                          THE U.S. PHASEOUT OF HCFCS:
ECONOMIC IMPACT SCREENING ANALYSIS FOR ADJUSTMENTS TO THE ALLOWANCE SYSTEM FOR CONTROLLING HCFC PRODUCTION, IMPORT, AND EXPORT 
                                       
                                       
                     U.S. Environmental Protection Agency
                          Office of Air and Radiation
                       Stratospheric Protection Division
                         1200 Pennsylvania Avenue, NW
                             Washington, DC 20460
                                       
                                       
                                       
                                Final Document
                                 December 2019
Questions concerning this memo should be directed to: 

Katherine Sleasman
Stratospheric Protection Division 
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, NW (6205T)
Washington, D.C. 20460
1-202-564-7716 (phone)
1-202-343-2338 (fax)
sleasman.katherine@epa.gov

This memo was prepared with support from ICF under contract number EP-BPA-16-H-0021.

 Background 
This screening analysis has been prepared in accordance with the Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA). For all rules subject to the RFA, a screening analysis is required to first determine what, if any, direct impact a proposed rulemaking may have on small entities. For rules that pose "a significant economic impact on a substantial number of small entities" (SISNOSE), an initial and final regulatory flexibility analysis is further required. 
The following screening analysis assesses the potential economic impacts on small entities associated with the final rule Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production and Import, 2020-2029; and Other Updates. This rulemaking includes the following regulatory actions:
 Adjustments to the allowance system for controlling the production, import, and export of HCFC-123 and HCFC-124 (described in greater detail in Section 1.);
 Requiring electronic reporting through the EPA's Central Data Exchange (CDX);
 Harmonizing certain recordkeeping and reporting requirements for class I and II substances; 
 Exempting halon 1211 in aircraft halon bottles from the import petition process;
 Creating a certification process for importing used and virgin substances for destruction; 
 Improving the petition process for importing used substances for reuse;
 Adding certification requirements and amending naming conventions for methyl bromide quarantine and preshipment (QPS) uses; 
 Restricting the sale of illegally imported substances; 
 Adding foam systems containing class I substances to the nonessential products ban; 
 Adding destruction technologies that have been approved by the Parties to the Montreal Protocol; and 
 Removing obsolete provisions.
 HCFC-123 and HCFC-124 Allocations
Table 1 provides the final HCFC-123 allocations. The EPA is allocating 650 MT of consumption allowances in 2020-2022, equivalent to the estimated demand for HCFC-123 for air conditioning (AC), refrigeration, and fire suppression servicing in 2020, with a linear decrease after 2022, resulting in no allocation in 2030. 
                       Table 1: Allocations for HCFC-123
                                       
                                     2020
                                     2021
                                     2022
                                     2023
                                     2024
                                     2025
                                     2026
                                     2027
                                     2028
                                     2029
                                     2030
Allocation
                                                                            650
                                                                            650
                                                                            650
                                                                            570
                                                                            490
                                                                            410
                                                                            330
                                                                            250
                                                                            170
                                                                             90
                                                                              0
      
Table 2 provides a summary of the final allocations for HCFC-124. The EPA is allocating 200 MT of HCFC-124 consumption and production allowances in 2020-2022 (equivalent to estimated demand in 2020 based on the EPA's Vintaging Model and industry feedback) with a gradual decrease of 25 MT per year after 2022, resulting in no allocation in 2030. 
                       Table 2: Allocations for HCFC-124
                                       
                                     2020
                                     2021
                                     2022
                                     2023
                                     2024
                                     2025
                                     2026
                                     2027
                                     2028
                                     2029
                                     2030
Allocation
                                                                            200
                                                                            200
                                                                            200
                                                                            175
                                                                            150
                                                                            125
                                                                            100
                                                                             75
                                                                             50
                                                                              0
                                                                              0
      
The remainder of this report is organized as follows:
 Section 2 presents the general approach and assumptions used, consistent with EPA guidelines.
 Section 3 identifies the small entities potentially affected by the regulatory action.
 Section 4 summarizes the small business impacts of the rulemaking.
 Section 5 summarizes the conclusions and SISNOSE certification.
 The Appendix provides a summary of HCFC allowances by entity and year.
 Section 2: Summary of General Approach and Key Analytical Assumptions
Table 3 shows the analytical steps and approach taken to prepare the screening analysis.
    Table 3: General Steps and Approach for Small Business Impact Analyses
                                     Step
                                   Approach
Identify the companies that are expected to be directly impacted by each regulatory option
EPA regulations at 40 CFR 82.15(a) and (b) prohibit the production and import of HCFCs for which the EPA has apportioned baseline allowances without calendar-year (or "annual") allowances. As a result, in the absence of this rulemaking, production and import of HCFC-123 and HCFC-124 are prohibited in 2020 and beyond. 
By allocating allowances for 2020 through 2029 to specific companies, this rulemaking only directly impacts those allowance holders named in the rule. Other entities may experience indirect impacts as a result of market changes brought about by the rule, but these are not considered in this analysis in accordance with EPA's Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (2006). 

