P.1 

OAR Box 1833 

Prepped by Keeia Richards 

Document Number: 

73) FED REG VOL 53 NO 100 MAY 

24,1988 

Docket Number: 

A-87-20 

Printed 11/14/200811:01:29 AM Sheet 73 of 172 
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^ 

Afv-^c 

Tuesday 

May 24, 1988 

Part Y 

Environmental 

Protection Agency 

40 CFR Part 82 

Stratospheric Ozone Protection; 

Apportionment of Baseline Consumption 

and Production Rights; Proposed Rule 
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18800 Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 82 

f FRL 3378-4] 

Stratospheric Ozone Protection; 

Apportionment of Baseline 

Consumption and Production Rights 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: On December 14,1987, EPA 

published in the Federal Register two 

notices related to stratospheric ozone 

protection. One notice (52 FR 47489) 

proposed regulations to implement the 

Montreal Protocol on Substances that 

Deplete the Ozone Layer (the Protocol), 

which requires ratifying nations to limit 

their production and consumption of 

certain ozone-depleting substances 

according to a specified schedule. The 

proposal set forth a number of 

regulatory options for implementing the 

Protocol's limits, and stated that EPA's 

preferred option was to allocate "rights" 

equal to the quantity of allowable 

production and consumption for firms 

that produced and imported these 

substances in 1986, the baseline year 

specified by the Protocol. It also 

described the use of auctions, regulatory 

fees and technology controls as 

alternative approaches to implementing 

the Protocol. 

The other notice (52 FR 47486) 

promulgated a final rule (40 CFR 82.20) 

requiring firms to report to the Agency 

the amount of certain ozone-depleting 

substances they had produced, imported 

or exported in 1986. EPA needed this 

information to establish a baseline 

against which United States compliance 

with the Protocol would be measured 

and to apportion to firms baseline 

production and consumption rights, 

should the Agency decide to employ that 

approach to implementing the Protocol. 

EPA is required by court order to take 

final action on its proposed rule by 

August 1,1988. It is not considering the 

public comments received on its 

December 14 notice. While no final 

decision on a regulatory approach has 

yet been reached, this notice proposes 

apportionments of baseline rights which 

would be issued if the Agency's final 

regulation employs the proposed 

allocated quota approach. 

DATES: A public hearing on the proposed 

rule published today will be held on 

June 7,1988; if any interested party 

notifies EPA before that date that it 

wishes to present oral testimony. To 

request a public hearing or to learn 

whether and where a public hearing will 

occur, call the contact person listed 

below. 

Written comments on this proposed 

rule must be submitted to the location 

listed below by June 23,1988. If a public 

hearing is held, information necessary to 

rebut or supplement oral testimony may 

be submitted until June 23,1988. 

ADDRESS: Written comments should be 

sent to Docket A-87-20, Central Docket 

Section, South Conference Room 4, EPA, 

401 M Street, SW., Washington, DC 

20460. The docket may be inspected 

between 8:00 a.m. and 4 p.m. on 

weekdays. As provided in 40 CFR Part 2, 

a reasonable fee may be charged for 

photocopying. To expedite review, it is 

also requested that a duplicate copy of 

written comments be sent to David Lee 

at the address listed below. 

FOR FURTHER INFORMATION CONTACT: 

David Lee, Office of Program 

Development, Office of Air and 

Radiation (ANR-445),' EPA, 401 M Street, 

SW., Washington, DC 20460. Telephone 

(202) 475-7497. 

SUPPLEMENTARY INFORMATION: 

A. Background 

This proposal supplements EPA's 

December 14,1987 notice proposing to 

implement the Montreal Protocol's limits 

on production and consumption of 

certain ozone-depleting substances. As 

noted above, the December 14 notice 

proposed to implement the Protocol's 

limits by apportioning baseline 

production and consumption "rights" to 

producers and importers of the 

controlled substances and by freezing or 

reducing these rights according to the 

schedule specified in the Protocol. By 

means of the final rule also published on 

December 14,1987, EPA obtained the 

data it needed to determine firms' 

baseline apportionments. This notice 

proposes those apportionments so that if 

the Agency decides to adopt its 

proposed allocated quota approach, the 

-apportionments may be included in the 

final rule due on August 1,1988. 

As the December 14 proposal 

describes in detail, the Montreal 

Protocol is an international agreement 

which 24 nations, including the United 

States, signed last September. Since 

then, five more nations have signed the 

Protocol, and the United States and 

Mexico have ratified it. The Protocol 

will enter into force on January 1,1989, 

if by that date 11 nations or regional 

economic integration organizations 

representing at least two-thirds of -

estimated 1986 global consumption of 

the controlled chemicals have ratified it 

and the Vienna Convention for the 

Protection of the Ozone Layer has 

entered into force. If these conditions 

have not been fulfilled by January 1, 

1989, the Protocol will enter into force 

on the ninetieth day following the date 

on which the conditions have been 

fulfilled. 

The Montreal Protocol limits the 

production and consumption (defined as 

production plus imports minus exports) 

of certain chlorofluorocarbons (CFCs) 

("Group I chemicals") and halons 

("Group II chemicals"). Assuming the 

Protocol enters into force on January 1, 

1989, production and consumption of 

Group I chemicals would be frozen at 

1986 levels beginning July 1,1989, and 

would be reduced from 1986 levels by 20 

and 50 percent beginning July 1,1993, 

and July 1,1998, respectively. Group II 

chemicals would be frozen at 1986 levels 

beginning on January 1,1992. (The 

Protocol's regulatory schedule is 

described in detail in the December 14 

notice.) 

To establish the United States' 1986 

baseline production and consumption 

levels, EPA promulgated under sections 

114 and 157(b) of the Clean Air Act, 42 

U.S.C. 7414 and 7457(b), the final rule 

requiring companies to report their 1986 

production, imports and exports of 

Group I and Group II chemicals in 1986. 

EPA has reviewed and aggregated this 

information and forwarded a 

preliminary estimate of the United 

States' 1986 production of Group I 

chemicals combined and Group II 

chemicals combined to the United 

Nations Environment Programme 

(UNEP), under whose auspices the 

Montreal Protocol was negotiated. 

