Basis for Quantities Authorized in the No Action Assurance The No Action Assurance letter provided by EPA to the Methyl Bromide Industry Panel authorized the production and import of up to 1,500,000 kg in the absence of a final allocation of allowances. EPA based this amount on the best estimate available to the Agency in late December and early January when it wrote the letters. This is the same analysis contained in the 2011 CUE Allocation proposed rule that was submitted to OMB in November. The calculations, as described in the version of the rule that initiated OMB review, are as follows:

Proposed Critical Use Amounts Table C of the annex to Decision XXI/11 lists critical uses and amounts agreed to by the Parties to the Montreal Protocol. When added together, the total authorized critical use for 2010 is 2,055,200 kg, which is equivalent to 8.1% of the U.S. 1991 methyl bromide consumption baseline. The maximum amount of authorized new production or import authorized by the Parties is 1,855,200 kg (7.3% of baseline) as set forth in Table D of the annex to Decision

XXI/11. The difference between the total authorized amount and the authorized amount of new production is the minimum that the Parties expect the U.S. to use from pre-phaseout inventory. This difference is 200,000 kg (0.8% of baseline). EPA is proposing to allocate 346,998 kg (1.4 % of baseline) of existing pre-phaseout inventory for critical uses in 2011. EPA is also proposing to exempt limited amounts of new production and import of methyl bromide for critical uses for 2011 in the amount of 1,635,335 kg (6.4% of baseline). EPA is seeking comment on the proposed total levels of exempted new production and import for critical uses and the amount of material that may be sold from pre-phaseout inventory for critical uses. The following sub-sections explain EPA’s reasons for proposing the above critical use amounts for

2011.

1. Approach for Determining Critical Stock Allowances The 2004 Framework Rule established the provisions governing the sale of pre-phaseout inventories for critical uses, including the concept of Critical Stock Allowances (CSAs) and a prohibition on the sale of pre-phaseout inventories for critical uses in excess of the amount of CSAs held by the seller. In addition, EPA noted that pre-phaseout inventories were further taken into account through the trading provisions that allow CUAs to be converted into CSAs. EPA is not proposing changes to these basic CSA provisions. Previous decisions further addressed pre-phaseout inventory of methyl bromide. For example, Decision XX/5 states “that a Party with a critical use exemption level in excess of permitted levels of production and consumption for critical uses is to make up any such differences between those levels by using quantities of methyl bromide from stocks that the Party has recognized to be available.” In the Framework Rule (69 FR 52366), EPA issued CSAs in an amount equal to the difference between the total authorized CUE amount and the amount of new production or import authorized by the Parties. In each of the subsequent CUE Rules, EPA allocated CSAs in amounts that represented not only the difference between the total authorized CUE amount and the amount of authorized new production and import but also an additional amount to reflect available stocks. After determining the CSA amount, EPA reduced the portion of CUE methyl bromide to come from new production and import in each of the 2006-2010 control periods such that the total amount of methyl bromide exempted for critical uses did not exceed the total amount authorized by the Parties for that year.As established in the earlier rulemakings, EPA views the inclusion of these additional amounts in the calculation of the year’s overall CSA level as an appropriate exercise of discretion. The Agency is not required to allocate the full amount of authorized new production and consumption. The Parties only agree to “permit” a particular level of production and consumption; they do not – and cannot – mandate that the U.S. authorize this level, or any level, of production and consumption domestically. Nor does the CAA require EPA to allow the full amount permitted by the Parties. Section 604(d)(6) of the CAA does not require EPA to exempt any amount of production and consumption from the phaseout, but instead specifies that the Agency “may” create an exemption for critical uses, providing EPA with substantial discretion. When determining the CSA amount for a year, EPA considers what portion of existing stocks is “available” for critical uses. As discussed in prior CUE rulemakings, the Parties to the Protocol recognized in their Decisions that the level of existing stocks may differ from the level of available stocks. For example, Decision IX/6 states that “production and consumption, if any, of methyl bromide for critical uses should be permitted only if . . . methyl bromide is not available in sufficient quantity and quality from existing stocks.” Previous decisions refer to use of “quantities of methyl bromide from stocks that the Party has recognized to be available.” Thus, it is clear that individual Parties have the ability to determine their level of available stocks. Decision XXI/11 further reinforces this concept by including the phrase “minus available stocks” as a footnote to the United States’ authorized level of production and consumption in Table D. Section 604(d)(6) of the CAA does not require EPA to adjust the amount of new production and import to reflect the availability of stocks; however, as explained in previous rulemakings, making such an adjustment is a reasonable exercise of EPA’s discretion under this provision. EPA employs the concept of “available stocks” to determine how many additional CSAs to allocate beyond the minimum stock amount stipulated by the Parties. EPA calculates “available” stocks using the following formula: AS 2011 = ES 2010 – D 2010, – SCF2011 , where AS 2011 is the available stocks on January 1, 2011; ES 2010 is the existing pre-phaseout stocks of methyl bromide held in the United States by producers, importers, and distributors on January 1, 2010;

