[Federal Register Volume 88, Number 138 (Thursday, July 20, 2023)]
[Rules and Regulations]
[Pages 46836-46898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14312]
[[Page 46835]]
Vol. 88
Thursday,
No. 138
July 20, 2023
Part II
Environmental Protection Agency
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40 CFR Part 84
Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology for
2024 and Later Years; Final Rule
Federal Register / Vol. 88, No. 138 / Thursday, July 20, 2023 / Rules
and Regulations
[[Page 46836]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 84
[EPA-HQ-OAR-2022-0430; FRL-8838-02-OAR]
RIN 2060-AV45
Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology
for 2024 and Later Years
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: The U.S. Environmental Protection Agency (EPA) is amending
existing regulations to implement certain provisions of the American
Innovation and Manufacturing Act. This rule establishes the methodology
for allocating hydrofluorocarbon production and consumption allowances
for the calendar years of 2024 through 2028. EPA is also amending the
consumption baseline to reflect updated data and to make other
adjustments based on lessons learned from implementation of the
hydrofluorocarbon phasedown program thus far, including to: codify the
existing approach of how allowances must be expended for import of
regulated substances, revise recordkeeping and reporting requirements,
and implement other modifications to the existing regulations.
DATES: This final rule is effective on September 18, 2023, except for
amendatory instructions 3 and 13, which are effective October 1, 2024.
The incorporation by reference (IBR) of certain publications listed in
the rule is approved by the Director of the Federal Register as of July
20, 2023, and for certain other publications listed in the rule as of
October 1, 2024.
ADDRESSES: The (EPA) has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2022-0430. All documents in the docket are
listed on the https://www.regulations.gov website. Although listed in
the index, some information is not publicly available, e.g.,
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Certain other material, such as
copyrighted material, is not placed on the internet and will be
publicly available only in hard-copy form. Publicly available docket
materials are available electronically through https://www.regulations.gov or in hard copy at the EPA Docket Center, Room
3334, WJC West Building, 1301 Constitution Avenue NW, Washington, DC.
The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday
through Friday, excluding legal holidays. The telephone number for the
Public Reading Room is (202) 566-1744, and the telephone number for the
EPA Docket Center is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: John Feather, U.S. Environmental
Protection Agency, Stratospheric Protection Division, telephone number:
202-564-1230; or email address: [email protected]. You may also
visit EPA's website at https://www.epa.gov/climate-hfcs-reduction for
further information.
SUPPLEMENTARY INFORMATION: Throughout this document, whenever ``we,''
``us,'' ``the Agency,'' or ``our'' is used, we mean EPA. Acronyms that
are used in this rulemaking that may be helpful include:
ABI--Automated Broker Interface
AD/CVD--Antidumping and Countervailing Duty
AES--Automated Export System
AHRI--Air-Conditioning, Heating, and Refrigeration Institute
AIM Act--American Innovation and Manufacturing Act of 2020
ANSI--American National Standards Institute
ASHRAE--American Society of Heating, Refrigerating and Air-
Conditioning Engineers
CAA--Clean Air Act
CBI--Confidential Business Information
CBP--U.S. Customs and Border Protection
CFR--Code of Federal Regulations
CO2--Carbon Dioxide
CRA--Congressional Review Act
DoC--Department of Commerce
DBA--Doing Business As
e-GGRT--Electronic Greenhouse Gas Reporting Tool
EEI--Electronic Export Information
EPA--U.S. Environmental Protection Agency
EVe--Exchange Value Equivalent
FR--Federal Register
GHG--Greenhouse Gas
GHGRP--Greenhouse Gas Reporting Program
GWP--Global Warming Potential
HAP--Hazardous Air Pollutants
HCFC--Hydrochlorofluorocarbon
HFC--Hydrofluorocarbon
HFO--Hydrofluoroolefin
HTS--Harmonized Tariff Schedule
HVAC--Heating, Ventilation, and Air Conditioning
ICR--Information Collection Request
IEC--International Electrotechnical Commission
IMO--International Maritime Organization
IPCC--Intergovernmental Panel on Climate Change
ISO--International Organization for Standardization
ITN--Internal Transaction Number
LCD--Liquid Carbon Dioxide
MMTCO2e--Million Metric Tons of Carbon Dioxide Equivalent
MMTEVe--Million Metric Tons of Exchange Value Equivalent
MTEVe--Metric Tons of Exchange Value Equivalent
MVAC--Motor Vehicle Air Conditioning
NAICS--North American Industry Classification System
NATA--National Air Toxics Assessment
ODS--Ozone-Depleting Substances
OEM--Original Equipment Manufacturer
OSHA--Occupational Safety and Health Administration
PRA--Paperwork Reduction Act
RACA--Request for Additional Consumption Allowances
RFA--Regulatory Flexibility Act
RIA--Regulatory Impact Analysis
SISNOSE--Significant Economic Impact on a Substantial Number of
Small Entities
TCE--trichloroethylene
TRI--Toxics Release Inventory
UMRA--Unfunded Mandates Reform Act
XPS--Extruded Polystyrene
Table of Contents
I. Executive Summary
A. Purpose of the Regulatory Action
B. Summary of the Major Provisions of the Regulatory Action
II. General Information
A. Does this action apply to me?
B. What are HFCs?
C. What is the AIM Act, and what authority does it provide to
EPA as it relates to this action?
III. How is EPA determining allowance allocations starting in 2024?
A. For which years is EPA establishing the allocation
methodology?
B. What is EPA's framework for determining how many allowances
each entity receives?
1. Which methodology is EPA using as the basis for allocations?
2. What other allocation methodologies did EPA consider?
3. What did EPA consider in developing its final rule as to the
appropriate entities to be allocated allowances?
C. How is EPA accounting for past production or import activity
to determine allocation eligibility?
D. Can allowances be transferred or conferred prior to the
calendar year?
IV. How is EPA updating the consumption baseline?
V. How is EPA revising requirements related to allowances for
import?
A. Codifying the Point in Time That an Allowance Must Be
Expended To Import Regulated Substances
B. Who must expend allowances for import?
C. Existing Requirement To Expend Allowances for Regulated
Substance Components of Blends
D. Consideration of Presumed Amount for Heel Imports of Unknown
Quantity
VI. How is EPA clarifying and revising recordkeeping and reporting
requirements?
A. How is EPA modifying the import reporting requirements?
1. Specify Reporting Obligations on the Importer of Record
2. Modify Advance Notification of Import Requirements
3. Clarify the Reporting of Heels
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4. Changes to and Requirement of Importer of Record Information
5. Joint and Several Liability for Importer Reporting
Requirements
B. Consideration of Modifying Recordkeeping and Reporting
Requirements Regarding Expending Allowances
C. Modify the Reporting of Regulated Substances Produced for
Transformation, Destruction or Use as a Process Agent at a Different
Facility Under the Same Owner
D. Considered Additional HFC Production Facility Emissions
Reporting Requirements
VII. How is EPA revising sampling and testing requirements?
A. Sampling and Testing Methodology Requirements
B. Recordkeeping of Tests
C. Define ``Batch'' and ``Representative Sample'' and Clarify
the Relationship Between These Terms
D. Laboratory Methods and Accreditation
E. Certificate of Analysis for Imports of Regulated Substances
VIII. What other revisions is EPA finalizing?
A. Define the Term ``Expend''
B. Modify Labeling Requirements
C. Clarify Ability To Move Allowances Among Companies With
Certain Affiliation Without a Transfer
D. Revise Required Elements To Request Additional Consumption
Allowances
E. Considered Petitions To Import Regulated Substances for
Laboratory Testing With Eventual Destruction
IX. What are the costs and benefits of this action?
X. How is EPA considering environmental justice?
XI. Judicial Review
XII. Statutory and Executive Order Review
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 14094: Modernizing Regulatory Review
B. Paperwork Reduction Act (PRA)
C. Regulatory Flexibility Act (RFA)
D. Unfunded Mandates Reform Act (UMRA)
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children Fom
Environmental Health Risks and Safety Risks
H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use
I. National Technology Transfer and Advancement Act and
Incorporation by Reference
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
K. Congressional Review Act (CRA)
I. Executive Summary
A. Purpose of the Regulatory Action
EPA is finalizing amendments to existing regulations to implement
certain provisions of the American Innovation and Manufacturing Act of
2020 (AIM Act), as enacted on December 27, 2020. The Act mandates the
phasedown of hydrofluorocarbons (HFCs), which are highly potent
greenhouse gases (GHGs), by 85 percent by 2036. The Act directs EPA to
implement the phasedown by issuing a fixed quantity of transferrable
production and consumption allowances, which producers and importers of
HFCs must expend in quantities equal to the amount of HFCs they produce
or import. To continue implementation of the allowance program and the
overall phasedown of HFCs, this rulemaking establishes the allowance
allocation methodology for calendar years 2024 through 2028,\1\ adjusts
the consumption baseline based on updated data received and further
reviews, and revises provisions to support implementation of,
compliance with, and enforcement of statutory and regulatory
requirements under the AIM Act's phasedown provisions.