United States compliance with the 

Protocol's control requirements will be 

measured against these baseline levels. 

After this rulemaking is completed, the 

Agency will provide UNEP with a final 

estimate of United States 1986 

production and consumption of each of 

the groups of controlled substances. 

The December 14 notice of proposed 

rulemaking outlined several options for 

implementing the Protocol's control 

requirements. The first option described 

was the allocated quota system. As 

noted above, under that system 

producers and importers would be 

allocated production and consumption 

"rights" based on their 1986 production, 

import and/or export levels. Exporters 

would not require, and thus not receive, 

rights to continue exporting, since the 

Protocol does not limit exports of these 

chemicals. (However, exporters would 

be required to report to EPA the amount 

of controlled substances they export.) 

The-other implementing schemes 

outlined in the notice required EPA to 

either auction production and 
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Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

consumption rights, set a production/ 

import fee on the chemicals, or impose 

bans and controls on their use or 

emissions. Another option combined an 

allocated quota system with a select set 

of command and control requirements. 

Although EPA presented five possible 

options, the Agency stated in the notice 

its belief that the allocated quota option 

is the most viable scheme for 

implementing the Montreal Protocol. It 

also announced its plans to propose 

apportionments of baseline rights in 

time for final apportionments to be 

included in the August 1,1988 final rule 

in the event that the allocated quota 

system is the approach employed. 

B. Proposed Apportionment of Rights 

1. Apportionment Formulas 

Except as noted below, EPA 

calculated the proposed baseline 

production and consumption rights in 

the manner outlined in the December 14 

proposal. (See proposed 40 CFR 82.5 and 

82.6.) Since the Protocol uses 1986 

production as a baseline, EPA 

apportioned production rights to United 

States producers based on their 1986 

production levels. Each producer's rights 

were calculated in three steps. First, 

consistent with EPA's proposed 

definition of production as excluding 

"the manufacture of controlled 

substances that are used and entirely 

consumed in the production of other 

chemicals" (proposed 40 CFR 82.3(q)), 

the producer's production level of each 

controlled chemical was reduced by the 

amount of that chemical so consumed. 

Second, the producer's adjusted 

production of each controlled chemical 

was multiplied by that chemical's 

proposed ozone depletion weight as set 

forth in Appendix A of the December 14 

proposal to arrive at a "calculated level" 

of production. Finally, the resulting 

calculated levels were added together 

for Group I chemicals and for Group II 

chemicals. Firms that produced 

chemicals in both Group I and Group II 

were thus apportioned separate 

production rights for Group I and Group 

II chemicals. In addition, the rights were 

apportioned in terms of "calculated 

levels," or total allowable ozone 

depletion potential, so that a producer 

could alter the mix of chemicals it 

produced within each group, as long as 

the total ozone depletion potential of its 

production did not exceed that allowed 

by the rights it held. 

EPA calculated the proposed baseline 

consumption rights in a similar manner. 

As noted above, the Protocol uses 1986 

consumption as a baseline and defines 

consumption as production plus imports 

minus exports. In its December 14 

notice, EPA proposed to implement the 

Protocol's consumption limit by 

apportioning consumption rights equal 

to the United States' 1986 level of 

production and imports, less its 1986 

level of exports. Specifically, EPA 

proposed to apportion to importers 

consumption rights equal to the 

calculated level of their 1986 imports, 

and to producers rights equal to the 

calculated level of their 1986 production 

multiplied by the following correction 

factor to account for exports: 

[(U.S. 1986 production)—(U.S. 1986 exports)) 

(U.S. 1988 production) 

The Agency stated its belief that 

producers' consumption rights should be 

reduced to reflect exports because 

producers generally have been the major 

exporters of controlled substances. 

In their comments on the December 14 

proposal, several firms took issue with 

EPA's apportionment formula for 

consumption rights. Some stated that the 

calculation of consumption rights for 

importers, as well as for producers, 

should take account of exports, since 

producers were not responsible for all 

1986 exports. They also objected to 

EPA's use of a correction factdr to 

reduce every producer's consumption 

rights to account for exports. Use of the 

correction factor would effectively 

attribute to each producer a share of 

total exports proportional to its share of 

the production market, regardless of 

whether and how much that producer 

had actually exported. The commenters 

suggested that EPA instead calculate 

each firm's consumption rights by 

subtracting each firm's 1986 exports 

from its 1986 production or imports. 

EPA's proposed formula for 

apportioning consumption rights was 

based in part on assumptions that 

importers did not also export and that 

the information needed to.trace exports 

to a specific exporter would not be 

available. However, EPA learned from 

the responses to its December 14 final 

rule both that some importers also 

exported, and the amount each producer 

and importer directly exported in 1986. 

Since the Agency agrees that 

consumption rights are more fairly 

calculated by attributing to both 

producers and importers the amount 

they actually exported in 1986, EPA has 

revised its apportionment formula along 

the lines suggested above and 

calculated proposed consumption rights 

in the following manner. 

Each importer's consumption rights 

were determined by subtracting from the 

volume of each controlled chemical it 

imported in 1986 the amount of that 

chemical it exported in 1988 (EPA's 

records indicate that importers exported 

only the chemical(s) they imported); 

multiplying the adjusted import level for 

each chemical by that chemical's ozone 

depletion weight; and adding together 

the resulting calculated levels for Group 

I chemicals and for Group II chemicals. 

Each producer's consumption rights 

were determined in much the same 

manner, with production levels 

substituted for import levels, but another 

step was required. While producers and 

importers were responsible for most of 

the United States' 1986 exports, 

independent exporters made up roughly 

35 percent of the CFC market and five 

percent of the halon market. Taken 

together, these firms purchased from 

every United States producer, but they 

did not, and in many cases could not, 

provide precise, documented 

information as to what quantity of their 

1986 exports was supplied by which 

producer. EPA, in turn, had neither the 

resources nor time under the courtordered rulemaking schedule to track 

down and substantiate the source of 

every export. Indeed, that task may not 

be possible, since some firms purchased 

from middlemen instead of producers, 

and firms purchasing from more than 

one source may not be able to tell how 

much of which producer's chemicals it 

exported in 1986. In any event, with the 

available information EPA could not 

accurately or verifiably attribute to 

specific producers the chemicals 

shipped abroad by independent 

exporters, 

Given this situation, the Agency found 

it reasonable to attribute these exports 

to the producers in proportion to their 

respective levels of 1986 production. 

