February 6, 2009

The Honorable Elizabeth Craig

Acting Assistant Administrator for Air 

U.S. Environmental Protection Agency

Ariel Rios Building

1200 Pennsylvania Avenue, N.W. 

Washington, D.C. 20460

Re: EPA’s Proposed Ban on the Sale or Distribution of Pre-Charged
Appliances, Docket ID No. EPA-HQ-OAR-2007-0163, 73 Fed. Reg. 78705
(December 23, 2008).

EPA’s Proposed Adjustments to the Allowance System for Controlling
HCFC Production, Import, and Export, Docket ID No. EPA-HQ-OAR-2008-0496,
73 Fed. Reg. 78680 (December 23, 2008).

Dear Ms. Craig: 

The U.S. Small Business Administration’s (SBA) Office of Advocacy
(Advocacy) submits the following comment on the Environmental Protection
Agency’s (EPA) proposed rule, Protection of Stratospheric Ozone: Ban
on the Sale or Distribution of Pre-Charged Appliances (“pre-charged
ban”). Beginning on January 1, 2010 (“deadline”), the proposed
rule would ban the sale or distribution of air-conditioning and
refrigeration appliances containing HCFC-22, HCFC-142b, or blends
containing one or both of these substances.  The rule would also extend
to air-conditioning and refrigeration appliances that are suitable only
for use with newly produced HCFC-22, HCFC-142b, or blends containing one
or both of these controlled substances (“restricted refrigerants”). 

Advocacy applauds EPA for issuing prompt clarifications about the
pre-charged ban in response to concerns raised by stakeholders about
servicing equipment that use restricted refrigerants.  Advocacy
encourages EPA to incorporate those provisions in the final rule,
clarifying: (1) that uncharged components manufactured after 2010 that
can be field charged with recycled refrigerant can continue to be
manufactured after the deadline, and (2) that the rule will allow
charged component parts manufactured prior to the deadline to be used in
servicing existing equipment.  However, as discussed below, additional
rule revisions are also warranted to address some remaining small
business issues.

This comment letter also discusses EPA’s related proposed allocation
rule, Protection of Stratospheric Ozone: Adjustments to the Allowance
System for Controlling HCFC Production, Import, and Export, published on
the same day as the pre-charged ban proposed rule.  Advocacy believes it
is necessary to address both proposed rules in this letter because a
proper interpretation of the pre-charged ban proposal requires use of
certain definitions and interpretive language contained in the preamble
of the proposed allocation rule.  

We and many others were surprised by EPA’s certification in the
pre-charged ban proposal that this rule would have no effect on small
entities.  However, as explained below, we now understand that EPA meant
that there would be no adverse effect on small entities based on the
assumption that EPA’s proposal would leave no stranded inventory.  In
fact, many small manufacturers, distributors and retailers could incur
significant financial losses unless the EPA revises the proposed rule
and related interpretations of the scope of the ban.  Advocacy agrees
with EPA regarding the need for restrictions on refrigerants in order to
protect stratospheric ozone, and believes the proposals below will offer
adequate flexibility for small entities, while still achieving the goal
of protecting stratospheric ozone.

Office of Advocacy

Advocacy was established by Congress under to Pub. L. 94-305 to
represent the views of small entities before federal agencies and
Congress.  Advocacy is an independent office within SBA, so the views
expressed by Advocacy do not necessarily reflect the views of SBA or the
Administration. 

The Regulatory Flexibility Act (RFA), as amended by the Small Business
Regulatory Enforcement Fairness Act, gives small entities a voice in the
rulemaking process.  For all rules that are expected to have a
significant economic impact on a substantial number of small entities,
federal agencies are required by the RFA to assess the impact of the
proposed rule on small businesses and to consider less burdensome
alternatives.  

Moreover, Executive Order 13272 requires federal agencies to notify
Advocacy of any proposed rules that are expected to have a significant
economic impact on a substantial number of small entities and to give
every appropriate consideration to any comments on a proposed or final
rule submitted by Advocacy.  Further, the agency must include, in any
explanation or discussion accompanying publication in the Federal
Register of a final rule, the agency's response to any written comments
submitted by Advocacy on the proposed rule.

Advocacy Comments

The Factual Basis for the Proposal’s Certification Is Incorrect; A
Revised Final Rule Can Provide a Proper Foundation for A New
Certification of No Significant Economic Effect

EPA certified that the pre-charged ban “will not have a significant
economic impact on a substantial number of small entities.”  EPA
identified the following categories of businesses affected by the
proposed rule: chlorofluorocarbon gas manufacturers, importers, and
exporters (NACIS Code 325120) and manufacturers and importers of air
conditioners and refrigerators (NACIS Code 333415).  EPA further
explained that, “[t]his proposed rule will not impose any requirements
on small entities.  None of the entities affected by this rule are
considered small as defined by the NACIS Codes listed above.” 

