1 DuPont Chemicals & Fluoroproducts

Chestnut Run Plaza 702

P.O. Box 80702 Wilmington, DE 19880-0702

August 31, 2011

Docket ID No. EPA-HQ-OAR-2010-1040

Air and Radiation Docket and Information Center U.S. Environmental Protection Agency

Mail Code 6102T 1200 Pennsylvania Ave., NW Washington, DC 20460

E. I. du Pont de Nemours and Company (“DuPont”) is pleased to provide comments on various issues raised by the Environmen tal Protection Agency (“EPA”) in the interim final rule, Protection of Stratospheric Ozone: Adjustment to th e Allowance System for Controlling HCFC Production, Import, and Export 76 Fed. Reg. 47,451 (August 5, 2011) (“Interim Rule”).

As an initial matter, DuPont appreciates EPA’s cont inued leadership in efforts to implement the Montreal Protocol on Substances that Deplete the Ozone Layer (“Montreal Protocol”). We support the Agency’s continuing wor k to implement the Montreal Protocol on a chemical-by-chemical basis that allow s for a smooth transition in meeting the requirements of the Protocol and the Clean Air Act (“CAA”). Nevertheless, we have concerns with several aspects of the Interim Rule. First, amending Arkema’s and Solvay’s baselines to account for their 2008 inter- pollutant transfers violates the CAA and DuPont’s due process rights. The United States Court of Appeals District of Columbia Circuit (“D.C. Circuit”) Arkema v. EPA decision did not address the validity of those transfers, but rather simply assumed they wer e valid for purposes of the challenge

to the 2009 allocation rule 1 Thus, we do not believe that EPA is mandated by that decision simply to assume the validity of those tra nsfers. A more prudent course would be for EPA to grant the pending petition for recons ideration of these transfers filed jointly by DuPont and Honeywell. If EPA determines that th e transfers are void ab initio , EPA’s justification for the Interim Rule would be moot.

We also are concerned that the Interim Rule not ext end beyond 2011. To the extent that EPA has justified the “good cause” exem ption to the CAA and the Administrative Procedure Act to promulgate a rule w ithout notice and comment, it has done so only for 2011. DuPont believes that it is imperative that EPA undergo notice and comment rulemaking to address an appropriate alloca tion scheme for 2012 and beyond. We also take this opportunity to comment on several issues raised by the interim rule. Specifically, we would like to comment on th e following issues: (1) the annual

1 74 Fed. Reg. 66,412 (December 15, 2009).2

reduction in hydrochlorofluorocarbon-22 (“HCFC-22”) consumption allocation amounts for years 2012-2014; (2) the use of different perce ntages of baseline in allocating calendar-year production and consumption allowances ; and (3) whether the vacatur and remand issued by the United States Court of Appeals District of Columbia Circuit requires any further rulemaking to address 2010 all owances

I. Reduction in HCFC-22 Consumption Allocation Amounts for 2012-2014

DuPont fully supports EPA’s objective of “encouragi ng a smooth transition to the 2015 stepdown” to 10% of baseline HCFC consumption as required under provisions of

the Montreal Protocol. Our current market assessme nt, however, suggests that the yearover-year reductions in consumption allowances as s pecified in the 2009 allocation rule are not sufficient to accomplish this objective. I nstead, it would appear possible for EPA to further reduce total annual HCFC-22 consumption allowances for the years 2012 through 2014.

In taking such action, EPA should consider larger r eductions for 2012 than for 2013 and 2014 to draw down inventories and encourag e a more rapid movement toward higher rates of recovery and reclamation of HCFC-22 . Further reductions in consumption allowances would not only ensure a smoo th transition to the 2015 stepdown but would also reduce the risk of future ozone depl etion. In addition, such reductions might discourage installation and field charging of new condensing units with HCFC-22. Continued installation of such units will only incr ease the challenge of meeting the 2015 stepdown and increase emissions of HCFC-22 to the a tmosphere.

Our belief that the total HCFC-22 production allowa nces in the 2009 allocation rule are too large to achieve the desired objective is based on a combination of several factors. First, it must be remembered that the 200 9 allocation rule was based on information available to the agency as of the date of promulgation of that rule, including a 2005 Notice of Data Availability 2 and a subsequent stakeholder meeting held in 2006.