EPA accomplished this by multiplying 

each producer's 1986 production by— 

(U.S. 1986 production—unattributed portion of U.S. 

1986 exports) 

U.S. 1986 production 

and then subtracting that producer's 

1986 direct exports. EPA developed 

separate correction factors for Group I 

and Group II chemicals, and each 

variable in the correction factors was 

expressed in terms of a calculated level, 

or total ozone depletion potential. The 

net effect of the correction factors was 
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Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

to reduce each producer's consumption 

rights by a share of the unattributed 

exports in proportion to its 1986 

production. For producers that were also 

importers in 1986, EPA calculated their 

consumption rights using a single ' 

equation that combined the equations 

applicable to importers and producers. 

The December 14 proposal included 

regulatory language describing how EPA 

would calculate baseline production and 

consumption rights. This notice 

proposes not only a somewhat different 

approach to calculating baseline 

consumption rights, but also the specific 

apportionments to be inserted at 

proposed §§ 82.5(a)-{b) and 82.6(a)-(b). 

If EPA adopts the allocated quota 

approach and thus takes final action on 

these proposed apportionments, there 

will be no need to include revised 

regulatory language describing how the 

Agency arrived at the apportionments. 

Thus, EPA proposes to simply delete the 

regulatory language in §§ 82.5 and 82.6 

describing how EPA determined the 

apportionments in the event the Agency 

promulgates the apportionments. 

2. Definitions 

Several other issues relevant to 

apportioning baseline production and 

consumption rights have been raised in 

response to the December 14 final rule 

and comments on the December 14 

proposed rule, and at an international 

meeting to develop a harmonized system 

for reporting data on production, imports 

and exports of substances controlled by 

the Protocol. The latter meeting was 

attended by technical experts from the 

United States and other signatories to 

the Protocol and took place in March of 

this year in Nairobi, Kenya. EPA has 

considered the responses to its rule and 

the recommendations of the technical 

experts in analyzing these issues and 

has based its proposed apportionments 

on the resolutions of those issues that it 

proposes here. 

a. Definition of "Controlled Substance" 

The Montreal Protocol and EPA's 

proposed rule implementing the Protocol 

limit the production and consumption of 

"controlled substances." Consistent 

with the Protocol, § 82.3(g) of the 

proposed rule defines a controlled 

substance as "any substance listed in 

Appendix A to this part, whether 

existing alone or in a mixture, but 

excluding any such substance or mixture 

that is in a manufactured product other 

than a container used for the 

transportation or storage of die 

substance listed" The intent of the 

Protocol drafters and EPA was to define 

controlled substance to include only 

listed substances in bulk form and to 

exclude listed substances contained in 

products such as refrigerators and air 

conditioners. While the definition above 

would clearly include large tank car 

shipments of listed substances, several 

firms questioned whether and which 

small containers of listed substances 

would also be included. 

In discussing what should count as a 

controlled substance for export 

purposes, one commenter suggested that 

controlled substance be defined to 

include only listed substances that had 

not been used or prepared for a specific 

use, and to exclude raw chemicals to 

which any value had been added. EPA 

does not believe, however, that this 

definition adequately distinguishes bulk 

substances from substances in products; 

simply transferring a listed substance 

from one big storage container to many 

smaller storage containers may add 

value to the substance, but the 

substance may still be considered in 

bulk form as opposed to contained in a 

product. 

The group of technical experts that 

met in Nairobi recommended that the 

definition of controlled substances be 

clarified as follows: "Any amount of a 

[listed] substance or a mixture of [listed] 

substances which is not part of a use 

system containing the substance is a 

controlled substance and not a product 

containing a controlled substance for 

the purpose of the Protocol. If a [listed] 

substance or mixture must first be 

transferred from a bulk container to 

another container, vessel or piece of 

equipment in order to realize its 

intended use, the first container is in 

fact utilized only for storage and/or 

transport and the [listed] substance or 

mixture is considered [in] bulk [form or 

a controlled substance] and not a 

product" 

So clarified, the definition of 

controlled substances would encompass 

listed substances in tanks on board 

ships, rail tank cars, road tankers, 

cylinders and drums, since chemicals 

are generally transferred from these 

types of containers to other containers 

or into machines which utilize them. In 

such cases the eventual use of the 

chemicals is independent of the 

container. 

Conversely, if the mere dispensing of 

the listed substance from or circulation 

of the substance in a container 

constitutes the intended use of the 

substance, then the listed substance in 

that container is itself part of a use 

system and therefore would not be a 

controlled substance for Protocol 

purposes. For example, listed 

substances in refrigerators, air 

conditioners or fire extinguishers would 

not be covered by the clarified definition 

of controlled substances. 

Listed substances in an installed or tobe-installed container from which the 

substance is or would be used directly 

would also fall outside the clarified 

definition of a controlled substance. 

However, listed substances in 

dispensing containers that are not and 

will not be installed or used as part of a 

- use system or application would be 

considered controlled substances, 

because their use is independent of the 

dispensing container. To illustrate this 

distinction, listed substances in 

containers used to recharge refrigerators 

or air conditioners are not ordinarily 

installed in the refrigerator or air 

conditioner and, unless they are 

installed, would be covered by the 

clarified definition of controlled 

substance. Listed substances 

transported in containers that serve as 

reservoirs for electronics equipment, on 

the other hand, are installed as part of 

the product, and therefore would be 

excluded from the definition of 

controlled substance. 

EPA believes that the clarification 

recommended by the technical experts 

group captures the distinction between 

listed substances in bulk form and listed 

substances in products that the 

Protocol's drafters sought to make. The 

Agency also believes that clarifying the 

definition of controlled substances as 

the technical experts suggest would 

facilitate implementation of the Protocol 

and EPA's proposed regulations. EPA 

therefore proposes that the definition of 

controlled substance in its proposed 

regulations at § 82.3(g) be revised to 

reflect the clarification stated above. 

