Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import and Export, 2015-2019

Federal RegisterOct 28, 2014

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 82

[EPA-HQ-OAR-2013-0263; FRL-9917-98-OAR]

RIN 2060-AR04

Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import and Export, 2015-2019

AGENCY:

Environmental Protection Agency.

ACTION:

Final rule.

SUMMARY:

The Environmental Protection Agency (EPA) is adjusting the allowance system for the consumption and production of hydrochlorofluorocarbons (HCFCs). Under the Clean Air Act, EPA is required to phase out production and import of these chemicals in accordance with the

Montreal Protocol on Substances that Deplete the Ozone Layer

(Protocol). Under the Protocol, total United States HCFC production and consumption is capped, and will be completely phased out by 2030. Today's action announces the availability of annual production and consumption allowances for HCFC-22, HCFC-142b, HCFC-123, and HCFC-124 for 2015-2019. This rule also makes minor changes to the reclamation regulations, updates the use restrictions to account for a recent amendment to the Clean Air Act, and finalizes a

de minimis

exemption to the use restrictions for certain uses of HCFC-225ca/cb and HCFC-124.

DATES:

This final rule is effective on January 1, 2015.

ADDRESSES:

EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2013-0263. All documents in the docket are listed on the

www.regulations.gov

Web site. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy at: EPA Docket Center, WJC West Building, Room 3334, 1301 Constitution Avenue NW., Washington, DC 20004. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air and Radiation Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT:

Elizabeth Whiteley by telephone at (202) 343-9310 or by email at

whiteley.elizabeth@epa.gov,

or by mail at United States Environmental Protection Agency, Stratospheric Protection Division, Stratospheric Program Implementation Branch (6205J), 1200 Pennsylvania Ave. NW., Washington, DC 20460. You may also visit the Web site of EPA's Stratospheric Protection Division at

www.epa.gov/ozone/strathome.html

for further information about EPA's stratospheric ozone protection regulations, the science of ozone layer depletion, and related topics.

SUPPLEMENTARY INFORMATION:

Acronyms and Abbreviations.

The following acronyms and abbreviations are used in this document.

ANPRM—Advance Notice of Proposed Rulemaking

CAA—Clean Air Act

CAAA—Clean Air Act Amendments of 1990

CFC—Chlorofluorocarbon

CFR—Code of Federal Regulations

EPA—Environmental Protection Agency

FR—Federal Register

GWP—Global Warming Potential

HCFC—Hydrochlorofluorocarbon

HVACR—Heating, Ventilating, Air Conditioning and Refrigeration

Montreal Protocol or Protocol—Montreal Protocol on Substances that Deplete the Ozone Layer

MOP—Meeting of the Parties

MT—Metric Ton

ODP—Ozone Depletion Potential

ODS—Ozone-Depleting Substance(s)

Party—States and regional economic integration organizations that have consented to be bound by the Montreal Protocol on Substances that Deplete the Ozone Layer

RACA—Request for Additional Consumption Allowances

Organization of This Document

. The following outline is provided to aid in locating information in this preamble.

I. General Information

A. Does this action apply to me?

II. Background

A. How does the Montreal Protocol phase out HCFCs?

B. How do the Clean Air Act and EPA regulations phase out HCFCs?

C. What sections of the Clean Air Act apply to this rulemaking?

III. Summary of This Final Action

IV. Clean Air Act Requirements That Begin in 2015

A. What are the existing HCFC product labeling requirements at 40 CFR Part 82 subpart E?

1. Minor Modifications to Existing Regulatory Text

2. Comments on the Existing Labeling Requirements and EPA's Response

B. What actions is EPA taking regarding the use and sales restriction in Clean Air Act section 605(a)?

1. Treatment of Existing Inventory of HCFC-225ca and HCFC-225cb for Solvent Uses

2. Treatment of Existing Inventory of HCFC-124 for Sterilant Uses

3. Update to Regulations to Account for Recent Changes to Section 605(a)

C. Which Montreal Protocol requirements take effect in 2015 and 2020?

V. HCFC Baselines for 2015-2019

VI. HCFC Allowance Allocation Amounts for 2015-2019

A. What is the 2015-2019 HCFC-22 consumption allocation?

1. Summary of Final HCFC-22 Consumption Allocation

2. EPA's Collection, Consideration and Use of Aggregate HCFC-22 Inventory Data

3. Explanation of the Agency's Final Decision and Response to Comments

4. Timing of the Final Rule

B. What is the 2015-2019 HCFC-22 production allocation?

C. What is the 2015-2019 HCFC-142b consumption and production allocation?

D. What is the 2015-2019 HCFC-123 consumption allocation?

E. What is the 2015-2019 HCFC-124 consumption and production allocation?

F. How is EPA addressing the end of the HCFC-141b Exemption Program?

G. Other HCFCs that Are Class II Controlled Substances

VII. Other Adjustments to the HCFC Allowance System

A. What is EPA's response to comments on dry-shipped HCFC-22 condensing units?

B. How is EPA treating requests for additional consumption allowances in 2020 and beyond?

C. What is EPA's response to comments on maximizing compliance with HCFC regulations?

VIII. Modifications to Section 608 Regulations

A. Overview of Current Reclamation Standards

B. Benefits of Reclamation

C. What regulatory changes is EPA finalizing under CAA section 608?

1. Consideration of AHRI 700-2012 Standards

2. Notification to EPA of Changes to Business Management, Location, or Contact Information

3. Reporting and Recordkeeping Requirements

4. Other Section 608 Reclamation Program Options

5. Other Issues Related to Section 608's National Recycling and Emissions Reduction Program

IX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act (RFA)

D. Unfunded Mandates Reform Act

E. Executive Order 13132: Federalism

F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments

G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks

H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer and Advancement Act

J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations

K. Congressional Review Act

I. General Information

A. Does this action apply to me?

This rule may affect the following categories:

—Industrial Gas Manufacturing entities (NAICS code 325120), including fluorinated hydrocarbon gas manufacturers and reclaimers;

—Other Chemical and Allied Products Merchant Wholesalers (NAICS code 424690), including chemical gases and compressed gases merchant wholesalers;

—Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing entities (NAICS code 333415), including air-conditioning equipment and commercial and industrial refrigeration equipment manufacturers;

—Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS code 423730), including air-conditioning (condensing unit, compressors) merchant wholesalers;

—Electrical and Electronic Appliance, Television, and Radio Set Merchant Wholesalers (NAICS code 423620), including air-conditioning (room units) merchant wholesalers;

—Plumbing, Heating, and Air-Conditioning Contractors (NAICS code 238220), including Central air-conditioning system and commercial refrigeration installation, HVACR contractors;

—Refrigerant reclaimers, manufacturers of recovery/recycling equipment, and refrigerant recovery/recycling equipment testing organizations;

—Fire Extinguisher Chemical Preparations Manufacturing (325998); Portable Fire Extinguishers Manufacturing (339999); Other Aircraft Parts and Auxiliary Equipment Manufacturing (336413);

—Surgical Appliance and Supplies Manufacturing (339113); Ophthalmic goods manufacturing (339115); General Medical and Surgical Hospitals (622110); Specialty (Except Psychiatric and Substance Abuse) Hospitals (622310);

—Entities Performing Solvent Cleaning, (including but not necessarily limited to NAICS subsector codes 332 and 335).

This list is not intended to be exhaustive, but rather provides a guide for readers regarding the types of entities that could potentially be regulated by this action. Other types of entities not listed in this table could also be affected. To determine whether your facility, company, business organization, or other entity is regulated by this action, you should carefully examine these regulations. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the

FOR FURTHER INFORMATION CONTACT

section.

II. Background

A. How does the Montreal Protocol phase out HCFCs?

The Montreal Protocol on Substances that Deplete the Ozone Layer is the international agreement aimed at reducing and eventually eliminating the production and consumption of ozone-depleting substances (ODS). The United States was one of the original signatories to the 1987 Montreal Protocol and ratified the Protocol in 1988. Congress then enacted, and President George H.W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA) to ensure that the United States could satisfy its obligations under the Montreal Protocol. Title VI of the Act (codified as 42 U.S.C. Chapter 85, Subchapter VI), titled Stratospheric Ozone Protection, includes restrictions on production, consumption, and use of ODS that are subject to acceleration if “the Montreal Protocol is modified to include a schedule to control or reduce production, consumption, or use * * * more rapidly than the applicable schedule” prescribed by the statute (see Clean Air Act section 606(a)(3)). Both the Montreal Protocol and the Clean Air Act (CAA) define consumption as production plus imports minus exports (see CAA section 601(6)).

In 1990, as part of the London Amendment to the Montreal Protocol, the Parties identified HCFCs as “transitional substances” to serve as temporary, lower ozone depletion potential (ODP) substitutes for chlorofluorocarbons (CFCs) and other ODS. EPA similarly viewed HCFCs as “important interim substitutes that will allow for the earliest possible phaseout of CFCs and other class I substances.

” (58 FR 65026, December 10, 1993). In 1992, through the Copenhagen Amendment to the Montreal Protocol, the Parties created a detailed phaseout schedule for HCFCs, beginning with a cap on consumption for developed countries not operating under Article 5 of the Montreal Protocol (non-Article 5 Parties), a schedule to which the United States adheres. The consumption cap for each non-Article 5 Party was set at 3.1 percent (later tightened to 2.8 percent) of a Party's CFC consumption in 1989, plus a Party's consumption of HCFCs in 1989 (weighted on an ODP basis). Based on this formula, the HCFC consumption cap for the United States was set at 15,240 ODP-weighted metric tons, effective January 1, 1996. This cap is the United States HCFC consumption baseline.

Class I refers to the controlled substances listed in appendix A to 40 CFR part 82 subpart A. Class II refers to the controlled substances listed in appendix B to 40 CFR part 82 subpart A; HCFCs are class II substances.

The 1992 Copenhagen Amendment created a schedule with graduated reductions and eventual phaseout of HCFC consumption (Copenhagen, 23-25 November, 1992, Decision IV/4). The schedule for non-Article 5 Parties initially called for tighter consumption caps based on a Party's baseline, as follows: An annual consumption cap equal to 65 percent of baseline in 2004, 35 percent of baseline in 2010, 10 percent of baseline in 2015, and 0.5 percent of baseline in 2020, with a complete HCFC phaseout by 2030.

The Copenhagen Amendment did not cap HCFC production. In 1999, the Parties created a cap on production for non-Article 5 Parties through an amendment to the Montreal Protocol agreed to at the Eleventh Meeting of the Parties (Beijing, 29 November-3 December 1999, Decision XI/5). The cap on production was set at the average of: (a) 1989 HCFC production plus 2.8 percent of 1989 CFC production, and (b) 1989 HCFC consumption plus 2.8 percent of 1989 CFC consumption. Based on this formula, the HCFC production cap for the United States was set at 15,537 ODP-weighted metric tons (MT), effective January 1, 2004. This cap is the United States HCFC production baseline.

To further protect human health and the environment, the Parties to the Montreal Protocol adjusted the phaseout schedule for HCFCs at the 19th Meeting of the Parties in September 2007. As a result of the Montreal Adjustment (reflected in Decision XIX/6),

the United States and other non-Article 5 parties were obligated to reduce HCFC production and consumption to 25 percent of baseline by 2010, rather than 35 percent as previously required. The other milestones remain the same. The

adjustment also resulted in a phaseout schedule for HCFC production that parallels the consumption phaseout schedule. All production and consumption for non-Article 5 Parties must be phased out by 2030.

The adjustment entered into force and became binding for all Parties on May 14, 2008.

Decision XIX/6 also adjusted the provisions for Parties operating under paragraph 1 of Article 5, considered as developing countries under the Protocol: (1) To set HCFC production and consumption baselines based on the average 2009-2010 production and consumption, respectively; (2) to freeze HCFC production and consumption at those baselines in 2013; and (3) to add stepwise reductions to 90 percent of baseline by 2015, 65 percent by 2020, 32.5 percent by 2025, and an average of 2.5 percent for 2030-2039. All production and consumption for Article 5 Parties must be phased out by 2040.

In addition, Decision XIX/6 adjusted Article 2F to allow non-Article 5 Parties to produce “up to 10 percent of baseline levels” for export to Article 5 countries “in order to satisfy basic domestic needs” until 2020. Paragraph 14 of Decision XIX/6 notes that no later than 2015, the Parties would consider “further reduction of production for basic domestic needs” in 2020 and beyond. Paragraph 3 of Decision XIX/6 contains the accelerated phaseout schedule, allowing consumption and production up to 0.5 percent of baseline from 2020-2030 for servicing needs only. Pursuant to paragraph 13 of Decision XIX/6, the Parties will review in 2015 and 2025, respectively, the need for the “servicing tails” for Article 5 and non-Article 5 countries. EPA uses the term “servicing tail” to refer to an amount of HCFCs used to service existing equipment, such as certain types of air-conditioning and refrigeration appliances.

B. How do the Clean Air Act and EPA regulations phase out HCFCs?

The Clean Air Act schedules for the phaseout of HCFC production and consumption, and for the restriction of HCFC use, appear in section 605. EPA has used its authority under section 606 to accelerate those schedules. EPA regulations that apply to production and consumption of HCFCs are designed to enable the United States to meet the phaseout schedule under the Montreal Protocol.

The United States has chosen to implement the Montreal Protocol phaseout schedule on a chemical-by-chemical basis. In 1992, environmental and industry groups petitioned EPA to implement the required phaseout by eliminating the HCFCs with the highest ozone depletion potential first. Based on data available at that time, EPA believed the United States could meet, and possibly exceed, the required Montreal Protocol reductions through a chemical-by-chemical phaseout that employed a “worst-first” approach. In 1993, as authorized by section 606 of the CAA, EPA established a phaseout schedule that eliminated HCFC-141b first and would greatly restrict HCFC-142b and HCFC-22 next, followed by restrictions on all other HCFCs and ultimately a complete phaseout (58 FR 15014, March 18, 1993, and 58 FR 65018, December 10, 1993).

On January 21, 2003, EPA promulgated regulations (68 FR 2820, January 21, 2003, “2003-2009 Rule”) to ensure compliance with the first reduction milestone in the HCFC phaseout: The requirement that by January 1, 2004, the United States reduce HCFC consumption to 65 percent of baseline and freeze HCFC production. In the 2003-2009 Rule, EPA established chemical-specific consumption and production baselines for HCFC-141b, HCFC-22, and HCFC-142b for the initial regulatory period ending December 31, 2009. Section 601(2) states that EPA may select “a representative calendar year” to serve as the company baseline for HCFCs. In the 2003-2009 Rule, EPA concluded that because the entities eligible for allowances had differing production and import histories, no single year was representative for all companies. Therefore, EPA assigned an individual consumption baseline year to each company by selecting its highest ODP-weighted consumption year from 1994 through 1997. EPA assigned individual production baseline years in the same manner. EPA also provided for new entrants that began importing after 1997 but before April 5, 1999, the date the advanced notice of proposed rulemaking (ANPRM) was published. EPA took this action to ensure that small businesses that might not have been aware of the impending rulemaking would be able to continue in the HCFC market.

In the United States, an allowance is the unit of measure that controls production and consumption of ODS. EPA allocates calendar-year allowances equal to a percentage of the baseline—they are valid from January 1 to December 31 of that control period. A calendar-year allowance represents the privilege granted to a company to produce or import one kilogram (not ODP-weighted) of the specific substance. “Production allowance” and “consumption allowance” are defined at 40 CFR 82.3. To produce an HCFC for which EPA has issued allowances, an allowance holder must expend both production and consumption allowances. To import an HCFC for which EPA has issued allowances, an allowance holder must expend only consumption allowances. An allowance holder exporting HCFCs for which it has expended consumption allowances may request a refund of those consumption allowances by submitting proper documentation and receiving approval from EPA.

The 2003-2009 Rule set production and consumption baselines for the 2003-2009 regulatory period, using each company's highest “production year” or “consumption year.” The 2003-2009 Rule prohibited production and import of those HCFCs that were subject to the allowance system without the appropriate allowances (40 CFR 82.15(a),(b)). EPA set the maximum production and consumption of each HCFC by issuing allowances that are valid for a single calendar year, equal to a certain percentage of each company's baseline.