Advocacy disagrees with the EPA’s factual basis for the certification:
approximately 90% of businesses that manufacture and import air
conditioners and refrigerators (NAICS codes 333415) have fewer than 500
employees.  The relevant small business size standard is 750 employees,
and therefore, over 90% of the businesses in these two sectors are
considered small businesses.  The proposed rule states there is no
impact, but even if the costs associated with purchasing alternative
refrigerant and manufacturing component costs are only slightly higher
than status quo, the rule will have some economic impact on the
manufacturers, although we agree that this cost would not cause a
significant economic impact.  

However, there was no discussion of the potential economic impact of
stranded inventory on retailers and distributors of air conditioners,
refrigerators, and other appliances subject to the pre-charged ban.  The
adverse economic impact to those small entities, as well as
manufacturers, could be quite high due to stranded inventory that could
not be sold to the ultimate consumer by the deadline.  Either retailers
and distributors would have to absorb the inventory costs, or
manufacturers would be left with equipment they can no longer sell.   

Advocacy now understands that EPA’s intent was to prevent any
significant stranded inventory problem, and thus assumed there were no
inventory related costs, and no adverse impacts on retailers and
distributors.  Indeed, EPA stated in the preamble that the January 2010
date was chosen “to provide adequate planning time for the various
stakeholders to take actions to permit for a smooth transition.”  If
the final rule achieves EPA’s intent of eliminating inventory related
costs, then EPA could properly certify the rule as having no significant
cost on affected small businesses of all types.  EPA should revise its
factual foundation for the certification in the final rule.  In
conclusion, while the agency failed to provide a factual foundation for
the proposal, Advocacy agrees that, with a solution to the stranded
inventory problem, the final rule can be properly certified.  

 

EPA should allow sale and distribution of air conditioning and
refrigeration units that were placed into initial inventory prior to
January 1, 2010.

Advocacy endorses exemptions to the “interstate commerce” ban that
would allow the continued sale of products subject to the pre-charged
ban beyond the deadline if the items were manufactured prior to January
1, 2010.  Otherwise, the pre-charged ban could have adverse effects
reaching beyond the air-conditioning and refrigeration industry to
retailers, distributors, and manufacturers of products that incorporate
such products (e.g. boat manufacturers).

The air-conditioning business is seasonal, and many purchasing and
manufacturing decisions for summer 2009 have already been finalized.  We
have been informed by small entity representatives that manufacturers,
distributors and retailers virtually all understood that products could
be manufactured through December 31, 2009.  Retailers and manufacturers
with leftover inventory should be allowed to sell their inventory to
mitigate any harmful effects on the industry, as EPA apparently
intended.  Advocacy encourages EPA to adopt a grandfathering provision
for air-conditioning and refrigeration appliances and components
containing restricted refrigerants manufactured prior to January 1,
2010, that are placed in initial inventory prior to the deadline.  

Definition of manufactured 

Advocacy disagrees with EPA’s new proposed interpretation of when
air-conditioning and refrigeration appliances and components are
considered “manufactured.”  EPA puts forward a narrow definition of
“manufactured” in the allocation proposed rule: an appliance is
considered to be “manufactured” at the point it becomes “a
stand-alone piece of equipment,” ready to function for its purpose. 
As a result, EPA considers some appliances, such as those used in
commercial and industrial process refrigeration, to be
“manufactured” at the installation site: at the point when all the
components are installed, the refrigerant loop is completed, and the
devices are fully charged with refrigerant.

Advocacy believes that for split systems (e.g., an air handler and a
compressor unit), the completion of a refrigerant loop, or the on-site
adjustment of equipment to its proper charge should not be considered
the date of manufacture of the appliance.  Advocacy would argue that
these actions should be considered service or installation activities,
rather than manufacturing.  Even though installation of these component
appliances may be a more complex process, the actual manufacture of each
component appliance should be the date when the appliance component left
the manufacturer and entered initial inventory, regardless of the
complexity of installation.  This comports with the conventional
understanding of the word “manufacturing.”  