D 2010 is the estimated drawdown of existing stocks during calendar year 2010; and SCF2011 is the supply chain factor for 2011. Using this formula, EPA calculates that there will be 364,536 kilograms of pre-phaseout stocks of methyl bromide “available” on January 1, 2011. Existing Stocks In the above formula, “ES 2010” refers to pre-phaseout inventory – methyl bromide that was produced before the January 1, 2005, phaseout date but was reported to EPA by domestic producers, distributors, and third-party applicators as still being held as of December 31, 2009. It does not include material held by end users. ES 2010 also does not include critical use methyl bromide that was produced after January 1, 2005, and carried over into subsequent years. Nor does it include methyl bromide produced 1) under the QPS exemption, 2) with Article 5 allowances to meet the basic domestic needs of Article 5 countries, or 3) for feedstock or transformation purposes. EPA considers all pre-phaseout inventory to be suitable for both pre-plant and post harvest uses. Similarly, EPA considers pre-phaseout inventory to be accessible by all users, including users in California and the Southeastern United States. These assumptions are discussed in the preamble to the 2009 CUE rule (74 FR 19887).

Estimated DrawdownIn its proposed rule for 2010 CUEs, EPA proposed to estimate the drawdown of existing stocks (the D 2010 term in the above equation) by using a simple linear fit estimation of inventory data from all available years. In the 2010 final rule, however, EPA used end-of-year reporting data and did not need to estimate drawdown.For 2011, EPA is proposing to estimate the drawdown of inventory in 2010 by estimating the amount of CSAs likely to have been expended in 2010 for critical uses plus an additional amount for non-critical uses. EPA believes that the proposed method would produce a more

accurate estimate of drawdown than the linear estimation that EPA has used in earlier CUE rules. A linear estimate would project that only 13 MT of methyl bromide would remain in inventory on January 1, 2011. This estimate does not consider that the use of inventory on critical uses is limited by the allocation of CSAs. The first factor in EPA’s proposed drawdown estimate is the amount of inventory used in 2010 on critical uses. This amount can be no greater than the number of CSAs allocated in the 2010 CUE Rule, which is 1,028,108 kg. EPA believes, however, that not all the CSAs allocated in 2010 will be used. End of year reporting data show that every year there are unexpended CSAs. In 2009, EPA allocated 1,919,193 kg as CSAs but only 1,127,490 kg of inventory was used. This is equivalent to 59% of the CSAs allocated. In 2006, the year which had the highest proportion of CSAs allocated to CSAs used, EPA allocated 1,136,008 kg and 784 MT was used. This is equivalent to 69%. These data are contained in EPA’s annual Accounting Frameworks

submitted to UNEP and are available in the docket. EPA therefore believes that not all of the CSAs allocated in 2010 will be expended. Therefore, EPA proposes to estimate that, at most, 70% of the CSAs allocated in 2010 will be used for critical uses. This amounts to 719,676 kg (1,028,108 kg x 70%). The second factor in EPA’s proposed drawdown estimate is the amount of methyl bromide used on non-critical uses in 2010. These are uses that are allowed under existing methyl bromide labeling. While this labeling has been changed under the reregistration decision for methyl bromide pesticides under FIFRA, the new labeling does not take effect until after 2010. These non-critical uses are limited to using pre-phaseout inventory, not newly produced methyl bromide. EPA proposes to estimate the amount used on these non-critical uses by averaging the non-critical use amounts from 2006-2009. EPA is not including 2005 because it does not have data for that year. These data are contained in EPA’s annual Accounting Frameworks submittedto UNEP and are available in the docket. The average use of pre-phaseout inventory on noncritical uses over the last four years is 804 MT. Therefore, EPA proposes to adopt this average

