# Response to Comments

For the Notice of Proposed Rulemaking: 

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

Docket: EPA-HQ-OAR-2008-0496

U.S. Environmental Protection Agency Office of Air and Radiation Stratospheric Protection Division 1200 Pennsylvania Avenue, NW Washington, DC 20460Contents

1. GENERAL SUMMARY OF COMMENTS.................................................................... 1-1

2. ALLOCATION OPTIONS FOR HCFC-22 AND HCFC-142B .................................... 2-1 2.1. EPA’s Proposed Allocation Method: allocating the same percentage of baseline allowances on a pro-rata basis to entities that received baseline allowances in 2003............................ 2-1 2.1.1. Support for the proposed allocation method with permanent inter-pollutant transfers..................................................................Error! Bookmark not defined. 2.1.2. Support for the proposed allocation method without permanent inter-pollutant transfers..................................................................Error! Bookmark not defined. 2.1.3. General opposition to the proposed allocation system ........ Error! Bookmark not defined. 2.2. Allocating allowances based on evaluation of the most recent three years of production, import, and/or export data.................................................................................................. 2-13 2.3. Allocating allowances based on evaluation of past sales of HCFCs by allowance holders by considering how HCFCs were ultimately used.................................................................. 2-14 2.4. Allocating allowances based on aggregated ODP tons...................................................... 2-15 2.5. Allocating a total amount of allowances and allowing for purchase by establishing an auction system.................................................................................................................... 2-15 2.5.1. Support for an auction system............................................................................ 2-15 2.5.2. Opposition to an auction system........................................................................ 2-17

3. MEETING HCFC-22 SERVICING DEMAND IN 2010-2014 .................................... 3-18 3.1. Appropriateness of EPA’s assumption that 20% of total HCFC-22 in retired/converted equipment can be recovered in 2010 ................................................................................. 3-19 3.2. Setting the HCFC-22 allocation total based on meeting 80% of servicing demand.......... 3-22 3.2.1. Greater than 80% of servicing demand needs to be met through HCFC-22 consumption allowances .................................................................................... 3-22 3.2.2. Meeting 80% of servicing demand through HCFC-22 consumption allowances with the remaining 20% of demand being met through recovered material is appropriate ......................................................................................................... 3-22 3.2.3. The HCFC-22 allocation total should be less than the amount needed to meet 80% of servicing demand........................................................................................... 3-23 3.3. Allocations of HCFC-22 allowances set aside for reclaimers for blending....................... 3-24 3.4. Allocation should be reduced each year based on the projected decline in servicing need... 3- 30 3.5. Facilitating an effort to improve reclaim (i.e., contractor participation) and increase the 20% rate...................................................................................................................................... 3-36 3.6. Servicing Tail Report Clarifications and Potential Modifications..................................... 3-384. ALLOCATIONS OF ALLOWANCES OF HCFCs OTHER THAN HCFC-22 AND HCFC-142b............................................................................................................................... 4-39 4.1. Support for EPA’s proposed baselines and allocations for the “other” HCFCs................ 4-39 4.2. Opposition to EPA’s proposed baselines and allocations for the “other” HCFCs ............ 4-41

5. 605(A) USE RESTRICTION .......................................................................................... 5-44
5.1. “Manufactured” Clarification ............................................................................................ 5-45 5.2. Accelerating the 605A use restriction under the authority of Section 606........................ 5-51 5.3. Introducing HCFCs into Interstate Commerce .................................................................. 5-52 5.4. Niche applications for HCFC-22 and HCFC-142b............................................................ 5-54

6. RECLAIM USE: ENFORCEMENT/COMPLIANCE ISSUES.................................. 6-58

7. SMALL BUSINESS CONCERNS ................................................................................. 7-59
7.1. Costs to small businesses................................................................................................... 7-60 7.2. Specific Requests for Allowances from Small Businesses................................................ 7-62

8. TIMELY COMPLETION OF THE RULE .................................................................. 8-641-1 

### 1. GENERAL SUMMARY OF COMMENTS

This document summarizes comments on the proposed rule, Protection of the Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export, which are found in EPA’s docket, EPA-HQ-OAR-2008-0496. A total of 61 comments were submitted and are listed in Table 1 by document ID and organization. Ninety-six commenters are represented by these comments, including five commenters who spoke at the January 7, 2009, public hearing but did not submit a written comment. A total of seven comments (representing 32 commenters) were submitted after the close of the comment period on March 9, 2009. Four of these comments are currently listed by date of submission rather than Docket ID number. The docket also contains two comments with multiple signatories. These signatories are listed individually in the table below. In the comments sections, the two comments are listed by their group name, “Reclaimers without Allocations” and “Reclaimers for Environmental Benefits”, and contain 15 and 25 signatories, respectively. The docket also contains a comment by the organization, Alliance for Responsible Atmospheric Policy, an industry coalition which represents 47 members (23 of whom submitted individual comments). Commenters represent a variety of industry stakeholders.

Table 1. Public Comments Received by EPA on the Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export Count Document ID Organization 1 EPA-HQ-OAR-2008-0496-0074 York/Johnson Controls
2 EPA-HQ-OAR-2008-0496-0076 Weitron
3 EPA-HQ-OAR-2008-0496-0079 Welch Heating & A/C
4 EPA-HQ-OAR-2008-0496-0080.2 Goodman
5 EPA-HQ-OAR-2008-0496-0082 EPA Public Hearing Transcripta

6 EPA-HQ-OAR-2008-0496-0084.1 Danfoss
7 EPA-HQ-OAR-2008-0496-0085.1 Dometic
8 EPA-HQ-OAR-2008-0496-0086.1 Dometicb

9 EPA-HQ-OAR-2008-0496-0087 Refrigerants Inc.
10 EPA-HQ-OAR-2008-0496-0088.1 Goodman
11 EPA-HQ-OAR-2008-0496-0089 Association of Home Appliance Manufacturers (AHAM)
12 EPA-HQ-OAR-2008-0496-0090.1 U.S. Small Business Administration’s Office of Advocacy (SBA)
13 EPA-HQ-OAR-2008-0496-0091 NA
14 EPA-HQ-OAR-2008-0496-0092 NA
15 EPA-HQ-OAR-2008-0496-0093.1 Peoples Welding Supply
16 EPA-HQ-OAR-2008-0496-0094.1 Airgas
17 EPA-HQ-OAR-2008-0496-0095.1 Ascent Healthcare Solutions, Inc.
18 EPA-HQ-OAR-2008-0496-0096.1 Alcon Laboratories, Inc.
19 EPA-HQ-OAR-2008-0496-0097.1 DuPontc
20 EPA-HQ-OAR-2008-0496-0098.1 Carrier
21 EPA-HQ-OAR-2008-0496-0099.1 Trane/Ingersoll-Rand
22 EPA-HQ-OAR-2008-0496-0100.1 McQuay1-2 Count Document ID Organization

23 EPA-HQ-OAR-2008-0496-0101.1 Mondy Global, Inc.
24 EPA-HQ-OAR-2008-0496-0102.1 Polar Technology LLC.
25 EPA-HQ-OAR-2008-0496-0103.1 Rheemd

26 EPA-HQ-OAR-2008-0496-0104.1 Emerson Climate Technologies
Reclaimers without Allocationse
Remtec International Certified Refrigerant Services Golden Refrigerant AllCool Refrigerant Reclaim, LLC Refrigerants, Inc. Refrigerant Exchange Corp Polar Technology, LLC.
Newcomb Mechanical Inc. Total Reclaim, Inc. Refrigerant Management Services of Georgia, LLC Perfect Cycle - PTC, LP Safe Disposal Systems Pure Chemical Separation, LP
ICOR International Inc. 27 EPA-HQ-OAR-2008-0496-0105.1

Refrigerant Recycling, Inc.
28 EPA-HQ-OAR-2008-0496-0106.1 Solvay Chemicals
29 EPA-HQ-OAR-2008-0496-0107 DuPontf

30 EPA-HQ-OAR-2008-0496-0108 DuPontg
31 EPA-HQ-OAR-2008-0496-0109 DuPonth

32 EPA-HQ-OAR-2008-0496-0110.1 National Refrigerants, Inc. (NRI)
33 EPA-HQ-OAR-2008-0496-0111.1 Arkema
34 EPA-HQ-OAR-2008-0496-0112.1 Hudson Technologies
35 EPA-HQ-OAR-2008-0496-0113.1 Coolgas Inc. and Dynatemp International
36 EPA-HQ-OAR-2008-0496-0114.1 Hudson Technologiesi

37 EPA-HQ-OAR-2008-0496-0115.1 North Lakes Distributing, Inc.
38 EPA-HQ-OAR-2008-0496-0116.1 Refricenter of Miami Inc.

39 EPA-HQ-OAR-2008-0496-0117.1 Heating, Airconditioning & Refrigeration Distributors International (HARDI) 40 EPA-HQ-OAR-2008-0496-0118.1 Honeywell
41 EPA-HQ-OAR-2008-0496-0119.1 Air-Conditioning, Heating, and Refrigeration Institute (AHRI)
42 EPA-HQ-OAR-2008-0496-0120.1 Alliance for Responsible Atmospheric Policy j

43 EPA-HQ-OAR-2008-0496-0121 MDA Manufacturing
44 EPA-HQ-OAR-2008-0496-0122.1 Air Conditioning Contractors of America (ACCA)
45 EPA-HQ-OAR-2008-0496-0123 C.C. Dickson Co.
46 EPA-HQ-OAR-2008-0496-0124 Refrigerant Supply Inc.
47 EPA-HQ-OAR-2008-0496-0125.1 Ineos Fluor1-3 Count Document ID Organization

48 EPA-HQ-OAR-2008-0496-0126.1 Johnson Controls
49 EPA-HQ-OAR-2008-0496-0127.1 Lennox International
50 EPA-HQ-OAR-2008-0496-0128 Altair Partners, LP
51 EPA-HQ-OAR-2008-0496-0129 ICOR International
52 EPA-HQ-OAR-2008-0496-0130 DuPont
53 EPA-HQ-OAR-2008-0496-0131 Rheem
54 EPA-HQ-OAR-2008-0496-0132 Refricentro INC.
55 EPA-HQ-OAR-2008-0496-0133.1 Air-Conditioning, Heating, and Refrigeration Institutek

56 EPA-HQ-OAR-2008-0496-0134 Perfect Technology Center, LP, dba “Perfect Cycle”
57 EPA-HQ-OAR-2008-0496-0135 Hudson Technologiesl

58 EPA-HQ-OAR-2008-0496-0136 Solvay Fluoridesm
59 EPA-HQ-OAR-2008-0496-0137 Arkeman
Reclaimers for Environmental Benefitso Advanced Refrigerant Technologies AeroSys Inc. AllCool Refrigerant Reclaim Brady Trane Service Certified Refrigerant Services, Inc. Clean Air Refrigerant Recovery and Reclaiming, Inc. Consolidated Refrigerant Reclaim Consolidated Refrigerant Solutions, Inc. Golden Refrigerant J.R.’s Appliance Disposal, Inc. Newcomb Mechanical, Inc. Perfect Cycle CFC Group Pierce Refrigerant Mgmt Polar Refrigerant Technology Reclamation Technologies, Inc. Refri-Claim, a Division of ICOR Int. Refrigerant Exchange Corp. Refrigerant Management Service of Georgia Refrigerant Recycling, Inc. Refrigerants, Inc. Refrigeration Salvage, Inc.
RemTec International Safe Disposal Systems SpecGas, Inc. 60 EPA-HQ-OAR-2008-0496-0138

Total Reclaim, Inc.

61 EPA-HQ-OAR-2008-0496-0139 Solvay Fluorides
62 EPA-HQ-OAR-2008-0496-0140 Williams & Associatesp
63 EPA-HQ-OAR-2008-0496-0141 American Medical Systemsq1-4 Count Document ID Organization

64 EPA-HQ-OAR-2008-0496-0142 The Spectranetics Corporationr
65 EPA-HQ-OAR-2008-0496-0143 Hudson Technologies
66 EPA-HQ-OAR-2008-0496-0144 USA Refrigerantss

a. EPA’s Public Transcript, “Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export,” on January 7, 2009, reports comments by AHRI, Coolgas, Condor Products, and Discount Refrigerants, HARDI, Trane/Ingersoll-Rand, RemTec International, CFM Distributors, Coolgas Inc and Dynatemp International, ACCA, and USA Refrigerants. Of these commenters, AHRI, HARDI, Coolgas Inc. and Dynatemp International, and ACCA also submitted written comments by the same commenter. In the following sections, commenters are listed individually, including those that submitted written comments. b. Duplicate copy of EPA-HQ-OAR-2008-0496-0085.1. All Dometic comments listed under EPA-HQ-OAR-2008-0496- 0085.1 in the following sections.

c. DuPont submitted supplemental comments (EPA-HQ-OAR-2008-0496-0130) after the close of the comment period. All comments are listed under the original Docket ID# EPA-HQ-OAR-2008-0496-0097.1. d. This comment was removed from the docket due to a draft of the comment being submitted rather than the final version. The final docket is comment EPA-HQ-OAR-2008-0496-0131.

e. For the remainder of the document, the group of 15 reclaimer signatories are referred to as “Reclaimers without Allocations.” Several of these commenters submitted individual written comments. However, when summing the number of commenters per comment, the total of 15 commenters will be added to each section. f. Blank submission.
g. Blank submission. h. Blank submission. i. Duplicate copy of EPA-HQ-OAR-2008-0496-0112.1. j. The Alliance for Responsible Atmospheric Policy represents 47 members. Members are listed in the comment. As the Alliance is an established organization, when summing the number commenters per comment, the Alliance will be summed as a single entity rather than by individual commenters.
k. AHRI submitted supplemental comments (EPA-HQ-OAR-2008-0496-0133.1) after the close of the comment period. All comments are listed under the original Docket ID# EPA-HQ-OAR-2008-0496-0119.1.
l. Hudson Technologies submitted supplemental comments (EPA-HQ-OAR-2008-0496-0135 and -0143) after the close of the comment period. All comments are listed under the original Docket ID# EPA-HQ-OAR-2008-0496-0119.1.

m. Solvay Fluorides submitted supplemental comments (EPA-HQ-OAR-2008-0496-0136 and -0139) after the close of the comment period. All comments are listed under the original Docket ID# EPA-HQ-OAR-2008-0496-0106.1.

n. Arkema submitted supplemental comments (EPA-HQ-OAR-2008-0496-0137) after the close of the comment period. All comments are listed under the original Docket ID# EPA-HQ-OAR-2008-0496-0111.1.

o. For the remainder of the document, the collective group of 25 reclaimer signatories will be referred to as “Reclaimers for Environmental Benefits”. Several of these commenters submitted individual written comments. However, when summing the number of commenters per comment, the total of 25 commenters will be added to each section.
p. Late Comment
q. Late Comment

r. Late Comment

s. Submitted to OMB through Executive Order 12866 stakeholder meeting. All comments have been reviewed, summarized, and organized by main topics to highlight major issues and clarification requests pertinent to the rule. For the purpose of this comment summary, section organization does not follow the outline established in the Notice of Proposed Rulemaking document, but follows a logical order of discussion; the selection and organization of these section topics are based on topic frequency and relative importance.

At the beginning of each section, an outline of topics is provided followed by a table detailing commenters that contributed comments, which is organized by document ID. Below each individual topic heading of a section, a bulleted list of comments is provided. Special attention was paid to ensure that comments were properly addressed with sufficient and relevant detail extracted from their submittal. Commenters are listed at the beginning and Docket ID number is provided in parentheses at the end of each comment.2-1 

### 2. ALLOCATION OPTIONS FOR HCFC-22 AND HCFC-142B Nineteen commenters submitted 18 comments on the various options to allocate allowances for HCFC-22 and HCFC-142b in 2010 through 2014. Comments were in reference to five options presented in the proposed rule:

2.1. EPA’s Proposed Allocation Method: allocating the same percentage of baseline allowances on a pro-rata basis to entities that received baseline allowances in 2003

2.1.1 Support for permanent inter- pollutant and/or inter-company transfers 2.1.2 Opposition to permanent inter- pollutant and/or inter-company transfers 2.2. Allocating allowances based on evaluation of the most recent three years of production, import, and/or export data 2.3. Allocating allowances based on evaluation of past sales of HCFCs by allowance holders by considering how HCFCs were ultimately used 2.4. Allocating allowances based on aggregated ODP tons 2.5. Allocating a total amount of allowances and allowing for purchase by establishing an auction system 2.5.1 Support for an auction system 2.5.2 Opposition to an auction system

Count Commenter Organization Document ID No 1 Tony Digmanese York/Johnson Controls EPA-HQ-OAR-2007-0496-0074 2 Deborah Dayton Weitron EPA-HQ-OAR-2008-0496-0076 3 Charlie McCrudden Air Conditioning Contractors of America (Public Hearing) EPA-HQ-OAR-2008-0496-0082

4 Jesse Combs Coolgas, Condor Products, & Discount Refrigerants (Public Hearing) EPA-HQ-OAR-2008-0496-0082

5 Mack McFarland DuPont EPA-HQ-OAR-2008-0496-0097.1 6 Khar Yegparian Mondy Global, Inc EPA-HQ-OAR-2007-0496-0101.1 7 Don Magid and Charles Jones Solvay Chemicals EPA-HQ-OAR-2008-0496-0106.1

8 Maureen Beatty National Refrigerants, Inc. EPA-HQ-OAR-2007-0496-0110.1 9 Emanuel (Manny) Katz Arkema EPA-HQ-OAR-2007-0496-0111.1 10 Adam T. Devoe Coolgas Inc. and Dynatemp International EPA-HQ-OAR-2007-0496-0113.1 11 Jill Tronca North Lakes Distributing, Inc. EPA-HQ-OAR-2008-0496-0115.1 12 Jose A. Armas Refricenter of Miami Inc. EPA-HQ-OAR-2008-0496-0116.1 13 Steven Bernhardt Honeywell EPA-HQ-OAR-2007-0496-0118.1 14 Peter M. Koelsch MDA Manufacturing EPA-HQ-OAR-2008-0496-0121 15 Jon Perry C.C. Dickson Co. EPA-HQ-OAR-2008-0496-0123 16 Robert Allen Kamins Altair Partners, LP EPA-HQ-OAR-2007-0496-0128 17 Francisco Palacio Refricentro INC. EPA-HQ-OAR-2008-0496-0132

2.1. EPA’s Proposed Allocation Method: allocating the same percentage of baseline allowances on a pro-rata basis to entities that received baseline allowances in 2003 Comments on EPA’s proposed allocation method primarily focus on the consideration of permanent baseline transfers and/or inter-pollutant transfers as presented in Sections Error! Reference source not found.and Error! Reference source not found.

.2-2 2.1.1. Support for the proposed allocation method with the permanent inter-pollutant transfers The following commenters state that they support retaining existing baselines with recognition of inter-pollutant and/or inter-company transfers of baseline allowances.  Solvay Chemicals states that the baseline EPA developed for the 2003 through 2009 allocation period accurately reflected the position of both the major producers and consumers, based on company –specific data that EPA had collected from U.S. companies. Solvay Chemicals recommends EPA make minimal changes to its baseline to reflect permanent transfers of allowances, name changes, and the sale of businesses. Solvay Chemicals also notes that the ability to transfer allowances between products and between companies provided critical flexibility to meet marketplace demands, and EPA should maintain the transfer mechanism as it expands coverage under the allowances to the other HCFCs. Arkema states they strongly support EPA’s proposal to implement the 2010 reduction step by applying a percentage reduction to the 2003 HCFC-22 and HCFC-142b baselines with recognition of permanent transfers and name changes over the past six years. This approach is transparent, well settled, understood by the market participants, and consistent with expectations. To do otherwise would be to penalize parties for having participated in EPA’s transfer system. Arkema believes that, to be fair, every existing allowance holder should receive allowances for the years after 2010, whether or not they are active participants in the current market. Eventually, any allowances distributed to passive holders will find their way into circulation if needed. EPA’s preferred approach – 2003 baselines brought up to date with permanent transfers – would not artificially exclude any players. It would assure a level playing field. By incorporating the effects of trades, it would update the 2003 allowances to reflect the evolution of the market in response to changing conditions. [106.1, 0111.1]

EPA Response: EPA is updating the baselines for HCFC-22 and HCFC-142b to reflect name changes and permanent inter-company baseline transfers. Doing so reflects the changes in the marketplace that have occurred since the last time EPA addressed these baselines. When EPA allocated allowances for 2004 through 2009, the Agency made minor changes to reflect such permanent trades of baseline allowances. EPA agrees that permanent inter-company baseline transfers could provide a mechanism for new entrants to join or expand in the HCFC-22 market or for current allowance holders to expand their businesses. EPA also agrees that any allowances distributed to passive holders will find their way into circulation if needed. This has been a mechanism by which new entrants have entered the HCFC allocation system in the past.

 Arkema notes in their supplemental comment that Section 607(b) requires the Agency to allow inter-pollutant transfers on an ozone depletion potential (“ODP”) weighted basis. Section 607 must be read as expressly allowing inter-pollutant trades of both production and consumption allowances for “any year,” including the “baseline year” as defined by the Clean Air Act and EPA. [0111.1]

EPA Response: After considering the language of section 607 and the legislative history,EPA believes that section 607(b) is best read as permitting only year-by-year interpollutant transfers. Section 607(b) states that EPA’s rules are to permit “a production2-3 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). Hence, EPA interprets section 607 as requiring that all inter-pollutant transfers, whether occurring between companies or within a single company, be conducted on a yearly – and thus temporary – basis.

EPA does not read the phrase “any year” in 607(b)(1) to include the baseline year, as suggested by the commenter. Rather, EPA believes this phrase refers to any subsequent control period.

 Arkema states in their supplemental comment that if an allowance for substance A in any one year could be converted to an allowance for substance B in a subsequent year, then no “reduction” would occur in the latter year as required under Section 607(a) (regardless of any offset that might be applied), and the United States would be at risk of violating the Montreal Protocol (because, on an ODP weighted basis, the total number of expended EPA allowances then could be greater than the U.S. cap under the Protocol). Those problems cannot arise when permanent trades of allowances for the baseline year are made, or when a trade in any year otherwise has a permanent effect such that a reduction carries forward through the life of EPA’s allowance program. [0111.1]

EPA Response: Under section 607(b) an allowance for Substance A can only be converted to an allowance for Substance B in the same year, not for any subsequent year. Thus, the hypothetical situation would not arise.

 Arkema states in their supplemental comment that it is not aware of any commenter previously having taken the position that section 607 actually limits industry flexibility by somehow creating a mandatory expiration date for all inter-pollutant transfers. On theother hand, for years EPA has been interpreting the statute as allowing permanent interpollutant baseline trades. [0111.1]

EPA Response:EPA disagrees that it has been interpreting the Clean Air Act as allowing permanent inter-pollutant baseline trades. EPA decided in the 2003 rule to “allow permanent transfers of baseline allowances with those allowances disappearing at the phaseout date for the specific HCFC, regardless of what inter-pollutant transfers had taken place” (68 FR 2835). Thus, EPA has allowed for permanent inter-company transfers but noted that any inter-pollutant transfers are not carried forward into the future. Only one company has consistently used year-by-year inter-pollutant trades and commenters have not raised this subject because it has not been an issue before this rulemaking.