EPA applied this proposed 

clarification in determining the 1986 

levels of firms' imports and exports of 

controlled substances. However, in the 

case of small ounce containers of CFC113, EPA was not always able to 

determine whether or not the chemical 

was part of a use system. Small 

containers of CFC-113 are mostly used 

for direct cleaning of electronics, and so 

would be considered a use system and 

not a controlled substance. Where EPA 

could not determine the use to which 

containers were put, it assumed that 

containers less than a gallon in size 

were used for direct cleaning and that 

containers of a gallon or more were used 

for storage, making the chemical they 

contained a "controlled substance." This 

assumption appeared reasonable in light 

of die information EPA had collected on 

the typical use of tiiese containers. 

As the foregoing discussion illustrates, 

determining whether a listed substance 

is a controlled substance can be difficult 
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Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

in certain cases, even using the 

definition as clarified above. EPA has 

spent much time and effort making those 

determinations for the purpose of 

apportioning rights; hoWever, the 

Agency is concerned about having to 

make these determinations on an 

ongoing basis in order to implement the 

rule, if promulgated. EPA is thus 

considering developing some "rules of 

thumb" (e.g., the CFC-113 "one gallon 

rule") to distinguish for compliance 

monitoring purposes controlled 

substances from listed substances in 

products. 

EPA requests comment on the 

suggested clarification of the definition 

of controlled substance and invites 

suggestions for alternative definitions. It 

also requests comments on its proposed 

approach to applying the clarified 

definition to small containers of CFC113, and suggestions for appropriate 

means of simplifying the application of 

the definition for compliance monitoring 

purposes. 

b. Definition of Importer and Exporter 

(1) Importer. Comments 

accompanying the 1986 import reports 

that EPA received in response to its 

December 14 final rule raised the issue 

of who is an importer. 

As explained above, EPA's December 

14 proposed rule called for consumption 

rights to be apportioned to importers as 

well as producers, based on the 

formulas previously discussed. In the 

final rule, EPA defined importers as 

persons "who transported the chemicals 

listed as § 82.20(b) from outside the 

United States or its territories to persons 

within the United States or its 

territories[,]" and required importers to 

report their 1986 import volumes. 

For the most part, imports reported by 

firms in response to the December 14 

rule, and thus consumption rights 

claimed by firms, did not overlap. In 

several cases, however, the same 

shipments of chemicals were reported 

by both their United States purchaser 

and the United States subsidiary of the 

foreign company that produced them. 

The United States purchaser in some 

instances had negotiated the sale of the 

chemicals with the foreign company, 

although it purchased them from the 

United States subsidiary. In addition, at 

least one firm had supplied the tanks in 

which the chemicals were transported. 

However, in every case, the United 

States subsidiary of the foreign producer 

was the shipment's "importer of record," 

a United States Customs Service term 

meaning the firm responsible for import 

duties and guaranteeing that the 

imported good meets all federal laws 

and regulations. 

On its face, EPA's definition of 

importer does not resolve who should be 

apportioned consumption rights for 

imports claimed by both the United 

States purchaser and the United States 

subsidiary of the foreign producers. The 

United States subsidiary could be said 

to have transported the chemicals into 

the United States because it was legally 

responsible for passing them through 

Customs; the United States purchaser, 

on the other hand, caused them to be 

transported by purchasing them and in 

at least one case assisted in their 

transport by supplying the containers. 

Most of the imports reported to EPA 

were claimed by the shipments' 

"importer of record." Indeed, at least 

one of the United States purchasers 

involved in the competing claims was 

the importer of record for other 

shipments that it directly purchased 

from foreign producers, and at least one 

of the United States subsidiaries was 

also an importer of record with respect 

to shipments purchased by other 

companies that did not claim the 

imports themselves. In a few cases, 

however, the imports were claimed not 

by their importer of record, but by their 

United States purchaser. The importers 

or record in these cases were apparently 

merely shipping agents or customs 

brokers that were neither suppliers to, 

nor members of, the United States user 

industry; in any event, they neither 

reported the imports nor claimed rights 

for them. 

One commenter suggested that EPA 

define importer to be the first United 

States owner who is a supplier to or a 

member of the domestic industry that 

uses the controlled chemicals. 

According to the reports and records 

EPA received in response to the final 

rule, the importer of record in most 

cases fits the suggested definition; that 

is, the importer of record was the first 

United States owner who was either a 

supplier to or a member of the domestic 

user industry. The importer of record 

does not fit the definition in only two 

situations. One involves a United States 

producer who purchased imports from 

its foreign-based sister corporation; the 

importer of record for the transactions 

was a shipping company that could not 

be considered a supplier to or a member 

of the domestic user industry. The other 

situation involves a United States 

purchaser who received imports from a 

foreign producer; the importer of record 

was again a shipping company that 0 

could not be considered a supplier to or 

member of the domestic user industry. 

In both cases, the United States 

purchaser meets the suggested definition 

of importer. 

EPA believes that the suggested 

definition appropriately resolves the 

competing claims at issue here for 

several reasons. First, as applied it is 

consistent with the definition set forth in 

the final rule. Application of the 

suggested definition would result in the 

importer of record or the United States 

purchaser of the shipment being 

considered the importer; it was noted 

earlier that both entities could be 

considered to have "transported" the 

chemicals into the United States as the 

originally proposed definition required. 

Second, the suggested definition is 

consistent with EPA's proposed 

regulatory strategy of allocating quotas 

to the controlled chemical industry. 

Under the suggested definition only 

members of that industry would receive 

rights. 

Third, the suggested definition 

provides an objective, reasonable basis 

for deciding the few cases where 

imports are claimed by both the United 

States purchaser that is not the importer 

of record and the foreign producer's 

United States subsidiary that is the 

importer of record. Under the definition, 

the first United States owner gets credit 

for the import and is thus apportioned 

consumption rights. As noted above, the 

first United States owner in these cases 

is die importer of record. It makes sense 

to consider as the importer of chemical 

shipments the first United States owner 

of that shipment, particularly when that 

owner was responsible for obtaining the 

shipments' legal entry into the United 

States. Moreover, in most cases, 

shipments claimed by importers of 

record who were different from the 

United States purchasers were not also 

claimed by the United States 

purchasers. This suggests that it is 

reasonable to resolve the competing 

claims described above in favor of the 

importers of record. For these reasons, 

EPA proposes to supplement it 

definition of importer as suggested 

above, and apportion consumption 

rights accordingly. The Agency requests 

comments on this issue. 