as its estimate of non-critical use in 2010. EPA proposes to estimate the maximum potential drawdown of inventory in 2010 as the sum of 1) the estimated use of CSAs for 2010 and 2) the estimate for non-critical uses for 2010. Using this method, EPA projects that the pre-phaseout methyl bromide inventory, which was 3,062,674 kg on January 1, 2010, will be drawn down by 1,523,676 kg (719,676 + 804,000) during 2010. This would result in a pre-phaseout inventory of 1,538,998 kg on January 1, 2011. EPA’s proposed methodology for estimating the inventory drawdown is described in more detail in the Technical Support Document available in the public docket for this rulemaking. EPA specifically welcomes comment on this proposed method of calculating inventory drawdown. As an alternative means of estimating the drawdown, EPA is also considering a simple linear fit estimation of inventory data from all available years, as described in the proposed 2010 CUE rule. The linear estimate is contained in the Technical Support Document in the docket. In addition, while EPA intends to make every effort to publish a final 2011 rule by the end of 2010, EPA may use actual end-of-the year data if such data are available within a reasonable time before the final rule is signed. Supply Chain FactorThe SCF represents EPA’s technical estimate of the amount of prephaseout inventory that would be adequate to meet a need for critical use methyl bromide afteran unforeseen domestic production failure. As described in the 2008 CUE Rule, and the Technical Support Document contained in the docket to this rule, EPA estimates that it would take 15 weeks for significant imports of methyl bromide to reach the U.S in the event of a major supply disruption. Consistent with the regulatory framework used in the 2008 through 2010 rules, the SCF for 2011 conservatively reflects the effect of a supply disruption occurring in the peak period of critical use methyl bromide production, which is the first quarter of the year. While this 15-week disruption is based on shipping capacity and does not change year to year, other inputs to EPA’s analysis do change each year including the total U.S. and global authorizations for methyl bromide and the average seasonal production of critical use methyl bromide in the U.S. Using updated numbers, EPA estimates that critical use production in the first 15 weeks of each year (the peak supply period) currently accounts for approximately 58% of annual critical use methyl bromide demand for 2011. EPA, therefore, estimates that the peak 15- week shortfall in 2011 could be 1,192,000 kg (2,055,200 kg x 58%). As EPA stated in the 2008, 2009, and 2010 CUE Rules, the SCF is not a “reserve” or “strategic inventory” of methyl bromide but is merely an analytical tool used to provide greater transparency. A general discussion of the SCF is in the final 2008 CUE rule (72 FR 74118) and further detail about the analysis used to derive the value for the 2011 supply chain factor is provided in the Technical Support Document in the public docket for this rulemaking. Using the following formula: AS 2011 = ES 2010 – D 2010, – SCF2011 , EPA calculates that there will be 346,998 kilograms of pre-phaseout stocks of methyl bromide “available” on January 1, 2011. (346,998 = 3,062,674 – 1,523,676 – 1,192,000). EPA therefore proposes to allocate 346,998 kg as critical stock allowances for 2011.