 Arkema in their supplemental comment addressed two pie charts of HCFC-22 allowancesfound in another commenter’s submission: one without and one with permanent interpollutant transfers. Arkema states that the chart with inter-pollutant transfers more closely approximates existing positions in the after- market, which will be the only domestic outlet for HCFC-22 after 2009. Refusing to recognize baseline transfers would upset2-4 existing relationships in and business planning for HCFC-22 after- market sales without yielding any environmental benefit. [0111.1]

EPA Response: Making permanent the prior inter-pollutant trades would have effects on the broader allocation that would not align with the current market. To maintain the total production and consumption caps under the Montreal Protocol, all of the other market participants would receive fewer allowances to compensate for the increase to the companies that transferred allowances. Thus, the distribution of allowances among all the other companies and related to the market as a whole would not be more accurate.

Second, trying to most closely match the after-market is not the only goal of the allocation system provided for in this rule. The Agency did consider the market disruption that could occur under the 5 alternative scenarios for allocating allowances and this was one consideration for allocating allowances based on a smaller percentage of the existing baseline. However, avoiding market disruption and most closely matching the future HCFC-22 after-market are two separate issues. EPA rejected an alternate approach whereby EPA would allocate allowances based on an evaluation of past sales of HCFCs by allowance holders by considering how the HCFCs were ultimately used (e.g.,servicing refrigeration or air-conditioning vs. original manufacture of refrigeration or airconditioning equipment and foam blowing). This approach was specifically designed to closely match the anticipated after-market distribution channels. No commenter favored this approach, including this commenter here.

 Solvay Fluorides comments that including permanent transfers in the updated baseline would not distort the marketplace or create confusion for producers and consumers. Solvay Fluorides states that for each of the past three years (2006-2008), they have converted at least 95% of their HCFC-142b allowances into HCFC-22 allowances, which were then consumed to meet the needs of their U.S. customers engaged primarily in the aftermarket service of refrigeration equipment. A decision to exclude their inter-pollutant transfers would disrupt many years of sales to the refrigerants aftermarket – the market niche that will remain the longest.

In addition, as Solvay Fluorides is a relatively small market supplier of HCFC-22 in comparison to Honeywell, DuPont, and Arkema, the inclusion of the permanent transfers of Solvay Fluoride’s HCFC-142b to HCFC-22 allowances would only increase the total quantity of consumption allowances would only increase the total quantity of consumption allowances in the baseline by 1 percent. Therefore, approximately 85% of the baseline would continue to be held by only the three companies noted above, and it would be very unlikely that this would affect manufacturing decisions that domestic producers will make related to staffing needs considering the size of their operations.

The commenter states that to maintain strong competition, it is important that multiple suppliers remain the marketplace. Therefore, allowing Solvay Fluorides to continue its historical practice of making HCFC-22 allowances for the import of product for sale to the servicing market would help achieve this objective. [106.1]2-5 EPA Response:EPA recognizes that Solvay Fluorides has transferred most of its allowances of HCFC-142b to HCFC-22 in each of the control periods 2006-2008, as is allowed under section 607(b). These annual transfers have provided flexibility to Solvay Fluorides to engage in the HCFC-22 market with limited HCFC-22 baseline allowances. These transfers have not resulted in any market disruption because the effect is to only increase Solvay Fluoride’s allowances for the year, not decrease the allowances of other companies as well.

EPA also agrees that due to its small size, were Solvay Fluorides the only company that had engaged in, and from this point forward will engage in, the permanent transfer of baseline allowances, there would still not be a significant disruption to the marketplace, though there would be some effect on the allocation amounts of other companies. However, Solvay was not the only company that sought to engage in permanent transfers, and additional companies could seek to do the same in future. EPA’s greatest concern is that all other companies could seek to permanently transfer their allowances from one substance to another. It is that action that would introduce the greatest uncertainty into the marketplace.

Adjusting the baselines to reflect intra-company, inter-pollutant transfers could create incentives for future manipulation of the allocation system in anticipation of the future control periods. For example, in 2020 EPA will no longer be issuing HCFC-22 allowances. EPA has anticipated 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 are still allowed after 2020. For example, if EPA were to establish an allocation framework based on inter-pollutant trades, in 2019 companies with HCFC-22 allowances could convert them all to allowances for HCFC-123 or some other compound for which allowances are available and thus remain in the market. 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 allowances in 2014 to HCFC-123 allowances. Given the different ODPs of HCFC-22 and HCFC-123, converting one allowance of HCFC-22 would result in 2.75 allowances of HCFC-123. Also, since companies hold many more HCFC-22 allowances than HCFC-123 allowances, converting those HCFC-22 allowances would have an overwhelming effect on the current HCFC-123 allowance holders. In effect, establishing allocations based on permanent inter-pollutant transfers would transform the U.S. HCFC phasedown from a chemical-by-chemical phaseout, as established under the “worst-first” approach in the 1993 rule, to an ODP-weighted phasedown. Under an ODP-weighted phasedown, allowance holders could permanently transfer their production and import of specific HCFCs so long as the total ODP cap is not affected. Companies that do not transfer their allowances, however, would remain holding a smaller percentage of the total ODP cap, and thus would be left with fewer allowances. The ODP-weighted method was rejected in both the 2003 rule and this rule, though EPA did take comment on it in the proposal.2-6 2.1.2. Support for the proposed allocation method without permanent inter-pollutant transfers Condor Products, Discount Refrigerants, DuPont, Mondy Global Inc., NRI, Coolgas Inc. and Dynatemp International, Refricenter of Miami Inc, Honeywell, MDA Manufacturing, C.C. Dickson Co., Altair Partners LP, and Refricentro Inc. oppose EPA’s proposal to make permanent previous inter-pollutant transfers. These commenters request that EPA utilize the 2003 baseline as the most-equitable way of reducing and allocating allowances among the entire community. [0082, 0097.1, 0101.1, 010.1, 0113.1, 0116.1, 0118.1, 0121, 0123, 0128, 0132]

 DuPont, Mondy Global Inc., Coolgas Inc. and Dynatemp International, Refricenter of Miami Inc, Honeywell, MDA Manufacturing, C.C. Dickson Co., Altair Partners LP, and Refricentro Inc. state that making prior inter-pollutant transfers permanent would result in an inequitable redistribution of allowances. In effect, this would increase the aggregate amount of baseline production allowances for HCFC-22 by 17% and the aggregate amount of baseline consumption allowances for HCFC-22 by 19% in a non-uniform manner that shifts market share. The 2003 baseline in the Federal Register for R-22 was 119,284,000 kg. The 2003 baseline in the Proposed Rule, which allows inter-pollutant trades to become part of the new baseline, is 141,865,000 kg, a difference of 20 million kg. The transfer would result in a net increase of nearly 5 million kg of HCFC-22 consumption allowances for Arkema and 1 million kg for Solvay. 19 other companies, including all three U.S. based manufacturers and the U.S. industry servicers, would receive a permanent reduction in their HCFC-22 consumption allowances, in the amounts shown in the table provided by Honeywell:

Table 1: Permanent inter-pollutant transfers and impact on U.S. companies Company Allowances(kg) DuPont -2,572,863 Honeywell -2,346,010 National Refrigerants -366,447 Ineos Fluor Americas -168,783 MDA Manufacturing -168,468 Kivlan and Company -137,941 Coolgas -39,157 Refricenter of Miami -25274 Discount Refrigerants -24,879 Altair Partners -20,019 Mondi-Global -18,681 ABCO -18,518 Condor Products -4961 R-Lines -4,187 Auto Equipment Sales -3,585 Refricentro -3,048 HG Refrigeration Supply -2,656 Saez Distributors -2,515 Full Circle -985

EPA Response: EPA is concerned about the effect that making permanent previous interpollutant transfers will have on the rest of the entities in the marketplace. While EPA proposed to make permanent both the inter-company and the inter-pollutant transfers,2-7 EPA recognizes now that the two are different in substantial ways. Permanent baseline trades between companies do not change the total number of allowances nor affect anyone not engaged in the transfer. What is purchased by one company is simply subtracted from another company; the overall “pie” and the other market participants remain unaffected. Making prior inter-pollutant trades permanent would change the overall number of allowances and, as discussed above, all other market participants’ allocations are adjusted to account for the change. Under the proposed rule, the effect would be a 15.85% reduction to all the other participants. EPA is concerned not only with the 15.85% reduction that would be the result in this rule but also the potential for future market manipulation, as discussed above and in the preamble.

 Coolgas/Dynatemp, DuPont, and Honeywell agree that allowing transfers is contrary to Clean Air Act language. The language of section 607 of CAA is clear that inter-pollutant transfers are authorized only on a year-to-year basis, and should not be considered “permanent.” There is no apparent authority for EPA to allocate baseline on expired year to year inter-pollutant transfers. [0113.1, 0097.1, 0118.1]

EPA Response:EPA provides its interpretation of section 607 above and in the preamble.

 Honeywell states that the limits on the Agency’s authority to grant permanent interpollutant transfers is reinforced by the legislative history of the 1990 Clean Air Act Amendments, which demonstrates that Congress intended to limit inter-pollutant transfers to the current year. [118.1]

EPA Response: The Senate bill used a “basket” approach to the phaseout of ozonedepleting substances, requiring reductions on an ozone-depletion potential (ODP) weighted basis. The phaseout provisions contained in that bill would have prohibited “any person” from producing ODS in “annual quantities” greater than the ODP-weighted amount of ODS produced by that person in the baseline year. 1While this language doesnot refer specifically to inter-pollutant transfers, the concept of intra-company, interpollutant transfers in inherent in an ODP-weighted approach. The Statement of Senate Managers explained that “a producer may decide to reduce CFC-11 by an amount greater than is required in a given year and, in the same year, be authorized to produce a greater amount of CFC-113 than would otherwise be allowed.”2The Senate bill did not contain language permitting any other types of transfers.

The House bill, in contrast, took a chemical-to-chemical approach to the phaseout. It directed EPA to promulgate rules providing for inter-company transfers. Such rules were to allow “any person” to produce “a class I or class II substance in annual quantities greater than those specified” by acquiring production allowances from another person who would be subject to “an enforceable and quantifiable reduction in the annual

1S. 1630 as passed the Senate, A Legislative History of the Clean Air Act Amendments of 1990, vol. 3, 4760.
2Chafee-Baucus Statement of Senate Managers, S.1630, A Legislative History of the Clean Air Act Amendments of 1990, vol. 1, 927.2-8 production of such substance.”3The phrase “such substance” would have limited this provision to exchanges of allowances for the same substance. The House bill contained no language explicitly providing for inter-pollutant transfers. Nor were such transfers inherent in the chemical-by-chemical approach adopted in the House bill.

The exchange provision in the House bill could have applied to both year-by-year andpermanent inter-company transfers of allowances for a single pollutant. But the interpollutant transfers allowed under the ODP-weighted approach in the Senate bill wouldhave been conducted solely on a year-by-year basis. The concept of permanent interpollutant trades has no relevance in an ODP-weighted system because the company baselines are not associated with particular pollutants.

Thus, neither the House nor the Senate bill contemplated permanent inter-pollutant transfers. There is no indication that the conference agreement was intended to introduce this concept. We agree with the commenter that the legislative history of the 1990 Clean Air Act Amendments supports the view that section 607 does not provide for such transfers.

 Coolgas/Dynatemp state that with few exceptioms, the impacted entities from EPA’s proposal to make permanent previous inter-pollutant transfers are small businesses with fewer than 20 employees. Refricenter of Miami Inc. notes that the proposed allowance schedule results in a loss to them of 25,274 kg of HCFC allowances per year while the same represents a loss of approximately $227,000 in annual sales revenues. Refricentro Inc. also notes that the proposed allowance schedule results in a loss of approximately $26,625 in annual sales revenues for their company. [0113.1, 0116.1, 0132]

EPA Response:EPA recognizes that adjustments to the allocation amounts can negatively affect the importers/producers that market the relevant compounds. This effect may likely be felt more by small businesses that receive a larger part of their income from the import of these compounds.

 Coolgas/Dynatemp favors “option 1” but states that option 1 should consider intercompany sale of baseline allowances, but should exclude intra-company, inter-pollutant transfers. Nothing in the 2003 rulemaking suggested that companies would be able toincrease their relative percentage of the baseline by making intra-company, interpollutant transfers. Coolgas/Dynatemp states that if the original and continuing intent is to prevent companies from gaining market share by making their baseline demand appear greater, the proposal to allow inter-pollutant transfers runs directly contrary to that goal. [0113.1]

EPA Response:EPA discusses reasons for including inter-company transfers above and in the preamble. EPA agrees that it did not signal in the 2003 Allocation Rule thatcompanies could increase their relative percentage of the baseline by conducting intracompany, inter-pollutant transfers. EPA now recognizes the market disruption that such

3S. 1630 as passed the House, A Legislative History of the Clean Air Act Amendments of 1990, vol. 2, 2384, 2387-2388.2-9 transfers could cause in the 2010-2014 control periods covered by this rule as well as later control periods.

 National Refrigerants, Inc. states that recognizing inter-pollutant transfers will have an adverse effect not only on producers and importers of but also on their distributors and customers, resulting in a dramatic market distortion. Similarly, Honeywell states that customers will be forced to scramble to identify new sources of HCFC-22 as certain producers and importers may not be able to meet anticipated customer demand based on the changed number of allowances that they will receive. [0110.1, 0118.1]

EPA Response:EPA agrees that producers and importers are not the only entities affected by EPA’s choice of allocation option (Options 1-5) and its decision whether or not to consider making permanent prior inter-pollutant transfers. EPA has considered the effects on distributors, OEMs, and customers in its decision to select Option 1 without accounting for permanent inter-pollutant transfers.

 North Lakes Distributing, Inc. states that transferring allocations from one type of HCFC to another, whether permanently or not, allows companies with greater access to information and resources to cross from one market to another. This will concentrate the allocation in fewer entities and harm competition. [0115.1]

EPA Response:In general the transfer mechanisms in section 607 increase flexibility and can encourage shifts in the marketplace, including allowing for new entrants.

 Refricenter of Miami Inc. states that HCFC-142b is a blowing agent that will be replaced by other chemicals and therefore these two companies’ HCFC-142b allowances should have been retired and not credited to their baseline of HCFC-22. EPA’s decision to allow for the credit of inter-pollutant transfers contradicts the 2003 rulemaking which called for a reduction as opposed to a redistribution of HCFC allowances. C.C. Dickson Co. believes that the proposed allocation would give preferential treatment to a small subset of wholesalers that have long-standing supply relationships with both of the companies that applied for permanent HCFC-142b transfers. Traditionally the HCFC-22 service market was supplied by HCFC-22 allowance holders. HCFC-142b allowances were used in the foam blowing market. Honeywell states that reasons for limiting inter-pollutant trades to current-year include: 1) otherwise allowances could have a virtually perpetual life, as producers and importers transferred them from substances that were being phased out to substances that had not yet been phased out; and 2) Congress wanted to provide short-term flexibility for manufacturers to respond to the market, but not long-term flexibility. [0116.1, 0118.1, 0123]

EPA Response:EPA agrees that in effect, establishing allocations based on permanentinter-pollutant transfers would transform the U.S. HCFC phasedown from a chemical-bychemical phaseout, as established under the “worst-first” approach in the 1993 rule, to an ODP-weighted phasedown. Under an ODP-weighted phasedown, allowance holders could permanently transfer their production and import of specific HCFCs so long as the total ODP cap is not affected. Companies that do not transfer their allowances, however,2-10 would remain holding a smaller percentage of the total ODP cap, and thus would be left with fewer allowances. The ODP-weighted method was rejected in both the 2003 rule and this rule.

 DuPont believes that the three tables in the proposed rule should be changed to those shown below (see Table 2, Table 3, and Table 4) to remove the proposed inter-pollutant transfer adjustment to baseline allocations as well as to provide for year-by-year reductions in HCFC-22 allowances. Year-by-year reductions would increase recovery and reuse and encourage a gradual reduction of demand thereby avoiding “shock” to the U.S. economy caused by significant shortages of HCFC-22 in 2015. DuPont also states that each chemical should continue to be viewed independently, looking at projected marketplace need and the impact to the economy that would be caused if supplies are unavailable. [0097.1]

Table 2: Suggestion for alternate proposed percent of baseline Control Period HCFC-141b HCFC-22 HCFC-142b HCFC-123 HCFC-124 HCFC225ca 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 41.88 0.475 125 125 125 125 2011 0 38.15 0.475 125 125 125 125 2012 0 34.41 0.475 125 125 125 125 2013 0 30.68 0.475 125 125 125 125 2014 0 26.94 0.475 125 125 125 125

Table 3: Suggestion for production allowance distribution among allowance holders without an inter-pollutant transfer adjustment Person Controlled Substance Baseline Allowances (kg) HCFC-225ca 266,608 AGC Chemicals Americas HCFC-225cb 373,952 HCFC-22 28,219,223 HCFC-141b 24,647,925 Arkema

HCFC-142b 16,131,096 HCFC-22 42,638,049 DuPont HCFC-124 2,269,210 HCFC-22 37,378,252 HCFC-141b 28,705,200 HCFC-142b 2,417,534 Honeywell

HCFC-124 1,804,121 MDA Manufacturing HCFC-22 2,383,835 Solvay Solexis HCFC-142b 6,541764
Table 4: Suggestion for consumption allowance distribution among allowance holders without an inter-pollutant transfer adjustment Person Controlled Substance Baseline Allowances (kg)2-11 Person Controlled Substance Baseline Allowances (kg) ABCO Refrigeration Supply HCFC-22 279,366 HCFC-225ca 285,328 AGC Chemicals Americas HCFC-225cb 286,832 Altair Partners HCFC-22 302,011 HCFC-22 29,524,481 HCFC-141b 25,405,570 HCFC-142b 16,672,675 Arkema

HCFC-124 3,719 Auto Equipment Sales HCFC-22 54,088 HCFC-22 74,843 Condor Products HCFC–124 3,746 Continental Industry Group HCFC-141b 20,315 HCFC-141b 16,097,869 Coolgas, Inc HCFC–123 20,000 Coolgas Investment Property HCFC-22 590,737 HCFC-22 38,814,862 HCFC-141b 9,049 HCFC-142b 52,797 HCFC–123 2,933,906 DuPont

HCFC–124 743,312 Full Circle HCFC-22 14,865 H.G. Refrigeration Supply HCFC-22 40,068 HCFC-22 35,392,492 HCFC-141b 20,749,489 HCFC-142b 1,315,819 Honeywell

HCFC–124 1,284,265 ICC Chemical Corp HCFC-141b 81,225 ICOR HCFC–124 81,220 Ineos Fluor Americas HCFC-22 2,546,305 Kivlan and Company HCFC-22 2,081,018 MDA Manufacturing HCFC-22 2,541,545 Mondy Global HCFC-22 281,824 HCFC-22 5,528,316 HCFC–123 72,600 National Refrigerants

HCFC–124 50,380 Refricenter of Miami HCFC-22 381,293 Refricentro HCFC-22 45,979 R-Lines HCFC-22 63,172 Saez Distributors HCFC-22 37,936 HCFC-22 413,509 Solvay Fluorides HCFC-141b 3,940,115 Solvay Solexis HCFC-142b 3,047,386 HCFC-141b 89,913 HCFC–123 34,800 Tulstar Products

HCFC–124 229,582

EPA Response:EPA agrees that as a result of not including permanent inter-pollutant transfers the values in Table 2 for HCFC-22 and HCFC-142b in 2010 would be similar to those in 40 CFR 82.16. EPA also agrees that the values in Table 3 and Table 4 match those that EPA generated by not accounting for the inter-pollutant transfers, with some exceptions to particular entities that had provided additional/revised data as discussed in2-12 the preamble. EPA responds to the suggestion for year-by-year reductions in HCFC-22 allowances below.

 Honeywell states that the companies that benefit from the proposed allocation that includes inter-pollutant transfers are foreign manufacturers. Foreign producers are already advantaged as those in China receive financial benefits such as Clean Development Mechanism credits and lower HF costs. [118.1]

EPA Response:EPA has not based its allocation on whether a producer is a domestic or foreign company. Regardless, EPA is not incorporating inter-pollutant transfers in the baselines calculated for the 2010-2014 control periods.

 C.C. Dickson Co. recommends a methodology that would use the 2003 baselines, allowing for permanent intra-company HCFC-22 transfers only, and then reduce the allowances on a consistent manner for all parties. [0123]

EPA Response:EPA responds to this comment in favor of adjusting the baseline to reflect intra-company transfers above and in the preamble

 HARDI appreciates EPA’s willingness to consider alternative allocation systems, but does not believe EPA has adequate time to significantly alter the current allocation system. Further, this commenter’s distributors rely heavily on certainty that their significant investments to forge, build, and grow their supplier relationships will continue to generate returns for the foreseeable future, and any major disruption to the current allocation system at this late date could erode and nullify these distributor investments. [0117.1]

EPA Response:EPA recognizes the importance of having time for industry to adopt the regulations and has sought to finalize this rule as quickly as practicable.

2.1.3. General opposition to the proposed allocation system Three commenters provided alternative allocation methods based on the position that domestic manufacturers should be favored over foreign manufacturers.

 Weitron states EPA appears to have rewarded companies who import HCFCs rather than those that use American-made products. The commenters propose that the two companies (DuPont and Honeywell) with current U.S. manufacturing facilities should be awarded a fair share (25% of either their existing allocation or the average amount they produced in the last couple of years) of the allocation since they will be able to realize a reasonable return on their investments. The rest of the ODP allocation should be up for auction limited to U.S. companies (below a maximum amount). To benefit smaller companies, the amount auctioned at one time could be small. North Lakes Distributing states that the current allocation system disproportionately rewards imported, rather than domestic product. The commenter suggests that consumption allowances be allowed to be used for domestic purchases without retiring the production allowances of domestic manufacturers. Williams & Associates state that U.S. manufacturing, which provides2-13 jobs, is adversely affected because these products are not only acquired abroad they are packaged abroad. If the EPA were to consider the current economic climate, these rights have a value of $1.4 billion. [0076, 0115.1, 0140]

EPA Response:EPA has not based its allocation on whether a producer is a domestic or foreign company. EPA granted allowances to all companies that were engaged in the HCFC market between 1994 and 1997 regardless of nationality. EPA believes that it should maintain the current baseline to foster stability in the marketplace. Suddenly limiting the market to domestic producers would disrupt the market. Furthermore, EPA disagrees with the suggestion that consumption allowances be used in lieu of production allowances if the production occurs domestically. Because the Protocol has instituted both a consumption and production cap, both types of allowances must be allocated and expended as appropriate.

