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. The petitioners in the case, Arkema and 

Solvay, have stated that EPA should “restore the allowances of which Arkema and Solvay were 

deprived unlawfully in 2010,” or “provide a method to compensate Arkema and Solvay for year 
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2010 allowances that rightfully should have been available” (February 4, 2011 letter to Drusilla 

Hufford, EPA, from William Hamel, Arkema, and March 7, 2011 letter to Drusilla Hufford, 

EPA, from Don Magid, Solvay, both available in the docket for this rulemaking). As a result of 

these requests, EPA is considering granting additional allowances for all companies that would 

have received higher allocations in 2010 if the 2008 inter-pollutant transfers had been reflected 

in the baselines published in the 2009 Final Rule. The companies affected, and the additional 

allowances they would have received (hereinafter described as “recoupment allowances”), are 

included in Table 2, below. 

Table 2 – Proposed Recoupment Allowances 

Company Chemical Consumption (kg) Production (kg)

Arkema HCFC-22 4,749,692 4,611,848 

DuPont HCFC-142b 2,339 0 

Honeywell HCFC-142b 58,291 107,097 

Solvay Fluorides HCFC-22 1,157,895 0 

Solvay Solexis HCFC-142b 0 289,800 

 EPA is taking comment on four possible options with regard to this issue: (1) providing 

recoupment allowances in 2013 in addition to the aggregate level of production and consumption 

specified in the 2009 Final Rule; (2) allocating recoupment allowances over two years (2013-

2014) in addition to the aggregate level of production and consumption specified in the 2009 

Final Rule; (3) allocating recoupment allowances from the aggregate level of production and 

consumption specified in the 2009 Final Rule over two years (2013-2014); and (4) treating 

missed allowances from 2010 as impossible to recoup. EPA is also taking comment on (1) 

whether it should provide recoupment 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. EPA is seeking comment on these two points because (1) the 

Court’s decision only addresses the losses of the petitioners Arkema and Solvay, who appear to 

be most concerned with recoupment for HCFC-22 allowances, (2) neither of the petitioners has 
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specifically requested recoupment for production allowances, and (3) while Solvay Solexis could 

receive recoupment allowances for HCFC-142b production (see Table 2), it would receive nearly 

ten times more HCFC-142b production allowances under this proposed rule absent recoupment 

than the 2009 Final Rule, which could avoid the need for HCFC-142b production allowance 

recoupment. When considering the options included in this section, commenters should consider 

options 1-4 providing or not providing recoupment for HCFC-142b and providing or not 

providing recoupment for production allowances. 

 EPA is proposing to address this issue in addition to the proposed changes to baselines, 

which reflect the Court’s decision on past inter-pollutant transfers. Under each of these 

approaches, the U.S. would still be well below its HCFC cap under the Montreal Protocol. EPA 

is not proposing a recoupment option that would begin in 2012 because the Agency wants to 

provide all companies a level of certainty about their allocation for the 2012 control period. In 

addition, waiting until 2013 provides companies that may receive recoupment allowances time to 

prepare for the increase in calendar-year allowances. 

 Under option 1, each company would get the percentage of baseline listed in proposed 

section 82.16(a)(1). The companies listed in Table 2 would receive an additional one-time 

allocation in 2013 of the amount specified in the table. Granting recoupment allowances under 

option 1 would add 329 ODP-weighted MT of allowed HCFC consumption and 280 ODPweighted MT of allowed HCFC production in 2013. The result is an increase in allowed HCFC 

consumption and production (ODP-weighted) by 17 percent and 15 percent, respectively, beyond 

that allowed in the 2009 Final Rule. EPA would prefer not to increase the level of HCFC 

consumption and production. However, while the number of allowances would be higher in 2013 

than envisioned in the 2009 Final Rule, it would not increase environmental damage during the 

regulatory period from 2010-2014 relative to the projections in the 2009 Final Rule: 

approximately 425 ODP-weighted MT of HCFC consumption allowances and approximately 
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930 ODP-weighted MT of HCFC production allowances were not used by allowance holders in 

2010 (source: EPA’s ODS Tracking System). This one-year increase in allowances in 2013 

would keep the aggregate level of consumption and production for 2010-2014 below the level 

envisioned in the 2009 Final Rule. Since the 2014 allocation would be unchanged from the 2009 

Final Rule level, option 1 could be preferable to a two-year recoupment option because it could 

smooth the transition to the 2015 stepdown under the Montreal Protocol. Option 1 would also 

restore the companies’ lost opportunity to produce or consume in 2010 without reducing the 

amount of allowances other companies receive. 

 Option 1 is not without disadvantages. First, it would increase the number of allowances 

available for use in 2013, which might impede the development of a viable reclamation industry 

and hamper the transition to the 2015 stepdown. Second, this option significantly increases the 

number of allowances in 2013 for certain companies receiving recoupment, meaning that those 

companies arguably could have difficulty selling the full amount of HCFC-22 produced or 

imported with allowances that year. However, if companies receiving extra allowances all in one 

year cannot sell the full amount in that year, they may store produced and/or imported material 

for sale or use in later years, or sell the allowances to other producers or importers for use in that 

same year. Third, companies not receiving recoupment would have the same number of 

allowances as they would under a no-recoupment scenario, but they would have a smaller share 

of all allowances allocated under this option compared to a no recoupment scenario and 

compared to the 2008 Proposed Rule. 

