Protection of Stratospheric Ozone; Proposed Rule ENVIRONMENTAL PROTECTION AGENCY

SUMMARY: With this action, EPA is proposing amendments to anticipate

the phaseout of production and consumption of various ozone-depleting

substances and to clarify minor aspects of the current regulation as

provided for under section 604 and 606 of the Clean Air Act Amendments

of 1990 (CAA). To ensure an orderly phaseout of the production and

consumption of halons in 1994, and of chlorofluorocarbons (CFCs),

carbon tetrachloride, methyl chloroform and hydrobromofluorocarbons in

1996, this action proposes to alter the administrative requirements of

the regulations so companies may continue to produce for special

exempted uses. Today's action also proposes clarifications to improve

the efficiency of the current requirements and to reduce the burden on

the affected companies while ensuring continued compliance with Title

VI of the CAA and in a manner consistent with the United States'

obligations under the Montreal Protocol on Substances that Deplete the

Ozone Layer as amended.

Specifically, EPA proposes to (1) change the requirements for the

post-phaseout period for transformation and destruction of ozone-

depleting substances; (2) establish the framework for the post-phaseout

exempted production for essential uses; (3) revise the controls for

imports of controlled substances that are used or recycled; (4) ease

the requirements for exporting substances to Article 5 countries; (5)

change the allowance requirements for exports of ozone-depleting

substances; (6) clarify the definitions for transhipments and heels;

(7) provide a period of reconciliation in which allowance balances may

be adjusted; and (8) adjust the recordkeeping and reporting

requirements.

DATES: Written comments on this proposed rule must be received on or

before December 12, 1994, unless a public hearing is requested.

Comments must then be received on or before 30 days following the

public hearing. Any party requesting a public hearing must notify the

contact person listed below by 5 p.m. Eastern Standard Time on November

21, 1994. If a hearing is held EPA will publish a document in the

Federal Register announcing the hearing information.

ADDRESSES: Comments on this proposed rulemaking should be submitted in

duplicate (two copies) to: Air Docket No. A-92-13, U.S. Environmental

Protection Agency, 401 M Street SW., Room M-1500, Washington, DC 20460.

Inquiries regarding a public hearing should be directed to the

Stratospheric Ozone Information Hotline at 1-800-296-1996.

Materials relevant to this proposed rulemaking are contained in

Docket No. A-92-13. The Docket is located in room M-1500, First Floor,

Waterside Mall at the address above. The materials may be inspected

from 8 a.m. until 4 p.m. Monday through Friday. A reasonable fee may be

charged by EPA for copying docket materials.

FOR FURTHER INFORMATION CONTACT: Tom Land, U.S. Environmental

Protection Agency, Stratospheric Protection Division, Office of

Atmospheric Programs, 6205J, 401 M Street SW., Washington, DC, 20460,

(202)-233-9185.

SUPPLEMENTARY INFORMATION:

I. Background

II. Administrative Changes in the Stratospheric Protection Program

A. Program Requirements for Continued Post-Phaseout Production

and Imports

1. Post-Phaseout Requirements for Transformation and Destruction

of Controlled Substances

2. Post-Phaseout Requirements for Essential-Use Production

B. Imports of Used Controlled Substances

1. Information Requirements

2. Certification by the Country of Export

C. Program Adjustments and Clarifications to Become Effective

January 1, 1995

1. Changes in Requirements for Export to Article 5 Countries

2. Administrative Changes to the Consumption Allowance

Requirements for Exports

3. Administrative Changes to Production Allowance Requirements

for Exports that are Transformed or Destroyed

4. Treatment of Controlled Substances Remaining in Emptied

Containers, i.e. ``Heels''

5. Clarification of the Definition of Transhipment

6. Provision of Account Reconciliation Period

7. Additional Clarifications

8. Clarification of Reporting and Recordkeeping Requirements

III. Summary of Supporting Analysis

A. Executive Order 12866

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

I. Background

The current regulatory requirements of the Stratospheric Ozone

Protection Program that limit production and consumption of ozone-

depleting substances were promulgated by the Environmental Protection

Agency (EPA) in the Federal Register on December 10, 1993 (58 FR

65018), and on December 30, 1993 (58 FR 69235). These rules set out the

requirements of an Allowance Program (the Program).

The Allowance Program was originally developed in 1988 (published

on August 12, 1988, 58 FR 30568) in response to the 1987 ``Montreal

Protocol on Substances that Deplete the Ozone Layer,'' an international

agreement that requires nations that are Parties to the Protocol to

reduce and eventually eliminate their production and consumption of

ozone-depleting chemicals.\1\

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\1\Several minor revisions to the original 1988 rule were issued

on the following dates: February 9, 1989 (54 FR 6376), April 3, 1989

(54 FR 13502), July 5, 1989 (54 FR 28062), July 12, 1989 (54 FR

29337), February 13, 1990 (55 FR 5005), June 15, 1990 (55 FR 24490)

and June 22, 1990 (55 FR 25812).

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In 1990, the Parties to the Protocol amended the Montreal Protocol

during their meeting in London and added other ozone-depleting

chemicals and designated phaseout dates for production and consumption

of these chemicals. Shortly after the 1990 meeting of the Protocol

Parties, the United States Congress passed the Clean Air Act Amendments

(CAA). The CAA requires the phaseout of ozone-depleting chemicals on a

schedule parallel to, or in some cases more stringent than, that of the

Protocol.

The Allowance Program promulgated in the Federal Register, first on

March 6, 1991 (56 FR 9518), and then as a final rule on July 30, 1992

(57 FR 33754), was designed to ensure that the United States meet its

obligations to control and phase out these substances under the

Protocol and consistent with Title VI of the CAA. Since that time, the

Parties to the Protocol agreed to accelerate the phaseout of all class

I substances (except Group VI), to control class II substances and to

add methyl bromide and hydrobromofluorocarbons (HBFCs) to the list of

class I substances. EPA modified its control requirements in a final

rule promulgated December 10, 1993, in the Federal Register, to be

consistent with Title VI and the Protocol adjustments and amendments.

The substances that are listed in the Protocol, and controlled in

the accelerated phaseout, are:

CLASS I

Chlorofluorocarbons (CFCs);

Halons;

Carbon Tetrachloride;

Methyl Chloroform;

Methyl Bromide;

Hydrobromofluorocarbons (HBFCs);

CLASS II

Hydrochlorofluorocarbons (HCFCs).

(These substances are described in greater detail in 58 FR 65018).

EPA promulgated regulations on December 10, 1993, accelerating the

phaseout of halons to January 1, 1994, the phaseout of

chlorofluorocarbons (CFCs), carbon tetrachloride, methyl chloroform,

and HBFCs to January 1, 1996, and the phaseout of methyl bromide to

January 1, 2001. The rule also accelerates the phaseout of class II

substances, HCFC-22, HCFC-141b and HCFC-142b.

Both the Protocol and the Clean Air Act require the phaseout of

production and consumption of ozone-depleting substances. In the

context of the Program, the use of the term consumption may be

misleading. It is not the ``use'' of these substances that is

controlled through the regulations but rather the amount of the

substance available for U.S. domestic consumption, defined as

production plus imports minus exports of bulk virgin chemicals.

In developing the regulatory program, EPA collected information on

the amounts of ozone-depleting substances produced, imported, exported,

transformed and destroyed domestically. This information was used to

establish the U.S. production and consumption ceilings for these

chemicals. The data was also used to assign company-specific production

and import rights in most cases for companies either importing or

producing during the base years of the data collection. These rights

are called allowances.

Companies expend allowances when they produce or import ozone-

depleting substances. With certain restrictions, the allowances can be

traded among companies both domestically and internationally (between

Party countries). To control production, the Agency allocated baseline

production allowances to producers of specific ozone-depleting

chemicals. To control consumption, the Agency allocated baseline

consumption allowances to producers and importers of specific ozone-

depleting chemicals. Allowances for class I substances are currently

provided to companies on an annual basis except for the production of

halons, which was phased out on January 1, 1994.

In summary, the Program currently operates as follows:

In order to produce controlled ozone-depleting substances,

companies must use both production and consumption allowances;

In order to import controlled substances, companies must

use consumption allowances;

No allowances are required in order to export, once

allowances are expended in the production or importation of the

substance. Rather, companies that export can apply for and be granted

additional consumption allowances;

If a company exports certain controlled substances to an

Article 5 country (developing nations as defined by the Protocol that

consume less than .3 kilograms of CFCs per capita), the company

producing these chemicals can request additional production allowances

as well as the consumption allowances normally granted for export.

Production by Parties to the Protocol for these developing countries

will continue for 10 years after the phaseout in the United States. The

number of additional production allowances that can be provided to a

company for this purpose is currently limited to 10 percent of their

baseline allowance but will increase to 15 percent upon phaseout of

these controlled substances.

No allowances are required to produce ozone-depleting

substances that are transformed or destroyed domestically;

Used or recycled ozone-depleting chemicals can be imported

without allowances. No consumption allowances are granted if used or

recycled ozone-depleting chemicals are exported;

Companies are required to maintain records and to provide

the data to ensure compliance with the regulation and to meet the

reporting requirements of the Protocol.

The Program currently controls and monitors the production and

consumption of ozone-depleting substances in the United States. The

production and import of halons has already been phased out, and the

phaseout for the remaining class I substances, except for methyl

bromide, is scheduled for January 1, 1996. In order to ensure an

orderly phaseout in 1996, the EPA must alter the administrative

requirements of the regulations so companies may continue to produce

for exempted uses permitted under the Montreal Protocol and Clean Air

Act Amendments.

In addition, the Agency is seeking to improve the efficiency of the

requirements and to reduce the burden on the affected companies while

ensuring continued compliance with Title VI of the CAA and the Montreal

Protocol. In light of these objectives, the Agency is proposing the

following administrative changes to improve the Program.

II. Administrative Changes in the Stratospheric Protection Program

A. Program Requirements for Continued Post-Phaseout Production and

Imports

The paragraphs under Section A., Program Requirements for Continued

Post-Phaseout Production and Imports, describe the administrative

changes being proposed by EPA to facilitate the phaseout of all class I

ozone-depleting substances effective January 1, 1996 (except for methyl

bromide), and the special production and importation scenarios allowed

for essential uses.\2\

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\2\In contrast, the changes in Section C., Program Adjustments

and Clarifications, are proposed to modify the current regulation in

order to increase the effectiveness of the program and ease

administrative burdens and will go into effect January 1, 1995.

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The Program currently requires the use of allowances by companies

that produce or import class I chemicals, except halons (Group II),

which were phased out January 1, 1994. Under the current regulation,

the phaseout of the production and consumption of the following Groups

of class I controlled substances will be complete by January 1, 1996:

Group I, CFCs

Group II, Halons

Group III, Other CFCs

Group IV, Carbon Tetrachloride

Group V, Methyl Chloroform, and

Group VII, HBFCs.

A list of the specific class I ozone-depleting chemicals in each

Group is in Appendix A and F in Subpart A.

Due to the phaseout, the Agency is proposing to no longer use

production and consumption allowances for all class I controlled

substances, except Group VI, methyl bromide, beginning January 1, 1996.

Today's proposal anticipates the 1996 production phaseout agreed to by

the Parties to the Protocol for CFCs, carbon tetrachloride, methyl

chloroform and HBFCs, but allows production for essential uses to

become effective January 1, 1996, contingent upon approval for such

essential uses by the Parties to the Protocol at the October 1994

meeting.

Although EPA proposes to no longer use production and consumption

allowances for class I controlled substances (except methyl bromide)

beginning January 1, 1996, the Agency envisions that the manufacture of

class I controlled substances will continue after January 1, 1996,

provided the substances are:

either transformed or destroyed,

exported to Article 5 countries,

produced for essential uses as authorized by the Protocol

and CAA and consistent with essential-use allowances, or

produced with destruction or transformation credits.

In addition, EPA envisions class I controlled substances (except

methyl bromide) being imported without the need for consumption

allowances after January 1, 1996, if:

the substance is either transformed or destroyed,

the substance was previously used, recycled or reclaimed,

the substance was imported using destruction or

transformation credits, or

the substance was imported using essential-use allowances.

Although the proposal is to no longer use production or consumption

allowances for the phased out class I substances (except methyl

bromide), the Agency wishes:

(1) to maintain a category of Article 5 allowances (previously

called potential production allowances),

(2) to create a new category of essential-use allowances, and

(3) to create destruction and transformation credits (similar to

the previous process for granting additional production allowances when

substances produced or imported with expended allowances are

transformed or destroyed).

The following paragraphs describe the allowance requirements for a

variety of production and importation scenarios under the current

Allowance Program. In addition, the paragraphs describe the

administrative changes being proposed by EPA to facilitate the phaseout

of all class I ozone-depleting substances effective January 1, 1996,

(except for methyl bromide) and the special production and importation

scenarios proposed for the post-phaseout period.

1. Post-Phaseout Requirements for Transformation and Destruction of

Controlled Substances

The current regulation distinguishes between two categories of

controlled substances that are transformed or destroyed. The two

categories are: (1) controlled substances that were produced or

imported explicitly for uses that result in transformation or

destruction, and (2) controlled substances that were produced or

imported with the intention of putting the substance to an ``emissive

use.'' EPA proposes adding the definition of emissive use to the

current regulation, such that emissive use would be those uses of

controlled substances that do not result in the transformation or

destruction of the substance. Examples of emissive uses would be the

incorporation of controlled substances into a refrigerator or an air

conditioner (for a car, household or building), or the use of a

controlled substance as a solvent to clean machine parts or circuit

boards.

The current program assumes that when a controlled substance is

produced or imported for other than transformation or destruction it is

intended for an emissive use. When the controlled substance is produced

or imported for an intended emissive use, the producer or importer must

expend allowances under the current program. Whether or not the

controlled substance is actually incorporated into an emissive use is

not as important as the fact that it was intended for an emissive use.

If the controlled substance is intended for an emissive use at the time

of production or importation, the person producing or importing the

substance is required to expend allowances. However, the expenditure of

allowances is not sufficient to define emissive use. For example, a

controlled substance recovered from an air conditioner, refrigerator or

dehumidifier manufactured before the current program became effective

(July 1989) would not have been produced with expended allowances.

In the following discussion, EPA proposes changes to the

requirements for controlled substances that are produced explicitly for

transformation and destruction, and to the requirements for controlled

substances that are produced for intended emissive uses and then

subsequently transformed or destroyed. The requirements differ

according to the intended purpose of the controlled substance during

production.

a. Production or importation of controlled substances explicitly

for uses that result in domestic transformation or destruction. The

current regulation does not require a person to expend allowances if

they are explicitly producing or importing a controlled substance for a

use that will result in the transformation or destruction of that

substance in the United States. In other words, allowances do not need

to be expended at the time of production or importation as long as the

producer or importer has certification that the controlled substance

will be transformed or destroyed by themselves, by a second-party, or

by a third-party. As long as the producer or importer has such

certification that the substance will be transformed or destroyed

domestically, there is no need to expend allowances for the production

or importation of the substance. To confirm the future transformation

or destruction of the controlled substance, the current regulation

requires the second- or third-party person, who will transform or

destroy the substance, to submit a transformation certification or

destruction verification to the producer or exporter.