More recent and accurate information is now availab le and show that greater reductions in consumption allowances are warranted.

Second, the previously projected shortfall in the H CFC-22 allowances allocated as compared to projected demand in the June 2008 re port prepared for EPA, The U.S. Phaseout of HCFCs: Projected Servicing Needs in the U.S. Air-Conditioning and Refrigeration Sector

(“Service Tail report”), encouraged companies thro ughout the value chain to build inventory of HCFC-22. This report i ndicated that the servicing need for HCFC-22 in 2010 was 62,500 metric tons. The final allocation rule, however, allocated allowances at 20% below the modeled need in 2010, d ecreasing to 26% below the modeled need in 2014 based on the expectation that recycled and reclaimed HCFCs would offset the need for newly-manufactured HCFCs. The Agency stated that it “believe[d] that reduction in the allocation each y ear from 2010 to 2014 to reflect declining demand will lead to higher rates of recov ery and recycling/reclamation.” 3

While DuPont does not dispute the 2008 report, EPA’ s allocation of allowances

2 70 Fed. Reg. 67,172 (November 5, 2005).

3 74 Fed. Reg. at 66,247.3

depended on several projections, including the deve lopment of greater capacity to recycle and reclaim HCFCs in response to constraints placed upon the supply of newly-produced HCFCs. The effect of these layered projections and the inherent uncertainty involved in making such projections can encourage conservative behavior in producing, acquiring, and retaining HCFCs for later use. EPA should use the opportunity afforded by new notice-and-comment rulemaking to update and revise its assessments.

Finally, the HCFC-22 demand assumptions used in dev eloping the Service Tail report, in retrospect, were too high. They did not adequately account for the success of GreenChill Partnership or the market awareness of p otential HCFC-22 shortages at that time (which caused end users to improve maintenance to reduce emissions). These factors have reduced HCFC-22 demand. In this regar d, and as further detailed below, EPA data show that only about 86% of the HCFC-22 co nsumption allowances were actually used in 2010 and that 2010 reclamation was only about 30% of what is projected to be required in 2015. This provides evidence tha t the total HCFC-22 consumption allowances provided for 2010 in the 2009 allocation rule exceeded those needed by the market and supports the belief that, overall, the t otal HCFC-22 production allowances in the 2009 allocation rule are too large.

II. Allocation of Different Percentages of Baseline Calendar-year Production Allowances and Calendar-year Consumption Allowances

The interim final rule states that “EPA welcomes co mment on whether an increase in the level of production allowances woul d result in more U.S. production, either for domestic use or for export, and whether any additional U.S. production for export would result in greater worldwide production of HCFCs.” 4 We believe that an increase of production allowances could result in m ore U.S. production for both domestic use and for export. Baseline production allowances are less than baseline consumption allowances. Because making product requires both a production and consumption allowance, to make product equivalent to consumptio n allowances an allowance holder must either import HCFC-22 or transfer additional p roduction allowances to the U.S. This situation is exacerbated by the fact that a si gnificant amount of production allowances are held by an entity that no longer has HCFC-22 production facilities in the

U.S. If the EPA does not allocate additional HCFC- 22 production allowances, or worse yet, further decreases those production allowances, the ability of U.S. suppliers to export to developing country markets will be restricted, a llowing offshore competitors to take market share from U.S. producers.

Additional U.S. HCFC-22 production for export will not result in greater worldwide production of HCFCs. Total HCFC-22 use i s determined by market demand, not production capacity. Instead, additional U.S. HCFC-22 production allowances will only allow U.S. producers to meet existing demand d omestically and in Article 5

countries. Additional allowances will not serve in crease demand – but merely help determine which global producers have an opportunit y to compete to service that demand.

4 76 Fed. Reg. at 47,463.4

Not allocating additional production allowances wil l only penalize domestic producers to the benefit of producers in Article 5 countries.