 Under the second option, recoupment allowances would be provided over two years 

(2013-2014) instead of one year as in option 1. Each entity listed in Table 2 would receive half 

of the amount listed in the table in 2013 and 2014 in addition to the percentage of baseline as 

listed in proposed section 82.16(a)(1). Option 2 would increase allowed consumption and 

production by 8 percent in 2013 and by 10 percent and 9 percent, respectively, in 2014. This 
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options shares some of the advantages of option 1: (1) the amount allocated between 2010 and 

2014 is still below the amount envisioned as total usage during that period in the 2009 Final Rule 

when taking into consideration the number of allowances not used in 2010, and (2) it restores the 

companies’ lost opportunity to produce or consume in 2010 without reducing the amount of 

allowances other companies would receive under no recoupment. 

 A significant downside to this option is that it increases the number of allowances 

available in 2013 and 2014, and may hamper the smooth transition in 2015 to 10 percent of 

baseline under the Montreal Protocol, since the decrease between the 2014 allocation and 2015 

allocation for HCFC-22 would be larger under this option than in option 1. Also, like option 1, 

companies who would not receive recoupment would have a smaller share of all allowances 

compared to a no recoupment scenario. 

 Under option 3, EPA could provide recoupment allowances as part of the aggregate 

allocation level in the 2009 Final Rule. The letters included in the docket from Don Magid, 

Solvay Fluorides, to Drusilla Hufford, EPA, dated March 7, 2011, and from William Hamel, 

Arkema, to Drusilla Hufford, EPA, dated February 4, 2011, express support for this option. One 

way to do this would be to allocate HCFC-22 allowances (both recoupment for 2010 and their 

allotted percentage of baseline for 2013 and 2014 listed in Table 3 below) to the companies listed 

in Table 2, and then allocate the remainder to all other allowance holders by revising the 

percentage of baseline allocated. A memo to the docket explains this approach in more detail 

(see “Memo: Recoupment Options”). Providing all recoupment from the allocated level in the 

2009 Final Rule in one year is not possible because there are too few allowances to provide 

recoupment and regular allowances for HCFC-142b. Additionally, the memo explains that if the 

Agency provides recoupment for HCFC-142b production allowances, the Agency will have no 

choice but to increase the aggregate number of production allowances. 
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 The primary benefit of option 3 is that it keeps the overall consumption allocation at the 

same level as that in the 2009 Final Rule, and should therefore not negatively affect the transition 

to the 2015 stepdown or recovery and reclamation. However, for the years during which 

recoupment occurred, companies not receiving recoupment under this option would receive 

fewer allowances, and a smaller share of overall allowances, than under the other recoupment 

scenarios. The amount of allowances received by these companies also would be smaller than the 

amount they would have received under the 2008 Proposed Rule. 

 EPA is also considering option 4, under which the Agency would not provide recoupment 

allowances. As part of the evaluation of this option, EPA is considering the effect of the Court’s 

partial vacatur and remand on the 2010 allocation. The Court issued its decision on August 27, 

2010, but stayed the mandate pending resolution of any petition for rehearing. The 2009 Final 

Rule remained in effect during 2010. EPA's petition for rehearing was denied on January 21, 

2011, and the mandate issued on February 4, 2011. While EPA has not interpreted the vacatur as 

nullifying 2010 allowances, EPA is considering whether to address the 2010 allocation on 

remand even if the partial vacatur does not apply to 2010. 

 EPA notes that all 2010 allowances expired on December 31, 2010 and therefore have no 

value in later years. See 74 FR 66415 (“EPA allocates allowances for specific years; they are 

valid between January 1 and December 31 of a given control period (i.e., calendar year)”). 40 

CFR Part 82 also makes it clear that allowances are tied to a specified control period. Section 

82.16(a) states that “In each control period...each person is granted the specified percentage of 

baseline production allowances and baseline consumption allowances for the specified class II 

controlled substances apportioned under §§82.17 and 82.19.” Furthermore, the definitions of 

unexpended allowances in section 82.3 specify that allowances are valid for specific control 

periods. The protection of stratospheric ozone allowance system at 40 CFR Part 82 does not 

allow banking or borrowing of allowances. Since the Court’s mandate issued on February 4, 
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2011, no company could have possessed 2010 allowances on the date the mandate issued, 

because all unexpended 2010 allowances had already expired. 

 EPA seeks comment on whether it is possible to put the petitioners in Arkema v. EPA in 

the position they would have been in had they received the full amount of 2010 allowances to 

which they believed they were entitled. If EPA were to grant the petitioners additional 2010 

allowances now, those allowances would have no value, as 2010 allowances can be expended 

only in 2010. The three recoupment options discussed above assume that by providing 

recoupment allowances in 2013, or 2013-2014, EPA can make up for the lost opportunity to 

provide or consume a specific amount of HCFC, which might either have been sold during 2010 

or placed in inventory for sale during a subsequent year. Advantages of not providing 

recoupment allowances include (1) not increasing the amount of HCFC-22 on the market, which 

has advantages for the environment, public health, and for fostering a viable reclamation industry 

in advance of the 2015 stepdown, and (2) not decreasing the actual number or share of 

allowances for other allowance holders. 