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\1\ In the context of this rule, ``2024 through 2028'' means
``2024 through, and including, 2028.''
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Under the AIM Act, by October 1 of each calendar year EPA must
calculate and determine the quantity of production and consumption
allowances for the following year. Using the procedure established
through this rulemaking, the Agency intends to both issue allowances
for the 2024 calendar year no later than October 1, 2023, and continue
allocating annually, through the calendar year 2028 allowances, no
later than October 1 of the previous year.
B. Summary of the Major Provisions of the Regulatory Action
Allowance Allocation Methodology: In this rule EPA establishes the
methodology for allocating production and consumption allowances for
calendar years 2024 through 2028. The Agency is basing these general
pool allocations on entities' market shares derived from the average of
the three highest years of production and consumption, respectively, of
regulated substances between 2011 and 2019. To be eligible to receive
general pool allowances for 2024 through 2028 based on historic
production and import activity, an entity must have produced or
imported bulk regulated substances in 2021 or 2022. For participants in
the new market entrant pool, EPA will determine for each former new
market entrant a stand-in high three-year average based on the number
of allowances allocated in 2023 and the percent reduction all general
pool allowance holders experience in 2023 relative to the average of
their three highest years of consumption. The Agency is also clarifying
that entities may confer or transfer allowances at any point after they
are allocated until the allowance expires at the end of the calendar
year for which it was allocated.
Consumption Baseline: EPA is amending the consumption baseline from
303,887,017 Metric Tons of Exchange Value Equivalent (MTEVe) to
302,538,316 MTEVe to account for verified revisions from entities for
2011 through 2013 and the Agency's internal review of baseline
calculation methodologies.
Imports and Allowance Expenditures: EPA is revising existing
language to require that allowances be expended at the time of ship
berthing for vessel arrivals, border crossing for land arrivals such as
trucks, rail, and autos, and first point of terminus in U.S.
jurisdiction for arrivals via air. The Agency is also adding
requirements that only the importer of record can expend allowances and
that the importer of record be in possession of allowances in the
amount that will need to be expended at the time of filing their
advance report. Associated with these requirements, EPA is amending
existing provisions to make it clear that any person who meets the
definition of an importer in the 40 CFR part 84 regulations could be
held liable for imports of regulated substances without necessary
expenditure of allowances unless they can demonstrate that the importer
of record possessed and expended the appropriate allowances.
Furthermore, the Agency is making a revision to reflect and further
clarify the existing requirement that allowances must be expended to
import bulk regulated substances regardless of whether the import is of
an HFC that is imported as a single component or as part of a
multicomponent substance.
Recordkeeping and Reporting: EPA is revising and adding
requirements to a variety of recordkeeping and reporting provisions,
including provisions to specify that the importer of record or their
authorized agent must file the advance notification and quarterly
reports; require the submission of both the net weight (or net product
weight) and gross weight (net weight plus container weight), as well as
unit of mass (i.e., kilogram), for each container in the shipment in
the advance notification report; shorten the advance notification
reporting requirements to 5 days in advance for truck, rail, air, and
other non-sea arrivals and 10 days in advance for sea arrivals;
reiterate that the harmonized tariff schedule (HTS)
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Code for the regulated substance must be used for the import of any
regulated substance; require that certain information must be submitted
by any entity anticipating being the importer of record for a shipment
of regulated substances by November 15 of the prior calendar year;
require reporting of the name, quantity, and recipient facility for
regulated substances produced at one facility for transformation,
destruction, or use as a process agent at another facility owned by the
same entity; and to add the Internal Transaction Numbers (ITN) and
Electronic Export Information (EEI) documents as required data elements
for Request for Additional Consumption Allowance (RACA) submissions.
Sampling and Testing: EPA is amending requirements related to
verifying composition and specifications of regulated substances
offered for sale or distribution. These revisions establish additional
verification requirements and codify procedures to be followed to meet
the requirement to test a representative sample. The Agency is
finalizing the following provisions to add that already required
sampling and testing of regulated substances must follow a combination
of methodologies to verify the label composition for all applications;
require sampling and testing by exporters; add a requirement to sample
and test under specified methodology to ensure compliance with the
existing requirements concerning specifications; define the records
required associated with testing and add recordkeeping requirements for
fire suppression recyclers, repackagers, and exporters; add definitions
of ``batch'' and ``representative sample'' and clarify the relationship
between these terms; add a definition for ``laboratory testing'' such
that laboratories must be certified or accredited; and add a
requirement that certificates of analysis accompany all imports of
regulated substances.
Other Revisions: EPA is also finalizing additional regulatory
changes based on lessons learned and current practices that have proved
useful in implementing the HFC phasedown. Among these, the Agency is
defining ``expend'' to mean to subtract the number of allowances
required for the production or import of regulated substances under 40
CFR part 84 from a person's unexpended allowances. EPA is also adding
more detail and specificity concerning features on all labels or
markings and specifying that no one other than the importer of record
may repackage or relabel regulated substances which were initially
unlabeled or mislabeled. The Agency is clarifying that allowances can
be expended by parents, subsidiaries, sister, or commonly owned
companies without a transfer.
II. General Information
A. Does this action apply to me?
You may be potentially affected by this action if you produce,
import, export, destroy, use as a feedstock or process agent, reclaim,
or recycle HFCs. Potentially affected categories, North American
Industry Classification System (NAICS) codes, and examples of
potentially affected entities are included in Table 1.
Table 1--NAICS Classification of Potentially Affected Entities
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NAICS Code NAICS industry description
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325120....................... Industrial Gas Manufacturing.
325199....................... All Other Basic Organic Chemical
Manufacturing.
325211....................... Plastics Material and Resin
Manufacturing.
325412....................... Pharmaceutical Preparation Manufacturing.
325414....................... Biological Product (except Diagnostic)
Manufacturing.
325998....................... All Other Miscellaneous Chemical Product
and Preparation Manufacturing.
326220....................... Rubber and Plastics Hoses and Belting
Manufacturing.
326150....................... Urethane and Other Foam Product
326299....................... All Other Rubber Product Manufacturing.
333415....................... Air[dash]Conditioning and Warm Air
Heating Equipment and Commercial and
Industrial Refrigeration Equipment
Manufacturing.
333511....................... Industrial Mold Manufacturing.
334413....................... Semiconductor and Related Device
Manufacturing.
334419....................... Other Electronic Component Manufacturing.
334510....................... Electromedical and Electrotherapeutic
Apparatus Manufacturing.
336212....................... Truck Trailer Manufacturing.
336214....................... Travel Trailer and Camper Manufacturing.
336411....................... Aircraft Manufacturing.
336611....................... Ship Building and Repairing.
336612....................... Boat Building.
339112....................... Surgical and Medical Instrument
Manufacturing.
423720....................... Plumbing and Heating Equipment and
Supplies (Hydronics) Merchant
Wholesalers.
423730....................... Warm Air Heating and
Air[dash]Conditioning Equipment and
Supplies Merchant Wholesalers.
423740....................... Refrigeration Equipment and Supplies
Merchant Wholesalers.
423830....................... Industrial Machinery and Equipment
Merchant Wholesalers.
423840....................... Industrial Supplies Merchant Wholesalers.
423860....................... Transportation Equipment and Supplies
(except Motor Vehicle) Merchant
Wholesalers.
424690....................... Other Chemical and Allied Products
Merchant Wholesalers.
488510....................... Freight Transportation Arrangement.
