Document ID: EPA-HQ-OAR-2011-0354-0006
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2012-01-04T05:00Z

Memo: Recoupment Options
EPA is not proposing to provide recoupment, but is taking comment on the issue. If the agency decides to address 2010 allowances, it would consider providing recoupment to the following entities:

Table 1: Proposed Recoupment Allowances:

Company
Chemical
Consumption (kg)
Production (kg)
Arkema
HCFC-22
                                                                      4,749,692
                                                                      4,611,848
DuPont
HCFC-142b
                                                                          2,339
                                                                              0
Honeywell
HCFC-142b
                                                                         58,291
                                                                        107,097
Solvay Fluorides
HCFC-22
                                                                      1,157,895
                                                                              0
Solvay Solexis
HCFC-142b
                                                                              0
                                                                        289,800

Under Option 1:
EPA would provide recoupment in the 2013 control period in addition to the amount allocated through the typical process. The process for determining allowances would go as follows:
   1) First, EPA would determine the percentage of baseline it would allocate to provide consumption allowances in 2013 absent recoupment. 
         a. For HCFC-22 in 2013, EPA would divide the aggregate allocation amount by 141,865,381 kg, the total of all company baselines for HCFC-22 consumption, to determine the resultant percentage of baseline allocated. For example, an aggregate allocation of 35,900,000 kg (consumption allocation from the 2009 Final Rule without the 11-47 percent proposed decrease) divided by the total of all baselines would create a baseline percentage of 25.3 percent in 2013.
   2) All companies would receive the percentage of baseline established in Step 1 for calendar-year production and consumption allowances (recall that the two percentages could be different if EPA decides to decouple production and consumption allowances).
   3) For companies receiving recoupment, EPA would then add the total amount listed in Table 1, above, to the percentage of baseline allocated in 2013 only.

The same procedure would be used to determine HCFC-142b allowances. Allowances in 2012 and 2014 would be unaffected by recoupment.

To effectuate this option in the regulations, proposed section 82.16(a)(2) would be added to read as follows:

*  *  *  *  * 

(a)  *  *  *  (2) Recoupment allowances. In the control period beginning January 1, 2013 and ending December 31, 2013, the following companies are granted a one-time amount of HCFC consumption and production allowances in addition to the percentage of baseline listed in the table at paragraph (a)(1) of this section equal to: 4,749,692 kg of HCFC-22 consumption allowances and 4,611,848 kg of HCFC-22 production allowances to Arkema; 2,339 kg of HCFC-142b consumption allowances to DuPont; 58,291 kg of HCFC-142b consumption allowances and 107,097 kg of HCFC-142b production allowances to Honeywell; 1,157,895 kg of HCFC-22 consumption allowances to Solvay Fluorides; and 289,800 kg of HCFC-142b production allowances to Solvay Solexis. 

*  *  *  *  * 

Under Option 2:
EPA would provide recoupment in the 2013 and 2014 control periods in addition to the amount allocated through the typical process. The process for determining allowances would go as follows:
   1) First, EPA would determine the percentage of baseline it would allocate to provide consumption allowances in 2013 and 2014 absent recoupment. 
         a. For example, the aggregate HCFC-22 consumption allocation amount in each year would be divided by 141,865,381 kg, the proposed aggregate baseline for all companies, in order to determine the percent of baseline issued.
   2) All companies would receive the percentage of baseline established in Step 1 for calendar-year production and consumption allowances.
   3) For companies receiving recoupment, EPA would then add half of the amount listed in Table 1, above, to the percentage of baseline allocated in 2013 and 2014.
         a. In the case of HCFC-22 consumption allowances, Arkema and Solvay Fluorides would receive an additional 2,374,846 kg and 578,947 kg each year, respectively. In the case of HCFC-22 production allowances, Arkema would receive an additional 2,305,924 kg each year.

The same procedure would be used to determine HCFC-142b allowances. Allowances in 2012 would be unaffected by recoupment.

To effectuate this option in the regulations, proposed section 82.16(a)(2) would be added to read as follows:

*  *  *  *  * 

(a)  *  *  *  (2) Recoupment allowances. In the control period beginning January 1, 2013 and ending December 31, 2013, and the control period beginning January 1, 2014 and ending December 31, 2014, the following companies are granted an additional amount of HCFC consumption and production allowances in addition to the percentage of baseline listed in the table at paragraph (a)(1) of this section equal to: 2,374,846 kg of HCFC-22 consumption allowances and 2,305,924 kg of HCFC-22 production allowances to Arkema; 1,170 kg of HCFC-142b consumption allowances to DuPont; 29,146 kg of HCFC-142b consumption allowances and 53,549 kg of HCFC-142b production allowances to Honeywell; 578,947 kg of HCFC-22 consumption allowances to Solvay Fluorides; and 144,900 kg of HCFC-142b production allowances to Solvay Solexis.