 If EPA decides to provide recoupment allowances, EPA prefers option 1 because it has a 

minimal impact on the 2015 stepdown to 10 percent of baseline, addresses the Court’s decision 

in the simplest manner, and does not result in companies receiving a lower amount of allowances 

in any year than they would have received had EPA taken the 2008 inter-pollutant transfers into 

account in its 2009 Final Rule. EPA welcomes comment on the matter. A memo in the docket for 

this rulemaking shows how EPA would effectuate each of the options in the regulatory text at 40 

CFR Part 82 (see “Memo: Recoupment Options”). Additionally, option 1 is detailed in 

regulatory text at the end of this preamble. 

 Any recoupment allowances allocated for 2013 or 2014 would function in the same way 

as other calendar-year allowances: for example, they could be used only in the calendar year for 

which they were issued and would expire at the end of that calendar year. 
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C. How Much HCFC-22 and HCFC-142b Would be Allocated in 2012-2014? 

 As discussed previously, EPA is proposing to revise 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 individual 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. EPA is 

proposing to (1) retain this framework of complementary tables, (2) respond to the Court’s 

remand by establishing baselines for 2012-2014 identical to those established in the 2011 Interim 

Final Rule (insert FRN once published), (3) grant 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) introduce a new subparagraph at 82.16(a) to provide recoupment 

allowances in 2013. 

 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. As discussed above, 

EPA interprets the Court’s vacatur as applying to the allocation for each of these years. EPA 

intends to put in place new allocations through this rulemaking. EPA is proposing to allocate 

28.7 percent, 25.3 percent and 21.9 percent of HCFC-22 baseline for 2012, 2013 and 2014, 

respectively. The percent allocation for HCFC-142b was 0.47 percent of baseline in the 2009 

Final Rule for 2012-2014. EPA is proposing to allocate 4.9 percent of HCFC-142b baseline for 

2012-2014. As a reminder, the percentages allocated for 2013 and 2014 could be different 

depending on the recoupment option chosen. Excluding recoupment allowances, these changes 

do not reflect a change in the total consumption allocation amounts for each substance in 

aggregate for the United States, as the total allocation for HCFC-22 and HCFC-142b in 2012-

2014 remains approximately the same as in the 2009 Final Rule. Using the same percentage of 
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baseline to allocate production allowances as consumption allowances, and excluding 

recoupment allowances, the total proposed HCFC-22 production allocation is smaller in each of 

the three years than in the 2009 Final Rule by about two percent. The lower amount is due to the 

change in company baselines to reflect the Court’s decision on the 2008 inter-pollutant baseline 

transfers, and not a change in the methodology used to determine allowances. More information 

is available on this subject in section III.C.2. 

 The 2009 Final Rule, which did not include the 2008 transfers of HCFC-142b to HCFC22 baseline allowances in the baselines for the next regulatory period, had a total HCFC-22 

consumption baseline of 119,384 MT. EPA is reflecting the baseline transfers in section 82.17 

and 82.19 in accordance with the Court’s decision. As a result, the aggregate HCFC-22 

consumption baseline has increased to 141,865 MT. Since the aggregate HCFC-22 baseline is 

now higher due to the increase in the number of HCFC-22 baseline allowances for Arkema, Inc. 

and Solvay Fluorides, LLC, EPA is allocating a smaller percentage of the company-specific 

baselines than in the 2009 Final Rule to achieve the same total number of HCFC-22 allowances, 

excluding recoupment allowances. Thus, 40,700 MT of HCFC-22 consumption (the aggregate 

allocation amount in 2012) is equal to 34.1 percent of 119,384 MT (baseline) of HCFC-22 in the 

2009 Final Rule, and 28.7 percent of 141,865 MT (baseline) for 2012 in this proposed rule. The 

aggregate HCFC-22 production baseline is also increasing, from 110,619 MT in the 2009 Final 

Rule to 129,093 MT, to reflect Arkema, Inc.’s transfer of HCFC-142b baseline production 

allowances to HCFC-22 baseline production allowances. 

 The opposite is true for HCFC-142b, which had a larger aggregate consumption baseline 

in the proposed rule (21,089 MT), but now has a smaller consumption baseline (2,047 MT) since 

EPA is accounting for inter-pollutant transfers from HCFC-142b to HCFC-22. Thus, 100 MT of 

HCFC-142b consumption allowances (the aggregate allocation amount in each year between 

2012 and 2014) are equal to 0.47 percent of 21,089 MT of HCFC-142b in the 2009 Final Rule, 
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and 4.9 percent of 2,047 MT in this proposed rule. Aggregate HCFC-142b baseline production 

allowances are decreasing from 25,090 MT in the 2009 Final Rule to 9,444 MT in this proposed 

rule to reflect Arkema, Inc.’s transfer of HCFC-142b baseline production allowances. 