Other changes to the reporting requirements, petition process, and other regulatory language may affect companies that manufacture, process, import, or distribute in commerce ozone-depleting substances (ODS). These companies are considered as part of the universe of potentially impacted entities.
Determine what proportion of allowance holders are small businesses
A North American Industry Classification System (NAICS) code was identified for each HCFC allowance holder identified in the most recent allocation rule covering the period 2015 through 2019 (See 79 FR 64253, October 28, 2014). Available economic data about each allowance holder (i.e., number of employees, annual sales) was obtained from the Dun and Bradstreet databases. Dun and Bradstreet is a company that collects and licenses information on over 200 million businesses and corporations worldwide.

Of the allowance holders, small businesses were identified using the U.S. Small Business Administration's table of small business size standards matched to NAICS codes (U.S. Small Business Administration, 2017). The small business threshold was defined by the number of employees in the company and varied between 100 and 1,500 employees.
Quantify the economic impact on small businesses
This rulemaking authorizes allowance holders to voluntarily continue producing and importing HCFCs. As such, there are few direct costs of compliance. The regulation does not have new reporting requirements; however, production and import of HCFCs -- as authorized by this rulemaking -- triggers HCFC reporting and recordkeeping requirements in 40 CFR part 82, subpart A. These reporting costs are considered in this screening analysis. 

No incremental capital or operating costs are assumed to be incurred in order to comply with the rulemaking; this rulemaking allows allowance holders to continue to produce and/or import HCFCs after 2020. 
By authorizing allowance holders to continue producing and/or importing HCFCs, this rulemaking provides some economic benefit to those allowance holders to the extent there is a higher selling price for HCFCs versus alternatives.

Many of the other regulatory changes either do not introduce new burden or will relieve burden, while other changes will require nominal reporting and recordkeeping actions, as described in Section 4.3 below.
 Section 3: Small Entities Potentially Subject to the Rulemaking
Based on the small business size standards associated with the NAICS codes, Perfect Score Too (formerly Perfect Technology Center, LP), Tulstar Products, and ICOR are the only small businesses with HCFC allocations in the 2020-2029 period (Table 4). Perfect Score Too has allocations for HCFC-123, ICOR has allocations for HCFC-124, and Tulstar has allocations for both.
           Table 4: HCFC-123 and HCFC-124 Small Business Allowance Holders
                                    Company
                                     NAICS
                          NAICS Industry Description
                              Number of Employees
                     Size Standards in Number of Employees
Perfect Score Too
                                    333249
Other Industrial Machinery Manufacturing
                                      40
                                      500

                                    334512
Automatic Environmental Control Manufacturing for Residential, Commercial and Appliance Use
                                       
                                       
Tulstar Products
                                    424690
Other Chemical and Allied Products Merchant Wholesalers
                                      16
                                      100
ICOR
                                    325199
All Other Basic Organic Chemical Manufacturing
                                      16
                                     1,000
Source: Company data obtained from Dun and Bradstreet (2013).
Small business entities that manufacture, process, import, or distribute in commerce chemical substances and mixtures may also be impacted by the final rulemaking. Because the burden introduced by the regulation on these entities is expected to be negligible compared to annual sales (see Section 4.3 for further discussion), the proportion of small businesses for each NAICS was not calculated. Table 5 summarizes the industries that may be potentially affected. 
      