*  *  *  *  * 

Under Option 3: 
EPA would provide recoupment from the total allocation level spread over the 2013 and 2014 control periods. The process for determining consumption allowances would go as follows:
   1) First, EPA would determine the percentage of baseline it would allocate to provide consumption allowances in 2013 and 2014 absent recoupment. 
   2) Second, for the companies receiving recoupment allowances, EPA would determine what the initial allocation would be absent recoupment by multiplying their baseline by the determined baseline percentage for 2013 and 2014.
   3) EPA would then add half of these companies' recoupment allowances to their initial allocation for 2013 and 2014.
         a. In the case of HCFC-22 consumption allowances, Arkema would receive an additional 2,374,846 kg in 2013 and 2014; Solvay Fluorides would receive an additional 578,947 kg in 2013 and 2014
   4) EPA would then subtract the number of allowances provided to the companies receiving recoupment from the total number of allowances allocated for 2013 and 2014. 
         a. Assuming that there is no decrease in HCFC-22 consumption allowances from the 2009 Final Rule, the 2013 allocation provided to Arkema and Solvay Fluorides would be 16,215,885 kg of the 35,900,000 kg overall allowance, leaving 19,676,056 kg for all other allowance holders.
   5) To determine the percent of baseline allocated to all other allowance holders, EPA would divide the remaining allowances calculated in step 4 by the number of baseline allowances held by all companies not receiving recoupment.
         a. In the case of 2013 HCFC-22 consumption allowances, the remaining number of allowances would be divided by the remaining baseline 89,446,048 kg (141,865,381 kg  -  48,637,642 kg for Arkema  -  3,781,691 kg for Solvay Fluorides = 89,446,048 kg). The resulting percentage for every company beside Arkema and Solvay Fluorides is 3.3 percentage points lower than what would be allocated absent recoupment.
The same process would be used for HCFC-142b consumption allowances in both 2013 and 2014. Allowances in 2012 would be unaffected by recoupment. 

For HCFC-22 production allowances in 2013 and 2014, the following process would be used:
   1) For the companies receiving recoupment allowances, EPA would determine what the initial allocation would be absent recoupment in both 2013 and 2014.
         a. For example, if EPA chooses to provide 25.3 percent of baseline for HCFC-22 in 2013, EPA would first provide Arkema with 11,813,161 kg (or 25.3 percent of its baseline) of HCFC-22 production allowances.
   2) EPA would then add half of these companies' recoupment allowances to their initial allocation in 2013 and 2014.
         a. Continuing the example, in the case of 2013 HCFC-22 production allowances, Arkema would receive 11,813,161 kg plus 2,305,924 kg for a total of 14,119,085 kg in 2013.
   3) EPA would then subtract the number of allowances provided to the companies receiving recoupment from the total number of allowances allocated for 2013 and 2014. 
         a. Continuing the example, 14,119,085 kg of the resulting 32,660,395 kg overall allowance would be provided to Arkema, leaving 18,541,310 kg for all other allowance holders.
   4) To determine the percent of baseline allocated to all other allowance holders, EPA would divide the remaining allowances calculated in step 3 by the number of baseline allowances held by all companies not receiving recoupment.
         a. Continuing the example, 18,541,310 kg would be divided by the remaining baseline of 82,400,136 kg (129,092,472 kg  -  46,692,336 kg for Arkema = 82,400,136 kg). The resulting percentage is 22.5 percent: 2.8 percentage points lower than what would be allocated absent recoupment. All entities not receiving recoupment would be allowed to produce 22.5 percent of their baseline.

For HCFC-142b production allowances, the only way to provide recoupment is to increase the amount of allowed production in both 2013 and 2014. There are three companies with HCFC-142b production allowances: Arkema, Honeywell and Solvay Solexis. Using the same formula as above, Honeywell and Solvay Solexis (the two companies who would receive recoupment under option 3) would receive 118,459 kg and 320,546 kg as their initial allocation (or 4.9 percent of their baseline), followed by 53,548 kg and 144,900 kg, respectively, in recoupment allowances. The result is 637,454 kg in total HCFC-142b production allowances. While the goal of this option is to keep total production allowances at 4.9 percent of the aggregate baseline (for a total calendar-year allocation of 462,740 kg) in each year, this is impossible if full recoupment is provided and would result in an additional allocation of 174,414 kg of allowed HCFC-142b production. Even though Arkema has an HCFC-142b baseline, once recoupment is provided, there are no additional HCFC-142b allowances remaining like in the HCFC-22 scenarios, leaving Arkema with zero HCFC-142b production allowances in 2013 and 2014. 

