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Protection of Stratospheric Ozone: Allowance System for Controlling HCFC Production, Import and Export
Related Material
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: April 5, 1999 (Volume 64, Number 64)]
[Proposed Rules]
[Page 16373-16383]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap99-29]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 82
[FRL-6319-2]
RIN 2060-AH67
Protection of Stratospheric Ozone: Allowance System for
Controlling HCFC Production, Import and Export
AGENCY: Environmental Protection Agency (EPA).
ACTION: Advance Notice of Proposed Rulemaking.
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SUMMARY: EPA is seeking comments on a variety of options for
establishing an allowance allocation system to control the U.S.
consumption of class II controlled substances, the
hydrochlorofluorocarbons (HCFCs), in accordance with U.S. obligations
under the Montreal Protocol on Substances that Deplete the Ozone Layer
(Protocol). Under the Protocol, the United States is obligated to limit
HCFC consumption (defined by the Protocol and this notice as production
plus imports, minus exports) under a specific cap, which will be
reduced in a step-wise fashion over time. To ensure that the U.S. does
not exceed this internationally mandated cap, EPA is presenting many
options for establishing a future HCFC allowance allocation system. EPA
is considering, among other things, an option where the allowance
system would become effective only under certain conditions, i.e., once
a specified percentage of the current U.S. HCFC cap has been reached or
exceeded.
DATES: Comments on this advanced notice of proposed rulemaking must be
received on or before June 4, 1999.
ADDRESSES: Comments on this advance notice of proposed rulemaking
should be submitted in duplicate to: Air Docket No. A-98-33, U.S.
Environmental Protection Agency, 401 M Street, SW., Room M-1500,
Washington, DC 20460. The Docket is located in Room M-1500, First
Floor, Waterside Mall at the address above. The materials may be
inspected from 8 am until 4 p.m., Monday through Friday. A reasonable
fee may be charged by EPA for copying docket materials.
FOR FURTHER INFORMATION CONTACT: Vera Au, EPA, Stratospheric Protection
Division, Office of Atmospheric Programs, Office of Air and Radiation
(6205-J), 401 M Street, SW., Washington, DC 20460, (202) 564-2216 or
the Stratospheric Protection Hotline at (800) 296-1996.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Montreal Protocol on Substances that Deplete the Ozone Layer
B. Title VI of the Clean Air Act Amendments of 1990
II. Options for Establishing an HCFC Allowance System
A. Allowance Allocation System to Control U.S. HCFC Consumption
1. Type of Allowances
2. Unit of Measure of Allowances
B. Method for Distributing Allowances
C. Establishing an Equitable Baseline for Distributing
Allowances
D. Percentage of Allowances Distributed under U.S. HCFC
Consumption Cap
E. Transfers of Class II Allowances
1. Transfers Within Groups of Class II Substances
2. Inter-Pollutant Transfers
3. Inter-Company Transfers
4. Inter-pollutant Transfers Combined with Inter-Company
Transfers
5. Transfers of Current-Year Allowances
6. Permanent Transfers of Baseline Allowances
7. International Trades of Current-Year Allowances
8. Offset for a Transfer of Allowances
F. Conditions Under Which a Control System Would Become
Effective
III. Other Regulatory Options for Controlling HCFCs
A. Labeling
B. SNAP Approval and Restrictions
C. Non-Essential Product Ban under Section 610
IV. Administrative Requirements
A. Executive Order 12866
B. Regulatory Flexibility Act
C. Executive Order 13045: Children's Health Protection
D. National Technology Transfer and Advancement Act
Annex A: Ozone Depletion Potentials for Class II Substances as
Currently Listed Under the Montreal Protocol
I. Background
A. Montreal Protocol on Substances that Deplete the Ozone Layer
Signatory countries that are Parties to the international agreement
called the Montreal Protocol on Substances that Deplete the Ozone Layer
(Protocol), during their second meeting in London in 1990, identified
hydrochlorofluorocarbons (HCFCs) as transitional substitutes for
chlorofluorocarbons (CFCs) and other more destructive ozone-depleting
substances. At the Parties' fourth meeting in Copenhagen in 1992, a
detailed phaseout schedule for HCFCs (listed in Annex C, Group I of the
Protocol) was created. At this fourth meeting, the Parties to the
Protocol established a freeze level (a cap) on the consumption of HCFCs
for industrialized countries (Parties governed by Article 2 of the
Protocol). Consumption is defined by the Protocol as production plus
imports minus exports. The cap on HCFC consumption for industrialized
countries went into effect on January 1, 1996, and was derived from the
formula of 3.1 percent (reduced to 2.8 percent at the seventh meeting
of the Parties) of a Party's CFC consumption in 1989, plus the Party's
consumption of HCFCs in 1989. This formula puts the current U.S. cap
for HCFC consumption at 15,240 ODP-weighted metric tons. The Parties to
the Protocol then created a schedule for the gradual reduction and
eventual phaseout of the consumption of HCFCs by 2030. The Copenhagen
Amendments to the Protocol call for a 35 percent reduction of the cap
in 2004, followed by a 65 percent reduction in 2010, a 90 percent
reduction in 2015, a 99.5 percent reduction in 2020, and a total
phaseout in 2030. The U.S. must, at a minimum, comply with this
phaseout schedule under the Protocol.
EPA was petitioned to phase out the most ozone-depleting HCFCs
first. Upon
[[Page 16374]]
analyzing this approach, EPA determined that the U.S. could in fact
meet, if not exceed, the required Montreal Protocol reductions by the
specified dates. Therefore, the U.S., as authorized under the Clean Air
Act, is implementing a different phaseout schedule, carried out on a
chemical-by-chemical basis for HCFCs (58 FR 65018), which will meet or
exceed the Montreal Protocol reductions required. U.S. implementation
of the HCFC phaseout is described below in parts I.B and I.C of this
notice.
B. Title VI of the Clean Air Act Amendments of 1990
The Clean Air Act Amendments of 1990 (CAA or the Act), under
Section 605(c), originally required the Administrator to promulgate, by
December 31, 1999, regulations phasing out the production, and
restricting the use of, class II substances (HCFCs), subject to any
acceleration of the phaseout of production under Section 606. Section
605(c) further states that the Administrator shall promulgate
regulations to ensure that the consumption of class II substances is
phased out and terminated in accordance with the same schedule. The
original phaseout schedule established in the Act has since been
accelerated as authorized under Section 606 and is outlined below in
part I.C of this notice.
Section 605 of the Act established the original U.S. phaseout
schedule for class II substances. Section 605(a) states that,
``Effective January 1, 2015, it shall be unlawful for any person to
introduce into interstate commerce or use any class II substance unless
such substance: (1) Has been used, recovered and recycled; (2) is used
and entirely consumed (except for trace quantities) in the production
of other chemicals; or (3) is used as a refrigerant in appliances
manufactured prior to January 1, 2020.'' Section 605(b) states that,
``Effective January 1, 2015, it shall be unlawful for any person to
produce any class II substance in an annual quantity greater than the
quantity of such substance produced by such person during the baseline
year. Effective January 1, 2030, it shall be unlawful for any person to
produce any class II substance.'' This phaseout schedule has since been
accelerated under authority of Section 606.
Section 606(a) specifically requires the Administrator to
promulgate regulations, accelerating the phaseout of production and
consumption of ozone-depleting substances, ``if (1) based on an
assessment of credible current scientific information (including any
assessment under the Montreal Protocol) regarding harmful effects on
the stratospheric ozone layer associated with a class I or class II
substance, the Administrator determines that such more stringent
schedule may be necessary to protect human health and the environment
against such effects, (2) based on the availability of substitutes for
listed substances, the Administrator determines that such more
stringent schedule is practicable . . ., or (3) the Montreal Protocol
is modified to include a schedule to control or reduce production,
consumption, or use of any substance more rapidly than the applicable
schedule under this title.''
