Document ID: EPA-HQ-OAR-2013-0263-0024
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2013-12-24T05:00Z

Just Venting
                                       
                                       

The phase out of HCFC's in the United States has been ramped up (yes up not down) in 2013.

Why or how could this happen?

The long answer is very long, so in a large nutshell it is something like this:  The EPA granted allocation (truly a privilege) to fortunate companies to produce or import a specified number of rights (equates to kg's/or equal # of lbs.).  When two right holding companies sued for a conversion of foam blowing agent gas to a refrigerant gas, they won in court and the EPA made the adjustments. Since no flies were on the wall a little speculation combined with some facts gives us this understanding of what happened.  It looks like the following: There are some very large chemical companies that got proactive and threatened to sue if they lost any of their allocation. So to avoid this conflict some entity of the US Government (Not the EPA because the EPA sincerely wanted a cut back in ozone depleting chemicals, on second thought they may be wanting to avoid another lawsuit.) arbitrarily increased the allocation by 25 million pounds of gas (825 full tractor trailer loads) to make everyone happy (tongue in cheek as you will see).  

The industry operated with confidence and good faith that as per the EPA website the EPA was going to reduce allocation which would increase prices, so reclamation practices would thrive as well as to encourage the production of less harmful chemicals?   But, the opposite happened and some of the victims are as follows:

EPA certified reclaimers.  Before the 25 million pounds was added to the market, the reclamation industry was paying contractors $8 per pound for used refrigerants.  Where as allocation holders of R22 can access gas as low as 50 cents per pound (only $.50).  Do the math; if you were reclaiming R22 gas for a living, you may go bankrupt.  To spell it out, if you are competing in a market and your cost of goods is 8 dollars for the used gas, a dollar or so to reclaim, transportation, testing, and retesting, packaging and destruction cost of bad gas, etc. etc. While at the same time your competition is paying much less than a dollar per pound for virgin raw materials, which also includes packaging, and freight, you do not have a chance nor does the environment. 

Prior to the 25 million pounds being added to the market, market prices were moving toward $16-$18 per pound.  Thus many sales to the aftermarket were at these numbers.  All honest business minds would perceive the sudden increase in allocation would cause a drop in prices.  Thus the pressure put on vendor/customer relationships is unprecedented.

Let's not forget the people (everyone) who will be exposed to the sun without the full benefit of the ozone.  

What can be done?  Probably nothing, as the government has dug in it's heels and the EPA has to enforce this bazaar rule against all their principals of environmental protection.

Who wins?  No one, not even the big winners in court, as they flood the market with gas, the prices will fall and they will be deemed insensitive to the market and environment.  Not to mention they also will be exposed to the sun with less ozone protection.

Also worth mentioning many allocation holders would gladly forfeit their allotment of HCFC's to maintain the smooth transition the EPA was working on.

Equipment manufacturers would have argued for an increase of R22.  The reason is the EPA took away their (equipment manufacturers) ability to charge their own products.  This rule however put the responsibility of charging the gas into the equipment on the HVAC contractor.  The contractor will often place his service charge on the R22 gas, thus making the new R22 equipment less marketable.  In other words, the equipment manufacturers may have hoped that the glut of R22 would help their equipment sales, but that is not the case.

                                 Just Venting

                    A Smooth Transition away from HCFC's
                                       
                               A Goal of the EPA
                                       
*Allocation of HCFC's in 2012, 55 million pounds
*Price of HCFC22 in 2012, $10. /lb.
*Reclamation is thriving
*Non-ozone depleting replacement products gaining market share
*Allocation January 2013, 39 million pounds
*Price of HCFC22 in February 2013, $16. /lb.
*Reclamation is able to fund greater volume
*Blends are doing great
*Allocation April 2013, 63 million pounds
*Price of HCFC's, under 2012 prices
*Supply and demand explains it all
*Reclamation is sick, and may die
*Who needs blends?
*Is this a smooth transition?