541380....................... Testing Laboratories.
541714....................... Research and Technology in Biotechnology
(except Nanobiotechnology).
562111....................... Solid Waste Collection.
562211....................... Hazardous Waste Treatment and Disposal.
562920....................... Materials Recovery Facilities.
922160....................... Fire Protection.
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This table is not intended to be exhaustive, but rather provide a
guide for readers regarding entities likely to be affected by this
action. Other types of entities not listed in this section could also
be affected. If you have any questions regarding the applicability of
this action to a particular entity, consult the person listed under the
FOR FURTHER INFORMATION CONTACT section.
B. What are HFCs?
HFCs are anthropogenic \2\ fluorinated chemicals that have no known
natural sources. HFCs are used in a variety of applications such as
refrigeration and air conditioning, foam blowing agents, solvents,
aerosols, and fire suppression. HFCs are potent GHGs with 100-year
global warming potentials (GWPs) (a measure of the relative climatic
impact of a GHG) that can be hundreds to thousands of times that of
carbon dioxide (CO2).
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\2\ While the overwhelming majority of HFC production is
intentional, EPA is aware that HFC-23 can be a byproduct associated
with the production of other chemicals, including but not limited to
hydrochlorofluorocarbon (HCFC)-22 and other fluorinated gases.
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HFC use and emissions have been growing worldwide due to the global
phaseout of ozone-depleting substances (ODS) under the Montreal
Protocol on Substances that Deplete the Ozone Layer (Montreal
Protocol), and the increasing use of refrigeration and air-conditioning
equipment globally.\3\ HFC emissions had previously been projected to
increase substantially over the next several decades. In 2016, in
Kigali, Rwanda, countries agreed to adopt an amendment to the Montreal
Protocol, known as the Kigali Amendment, which provides for a global
phasedown of the production and consumption of HFCs. The United States
ratified the Kigali Amendment on October 31, 2022. Global adherence to
the Kigali Amendment would substantially reduce future emissions,
leading to a peaking of HFC emissions before 2040.4 5
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\3\ World Meteorological Organization (WMO), Scientific
Assessment of Ozone Depletion: 2018, World Meteorological
Organization, Global Ozone Research and Monitoring Project--Report
No. 58, 67 pp., Geneva, Switzerland, 2018. https://ozone.unep.org/sites/default/files/2019-05/SAP-2018-Assessment-report.pdf.
\4\ Ibid.
\5\ A recent study estimated that global compliance with the
Kigali Amendment is expected to lower 2050 annual emissions by 3.0-
4.4 Million Metric Tons of Carbon Dioxide Equivalent
(MMTCO2e). Guus J.M. Velders et al. Projections of
hydrofluorocarbon (HFC) emissions and the resulting global warming
based on recent trends in observed abundances and current policies.
Atmos. Chem. Phys., 22, 6087-6101, 2022. Available at https://doi.org/10.5194/acp-22-6087-2022.
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There are hundreds of possible HFC compounds. The 18 HFCs listed as
regulated substances by the AIM Act are some of the most commonly used
HFCs (neat and in blends) and have high impacts as measured by the
quantity of each substance emitted multiplied by their respective GWPs.
These 18 HFCs are all saturated, meaning they have only single bonds
between their atoms, and therefore have longer atmospheric lifetimes.
More detailed information on HFCs, their uses, and their impacts is
available in this rulemaking's proposal (87 FR 66375, November 3, 2022)
and associated supporting documentation, available in the docket for
this action (Docket ID No. EPA-HQ-OAR-2022-0430).
We also discuss costs and benefits associated with this action in
section IX of this preamble, and consider potential environmental
justice impacts in section X of this preamble.
C. What is the AIM Act, and what authority does it provide to EPA as it
relates to this action?
On December 27, 2020, the AIM Act was enacted as section 103 in
Division S, Innovation for the Environment, of the Consolidated
Appropriations Act, 2021 (42 U.S.C. 7675). The AIM Act authorizes EPA
to address HFCs in three main ways: phasing down HFC production and
consumption through an allowance allocation program, facilitating
sector-based transitions to next-generation technologies, and
promulgating certain regulations for purposes of maximizing reclamation
and minimizing releases of HFCs from equipment. This rulemaking focuses
on the first area--the phasedown of the production and consumption of
HFCs.
Subsection (e) of the AIM Act gives EPA authority to phase down the
production and consumption of listed HFCs through an allowance
allocation and trading program. Subsection (c)(1) of the AIM Act lists
18 saturated HFCs, and by reference any of their isomers not so listed,
that are covered by the statute's provisions, referred to as
``regulated substances'' under the Act. Congress also assigned an
``exchange value'' 6 7 to each regulated substance (along
with other chemicals that are used to calculate the baseline). EPA has
codified the list of the 18 regulated substances and their exchange
values in appendix A to 40 CFR part 84. Congress gave EPA authority to
designate new regulated substances under subsection (c)(3), but the
Agency is not here designating any new regulated substances, just as
the Agency did not designate any new regulated substances in the
previous October 5, 2021, rulemaking (86 FR 55116; hereinafter called
the Allocation Framework Rule; see ``Response to Comments'' page 193
for Docket ID No. EPA-HQ-OAR-2021-0044).
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\6\ EPA has determined that the exchange values included in
subsection (c) of the AIM Act are identical to the GWPs included in
the Intergovernmental Panel on Climate Change (IPCC) (2007). EPA
uses the terms ``global warming potential'' and ``exchange value''
interchangeably in this proposal.
\7\ IPCC (2007): Solomon, S., D. Qin, M. Manning, R.B. Alley, T.
Berntsen, N.L. Bindoff, Z. Chen, A. Chidthaisong, J.M. Gregory, G.C.
Hegerl, M. Heimann, B. Hewitson, B.J. Hoskins, F. Joos, J. Jouzel,
V. Kattsov, U. Lohmann, T. Matsuno, M. Molina, N. Nicholls, J.
Overpeck, G. Raga, V. Ramaswamy, J. Ren, M. Rusticucci, R.
Somerville, T.F. Stocker, P. Whetton, R.A. Wood and D. Wratt, 2007:
Technical Summary. In: Climate Change 2007: The Physical Science
Basis. Contribution of Working Group I to the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change [Solomon,
S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor
and H.L. Miller (eds.)]. Cambridge University Press, Cambridge,
United Kingdom and New York, NY, USA https://www.ipcc.ch/report/ar4/wg1.
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The AIM Act requires EPA to phase down the consumption and
production of the statutorily listed HFCs on an exchange value-weighted
basis according to the schedule in subsection (e)(2)(C) of the AIM Act.
The AIM Act requires that the EPA Administrator ensures the annual
quantity of all regulated substances produced or consumed \8\ in the
United States does not exceed the applicable percentage listed for the
production or consumption baseline. EPA has codified the phasedown
schedule at 40 CFR 84.7.
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\8\ In the context of allocating and expending allowances, EPA
interprets the word ``consume'' as the verb form of the defined term
``consumption.'' For example, subsection (e)(2)(A), states the
phasedown consumption prohibition as ``no person shall . . . consume
a quantity of a regulated substance without a corresponding quantity
of consumption allowances.'' While a common usage of the word
``consume'' means ``use,'' EPA does not believe that Congress
intended for everyone who charges an appliance or fills an aerosol
can with an HFC to expend allowances.
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To implement the directive that the production and consumption of
regulated substances in the United States does not exceed the statutory
targets, the AIM Act in subsection (e)(3) requires EPA to issue
regulations establishing an allowance allocation and trading program to
phase down the production and consumption of the listed HFCs. These
allowances are limited authorizations for the production or consumption
of regulated substances. Subsection (e)(2) of the Act has a general
prohibition that no person \9\ shall produce or consume a
[[Page 46840]]
quantity of regulated substances in the United States without a
corresponding quantity of allowances.
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\9\ Under the Act's term, this general prohibition applies to
any ``person.'' Because EPA anticipates that the parties that
produce or consume HFCs--and that would thus be subject to the Act's
production and consumption controls--are companies or other
entities, we frequently use those terms to refer to regulated
parties in this rule. Using this shorthand, however, does not alter
the applicability of the Act's or regulation's requirements and
prohibitions. Similarly, in certain instances EPA may use these
terms interchangeably in this rule preamble, but such differences in
terminology should not be viewed to carry a material distinction in
how EPA interprets or is planning to apply the requirements
discussed herein.