Thus, Section 606 (a)(3) requires EPA to accelerate the phaseout to
conform to any acceleration under the Protocol. In addition, Section
614(b) provides that in the case of a conflict between Title VI of the
Act and the Protocol, the more stringent provision shall govern. The
Parties to the Protocol, based on scientific evidence that losses of
stratospheric ozone were occurring more rapidly than earlier believed,
accelerated the phaseout of class I substances and established the
phaseout schedule for class II substances at the Fourth Meeting of the
Parties in Copenhagen in 1992. Pursuant to authorities provided by
Title VI, EPA amended its regulations on December 10, 1993 (58 FR
65018) to provide for these accelerations. Targeting the phaseout set
by the Protocol, EPA chose to phase out production and consumption of
HCFCs on a chemical-by-chemical basis, beginning with those with the
highest ozone depletion potential (ODP). EPA accelerated the phaseout
of production and import of HCFC-22, HCFC-141b and HCFC-142b, the three
HCFCs with the highest ODPs. Specifically, EPA's rule bans the
production and import of HCFC-141b as of January 1, 2003. The
production and import of HCFC-142b and HCFC-22 in excess of baseline
allowances are prohibited effective January 1, 2010, except for the use
in equipment manufactured prior to January 1, 2010. Beginning January
1, 2020, the production and import of HCFC-142b and HCFC-22 are banned.
Production and import of the remaining HCFCs, in excess of their
baseline production and consumption levels, will be prohibited
beginning January 1, 2015, except as a refrigerant in equipment
manufactured before January 1, 2020. All HCFCs will be completely
phased out by January 1, 2030. EPA did not establish an allocation
system for class II substances, as it did for class I substances.
Section 605(d) of the Act speaks to exceptions to the original
phaseout schedule for HCFCs. Beginning in 2030, EPA can authorize up to
10 percent of the baseline per year for production of class II
substances for medical devices considered essential by the U.S. Food
and Drug Administration (FDA) and for which no safe and effective
alternative has been developed and approved. EPA can authorize use of
these quantities beginning in 2015 as an exception to the use
restrictions contained in 605(a). EPA can authorize this limited amount
of production and use, to the extent consistent with the Protocol, if
FDA, in consultation with EPA, determines that it is necessary for use
in these medical devices. In addition, beginning in 2015, and
continuing up until 2030, EPA may authorize production of up to 110
percent of the baseline per year solely for export to and use in
developing countries (Article 5 countries) that are Parties to the
Protocol. This production is intended to be solely for the purpose of
satisfying basic domestic needs of the importing developing country.
Between 2030 and 2040, no more than 15 percent of the baseline can be
produced annually for export to Article 5 countries. Section 605(d)
does not permit any production for export to and use in Article 5
countries after January 1, 2040.
Per Section 602(b) of the Act, EPA published a list of class II
substances in 40 CFR Part 82, Subpart A, Appendix B. All HCFCs fall
into one grouping under class II ozone depleting substances, and, since
publication of the initial list, no new class II substances have been
added to the list.
Section 602(e) requires EPA to assign numerical values representing
the ozone depletion potential (ODP) of all class II substances; and
Section 602(e) further states that, ``Where the ozone depletion
potential of a substance is specified in the Montreal Protocol, the
ozone depletion potential specified for that substance under this
section shall be consistent with the Montreal Protocol.'' Annex A of
this notice lists the ODPs for all class II substances as currently
specified by the Protocol. Note that some of the ODPs listed under
Annex A vary slightly from those listed under Appendix B to 40 CFR Part
82, Subpart A due to revisions of those ODPs under the Protocol since
May 10, 1995. However, because this notice merely seeks comments and
presents options, the future final rulemaking for the class II
allowance allocation system will amend the list of ODPs currently
presented in 40 CFR Part 82. Unless there are future revisions of the
ODPs
[[Page 16375]]
for class II substances under the Protocol, entities involved in the
HCFC market can expect to use the ODPs listed in Annex A of this notice
for any ODP-weighted calculations that may be necessary as part of an
HCFC allowance system.
Section 607(b) of the Act requires EPA to permit the transfer of
any class I or class II allowances, within each group or class, on an
ozone depletion weighted basis. In allowing transfers, under Section
607(a) of the Act, EPA must ensure that ``the transactions under the
authority of this section will result in greater total reductions in
the production in each year of class I and class II substances than
would occur in that year in the absence of such transactions.'' In
other words, transfers cannot be made at a 1:1 ratio. In the class I
regulations, an offset of one percent was required in any transfer to
accomplish the environmental benefit required by Section 607. Those
transfer requirements are set forth in 40 CFR Part 82, Subpart A,
Section 82.12 (60 FR 24970, May 10, 1995). Transfer of class II
allowances between entities and interpollutant transfers on an ODP-
weighted basis, along with an appropriate offset, are addressed under
II.E of today's notice.
Section 616 of the Act states that the U.S. may transfer allowances
to another Party, under certain conditions. Few countries currently
have a system in place for allocating, trading and expending HCFC
allowances. As discussed in today's notice, differences exist between
the manners in which the Protocol and the U.S. have structured their
respective HCFC phaseout systems. Nevertheless, a trading regime
similar to that implemented by EPA for class I international trades (40
CFR 82.9, 82.10) (60 FR 24970, May 10, 1995) could work effectively for
class II trades. One possible such system is outlined in II.E.6 of this
notice.
Reporting requirements mandated in Section 603 relative to HCFCs
are currently in place in 40 CFR 82.13(n). Additional reporting
requirements will likely accompany the implementation of a class II
allowance allocation system.
II. Options for Establishing an HCFC Allowance System
Section 607 of the Act requires EPA to issue allowances for the
production and consumption of class II substances. With this notice,
EPA is putting forth options as to how such an allowance system could
be established. The allowance system must ensure that U.S. consumption
of class II substances does not exceed the cap agreed to under the
Protocol (currently at 15,240 metric tons but will be reduced over
time).
For the class I substances, EPA considered many methods for
achieving the required reductions that were agreed to under the
Protocol. The approaches distinguished between economic incentives and
engineering controls or bans. EPA concluded that the most equitable,
least costly and easiest system to administer for achieving the
Protocol's required reductions for class I ozone-depleting substances
was a marketable allowance system. EPA established such a system. The
system proved highly successful and by January 1, 1996, the production
and import of class I substances were completely phased out (but for
narrow exemptions granted by the Parties to the Protocol) with minimal
economic impact.
Unlike the class I allowance system, however, EPA is considering an
approach whereby an allowance system for class II substances would only
become effective if a certain threshold (i.e., a certain percentage of
the total U.S. cap for class II substances) were reached or exceeded.
A. Allowance Allocation System to Control HCFC Consumption in the
United States
1. Type of Allowances
a. Production Allowances and Consumption Allowances for Class I
Controlled Substances. Under the control system for class I substances,
EPA created a unit of measure called an allowance (see 40 CFR 82). An
allowance, for a class I substance, represents the marketable rights
and privileges granted to a company to produce or import a specific
quantity of that class I substance. Under the class I allowance
program, there were two types of allowances: production allowances and
consumption allowances. One allowance in the regulatory program for
class I substances was equal to one kilogram of either production or
consumption of a substance, depending on the type of allowance.
