RE: Summary of Interagency Comments under EO 12866/13563 -- Protection 

of Stratospheric Ozone : Adjustments to the Allowance System for Controlling 

HCFC Production, Import, and Export 

Luke Hall-Jordan to: Frey, Nathan J. 10/27/2011 10:20 AM

Hi Nathan,

Attached is our revised preamble text. I've pulled the text out of the full preamble and reg. text to make it 

easier to review. If you'd like me to place it back in with the rest of the rule, let me know.

Also - Do we have a follow-up call scheduled?

Best,

Luke

Luke Hall-Jordan

U.S. Environmental Protection Agency

1200 Pennsylvania Ave, NW (MC-6205J)

Washington, DC 20460

Office: 202-343-9591

Cell: 202-230-7589

Preamble Text for OMB_final.docx

"Frey, Nathan J." Luke. Holding Thursday from 1-2 here. Waiting... 10/20/2011 05:07:36 PM

From: "Frey, Nathan J." <Nathan_J._Frey@omb.eop.gov>

To: Luke Hall-Jordan/DC/USEPA/US@EPA

Date: 10/20/2011 05:07 PM

Subject: RE: Summary of Interagency Comments under EO 12866/13563 -- Protection of Stratospheric 

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

Luke. Holding Thursday from 1-2 here. Waiting to hear back from David to 

confirm.

-----Original Message-----

From: Hall-Jordan.Luke@epamail.epa.gov [

mailto:Hall-Jordan.Luke@epamail.epa.gov]

Sent: Wednesday, October 19, 2011 5:54 PM

To: Frey, Nathan J.

Subject: RE: Summary of Interagency Comments under EO 12866/13563 -- 

Protection of Stratospheric Ozone: Adjustments to the Allowance System for 

Controlling HCFC Production, Import, and Export

Hi Nathan,

I've looked at calendars for a follow-up call on Tuesday. Schedules are crazy 

that day. Would Wednesday between 9:30-11 or 12- 1 work? Thursday from 1-2 or 

3-4:30 is also open. Please let me know what works best.

Luke
ATTACHMENT 1 

Preamble Text for OMB_final.docx
Proposed New Section II.E. to be added starting on Page 21/22 of the preamble submitted 

for OMB review 

E. Comments Relevant to Recovery and Reclamation Issues in this Rulemaking that were 

Submitted in Response to the 2011 IFR Allocating HCFC Allowances 

The EPA received 15 submissions from 13 commenters in response to the 2011 interim final 

rule. Three comments were received late. Specifically, the agency had asked for comment on 

several issues relevant to HCFC-22 supply and the status of recovery and reclamation, including: 

(1) previous estimates of HCFC-22 demand; (2) the amount of virgin HCFC-22 currently in 

inventory, available for reuse and/or waiting for import from abroad; and (3) if there is an overall 

surplus of the gas. The agency received comments directly answering these questions, along with 

other comments that are of relevance to this proposed rulemaking. 

EPA is acknowledging the most relevant comments here in order to highlight certain stakeholder 

concerns regarding the future implementation of the HCFC phaseout program. It is the agency’s 

responsibility to implement Title VI of the Clean Air Act, and its policy objective to do so in a 

way that smoothly transitions the U.S. away from HCFCs to non-ODS alternatives. Therefore, 

EPA is particularly interested in stakeholder input regarding the status of HCFC-22 recovery and 

reclamation, because this information applies directly to previously-stated policy goals. This 

section notes the following three issues discussed in comments to the 2011 IFR. 

1. Supply of HCFC-22 

a. Economic feasibility of reclamation 

b. Economic incentives for recovery and emissions prevention 

c. Effect of virgin gas supplies on dry-shipped condensing units 

2. Providing Allowances to Reclaimers 

3. Providing Allowances to Manufacturers of HCFC Blends 

1. Supply of HCFC-22 

Analysis being conducted. Text will be provided shortly. 

2. Providing Allowances to Reclaimers 

Two commenters requested that EPA provide HCFC allowances to certified reclaimers. As 

explained in the report titled “Analysis of Equipment and Practices in the Reclamation Industry,” 

which is included in the docket for this rulemaking, “refrigerant reclamation refers to the 

reprocessing and upgrading of recovered refrigerant through such mechanisms as filtering, 

drying distillation and chemical treatment in order to restore the substance to specifications 

outlined in the Air-Conditioning, Heating, and Refrigeration Institute (AHRI)’s Standard 700-

1995.” The commenters argue increasing allocations to reclaimers would increase the amount of 

reclaimed HCFCs available for purchase. The comments are similar to those submitted prior to 

the finalization of the 2009 Final Rule, which allocated HCFC allowances for 2010-2014. EPA 

responded to this request at the time, but discusses the issue further here. 
The agency’s primary concern is that providing reclaimers with allowances could foster 

unsustainable reclamation practices that rely on blending instead of investing in the technology 

to fully reclaim HCFCs. Based on the phaseout schedule and the decrease in annual allocations, 

reclamation through separation and distillation will be more important in 2015 when the HCFC22 allocation must drop by at least 45 percent from 2010 levels and absolutely necessary by 

2020, by which time import and production of HCFC-22 must be phased out entirely. In 

addition, many businesses have either found a way to secure reliable access to virgin HCFCs or 

have made investments to reclaim HCFCs in a sustainable way, without a direct allocation of 

allowances. 