It completely phased out the production and import of HCFC-141b by granting zero percent of baseline for production and consumption in the table at 40 CFR 82.16. EPA created a petition process to allow applicants to request small amounts of HCFC-141b beyond the phaseout. For production and consumption of HCFC-22 and HCFC-142b in 2003 through 2009, EPA allocated allowances at 100 percent of baseline. The complete phaseout of HCFC-141b, the allocations for HCFC-22 and HCFC-142b, combined with projections for consumption of all other HCFCs, remained below the 2004 cap of 65 percent of the United States baseline.

The process for assigning consumption baseline percentages works as follows: First, all the company-specific baselines listed in the tables at 40 CFR 82.19 are added to determine the aggregate consumption baseline. Second, EPA determines how many consumption allowances to allocate for a given year and divides that amount by the aggregate baseline. The resulting percentage listed in the table at section 82.16 becomes what each company is allowed to consume in a given control period. For example, a company with 100,000 kg of HCFC-22 consumption baseline allowances would multiply that number by the percentage allowed in a given year (for example, 25 percent) to determine its calendar-year consumption allowance is 25,000 kg. EPA uses the same process to determine production baseline percentages.

Since EPA is implementing the phaseout on a chemical-by-chemical basis, it allocates and tracks production and consumption allowances on a kilogram basis for each chemical. Upon EPA approval, an allowance holder may transfer calendar-year allowances of one type of HCFC for calendar-year allowances of another type of HCFC, with transactions weighted according to the ODP of the chemicals involved.

Pursuant to section 607 of the CAA, EPA applies an offset to each HCFC transfer by deducting 0.1 percent from the transferor's allowance balance. The offset benefits the ozone layer since it “results in greater total reductions in the production in each year of * * * class II substances than would occur in that year in the absence of such transactions” (see CAA section 607(a)).

The 2003-2009 Rule announced that EPA would allocate allowances for the 2010-2014 regulatory period in a subsequent action and that those allowances would be lower than for 2003-2009, consistent with the next stepwise reduction for HCFCs under the Montreal Protocol. EPA subsequently monitored the market to estimate servicing needs and market adjustments in the use of HCFCs, including HCFCs for which EPA had not established baselines in the 2003-2009 Rule. In the 2010-2014 Rule (74 FR 66412, December 15, 2009), EPA issued production and import allowances for HCFC-22, HCFC-142b, and other HCFCs not previously included in the allowance system, for the 2010-2014 control periods.

In the 2010-2014 Rule, EPA estimated the need for HCFC-22 during the 2010-2014 regulatory period and the percentage of that need for which it was appropriate to allocate allowances. EPA decided that the percentage of the estimated need allocated in the form of allowances should not remain constant from year to year, but rather should decline on an annual basis. For 2010, EPA allocated HCFC-22 allowances equal to 80 percent of the estimated need, concluding that reused, recycled, and reclaimed material could meet the remaining 20 percent. The percentage of estimated need for which there was no allocation, and that would therefore need to be met through recycling and reclamation, rose from 20 percent in 2010 to 29 percent in 2014. The intent of this approach was to foster reclamation and to ensure that the United States could meet the 2015 stepdown under the Montreal Protocol.

However, part of the 2010-2014 Rule was vacated in an August 27, 2010, decision issued by the United States Court of Appeals for the District of Columbia Circuit (Court) in

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(618 F.3d 1, D.C. Cir. 2010). Certain allowance holders affected by the 2010-2014 Rule contended that the rule was impermissibly retroactive because in setting the baselines for the new regulatory period, EPA did not take into account certain inter-pollutant baseline transfers that petitioners had performed during the prior regulatory period. Accounting for these transfers in the 2010-2014 Rule and applying the same methodology would have resulted in different baselines and calendar-year allowances for HCFC-22 and HCFC-142b.

The Court agreed with petitioners that “the [2010-2014] Final Rule unacceptably alters transactions the EPA approved under the 2003 Rule,” (

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618 F.3d at 3). The Court vacated the rule in part, “insofar as it operates retroactively,” and remanded to EPA “for prompt resolution,” (618 F.3d at 10). EPA's petition for rehearing was denied on January 21, 2011. EPA addressed the Court's partial vacatur as it related to 2011 in an August 5, 2011, interim final rule, “Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export,” (76 FR 47451, August 5, 2011, “2011 Interim Final Rule”). In that rule, EPA established new baselines that (1) credited the 2008 inter-pollutant trades at issue in

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based on the Court's decision; (2) reflected inter-company, single-pollutant baseline transfers that occurred since the 2010-2014 Rule was signed; (3) allocated HCFC-22 and HCFC-142b allowances for 2011; (4) clarified EPA's policy on all future inter-pollutant transfers; and (5) updated company names. The HCFC-22 and HCFC-142b use restrictions and the allocation for other controlled HCFCs were not affected by the partial vacatur.

To complete its response to the Court's decision, EPA published a final rule with the same name on April 3, 2013, allocating HCFC-142b and HCFC-22 allowances for 2012-2014 (78 FR 20004, “2012-2014 Rule”). That rule reduced HCFC-22 allowances in 2012-2014 by almost 30 percent relative to the 2010-2014 Rule in order to incentivize proper handling and recovery of HCFC-22 and encourage transition to non-ODS alternatives.

On December 24, 2013, EPA published a proposed rule that would issue allowances for HCFC-22, HCFC-142b, HCFC-123, and HCFC-124 for the 2015-2019 regulatory period (78 FR 78071, “2015-2019 Proposed Rule”). Today's action finalizes the HCFC allowance allocations for those years based on the options presented in the 2015-2019 Proposed Rule and comments submitted to EPA. For more information on the history of the HCFC phaseout and applicable rulemakings, see:

http://www.epa.gov/ozone/title6/phaseout/classtwo.html.

C. What sections of the Clean Air Act apply to this rulemaking?

Several sections of the CAA

apply to this rulemaking. Section 602 states that EPA shall publish an initial list of class II substances, which is to include the HCFCs specified in the statute as well as their isomers. EPA's listing of class II substances appears at appendix B to 40 CFR part 82, subpart A.

The Clean Air Act provisions that address stratospheric ozone protection are codified at 42 U.S.C. 7671-7671q.

Section 605 of the CAA phases out production and consumption and restricts the use of HCFCs in accordance with the schedule set forth in that section. As discussed in the 2010-2014 Rule (74 FR 66416), section 606 provides EPA authority to set a more stringent phaseout schedule based on (1) current scientific information that a more stringent schedule may be necessary to protect human health and the environment, (2) the availability of substitutes, or (3) to conform to any acceleration under the Montreal Protocol. EPA previously set a more stringent schedule than the section 605 schedule through a rule published December 10, 1993 (58 FR 65018). The 2010-2014 Rule made a further adjustment from the section 605 schedule based on the acceleration under the Montreal Protocol as agreed to at the Meeting of the Parties in September 2007. The more stringent schedule established in that rule was unaffected by the decision in

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and is still in effect.

Section 608 of the CAA, titled National Recycling and Emission Reduction Program, requires EPA to establish standards and requirements for the use and disposal of class I and class II substances. Those requirements must reduce the use and emissions of controlled substances to the lowest achievable level, as well as maximize their recapture and recycling. Additionally, section 608(c) prohibits any person maintaining, servicing, repairing, or disposing of an appliance that contains refrigerant from knowingly venting, releasing, or disposing of that substance to the environment, regardless of whether the refrigerant is an ODS or a substitute. Substitutes are exempted from this prohibition only if EPA has determined that venting, releasing, or disposing of the substitute does not pose a threat to the environment. The full list of substitutes that are exempt from this prohibition can be found at 40 CFR section 82.154(a).

Section 611 of the CAA requires EPA to establish and implement labeling

requirements for containers of, and products containing or manufactured with, class I or class II ODS. While containers of class II substances (HCFCs) already are subject to labeling requirements, products containing or manufactured with class II substances must be labeled beginning January 1, 2015. The specific requirements and existing regulation implementing those requirements are discussed in Section IV.A. of this preamble.

Finally, section 614 of the CAA describes the relationship of Title VI to the Montreal Protocol. Section 614(b) states: “In the case of conflict between any provision of this title and any provision of the Montreal Protocol, the more stringent provision shall govern.” Section 614 ensures that EPA regulations are in accordance with United States obligations under the Montreal Protocol.

III. Summary of This Final Action

This action amends the existing regulations to implement the next major milestone in the HCFC phaseout. As a party to the Montreal Protocol, the United States has agreed to decrease HCFC consumption and production levels to 10 percent of the U.S. baseline by 2015. In this rule, EPA is allocating HCFC allowances starting at approximately five percent of the U.S. consumption baseline in 2015, or half of the Montreal Protocol cap.

EPA is issuing allowances for four HCFCs, implementing a narrow

de minimis

exemption for use of existing inventory of HCFC-225ca/cb

and HCFC-124, and is updating regulations to account for a recent change to the Clean Air Act. In addition, EPA is making minor changes to the regulations promulgated under section 608 of the Act. These final agency actions are summarized below:

Throughout this preamble, the term `HCFC-225ca/cb' refers to either the HCFC-225ca or HCFC-225cb isomers, as well as blends containing both isomers.

—HCFC-22: EPA is finalizing the lowest proposed 5-year linear approach of HCFC-22 consumption allowances. The consumption allocation in 2015 is approximately 10,000 MT, decreasing by approximately 2,000 MT per year until it is phased out in 2020. EPA is also providing approximately 28,000 MT of HCFC-22 production allowances each year. Under existing regulations, HCFC-22 production and consumption are zero in 2020. The agency considered market information, comments, regulatory and statutory requirements and its long-standing policy objectives as it weighed the merits of the proposed approaches. The final consumption allocation meets the 2020 phaseout deadline, and should help achieve a smooth transition to more environmentally-friendly alternatives, while also providing regulatory certainty to consumers and industry.

—HCFC-123: EPA is finalizing its preferred consumption allocation of approximately 2,000 MT per year through 2019. EPA is also finalizing its proposal to align its regulations with the recent amendment to CAA section 605(a) and allow for continued use of HCFC-123 in nonresidential streaming fire suppression applications.

—HCFC-124: EPA is finalizing its preferred production and consumption allocation of 200 MT per year through 2019.

—HCFC-142b: EPA is finalizing its preferred production and consumption allocation of 35 MT in 2015, decreasing by 5 MT per year through 2019. Under existing regulations HCFC-142b allowances for production and consumption are zero in 2020.

—HCFC-225ca/cb: EPA is allocating zero percent of the baseline for production and consumption of HCFC-225ca or HCFC-225cb effective January 1, 2015.

—De minimis use exemption: EPA is finalizing its proposed

de minimis

exemption allowing any person with HCFC-225ca/cb in inventory prior to January 1, 2015, to use that material as a solvent. EPA is also finalizing a

de minimis

exemption allowing any person with HCFC-124 in inventory prior to January 1, 2015, to use that material as a sterilant for biological indicators.

—CAA Section 608 Reclamation Requirements: EPA is finalizing its proposal (1) to require a reclaimer to notify EPA when there is a change in business management, location, or contact information and (2) to require disaggregated information for all reclaimed refrigerants as part of annual reporting to EPA. The agency is not finalizing its proposed incorporation by reference of AHRI 700-2012 at this time due to the ongoing review of the standard by ASHRAE and AHRI.

IV. Clean Air Act Requirements That Begin in 2015

A. What are the existing HCFC product labeling requirements at 40 CFR part 82 subpart E?

Section 611 of the CAA requires EPA to establish and implement labeling requirements for containers of, and products containing or manufactured with, class I or class II ODS. In 1993, EPA published regulations on these labeling requirements (58 FR 8136, February 11, 1993, Labeling Rule), codified at 40 CFR part 82 subpart E. Currently, these requirements only apply to containers containing class I or II ODS and products containing or manufactured with class I ODS. Products containing or manufactured with class II substances will be subject to these requirements beginning on January 1, 2015.

In 2015, containers containing, products containing, and products manufactured with a class I

class II substance must bear a product label stating: “Warning: Contains [or Manufactured with, if applicable] [insert name of class I or II substance], a substance which harms public health and environment by destroying ozone in the upper atmosphere” (40 CFR 82.106). The wording of the label is specified verbatim in CAA section 611.

EPA defines a “product containing” a class II substance as a product including, but not limited to, containers, vessels, or pieces of equipment, that physically holds a controlled substance at the point of sale to the ultimate consumer which remains within the product, (40 CFR 82.104). Two examples of a “product containing” a class II substance that would require a label are (1) portable fire extinguishers containing an HCFC and (2) appliances that incorporate closed-cell foam blown with an HCFC. Foams are plastics (such as polyurethane or polystyrene) that are manufactured using blowing agents to create bubbles or cells in the material's structure. Closed-cell foam physically holds blowing agent within the cells. While HCFCs are no longer used as blowing agents in the United States, they are used in other countries from which the United States may import products. In the case of portable fire extinguishers, the fire suppression agent is contained in a reservoir within the extinguisher and released by the user when needed.

The definition of a product “manufactured with” a class II substance is a product for which the manufacturer used a class II substance directly in that product's manufacturing, but where the product itself does not contain more than trace quantities of the ODS at the point of introduction into interstate commerce. A product “manufactured with” a class II substance would include electronics cleaned with an HCFC solvent or open cell foam blown with an HCFC. Open cell foam is different from closed cell foam in that it was manufactured with a blowing agent, but no longer contains the blowing agent because the cells or bubbles in open cell foam are open to the surrounding environment. Since

HCFCs are no longer used as foam blowing agents in the United States, and the Nonessential Products Ban prohibits the sale or distribution of open cell plastic foam products made with HCFCs (40 CFR 82.70(c)), EPA expects the requirement for a “manufactured with” label should not be relevant to most open cell foam products.

Final products that incorporate another product that was “manufactured with” a class I or class II ODS do not have to bear a label so long as the manufacturer of the final product is distinct from the manufacturer of the product “manufactured with” the ODS (40 CFR 82.116). By contrast, final products that incorporate “products containing” a class I or II ODS will require a warning label, even if the final product manufacturer purchases the “product containing” the ODS from another manufacturer or supplier (40 CFR 82.114).

1. Minor Modifications to Existing Regulatory Text

The agency proposed and is now finalizing three minor edits to 40 CFR subpart E to clarify the intent of the regulatory language with respect to class II substances. EPA received no adverse comments regarding these minor clarifying revisions.

The first two clarifications are to replace “class I substance” with “controlled substance.” While the emphasis in 1993 was on class I substances, EPA is now removing any ambiguity with respect to class II substances by reconciling inconsistent terminology, specifically at 82.110(c) and 82.112(d). The text of 40 CFR 82.110(c) clearly applies to both class I and class II products, so EPA is revising the title of this paragraph to make it consistent with the existing operative text.

Similarly, 82.112(d) includes the more general term “controlled substances” in the title, but not the existing operative text. Through today's action, EPA is replacing “class I substance” with “controlled substance” to clarify that this narrow exemption to the labeling requirements also applies to class II products in the same way it applied to class I products.

Third, EPA proposed to correct a citation in 82.122(a)(1). The first sentence incorrectly refers to 82.106(b)(2) as the exemption for certain methyl chloroform uses; this exemption is actually provided for in 82.106(b)(4). EPA is revising the text to reference the correct paragraph. EPA also notes that this exemption ended May 15, 1994.

2. Comments on the Existing Labeling Requirements and EPA's Response

EPA created a preliminary list of products that might be affected by these requirements in 2015. This list, along with guidance for manufacturers and importers of potentially affected products, is titled

Summary of HCFC Product Labeling Requirements & Potentially Affected Products

(Labeling Memo) and can be found in the docket for this rulemaking. EPA sought comment on whether this list is accurate and complete, and where products made with or containing HCFCs are manufactured. The agency sought comment on which products have mainly switched to non-ODS alternatives so it can continue to assist companies in determining whether the labeling requirements are likely to apply to their products. The agency also sought comment on whether any clarification to the regulations at 40 CFR subpart E (82.100-82.124) is needed to implement the existing labeling requirement for products containing or manufactured with class II substances. EPA received five comments regarding the existing labeling requirements implementing CAA section 611(c), specifically on the effectiveness and applicability of such requirements.

