# Protection of Stratospheric Ozone; Proposed Rule ENVIRONMENTAL PROTECTION AGENCY

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A94-27019

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** November 10, 1994

## Text

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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

\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.''
---------------------------------------------------------------------------

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-27019. Public record. Not legal advice.