EPA proposes that the current system continue after January 1,

1996, and that companies be permitted to produce or import controlled

substances explicitly for uses that result in transformation or

destruction with the same requirements as under the current

regulation.\3\ Therefore, such producers and importers will continue to

receive an IRS certification of intent to transform or a destruction

verification from the second- or third-party transformers or

destroyers. The producers and importers will also continue to submit

these certificates or verifications to EPA along with their quarterly

reports (see Section C.7. Recordkeeping and Reporting).

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\3\Controlled substances produced for export to be transformed

or destroyed are discussed in section C.3. ``Administrative Changes

to Production Allowance Requirements for Exports that are

Transformed or Destroyed.''

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b. Production or importation of controlled substances intended for

emissive use but subsequently transformed or destroyed. Under the

current regulation a person who transforms or destroys a controlled

substance that was produced or imported with expended allowances may

petition the Agency for ``additional'' consumption and production

allowances. The person who transforms or destroys a controlled

substance that was produced or imported with expended allowances is

essentially requesting a ``refund'' of the allowances originally used

in the production or importation of the substance.

EPA proposes that, after the phaseout begins on January 1, 1996,

companies will no longer be able to request additional production

allowances or consumption allowances for the transformation or

destruction of controlled substances which were produced or imported

for emissive uses (other than for methyl bromide). The Agency proposes

the elimination of the specific provisions that grant additional

production and consumption allowances, beginning January 1, 1996, for

all class I controlled substances, except methyl bromide, in

anticipation of the post-phaseout elimination of production and

consumption allowances for those substances. Thus, a person who expends

allowances to produce or import a class I substance, other than methyl

bromide, and then transforms or destroys that substance after January

1, 1996, will not be granted additional production or consumption

allowances. However, a person who expends allowances and then

transforms or destroys methyl bromide after January 1, 1996, would

still be able to petition the Agency for additional production and

consumption allowances until January 1, 2001, as under the current

regulation. In this respect, a person who transforms or destroys methyl

bromide that was produced or imported for an intended emissive use may

continue to follow the existing regulation as described under Sec. 82.9

and Sec. 82.10.

c. The post-phaseout procedures for granting destruction and

transformation credits. At the Fourth Meeting of the Protocol Parties

in Copenhagen in 1992, in Decision IV/24, the Parties agreed to urge

``all practicable measures to prevent releases of controlled substances

into the atmosphere.'' In accordance with this Decision, EPA wishes to

continue encouraging destruction and transformation of controlled

substances after the phaseout begins January 1, 1996, especially for

those controlled substances that were produced or imported for intended

emissive uses. EPA believes a system of incentives can be devised to

foster destruction or transformation of ozone-depleting substances in

order to prevent their emission to the atmosphere.

In this action, EPA proposes a system of incentives to encourage

destruction or transformation after the accelerated phaseout dates by

offering credits for the destruction or transformation of controlled

substances. These credits would be used to produce or import an amount

of controlled substance. The Agency believes a system of incentives to

encourage destruction or transformation of controlled substances after

the phaseout is an important mechanism to deter individuals from

releasing the unneeded controlled substance to the atmosphere.

As discussed below, EPA believes that Decision IV/24 of the Parties

to the Protocol urging measures to prevent the release of unneeded

controlled substances to the atmosphere and the Protocol definition of

production provide the basis to devise incentives for destruction or

transformation after the accelerated phaseout and until the interim and

final phaseout dates set forth in the CAA.

The Protocol defines production as the ``amount of controlled

substances produced, minus the amount destroyed by technologies to be

approved by the Parties and minus the amount entirely used as feedstock

in the manufacture of other chemicals.'' Under the Protocol, Parties

may continue to produce controlled substances after they are phased out

as long as the amount of the controlled substance produced is offset in

each control period by the same amount that is transformed\4\ or

destroyed by an approved technology.\5\ The Protocol definition of

production indicates that an amount of controlled substance produced

and the same amount destroyed or transformed would balance in a

calculation of atmospheric loading and result in a net environmental

impact of zero.

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\4\Under the current regulation, transformation is defined as

the amount entirely used as feedstock (except for trace quantities)

in the manufacture of other chemicals.

\5\To date, Parties have approved five technologies for

destruction (Decision IV/11) which are listed in the definition or

``destruction'' under Sec. 82.3.

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Although the definition of production in the Protocol would permit

continued production beyond the phaseout as long as such production was

offset by transformation or destruction, the definition of production

under the Clean Air Act Amendments is distinct and does not permit such

offsetting. The CAA defines ``produce,'' ``produced'' and

``production'' as the ``manufacture of a controlled substance from any

raw material or feedstock chemical, but such terms do not include (A)

the manufacture of a substance that is used and entirely consumed

(except for trace quantities) in the manufacture of other chemicals, or

(B) the reuse or recycling of a substance.'' Under the CAA definition,

once production of a controlled substance is phased-out, it may no

longer be produced for emissive purposes because there are no

provisions, as in the Protocol's definition, to permit that continued

production be offset by destruction or transformation.

Pursuant to CAA section 614, in the case of conflict between any

provision of the CAA and the Montreal Protocol, the more stringent

provision shall govern. Because the CAA definition of production is

more stringent than that of the Protocol, the definition of production

under the CAA shall apply when the phaseout dates under the CAA take

effect. Section 604 of the CAA sets interim reductions and final

phaseout dates for listed class I substances. The class I substances

listed in the CAA must be phased out by the year 2000, except for

methyl chloroform which must be phased out by the year 2002. In

addition, under the terms of the CAA, methyl bromide must be phased out

by 2001. Section 604 also includes interim reductions for the listed

class I substances as outlined in Table I below.

In today's rule, EPA proposes to authorize the use of destruction/

transformation credits until the respective dates when the terms of the

CAA become more stringent than those of the Protocol (2000 for most

class I controlled substances, 2001 for methyl bromide, and 2002 for

methyl chloroform). For example, under the terms of the Protocol, CFC-

12 must be phased out by 1996, but production may be continued as long

as it is offset by either transformation or destruction. However, the

CAA requires that in 1996, the maximum allowable production of CFC-12

be no more than 40 percent of the quantity produced in the baseline

year. From 1995 until 1999, the CAA requires that the maximum allowable

production of CFC-12 be no more than 15 percent of the quantity

produced in the baseline year, and in the year 2000, no CFC-12 may be

produced.

Today's proposal permits the use of destruction and/or

transformation credits, but does not permit continued production beyond

the maximum allowable limits set forth in the CAA. Thus in the example

above, for 1996, individuals may use destruction and/or transformation

credits, but in no case may CFC-12 be produced for emissive purposes

beyond 40 percent of the quantity produced in the baseline year. To

comply with the 1996 phaseout date and definition of production under

the Protocol, production of this amount of CFC-12 must be offset by the

amount transformed or destroyed.\6\

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\6\Limits are being proposed in today's action for production

after 1996 regarding destruction and transformation credits,

essential-use allowances (to be discussed in the next section of the

preamble) and Article 5 allowances (discussed in section C.1.

``Changes in Requirements for Export to Article 5 Countries'' of the

preamble.)

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Below is a chart indicating the dates and the maximum permissible

production levels set forth in the Clean Air Act Amendment of 1990.

Table I.--Title VI of the Clean Air Act Amendments of 1990 Production

Phaseout Schedule for Ozone-Depleting Substance

------------------------------------------------------------------------

Other

Carbon Methyl class I

Date tetrachloride chloroform substances

(percent) (percent) (percent)

------------------------------------------------------------------------

1994............................. 70 85 65

1995............................. 15 70 50

1996............................. 15 50 40

1997............................. 15 50 15

1998............................. 15 50 15

1999............................. 15 50 15

2000............................. ............. 20

2001............................. ............. 20

------------------------------------------------------------------------

Proposed System for Credits--EPA is seeking comments on a system

that would grant destruction credits and/or transformation credits as

an incentive to destroy and/or transform controlled substances produced

or imported for intended emissive uses. EPA is seeking comments on this

system in which a person may submit, after January 1, 1996, a request

to the Agency for credits based on the destruction or transformation of

a quantity of controlled substances in the United States that were

initially produced for an emissive use. The person requesting credits

would need to identify the amount of controlled substance that was

destroyed or transformed and the previous use of the controlled

substance. In addition, the person would need to submit to EPA a copy

of the destruction efficiency certification as under Sec. 82.13(k).

Upon approval, EPA would grant the person credits equal to the amount

of the controlled substance they destroyed or transformed minus an

offset. EPA proposes that credits could be used for: (i) the

importation of a calculated level of the controlled substance, or (ii)

the production of a calculated level of the controlled substance.

Consistent with the parameters set for control periods by the Montreal

Protocol, EPA proposes that credits not be carried over from one

control period to the next, due to the limits on net production. The

recordkeeping and reporting requirements associated with the credits

described in these paragraphs are outlined in paragraph C.7.a.iv and

C.7.a.v below.

Under the proposed system, the Agency will create a balance of

credits for the person upon approval of a request. Deductions will be

made from this balance of credits based upon quarterly reports to EPA

showing production and importation. EPA is proposing that inter-

pollutant transfers of credits as currently defined in Sec. 82.12 be

permitted within the Groups of class I substances listed in Appendix A

and F to Subpart A, subtracting a one percent offset. The Agency is

also proposing that inter-company transfers of credits be permitted as

currently defined in Sec. 82.12, subtracting the one percent offset.

Inter-Party trades of credits would also be permitted under today's

proposal as currently described in Sec. 82.9 with the actual controlled

substance returning to the United States.

Discussion of Options--The following discussion outlines options

considered by EPA in proposing today's system to grant credits for the

destruction or transformation of controlled substances. The initial

discussion focuses on options for destruction credits. This is followed

by a summary of how the same arguments pertain to a parallel system for

granting transformation credits.

Options for Destruction Credits--The Agency considered many factors

in analyzing how to provide incentives to destroy controlled substances

in the post-phaseout period.

EPA envisions granting destruction credits to people who destroy

controlled substances that were recovered from use systems, as well as

controlled substances that were produced or imported for intended

emissive uses. The Agency believes that as the phaseout goes into

effect on January 1, 1996, an increasing number of people will retrofit

or switch from use systems that use class I controlled substances to

use systems that occupy other chemicals or processes less damaging to

stratospheric ozone. However, in the near term the Agency anticipates a

period of transition in which some people continue to use equipment

that occupies class I substances. To meet the needs of people with

equipment designed for class I controlled substances after the

phaseout, EPA presumes market demand will engender a service industry

to recover the phased out substances from existing equipment, such as

building chillers, commercial refrigeration units, and automobile air

conditioners as this equipment is retrofitted with alternative

chemicals or is taken out of commission. EPA anticipates that much of

the recovered controlled substances will be recycled or reclaimed and

stored (banked) to meet the near term needs of people still using

equipment that requires phased out substances. At this point in time,

it is difficult to project what the future supply and demand for

controlled substances will be once the post-phaseout period begins

(January 1, 1996) and how long the transition period will last.

EPA is proposing destruction credits to encourage the destruction

of controlled substances when the supply of these substances exceeds

the demand. In time, the demand for class I controlled substances

should fall as the majority of equipment is converted to alternative

chemicals or new systems replace old systems. The Agency presumes this

will occur as alternative substances, retrofits and new equipment are

brought into wider use throughout all sectors, obviating the need for

banked class I controlled substances. Under this scenario, when the

supply of a class I substance being banked for the period of transition

exceeds the demand, the price will drop and the existing stocks will

become ``unneeded,'' as mentioned in Decision IV/24 of the Parties to

the Protocol cited above. When the substances are unneeded, the demand

for phased out controlled substances may no longer even warrant

storage. A person with a stored quantity of class I controlled

substance that no longer has a market due to the conversion and

replacement of equipment should be encouraged through a meaningful

incentive system to destroy the substance. Without such an incentive,

individuals may continue storing these controlled substances,

increasing the risk of leaks, accidental releases or intentional

releases to the atmosphere. EPA believes destruction should be

encouraged to prevent such releases into the atmosphere.

The proposed system encourages the destruction of controlled

substances that are unneeded as demand shifts from one specific

substance to alternatives or other types of equipment. The system of

granting destruction credits allows market flexibility in meeting

demand by allowing inter-pollutant transfers of destruction credits at

the same time that it provides an incentive to destroy the excess

supply of a given substance that might potentially be released into the

atmosphere. As a hypothetical example, CFC-11 might be recovered from

several use systems and banked during the first years after the

phaseout (January 1, 1996) to meet demand during the period of

transition. But as alternative substances and/or equipment are brought

to market to replace the need for CFC-11, the supply of CFC-11 that was

banked would become unnecessary. Today's proposed destruction credits

would encourage the destruction of this excess supply of CFC-11 and the

credits could be used, through an inter-pollutant transfer, to produce

or import a different controlled substance in the same Group of

controlled substances, such as CFC-12, to satisfy a still unmet demand

for CFC-12.

As under the current regulation, the Agency will grant credits

equal to 100 percent of the volume destroyed (minus the offset) for

controlled substances that are completely destroyed (using the current

definition of completely destroy). For controlled substances destroyed

at less than a 98 percent destruction efficiency, EPA will grant

allowances commensurate with that percent of destruction efficiency

that is actually achieved (minus the offset).

Another factor considered in proposing an incentive system was the

general technical destruction characteristic of the chlorinated and

brominated compounds regulated under the current rule. Due to the

chemical composition of these ozone-depleting substances, the by-

products of destruction are often corrosive acids. The corrosivity of

these destruction by-products may influence the maintenance costs for

approved destruction technologies. Increased rates of destruction of

controlled substances could increase the frequency with which operators

of approved incineration technologies would need to replace the liners

of their incineration units. Therefore, operators will probably

continue to charge high prices for the destruction of controlled

substances.

EPA received anecdotal information that very few incineration

facilities in the United States are now accepting bulk quantities of

CFCs for destruction and as a result the price being charged is

extremely high. The Agency does not want the maintenance costs at

incineration facilities to impede the overall availability of

destruction for controlled substances, especially as controlled

substances are taken from existing use systems. If destruction is

limited and expensive, the release of controlled substances to the

atmosphere may be an unfortunately attractive option. Offering credits

for destruction provides an economic incentive to persons who have

controlled substances but would like to dispose of them. The credits

have economic value which could offset the high costs of destruction.

If persons gain a benefit from destroying a controlled substance, they

will be more likely to destroy the controlled substance than release it

to the atmosphere. The overall goal of providing the incentives for

destruction is to prevent the release of ozone- depleting substances to

the atmosphere.