         Table 5: Other Industries Impacted by Final Regulatory Requirements
                          NAICS Industry Description
                                     NAICS
                                Size Standards
                                       
                                       
                                  Millions $
                                # of Employees
Postharvest Crop Activities (except Cotton Ginning)
                                    115114
                                     $27.5
                                       
Plumbing, Heating, and Air-Conditioning Contractors
                                    238220
                                     $15.0
                                       
Basic Chemical Manufacturing
                                     3251
                                       
                                     1,000
Chlorofluorocarbon Gas Manufacturing and Import
                                    325120
                                       
                                     1,000
Industrial Gas Manufacturing
                                    325120
                                       
                                     1,000
Pesticide and Other Agricultural Chemical Manufacturing
                                    325320
                                       
                                     1,000
Fire Extinguisher Chemical Preparations Manufacturing
                                    325998
                                       
                                      500
Hazardous Waste Treatment and Disposal, Cement Manufacturing, Clinker
                                    327310
                                       
                                     1,000
Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing entities
                                    333415
                                       
                                     1,250
Other Aircraft Parts and Auxiliary Equipment Manufacturing
                                    336413
                                       
                                     1,250
Portable Fire Extinguishers Manufacturing
                                    339999
                                       
                                      500
Air-Conditioning Equipment and Supplies Merchant Wholesalers
                                    423620
                                       
                                      200
Other Chemical and Allied Production Merchant Wholesalers
                                    424690
                                       
                                      150
Farm Supplies and Merchant Wholesalers
                                    424910
                                       
                                      200
Farm Product Warehousing and Storage
                                    493130
                                     $27.5
                                       
General Warehousing and Storage
                                    493130
                                     $27.5
                                       
Hazardous Waste Treatment and Disposal, Incinerator, Hazardous Waste
                                    562211
                                     $38.5
                                       
Materials Recovery Facilities
                                    562920
                                     $20.5
                                       
* Assumed based on a similar research and development industry category.
 Section 4: Estimated Economic Impact on Affected Small Entities
This section summarizes the annual economic impact to small business owners associated with the regulatory changes to the allowance allocations and other regulatory changes.
HCFC-123 Impact
This rulemaking authorizes small business allowance holders to continue importing HCFC-123 in specific volumes (see the Appendix: HCFC Allocations). In the absence of the rulemaking, importers and distributors are prohibited from importing HCFC-123 and would therefore transition to an alternative refrigerant or fire suppression agent. By relieving a regulatory prohibition, allowance holders can choose to import HCFC-123 and/or an alternative.
 HCFC-124 Impact
This rulemaking authorizes small business allowance holders to continue producing and importing HCFC-124 in specific volumes (see the Appendix: HCFC Allocations). In the absence of the rulemaking, importers and distributors are prohibited from importing HCFC-124 and would therefore transition to an alternative refrigerant. By relieving a regulatory prohibition, allowance holders can choose to import HCFC-124 and/or an alternative. As a result, small businesses that receive HCFC-124 allowances are expected to benefit. 
 Other Regulatory Changes
Many of the regulatory changes are intended to reduce the information required to meet reporting requirements, to streamline reporting, and to clarify or update language. Many of these regulatory changes result in no change or relieve burden. Other regulatory components, such as the extension of the certification requirement for all methyl bromide QPS distributors, increase burden; however, the increase in burden is negligible compared to annual sales for small businesses. As such, this analysis does not aggregate the costs to small businesses for these regulatory actions. Table 6 provides a summary of the regulatory change as well as the rationale for assuming no or negligible incremental costs. 


                       Table 6: Other Regulatory Changes
                                       
                               Regulatory Change
           Rationale for Assuming No or Negligible Incremental Cost
                          Reporting and Recordkeeping
Requiring that quarterly and annual reports be submitted electronically
The EPA has been providing electronic reporting as an option since 2008 and all reporters  already transitioned to using the Central Data Exchange (CDX) for reporting. Electronic reporting decreases the reporting burden by submitters by reducing the cost and time required to review, edit, and transmit data to the agency.
                                        
Harmonizing requirements for class I and II substances
The harmonization of requirements for class I and II substances is designed to reduce the reporting burden by removing elements that can be automatically calculated by CDX [§82.23(a), §82.24(b), and §823.24(c)] and streamline the requirements under §82.13(h) and §82.24(d).
                                Import Petitions
Modifying the petition process to import used class I substances for reuse and providing a certification process for the import of class I and class II substances for destruction 
These regulatory changes reduce the petition and information requirements for importers, thus reducing burden.
                                        
Exempting halon 1211 in aircraft halon bottles from the import petition process
This action reduces the reporting burden that would otherwise be required by removing the requirement to submit information to the EPA prior to each import of aircraft halon bottles under certain conditions. Therefore, this action relieves burden on entities. 
                               QPS Methyl Bromide
Extending a certification requirement for distributors of QPS methyl bromide to all distributors 
The regulatory action increases annual burden by one hour (equivalent to $120.48) per affected entity, and thus has a negligible cost to small business compared to the sales threshold for small businesses in the affected NAICS (see Table 5).[1] 
                                        