Under the class I phaseout regulations, a company was required to
expend both production and consumption allowances to be able to
produce. To be able to import a class I controlled substance, a company
was required to expend consumption allowances (See 40 CFR 82.4). After
proper documentation was presented to EPA reflecting an export of a
class I controlled substance, consumption allowances were refunded or
returned to the exporting company (See 40 CFR 82.10).
b. Options for Allowances for Class II Controlled Substances. EPA
is considering, and seeking comment on, the following options for class
II allowances. One option for a class II allowance system would be to
follow the structure established for the class I substances. To
produce, a company would expend both production allowances and
consumption allowances for a specific quantity of a class II controlled
substance. To import, a company would expend consumption allowances for
a specific quantity of a class II controlled substance. An exporter of
class II substances would be able to obtain consumption allowances by
providing documentation indicating the quantity of substance exported
abroad.
A second option for a class II allowance system would be to operate
the system using only one kind of allowance, which could be applied
equally for production, imports and exports. This means that such an
allowance (hereafter referred to as ``class II allowance'') could be
applied to any element of the formula for consumption (consumption =
production + imports-exports). Producers and importers alike would be
allocated class II allowances according to baseline calculations. To
produce, a company would expend class II allowances for a class II
substance. To import, a company would expend class II allowances for a
class II substance. Upon export, a company would receive class II
allowances for the quantity of a class II substance exported.
Essentially, allocation and expenditure of allowances under this system
would differ from the class I system in that only one allowance would
be allocated and expended for production. For example:
------------------------------------------------------------------------
Class I allocated/ Class II allocated/
Activity expended expended
------------------------------------------------------------------------
Production...................... production & class II
consumption. allowance.
Import.......................... consumption....... class II
allowance.
Export.......................... consumption class II allowance
returned. returned.
------------------------------------------------------------------------
[[Page 16376]]
2. Unit of Measure for Allowances
Allowances can be accounted for in a variety of ways. They can
equal any quantity one assigns to them, calculated by any workable
measure. In the class I allowance system, EPA assigned each allowance a
value of one kilogram of a class I substance. To produce or import,
allowances were expended similarly, by kilograms. Since each chemical
has its own ODP, any trades that took place between class I chemicals
took into account the difference in ODPs, weighting the resulting
allowances accordingly.
Due to the aforementioned differences in ODPs among chemicals,
another possible measure for an allowance is an ODP-weighted unit (ODP
x kilogram), tied to no specific chemical. EPA is considering, and
seeking comment on, both an absolute allowance allocation by kilogram
(which is chemical-specific) and an ODP-weighted allocation system
(which is also allocated in kilograms but not chemical-specific). With
this notice, EPA is exploring both options but attempts below to
illustrate what the advantages and disadvantages of each system may
entail.
a. Absolute Kilogram Allowances on a Chemical-by-Chemical Basis.
One option for assigning a value to class II allowances would be to
allocate them on an absolute quantity (kilogram) basis, as was done in
the class I allocation system. In such a system, one kilogram of an
HCFC would correspond to one allowance. In this absolute system, one
would track the production, import or export of a specific chemical on
a kilogram basis.
If trades were to occur between different class II substances in a
system where one allowance equals one kilogram, any difference in ODP
between the substances would have to be factored into the exchange, as
was done with transfers and trades among class I substances (See
Section 607(b)(1) of the Act). A brief example of such transfers is
described below, but further options related to, and a more thorough
explanation of, transfers are discussed in part II.E of today's notice.
To better illustrate how an absolute allowance system would
function, take for example, Company A, which produced 1000 kilograms of
HCFC-141b and 550 kilograms of HCFC-22 in its baseline year. Under an
absolute allowance system, Company A would be allocated 1000 allowances
for HCFC-141b and 550 allowances for HCFC-22. To produce 70 kilograms
of HCFC-141b, 70 allowances would be subtracted from 1000, leaving
Company A with 930 kilograms or allowances of HCFC-141b. If Company A
wanted to produce more than 1000 kilograms of HCFC-141b, it could trade
with another holder of HCFC-141b allowances or transfer its own HCFC-22
allowances to HCFC-141b allowances, taking into account the difference
in ODP between the two substances. In this case, if Company A wanted to
produce 200 additional kilograms of HCFC-141b, it could, through an
intra-company transfer, shift the appropriate number of HCFC-22
allowances that, accounting for ODP differences, would represent the
equivalent of 200 HCFC-141b allowances. Therefore, Company A would
exchange 400 HCFC-22 allowances to add 200 HCFC-141b allowances, since
the ODP of HCFC-22 is 0.055 and the ODP of HCFC-141b is 0.110.
Similarly, Company A could have purchased 200 allowances of HCFC-141b
or 400 allowances of HCFC-22 from some other allowance holder.
It is important to note what would occur under an absolute
allowance system when various phaseout dates become effective. In 2003,
for example, when the ban on production and importation of HCFC-141b
takes effect (See 40 CFR section 82.4), entities with HCFC-141b
baseline allowances, measured in kilograms, would no longer be
authorized to produce or import HCFC-141b. Essentially, these entities
would receive zero percent of their baseline allowances on January 1,
2003. The same would occur when other individual phaseout dates (e.g.,
for HCFC-22 and HCFC-142b in 2010) become effective.
In 2004, under the Protocol, the U.S. is required to reduce its
current HCFC consumption cap (15,240 ODP-weighted metric tons) by 35
percent. At this time, every entity still holding HCFC baseline
allowances may receive 65 percent (or 35 percent less) of their
remaining HCFC baseline allowances.
Administratively, an absolute allocation system based on kilograms
may be advantageous for its simplicity. Both for the regulated entities
and EPA, an absolute system would afford greater ease, clarity, and
predictability. Holders of absolute allowances would report their
transactions in kilograms of each chemical. To determine future
regulatory actions, EPA needs to keep a running tab on market supply
and demand of the various chemicals. EPA is much better able to track
which companies are expending which allowances for which chemicals if
EPA carries out the calculations involving trades and expenditures, and
then tracks the absolute quantities of each chemical. EPA is also
obligated to report to the United Nations Environment Programme (UNEP)
annually on U.S. production and importation on an absolute basis for
each individual substance. Producers and importers have been operating
and reporting under the class I absolute allocation system for many
years, and are familiar with the necessary calculations, reporting
forms, and tracking requirements. Therefore, any additional
administrative burden of adopting a similar system for class II
substances may be minimal for the regulated community. Consistency
between the class I and potential class II systems would present a
significant advantage. Under an absolute system, flexibility would not
be compromised, due to the trading opportunities that can be
established. EPA requests comment on the advantages or disadvantages of
an absolute allocation system.
b. ODP-Weighted Allocation. Another means of allocating allowances
is through an ODP-weighted system, whereby each allowance holder's
allocation would be calculated according to the numerical value of the
ODP associated with each chemical in the allowance holder's baseline
year(s). In this case, the ODP weight of each HCFC becomes the
meaningful variable and companies would be allocated an aggregate
number of ODP-weighted (ODP x kilogram) units. For example, a company
that produced 1000 kilograms of HCFC-142b in the baseline year(s) would
be allocated 65 ODP-weighted allowances because HCFC-142b has an ODP of
0.065. Likewise, if this same company imported 1000 kilograms of HCFC-
22 during the baseline year(s), they would also be allocated 55 ODP-
weighted allowances (HCFC-22 has an ODP of 0.055). Thus, the company
would have a total of 120 ODP-weighted allowances. The company would be
able to expend the 120 ODP-weighted allowances by producing or
importing any class II controlled substance or combination of class II
controlled substances that it chooses, as long as the weighted total
(kilogram x ODP) does not exceed the number of allowances. For example,
the company could expend all of the 120 ODP-weighted allowances to
produce 2,181 kilograms of HCFC-22. Alternatively, the company might
expend the 120 ODP-weighted allowances to produce 6,000 kilograms of
HCFC-123 (ODP = 0.02), or 1,091 kilograms of HCFC-141b (ODP=0.11).