EPA believes that the proposed system for granting destruction

credits will have an overall environmental benefit. Without an

incentive to increase the current rate of destruction the Agency

presumes there will be greater release of controlled substances to the

atmosphere as equipment that contains the phased out substances is

taken out of commission. Today's proposal is to grant destruction

credits equal to the quantity of controlled substance destroyed minus

an offset of 15 percent. Although the credits can be used to produce or

import controlled substances, the amount produced or imported will be

less than the amount destroyed due to the offset. The credits also

provide an incentive to destroy ozone-depleting substances that

otherwise might be emitted.

In making today's proposal the Agency considered other ways of

encouraging destruction. EPA considered a voluntary system for

encouraging destruction of controlled substances. The voluntary system

would not grant credits but simply try to persuade companies to destroy

ozone-depleting substances with publicity and public relations

assistance. For instance, the Agency could develop a list of companies

actively destroying controlled substances as ``friends of the ozone''

in a national publicity campaign. EPA believes, however, that a system

of credits would provide greater incentive to increase current rates of

destruction and there would be less chance of controlled substances

being released to the atmosphere.

Another option considered by EPA was to grant destruction credits

equal to the amount of controlled substance destroyed. Under an option

of giving 1:1 credits for kilograms, a person who destroys 100

kilograms of CFC-12 would be given a calculated level of 100 kilograms

of destruction credits which could be used to produce or import 100

kilograms of new CFC-12. Although the incentive would be great to

destroy unneeded stocks of controlled substances without an offset, EPA

believes the environmental benefits of the actual destruction would be

balanced by the subsequent production or importation of an equal amount

of additional controlled substance.

In developing today's proposal, EPA considered offsetting the

number of credits to be granted by one percent from the actual quantity

destroyed. A one percent offset is used throughout the current

regulation in calculating allowances authorized in various transfers;

both between Groups of controlled substances (inter-pollutant trades)

and between companies (inter-company trades). The offset was developed

to address Section 607 of the CAA which requires that trades result in

less overall production or consumption than would have occurred absent

the trade. The one percent offset was proposed in the September 30,

1991 rule, as an amount large enough to provide a net environmental

benefit but without discouraging the trading that might be necessary to

meet market demand.

In today's proposal, EPA recommends a 15 percent offset. The 15

percent offset is proposed to ensure that environmental benefits result

from the proposed incentive system granting additional production or

importation to encourage destruction and prevent the release of

controlled substances. The 15 percent offset proposed today is based on

an estimate of the amount of controlled substances that could possibly

be destroyed given the capacity of U.S. approved technologies.

Estimates of destruction capacity for controlled substances in the

United States for 1992 are 15 percent of annual production.\7\

Therefore, the greatest environmental benefit that can be obtained in

the U.S. from destruction is 15 percent of annual U.S. production. The

15 percent offset means a person who destroys a quantity of controlled

substance after the phaseout (January 1, 1996) may request credits

equal to 85 percent of the quantity destroyed. The 85 percent is the

portion of annual United States production of controlled substances for

intended emissive uses that cannot be destroyed due to the limits of

estimated domestic destruction capacity. To control and reduce the

damage caused by corrosive by-products from the destruction of

controlled substances, operators of incineration units usually

incorporate a small percentage of halogenated substances in each batch.

The offset would encourage owners of approved destruction technologies

to maximize their capacity for incorporating controlled substances.

---------------------------------------------------------------------------

\7\United States capacity for destruction of halogenated

compounds at commercial and public hazardous waste incineration

facilities is 63,600 metric tons per year. United Nations

Environmental Programme's Report from the Ad-Hoc Technical Advisory

Committee on ODS Destruction Technology, May 1992.

---------------------------------------------------------------------------

Options for Transformation Credits--The discussion of destruction

credits above also pertains to a system for granting transformation

credits. Transformation credits would be granted to a person who

transforms controlled substances originally produced or imported for

intended emissive uses. EPA is seeking comment on a system that would

grant transformation credits as a parallel system to the system for

destruction credits described above. In other words, transformation

credits would be granted for a quantity of controlled substance

transformed originally produced or imported for intended emissive uses,

minus the 15 percent offset.

EPA is aware that most controlled substances currently produced or

imported for intended emissive uses do not subsequently become a

feedstock for a transformation process. However, EPA believes that new

technologies may appear that can transform controlled substances that

were produced or imported for intended emissive uses. As defined in the

current regulation, transformation is the process of entirely consuming

a controlled substance (except for trace quantities) in the manufacture

of other chemicals for commercial purposes. The Agency has learned of

independent efforts to develop transformation technologies that would

transform controlled substances into commercially useful chemicals. The

information EPA has on these technologies suggests that they may be

able to transform even controlled substances that are taken from use

systems and that are contaminated. Today's proposal anticipates the

development of these new technologies and would offer an incentive for

the transformation of controlled substances that might otherwise be

released into the atmosphere.

EPA is proposing to implement the Decision of the Parties to the

Protocol to encourage practicable measures to prevent the release of

controlled substances to the atmosphere, recognizing that there are

many options for creating incentives that also achieve varying degrees

of environmental benefits. EPA is therefore seeking comments on today's

proposed system for granting credits as an incentive for the

destruction or transformation of controlled substances after the

phaseout and the options discussed above.

2. Post-Phaseout Requirements for Essential-Use Production

EPA discussed the issue of essential uses in its Federal Register

notice containing the final accelerated allowance regulations (December

10, 1993, 58 FR 65018). While recognizing the need to include

provisions to implement the essential use provisions of the Montreal

Protocol, the final rule did not address how this would be incorporated

into EPA's allowance program.

a. Protocol Decisions Regarding Essential-Use Production. The

Montreal Protocol established an essential use provision at the Fourth

Meeting of the Parties (Decision IV/25). Production and consumption are

only to be permitted past the phaseout date for those applications

approved under this Decision. The Decision established both criteria

for determining whether a specific use should be approved as essential

and a process for the Parties to use in making such a determination.

The criteria for an essential use adopted by the Parties is the

following:

``(1) that a use of a controlled substance should qualify as

`essential' only if:

(i) it is necessary for the health, safety or is critical for the

functioning of society (encompassing cultural and intellectual

aspects); and

(ii) there are no available technically and economically feasible

alternatives or substitutes that are acceptable from the standpoint of

environment and health;

(2) that production and consumption, if any, of a controlled

substance for an essential use should be permitted only if:

(i) all economically feasible steps have been taken to minimize the

essential use and any associated emission of the controlled substance;

and

(ii) the controlled substance is not available in sufficient

quantity and quality from existing stocks of banked or recycled

controlled substances, also bearing in mind the developing country need

for controlled substance.''

Thus, any proposed application for an essential use would be

evaluated based on the social utility of that application, the

availability of substitutes, and the potential for meeting that need

through banked or recycled controlled substances.

Decision IV/25 also set out the procedural steps for implementing

this process. It first calls for individual Parties to nominate

essential uses. These nominations are then to be evaluated by the

Protocol's Technology and Economic Assessment Panel (TEAP or the Panel)

which makes recommendations to representatives of all Protocol Parties.

The final decision on which nominations are to be approved is to be

taken by a meeting of the Parties.

The initial cycle of implementing this Decision has been completed

in the context of halons which were phased out of production at the end

of 1993. EPA issued a Federal Register notice requesting nominations

for essential uses of halons (February 2, 1993; 58 FR 6786). In

response, the Agency received over ten nominations, but was able to

work with applicants to resolve their near-term requirements. As a

result, the U.S. did not nominate any uses for continued halon

production in 1994. About a dozen other nations put forth nominations

which were reviewed by the Technical and Economics Assessment Panel.

Because the Panel determined that in each case alternatives existed or

that the existing supply of banked halons was adequate to meet near-

term needs, it did not recommend approval of any of the nominations. In

November of 1993, at the Fifth Meeting, the Parties unanimously adopted

the recommendation of the Panel not to approve any essential uses for

the production or consumption of halons in 1994.

EPA issued a second notice for essential use nominations for halons

on October 18, 1993 (58 FR 53722). These nominations covered possible

production of halons in 1995 for essential uses. In response to this

inquiry, EPA received no nominations.

Only one nomination (from France) was received by the TEAP for

production and consumption of halons for an essential use in 1995. The

TEAP did not recommend approval of this nomination.

EPA also issued a Federal Register notice requesting nominations

for essential use applications which would need to continue beyond the

1996 phaseout of consumption and production allowances for CFCs, methyl

chloroform, carbon tetrachloride, and hydrobromofluorocarbons (May 20,

1993, 58 FR 29410). EPA received 20 applications in response to this

notice. For several of these applications, EPA determined that the

criteria contained in the Decision had not been satisfied. For example,

two applications sought CFCs for servicing existing air-conditioning

equipment. EPA rejected these applications on the basis that if all

economically feasible steps were taken prior to the 1996 phaseout, then

adequate supplies of banked and recycled CFCs should be available.

However, in rejecting these nominations, the United States noted that

servicing existing air-conditioning and refrigeration remains a major

challenge to the successful transition from the use of CFCs and that a

future nomination in this area might be necessary if a combination of

retrofits, replacements, recycling, recovery at disposal, and banking

do not adequately address these needs.

Of the responses to the Federal Register request for essential use

applications, the United States submitted essential use nominations to

the Protocol for the following uses of CFCs: metered dose inhalers and

other selected medical applications; a bonding agent for the Space

Shuttle; aerosol wasp killers; limited use in a specified bonding agent

and polymer application; and a generic application for laboratory uses

under specified limitations. (Letter from Pomerance to UNEP, September

27, 1993).

Nominations from the U.S. and other countries for over 200 specific

uses were submitted to the Montreal Protocol Secretariat and provided

to the Technical and Economics Assessment Panel for review. In March

1994, the Panel issued the ``1994 Report of the Technology and Economic

Assessment Panel.'' The Report includes the Panel's recommendations for

essential-use production and consumption exemptions. The Panel

recommended that essential use exemptions be granted for nominations

of: methyl chloroform in solvent bonding of the Space Shuttle; CFCs

used in metered dose inhalers; and specific controlled substances

needed for laboratory and analytical applications.

For each of the other nominations submitted, the Panel determined

that one or more of the criteria for evaluating an essential use had

not been satisfied. For example, in the case of several of the U.S.

nominations, the report states that alternatives are available and

therefore the essential use exemption is not warranted.

The next meeting of the Parties is scheduled for October 1994. At

that session the Parties will review the recommendations by the

Technology and Economic Assessment Panel and make final decisions on

this round of essential use nominations.

In 1993, the Parties to the Protocol modified the timetable for

submission of essential use nominations to combine both halons and all

the other class I controlled substances (except methyl bromide) and to

reduce the overall length of time between nomination and decision.

According to Decision V/18, essential use nominations for halon

consumption and production for 1995 and beyond, and essential use

nominations for all the other class I controlled substances (except

methyl bromide) for 1997 and beyond, must be submitted to the

Secretariat prior to January 1st of the year prior to the year for

which production and consumption is being sought.\8\ Parties must

submit essential use nominations for CFCs for 1997 (nominations for

1996 have already been considered) to the Montreal Protocol Secretariat

by January 1, 1996. EPA will revise its domestic schedule to require

that nominations be submitted at least three months prior to the

Protocol Secretariat deadline for submission, and will issue a Federal

Register notice in August 1994, calling for essential use nominations

for halons for 1996 and beyond. The next call by EPA for other class I

controlled substances will be in August of 1995 for 1997 essential-use

exemption nominations.

---------------------------------------------------------------------------

\8\Decision V/18 also directed the Technology and Economic

Assessment Panel to develop a ``Handbook of Essential Use

Nominations.'' The Handbook is being prepared and will contain forms

and instructions for how to apply for an essential-use exemption.

When available, the Handbook may be obtained from the Stratospheric

Protection Division, U.S. Environmental Protection Agency or the

Ozone Secretariat of the Montreal Protocol in Nairobi.

---------------------------------------------------------------------------

b. Domestic Implementation of Essential-Use Program. Any essential

use exemptions would also have to comply with the provisions of the

CAA. Section 604 of the CAA authorizes the granting of specific

exemptions from the phaseout schedules contained in the Clean Air Act

for essential uses for methyl chloroform for which no safe and

effective substitute is available (section 604(d)(1)), for limited

quantities of class I substances solely for use in medical devices if

such authorization is determined to be necessary (section 604(d)(2))

and for limited quantities of halon-1211, halon-1301 and halon-2402

solely for use in aviation safety if no safe and effective substitute

is available and if such authorization is necessary. The CAA also

authorizes specific exemptions from the phaseout schedule of CFC-114,

halon-1211, halon-1301 and halon-2402 for national security (section

604(f)).

In today's action, EPA does not propose essential uses under the

provisions of the CAA. However, EPA does propose to permit continued

production for the essential uses authorized under the Protocol, so

long as these essential use exemptions do not exceed amounts allowed in

the schedule contained in section 604(a) of the CAA.

As indicated on the table below, EPA is proposing essential uses

for specified controlled substances for the years 1996 and 1997. As

discussed in section A.1.c., ``The Post-Phaseout Procedures for

Granting Destruction and Transformation Credits,'' EPA proposes to

authorize continued production for essential uses permitted under the

Montreal Protocol, but not to exceed the maximum allowable limits set

forth in section 604(a) of the CAA. As used in a previous example in

section A.1.c., the CAA requires that in 1996, the maximum allowable

production of CFC-12 may be no more than 40 percent of the quantity

produced in the baseline year. Thus, in 1996, if total production of

CFC-12 were to be used for essential uses, the amount produced for

those essential uses may not exceed 40 percent of the quantity produced

in the baseline year. Although production may be used for some

combination of essential uses, destruction credits, or transformation

credits, the total amount produced could not exceed the maximum

allowable limits set forth in the CAA as reproduced in Table I below.

To incorporate the essential-use provisions under the Montreal

Protocol into our domestic allowance program, EPA is proposing the

creation of a new class of allowances to be referred to as ``essential-

use allowances.''

The essential-use allowances will be allocated to United States

entities based on the nominations made to the Protocol which will be

decided upon by the Parties at the October 1994 meeting and at meetings

thereafter. In the nominations to the Protocol, U.S. entities apply for

an essential-use exemption from the production and consumption phaseout

for a specific quantity of controlled substance for a specific use. EPA

proposes using the applications that are agreed to by the Parties to

the Protocol to make specific allocations of essential-use allowances.

Although the TEAP has received applications for essential-use

exemptions beyond 1997, today's proposal only includes those

recommendations by the Panel for 1996 and 1997. In today's rulemaking,

EPA proposes an allocation of essential-use allowances up to the amount

being recommended by the Technology and Economic Assessment Panel to

the Parties for their meeting in October 1994. It should be noted that

the final essential-use allowances promulgated by EPA may not exceed

the exemptions adopted by the Parties.

