Baseline Memo 
Effects of HCFC-22 and HCFC-142b Baseline Changes: The 2009 Final Rule vs. 2011 Proposed Rule 
Purpose
This memo compares the 2009 Final Rule to the 2011 Proposed Rule (covering 2012 through 2014 allowances) in light of proposed changes to production and consumption baselines. The memo assumes approximately the same amount of consumption allowances would be provided as in the 2009 Final Rule, and that production and consumption would still be allocated at the same percentage. It does not discuss the possibility of recoupment. Should recoupment occur, it could change the numbers included in this memo. Additionally, the Proposed Rule provides an option of reducing consumption allocations and increasing production allocations; both of these actions would further alter the numbers in this memo.
Background
In the 2009 Final Rule, the following amounts were allocated to HCFC-22 and HCFC-142b consumption between 2012 and 2014:
                                       
                                     2012
                                     2013
                                     2014
                                    HCFC-22
                                   40,700 MT
                                   35,900 MT
                                   31,100 MT
                                   HCFC-142b
                                    100 MT
                                    100 MT
                                    100 MT
      
EPA is proposing to use the same methodology to provide allowances in the 2011 Proposed Rule as it did in the 2009 Final Rule, and is proposing one allocation option where the number of consumption allowances would be about the same; however, the actual number of production allowances given to companies would be different in this rule than in the 2009 Final Rule, regardless of which allocation option is chosen. This is a result of the way EPA allocates production and consumption allowances under Title VI of the Clean Air Act (CAA). 
To allocate allowances, EPA is proposing to continue using the following formula for each HCFC: 
      Step 1: Add up all company-specific consumption baselines. 
      Step 2: Determine how much consumption the market needs for a given year, taking into account recycled and reclaimed material.
      Step 3: Divide calendar-year consumption needs (Step 2) by the aggregate amount of baseline allowances (Step 1). 
      Step 4: The resulting percentage is listed in the table at section 82.16 and becomes what each company is allowed to consume in a given control period. 
Historically, EPA has allocated the same percentage of baseline allowances for HCFC production as it does for HCFC consumption. 
In 2012 through 2014, EPA is proposing to allow for at least 12,500 MT of HCFC-22 demand to be met with recovered and reclaimed material. Since the aggregate HCFC-22 baselines are increasing due to Arkema and Solvay's 2008 inter-pollutant transfers, the percentage of baseline allowed in 2012 through 2014 must decrease in order to issue the same, or fewer, calendar-year allowances. While consumption would remain at roughly the same level, there would be slight differences in the number of production allowances for HCFC-22 and HCFC-142b. 
 This occurs because the aggregate HCFC-22 production baseline would increase less than the aggregate consumption baseline relative to the 2009 Final Rule due to differences in whether production allowances, consumption allowances, or both were transferred. Arkema, Inc. transferred both production and consumption baseline allowances. Solvay, on the other hand, only transferred its baseline consumption allowances. The increase in aggregate baseline production would therefore be less than the increase in aggregate baseline consumption (see the table below). Since the proposed allocation percentage (not considering the proposed adjustment of 11 to 47 percent) would be chosen with the goal of getting the aggregate number of consumption allowances to match what is in the 2009 rule, when that same percentage is applied to the production baseline, calendar-year HCFC-22 production would decrease. For HCFC-142b, using the same allocation percentage for production as for consumption would result in more production allowances being allocated than in the 2009 Final Rule due to the differences in whether production allowances, consumption allowances, or both were transferred, as discussed above. The end result would be more HCFC-142b production allowances and fewer HCFC-22 production allowances relative to the 2009 Final Rule.
Additionally, EPA is proposing several ways to provide or not provide recoupment allowances (see the memo to docket entitled "Recoupment Options" or the preamble text in section III.B.4. for more specifics on each option). The Agency is also proposing to reduce the consumption allocation by 11 to 47 percent (see the memo to the docket entitled, "Analysis of HCFC-22 Servicing Needs in the U.S. Air Conditioning and Refrigeration Sector: Additional Considerations for Estimating Virgin Demand").
HCFC-22 Baseline in the 2009 Final Rule vs. 2011 Proposed Rule
                                       
                                2009 Final Rule
                              2011 Proposed Rule
                                       
                                  Consumption
                                  Production
                                  Consumption
                                  Production
                        Aggregate HCFC-22 Baseline (MT)
                                    119,384
                                    110,619
                                    141,865
                                    129,093
                             % Change in Baseline
                                       -
                                       -
                                     18.9%
                                     16.7%
                       Aggregate HCFC-142b Baseline (MT)
                                    21,089
                                    25,090
                                     2,047
                                     9,444
                             % Change in Baseline
                                       -
                                       -
                                    -90.3%
                                    -62.4%

In the case of both HCFC-22 and HCFC-142b, production and consumption allowances would change by different percentages: HCFC-22 baseline consumption allowances would increase by about 2 percent more than baseline production allowances. HCFC-142b baseline consumption allowances would decrease by about 28 percent more than baseline production allowances. 


HCFC-22 Allocations for 2012-2014 in 2009 Final Rule vs. 2011 Proposed Rule (Excluding Recoupment and Proposed Adjustments)
                                       
                                2009 Final Rule
                              2011 Proposed Rule
                                       
                                  Consumption
                                  Production
                                  Consumption
                                  Production
                                   2012 (MT)
                                    40,710
                                    37,721
                                    40,715
                                    37,050
                                   % Change
                                       -
                                       -
                                     0.0%
                                     -1.8%
                                   2013 (MT)
                                    35,935
                                    33,296
                                    35,892
                                    32,660
                                   % Change
                                       -
                                       -
                                    -0.12%
                                     -1.9%
                                   2014 (MT)
                                    31,159
                                    28,872
                                    31,069
                                    28,271
                                   % Change
                                       -
                                       -
                                     -0.3%
                                     -2.1%

Slight rounding differences result in small changes in production and consumption, but since production baselines would increase by a smaller percentage than consumption baselines, fewer calendar-year production allowances would be allocated compared to the 2009 Final Rule by using the same percentage of baseline as for consumption allowances. Again, this chart does not include the proposed adjustment to consumption, or the option of increasing production allowances relative to the 2009 Final Rule.
HCFC-142b Allocations for 2012-2014 in 2009 Final Rule vs. 2011 Proposed Rule (Excluding Recoupment)
                                       
                                2009 Final Rule
                              2011 Proposed Rule
                                       
                                  Consumption
                                  Production
                                  Consumption
                                  Production
                                2012-2014 (MT)
                                      99
                                      118
                                      100
                                      463
                                   % Change
                                       -
                                       -
                                     1.2%
                                    292.4%

Slight rounding differences result in small changes in production and consumption, but since production baselines would decrease by a smaller percentage than consumption baselines, significantly more calendar-year production allowances would be allocated compared to the 2009 Final Rule by using the same percentage of baseline as for consumption allowances.