RMS of Georgia commented that the labeling requirements will not be an effective way to increase awareness and ensure compliance because EPA does not have an enforcement arm to handle complaints. The Alliance does not think the labeling requirements are beneficial, and encourages EPA to focus its enforcement efforts towards compliance with regulations promulgated under CAA section 608 (40 CFR subpart F). The Alliance also commented that it believes the list of products included in the docket is complete, and it does not support additional labeling of products. In contrast, Carrier commented that EPA should revise the labeling requirements to apply to dry-shipped HCFC-123 chillers and residential air conditioning condensing units, not just products containing or manufactured with HCFCs. American Pacific (AMPAC) believes fire extinguishers containing HCFC-123 should not be subject to labeling because the ODP of HCFC-123 is very low and it is used as a replacement to Halon 1211, which has a very high ODP. The commenter also noted that the list of products potentially subject to this requirement does include the HCFC Blend B nonresidential fire suppressant that it has manufactured since 1994.

The agency appreciates comments on the effectiveness of the labeling requirements. EPA takes enforcement of its regulations seriously, and notes that the comment that the agency “does not have an enforcement arm to handle complaints” is inaccurate. EPA has also made an effort to focus its outreach toward the industries most likely to be affected by the HCFC product labeling requirement. Applicability of this CAA requirement is to all class II products, which includes all products that contain or are manufactured with HCFC-123. The labeling requirements for “products containing” or “products manufactured with” class II substances in CAA section 611(c) apply January 1, 2015, without any action by the Administrator. The commenter asking for an exemption for HCFC-containing fire extinguishers did not explain how EPA could create an exemption, given that such products are clearly “products containing” class II substances. Similarly, the commenter requesting an extension of the labeling requirements did not explain how or under what authority EPA could extend those requirements to equipment that does not contain an HCFC when introduced into interstate commerce. In addition, EPA did not propose to take any such actions.

Finally, Honeywell commented on labeling requirements for closed cell polyurethane insulated refrigerated trailers and containers where the foam was blown with HCFC-141b. Honeywell suggests that EPA require, or at least offer guidance stating, that the warning label be applied to transactional paperwork as well as the actual trailer, container, or panels containing the HCFC-blown foam.

To the extent that these HCFC-141b trailers or containers are imported into the U.S. (and therefore introduced into interstate commerce), they would require a label. The existing labeling requirements allow flexibility in where the label may be placed, including on the bill of lading, supplemental printed material, or promotional printed material (see 40 CFR 82.108). However, the label must be placed where the person purchasing the HCFC-containing product (or product manufactured with HCFCs) is likely to read and understand the warning statement before purchasing the product. In the preamble to the rule that implemented the statutory labeling requirements (58 FR 8136, February 11, 1993), EPA explained that “the warning statement may appear on a display panel other than the [principal display panel] as long as that label can be readily seen and understood by the consumer at the time of purchase,” (58 FR 8152). EPA continues to communicate with and offer guidance to companies that must

determine whether the HCFC labeling requirements apply to their products. More background on the labeling requirements, including a discussion of the labeling pass-through requirements, can be found in the 1993 Labeling Rule.

B. What actions is EPA taking regarding the use and sales restriction in Clean Air Act section 605(a)?

Starting January 1, 2015, section 605(a) of the Clean Air Act prohibits the use or introduction into interstate commerce of any class II substance that does not meet one of four exceptions. Specifically, use or introduction into interstate commerce is allowed only if (1) the substance has been used, recovered and recycled; (2) it is entirely transformed, except for trace quantities, in the production of other chemicals; (3) it is used as a refrigerant in appliances manufactured prior to 2020; or (4) it is listed as acceptable for use as a nonresidential fire suppression agent in accordance with CAA section 612(c).

Section 612 is the statutory authority for EPA's Significant New Alternatives Policy (SNAP) program, under which the agency reviews information on the human health and environmental impacts of substitutes for class I and class II substances in certain end-uses and lists those substitutes as acceptable, acceptable subject to use conditions, acceptable subject to narrowed use limits, or unacceptable (see 40 CFR subpart G).

The fourth exception in this list is a recent change to the Clean Air Act, which was included in the National Defense Authorization Act for Fiscal Year 2012 [112th Congress, H.R. 1540, Title III, Section 320,

Fire Suppression Agents

In the 2010-2014 Rule (74 FR 66412), EPA used its authority under section 606 to accelerate the section 605(a) restrictions on use and introduction into interstate commerce for HCFC-22 and HCFC-142b

to January 1, 2010, five years earlier than the date specified in section 605(a). Effective January 1, 2010, EPA prohibited the use of virgin HCFC-22 and HCFC-142b to manufacture or service new air-conditioning and refrigeration appliances. In a separate rule, under the authority provided in section 615 of the CAA, EPA also prohibited the sale and distribution of appliances and appliance components pre-charged with either virgin or used, recovered, and recycled HCFC-22 and HCFC-142b (74 FR 66450). For all other HCFCs, including those for which EPA has not historically issued allowances, the CAA section 605(a) prohibitions and exceptions apply as of January 1, 2015. All HCFCs other than HCFC-22 and HCFC-142b may continue to be used and sold as refrigerants, but only for use in appliances manufactured before 2020.

EPA also accelerated the restrictions for HCFC-141b in the same rulemaking; however, HCFC-141b is not discussed further in this section because it is not used for refrigeration purposes.

EPA believes the term “use” is ambiguous in the context of section 605(a) with respect to potential categories of use that Congress did not directly address. Historically, in the context of section 605, EPA has focused on use of refrigerants to manufacture and service appliances and the section 605(a)(3) exception for servicing existing equipment. In 1993, EPA took the section 605(a) use restrictions into account in establishing the HCFC chemical-by-chemical phaseout. The 1993 Proposed Rule (58 FR 15014, March 18, 1993) discusses the acceleration of the use restriction for HCFC-22 and HCFC-142b from the standpoint of when it would be technologically feasible to end the use of these two chemicals in new refrigeration and air-conditioning equipment. In that rulemaking, EPA did not explore how to interpret or apply the term “use” in other circumstances. EPA considered various interpretations of that term in developing the 2010-2014 Rule but again focused on refrigerants. In the 2008 Proposed Rule (73 FR 78680, December 23, 2008), EPA noted that the three statutory exceptions that existed at that time “inform EPA's understanding of the term `use' ” (73 FR 78698). The preamble to the 2010-2014 Rule states: “With regard to HCFCs used as refrigerants, EPA interprets the term `use' to mean initially charging as well as maintaining and servicing refrigeration equipment” (74 FR 66437). In regard to non-refrigerant uses, EPA addressed two manufacturing uses of HCFC-22 (manufacture of sterilant blends for medical equipment and manufacture of thermostatic expansion valves); EPA also concluded that section 605(a) would ban the primary pre-2010 use of HCFC-142b (foam-blowing). At that time, however, EPA was not yet implementing section 605(a) with respect to other HCFCs and did not fully explore what “use” might mean in the context of non-refrigerants.

In the development of the 2010-2014 Rule, EPA did consider whether section 605(a) applies to the operation of products containing HCFCs. With regard to refrigeration equipment, EPA concluded: “the section 605(a) `use' ban does not apply to a consumer's operation of equipment containing HCFCs” (74 FR 66438). The agency's conclusion was partially based on the third exemption to 605(a), for class II substances that are used as refrigerants in appliances manufactured before a specified date. This exemption indicated “that Congress intended to permit the continued use of previously manufactured appliances.” EPA also stated that for “products containing HCFCs for non-refrigerant uses. . . . EPA interprets the term `use' as relating to the manufacture (and where applicable, the service) of those products, not the utilization of those products in the hands of the end user” (74 FR 66437).

EPA is not revisiting its interpretation of section 605(a) with respect to how it interprets “use” for products containing HCFCs. For purposes of implementing the 2015 use restriction in section 605(a), “use” of a controlled substance includes the manufacture of products that contain or are made with HCFCs; however, it would not include use of existing products containing HCFCs. (Products that contain class II controlled substances other than HCFC-22, HCFC-142b and HCFC-141b may still be manufactured before January 1, 2015). As EPA explains in the preamble to the 2010-2014 Rule, EPA interprets section 605(a) as prohibiting the use of substances, not the use of products. The statutory language does not directly address whether use of a product containing controlled substances might constitute a prohibited use of the substance. However, consistent with its earlier statements, EPA does not treat the use of a product containing HCFCs as use of the HCFC.

The agency has a long history of distinguishing between products and substances in its ODS phaseout regulations. The definition of controlled substances in 40 CFR part 82 subpart A excludes any such substance or mixture that is in a manufactured product other than a container used for the transportation or storage of the substance or mixture. EPA distinguishes between bulk containers of HCFCs and products containing HCFCs. The subpart A definition of controlled substance clarifies that if a substance needs to be transferred from a bulk container to a piece of equipment or another container to realize its intended use, it will be treated as a “substance.” Examples of bulk containers include jugs, drums, and cylinders.

EPA refers readers to the preamble of the 2010-2014 Rule for two other clarifications on how EPA interprets the term “use” in the context of section 605(a). First, the agency clarified how the Nonessential Products Ban (CAA section 610) and the HCFC use restriction (CAA section 605(a)) should be interpreted together: “By prohibiting use and introduction into interstate

commerce of HCFCs as bulk substances, section 605(a) effectively prohibits the continued manufacture of any products containing HCFCs (which qualifies as a type of `use') unless specifically exempted in that section.” EPA explained that while the section 610(a) Nonessential Products Ban exempts certain products, these exempted products may not be manufactured after 2014 due to the HCFC use restrictions in section 605(a). EPA clarified that “such products are prohibited from continued manufacture, unless manufactured with recovered HCFCs” (74 FR 66439). Second, in the preamble to the 2010-2014 Rule the agency clarified that “EPA does not interpret `use' [in the context of section 605] to include destruction, recovery for disposal, discharge consistent with all other regulatory requirements, or other similar actions where the substance is part of a disposal chain” (74 FR 66439).

Because the use prohibition will apply to a variety of sectors and circumstances beginning in 2015, EPA believes it may be helpful to define “use” in the phaseout regulations (40 CFR part 82 subpart A). There is currently a definition of “use” in the regulations for the SNAP program (40 CFR part 82 subpart G), under which “use” means any use of a substitute for a class I or class II substance, including but not limited to, use in a manufacturing process or product, in consumption by the end-user, or in intermediate uses, such as formulation or packaging for other subsequent uses (40 CFR 82.172). EPA proposed a related definition for purposes of the section 605(a) use prohibition. Under this proposed definition, use of a class II controlled substance, for the purposes of section 82.15, would include use in a manufacturing process, use in manufacturing a product, intermediate uses such as formulation or packaging for other subsequent uses, and use in maintaining, servicing, or repairing an appliance or other piece of equipment. It would also include use of that controlled substance when it is removed from a storage or transportation vessel. However, the definition of “use” would not include use of a manufactured product containing a controlled substance. The primary difference between the proposed definition under section 605(a) and the SNAP regulations' definition is that the SNAP definition includes use by the consumer of a product containing ODS. This difference reflects EPA's interpretation of the section 605(a) use restriction as set forth in the preamble to the 2010-2014 Rule.

EPA received three comments on its proposed definition of “use.” Two commenters support adopting a formal definition as proposed. One commenter opposes EPA's interpretation, particularly as it relates to the proposed HCFC-225ca/cb exemption for existing inventory. The commenter in opposition provides no justification for their opposition to EPA's definition of use, so EPA believes this comment is in fact a comment in opposition to the

de minimis

exemption for existing inventory of HCFC-225ca/cb, which is discussed in the following section (IV.B.1). In light of the comments received, EPA is finalizing its proposed definition of “use” at 40 CFR 82.3.

1. Treatment of Existing Inventory of HCFC-225ca and HCFC-225cb for Solvent Uses

Numerous stakeholders have asked what they will be able to do with inventory of HCFC-225ca, HCFC-225cb, and mixtures thereof (abbreviated as “HCFC-225ca/cb” for the remainder of the preamble) that exists as of January 1, 2015. To EPA's knowledge, HCFC-225ca/cb is used only as a solvent, primarily for precision cleaning in the aerospace and electronics industries. As explained above, the section 605(a) use ban does not apply to the use of products that contain class II controlled substances. However, some substances, including HCFC-225ca/cb, may be used directly to clean equipment or to manufacture a product without first being put into a manufactured product themselves. For example, a person may take HCFC-225ca/cb from a bulk container, in a mixture or neat, and either add it to a vapor degreaser or pour it on a hand wipe to clean a piece of equipment. In those circumstances, the substance itself—not a product containing the substance—is being used. This differs from the use of products that contain HCFC-225ca/cb, such as aerosol cans or pre-soaked wipes. In general, EPA proposed to interpret the section 605(a) use ban to apply to use when the substance is removed from a container used for transportation or storage. The agency did not receive any adverse comment on EPA's proposed interpretation and is therefore finalizing this interpretation.

However, EPA believes the use of HCFC-225ca/cb entered into inventory prior to January 1, 2015, by persons that use these substances as solvents may fairly be considered

de minimis.

Thus, for reasons discussed below, the agency is finalizing its proposed

de minimis

exemption to the use prohibition in section 605(a), which allows any person with HCFC-225ca/cb in inventory prior to January 1, 2015, to use that material as a solvent.

“Person” is defined in 40 CFR 82.3 to include corporations and Federal agencies, as well as their employees and agents. Agents include contractors and subcontractors, as well as other entities performing a service or task on behalf of the corporation or Federal agency. One of those tasks could be storing and/or using HCFC-225ca/cb that was in existing inventory prior to January 1, 2015.

Since the section 605(a) prohibition only limits the use of virgin or unused HCFC-225ca/cb solvent, used, recovered, and recycled solvent can still be used for precision cleaning and manufacturing products after January 1, 2015.

EPA did not propose an exemption to the prohibition on introduction into interstate commerce, nor did it propose to change the existing regulatory phaseout date for production and import of HCFC-225ca/cb. Effective January 1, 2015, a person holding HCFC-225ca/cb in inventory may not transfer or sell it to another person (unless for destruction), nor is EPA issuing any allowances to produce or import new HCFC-225ca/cb.

Additionally, neither companies that manufacture products for their own use, nor companies that manufacture products for sale to others are allowed to manufacture products containing virgin HCFC-225ca/cb, as that is a prohibited use of the substance. A person may sell any products containing HCFC-225ca/cb that had been manufactured and entered into initial inventory prior to January 1, 2015, since at that point they would be “products” and not “class II controlled substances.” A product is considered to be a part of “initial inventory” at the point where the original product has completed its manufacturing process and is ready for sale by the product manufacturer. For more discussion of EPA's interpretation of the term “initial inventory,” see the 1993 Nonessential Products Ban. Also, for purposes of section 605(a), manufacturers may continue to use HCFC-225ca/cb to make both products “manufactured with” and products “containing” HCFC-225ca/cb as of January 1, 2015, so long as the HCFC-225ca/cb has been used, recovered and recycled. Labeling requirements for these products manufactured with either virgin or used, recovered, and recycled HCFC-225ca/cb will apply beginning January 1, 2015 (see Section IV.A. of this preamble). Manufacturers should also ensure that they are in compliance with the Nonessential Products Ban and with SNAP regulations.

EPA received seven comments on its proposed

de minimis

exemption to the

use restriction in section 605(a) for entities that use HCFC-225ca/cb as solvents and have HCFC-225ca/cb in their inventory prior to January 1, 2015. Six commenters supported the exemption because it would provide valuable flexibility while they evaluate and qualify alternatives that can satisfy specialized applications. Charles Stark Draper Laboratory (CSDL) and AGC Chemicals both note that EPA has adequate authority in the CAA to issue this exemption. Three commenters also noted that the exemption would help industry avoid costs associated with disposing of HCFC-225ca/cb already held in inventory.