Essential Uses Recommendation by the UNEP Technology and Economic Assessment Panel

----------------------------------------------------------------------------------------------------------------

Quantity

Company Year Chemical (metric

tons)

----------------------------------------------------------------------------------------------------------------

Metered Dose Inhalers:

International Pharmaceutical & Aerosol Consortium..... 1996 CFC-11.................... 749.8

........... CFC-12.................... 2353.2

........... CFC-114................... 314.1

1997 CFC-11.................... 658.3

........... CFC-12.................... 2166.5

........... CFC-114................... 311.4

Sterling Winthrop......................................... 1996 CFC-12.................... 10.2

........... CFC-114................... 29.6

1997 CFC-12.................... 10.5

........... CFC-114................... 31.7

----------------------------------------------------------------------------------------------------------------

Space Shuttle Solvent

----------------------------------------------------------------------------------------------------------------

NASA/Thiokol.............................................. 1996 Methyl Chloroform......... 56.8

1997 Methyl Chloroform......... 56.8

----------------------------------------------------------------------------------------------------------------

Laboratory and Analytical Applications

----------------------------------------------------------------------------------------------------------------

Global Exemption.......................................... 1996 CFCs, Methyl Chloroform, (\1\)

Carbon Tetrachloride.

1997 (\2\)..................... (\2\)

----------------------------------------------------------------------------------------------------------------

\1\No quantity specified.

\2\Same.

The nomination for essential uses in 1996, 1997 and 1998 of CFCs,

methyl chloroform and carbon tetrachloride in analytical and laboratory

applications is being recommended by the Technology and Economic

Assessment Panel for a global exemption which will not specify the

quantity granted to each Party. The TEAP describes the many analytical

and laboratory procedures for which small quantities of controlled

substances are now used and for which applications were received, such

as: equipment calibration; extraction solvents, diluents, or carriers

for specific chemical analyses; inducing chemical-specific health

effects for biochemical research; and other critical purposes in

research and development where substitutes are not readily available or

where standards set by national and international agencies require

specific use of a controlled substance. The TEAP recommendation for a

global exemption pertains only to 1996, 1997 and 1998 and refers to the

manufacture of CFCs, methyl chloroform and carbon tetrachloride of very

high purities to be packaged in small containers. Additional detailed

information regarding the purity of the substances and the size of the

containers being recommended by the TEAP is contained in Appendix G to

subpart A. In anticipation of the Parties adopting this recommendation

of the Technology and Economic Assessment Panel, EPA is proposing that

a specific quantity of essential-use allowances for laboratory and

analytical use not be designated.

In anticipation of a Decision by the Parties at the October 1994

meeting that does not specify the quantity of essential use allowances

permitted for analytical and laboratory application, but a global

essential-use exemption, EPA is proposing that producers or importers

of the controlled substance require that laboratories certify they are

purchasing the designated essential-use controlled substances only for

laboratory or analytical uses, and that the substance will not be

resold (see Recordkeeping and Reporting in Section C.7.b.). Unlike the

system for the allocation of essential-use allowances for metered dose

inhalers and space shuttle solvents, there will not be specific

recipients of analytical/laboratory essential-use allowances. A person

who claims the essential need for an analytical or laboratory

application of a substance that has been phased out will be permitted

to purchase the requested quantity as long as a certificate is provided

to the importer or producer of the substance. The certificates will

allow EPA to monitor the quantities of phased-out controlled substances

that are used in analytical or laboratory applications domestically.

EPA reserves the right to amend these procedures in the future based on

information collected through the certificates and changes made by the

Protocol.

In the case of the allowances for specific essential uses, EPA

proposes that the recipient of essential-use allowances confer to a

producer or importer the right to produce or import a specific quantity

of the specific controlled substance. The company conferring the

essential-use allowances must, as in the case of laboratories, certify

to the producer or importer that the controlled substance will only be

used for the specified essential use. The producer or importer will

report to EPA quarterly the quantity produced for essential uses,

submitting the certification from the holder of the essential-use

allowance.

Due to the specific nominations of specific substances for specific

uses, EPA is proposing that inter-pollutant transfers of essential-use

allowances not be permitted. The application process described above in

which U.S. companies petitioned the Parties to the Protocol through EPA

for an essential-use exemption for a specific quantity of a specific

substance for a given year indicated that the substance is essential

for the specific application because no practicable alternative

chemical exists. EPA reviewed these applications and made

recommendations to the TEAP, which in turn reviewed the claims that the

specific substance is essential for the application and recommended an

exemption be given in those cases where experts felt no substitute

exists. For the same reason, EPA proposes that inter-company transfers

of essential-use allowances not be permitted because allowances will be

allocated based on a company's application to the Parties through EPA

for a specific quantity of a controlled substance for a specific use.

As a result, EPA is also proposing that inter-Party trades not be

permitted since these would be trades between companies internationally

and the allocations being recommended by the TEAP to the Parties for

the October 1994 meeting are country-specific.

B. Imports of Used Controlled Substances

In recognition of the critical role that previously used materials

would play in ensuring a smooth transition to ozone- friendly

substances, the Parties to the Montreal Protocol decided to encourage

their expanded use. Specifically, in Decision IV/24 (Copenhagen, 1992),

the Parties decided ``not to take into account, for calculating

consumption, the import and export of recycled and used controlled

substances.'' EPA implemented this decision domestically in the

December 10, 1993 phaseout rule (December 10, 1993; 58 FR 65018).

Accordingly, EPA rules now allow importation of previously used or

recycled controlled substances without allowances (Sec. 82.4(a) and

(b)).

Although the December rule allows importation of used or recycled

controlled substances, EPA is now investigating several cases of

potential fraud in which the importer claimed that the substance was

used or recycled when in fact, the Agency believes the substance was

virgin or ``off-spec'' virgin (a newly manufactured substance that does

not meet industry specifications for quality). Several other countries

are investigating importation of controlled substances that were

believed to be fraudulently labelled as used or recycled. Due to the

difficulty of determining whether a substance is used or recycled, the

Parties to the Montreal Protocol are very likely to consider a

clarification of Decision

IV/24 during the 1994 meeting. In an effort to facilitate final

adoption of a rule that is consistent with the Protocol Parties'

action, EPA is today proposing alternative methods for ensuring that

materials brought into the country under the used and recycled

allowance exemption are in fact used or recycled.

Additionally, EPA is today proposing that the current definition of

used and recycled controlled substances be changed to include only the

term ``used'' since EPA believes recycled and reclaimed substances fall

under the current definition. In this manner, a controlled substance is

defined as used if it was recovered from a use system, regardless of

whether it was subsequently recycled or reclaimed. The proposed change

simplifies the references to used substances without confusion

regarding their subsequent treatment.

1. Information Requirements

One method for ensuring that a substance claimed to be used is in

fact used is to require that the importer have proof of the origin of

the substance prior to import. Naming the previous use of the substance

offers opportunities for verification, whether through chemical

analysis or through knowledge of a country's infrastructure. Therefore,

EPA is considering incorporating some or all of the following

information requirements:

--the name and address of the firm that recovered the chemical,

--the type of equipment from which the substance was recovered,

--the type of machine used to recover and/or recycle the material,

--the name of the facility and/or the name of the equipment employed to

reclaim a previously used substance, or

--a chain of ownership of the substance from recovery to final import,

--a certification from the foreign seller that the substance is

previously used,

--a chemical test of used imports where the quantity of the import

exceeds some specified weight (e.g., 10,000 pounds).

EPA is aware that the importer may not always know if the imported

substance was in fact previously used. In the absence of information

requirements such as those noted above, the importer might be forced to

rely solely on the statements of exporters from other countries--

individuals about whom the importer may know little or nothing. The

types of information noted above are designed to provide an opportunity

for independent verification of the nature of the substance being

imported (both from the U.S., and by the exporting country government).

As an alternative, or in addition to requiring import information

such as that noted above, EPA proposes that it be able to request post-

import information designed to ensure that the product is treated in a

manner consistent with the claimed import status. Importers of used

material that was not reclaimed may be asked to provide information on

the facilities that they will use for reclaiming the used substances

once imported. Information that EPA may require could include, where

applicable:

--the name of the reclamation facility that will clean a used or a

recycled substance to the specified ARI-700 Standard,

--information demonstrating that such cleaning will take place, or

--the bills of sale from the exporter to the actual purchaser of the

substance (not necessarily the importer).

EPA requests comment on the above-noted list of potential

information requirements, and requests comment on alternative

information requirements that can reasonably be expected to result in

an accurate determination of whether the substance being imported is in

fact used.

2. Certification by the Country of Export

In future meetings, the Parties to the Protocol may decide to

require the government of the country of origin of a material to

certify its status as used prior to export. While this might obviate

the need for some of the information listed in paragraph B.1. above, it

would also require EPA to establish a program to certify any U.S.

exports of used controlled substances. EPA already has a limited

certification program for certain reclamation facilities. Under this

program, reclamation facilities must be able to ensure that previously

used substances will be reclaimed to a level of purity called for by

the ARI-700 Standard. With regard to exports of used substances, with

such Protocol changes, U.S. exporters could be required to certify to

EPA that the ``used'' substance that it wishes to export was indeed

taken from a use system. The exporter could also be required to keep

records on selected items under paragraph B.1. above, to facilitate

future verification. EPA requests comments on this approach to certify

that the used and recycled class I substances being exported are being

recovered from use systems.

3. Creation of a Permit Program for the Importation of Used Materials

EPA is considering the use of a permit system for the importation

of used controlled substances. In addition to the measures discussed in

paragraphs B.1. and B.2. above, EPA believes a permit system may deter

fraudulent import of mislabelled controlled substances, and may provide

greater control over the entry of used controlled substances into

United States jurisdiction. The European Union requires importers to

have permits to control the import of mislabelled ozone-depleting

substances that are used. EPA believes that adoption of a similar

system of permits for the importation of used controlled substances may

increase the effectiveness of enforcement actions against the illegal

importation of used substances into the U.S. EPA seeks comments on the

potential effectiveness of a permit system in controlling the import of

mislabelled used controlled substances, in general, and the specific

permit systems described below. Under all options being considered, an

importer would not be able to import until a permit was granted.

Currently, EPA receives a monthly list of importers of controlled

substances from U.S. Customs. With a permit system, EPA would collect

information from importers of used controlled substances and could

match persons on the monthly U.S. Customs list with the list of persons

who have permits to import used controlled substances. A person

appearing on the U.S. Customs list who does not have a permit would be

in potential violation of the regulation. A permit system would also

enable compliance and enforcement staff to link suspicious imports by

permitted importer to a specific person, i.e., the name and address of

the company. Importers would also be aware that EPA held information on

each import, providing a disincentive for fraudulent activity.

One option EPA is considering would require individuals to obtain a

permit from EPA prior to each proposed import of a used controlled

substance. EPA would require the person to submit an application for a

permit 15 days before the import is due to enter U.S. jurisdiction. EPA

would then have 5 days in which to grant the permit. If EPA does not

act within 5 days, the permit would be granted automatically. EPA would

review the information to determine if the information is sufficient

and verify the accuracy of the claims. If the application is denied,

the person may appeal within 5 days. EPA would then have 5 days in

which to review the appeal and deny or grant the permit. If EPA does

not make a determination on the appeal within 5 days, the permit would

be granted automatically.

The application for an import permit for a particular shipment of

used controlled substances would need to include the name and address

of the importer, their importer identification number, and the quantity

of controlled substance that the person intends to import. In addition,

the individual would be required to furnish information such as that

outlined under paragraph B.1., ``Information Requirements,'' that

ensures the substance being imported is in fact ``used.'' EPA is

requesting comment on a list of information requirements in paragraph

B.1. to identify those which might best verify that a controlled

substance is in fact ``used.'' In addition, importers of used

controlled substances may be asked to provide information on the

reclamation facility they will use once the substance is imported, in

order to bring the contaminated material to chemical and physical

specifications for sale in the United States. EPA is considering this

option because it would provide detailed, timely information on each

shipment and allow more accurate compliance determinations. However,

EPA is seeking comments on the potential constraints on trade that a

shipment by shipment permitting system might impose.

Another option EPA is considering would require all importers of

used controlled substances to apply each year for a permit. Such a

permit application would need to be submitted to EPA between November 1

and November 15 in the year prior to the control period for which it

would be applicable. The permit application would include the person's

name and address, their importer identification number, and the

intended quantity of used controlled substance that the person

estimates will be imported during the control period. The estimates

would not be binding, but would provide EPA with information on the

total potential import of used controlled substances for the U.S. for

that year. EPA would need to make a determination within 30 days of the

receipt of an application. If the application is denied due to

insufficient information, the person would have 5 days in which to

appeal the decision. EPA would then have an additional 5 days in which

to deny or grant the permit. If EPA did not act in the 5 days, the

permit would be granted automatically. A person wishing to import used

controlled substances who did not apply for a permit during the

designated time before the control period, may submit an application at

any time during the year. However, EPA would maintain the right to

review the application within 60 days of its receipt. A 60-day review

of the application is justified by the fact that the person is applying

outside of the designated time for processing permits. Any person

receiving a permit outside of the designated time period for

application would be required to apply again for the following control

period, during the designated period.

The importers granted permits for a year would be asked to furnish

information upon the import of each shipment of used controlled

substance. EPA is requesting comment on a list of information

requirements in paragraph B.1. to determine those that best verify that

an imported controlled substance is used. Such information would become

the reporting requirements for each particular shipment for individuals

holding a permit to import used controlled substances.

The yearly permit system described may be easier to implement and

comply with than a permit system for each imported shipment of used

controlled substance. A permit system for each shipment, however, could

provide more detailed information and potential control over each

particular import of used substances. The Agency seeks comments on the

options discussed above and also solicits suggestions on other

approaches for permit requirements that are not burdensome but

adequately ensure that imported used controlled substances are in fact

``used.''

C. Adjustments and Clarifications of the Allowance Program to Become

Effective January 1, 1995

This section describes proposed changes to the current regulation

in an effort to address issues that have arisen since the December 10,

1993 rule. The proposed clarifications in this section are made to

increase the efficiency of the requirements and reduce the

administrative burden for affected individuals and the Agency. The

following paragraphs propose changes to the current rule that would go

into effect January 1, 1995, for the last control period before the

phaseout begins on January 1, 1996.

1. Changes in Requirements for Export to Article 5 Countries

In accordance with the Montreal Protocol, limited production of

controlled substances for export to Article 5 countries may continue

after the phaseout. Specifically, Article 2 of the Protocol allows

Parties to produce beyond the January 1, 1996 phaseout to meet the

basic domestic needs of Article 5 countries. Article 5 countries are

defined by the Parties as developing countries ``whose annual

calculated level of consumption of class I, Group I controlled

substances is less than 0.3 kilograms per capita.'' Article 5 countries

are listed in Appendix E to Subpart A.