A related issue is whether this revised 

definition of importer should also be 

used in the context of enforcing the 

proposed rule's prohibition against 

importing controlled chemicals without 

consumption rights (see § 82.4(b)). EPA 

is concerned that as an ongoing matter, 

it may be administratively difficult to 

determine who is the first United States 

owner and who is a supplier. A 

requirement that a shipment's importer 

of record hold the consumption rights 

authorizing the shipment would be 

easier to implement. A possible 

drawback to this approach is that the 
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18804 Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

requirement would apply to shipping 

agents that are importers of record, even 

though shipping agents would be 

unlikely to be independently aware of 

the requirement. However, die buyer or 

seller of the controlled chemicals being 

shipped would probably know of the 

requirement and would have an 

incentive to inform die shipper to ensure 

that the import gains legal entry into the 

United States. The Agency welcomes 

suggestions on how to resolve this issue, 

and comment on whether "importer" for 

the purpose of apportioning 

consumption rights must be defined 

consistently with "importer" for the 

purpose of enforcing the import 

prohibition. 

(2) Exporter. EPA required exporters 

to report their 1986 exports so that the 

Agency could determine 1986 United 

States consumption and calculate 

consumption rights on that basis. Since 

the proposed rule does not require, and 

thus does not apportion, rights to ship 

controlled substances abroad, the issue 

of how to define exporter is not raised in 

the context of apportioning baseline 

rights. However, under the proposed 

rule, exporters will be required to report 

their exports to EPA {see § 82.13) and 

will obtain consumption rights and 

authorization to convert potential 

production rights to production rights for 

those exports (see § § 82.10 and 82.11). 

Three commentors stated that the 

proposed rule did not make clear who 

EPA would consider to be the exporter. 

Two of the commentors suggested that 

the firm responsible for the export prior 

to shipping be considered the exporter. 

The other commentor suggested that the 

firm that enters into the contract with a 

foreign company for sale of the 

controlled chemicals be considered the 

exporter. 

EPA agrees with the premise of these 

comments that an agent who merely 

processes the necessary export forms 

and/or transports die chemicals on 

behalf of the manufacturer or 

repackager not be considered the 

exporter. A shipping agent in unlikely to 

be aware of the requirement that 

exports be reported to EPA, and is 

unlikely to have an interest in the 

consumption rights that may be 

obtained upon proof of export and thus 

the incentive to report. The Agency 

proposes that the exporter be defined 

for purposes of the proposed rule as the 

person or company that enters into a 

contract to sell controlled chemicals to a 

person or company located outside the 

United States for use outside the United 

States. EPA believes persons or firms 

meeting this definition would be likely 

to know of the reporting requirements 

and respond to the incentive to earn 

consumption rights that the proposed 

rule was supposed to create. The 

Agency requests comment on this issue. 

c. When a Shipment Becomes an Export 

In the December 14 proposal, EPA 

took the position that an export must 

arrive in Uie recipient country before it 

would be counted as an export and 

additional consumption rights awarded. 

EPA was concerned that exports 

shipped toward the end of a control 

period could still be "at sea" when the 

control period ended, so tiiat no Protocol 

party would have to count the receipt of 

the shipment against its consumption 

limit. 

Several commenters disagreed with 

this position, stating that it would 

seriously hamstring industry's ability to 

export late in a control period. They also 

pointed out that while no party might 

have to account for the end-of-controlperiod exports in the control period they 

were shipped, some party would have to 

count them against its consumption limit 

for the following control period when 

they arrived. As a result, to the extent 

the parties' combined production was 

above the total limit set by the Protocol 

in one control period {with enough 

production exported at the end of the 

control period to stay within each 

party's consumption limit), the parties' 

combined production would have to be 

below the limit set by the Protocol in the 

following control period. 

The group of technical advisors 

agreed that a shipment becomes an 

export upon departure from one country 

and an import upon arrival in another 

country. However, it recommended that 

issue be further examined at the next 

working session in the fall. 

EPA proposes that at least for 

purposes of apportioning consumption 

rights, a shipment should be considered 

an export upon its departure from the 

country. No firm reporting to EPA had 

sufficient documentation of when 1986 

exports arrived in the receiving country, 

and some commenters stated that it is in 

fact difficult to ascertain when 

shipments arrive. Since exports reduce a 

parry's consumption baseline, if all 

parties report all of their exports for 

1986, total'consumption by all parties 

will be, if anything, lower than if parties 

did not report exports unless they 

arrived in the receiving country in 1986. 

EPA thus believes that it is reasonable 

in calculating consumption rights to 

count all 1986 exports. 

M

 Also raised was the issue of whether 

shipments to United States military 

bases on foreign soil and to ships at sea 

should be counted as exports. EPA 

believes that both types of shipments 

should not be counted as exports. The 

idea behind the Protocol's consumption 

cap is to limit every nation's total use of 

controlled substances; use by the United 

States military even when stationed 

abroad should thus count as part of the 

United States' consumption. Shipments 

to ships at sea, if claimed as exports by 

the shipping country, are unlikely to be 

claimed as imports by any country; 

unless some country counts then against 

their consumption limit, thedetermination of global consumption 

would be inflated. Since it is easier to 

determine the country from which the 

chemicals were shipped than the 

country which benefits from their use 

abroad ship, EPA proposes not to claim 

as exports United States shipments to 

ships at sea. 

d. Definition of Production 

(1) Treatment of Recycled Substances. 