One commenter, AGC Chemicals, stated that EPA should clarify that “owners” of HCFC-225ca/cb can use their inventory in any of their affiliated organizations, allowing transfer among facilities in different locations. In the preceding text describing the exemption, EPA has attempted to clarify that the term “person” applies to subcontractors and other agents working on the person's behalf. Transferring a chemical between different facilities of the same person within the United States would be allowed by this exemption.

Another commenter supports EPA's proposed

de minimis

exemption for HCFC-225ca/cb inventory prior to January 1, 2015, because at that point the inventory would be a product and not a class II controlled substances. EPA would like to clarify that bulk HCFC-225ca/cb produced or imported before 2015 is not a product. As explained in this section, bulk HCFC-225ca/cb in existing inventory is still a controlled class II substance. As such, EPA is providing an exemption to the use prohibition for class II controlled substances and is not reclassifying HCFC-225ca/cb as a product merely because time has passed.

One commenter, NRDC, opposes the exemption and believes that section 605(a) is intended to be interpreted strictly. According to NRDC, justifying the

de minimis

argument based on the limited quantities of this chemical in use is inappropriate and unjustified. NRDC further asserts that EPA's statutory interpretation has the potential to cause harm in future years of the phaseout if small amounts of a chemical were made available for “as long as needed” and that such an exemption would be contrary to the goals of Title VI of the Clean Air Act and the Montreal Protocol.

As explained in the proposal and in this rule, EPA is not allowing for new production or new import of virgin HCFC-225ca/cb, but only for the continued use of a small amount of material that was previously produced and/or imported using the appropriate allowances prior to 2015. The production and consumption allocation for HCFC-225ca/cb is zero starting in 2015. EPA sees the

de minimis

exemption as consistent with how EPA has treated other ODS, and with the goals of Title VI. For example, production and consumption of CFCs were phased out in 1996, yet amounts in inventory continued to be used. Additionally, there will still be continued use of HCFC-22 after EPA phases out production and import of HCFC-22 in 2020. In general, the term “phaseout” applies to the decrease and eventual elimination of production and import of a virgin substance, not to the use of a particular substance. While section 605(a) limits the use of virgin HCFCs starting in 2015, use of class I substances and certain uses of particular class II substances will continue without undermining the overarching goals of CAA Title VI.

As stated in the proposed rule, EPA believes it has implied authority to create a

de minimis

exemption from the section 605(a) use restriction. The United States Court of Appeals for the District of Columbia Circuit has recognized that “[u]nless Congress has been extraordinarily rigid, there is likely a basis for an implication of

de minimis

authority to provide exemption when the burdens of regulation yield a gain of trivial or no value.”

Alabama Power Co.

Costle,

636 F.2d 323, 360-61 (D.C. Cir. 1980). In

Alabama Power,

the Court held that “[c]ategorical exemptions from statutory commands may . . . be permissible as an exercise of agency power, inherent in most statutory schemes, to overlook circumstances that in context may fairly be considered

de minimis.

It is commonplace, of course, that the law does not concern itself with trifling matters, and this principle has often found application in the administrative context. Courts should be reluctant to apply the literal terms of a statute to mandate pointless expenditures of effort.”

Id.

(internal citations omitted).

In an earlier case cited by the court in

Alabama Power,

the court described the doctrine as follows: “The `

de minimis'

doctrine that was developed to prevent trivial items from draining the time of the courts has room for sound application to administration by the Government of its regulatory programs . . . The ability, which we describe here, to exempt

de minimis

situations from a statutory command is not an ability to depart from the statute, but rather a tool to be used in implementing the legislative design.”

District of Columbia

Orleans, 406 F.2d 957, 959 (1968).

In this respect, the

Alabama Power

opinion observed in a footnote that the

de minimis

principle “is a cousin of the doctrine that, notwithstanding the ‘plain meaning’ of a statute, a court must look beyond the words to the purpose of the act where its literal terms lead to ‘absurd or futile results.’ ”

Id.

at 360 n. 89 (citations omitted). To apply an exclusion based on the

de minimis

doctrine, “the agency will bear the burden of making the required showing” that a matter is truly

de minimis

which naturally will turn on the assessment of particular circumstances.

Id.

The

Alabama Power

opinion concluded that “most regulatory statutes, including the CAA, permit such agency showings in appropriate cases.”

Id.

A notable limitation on the use of the

de minimis

doctrine is that it does not authorize the agency to exclude something on the basis of a cost-benefit analysis. As the court explained, this “implied authority is not available for a situation where the regulatory function does provide benefits, in the sense of furthering the regulatory objectives, but the agency concludes that the acknowledged benefits are exceeded by the costs.”

Id.

The court held that any “implied authority to make cost-benefit decisions must be based not on a general doctrine but on a fair reading of the specific statute, its aims and legislative history.”

Id.

Several courts have recognized

de minimis

exceptions (1) so long as they are not contrary to the express terms of the statute

and (2) the agency's interpretation of the exception is a permissible reading of the statute. See e.g.,

Ober

Whitman, 243 F.3d 1190 (9th Cir. 2001);

see also

Ohio

EPA, 997 F.2d 1520 (D.C. Cir. 1993).

Sierra Club

EPA,

705 F.3d 458 (D.C. Cir. 2013), the DC Circuit held that EPA had no

de minimis

authority to create an exemption from the preconstruction monitoring requirement in § 165(e)(2) of the CAA. “Whether we call preconstruction monitoring a `plain requirement' or a requirement mandated by an `extraordinarily rigid' statute, the result is the same: The EPA has no

de minimis

authority to exempt the requirement.”

Id.

at 468.

de minimis

exemption is permissible in this situation for several reasons. First, section 605(a) is not extraordinarily rigid. Second, the use prohibition in section 605(a) is ambiguous with respect to potential categories of use that Congress did not directly address. Third, banning the use of HCFC solvent inventory held by the end-user would not advance the statutory purpose of Title VI of the

Clean Air Act. These arguments are discussed in more detail in the following paragraphs.

The purpose of Title VI of the Clean Air Act, as its title suggests, is stratospheric ozone protection. Title VI can be categorized into three principal areas: The phaseout of production and import of ozone depleting substances (sections 602-607); reduction in emissions of these substances via various means such as required servicing practices, restrictions on sale and distribution of products, and consumer education (sections 608-611); and the transition to alternatives that reduce overall risk to human health and the environment compared to other alternatives (section 612).

Section 605 specifically addresses the phaseout of production and consumption of class II controlled substances. Section 604 applies to the phaseout of production and consumption of class I substances. There are notable differences between the two phaseouts. The phaseout under section 604 works much more quickly than the phaseout under section 605. In addition, the section 604 phaseout applies much earlier than the section 605 phaseout. Section 604 required the first reductions in class I substances in 1992, followed by a series of stepdowns culminating in the complete phaseout of nearly all class I substances by 2000. For class II substances, section 605 freezes production and consumption in 2015, with the complete phaseout not occurring until 2030.

Two principal factors drive the distinction in phaseout schedules. First, class I substances have much higher ODPs relative to class II substances.

Second, class II substances were recognized as and often developed expressly to be important transitional chemicals, beneficial in phasing out class I substances as quickly as possible. During the development of the 1990 Clean Air Act Amendments, Congress heard testimony on the need to phase out HCFCs as well as class I substances. Senator Chaffee acknowledged that “one difficulty, however, is the fact that achieving the goal of eliminating the potent long-lived CFCs as rapidly as possible is, to some extent, dependent on the continued availability of HCFCs as intermediate substitutes pending development of other, safe, non-ozone depleting substances or processes.” (A Legislative History of the Clean Air Act Amendments of 1990, volume 1, p. 5210 (Senate debate)).

Through rulemakings, EPA accelerated the statutory deadlines in sections 604 and 605, in accordance with the requirements in section 606. See 57 FR 3354 and 58 FR 65013.

For example, all CFCs have an ODP of 0.6 or greater, with most having an ODP of 1.0, whereas the HCFC with the highest ODP is HCFC-141b, which has an ODP of 0.11.

It is clear that Congress' intent was to phase out production and import of class I substances “as rapidly as possible,” and certainly more rapidly than class II substances given the difference in the start and duration of the two phaseout schedules; however, nowhere in section 604 does Congress restrict the

use

of class I substances. Instead, Congress phases out the

production

and

import

for domestic use, and allows for certain exemptions to the phaseout for specific uses (see, e.g., section 604 (f) and (g).) Given the comparable titles of sections 604 and 605 and the overarching goal of phasing out both class I and class II ODS,

Congress likely intended that the “use” restriction, which is unique to section 605, should be interpreted in a manner that furthers the phaseout of production and import of HCFCs while recognizing the role of HCFCs as transitional substances.

“The centerpiece of the stratospheric ozone protection program established by this title is the phaseout of production and consumption of all ozone depleting substances.” Clean Air Act Amendments—Conference Report (Senate—October 27, 1990) (136 Cong. Rec. S16946).

Congress' overall approach to the class II phaseout is generally less rigid than its approach to the class I phaseout, considering the longer timeframes and the presence of only one intermediate reduction step (see section 605(b)). Given this context, EPA does not view section 605(a) as “extraordinarily rigid.” In addition, section 605(a) provides an explicit exception for class II substances that have been “used, recovered, and recycled.” Thus, Congress clearly did not envision that all HCFC use in applications not specifically exempted would come to a halt by 2015. Indeed, end-users of HCFC-225ca/cb could avail themselves of this exception by putting their entire existing inventory of HCFC-225ca/cb into their equipment before January 1, 2015. For example, an end-user could use its entire inventory of virgin HCFC-225ca/cb in its vapor degreaser, recover the HCFC-225ca/cb from the degreaser, and then recycle it for reuse in 2015 and beyond. In other instances, an end-user could take virgin HCFC-225ca/cb, apply it to a surface via the typical application method such that the surface is cleaned as intended, at which point any recovered HCFC-225ca/cb would be rendered “used.” EPA does not wish to encourage this approach to meeting section 605(a) requirements, which would do nothing to advance the statutory purpose of stratospheric ozone protection. Rather than insist on an inflexible reading of the statute that may create “absurd or futile results,” EPA believes the better option is to allow end-users to continue to use virgin HCFC-225ca/cb inventory that was manufactured and is in their possession prior to 2015.

EPA views section 605(a) as ambiguous with respect to potential categories of use that Congress did not explicitly address. Section 605(a) explicitly addresses refrigerant uses of HCFCs but is silent with respect to solvents. At the time the 1990 Clean Air Act Amendments were written, HCFCs were used predominantly as refrigerants and much consideration was given to this use in the legislative history. HCFC solvent uses, on the other hand, were not considered by Congress in the context of the class II phaseout, because they did not exist. At that time, two class I substances, CFC-113 and methyl chloroform, were used as solvents. Far from expecting an early transition, Congress allowed production and import of methyl chloroform until 2002, two years after the phaseout date for most class I substances. In addition, in section 604(d)(1), Congress specifically allowed for limited exemptions to the production and import phaseout for methyl chloroform for “use in essential applications.” It was not until 1995 that the SNAP program listed HCFC-225ca/cb as acceptable subject to use conditions in electronics cleaning and precision cleaning (see 60 FR 31092, June 13, 1995). HCFC-225ca/cb was listed as acceptable in metals cleaning as recently as 2002 (see 67 FR 77927, December 20, 2002). In all three of these end-uses, HCFC-225ca/cb, which has an ODP of 0.025/0.033, is a substitute for CFC-113 and methyl chloroform, which have ODPs of 0.8 and 0.1, respectively. While HCFC-225ca/cb solvents have acted since 1995 as transitional substances between class I ODS and non-ODS substitutes for certain niche needs, there is no evidence that Congress anticipated in 1990 that any HCFCs would be used as solvents. Thus, Congress did not have the opportunity to consider whether to apply the section 605(a) use restriction to HCFC-225ca/cb solvents.

EPA does not believe that it would advance the goals of Title VI to prohibit persons that use HCFC-225ca/cb as a solvent to clean their equipment or to clean components of products they manufacture—resulting in products “manufactured with” these HCFCs—from using their existing inventory of HCFC-225ca/cb. As discussed above, any person could avoid such a

prohibition by rendering all their inventory “used” in advance of the effective date. From the perspective of potential ozone destruction, there is little or no difference in this instance whether the person uses

de minimis

quantities already on site at the end of 2014 or after January 1, 2015.

EPA believes a

de minimis

exemption is appropriate for the reasons provided, and also because the quantities involved are extremely limited. This is a small niche use and EPA is only proposing to exempt HCFC-225ca/cb held in inventory by persons that use these substances as a solvent. Allowances act as a ceiling on the quantities that can be produced or imported and thus comprise pre-2015 inventory. The annual allocation of allowances for HCFC-225ca/cb from 2010-2014 has been only 20.7 ODP-weighted MT per year. Recent data showing HCFC-225ca/cb consumption has been substantially less than the allocation, further decreasing the absolute maximum amount that could remain in inventories as of 2015, when production and import are prohibited.

EPA also considered its past use of

de minimis

authority under Title VI of the Clean Air Act. The agency is modeling this exemption to section 605(a) on the

de minimis

exemption to the Nonessential Products Ban for class II substances (CAA section 610(c) and (d)). In the 1993 Nonessential Products Rule, EPA exempted products manufactured with or containing HCFCs from the ban if they were placed in initial inventory by December 27, 1993, which was 90 days after the proposed rule published and four days prior to the statutory ban on sale and distribution in interstate commerce (58 FR 50464, September 27, 1993 and 58 FR 69638, December 30, 1993). EPA adopted this narrow “grandfather” exception for existing inventories based on a

de minimis

rationale: “The crux of EPA's reasoning for providing any exemption for existing inventories was that emissions from products already in existence were

de minimis”

(58 FR 69660). EPA believes that emissions from pre-2015 existing inventories of HCFC-225ca/cb would also be

de minimis.

As discussed, EPA believes it has sufficient authority to adopt a

de minimis

exemption to the section 605(a) use prohibition for use of HCFC-225ca/cb held in inventory by persons using these substances as solvents. EPA has also considered policy aspects of an exemption. In the 1993 Nonessential Products Rule, EPA identified various reasons for exempting existing inventory. One policy goal was to relieve a potentially onerous burden on small businesses because, absent a sell through provision, existing inventories would otherwise have to be liquidated (or in the case of the section 605(a) use restriction, intentionally used, recovered, and recycled prior to the effective date of the prohibition).

Another important consideration is that the nature of precision cleaning is such that the group of affected entities is small, but their needs are very specific. Those needs often include minimal to zero flammability as well as excellent solvency properties. If those needs are not met, human safety can be jeopardized. Prior to the proposal, EPA had heard from several entities that use HCFC-225ca/cb as solvents for cleaning existing equipment or for cleaning surfaces that are part of a newly-produced product that still have not found a suitable alternative to HCFC-225ca/cb. In some instances, they need more time to test alternatives to ensure that the chosen replacement has acceptable solvency, flammability, and usability characteristics. Also, in some areas of the United States, a number of Federal, state, and local regulations affect the choice of solvents. In particular, areas that do not meet the national ambient air quality standard for ground-level ozone may regulate solvents that are volatile organic compounds (VOCs) to reduce emissions that contribute to the formation of smog. HCFC-225ca and HCFC-225cb are exempt from the definition of VOC under CAA regulations (see 40 CFR 51.100(s)) addressing the development of State Implementation Plans (SIPs) to attain and maintain the national ambient air quality standards. Only a few SNAP-listed alternatives to HCFC-225ca/cb are exempt from the definition of VOC (e.g.,

trans

-1-chloro-3,3,3-trifluoroprop-1-ene).

After taking into account public comments, as well as the legal and policy considerations above, EPA is finalizing its proposed

de minimis

exemption to the use restriction in CAA section 605(a) for entities that use HCFC-225ca/cb as solvents and that have HCFC-225ca/cb in their inventory prior to January 1, 2015. The exemption will appear at 40 CFR 82.15(g). The exemption does not pertain to manufacturers of products containing HCFC-225ca/cb, such as technical aerosol solvents, or to producers and importers of HCFC-225ca/cb. Any aerosol solvent product manufactured prior to January 1, 2015, could be sold and used after that date, since an aerosol spray can is a product, not a controlled substance. However, manufacture of the product or HCFC blends used in those products would be considered use of a controlled substance, and would be prohibited after January 1, 2015, unless the HCFC were used, recovered, and recycled.