Under the current Allowance Program, a company must have production

and consumption allowances before producing a controlled substance for

export to an Article 5 country. Companies with a baseline allocation of

consumption and production allowances for specific controlled

substances currently are given an allocation of potential production

allowances amounting to ten percent of their baseline production

allowances until January 1, 2000, and fifteen percent of baseline

production allowances from January 1, 2000, until January 1, 2011 based

on phaseout dates required by the Clean Air Act (see discussion below

regarding proposed changes in percentage allocations, based on

accelerated phaseout dates). These companies may request the conversion

of these potential production allowances to production allowances after

exporting a controlled substance to an Article 5 country.

Effective January 1, 1995, EPA proposes changing the name of

potential production allowances to Article 5 allowances. In today's

rule, EPA also proposes to eliminate the process for converting

potential production allowances to production allowances beginning

January 1, 1995. This proposed change would eliminate the current

process where companies expend production and consumption allowances

up-front to produce a controlled substance for export to an Article 5

country and, after the export, request the conversion of potential

production allowances to production allowances. The changes are

proposed to anticipate the elimination of production allowances for

class I controlled substances (except methyl bromide) after January 1,

1996, and to ease the administrative burdens created by the current

process.

EPA proposes that beginning January 1, 1995, the Agency assign

Article 5 allowances to companies that have an allocated baseline of

production allowances.\9\ Under the proposed system, a company would

notify the Agency at the end of the quarter in which they exported to

Article 5 countries. EPA would then deduct the amount of controlled

substance exported to Article 5 countries from the balance of Article 5

allowances held by the company, rather than require an application to

convert potential production allowances to production allowances.

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\9\Under a separate Federal Register notice, EPA is allocating

Article 5 allowances for production of methyl bromide (class I,

Group VI) to persons with baseline production allowances.

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The Agency is also proposing to correct the date from which, and

until which, companies may produce 15 percent of baseline allowances

for export to Article 5 countries. CAA section 604(e)(2)(C) permits

production for developing countries to exceed baseline allowances by up

to 15 percent beginning January 1, 2000, and to continue until January

1, 2010 (2012 in the case of methyl chloroform). However, the Protocol

permits production for export to Article 5 countries at 15 percent of

baseline allowances beginning with the phaseout date (January 1, 1994,

for halons, and January 1, 1996, for CFCs, methyl chloroform and carbon

tetrachloride) and continuing for ten years after the Protocol phaseout

(until 2003 for halons and until 2006 for CFCs, methyl chloroform and

carbon tetrachloride). Since the terms of the Protocol are more

stringent than those of the CAA, EPA proposes to permit production of

class I substances for export to Article 5 countries to continue until

2006 (2003 for halons).

At the 1992 London meetings, the Parties agreed that Parties may

produce fifteen percent of baseline production allowances of all class

I controlled substances (except methyl bromide and HBFCs) to meet the

basic domestic needs of Article 5 countries starting from the phaseout

date (January 1, 1994, for halons, and January 1, 1996, for CFCs,

methyl chloroform and carbon tetrachloride). CAA section 604(e)(2)

authorizes production of a class I substance at the production

percentage specified for a given year (see phaseout schedule in Table I

of section A.2. Post-Phaseout Requirements for Essential-Use

Production), plus an amount equal to 10 percent of the baseline

production allowances for export to developing countries. In the year

in which the CAA phases out production of class I controlled

substances, section 604(e)(2)(B) authorizes production of a class I

controlled substance for export to developing countries up to 15

percent of baseline allowances. Under the CAA, production of listed

class I controlled substances terminates on January 1, 2000, except for

methyl bromide on January 1, 2001, and methyl chloroform on January 1,

2002.

CAA section 604(e)(2) permits production based on limits imposed

under section 604(a) plus 10 percent of the baseline allowance. Thus,

in the example cited above for 1996, the CAA authorizes 40 percent of

baseline production for CFC-12 as listed in Table I in this preamble,

plus an additional 10 percent for export to Article 5 countries, for a

total production of 50 percent of total baseline production for that

year. Under today's proposal, because the Protocol phases out

production of CFCs in 1996, up to 50 percent of baseline could be

produced through a combination of destruction credits, transformation

credits, essential use allowances and Article 5 allowances. A person's

total production in 1996 could not exceed 50 percent of baseline

allowances. Of this total production, production for export to Article

5 countries could not exceed 15 percent of baseline allowances as

authorized under the Protocol. In addition, any amount of production in

excess of 40 percent of baseline allowances would have to be for export

to Article 5 countries. This same scenario would pertain to the

production of halons for export to Article 5 countries from 1994. EPA

invites comment on this interpretation.

In proposing today's changes to the procedures for Article 5

allowances, EPA considered the following changes to the provisions for

transfers and conversions in Sec. 82.12. Inter-pollutant transfers of

Article 5 allowances, as currently defined in Sec. 82.12, will continue

to be permitted within the Groups of class I substances listed in

Appendix A and F of Subpart A. Inter-pollutant transfers of Article 5

allowances will continue to require a one percent offset, as required

by section 607 of the CAA and stipulated in the current regulation.

The Agency is also proposing that inter-company transfers of

Article 5 allowances be permitted as currently defined in Sec. 82.12

and inter-Party trades of Article 5 allowances be permitted as

currently described in Sec. 82.9. However, the requirement that the

controlled substance in an inter-Party trade return to the country from

whom the allowances were traded will not apply in the case of Article 5

allowances as stipulated in Sec. 82.9(a)(b)(1)(vi). As an example, if

one Party to the Protocol wants to trade Article 5 allowances to

another Party to achieve improved economies of scale, the controlled

substance produced with the allowances would not need to be returned to

the Party from whom the allowances were traded; instead, the substance

could be sold directly to an Article 5 country. The Agency proposes

maintaining the requirement that the contract contain the statement

that the controlled substance exported to an Article 5 country will

only be used to meet basic domestic needs, as defined by the Montreal

Protocol, and will not be reshipped. In addition, EPA understands that

the Parties to the Protocol are considering, for future discussion,

that reports be sent from the exporter to Article 5 countries

indicating that they should expect to receive a shipment of a specific

quantity of controlled substance. The Parties may discuss requirements

that the exporting company send a copy of the sales contract for an

export to the head of the Montreal Protocol delegation of the Article 5

country or to the stratospheric ozone unit in the Article 5 country.

EPA seeks comments on the proposed changes to the system for

controlling and monitoring exports of controlled substances to Article

5 countries.

2. Administrative Changes to the Consumption Allowance Requirements for

Exports

The current regulation requires that production of controlled

substances for export to Parties meet the requirements for both

consumption and production allowances. The current rule requires

producers to expend both production and consumption allowances to

produce class I controlled substances. If the controlled substance is

then exported to a Party, the producer (or exporter) may request that

EPA ``refund'' consumption allowances equal to the amount exported.

EPA considered not proposing any changes to the administrative

procedures because only one year remains before the phaseout of class I

controlled substances begins on January 1, 1996. However, EPA

recognizes that the administrative process of expending consumption

allowances to produce class I controlled substances for export, with

the subsequent request to have the consumption allowances refunded for

these exported substances, is cumbersome for the producer, especially

at this point in the schedule of the phaseout. In the last control

period before the phaseout (from January 1, 1995 to January 1, 1996),

producers are reducing their production to a fraction of the quantity

they produced in previous years (see schedule for phaseout in

Sec. 82.8).

EPA believes United States companies should be able to respond in a

timely manner to requests for controlled substances. If United States

companies are not able to respond to requests for controlled substances

in a timely manner due to the administrative procedures created by the

current rule, these business opportunities will be lost to foreign

competitors.

According to reports from producers, the time lag between the

expenditure of consumption allowances during production and the receipt

of the refunded consumption allowances for an export can often mean

missing the opportunity to fulfill a request for a controlled

substance. As a result, the Agency is proposing to reduce the time

taken to refund consumption allowances for an exported controlled

substance.

By changing the reporting requirements so companies report earlier

to the Agency, EPA proposes to reduce the time taken to refund the

consumption allowances expended in the production of controlled

substances that are exported. This proposal would permit a U.S. company

to report the export of a controlled substance to a Party at the time

the export is initiated, rather than requiring the producer to submit

the completed bill of lading and the invoice with the request for

additional refunded consumption allowances. This change in the

reporting procedures would allow the company to submit a preliminary

report of export earlier. Therefore, EPA would be able to authorize the

refund of consumption allowances earlier, contingent upon verification

of the export when the company submitted the bill of lading and

invoice. Today's proposal would permit companies to expend the

contingent consumption allowances to meet their production or

importation needs in a more timely manner. The contingent authorization

of consumption allowances will accelerate the time in which companies

receive the allowances, allowing them to meet requests for controlled

substances in a timely manner. Thus, companies will be less constrained

by the time lag caused by current administrative requirements. However,

in the event that documentation submitted by the company does not

support the export, EPA will consider that the granting of the

consumption allowances never occurred, potentially putting the company

in violation of the requirements.

EPA also considered another option in making today's proposal. The

option considered would exempt the production of class I controlled

substances from the consumption allowance requirements, if the

substance is exported to Parties during the one remaining control

period before the phaseout (from January 1, 1995 to January 1, 1996).

This option would include an exemption for methyl bromide from the

consumption allowance requirements for exports beginning January 1,

1995, and extending until January 1, 2001. Producers would be allowed

to produce class I controlled substances for export to a Party with

only the expenditure of production allowances.

Under the second option described above, exports would be exempt

from the requirements to expend consumption allowances. If the producer

is certain that a person purchasing the controlled substance in the

United States would export to a Party, there would be no requirement to

expend consumption allowances in the production of that substance under

this option. The exporter would certify to the producer, either in the

sales agreement or in a letter, that the controlled substance would be

exported. When the producer has no guarantee that the substance would,

or would not, be exported to a Party, they would expend both production

and consumption allowances in producing the controlled substance.

Under the current regulation, a person in the United States may

receive both production and consumption allowances from a Party to the

Protocol in an inter-Party trade (under the Protocol this is called

industrial rationalization). The U.S. company that receives the

allowances from the other Party expends the production and consumption

allowances to produce a controlled substance. The controlled substance

produced with the traded allowances is then exported to the Party from

whom the allowances were traded. The U.S. company expends consumption

allowances in the production of the controlled substance for an inter-

Party trade and then asks EPA for a ``refund'' of these consumption

allowances because the controlled substance was exported.

Due to the redundant cycling of consumption allowances in inter-

Party trades to the United States described above, EPA is also

considering the option that a person not receive additional consumption

allowances through inter-Party trades for the remaining control period

from January 1, 1995, to January 1, 1996. Under this option,

consumption allowances would not be expended in the production of

controlled substances as part of an inter-Party trade. The option of

eliminating consumption allowances for inter-Party trades to the United

States for methyl bromide would begin January 1, 1995, and extend until

January 1, 2001. EPA seeks comments on this considered option to

alleviate administrative requirements for consumption allowances for

the export of controlled substances to Parties to the Protocol.

Today's proposal is to receive a preliminary export report from

U.S. companies at the time they initiate an export and authorize a

contingent refund of consumption allowances with verification conducted

later when the company submits the bill of lading and invoice for the

export. However, the Agency considered two other options for today's

proposed rulemaking: (1) to maintain the status quo requirements and

reporting procedures in the current regulation for the remaining

control period from January 1, 1995 to January 1, 1996, (2) to

eliminate the requirement that consumption allowances be expended if

the controlled substance is produced for export to a Party to the

Protocol. EPA seeks comments on today's proposal and the other options

considered for controlled substances exported to Parties of the

Protocol.

3. Administrative Changes to Production Allowance Requirements for

Exports that are Transformed or Destroyed

EPA is proposing that a person who produces a controlled substance

for exportation to a Party to the Protocol for transformation or

destruction may request from the Agency the refund of the production

allowances expended in the production of the substance. The proposal

pertains to the production of class I controlled substances for the

control period beginning January 1, 1995 and ending January 1, 1996,

except for methyl bromide. For methyl bromide, the proposed refund of

expended production allowances for quantities exported to Parties which

are certified to be for transformation or destruction would begin

January 1, 1995 and extend until January 1, 2001. As with the

procedures for refunding consumption allowances, a person in the U.S.

producing or purchasing a class I controlled substance may, upon export

to a Party for subsequent transformation or destruction, request from

EPA a ``refund'' of production allowances with a certification that the

production allowances were expended in the production of the substance.

To ensure that the controlled substance is in fact transformed or

destroyed by the recipient in a Party country, the Agency is proposing

exporters be required to include in the sales contract a certification

of the future transformation or destruction.

In parallel with the administrative changes proposed in the

previous section for consumption allowances, the Agency proposes

accelerating the procedures for requesting production allowances for

the export of substances that will be transformed or destroyed. This

proposal would permit a U.S. company to report the export of a

controlled substance for transformation or destruction at the time the

export is initiated, rather than requiring a completed bill of lading

and invoice with a certification in order to grant additional

production allowances. EPA would authorize the refund of production

allowances contingent upon verification of the export for

transformation or destruction by the bill of lading and invoice and the

certification of transformation or destruction. The company could

expend the contingent production allowances to meet their production or

importation needs in a timely manner. However, in the event that

documentation submitted by the company does not support the export for

transformation or destruction, EPA will consider that the granting of

the production allowances never occurred, which may mean the company is

in violation if they do not have sufficient production allowances for

the quantity of controlled substances produced.

In making today's proposal, EPA also considered eliminating the

expenditure of production allowances for class I controlled substances

to be exported to Parties of the Protocol for transformation or

destruction. Under this option, the production of all class I

controlled substances explicitly for transformation or destruction in

the U.S. or in a Party after January 1, 1995, would not require the

producer to expend production allowances. The producer would need a

certification of intent to transform or verification of destruction. To

ensure that the controlled substance is transformed or destroyed by the

recipient in a Party country, the Agency would require the exporter to

include a certification of future transformation or destruction in the

sales contract.

EPA seeks comments on today's proposal to allow a person to request

production allowances for the export of class I controlled substances

to Parties for transformation or destruction.

4. Treatment of Controlled Substances Remaining in Emptied Containers,

i.e. ``Heels''

Heels are the amount of a substance remaining in a vessel or

container after the majority is off-loaded or discharged. For example,

when a ship returns from transporting a controlled substance, the

container that held the controlled substance often retains a residue of

the substance. This is known as the heel. Heels can be as much as ten

percent of the volume of a given container. A ship returning with a

heel represents a significant volume of controlled substance returning

to the United States.

Heels are included in the current definition of bulk controlled

substance in the current regulation. Therefore, the current

interpretation of a bulk controlled substance requires ships returning

with a heel to the United States to expend consumption allowances to

import that substance.