2.2. Allocating allowances based on evaluation of the most recent three years of production, import, and/or export data
 York/Johnson Controls, Coolgas, Condor Products, and Discount Refrigerants state that EPA should base the 2010-2014 allocation on the three most recent years of actual HCFC production and import. This option is fair because it would truly reflect what each participants’ real market share is or their participation in the business in the current period. This method would also avoid controversial issues of transfers, market segment movements, and the complicated auction systems. [0074, 0082]

EPA Response: EPA agrees that this approach offers a transparent design for allocating allowances, similar to Option 1. However, EPA is not convinced that 2004-2006 sales data would more accurately reflect the marketplace in 2010 than the original 1994-1997 baselines. Starting in 2010, the only use of virgin HCFC-22 will be for servicing existing equipment. Therefore, the segment of the market in which HCFC-22 was produced for new equipment will no longer exist. While it is true that the 1994-1997 baseline has the same shortcoming, the existing baseline is well-vetted and known by all market participants. This alternate option would require the Agency to disregard the existing baseline in its entirety. This would minimize the value of establishing a baseline and lead to market uncertainty. EPA seeks instead to minimize unanticipated changes and preventmarket disruptions. Finally, EPA believes it is appropriate to address the issue of interpollutant transfers and discusses the subject above.

 Solvay states that they do not support this option as it would penalize companies that did not use all of their allowances. It would also raise questions about the accuracy of data. Arkema states that the use of the last three years’ data would 1) reward entities that continued supplying HCFC-22 for new appliances instead of switching to alternatives, 2) rearrange the market by giving a non-representative share of servicing business to entities that have been supplying refrigerant for use in new equipment, and 3) disrupt the market by taking away allowances from entities who decreased production or import, thereby gaining environmental benefits. Furthermore, it would be a poor indicator of servicing needs and would result in a non-representative allowance system. [0106.1, 0111.1]2-14 EPA Response: EPA discusses above how the market for virgin HCFC-22 is changing in 2010 and thus recent sales data will not accurately reflect the 2010-2014 market. This commenter raises additional equity concerns with moving to a different system. As discussed in the preambles to both the proposed and final rules, each of these five methods offers advantages and disadvantages for potential allowance holders that vary according to, among other things, whether a particular entity currently sells HCFC-22 and HCFC-142b to original equipment manufacturers, wholesalers, retailers, or companies that service appliances; whether the portion of its business that is ODS-based is expanding or contracting as the next major milestone in the phaseout approaches; and whether it sold HCFCs for applications that do not lend themselves to servicing. EPA does not seek to select winners and losers in its method of allocation, recognizing that any method will be more favorable for some and less favorable for others. EPA’s primary considerations are allocating HCFC-22 and HCFC-142b allowances in a manner that is the least disruptive to the current market and best ensures a continued smooth transition away from ozone-depleting substances. EPA believes that maintaining the existing baseline, with minor adjustments to account for inter-company transfers, maintains the greatest stability.

2.3. Allocating allowances based on evaluation of past sales of HCFCs by allowance holders by considering how HCFCs were ultimately used
 Solvay Chemicals states they do not endorse this option as it feels the option would be very difficult to distinguish what the final use of HCFC-22 actually was over a three year period when companies were under no obligation to maintain such records. Also, as significant quantities of product are sold through extensive distribution networks, the end use for these volumes would be difficult to establish accurately. Arkema states that this option could result in a representative baseline in that future after-market needs could be based on after-market sales. This option, however, would embroil the Agency andindustry in a lengthy information gathering process; Arkema warns that the 2010 phasedown is fast approaching. Coolgas/Dynatemp states that adjusting allowances based on past sales presents an enormous logistical burden for allowance holders and EPA. Such a proposal is unworkable and would result in substantial delays in publishing a final rule and allocating baseline allowances for 2010. [0106.1, 0111.1, 0113.1]

EPA Response: EPA agrees that this option may present challenges to implement. While EPA could request the sales data via its information gathering authority under Section 114 of the CAA for the years 2004 to 2006 this would result in additional burden on producers and importers. This burden on stakeholders is heightened given they do not typically collect and maintain this data. Companies with multiple sales offices or secondary distributors may face an especially cumbersome burden in gathering their detailed sales data.

 Coolgas/Dynatemp states there is no apparent reason for reducing the allowances based on the sale of HCFCs other than to penalize HCFC stockpiling. Such a method would present a major disruption in the market and would force difficult regulatory decisions about what constitutes inventory. [0113.1]2-15 EPA Response:EPA’s reason for presenting this option in the proposal was to minimize disruption to the servicing market. As discussed above, EPA believes that maintaining the existing baseline, with minor adjustments to account for inter-company transfers, maintains the greatest stability.

2.4. Allocating allowances based on aggregated ODP tons
 Arkema states that, ideally, allowances would have been allocated in 2003 strictly on the basis of aggregated ODP-tons. This method is more closely tied to the overall objective of preserving the ozone layer. Second it would minimize EPA intervention in the market because the Agency would no longer have needed to predict supply and demand for individual chemicals. The NPRM’s preferred approach is the next best thing because it approximates the results of an ODP-based system with a chemical-by-chemical approach and the flexibility for trading. Arkema also believes different percentages could be used as long as trading before June 16, 2008, is fully recognized because trading portrays market directions and best approximations on an ODP-system. [0111.1]

EPA Response:At this point in the phaseout, EPA does not believe that it would be appropriate to switch to an ODP-weighted allocation. EPA raised, and rejected, this option in 2003 when it initially established baselines and allocated production and consumption allowances for HCFCs. In 2003, EPA applied a “worst first” approach to the phaseout of HCFCs and set limits only on HCFC-141b, HCFC-22, and HCFC-142b. Moving to an ODP-weighted allocation system at this point would disrupt the market and not reflect the market decisions made between 2003 and 2009.

 Coolgas/Dynatemp does not support allocating based on aggregated ODP tons because there is no existing precedent or method and would result in a drastic departure from the existing and successful allocations system. [0113.1]

EPA Response:EPA agrees that this option would be a departure from the existing allocation method and is instead using option 1.

2.5. Allocating a total amount of allowances and allowing for purchase by establishing an auction system 2.5.1. Support for an auction system Three commenters support EPA using an auction system.  Weitron and North Lakes Distributing Inc. state that EPA’s current allocation is arbitrary and provides a large windfall to a limited number of companies while excluding others. North Lakes Distributing Inc. states that having a greater number of companies and a wider distribution of market participants (as could be achieved under an auction system) would bring competition, stability, and be closer to free market situation in the current cap and trade scenario. This commenter also disagrees with the argument that current allowance holders have made a major capital investment that merits protection. [0076, 0115.1]2-16 EPA Response:EPA disagrees that the allocation for either the 2003-2009 control periods or the 2010-2014 control periods is arbitrary. EPA has chosen to allocate allowances to companies that participated in the HCFC market prior to any regulation by EPA. Section 601(2) states that EPA may select “a representative calendar year” to serve as the baseline for HCFCs. In the 2003 allocation rule, EPA selected the years 1994 through 1997. EPA concluded that allocating to all companies active prior to any notice of an upcoming rulemaking “most accurately reflects the true HCFC market in the United States during that period” (68 FR 2824). By selecting a year before 1997, EPA avoided creating an uneven playing field that skews allocations to those companies with ample resources and good access to information that could significantly increase activity or enter the HCFC import market to have activity on record.

As discussed in the preamble, 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 advanced notice of proposed rulemaking was published. EPA believed that small businesses might not have been aware of the impending rulemaking that would affect their ability to continue in the HCFC market. However, EPA’s intent has been to limit the number of entities in the HCFC market as the compounds are being phased out. While EPA acknowledges that not having allowances can be a barrier to entry into this market, EPA does not believe it is necessary or appropriate to adopt a particular regulatory approach specifically for the purpose of encouraging new entrants at this point in a phaseout. As stated in the 2003 allocation 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 eight years ago, access to information and knowledge of the risks regarding entering the HCFC-22 market have only increased. Furthermore, new entrants have entered the market by purchasing consumption allowances, as EPA predicted they could back in 2003. These entities can continue to purchase consumption allowances or import substitutes for HCFCs.

As the market continues to decrease, EPA does not believe that providing consumption allowances to these or other new entities is necessary to prevent disruption to the continued servicing of existing equipment. Given EPA’s intent to phase down, and ultimately phase out, the use of HCFC-22, 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-22 baseline allowances in accordance with the established practices. EPA therefore does not believe that auctioning allowances for the purpose of opening up the market to new entrants is appropriate at this time given the disruption it would create to the existing regulatory framework.

 ACCA states its members are intrigued by the allocation auction proposal. Should EPA select this option, ACCA recommends that auction proceeds go towards paying for tax incentives for the purchase of high-efficiency appliances and the enforcement of the Section 608 laws, and not be directed to the general fund. Weitron recommends that EPA use auction revenue to support the recycling and reclamation industry. North Lakes2-17 Distributing Inc. recommends that proceeds from the auction could go to fund efforts such as education and enforcement that foster reclamation. [0076, 0082, 0115.1]

EPA Response: Regardless of how the proceeds of an auction are directed, EPA is not utilizing an auction method given the disruption it would create to the existing regulatory framework. However, EPA believes that any proceeds from an auction would have to be directed to the Treasury rather than any particular project determined by the Agency.

2.5.2. Opposition to an auction system Five commenters oppose an auction system.  Solvay Chemicals does not believe that the auctioning of allowance rights is a viable alternative as it would be a dramatic change from the current approach. NRI notes that an auction would be contrary to EPA’s stated goals as it would substantially and unnecessarily raise the cost of refrigerants and equipment to the industry and ultimately to the consumer. Such a system would also cause administrative delays, as well as contradict the stated goal of equality and create uncertainty in the market, and would be imposed without adequate time for preparation and market conditioning. Arkema states that suddenly switching to an auction system would upset years of decision making regarding investments in and rationalization of production. Coolgas/Dynatemp states that both companies have invested millions of dollars in infrastructure, transportation, and related overhead costs to establish and maintain their operations. Auctioning the allowances would put these investments at risk for no apparent environmental benefit. The commenter asks why EPA would now seek to encourage new entrants or claims for allocations after EPA disallowed any new entrants in 2003. Altair strongly opposes the auctioning of allowances, as they are a small business which has committed much time and expense in acquiring baseline allowances since 2003. [0106.1, 0110.1, 0111.1, 0113.1, 0128]

EPA Response:EPA agrees that moving to an auction system would upset the business planning made by companies that purchased their way into the allocation system. EPA has noted before that there are risks associated with entering the HCFC production and import market due to it being a regulated market. However, EPA has discussed how new entrants can join the market by purchasing permanent baseline allowances from other allowance holders: “EPA believes that any new entrants following the ANPRM publication would not be precluded from entering the market, because they could purchase allowances from existing allowance holders who may not intend to use their full amount of allowances” (66 FR 38073).

EPA seeks to minimize unanticipated changes and prevent market disruptions. Of all the options, applying a uniformly smaller percentage of the existing baseline (option 1) as the method for allocating HCFC-22 and HCFC-142b allowances is the least disruptive to thecurrent market and best ensures a continued smooth transition away from ozonedepleting substances.

 Solvay Chemicals states that the auction option contains significant uncertainties, including whether or not there is ample time to implement such a complex undertaking.3-18 Arkema states that an auction system cannot be developed and implemented in time to keep the refrigerant market functioning. [0106.1, 0111.1]

EPA Response:EPA agrees that option 1 limits administrative burden for allowance holders and can be implemented more quickly than other options.



### 3. MEETING HCFC-22 SERVICING DEMAND IN 2010-2014 EPA received 28 comments on the projected estimate that 20% of 2010 servicing demand will be met with recovered HCFC-22 and the remaining 80% of demand will be met via allowances. Comments were in reference to five main topics:

3.1. Appropriateness of EPA’s assumption that 20% of total HCFC-22 in retired/converted equipment can be recovered in 2010 3.2. Setting the HCFC-22 allocation total based on it meeting 80% of servicing demand 3.2.1 Greater than 80% of servicing demand needs to be met through HCFC-22 consumption allowances. 3.2.2 Meeting 80% of servicing demand through HCFC-22 consumption allowances with the remaining 20% of demand being met through recovered material is appropriate. 3.2.3 The HCFC-22 allocation total should be less than the amount needed to meet 80% of servicing demand. 3.3. Allocations of HCFC-22 allowances set aside for reclaimers for blending 3.4. Allocation should be ratcheted down each year based on projected decline in servicing demand 3.5. Facilitating an effort to improve reclaim (i.e., contractor participation) and increase the 20% rate 3.6. Servicing Tail Report Clarifications and Potential Modifications

Count Commenter Organization Document ID No 1 Tony Digmanese York/Johnson Controls EPA-HQ-OAR-2007-0496-0074 2 Charlie McCrudden Air Conditioning Contractors of America (Public Hearing) EPA-HQ-OAR-2007-0496-0082

3 Tim Kearney RemTec International (Public Hearing) EPA-HQ-OAR-2007-0496-0082 4 James Burke USA Refrigerants (Public Hearing) EPA-HQ-OAR-2007-0496-0082 5 Chad J. Schnuelle Refrigerants Inc. EPA-HQ-OAR-2008-0496-0087 6 Matthew R. Worchesek NA EPA-HQ-OAR-2008-0496-0091 7 Anonymous NA EPA-HQ-OAR-2008-0496-0092 8 John M. Batt Airgas EPA-HQ-OAR-2008-0496-0094.1 9 Mack McFarland DuPont EPA-HQ-OAR-2007-0496-0097.1 10 Jeff Moe Trane/Ingersoll-Rand EPA-HQ-OAR-2008-0496-0099.1 11 Julian de Bullet McQuay EPA-HQ-OAR-2008-0496-0100.1 12 Ted Atwood Polar Technology LLC. EPA-HQ-OAR-2008-0496-0102.1 13 Various Reclaimers without Allocations (multiple companies) EPA-HQ-OAR-2008-0496-0105.1

14 Don Magid and Charles Jones Solvay EPA-HQ-OAR-2008-0496-0106.1

15 Maureen Beatty National Refrigerants, Inc. EPA-HQ-OAR-2008-0496-0110.1 16 Emanuel (Manny) Katz Arkema EPA-HQ-OAR-2008-0496-0111.13-19 17 Stephen P. Mandracchia Hudson Technologies EPA-HQ-OAR-2008-0496-0112.1 18 Jill Tronca North Lakes Distributing, Inc. EPA-HQ-OAR-2008-0496-0115.1 19 Talbot H. Gee Heating, Airconditioning & Refrigeration Distributors International EPA-HQ-OAR-2008-0496-0117.1

20 Steven Bernhardt Honeywell EPA-HQ-OAR-2008-0496-0118.1 21 Dave Stirpe The Alliance for Responsible Atmospheric Policy EPA-HQ-OAR-2008-0496-0120.1

22 Charlie McCrudden Air Conditioning Contractors of America EPA-HQ-OAR-2008-0496-0122.1 23 Peter Geosits Ineos Fluor EPA-HQ-OAR-2008-0496-0125.1 24 Robert Allen Kamins Altair Partners, LP EPA-HQ-OAR-2007-0496-0128 25 Milton J. Cuevas II ICOR International EPA-HQ-OAR-2008-0496-0129 26 Karen B. Meyers Rheem EPA-HQ-OAR-2008-0496-0131.1 27 Various Reclaimers for Environmental Benefits EPA-HQ-OAR-2008-0496-0138 28 Pete Williams Williams & Associates EPA-HQ-OAR-2008-0496-0140

3.1. Appropriateness of EPA’s assumption that 20% of total HCFC-22 in retired/converted equipment can be recovered in 2010 EPA received sixteen comments on whether EPA’s assumption of a 20% recovery rate for retired/converted equipment is appropriate for 2010.  ACCA states that their members are concerned that EPA’s 20% assumption is ambitious, as current recycling and reclamation rates are well below 15%. North Lakes Distributing estimates only 10% of the R-22 coming out of service is reclaimed, but that the goal of 20% recovery could be achieved in 2 years were EPA to allocate allowances to reclaimers. Rheem states they have concern that EPA could be allocating too few allowances because the assumed amount of recycled and reclaimed HCFC-22 of 20 percent used to determine allowance allocations may be excessive. The current use of recycled and reclaimed HCFCs is approximately seven percent and the increase EPA is suggesting in the proposed rule is significant. [0082, 0115.1, 0122.1, 0131.1]

EPA Response:EPA believes Rheem is referring to data reported to EPA under 40 CFR part 82 subpart F showing that 4,556 MT of HCFC-22 was reclaimed in 2008. This amounts to 7.3% of the modeled demand in 2010, up from 5.9% in 2007. This value, though, does not reflect the total recovery rate as it excludes the amount of recycled refrigerant. EPA does not track recycled refrigerants since recycled refrigerant (unlike reclaimed refrigerant) must be charged back into equipment with the same ownership rather than re-enter the market. EPA therefore knows that the combined amount of recycled and reclaimed refrigerants is greater than 7.3%.

Furthermore, the amount reclaimed in one year does not mean that it was recovered in that year. Many reclaimers collect more than they reclaim in any one year due to market shifts. One commenter said that reclaimers have many tons of material in inventory waiting to be reclaimed when the economics of reclamation improve, which EPA believes will occur through the allocation levels established in this rule. EPA is aware that 20% recovery and reclamation for 2010 is greater than current industry practice but has not received comments that convince us that the rate is unreasonable.3-20  ACCA and Rheem state that the current economic situation may result in more homeowners electing to repair their existing units than replace them with systems that use an alternative refrigerant. Thus, EPA’s estimates for the number of HCFC-22 systems, and the corresponding demand for HCFC-22 to service existing equipment, may need to be adjusted upward. [0122.1, 0131.1]

EPA Response: While the Servicing Tail report does not consider effects from the recent economic downturn, the estimate does account for the practice of replacing components rather than installing new equipment. EPA notes that while the economic downturn may extend the time existing HCFC-22 equipment is used, it has also reduced the amount of HCFC-based equipment installed and hence will reduce future demand for servicing. EPA understands that the actual transition will not perfectly synchronize with the model year-by-year, whether for economic conditions, weather, or other events. However, EPA is confident that this does not affect the accuracy of the model. The combination of reclaimed and virgin HCFCs based on the model should be sufficient to meet demand.

 York/Johnson Controls is not optimistic on the fast establishment of adequate refrigerant reclamation facilities during the next few years (with the lack of economic incentives), and would be cautious on relying on 20% of our 2010-2014 servicing need on recycled and reclaimed material. [0100.1]

EPA Response:Reclamation companies together comment that they currently have sufficient capacity to reclaim 36 million pounds of refrigerants each year, which is equal to 16,329 MT, or 26% of the estimated demand in 2010. As discussed below, their main concern is not reclamation capacity but rather the economic disincentive to reclaim and poor recovery practices. EPA agrees with the assessment that recovery is the limiting factor, not reclamation capacity. EPA believes that the allocation in this rule will improve the incentive to reclaim and result in greater recovery.

 Solvay Chemicals states that they believe EPA’s expectation that 20% of projected demand during the 2010 Allocation period must be met through recycling/reclamation is achievable, but it might take industry some time to reach this level. [0106.1]

EPA Response:EPA is aware that 20% recovery and reclamation for 2010 is greater than current industry practice but has not received comments that convince us that the rate is unreasonable.

 Solvay Chemicals states that they already see marketplace activity to increase the capacity to recycle/reclaim HCFC-22 in order to meet the tighter marketplace conditions in 2010 and beyond. They recently launched a new incentive-based national reclaim program for its distributors which relies on separation and distillation. HARDI states that they have seen an expansion in the number of distributor members offering refrigerant recovery services, as well as more aggressive reclamation programs from the certified reclaimer community. Their experience with CFC-12 has shown that the market can improve refrigerant reclamation when supplies are tight and prices for virgin refrigerant become prohibitively high. [0106.1, 0111.1, 0117.1]3-21 EPA Response:EPA agrees that there is recent activity to increase the recovery and reclamation of HCFC-22. EPA also agrees that as the price of HCFC-22 increases, there will be greater economic incentive to recover and reclaim it and rates will increase.

 Polar Technology, LLC, Reclaimers without Allocations, Hudson Technologies, The Alliance, and INEOS Fluor and ICOR International state that a 20% reclaim and recycle rate is reasonable and attainable. Polar Technology, LLC states that the reclaim industry has the capacity to meet the demand but the limiting factor in the growth of the reclaimer industry has not been capacity, but the ability to compete in a market with virgin material held by those with “free” allowances. Reclaimers without Allocations state unequivocally that the capacity is available to meet or exceed a 20% reclamation target. Reclaimers have been unable to fully utilize their capacity due to the economics or pricing issues to incentivize the recovery efforts and then compete with lo cost imported products. Hudson Technologies states that the reclamation industry could support 18,000 metric tons, or 30% of the servicing demand or more. The Alliance states that several reclamation companies have confirmed that the reclamation industry is capable of meeting this goal. They state that one of the most significant factors impacting the supply of reclaimed refrigerant is the ability of those who service and maintain equipment to conduct operating practices that prevent venting and allow the recovery of refrigerants for delivery to reclaimers. ICOR International states that although it supports EPA’s conclusion that a 20% reclaim and recycle rate is reasonable and attainable, it believes that if the allocation level were further reduced that the recovery and reclamation industry would be capable of delivering a greater percentage of the HCFC-22 back for service. [0102.1, 0105.1, 0112.1, 0120.1, 125.1, 0129]

EPA Response:EPA discusses in the preamble that in order to meet the total demand in 2015, the recovery rate must increase to 26% (representing 29% of total servicing demand) by that year. EPA also agrees that one action the Agency can take in this rule to increase the recovery rate is to reduce the allocation for HCFC-22 on an annual basis. This is discussed in greater detail in the preamble and below.

 NRI states it supports and promotes the use of recovered and reclaimed HCFCs as a costeffective and environmentally beneficial way of reducing the need for further production or import of virgin HCFCs. NRI generally supports EPA’s conclusion that a 20% reclaim and recycle rate is attainable but cautions that simply reducing the available supply of newly produced and imported HCFC-22 will not automatically ensure that HCFC-22 will be recovered and reclaimed in amounts sufficient to meet the projected shortfall. [0110.1]

EPA Response:Based on the consideration of all the various commenters and EPA’s past experience, EPA believes that a 20% reclamation and recycling rate is attainable.

 Williams & Associates states that while the reclaim numbers compiled by EPA and published represent the amount of material reclaimed, they do not give a true picture of the activities within the reclamation industry. The commenter also notes that reclaim3-22 companies are seeing these number increase from a 7% range in 2007, to upwards of 12%-15% in 2008. [0140]

EPA Response:Based on the consideration of all the various commenters and EPA’s past experience, EPA believes that a 20% reclamation and recycling rate is attainable.

3.2. Setting the HCFC-22 allocation total based on meeting 80% of servicing demand 3.2.1. Greater than 80% of servicing demand needs to be met through HCFC-22 consumption allowances Two commenters state that EPA should allocate HCFC-22 consumption allowances at a level higher than 80% of the estimated HCFC-22 servicing demand, at least in 2010.