2. Treatment of Existing Inventory of HCFC-124 for Sterilant Uses

In the proposed rule, EPA also sought comment on whether there are other small, niche uses of HCFCs that Congress may not have contemplated in the 1990 CAA Amendments and for which a prohibition on continued use of existing inventory would yield trivial or no benefits in light of the statutory purpose. In the proposal, the agency stated that it might consider extending the proposed exemption to other such niche uses in the final rule.

EPA received one comment from Mesa Labs, requesting continued use of HCFC-124 already held in inventory as a sterilant for the manufacture and testing of biological indicators (BIs). BIs contain biological spores and are used in the pharmaceutical, medical device and healthcare markets to monitor sterilization cycles. In this case, the commenter manufactures BIs for use in monitoring ethylene oxide (EtO) sterilization cycles. Two sources of EtO currently available for use are 100 percent EtO and a blend called Oxyfume 2000 (which consists of 8.6 percent EtO and 91.4 percent HCFC-124). The commenter requests an exemption to the section 605(a) HCFC use restriction for their HCFC-124 inventory for the specific reasons listed below:

(1) BIs in the commenter's stability program may need to be tested for up to two years after the production date of the BI (i.e. up until the expiration date). This is a regulatory compliance issue connected to the FDA and ISO 9001:2008 standards.

Since initial resistance assessment of these BIs was conducted using the Oxyfume 2000 blend gas, the commenter cannot obtain relevant comparison data if subsequent testing is performed using 100 percent EtO as the source gas. Transitioning to a non-HCFC sterilant would affect the commenter's ability to comply with the ISO standards as well as FDA expectations.

According to

www.iso.org,

ISO 9001:2008 “specifies requirements for a quality management system where an organization needs to demonstrate its ability to consistently provide product that meets customer and applicable statutory and regulatory requirements, and aims to enhance customer satisfaction through the effective application of the system, including processes for continual improvement of the system and the assurance of conformity to customer and applicable statutory and regulatory requirements.”

(2) According to the ISO 11138-2 standard,

the minimum acceptable resistance for a BI used for EtO monitoring is 2.5 minutes. This is achievable using the Oxyfume blend but not achievable using the 100 percent EtO source. The ISO 11138-2 standard has not yet been changed to reflect this difference. Therefore, the commenter would not be able to comply with the ISO resistance requirements using 100 percent EtO, which would affect the medical industry's ability to source suitable BIs.

According to

www.iso.org,

ISO 11138-2:2006 “provides specific requirements for test organisms, suspensions, inoculated carriers, biological indicators and test methods intended for use in assessing the performance of sterilizers and sterilization processes employing ethylene oxide gas as the sterilizing agent, either as pure ethylene oxide gas or mixtures of this gas with diluent gases, at sterilizing temperatures within the range of 29 °C to 65 °C.”

(3) The manufacturer of Oxyfume 2000 has stopped producing the material and will no longer accept unused material for destruction.

(4) The company's existing supplies of Oxyfume 2000 are small (300-400 pounds) and will last for up to 2 years.

The commenter also stated that they are active on the Association for the Advancement of Medical Instrumentation (AAMI) BI Working Group. Efforts are underway to change the ISO 11138-2 standard to reflect appropriate resistance values associated with the use of 100 percent EtO as the sterilants source gas. However, changes to the ISO standard will likely take 18-24 months.

Prior to the December 2013 proposal, EPA spoke with the domestic manufacturer of Oxyfume 2000 and also with representatives from the Ethylene Oxide Sterilization Association (EOSA). Through these conversations, the agency confirmed that the medical sterilant industry was aware of the upcoming use prohibition and that sterilant users were in the process of, or had already transitioned to, non-ODS sterilants. However, EPA appreciates that the standards for the minimum acceptable resistance for a BI used for EtO monitoring are currently being revised and that revision may take up to two years to complete. Due to strict requirements for BI testing, it may not be feasible for BI manufacturers to transition to a non-ODS sterilant before January 1, 2015. Therefore, in developing this final rule, EPA considered whether to create a

de minimis

exemption for this use similar to the exemption being finalized for use of HCFC 225ca/cb. EPA believes a

de minimis

exemption for use of HCFC-124/EtO sterilant blends in existing inventory is permissible for several reasons. First, as described above, section 605(a) is not extraordinarily rigid. Second, as discussed, the use prohibition in section 605(a) is ambiguous with respect to potential categories of use that Congress did not directly address. There is no mention of sterilant uses of HCFCs in section 605(a). It is unlikely that Congress considered sterilant uses of HCFCs in developing the 1990 CAA Amendments. Estimates indicate that in 1989, CFC-12/EtO was used for over 95 percent of all sterilization in hospitals (59 FR 13044). HCFC-124 containing sterilants were listed as acceptable by SNAP in the March 1994 rule establishing the SNAP program (59 FR 13044), several years after the 1990 CAA Amendments. Following that action, use of an HCFC-124/EtO blend largely replaced sterilization with a CFC-12/EtO blend. Third, banning the use of HCFC sterilant inventory held by the end-user would not advance the statutory purpose as companies could render the material “used” prior to the 2015 use prohibition, and then be able to utilize the “used” material in 2015 and beyond.

Additionally, the quantities of HCFC-124 that are being exempted are extremely limited. This is a small niche use and EPA is only exempting HCFC-124 held in inventory prior to January 1, 2015. Allowances act as a ceiling on the quantities that can be produced or imported and thus comprise pre-2015 inventory. The annual allocation of allowances for HCFC-124 from 2010-2014 has been 66 ODP-weighted MT per year. Recent data showing HCFC-124 consumption has been less than the full allocation, further decreasing the absolute maximum amount that could remain in inventories as of 2015, when production and import are prohibited. Honeywell, the manufacture of the Oxyfume 2000 HCFC-124 sterilant blend, stopped producing this product as of November 1, 2013. The company also encouraged their customers to ship back unused material and has a Web site dedicated to informing customers about the use restriction that takes effect on January 1, 2015 (see

http://www.honeywell-sterilants.com/questions-and-answers/

or the PDF in the docket). It is likely that the remaining HCFC-124 inventory is very small, and is held by end-users with niche sterilization needs (e.g. testing the efficacy of BIs).

For the reasons discussed above, EPA is including in this final rule a limited use exemption for sterilants containing HCFC-124. EPA is not creating an exemption to the prohibition on introduction into interstate commerce. Similarly, EPA is not changing the existing regulatory phaseout date for production and import of HCFC-124 for use as a sterilant, nor is EPA issuing any allowances to produce or import new HCFC-124 for use as a sterilant. Effective January 1, 2015, a person holding HCFC-124 in inventory may not transfer or sell HCFC-124 to another person (unless for destruction or for use as a refrigerant). EPA is creating a

de minimis

exemption to the use restriction in CAA section 605(a) for entities that use HCFC-124 as a sterilant for manufacture and testing of biological indicators and that have HCFC-124 in their inventory prior to January 1, 2015. The exemption will appear at 40 CFR 82.15(g). The exemption does not pertain to manufacturers of products containing HCFC-124 (e.g., aerosol spray cans); however, a product manufactured prior to January 1, 2015, could be sold and used after that date, since an aerosol spray can is a product, not a controlled substance.

3. Update to Regulations To Account for Recent Changes to Section 605(a)

In the National Defense Authorization Act (NDAA) for fiscal year 2012, Congress amended section 605(a) of the Clean Air Act to allow for continued use and introduction into interstate commerce of a class II substance that “is listed as acceptable for use as a fire suppression agent for nonresidential applications in accordance with section 612(c).”

Section 612 of the Clean Air Act requires EPA to develop a program for evaluating alternatives to ozone-depleting substances. EPA refers to this program as the Significant New Alternatives Policy (SNAP) program. Section 612(c) requires EPA to publish a list of the substitutes unacceptable for specific uses and to publish a corresponding list of substitutes acceptable for specific uses. The list of acceptable substitutes is found at

www.epa.gov/ozone/snap/lists,

and the lists of “unacceptable,” “acceptable subject to use conditions,” and “acceptable subject to narrowed use limits” substitutes are found in the appendices to subpart G of 40 CFR part 82.

HCFC-123, HCFC-124, and several blends containing an HCFC are currently listed as acceptable and acceptable subject to narrowed use limits as fire suppression agents, where the use limit restricts use to only nonresidential fire suppression. EPA assumes that Congress intended the statutory phrase “listed as acceptable for use” to include HCFCs listed as

acceptable and acceptable subject to narrowed use limits. In light of the 2012 statutory revision, EPA proposed to update its regulations for use and introduction into interstate commerce of HCFCs (82.15(g)), as well as the regulations governing production and import (82.16). Specifically, the agency proposed amending 82.15(g)(4) to allow for use and introduction into interstate commerce of any class II controlled substance not governed by the acceleration of the use prohibition to 2010, when used as a fire suppression streaming agent listed as acceptable for use or acceptable subject to narrowed use limits for nonresidential applications. EPA believes this addition is necessary and appropriate, given Congress' addition to section 605(a).

Though section 605(a) pertains only to use and introduction into interstate commerce, EPA believes that allowing for continued HCFC production and import for nonresidential fire suppression uses is in accordance with Congressional intent. Section 605 does not establish a production phaseout date for any specific HCFC. EPA previously used its discretion to establish a regulatory phaseout date, which the agency is modifying in this action. This change has minimal effect on the overall allocation since the primary HCFC used for fire suppression, HCFC-123, has a low ODP, and the quantities used for fire suppression are small relative to the other uses of HCFCs.

In large part, the regulatory phaseout date for HCFCs used in fire suppression was driven by the section 605(a) limitations on use and introduction into interstate commerce of class II controlled substances, to which Congress has now created an exception. Therefore, EPA also proposed to amend 82.16(d), by allowing for HCFC production and import in the 2015-2019 regulatory period for use in nonresidential streaming fire suppression applications. To give practical effect to this proposed change, EPA proposed allocating consumption allowances for HCFC-123 for use as both a refrigerant and as a fire suppression agent. As discussed in section VI.D. of this preamble, EPA is finalizing its proposal to allocate the maximum allowed amount of HCFC-123 consumption allowances under section 605(b). This is 100 percent of the HCFC-123 baseline, which is still less than three percent of the Montreal Protocol cap for 2015-2019.

EPA is allowing production and import for fire suppression purposes for the 2015-2019 regulatory period only. Beginning January 1, 2020, Article 2F of the Montreal Protocol limits United States production and import of HCFCs to use only in servicing and repair of existing refrigeration and air conditioning equipment. Under section 614(b), where either the Montreal Protocol or Title VI is more stringent, the more stringent provision governs. To reflect this Montreal Protocol time limitation, EPA proposed adding language to 82.16(e) indicating the purposes for which production and import may continue in 2020 and beyond. Fire suppression was not included on the list.

The agency received three comments regarding its plans to update regulations to account for recent changes to section 605(a), all of which agreed with EPA's rationale and language regarding continued use of HCFCs as a fire suppression agent. One fire suppressant manufacturer, AMPAC, commented that the word “streaming” should be deleted from the proposed changes to section 82.15(g)(4) and 82.16(d), on the ground that limiting the exemption to streaming agents only is inconsistent with legislative intent and what is stated in section 320 of the 2012 NDAA.

EPA recognizes that the language included in section 320 of the 2012 NDAA is broader than the regulatory language proposed. In particular, the 2012 NDAA does not provide any guidance on whether Congress intended to exempt only those applications in which HCFCs are currently used. EPA proposed language that was limited to streaming applications to reflect its understanding that current use of HCFCs in fire suppression is limited to streaming applications. The agency sought comment on whether HCFCs were used for other nonresidential fire suppression applications, such as total flooding. EPA did not receive any comments that would counter its understanding that current use of HCFCs in fire suppression is limited to streaming applications. Therefore, the agency is not including total flooding applications and is finalizing its changes to 40 CFR 82.15(g)(4), 82.16(d),

and 82. 16(e)(2) as proposed.

EPA intended to use parallel language for production and import of HCFCs for fire suppression in § 82.16(d) but inadvertently omitted the phrase “listed as acceptable for use or acceptable subject to narrowed use limits” from the clause regarding imports. EPA is correcting this omission in the final rule.

C. Which Montreal protocol requirements take effect in 2015 and 2020?

As discussed in section II.A. of this preamble, the United States has agreed under the Montreal Protocol to limit consumption and production of HCFCs by January 1, 2015, to no more than 10 percent of its Montreal Protocol baseline. Starting in 2015, the United States cap on consumption will be 1,524 ODP-weighted MT and the cap on production will be 1,553.7 ODP-weighted MT. By January 1, 2020, the United States is required to limit consumption and production of HCFCs to 0.5 percent of baseline. As required under sections 606(a) and 614(b) of the Clean Air Act, EPA phaseout regulations reflect the Montreal Protocol schedule for phasing out HCFCs, including the 2015 and 2020 stepdowns. In developing and finalizing the HCFC allocation schedule for 2015-2019, the agency bore in mind that as of January 1, 2020, the consumption and production caps will be approximately 76 and 77.5 ODP-weighted MT, respectively. Also, as of January 1, 2020, Article 2F of the Protocol limits United States production and consumption of HCFCs to servicing needs for refrigeration and air conditioning equipment. In addition, CAA section 605(a) limits the use of virgin HCFCs as of January 1, 2015, to use as a refrigerant in equipment manufactured prior to 2020, and use as a nonresidential fire suppressant. EPA regulations also prohibit the production and import of virgin HCFC-22 or HCFC-142b for refrigeration uses as of January 1, 2020 (see 40 CFR 82.16(e)). The 2015 and 2020 milestones in the Montreal Protocol and the Clean Air Act provide a framework within which EPA proposed, and is now finalizing, the HCFC allocations for 2015-2019.

V. HCFC Baselines for 2015-2019

EPA proposed to keep the post-

Arkema

historical baselines in the December 2013 proposal (as adjusted to reflect subsequent name changes and inter-company baseline allowance transfers), for the 2015-2019 regulatory period. The baselines for production and consumption of the seven HCFCs for which EPA has allocated allowances can be found at 40 CFR 82.17 and 82.19, respectively. Through today's final rule, EPA is finalizing those same baselines for 2015-2019 for all HCFCs subject to the allocation system. More information on the HCFC baseline system and the Arkema lawsuit is found in section II.B. of this preamble.

EPA received six comments on how it would determine baselines for 2015-2019 regulatory period, all in support of maintaining the existing baseline system. National, the Alliance, Combs Investment Properties, Arkema, Honeywell, and AMPAC all support (or in the case of AMPAC, do not object to) EPA's proposal to maintain existing

baselines. Several commenters reference the certainty and stability that maintaining the current system would provide, or the confusion that new baselines would cause, and agree with EPA that altering baselines would not provide environmental benefit. One commenter explicitly referenced EPA's statements that revised baselines would not affect the overall, aggregate allocation since it is the percentage of baseline issued—not the aggregate baseline itself—that determines the allowed amount of production and import in a given year. AMPAC states that it supports establishment of baselines such that only actively consuming companies receive baseline allowances and it supports reallocating any allowances proportionately from non-active companies to those that are still using allowances.

Since EPA proposed to maintain the current baseline system, and commenters were supportive of the proposal, the agency is finalizing the same baselines it used in the 2012-2014 Rule. In response to AMPAC's comments, the agency believes that reallocating baselines, especially this far into the phaseout of HCFCs, would cause uncertainty and confusion. As discussed above, altering baselines would not provide environmental benefit. In addition, changing baselines for 2015-2019 could interfere with the agency's longstanding goal of an orderly transition out of HCFCs. Since baseline allowances are tradable, there is flexibility within the current system to allow companies to grow or shrink their activity in the market. The agency's consideration of updated baselines and its reasons for not proposing to revise baselines are discussed in more detail in the proposed rule (78 FR 78083).