EPA proposes amending the current consumption allowance

requirements to exempt heels, effective January 1, 1995. The amended

definition will allow vessels with heels to return to the United States

if the company certifies that certain conditions are met. EPA proposes

that heels be exempted from the consumption allowance requirements if

the company bringing the heel into the United States certifies that the

residual amount will remain in the container and be included in a

future shipment, or recovered and banked for future recycling,

reclamation, transformation, destruction or non-emissive use. The

industry rule-of-thumb is that a heel is up to ten percent of the

volume of the container. Therefore, EPA proposes that containers

returning to the United States with more than ten percent of their

volume filled with controlled substance, and labelled as a heel, be

required to expend consumption allowances to import the substance until

January 1, 1996. After January 1, 1996, a heel that is greater than ten

percent of the volume of the container would require the use of

destruction or transformation credits for the importation for the

amount in excess of ten percent.

The Agency is proposing that persons who bring heels back to the

United States report annually their returns of heels. The Agency will

review this information to determine if the returns of heels is cause

for concern due to volume and frequency of occurrence. Comments are

requested on this issue of exempting heels from the requirements to

expend consumption allowances to import.

5. Clarification of the Definition of Transhipment

Under the current regulation a person who transships a controlled

substance from one foreign country through the United States to another

foreign destination does not need allowances.

In the current regulation, transhipments of controlled substances

are excluded from the limits and requirements for allowances. The

current regulation excludes transhipments from the allowance

requirements consistent with the Decision of the Parties to the

Protocol. However, EPA wishes to further elaborate on the definition of

transhipment.

The request to clarify the definition of transhipment was made by a

company who ships controlled substances through United States ports.

The company brings controlled substances from other countries to United

States ports where the contents of a larger vessel are subdivided into

smaller vessels for shipment to other countries. The question arose

whether this constituted repackaging and therefore was considered an

import and thus subject to the requirements of the regulation. Although

the language of the regulation does not preclude repackaging, the

preamble states that transhipments are shipments of bulk chemicals that

are ``not repackaged within the United States.'' Therefore, the

transfer of a controlled substance from one ship to another while in a

U.S. port could possibly be interpreted to constitute repackaging.

In today's proposal, EPA further clarifies the definition of

transhipment to allow for the transfer of controlled substances between

ships in United States ports as long as the substance does not enter

into United States jurisdiction. In other words, repackaging of

controlled substances that are being transhipped through the United

States, and that do not enter into United States jurisdiction, do not

require the expenditure of allowances. Today's proposal is intended to

clarify that transhipments do not require consumption allowances to be

expended, whether or not the controlled substance is repackaged.

Today's clarification does not change the current rule; and

transhipments are still excluded from the requirements for production

and consumption allowances.

EPA wishes to further clarify the definition of transhipment to

allow for shipments into and out of United States foreign trade zones

and subzones without requiring the expenditure of production or

consumption allowances. Controlled substances that enter United States

foreign trade zones and subzones are not considered to be entering into

United States jurisdiction. EPA seeks comments on the proposed

clarification of the definition of transhipment.

6. Provision of an Account Reconciliation Period

EPA recognizes that as the phaseout enters the final year (1995)

for production and consumption of class I controlled substances (except

methyl bromide), the administrative task increases for a company to

ensure that it has a balance of allowances at the end of the year. This

is particularly difficult given the need to meet requirements for each

controlled substance and to reconcile transformations, destructions,

exports, imports and production. Several companies that produce,

import, export, transform or destroy controlled substances have

requested a period in which to reconcile all previous transactions in a

year.

EPA is proposing an administrative change to ease the end-of-year

burden of reconciling the balance of allowances without changing the

level of environmental protection provided by the regulation. To ease

this burden, EPA is proposing a 45-day period of reconciliation beyond

the end of the control period in which persons may make inter-pollutant

transfers of class I controlled substances as defined in the current

regulation. Inter-pollutant transfers of controlled substances can only

be made between controlled substances in the same Group as listed in

Appendix A and F of Subpart A. In addition, the inter-pollutant

transfer must be authorized by EPA and will include a one percent

offset. The Agency is proposing that inter-company trades not be

allowed past the end of the control period (December 31st of 1995), and

every subsequent control period for methyl bromide. The proposal allows

for a potential net environmental benefit and greater flexibility for

end-of-control-period compliance.

The proposed reconciliation period is being limited only to inter-

pollutant transfers, in part, to provide a margin of latitude for

companies in the final year of the phaseout when balancing production

and consumption allowances at the end of year is important before

closing the books. For many companies, the final year will be

particularly difficult because there is less margin of error afforded

in the amount of allowances provided for imports and production. Inter-

pollutant transfers at the end of the control period are intra-company

adjustments to the balance of allowances through paper accounting

rather than an extension of the control period for trades, exports or

transfers between companies. EPA seeks comments on the proposed period

for the reconciliation of these specific allowances at the end of the

control period.

7. Additional Clarifications

a. Unintended by-products of research and development. EPA proposes

adding the production of unintended by-products of research and

development applications to the list of inadvertent or coincidental

creation of insignificant quantities of listed substances in Appendix A

or Appendix B in the definition of ``controlled substance.'' The Agency

is proposing that these inadvertent or coincidental creations of

insignificant quantities of unintended by-products during research and

development applications not be considered controlled substances. The

Agency believes that an unintended by-product a substance generated

during research and development can be considered an inadvertent

creation of a controlled substance. In addition, EPA received

information from various companies that the amounts generated during

research and development applications are generally insignificant

quantities. The Agency reserves the right to require a person to

destroy the unintended by-products of research and development

applications if they are determined to be no longer insignificant.

b. Export of increased production that is received through a trade

from a party. EPA proposes removing the requirements under

Sec. 82.9(b)(vi) and Sec. 82.10(c)(3) that compel increased production

to return to the Party from whom a U.S. producer receives additional

production or consumption allowances through an international trade. As

a result of this proposal, U.S. companies could receive allowances

through an international trade to produce for either the demand within

the country from whom the allowances were traded or for the demand in

the U.S. domestic market. The proposal would permit greater

international market flexibility without increasing global production

of ozone-depleting substances. EPA believes that U.S. producers will

need greater flexibility to meet domestic demand as they enter the

final year before the production of class I controlled substances is

phased out (January 1, 1996). Sections 82.9 and 82.10 of the current

regulation permit international trades in accordance with the

Protocol's definition of ``international rationalization'' as discussed

in the Federal Register proposed rule published on December 14, 1987.

Today's proposal would further support international rationalization by

increasing opportunities for achieving ``economic efficiencies''

globally. Achieving these economic efficiencies is particularly

important as all Parties continue to reduce production prior to the

phaseout in 1996. EPA seeks comments on the proposed amendment that

would allow international trades from Parties to meet market demand for

class I controlled substances within the United States.

8. Clarification of Reporting and Recordkeeping Requirements

EPA is proposing amendments to the current recordkeeping and

reporting requirements to more effectively address issues that have

arisen and are likely to arise as the phaseout date is near and for the

period following the end of production of class I controlled substances

in the United States. In addition, EPA proposes to amend reporting and

recordkeeping requirements to reflect the proposed changes discussed

earlier.

a. Reporting and recordkeeping for transformation and destruction.

As with the earlier section describing transformation and destruction

(Section A.1.), this section distinguishes between the different

categories of recordkeeping and reporting requirements for producers,

importers, transformers and destroyers.

EPA is proposing that the administrative changes to the

recordkeeping and reporting requirements for transformation and

destruction be effective January 1, 1995. The changes are made to

reduce redundancy and clarify the responsibilities of companies that

produce or import substances that are transformed or destroyed, as well

as the responsibilities of transformers or destroyers controlled

substances (see paragraph A.1. of this proposed rule). EPA is proposing

changes to the recordkeeping and reporting requirements for importers

to address issues of importation of used, recycled or reclaimed

controlled substances. These proposed recordkeeping and reporting

requirements for importers are described in greater detail in Section

C.7.c., Recordkeeping and Reporting for Imports.

(i) Reporting and recordkeeping requirements for producers and

importers of controlled substances that were produced or imported

explicitly for transformation or destruction in the United States.

Today's proposal does not change the recordkeeping and reporting

requirements for persons who produce controlled substances that are

explicitly for transformation or destruction within the United States.

Although EPA is proposing changes to the recordkeeping and reporting

requirements for importers to address issues of importation of used,

recycled or reclaimed controlled substances (described in greater

detail in Section C.7.c., Recordkeeping and Reporting for Imports),

there are no changes to the requirements for importing controlled

substances that are explicitly for transformation or destruction.

Under the current regulation, companies that produce or import

controlled substances explicitly for destruction or transformation in

the United States are required to maintain records and to report to EPA

quarterly. The producers and importers must report quarterly the

``amount of controlled substances sold or transferred during the

quarter to a person for use in processes resulting in their

transformation or destruction,'' and submit the IRS transformation

certification or destruction verification. Producers and importers must

also report quarterly on the quantity that they themselves transform or

destroy in the quarter.

(ii) Reporting and recordkeeping requirements for producers and

importers of controlled substances that were produced or imported for

intended emissive uses but subsequently transformed or destroyed.

Today's proposal does not change these requirements regarding

controlled substances sold for intended emissive uses that are

subsequently transformed or destroyed.

The current regulation requires producers and importers to report

on controlled substances sold for emissive uses. However, the current

rule does not require producers or importers to maintain records or

report to the Agency on the subsequent transformation or destruction of

controlled substances initially produced for emissive uses. Once the

controlled substance is sold for an emissive use the producer or

importer is no longer responsible for informing the Agency of its

subsequent disposition, whether it be for emissive use, for

transformation, or, for destruction.

(iii) Reporting and recordkeeping requirements for transformers and

destroyers of controlled substances that were produced or imported

explicitly for transformation or destruction. The Agency is not

proposing changes to the recordkeeping and reporting requirements for

those persons who transform or destroy controlled substances that were

produced or imported explicitly for transformation or destruction. The

transformers will continue to submit an IRS certification of intent to

transform to the producer or importer and the destroyers will continue

to submit a destruction verification to the producer or importer. Those

transformers and destroyers who submit a certification or verification

must continue to report annually to EPA as in the current regulation

under Sec. 82.13(m). The Agency verifies the transformation or

destruction of controlled substances that were explicitly produced or

imported for transformation or destruction through this annual

reporting.

The current regulation requires all companies that destroy or

transform controlled substances, regardless of whether or not they were

produced or imported explicitly for transformation or destruction, to

maintain records and to report to EPA the amounts of substances

destroyed or transformed within 45-days of the end of the control

period (annually). Facilities that transform or destroy controlled

substances that were explicitly produced or imported for transformation

or destruction must submit an IRS certificate of intent to transform or

a destruction verification to the producer when the substance is sold

or transferred. The producer reports to EPA quarterly the quantities

sold or transferred for transformation or destruction with a copy of

the IRS transformation certification or the destruction verification.

EPA requires the information from both the producer/importer and the

transformer/destroyer to crosscheck and verify the quantity of

controlled substances claimed to be produced or imported without

expended allowances explicitly because it was for transformation or

destruction.

(iv) Reporting and recordkeeping requirements for transformers of

controlled substances produced or imported for intended emissive uses.

Under the current regulation, a person who transforms a controlled

substance that was produced for intended emissive uses may request

additional production allowances or consumption allowances from the

Agency. The current regulation lists the information the Agency must

receive to consider a request for additional production allowances in

Sec. 82.9(c) and for additional consumption allowances in

Sec. 82.10(b). A person may only request additional production

allowances and consumption allowances for the transformation of class I

controlled substances (except methyl bromide) that were produced for

intended emissive uses during the remaining control period from January

1, 1995, to January 1, 1996. A person transforming methyl bromide that

was produced for intended emissive uses may request additional

production and/or consumption allowances until January 1, 2001.

EPA proposes waiving the annual reporting requirement for

transformation facilities that receive controlled substances that were

produced or imported for intended emissive uses, as long as the

facility does not request from EPA additional production or consumption

allowances before January 1, 1996, and does not request transformation

credits after January 1, 1996. If a person transforms a controlled

substance produced or imported for intended emissive use for which

additional production or consumption allowances are requested from EPA

during the control period from January 1, 1995, until January 1, 1996,

or for which transformation credits are requested from the Agency after

January 1, 1996, the transformer must report to the Agency the name and

quantity of substance transformed at the end of the control period.

The proposed recordkeeping and reporting requirements for a

transformer who requests transformation credits (beginning after

January 1, 1996) are similar to the current requirements for obtaining

additional production allowances as listed under Sec. 82.9(c).

Effective January 1, 1996, a person who transforms a class I controlled

substance (except methyl bromide) that was produced or imported for

intended emissive use may submit specific information to EPA requesting

transformation credits (see Section A.1.c., ``The Post-Phaseout

Procedures for Granting Destruction or Transformation Credits). The

following information must be submitted to request transformation

credits:

--The identity and address of the person requesting the credits;

--The name, quantity, and volume of controlled substance transformed;

--A copy of the invoice or receipt documenting the sale of the

controlled substance to the person;

--The name of the use system from which the controlled substance was

recovered;

(v) Reporting and recordkeeping requirements for destroyers of

controlled substances produced or imported for intended emissive uses.

Under the current regulation, all facilities that destroy controlled

substances that were produced or imported for intended emissive uses

are required to report the names and quantities of class I substances

destroyed within 45-days of the end of the control period. In addition,

these destroyers may request additional production allowances and/or

consumption allowances from EPA under the current regulation in

Sec. 82.9(c) and Sec. 82.10(b).

EPA proposes waiving the annual reporting requirement for

destruction facilities that receive controlled substances that were

produced or imported for intended emissive uses, as long as the

facility does not request from EPA additional production or consumption

allowances before January 1, 1996, and does not request destruction

credits after January 1, 1996. However, if a person destroys a

controlled substance produced or imported for intended emissive use for

which additional production or consumption allowances are requested

from EPA during the control period from January 1, 1995, until January

1, 1996, or for which destruction credits are requested from the Agency

after January 1, 1996, the destroyer must report to the Agency the name

and quantity of substances destroyed at the end of the control period.

The recordkeeping and reporting requirements for a destroyer who

requests destruction credits (beginning after January 1, 1996) are

similar to the information now required for additional production

allowances as listed under Sec. 82.9(c). Effective January 1, 1996, a

person who destroys a class I controlled substance (except methyl

bromide) that was produced or imported for intended emissive use may

submit specific information to EPA requesting destruction credits (see

Section A.1.c. for a description of the ``The Post-Phaseout Procedures

for Granting Destruction and Transformation Credits''). The information

someone must submit to request destruction credits is:

--The identity and address of the person requesting the credits;

--The name, quantity, and volume of controlled substance destroyed;

--A copy of the invoice or receipt documenting the sale of the

controlled substance to the person;

--The name of the use system from which the controlled substance was

recovered;

--The efficiency of the destruction process.