Under this system, intra-company transfers would not be necessary;
inter-company trades would be in increments of ODP-weighted units.
[[Page 16377]]
The ODP-weighted allowance system may be viewed as more
advantageous to regulated entities. Altering patterns of production and
importation in response to market changes could be done more easily,
and the offset required for intra-company transfers under an absolute
kilogram allowance system would not apply, simply because there would
be no actual transfer of allowances within a company where ODP units
are concerned. The offset would still apply to inter-company trades
because allowances would in fact be trading hands.
Under an ODP-weighted allowance system, however, complex
calculations would be necessary by the reporting companies to arrive at
the total quantity of class II substances produced or imported during
the reporting period. For each chemical, the number of kilograms would
have to be multiplied by its ODP and compared to the number of ODP-
weighted allowances. Blends would present an additional complication by
requiring a calculation of the percentage of each HCFC in a substance
(e.g., R-401A), at each applicable ODP, and including that in the total
reported ODP produced or imported for a quarter.
When the first phaseout date becomes effective in 2003 for HCFC-
141b, under an ODP-weighted system, an entity participating in the
HCFC-141b market would no longer receive the amount of ODP-weighted
allowances associated with that entity's ODP units of HCFC-141b
produced and/or imported in the baseline year(s). The same would be
true for subsequent phaseouts. Complications come into play, however,
when ODP-weighted allowances have been transferred on a permanent
basis; that is, when a company actually trades baseline allowances.
Where baseline trades (discussed more in part II.E.4 of this notice)
have been made, adequately tracking ODP-weighted class II substances
from one holder to another becomes very difficult. This is extremely
important at each phaseout, to determine who holds the baseline
allocation of the chemical being phased out.
EPA seeks comments on the viability of an ODP-weighted allowance
system as presented above. Though presented as a possible option, EPA
recognizes the many difficulties that could emerge with an ODP-weighted
system (e.g., monitoring chemicals that have been produced or imported
with traded allowances; reporting to UNEP the absolute quantities of
all class II substances in kilograms). An ODP-weighted allowance system
would also possibly be in conflict with Section 605(b)(1) of the Act,
which states that, ``Effective January 1, 2015, it shall be unlawful
for any person to produce any class II substance in an annual quantity
greater than the quantity of such substance produced by such person
during the baseline year.'' This is because ODP-weighted allowances
could be shifted within a company and thus allow that company to
produce a greater quantity of a class II substance than in its
baseline. (Such an intra-company transfer of allowances is discussed
below in part E of this notice.)
B. Method for Distributing Allowances
EPA is required, under Section 607 of the Act, to issue allowances
for the production and consumption of class II substances. There are a
variety of methods for allocating allowances and EPA seeks comments on
these options. First, EPA is considering allocating allowances for the
full time period until the complete production and importation phaseout
for all class II substances (currently 2030), taking into account both
accelerated phaseouts for individual chemicals (e.g., those for HCFC-
141b, HCFC-22 and HCFC-142b) and the step-wise reduction of the
consumption cap as mandated under the Protocol. This allocation of
allowances was the method followed in the regulatory program for class
I substances. For class I substances, a quantity of allowances was
allocated to listed companies as a baseline in the Federal Register.
Allocating allowances for the full time period until a particular
phaseout date provides certainty and stability for the market. Assuming
the regulatory program includes smooth procedures for trading
allowances, the full-term allocation of allowances establishes the
basis for a ``marketable permit'' system.
The second option being considered is a system for re-calculating
and re-allocating allowances on a ``rolling basis.'' This would
essentially move the baseline forward in time so that the baseline
would always be the most accurate reflection of the current HCFC
market. Under this option, EPA would review data on the production,
import and export of HCFCs on some periodic basis, establish a new
baseline for each entity, and re-allocate the allowances accordingly. A
re-allocation of allowances may require an amendment to the original
list in the regulation of entities with their respective baseline
allowances. Alternatively, an administrative mechanism could be
established to re-allocate allowances automatically at regular
intervals.
However, if the regulatory system includes smooth procedures for
trading allowances, shifts in demand and changes in market share could
be addressed by individual companies, thus obviating the need to re-
allocate allowances. Identifying the appropriate length of time for
periodic review and re-allocation of allowances would be important,
especially given both the existing phaseout schedule for specific HCFCs
and the step-wise reduction of the HCFC consumption cap over time.
Likewise, the length of time for periodic re-allocation of allowances
may depend on the definition of a trigger mechanism for making the
final rule effective, which is discussed in II.H of this notice. For
example, instead of establishing specific years for the re-allocation
of allowances (e.g., 2000 and 2002), the re-allocation could be linked
with the trigger mechanism, so that re-allocation of allowances would
occur, say, 2 years and 4 years after the allowance system becomes
effective.
A final option would involve allocating allowances on a year-by-
year basis. However, this would generate a large administrative burden
for both EPA and those who produce, import and export HCFCs. The
ability of those producers, importers and exporters to plan for the
longer term would also be hampered.
EPA is seeking comments on all of the aforementioned options for
distributing allowances.
C. Establishing an Equitable Baseline for Distributing Allowances
In developing the regulatory program for class I controlled
substances, EPA collected information on the amounts of each class I
substance produced, imported and exported during a given calendar year.
EPA collected the data by publishing two notices in the Federal
Register under authority of Section 114 of the Act (52 FR 47489
(December 14, 1987) and 55 FR 49116 (November 26, 1990)). The data
requested from U.S. companies included reports on production runs,
quantities of feedstock chemicals used in production, bills of lading,
invoices, and other documents for a specific calendar year. The data
submitted to EPA was used to assign company-specific production and
import rights (allowances) to companies.
EPA is considering, and seeking comment on, many options for
establishing a baseline for HCFC allowances. Consistent with the
procedures associated with class I controlled substances, EPA will
likely use historical information regarding a
[[Page 16378]]
company's activities to establish the baseline for class II allowances.
EPA is considering following the same procedures used for establishing
the baseline for class I controlled substances, including the
publication of a Section 114 notice requesting specific information.
Options for establishing the actual baseline allowances for class
II controlled substances are represented by a spectrum of choices,
including using historical information from one year, from an average
of multiple years, or using a formula for combining multiple years. At
the extremes, EPA is considering historical information from 1989 or
1997, and many variations in between. EPA believes that the process of
establishing the baseline should take into account, inter alia, the
agreements by the Parties to the Protocol to control and phase out
class II substances, the signing of the Clean Air Act Amendments of
1990 into law, the publication of regulations under Title VI of the Act
governing the phaseout of class II substances, and the development of
the current HCFC market in the U.S. EPA is seeking comments on the
various options discussed below, as well as any other ideas for
establishing an allocation baseline.
One option EPA is considering for establishing the baseline for
class II controlled substances is historical information from one year.
Collecting documents and information from companies for one year of
activity would be less of an administrative burden for both EPA and the
companies than if EPA were to collect information for more than one
year. Another option EPA is considering is using data from multiple
years to establish the baseline for class II substances. EPA is
considering using historical information from consecutive years and
averaging the data. EPA is also considering averaging historical data
from non-consecutive years to establish the class II baseline.
Calculating baseline allowances for class II substances by using a
weighted average of multiple years is also being considered. For
example, using a number of either consecutive or non-consecutive years
within the time frame 1989-97, EPA would first calculate the production
and importation for each. Then, after deciding upon the relative
importance of each of those years regarding production and importation
quantities, EPA would weight each year accordingly and make the
baseline calculation to reflect the weighted average of those years.
Once the option for determining the baseline is chosen, EPA believes
that steps to ensure accuracy of historical data will be of utmost
importance. Any baseline calculation involving multiple years will have
to be reconciled with the definition of ``baseline'' in Section 601(2)
of the Act, which states that the term ``baseline year'' means ``a
representative calendar year * * * in the case of any class II
substance.''