VI. HCFC Allowance Allocation Amounts for 2015-2019

Section 605(a) of the Clean Air Act limits the use of newly-produced (i.e. virgin) HCFCs beginning January 1, 2015. Under the statute, the uses of virgin HCFCs are limited to use as a refrigerant in appliances

manufactured prior to 2020 (EPA accelerated this manufacturing date to 2010 for HCFC-22 and HCFC-142b)

and as a nonresidential fire suppressant, if listed as acceptable under SNAP for this end-use. HCFC-22 and HCFC-123 are both used as refrigerants, and thus EPA is issuing allowances for these chemicals. EPA is also issuing consumption and production allowances for HCFC-142b and HCFC-124, since both are listed as acceptable for certain refrigerant end-uses and limited, albeit decreasing, demand for refrigerant blends containing these HCFCs continues.

The Clean Air Act defines appliance as “any device which contains and uses a class I or class II substance as a refrigerant and which is used for household or commercial purposes, including any air conditioner, refrigerator, chiller or freezer.”

EPA accelerated the 605(a) use restrictions for HCFC-22 and HCFC-142b in the 2010-2014 Rule. Consequently, HCFC-22, HCFC-142b, and blends containing either can only be used as a refrigerant in appliances manufactured before January 1, 2010, not 2020. Additionally, the Clean Air Act allows use and introduction into interstate commerce of virgin HCFCs for use in transformation, but since this use does not require consumption or production allowances, it is not discussed in this section.

EPA is not issuing allowances for HCFC-225ca or HCFC-225cb because neither is used as a refrigerant nor as a fire suppressant, though the agency is finalizing a narrow

de minimis

exemption for the use of existing inventory of HCFC-225ca, HCFC-225cb, or a mixture of the two isomers (HCFC-225ca/cb) in specialty precision cleaning needs. EPA is also adopting a narrow

de minimis

exemption for the use of inventory of sterilants containing HCFC-124. Both of these exemptions are discussed at section IV.B. of this preamble.

Use of HCFC-141b was banned effective January 1, 2010 (see 82.15(g)(1),(3)), with limited exceptions. In addition, the exemption from the class II phaseout that allows for HCFC-141b exemption allowances does not continue beyond 2014 (see 40 CFR 82.16(b),(d)). The agency is finalizing its proposal to remove 40 CFR 82.16(h), which described the petition requirements for receiving HCFC-141b exemption allowances. EPA did not receive any adverse comments on removing this regulatory language.

As stated in the proposal and in accordance with 40 CFR 82.18(a)(2) and (3), EPA is issuing Article 5 allowances

for 2015-2019 to each company with a production baseline for any HCFC. The allocation is equal to 10 percent of the company's production baseline for that HCFC, regardless of whether production or consumption allowances are issued for that HCFC in 2015-2019.

Article 5 allowances allow a company with an HCFC baseline to produce that HCFC only for export to Article 5 Parties under the Montreal Protocol. See 40 CFR 82.18(a).

The final HCFC allowance allocations discussed in the following sections were developed with consideration of many factors, including: Production, import, and use restrictions in the CAA and Montreal Protocol; current HCFC uses and trends, including inventory trends for HCFC-22; historic allowance use; the expected availability of recovered and reused material; servicing need projections in EPA's

2013 Servicing Tail Report;

comments received on the proposed rule; the availability of alternatives for each HCFC in each end-use; and proposed EPA action through the SNAP program regarding higher-global warming potential

(GWP) alternatives. In the case of HCFC-22 and HCFC-142b, EPA also considered the fact that under long-standing regulations, production and import of these two HCFCs must be phased out by January 1, 2020.

Global warming potential is a measure of the total energy that a gas absorbs over a particular period of time (usually 100 years), compared to carbon dioxide.

The agency released its HCFC servicing need projections (i.e., estimates of HCFC use) and other data supporting its proposed allocations for 2015-2019 in the

2013 Servicing Tail Report

on HCFC market needs with the proposed rule in December 2013. The agency made several revisions to the HCFC-123 fire suppression sections of the report and released the revised report with the Notice of Data Availability published April 7, 2014 (79 FR 19077). With this final action, the agency is releasing the updated

2014 Servicing Tail Report,

which reflects data and certain comments received during the public comment period. Both the 2013 and 2014 versions of the

Servicing Tail Report

are found in the docket for this rulemaking.

A. What is the 2015-2019 HCFC-22 consumption allocation?

1. Summary of Final HCFC-22 Consumption Allocation

In developing the proposed rule, EPA considered three options for determining the quantity of HCFC-22 consumption allowances to allocate. Each involved a declining allocation from year to year. The overarching goal of all of the proposed approaches was to meet servicing needs and encourage a smooth transition away from HCFC-22, while meeting the Clean Air Act and Montreal Protocol phaseout requirements. Under the linear approach (Option 1), which was EPA's preferred approach, the agency proposed to decrease the allocation by the same amount each year, such that there is a linear decrease in allowances from 2015 through 2019, ending at zero in 2020.

Within Option 1, EPA's preferred starting point in the proposal was approximately 13,700 MT, but the agency also proposed to start at 16,700 MT or 10,000 MT—each with consistent

annual decreases in allocation, ending at zero in 2020. EPA based the preferred starting point of 13,700 MT on a linear decrease from the lowest allocation previously proposed for 2014 (see 78 FR 78072). The higher starting point of 16,700 MT was based on the 2014 allocation, prior to the addition of approximately 3,000 MT of recoupment allowances (20,100 MT), and the lower proposed starting point of 10,000 MT was approximately half of the 2014 pre-recoupment allocation.

For each starting point within this linear five-year approach, EPA considered information concerning the HCFC-22 market in 2012 and 2013, particularly (1) changes in inventory, (2) the availability of recycled and reclaimed HCFC-22, (3) recent sales of HCFC-22 alternatives, and (4) allowance expenditure in recent years.

Under Option 2, EPA proposed a three-year linear approach, where consumption would be zero in 2018 instead of 2020. The proposed starting points in 2015 were 12,300 MT or 15,000 MT.

Under Option 3, EPA proposed to estimate servicing need as published in the

2013 Servicing Tail Report,

and then make adjustments to account for estimated recovery and reuse and for inventory, much like it did in the 2010-2014 and 2012-2014 Rules. Under the estimation approach, the maximum starting allocation in 2015 would be 23,100 MT, but with a wide range of possible allocations in each year, including 2015. Under the estimation approach EPA proposed to “account for up to 10,000 MT of inventory each year.” Since the estimation approach is predicated on modeled servicing need, it has a significantly higher starting allocation than either of the linear approaches (Options 1 and 2). This is why EPA specifically proposed to account for existing inventory, whereas the linear approaches inherently account for inventory, given their lower starting points relative to past allocations and projected need.

For the reasons discussed in the remainder of this section of the preamble, EPA is finalizing an HCFC-22 consumption allocation that starts at approximately 10,000 MT in 2015 (7.0% of baseline), and decreases by approximately 2,000 MT each year, such that the allocation in 2020 is zero. This is the lowest proposed variant of EPA's preferred five-year linear approach (Option 1). EPA is revising the table at 82.16(a) to reflect the percentage of consumption allowance baseline issued in each year from 2015-2019.

2. EPA's Collection, Consideration and Use of Aggregate HCFC-22 Inventory Data

On August 8, 2013, EPA sent requests to nine companies asking for each company's year-end inventory of HCFC-22 from 2008-2012. Under section 114(a) of the Clean Air Act, EPA has the authority to ask any person who is subject to any requirement of the Act to establish and maintain such records, make such reports, and provide such other information as the Administrator may reasonably require. These nine companies included HCFC-22 producers, importers, distributors, and reclaimers; some are large allowance holders and others are not. The group has a significant role in the HCFC-22 market, and because they are different types of entities, data from these companies provide information on how much HCFC-22 might be in the supply chain. In collecting inventory data, EPA did not intend to determine exactly how much inventory or “stockpiled gas” exists, but to understand the general scale of inventory and trends in the growth or decrease in inventory as HCFC-22 allowance allocations changed.

2008 through 2012 aggregate inventory data from these nine entities was fully available to EPA before the proposed rule was signed and EPA considered these data in development of the proposed rule. Aggregate data was subsequently placed in the docket as explained below. Aggregate inventory as of December 31, 2011, was approximately 62,000 MT. At the end of 2012, inventory had decreased by 17.5 percent (approximately 10,000 MT) to just over 51,000 MT.

Prior to signature of the proposal, on November 23, 2013, NRDC filed a FOIA request for the aggregate inventory data; however, the agency did not immediately release the data with the proposed rule or in response to the FOIA request because two responding companies had claimed the aggregate data as confidential business information (CBI). Per EPA's regulations at 40 CFR Part 2 Subpart B, when the agency desires to determine whether business information in its possession is entitled to confidential treatment, or when the agency learns that it is responsible for responding to a FOIA request for the information, it must first determine which businesses, if any, have asserted claims of business confidentiality and generally must provide the affected businesses an opportunity to comment. The agency subsequently issues a final administrative determination of whether the business information is entitled to confidential treatment. If the agency determines that the information is not entitled to confidential treatment, it provides notice to the affected businesses, stating that the agency will make the information available to the public on the tenth business day after the business' receipt of the written notice unless the business commences an action in federal court for judicial review of the determination and to obtain a preliminary injunction against disclosure.

The agency followed these procedures with respect to the inventory data and on February 18, 2014, EPA issued a final determination that the aggregate inventory data are not entitled to confidential treatment. After notifying the two companies of its intent to release the aggregate data and waiting the required 10 business days before releasing the data, EPA made the 2008-2012 inventory data public on its Web site and responded to the FOIA submitted by NRDC. EPA sent a second letter under the authority of section 114 of the Clean Air Act to the same nine entities on February 27, 2014, requesting each company's HCFC-22 inventory as of December 31, 2013. No company claimed the aggregate inventory data for 2013 as CBI. Aggregate inventory at the end of 2013 was approximately 54,000 MT, an increase of 5.4 percent over 2012 inventory.

EPA posted the 2008-2012 aggregate inventory data on the agency's Web site at

http://www.epa.gov/ozone/title6/phaseout/classtwo.html

and notified stakeholders via email on March 10, 2014. EPA posted the 2013 aggregate inventory data on the agency's Web site and notified stakeholders via email on March 27, 2014. In addition, the agency formally announced the availability of these data on April 7, 2014, in a Notice of Data Availability (NODA). The aggregate HCFC-22 inventory data (

2008-2013 HCFC-22 Aggregate Inventory Data)

and the April 7 NODA can be found in the docket at

www.regulations.gov/#!docketDetail;D=EPA-HQ-OAR-2013-0263.

In addition to the section 114 requests, the agency also held more than 60 meetings with stakeholders and in almost every meeting inventory was discussed in a general sense to gauge how large industry-wide inventory might be. While not definitive, most of these stakeholder conversations confirmed our view that inventory identified through the 114 process represents a significant share of total inventory in the United States.

3. Explanation of the Agency's Final Decision and Response to Comments

In this section, EPA explains the rationale and process for reaching a final decision on the HCFC-22 consumption allocation. The agency's overarching goal is to meet the 2020 phaseout deadline for HCFC-22 production and import in a manner that achieves a smooth transition to more environmentally-friendly alternatives. Further, EPA has sought to accomplish this transition in a way that provides regulatory certainty to consumers and industry without prematurely stranding equipment (i.e., equipment owners should not feel forced out of HCFC-22 if their equipment is still within its expected lifetime). EPA's focus in this rule is stratospheric ozone protection, and the focus on this section is the HCFC production and consumption phaseout under section 605(b)-(c) of the CAA, taking into account the HCFC use restrictions in section 605(a). EPA has also been mindful, however, of actions the agency is proposing under section 612, and has noted, where applicable, the climate implications of various options for implementing the HCFC-22 phaseout.

The reasoning for determining the final HCFC-22 allocation, as discussed more in this section, can be summarized as follows:

(i) The first question the agency considered was whether to issue allowances, as proposed, or to move forward with some commenters' suggestion of issuing zero allowances starting in 2015. As discussed in this section, EPA did not propose to issue zero allowances for several reasons, and those reasons were reaffirmed by several other commenters.

(ii) After determining that consumption allowances would be issued, EPA considered the question of methodology: A linear approach, with consistent annual decreases (Options 1 and 2 from the proposal) or the estimation approach (Option 3), which is an approach used in past HCFC allocation rulemakings. The agency concluded that a five-year linear approach is most appropriate for the last five years of the HCFC-22 phaseout. A five-year approach conforms to long-standing market expectations and provides much needed market certainty.

(iii) The final consideration was what level to use as the starting point in 2015. A starting point of 10,000 MT in 2015 addresses the concerns about over-supply of HCFC-22 and the large existing inventories, while encouraging transition, reclamation and proper refrigerant management.

The agency carefully considered market information, comments, regulatory and statutory requirements, and its long-standing policy objectives as it weighed the merits of the proposed approaches and came to a final decision on the amount to allocate for 2015-2019. In the remainder of this section, EPA summarizes and responds to a majority of the comments. The full

Response to Comments,

which summarizes and responds to each comment received on the proposed rule, is available in the public docket at

www.regulations.gov/#!docketDetail;D=EPA-HQ-OAR-2013-0263.

i. EPA's Decision To Issue Allowances for 2015-2019

Sixteen commenters support a lower allocation than any of the proposed options, with most of them advocating for an allocation of zero in 2015. EPA did not propose a zero allocation option for 2015-2019, but commenters assert that dramatically reducing or eliminating the allocation would: (1) Provide decisive action needed to correct the oversupply of HCFC-22; (2) encourage development of new low-GWP alternatives and use of non-ODS alternatives; (3) encourage responsible reclamation practices and revive the reclamation industry; and (4) encourage improved leak reduction and product stewardship. Commenters also state that between the large amount of HCFC-22 currently in inventory, decreased demand, better leak control, use of reclaimed HCFC-22, and availability of alternative refrigerants, consumers can be assured of sufficient capacity to service their existing systems without EPA granting a significant amount of new HCFC-22 allowances. Among others, these commenters include NRDC, EIA, Hudson Technologies, and other reclamation companies that commented individually and also as part of the New Era Group, Inc. coalition.

Two commenters, NRDC and EIA, state that the lower allocations they advocate for (zero allowances of HCFC-22, or if not zero, then Option 2 with a modified three-year phasedown) are logical outgrowths of the proposal and as such, satisfy the legal requirements to offer opportunity for comment.

EPA is not finalizing commenters' suggestion of issuing zero allowances in this rule for several reasons. First, recent market data support the issuance of allowances. Data from 2012 and 2013 show that there is still considerable servicing need for HCFC-22. Data collected through EPA's section 114 process show that inventory drawdown in 2012 was over 10,000 MT. Given that consumption was 25,600 MT, and reclamation was over 4,000 MT, it is clear that in 2012 there was still significant servicing demand for HCFC-22. In 2013, consumption was 29,146 MT, and inventory build from the nine companies was only 2,800 MT, or about a 5 percent increase in their aggregate inventory levels. (The increase in inventory from these nine companies is about equal to the number of recoupment allowances that were issued in addition to the final consumption allocation.) Reclamation was also more than 3,500 MT. Based on these data, the agency concludes that there is still significant servicing need for HCFC-22. Continued servicing need for existing equipment is not unexpected, problematic or otherwise contrary to the goals of the phaseout. Allowing consumers to continue operating equipment using the refrigerant for which it was designed is instrumental to the agency's goal of a smooth transition while safeguarding the viability of the reclamation industry.

Second, while there would be a benefit to the stratospheric ozone layer from not allocating allowances for 2015-2019, the total level of HCFC consumption allowances allocated over the five year period covered by this rule is already 75 percent below the maximum level of consumption permitted by the Montreal Protocol and EPA's regulations implementing sections 605 and 606 of the Clean Air Act. In addition, by finalizing the option starting at 10,000 MT rather than the option starting at 13,700 MT, EPA is taking an additional step towards stratospheric ozone protection by preventing the consumption of more than 11,000 MT of HCFC-22 over the five year period. EPA disagrees with commenters about the climate benefits of a zero allocation approach. Some of these commenters state that the future emissions resulting from a large allocation of HCFC-22 would have significant climate impacts and be contrary to the President's Climate Action Plan. Hudson states that eliminating or further reducing HCFC-22 allowances beyond EPA's preferred approach in the proposal would be “one of the most significant actions the Administration could take in the short-term to address global climate change.” Two commenters believe EPA's preferred approach may benefit the consumer, but is at odds with the agency's greenhouse gas reduction goals. In total, twelve commenters state that EPA's preferred approach will result in significant and unnecessary

emissions of HCFC-22 to the atmosphere, and recommend adopting a faster phaseout schedule to minimize environmental impact.