2. Approach for Determining New Production and Import Amounts For the 2011 control period, EPA is proposing to apply the existing framework established in the Framework Rule. Under this approach, the amount of new production equals the total amount authorized by the Parties to the Montreal Protocol in Decision XXI/11, minus the CSA amount detailed above, minus any additional reductions for carryover and uptake of alternatives. Applying this established approach, EPA is proposing to exempt limited amounts of new production and import of methyl bromide for critical uses in 2011 in the amount of 1,635,335 kg (6.4% of baseline). EPA is taking comment on this approach. Carryover Material As discussed in the Framework Rule, EPA does not permit the building of stocks of methyl bromide produced or imported after January 1, 2005, under the critical use exemption. Quantities of methyl bromide produced, imported, exported, or sold to end-users under the critical use exemption in a control period must be reported to EPA the following year. EPA uses these reports to calculate the amount of methyl bromide produced or imported under the critical use exemption, but not exported or sold to end-users in that year. EPA deducts an amount equivalent to this “carryover” from the total level of allowable new production and import in the year following the year of the data report. Carryover material (which is produced using critical use allowances) is not included in EPA’s definition of existingstocks (ES) (which applies to pre-phaseout material) because this would lead to a doublecounting of carryover amounts, and a double reduction of critical use allowances (CUAs). Companies reported that 2,273,600 kg of critical use methyl bromide were acquired through production or import in 2009. The information reported to EPA is that 2,200,733 kg of critical use methyl bromide were exported or sold to end-users in 2009. EPA calculates that the carryover amount at the end of 2009 was therefore 72,867 kg, which is the difference betweenthe reported amount of critical use methyl bromide acquired in 2009 and the reported amount of exports or sales of that material to end users in 2009 (2,273,600 - 2,200,733 = 72,867). Using the existing framework, EPA is proposing to apply the carryover deduction of 72,867 kg to the new production amount as it has in all prior CUE rules. EPA’s calculation of the amount of carryover at the end of 2009 is consistent with the method used in previous CUE rules, and with the method agreed to by the Parties in Decision XVI/6 for calculating column L of the U.S. Accounting Framework. The 2009 U.S. Accounting Framework is available in the public docket for this rulemaking. As in past years, EPA will take into account additional reports received within a reasonable time in calculating the carryover amount for the final 2011 rule. Uptake of Alternatives EPA considers new data regarding alternatives that were not available at the time the U.S. Government submitted its CUN to the Parties, and adjusts the allocation for new production accordingly. Two alternatives not considered in the 2011 CUN have the potential to be used in 2011 but EPA cannot estimate any amount of uptake with certainty because their registrations remain incomplete. In July 2010, EPA registered Dimethyl Disulfide (DMDS) to control nematodes, weeds, and pathogens in tomatoes, peppers, eggplants, curcurbits, strawberries, ornamentals and forest nursery seedlings, and onions. While this federal registration is final, individual states must also register DMDS for that fumigant to be used in that state. No states have currently registered DMDS though EPA anticipates that states will likely do so. At this point EPA cannot estimate a rate of uptake because such calculations require knowing the states in which the alternative will be used. EPA anticipates uptake to be minimal in the first year as growers experiment on a limited number of acres. Similarly, until California finalizes its proposed registration of Iodomethane, EPA will not know the use rates, emission mitigation requirements, buffer distances, and other factors necessary in estimating the uptake. While EPA is not proposing a specific amount of reduction to account for the uptake of these alternatives, EPA will consider new data received during the comment period. If the registration status of either of these alternatives changes, EPA is proposing to estimate and account for that uptake in the final rule. EPA is not proposing to take any other reductions for alternatives because the 2011 CUN properly applied transition rates for alternatives in all other sectors. The TEAP report of September 2009 included reductions in its recommendations for critical use categories based on

the transition rates in the 2011 CUN. The TEAP’s recommendations were then considered in the Parties’ 2011 authorization amounts, as listed in Decision XXI/11. Therefore, transition rates, which account for the uptake of alternatives have already been applied for authorized 2011

critical use amounts. EPA continues to gather information about methyl bromide alternatives through the CUE application process, and by other means. EPA also continues to support research and adoption of methyl bromide alternatives, and to request information about the economic and technical feasibility of all existing and potential alternatives.

3. Summary of Calculations The calculations described above for determining the level of new production and critical

stock allowances are summarized in the table below:

Step 1: Calculate supply chain factor Kilograms

U.S. authorization for 2011 in Decision XXI/11 2,055,200
- Reduction for uptake of alternatives 0 = One year's CUE need 2,055,200
x Percentage of year's production to recover from production failure 58%= Supply Chain Factor 1,192,000

Step 2: Calculate available stocks Existing pre-phaseout inventory on January 1, 2010 3,062,674 - Drawdown of inventory for critical uses 719,676
- Drawdown of inventory for non-critical uses 804,000 - Supply Chain Factor (Step 1) 1,192,000

= Available stocks = Critical Stock Allowance 346,998

Step 3: Calculate carry over Reported as produced/imported in 2008 2,273,600 - Reported as sold in 2008 2,200,733
= Carry over 72,867

Step 4: Calculate new production
Total U.S. authorization for 2010 (Decisions XXI/11) 2,055,200 - Critical Stock Allowance (Step 2) 346,998
- Carryover (Step 3) 72,867 - Uptake of alternatives 0 = New production = Critical Use Allowance 1,635,335