 

The following are some formal request as well as informal ones, that were made and no response was ever received:

May 17, 2013

Hello Pete, 

Do you know anyone in EPA compliance, as this matter is quite important and a reliable answer is required?

Before I cut a deal to purchase some HCFC142b vested rights transferred to HCFC22, I have some questions that need to be answered.  The rights were retroactively awarded for the years 2010, 2011, 2012 and there is no way to know if the rights are legitimate. For example: If it is found out that the company I bought these retroactive rights from did not produce all of their HCFC22 allowances in 2010.  It would seem unlikely you could bring in additional 2010 allowances once a company walked away from their unexpended HCFC22 rights in 2010.

The following helps explains my concern as it is clear that  "THE TRANSFEREE' would be held liable:

... Vol. 57 No. 147 Thursday, July 30, 1992  p 33754 (Rule)            
    1/5857  
ENVIRONMENTAL PROTECTION AGENCY 

40 CFR Part 82 ...

(2) The Administrator will determine whether the records 
maintained by EPA, taking into account any previous transfers 
and any production, imports or exports of controlled substances 
reported by the transferor, indicate that the transferor possesses,

as of the date the transfer claim is processed, unexpended
allowances 
or authorizations sufficient to cover the transfer claim (i.e., 
the amount to be transferred plus, in the case of transferors 
of production or consumption allowances), one percent of that 
amount). Within three working days of receiving a complete transfer

claim, the Administrator will take action to notify the transferor 
and transferee as follows: 
   (i) If EPA's records show that the transferor has sufficient 
unexpended allowances or authorizations to cover the transfer 
claim or if review of available information is insufficient 
to make a determination, the Administrator will issue a notice 
indicating that EPA does not object to the transfer and will 
reduce the transferor's balance of unexpended allowances or 
authorizations by the amount to be transferred plus, in the 
case of transfers of production or consumption allowances, one 
percent of that amount. When EPA issues a no objection notice, 
the transferor and the transferee may proceed with the transfer. 
However, if EPA ultimately finds that the transferor did not 
have sufficient unexpended allowances or authorizations to cover 
the claim, the transferor and transferee will be held liable 
for any violations of the regulations of this subpart that occur 
as a result of, or in conjunction with, the improper transfer. 
   (ii) If EPA's records show that the transferor has insufficient 
unexpended allowances or authorizations to cover the transfer 
claim, or that the transferor has failed to respond to one or 
more Agency requests to supply information needed to make a 
determination, the Administrator will issue a notice disallowing 
the transfer. Within 10 working days after receipt of notification,

either party may file a notice of appeal, with supporting reasons, 
with the Administrator. The Administrator may affirm or vacate 
the disallowance. If no appeal is taken by the tenth working 
day after notification, the disallowance shall be final on that 
day.

In my humble opinion this answer should be publicized to protect everyone who may be involved, from manufacturer to unsuspecting purchasers.  Nonetheless I need to know if this market is flooded with unexpended rights who would be liable?

James

PS: Feel free to pass this on, to expedite an answer.
PS: Records show that only 86% of the HCFC rights were expended in 2010, so a great deal of poundage (millions of pounds) is in question.
PS: The rule above is referencing CFC's however I believe that HCFC's are under the same rule.
PS: Update: The rule above is repeated in the current HCFC EPA documents.

May 1, 2013

Bob Perciasepe
Acting Administrator
United States Environmental Protection Agency
1200 Pennsylvania Ave, NW (6205J)
Washington, DC  20460

 Re: Docket # EPA-HQ-OAR-2011-0354                     

Dear Mr. Perciasepe:

There is wide spread support for Title VI of the Clean Air Act, which mandated regulations regarding the use and production of chemicals that harm the Earth's stratospheric ozone layer. The Final Rule published on April 3, 2013 does not support the aggressive action the Agency set forth to reduce the production of HCFCs in the United States. The Agency reversed its direction, and in fact has allowed an additional 18,000,000 pounds in 2013 and 16,000,000 pounds in 2014 of HCFC-22 to be produced and sold into the market place. Consider that this amount of HCFC-22 has the impact of 8 coal-fired power plants annual emission of CO2. The increase in production and consumption allowances for HCFC-22 is not an action that protects the environment.