Advocacy asks EPA to use the same language adopted in the 2001
Reconsideration of the 610 Nonessential Products Ban for class I
refrigerants so that the items are considered “manufactured” once
they enter the initial inventory at the manufacturing site.  The 2001
rule gives a definition of initial inventory that is compatible with
common industry usage: the date “that the original product has
completed all its processes and is ready for sale by the
manufacturer.”  EPA has used shipping forms, lot numbers, manufacturer
date stamps or codes, invoices, or the like to determine proof of the
date of manufacture, and Advocacy would urge a similar objective
approach for all appliances subject to the pre-charged ban.  EPA’s new
definition would conflict with the conventional understanding of
“manufacturing” and contribute to unnecessary confusion. 

Exemptions from the pre-charged ban

Manufacture of component parts containing very small initial charge for
servicing equipment

Advocacy understands that EPA is open to considering an exemption to
allow some small pre-charged units (TXV valves and other equipment as
industry may suggest) to continue to be manufactured beyond 2010 if the
industry can show that it is not cost-effective or practical to
manufacture such item as an uncharged component.  Advocacy asks that EPA
allow exemptions for these units in order to ensure an adequate
inventory of component parts available to service equipment manufactured
prior to January 1, 2010. 

	Prior existing contracts or plans for equipment subject to the
pre-charged ban

In order to minimize the adverse economic effects of the pre-charged
ban, Advocacy also suggests that the  EPA: (1) make exemptions for
binding contracts for the purchase of equipment made prior to the
deadline but for economic or other reasons cannot be delivered until
after 2010, and (2) provide an exemption for construction projects that
have received building code approval of plans that include equipment
subject to the pre-charged ban but will not be completed until the
pre-charged ban is in effect.  In this current economic climate, we
expect that this would be a significant problem.  These exemptions are
necessary to achieve EPA’s expressed goal of avoiding stranded
inventory.  Without these exemptions, EPA would jeopardize the RFA
certification of no significant economic impacts on small entities.  

Conclusion

Advocacy believes that EPA’s current certification is improper because
its stated factual basis is incorrect.  However, a revised final rule
incorporating Advocacy’s suggested changes may be properly certified
as posing no significant economic impact on small entities.

 

Advocacy recommends that EPA address the following issues:

interpret “manufactured” as “the date in which the appliance is
placed in initial inventory, where the original product has completed
all of its manufacturing processes and is ready for sale by the
manufacturer,” a definition consistent with both industry practice and
prior EPA and DOE rulemakings;

allow continued production of certain small units containing de minimis
levels of restricted refrigerant after the deadline if it is not
practical or cost-effective to manufacture these items with no charge;
and

provide exemptions from the pre-charged ban where plans to use
restricted refrigerants were in place before the ban.

Thank you for the opportunity to comment on this proposed rule. Please
feel free to contact me or Kevin Bromberg at (202) 205-6964 (or  
HYPERLINK "mailto:Kevin.Bromberg@sba.gov"  Kevin.Bromberg@sba.gov ) if
you have any questions or require any additional information. 

Sincerely,

Shawne C. McGibbon

Acting Chief Counsel for Advocacy

Kevin Bromberg

Assistant Chief Counsel for Advocacy

Anna S. Rittgers

Mercatus Fellow, Office of Advocacy

cc: Kevin Neyland, Acting Administrator

Office of Information and Regulatory Affairs

Office of Management and Budget

ENDNOTES

Page   PAGE  2  of   NUMPAGES  7 

 73 Fed. Reg. 78705 (Dec. 23, 2008). 

 Ibid.

 Ibid.

 73 Fed. Reg. 78680 (Dec. 23, 2008).

 5 U.S.C. § 601 et seq.

 Pub. L. 104-121, Title II, 110 Stat. 857 (1996) (codified in various
sections of 5 U.S.C. § 601 et seq.).

 Executive Order No. 13,272, 67 Fed. Reg. 53,461 (Aug. 13, 2002).

 73 Fed. Reg. 78714 (Dec. 23, 2008).

 Ibid.

 Ibid.	

 Ibid.

 Out of 720 total firms, 633 have fewer than 500 employees.  Employer
Firms, & Employment by Employment Size of Firm by NAICS Codes, 2006.  
HYPERLINK "http://www.sba.gov/advo/research/us06_n6.pdf" 
http://www.sba.gov/advo/research/us06_n6.pdf 

 73 Fed. Reg. 78710 (Dec. 23, 2008).

 73 Fed. Reg. 78714 (Dec. 23, 2008).

 Advocacy asks EPA to use an approach similar to that found in 40 CFR
Part 82, subpart C. 

 

 73 Fed. Reg. 78699 (Dec. 23, 2008).

 66 Fed. Reg. 57520 (Nov. 15, 2001).