 York/Johnson Controls encourages EPA to be cautious about relying on 20% of the 2010-2014 servicing need on recycled and reclaimed material. [0100.1]

EPA Response: EPA believes that if the 2010 allocation is 80% of the modeled demand, the remaining servicing need can be met from recycled or reclaimed material. Given the regulatory requirements for recycling and reclamation (at 40 CFR part 82 subpart F), experience with the CFC phaseout, and industry practices, EPA believes that the remaining 2010 servicing need can be met with recycled or reclaimed material.

 Trane/Ingersoll-Rand suggests EPA allocate 88% of estimated demand in 2010 to give the reclamation sector time to increase capacity. The commenter also suggests allocating fewer allowances in later years, with allocations at 72% of demand in 2014 and 68% in 2015. [0099.1]

EPA Response:EPA believes that a 20% reclamation and recycling rate is attainable in 2010 and that reclamation industry does not need additional time to increase capacity. EPA discusses annual reductions in the HCFC-22 allocation below.

3.2.2. Meeting 80% of servicing demand through HCFC-22 consumption allowances with the remaining 20% of demand being met through recovered material is appropriate Fifteen commenters believe that EPA’s proposal of meeting 80% of servicing demand through HCFC-22 consumption allowances with the remaining 20% of demand being met through recovered material is an appropriate approach.  Airgas, DuPont, Polar Technology, LLC, NRI, Arkema, Hudson Technologies, Coolgas/Dynatemp, HARDI, Honeywell, The Alliance, INEOS Fluor, Altair Partners LP, and ICOR state they support EPA’s proposal to set the total allowances of HCFC-22 at 80% of the projected servicing need for HCFC-22 in 2010. Allocating less than demand will create a need, and therefore a market, for recovery and reclamation, with the result that more pounds will be recovered and reclaimed, and fewer pounds lost to the atmosphere. [0094.1, 0097.1, 0102.1, 0110.1, 0111.1, 0112.1, 0113.1, 0117.1, 0118.1, 0120.1, 0125.1, 0128, 0129]3-23 EPA Response: EPA proposed to allocate 80% of demand only in 2010. EPA is finalizing the same allocation amount in 2010 in the final rule but is applying the concept of allocating a percentage of estimated demand to the 2011-2014 control periods as well, as discussed in more detail below.

 Polar Technology, LLC states that any allocations in excess of demand will be used for stockpiling. The Reclaimers without Allocations state they support EPA’s proposal to allocating at 80% percent of demand. They also point out that in 2010, much of the remaining servicing demand likely will not be met with reclaimed or recycled HCFC-22 but rather virgin HCFC-22 that has been stockpiled by those who currently have allocations. [0102.1, 0105.1]

EPA Response:Stockpiling of virgin R-22 may be pursued, particularly prior to 2020 when production is entirely phased out; however, it is premature to state the extent to which this option will be technically and economically viable. As such, the Servicing Tail report does not make any projections on future inventories of virgin stockpiles and to be conservative assumes the amount to be zero. Information that allowance holders have stockpiled virgin HCFC-22 further supports EPA’s belief that demand will be met when allocating at less than 80% of demand.

 North Lakes Distributing Inc. supports a more aggressive reduction of allocations so that the amount of allowances is not greater than the estimated demand. Allocating more than demand will lead to importers and manufactures to stockpile in anticipation of selling the surplus in subsequent years when supply is more restricted. [0115.1]

EPA Response:EPA proposed to allocate 80% of demand only in 2010. EPA is finalizing the same allocation amount in 2010 in the final rule but is applying the concept of allocating a percentage of estimated demand to the 2011-2014 control periods as well. This is discussed in more detail below.

3.2.3. The HCFC-22 allocation total should be less than the amount needed to meet 80% of servicing demand
Two commenters state that the HCFC-22 allocation should be set lower than 80% of HCFC-22 servicing demand.  An unaffiliated commenter notes that this rule is lenient in it enforcement of the reduction efforts. Allocating HCFC-22 consumption allowances to meet 80% of servicing needs for existing equipment, and assuming that the other 20% will be met through reclamation allows for the maintenance of all of the existing equipment. A more aggressive rulemaking could serve to greatly accelerate the replacement of equipment that uses these chemicals, which have such a high potential for creating negative health issues. A second, anonymous commenter suggested that EPA not allocate any HCFCs. [0091, 0092]

EPA Response:A smooth transition for stakeholders – including continued availability of needed material for approved uses – has historically been an essential aspect of the U.S.’s success in implementing the Montreal Protocol and Clean Air Act requirements. EPA3-24 believes that allocating at 80% of servicing demand will allow total demand to be met (through the use of reclaimed/recycled material) without forcing owners to prematurely scrap their existing equipment.

3.3. Allocations of HCFC-22 allowances set aside for reclaimers for blending EPA received eleven comments (some signed by multiple commenters) supporting allocating HCFC-22 allowances to reclaimers to blend with the used material to raise the purity level to the ARI-700 standard of 99.5%. Two comments do not support issuing allowances to reclaimers. Commenters outlined 1) the difficulties faced by the reclaim industry, 2) the benefits that the reclaim industry provides, and 3) a suggested allocation system for reclaimers.  RemTec International, Refrigerants Inc., Polar Technology LLC, Reclaimers without Allocations, Hudson Technologies, ICOR International, and Williams & Associates state that reclaimers do not have any assurances of availability of HCFC-22 material needed for blending, and that which they do receive is at end-user or wholesaler prices. Four companies hold about 90 percent of the allowances for HCFC-22. This effectively allows them to preclude reclaimers from obtaining virgin material they need. Refrigerant producers and importers do not want to sell virgin product to reclaimers because they believe that they are selling to their competitors. They could run a reclaimer out of business simply by denying access to virgin material market or they could make the price prohibitively high for a reclaimer and that U.S. recovery facilities can not profitably compete with those with allocation rights because they can import at a lower cost. [0082, 0087, 0102.1, 105.1, 112.1, 129.1, 0140]  RemTec, Hudson Technologies, and ICOR International note the challenges associated with contaminated refrigerant. Hudson Technologies explains that the current HCFCphaseout has very different dynamics than the CFC phase-out as the incidence of crosscontamination is much higher. The company anticipates and is already beginning to see a higher percentage of recovered HCFC-22 cross-contaminated as new systems using alternate refrigerants increase in use. Cross-contaminated material requires several passes in a distillation tower to bring the purity to accepted ARI standards at a high cost and requiring the use of much energy. [0082, 0112.1, 0129]  Reclaimers without Allocations state that reclaimers are forced to offer programs which collect all refrigerants including blends possibly still under patent protection. This impacts reclaimers’ operations without producing any revenue. [0105.1]  Polar Technology LLC, Reclaimers without Allocations, Hudson Technologies, ICOR International, Williams & Associates, and Reclaimers for Environmental Benefits say that allocating allowances to reclaimers would provide the industry with additional incentive to increase reclamation. Hudson Technologies notes that if granted allowances, reclaimers will have a greater ability to accept slightly cross contaminated HCFCs from contractors and wholesalers without the need to assess additional costs for destruction or fractional distillation. Refrigerants, Inc., explains the reluctance of customers to bring mixed R-22 to recovery centers.

 Reclaimers for Environmental Benefits estimate that 15% of recovered refrigerant is cross contaminated. Therefore, allocations for reclaimers for blending will result in as much as a 15% increase in recovered refrigerant within the first two years of allocations. [0138]3-25  ICOR International notes that many reclaimers are inventorying many tons of material that could be salvaged by blending but without virgin material at competitive pricing, this material cannot be sold in the market. Eventually it will have to be destroyed, which robs the industry of refrigerant and cripples the development of the Recovery Network. [0129]  The Reclaimers for Environmental Benefits state that when deciding how many allocations should be granted and to whom EPA should consider who provides the greatest environmental benefit and who will encourage the most recovery and reuse of material. Under either criterion, EPA should grant allocations to certified reclaimers. They submitted a list of rationales for why reclaimers should have increased allocations to allow for blending:

 Reduces need for new production and importations of HCFC-22;

 Reclaim efforts between 2000 and 2008 have created the equivalent of 140 million tons of CO2reductions;

 A healthy reclaiming industry can influence reclaiming better than any other group or unenforced regulations could;

 Efforts by reclaimers to educate contractors would be enhanced if used refrigerant had an economic value;

 Allocations for blending keep reclaiming costs lower and increase the amount reclaimed because reclaimers will pass economic benefit on to the contractors;

 Reclaimers could accept mixed material without penalty to the contractor, and as a result more refrigerant would be recovered and delivered back to reclaimers;

 A strong reclaim industry creates “Green jobs.” In addition, most reclaimers are small businesses;

 Should demand for reclaimed material not be forthcoming, many startup reclaimers will fail. [0138]  Hudson Technologies, Williams & Associates, and Reclaimers for Environmental Benefits discuss the environmental benefits of increased reclamation.

 Hudson Technologies states in their supplemental comment that if 10% of HCFC22 allowances are reserved for reclaimers, between 2010 and 2015, 25,000 metric tons of virgin HCFC-22 would be available to restore up to 6,250 metric tons (approx. 13.8 million pounds) of 98% purity HCFC-22, which would eliminate the high energy cost of fractional distillation and thereby prevent emission of more than 74,000 metric tons of CO2. Additionally, restoring 13.8 million pounds of 98% purity HCFC-22 will prevent the venting of 13.8 million pounds of crossed HCFC-22 which on an ODP basis is equivalent of preventing 690,000 pounds of R-12 from being emitted into the atmosphere, and on a CO2basis is equivalent to 10.6 million metric tons of CO2. [0112.1]

 Reclaimers for Environmental Benefits request 5% or more of the total allocations (12.5 million lbs) be set aside for blending. Doing so would provide benefits in three ways: 1) separation systems now employed to process a portion of this material could be redirected to process even more challenging mixed refrigerants; 2) it is estimated that the blendable material can result in 15% more material salvaged than currently, or approximately 2 million lbs; and 3) the cost of salvaging and destroying ~2.6 million lbs now or in the future would be saved – this will save 2.34 million tons of CO2being released into the atmosphere. [0138]3-26 EPA Response:EPA has previously detailed the importance of recovering and reusing HCFC-22 and the Agency strongly encourages increased recovery and either recycling or reclamation of HCFC-22. Section 608 of the CAA prohibits the intentional venting of HCFCs and EPA regulations require that they be recovered and then either recycled, reclaimed, or destroyed. The recovery and reuse of HCFCs prevents emissions to the atmosphere where they can deplete the stratospheric ozone layer and reduces the amount of virgin material that needs to be produced. Recovery becomes even more important in light of the 2015 Montreal Protocol phasedown step, when the U.S. HCFC consumption cap is reduced from 3,810 ODP-weighted metric tons to 1,524 ODP-weighted metric tons, equivalent to 90% below baseline. In its report The U.S. Phaseout of HCFCs: Projected Servicing Needs in the U.S. Air-Conditioning and Refrigeration Sector (the “Servicing Tail” report), EPA estimates that to meet demand in 2015, recovered material will have to provide 29% of the total servicing demand for HCFC-22. A smooth transition for stakeholders – including continued availability of needed material for approved uses – has historically been an essential aspect of the U.S.’s success in implementing the Montreal Protocol and Clean Air Act requirements.

 Polar Technology LLC, Reclaimers without Allocations, Hudson Technologies, and ICOR International suggest that EPA set aside at least 10 percent of the allowance allocation each year to allocate to certified reclaimers. The reclaimers could then use the allowances to purchase bulk virgin material for blending purposes. An example of 10% of the total proposed allocations being reserved for reclaimers in 2010 is shown in Table 6 below:

Table 5: Example of Set-Aside Allocations for Reclaimers in 2010 100% of total Allocations for 2010 50,000 MT 90% of total Allocations to existing allocation holders proportionately to their 2009 allocations 45,000 MT

10% set-aside for reclaimers 5,000 MT Total MT of HCFC-22 reclaimed in year 2009 as reported by all certified reclaimers (example only) 4,000 MT

Allocation to reclaimers based on number of MT each reclaimed in 2009 would be 125% if reclaimer (A) reported 500 MT in 2009, it would get allocation sin 2010 of 625 MT for 2010 (125% of 500 MT)
The consumption allowances could be distributed among the reclaimers based on the annual reports submitted to EPA of material reclaimed in the previous year. The commenters note that all recordkeeping and reporting systems already exist. [0102.1, 0105.1, 0112.1, 0129]

 Reclaimers for Environmental Benefits state that there are several equitable methods for distributing allocations to the reclaimer industry: 1) divide the designated total allocations based on the total pounds of refrigerant reclaimed by the current list of EPA reclaimers, and determine the % of the total that each represents; 2) give allocations to all current EPA reclaimers that have supported EPA for many years and have the verifiable capacity for bulk shipments of HCFC-22 for blending; 3) form a non-profit reclaimer alliance or co-operative3-27 that could determine an equitable use of allocations to reclaimers for blending given to them by the EPA. [0138]

EPA Response:EPA does not believe that allocating allowances to reclaimers in this rulemaking is necessary or the most appropriate action that EPA can take to foster greater recovery and reclamation of HCFC-22.

First, while commenters stated that providing allowances to reclaimers for HCFCs to be used in blending may foster increased recovery, EPA is concerned that it may foster unsustainable reclamation practices. Commenters stated that the blending ratios of virgin to recovered material range from 4:1 to as high as 10:1 (reflecting “blending up” recovered material from either 98.5% pure or 97.5% pure respectively, to 99.5%). The amount of virgin HCFC-22 produced or imported for all purposes, including for blending out impurities, will decrease significantly in 2015 when the overall HCFC cap declines from 25% of baseline to 10% of baseline. Production and import of virgin HCFC-22 for refrigerant uses will cease in 2020. Therefore, reclamation through separation and distillation will be more important in 2015 and absolutely necessary in 2020.

Second, allocating allowances to reclaimers would be a major change to the rule that would affect other stakeholders who have not had the opportunity to comment on the reclaimers’ suggestion. Current allowance holders would have their allocations reduced 10% under this suggestion. If EPA were to finalize such a suggestion, EPA would want to provide other stakeholders an opportunity to comment. The suggestion raises several issues that would benefit from the notice and comment process. Specifically, issuing allowances to reclaimers raises questions of who would receive allowances, what the baselines would be, and how many allowances would be allocated. Other questions about how to implement this suggestion would include whether EPA should provide additional allowances to reclaimers that currently have baseline allocations, and whether EPA should set the baseline according to the amount reclaimed, as commenters suggested, or according to the amount recovered. Furthermore, some reclaimers currently manufacture and sell niche blend refrigerants that include HCFC-22 as a component, so EPA would need a mechanism to ensure that they would use the allocation for reclamation purposes, not for continued production of these blends. Different allocation methods offer advantages and disadvantages for potential allowance holders that vary according to the specific characteristics of the stakeholder. Thus, altering the final rule to accommodate the reclaimers’ suggestion is not a simple matter. If EPA were to issue a supplemental proposal to provide an opportunity for all stakeholders to comment on these issues, the rule would likely be delayed beyond January 1, 2010. This would have a negative impact on all stakeholders who are depending on an allowance allocation for the production and import of HCFCs in 2010.

EPA believes that it can take other actions in this rule that will foster recovery and reclamation while avoiding the complications raised by the commenters’ suggestion. The same commenters that suggested allocations to reclaimers also noted that a constant allocation rate over the five control periods, as proposed, might discourage rather than foster reclamation. To avoid that, in this final rule EPA is allocating at 80% of the3-28 estimated demand in 2010 and is reducing the allocation over five years. EPA anticipates that the price of HCFC-22 will increase as allocations decrease and supply is reduced. Some of the economic constraints for recovery and reclamation will therefore loosen and more recovered material being held in inventory may be reclaimed. EPA believes that encouraging the market for recovered material in this way will be the most effective and appropriate mechanism that this current rulemaking can take to increase recovery and reclamation.

 Polar Technology LLC suggests that EPA could go final on the remaining allocations and take additional comment on the set aside approach so to not impact the goal of having the allocations in place by the 2010 deadline. [0102.1]

EPA Response:EPA does not believe that allocating allowances to reclaimers in this rulemaking is necessary or the most appropriate action that EPA can take to foster greater recovery and reclamation of HCFC-22. EPA is open to further consideration of the suggestion of providing allocations to reclaimers in future allocation rulemakings.

 Polar Technology LLC states that in considering allocating allowances to reclaimers, EPA should not simply default to the existing formula for allocating allowances because of a sense of obligation to current allowance holders, or because it is easier to administer. [0102.1]

EPA Response: EPA seeks to minimize unanticipated changes and prevent market disruptions. Of all the options, applying a uniformly smaller percentage of the existing baseline (option 1) as the method for allocating HCFC-22 and HCFC-142b allowances is the least disruptive to the current market and best ensures a continued smooth transition away from ozone-depleting substances.

 RemTec International encourages EPA to allocate a small portion of the allowances to certified reclaimers who petition the EPA and prove that they would return more reclaimed material to the market with those allowances. RemTec states that reclaimers that have not historically imported before 2003, or even before 1997, are not allowed to participate in allocations. The Rule perpetuates an earlier-created “refrigerant cartel,” of a small group of companies that control the price and supply of all R-22. EPA is effectively creating an uneven playing field by not allowing these new entrants into the allocation schedule. [0082]

EPA Response: EPA does not believe that allocating allowances to reclaimers in this rulemaking is necessary or the most appropriate action that EPA can take to foster greater recovery and reclamation of HCFC-22. EPA discusses the suggestion of providing allowances to reclaimers in more detail in the preamble. EPA is open to further consideration of the suggestion of providing allocations to reclaimers in future allocation rulemakings.

 Williams & Associates states that current stakeholders simply buy virgin product from overseas and make it available to the public for sale. This activity does nothing more3-29 than increase the wealth of those who were granted these consumption rights and paid nothing for them. The better use of these consumption rights would be to distribute these rights on a pro-rata basis to those companies that EPA legislated into business as stewards of the environment, with respect to ODS. Similarly, USA Refrigerants states that all of the virgin gas should get shipped to qualified reclaimers and separation companies first, so that they can use that gas to clean up the impurities. [0082, 0140]

EPA Response: EPA seeks to minimize unanticipated changes and prevent market disruptions. Of all the options, applying a uniformly smaller percentage of the existing baseline (option 1) as the method for allocating HCFC-22 and HCFC-142b allowances is the least disruptive to the current market and best ensures a continued smooth transition away from ozone-depleting substances. EPA does not believe that allocating allowances to reclaimers in this rulemaking is necessary or the most appropriate action that EPA can take to foster greater recovery and reclamation of HCFC-22. EPA discusses the suggestion of providing allowances to reclaimers in more detail in the preamble. EPA is open to further consideration of the suggestion of providing allocations to reclaimers in future allocation rulemakings.

Three commenters state they do not believe allocations to reclaimers are necessary.  Arkema states it is not necessary to allocate allowances to reclaimers or other new entrants. EPA need not undertake significant administrative burden of creating and enforcing any additional distribution mechanism, especially when even larger number of reclaimers would be involved and when the end result would be to encourage reclamation by dilution instead of the removal of impurities. [0111.1]

EPA Response: For the reasons discussed above and in the preamble, EPA is not establishing baselines or allocating allowances to reclaimers in this rule.

 Honeywell states that allocations of consumption allowances to reclaimers will result in greater recycling/reclamation in the marketplace for three reasons: 1) Sufficient reclamation capacity to meet greater future demand exists today; 2) Additional consumption allowances are not needed by reclaimers because virgin HCFC-22 is not required to reclaim product. Reclamation can easily be accomplished by distillation processes that do not at all require the use of virgin HCFC-22; and 3) Allocating allowances to reclaimers creates a myriad of administrative and practical problems. EPA would face difficult questions relating to the amount of allowances to allocate, to whom it should allocate those allowances, and how to prevent virgin HCFC-22 producer or imported with “Reclamation” allocation from simply being sold in the marketplace. [0118.1]

EPA Response: For the reasons discussed above and in the preamble, EPA is not establishing baselines or allocating allowances to reclaimers in this rule.

 HARDI states that EPA must do more to encourage the increased capacity of efficient refrigerant separation and distillation processes. As the supply of virgin refrigerant continues to shrink, it will be essential that the reclamation community increase its3-30 capacity without greatly increasing its demand for virgin refrigerant. This commenter does not believe that it is responsible for the EPA to alter the allowance allocation process for HCFCs or any other refrigerant, at least until the reclaimer certification process takes into account the efficiency of the reclamation process. [0117.1]

EPA Response: As discussed above and in the preamble, EPA is concerned that blendingmay be an unsustainable reclamation practice, especially as the supply of virgin HCFC22 available to blend with recovered material is reduced again in 2015.

3.4. Allocation should be reduced each year based on the projected decline in servicing need EPA received seventeen comments regarding whether allowances should be constant from 2010 to 2014 or should decrease over this time period. Thirteen commenters urge EPA to annually reduce the allocation amounts to prepare industry for the next step-down in 2015. Fixing allowances at 50,000 metric tons over all five control periods will cause the industry to be unprepared for the 90% reduction that will be mandated in 2015. Four commenters stated that the allocation amounts should remain level.  DuPont, Polar Technology LLC, Reclaimers without Allocations, North Lakes Distributing Inc, Hudson Technologies, and Reclaimers for Environmental Benefits point out that allocating 50,000 metric tons of HCFC-22 over all five control periods creates a surplus of virgin material based on EPA projections of demand. The surplus will eliminate the reclamation market because by 2013 the allocations will exceed demand. Fixing allowances for five years will have the unintended consequence of requiring a fledgling reclamation industry to make the investments to meet immediate needs only to see demand for these services shrink after the first year and all but disappear by 2013. Reclaimers cannot justify making those investments under that scenario. [0097.1, 0102.1, 0105.1, 0112, 0115.1, 0138]

EPA Response: EPA estimates the demand for HCFC-22 to service existing equipment will decline to 48,400 MT in 2013 and 43,600 MT in 2014. The proposed allocation of 50,000 MT would exceed the demand for those two years. EPA has provided a table in the final rule showing the estimated demand for 2010-2015. EPA agrees that allocating more HCFC-22 than the demand could harm the recovery and reclaim industry at exactly the time when rates of recovery and reclamation need to be increasing. EPA is finalizing an allocation that is less than demand, for the reasons discussed below and in the preamble.

 DuPont states that the key to driving recovery and reclamation of HCFC-22 is year-overyear reductions in total allowances. With such reductions there will be sufficient market demand for reclaimed HCFC-22 and reclaimers can acquire virgin HCFC-22 from existing allowance holders to mix with the lower purity material. At the same time existing allowance holders will have a strong incentive to purchase the lower purity material. [0097.1]

EPA Response: EPA is finalizing an allocation that is less than demand, for the reasons discussed below and in the preamble.3-31  Honeywell states EPA has properly proposed to allocate less than 100% of the available volume, as this will serve to heighten awareness of the need to move from the long term use of ODS and speed transition to non-ozone depleting alternatives. This commenter suggests EPA consider gradual reduction of these allocations annually between 2010 and2014 to continue to encourage recover/recycle, responsible use, and transition to nonODS alternatives. [0118.1]

EPA Response: EPA is adjusting the allocations on an annual basis to reflect the decline in demand.