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EPA published the Allocation Framework Rule, which, among other
things: established the HFC production and consumption baselines;
determined an initial approach to allocating production and consumption
allowances for 2022 and 2023, identifying both the entities receiving
allowances and how to determine what quantities of allowances they
would receive; established a process for issuing ``application-
specific'' allowances to entities in six specific applications listed
in subsection (e)(4)(B)(iv) of the AIM Act; created a set-aside pool of
allowances for new entrants and entities for which the Agency did not
have verifiable data prior to the finalization of the rule; established
provisions for the transfer of allowances; established recordkeeping
and reporting requirements; and established a suite of compliance and
enforcement-related provisions. Unless otherwise stated in the sections
included in this action, EPA's requirements and revisions are based on
the same interpretations of the AIM Act, and the Clean Air Act (CAA) as
applicable under subsection (k) of the AIM Act, as discussed in the
Allocation Framework Rule. EPA also has authority to prevent and
identify noncompliance and to create a level playing field for the
regulated community.
III. How is EPA determining allowance allocations starting in 2024?
Subsection (e)(3) of the AIM Act requires EPA to implement the
statutorily established phasedown of the production and consumption of
regulated substances through ``an allowance allocation and trading
program.'' Additional discussion of how allowances work, including the
decision to allocate consumption and production allowances on an
exchange-weighted basis, is available in the Allocation Framework Rule
at 86 FR 55142-43. This approach was not reopened in this action.
This section provides an overview of EPA's methodology for issuing
calendar year production and consumption allowances starting in
calendar year 2024. In the Allocation Framework Rule, EPA codified an
initial approach to allocating production and consumption allowances
for calendar years 2022 and 2023, but did not establish any allocation
methodology for further years. EPA made clear that the Agency intended
to revisit how to allocate production and consumption allowances for
2024 and beyond. EPA presented and took advance comment on ideas on
potential criteria and a framework for issuing allowances for 2024 and
later years. EPA stated that comments received on the elements noted
for advance comment would be taken under advisement by the Agency and
incorporated, as appropriate, in future and separate rulemakings with
an opportunity for public comment prior to finalization of any
provisions. Accordingly, EPA considered the advance comments provided
on potential methodologies for allocating allowances starting with
calendar year 2024 allowances in development of the proposed
rulemaking. Those comments can be found at Docket ID No. EPA-HQ-OAR-
2021-0044. EPA is not including those comments in the docket for this
rule, does not consider those advance comments to be part of this
rulemaking record, and does not anticipate providing any further
response to them. Comments received during the public comment period
for this rulemaking on how EPA may allocate production and consumption
allowances for 2024 and beyond will be addressed either in the preamble
of this rulemaking or the response to comments document, available in
the docket.
EPA did not reopen the methodology for issuing application-specific
allowances, and the existing application-specific allowance allocation
methodology codified at 40 CFR 84.13 will continue to apply as
finalized in the Allocation Framework Rule. The Agency has begun
development of a rule to review and consider whether to renew
eligibility for each of the six applications for application-specific
allowances and to consider revisions to existing regulatory
requirements. EPA is planning to issue a proposed rulemaking in the
first half of 2024.
A. For which years is EPA establishing the allocation methodology?
EPA is finalizing as proposed that the methodology for allocating
production and consumption allowances described in this section of the
preamble will apply for allocation of allowances for calendar year 2024
through calendar year 2028. During these five years, the annual
production and consumption caps established in the AIM Act will be 60
percent of the baseline.\10\
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\10\ In 2029, the production and consumption caps decline to 30
percent of baseline.
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While the Agency's primary proposal was to establish an allowance
methodology through 2028 and reassess the methodology for allocation of
calendar year 2029 production and consumption allowances, EPA also
considered whether it may be less disruptive to the market to reassess
and potentially change methodologies in a year prior to or after a
phasedown step (e.g., alter the methodology for allocation of calendar
year 2028 or 2030 allowances, instead of aligning with the next
phasedown step in 2029). Additionally, EPA sought input on whether it
would be appropriate to establish the methodology through a different
phasedown step, such as through the allocation of calendar year 2036
allowances when the production and consumption caps reach 15 percent of
baseline.
Commenters had a variety of views. Approximately half of the
commenters on this topic supported EPA's approach of covering calendar
year 2024 through calendar year 2028. The remaining commenters on the
issue expressed a preference for or suggested that the Agency include
years beyond calendar year 2028, e.g., either through calendar year
2030 or through calendar year 2036. Of these, approximately half did
not object to the Agency's proposal of covering calendar year 2024
through calendar year 2028 but preferred a longer period, namely
through 2036. Commenters that supported extending EPA's allocation
methodology further into the future cited several factors. They
asserted that extending the applicable years for the methodology past
2028 would provide consistency and clarity to industry while
simultaneously preventing further disruption to the industry.
Commenters cited time, investments, and resources as integral to
implementing the phasedown, and extending the applicable years past
2028 would facilitate effective business planning, long-term
contracting, and a seamless transition to HFC substitutes. Another
benefit cited by commenters is that with a longer applicability period,
entities have greater ability to make critical decisions regarding
usage of allocations and supply planning. Several commenters also noted
that even if EPA were to extend the years covered by this rule past
2028, the mandated phasedown could still occur, i.e., a longer time
period would not change
[[Page 46841]]
the statutory and regulatory schedule and national targets for HFC
production and consumption.
In response, as explained in the proposed rulemaking, EPA used a
similar approach of periodically revisiting its allocation methodology
when phasing down HCFCs under Title VI of the CAA. Periodically
revisiting the allowance allocation methodology allowed the Agency to
respond to changing market conditions and/or challenges in program
implementation. Examples of changes in market conditions that the
Agency could potentially consider in revisiting its methodology in the
HFC phasedown include, among other things, companies entering or
exiting the market, significant quantities of allowances unexpended at
the end of the year, and/or supply shortages, or oversupplies, for
specific HFCs.
Implementing the allocation methodology through calendar year 2028
will allow EPA to review and revisit it in advance of the next
phasedown step, which occurs in 2029. EPA will be able to consider
lessons learned from implementation, prior year use of allowances, and
any concerns surrounding distribution of allowances prior to the next
reduction in the production and consumption caps. Even if the Agency
were to determine as part of the future rulemaking establishing an
allocation methodology for calendar year 2029 allowances that it should
not make any change in the allocation methodology, being able to make
that assessment is important for a smooth and successful phasedown for
the reasons described in this section. This approach also allows EPA to
consider whether regulatory changes are warranted as a result of market
shifts that may occur as a result of other regulations under the AIM
Act (e.g., final technology transition and HFC management rules).
Establishing a methodology for five years, as opposed to a shorter
period of time, is also intended to provide allowance holders a level
of predictability for allocation levels through the phasedown step.
As transition to substitutes continues, the market dynamics may
shift towards increased or decreased need for certain HFCs.
Specifically, on commenters' points in favor of extending the
methodology past calendar year 2028, EPA's proposed rulemaking also
explained that establishing a methodology from 2024 through 2028 (and
not shorter) is intended to provide allowance holders a predictable
understanding of a likely range of allocation levels for these five
years so they can make longer term decisions and plans about how to
deploy their allowances (e.g., whether to transfer or produce or import
directly). Any subsequent methodology rulemaking will also require
notice and comment, thereby providing EPA a predictable timeline for
evaluating potential challenges, sharing that information with the
regulated community, along with any proposed changes to remedy those
challenges, and stakeholders the opportunity to provide feedback.