(vi) Recordkeeping and reporting for exporters of controlled

substances that are transformed or destroyed. The current regulation

has no specific recordkeeping or reporting requirements for exporters

of controlled substances that are transformed or destroyed. All

exporters of controlled substances, regardless of whether the substance

is exported for an intended emissive use, for transformation or for

destruction, must submit the information listed under Sec. 82.13(h) to

the Agency annually.

Today's proposal includes procedures for refunding expended

production allowances for controlled substances exported for

transformation or destruction in the final control period. A person who

requests additional production allowances for controlled substances

exported for transformation or destruction must submit the same

information required under the current rule for persons requesting

additional consumption allowances in Sec. 82.10(a):

--The identities and addresses of the exporter and the recipient of the

exports;

--The exporter's Employer Identification Number;

--The names and telephone numbers of contact person for the exporter

and recipient;

--The quantity and type of controlled substance exported;

--The source of the controlled substance and the date purchased;

--The date on which and port from which the controlled substances are

exported from the United States or its territories;

--The country to which the controlled substances were exported;

--The bill of lading and the invoice indicating the net quantity of

controlled substances shipped and documenting the sale of the

controlled substances to the purchaser for either transformation or

destruction;

--The commodity code of the controlled substance exported.

In today's proposal, EPA wishes to accelerate the time when

exporters of controlled substances to Parties can submit forms for the

``refund'' of consumption allowances, whether or not the substance is

for transformation or destruction or for an emissive use. EPA is

proposing that exporters submit the current ``Request for Additional

Consumption Allowances'' form at the initiation of the export of a

specific quantity of controlled substance to a Party rather than wait

until a completed bill of lading and invoice are prepared. The proposed

change accelerates the time taken to grant consumption allowances for

exports. EPA proposes that the consumption allowances be granted for

the quantity of controlled substance exported, with confirmation

contingent upon receipt of the bill of lading and invoice. Granting of

the consumption allowances will be confirmed upon review of the bill of

lading and invoice. Such allowances may be used at the time granted,

prior to confirmation. In the event, however, that EPA determines that

the controlled substances are not exported for whatever reason, then

EPA will consider that allowances were expended by the producer for the

production of the controlled substance and the consumption allowances

were never granted. Without the consumption allowances, the producer

may have a negative balance, at which time the producer will be out of

compliance.

b. Reporting and recordkeeping for essential uses. Today's proposal

creates a new category of allowances called essential-use allowances in

anticipation of the special exemptions that Parties to the Protocol

will most likely approve for essential-use production after January 1,

1996.

In today's rule, EPA is proposing that the final allocation of

essential-use allowances be published in the final rule based on the

Decisions of the Parties at their meeting in October of 1994. Once the

Parties have reached a final Decision in this first round of essential-

uses designations, EPA will propose allocations of essential-use

allowances that parallel the specific quantities of a controlled

substance for the specific uses as nominated by specific U.S. entities

to the Protocol.

EPA is proposing a system whereby deductions will be made from the

control period allocations of essential-use allowances based on

quarterly reports submitted by producers and the recipient of the

essential-use allowances.

The producer or importer of controlled substances for essential

uses must maintain, under today's proposal, the following records: (i)

The letter conferring the essential-use allowances from the recipient

of the allowances certifying that the controlled substance will be used

only for the specified essential-use, and (ii) in the case of

essential-use production for laboratory or analytical use, a

certification from the laboratories that the quantity of the specific

substance purchased will be used only for laboratory/analytical

applications and will not be resold.

EPA is also proposing that the producers and importers of

controlled substances for essential uses submit the following

information to the Agency quarterly: (i) A list of the labs and

essential-use allowance holders for whom specific controlled substances

were produced or imported during the quarter, (ii) the name and

quantity of the controlled substance produced or imported for each lab

and essential-use allowance recipient.

To verify and crosscheck that essential-use allowances were

conferred and that the controlled substance was delivered, EPA is

proposing that the original recipients of essential-use allowances

submit quarterly a list of the producers or importers to whom they

transferred allowances and the quantity of the specific controlled

substance that will be, or was, delivered. Those persons purchasing

controlled substances under the global exemption for labs must provide

the producer or importer with a detailed description of the analytical

procedures requiring the substance with references to published

instructions, standards, or specifications.

c. Reporting and recordkeeping for importers. EPA is proposing a

clarification of the reporting and recordkeeping for importers to

include the entry of virgin and ``off-spec'' virgin controlled

substances under current requirements in order to forestall those

mislabelled as used, recycled or reclaimed controlled substance (the

issue raised in Section B. ``Imports of Used or Recycled Controlled

Substances,'' of this preamble). EPA is proposing that importers in

general, including importers of used, recycled or reclaimed controlled

substances, be required to maintain records on the items included in

Section B. of this preamble that are included in the final rule. In

addition, EPA is proposing that the current quarterly reports from

importers differentiate between quantities of imported virgin

substances and imported substances that are used, recycled or

reclaimed.

EPA is also proposing that, at the point of entry into U.S.

jurisdiction, importers of used refrigerant provide documentation (or

verification) of the reclamation facility where the controlled

substance will be sent before it is sold within the United States. In

accordance with the regulation published in the Federal Register on May

14, 1993, (40 CFR Part 82) no class I or class II controlled substance

may be sold or offered for sale for use as a refrigerant unless it has

been reclaimed to the ARI-700 Standard (Sec. 82.154). Therefore, EPA is

proposing that importers of used or recycled controlled substances

(including halons) provide information regarding the facility at which

the substance will be reclaimed. The proposal asks for information that

should be readily available to the importer because it is required by

40 CFR Part 82. By asking the importer to name the point of

reclamation, EPA hopes to deter the immediate sale of virgin or off-

spec virgin controlled substances that are mislabelled as imported used

or recycled substances.

To deter the import of virgin or off-spec virgin controlled

substances that are mislabelled as reclaimed, EPA is proposing that

importers identify, at the point of entry into U.S. jurisdiction, the

name and address of the overseas reclamation facility to verify that

the substance was indeed previously used and reclaimed. There are a

limited number of reclamation facilities for controlled substances

worldwide, and as a Party to the Protocol, the United States can

identify those Parties capable of reclamation. Through the continued

cooperation with U.S. Customs, EPA plans to develop coordinated

procedures for reviewing import documents at the point of entry into

U.S. Customs territory that will identify controlled substances

suspected of being mislabelled virgin or off-spec virgin entering the

U.S. as used, recycled or reclaimed.

The specific reporting requirements (in addition to any

recordkeeping requirements that may be established under Section B. of

this preamble) that EPA is proposing, which would accompany the bill of

lading and the bill of sale for the import of used, recycled or

reclaimed controlled substances, are:

(i) For imports of used or recycled controlled substance, the

previous use of each substance, and the intended reclamation

destination of the controlled substances in the United States, or

(ii) For imports of reclaimed controlled substances, the country of

origin of the used controlled substance, and the foreign reclamation

facility (reclamation equipment used) where the substance was

reclaimed.

d. Reporting and recordkeeping for article 5 exports. The current

regulation asks producers to report quarterly on the amount of

potential production allowances that are converted to production

allowances and the amount of unexpended potential production

allowances. Today's proposal changes the name of potential production

allowances to Article 5 allowances but does not change the reporting

requirements. Instead of requiring the quarterly reporting of converted

and unexpended potential production allowances, today's proposal

requires the producer to indicate the amount of Article 5 allowances

expended quarterly in production for export to Article 5 countries.

Today's proposed amendments to the recordkeeping and reporting

requirements are made to anticipate the phaseout of class I controlled

substances (except methyl bromide) in January 1, 1996. EPA proposes

simplifying the quarterly reporting beginning January 1, 1996, so that

producers indicate which of the production exceptions applies (i.e.,

essential-use allowances, Article 5 allowances, destruction credits,

transformation credits, transformation or destruction) for a given

quantity of controlled substance. EPA is proposing many of the changes

to the requirements to address issues and concerns raised by industry

regarding the maintenance of a transparent and openly competitive

market in controlled substances during the transition to the phaseout.

EPA requests comments on today's proposed amendments to the

recordkeeping and reporting requirements.

III. Summary of Supporting Analysis

A. Executive Order 12866

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the

Agency must determine whether this regulatory action is ``significant''

and therefore subject to OMB review and the requirements of the

Executive Order. The Order defines ``significant'' regulatory action as

one that is likely to lead to a rule that may:

(1) have an annual effect on the economy of $100 million or

more, or adversely and materially affect a sector of the economy,

productivity, competition, jobs, the environment, public health or

safety, or State, local, or tribal governments or communities;

(2) create a serious inconsistency or otherwise interfere with

an action taken or planned by another agency;

(3) materially alter the budgetary impact of entitlement,

grants, user fees, or loan programs or the rights and obligations of

recipients thereof; or

(4) raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

the Executive Order.

It has been determined by OMB and EPA that this proposed amendment

to the final rule is not a ``significant regulatory action'' under the

terms of Executive Order 12866 and is therefore not subject to OMB

review under the Executive Order.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601-602, requires that

Federal agencies examine the impacts of their regulations on small

entities. Under 5 U.S.C. 604(a), whenever an agency is required to

publish a general notice of proposed rulemaking, it must prepare and

make available for public comment an initial regulatory flexibility

analysis (RFA). Such an analysis is not required if the head of an

agency certifies that a rule will not have a significant economic

impact on a substantial number of small entities, pursuant to 5 U.S.C.

605(b).

The Agency originally published an RFA to accompany the August 12,

1998 final rule (53 FR 30566) that placed the initial limits on the

production and consumption of CFCs and halons. That RFA was also

updated as Appendix G of the Regulatory Impact Analysis for the

regulations implementing the phaseout schedule of section 604 of the

Clean Air Act Amendments of 1990. The Addendum to the Regulatory Impact

Analysis was further updated in 1993 to examine the impact of the

acceleration of the phaseout and the phaseout of HCFCs on small

businesses. The analysis in the Addendum indicated that the actions

were not expected to have a substantial impact on small entities.

Today's proposed amendments to the current regulation do not

significantly change the current requirements, and in many cases reduce

reporting or recordkeeping burdens that might possibly impact small

businesses. However, almost all businesses participating in the

phaseout program for ozone-depleting substances are large companies.

Therefore, today's proposed amendments are expected to have minimal if

any impact on small entities.

Under section 605 of the Regulatory Flexibility Act, 5 U.S.C. 605,

I certify that the regulation promulgated in this notice will not have

any additional negative economic impacts on any small entities.

C. Paperwork Reduction Act

The information collection requirements in this proposed rule have

been submitted for approval to the Office of Management and Budget

(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et. seq. An

Information Collection Request document has been prepared by EPA (ICR

No. 1432.15) and a copy may be obtained from Sandy Farmer, Information

Policy Branch, U.S. EPA, 401 M St., SW., (2136), Washington, DC 20460

or by calling (202)-260-2740.

The information collection requirements for this proposed action

has an estimated reporting burden averaging 23.3 hours per response.

This estimate includes time for reviewing instructions, searching

existing data sources, gathering and maintaining the data needed and

completing the collection of information.

Send comments regarding the burden estimate of any other aspect of

this collection of information, including suggestions for reducing this

burden to Chief, Information Policy Branch, U.S. EPA, 401 M St., SW.,

(2316), Washington, DC 20503, marked ``Attention: Desk Officer for

EPA.'' The final rule will respond to any OMB or public comments on the

information collection requirements contained in this proposal.

List of Subjects in 40 CFR Part 82

Administrative practice and procedure, Air pollution control,

Chemicals, Chlorofluorocarbons, Exports, Hydrochlorofluorocarbons,

Imports, Ozone layer, Reporting and recordkeeping requirements,

Stratospheric ozone layer.

Dated: October 25, 1994.

Carol M. Browner,

Administrator.

40 CFR Part 82 is proposed to be amended as follows:

PART 82--PROTECTION OF STRATOSPHERIC OZONE

1. The authority citation for part 82 continues to read as follows:

Authority: 42 U.S.C. 7414, 7671-7671q.

2. Subpart A is revised to read as follows:

Subpart A--Production and Consumption Controls

Sec.

82.1 Purpose and scope.

82.2 Effective date.

82.3 Definitions.

82.4 Prohibitions.

82.5 Apportionment of baseline production allowances.

82.6 Apportionment of baseline consumption allowances.

82.7 Grant and phased reduction of baseline production and

consumption allowances for class I controlled substances.

82.8 Grant and freeze of baseline production and consumption

allowances for class II controlled substances. [Reserved]

82.9 Availability of production allowances in addition to baseline

production allowances.

82.10 Availability of consumption allowances in addition to

baseline consumption allowances.

82.11 Exports to Article 5 Parties.

82.12 Transfers.

82.13 Recordkeeping and reporting requirements.

Appendix A to Subpart A--Class I Controlled Substances

Appendix B to Subpart A--Class II Controlled Substances

Appendix C to Subpart A--Parties to the Montreal Protocol and

Nations Complying with, but Not Parties to, the Protocol

Appendix D to Subpart A--Harmonized Tariff Schedule

Description of Products That May Contain Controlled Substances in

Appendix A to Subpart A, Class I, Groups I and II

Appendix E to Subpart A--Article 5 Parties

Appendix F to Subpart A--Listing of Ozone Depleting Chemicals

Appendix G to Subpart A--UNEP Recommendations for Conditions

Applied to Exemption for Laboratory and Analytical Uses

Appendix H to Subpart A--Clean Air Act Amendments of 1990

Phaseout Schedule for Production of Ozone-Depleting Substances

Subpart A--Production and Consumption Controls

Sec. 82.1 Purpose and scope.

(a) The purpose of the regulations in this subpart is to implement

the Montreal Protocol on Substances that Deplete the Ozone Layer and

sections 603, 604, 605, 606, 607 and 616 of the Clean Air Act

Amendments of 1990, Public Law 101-549. The Protocol and section 604

impose limits on the production and consumption (defined as production

plus imports minus exports, excluding transhipments and used controlled

substances) of certain ozone-depleting substances, according to

specified schedules. The Protocol also requires each nation that

becomes a Party to the agreement to impose certain restrictions on

trade in ozone-depleting substances with non-Parties.

(b) This subpart applies to any person that produces, transforms,

destroys, imports or exports a controlled substance or imports a

controlled product.

Sec. 82.2 Effective date.

(a) The regulations under this subpart take effect January 1, 1995,

unless otherwise noted herein.

(b) The regulations under this subpart that were effective prior to

[date of publication of the final rule] continue to apply for purposes

of enforcing the provisions that were applicable prior to January 1,

1995.

Sec. 82.3 Definitions.

As used in this subpart, the term:

Administrator means the Administrator of the Environmental

Protection Agency or his authorized representative.

Article 5 allowances means the allowances apportioned under

Sec. 82.9(a) of this subpart.

Baseline consumption allowances means the consumption allowances

apportioned under Sec. 82.6 of this subpart.

Baseline production allowances means the production allowances

apportioned under Sec. 82.5 of this subpart.

