SETTLEMENT COMMUNICATION

March 23 , 2010

Memorandum

To: Paul Versace, EPA/OGC Randy McDonald, EPA/OAQPS Marcia Mia, EPA/OECA

Cc: Laurel Bedig, DOJ

From: Jamie Conrad, SOCMA Leslie Hulse, ACC

Re: CMAS Reconsideration Petition

­­ Followup fr om our 2/25 Conversation

Thank you for joining the conference call of SOCMA’s Environment Committee and

ACC on February 25 to talk about some of the issues raised in ACC and SOCMA’s joint reconsideration petition.  We are writing to provide you with the additional information and views that we promised then to send you.

This memorandum has several attachments, including a Powerpoint presentation. The memo explains those slides succinctly, but we would be happy to walk you through them orally if that wou ld be helpful, either in a meeting or on another

conference call.

We trust the following will assist EPA in deciding whether to grant our petition.  If you have any additional questions or would like any additional information about

the issues discussed here or the other issues raised in our petition, please contact

one of us.  We can be reached at 202

‐ 822

‐ 1970 (Jamie) or 703

‐ 741

‐ 5165 (Leslie).

Of course, our associations have other individual and joint concerns about the CMAS

rule not addressed in the petition (e.g., SSM ), and we would also like to discuss how EPA and DOJ would like to proceed in discussing possible resolutions of those

issues.

I. Family of Materials

O ur petition asked EPA to either (i) interpret the rule so that the “family of

mat erials” (FOM) concept does not operate to draw into regulation equipment that is not used to process a Table 1 HAP, or (ii) propose to delete that phrase from the rule.  In our conversation , yo u asked us to provide som e practical examples of howCMAS Petition

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the FOM c oncept captures processes and equipment that are not properly subject to

the rule.

Attachment A is a Powerpoint presentation that responds to EPA’s request. It presents five examples that show how the FOM concept operates to bring both equipment and enti re CMPUs into the CMAS rule that are not properly subject to it. It also illustrates the many baffling interpretive questions that the FOM concept unnecessarily creates.

Slide 1 s hows five different CMPUs (A

‐ E) that exist at a single batch process facili ty. These CMPUs all share at least one common piece of equipment (Reactor 1).  Each of

these CMPUs uses different raw materials to produce different intermediates , which

in all cases but E are then isolated in drums.  The resulting isolated intermediate o f

each CMPU A

‐ D is used as a raw material for the next step, culminating in product E

, an active pharmaceutical ingredient

.

Only CMPU A us es a Table 1 HAP, and is thus covered by the CMAS rule.  Because the definition of “chemical manufacturing process” s peaks of equipment used to produce “a product or isolated intermediate,” one would ordinarily expect that

CMPUs B

‐ E would not be covered by the rule.  Note that CMPUs C, D & E employ equipment not even used in CMPU A (Reactor 9, Centrifuge 1 and Distillati on Column 1).  However, if isolated intermediates A

‐ D and product E were regarded as belonging to the same FOM, then all these CMPUs would seem to be regulated by

CMAS

– even though none of them ever contain or produce a Table 1 HAP

.

Slide 2 p resents anot her example using the same equipment as CMPU E on Slide 1.

In this example , CMPUs A and B both use that equipment, and the same raw material X, but use different solvents and produce different products (Z and W) with similar end uses but different applica tions.  CMPU A makes a byproduct that is a Table 1 HAP.  CMPU B does not involve any Table 1 HAPs.  Indeed, it does not use HAPs at all except for cleaning. Again, CMPU B would seem to be unregulated by CMAS, but for the (uncertain) prospect that products Z and W may be deemed to be in the same

FOM.

Slide 3 i llustrates the two processes discussed in Slide 2.

Slide 4 s hows a single reactor that is used to make a variety of specialty polyolefins. It can produce d iffering products depending, among other th ings, on whether the process uses Solvent A (which gives rise to Table 1 HAPs) or Solvent B (which does not).  The various polyolefins have different emissions profiles.  Ordinarily, CMPU A

would clearly be regulated under CMAS and CMPU B would not, but fo r the question of whether the two products are in the same FOM.CMAS Petition

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Slide 5 illustrates the difficulty of applying the FOM concept to pharmaceutical products, given that (i) some CMAS processes would be covered by the Phrma MACT

rule if they were located at m ajor HAP sources , but (ii) the FOM concept is not used in that rule.  In this example, the same CMPU is used to make two different pharmaceuticals that (i) have different pharmacological properties, (ii) are used to treat different conditions or diseases, or (iii) both, and (iv) are regulated as distinct products and processes by the FDA.  Yet they may be quite similar chemically, including potentially being isomers of each other.  Pharma A is produced using a Table 1 HAP (methylene chloride); Phrma B is no t.  How would a source determine if these two products were in the same FOM?