Furthermore, with respect to business planning, long-term
contracting, HFC substitute transitions, and other issues related to
allocations and supply planning, EPA observes that independent of this
rulemaking or any other methodology rulemaking, entities can run
scenarios and anticipate various business, technology, or supply chain
models on their own. In other words, the timeline for the phasedown of
HFCs has been directed by the AIM Act and therefore entities know the
phasedown schedule. Even in the absence of knowing their individual
allocations for every year, companies are still able to plan for a
future where the amount of HFCs produced and imported will decrease,
recognizing those decreases are most acute in 2024 and 2029. Other AIM
Act regulations are expected to establish requirements that may affect
the HFC market, such as by restricting the use of regulated substances
in certain sectors and subsectors or by encouraging maximizing
reclamation and minimizing the release of a regulated substance from
equipment. Entities need not rely solely on EPA's phasedown
regulations--they can use all of these factors, including ongoing
technology and market transitions, to drive their planning (e.g.,
whether and when to transition their production or import to lower GWP
HFCs or substitutes). Lastly, the Agency notes that other Federal
regulations both with respect to HFCs and other media may inform and
provide insight on industry trends and forecasting that may facilitate
with entities' planning needs.
One commenter asserted that the AIM Act requires EPA to establish
an allowance methodology for 2024 through 2036. The commenter stated
that the AIM Act directed EPA to issue a singular ``final rule'' by
``270 days after December 27, 2020'', that provides for the phasedown
of the production and consumption of regulated substances ``through an
allowance allocation and trading program.'' The commenter seems to
argue that in referring to a singular final rule to establish an
allowance allocation program, Congress required EPA to promulgate a
singular final rule establishing an allowance allocation methodology
for the entire length of the HFC phasedown. The commenter points to
EPA's prior phasedown rule as a ``partial rule'' to implement the HFC
phasedown for 2022 and 2023 and alleges that EPA is now late in
finalizing a rule to address the Congressional mandate to establish the
allowance allocation program. The commenter noted that EPA was on a
short timeframe (270 days) to finalize the Allocation Framework Rule,
which was cited by EPA in putting out the partial rule addressing
allocation methodology for just two years, but EPA cannot rely on such
a rationale in this rulemaking, so the Agency now must fulfill its
statutory duty to promulgate a singular rule establishing the
allocation methodology through 2036. The commenter also contended that
EPA's rationale for establishing the allocation methodology only
through 2028, and examples of considerations for establishing future
methodology such as companies entering or exiting the market, corporate
mergers and acquisitions, significant quantities of allowances
unexpended at the end of the year, and/or supply shortages for specific
HFCs, are not a sufficient basis to ignore what the commenter contends
is a statutory directive to establish the allowance allocation
methodology through calendar year 2036. The commenter stated that while
it is possible, perhaps even inevitable, that the HFC market will
change over the next 12 to 13 years, this does not justify limiting the
allowance allocation methodology to calendar year 2024 through calendar
year 2028. Instead, the commenter contended that if EPA believes it has
the authority to adjust the allowance methodology to address the
changes in the HFC market described in the proposed rulemaking, the
Agency could seek to exert authority to do so when such conditions
become evident. Lastly, the commenter claimed that EPA's past practice
for the phaseout of HCFCs under Title VI of the CAA, i.e., a chemical
by chemical and prioritized system, does not provide the Agency with
either authority, direction, or relevance for the phasedown of HFCs.
EPA disagrees with the commenter's contention that AIM Act
subsection (e)(3) requires EPA to establish a permanent allowance
allocation methodology. EPA notes that the AIM Act required EPA to
establish regulations within 270 days of enactment, and EPA met the
directive of subsection (e)(3) in finalizing the Allocation Framework
Rule no later than 270 days after the passage of the
[[Page 46842]]
AIM Act. In the Allocation Framework Rule, EPA established the
baselines, codified the numeric phasedown schedule, established
requirements and prohibitions around production and consumption of
regulated substances without allowances, and created the regulatory
framework for allowance trading. This rulemaking fulfilled the
requirements of AIM Act subsection (e)(3) to ``issue a final rule''
phasing down production and consumption of regulated substances
``through an allowance allocation and trading program.'' In this
section of this final rule, EPA has outlined the reasons why it is
appropriate at this juncture to establish the allowance allocation
methodology through 2028 at which point the Agency will revisit the
allocation methodology.
Even if EPA were to agree with the commenter's contention regarding
the language in (e)(3), which the Agency does not, it is not clear why
the commenter's interpretation of it--that EPA must establish an
allowance allocation methodology through 2036--is correct either. In
the AIM Act, Congress mandated a phase down, not a phase out, of HFCs.
The final phasedown step is 15 percent of baseline levels of production
and consumption in 2036. Unless Congress acts to amend the AIM Act or
EPA acts to alter the phasedown schedule according to subsection (f) of
the AIM Act in response to a petition, production and consumption of
HFCs will continue after 2036 indefinitely.
EPA also does not agree with the commenter's characterization of
the Agency's ability to revisit the allocation methodology in future
years. EPA has authority to reconsider and/or revise past decisions to
the extent permitted by law so long as the Agency provides a reasoned
explanation. Courts have recognized that ``[a]gencies obviously have
broad discretion to reconsider a regulation at any time.'' Clean Air
Council v. Pruitt, 862 F.3d 1, 8-9 (D.C. Cir. 2017). The commenter
seems to acknowledge that such authority exists in noting that if EPA
believes it has the authority to adjust the allowance methodology to
address the changes in the HFC market described in the proposed
rulemaking, the Agency could seek to exert authority to do so when such
conditions become evident. EPA's authority to revisit the allocation
methodology is a compelling reason why it is permissible for EPA to
establish the allocation methodology in a stepwise fashion in the first
instance. It is less disruptive to the regulated community for EPA to
be transparent about the points in time that the Agency will revisit
the allocation methodology in the first instance, rather than
establishing an allocation methodology now without a defined timeframe
while retaining the ability to revisit that methodology at an undefined
future point in time.
B. What is EPA's framework for determining how many allowances each
entity receives?
This section discusses how EPA will determine the quantity of
production and consumption allowances each entity will receive. As
noted in the Allocation Framework Rule and reiterated in the proposal
for the current rulemaking, EPA seeks to provide as smooth a transition
as possible from HFCs as the phasedown proceeds and ensure that
allowance allocations can be made no later than October 1, 2023.\11\ As
EPA has chosen to allocate allowances based on historic production and
consumption activity levels, EPA has also prioritized in such a
scenario selection of a methodology that utilizes robust, verified, and
well-understood data. EPA proposed to use a similar methodology to
calculate allocation quantities as the initial framework used for
allocating calendar year 2022 and 2023 production and consumption
allowances, with adjustments to accommodate entities whose applications
were granted as new market entrants \12\ pursuant to 40 CFR
84.15(e)(3).
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\11\ Under the AIM Act, by October 1 of each calendar year EPA
must calculate and determine the quantity of production and
consumption allowances for the following year. EPA intends to issue
allowances for the 2024 calendar year no later than October 1, 2023,
using the procedure established through this rulemaking.
\12\ EPA allocated calendar year 2022 and 2023 consumption
allowances to entities that met the criteria of 40 CFR 84.15(c)(2)
from the pool of set-aside allowances established in the Allocation
Framework Rule; EPA issued a final agency action determining which
entities were eligible for these allowances on March 31, 2022. In
the context of this action, EPA generally refers to these entities
as new market entrants. As discussed in this section, EPA is not
establishing another pool of set-aside allowances or extending 40
CFR 84.15(c)(2) to future new market entrants.
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1. Which methodology is EPA using as the basis for allocations?
EPA proposed to base production allowance allocations on an
entity's market share derived from the average of the three highest
years (not necessarily consecutive) of production of regulated
substances between 2011 and 2019. EPA proposed to base consumption
allowance allocations on an entity's market share derived from the
average of the three highest years (not necessarily consecutive) of
consumption of regulated substances between 2011 and 2019. The proposed
rulemaking described the Agency's approach for companies who do not
have three years of data; EPA proposed to take the average of the years
between 2011 and 2019 for which each company produced and/or imported
HFCs. Production allowances would be determined for each company based
on the exchange value equivalent (EVe) quantity of HFCs they produced
(subtracting out the amounts of HFCs produced that are used and
entirely consumed except for trace quantities in the manufacture of
another chemical, i.e., transformation, and the amounts of HFCs that
are destroyed). Consumption allowances would be determined for each
company based on the EVe quantity of HFCs they produced (see preceding
sentence for description) plus the amount they imported (excluding the
amount imported for transformation or destruction) minus the amount
exported. EPA proposed to use historic production and consumption data
from 2011 to 2019, matching the approach taken for allocating calendar
year 2022 and 2023 allowances, for many of the reasons described in the
Allocation Framework Rule (86 FR 55145-55147).