Calculated level means the weighted amount of a controlled

substance determined by multiplying the amount (in kilograms) of the

controlled substance by that substance's ozone depletion weight listed

in Appendix A or Appendix B to this subpart.

Class I refers to the controlled substances listed in Appendix A to

this subpart.

Class II refers to the controlled substances listed in Appendix B

to this subpart.

Completely destroy means to cause the expiration of a controlled

substance at a destruction efficiency of 98 percent or greater, using

one of the destruction technologies approved by the Parties.

Complying with the Protocol, when referring to a foreign state not

Party to the 1987 Montreal Protocol, the London Amendments, or the

Copenhagen Amendments, means that the non-Party has been determined as

complying with the Protocol, as indicated in Appendix C to this

subpart, by a meeting of the Parties as noted in the records of the

directorate of the United Nations Secretariat.

Consumption means the production plus imports minus exports of a

controlled substance (other than transhipments, or used controlled

substances).

Consumption allowances means the privileges granted by this subpart

to produce and import class I controlled substances; however,

consumption allowances may be used to produce class I controlled

substances only in conjunction with production allowances. A person's

consumption allowances are the total of the allowances obtained under

Secs. 82.7 and 82.6 of this subpart and Sec. 82.10 of this subpart, as

may be modified under Sec. 82.12 of this subpart (transfer of

allowances).

Control period means the period from January 1, 1992 through

December 31, 1992, and each twelve-month period from January 1 through

December 31, thereafter.

Controlled product means a product that contains a controlled

substance listed as a Class I, Group I or II substance in appendix A to

this subpart. Controlled products include, but are not limited to,

those products listed in appendix D to this subpart. Controlled

products belong to one or more of the following six categories of

products:

(1) Automobile and truck air conditioning units (whether

incorporated in vehicles or not);

(2) Domestic and commercial refrigeration and air-conditioning/heat

pump equipment (whether containing controlled substances as a

refrigerant and/or in insulating material of the product), e.g.

Refrigerators, Freezers, Dehumidifiers, Water coolers, Ice machines,

Air-conditioning and heat pump units;

(3) Aerosol products, except medical aerosols;

(4) Portable fire extinguishers;

(5) Insulation boards, panels and pipe covers;

(6) Pre-polymers.

Controlled substance means any substance listed in appendix A or

appendix B to this subpart, whether existing alone or in a mixture, but

excluding 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. Thus, any amount of a listed substance in

appendix A or appendix B to this subpart that is not part of a use

system containing the substance is a controlled substance. If a listed

substance or mixture must first be transferred from a bulk container to

another container, vessel, or piece of equipment in order to realize

its intended use, the listed substance or mixture is a ``controlled

substance.'' The inadvertent or coincidental creation of insignificant

quantities of a listed substance in appendix A or appendix B to this

subpart; during a chemical manufacturing process; resulting from

unreacted feedstock; from the listed substance's use as a process agent

present as a trace quantity in the chemical substance being

manufactured; or as an unintended byproduct of research and development

applications, is not deemed a controlled substance. Controlled

substances are divided into two classes, Class I in appendix A to this

subpart, and Class II listed in appendix B to this subpart. Class I

substances are further divided into seven groups, Group I, Group II,

Group III, Group IV, Group V, Group VI, and Group VII, as set forth in

appendix A to this subpart.

Copenhagen Amendments means the Montreal Protocol on Substances

That Deplete the Ozone Layer, as amended at the Fourth Meeting of the

Parties to the Montreal Protocol in Copenhagen in 1992.

Destruction means the expiration of a controlled substance to the

destruction efficiency actually achieved, unless considered completely

destroyed as defined in this section. Such destruction does not result

in a commercially useful end product and uses one of the following

controlled processes approved by the Parties to the Protocol:

(1) Liquid injection incineration;

(2) Reactor cracking;

(3) Gaseous/fume oxidation;

(4) Rotary kiln incineration; or

(5) Cement kiln.

Destruction Credits means those privileges that may be obtained

under Sec. 82.9 of this subpart to produce or import controlled

substances.

Emissive Use means that use of a controlled substance that does not

result in the transformation or destruction of the controlled substance

as defined in this subpart.

Essential-Uses means those uses of controlled substances designated

by the Parties to the Protocol to be necessary for the health and

safety of, or critical for the functioning of, society; and for which

there are no available technically and economically feasible

alternatives or substitutes that are acceptable from the standpoint of

environment and health. Beginning January 1, 2000 (January 1, 2002 for

methyl chloroform) the essential use designations for class I

substances must be made in accordance with the provisions of the Clean

Air Act Amendments of 1990.

Essential-Use Allowances means the privileges granted by

Sec. 82.4(o) of this subpart to produce class I substances, effective

January 1, 1996 until January 1, 2000, as determined by allocation

decisions made by the Parties to the Montreal Protocol and in

accordance with the restrictions delineated in the Clean Air Act

Amendments of 1990.

Export means the transport of virgin or used controlled substances

from inside the United States or its territories to persons outside the

United States or its territories, excluding United States military

bases and ships for on-board use.

Exporter means the person who contracts to sell controlled

substances for export or transfers controlled substances to his

affiliate in another country.

Facility means any process equipment (e.g., reactor, distillation

column) used to convert raw materials or feedstock chemicals into

controlled substances or consume controlled substances in the

production of other chemicals.

Foreign state means an entity which is recognized as a sovereign

nation or country other than the United States of America (Taiwan is

not considered a foreign state).

Foreign state not Party to or Non-Party means a foreign state that

has not deposited instruments of ratification, acceptance, or other

form of approval with the Directorate of the United Nations

Secretariat, evidencing the foreign state's ratification of the

provisions of the 1987 Montreal Protocol, the London Amendments, or of

the Copenhagen Amendments, as specified.

Heel means the amount of a controlled substance that remains in a

container after it is discharged or off-loaded (that is no more than

ten percent of the volume of the container) and that the person owning

or operating the container certifies will remain in the container and

be included in a future shipment or recovered and banked for future

recycling, reclamation, transformation, destruction or for non-emissive

purposes.

Import means to land on, bring into, or introduce into, or attempt

to land on, bring into, or introduce into any place subject to the

jurisdiction of the United States whether or not such landing,

bringing, or introduction constitutes an importation within the meaning

of the customs laws of the United States, with the following

exemptions:

(1) Off-loading used or excess controlled substances or controlled

products from a ship during servicing,

(2) Bringing controlled substances into the U.S. from Mexico where

the controlled substance had been admitted into Mexico in bond and was

of U.S. origin; and

(3) Bringing a controlled product into the U.S. when transported in

a consignment of personal or household effects or in a similar non-

commercial situation normally exempted from U.S. Customs attention.

Importer means any person who imports a controlled substance or a

controlled product into the United States. ``Importer'' includes the

person primarily liable for the payment of any duties on the

merchandise or an authorized agent acting on his or her behalf. The

term also includes, as appropriate:

(1) The consignee;

(2) The importer of record;

(3) The actual owner; or

(4) The transferee, if the right to draw merchandise in a bonded

warehouse has been transferred.

London Amendments means the Montreal Protocol, as amended at the

Second Meeting of the Parties to the Montreal Protocol in London in

1990.

Montreal Protocol means the Montreal Protocol on Substances that

Deplete the Ozone Layer, a protocol to the Vienna Convention for the

Protection of the Ozone Layer, including adjustments adopted by the

Parties thereto and amendments that have entered into force.

1987 Montreal Protocol means the Montreal Protocol, as originally

adopted by the Parties in 1987.

Nations complying with, but not joining, the Protocol means any

nation listed in appendix C, Annex 2, to this subpart.

Party means any foreign state that is listed in appendix C to this

subpart (pursuant to instruments of ratification, acceptance, or

approval deposited with the Depositary of the United Nations

Secretariat), as having ratified the specified control measure in

effect under the Montreal Protocol. Thus, for purposes of the trade

bans specified in Sec. 82.4(h)(2) pursuant to the London Amendments,

only those foreign states that are listed in appendix C to this subpart

as having ratified both the 1987 Montreal Protocol and the London

Amendments shall be deemed to be Parties.

Person means any individual or legal entity, including an

individual, corporation, partnership, association, state, municipality,

political subdivision of a state, Indian tribe; any agency, department,

or instrumentality of the United States; and any officer, agent, or

employee thereof.

Plant means one or more facilities at the same location owned by or

under common control of the same person.

Production means the manufacture of a controlled substance from any

raw material or feedstock chemical, but does not include:

(1) The manufacture of a controlled substance that is subsequently

transformed;

(2) The reuse or recycling of a controlled substance;

(3) Amounts that are destroyed by the approved technologies; or

(4) Amounts that are spilled or vented unintentionally.

Production allowances means the privileges granted by this subpart

to produce controlled substances; however, production allowances may be

used to produce controlled substances only in conjunction with

consumption allowances. A person's production allowances are the total

of the allowances he obtains under Sec. 82.7 and Sec. 82.5 of this

subpart and Sec. 82.9 of this subpart, and as may be modified under

Sec. 82.12 of this subpart (transfer of allowances).

Transform means to use and entirely consume (except for trace

quantities) a controlled substance in the manufacture of other

chemicals for commercial purposes.

Transformation Credits means those privileges that may be obtained

under Sec. 82.9 of this subpart to produce or import controlled

substances.

Transhipment means the continuous shipment of a controlled

substance from a foreign state of origin through the United States, its

territories, or foreign trade zones, including possible repackaging, to

a second foreign state of final destination, as long as the shipment

does not enter into United States jurisdiction.

Unexpended consumption allowances means consumption allowances that

have not been used. At any time in any control period a person's

unexpended consumption allowances are the total of the level of

consumption allowances the person has authorization under this subpart

to hold at that time for that control period, minus the level of

controlled substances that the person has produced or imported (not

including transhipments and used controlled substances) in that control

period until that time.

Unexpended production allowances means production allowances that

have not been used. At any time in any control period a person's

unexpended production allowances are the total of the level of

production allowances he has authorization under this subpart to hold

at that time for that control period, minus the level of controlled

substances that the person has produced in that control period until

that time.

Used controlled substances means controlled substances that have

been recovered from their intended use systems.

Sec. 82.4 Prohibitions.

(a) Prior to January 1, 1996, for all Groups of class I controlled

substances, except Group VI, and prior to January 1, 2001 for Group VI,

no person may produce, at any time in any control period, any

controlled substance (except that are transformed or destroyed) in

excess of the amount of unexpended production allowances or unexpended

Article 5 allowances for that substance held by that person under the

authority of this subpart at that time for that control period. Every

kilogram of excess production constitutes a separate violation of this

subpart.

(b) Effective January 1, 1996, no person may produce, at any time

in any control period, any class I, Group I, Group II, Group III, Group

IV, Group V, or Group VII controlled substance (except for controlled

substances that are transformed or destroyed) in excess of the amount

of unexpended essential-use allowances under Sec. 82.4, amount of

unexpended Article 5 allowances as allocated under Sec. 82.9 or the

amount of unexpended destruction or transformation credits as obtained

under Sec. 82.9 for that substance held by that person under the

authority of this subpart at that time for that control period. Every

kilogram of excess production constitutes a separate violation of this

subpart.

(c) Effective January 1, 1996, no person's total production of a

class I controlled substance (except Group VI) as allocated under

Sec. 82.4 for essential-use allowances, and as obtained under Sec. 82.9

for destruction or transformation credits, may, at any time, in any

control period until January 1, 2000, exceed the percent limitation of

baseline production in appendix H of this subpart, as set forth in the

Clean Air Act Amendments of 1990.

(d) In addition to total production permitted under Sec. 82.4(c),

effective January 1, 1996, for class I, Group I, Group III, Group IV

and Group V controlled substances, and effective January 1, 1995, for

class I, Group II, a person may, at any time, in any control period

until January 1, 2000, produce 10 percent of baseline production as

apportioned under Sec. 82.5 for export to Article 5 countries. No

person may, at any time, in any control period until January 1, 2000,

produce class I, Group I, Group II, Group III, Group IV, and Group V

controlled substances for export to Article 5 countries in excess of

the Article 5 allowances allocated under Sec. 82.9(a).

(e) Prior to January 1, 1996, for all Groups of class I controlled

substances, except Group VI, and prior to January 1, 2001, for Group

VI, no person may produce or (except for transhipments, heels, or for

used controlled substances) import, at any time in any control period,

any class I controlled substance (except for controlled substances that

are transformed, or destroyed) in excess of the amount of unexpended

consumption allowances held by that person under the authority of this

subpart at that time for that control period. Every kilogram of excess

production or importation (other than transhipments or used and

recycled controlled substances) constitutes a separate violation of

this subpart.

(f) Effective January 1, 1995, no person may import, at any time in

any control period, a heel of any class I controlled substance that is

greater than 10 percent of the volume of the container in excess of the

amount of unexpended consumption allowances, unexpended destruction

credits or unexpended transformation credits held by that person under

the authority of this subpart at that time for that control period.

Every kilogram of excess importation constitutes a separate violation

of this subpart.

(g) Prior to January 1, 1996, for all Groups of class I controlled

substances, except Group VI, and prior to January 1, 2001, for Group

VI, a person may not use production allowances to produce a quantity of

a class I controlled substance unless that person holds under the

authority of this subpart at the same time consumption allowances

sufficient to cover that quantity of class I controlled substances nor

may a person use consumption allowances to produce a quantity of class

I controlled substances unless the person holds under authority of this

subpart at the same time production allowances sufficient to cover that

quantity of class I controlled substances. However, only consumption

allowances are required to import class I controlled substances with

the exception of transhipments, heels and used controlled substances.

(h) Every kilogram of a controlled substance, and every controlled

product, imported or exported in contravention of this subpart

constitutes a separate violation of this subpart, thus no person may:

(1) Import or export any quantity of a controlled substance listed

in Class I, Group I or Group II, in appendix A to this subpart from or

to any foreign state not listed as a Party to the 1987 Montreal

Protocol unless that foreign state is complying with the 1987 Montreal

Protocol (See appendix C, Annex 2 of this subpart);

(2) Import or export any quantity of a controlled substance listed

in Class I, Group III, Group IV or Group V, in appendix A to this

subpart, from or to any foreign state not Party to the London

Amendments (as noted in appendix C, Annex 1, to this subpart), unless

that foreign state is complying with the London Amendments (as noted in

appendix C, Annex 2, to this subpart); or

(3) Import a controlled product from any foreign state not Party to

the 1987 Montreal Protocol (as noted in appendix C, Annex 1, to this

subpart), unless that foreign state is complying with the Protocol (as

noted in appendix C, Annex 2, to this subpart).

(i) Effective January 1, 2003, no person may produce HCFC-141b

except in a process resulting in its transformation, use in a process

resulting in destruction, or for exceptions stated in paragraph (p) of

this section.

(j) Effective January 1, 2003, no person may import HCFC-1

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