To effectuate option three in the regulations, proposed section 82.16(a)(2) would be added to read as follows:

 *  *  *  *  * 

(a)  *  *  *  (2) Recoupment allowances. (A) In the control period beginning January 1, 2013 and ending December 31, 2013, and the control period beginning January 1, 2014 and ending December 31, 2014, the following companies are granted an additional amount of HCFC consumption and production allowances in addition to the percentage of baseline listed in the table at paragraph (a)(1) of this section equal to: 2,374,846 kg of HCFC-22 consumption allowances and 2,305,924 kg of HCFC-22 production allowances to Arkema; 1,170 kg of HCFC-142b consumption allowances to DuPont; 29,146 kg of HCFC-142b consumption allowances and 53,549 kg of production allowances to Honeywell; 578,947 kg of HCFC-22 consumption allowances to Solvay Fluorides; and 144,900 kg of HCFC-142b production allowances to Solvay Solexis.

(B) In the control period beginning January 1, 2013 and ending December 31, 2013, and the control period beginning January 1, 2014 and ending December 31, 2014, ABCO Refrigeration Supply, Altair Partners, Carrier, Coolgas Investment Property, DuPont, H.G. Refrigeration Supply, Honeywell, Mexichem Fluor Inc., Kivlan & Company, MDA Manufacturing, Mondy Global, National Refrigerants, Refricenter of Miami, Refricentro, R-Lines, Saez Distributors, and USA Refrigerants must subtract 3.3 percentage points from the percentage of baseline allocated at 82.16(a)(1) for HCFC-22 consumption allowances and 2.8 percentage points from the percentage of baseline allocated at 82.16(a)(1) for HCFC-22 production allowances to determine their annual allocation of allowances. 

(C) In the control period beginning January 1, 2013 and ending December 31, 2013, and the control period beginning January 1, 2014 and ending December 31, 2014, Arkema and Solvay Solexis must subtract 4.4 percentage points from the percentage of baseline allocated at 82.16(a)(1) for HCFC-142b consumption allowances. In the control period beginning January 1, 2013 and ending December 31, 2013, and the control period beginning January 1, 2014 and ending December 31, 2014, Arkema must subtract 4.9 percentage points from the percentage of baseline allocated at 82.16(a)(1) for HCFC-142b production allowances.

 *  *  *  *  * 
EPA would also need to footnote the table(s) at 82.16(a)(1) to indicate the instances in which (a)(2) adjustments reduce the percentage set forth in the table.

Under Option 4:
EPA would not provide recoupment allowances as described in section III.B.4. of the preamble of the proposed rule. EPA would not need to change the regulatory text if it chooses this option.

Summary
The tables below shows how each of these options would impact HCFC-22 and HCFC-142b allocations in 2012-2014:

HCFC-22 Allocation in Metric Tons with Recoupment Options 1-4*

                                     2012
                                     2013
                                     2014

Consumption
Production
Consumption
Production
Consumption
Production
Option 1
                                    40,715
                                    37,050
                                    41,800
                                    37,272
                                    31,069
                                    28,271
Option 2
                                    40,715
                                    37,050
                                    38,846
                                    34,966
                                    34,022
                                    30,577
Option 3
                                    40,715
                                    37,050
                                    35,894
                                    32,659
                                    31,071
                                    28,270
Option 4
                                    40,715
                                    37,050
                                    35,892
                                    32,660
                                    31,069
                                    28,271
*All options assume the amount of allowed production does not increase and the amount of allowed consumption does not decrease as compared to the 2009 Final Rule. 

HCFC-142b Allocation in Metric Tons with Recoupment Options 1-4

                                     2012
                                     2013
                                     2014

Consumption
Production
Consumption
Production
Consumption
Production
Option 1
                                      100
                                      463
                                      161
                                      860
                                      100
                                      463
Option 2
                                      100
                                      463
                                      131
                                      661
                                      131
                                      661
Option 3
                                      100
                                      463
                                      100
                                      637
                                      100
                                      637
Option 4
                                      100
                                      463
                                      100
                                      463
                                      100
                                      463