The Protocol defines production of 

controlled substances as "the amount of 

controlled substances produce minus the 

amount destroyed by technologies to be 

approved by the Parties." At the Nairobi 

meeting of technical experts, several 

countries voiced concern that the 

Protocol's definition could be read to 

cover production that mixes recycled 

with virgin controlled substances. Some 

countries that do not produce controlled 

substances [and. under die Protocol, will 

not be permitted to produce controlled 

substances except under limited 

circumstances) are interested in 

establishing recycling^programs with 

producing countries. Under such a 

program, nonproducing countries would 

ship their used controlled substances to 

producing countries for recycling. 

However, the recycling process entails 

mixing recycled controlled substances 

with virgin substances. The 

nonproducing countries are concerned 

that ifthe final mixture of recycled and 

virgin controlled substances counts 

against the producing countries' 

production limit, producing countries 

would not be interested in participating 

in large-scale recycling programs. 

To address these countries' concerns, 

the technical experts group 

recommended that the Protocol's 

definition of production be amended to 

include the following concept: 

Production for purposes of the Montreal 

Protocol equals total production, 

including reprocessed and virgin 

chemicals, minus purchases of 

controlled substances for purposes of 

recycling. Exports and imports of used 

or recycled controlled chemicals, on the 

other hand, would be treated in the 

same way as trade in virgin or new 

controlled chemicals. 
P.8 

Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

EPA believes that the definition of 

production in its December 14 proposed 

rule accomplishes what the technical 

experts group recommended. Proposed 

§ 82.3(q) defines production of 

controlled substances as "the 

manufacture of a controlled substance 

from a raw material or feedstock 

chemical; however, production does not 

include the manufacture of controlled 

substances that are used and entirely 

consumed in the production of other 

chemicals." The latter half of the 

definition does not cover the case of 

recycled controlled substances. It 

addresses the situation where controlled 

substances are used only to make other 

chemicals, not where controlled 

substances are first used for some other 

purpose and then recovered for 

recycling. 

The first half of the definition, 

however, effectively excludes recycled 

controlled substances from production. 

Use of the terms "raw material" and 

"feedstock chemical" denotes that only 

virgin production or the virgin portion of 

a mixture of virgin and recycled 

controlled substances counts as 

production. Consequently, UnitedStates 

producers could mix used controlled 

substances from any source with their 

virgin production without the used 

substances counting against their 

production limits. 

Further, EPA's proposed system of 

consumption rights would make 

participation in recycling programs with 

other countries potentially attractive, 

even if recycled mixtures of controlled 

substances are counted as virgin 

controlled substances in measuring 

imports and exports, as the technical 

experts group recommends. Were that 

recommendation adopted by the 

Protocol parties, under EPA's proposed 

rule United States producers would have 

to expend consumption rights to import 

and used controlled substances, but they 

would earn additional consumption 

rights upon exporting the mixture of 

recycled and virgin production. Since 

both the used and virgin portions of the 

recycled mixture would be counted as 

exports, the consumption rights 

producers earned would be equal to the 

calculated level of the total mixture. 

Thus, United States producers could 

replace the consumption rights they 

would expend participating in a 

recycling program with other countrie's. 

EPA believes that the definition of 

production and the system of production 

and consumption rights that it has 

proposed adequately address the 

concerns of the nonproducing nations. 

The Agency therefore does not believe 

its definition of production requires 

revision to exclude recycled controlled 

substances, as suggested by the 

technical experts group. Comment on 

this issue is requested. 

(2) Transformation of Chemical 

Intermediaries. Another issue 

concerning the definition of production 

was raised at the Nairobi meeting of 

technical experts and by a commenter . 

on EPA's proposed rule. The technical 

experts group proposed that reported 

production exclude controlled 

substances used as intermediaries in the 

production of other controlled 

substances or entirely transformed into 

non-controlled substances. However, 

the group did not extend the exclusion 

to controlled substances that are 

exported from one Party to another 

before they are transformed, because 

verifying the fate of these exports and 

adjusting both nations' production, 

import and export levels to reflect the 

transformation would be 

administratively difficult. 

As noted above, EPA's proposed 

definition of production excludes "the 

manufacture of controlled substances 

that are used and entirely consumed in 

the production of other chemicals." 

Although this exclusion uses the term 

"consume," it has the same meaning as 

that proposed by the technical experts 

group. The Agency agrees that 

verification and accounting problems 

make it unwise to extend the exclusion 

to controlled substances that are 

exported before they are transformed. 

The above definition of production 

would also allow a producer to subtract 

from its production the quantity of 

controlled substances it produced that 

was used (by it or other U.S. companies) 

for feedstock purposes. Producers could 

only take credit for controlled 

substances that are used as feedstocks 

within the same control period that they 

are produced. However, tracking of 

controlled substances between 

producers, including the date and source 

of production and feedstock 

consumption, could be complex and 

would require producers to keep records 

and reports not included in the 

December 14 proposal. Therefore, EPA 

is proposing to amend the definition of 

production so as to restrict the use of 

credit for feedstock controlled 

substances to feedstocks used and 

produced by the same producer. EPA 

requests comment on this issue. 

3. Veracity of Data 

The December 14 final rule required 

firms to submit documentation to verify 

the production, import and export levels 

they reported. Producers were required 

to submit 1986 internal reports that 

recorded production volumes. EPA used 

these reports to verify the 1986 

production levels reported. Importers 

were requested to submit United States 

Customs Entry Summary Forms, which 

list the item and quantity being 

imported.-for each shipment reported. 

EPA apportioned consumption rights 

only for those imports documented by 

an Entry Summary Form. 

Exporters were asked4o submit 

United States Census Export 

Declaration Forms, invoices or bills of 

lading. Since under the proposed rule 

exporters are not required to hold, and 

thus are not allocated, rights to export, 

documentation sufficient to attribute 

each shipment to a single exporter (e.g., 

the exporter of record) was not required. 

Rather, EPA believed that 

documentation was needed only to 

determine whether and how much of the 

controlled substance was exported and 

whether there was duplicative reporting 

of exports; proof of sale to a foreign 

entity was sufficient to make those 

determinations. 

4. Confidentiality Issues 

Most firms that submitted their 1986 

production, import and export levels to 

EPA in response to the December 14 

final rule claimed the data as 

confidential business information (CBI). 