 The Reclaimers for Environmental Benefits state that a linear annual reduction would provide environmental benefit by eliminating the need for production or import of new HCFCs especially when that production, along with expected reclaimed material, would far surpass the demand. Hudson Technologies notes that based upon the schedule they suggested, the total allocations over the five year period will be 199,830 metric tons, a reduction of 50,270 metric tons. This would eliminate the need to produce 50,270 metric tons of HCFC-22 and prevent more than 95,000 metric tons from being vented into the atmosphere. [0138, 0112.1]

EPA Response:EPA agrees that annual reductions to the allocation provides clear environmental benefits compared to the lead option in the proposed rule, assuming the same starting point. Over the five-year period 2010-2014, the proposed rule would have allocated 250,000 metric tons of HCFC-22. Over the same period, the final rule is allocating 203,100 MT of HCFC-22, a difference of 46,900 MT. With an ODP of .055, this is equivalent to 2,574 ODP tons. In addition, given HCFC-22 has a GWP of 1,810, this reduction would equal 84.9 million metric tons of CO2 equivalent (MMTCO2E), or the annual greenhouse gas emissions from 15.5 million passenger vehicles.

 Airgas, Polar Technology LLC, and Hudson Technologies note that a steady allocation of 50,000 MT from 2010 to 2014 fails to adhere to EPA’s stated position of having 20% of the servicing needs met through reclamation and recycling after 2010. By 2013, under EPA’s proposal, new HCFC-22 will satisfy the entire servicing demand, such that reclaimed refrigerant will not be necessary. [0094.1, 0102, 0112]

EPA Response: EPA proposed “to allocate HCFC-22 consumption allowances to meet 80 percent of the servicing need, assuming that the remaining 20 percent will be met by recovered HCFC-22 that is either recycled or reclaimed. This translates into approximately 50,000 metric tons (2,750 ODP-weighted metric tons), or approximately 72 percent of the total HCFC consumption cap for each of the control periods from 2010 through 2014.” Commenters are correct that while EPA 50,000 MT is equal to 80% of the modeled demand in 2010, it is not 80% of demand in later years.

The proposed rule took comment on the idea of increasing the expected contribution of recycled and reclaimed refrigerant for each control period by annually reducing the allocation of HCFC-22. EPA now believes that unless it were to reduce the allocations3-32 for virgin HCFC-22 between 2010 and 2014, there could be an oversupply of HCFC-22 and the contribution of recycled and reclaimed refrigerant would decrease, both in the total number of kilograms and as the proportion of overall need.

 Airgas notes that a constant Allowance level, combined with decreasing demand does not accomplish the goal of incentivizing recovery and reclamation of materials from existing banks, and thus create market reliance on reclaimed material. A constant level of Consumption Allowances from 2010 – 2014 has the following impacts: 1) It creates severe market disruption, with wildly fluctuating need for reclaimed material, especially in 2015 when the next phase-down is expected to occur; 2) It prolongs market dependence on higher than necessary levels of virgin material; and 3) It does not encourage or promote the recovery and reclamation of HCFC-22. This is illustrated in Table 6 below, which shows a scenario EPA should consider that would gradually reduce demand for virgin product and increase reliance on reclaimed product, thereby creating less market disruption and a more stable reclamation market. [0094.1]

EPA Response: EPA is finalizing an allocation that is less than demand, for the reasons discussed below and in the preamble.

Table 6: Constant allowance level compared to step-down approach HCFC-22 Expected Service Demand (K MT) 1 ConstantHCFC22 Consumption Allowance

(K MT) Reclaimed HCFC-22 Needed w/ Constant Allowances (K MT) Step-down HCFC-22 Consumption

Allowance

(K MT) Reclaimed HCFC-22 Needed

w/ Step-down Allowances (K MT) 2010 62.5 50 12.5 50 12.5
2011 57.8 50 7.8 45 12.8 2012 53.0 50 3.0 40 13.0 2013 48.3 50 0 35 13.3 2014 43.5 50 0 30 13.5 2015 38.8 25 2 13.8 25 13.8
2016 34.7 25 9.7 20 14.7
2017 30.6 25 5.6 15 15.6
2018 26.4 25 1.4 10 16.4
2019 22.3 25 0 5 17.3
2020 18.2 0 18.2 0 18.2

1Estimation using 2010/2015/2020 data from: Servicing Tail Report June 2008.
2Based on 90% of anticipated 2015 Consumption Cap (10% of HCFC baseline).

Commenters provided a number of different methods for implementing an annual reduction in allocations.  RemTec International suggests that allocations be reduced in relation to the demand line from 2011 to 2014. They recommend that allocations be set at approximately 90% of the demand line, so that reclaimers have an incentive to produce their reclaimed product and bring it to the marketplace. [0082]3-33  Airgas notes that the annual decrease in HCFC-22 consumption allowances in a stepdown approach would grow market dependence on reclaimed product from 20% in 2010 to 31% of anticipated service demand in 2014, yet keep the amount of reclaimed material relatively constant, growing at less than 2% per year from 2010 to 2014. If this model were continued through the 2015-2019 phase-down period, growth of reclaimed material would average less than 4% per year over the 10 year period. [0094.1]  DuPont believes that for the years 2011-2014, allocations for HCFC-22 should be reduced year over year toward 90% of the ODP-weighted HCFC consumption cap in 2015. [0097.1]  Polar Technology, LLC, Reclaimers without Allocations, and ICOR International suggest the approach presented in Table 7 below: [0102.1, 105.1, 0129]  Arkema recommends that annual allowances of HCFC-22 should start at 50,000 metric tons, as proposed, and thereafter should decline linearly during the period 2011 to 2014. The total quantity of allowances should be at least 20 percent less than the projected servicing demand. [111.1]  Hudson Technologies states that a gradual reduction in total allowances will require only a modest 2% per year growth in reclamation after the initial 12,500 metric tons has been achieved. [0112.1]

Table 7: EPA’s Proposed and Commenters’ Recommended HCFC-22 Allocations 2010 2011 2012 2013 2014 2015 Total Servicing Tail Demand (EPA Estimate) 62,500 57,900 53,200 48,400 43,600 38,800 EPA’s proposed consumption allocation 50,000 50,000 50,000 50,000 50,000 NA Hudson’s recommended consumption allocation* 50,000 44,988 39,976 34,964 29,902 24,938 DuPont’s recommended consumption allocation 50,000 45,542 41,084 36,626 32,168 Polar/ICOR’s recommended consumption allocation 50,000 45,000 40,000 35,000 30,000 Hudson’s estimate of reclaimed product needed under proposal 12,500 7,760 3,020 (1,720) (6,460) 13,862 Reclaimed product needed under Hudson’s approach 12,500 12,772 13,044 13,316 13,638 13,862 Reclaimed product needed under ICOR’s approach 12,500 12,760 13,020 13,280 13,800 * In a supplemental comment, Hudson states that the 2008 reclaim numbers released after the close of the comment period support a reduced allocation amount from 2010-2014: 46,875, 42,488, 38,100, 33,713, 29,326.

EPA Response: Commenters present EPA with numerous methods for annually reducing the allocation levels. Because the primary benefit of annually reducing the allocation is to ensure demand in 2015 is met through greater recovery and reclamation, EPA believes that it is appropriate to base the allocation on that goal. In 2015, EPA estimates demand of HCFC-22 at 38,800 MT. Were the allocations to consist entirely of HCFC-22, the cap would limit the 2015 HCFC-22 allocation to only 27,709 MT, a difference of 11,091 MT that would have to be made up with recovered material. Furthermore, it is likely that the allocation in 2015 will not consist entirely of HCFC-22 as EPA will need to reserve room under the cap for other HCFCs, similar to the approach EPA is taking in this rule for the 2010-2014 control periods.

EPA believes it is appropriate to establish an annual step-down such that the amount of total demand to be met from recovered HCFC-22 will equal 12,500 MT each year, as that is the amount EPA proposed to be met in 2010 and it is approximately the amount that will be needed to meet the servicing demand in 2015. Under this approach, the3-34 allocations would equal 50,000 MT in 2010, 45,400 MT in 2011, 40,700 MT in 2012, 35,900 MT in 2013, and 31,100 MT in 2014. These values, shown in the table below, are derived by subtracting 12,500 MT from the estimated demand each year. EPA will not issue allowances for 2015 and beyond until a future rulemaking but extends the table to 2015 to show the estimated demand for that year and the amount of recovered material that must be used to meet the demand at that date, assuming the allocation in 2015 consists entirely of HCFC-22 and does not include other HCFCs.

This annual stepdown lies in the middle of the ranges suggested by commenters. As the total demand decreases, maintaining the supply of recovered HCFCs at a constant level results in recovered material comprising a greater proportion of the total demand each year. Under this approach, the percentage of the total need to be met with reclaimed material will rise from 20% to 29% of total demand in 2014, though the total amount of reclaimed material supplied remains at 12,500 MT for all five years. EPA believes this is appropriate as it facilitates meeting the demand in 2015, of which at least 29% must be met with recovered material.

2010 2011 2012 2013 2014 2015

Total Servicing Tail Demand (EPA Estimate) 62,500 57,900 53,200 48,400 43,600 38,800 EPA’s final consumption allocation 50,000 45,500 40,700 35,900 31,100 NA Reclaimed product needed under final rule 12,500 12,500 12,500 12,500 12,500 11,091

 Solvay Chemicals believes that if EPA reduces the allocation annually, it should do so within a modest band that does not decrease the total quantity of allowances available over the five control periods when it issues the Final Rule. [0106.1]

EPA Response:EPA believes that such an approach would negate many of the benefits of annually reducing the allocations, including easing the transition to the 2015 control period and providing an environmental benefit. To implement the suggestion, the allocation would have to equal demand in 2010, which would not create any impetus for reclamation in that year, and be 84% of demand in 2014. EPA believes that meeting 20% of demand with used material in 2010 is feasible and that the Agency should not wait until 2014 to approach that goal.

 HARDI urges EPA to issue annual servicing need forecasts should the Agency establish annual step downs in the allocation. HARDI states it has not seen enough detailed data on which 2011, 2012, and 2013 caps could be adequately established. [0117.1]

EPA Response:The Servicing Tail Report accompanying this rule contains the most recent servicing need estimates. Unlike previous drafts, this final version provides servicing demand estimates for each year between 2010-2015, whereas the previous report provided only 2010 and 2015.

The Vintaging Model is continually updated to improve assumptions and modeling techniques and refine inputs based on information received from these sources. EPA shares the revised assumptions and results of model improvements with industry through3-35 publications such as the Servicing Tail Report as well as through presentations, such as those given at the April 2007 Spring Meetings of AHRI.

 Trane/Ingersoll-Rand supports the intention and concept of an accelerated phase-down but urges that it be implemented more gradually than other parties suggested. This commenter suggests EPA allocate 88% of estimated demand in 2010 in order to give the reclamation sector time to increase capacity. The commenter also suggests allocating fewer allowances in later years, with allocations at 72% of demand in 2014 and 68% in 2015. [0099.1]

EPA Response:Based on the comments received, EPA believes that a 20% reclamation and recycling rate is attainable in 2010 and that reclamation capacity doesn’t need additional time.

 National Refrigerants Inc., Coolgas/Dynatemp, and Atair Partners state that EPA should not reduce the allocation amounts from what was proposed. These commenters state thatEPA should ensure that a sufficient number of allowances are allocated for the costeffective service of existing equipment. Meeting demand is essential for a smooth transition. [0110.1, 0113.1, 0128]

EPA Response: EPA agrees that meeting demand is essential for a smooth transition. EPA believes that demand can be met through a combination of virgin HCFC-22 and recovered HCFC-22 that has either been reclaimed or recycled. EPA disagrees that it needs to maintain a constant allocation to ensure that enough allowances are allocated to meet demand given that demand decreases over the five control periods. EPA is concerned that without an annual reduction in the allocations, there would not be sufficient recycling and reclamation to meet demand in 2015, which would be contrary to EPA’s goal of seeking a smooth transition.

 Coolgas/Dynatemp supports maintaining an allocation at 50,000 MT for all five control periods. An annual stepdown was not discussed at the June 18, 2008, stakeholder meeting or in the proposed rule. This commenter states that there is no basis for a linear stepdown in the Montreal Protocol, the Clean Air Act, or EPA’s implementing regulations. It would also be a departure from past practice. [0113.1]

EPA Response:EPA believes that moving from a constant allocation of 50,000 MT per year for five years to an annually decreasing allocation does not present notice and comment issues. The proposed rule discussed the idea of increasing the expected contribution of recycled and reclaimed refrigerant for each control period by annually reducing the allocation of HCFC-22. “EPA has considered, but is proposing to reject, using an increasing number to represent the contribution of recycled and reclaimed refrigerant for each of the control periods from 2010–2014 and thus simultaneously reducing the amount of allowances needed for HCFC–22. EPA believes for these control periods, maintaining a constant number of allowances would reduce the overall burden for the allowance holders and would ease business practices.” (73 FR 78691) Though a3-36 year-by-year reduction was not discussed at the June 18, 2008, stakeholder meeting, it was raised in comments by a variety of stakeholders.

EPA has considerable discretion in designing mechanisms to ensure that the U.S. willmeet its commitments under the Montreal Protocol. For example, EPA chose a chemicalby-chemical approach to implement the Montreal Protocol’s stepwise phaseout of the basket of HCFCs. In addition, EPA introduced the class II allowance system in part to ensure that the U.S. would be able to meet the phaseout steps already incorporated into EPA’s regulations. Similarly, EPA has determined that an annually decreasing allocation is the best mechanism to ensure that the U.S. can meet the 2015 phasedown step while maintaining sufficient supply of HCFC-22 for authorized uses. The Clean Air Act does not prohibit the use of annually decreasing allocations to meet either the phaseout schedule set forth in section 605 or an accelerated schedule adopted pursuant to section 606. In this instance, EPA is implementing the accelerated schedule reflected in 40 CFR 82.16

3.5. Facilitating an effort to improve reclaim (i.e., contractor participation) and increase the 20% rate Commenters provide the following comments on EPA facilitating an effort to improve reclamation.  USA Refrigerants, NRI, Arkema, and the Alliance for Responsible Atmospheric Policy state that EPA should implement a recycler certification program that includes stringent recordkeeping and reporting requirements. Certification would help purchasers verify that they are dealing with persons qualified to handle used HCFCs and would help EPA prevent impure or smuggled HCFC-22 from entering the market as reclaimed. [0082, 0110.1, 0111.1, 0120.1]

EPA Response:EPA believes that this issue is beyond the scope of this rulemaking, however, EPA has previously considered a third party certification requirement for reclaimers (July 24, 2003; 68 FR 43786). The Agency may consider changes to the reclamation requirements including, reconsideration of a third party certification program under different authority (i.e., Section 608 of Title VI of the CAA).

 NRI encourages EPA to promote education to contractors and technicians about the requirements and necessity to recover refrigerant. The Alliance states that a significant factor impacting the supply of reclaimed refrigerant is the ability of those who service and maintain equipment to conduct operating practices that prevent venting and allow recovery of refrigerants for delivery to reclaimers. The commenter believes that EPA should promote comprehensive education and training of servicers of equipment. [0110.1, 0120.1]

EPA Response: EPA believes that this issue is beyond the scope of this rulemaking. However, EPA requires contractors and technicians to be certified and part of that certification test is an understanding of the Section 608 of the Clean Air Act prohibition of venting refrigerant.3-37  Polar Technology, LLC, Reclaimers without Allocations, NRI, and the Alliance encourage EPA enforce Clean Air Act prohibitions against intentional venting of refrigerant during service/manufacture of equipment. One commenter suggests that EPA hold a press conference to announce that it intends to implement field audits for the purpose of enforcing Section 608 of the CAA. The press conference by itself would provide enough momentum for changing views on recovery. A publicized violation would even do more good. [0102.1, 0105.1, 0110.1, 0120.1]

EPA Response: EPA continues to enforce its regulations that prohibit venting and require the recapture of used refrigerants. More information on EPA’s Title VI enforcement efforts can be found at http://www.epa.gov/ozone/enforce/index.html

.
 ICOR International states the reclaim industry has been able to develop many programs which have provided service technicians with an outlet for recovered refrigerant. The commenter also notes that most, if not all, of the Certified Reclamation companies have invested a great deal of money, business resources and man hours based on Section 608 of the CAA and numerous Servicing Tail Reports which have continually stated that the industry would have to depend on recovered refrigerants in order to satisfy demand. The commenter notes that after January 1, 2015, the HVAC/R industry will be faced with an inability to satisfy market demand for HCFC-22 through the use of virgin product alone. At that time, the commenter states that the reclamation industry will not be able to pull out the equipment and start delivering ARI-700 product to fill the gap between supply and demand. ICOR International recommends a Recover Network be developed and maintained. Certified reclaimers must educate their customers in the value of recovering refrigerant efficiently as recovery will enhance the overall profitability of their company. [0129]

EPA Response: EPA agrees that certified reclaimers must educate their customers of the value of recovered refrigerant. EPA also supports the concept of a recovery network to increase the amount of recovered HCFC-22. EPA believes that the allocation amounts in this rule will facilitate the transition to the required levels in 2015.

 DuPont requested that EPA clarify that the mixing of virgin HCFC-22 with reclaimed HCFC-22 not be considered a prohibited “use” of that virgin HCFC-22 under Section 605 of the Clean Air Act. Further, DuPont commented that use of the resulting HCFC-22 be limited only to those permitted uses of virgin HCFC-22. Without such clarification there would be a strong incentive to not recover HCFC-22 that cannot be easily purified since it would need to be destroyed and decrease the amount of reclaimed HCFC-22 available to meet market demand. [0097.1]

EPA Response: EPA clarifies that the blending of virgin HCFC-22 with reclaimed but cross-contaminated HCFC-22 is not a prohibited use of virgin material under Section605. EPA disagrees with DuPont that the resulting reclaimed HCFC-22 that meets ARI700 should be limited to servicing existing equipment. EPA believes that such material has been used, recovered, or recycled per Section 605(a) and may thus be used in any3-38 permissible use under Section 605, which would include use in newly manufactured appliances.

3.6. Servicing Tail Report Clarifications and Potential Modifications
 DuPont states that they believe the information available to EPA in the Servicing Tail report provides an adequate basis to reasonably estimate servicing needs for 2010-2014. [0097.1]

 HARDI states that the 2008 Servicing Tail report’s estimates of a decrease in post-2010 HCFC-22 demand of approximately 6,100 metric tons are unjustified, even if leak rate regulations are made more stringent for commercial applications. This commenter believes there might also be clerical errors in the 2008 report:

 HCFC-22 chilling units expected to be in service in 2010 increase by 4,295% between the 2006 and 2008 reports

 2010 unitary projections for HCFC-22 retail food refrigeration equipment increases 72% between the two most recent reports

 There is a drop of over two million dehumidifiers projected to be in service in 2010, which is the only significant projected equipment reduction and seems questionable at best. [0117.1]

EPA Response: The decrease in projected R-22 demand of almost 6,100 metric tons between the September 2006 and June 2008 reports is a direct result of updates made to EPA’s Vintaging Model (VM) based on industry and stakeholder input. These changes are part of EPA’s ongoing effort to improve modeling assumptions. Model assumptions and results (such as consumption and emissions estimates) from major air-conditioningand refrigeration end-uses were presented at the April 2007 spring meetings of the AirConditioning and Refrigeration Institute (AHRI). Revisions were made to the VM based on comments received on those presentations. Revised model output was subsequently used to update the June 2008 report.

Specifically, the VM was updated to reflect slight increases in R-22 demand for chillers, cold storage, and industrial process refrigeration (IPR), and to reflect a decrease in R-22 demand for dehumidifiers and a significant decrease in R-22 demand for retail food end uses. Additionally, the retail food sector in the VM was updated to reflect information presented in the “2006 Report of the Refrigeration, Air Conditioning and Heat Pumps Technical Options Committee: 2006 Assessment,” issued in January 2007 by the United Nations Environment Programme (UNEP). As part of this update, the VM’s “large retail food” end-use, which represents supermarkets, was broken out into two end-uses to reflect the usage of both R-12 and R-502 as initial ODS’s used within large retail food equipment. In addition, stocks and growth rates for all retail food end-uses were altered, and leak rates and charge sizes were decreased in small and medium retail food end-uses, causing a decrease in overall R-22 demand.

The increase in R-22 chiller units between the 2006 and 2008 reports is not a clerical error; it is the result of the addition of new chiller end-uses into the VM and resulting4-39analysis. Prior to 2007, the VM contained five chiller end-uses (R-11, R-12, R-114, R500, and R-22). These end-uses all had relatively large charge sizes and were modeled under a single category of “centrifugal chillers.” Through further research, ICF determined that the VM did not include smaller, positive displacement chillers. As a result, three new positive displacement chiller end-uses were added to the VM. Because the charge sizes of centrifugal and positive displacement are so significantly different, the total quantity of refrigerant remains relatively unaffected in making this change to the modeling despite the enormous jump in the number of units.

Updates made to assumptions for the retail food end-uses in the VM resulted in an increase in equipment. However, despite the increase in units of equipment, there was also a decrease in stocks, growth rates, leak rates, and charge sizes which caused a decrease in R-22 demand post-2010.

Finally, conversations with industry indicated that dehumidifier projections in the September 2006 report were too high. The number of dehumidifiers was decreased to reflect historical data provided by the Association of Home Appliance Manufacturers (AHAM), including data on shipments of new units from theAHAM Trends and Forecasts Report (AHAM 2005) and data on existing units from the 2003 Major Appliance Fact Book (AHAM 2003).



### 4. ALLOCATIONS OF ALLOWANCES OF HCFCs OTHER THAN HCFC-22 AND HCFC-142b Nine commenters submitted comments in response to EPA’s request for comments regarding allocations of allowances of HCFCs other than HCFC-22 and HCFC-142b. Comments were either in support of or opposed to EPA’s proposed baseline and allocation setting approach.