The interim final rule also states that EPA must “p romulgate regulations to insure that the consumption of class II substances in the United States is phased out and

terminated in accordance with the same schedule . . . as is applicable to the phase-out and termination of production of class II substances un der [Title VI].’’ 5 EPA is considering three possible interpretations of the term ‘‘schedu le’’ as referenced in section 605(c) of the CAA: (1) The schedule that appears on the face of section 605, which contains no deadlines until 2015; (2) the schedule that appears on the face of section 605, as accelerated under section 606; and (3) the specific allocation percentages or amounts established by EPA through rulemaking for each cont rol period. In the interim rule, EPA expresses the agency’s opinion that the second inte rpretation is the most consistent with the statutory language and purpose of the CAA. DuP ont supports this interpretation and believes that there was no intent for rules impleme nted under Title VI of the CAA to disadvantage domestic HCFC producers to the advanta ge of offshore producers when there is no environmental gain in such limitations.

Altogether, for the reasons stated above, DuPont en courages the EPA to allocate different percentages of baseline calendar-year pro duction allowances than for calendar year consumption allowances for HCFC-22 for years 2 012 and beyond. Production allowance allocations should ensure that domestic p roducers are not disadvantaged by reducing their ability to compete in both domestic and Article 5 markets. Of course, such allocations should be consistent with U.S. obligati ons under the Montreal Protocol and DuPont would clarify that is not requesting EPA to allocate additional production allowances for calendar year 2011.

III. EPA Does Not Need to Address 2010 Allowances

While EPA has indicated that it is not addressing 2 010 allowances in the interim final rule, the agency states that it “plans to tak e comment in a future notice-andcomment rulemaking on whether the vacatur and reman d [in Arkema v. EPA 6 ] should be interpreted as applying to the 2010 allocations, an d if so, how allowances in future control periods might be adjusted to reflect this.” 7 Such a rulemaking is unnecessary and not required by the D.C. Circuit decision in Arkema . Were the agency nonetheless to proceed with such rulemaking, it would be inappropr iate and potentially unlawful for the agency to adjust future allowances in order to read just retroactively 2010 allocations.

The Arkema decision vacated the 2009 allocation rule “insofar as it operates retroactively” and remanded the matter for resoluti on by EPA. 8 The interim final rule, coupled with a rulemaking addressing 2012-14 alloca tions, addresses fully EPA’s obligation under the Arkema remand. In the interi m final rule, EPA amended the

5 Id

. 6 618 F.3d 1 (D.C. Cir. 2010).

7 76 Fed. Reg. at 47,456.

8 618 F.3d 1, 18.5

phaseout schedule of 40 C.F.R. § 82.16 for 2011, ch anged the baseline production allowances for Arkema in 40 C.F.R. § 82.17 and chan ged the baseline consumption allowances for Arkema, Solvay Fluorides and Solvay Solexis in 40 CFR § 82.19. Nothing else is required with respect to 2010 alloc ations. Any attempt by EPA to adjust allowances in future control periods to address all ocations made for the 2010 control period is unnecessary and would unlawfully harm tho se that appropriately relied on the

2009 allocation rule. 9

In addition, available data demonstrates that the industry as a whole only utilized 86 percent of available allowances in 2010. The ex istence of unused allowances in 2010 would strongly suggest that Arkema and Solvay were not meaningfully harmed in 2010 by the 2009 allocation rule. The data further demo nstrates that DuPont and others did not benefit in 2010 at Arkema’s and Solvay’s expense. Therefore, any adjustment to future allocations to mitigate for this alleged harm is un warranted would only result in yet

another windfall to those entities.

Finally, reducing DuPont’s allowances in future all ocation periods as a form of mitigation to Arkema and Solvay would cause signifi cant financial harm to DuPont and would constitute unlawful retroactive rulemaking on the part of EPA. At bottom, EPA cannot correct one allegedly unlawful act by undert aking yet another.

* * *

Thank you again for the opportunity to submit these comments. Should you require further explanation on any matter contained within these comments please contact

Mack McFarland at e-mail mack.mcfarland@usa.dupont.com or by phone at 302 999

2505.

9 EPA’s specified that the rule was effective on Jan uary 1, 2010. 74 Fed. Reg. at 66,412.