EPA has not yet ruled on those claims, 

but production, import and export levels 

are the type of information that may be 

entitled to confidential treatment. The 

Agency has treated the information 

claimed CBI as confidential in 

accordance wiih its business 

confidentiality regulations at 40 CFR 

Part 2, Subpart B, and so has not placed 

it in the public docket for this 

rulemaking. 

in the case of some firms, publication 

of the firm's proposed and final 

apportionments may itself arguably 

release information claimed CBI. 

However, EPA believes that publication 

of company-specific apportionments is 

necessary for any final allocations to 

have legal effect and for EPA's proposed 

regulatory scheme for protecting 

stratospheric ozone to be legally 

sufficient. The Agency therefore 

considers that publication of the 

allocations, even if that discloses CBI, is 

authorized by the Clean Air Act and 

EPA regulations governing the release of 

CBI, and has so notified affected 

companies. 

Section 114(c) of the Clean Air Act 

provides that CBI obtained under the 

Act may be disclosed "when relevant in 

any proceeding under this Act." EPA's 

procedural rule governing release of CBI 

under the Clean Air Act defines 

"proceeding" to include "any 
P.9 

18806 Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 

rulemaking * * * conducted by EPA 

under the Act* * *." 40 CFR 2.301(a)(4). 

The regulations at 40 CFR 2.301(g)(2) 

further provide that EPA may release 

CBI in connection with a proceeding 

after affected businesses have been 

informed that the Agency is considering 

making the information available to the 

public and have been afforded a 

reasonable opportunity to comment. If, 

after considering any comments 

received, the Agency decides to release 

the information, affected businesses are 

given at least five days notice prior to 

the information being made public. 

EPA believes that the proposed 

apportionments are clearly relevant, and 

indeed essential, to the stratospheric 

ozone rulemaking. Under section 157(b) 

of the Act, EPA must promulgate 

controls of ozone-depleting substances 

by regulation. EPA's proposed rule 

would use the apportioned production 

and consumption rights as the 

mechanism for controlling the ozonedepleting substances specified by the 

Montreal Protocol; under the rule, 

companies would be prohibited from 

producing or importing more of the 

specified chemicals than they have 

production or consumption rights to 

cover. The rule would allow companies 

to market their allocated rights and 

obtain additional production and 

consumption rights under certain 

circumstances, but the allocations 

would remain the starting point in 

determining the limit of any company's 

allowable production and import of 

these, substances. •> 

Section 307(d)(1)(H) of the Act in turn 

requires EPA to promulgate regulations 

under section 157(b) in accordance with 

the procedural requirements set forth at 

section 307(d)(2)-(6). Those 

requirements include publication of a 

notice in the Federal Register setting out 

the proposed rule and providing a 

statement of the proposal's basis and 

purpose. The statement of basis and 

purpose must itself include "a summary 

of the factual data on which the 

proposed rule is based." The final rule 

must also be published in the Federal 

Register, accompanied by a statement of 

basis and purpose. 

Publication of company-Specific 

proposed and final apportionments, 

then, is centrally relevant to the 

stratospheric ozone rulemaking and in 

fact required to assure that the 

rulemaking is binding on that issue. The 

apportionments are the cornerstone of 

EPA's proposed regulatory strategy for 

protecting stratospheric ozone. As they 

are allocated by the proposed rule in 

keeping with the Protocol's control 

schedule, the apportionments defined 

for each 1986 producer and importer the 

limits of production and/or import 

within which that firm must stay, unless 

the firm buys, sells or otherwise obtains 

additional production or consumption 

rights in accordance with the 

regulations. Those apportionments must 

be made binding by their promulgation 

as regulations, so that the limits they 

define are enforceable. 

" As required by its regulations, EPA 

gave producers and importers to whom 

production and/or consumption rights 

would be apportioned notice of its intent 

to publish proposed apportionments. A 

number of firms protested the planned 

publication, but after reviewing their 

comments EPA still concluded that 

publication of the allocations was 

relevant and necessary to the 

stratospheric ozone rulemaking. EPA 

thus gave all of the affected firms the 

required five days notice before 

publishing this Federal Register notice. 

EPA's decision to publish the 

company-specific allocations is not 

intended to set broad precedent for the 

release of a regulated industry's 

production data. The proposed 

stratospheric ozone rule is virtually 

unique in its approach to controlling 

emissions by directly capping 

production of the pollutant and thus in 

the attendant need to make public 

company-specific production 

information. If in future rulemakings 

EPA is presented with a comparable 

regulatory situation, the Agency will 

consider whether such information must 

be disclosed on a case-by-case basis. 

It should be noted that CBI issues will 

also arise in relation to the regulation to 

the records and reports that EPA will 

require firms to keep to monitor 

compliance with the rule, if adopted. 

Those records and exports will 

necessarily reflect production, import 

and export data, as well as business 

transactions, all of which firms will 

likely claim as CBI. However, if none of 

those reports or records is publicly 

accessible, no public oversight of EPA's 

enforcement efforts, nor citizen suits to 

enforce the regulation's requirements (as 

permitted by section 304(a) of the Act), 

will be possible. 

The Agency questions whether it is 

authorized to make publicly available 

the records and reports that may be 

required for compliance monitoring 

purposes. EPA regulations implementing 

section 114 of the Clean Air Act permit 

CBI to be released only if relevant to a 

"proceeding," which is defined to 

include "any rulemaking, adjudication 

or licensing conducted by EPA under the 

Act * * *." The stratospheric ozone 

rulemaking obviously meets the 

regulations' definition of "proceeding," 

but public monitoring of EPA's 

enforcement efforts or industry's 

compliance with the promulgated rule 

may not. A citizen suit is clearly "an 

adjudication," but it is doubtful citizens 

could bring suit without prior access to 

the monitoring data, since Rule 11 of the 

Federal Rules of Civil Procedure 

requires that the person bringing suit 

have a reasonable basis in fact and law 

for his claim. Yet until the suit is 

commenced, there is arguably no 

proceeding for which release of CBI is 

authorized. EPA is continuing to assess 

whether it has legal authority to release 

any of the monitoring records or reports 

that may be required and seeks 

comment on this issue. 