Congress within the Clean Air Act Amendments required the Agency to establish a recovery and reclamation regulation for ozone depleting substances (ODS).  The Agency's 2009 Rule resulted in an increase to nearly thirteen (13%) percent in reclaiming of HCFC-22 in 2012. The increase was almost double over the period of 2010 to 2011.  This was as a result of the reduction of production and consumption rights. This is more than twice the increase over calendar years 2010 to 2011.  The Agency's previously stated position gave incentives to stakeholders to recover more HCFC-22 and reclaim spent gas. This is the result that Congress intended to protect human health and the environment. 

The docket relating to "Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export" was filled with comments. Many assumptions were put forth which seem to have been given more weight than facts. 
Consider the events leading up to the rule making.  According to facts obtained through a Freedom of Information Request (FOIA), No: HQ-FOI-02013-11 the annual consumption of HCFC-22 fell to 43,509.9 metric tons in 2010, 14.1% less than allocated.  In the April 3, 2013 final rule the Agency supports the industry that no more allowances were needed.  While the Court vacated the 2009 Rule, EPA did not use its authority to remove these products from production and use. 

In 2011 only 94% of all rights were used.  This fact does not include the HCFC-142b rights that were out of play due to litigation. By the Agency's own numbers there is no need to increase consumption or production rights.  This table is empirical proof that allowances have never been fully utilized. 

Table 1

                                     2003
                                     2004
                                     2005
                                     2006
                                     2007
                                     2008
                                     2009
                                     2010
                                     2011
                                     2012
103,320
98,598
107483
93,064
98,939
93,045
58,445
43,509
N/A
N/A
119,384
119,385
119,385
119,385
119,385
119,385
119,385
50,022
45,397
N/A
86.5%
82.6%
89.8%
78%
82.6%
77.7%
48.7%
85.9%
94%
N/A

o    Rights Used
o    Rights Allocated 

Since the records show that not all of the HCFC allowances were imported or produced in 2010 and 2011, then it would be up to the EPA to check the records of the individual companies which transferred their HCFC-142b to HCFC-22 vested rights to see if they indeed imported or produced all of their original allowances of HCFC-22 in 2010 and 2011.  If they did expend all of their HCFC-22 allowances in any given year, then a retroactive award could be acted on, if they failed to expend all of their available HCFC-22 allowances in either of the two years in question, then they would not be eligible to import or produce their retroactive rights.

The Agency has a stated doctrine "worst-first".  The Agency phased-out HCFC-141b first and then failed to apply this stated policy to the HCFC-142b, which would have eliminated this issue, in its entirety!  Keep in mind the ozone depletion factor of HCFC-142b is higher than HCFC-22. 

Did the court have the right to create a new category of HCFC's "HCFC-142b to HCFC-22 vested rights transfer"? The EPA has long ago adopted the "worst first" method for phase out of ozone depleting substances and the EPA should continue to do so.  By listing the "HCFC-142b to HCFC-22 vested rights transfer" would the phase out look like this?

CFC									             by 1995
HCFC 141b								             by 2004
HCFC 142b								             by 2010
HCFC-142b to HCFC-22 Vested Rights Transfer 			  by 2010
HCFC-22					        	          Phase-out begins 2010

It was said in the early stages of the comment period "there will be a shortage of more than twenty-seven million (27,000,000 lbs.) " Market reaction, and EPA's assessment indicate this myth is busted. 

Another element of this issue is equipment. Equipment that uses HCFC-22 has been phased-out more than ten years sooner than previously anticipated.  What is the argument to continue to allow more HCFC-22 into the market when the frontend requirement is gone?