On the other hand, Arkema and the Department of Defense (DoD) do not believe that eliminating HCFC-22 allowances before 2020 would have environmental benefits, especially since the agency is reducing consumption at a faster rate than the Montreal Protocol requires. They believe that an overly quick phaseout schedule may accelerate equipment replacement, and DoD points out that the commercial availability of equipment using low-GWP alternatives is limited for some uses. DoD states that accelerating transition to equipment using high-GWP alternative refrigerants may not benefit the environment. One commenter is concerned about emissions from the venting of HCFC-22, but also states that the movement to switch out of HCFC-22 is creating a problem related to the high GWPs of the HCFC-22 substitutes. FMI is concerned about accelerated or poorly planned retrofits in the retail food sector from a shrinking HCFC-22 supply, which could lead to an increase in energy use.

EPA notes that commenters claiming that a zero allocation would reduce HCFC-22 emissions and accordingly have climate benefits, do not account for the emissions of the refrigerant that would replace HCFC-22. Calculating potential HCFC emissions avoided, without considering emissions from replacement refrigerants, does not give a true picture of climate impacts. In addition, while new systems like R-410A residential unitary air-conditioners often have smaller charge sizes and lower leak rates than the HCFC-22 equipment they replace, this is not the case for retrofits of existing unitary equipment.

A zero allocation would likely accelerate retrofits, particularly in residential unitary air-conditioning. The agency heard from numerous stakeholders that retrofits and system replacements increased when the price of HCFC-22 went up in 2012 and early 2013. Data collected from alternatives producers show a dramatic increase in sales of HCFC-22 retrofit refrigerants

since 2011. EPA has also heard that during the last several years, service technicians have become more aware of and comfortable using non-ODS retrofit refrigerants. As the phaseout progresses, the percentage of HCFC-22 demand met by retrofit refrigerants is expected to continue to rise.

e.g., R-407C, R-421A, R-422D, R-438A, and numerous other non-ODS alternatives.

EPA believes retrofits are an important option for many consumers as HCFC-22 is phased out; however, the agency does not want to prematurely drive consumers away from the refrigerant their system was designed to run with. EPA is concerned that a zero allocation could unnecessarily push equipment owners to retrofits, potentially discouraging continued operation of HCFC-22 equipment with reclaimed refrigerant. In addition, HCFC-22 systems generally run most efficiently on HCFC-22, and to the extent stakeholders wish to evaluate the climate impacts of various options, energy efficiency is also an important climate consideration. Retrofitting an existing system can also decrease capacity, meaning a system must run longer and use more electricity in order to generate the same cooling output. A decreased capacity may also result in the inability of equipment to meet the sensible (temperature) and latent (humidity) cooling needs required throughout the season.

Additionally, stakeholders should be aware that most retrofit refrigerants (often inaccurately called “drop-ins”

) have higher GWPs than HCFC-22's GWP of 1810, particularly in residential unitary air-conditioning—the predominant use of HCFC-22. While not a retrofit, R-410A is the most common non-ozone depleting substitute for use in residential air conditioning, with a GWP of approximately 2090. In retail food refrigeration, which is the second largest HCFC-22 end-use, some of the alternatives are high GWP refrigerants. For example, the most common refrigerants used for refrigeration equipment in supermarkets, R-404A, R-507A and R-407A, have GWPs of approximately 3920, 3990 and 2110, respectively. Certain high-GWP alternatives in the retail food sector may be subject to additional constraints in the future since the agency is proposing to change their acceptability status under its SNAP regulations. If the HCFC allocation level were set at zero, that could encourage a near-term transition into high GWP gases that the agency has proposed to remove from the list of acceptable ODS substitutes (e.g., R-404A and R-507A). Such a result would mean that a zero allocation would fail to achieve the climate benefits envisioned by the commenters.

EPA finds the use of the term “drop-in replacement” as misleading when advertising refrigerants that substitute for an ODS refrigerant, such as HCFC-22, since the term confuses and obscures several important regulatory and technical points. At minimum, a new type of lubricant will often be needed, certain parts such as elastomer gaskets will need to be replaced, and/or settings such as on TXVs will need adjustment. EPA also encourages technicians to repair leaks before re-charging with refrigerant.

Several commenters supporting a zero allocation assert that an over-supply of HCFC-22 discourages the transition to alternatives. Two commenters make statements on the rate of transition to HCFC alternatives. One commenter, ICOR International, notes that recent history shows that when the HCFC-22 allocation is low and the price of HCFC-22 is high, recovery rates go up and the transition to alternatives rapidly accelerates. Hudson Technologies states that programs like EPA's GreenChill Advanced Refrigeration Partnership have resulted in a more rapid transition away from HCFC-22 in the supermarket sector and the proliferation of HFC alternatives now represent 25 percent of the market. But Hudson Technologies also notes that HCFC-22 systems operate more efficiently with HCFC-22 than HFC-based alternatives and states that the use of reclaimed HCFC-22 is the best solution for HCFC-22 system owners. Several commenters assert that the 2012-2014 Rule hurt the alternative refrigerant industry, whose sales decreased significantly. USA Refrigerants believes that the 2012-2014 Rule was working well to encourage a transition to alternatives and that SNAP-approved refrigerants are providing cost-effective alternatives to Americans. Three commenters note that there are several HCFC-22 alternatives available across a range of applications that are reducing dependence on HCFC-22.

The agency supports encouraging new alternatives that offer improved environmental profiles to HCFC-22. However, as noted above, many of the existing alternatives in sectors that rely on HCFC-22 (e.g., residential AC and retail food refrigeration) have GWPs comparable to or higher than HCFC-22. In later parts of this section, EPA addresses existing HCFC-22 inventories and the importance of encouraging transition, reclamation and improved refrigerant management practices.

Three commenters explicitly oppose a zero allocation approach, which they believe would cause unanticipated market disruptions. In meetings after the issuance of the proposed rule and in their comments, Heating, Air-conditioning and Refrigeration Distributors, International (HARDI) expressed concerns that a zero allocation approach would leave insufficient time for distributors to plan their business, especially considering the long-standing expectation of an allocation through the end of 2019. Additionally, there are concerns that going to zero so quickly would leave

some distributors without access to HCFC-22 for the customers who operate and service HCFC-22 equipment. Another commenter, Arkema, questions the reclamation industry's ability to be the sole source of refrigerant needed to service consumer demand. Arkema also notes that the five-year timeline is especially important as EPA and the international community shift to regulation of HFCs; there should be no precipitous incentive to make inefficient switches to alternatives that may be phased out later. EPA believes its decision to issue allowances for 2015-2019 addresses these commenters' concerns. The third commenter, ACCA, does not support a zero allocation because they believe it would cause tremendous volatility and uncertainty in the market, which would likely lead to upward price fluctuations.

In the proposal, EPA recognized that some stakeholders had encouraged the agency to cease allocating allowances for HCFC-22 in 2015. The proposal noted that a zero allocation could have unintended consequences, given the longstanding expectation that the agency would issue allowances through 2019, and could adversely affect the business and transition planning for much of industry, particularly owners and operators of HCFC-22 equipment. In their comments and in subsequent meetings with EPA, many commenters point out that going to zero in 2015 is not supported by a majority of market participants, both small and large businesses, including but not limited to: Producers, importers, distributors, contractors, and the end-user community. Given the long-standing expectation that allowances for production and import of HCFC-22 would be available through 2019, EPA agrees with comments that issuing zero allowances for 2015 could cause chaotic and unanticipated market disruptions, particularly because a zero option was not proposed.

The agency continues to believe that a zero allocation is contrary to the goal of an orderly transition, and would lead to a high degree of market uncertainty. Given the diverse, and in some cases competing, legitimate needs, objectives and interests of the HCFC-22 stakeholder community, EPA can best meet its goal of a smooth transition and a 2020 production phaseout by sending a clear market signal for 2015-2019. Based on the rationale laid out in the proposed rule and in today's final rule, EPA is issuing consumption allowances for HCFC-22 in 2015 and beyond.

ii. EPA's Decision To Use a Five-Year Linear Approach for 2015-2019

Having decided to issue allowances for HCFC-22 during the 2015-2019 regulatory period, the agency's next decision was which methodology to use in setting the allocation. Based on the considerations below, EPA is finalizing allowances using a five-year linear approach.

As a methodology, a linear approach has many clear benefits, not least of which is that it is simple and easy to communicate to affected parties. This aspect is important for service technicians, since they are often the ones directly interacting with home and business owners. It is often their job to explain what the HCFC phaseout means and how it works. Providing technicians with an easier-to-explain common sense approach should improve consumers' understanding of the phaseout and the options available to them. EPA developed several fact sheets that discuss the HCFC phaseout and the choices available to consumers to provide technicians and equipment owners with additional information. These fact sheets can be found at:

www.epa.gov/ozone/title6/phaseout/classtwo.html.

EPA recognizes that as a chemical reaches its production phaseout, modeling HCFC-22 servicing needs with precision becomes increasingly difficult. While EPA's Vintaging Model is updated frequently to reflect changes in the marketplace, it is not designed to model how the specific allocation amounts in recent years affects servicing need in future years, nor is it designed to model certain other events that may affect supply, e.g., the effects of a hot or cold summer, or the general state of the economy. The difficulty of predicting certain real-time market factors is one reason that the agency has not relied heavily on modeled servicing need in the final HCFC-22 allocation for 2015-2019, and why EPA has always relied on modeling as one tool among many considered in deciding the final allocation.

One commenter favors the estimation approach (Option 3) in order to stabilize the market. Other commenters oppose the estimation approach because in their view it would reduce incentives for recovery, does not account appropriately for stockpiles, and allocates more HCFC-22 than is needed. Another commenter, Johnstone Supply, supports a five-year phaseout similar to Option 3 but with approximately two-thirds of the allocation cut.

Six commenters specifically address technical aspects or parameters in EPA's

2013 Servicing Tail Report.

Several of these commenters question the report's accuracy and say EPA's projected servicing need for HCFC-22 does not adequately account for: Sales of alternative and retrofit refrigerants, declining leak rates (especially for GreenChill partners), servicing needs, existing HCFC-22 stockpiles, the capabilities of the reclamation industry, recycling, and future economic and weather conditions. One commenter, EOS Climate, incorrectly asserts that EPA assumes growth rates in all categories of HCFC-22 equipment despite the fact that virgin HCFC-22 can only be used for pre-2010 equipment and that imports of dry-shipped condensing units are decreasing. Another commenter, North Lakes Distributing, Inc., believes EPA “has displayed a pervasive unwillingness to scrap the old inaccurate bottom up analysis,” such as that used in the

Servicing Tail Report.

The commenter believes that if top down manufacturing supply information is not collected, estimates of usage in individual market sectors are not useful. EPA reiterates that the five-year linear approach uses a common sense approach, focused on a 2015 starting allocation that will encourage transition and a gradual phase out production and consumption of HCFC-22 by 2020. Also, since the 2015 allocation is less than one-quarter of modeled servicing need as presented in the

2013 Servicing Tail Report,

EPA believes that it has adequately addressed these commenters' concerns for the purposes of the 2015-2019 allocation. The agency responds to specific comments more fully in the

Response to Comments

document.

Since the market for virgin HCFC-22 is solely for servicing air-conditioning and refrigeration equipment that was installed prior to 2010,

EPA believes that annually decreasing the allocation by the same amount over five years is appropriate. Such an allocation schedule should drive the necessary changes in the service market to prepare for the 2020 phaseout, without unnecessarily forcing transition or retrofits out of HCFC-22 equipment that is still within its expected lifetime. A five-year linear approach sends a clear market signal about the allowed production and import of HCFC-22 in each year leading up to the 2020 phaseout date. It also allows industry time to digest, comment on and participate in the public regulatory process related to actions EPA is proposing to take under SNAP to further

the goals of the President's Climate Action Plan. Actions under SNAP may bear on end-users' decisions about continuing to operate equipment with HCFC-22, or retrofitting or replacing the equipment. EPA is concerned that a three-year linear reduction to zero could increase the likelihood that end-users would rush to transition from HCFC-22 without adequately considering their longer-term options. A five-year approach provides more time for the introduction of alternatives that reduce overall risk, before the complete phaseout of HCFC-22 production and virgin import. A five-year approach with consistent annual decreases strikes an important balance: Recognizing that the phaseout of virgin production and import is only five years away, without forcing end-users to retrofit or replace their equipment designed for HCFC-22. Continued operation of HCFC-22 equipment also helps ensure that HCFC-22 is valuable; HCFC-22 is less likely to be vented and more likely to be reclaimed and reused if it has economic value.

With limited exceptions through the end of 2011.

EPA received numerous comments in support of the five-year linear approach. Commenters stated that the five-year linear approach will “provide steady incentives” to reclaim material and move to alternatives, while also giving consumers and equipment manufacturers “sufficient time” to prepare for the transition. Competition, market stability and ensured access to HCFC-22 were also cited as reasons to use a five-year linear schedule for issuing HCFC-22 allowances from 2015 through 2019. EPA generally agrees with these comments.

EOS Climate prefers the three-year drawdown, claiming that it partially accounts for existing stockpiles and provides significant environmental benefits compared to EPA's lead proposal at no additional cost. NRDC, Combs Investment Properties, Hudson Technologies, and EIA support a modified 3-year approach if EPA does decide to issue allowances. One commenter, DuPont, opposes a three-year schedule because ending the allocation in 2018 would result in a chaotic market. EPA sees the three-year schedule as having some of the same drawbacks as the zero allocation approach, given the longstanding expectation that the agency would issue allowances through 2019. Not allocating allowances in 2018-2019 could adversely affect the business planning and transition plans for much of industry, particularly owners and operators of HCFC-22 equipment. EPA addresses the role of inventory in the next section and the environmental benefits of EPA's chosen approach in the previous section.

EPA has explained here the merits of the linear approach, which are supported by many commenters. Based on the available data, current market perceptions and the 2020 phaseout deadline, the agency believes a five-year linear drawdown best addresses the concerns and suggestions of a majority of the commenters. In the following paragraphs, EPA explains why it is finalizing a starting point lower than its preferred starting point of 13,600 MT.

iii. EPA's Decision To Use a Five-Year Linear Approach, Starting at 10,000 MT in 2015

Twelve commenters support Option 1, with the lower starting point of 10,000 MT in 2015. Several of these commenters are industry associations representing anywhere from 50 to several hundred small and large businesses. Commenters favor this option because it is one of the lowest allowance options proposed, it would provide the fewest allowances in 2015 and 2016, and because the linear approach provides market stability through its consistent annual decreases in allocation. The commenters generally advocate for a lower allocation than EPA's proposed starting point of 13,700 MT in order to send a strong early market signal of tightening supply, compensate for larger-than-estimated HCFC-22 inventories, and stimulate reclamation. Five commenters support Option 1 starting at 13,700 MT. Those in support of EPA's preferred starting point of 13,700 MT believe that it offers the smoothest transition, while faster reductions may result in refrigerant shortages and high prices. The Food Marketing Institute supports a linear approach, but suggests a higher starting point than 13,700 MT. Options 2 and 3 each received support as the preferred option from one commenter.

The agency is finalizing a 2015 allocation of 10,000 MT, with a decrease of approximately 2,000 MT each year thereafter. In deciding on the amount of the 2015 allocation, EPA gave further consideration to the market factors discussed in the proposal. Many of these market factors are discussed earlier in this section as support for EPA's decision to issue allowances in 2015-2019. EPA's decision to finalize a starting point of 10,000 MT was primarily based on three considerations: The availability of larger-than-anticipated inventory, the importance of a viable reclamation industry and the market-signaling effects of a sufficiently low 2015 and 2016 allocation.