4.1. Support for EPA’s proposed baselines and allocations for the “other” HCFCs 4.2. Opposition to EPA’s proposed baselines and allocations for the “other” HCFCs

Count Commenter Organization Document ID No 1 Tony Digmanese York/Johnson Controls EPA-HQ-OAR-2007-0496-0074 2 Mack McFarland DuPont EPA-HQ-OAR-2007-0496-0097.1 3 John M. Mandyck Carrier EPA-HQ-OAR-2008-0496-0098.1 4 Jeff Moe Trane/Ingersoll-Rand EPA-HQ-OAR-2008-0496-0099.1 5 Julian de Bullet McQuay EPA-HQ-OAR-2008-0496-0100.1 6 Maureen Beatty National Refrigerants, Inc. EPA-HQ-OAR-2007-0496-0110.1 7 Emanuel (Manny) Katz Arkema EPA-HQ-OAR-2007-0496-0111.1 8 Steven H. Bernhardt Honeywell EPA-HQ-OAR-2008-0496-0118.1 9 Paul Schoonover Perfect Technology Center EPA-HQ-OAR-2008-0496-0134

4.1. Support for EPA’s proposed baselines and allocations for the “other” HCFCs
 DuPont supports EPA’s proposal to establish and apportion baselines on a chemical-bychemical and entity-by-entity basis for HCFC–123, HCFC–124, HCFC–225ca, and HCFC–225cb and to allocate a percentage of those baselines for the 2010–2014 control periods. This commenter believes it is important to establish baselines for all HCFCs in4-40 this rule to provide adequate planning time for industry to adjust to the phase-down and - out and to ensure the United States meets its Montreal Protocol obligations. Establishing the chemical-by-chemical baselines using each company’s highest reported consumption and production for 2005– 2007 is consistent with the procedure already successfully used by the EPA to establish chemical-by-chemical baselines for HCFC-141b, HCFC-22 and HCFC-142b. [0097.1]  Trane/Ingersoll-Rand supports the modest growth allowance proposed by EPA for HCFC-123, which is consistent with the characteristics of this refrigerant and with the characteristics of the equipment which uses this refrigerant. The volume allowed appears sufficient to meet the needs for on-going OEM demand along with demand for service of existing equipment. [0099.1]  McQuay notes that it is necessary for EPA to establish baselines for the four additional HCFCs addressed in the proposal for which EPA has not previously set baselines (HCFC-123, -124, -225ca, -225cb) in order to insure that the United States does not exceed the 25% HCFC cap under the September 2007 Montreal Protocol Adjustment. [0100.1]  National Refrigerants, Inc. (NRI) notes that with regard to HCFC-123 and HCFC-124, it fully supports the allocation of baseline allowances for these substances that it has received, and supports the other company-specific allowance allocations for these low ozone depleting potential HCFCs. [0110.1]

 Honeywell notes that the allocation approach for these low volume, low-ODP HCFCs is appropriate and supports EPA’s proposed actions in this area. [118.1]

EPA Response:EPA is establishing a baseline and apportioning baseline allowances for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb. EPA discusses this in more detail in the preamble.

 Arkema adds that they believe that the reserve equal to 23 percent of consumption allowances and 32 percent of production allowances should be permanently retired. If EPA continues to hold the reserve, the market will always look to the Agency as the lender of last resort instead of seriously pursuing recycling. [0111.1]

EPA Response:EPA disagrees that the unallocated room under that cap constitutes a set of allowances that can be “retired”; it simply represents the differential between the cap and the amount of allowances allocated. As stated earlier, room under the cap provides for potential market penetration of other HCFCs that do not have allocations. Furthermore, the Agency is not maintaining a “reserve” to be allocated at a future time but rather is maintaining an accounting of the total U.S. HCFC production and consumption to ensure compliance with the HCFC cap. EPA does not intend to allocate the extra amount under the cap, except under unforeseen extenuating circumstances, because it is important to promote greater use of recycled and reclaimed material in anticipation of the next phasedown step.4-41 4.2. Opposition to EPA’s proposed baselines and allocations for the “other” HCFCs
 York/Johnson Controls and McQuay note that allocations of 72% for HCFC-22 are inadequate, while 27% for "other" HCFCs seems excessive as HCFC-22 will have the greatest servicing needs and projected shortages. [0074, 0100.1]

EPA Response:EPA agrees that the greatest need for all HCFC in the future will be for servicing existing HCFC-22 equipment. However, as discussed in the preamble, EPA carefully analyzed such needs through multiple iterations of its Servicing Tail report to determine an allocation of HCFC-22 necessary to avoid shortages. EPA believes that it is appropriate to allocate HCFC-22 based on demand (and considering the role of reclamation) because this will help the transition to the 2015 phase-down step, when the cap is reduced from 25% to 10% of baseline. While EPA is not “reserving” room under the cap for these other HCFCs, the effect of allocating allowances based on need is additional room under the aggregate HCFC cap for any HCFCs that EPA has not specifically included in §§82.16, 82.18, and 82.19.

 Carrier and McQuay disagree with EPA’s proposal to establish the HCFC-123 baseline as the highest production between 2005 and 2007. Research and experience of McQuay indicates that the number of chillers using HCFC-123 as the refrigerant has been steadily declining over the last several years. Therefore, McQuay believes it is more accurate and reflective of the chiller market trends to select the lowest reported data from the 2005- 2007 data reporting periods to set the HCFC-123 baseline. Carrier urges EPA to calculate the baseline using calendar year 2008, which reflects the latest data and better reflects the market. [0098.1, 0100.1]

EPA Response:EPA disagrees with these alternative methods for establishing the baseline for HCFC-123. EPA does not support choosing the lowest year’s reported data because EPA is not seeking to actively restrict the market for HCFC-123 in this rule. EPA does not wish to prejudge the market for HCFC-123, be it increasing or decreasing. EPA also does not believe that selecting the 2008 year is appropriate because EPA’s experience has been that a single year’s data may actually not be reflective of the market, even if the date is closer to the present. For example, the economic conditions in 2008 may have affected production for that year in a way that is not reflective of the market in 2010 and beyond. Also, as mentioned above, the entities receiving allowances have very different production and import histories and no one year is representative for all companies. For these reasons, EPA is establishing the HCFC-123 production and consumption baselines based on an entity’s highest reported consumption and production for the 2005-2007 control periods.

 Carrier and McQuay disagree with EPA’s proposed allocation formula of 125% of the HCFC-123 baseline. These commenters state that contrary to EPA’s belief that market expansion is possible during 2010-2014 for HCFC-123 (based on some stakeholders), that based on current chiller market trends, this proposed allocation amount is excessively large. Carrier states that the proposed allocation rule should encourage the transition to non-ozone depleting substances by accelerating the phase out of HCFC-123. Carrier states that 25% market growth for chillers is unrealistic when the building market is in4-42 decline today. In October 2008, McGraw-Hill Construction Research & Analytics forecasted a 5% decline in new nonresidential construction from 2007 to 2013. Since that time, the construction market has worsened with the global recession. This commenter suggests the following allocation schedule for HCFC-123 (see  Table 8): Table 8: Suggested HCFC-123 Allocation Schedule YEAR ALLOCATION

2008 Baseline established 2010 80% of baseline allocated 2011 70% of baseline allocated 2012 50% of baseline allocated 2013 20% of baseline allocated 2014 10% of baseline allocated 2015 5% of baseline allocated McQuay believes the maximum justifiable percentage of the HCFC-123 baseline for the 2010-2014 control periods is 80%. The commenter states that by establishing baseline allocations for HCFC-123 which reflect realistic chiller market projections will reduce the possibility of excessive HCFC-123 production. York/Johnson Controls notes that an allocation of 125% of baseline is surprising and excessive, as they project decreasing demands with the ongoing phase-down of all HCFCs. Demand for HCFC-123 and -124 are gradually decreasing, while HCFC-225ca/cb are being replaced. The allocation should at most be in the 80% to 90% range, with the balance allocated to HCFC-22 to meet pending shortages. [0074, 0098.1, 0100.1]

EPA Response:EPA disagrees that allocating more than 100% of baseline for HCFC123 will artificially increase demand for this compound. Currently, there is no limit on HCFC-123 production or consumption. EPA does not believe that placing such a limit in this rule would artificially increase demand for this compound. As discussed above, EPA chose more than 100% to allow for normal growth in the market, not to impose any constraints or confer any benefits on the market. If the full amount of allowances is not needed, then EPA expects that the excess allowances may go unused or be transferred for other HCFCs. Second, under current domestic regulations, HCFC-123 can be produced or imported for new appliances until 2020 (40 CFR 82.16(d)). Third, EPA does not believe that the continued use of HCFC-123 at this point will threaten U.S. compliance with the overall HCFC cap. Therefore, the Agency disagrees that it is necessary to accelerate that schedule in this rule.

 York/Johnson Controls notes that the proposed rule lists annual production and import allocation for HCFC-123 at 3 million kg. The commenter believes this quantity is wayover the EPA projected demand (presented at the June Stakeholders meeting) for HCFC123 at 24 ODP tons (1.2 million kg) by 2010. The commenter suggests EPA may wish to take a look at this disparity. The commenter believes EPA's June projection is closer to market reality, and probably somewhat over-stated based on current new HCFC-123 chiller sold and installed. Carrier believes that EPA has severely overestimated the need for HCFC-123 by proposing allowances at three million kilograms. Using industry shipment data for large water cooled chillers, they estimate annual capacity at 2,154,000 full load tons. If one makes the assumption that HCFC-123 is 45% of the large water4-43 cooled chiller market and that there are 1.5 pounds of refrigerant charge per ton of capacity, new HCFC-123 chillers would require only 691,786 kg of charge. The proposed EPA allowances appear to be more than four times the requirement for new equipment. The proposed allowances also appear especially high considering that the manufacturer of HCFC-123 chillers claims leak rates below 1%. This commenter does not believe that data for new equipment or service supports allowances at three million kilograms. The commenter recommends that EPA significantly reduce the proposed allowances for HCFC-123 to reflect the above points. [0074, 0098.1]

EPA Response:While EPA did not use a straight needs-based analysis for allocating HCFC-123, EPA did review the HCFC-123 needs analysis in the June 2008 Servicing Tail report and found that the source data used to project needs were not the same as those used to establish the allocation of HCFC-123. EPA has issued a final version of the Servicing Tail report (accessible in the docket to this action and at http://www.epa.gov/ozone). In any case, EPA has not chosen to allocate HCFC-123, HCFC-124, HCFC-225ca, or HCFC-225cb at the estimated need as shown in the Servicing Tail report. Instead, to allow for market growth as previously discussed, EPA is setting allocation baselines in the same manner for all four of these low-ODP HCFCs. Namely, EPA is setting each company’s baseline at the highest consumption or production in the years 2005-2007, and allocating 125% of those baselines to avoid interfering with the existing market.

 Carrier urges EPA to reconsider its generalization that it is too early to expect reclamation of HCFC-123. By the commenter’s estimates, HCFC-123 chillers have been in the market for nearly 20 years, a time period that in some cases exceeds the life of a chiller. Therefore, EPA should expect and require full compliance with refrigerant reclamation and recycling laws that already exist. Accordingly, the commenter recommends that EPA require HCFC-123 reclamation to account for 20% of market demand for initial allocation purposes to align with the proposed allocation formula for HCFC-22. [0098.1]

EPA Response:Given that in many cases these appliances have expected lifespans of more than 20 years, it will be some time before significant amounts of HCFC-123 are recovered and recycled or reclaimed. In future rulemakings, however, EPA may estimate the amount of the total need for HCFC-123 that can be met through recycling and reclamation. As the HCFC-123 market matures, the refrigerant recovery, recycling, and reclamation requirements in 40 CFR part 82 subpart F will result in a greater amount of reusable HCFC-123.

 Perfect Technology Center, LP requests to qualify to be allocated an allowance for the 2010-2014 control periods to import and consume HCFC-123. [0134]

EPA Response:EPA is adding Perfect Technology Center, LP (doing business as Perfect Cycle) to the list of companies being allocated baselines for the other HCFCs. Perfect Technology Center, LP had imported HCFC-123 during the time period used to set the5-44 baseline but its reporting forms – although submitted in compliance with EPA regulations – were misdirected and the information was not included in EPA’s baseline calculations.



### 5. 605(A) USE RESTRICTION Twenty-four commenters submitted 25 comments regarding Section EPA’s authority and the 605(a): Restrictions of use of class II substances. Section 605(a) phases out production and consumption and restricts the use of HCFCs in accordance with the schedule set forth in that section. Comments were in reference to four main topics:

5.1. “Manufactured” clarification 5.2. Accelerating the 605A use restriction under the authority of Section 606 5.3. Introducing HCFCs into Interstate Commerce 5.4. Niche applications for HCFC-22 and HCFC-142b

Count Commenter Organization Document ID No 1 Michael Welch Welch Heating and Air EPA-HQ-OAR-2008-0496-0079 2 David Swift Goodman Air Conditioning and Heating EPA-HQ-OAR-2008-0496-0080.2

3 Karim Amrane Air-Conditioning, Heating, and Refrigeration Institute (Public Hearing) EPA-HQ-OAR-2008-0496-0082

4 Tom Roberts CFM Distributors (Public Hearing) EPA-HQ-OAR-2008-0496-0082 5 Jim Crawford Trane/Ingersoll-Rand (Public Hearing) EPA-HQ-OAR-2008-0496-0082 6 James Burke USA Refrigerants (Public Hearing) EPA-HQ-OAR-2008-0496-0082 7 Robert Wilkins Danfoss EPA-HQ-OAR-2008-0496-0084.1 8 Charlie A. Barefoot Jr. Dometic EPA-HQ-OAR-2008-0496-0085.1

9 Kevin Messner Association of Home Appliance Manufacturers EPA-HQ-OAR-2008-0496-0089

10 Shawne C. McGibbon U.S. Small Business Administration’s Office of Advocacy EPA-HQ-OAR-2007-0496-0090.1

11 David A. Amrhein Ascent Healthcare Solutions, Inc. EPA-HQ-OAR-2008-0496-0095.1 12 Cary Rayment Alcon Laboratories, Inc. EPA-HQ-OAR-2008-0496-0096.1 13 Mack McFarland DuPont EPA-HQ-OAR-2007-0496-0097.1 14 Jeff Moe Trane/Ingersoll-Rand EPA-HQ-OAR-2008-0496-0099.1 15 Diran Yegparian Mondy Global, Inc. EPA-HQ-OAR-2008-0496-0101.1 16 Warren L. Beeton Emerson Climate Technologies EPA-HQ-OAR-2008-0496-0104.1 17 Maureen Beatty National Refrigerants, Inc. EPA-HQ-OAR-2008-0496-0110.1 18 Emanuel (Manny) Katz Arkema EPA-HQ-OAR-2008-0496-0111.1

19 Talbot H. Gee Heating, Airconditioning & Refrigeration Distributors International EPA-HQ-OAR-2007-0496-0117.1

20 Steven Bernhardt Honeywell EPA-HQ-OAR-2008-0496-0118.1

21 Karim Amrane Air-Conditioning, Heating, and Refrigeration Institute EPA-HQ-OAR-2008-0496-0119.1

22 David Stirpe The Alliance for Responsible Atmospheric Policy EPA-HQ-OAR-2008-0496-0120.1

23 Charlie McCrudden Air Conditioning Contractors of America EPA-HQ-OAR-2008-0496-0122.1

24 Cos Caronna and Steve Maddox Johnson Controls EPA-HQ-OAR-2007-0496-0126.1

25 Kyle Gilley Lennox International EPA-HQ-OAR-2008-0496-0127.1 26 Karen B. Meyers Rheem EPA-HQ-OAR-2007-0496-0131.1 27 Sarah Meyer American Medical Systems EPA-HQ-OAR-2008-0496-0141 28 Roger Wertheimer The Spectranetics Corporation EPA-HQ-OAR-2008-0496-01425-45 5.1. “Manufactured” Clarification Seventeen commenters requested clarification regarding EPA’s definition of “manufactured.” These commenters expressed concern that EPA’s definition of “manufactured,” as they interpreted it in the proposed rule, will limit their ability to sell stockpiled inventory after January 1, 2010.  Goodman, Dometic, U.S. Small Business Administration’s Office of Advocacy, National Refrigerants Inc (NRI), Arkema, HARDI, AHRI, ACCA, and Lennox International commented that they believed that products (components and appliances) should be allowed to continue to be produced through December 31, 2009. The proposed rule’s interpretation of the term “manufactured” instead would have had the effect of banning installation, thereby accelerating the use ban in a way that would strand inventory that has been produced before January 1, 2010, but not installed. These commenters recommended that EPA use a more conventional definition such that an appliance be deemed to be “manufactured” when the product leaves the manufacturer’s final assembly process, is packaged for shipment and placed into initial inventory. Commenters indicated that this simplification and clarification will significantly increase compliance with the final rule and enable EPA to use this definition of “manufactured” to enforce a recommended ban on the production of equipment requiring HCFC-22 after January 1, 2010. [0080.1, 0085.1, 0090.1, 0131.1, 0110.1, 0111.1, 0117.1, 0119.1, 0122.1, 0127.1]

EPA Response: EPA is providing the following definition for “manufactured:”

Manufactured, for an appliance, means the date upon which the appliance’s refrigerant circuit is complete, the appliance can function, the appliance holds a full refrigerant charge, and the appliance is ready for use for its intended purposes; and for a pre-charged appliance component, means the date that such component is completely produced by the original equipment manufacture, charged with refrigerant, and is ready for initial sale or distribution in interstate

commerce.
The commenters’ concern arises from how the two terms “appliance” and “manufacture” apply together. Small appliances, i.e., devices that have a completed refrigerant circuit, are fully charged, and are functional and ready for use at the time they leave the factory are “manufactured” at the time they are placed into initial inventory at the factory and are shipped as complete “appliances” rather than as a set of components. In contrast, appliances used in commercial refrigeration and industrial process refrigeration are not placed in inventory or shipped as complete “appliances.” Rather, they are assembled, the refrigerant loop is completed, the full and proper charge is provided and the system is ready for its intended purpose on-site. In such cases, OEMs are manufacturing components and not appliances in their factory. The point of manufacture of the commercial or industrial process refrigeration appliance occurs after the components have left the factory. EPA has consistently stated its interpretation that individual components such as condensers, evaporators, compressors, line sets, and valves in themselves do not constitute an appliance. In an earlier rulemaking addressing the sales of pre-charged appliance components, the Agency stated that pre-charged components are parts of but “are clearly not appliances” (November 9, 1994; 59 FR 55912). In this5-46 HCFC allocation rule, EPA is clarifying that the appliance itself is not manufactured until the component parts, whether pre-charged or not, are fully installed and charged.

In response to stakeholders comments, EPA is establishing a grandfathering clause where appliances are manufactured on site rather than in a factory. Specifically, EPA’s is allowing appliances containing HCFC-22, HCFC-142b, or blends thereof to be “manufactured” onsite for a particular project between January 1, 2010, and December 31, 2011, if their components are made prior to January 1, 2010, and specified for use at that project under a building permit or a binding contract dated before January 1, 2010.

 Welch Heating and Air states that EPA should allow manufacturing to continue through the end of 2009, and allow the country to absorb that inventory through 2010. A compromise may be to require that there can be no more HCFC-22 equipment sold after Dec. 31, 2010. CFM Distributors states that they maintain inventories that fulfill market demands, which necessitates immediate replacement of failed systems and major components like condensing units. Because they have enough inventory and cannot forecast the precise demand for each model, type, and variety, they often carry over 20% of their inventory. The company has no incentive to stockpile HCFC equipment versus HFC. They state that EPA should allow the sell-through of existing inventory. NRI comments that EPA’s definition could force technicians to abandon the product as unusable. This result would effectively terminate the split system market for any unit actually manufactured prior to January 1, 2010, at a tremendous cost to companies with existing inventories of split systems and their components and render it illegal to complete the installation of a system that is only partially installed as of January 1, 2010. The Alliance requests that the final rule allow for the sale and installation of components, whether charged or uncharged, that have been placed in inventory prior to Jan 1, 2010, for both replacement and certain split-system new installations. [0079, 0082, 0110.1, 0120.1]

EPA Response: EPA is allowing for the continued manufacture of appliances and components through 2009.

Sale and distribution of appliances pre-charged with HCFC-22 or HCFC-142b is allowed for self-contained, factory-charged appliances such as pre-charged window units, packaged terminal air conditioners (PTACs), and some commercial refrigeration units, if manufactured before January 1, 2010.

Sale and distribution of appliance components pre-charged with HCFC-22 or HCFC142b is allowed if the components (e.g. condensing units, line sets, and coils that are charged with refrigerant) were manufactured before January 1, 2010. Pre-charged components manufactured before January 1, 2010, may be used to service appliances manufactured before January 1, 2010, but may not be assembled to create new appliances unless there is nouse of virgin HCFC-22 or HCFC-142b in the components or otherwise.

 SBA disagrees with EPA’s proposed interpretation of when air-conditioning and refrigeration appliances and components are considered “manufactured.” SBA asks EPA5-47 to use the same language adopted in the 2001 Reconsideration of the 610 Nonessential Products Ban for class I refrigerants so that the items are considered “manufactured” once they enter the initial inventory at the manufacturing site. SBA states that the 2001 rule gives a definition of initial inventory that is compatible with common industry usage: the date “that the original product has completed all its processes and is ready for sale by the manufacturer

.” SBA urges EPA to use shipping forms, lot numbers, manufacturer date stamps or codes, invoices, or the like to determine proof of the date of manufacture. SBA notes that EPA’s proposed definition would be a new interpretation that would conflict with the conventional understanding of “manufacturing” and contribute to unnecessary confusion. [0090.1]

EPA Response: In the Section 610 nonessential products ban for class I refrigerants, found at 40 CFR Part 82 Subpart C, EPA did not define “manufactured.” Rather, EPA provided a temporary exemption for products that had been manufactured and placed into initial inventory by a specified date. “Initial inventory” was defined as meaning that “the original product has completed all its manufacturing processes and is ready for sale by the manufacturer.” EPA has considered using a similar approach here. However, in implementing Section 605, EPA is taking into account commercial refrigeration and industrial process refrigeration, which is not placed into initial inventory or shipped as a complete “appliance.” In such cases, OEMs are manufacturing components in their factory, not appliances.

 NRI notes that EPA’s definition of when an appliance or component is deemed manufactured should be distinct from the date of installation. Using the date of field charging as the date of “manufacture” will cause tremendous confusion in the field as to what refrigerant may legally be charged into a given system. NRI notes that EPA’s definition of “manufactured” will place a disproportionate burden on retailers and installers as they attempt to determine whether they may service certain products lawfully depending on what type of installation and adjustments may be required. [0110.1]

EPA Response: EPA disagrees that this will create tremendous confusion in the field. All existing appliances using HCFC-22 after January 1, 2010, may continue to be serviced with virgin HCFC-22. Appliances that are manufactured under the grandfathering provision for already contracted projects discussed in the preamble, and above, can also be serviced with virgin HCFC-22. New appliances not covered by the grandfathering provision may not be manufactured (installed in the field) after January 1, 2010, unless assembled from components that are shipped dry and charged on-site with reclaimed HCFC-22. Only these systems may not be charged with virgin HCFC-22 but EPA anticipates this number to be small. Technicians should be able to easily ascertain whether the equipment they are servicing falls into this small category by simply asking the owner if their equipment was installed after January 1, 2010, and if so, how.

 NRI comments that EPA’s definition would create enforcement issues over which entity manufactured the product. [0110.1]5-48 EPA Response: The distributor or installer of a system would be responsible if they assembled components into a new appliance after January 1, 2010. There would be no change from current practice regarding other issues concerning the component parts (e.g. failure of a condensing unit under warranty).

