Overview of the Proposed Rule Regarding HCFC Allowances Between 2012 and 2014
EPA is proposing and taking comment on a number of options and changes in this Notice of Proposed Rulemaking (NPRM) titled "Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export," regarding HCFC allowances for 2012 through 2014. The preamble presents many overlapping options for how production and consumption allowances for HCFC-22 and HCFC-142b are determined for the years 2012 through 2014. Baselines and allocations for all HCFCs other than HCFC-22 and HCFC-142b are the same as in the 2009 Final Rule (74 FR 66412). In this rule, EPA is proposing to do and taking comment on the following: 
   (1) Use the HCFC-22 and HCFC-142b baselines established in the 2011 Interim Final Rule for 2012 through 2014; 
   (2) Address 2010 allowances in light of the U.S. Appeals Court for the D.C. Circuit's decision in Arkema v. EPA; 
   (3) Use the same formula to provide HCFC-142b consumption and production allowances for 2012 through 2014 as the agency did in the 2009 Final Rule; 
   (4) Provide the same or fewer HCFC-22 consumption allowances relative to the 2009 Final Rule; 
   (5) Provide the same or more HCFC-22 production allowances relative to the 2009 Final Rule; and 
   (6) Revise the regulations at 40 CFR Part 82.23 to clarify EPA's position on inter-pollutant transfers. 
A summary of each proposal is provided below. Full discussion and references to additional supporting documentation can be found in the preamble to the NPRM. 
   1) Baselines would be the same as set in the 2011 IFR
         a. 2008 inter-pollutant trades made by Arkema and Solvay would be reflected consistent with the decision in Arkema v. EPA
         b. Single-pollutant, inter-company trades occurring after the 2009 Final Rule would be reflected
         c. All other baselines would be the same as 2009 Final Rule
            
   2) Addressing 2010 Allowances
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:
                                    Company
                                   Chemical
                          Consumption Allowances (kg)
                          Production Allowances (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
      
         a. The agency is providing four options to address recoupment (i.e. the missed opportunity to produce or import HCFCs in 2010):
                 i. In addition to the total allocation ("the pie") for either chemical in 2013 only 
                 ii. In addition to the pie in 2013 and 2014 
                 iii. From the pie in 2013 and 2014
                     1. If EPA goes with this option, it would need to allocate additional HCFC-142b production allowances as there are too few allowances to provide full recoupment.
                 iv. No recoupment: EPA cannot provide meaningful recoupment since 2010 allowances have no value beyond December 31, 2010
                 v.                  If EPA decides to provide recoupment, the agency is taking comment on whether it should provide recoupment for (1) HCFC-22 and HCFC-142b consumption and production allowances or (2) only HCFC-22 consumption allowances.
   3) Annual HCFC-142b Allocation 
EPA is proposing to allocate HCFC-142b allowances, both consumption and production, using the same methodology as in the 2009 Final Rule. In order to maintain approximately the same level of consumption as in the 2009 Final Rule, the new baseline percentage would be 4.9%, which would result in the allowance allocations shown below:
                                       
                                       
                                     2012
                                     2013
                                     2014
                                       

                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                    R-142b
                                     Cons.
                                      100
                                       7
                                      100
                                       7
                                      100
                                       7

                                     Prod.
                                      463
                                      30
                                      463
                                      30
                                      463
                                      30

                            % of Baseline Allocated
                                     4.9%
                                     4.9%
                                     4.9%
      NB: The numbers listed here are rounded 
   4) Annual HCFC-22 Consumption Allocation
EPA is considering two options for the HCFC-22 consumption allocation. The first is to leave aggregate consumption allowances the same as the 2009 Final Rule -- which corresponds to a decrease in the baseline percentage issued each year. The other option is to decrease the total consumption allocation by between 11 and 47 percent each year, which would affect all companies proportionally.
         a. With no decrease in aggregate allocation levels, the number of HCFC-22 consumption allowances (and the corresponding percentage of baseline) would be as follows:
                                       
                                       
                                     2012
                                     2013
                                     2014
                                       
                                       
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                     R-22
                                     Cons.
                                    40,700
                                     2,200
                                    35,900
                                     2,000
                                    31,100
                                     1,700

                            % of Baseline Allocated
                                     28.7%
                                     25.3%
                                     21.9%
      NB: The numbers listed here are rounded 

         b. Under the second option, EPA would allocate an amount within the range included in the table below:
                                       
                                       
                                     2012
                                     2013
                                     2014
                                       
                                       
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                          Highest Annual Allocations
                                     Cons.
                                    36,200
                                     2,000
                                    31,400
                                     1,700
                                    26,200
                                     1,400

                            % of Baseline Allocated
                                     25.5%
                                     22.1%
                                     18.5%
                           Lowest Annual Allocations
                                     Cons.
                                    25,100
                                     1,400
                                    20,900
                                     1,100
                                    16,500
                                      900