Another option EPA is considering for establishing a baseline is to
use different years for establishing each HCFC's individual baseline.
As an example, EPA might consider using one particular year (or years)
to establish the baseline for HCFC-141b and a completely different year
(or years) for establishing the baseline for HCFC-22 and HCFC-142b. In
this example, EPA might consider using yet another year (or years) for
establishing the baseline for all remaining HCFCs. Using this type of
approach, and linking it with the options discussed above, EPA might
choose the average of multiple years for one HCFC and a formula for
establishing the baseline for another HCFC.
It is important to note that, under any scenario, when the phaseout
date for HCFC-141b is reached in 2003, all HCFC-141b consumption
(production + imports-exports) will cease. Those who did not
participate in the HCFC-141b market will not be affected in 2003.
However, those who did participate in the HCFC-141b market--through,
for example, producing or importing HCFC-141b--would no longer receive
any allowances associated with their historic HCFC-141b activity, and
thus any authorization to produce or import HCFC-141b. Likewise, any
company that, through a baseline trade, received allowances associated
with historic HCFC-141b would no longer receive any allowances
associated with the baseline trade in 2003.
In 2004, when the Protocol requires that the HCFC consumption cap
be reduced from its current level by 35 percent, all remaining
allowance holders may be affected. At that time, all allowance holders
may receive up to 35 percent less of their remaining HCFC baseline
allowances (all HCFC allowances minus HCFC-141b allowances).
D. Percentage of Allowances Distributed Under U.S. HCFC Consumption Cap
EPA is considering, and seeking comment on, whether to allocate the
total number of allowances (the total quantity of ODP-weighted HCFC
consumption) available to the U.S. under the cap as established by the
Montreal Protocol. As discussed in part I.A of this notice, the current
U.S. cap for HCFC consumption is 15,240 ODP-weighted metric tons, based
on the formula of 2.8 percent of CFC consumption in 1989 plus the
consumption of HCFCs in 1989. Today's notice considers an allocation of
allowances equal to 100 percent of the 15,240 metric tons. This would,
however, in the event of some violation of the allowance system,
provide no cushion for error, thus risking violation of the U.S. cap.
This risk could demand that EPA request information and monitor more
often and in greater detail.
EPA is also considering, and seeking comment on, an allocation of
some percentage less than the full quantity of the cap. In this
scenario, consideration is given to potential violations of the
allocation system by leaving enough unallocated class II allowances to
cover any overage. In this case, the U.S. would not violate the cap as
a consequence of a violation of its allocation system. EPA is seeking
comment on the necessity of providing a safe buffer below the HCFC cap;
the percentage to be allocated if less than 100 percent is warranted;
and on the possible size of errors in the reporting of production and
import data that could occur in a control period.
Related to the discussion above is the issue of how to allocate the
remaining class II allowances falling between the U.S. cap (potentially
allowing for some margin of error) and the selected baseline (discussed
in II.C of this notice). For example, if the year 1996 were chosen as
the baseline, this would represent about 82 percent of the U.S. cap,
thus leaving open the question of how to allocate the remaining 18
percent, and if all of the remaining 18 percent should be allocated.
This remaining percentage, or a lower percentage that would provide for
a margin of error, could simply be added to the allocated baseline
allowances, to be distributed on a pro rata basis. The entire amount,
then, would be allocated in the form of allowances to those companies
that participated in the HCFC market in the baseline year(s). Such a
system would provide certainty in how the allowances would be
allocated.
Depending on the baseline year(s), another possible option would be
to allocate some portion of the remaining percentage (in our example
some portion of the 18 percent) to those companies whose historic HCFC
activity is not well represented by the baseline year(s), such as new
companies that may have entered the HCFC market after the baseline
year(s).
[[Page 16379]]
E. Transfers of Class II Allowances
In establishing the regulatory allowance program for class I
controlled substances, EPA included provisions that permitted the
transfer of allowances. The provisions for trades and transfers of
class I allowances are in Sec. 82.9, Sec. 82.10, Sec. 82.11 and
Sec. 82.12 of the final rule published in the Federal Register on May
10, 1995 (60 FR 24970). Today's notice describes the many different
types of transfers permitted for class I allowances, as well as other
variations. EPA is seeking comment on how these variations and options
could apply to the transfer of class II allowances.
Under the current class I regulatory program, EPA is required to
process the transfer of allowances within three working days from when
EPA receives the request for an inter-pollutant or inter-company trade.
Companies fax the request for a trade to EPA and within three working
days EPA faxes a reply showing the new balance of unexpended allowances
(See 40 CFR 82.12(a)(1), (b)(4)).
1. Transfers Within Groups of Class II Substances
To facilitate transfers among class II substances, EPA is
permitted, under Section 607(b)(3) of the Act, to establish groups of
class II substances. Under such a framework, inter-pollutant transfers
of allowances would be limited to chemicals within an assigned group.
Class I controlled substances are listed in the Act in groups, and
inter-pollutant transfers of class I allowances are restricted to the
specific groups. For example, CFC-11 and CFC-114 are listed in the Act
as being in class I, Group I and all the halons are listed in class I,
Group II. Inter-pollutant transfers of allowances can occur among CFCs
in Group I and among halons in Group II, but transfers of allowances
cannot occur between the two groups. One option for class II substances
might be to establish class II groups based on each chemical's ODP.
Another option might be to establish class II groups based on the U.S.
phaseout dates for class II substances. EPA requests comment on the
concept of grouping class II substances and the possible groupings
themselves.
2. Inter-Pollutant Transfers
Section 607(b) of the Act states that inter-pollutant transfers
shall be permitted. An inter-pollutant transfer is the transfer of an
allowance of one substance to an allowance of another substance on an
ODP-weighted basis. As an example, under the class I system, a company
would transfer allowances for CFC-12 to allowances for CFC-115, taking
into account ODP differences between the two chemicals. If a company
wanted to transfer 1000 kilograms of their CFC-12 production allowances
to CFC-115 production allowances, paperwork would be submitted with the
following calculation: the 1000 kilograms of CFC-12 allowances are
multiplied by the ODP of CFC-12 (1.0) and then divided by the ODP of
CFC-115 (0.6), yielding 1667 kilograms of new CFC-115 production
allowances. Inter-pollutant transfers are sometimes called intra-
company trades because a company might shift allowances internally from
one substance to another to react to shifts in demand. Inter-pollutant
transfers of allowances were fairly common for class I controlled
substances. There were more than 40 inter-pollutant transfers for class
I substances each year from 1992 through 1995.
For class II substances, an example of an inter-pollutant transfer
would be a transfer of 10,000 kilograms of HCFC-142b allowances to
HCFC-141b allowances, which would result in 5,909 kilograms of HCFC-
141b allowances because of the adjustment for the ODPs of the two
chemicals (which does not take into account the required offset for
transfers as discussed in II.E.7 of this notice). If the class II
allowance system were to distribute allowances on an ODP-weighted
basis, however, there would be no need to include provisions for inter-
pollutant transfers.
3. Inter-Company Transfers
Another example of trades of class II allowances that EPA must
permit under Section 607(c) of the Act are inter-company transfers.
Inter-company transfers are trades of allowances, for the same
substance, from one company to another company. Under such a system,
Company A would simply transfer its allowances of a class II substance
to Company B who wishes to have more allowances of that particular
class II substance.
4. Inter-Pollutant Transfers Combined With Inter-Company Transfers
Both inter-company and inter-pollutant transfers could be combined
in the same transaction for class I controlled substances, and EPA is
considering allowing the same combined system for class II substances.