 In summary, EPA is proposing (1) to establish production and consumption baselines for 

2012-2014 identical to those established in the 2011 Interim Final Rule (insert FRN once 

published) for HCFC-22 and HCFC-142b in the tables at sections 82.17 and 82.19. EPA is also 

proposing (2) to add new specified percentages of baseline for those substances to the table in 

section 82.16 for the 2012-2014 control periods and (3) to provide or not provide recoupment 

allowances in addition to the total allocation amounts specified in Table 1. EPA is proposing to 

allocate 28.7 percent of baseline for HCFC-22 and 4.9 percent of baseline for HCFC-142b in 

2012. Depending on the option chosen for providing (or not providing) recoupment allowances, 

EPA is proposing to allocate between 22.0 to 25.3 percent of the HCFC-22 baseline in 2013, and 

between 18.6 to 21.9 percent of the HCFC-22 baseline in 2014. For HCFC-142b, EPA is 

proposing to allocate between 0.4 to 4.9 percent of baseline in 2013 and 2014, depending on the 

option chosen to address or not address recoupment. As mentioned in section III.B., should new 

data become available indicating there is a surplus of HCFC-22 on the U.S. market, EPA would 

consider addressing this in the future. 

Table 3- Proposed Phaseout Schedule for Class II Controlled Substances 

Control 

Period 

Percent of 

HCFC141b 

Percent of 

HCFC-22 

Percent of 

HCFC142b 

Percent of 

HCFC-123

Percent of 

HCFC-124

Percent of 

HCFC225ca 

Percent of 

HCFC225cb 

2003 0 100 100 -- -- -- -- 

2004 0 100 100 -- -- -- -- 

2005 0 100 100 -- -- -- -- 

2006 0 100 100 -- -- -- -- 

2007 0 100 100 -- -- -- -- 

2008 0 100 100 -- -- -- -- 

2009 0 100 100 -- -- -- -- 

2010 0 41.9 0.47 125 125 125 125 
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2011 0 32.0 4.9 125 125 125 125 

2012 0 28.7 4.9 125 125 125 125 

2013 0 22.0 - 25.3 0.4 - 4.9 125 125 125 125 

2014 0 18.6 - 21.9 0.4 - 4.9 125 125 125 125 

 Consistent with the 2009 Final Rule, EPA is allocating different baseline percentages for 

HCFC-22 and HCFC-142b because EPA projects that the needs will differ for servicing airconditioning and refrigeration appliances during the 2012-2014 control periods. 

1. How Does EPA Propose to Allocate HCFC-22 Consumption Allowances for 2012-

2014? 

For 2012, EPA is proposing to allocate HCFC-22 consumption allowances to meet about 

76.5 percent of the servicing need, assuming the remainder will be met by recovered HCFC-22 

that is either reused, recycled, or reclaimed. This allocation translates into approximately 40,700 

MT, or 59 percent of the total HCFC consumption cap for the 2012 control period. Under EPA’s 

preferred recoupment option in 2013, EPA would allocate 35,900 MT of HCFC-22 consumption 

allowances, plus an additional 5,908 MT in recoupment allowances. In 2014, EPA would 

allocate 31,100 MT of HCFC-22 consumption allowances. In each year between 2012 and 2014, 

EPA’s total HCFC allocation including recoupment would be at least 36 percent below the 

Montreal Protocol cap, and would be below servicing demand as estimated in the Servicing Tail 

Report. Section III.B.4. of this preamble also discusses other recoupment options. 

2. How Does EPA Propose to Allocate HCFC-22 Production Allowances for 2012-2014? 

EPA is proposing not to revisit its determination in the 2009 Final Rule to use the same 

percentages for production and consumption allocations – deriving the percentages based on 

estimated need for each individual HCFC. Therefore, this proposed rule would allocate 37,050 

MT to HCFC-22 production in 2012. The aggregate allocation in 2012 is approximately two 

percent lower than the amount allocated in the 2009 Final Rule (37,050 MT in this proposed rule 

vs. 37,721 MT in the 2009 Final Rule) because the aggregate amount of baseline production 
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allowances in this rulemaking did not increase by the same relative amount as aggregate baseline 

consumption allowances. Because Solvay did not transfer its HCFC-142b production allowances 

to HCFC-22 production allowances, HCFC-22 baseline consumption allowances are 18.8 percent 

higher in this rule, while baseline production allowances are only 16.7 percent higher. The memo 

to the docket for this rulemaking titled “HCFC-22 and HCFC-142b Allocation Adjustments: 

2009 Final Rule vs. 2011 Proposed Rule,” discusses the slight differences in allocation amounts 

in more detail. EPA is proposing to allocate 32,660 MT of HCFC-22 production allowances in 

2013, plus an additional 4,611 MT of one-time recoupment allowances, and 28,271 MT of 

HCFC-22 production allowances in 2014. 

While this proposed rule contains the same allocation percentages for production and 

consumption, EPA welcomes comment on whether it should use different percentages to allocate 

HCFC-22 production and consumption allowances in 2012-2014. From a policy perspective, 

EPA is interested in comments on whether an increase in the total number of HCFC-22 

production allowances would result in greater total HCFC production, either in the U.S. or 

globally. EPA notes that production of 1 kilogram of an HCFC requires both a production 

allowance and a consumption allowance (82.15(a)(1),(2)). Thus, an increase in production 

allowances without a corresponding increase in consumption allowances does not automatically 

result in greater production. The most likely scenario is that an increase in production allowances 

would result in greater U.S. production for export. This is because as stated in 82.20(a), “A 

person may obtain at any time during the control period...consumption allowances equivalent to 

the quantity of class II controlled substances that the person exported from the U.S. and its 

territories to a foreign state...when that quantity of class II controlled substance was produced in 

the U.S. ...with expended consumption allowances.” In effect, current EPA regulations allow 

exporters to receive a refund of one consumption allowance for each kilogram they export if they 

show one consumption and one production allowance were expended for the material exported. 
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Therefore, EPA would not necessarily expect an increase in production allowances to result in 

greater HCFC consumption in the U.S. EPA welcomes comment on whether an increase in the 

level of production allowances would result in (1) more U.S. consumption, (2) more U.S. 

production, either for domestic use or for export, and (3) greater worldwide production and/or 

consumption of HCFCs. 