Most allowance holders, associations representing different parts
of the industry, and environmental non-governmental organizations
supported EPA's proposal to use 2011 to 2019 production and consumption
activity as the years to evaluate for allocations. Several allowance
holders and a number of importers and their customers (e.g.,
distributors and heating, ventilation, and air conditioning (HVAC)), on
the other hand, asserted that EPA should include more recent years,
namely 2020 and 2021, as part of the years to be considered in the
allocation methodology. Commenters asserted that by not using import
data after 2019, the allowance program would reflect a market that no
longer exists, and already would not have existed for several years.
They contended that by excluding 2020 and 2021 in the Allocation
Framework Rule (thereby affecting the allocations for 2022 and 2023)
the most relevant years of activity for some groups of customers and
their suppliers, were unaccounted for. One of the commenters also
hypothesized that market dynamics and trends in 2020 and 2021 were not
only more representative of real-world conditions but also more aligned
with current Department of Commerce (DoC) findings, specifically with
respect to decreased import activity in 2020 and 2021 as a result of
the DoC's additional
[[Page 46843]]
Antidumping and Countervailing Duty (AD/CVD) findings and actions on
certain HFCs that had been imported between 2015 and 2019.
After consideration of these comments, EPA has determined that
there are many advantages to using data from the 2011 to 2019 timeframe
and reasons for excluding data from 2020 and 2021. EPA has considered
whether to include more recent data in determining allocation levels
given the comments that more recent data may be a more accurate
reflection of the current state of the HFC production and import
market. The commenters allege that by looking at data from 2011 through
2019, EPA would be looking to data of a market that no longer exists.
EPA recognizes that 2020 and 2021 are more recent years, however EPA
has determined that the data from 2020 and 2021 are less representative
due to several important global and market factors, and therefore do
not accurately represent companies' market share. EPA acknowledges that
in making this choice, the Agency is fundamentally excluding the most
recent years to date, but the Agency has determined that the market
could have been so significantly skewed in those years that depending
on them would lead to an unrepresentative and ill-suited data set. In
subsequent paragraphs, EPA discusses recent import activity of
regulated HFCs, specifically with respect to the stark, unprecedented,
and otherwise inexplicable (aside from stockpiling) increase in import
activity in 2021 from a limited number of entities. HFCs are not
perishable goods, so stockpiling for later sale allows entities who had
the resources to acquire and store HFCs in one year in anticipation of
future years' demand as HFC production and consumption is phased down.
Issuing allowances based on stockpiling is counter to one of the
Agency's goals that allowances should be distributed and available to
entities based on their historic HFC production and/or import for near-
term need of those HFCs. Ensuring the HFCs are going to entities that
are using them to meet near-term needs is an important way to reduce
disruption to the market, especially considering the imminent
production and consumption stepdown beginning in 2024, and allocating
based on stockpiling would directly reduce allowance allocations for
those entities who are meeting near-term need. Continuing to use the
same basis years as the Agency used to allocate calendar year 2022 and
2023 allowances, combined with a using production and import activity
in 2021 and 2022 to determine eligibility, ensures the entities
receiving allowances are prepared to use them to satisfy current
customer demands, decreasing the likelihood of further disruption to
the market.
The Agency recognizes that production and importation of HFCs in
2020 and 2021 were influenced by external factors such as the COVID-19
pandemic and supply chain disruptions, potentially including shortages
of key materials necessary for the production of HFCs, which created
well-documented market distortions on a global scale. In addition, data
from 2020 and 2021 are distorted due to entities' awareness in 2020 of
Congress's efforts to pass legislation to regulate HFCs and in 2021
awareness of the AIM Act itself. The Agency also notes that the AIM Act
was first introduced in 2018, and Congressional activity picked up
significantly in 2020 with a Congressional hearing in the House in
January 2020 and an information gathering process in the Senate between
March and April. Additionally, Senators Carper and Kennedy offered the
AIM Act as an amendment to the American Energy Innovation Act in March
2020, and announced an agreement with Senator Barasso to update the AIM
Act amendment to the American Energy Innovation Act in September 2020.
While producers and importers may not have known the AIM Act would pass
specifically in December 2020, this level of Congressional interest and
activity as well as the significant industry and environmental
organization support for the legislation could reasonably have affected
business decisions including decisions to stockpile HFCs in advance of
a phasedown. It is likely that some entities increased their production
and imports to stockpile HFCs in advance of the restrictions on
production and import of regulated substances. Some companies also
likely increased their import and production in patterns that did not
align with their actual needs or business model, gambling that EPA
would set up an allocation system similar to the ODS phaseout and look
at company-specific historic data. Recent feedback, including some
comments on the proposed rulemaking, appear to support this assessment
including a statement from one importer indicating they are still
drawing down significant inventories built prior to initiation of the
HFC phasedown. Moreover, updated 2021 data from EPA's Greenhouse Gas
Reporting Program (GHGRP) show that the net supply of HFCs in
MMTCO2e in 2021 was approximately 150 percent that of the
2020 level, and additionally, that imports of HFCs were approximately
215 percent that of the 2020 level, providing further evidence that
there was significant stockpiling. For context, when evaluating year
over year fluctuations in HFC import activity from GHGRP between 2011
and 2021, the next highest year over year increase was between 2014 and
2015 (approximately 167 percent), with more recent pre-pandemic years,
i.e., between 2015 and 2019, showing a maximum year over year increase
between 2016 and 2017 of approximately 120 percent. This strongly
suggests that the increased imports in 2021 may well have been due to
stockpiling ahead of the commencement of the AIM Act's phasedown,
rather than due to use or demand. All of these factors lead EPA to
conclude that the 2020 and 2021 data is an unrepresentative data set in
terms of reflecting existing market conditions. By using those years of
data, EPA could unfairly give additional weight to some entities that
imported amounts that were not reflective of demand from entities that
are putting regulated substances to near-term productive use rather
than stockpiling regulated substances in advance of the phasedown.
Looking at individual company import activity in 2021 as reported to
the GHGRP, provides further evidence of stockpiling. Five companies are
responsible for approximately 97 percent of the net increase in import
activity (expressed in MTCO2e) between 2020 and 2021, and 14
companies had 2021 import activity of at least double their 2020 import
activity expressed in MTCO2e.
As explained in the proposed rulemaking, using an average of the
three highest years during the 2011 to 2019 period incorporates
consideration of both industry history and ongoing growth and market
change. EPA recognizes that there is no single year that is ``better''
for all market participants, but for added and relevant context, the
commenters above were comprised of approximately 40 entities sending
several groups of similar form letters, and survey responses from
approximately 290 respondents, all of which are either suppliers or
customers in the HVAC aftermarket, wholesale, and service industry. On
the other hand, the Agency received comments from a trade organization
whose members represent 70 percent of the dollar value of the HVAC-
Refrigeration market, 400 whole companies, nearly 300 manufacturing
associates and nearly 100 manufacturer representatives, who supported
the Agency's proposal to exclude 2020 and 2021 from evaluation
[[Page 46844]]
for the various reasons described in the proposed rulemaking, including
the Agency's position on both industry history and ongoing growth and
market change. When evaluating the comments and breadth of stakeholders
that are covered, EPA does not find compelling the limited set of
assertions that may only be applicable to a partial subset of entities.
EPA disagrees with one of the commenter's assertions that data from
2020 and 2021 would be more reliable because it would reflect decreased
import activity as a result of the DoC's additional AD/CVDs findings
and actions on certain HFCs imported between 2015 and 2019. DoC
findings or actions with respect to AD/CVDs for affected regulated
HFCs, e.g., the February 28, 2022, ``Hydrofluorocarbon Blends from the
People's Republic of China: Continuation of Antidumping Duty Order''
(87 FR 11044), are not intended to be a deterrent for importing HFCs;
instead, they are intended to offset the value of dumping and/or
subsidization, thereby leveling the playing field for domestic
industries injured by such unfairly traded imports. The commenter has
provided no evidence to suggest that import volumes changed in imported
regulated substances in 2020 and 2021 directly as a result of DoC
findings or actions. However, even if that were the case, the commenter
has not provided sufficient rationale for why this would trump all of
the other concerns the Agency has outlined with respect to data from
2020 and 2021. Commenters also argued the inclusion of 2020 and 2021
consumption activity would help minimize the disruption to the market.