As an example of how this worked under the class I system, Company A
would trade 35,000 kilograms of CFC-11 allowances to Company B who
needed allowances to produce CFC-115. In the information submitted to
EPA, the two companies would agree that Company A would deduct 35,000
allowances for CFC-11 from its balance and Company B would receive
58,333 kilograms of CFC-115, due to the ODP difference between the two
chemicals. (An additional one percent offset would also be required in
this calculation as discussed in II.E.7).
Under this combined system for class II substances, a company that
wishes, say, to increase its production of HCFC-141b before the 2003
phaseout could (1) re-distribute its own allowances that have been
allocated for another class II substance to HCFC-141b (an intra-
company/inter-pollutant transfer); (2) purchase more HCFC-141b
allowances from another company (an inter-company transfer); or (3)
purchase more allowances from another company of a substance other than
HCFC-141b (an inter-company/inter-pollutant transfer). Any inter-
pollutant transfer would account for differences in ODP.
5. Transfers of Current-Year Allowances
EPA is considering approaches for permitting transfers of current-
year allowances for class II controlled substances. A transfer of
current-year allowances means the allowances being traded can only be
expended for production or import in that specific control period, or
calendar year. Transfers of current-year allowances do not change the
quantity of actual baseline allowances assigned to a company. A trade
of current-year allowances is a one-time trade, only reflected in a
company's balance of allowances for that control period in which the
trade occurs. Trades of current-year allowances were permitted in the
class I regulatory program. From 1992 to 1995, many companies took
advantage of the opportunity to trade current-year allowances for class
I controlled substances. As an example, a company might make an inter-
pollutant trade from their unexpended CFC-11 allowances to their CFC-
114 allowances in order to respond to greater market demand for CFC-114
in that particular year. Another example would be Company A purchasing
allowances from Company B, because Company A wants to import CFC-113
sometime during that control period. EPA seeks comment on current-year
allowance transfers.
6. Permanent Transfers of Baseline Allowances
EPA is considering the merits of permitting transfers of baseline
allowances for class II substances. A
[[Page 16380]]
transfer of baseline allowances is a permanent shift of some quantity
of a company's baseline allowances to another company. The permanent
nature of the transfer of baseline allowances makes the trade different
from the transfer of current-year allowances. For example, Company A
could have produced 1,000 kilograms of HCFC-22 in the baseline year(s),
and would therefore receive either 1,000 baseline allowances (for the
kilogram-based system) or 55 ODP-weighted baseline allowances (for the
ODP-weighted system). Company A could in turn permanently trade away
these baseline allowances to Company B. In all subsequent years,
Company A's quantity of baseline allowances would permanently be
reduced, while Company B's quantity of baseline allowances would
permanently be increased.
To implement the current U.S. phaseout schedule for class II
controlled substances, it may not be possible to allow permanent
transfers of baseline allowances if the type of allowance chosen is an
ODP-weighted unit, as described in part II.A.2.b of this notice. Under
the U.S. phaseout schedule for class II substances, the consumption of
chemicals with the highest ODP is eliminated first. To efficiently
eliminate the consumption of a specific chemical, such as HCFC-141b,
under a possible program using ODP-weighted allowances, a company would
no longer receive, in 2003, the portion of its allowances attributable
to its historic consumption of HCFC-141b. Under this scenario, a
company would not be able to make a permanent trade of a quantity of
ODP-weighted allowances because the permanent transfer of ODP-weighted
allowances would not be linked to a specific chemical, unless there
were groupings of HCFCs according to their phaseout dates or unless
historical consumption would determine deduction of allowances at a
particular phaseout. Alternatively, regardless of whether or not
baseline trades with ODP-weighted units are made, the historic baseline
ODP-weighted amount for a given chemical could be deducted in the
relevant phaseout year (e.g. 2003 for HCFC-141b). EPA seeks comment on
the merits of baseline trades in general, and on the compatibility of
baseline trades with kilogram-based allowances versus ODP-weighted
allowances.
7. International Trades of Current-Year Allowances
Under the Protocol, international trades are recognized as a part
of a process called ``industrial rationalization.'' In Article 1 of the
Protocol, industrial rationalization is defined as ``the transfer of
all or a portion of the calculated level of production of one Party to
another, for the purpose of achieving economic efficiencies or
responding to anticipated shortfalls in supply as a result of plant
closures.'' International trades of production are permitted under the
Protocol so companies can consolidate the manufacturing of a chemical
in order to be able to achieve economies of scale as demand shrinks.
The Protocol includes the following language in Article 2,
paragraph 5 bis: ``Any Party not operating under paragraph 1 of Article
5 may, for one or more control periods, transfer to another such Party
any portion of its calculated level of consumption set out in Article
2F [pertaining to HCFCs], provided that the calculated level of
consumption of controlled substances in Group I of Annex A [CFCs] of
the Party transferring the portion of its calculated level of
consumption did not exceed 0.25 kilograms per capita in 1989 and that
the total combined calculated levels of consumption of the Parties
concerned do not exceed the consumption limits set out in Article 2F.
Such transfer of consumption shall be notified to the Secretariat by
each of the Parties concerned, stating the terms of such transfer and
the period for which it is to apply.''
International trades of production allowances are permitted under
EPA's current regulations for class I controlled substances (40 CFR
82.9(c)). The procedures for international trades involve more review
than the procedures for inter-pollutant and inter-company trades.
For class II substances, the implementation challenge of paragraph
5 bis of Article 2 in the Protocol is that ``consumption'' is a formula
(production + imports - exports). Pursuant to a decision by the
Parties, the Protocol language in paragraph 5 bis of Article 2 clearly
restricts the U.S. from trading away HCFC consumption to another Party.
The U.S. per capita consumption of CFCs in 1989 was 1.28 kilograms,
well above the 0.25 kilogram per capita limit for transferring HCFC
consumption. However, the Protocol language allows the U.S. to
potentially receive a transfer of HCFC consumption from another Party.
Only two non-Article 5 Parties, Norway and Poland, had a per capita
consumption of CFCs in 1989 less than 0.25 kilograms. Thus, these are
the only non-Article 5 Parties from whom the U.S. could potentially
receive a transfer of HCFC consumption. We must therefore consider the
likelihood of such international trades, and whether or not the
establishment of provisions for class II international trades is
warranted.
If EPA were to create provisions for class II international
transfers, the options for such trades would be intimately linked to
the type of allowance chosen for the final program, as discussed in
part II.A.1 of this notice. If EPA were to choose a program with both
production and consumption allowances (as in the class I system), it
would be easier to limit international trades to just production by
following the model already established for class I substances. If, on
the other hand, EPA were to choose a program with class II allowances
(which could apply to production, imports and exports), EPA would have
to ensure that such allowances are used for production only and not for
import.
Alternatively, EPA may choose to establish a special type of
allowance to represent production rights received from an international
trade. EPA seeks comment on allowing international trades of HCFC
allowances and how they should be administered.
8. Offset for a Transfer of Allowances
The final aspect of trades of class II allowances considered in
today's notice is the manner of achieving greater total reductions than
would occur in the absence of a trade, as required in Section 607(a) of
the Act. EPA believes that the offset required by Section 607 of the
Act is only for inter-pollutant and inter-company transfers. In the
allowance program for class I substances, an offset was not included in
international trades.
Section 607(a) states that, ``transactions under the authority of
this section will result in greater total reductions in the production
in each year of class I and class II substances than would occur in
that year in the absence of such transactions.'' For the class I
allowance program, EPA adopted a one percent offset, deducted from the
transferor's allowance balance, for all inter-pollutant trades and all
inter-company trades (40 CFR 82.12(a)(1)(i)(H), 82.12(b)(4)(i)(F)).