EPA requests comments on whether section 605(c) would preclude allocating a different 

percentage of baseline for production than for consumption. 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 . . . as is applicable to the 

phase-out and termination of production of class II substances under [Title VI].” EPA is 

considering three possible interpretations of the term “schedule” as referenced in section 605(c): 

(1) the schedule that appears on the face of section 605, which contains no deadlines until 2015; 

(2) the schedule that appears on the face of section 605, as accelerated under section 606; and (3) 

the specific allocation percentages or amounts established by EPA through rulemaking for each 

control period. EPA believes that the second interpretation is the most consistent with the 

statutory language and purpose. 

 In past actions, the Agency has made the initial schedule in section 605 more stringent to 

reflect modifications to the Montreal Protocol phaseout schedule for HCFCs. Under the 2007 

Montreal Adjustment (reflected in Decision XIX/6), the U.S. is obligated to reduce HCFC 

production and consumption 75 percent below its aggregate baseline by 2010. EPA is not 

proposing to increase production to an amount that would be inconsistent with that obligation. 

Instead, EPA is taking comment on whether to allow production to increase relative to 

consumption, without encroaching on the cap. Specifically, EPA is taking comment on whether 
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to decouple the percentage of baseline allocated for production from the percentage of baseline 

allocated for consumption. EPA would effectuate this change in its regulations by replacing the 

table at 40 CFR 82.16 with two tables. One would allocate a percent of baseline for consumption 

allowances consistent with the percentages listed in Table 3. The other would allocate 34.1 

percent, 30.1 percent and 26.1 percent of baseline for production allowances in 2012, 2013, and 

2014, respectively, consistent with the 2009 Final Rule. This approach would still provide the 

petitioners in Arkema v. EPA the benefit of their 2008 baseline transfers while giving other 

companies with production baselines approximately the same number of production allowances 

as they received in the 2009 Final Rule. Compared to the 2009 Final Rule, the net result of this 

option would increase allowed production by 6,299 MT in 2012, 5,560 MT in 2013, and 4,821 

MT in 2014. Under this scenario, the U.S. would still be below the Montreal Protocol’s 

production cap (when all HCFCs are included) by at least 33 percent in each year, even when 

including recoupment (the memo to the docket entitled, “Montreal Protocol Compliance,” 

contains more detailed information on the implications of each option relative to the Montreal 

Protocol cap). EPA is seeking comment on whether this increase would hinder the transition to 

the 2015 phaseout step, under which the U.S. is obligated to reduce HCFC production and 

consumption 90 percent below its aggregate baseline. EPA’s preference is to continue to use the 

same percentages for production and consumption allocations. This is because EPA is concerned 

this action could increase U.S. production of HCFCs, might decrease the U.S.’s ability to 

transition to the 2015 stepdown under the Montreal Protocol, and potentially increase global 

production of HCFCs. Nevertheless, the Agency requests comment on this option for HCFC-22 

production allowances. 

3. How Does EPA Propose to Allocate HCFC-142b Allowances for 2012-2014?

 Establishing HCFC-142b baseline allowances that take into account the 2008 interpollutant transfers discussed in section II.D. results in 2,047 MT of aggregate baseline 
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consumption allowances and 9,444 MT of aggregate baseline production allowances. Consistent 

with the 2009 Final Rule, EPA is proposing to allocate 100 percent of the projected servicing 

need for HCFC-142b identified in that rule: 100 MT of consumption. To get to that level of 

consumption, EPA is proposing to allocate 4.9 percent of the aggregate consumption baseline, as 

reflected in the table at section 82.16. The aggregate allocation number for consumption is the 

same as in the 2009 Final Rule. 

 Using the same percentage (4.9 percent), EPA is proposing to allocate 463 MT of HCFC142b 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 proposed rule vs. 118 MT in the 2009 Final Rule). The proposed allocation is 292 percent 

higher than in the 2009 Final Rule because the aggregate amount of baseline HCFC-142b 

consumption allowances in this rulemaking decreased by a significantly larger amount than 

aggregate baseline HCFC-142b production allowances. HCFC-142b baseline consumption 

allowances are 90.3 percent lower in this rule, while baseline production allowances are only 

62.4 percent lower. The difference between the change in production and consumption baselines 

is a result of Arkema trading most of its HCFC-142b production allowances, while Solvay did 

not. This higher amount of calendar-year production does not affect the U.S.’s ability to meet its 

obligations under the Montreal Protocol. The memo to the docket for this rulemaking titled 

“HCFC-22 and HCFC-142b Allocation Adjustments: 2009 Final Rule vs. 2011 Proposed Rule,” 

discusses the differences in exact allocation amounts in more detail. 

 As discussed in section III.B.4. of this preamble, EPA is proposing to allocate 

recoupment allowances in 2013 in addition to the 4.9 percent of baseline described above. This 

would result in an additional 61 MT of HCFC-142b consumption allowances and 397 MT of 

HCFC-142b production allowances. 