They disagreed that using the same timeframe as finalized in the
Allocation Framework Rule would minimize disruption (and provide a
smooth transition from HFCs through the next phasedown step) to the
market in 2024. Commenters alleged the market has not adjusted to
entity-specific allocations and is instead in turmoil, e.g., scarcity
of needed products, increased pricing, and supply chain issues to the
aftermarket, partially because the Agency's initial allocations for
2022 and 2023 were premised upon data excluding 2020 and 2021. These
commenters insisted that if EPA were to use the proposed set of years
to evaluate allocations beginning in 2024, the same disruptions would
only be compounded as the historic activity under review would be even
further outdated.
EPA disagrees with these comments. Expanding the range of years
considered in determining entities' market share for purposes of
calculating allowance allocations could significantly change each
entity's market share. This inherently would mean a significant change
in allocation levels from what was determined for calendar year 2022
and 2023 allowances. As noted at the proposal stage, this significant
change in allocation levels would likely disrupt the market and
negatively affect ongoing adjustments to the HFC Allocation Program
that have taken place in 2022 and 2023. Allowance holders and their
supply chains have been adjusting to the HFC Allocation Program, and
more specifically, entity-specific allocation levels, including by
reoutfitting production lines, undertaking corporate mergers and
acquisitions, making importer/exporter arrangements, and transitioning
business models including with the introduction of new chemicals. A key
goal of EPA's administration of the HFC allocation system is to provide
a smooth transition from HFCs through the next phasedown step. EPA
acknowledges the assertion that there may be some instances of scarcity
of needed products, increased pricing, and supply chain issues to the
aftermarket, but these comments do not explain how or why this is
attributable to EPA's choice of allocation methodology as opposed to
market pressures inherent in the AIM Act, which phases down a group of
chemicals currently in use. EPA fully expects that during the
phasedown, prices will increase for all or at least for many regulated
substances. The Agency recognizes there could be scarcity of certain
virgin HFCs at times, though virgin HFCs can be replaced with reclaimed
HFCs, which should ensure that consumer needs are meet and equipment
can be serviced throughout its useful lifetime. Changes in the market
are inherent during a phasedown. Based on EPA's technical expertise and
knowledge of the production and imports market for fluorinated gases,
EPA is concerned that alterations to the years of data used for
determining allocations directly ahead of this significant phasedown
step would contribute to further market pressures leading to price
spikes and lack of availability of HFCs in sectors that are not yet
prepared to transition into different chemicals.
EPA is finalizing a continued use of the same set of years because
the Agency has determined that this has the best means for reducing
(though not eliminating) disruption to the market, which is valuable
because reducing U.S. production and import from 90 percent of baseline
to 60 percent of baseline will result in other changes to business
practices, such as the increased use and changes in production or
import of substitutes and reclaimed HFCs. Using the same methodology
will provide continuity between two stepdown periods and will allow
producers and importers to estimate their anticipated allocation and
plan accordingly. Although there will be some entity-specific revisions
due to corrected historic data, entities have more specific insights on
what proportion of available production and consumption allowances they
would be allocated as a result of the Agency's previously established
methodology and calculations.\13\ Regulated entities have also
previously expressed a preference for allowances to be allocated using
a consistent approach for as long as possible. Applying a similar
approach as the one taken for calendar year 2022 and 2023 for calendar
year 2024 through calendar year 2028 will provide a longer-term
planning horizon for HFC producers and entities importing, which will
enable entities to make decisions about which HFCs, and HFC
substitutes, to produce and import as the market transitions away from
high EVe regulated substances.
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\13\ In addition to entity-specific revisions affecting their
own allowances, entities should also be aware of other factors that
may inform their insights, including the number of application-
specific allowances allocated, EPA's final approach to the treatment
of entities who were previous new market entrants, finalized changes
to the baseline based on corrected historic reporting, changes in
the number of entities who receive allowances, and the Agency's
final approach to acquisitions. All of these factors are discussed
in detail in the preamble to this rule, and any reference to
expectations from EPA on entities for this rulemaking when compared
to allowance allocations under the Allocation Framework Rule should
be evaluated with these additional factors in mind.
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Commenters also identified several mechanisms for which EPA should
already have complete sets of data (specifically consumption) for 2020
and 2021, as well as the ability to properly evaluate these datasets
for the purposes of allocations beginning in 2024. They cited that
EPA's position--that quality assurance procedures could not have been
completed early enough in the process for the Allocation Framework
Rule--would not be an issue for allocations beginning in 2024.
Specifically, because GHGRP data is typically released in October for
the prior year, these commenters noted that EPA should already have
access to the full data sets for 2020 and 2021. These commenters also
cited steps that EPA has taken to validate data for 2020 and 2021,
including the electronic communications that the Agency sent to all
entities who were known or likely to have had consumption activity of
regulated substances from 2011 through
[[Page 46845]]
2021, asking them to verify and, as necessary, correct, the historic
consumption data that each supplier has previously certified as true,
accurate, and complete in accordance with 40 CFR 98.4(e)(1). One of
these commenters also noted that in the proposed rulemaking, the Agency
provided until December 19, 2022, for entities to recheck their data,
and therefore, multiple rounds of review will occur in time for the
issuance of 2024 allocations. This commenter also maintained that
entities' familiarity with the processes for the generation and
submission of accurate reports has increased in more recent years.
EPA maintains that when holistically compared, the dataset for HFC
consumption for 2011 through 2019 is better understood and more
thoroughly vetted than the dataset from 2020 and 2021, largely due to
the sheer number of iterations of review, updates, and follow-up as
necessary. However, this is not a primary reason underlying EPA's
decision in this rule to rely on data from 2011 through 2019 to
determine allowance allocations and not include data from 2020 through
2021. The commenters' arguments with respect to EPA's ability to
validate and verify data from 2020 and 2021 do not outweigh the
concerns about the non-representative nature of that data noted
elsewhere in this section (e.g., due to awareness of the mandated HFC
phasedown and due to unprecedented supply chain disruptions associated
with the global COVID-19 pandemic).
Commenters also argued that EPA's proposal to exclude 2020 and 2021
from evaluation of allocations starting in calendar year 2024 as a
result of the COVID-19 pandemic and any associated supply chain issues
unfairly penalizes companies who were able to grow and succeed in those
years. These commenters contended that the pandemic and any associated
supply chain issues would have affected all entities equally, and
therefore their growth while others might have experienced difficulties
demonstrates that supply chain issues were not insurmountable. They
continued by citing EPA's statements in the proposed rulemaking that
taking an average of a wider range of years is more equitable to all
entities in the market, and that each entity receives its best years
regardless of actions taken by other entities. Accordingly, entities
who might have experienced difficulties in 2020 and 2021 would not have
those years evaluated in determining allocations, but entities that
were successful in those two years should have those two years
evaluated for allocations as applicable.
EPA disagrees with the commenter's characterization. The COVID-19
pandemic had substantial and unprecedented impacts on the national
economy and domestic and global supply chains. The impacts of the
pandemic were largely unforeseen and differed geographically and across
sectors in uncontrollable ways. The Agency acknowledges that some
businesses fared better than others, and some even thrived, during the
pandemic. However, EPA disagrees with the commenter's assertions that
it would be appropriate to incorporate data influenced by the pandemic
because some entities did well during those years. The Agency believes
that an entity's growth or contraction during 2020 and 2021 was likely
due to factors that are atypical of the pre-2020 market including the
pandemic as well as knowledge of the AIM Act, and therefore it would be
inappropriate to ignore the reality of the impacts. EPA does not find
it to be reasonable to choose an approach with benefits that might
accrue to an individual entity at the risk of distorting allowance
share for the whole of allowance holders by providing a company with
additional future allowances based on activity in years that are so
unusual. Additionally, the Agency notes that the pandemic and related
supply chain issues are only one set of reasons for why our final
decision excludes 2020 and 2021 (e.g., this would add significant
additional disruption to the market at a time when allowances are
decreasing significantly). Additionally, EPA noted in the proposal that
we did not see any environmental benefit associated with changing the
years used to determine allowance allocations. Comments did not change
EPA's assessment.