However, for inter-pollutant trades combined with inter-company trades,
only one offset is applied to the transfer of allowances. For class II
controlled substances, EPA is considering re-examining the quantity of
offset assessed in a transfer of allowances. Because the class II
substances are less ozone-depleting than class I substances, EPA may
consider a smaller offset for
[[Page 16381]]
trades of HCFC allowances. EPA requests comment on the degree of offset
to apply to domestic trades of class II substances.
F. Conditions Under Which a Control System Would Become Effective
As mentioned in the background section of this notice (part I.B),
EPA is mandated under the Act to promulgate regulations by December 31,
1999, to administer the phaseout of class II controlled substances. By
this time, EPA intends to have in place an allowance system based on
the options, or some slight variation thereof, discussed throughout
this notice. However, EPA is considering an approach, whereby the
allowance system would not go into effect unless a certain percentage
of the U.S. cap for class II controlled substances were to be reached
or exceeded.
It is possible that U.S. HCFC consumption levels will remain within
a safe buffer of the current cap as agreed to under the Protocol, and
thus never activate the allowance system. In 2003, under the U.S.
accelerated phaseout for individual class II substances, HCFC-141b will
be phased out. An allowance allocation system may not be necessary to
phase out HCFC-141b. In 2004, however, at which time the U.S. is
required under the Protocol to reduce its current HCFC consumption cap
by 35 percent, an allowance system will likely be necessary to ensure
U.S. compliance with the Protocol. Consequently, EPA should select a
default date before 2004 when the allowance allocation system would
become effective, in the event that the allowance system is not in
place before that default date. EPA is seeking comments on the most
appropriate timing of a default date for the system to become
effective.
The rationale for an approach that would condition the onset of an
allowance system upon reaching an established percentage of the U. S.
cap set by the Montreal Protocol would be to avoid premature government
intervention in the HCFC industry. Therefore, the threshold must be set
at a level where the implementation of EPA's allowance system would be
deemed necessary to ensure that the U.S. complies with its cap for
class II substances. Furthermore, having the allowance system in place
with a set threshold for implementation will provide the regulated
community with a relatively predictable regulatory structure.
EPA is considering, and seeking comment on, the appropriateness of
such an approach, the percentage of the U.S. cap for class II
controlled substances that would trigger the onset of the allowance
system, the time span and type of data used to calculate whether or not
the percentage has been reached or exceeded, and the amount of time
deemed appropriate for implementation of EPA's allowance system once
the threshold has been reached or exceeded.
EPA is considering a range of percentage options that would trigger
the onset of the allowance system. A low percentage would possibly mean
that EPA's implementation of its allowance system occurs with a
relatively long lag time (e.g., more than one year), whereas a higher
percentage may require swift implementation (e.g., within one year or
less). EPA is concerned that a percentage threshold set too high could
threaten U.S. compliance with its cap for class II controlled
substances, given the delays inherent in data collection and the need
for some transition time between reaching the percentage and
implementing the allowance system.
The trends that the data on class II consumption (discussed below)
reveal, combined with the percentage threshold, may also influence the
speed with which EPA implements its allowance system. For example, if
class II reporting data reveal that the threshold has been, or will be,
surpassed by an amount considered ``too close'' to the cap, then EPA
may implement its allowance system within a shorter time frame;
likewise, if the threshold were surpassed by an amount considered to be
within a secure buffer of the cap, EPA could implement its allowance
system with a longer delay.
EPA must decide on the time span and type of class II data used to
determine U.S. class II consumption levels relative to the selected
percentage. EPA currently receives quarterly data on production,
importation and exportation of class II substances as required under
Section 603 of the Act. In order to assess meaningful trends and levels
of class II consumption relative to the selected percentage, EPA is
considering, and seeking comment on, a variety of ways of using this
quarterly data for that purpose.
Under the Protocol and the Act, compliance for class II substances
(i.e., consumption relative to the cap) is measured against the
calendar year. Therefore, aggregating four quarters of quarterly data
(an annual sum) serves as a convenient method to determine class II
consumption levels relative to the cap, and thus the selected criteria
for initiating the allowance system. This would represent one possible
option for calculating class II consumption levels relative to the
selected criteria. Another option would be to use a rolling sum in
determining compliance with an established threshold, based on
submitted data for four or possibly more consecutive quarters, which
could include quarters from two calender years. The rationale for using
four or more consecutive quarters is to avoid seasonality effects, or
trend biases, which individual quarterly data could bring. If a number
other than four quarters were used, the appropriate weighting would
have to be given to each quarter so that their sum would be the
equivalent of a 12-month period. If five consecutive quarters were
used, for example, each quarter would be scaled to represent one fifth
of the 12-month period.
III. Other Regulatory Options for Controlling HCFCs
To ensure that the U.S. adheres to its phaseout schedule for class
II controlled substances, EPA has options of pursuing, if necessary,
other means to contribute to the control HCFC of consumption of class
II substances. The discussion below pertains to current labeling
program, SNAP program and the non-essential products ban, and potential
amendments to those regulations. These options address the use of HCFCs
rather than their production, import and export, which an allowance
system would directly control. EPA is seeking comment on using any of
these options discussed below in controlling HCFC consumption, either
in combination with an allowance system, each other, or on its own.
A. Labeling
As an additional means of discouraging use of class II substances,
so as to ensure that the U.S. does not exceed its cap for class II
substances under the Protocol, EPA is considering and seeking comment
on the required use of labels on products containing or manufactured
with class II substances. According to Section 611 of the Act, such
labels would read as follows: ``Warning: Contains/manufactured with
[insert name of substance], a substance which harms public health and
environment by destroying ozone in the upper atmosphere.''
According to Section 611(c) of the Act, ``After 30 months after the
enactment of the Clean Air Act Amendments of 1990, and before January
1, 2015, no product containing
[[Page 16382]]
a class II substance shall be introduced into interstate commerce
unless it bears the label [referred to above] if the Administrator
determines, after notice and opportunity for public comment, that there
are substitute products or manufacturing processes (A) that do not rely
on the use of such class II substance, (B) that reduce the overall risk
to human health and the environment, and (C) that are currently or
potentially available.'' Section 611(d) of the Act contains the same
requirements for products manufactured with class II substances.
Beginning January 1, 2015, all products containing or manufactured with
a class II substance must bear the specified label regardless of
whether the Administrator has made a determination regarding the
availability of substitutes (Secs. 611(c)(2) and 611(e)(5)). Therefore,
the issue upon which EPA is requesting comment is whether EPA should,
prior to January 1, 2015, require labels on certain products containing
or manufactured with class II substances.
B. SNAP Approval and Restrictions
Section 612 of the Act requires EPA to promulgate rules making it
unlawful to replace any class I or class II substance with any
substitute substance that may present adverse effects to human health
or the environment, where EPA has identified an alternative to such
replacement that ``(1) reduces the overall risk to human health and the
environment; and (2) is currently or potentially available.'' In
accordance with Section 612 of the Act, and under the Significant New
Alternatives Policy (SNAP) program, EPA publishes lists of acceptable
and unacceptable substitutes for class I and class II substances. In
some SNAP sector end-uses, class II substances have been listed as
acceptable substitutes. Class II substances are viewed by the Agency as
transition chemicals that facilitate the transition out of more harmful
class I chemicals. Since 1994, availability of zero-ODP alternatives
has increased in a number of end-uses. It is therefore possible that
existing SNAP determinations allowing HCFC end-uses could be revised to
make them unacceptable for use. This could happen through three
mechanisms.
