May 17, 2011 Ms. Drusilla Hufford, Director, Stratospheric Protection Division, Office of Atmospheric Programs United States Environmental Protection Agency 1310 L Street, NW Washington, DC 20005 Re: HCFC Allowance Allocation Dear Ms. Hufford: Thank you and your colleagues for taking meeting with Milton Cuevas and me on April 14, 2011. To recap, we asked at the meeting that EPA revise and recalibrate the baseline allocations to grant additional allocation to ICOR International under the HCFC allocation system. Such allocation recalibration would reflect a small part of HCFC stocks which are currently permitted under the Montreal protocol allowances but not used by allocation holders. The granting to ICOR of such additional allocation is not prohibited either by the Montreal protocol or the Clean Air Act. Most importantly, our request would allow EPA to remedy an allocation system which has effectively become a cap and NO trade system, to the detriment of innovative smaller firms and the consumers they serve. During the meeting we reviewed several points: ICOR is a small business founded in 1989 by my wife, Karen Tieken, and me. We employ 25 people in Indianapolis, Indiana, Dallas Texas, and Henderson, Nevada. ICOR manufactures both HCFC and HFC refrigerant blends, and is also an EPA approved refrigerant reclaimer. ICOR’s flagship product, Hot Shot (R-414B), has been manufactured by ICOR since 1995, and is now the number one selling blended refrigerant replacement for R-12 in the United States and Canada. Sales of Hot Shot are the majority of ICOR’s total sales volume. Hot Shot is an HCFC refrigerant blend, and as such, the availability of the components to manu

facture the product are controlled by EPA’s HCFC allocation rules designed to meet U.S. obliga

tions under the Montreal Protocol to phase out ozone depleting substances. ICOR has very few allocation allowances to import the components it needs to manufacture Hot Shot. Although ICOR was making the product during the baseline periods designated in the rule, it was buying the components from domestic producers, and not importing the products, therefore the allocation allowances were awarded to the companies that either produced the components, or in one case, imported them for ICOR. During the last several years we have repeatedly warned EPA that the three companies that re

ceived approximately 90% of the total HCFC allocation would use the extraordinary competitive advantage that the HCFC allocation rule gave them to put small businesses like ICOR out of busi

ness by denying them the components to make products, or effectively reclaim HCFC refriger

ants.

10640 East 59th Street •Indianapolis, IN 46236 • 317-826-3200 • Toll Free 800-497-6805 •Fax: 317-826-3214 www.icorinternational.com • icorinfo@icorinternational.comThis has come to pass and ICOR is at the breaking point. We have been starved of HCFC compo

nents. Two of three companies will not sell to ICOR, and the other will only sell one component, and has doubled the price this year. ICOR’s price for allocation is 130% of the cost of the refrig

erant. This sorry situation is entirely a consequence of the mechanics of EP A’s allocation system, and complete

ly unnecessary and irrelevant to meeting Montreal protocol standards. The adjustment ICOR seeks does not upset the current rule in which EPA grants HCFC import allowances depending if a firm produced or imported refrigerant during the baseline years. The allocation locked in an EPA sanctioned oligopoly, in which three firms control (but do not fully use) nearly all the consumption allowances for key refrigerants granted by EPA. Now a decade after the baseline years we merely are requesting an updated recalibra

tion, recognizing that millions of pounds of U.S. HCFC allowance is left unused every year . Failure to use some flexibility in applying these rules to a successful small innovative firm will yield the loss of the number one blended R-12 replacement in the industry, with forced conversion of hundreds of thousands of pieces of equipment to a less efficient, more costly alternative. The 2009 HCFC allocation rule considered five proposals to modify the 2003 rule. The 2003 rule was a cap and trade system - the allowances EPA allocated could be traded among companies producing and us

ing the regulated HCFCs. The 2009 proposal reflected EPA’s intent to further phase down total U.S. base

line HCFC production and consumption. But to do this EPA adopted the option that most benefited the legacy chemical producers, effectively a continuation of the existing cap and trade system for R-22 and R-142b with further reductions in the caps, and extending the allocations to R 124 and other substances. The 2009 rule allocated nearly 120 million kg in R 22 consumption allowances, 87% of which is held by only three firms. The rule allocated about 21 million kg in R 142b allowances, all held by just four com

panies. As explained above, because the 2003 allocation system focused on legacy firms, our firm has no consumption allocation of its own for either substance under the 2003 or 2009 rule. The 2009 rule did grant ICOR an allowance for R 124, 3.3% of the total allotted. Three companies received more than 94% of the R 124 allocation. What has resulted, as ICOR predicted, is now a system of cap and NO trade. The three producers with the majority of allocation are not using all their allocation, but now refuse to trade. EP A allowed no flexibility to empower small refrigerant manufacturers like ICOR to fill the consumer demand in existing equipment for our product or innovate new products. Further, EPA stated its intent that the allocation decrease would “promote recycling and reclamation, which in turn should prevent shortages which might otherwise occur upon the stepdown in 2015.” 74 Fed. Reg. 66418. Unfortunately, EPA did nothing to follow through that intent and ignored the opportunity to encourage refrigerant reclaimers by granting them HCFC allowance. This lack of action on reclaim

ers effectively allows large refrigerant producers to default into control of the reclamation industry, as a reclaimer must align itself with a producer to obtain the material to economically reclaim HCFCs. The 2009 rule was based on incorrect assumptions. They were incorrect at the time, and the inaccuracy has since been amply demonstrated by ICOR’s plight. In 2009 EPA stated “Option 1 does not automatically prohibit new entrants, as they could acquire allowances from existing allowance holders under the existing regulatory framework” “EPA believes that any new entrants following the ANPRM publication would not be precluded from en

tering the market, because they could purchase allowances from existing allowance holders who may not intend to use their full amount of allowances.”