 4. How Would the Aggregate for HCFC-22 and HCFC-142b Translate Entity-by-Entity?
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 For 2012, EPA is proposing to allocate (1) approximately 40,700 MT of HCFC-22 

consumption allowances, (2) 37,050 MT of HCFC-22 production allowances, (3) approximately 

100 MT of HCFC-142b consumption allowances and (4) 463 MT of HCFC-142b production 

allowances. However, EPA actually allocates allowances to individual companies (i.e., legal 

entities). Company-specific production and consumption baselines (also referred to as “baseline 

allowances”) for HCFC-142b and HCFC-22 are listed at sections 82.17 and 82.19, respectively. 

The percentage of baseline each entity would receive in 2012-2014 appears at section 82.16(a), 

as shown in Table 3 above. 

 Allowances allocated for individual control periods are called “calendar-year allowances” 

to distinguish them from the baseline production or consumption allowances. For 2012-2014, 

EPA is proposing to apportion production and consumption baselines for HCFC-22 and HCFC142b 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-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 (INSERT FRN), and EPA is proposing 

to do the same for 2012-2014. Applying the approach described above, EPA would apportion 

production and consumption baselines for HCFC-22 and HCFC-142b to the following entities in 

the following amounts: 

Table 4: Baseline Production Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.17 

Person Controlled Substance Allowances (kg) 

Arkema 

HCFC-22 46,692,336

HCFC-142b 484,369

DuPont HCFC-22 42,638,049

Honeywell 

HCFC-22 37,378,252

HCFC-142b 2,417,534

MDA Manufacturing HCFC-22 2,383,835
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Solvay Solexis HCFC-142b 6,541,764

Table 5: Baseline Consumption Allowances of HCFC-22 and HCFC-142b in 40 CFR 82.19 

Person Controlled Substance Allowances (kg) 

ABCO Refrigeration Supply HCFC-22 279,366

Altair Partners HCFC-22 302,011

Arkema HCFC-22 48,637,642

HCFC-142b 483,827

Carrier Corporation HCFC-22 54,088

Coolgas Investment Property HCFC-22 1,040,458

DuPont HCFC-22 38,814,862

HCFC-142b 52,797

H.G. Refrigeration Supply HCFC-22 40,068

Honeywell HCFC-22 35,392,492

HCFC-142b 1,315,819

Mexichem Fluor Inc. HCFC-22 2,546,305

Kivlan & Company HCFC-22 2,081,018

MDA Manufacturing HCFC-22 2,541,545

Mondy Global HCFC-22 281,824

National Refrigerants HCFC-22 5,528,316

Refricenter of Miami HCFC-22 381,293

Refricentro HCFC-22 45,979

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 proposed baselines listed above are identical to the tables presented in the 2011 

Interim Final Rule (insert FRN). 

D. Are HCFC-141b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb Allowances 

Affected by this Rulemaking? 

 Since the Court’s decision did not vacate this portion of the 2009 Final Rule, EPA is not 

proposing to change baselines and percentages of baseline allocated as calendar-year allowances 

for HCFC-141b, HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb, except to make 

adjustments for inter-company, single-pollutant transfers of baseline allowances, as reflected in 

the 2011 Interim Final Rule (insert FRN). In the case of HCFC-141b, EPA is continuing to 
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allocate 0 percent of baseline for U.S. consumption and production, consistent with 40 CFR 

82.16(b). 

E. How Will EPA Allocate Other HCFCs? 

 As a result of EPA’s allocation process, which is largely based on projected demand for 

HCFC-22 and HCFC-142b, minus an amount of HCFC-22 that is assumed to be reused, 

recycled, or reclaimed, the total allocation is lower than the aggregate HCFC cap under the 

Montreal Protocol. EPA recognizes that there could be some additional need for HCFCs not 

specifically included in this rule. While some niche applications in the U.S. use other HCFCs, 

such as HCFC-21, EPA is not aware of additional need for production or import of these 

substances at this time, as adequate amounts appear to be in inventory. However, EPA is not 

foreclosing the possibility of additional production or import for these niche uses. Also, some 

amount of HCFC-141b will likely continue to be produced or imported via the petition process 

during 2012-2014. EPA believes there is sufficient room under the cap for such continued 

production and import. The current regulations at 40 CFR 82.15 ban the production and import 

of class II substances for which EPA has apportioned baseline production and consumption 

allowances in excess of allowances held by the producer or importer, but do not ban the 

production and import of class II substances for which EPA has not apportioned baseline 

production and consumption allowances. This rule does not alter the current regulations in that 

respect. The producer or importer of an HCFC that is not subject to the allowance system would 

be required to report to EPA consistent with the existing recordkeeping and reporting 

requirements. If necessary, EPA could amend the regulations to set and apportion baselines and 

issue allowances for these HCFCs. Therefore, retaining room under the cap could provide the 

benefit of accounting for unanticipated growth in HCFCs that do not have allocations or other 

unforeseen events. However, EPA is not reserving room under the cap for the above-described 
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reasons. EPA is allocating allowances based on modeled demand for virgin and recovered 

material in preparation for the next major stepdown period under the Montreal Protocol in 2015. 

IV. How Does EPA Propose to Change the Regulations Governing Allowance Transfers 

of Class II Controlled Substances? 