EPA is also concerned that providing allowances to reclaimers does not address the key 

structural issue that the industry and the HCFC transition are facing: the price of HCFC-22 is too 

low to foster reclamation and is not sending the necessary signal to move consumers to non-ODS 

alternatives. While providing allowances to reclaimers would likely decrease the cost to recover 

and reclaim HCFCs, EPA is concerned about what effect providing allowances to reclaimers 

would have on the market price of HCFC-22. EPA is seeking comment on whether providing 

allowances to reclaimers would affect the market price of R-22, and what effect that price change 

would have on the transition away from ODS and the sustainability of the reclamation industry. 

EPA continues to believe that reducing the supply of available allowances is the best way to 

foster reclamation and recovery. Thus, this proposal does not include an allocation for 

reclaimers. However, the agency has included the relevant comments on the IFR in the docket 

for this rulemaking and welcomes further comment on this issue from all interested parties. 

3. Providing Allowances to Manufacturers of HCFC Blends 

One small business has informed EPA that it cannot acquire either HCFC allowances or the 

HCFCs it needs to manufacture its HCFC blend (see the letters from ICOR dated May 17, 2011 

and September 6, 2011). The company asserts that the cap and trade system is in practice “cap 

and no trade,” where companies hold onto their allowances, even if they have no intention of 

using them. The commenter argues that this leads to artificially high prices for HCFCs and 

HCFC allowances. To remedy this situation, the commenter requests that EPA take unused 

allowances and provide those allowances to companies that either purchased HCFCs or HCFC 

consumption allowances in 2008 and 2009. EPA notes that the inability to acquire allowances 

and/or HCFCs themselves does not appear to be a widespread problem, as numerous companies 

have made a significant number of transfers over the last year alone, and no other company has 

indicated it cannot acquire HCFCs. However, EPA is taking comment on whether other 

companies are having difficulty acquiring HCFCs or HCFC allowances. 

Some historical background may help to provide context on how EPA provided flexibility for 

small businesses when establishing the HCFC allocation system. In a January 21, 2003 rule titled 

“Allowance System for Controlling HCFC Production, Import, and Export” (2003 final rule) the 

EPA assigned individual company baselines by considering the highest production and 

consumption years for every company between the years 1994-1997—a four year period 

preceding regulation of the production and import of HCFCs. “Consumption” is defined by the 

Clean Air Act as “the amount of that substance produced in the United States, plus the amount 
imported, minus the amount exported,” (42 USC § 7671). A company had to be manufacturing 

or importing HCFCs at that time in order to be assigned a baseline. In addition, the EPA 

provided an exception allowing new entrants provided that they began importing after the end of 

1997, but before April 5, 1999, the date the EPA published the advanced notice of proposed 

rulemaking for the regulatory period 2003-2009. The agency believed that such small businesses 

might not have been aware of the impending rulemaking that would affect their ability to 

continue in the HCFC market. 

In addition to the exception for late entrants made in the 2003 final rule, there is significant 

flexibility in the types of transfers companies can conduct. Companies can transfer allowances 

between companies and, on a temporary basis, between chemicals. Companies can also purchase 

HCFCs at the wholesale price, which, according to comments on the 2011 IFR, has been 

decreasing. The allocation system in part was established to discourage the use of HCFCs and 

companies’ continuation in the HCFC market. As stated in the 2003 Final Rule, “businesses that 

desired an allocation of HCFC allowances would have known the risks of jumping into the 

business at this juncture” (66 FR 38073). Since that statement more than nine years ago, access 

to information and knowledge of the risks regarding entering or continuing in the HCFC market 

have only increased. Furthermore, new entrants have entered the market by purchasing 

consumption allowances, as EPA predicted they could back in 2003. All entities wishing to enter 

the HCFC import or production market can continue to purchase allowances for HCFCs. 

As the market continues to decrease, EPA does not believe that expanding the pool of allowance 

holders is necessary to prevent disruption of the continued servicing of existing equipment. 

Given EPA’s intent to phasedown, and ultimately phaseout, the use of HCFCs, consistent with 

the requirements of the CAA and obligations under the Montreal Protocol, EPA believes it is 

justified in continuing to allocate only to those entities who participated in the market at the 

initial stages, as well as those that have entered the market by purchasing HCFC baseline 

allowances in accordance with the established practices. EPA does not believe that providing 

allowances to companies that were not importing or producing HCFCs prior to EPA regulation is 

appropriate at this time given the disruption it would create to the existing regulatory framework. 

However, in light of the large number of HCFC allowances that were not used in 2010 and the 

difficulty at least one company is having in getting HCFCs, EPA welcomes comments on 

whether an allocation to manufacturers of HCFC blends who are having difficulty acquiring 

HCFCs or HCFC allowances would be appropriate. Commenters supporting such an allocation 

should consider (1) how EPA might determine the total amount of such an allocation, (2) how 

EPA might determine which companies should receive allowances, (3) how EPA would verify 

that allowance holders are refusing to sell HCFCs and HCFC allowances, (4) how EPA might set 

baselines for these companies, (5) whether EPA should provide allowances in addition to the 

amount proposed in this rule, or as part of the amount proposed in this rule, and (6) how 

providing allowances to an additional set of companies would affect the U.S. transition away 

from HCFCs.