Explicitly restrict the use of methyl bromide produced under the QPS exemption to QPS applications only
No new burden is introduced by this action.
                                        
Amending the naming convention for methyl bromide in §82.4, §82.8, and §82.13 
The intention of this change is to increase clarity of the regulatory language; no new burden is introduced.
                               Sales Restriction
Prohibiting the sale or distribution of any ODS that has been imported into the United States without consumption allowances or is not subject to an exemption
No new burden is introduced by this action.
                                        
Add foam blown or manufactured with class I substances and any foam systems containing class I substances to the list of nonessential products
This analysis assumes no incremental cost associated with this change in classification for foams blown with, manufactured with, or containing class I substances. All U.S. manufacturers have transitioned from class I ODS to non-ODS alternatives since the phaseout of CFCs in 1994. Thus, this regulatory change is not expected to impose new burden. 
                          Updated Regulatory Language
Add destruction technologies that have been approved by the Parties to the Montreal Protocol
No new burden is introduced by this action.

Update definitions of "destruction" and "transform"
The intention of this change is to increase clarity of the regulatory language; no new burden is introduced.

Remove outdated provisions related to the allocation and transfer of class I ODS allowances that have been phased out
The intention of this change is to increase clarity of the regulatory language; no new burden is introduced.
Sources: Federal Register. "Information Collection Request Submitted to OMB for Review and Approval: Comment Request; Recordkeeping and Reporting of the Production, Import, Export, Destruction, Transhipment, and Exempted Uses of Ozone Depleting Substances (Renewal)" Vol. 83, No. 138. July 18, 2018. Available at: https://www.govinfo.gov/content/pkg/FR-2018-07-18/pdf/2018-15311.pdf; U.S. Department of Labor 2019.  Employer Costs for Employee Compensation  -  June 2019. Released September 17, 2019. Available online at: http://www.bls.gov/news.release/pdf/ecec.pdf. 
 Section 5: Conclusion
EPA's Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (2006) recommends performing a sales test to quantitatively assess the economic impact of a regulatory option on small businesses, and then to compare the results of that sales test to a decision matrix to determine whether to certify no significant economic impact on a substantial number of small entities (SISNOSE). Based on the screening analysis presented in Section 4, however, the final rulemaking is expected to have a net economic benefit to the small businesses that are directly impacted (allowance holders). 
Thus, this screening analysis suggests that this rulemaking is presumed to have no SISNOSE because it is expected to result in a net benefit to small businesses. 
 Appendix: HCFC Allocations
HCFC allocation levels for each small business under the final rule are included in Table 7 and Table 8 below. 
             Table 7: HCFC-123 Allocations, by Small Business (MT)
                                    Company
                                     2020
                                     2021
                                     2022
                                     2023
                                     2024
                                     2025
                                     2026
                                     2027
                                     2028
                                     2029
Perfect Score Too
                                                                           2.94
                                                                           2.94
                                                                           2.94
                                                                           2.58
                                                                           2.21
                                                                           1.85
                                                                           1.49
                                                                           1.13
                                                                           0.77
                                                                           0.41
Tulstar Products
                                                                          11.23
                                                                          11.23
                                                                          11.23
                                                                           9.85
                                                                           8.47
                                                                           7.09
                                                                           5.70
                                                                           4.32
                                                                           2.94
                                                                           1.56
      
                Table 8: HCFC-124 Allocations, by Small Business (MT)
                                    Company
                                     2020
                                     2021
                                     2022
                                     2023
                                     2024
                                     2025
                                     2026
                                     2027
                                     2028
                                     2029
Tulstar Products
                                                                          19.16
                                                                          19.16
                                                                          19.16
                                                                          16.77
                                                                          14.37
                                                                          11.98
                                                                           9.58
                                                                           7.19
                                                                           4.79
                                                                              0
ICOR
                                                                           6.78
                                                                           6.78
                                                                           6.78
                                                                           5.93
                                                                           5.08
                                                                           4.24
                                                                           3.39
                                                                           2.54
                                                                           1.69
                                                                              0
      
      
 References
U.S. Small Business Administration. (2017, October 1). Table of Small Business Size Stadards matched to NAICS Codes. Retrieved from https://www.naics.com/wp-content/uploads/2017/10/SBA_Size_Standards_Table.pdf