5. Apportionments 

Based on the formulas and definitions 

discussed above and the data received 

in response to the December 14 final 

rule, EPA arrived at apportionments for 

United States producers and importers 

of controlled chemicals. The proposed 

apportionments are listed in the 

appendix to this notice. 

Already public information 

substantially corroborates the sum of 

the production and consumption rights 

EPA has proposed to apportion for 

Group I chemicals, or CFCs. The 

International Trade Commission (ITC) 

collects data on CFC-11 and -12, which 

according to EPA's data together 

represented 77 percent of the United 

States total CFC production in 1986. 

Because these two CFCs have ozone 

depletion weights of 1.0, which is as high 

or higher than the other controlled CFCs, 

they represent a similar or somewhat 

higher proportion of the total 

apportioned rights for Group I 

chemicals. For CFC-11, ITC reported 

that United States 1986 production was 

91,580,000 kilograms (Kg), which is less 

than one percent below the combined 

volume of this chemical reported to EPA 

by all producers. For CFC-12, the ITC 

reported United States 1986 production 

of 146,188,000 Kg, which is 

approximately 0.5 percent lower than 

the combined production reported to 

EPA. These insignificant differences in 

reported production volumes may be 

attributable to differing reporting 

periods; the ITC figures are for the 

company fiscal year, while EPA's figures 

are for the calendar year. In any event, 

the virtual agreement between EPA's 

and ITC's figures confirm the production 

volumes of CFC-11 and -12 reported to 

EPA, and largely corroborates the sum 

of the apportionments proposed for 

Group I chemical production rights. 
P.10 

Federal Register / Vol. 53, No. 100 / Tuesday, May 24, 1988 / Proposed Rules 18807 

The import component of the sum of 

the consumption rights apportioned for 

Group I chemicals is similarly 

corroborated by United States Census 

bureau data. CFC-11 and -12 are 

together 72 percent of total United 

States imports of CFCs. For 1986, the 

Census Bureau figures for combined 

imports of CFC-11 and -12 are 600,000 

kilograms or 3 percent greater than the 

combined imports of those chemicals 

reported to EPA. The small difference in 

the two sets of figures is again probably 

attributable to differences in reporting 

periods, and in any event works to the 

desadvantage of those receiving 

consumption rights, since the Census 

Bureau's higher figures would support 

the apportionment of more consumption 

rights than EPA's figures support. 

The data reported to EPA on halon 

production and import was also 

consistent with ITC and Census Bureau 

information. For reporting purposes, ITC 

and the Census Bureau group the halons 

controlled by the Montreal Protocol with 

other brominated and halogenated 

hydrocarbons. Their figures on 

production and import of this category 

of chemicals should be and are larger 

than that reported to EPA. 

C. Additional Information 

1. Executive Order 12291 

Executive Order (E.O.) 12291 requires 

the preparation of a regulatory impact 

analysis for major rules, defined by the 

order as those likely to result in: 

(1) An annual effect on the economy 

of $100 million or more; 

(2) A major increase in costs or prices 

for consumers, individual industries, 

Federal, State, or local government 

agencies, or geographic industries; or 

(3) Significant adverse effects on 

competition, employment, investment, 

productivity, innovation, or on the 

ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic or export 

markets. 

EPA determined that its December 14 

proposal met the definition of a major 

rule under E.O. 12291, and therefore 

prepared a regulatory impact analysis 

(RIA). Since this proposal only 

supplements the December 14 proposed 

rule and does not impose any additional 

burdens, the RIA prepared for the 

December 14 proposal fulfills the 

executive order's requirement for this 

proposal. 

2. Regulatory Flexibility Act 

The Regulatory Flexibility Act, 5 

U.S.C. 601-612, requires that federal 

agencies examine the impacts of their 

regulations on small entities. Under 5 

U.S.C. 604(a), whenever an agency is 

required to publish a general notice of 

proposed rulemaking, it must prepare 

and make available for public comment 

an initial regulatory flexibility analysis 

(RFA). Such an analysis is not required 

if the head of an agency certifies that a 

rule will not have a significant economic 

impact on a substantial number of small 

entities, pursuant to 5 U.S.C. 605(b). EPA 

prepared an initial RFA in support of its 

proposed rule, and no additional RFA 

need be prepared for this supplemental 

proposal. 

Dated: May 19,1988. 

Lee M. Thomas, 

Administrator. 

Appendix 

Person 

Apportionment of Baseline 

Production Rights 

Group I—Controlled Substances: 

Racon, Inc 

Kaiser Chemicals 

Pennwalt Corporation 

Allied Signal, Inc 

E.I. du Pont de Nemours 4 Company, Inc 

Group II—Controlled Substances: 

E.I. du Pont De Nemours 4 Company, Inc 

Great lakes Chemical Corporation. 

ICI Americas, Inc 

Apportionment ot Baseline 

consumption Rights 

Group I—Controlled Substances: 

Racon, Inc 

Kaiser Chemicals 

Pennwalt Corporation 

Allied-Signal, Inc 

E.I. Du Pont de Nemours & Company, Inc 

Atochem, Inc 

IGLOO Products, Inc 

Pharmachem, Inc 

Sumitomo Corporation ol America. 

Hoechst Ceianese Corporation 

Refricentro, Inc 

Kali-Chemie Corporation 

National Refrigerants, Inc 

ICI Americas, Inc 

Holchem, Inc 

Group II—Controlled Substances: 

E.I. du Pont Nemours 4 Company, 

Inc 

Great Lakes Chemical Corporation 

ICI Americas, Inc 

Ausimont USA, Inc 

Atochem, Inc 

Kali-Chemie Corporation 

Calculated 

level 

(kilograms) 

785,068 

187,273 

126,239 

701,820 

152,213,200 

200,000 

,147,961 

,406,452 

13, 

27, 

38, 

74, 

139, 

1, 

479,111 

561,602 

257,840 

063,621 

S10.355 

479,968 

183,270 

28,602 

229,930 

329,597 

420,931 

437,940 

,069.091 

,310,917 

212,159 

27,731,067 

,759,868 

,347,800 

206,400 

126,427 

533,800 

[FR Doc. 88-11710 Filed 5-23-88; 8:45 am| 

BILLING CODE 6560-50-M