Slide 6 is a self

‐ explanatory text slide that further illustrates the tension between the rule’s delineation of processes by isolation of intermediates and the FOM

concept.

ACC and SOCMA understand that w e encouraged EPA to incorporate the CMPU concept into the CMAS rule and that w e pointed to the MON as precedent.  However, neither association mentioned bringing the FOM concept along.  To the contrary, ACC’s comments provided a definition of CMPU, modeled on the MON definition, that specifically omitted the words “family of materials.” See Attachment B at 14

‐ 15

. Had EPA used this proposed definition the issue addressed here would not have

arisen.

The CMAS rule’s reference to T able 1 HAPs in Section 63.11494(a), combined with the “isolated intermediate” concept in the definition of “chemical manufacturing process,” provides a convenient and bright line that clearly delineates which CMPUs should be regulated and which should not be. The FOM concept adds nothing to this construct except to confuse it.  The issue of circumvention that evidently drove the use of the concept in the MON does not arise in the CMAS rule due to the Table 1 HAP language: either a Table 1 HAP is present as stated in the rule, or it is not.

ACC and SOCMA have not yet been able to formulate an interpretation of FOM that would keep it from doing this, but are open to discussin g such an interpretation.

O ur preference, though, is that EPA propose deleting the concept from the rule.

II. Resea r ch & Development

Batch an d specialty chemical facilities are often hired by larger companies (e.g., pharmaceutical companies) as contract manufacture rs to make product ingredients (e.g., active pharmaceutical ingredients)

. Oftentimes the smaller companies are paid

to conduct process development activities that unquestionably would be considered “research and development” if the larger company conducted them itself.  However, there is some question whether the smaller comp any’s activities are covered by the exemption contained in CAA Section 112(c)(7) due to the fact that the smallerCMAS Petition

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company is paid by the larger company to do them

– albeit usually on a demonstration basis, not a per

‐ kilo basis.  As a result, SO CMA’s commen ts on the proposed rule asked EPA to interpret CAA Section 112(c)(7)’s definition of “research or laboratory facilities” to include activities conducted by a source using equipment and operating conditions that would be considered “research” or “laboratory ” activities if engaged in by a single company.  EPA did not respond to

this request in the final rule or the R esponse to C omments document.

In our February 25 call, we discussed what sort of dividing line would be opt imal to distinguish between a contrac t manufacturer’s “research and development” activities and its subsequent “commercial” manufacturing.  ACC and SOCMA have discussed this issue and offer the following:

• Government

­ regulated products. In any case where a regulatory agency

oversees the sale of the product, the dividing line should be the date th e

agency approved sale of the product.  Thus, FDA approval of a drug would mark the beginning of commercial manufacture of an active ingredient for that drug.  Similarly, EPA approval to sell a pestic ide would mark the beginning of commercial production of an ingredient of that pesticide.

This dividing line best implements Section 112(c)(7)’s use of the phrase “for commercial sale in commerce.”  42 U.S.C. § 7412(c)(7).  It is a canon of statutory inte rpretation that statutes should be interpreted so as to give each word some meaning, rather than in a fashion that makes any word redundant.  Thus, in this case, the phrase “in commerce” should be read to mean something beyond “for commercial sale.”  ACC a nd SOCMA believe that “in commerce” is most properly viewed as meaning “to the general public

, ” so that a sale between two parties to a contract, while arguably “commercial,” would not be a sale “in commerce,” even if a particular transaction between

those parties was based on a per kilo price. 1 Sale “in commerce” would not occur until the product was “commercialized”; i.e., sold to the general public.

The burden would be on the contract manufacturing company to monitor the decisionmaking process of the r egulatory agency and to comply with the CMAS rule as of the approval date.

• Other cases. I n a case where no agency regulates sale of the downstream product, the dividing line between “research and development” and “commercial production” would be at the s ame point as if a single company

1 While contract manufacturers doing process development work are typically paid on a batch or “per demonstration” basis, sometimes a contract manufacturer will

sell its count erparty some supplemental quantities of a product being demonstrated on a kilo basis for clinical trial or other purposes.CMAS Petition

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performed all the activities involved, rather than contracting some of them

out.