 NRI, AHRI, The Alliance, Johnson Controls, and Lennox International express concern that EPA’s current definition of “manufactured” would negatively affect HVAC equipment used in commercial and residential buildings (including modular buildings) where installation commenced prior to January 1, 2010. One commenter could easily envision a situation where both the pre-charged condensing unit and indoor coil would be manufactured prior to January 1, 2010, but where the refrigerant loop would not be completed before that date. In the event that EPA does not amend the definition of “manufacture’ as this commenter suggests, they would recommend that EPA consider the appliance to be manufactured in cases of residential and commercial new construction and remodeling, including modular buildings, when the indoor coil is installed. One commenter states that given the current economic conditions, the pace of building construction on a project may move faster or slower depending on several conditions, including, financing, weather, etc... [0110.1, 0119.1, 0120.1, 0126.1, 0127.1]

EPA Response:EPA believes that partial installation of certain components does not make sense as a definition of manufacture for split systems. In effect, the commenter is requesting that the appliance be considered manufactured when all of its component parts, or one specific part, are placed into initial inventory, not when those various parts are combined into a functional appliance, as defined at Section 601 of the Clean Air Act.

EPA recognizes that contractual arrangements exist for projects that involve airconditioning systems that will not be “manufactured” (e.g., completion of the refrigerant circuit) until after December 31, 2009. In response to comments expressing this concern, this rule establishes a grandfathering provision which allows appliances containing HCFC-22, HCFC-142b, or blends thereof to be “manufactured” onsite for a particular project between January 1, 2010, and December 31, 2011, if their components are made prior to January 1, 2010, and specified for use at that project under a building permit or contract dated before January 1, 2010.

Three commenters suggested exceptions to minimize the stranding of existing inventory created by EPA’s proposed definition of “Manufacture.”

 SBA and the Alliance suggested that the EPA 1) make exemptions for binding contracts for the purchase of equipment made prior to the deadline but for economic or other reasons cannot be delivered until after 2010, and 2) provide an exemption for construction projects that have received building code approval of plans that include equipment subject to the ban, but will not be completed until the ban is in effect. [0090.1, 0120.1]

 Trane/Ingersol Rand suggested that EPA create an exemption to the use ban for when 1) the equipment is supplied under a binding contract dated before the final rule publication5-49 date AND EITHER A) where enforcement of the ban would require substantial rework of the wiring, piping, mounting provisions or other preparations, including significant redesign of the specifications for the installation equipment put in place before 1/1/2010, OR B) the indoor section of a split system was installed prior to 1/1/2010 and completion of the system requires only placement, connection, and commissioning of the condensing unit, OR BOTH. The commenter proposed that this exemption be time limited; after 6 months any newly manufactured unit could use reclaimed material. [0099.1]

EPA Response: In response to stakeholders comments, EPA is establishing a grandfathering clause where appliances are manufactured on site rather than in a factory. Specifically, EPA is allowing appliances containing HCFC-22, HCFC-142b, or blends thereof to be “manufactured” onsite for a particular project between January 1, 2010, and December 31, 2011, if their components are made prior to January 1, 2010, and specified for use at that project under a building permit or a binding contract dated before January 1, 2010.

EPA believes this will provide relief to the various concerns (i.e., stranded inventory) that were expressed by stakeholders. EPA uses language received in industry comments as the basis for the grandfathering provision. EPA wants to minimize stakeholder burden. For this reason, EPA is only requiring that the contract be in place for equipment; EPA is not requiring the stakeholder also prove that substantial rework of the building site will be required or that the indoor section of the split system be installed, as suggested. Furthermore, we are requiring that the contract be dated before January 1, 2010 – not by the final rule’s Federal Register publication date. Finally, we are allowing this provision to be effective for 2 years, rather than the 6 months requested by the commenter. EPA believes that these changes provide stakeholders sufficient flexibility.

Other:  HARDI and the Alliance encourage EPA to use clear language (as used in the Jan. 14, 2009, fact sheet) when defining manufactured equipment. This clarification will avoid conflicts between the two rules and will allow business to operate more easily and in a manner that complies with the regulation. [0117.1, 0120.1]

EPA Response:EPA has provided a bulleted list of how the two rules interact with one another in the “Summary of this Final Action” sections of both the 2010 HCFC Allocation rule and the Pre-Charged Appliances rule. The list is identical in both rules. EPA also provides a copy on its website.

 Trane/Ingersoll-Rand proposes that EPA consider moving the definition of the date of manufacture to the pre-charged rule. [0082, 0099.1]

EPA Response: EPA is providing the same definition of the term “manufactured” in both 40 CFR 82.3 and 82.302.

 Goodman notes that EPA’s interpretation creates a loophole in that one could argue that replacing a condenser on an existing system is not installing a new appliance but rather5-50 replacing a component of that appliance. Under EPA’s definition of “manufactured,” it would be permissible to service an existing system by replacing the condensing unit. [0080.1]

EPA Response: The commenter is correct that EPA intended to allow this. Sale and distribution of appliance components pre-charged with HCFC-22 or HCFC-142b is allowed if the components (e.g. condensing units, line sets, and coils that are charged with refrigerant) were manufactured before January 1, 2010. Pre-charged components manufactured before January 1, 2010, may be used to service appliances manufactured before January 1, 2010. This is the intent of the Agency, not a loophole, in order to ease the transition by not stranding equipment. EPA seeks to allow the continued sale of existing inventory while ensuing that end users are able to service their existing equipment.

 AHRI and HARDI request that for imported products, the term “manufacture” be defined to mean when the product enters the customs territory of the United States. This meaning is consistent with Department of Energy regulations. [0082, 0117.1]

EPA Response: EPA does not believe that it is necessary to establish a different definition of “manufactured” for imported products. However, EPA does address this concern in the definition of “introduction into interstate commerce.” The entry points for which a product is introduced into interstate commerce are the release of a product from the facility in which the product was manufactured, the entry into a warehouse from which the domestic manufacturer releases the product for sale or distribution, and at the site of United States customs clearance. Thus, precharged appliances or pre-charged appliance components may not continue to be imported after January 1, 2010.

 AHAM supports EPA’s definition of “manufacture” as used in EPA’s January 14, 2009, clarifying document. The definition applies favorably to room air conditioners, dehumidifiers, and portable air conditioners which are essentially ready to plug-in for use by the consumer after purchase. The commenter believes that EPA has reached a correct conclusion as these types of products are seasonal and often have very large carry over from year to year, and the financial and environmental costs of making obsolete the significant volume of product that will still be in inventory as of January 1, 2010, would be huge, particularly this year. [0089]

EPA Response:Under the final rule, as under the proposal, small appliances, i.e., devices that have a completed refrigerant circuit, are fully charged, and are functional and ready for use at the time they leave the factory are “manufactured” at the time they are placed into initial inventory at the factory and are shipped as complete “appliances” rather than as a set of components.

 Johnson Controls understands EPA’s definition of “Appliance” to include all refrigerantcontaining components assembled and ready for use. The commenter interprets the following products to be appliances: 1) Products of light commercial and residential package units (self contained); and 2) Residential split systems with components of5-51 outdoor sections (Air conditioner or heat pump), an indoor section (includes a coil section), and line-sets, that are field assembled and the refrigerant circuit is completed and properly charged. The commenter requests that EPA provide immediate clarification in the form of fact sheets postings on its website regarding the definition of “Appliance”. [0126.1]

EPA Response:Three weeks after the publication of the proposed rule, EPA provided clarification on the website. EPA did not propose a definition of “appliance” specific to this action as “appliance” is already defined in 40 CFR part 82, subpart F, based on the definition provided in section 601 of the Clean Air Act. Commenters requested clarification from EPA on what is an appliance, therefore, to facilitate understanding of this issue EPA is adding this same definition to Subpart A in 40 CFR 82.3. Further discussion of what is an appliance is found in the preamble.

 Danfoss states that EPA should allow uncharged condensing units to be used to service existing equipment. Prohibiting the sale of these components would strand existing inventory and would force equipment owners to make more costly repairs or completely replace expensive commercial refrigeration equipment. The U.S. Small Business Administration encouraged EPA to clarify that uncharged components manufactured after 2010 that are field charged with reclaimed refrigerant may continue to be manufactured after January 1, 2010. Lennox International states that EPA should allow all dry components (whether manufactured before or after January 1) to be field-charged with virgin, recycled, or reclaimed HCFC-22 when they replace components for existing appliances on a like-for-like basis (i.e., the replacement component does not increase the existing capacity of the refrigeration or air conditioning system), in order to allow proper servicing of existing appliances. Lennox asserts that the supply of reclaimed HCFC-22 will be unpredictable and that manufacturers may not be able to obtain sufficient recycled or reclaimed HCFC to field-charge these newly-manufactured components and complete the necessary servicing of a pre-January 1 appliance. Although the proposed rule appears to allow for this, EPA should clarify this point (such as through a statement in the preamble to the final rule), as allowing such replacement components to be charged with either virgin, recycled, or reclaimed refrigerant is vital to avoiding stranding existing equipment in the field. [0084.1, 0090.1, 0127.1]

EPA Response: EPA is allowing for the continued sale of dry components after January 1, 2010. When used to replace components for existing appliances dry components may be field charged with virgin, recycled, or reclaimed HCFC-22 because the components are being used in the servicing of an existing appliance. Dry components can be assembled into a new appliance, but must be charged with recycled or reclaimed refrigerant.

5.2. Accelerating the 605A use restriction under the authority of Section 606

 DuPont supports the addition of the direct use prohibitions as it will facilitate enforcement of the rule. [0097.1]5-52  Lennox International states that due to the short deadline before the Allocation rule and the need to avoid stranding dry components, that EPA should allow the use of virgin HCFC-22 with dry components that are in initial inventory before January 1, 2010, and that are installed, after January 1, 2010, in new appliances in two limited situations: 1) dry components in initial inventory prior to January 1, 2010, constitute all, or substantially all of that new appliance (thus making all the components of that appliance effectively subject to the Existing Equipment Exception), or 2), the dry component is used to complete the installation of certain split-systems where the installation had commenced prior to January 1, 2010. Given the recent, significant slowdown in the real estate markets, many contractors may install the indoor equipment in these split-systems before January 1, 2010, but not install a condensing unit (which contains components which are typically field-charged) until after January 1, when the market recovers and a buyer or lessee can be found. [0127.1]

EPA Response: Dry components manufactured prior to January 1, 2010, may be assembled into new appliances, but those appliances must be charged with reclaimed HCFC-22. As this is the manufacture of a new appliance, the use of virgin HCFC-22 is prohibited. In the second scenario, EPA is allowing the use of dry components to complete the installation of certain split systems after January 1, 2010 until December 31, 2011, if there is a building permit or contract specifying its use. This exception is discussed in the preamble.

 Lennox International adds that because the use ban takes effect less than one year after the proposal was issued, manufactures have little time to adjust their production schedule if EPA retains its proposed definition of manufacture. The commenter adds that many manufacturers cannot ramp down production of equipment that may be subject to the Direct Use Ban this year, let alone ensure that such equipment is fully installed with the refrigerant loop closed by January 1, 2010. Supply agreements and projections are already in place through the end of this year that often cannot be changed on such short notice. [0127.1]

EPA Response: EPA appreciates the concern that the timing of this rule has caused. However, EPA does not believe the concern that manufacturers cannot ramp down production of HCFC-22 equipment on such short notice is legitimate. The January 1,2010, date for restricting the use of newly produced or imported HCFC-22 and HCFC142b was discussed in the Federal Register on December 10, 1993 (58 FR 65018). Manufactures have known of this restriction for sixteen years and have had the opportunity to plan their transition to alternatives.

5.3. Introducing HCFCs into Interstate Commerce Three commenters expressed concern about their ability to domestically manufacture and export products to countries that do not have restrictions on HCFC-22.  Arkema states that EPA should not interpret the definition of interstate commerce to bar the production, import, or sale of appliances for export. This would only cost U.S. manufacturing jobs without yielding an environmental benefit. HARDI notes that the export ban to Article 5 countries penalizes their manufacturing partners and could have a5-53 detrimental effect on their partners’ ability to fund the research and development of new technologies for the domestic market that is supplied by their distributors. This commenter believes this proposed export ban runs contrary to the spirit of the Montreal Protocol and unnecessarily disadvantages domestic manufacturer partners, while also creating the potential for domestic price inflations if economies of scale from the production of exports are lost. Johnson Controls requests that EPA treat pre-charged equipment intended for export to Article 5 countries in the same fashion as it does the export of bulk refrigerant: allow for the factory charge of the equipment intended for export with HCFC-22 and count that usage by OEM’s against the total production cap in the same fashion that bulk shipments of HCFC-22 are treated. [0111.1, 0117.1, 0126.1]

EPA Response: The inability to export pre-charged appliances derives from the section 605(a) prohibition on use of HCFCs, since manufacturers would not be able to use HCFC-22 to charge newly manufactured appliances and thus could not manufacture such equipment for either domestic or foreign markets. At the point of entry into interstate commerce, any appliances containing HCFC refrigerant would be covered under provisions in the Pre-Charged Appliances rule (discussed in conjunction with this rule in Section III of this preamble) regarding sale and distribution in interstate commerce, not under the section 605(a) introduction into interstate commerce provision, which pertains to substances rather than products. Therefore, the comment suggesting that EPA allow factories to charge equipment intended for export and to count that usage of HCFC-22 against the total production cap is not consistent with EPA’s interpretation of the 605(a) use ban, as the use of the bulk HCFC-22 to produce the new equipment is prohibited under 605(a). Furthermore, export of any new appliances and components containing HCFC-22 is prohibited under the Pre-Charged Appliances rule.

Section 605(d)(2) states that notwithstanding 605(a) and (b), which contain the use and production restrictions on HCFCs, EPA may authorize production of limited quantities of HCFCs “solely for export to and use in developing countries.” The restrictions in section 605(a) and (b) pertain to bulk substances, not to products. In addition, section 605(d)(2) refers to HCFCs directly, and not to products containing HCFCs. EPA interprets section 605(d)(2) as allowing production of these ODS where the ODS themselves, as bulk substances, will be exported to developing countries for use in those countries. EPA does not interpret section 605(d)(2) as allowing use of HCFCs in U.S. product manufacture, even where the products are destined for use in developing countries.

EPA notes that export of appliances that do not contain an HCFC refrigerant charge is legal under both this final allocation rule and the pre-charged products rule. In addition, as noted above, EPA is not prohibiting introduction of HCFCs into interstate commerce for the purpose of export to Article 5 countries.

 USA Refrigerants states that EPA must stop illegal imports. DuPont, Honeywell, and ARCO have enough facilities to supply the country. There just needs to be an even playing field. USA refrigerants suggests shutting down the borders. If anyone needs the gas, a rule can be made where it is $90 - $100/cylinder. [0082]5-54 EPA Response:EPA does not believe that prohibiting all imports is an appropriate method of preventing illegal imports. EPA is aware that as the phaseout continues andthe supply of HCFC-22 is restricted, there is greater incentive to illegally import HCFC22. EPA has experience preventing illegal imports from the phaseout of CFCs and is working with Customs and Border Protection and other agencies to stop illegal importers and enforce violations.

 DuPont believes that §82.15(g)(2) and (g)(3) of the proposed rule would prohibit export to non-Article 5 countries of HCFC-22 and HCFC-142b and blends thereof beginning 1/1/2010 and of HCFC-123 and HCFC-124 and blends thereof beginning 1/1/2015. The commenter argues that the exception in Section 605(a)(3), “Is used as a refrigerant in appliances manufactured prior to January 1, 2020” is not limited to appliances within the borders of the U.S. and, hence, export of HCFCs should be allowed to service such appliances outside of the United States. The commenter states that excluding U.S. HCFC producers from participating in export markets, as allowed both under the Montreal Protocol and by the importing countries, lessens U.S. international competitiveness and adversely affects the commenter’s balance of trade. Furthermore, it does nothing to enhance protection of stratospheric ozone since the requirements for these HCFCs will simply be sourced with HCFCs from other countries. DuPont encourages EPA to add to both § 82.15(g) (2) and § 82.15(g) (3) the language “for other export as allowed under provisions of the Montreal Protocol”, as they believe it is not the intent of the CAA to prohibit exports to non-Article 5 countries. However, since HCFC-141b is not used as a refrigerant and its use has been banned in the United States except for limited and scrutinized exemption needs, DuPont supports EPA’s interpretation of section 605(a) for HCFC-141b and the proposed language in § 82.15(g)(1) to sunset provisions for export production allowances. [0097.1]

EPA Response:EPA agrees that the exemptions provided in 605(a) are not limited to the boundaries of the United States and reiterates that exports of HCFC-22 and HCFC-142b to non-Article 5 Parties are allowable if those HCFCs 1) are used, recovered, and recycled, 2) will be used for transformation, or 3) will be used as a refrigerant in appliances manufactured before January 1, 2010. Because the current regulatory language does not prohibit such exports, EPA does not believe it is necessary to change the regulatory text as suggested by the commenter.

5.4. Niche applications for HCFC-22 and HCFC-142b Three commenters note that they continue to use HCFC-22 in a sterilant mixture. These commenters anticipated the production phaseout but not the use restriction and requested additional time to transition to an alternative.  Alcon Laboratories Inc. (Alcon) states that EPA’s acceleration of the ban will negatively affect production of intraocular lenses. Effective sterilization is a fundamental element of the manufacturing process for intraocular lenses, which cure vision-related problems such as cataracts and lens opacification. Alcon states they have long known that EPA’s regulations call for a ban on production and import of HCFC-22 and as a result they are implementing a strategy to eliminate the use of HCFC-containing sterilants by 2015. Alcon has commenced construction on a new intraocular lens manufacturing facility5-55 which includes a 100% ethylene oxide sterilization center. The construction schedule was geared toward assuring compliance with EPA’s 2015 deadline, and the estimated completion date is between 2012 and 2014 (depending on U.S. and foreign regulatory approval processes). The strategy includes stockpiling HCFC-22 produced prior to 2010 under the current allocation.

This commenter opposes EPA’s proposed revision to 40 CFR 82.15 that would accelerate the ban on most uses of HCFC-22 by five years – from the statutory default date of 1/1/2015 to 1/1/2010. If adopted as proposed, this provision would prohibit continued use of Oxyfume 2002. Alcon states finding an interim substitute would require substantial time and financial investment. Alcon states they have assessed possible substitutes, namely off-site commercial sterilization and switching to Oxyfume 2000, both of which are not economically feasible or logical. Alcon requests that EPA allow for the continued use of HCFC-22 for production of medical devices such as intraocular lenses until the time that the new 100% ethylene oxide sterilization facility is approved by FDA for operation. Alcon provides five justifications:

1) The environmental integrity of EPA’s ozone protection program will still be maintained; 2) Global public health will benefit from the uninterrupted supply of intraocular lenses; 3) HCFC use at the commenter’s current facility will be expeditiously eliminated; 4) Alternate sterilization methods are not reasonably available; 5) EPA has ample legal authority to allow the continued use under these circumstances under Sections 605 and 606 of the Clean Air Act.

For its proposed accelerated ban, EPA stated that all three criteria under Sec. 606 were satisfied. However, as applied to Alcon’s use of sterilization in the 2010-2014 timeframe, none of the three criteria set forth in Sec 606 are met. [0096.1]

EPA Response: EPA is exempting the use of HCFC-22 produced prior to January 1, 2010, for medical equipment. This limited exception ends December 31, 2014, as that is the date upon which all uses of HCFCs, except for those specifically enumerated in section 605(a), are banned. The preamble discuses this issue in full.

 Ascent Healthcare Solutions Inc. (Ascent) uses a small amount of Oxyfume 2002 Sterilant Mixture/Gas to sterilize used heart catheters and return them to hospital partners in a straight-packaged configuration. Ascent notes that they intend to replace their sterilization vessel with a new one that uses 100% EO (ethylene oxide). The commenter’s company is planning to seek its Board of Directors’ approval and release of these capital funds for calendar years 2011-2012. The commenter requests an exemption that would enable it to continue using Oxyfume 2002 Sterilant Mixture/Gas up to and through calendar year 2012. American Medical Systems provided a late comment describing their Her Option Cryoablation Therapy System which uses HCFC-22. The commenter states they will have a non HCFC-22 alternative within a year and has requested a one year exemption from the use ban. The Spectranetics Corporation also provided a late comment describing their excimer laser system, which is used within the5-56 cardiovascular system, is currently sterilized using Oxyfume 2002. The commeter states that they are currently in the process of commissioning and validating a new ethylene oxide sterilizer and requested a one year exemption from the use ban. [0095.1, 0141, 0142]

EPA Response: EPA is exempting the use of HCFC-22 produced prior to January 1, 2010, for medical equipment. This limited exception ends December 31, 2014, as that is the date upon which all uses of HCFCs, except for those specifically enumerated in section 605(a), are banned. The preamble discuses this issue in full.

 Honeywell states that two firms exist which cannot transition away from HCFC-22 before January 1, 2010, which both use HCFC-22 in combination with ethylene oxide as a sterilant for medical devices: 1) a major manufacturer of devices used for eye care; 2) a firm that serves over 1,800 hospitals, reprocessing costly heart catheters that were once thrown out after one use. [0118.1]

EPA Response: EPA is exempting the use of HCFC-22 produced prior to January 1, 2010, for medical equipment. This limited exception ends December 31, 2014, as that is the date upon which all uses of HCFCs, except for those specifically enumerated in section 605(a), are banned. The preamble discuses this issue in full.

Three commenters note that they continue to use HCFC-22 in thermostatic expansion valves (TXVs). These commenters had not anticipated that the use ban would affect TXVs and requested additional time to transition to an alternative.