10640 East 59th Street •Indianapolis, IN 46236 • 317-826-3200 • Toll Free 800-497-6805 •Fax: 317-826-3214 www.icorinternational.com • icorinfo@icorinternational.com10640 East 59th Street •Indianapolis, IN 46236 • 317-826-3200 • Toll Free 800-497-6805 •Fax: 317-826-3214 www.icorinternational.com • icorinfo@icorinternational.com EPA was incorrect. There are millions of pounds of allowances unused every year which theoretically could be acquired by ICOR or other new entrants, but they are not for sale by the holders who benefitted from EPA’s original allocation grant. Additionally the effect of the large refrigerant producers sitting on unused allocation has been a steep increase in the market price of the relatively small remaining allocation which is for sale by small allocation holders. In 2011 ICOR cannot purchase that unused allocation. As to reclamation, the EPA admitted in the 2009 rule that “Forty five commenters encouraged EPA to al

locate HCFC-22 consumption allowances to reclaimers...” and that “...EP A also received two comments stating that allocations to reclaimers are not necessary...” One of the reasons EP A advanced to justify no reclaimer credit was that such a system would reduce the allocations of current allowance holders. 74 Fed.Reg. 66423. Of course it would, but is that a problem if new companies are providing valuable reclamation services! Isn’t reclamation a responsible refrigerant policy goal, more important than slavish protection of the full allocation of the status quo companies? It is now very clear that the 45 supporters of allowing reclaimers HCFC allocation were correct, and that EPA’s refusal to establish reclamation credit allocation was bad policy. The United States agreed to the Montreal Protocol, and use of the allotted amount of HCFCs should not be exclusive to the few companies selected by EPA. The companies given allotment should use it or lose it. The EPA’s HCFC allocation system has already shut down two refrigerant blenders this year, shut

tered multiple reclamation facilities, and is going to put the employees of ICOR in the United States in the unemployment line if something is not changed in the HCFC allocation system. More importantly to our economy, the allocation system is preventing us and other independent producers from developing innovative products and moving to the next generation of refrigerants. The industry can live with the lower Montreal production and consumption levels, as long as there is trade in the caps, to meet demands and opportunities for innovation. By establishing in 2003 and then further encouraging in 2009 a rigid system giving all advantages to a handful of lar ge legacy producers, EPA is picking winners and losers, driving any innovative spark or ener gy from this line of commerce, and depriving US consumes of products which are more efficient and competitive than those produced by the EPA blessed allocation holders. These poor and unnecessary policy choices have pushed our company into a corner , solely because of EPA’s decisions. ICOR needs relief now. We need HCFC allocation to continue production of Hot Shot into 2012. EPA was wrong when you predicted that allowance would be available for purchase; it is not. As EPA knows (and will not share publicly the data) there is much unused HCFC allocation. Additional allocation could be granted, not upsetting US ability to stay well under the Montreal caps. The minimum allocation ICOR needs, based on our usage during the baseline years outlined in the rules, and R-22 for reclamation based on 2 times our annual reclamation amount is: 1997 R-22 usage 172,755 kg 1997 R-142b usage 32,823 kg 2007 R-124 usage 252,000 kg R-22 for reclamation 363,000 kg10640 East 59th Street •Indianapolis, IN 46236 • 317-826-3200 • Toll Free 800-497-6805 •Fax: 317-826-3214 www.icorinternational.com • icorinfo@icorinternational.com Senator Daniel Coats B40E Dirksen Senate Office Building Washington DC 20510 Congressman Dan Burton 2308 Rayburn House Office Building Washington, D.C. 20515-0001 Senator Harry Reid 522 Hart Senate Office Building Washington DC 20510 Congressman Mike Pence 1431 Longworth HOB Washington, DC 20515 Senator Dean Heller 4 Russell Courtyard Washington, DC 20510 Congressman Joe Heck 132 Cannon HOB Washington, DC 20515 Senator Jon Cornyn 517 Hart Senate Office Building Washington DC 20510 Congressman Pete Sessions 2233 Rayburn House Office Building Washington, DC 20515-4332 Senator Kay Bailey Hutchinson 284 Russell Senate Office Building Washington DC 20510 Congressman Fred Upton 2183 Rayburn House Office Building Washington, D.C. 20515 Senator James M. Inhofe 205 Russell Senate Office Building Washington DC 20510 Congressman Darrell Issa 2347 Rayburn House Office Building Washington, DC 20515 We would appreciate your formal response to this request. If you have an alternative proposal, we would be happy to discuss it. EPA’s hands are not tied by the Montreal Protocol or the Clean Air Act in respond

ing to this request for regulatory flexibility. Sincerely,

James Tieken Owner, President and CEO tiekenjk@cox.net