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. The 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 v. EPA, 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 interpollutant transfers in the 2011 Interim Final Rule (INSERT FRN) and is repeating that 

clarification in this action. EPA is also proposing to modify the regulatory text in order to dispel 

any possibility of confusion in the future. In addition to modifying the regulatory text to address 

the duration of inter-pollutant transfers, EPA is also proposing to revise the regulatory text to 

reflect prior Agency statements pertaining to inter-pollutant transfers of Article 5 allowances. 

A. How Does EPA Propose to Change 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 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. 
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The 2009 Final Rule updated the baselines for HCFC-22 and HCFC-142b to reflect name 

changes and inter-company baseline transfers, i.e., transfers of baseline for a specific type of 

HCFC from one company to another. Doing so reflected the changes in the marketplace that had 

occurred since EPA promulgated the 2003 Final Rule. Inter-company baseline transfers provide 

a mechanism for new entrants to join the HCFC market and for other companies to expand their 

business. EPA recognizes that in some cases, entities are no longer actively involved in HCFC 

production, import, and/or export activities. EPA retained the baseline for such entities, noting 

that this had been a mechanism by which new entrants had entered the HCFC allowance system 

in the past. 

 The 2009 Final Rule also addressed four inter-pollutant baseline transfers made during 

the prior regulatory period (see section II.D. and the transfer forms in the docket for this action 

for more detail). EPA had proposed to adjust the company baselines to reflect these four interpollutant baseline transfers in the 2008 Proposed Rule. Eight commenters opposed, and two 

commenters supported, these proposed adjustments. At issue was whether the inter-pollutant 

baseline transfers should be part of the companies’ baseline allowances in the next regulatory 

period. 

 After reviewing the comments, EPA concluded that adjusting the baselines to reflect 

inter-pollutant baseline transfers could create incentives for future manipulation of the allocation 

system in anticipation of future control periods. EPA remains concerned about the potential for 

such future manipulation if inter-pollutant baseline transfers during the current regulatory period 

change a company’s baseline for future regulatory periods. For 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 HCFC-22 allowances would no longer be in the HCFC market at 

that date if they did not hold allowances for other HCFCs that may still be produced after 2020. 

If EPA were to allow inter-pollutant baseline transfers that carried forward into the new 
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regulatory period, companies with HCFC-22 baselines in 2019 could convert them all to 

baselines for HCFC-123. 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. 

 As another example, in 2015, a producer or importer that previously had not participated 

in the HCFC-123 market could dominate that market by converting its HCFC-22 baseline in 

2014 to HCFC-123 baseline. 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 the 

overall market. EPA agrees with commenters on the 2008 Proposed Rule that taking interpollutant baseline transfers into account in setting baselines could have the effect of moving the 

U.S. HCFC phasedown from a chemical-by-chemical phaseout, as established under the “worstfirst” approach in the 1993 Final Rule, towards an ODP-weighted phasedown. Thus, there are 

important policy reasons going forward for not taking inter-pollutant transfers into account in 

establishing baselines for new regulatory periods. 

 Some commenters on the 2008 Proposed Rule stated that modifying the baselines by 

taking into account inter-pollutant transfers would be contrary to the CAA. One commenter 

argued that section 607 of the CAA allows EPA to approve inter-pollutant transfers of 

allowances only on a year-to-year basis. That commenter pointed 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.” The commenter also discussed the legislative history of the 1990 

CAA Amendments. 
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 EPA does not agree with the commenter that the language of section 607(b) is clear on its 

face. However, where the statutory language is ambiguous, 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 on the 2008 Proposed 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 and in this action, in the 

future, EPA intends to approve inter-pollutant transfers only on a year-by-year basis. Thus, in the 

context of the allowance system for protection of stratospheric ozone, companies should not 
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expect that any inter-pollutant transfers they conduct will affect their baselines either in the 

current regulatory period or any future regulatory period. 

 EPA proposes to revise the regulations to avoid any further dispute about the Agency’s 

position on this issue. In addition, EPA is proposing to clarify the procedures that apply to 

permanent, single-pollutant transfers. Specifically, EPA proposes to add a sentence at the 

beginning and end of section 82.23(d) of 40 CFR Part 82, so the text reads: 

“(d) Permanent transfers. The procedures in paragraph (a) of this section apply to permanent 

inter-company transfers of baseline 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.” 

B. How Does EPA Propose to Change the Regulations Governing Transfers of Article 5 

HCFC 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 is proposing 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. 

The regulations currently provide clarity on inter-company (single-pollutant) transfers of Article 

5 allowances in section 82.23(a) by stating “a person...may transfer to any other person...any 

quantity of the transferor’s class II...Article 5 allowances for the same type of allowances...” 

While 82.23(a) specifically includes Article 5 allowances in the list of allowances that may be 
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transferred to another entity, 82.23(b), which governs inter-pollutant transfers, makes no mention 

of Article 5 allowances. 

Section 82.23 was promulgated 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 is proposing 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. 

 EPA is also proposing 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 “With today's action, EPA permits inter-pollutant and inter-company transfers of 
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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 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 is proposing to amend 82.23(a)(ii) 

and 82.23(a)(ii)(A) to require an offset for transfers of Article 5 allowances. This will make 

section 82.23(a) consistent throughout. Section 82.23(b) currently requires an offset of 0.1 

percent for all inter-pollutant transfers. Thus, if EPA adds 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 proposing to modify the regulatory text. EPA is proposing to modify the text at 40 

CFR 82.23(a)(ii) to read: 
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“(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:” 

EPA is proposing to modify the text at 40 CFR 82.23(a)(ii)(A) to read: 

“(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.” 