 Emerson Climate Technologies states that TXVs should be exempt from the regulation because the refrigerant in TXVs does not provide cooling effect. Instead, the bulb charge is used to sense the temperature of the suction line and transforms this temperature into an equivalent pressure. TXVs incorporate a small hermetically sealed bulb whichactivates and controls TXV operation in order to optimize energy efficiency of the airconditioning or refrigeration system. The commenter provides the following reasons for exemption for TXVs with virgin R-22 pre-charged bulbs: 1) The amount of charge used in a TXV is typically less than 5 grams. The charge is hermetically sealed. The opportunity for leaks is very small and if one shouldleak, the amount of HCFC-22 that escapes into the atmosphere is less than the deminimis loss associated with routine servicing. 2) Finding a suitable replacement for virgin R-22 for these TXV bulb chargespresents numerous engineering challenges. Although many substitutes exist for R22 they may not be suitable for TXV charges for several reasons. The greatest concern is that the P/T characteristics are not identical, which will affect the operation of the TXV, especially at the extremes of the valve’s operating envelope. This can have the effect of flooding or starving a system with the potential side effect of permanent damage to the compressor. [0104.1]

 AHRI states in their supplemental comment that proposed ban on the use of TXVs charged with HCFC-22 caught manufacturers by surprise for two reasons: (1) the small5-57 amount of HCFC-22 in the sensing bulb of the TXV, not being used for heat transfer purposes to provide cooling, did not fall under EPA’s definition of “refrigerant”; (2) EPA did not implement a similar ban in 1996, when CFCs were phased out. AHRI states in their supplemental comment that a total ban on HCFC-22 for TXVs would have a devastating impact on manufacturers, distributors, and consumers and that EPA should authorize the use of virgin HCFC-22 in TXVs until January 1, 2014, for several reasons: 1) The amount of HCFC-22 used in TXVs is very small, less than 3 grams. The refrigerant charge is sealed in a hermetic assembly that can not leak unless physically broken. Should the valve leak, the amount of refrigerant that escapes into the atmosphere is less than the de minimis loss associated with routine servicing of the air conditioning or refrigeration equipment. 2) The use of reclaimed HCFC-22 to ARI 700 is not recommended in TXVs. The amount of lubricant in reclaimed refrigerants will affect TXVs operation and could impact the equipment operation and efficiency. 3) Millions of HCFC-22 air conditioning and refrigeration equipment are currently in operation. Banning the use virgin HCFC-22 containing TXVs after January 1, 2010, will likely incapacitate thousands of air conditioning and refrigeration products in need of a TXV replacement. It could force technicians to use inappropriate replacement parts that could cause the system to fail or to operate outside of its optimal operating condition resulting in increase energy consumption4) While there are HFCs with vapor-pressure curve characteristics similar to HCFC22, most of them are non-azeotrope mixtures and do not behave like azeotropes (such as HCFC-22). Additional time is needed to fully analyze the use of new refrigerants. 5) If a valve reacts too quickly or too slowly to a change in temperature, the result will be either flooding or starving of the evaporator. Flooding can damage the compressor potentially leading to catastrophic failure and the need to replace the compressor. Starving causes the evaporator to operate inefficiently. The commenter requests additional time to find appropriate substitutes stating that lab testing and long term field trials are needed to thoroughly assess the viability of the alternative. [0119.1]

EPA Response:EPA agrees that the HCFC-22 sealed within TXVs is not used for heat transfer purposes and not part of the refrigerant loop. Since it is not used for heat transfer in a refrigeration system the HCFC-22 used in TXVs is therefore not used as a “refrigerant” as defined in section 605(a). Therefore, this use of HCFC-22 is not exempted under section 605(a)(3).

EPA disagrees with the commenter’s suggestion to consider providing a de minimis exception in this instance. EPA has regulated many products that individually contain small amounts of ozone-depleting substances, such as aerosols and metered dose inhalers. While EPA agrees that a single TXV contains a small amount of HCFC-22, the amount of HCFC contained within a single product is not determinative of whether the total amount of HCFCs contained in such products is trivial.6-58 The lack of a TXV could result in a system running less efficiently or, in a worst case scenario, lead to compressor damage. EPA is concerned that failing to ensure an adequate supply of TXVs will result in the unintended consequence of removing existing equipment from service faster than anticipated. While likely rare, EPA wants to avoid the result of requiring existing equipment owners to have to replace an entire system due to the unavailability of an inexpensive valve. Therefore, this final rule allows for the introduction into interstate commerce and use of HCFC-22 produced prior to January 1, 2010, to be used until January 1, 2015, for the manufacture of TXVs.

 The U.S. Small Business Administration’s Office of Advocacy (SBA) asks that EPA allow some small pre-charged units (TXV valves and other equipment as industry may suggest) to continue to be manufactured beyond 2010 if the industry can show that it is not cost-effective or practical to manufacture such item as an uncharged component. The commenter asks that EPA allow exemptions for TXVs and other equipment as industry may suggest to ensure an adequate inventory of component parts available to service equipment manufactured prior to January 1, 2010. [0090.1]

EPA Response: EPA does not believe that the accelerated 605(a) ban is practicable in the instance of thermostatic expansion valves because while alternatives exist, it is not feasible to implement them immediately. In this final rule, EPA is exempting virgin HCFC-22 for use in TXVs from the 2010 accelerated ban on introduction into interstate commerce and use. The preamble discusses this in greater detail.



### 6. RECLAIM USE: ENFORCEMENT/COMPLIANCE ISSUES EPA received four comments requesting clarification regarding EPA’s exemption for newly manufactured equipment charged with recycled or reclaimed HCFC-22 refrigerant. Comments were in reference to how EPA enforces suspected non-compliance and how EPA will prove that material claimed as reclaimed/used is virgin.

Count Commenter Organization Document ID No 1 Robert Wilkins Danfoss EPA-HQ-OAR-2008-0496-0084.1 2 David L. Swift Goodman EPA-HQ-OAR-2008-0496-0088.1

3 Talbot H. Gee Heating, Airconditioning & Refrigeration Distributors International EPA-HQ-OAR-2008-0496-0117.1

4 Kyle Gilley Lennox International EPA-HQ-OAR-2008-0496-0127.1

 Danfoss states that EPA’s proposal to exempt from regulation newly-manufactured HCFC-22 equipment charged with recycled or reclaimed refrigerant for new applications would perpetuate the introduction of new HCFC-22 systems into the marketplace, delaying conversion to non-ODP systems, and would also lead to abuse, since it would be impossible for EPA to determine if the system’s refrigerant charge was virgin or recycled/reclaimed refrigerant. [0084.1]  Goodman does not believe EPA has the resources to police whether the type of refrigerant used in the field is virgin or reclaimed or reclaimed. Moreover, both virgin and reclaimed HCFC-22 are ODS and should be treated in the same manner. Goodman asks EPA to rethink the Proposed Rule so that it would be illegal to manufacture7-59 uncharged components after December 31, 2009, where the intention is to charge the component with anyHCFC-22 (virgin or reclaimed). [0088.1]  HARDI has serious concerns that the EPA’s efforts to promote the use of reclaimed and recycled refrigerant through an exemption to HCFC use-bans only opens the door to enforcement loopholes which could result in the illegal installation of new HCFC systems. HARDI does not believe that this exemption adds value to reclaimed refrigerant because they believe that value is entirely a function of the limited supply and increased price of virgin refrigerants. [0117.1]  Lennox International states that EPA should ban the use of all HCFC-22 in new appliances manufactured after January 1, whether that HCFC-22 is reclaimed or virgin, to further ensure adequate HCFC supplies for servicing needs. Lennox International further states that the physical similarity between virgin and recycled/reclaimed material raises important enforceability issues in that regulatory inspectors will not be able to tell whether these new appliances were charged with recycled or reclaimed refrigerant or virgin refrigerant. [0127.1]

EPA Response:Unlike the proposal, in the final rule EPA does not provide an exemption from the pre-charged appliance rule for the sale or distribution of pre-charged appliances and pre-charged components that are charged with reclaimed HCFC-22 or HCFC-142b refrigerant. EPA is prohibiting the sale of equipment pre-charged with reclaimed HCFCs due to the difficulty of distinguishing between new and reclaimed material. EPA believes this outcome is appropriate because it is not practicable to achieve the Congressional goal of ending use of virgin HCFCs in the manufacture of new appliances without simultaneously banning use of reclaimed HCFCs in pre-charged appliances. Further information can be found in the preamble and response to comments document in the docket to that rule.



### 7. SMALL BUSINESS CONCERNS EPA received twelve comments concerning costs and impacts the proposed rule could have on small businesses. Comments were in reference to two main topics:

7.1. Costs to small businesses 7.2. Specific requests for allowances from small businesses

Count Commenter Organization Document ID No 1 Charlie McCrudden Air Conditioning Contractors of America (Public Hearing) EPA-HQ-OAR-2007-0496-0082

2 Karim Amrane Air-Conditioning, Heating, and Refrigeration Institute (Public Hearing) EPA-HQ-OAR-2007-0496-0082

3 Talbot Gee Heating, Airconditioning & Refrigeration Distributors International (Public Hearing) EPA-HQ-OAR-2007-0496-0082

4 Shawne C. McGibbon U.S. Small Business Administration’s Office of Advocacy EPA-HQ-OAR-2007-0496-0090.1

5 Robert R. Clark Peoples Welding Supply EPA-HQ-OAR-2008-0496-0093.1 8 Jill Tronca North Lakes Distributing, Inc. EPA-HQ-OAR-2008-0496-0115.1 9 Charlie McCrudden Air Conditioning Contractors of America EPA-HQ-OAR-2008-0496-0122.1 10 Dana Studebaker Refrigerant Supply Inc. EPA-HQ-OAR-2007-0496-01247-60 11 Cos Caronna and Steve Maddox Johnson Controls EPA-HQ-OAR-2007-0496-0126.1

12 Robert Allen Kamins Altair Partners, LP EPA-HQ-OAR-2007-0496-0128

7.1. Costs to small businesses
 HARDI states they have serious concerns over the distributors being omitted as stakeholders in this rulemaking, as it pertains to a regulatory flexibility analysis. Potential losses for their member companies are estimated to be millions of dollars in lost inventory in 2010 alone. [0082]  ACCA notes that although the notice mentions that “[o]ther types of entities not listed...could also be affected,” the commenter is concerned that air conditioning and refrigeration contractors are not listed as regulated entities in Section I of the proposed rule notice. In relying on the five listed categories of impacted entities, EPA overlooked the significant economic impact this proposed rulemaking will have on a substantial number of small entities. ACCA feels that EPA should have completed a review of the impacts this rulemaking will have as required under the Regulatory Flexibility Act. [0122.1]  AHRI states they believe that the Proposed Rule is subject to the requirements of Section 202 or 205 of the Unfunded Mandates Reform Act, and that EPA is also required to prepare regulatory flexibility analysis to assess the impact on small businesses. AHRI also states that EPA fails to recognize under the Regulatory Flexibility Act requirements, that small distributors and contractors are affected by this Rule. To resolve this issue, EPA should use a more conventional definition of the term, “manufacture.” [0082]  SBA commented that EPA had no discussion of the potential impacts of stranded inventory on retailers and distributors of air conditioners, refrigerators, and other appliances. Johnson Controls asks that EPA consider the impact of this rule on both the distributors and contractors/dealers who were not included in this analysis. They believe that there is substantial impact on these parts of the supply channel.[0126.1]

EPA Response:EPA has expanded the list of potentially affected entities to include the following:
Category NAICS code SIC code Examples of regulated entities
Industrial Gas Manufacturing 325120 2869 Fluorinated hydrocarbon gases manufacturers and reclaimers Other Chemical and Allied Products Merchant Wholesalers 424690 5169 Chemical gases and compressed gases merchant wholesalers
Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing 333415 3585 Air-Conditioning Equipment and Commercial and Industrial Refrigeration Equipment manufacturers

Air-Conditioning Equipment and Supplies Merchant Wholesalers 423730 5075 Air-conditioning (condensing unit, compressors) merchant wholesalers7-61 Category NAICS code SIC code Examples of regulated entities
Electrical and Electronic Appliance, Television, and Radio Set Merchant Wholesalers 423620 5064 Air-conditioning (room units) merchant wholesalers

Plumbing, Heating, and AirConditioning Contractors
238220 1711, 7623 Central air-conditioning system and commercial refrigeration installation; HVAC contractors

EPA has tried to reduce the impact to small businesses from the section 605(a) provisionsrestricting the introduction into interstate commerce and use of HCFC-22 and HCFC142b. EPA clarifies that distributors and contractors, typically small businesses, may continue to sell components that are still in inventory on January 1, 2010, in order to service existing equipment that uses HCFC-22. Such servicing includes the replacement of whole condensing units, compressors, or line sets. While the proposed rule prohibited the manufacture of new appliances containing HCFC-22, HCFC-142b, or blends thereof, EPA is providing a limited exception in this final rule to allow for continued manufacture of such appliances between January 1, 2010, and December 31, 2011, if the components are made prior to January 1, 2010, and specified for use at that project under a building permit or contract dated before January 1, 2010. Finally, EPA is clarifying that new appliances may continue to be manufactured from dry components if the competed appliance is charged with recovered, recycled, or reclaimed refrigerant. EPA believes these three options will provide relief to the various concerns that were expressed by stakeholders.

 North Lakes Distributing Inc. is asking for a reassessment of small and disadvantaged entities in the refrigerant reclaim and supply industry. The commenter is unaware of an assessment being made on the effects of this proposed regulation on small business, specifically, in the refrigerant reclamation and supply. The statement of compliance in the proposed rule with the Regulatory Flexibility Act (RFA) 73 FR 78700 & 787013 and the supporting table does not include small companies in the reclamation and refrigerant supply industry. Currently none of the consumption allocation holders are small disadvantaged businesses or woman or minority owned. The commenter estimates that small business in the reclamation and refrigerant supply industry comprise about 30% in numbers of entities, but not market share. 20% of these entities are owned and run by minorities and women. Small businesses have already been compromised and adversely effected by the current allocation system. Although they enable a significant amount of reclamation, their efforts are under-represented in reports to EPA because they job out a significant amount of reclamation and because they hold smaller inventories; they also sell a significant amount of recovered refrigerant to reclaimers (showing up on their reports to EPA). The current apportionment has also given current allocation holders "stakeholders", a huge advantage in information and resources for acquiring allocations “new to them” from other parties. These allocations where initially supposed to be nontransferable. Instead these transfers have increased the inequity which already exists in an industry with a surplus market. To allocate only to existing allocation holders and to the larger companies in this industry will continue to make it harder for the diverse7-62 businesses in this industry to compete by keeping small business costs of goods higher than costs of small business competitors. It will also continue to severely compromise competition and reclamation in the industry as a whole. Small companies are an important part of the network of recovery and competition in this industry. Even though we were established before the initial allocations took effect, the regulation has prohibited us from pursuing lower cost product. [0115.1]

EPA Response:EPA believes that reclaimers will benefit from the allocation levels in this final rule. EPA is allocating at 80% of the estimated demand in 2010 and is reducing the allocation over five years. EPA anticipates that the price of HCFC-22 will increase as allocations decrease and supply is reduced. Some of the economic constraints for recovery and reclamation will therefore loosen and more recovered material being held in inventory may be reclaimed. EPA believes that encouraging the market for recovered material in this way will be the most effective and appropriate mechanism that this current rulemaking can take to increase recovery and reclamation.

 Altair Partners LP strongly opposes the auctioning of allowances, as they are a small business which has committed much time and expense in acquiring baseline allowances since 2003. [0128]

EPA Response:EPA is not changing the methodology for the 2010-2014 control periods. Instead, EPA is continuing to allocate production and consumption allowances using the same approach currently used for control periods 2003-2009. Thus the 13 small businesses eligible for allowances for HCFC-22 and HCFC-142b identified in that rulemaking (68 FR 2845) are still eligible for allowances under this rule. In addition, small businesses eligible for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb allowance allocations using the same methodology, are eligible for allowances.

EPA continues to try to reduce further any impacts on small entities. With respect to the allowance allocation system as a whole, EPA is continuing to provide flexibility. Consistent with the methodology for establishing baselines for HCFC-141b, HCFC-22, and HCFC-142b, while small entities will be on the same footing as larger entities, EPA is again using the highest year of consumption. EPA is also limiting consideration of company-specific baseline adjustments to reflect only permanent inter-company transfers made prior to June 16, 2008, to avoid skewing baselines to entities with ample resources or access to information. The ability to transfer allowances among entities provides the greatest flexibility for small entities to manage their allocation. As noted in the 2003 allocation rule (68 FR 2846), unlike with the class I substances, there is no restriction tolimit inter-pollutant transfers to groups of substances. Both inter-pollutant and intercompany transfers of allowances are possible. A small entity can opt for short-term or long term decisions concerning the allowances it holds after evaluating its place in the overall market.

7.2. Specific Requests for Allowances from Small Businesses
 People’s Welding Supply uses HCFC-22, HCFC-142b, and HCFC-124 to manufacture R406A and R-414A, and plans to import a portion of the HCFCs that will be used.7-63 People’s Welding Supply requests the following allowances to permit import of HCFCs to manufacture R-406A and R-414A:

 HCFC-22: 600,000 kg

 HCFC-142b: 450,000 kg

 HCFC-124: 200,000 kg People’s Welding Supply also notes that these allowances are at the low end of the allowances allocated to other companies in the proposed rule. [0093.1]

 Refrigerant Supply Inc., a small business (refrigerant distribution), requests an allowance of 2 million pounds of R-22. The commenter states that their business has suffered because they used domestic HCFC-22 rather than importing it in 2003 and that they will most likely go out of business without importation allowances. Refrigerant Supply Inc states that its only options are to purchase consumption allowances from their current owners, or purchase overpriced domestically produced HCFC-22, and that both of these options are not economically viable. [0124]

EPA Response: In the July 20, 2001, proposed HCFC allocation rule, EPA expressed skepticism about promoting new entrants into the HCFC market: “Encouraging new companies to join the business after the ANPRM would counter the efforts of moving people out of HCFCs into more environmentally sound substitutes. EPA believes that any new entrants following the ANPRM publication would not be precluded from entering the market, because they could purchase allowances from existing allowance holders who may not intend to use their full amount of allowances. They also have the opportunity to import recovered HCFCs through EPA’s petition system or deal in substitutes to HCFCs, which would benefit the ozone layer and provide longer-term business security. Accordingly, EPA believes that the market will sufficiently allow for any new entrants after April 5, 1999, as appropriate.” (66 FR 38073). In the 2003 final rule, (68 FR 2820), EPA provided a limited exemption for companies that began importing HCFCs after the first stakeholder meeting in 1997 but before the ANPRM publication date, after which they would have had reason to know of an imminent rulemaking allocating allowances based on historical production and importation. EPA did not extend this exemption further because once public notice was given via the ANPRM, “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 time eight years ago, access to information and knowledge of the risks regarding entering the HCFC-22 market have only increased. There have been new entrants to the market, as evidenced by commenters seeking allocation rights who were not in operation in 2003. These entities have entered the market by purchasing consumption allowances, as EPA predicted they could back in 2003. These entities can continue to purchase consumption allowances or import substitutes for HCFCs. As the market continues to decrease, EPA does not believe that providing consumption allowances to these or other new entities is necessary to prevent disruption to the continued servicing of existing equipment. Given EPA’s intent to phase down, and ultimately phase out, the use of HCFC-22, 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 in8-64 the market at the initial stages as well as those that have entered the market by purchasing HCFC-22 baseline allowances in accordance with the established practices.

With regard to the request for HCFC-124, EPA is amending §§82.17 and 82.19 to include company-specific production and consumption baselines for HCFC-123, HCFC-124, HCFC-225ca, and HCFC-225cb. EPA is apportioning company-specific baselines for these HCFCs based on production and import data during the 2003-2007 control periods. Entities that wish to enter the market for these other HCFCs that were not producers or importers during 2003-2007 have similar options available to them to purchase baseline allowances from companies that are not using them. EPA anticipates that the market for allowances may be easier for these other HCFCs as EPA is allocating 125% of baseline to companies with baseline allowances.



### 8. TIMELY COMPLETION OF THE RULE EPA received eight commenters urging EPA to expedite the finalization of this rule to allow for an orderly phase-out of HCFC-22 and HCFC-142b.

Count Commenter Organization Document ID No

1 Karim Amrane Air-Conditioning, Heating, and Refrigeration Institute (Public Hearing) EPA-HQ-OAR-2007-0496-0082

2 Adam Devoe Coolgas Inc and Dynatemp International (Public Hearing) EPA-HQ-OAR-2007-0496-0082

3 Robert Wilkins Danfoss EPA-HQ-OAR-2007-0496-0084.1 4 Mark McFarland DuPont EPA-HQ-OAR-2007-0496-0097.1

5 Don Magid and Charles Jones Solvay EPA-HQ-OAR-2008-0496-0106.1

6 Karim Amrane Air-Conditioning, Heating, and Refrigeration Institute EPA-HQ-OAR-2007-0496-0119.1

7 Charlie McCrudden Air Conditioning Contractors of America EPA-HQ-OAR-2008-0496-0122.1

8 Cos Caronna and Steve Maddox Johnson Controls EPA-HQ-OAR-2007-0496-0126.1  AHRI recognizes that EPA attempted to finalize this rule more than 18 months ago but was delayed by inter-agency administrative reviews. [0119.1] Additionally, AHRI states that by EPA’s own admission, the Rule will not be finalized until Summer, 2009. This will be far too late, and AHRI urges EPA to immediately clarify its definition of “manufacture.” [0082]  Coolgas Inc. and Dynatemp International states that the public hearing for this Rule was scheduled too quickly, and it seems apparent that the industry has not had time to analyze the potential effect of the Proposed Rule and the put together meaningful public comment for the hearing. [0082]  Danfoss urges EPA and other governmental entities involved in the rulemaking process to pursue urgently and diligently a timely completion of the rulemaking process, and take into consideration the difficulties that will be caused by the short remaining time period when establishing specifics of the rules. [0084.1]  DuPont notes that there is an urgent need to finalize the regulations as soon as possible in order to provide certainty in the marketplace. DuPont strongly recommends that the EPA8-65 not, at this late date, introduce brand new regulatory proposals that would require additional time for public commenting and finalization. [0097.1]  DuPont strongly encourages EPA to publish the final rule as soon as possible. Producers, importers and distributors of HCFCs will begin sourcing planning for 2010 as early as the middle of 2009. The uncertainty created by the lack of a final allocation rule will complicate this planning process. Delays in publishing the final rule could cause sourcing problems during the first quarter of 2010 when the supply chain is preparing for spring, the time of highest demand for HCFCs for servicing. [0097.1]  Solvay Chemicals urges quick action by EPA to finalize this rule. [0106.1]  ACCA notes that this proposed rule must be enacted in less than one year in order to meet the HCFC phase-out obligations under the Montreal Protocol. ACCA urges EPA to expedite a final rule so that the industry can adequately prepare to its implementation. [0122.1]  Johnson Controls states that the planning and selling cycle of an OEM begins well before the cooling season, and, in fact, starts shortly after the previous season’s sales taper down to what they call an end. The economic slow down is effecting inventory positions as well with slower inventory turnover. Along with this, industry has been planning its product designs to transition to a non-ODS refrigerant for a long period of time. ForJohnson Controls’ residential and light commercial interest, they are moving to mostly R410A for the U.S. market. Johnson Controls states they have been working to fill out with R-410A its entire product line for the past four years based upon its understanding of how the inventory for the domestic reductions and expectations for considerations for exports were understood. It is important to signal these directions due to the long term investment and transition time in product development. This includes both domestic and exports concerns. Johnson Control’s product development plans have been built upon the fact that the transition would occur on Jan. 1, 2010. The EPA’s proposed rule is placing the commenter at risk for potential domestic sale losses if their inventory positions do not line up with the final ruling. [0126.1]

EPA Response:EPA recognizes the importance of having time for industry to adapt to the regulations and has sought to finalize this rule as quickly as practicable. Such timeliness concerns were considered in support for the grandfathering provision allowing for the continued manufacture of appliances beyond January 1, 2010, in some circumstances.