Finally, during the February 25 call we also agreed to supply EPA with a citation to

the FDA’s “Current Good Manufacturing Practices ” (CGMP) rules, which a contract manufacturer making an ingredient f or a drug is required to follow. Attachment C

, the comments of PhRMA on the proposed CMAS rule

, discuss es the FDA C GMPs at

pages 11

‐ 12 and 21

. These comments explain how the CGMPs provide assuran ce that air emissions are minimized through requirements for mechanical integrity, leak detection and repair, preventive maintenance, housekeeping and equipment

closure.  It also notes that the Pharma MACT rule specifically approve s them as a compliance al ternative to its cooling tower leak detection requirements

.

III. No Openings

On our February 25 call, Paul asked whether ACC or SOCMA would have any problems with Se ction 63.11495(a)(1) if EPA interpreted it to apply to equipment only “when in use” or “d uring operation,” two phrases contained in the proposed version of that provision. See 73 Fed. Reg. 58377 (Oct. 6, 2008).  ACC and SOCMA said we would not.  We also discussed the possibility of the current requirement being interpreted to apply only when equipment is “empty,” and spent some time talking about ways in which that concept could be operationalized.  We offered to think more about these issues and get back to EPA.

Having done that, ACC and SOCMA are firmly of the view that the only practicable solution to the problems with the “no openings” requirement is for EPA to interpret it to apply as proposed, i.e., only when the equipment in question is “in use” or “during [its] operation.”  These are simple concepts that can be easily applied.  EPA

sho uld be able to say that this interpretation was clearly the intent of the proposal

and that the final rule’ s omission of the quoted terms had not been intended to change that limitation.

In doing so, EPA would need to address the fact that the CMAS defini tion of “chemical manufacturing process” includes “ [ r ] outine cleaning operations.” See

Section 63.11502(b). Obviously, the “no openings” prohibition cannot be complied with during cleaning operations, and so EPA would need to clarify that “in use” or

“ dur in g operation” does not include cleaning operations. 2

2 We recognize that the inclusion of routine cleaning operations resulted from EPA’s derivation of the “chemical manufacturing proce ss” definition from the cognate term in the MON ( see 40 C.F.R. § 63.2550(b), definition of “miscellaneous chemical manufacturing process”).  However, the MON does not a comparable “no openings” prohibition, and thus the problem addressed here does not aris e there.CMAS Petition

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By contrast, ACC and SOCMA have concluded that any attempt to define “empty” is doomed to the interpretive philosophical quandaries that afflict RCRA’s definition of “empty.”  Such a definition i s also likely to be difficult to enforce in practice, given

the difficulties of measur ing residuals in process tanks. Finally, as we discussed during our call, the inclusion of routine cleaning operations in the definition of “chemical manufacturing proce ss” means that the use of a Table 1 HAP like methylene chloride to clean a tank would take it out of the “empty” category and trigger the “no openings” restriction, further complicating the compliance problem.

As a result, ACC and SOCMA urge EPA to announ ce that it interprets Section 63.11495(a)(1) to apply to equipme nt only “ when in use” or “during operation

, ” in either case excluding cleaning operations. If EPA concludes that it needs to change the wording of the rule itself, we urge EPA to seek comment s on that proposal.

IV. De Minimis Exemption

During our February 25 call, ACC and SOCMA noted that we had proposed different “de minimis” thresholds, and said that we would attempt to find a common position. Having discussed the issue, ACC and SOCMA agr ee that EPA should seek comment on a proposal that the CMAS rule would apply only to facilities, otherwise subject to the rule, that :

• emit greater than 2,000 lb/yr actual, controlled emissions of aggregate Table

1 HAPs ; or

• manufacture, process or use more than 25,000 lb/yr aggregate Table 1 HAPs

.

We believe, and our com ments would seek to demonstrate , that this figure would

exempt a number of very low

‐ emitting facilities, for whom the costs of compliance may be highest on a unit of emissions basis, b ut would not significantly affect the

overall volume of emissions capture d by the rule.

* * *

Thank you for your consideration of the foregoing.  We would be happy to provide further explanation of these issues, or the other issues raised in the petit ion, if EPA would find that helpful in deciding whether to grant the petition.