The Agency is also proposing to modify the text at 40 CFR 82.23(b) by adding Article 5 

allowances to the list of allowances that can be traded between pollutants. The text would read: 

“(b) Inter-pollutant transfers. (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 
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in Appendix B of this subpart, following the procedures described in paragraph (b)(3) of this 

section.” 

V. 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. 
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• The 2007 Memorandum Revised Ozone and Climate Benefits Associated with the 2010 

HCFC Production and Consumption Stepwise Reductions and a Ban on HCFC Precharged Imports. 

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 (RFA) 

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 proposed 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) 
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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 will 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 proposed rule on small entities, I certify 

this action will not have a significant economic impact on a substantial number of small entities 

as it relieves a regulatory ban on production and consumption that would otherwise apply in the 

wake of the Court’s vacatur. EPA is continuing to allocate production and consumption 
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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, and (3) 

changes in company names that occurred after the 2009 Final Rule was signed. 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 most recent 

cost and benefit data used for the 2009 Final Rule.

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. First, UMRA does not apply to rules that are necessary for the 

implementation of international treaty obligations. This rule implements the 2010 milestone for 

the phaseout of HCFCs under the Montreal Protocol. Second, this action relieves the regulatory 

ban on production and consumption that would otherwise apply. This action will not have any 

significant direct impacts or State, local and tribal governments or private sector entities. 

Therefore, this rule is not subject to the requirements of sections 202 or 205 of UMRA. 

 This rule 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 

 Executive Order 13132, titled “Federalism” (64 FR 43255, August 10, 1999), requires 

EPA to develop an accountable process to ensure “meaningful and timely input by State and 

local officials in the development of regulatory policies that have federalism implications.” 
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“Policies that have federalism implications” is defined in the Executive Order to include 

regulations that 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.” 

 This action does not have federalism implications. It does 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, the requirements of section 6 of the Executive Order 

do not apply. 

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 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 
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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 a level that is 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 decrease impacts on children’s health from stratospheric 

ozone depletion. 

H. Executive Order 13211: Actions 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 
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 Section 12(d) of the National Technology Transfer and Advancement Act of 1995 

("NTTAA"), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary 

consensus standards in its regulatory activities 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. The 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 lowincome populations in the U.S. 

 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 the 2010 

phaseout step 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 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 
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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. 

List of Subjects in 40 CFR Part 82 

Environmental protection, Administrative practice and procedure, Air pollution control, 

Chemicals, Exports, Hydrochlorofluorocarbons, Imports 

DATED: ____________________________ 

___________________________________ 

Lisa P. Jackson, 

Administrator. 

40 CFR part 82 is amended to read as follows: 

PART 82-PROTECTION OF STRATOSPHERIC OZONE 

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

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

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

§82.16 Phaseout schedule of class II controlled substances. 

(a) Calendar-year Allowances. (1) In each control period as indicated in the following table, 

each person is granted the specified percentage of baseline production allowances and baseline 

consumption allowances for the specified class II controlled substances apportioned under 

§§82.17 and 82.19: 

Protection of Stratospheric Ozone: Adjustments to the Allowance System for 

Controlling HCFC Production, Import, and Export (Page 61 of 64) 
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Control 

Period 

Percent of 

HCFC141b 

Percent of 

HCFC-22 

Percent of 

HCFC142b 

Percent of 

HCFC-123

Percent of 

HCFC-124

Percent of 

HCFC225ca 

Percent of 

HCFC225cb 

2003 0 100 100 -- -- -- -- 

2004 0 100 100 -- -- -- -- 

2005 0 100 100 -- -- -- -- 

2006 0 100 100 -- -- -- -- 

2007 0 100 100 -- -- -- -- 

2008 0 100 100 -- -- -- -- 

2009 0 100 100 -- -- -- -- 

2010 0 41.9 0.47 125 125 125 125 

2011 0 32.0 4.9 125 125 125 125 

2012 0 28.7 4.9 125 125 125 125 

2013 0 25.3 4.9 125 125 125 125 

2014 0 21.9 4.9 125 125 125 125 

(2) Recoupment allowances. In the control period beginning January 1, 2013 and ending 

December 31, 2013, the following companies are granted a one-time amount of HCFC 

consumption and production allowances in addition to the percentage of baseline listed in the 

table at paragraph (a)(1) of this section: 4,749,692 kg of HCFC-22 consumption allowances and 

4,611,848 kg of HCFC-22 production allowances to Arkema; 2,339 kg of HCFC-142b 

consumption allowances to DuPont; 58,291 kg of HCFC-142b consumption allowances and 

107,097 kg of production allowances to Honeywell; 1,157,895 kg of HCFC-22 consumption 

allowances to Solvay Fluorides; and 289,800 kg of HCFC-142b production allowances to Solvay 

Solexis. 

 * * * * * 

3. Amend §82.23 by revising paragraphs (a)(ii)(A), (b), and (d) to read as follows: 

§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 
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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) Inter-pollutant transfers. (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 production allowances or baseline consumption allowances. 
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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. 

* * * * *