In the 2012-2014 Rule, the agency estimated industry-wide inventory to be between 22,700 MT and 45,500 MT. As explained in section VI.A.2, in the fall of 2013, the agency asked nine entities in the HCFC-22 market about their year-end inventory. Aggregate inventory data from these nine entities were fully available to EPA while developing the proposed rule. With the knowledge that aggregate inventory held by these nine major entities at the end of 2012 was 51,100 MT, which is higher than the upper end of EPA's estimate used in the 2012-2014 rulemaking, EPA proposed 13,700 MT as its preferred starting point for 2015. At the request of industry, EPA also collected 2013 year-end inventory data from these same nine companies. At the end of 2013, inventory had grown by 2,800 MT, an increase of 5.6% from 2012. The proposed 2015 starting points for the linear draw-down approaches are much lower than under the estimation approach, in part because of the inventory data EPA was able to collect and consider while developing the proposal.

EPA is aware that these nine entities do not hold all inventory industry-wide. EPA was not seeking precise inventory numbers. The agency did not consider inventory as a result of a statutory mandate to do so. Rather, EPA believed it was reasonable to allow the approximate scale of inventory and inventory trends to inform its general understanding of the market. Given the data collected in the fall of 2013, and the numerous conversations with many companies throughout the supply chain, EPA believes that the data from these nine companies are representative of the trends and scale of inventory across the entire market, and that the aggregate held by these nine companies accounts for a large proportion of total inventory. The data collected show that aggregate inventory is large enough to justify a starting allocation of 10,000 MT instead of 13,700 MT. While additional inventory data from more entities might further support a 10,000 MT starting point, these data would not eliminate the considerations that led EPA to finalize a non-zero allocation for 2015-2019.

In addition to comments on the proposal that discuss existing HCFC-22 inventory as it relates to the proposed allocation options, EPA received 15 comments on its April 4, 2014, Notice of Data Availability, announcing the 2008-2013 aggregate HCFC-22 inventory data collected from nine companies. Six comments reiterated that HCFC-22 aggregate inventory is higher than expected or previously estimated by EPA. Six commenters

believe that the nine companies that EPA collected data from do not represent the entire market, while one commenter believes that nine entities likely hold a majority of HCFC-22 inventory. One commenter specifically names other potential sources of HCFC-22 inventory, while two comment that EPA needs to consider other sources of inventory beyond the nine surveyed companies like grocery stores and apartment buildings. Several comments explicitly state that the inventory data proves that no additional allowances are needed, while another commenter believes that the aggregate data supports issuing allowances in all five years. Two commenters add together recent allowance use, reported reclamation amounts and the change in aggregate inventory to show an estimate of actual market demand for HCFC-22, though the commenters believe that their servicing need calculations support a zero allocation in 2015 and beyond. Three commenters believe EPA needs additional inventory data to proceed with its rulemaking, but also believe that EPA should issue zero allowances.

The agency's goal is to phase out the production of HCFC-22 by 2020, consistent with Title VI of the CAA and the long-standing regulatory phaseout date, not to remove all HCFC-22 from inventory by 2020. The statute does not specify the factors EPA is to consider in setting an allocation level, other than the applicable phaseout step. Existing inventory can be beneficial during a time of transition, allowing equipment owners more flexibility in planning and implementing their transition. The availability of HCFC-22 inventory after 2020 along with continued reclamation is important for allowing equipment owners to continue using their equipment after the production phaseout. However, EPA also recognizes that current inventory grew in 2013 and is higher than some in industry expected, which is one of several reasons why EPA is finalizing a 2015 allocation of 10,000 MT instead of 13,700 MT. Now that the inventory data is public, awareness as to the

scale

of existing inventory should help moderate potential price spikes and allow equipment owners to plan a thoughtful transition to alternatives.

Several commenters appear to be confused about how EPA considered inventory information in development of this rulemaking, as compared to the 2012-2014 Rule that issued allowances for 2012-2014. In the proposal covering 2012 through 2014, EPA considered the servicing need estimates from the Vintaging Model and made reductions to that number to derive a possible allocation that approximates the need for virgin HCFC-22, just as in the 2010-2014 Rule. For 2012 through 2014, EPA proposed to decrease annual allocations by 6,000 MT each year to account for existing inventory. In the fall of 2012, the agency estimated that inventory was between 22,700 MT and 45,400 MT, based on preliminary market research and industry feedback. The agency finalized the annual 6,000 MT reduction in the 2012-2014 Rule, thus lowering the aggregate allocation for 2012-2014 compared to the 2010-2014 Rule. EPA's intent was not to immediately deplete all inventory, as inventory can help provide for a smoother transition out of HCFC-22, but to draw out

some

of the inventory prior to 2015. In the 2015-2019 proposal, EPA specifically proposed to account for up to 10,000 MT of inventory under the estimation approach, which, unlike the linear approaches, is most similar to the allocation methodology EPA used in the 2010-2014 Rule and the 2012-2014 Rule.

In response to comments stating that EPA must consider prevailing market conditions and inventory held by entities from which it did not collect data, EPA explains above its different understanding of the role of inventory data in this rulemaking. The agency did not intend to allocate allowances at a level that would result in inventory being drawn down to zero immediately or even by 2020. The agency believes that the additional expenditure of effort, particularly the information collection burden imposed on industry, is not required to establish a reasonable and predictable allocation level for the final five years of the HCFC-22 phaseout.

EPA appreciates that many commenters believe additional HCFC-22 production and import is unneeded based on their position in the market. EPA's allocation considers the perspectives of both the end-users that need HCFC-22 to operate their equipment and the companies recovering and reclaiming HCFC-22, because both play an integral role in meeting EPA's policy objective of a smooth transition from HCFC-22. In particular, the capability of recovery and reclamation companies is an important consideration as reclamation decreases the need for new production, thereby allowing EPA to allocate fewer HCFC-22 allowances.

In response to comments about potential inventory held by grocery stores, apartment buildings, and other large end-users, EPA points out that inventory held by a building or supermarket in preparation for a possible leak is different from inventory in the supply chain. Inventory held by these large end-users is refrigerant that they intend to use, not sell. Therefore, this type of inventory is more like refrigerant already charged into a system than inventory in the supply chain (i.e. channel inventory) that will eventually be sold to an end-user. Equipment owners have this refrigerant on-hand in order to keep operating their system, whereas inventory in the supply chain is waiting for someone to purchase it.

Although existing stocks of HCFC-22 are important for meeting continued servicing need, EPA recognizes that too much existing inventory could be contrary to the agency's goal of a smooth transition to alternatives. Proper refrigerant management and a viable reclamation industry are also critical to a smooth transition, which is why EPA believes that a sufficiently low allocation is needed in order to encourage the use of some existing stocks and also to encourage—but not immediately force—transition. The final 2015 allocation of 10,000 MT is less than one-quarter of the modeled 2015 servicing need. By allocating well below the projected need for HCFC-22 each year, EPA is accounting for retrofitted equipment, recovery and reuse of refrigerant, use of reclaimed refrigerant, and existing inventory of virgin HCFC-22, in addition to realizing the benefits of a linear drawdown already discussed.

Twenty-seven commenters addressed market issues related to the supply or price of HCFC-22; most of these commenters believe the 2012-2014 Rule led to an oversupply in the market, with adverse effects on the reclamation and alternative-refrigerant industries. Several commenters assert that the 2012-2014 Rule led to a 50-60 percent decline in the price of HCFC-22 relative to the peak price reached in 2013, a decline in volume of returned used HCFC-22, a decline in reclamation and recycling, and an increase in volume of HCFC-22 being leaked or vented. One commenter, USA Refrigerants, states that their organization and other EPA certified reclaimers were negatively affected by the change in the price of HCFC-22 and the inability to provide high buyback prices for used refrigerant, which they said dropped to as low as $1.00 per pound. Another commenter, EIA, notes that the price of virgin HCFC-22 in 2011 was $4.50/pound but claims that the price needs to exceed $8/pound for reclaimed HCFC-22 to be competitive. One distribution company reports already seeing 50 percent less reclaimed material available to sell in 2014. On the other hand, Polar Technologies states that its internal analysis on the market dynamics of

HCFC-22 found no correlation between price and reclaim volume. The commenter asserts that as prices increase, hoarding occurs and reclamation decreases. As HCFC-22 prices jumped and supplies seemingly were shrinking, contractors were speculating and buying up cylinders to store material to hedge against the pending shortage.

Three commenters make statements on investments by the reclamation and alternative refrigerants industry. A-Gas RemTec notes that they invested in additional capacity for reclaimed refrigerants but have since halted this development as a result of the 2012-2014 Rule. A-Gas RemTec notes that other entities may also question committing to increased capacity in an unpredictable market, which could lead to a refrigerant shortage in future years. Another commenter, Hudson Technologies, asserts that the reclamation industry invested millions of dollars in infrastructure, but since the supply gap never materialized, reclamation has not grown. USA Refrigerants notes that companies that invested in alternative refrigerants saw prices for HCFC-22 plummet as a result of the 2012-2014 Rule, undercutting the sale of alternatives.

Six commenters are concerned about venting of HCFC-22, which they believe is perpetuated by an oversupply of HCFC-22 and the corresponding low value of the gas. Specifically, these commenters believe that a lower (or in some cases, zero) allocation would incentivize the use of reclaimed gas and better refrigerant management.

The agency believes the best way to encourage reclamation, as well as development and use of expanded reclaimer capacity, is to send a clear market signal: A substantial decrease in allocation in 2015 with a continued, but decreasing, allocation over all five years. Such a signal should encourage recovery and reclamation, while also giving equipment owners confidence that they can have access to refrigerant for their installed HCFC-22 equipment through 2020 and beyond. The linear drawdown starting at 10,000 MT should encourage more recycling and reclamation, without creating such dramatic market changes as to incentivize hoarding of used refrigerant. This approach has the lowest allocation in 2015 and 2016 of all options discussed in the proposed rule, which should encourage better refrigerant management practices, while a small, decreasing allocation in later years should allow for a smooth transition to zero in 2020. Compared to a 2014 allocation of 23,100 MT, a 2015 allocation of 10,000 MT should encourage proper refrigerant management and more reclamation; it should also encourage planning for a transition to alternative refrigerants without unnecessarily forcing equipment owners to immediately abandon their use of HCFC-22.

The agency views its final allocation as sending appropriate signals to the market by decreasing the HCFC-22 allowance allocation by almost sixty percent between 2014 and 2015. Further, by providing a predictable but declining number of allowances through 2019, the agency believes this final rule will give HCFC-22 equipment owners the information they need to choose between maintaining their HCFC-22 systems, retrofitting their existing systems, and purchasing new systems that rely on alternative refrigerants. EPA intends to strike a balance with the final allocation: A significant decrease from the 2014 allocation promotes alternatives, reclamation, and transition, while a non-zero allocation avoids stranding HCFC-22 equipment or forcing premature retrofits.

4. Timing of the Final Rule

Eighteen commenters urge EPA to finalize today's action as quickly as possible. They cite several reasons for expeditious action specific to the HCFC-22 allocation: To allow industry to properly plan and prepare for complying with the rule; to provide certainty and stability for business planning; and to minimize market disruption and foster a smoother transition during these final stages of the HCFC-22 phaseout. One of these commenters states that EPA is not acting quickly enough. AHRI specifically calls out the need for timely action as it relates to the HVAC market, a major use for HCFC-22, which will transition to new minimum energy efficiency standards on January 1, 2015. AHRI states that uncertainty in the HCFC-22 allocation adds complexity to this transition and that lack of knowledge regarding the HCFC-22 allocation could be detrimental to manufactures and small business owners.

On the other hand, RMS, New Era Group Inc., and ICOR International comment that EPA needs to update its models or obtain more accurate data prior to finalizing this rule. New Era Group Inc. suggests that the proposed rule be withdrawn and the NODA republished along with immediate steps to mitigate the serious damage to small companies, human health, and the environment. EPA does not see a need to re-propose or to publish another NODA. As discussed earlier in this notice, EPA does not believe it needs to gather additional data or to propose additional options. The agency believes the information it has at its disposal currently is sufficient to justify the significantly lower allocation of HCFC-22 as compared to the preferred option in the proposal, especially since finalizing a rule this year will support EPA's goal of a smooth transition to alternatives.

EPA appreciates the many comments stressing the value of a timely rulemaking in providing regulatory certainty to the market. The agency agrees that it can best realize its goal of a smooth transition to alternatives via a timely 2015-2019 rule, especially in the case of HCFC-22. In addition to a timely rule, the agency and many commenters believe a linear drawdown will also provide certainty and help stabilize the market by setting a straightforward, predictable schedule for the final years of the HCFC-22 phaseout.

B. What is the 2015-2019 HCFC-22 production allocation?

Since the start of the HCFC allocation program in 2003, the agency has determined the HCFC-22 production allocation in one of two ways. Under either method, EPA first determines the aggregate consumption allocation, divides by the aggregate baseline, and assigns the percentage of the consumption baseline accordingly. EPA describes this process in more detail in section II.B.

In the 2003-2009 Rule, and again in the 2010-2014 Rule, EPA allocated the same percentage of baseline allowances for production as it did for consumption. A company with a production baseline at 40 CFR 82.17 would simply multiply its baseline by the percentage listed at 82.16 to determine its calendar-year production allocation. However, in the 2012-2014 Rule covering 2012-2014, EPA provided a larger percentage of baseline and more HCFC-22 production allowances than it did for consumption. EPA amended section 82.16 to include two tables, one listing the baseline percentage for consumption and the other listing the percentage for production. As discussed in the 2012-2014 Rule, the reason for this change was to allow United States manufacturers to produce at the same level as under the 2010-2014 Rule (see 78 FR 20020).

For the 2015-2019 regulatory period, EPA proposed two options for the HCFC-22 production allocation: (1) Issue production allowances at the highest allowable level under the Montreal Protocol, or (2) provide approximately the same number of

production allowances as consumption allowances.

EPA noted that the first approach was its preferred option. EPA believes that allocating more production allowances than consumption allowances cannot lead to an increase in United States consumption and would not result in a global increase in production or consumption of HCFC-22; all countries' consumption are capped under the Montreal Protocol and presumably global production would be driven by market conditions. Allocating additional production allowances may have environmental benefits, to the extent that U.S. production displaces production in foreign plants that lack HFC-23 byproduct controls and destruction technologies. For more discussion on EPA's rationale for this approach, see the preambles for the 2012-2014 Final Rule (78 FR 20020) and the 2015-2019 Proposed Rule (78 FR 78089).

EPA received eight comments on how it will determine the HCFC-22 production allocation for 2015-2019. Comments from EIA, a private citizen, and Hudson Technologies stated that the industry or marketplace does not need any additional HCFC-22, and that EPA should not issue production allowances. Additionally, EIA believes that issuing production allowances is contrary to helping developing countries transition to low-GWP and zero-ODP technologies through the Multilateral Fund of the Montreal Protocol (which is the financial mechanism to help those Parties meet their Montreal Protocol obligations). Airgas is also against EPA's preferred option on the grounds that more production allowances for export will lead to further oversupply globally. Airgas believes that consumption and production allocations should be the same and should be set at zero or minimal levels. A private citizen supports cutting the production allocation to encourage a shift in U.S. production of ODS alternatives for export, instead of HCFC-22. The commenter acknowledges the importance of considering HFC-23 byproduct emissions, but thinks it is less important since HCFCs will be phased out globally.

DuPont and Honeywell commented in favor of EPA's proposal to allocate the maximum HCFC-22 production allowed under the Protocol after accounting for other HCFC production allocations. The commenters believe that more production for export could allow production from U.S. facilities to displace production from facilities abroad that may not control HFC-23 emissions, thus providing environmental benefits and reductions in GHG emissions. The commenters reference EPA's prior statements that allowing for additional U.S. production for export could not result in a domestic or global increase in consumption since HCFC producers are already limited by consumption allowance limits established under the Montreal Protocol. A third commenter supported a production allocation that is higher than allowed under the Montreal Protocol, starting at 25 percent of U.S. HCFC production baseline in 2015 (whereas the Montreal Protocol cap is 10 percent of baseline for all HCFCs).

In response to the five adverse comments on EPA's preferred option, the agency points out that allocating more production allowances than consumption allowances does not prov

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