First, EPA could receive a petition from a company to add a
substance to or delete a substance from the SNAP list of acceptable and
unacceptable alternatives (See Section 612(d)). Second, EPA could
receive notification from a company before introduction of a substitute
into interstate commerce for significant new use as an alternative to a
class II substance (See Section 612(e)). Finally, EPA can initiate
changes to the SNAP determinations independent of any petitions or
notifications received. Such changes could be based on new data either
on additional substitutes or on characteristics of substitutes
previously reviewed.
EPA solicits comments on the possibility of controlling HCFCs
through SNAP determinations.
C. Nonessential Product Ban under Section 610
Section 610(d) of the Act prohibits the sale, distribution, or
offer for sale or distribution in interstate commerce, of certain
nonessential products that contain or are made with class II
substances. EPA is authorized to grant exceptions to the ban under
certain conditions. Since the issuance of the final rule providing
exemptions from the statutory Class II nonessential products ban, EPA
has received information, including information on new substitutes for
making certain products, indicating that it may be necessary to
reconsider the continued appropriateness of those exemptions. The
Agency also is aware that since the issuance of that initial final
rulemaking, there has been further substitution away from ozone-
depleting substances in aerosols and pressurized dispensers. EPA is
currently reviewing information concerning the aerosol products and
pressurized dispensers that were given exemptions in the December 1993
rulemaking. In particular, the Agency is evaluating whether there are
technologically available substitutes for the HCFCs used in these
products. When EPA completes its evaluation of the existing exemptions
for HCFCs, if appropriate, the Agency will issue a notice of proposed
rulemaking. Potentially removing some of these products from the
current exemptions to the nonessential product ban could provide some
further assurance that the U.S. would not exceed its cap for class II
substances under the Protocol.
IV. Administrative Requirements
A. Executive Order 12866
Under Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993),
the Agency must determine whether this regulatory action is
``significant'' and therefore subject to Office of Management and
Budget (OMB) review and the requirements of the Executive Order. The
E.O. defines ``significant regulatory action'' as any regulatory action
(including an advanced notice of proposed rulemaking) that is likely to
result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or,
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
It has been determined by OMB and EPA that this action is a
``significant regulatory action'' under the terms of Executive Order
12866 and is therefore subject to OMB review under the Executive Order.
This notice was reviewed by OMB and changes recommended by OMB have
been made and documented for the public record.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. Small entities include small
businesses, small not-for-profit enterprises, and small governmental
jurisdictions.
EPA determined that the members of the regulated community that may
be directly affected by this rulemaking are generally not small
businesses. Small governments and small not-for-profit organizations
would not be subject to the options in today's notice. The options
discussed in today's notice are directed to large, multinational
corporations that either produce, import, export, transform or destroy
ozone-depleting chemicals covered by this notice. The options discussed
in this notice, therefore, will not have a significant economic impact
on a substantial number of small entities.
C. Applicability of Executive Order 13045: Children's Health Protection
Executive Order 13045: ``Protection of Children from Environmental
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies
to any rule that: (1) is determined to be ``economically significant''
as defined under E.O. 12866, and (2) concerns an
[[Page 16383]]
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, the Agency must evaluate the environmental health
or safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the Agency.
EPA interprets E.O. 13045 as applying only to those regulatory
actions that are based on health or safety risks, such that the
analysis required under section 5-501 of the Order has the potential to
influence the regulation. This notice is not subject to E.O. 13045
because it presents options to implement a previously promulgated
health or safety-based Federal standard, which in this case would be
the accelerated phaseout schedule for HCFCs (58 FR 65018).
D. National Technology Transfer and Advancement Act
The National Technology Transfer and Advancement Act of 1995
(NTTAA), Sec. 12(d), Pub. L. 104-113, requires federal agencies and
departments to use technical standards that are developed or adopted by
voluntary consensus standards bodies, using such technical standards as
a means to carry out policy objectives or activities determined by the
agencies and departments. If use of such technical standards is
inconsistent with applicable law or otherwise impractical, a federal
agency or department may elect to use technical standards that are not
developed or adopted by voluntary consensus standards bodies if the
head of the agency or department transmits to the Office of Management
and Budget an explanation of the reasons for using such standards.
This advance notice does not mandate the use of any technical
standards; accordingly, the NTTAA does not apply to this advance
notice.
Annex A: Ozone Depletion Potentials for Class II Substances as Currently
Listed under the Montreal Protocol*
Dichlorofluoromethane (HCFC-21)................ 0.04
Monochlorodifluoromethane (HCFC-22)............ 0.055
Monochlorofluoromethane (HCFC-31).............. 0.02
Tetrachlorofluoroethane (HCFC-121)............. 0.01-0.04
Trichlorodifluoroethane (HCFC-122)............. 0.02-0.08
Dichlorotrifluoroethane (HCFC-123)............. 0.02
Monochlorotetrafluoroethane (HCFC-124)......... 0.022
Trichlorofluoroethane (HCFC-131)............... 0.007-0.05
Dichlorodifluoroethane (HCFC-132b)............. [reserved]
Monochlorotrifluoroethane (HCFC-133a).......... 0.02-0.06
Dichlorofluoroethane (HCFC-141b)............... 0.11
Monochlorodifluoroethane (HCFC-142b)........... 0.065
Hexachlorofluoropropane (HCFC-221)............. 0.015-0.07
Pentachlorodifluoropropane (HCFC-222).......... 0.01-0.09
Tetrachlorotrifluoropropane (HCFC-223)......... 0.01-0.08
Trichlorotrifluoropropane (HCFC-224)........... 0.01-0.09
Dichloropentafluoropropane (HCFC-225ca)........ 0.025
Dichloropentafluoropropane (HCFC-225cb)........ 0.033
Monochlorohexafluoropropane (HCFC-226)......... 0.02-0.10
Pentachlorofluoropropane (HCFC-231)............ 0.05-0.09
Tetrachlorodifluoropropane (HCFC-232).......... 0.008-0.10
Trichlorotrifluoropropane (HCFC-233)........... 0.007-0.23
Dichlorotetrafluoropropane (HCFC-234).......... 0.01-0.28
Monochloropentafluoropropane (HCFC-235)........ 0.03-0.52
Tetrachlorofluoropropane (HCFC-241)............ 0.004-0.09
Trichlorodifluoropropane (HCFC-242)............ 0.005-0.13
Dichlorotrifluoropropane (HCFC-243)............ 0.007-0.12
Monochlorotetrafluoropropane (HCFC-244)........ 0.009-0.14
Trichlorofluoropropane (HCFC-251).............. 0.001-0.01
Dichlorodifluoropropane (HCFC-252)............. 0.005-0.04
Monochlorotrifluoropentane (HCFC-253).......... 0.003-0.03
Dichlorofluoropropane (HCFC-261)............... 0.002-0.02
Monochlorodifluoropropane (HCFC-262)........... 0.002-0.02
Monochlorofluoropropane (HCFC-271)............. 0.001-0.03
*According to Annex C of the Protocol, ``Where a range of ODPs is
indicated, the highest value in that range shall be used for the
purposes of the Protocol. The ODPs listed as a single value have been
determined from calculations based on laboratory measurements. Those
listed as a range are based on estimates and are less certain. The
range pertains to an isomeric group. The upper value is the estimate
of the ODP of the isomer with the highest ODP, and the lower value is
the estimate of the ODP of the isomer with the lowest ODP.''
List of Subjects in 40 CFR Part 82
Environmental protection, Allowances, Administration practice and
procedure, Air pollution control, Chemicals, Chlorofluorocarbons,
Exports, Hydrochlorofluorocarbons, Imports, Montreal Protocol,
Production, Reporting and recordkeeping requirements, Stratospheric
ozone layer.
Dated: March 29, 1999.
Carol M. Browner,
Administrator.
[FR Doc. 99-8258 Filed 4-2-99; 8:45 am]
BILLING CODE 6506-50-P