The Agency is faced with a complicated rule making on this matter.  While balancing the rule of law the Agency missed the mark on a simple fact of reducing the percent of gas that can be allowed into commerce. In other words, if the ideal number of pounds was 40 million pounds versus 63 million pounds, the Agency could calculate a higher percentage reduction to all allocation holders, which would give the desired 40 million pounds result.

The market was operating and adjusting to the published statements that were posted on the EPA Web Site.

After receiving the notice that you signed the rule and the rule being published in the Federal Register, April 3, 2013, the price of HCFC-22 has fallen. Companies that are engaged in this industry have seen their value drop as much as 30%.  This too, points to the fact that EPA's adjustment was unwanted and unnecessary.

United States based producers see that, that was an error on the part of the Agency and responded, "Nevertheless, we do not anticipate placing more product in the market place in 2013". At the same time the non-US companies will continue to benefit from this unfortunate mistake.

The January price for HCFC-22 rose to a record high of seventeen dollars and fifty cents per pound ($17.50 per lb.), or ($525.00 per thirty pound cylinder). The price has fallen back, a fact, which will not incent companies to continue with recovery and reclaim.

This rule reverses the Agency's actions to protect Stratospheric Ozone, Human Health and is not good Public Policy. 

We would welcome the opportunity to visit and elaborate.

Sincerely,

Ted Broudy
President

USA Refrigerants
PO Box 289
Old Bridge, New Jersey 08857 

                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                         The Current Market Condition

*R22 prices are collapsing
*Product USA bought at $14.50 a lb. in February is hard to sell at $8. a lb. today
*Every attempt to cost averages our high price gas we are faced with lower priced gas becoming available.
The glut is looming large, and cannot be understated.

                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                  Reclamation
                                       
As a result of the Montreal Protocol, Father EPA and Mother Nature gave birth to the EPA certified reclaimer.

To grow a strong reclamation program, EPA put a substantial excise tax on virgin CFC refrigerants.  Then a radical reduction in allowances put a thriving industry to work.  Creation of these environmental reclamation companies was surely a time to shine if you were in the EPA.

The EPA was made aware of the supportive excise tax, the need for an even playing field and the responsibility to have the back of their first born (The EPA Certified Reclaimers).  

The truth is the EPA certified reclaimer has zero support from the EPA.   The tax or sale of allocation was ignored, and the only promise was to cut allocation of HCFC's.  We all now are aware that allowances increased and virgin gasses are dirt-cheap.

Who can answer any of this?

The correct answer is to notify all allocation holders immediately, and state that there will be zero allocation in the year 2015, and that the EPA will advise about 2016 and beyond.

Sincerely,

James

PS: Google "HCFC Glut" and you will find a letter from the White House.  In 2009 USA Refrigerants made it quite clear there was a glut of R22, and it took two years for the EPA to concur.

PSS: USA Refrigerants spoke on January 7, 2009, at an EPA sponsored stakeholders meeting.  All that was said there that day seemed to be ignored; yet it is quite accurate in hindsight.

                         The R22 pipeline of inventory

The wholesaler

5,000 locations with 3,000 pounds per location approximately                   

                                                                                                                             15 million pounds

Contractors

300,000 individuals with 100 pounds of R22 each, approximately 

                                                                                           30 million pounds

Allowance holders 2013                                                     63 million pounds

                                                   
Allocation holders inventory  (conservative)                    70 million pounds

EPA Certified and ARI reclaimers                                    30 million pounds   

Investors                                                                           20 million pounds

As of 2015 HVAC equipment contains minimum of       500 million pounds

Equipment owners would have 3% back up stock           15 million pounds

The above are educated guesses equaling                   743 million pounds

Illegal imports?  Million pounds

Where is it all going with the demand shrinking?

**Unless and until the grasp of dead inventory and obsolete inventory is considered by experts and explained to the enforcers of refrigerant allocation, there will be an unprecedented glut of R22 at some time in the future with zero demand.  And it is frustrating that the glut we speak of is mitigated to the here and now, and not the inevitable future calamity approaching.**