                            % of Baseline Allocated
                                     17.7%
                                     14.7%
                                     11.6%
      NB: The numbers listed here are rounded 
   5) Annual HCFC-22 Production Allocation
EPA is proposing to (1) provide the same amount of HCFC-22 production allowances as in the 2009 Final Rule, (2) provide the same percentage of baseline for HCFC-22 production allowances as in the 2009 Final Rule, or (3) provide production allowances at the same level as consumption allowances. Under option 2, the number of HCFC-22 production allowances would increase relative to the 2009 Final Rule, which would allow companies whose baselines were not changed to produce HCFC-22 at the same level as established in the 2009 Final Rule. The agency would need to decide to decouple production and consumption in order to finalize options 1 or 2.
         a. Under option 1 (same approximate amount as the 2009 Final Rule), EPA would provide the following number and percentage of allowances:
                                       
                                       
                                     2012
                                     2013
                                     2014
                                       
                                       
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                     Prod.
                                    37,000
                                     2,000
                                    32,700
                                     1,800
                                    28,300
                                     1,600
                            % of Baseline Allocated
                                     28.7%
                                       -
                                     25.3%
                                       -
                                     21.9%
                                       -
            NB: The numbers listed here are rounded
         b. Under option 2 (same percentage of baseline allocated for production as in the 2009 Final Rule), EPA would provide the following number and percentage of allowances:
                                       
                                     2012
                                     2013
                                     2014
                                       
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                     Prod.
                                    44,000
                                     2,400
                                    38,900
                                     2,100
                                    33,700
                                     1,900
                            % of Baseline Allocated
                                     34.1%
                                       -
                                     30.1%
                                       -
                                     26.1%
                                       -
            NB: The numbers listed here are rounded
         c. If EPA provides the same percentage of baseline for production allowances as it does for consumption, EPA would allocate between the high and low amounts included in the table below:
                                       
                                       
                                     2012
                                     2013
                                     2014
                                       
                                       
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                                      MT
                                    ODP MT
                          Highest Annual Allocations
                                     Prod.
                                    32,900
                                     1,800
                                    28,500
                                     1,600
                                    23,900
                                     1,300
                                       

                            % of Baseline Allocated
                                     25.5%
                                     22.1%
                                     18.5%
                           Lowest Annual Allocations
                                     Prod.
                                    22,800
                                     1,300
                                    19,000
                                     1,000
                                    15,000
                                      800

                            % of Baseline Allocated
                                     17.7%
                                     14.7%
                                     11.6%
      NB: The numbers listed here are rounded 
   6) Inter-pollutant transfers 
EPA is proposing to:
         a. Modifiy the language at 82.23(d) to memorialize EPA's policy not to allow permanent inter-pollutant transfers of baseline allowances
         b. Modifiy the language at 82.23(b) to clarify that EPA allows inter-pollutant transfers of Article 5 allowances
         c. Modifiy the language at 82.23(a) to clarify that a 0.1 percent offset applies to Article 5 allowance transfers

In addition to the options summarized above, EPA is also taking comment on:

   * Whether the installation of dry-shipped HCFC-22 condensing units will affect the phaseout of virgin HCFC-22 production and import.

   * Whether providing allowances to reclaimers would affect the market price of R-22, and what effect that price change would have on the transition away from ODS and the sustainability of the reclamation industry. 

   * Whether other companies (in addition to the one small business who commented on this issue) are having difficulty acquiring HCFCs or HCFC allowances.

   * Whether an allocation to manufacturers of HCFC blends who are having difficulty acquiring HCFCs or HCFC allowances would be appropriate. Commenters supporting such an allocation should consider (1) how EPA might determine the total amount of such an allocation, (2) how EPA might determine which companies should receive allowances, (3) how EPA would verify that allowance holders are refusing to sell HCFCs and HCFC allowances, (4) how EPA might set baselines for these companies, (5) whether EPA should provide allowances in addition to the amount proposed in this rule, or as part of the amount proposed in this rule, and (6) how providing allowances to an additional set of companies would affect the U.S. transition away from HCFCs.
            
   * The analysis, supporting data, and assumptions presented in the Adjustment Memo (formally titled, "Analysis of HCFC-22 Servicing Needs in the U.S. Air Conditioning and Refrigeration Sector").

   * Whether there would be an environmental benefit to updating company baselines for 2015 and beyond based on more recent data.

   * Whether, relative to the 2009 Final Rule, an increase in the total number of production allowances would result in (1) an increase in U.S. consumption, (2) an increase in U.S. production, either for domestic use or for export, and/or (3) an increase in worldwide production and/or consumption of HCFCs. Moreover, given that one potential outcome might be an increase in U.S. exports of HCFC-22, EPA invites comment on the implications of such an increase for the U.S. economy and the global environment, particularly as it relates to the smooth U.S. phaseout of HCFC-22. EPA also requests comments on whether section 605(c) would preclude allocating a different percentage of baseline for production than for consumption.