Some commenters disagreed with EPA's view that stockpiling was
occurring prior to the Allocation Framework Rule becoming effective,
and that accordingly, such years should not be used in determining 2024
and later year allowance allocations. First, these commenters pointed
to EPA's statement in the final rule that there is no year in which a
forward-looking entity may not have been stockpiling in preparation for
a restriction on HFCs or new duties that were imposed by DoC. They
continued by citing that the Agency's proposed methodology of averaging
mitigates the possibility of an entity receiving a large share of
allocations based on a single very high year. These commenters also
disputed EPA's claims that entities may have begun stockpiling in
advance of the passage of the AIM Act. While the commenters did
acknowledge that the AIM Act was expected to be addressed at some point
in time, they contended that the passage was rapid and unexpected after
very little action in most of 2020 with no advance warning that the
passing of the AIM Act would be so sudden in late 2020; therefore,
entities would not have had time to stockpile. Additionally, these
commenters cited data released by EPA's GHGRP showing that the net
supply of HFCs increased between 2011 and 2020, but that the net supply
of HFCs in 2020 was actually less than the supply in 2019. They posited
that any fluctuations in 2020 and 2021 activity are attributable to
their changing business models to meet increased aftermarket consumer
demand, rather than stockpiling. Lastly, these commenters noted that
any concerns the Agency may have about stockpiling can be innately
mitigated by the proposed averaging approach, where one single high
year's production or import activity would not result in an entity
receiving a large share of allocations.
EPA disagrees with the commenters that entities would not have had
time to stockpile. As described earlier in this section of the
preamble, producers and importers of regulated HFCs were well aware of
the phasedown of HFCs prior to the AIM Act's enactment. The Agency has
reviewed updated GHGRP data through 2021,\14\ and notes that both the
net supply of AIM-listed HFCs and the imports of AIM-listed HFCs,
increased at rates that are unlikely to be explained as changing
business models to meet increased aftermarket consumer demand. By
commenters' own views, if import activity in 2020 when compared to 2019
were representative of changing business models where the net supply
including imports of HFCs decreased slightly, one could expect within
reason, a subsequent increase in imports between 2020 and 2021. This
would reflect an increase to account for the decrease in 2020 along
with a reasonably small increase to account for the needs of the
industry due to supply chain issues in 2020. However, given the
increase specifically with respect to imports in 2021, which amounted
to approximately 215 percent of the 2020 value (represented in
MMTCO2e, which is the same as Million Metric Tons of
Exchange Value Equivalent (MMTEVe)), the Agency maintains that this
year was not representative of any normal or changing business model,
nor would it account for any unmet lingering needs
[[Page 46846]]
from 2020. This percentage increase is about the same when comparing
2021 to the annual reported values in 2018 and 2019 (aggregated in
MMTEVe). As noted elsewhere in the preamble, when evaluating year over
year fluctuations in HFC import activity from GHGRP between 2011 and
2021, the next highest year over year increase was between 2014 and
2015 (approximately 167 percent), with more recent pre-pandemic years,
i.e., between 2015 and 2019, showing a maximum year over year increase
between 2016 and 2017 of approximately 120 percent. The Agency also
maintains that 2020 import activity was also atypical, i.e., import
levels were almost equal to 2019 import activity, even with the various
effects of COVID-19. Second, the Agency is aware of several entities
with extremely limited or no bulk HFC import history who imported (or
attempted to import) regulated HFCs into the United States for the
first time in calendar year 2021, or who appeared to have exited the
HFC import market in and around 2020 that began importing HFCs again in
2021, further supporting concerns that import activity in 2021 was
atypical based on the then-imminent restrictions on production and
consumption. The commenters have provided no evidence, including
explanations of their own business plans, that could attribute this
type of growth due to demand, and it is the Agency's view that changes
to business models were a response to the AIM Act's pending
restrictions on production and imports of regulated substances. EPA
cannot change its technical analysis of data based solely on
unsupported assertions from commenters stating that stockpiling is not
a legitimate concern.
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\14\ https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act.
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As noted earlier in this section, given the level of Congressional
interest and activity, it is likely that some entities increased their
production and imports to stockpile HFCs in advance of anticipated
restrictions on production and import of regulated substances. Lastly,
the Agency disagrees that stockpiling concerns can be simply resolved
by averaging. In the case that both 2020 and 2021 would have been two
of the three high years used in considering allocations, averaging
exacerbates, rather than mitigates, the Agency's concerns that an
entity may receive a disproportionately large amount of allowances. It
would also fail to mitigate concerns about entities that began
importing in 2021, or reimporting after apparent exit from the market,
ahead of the HFC phasedown.
One commenter claimed that EPA's statements have been inconsistent.
The commenter alleged that in the Allocation Framework Rule, EPA stated
that the methodology starting in 2024 could change; however, the
commenter contended that the proposal for this rulemaking states that
using 2011 through 2019 data aligns with stakeholder expectations. The
commenter asserted that EPA should not disfavor companies who expected
that the Agency might update the date range to reflect more recent
data. This commenter also alleged that one of the Agency's proposed
approaches for entities who had received allowances previously as new
market entrants, i.e., evaluating import data in 2022 or 2023, also
innately excludes 2020 and 2021, thereby creating an equity and
fairness issue.
EPA disagrees that our statement in the Allocation Framework Rule
stating that the allocation methodology could change is in conflict
with EPA deciding to use a substantially similar methodology. The
Allocation Framework Rule stated that EPA ``intends to develop another
rule before allowances are allocated for 2024 that may alter the
framework and procedure for issuing allowance allocations established
in this rule,'' (86 FR 55129). It did not state that EPA would
definitively change the framework or methodology in the future, and it
did not indicate that any particular change would be forthcoming, so
any ``expectation'' would necessarily have had to be speculative. The
proposed rulemaking for this rule was developed based on our
consideration of whether to continue the same methodology or adopt a
variety of alternative methodologies, including some that were
different from the approach taken in the Allocation Framework Rule.
EPA's proposed rulemaking provides a detailed discussion of varying
alternative methods the agency considered (87 FR 66376-66381). The
Agency has concluded, after careful consideration, that maintaining a
methodology substantially similar to that used for 2022 and 2023 is the
best approach. As noted elsewhere, the Agency's conclusions are in part
based on the Agency's intent of providing a smooth transition from HFCs
through the next phasedown step, and in part on the conclusion that
using the same methodology from the Allocation Framework Rule will
provide continuity between two stepdown periods. Using the same time
period will also enable prospective allowance recipients to estimate on
an earlier timeframe their anticipated allocation and plan accordingly.
Entities would generally have more specific insights on what proportion
of available production and consumption allowances they would be
allocated as a result of the Agency's previously established
methodology and calculations.
The Agency also disagrees with the commenter's notion that there is
a fairness and equity issue created by our proposed treatment of
entities who received allowances as new market entrants. As stated
elsewhere in the preamble, most new market entrants are, as their name
suggests, new to the HFC import market and would not reasonably be
expected to have any import activity in 2020 or 2021. To be eligible as
a new market entrant, an entity had to not have previously been
allocated allowances by EPA. For almost all entities, this meant that
the entity had no previous HFC import history. New market entrants were
allocated allowances to import HFCs starting in calendar year 2022. The
Agency's rationale for its approach with respect to new market entrants
is fundamentally different than the question of what years of historic
data the Agency will consider in allowance allocations. The allocation
approach, and Agency's rationale, for new market entrants is addressed
elsewhere in this preamble.
With respect to using historic production and consumption data, one
commenter asserted that the Agency should not deduct exports in its
determination of each company's consumption. The commenter contended
that this approach is not compelled by the AIM Act, and furthermore,
this approach does not align with EPA's intent to reflect the prior
business activity of entities while minimizing disruption as a result
of a new regulatory program. The commenter views deduction of exports
as punitive towards companies, that in the past, served to expand U.S.
export markets. The commenter suggested that for the calendar year 2024
through calendar year 2028 time period, EPA should determine each
company's proportional market share based on gross imports and gross
exports during the applicable historic time period. Alternatively, the
commenter suggested that the Agency increase the allocations for
affected companies for calendar year 2024 through calendar year 2028 to
adjust for the exports that were excluded from allocations made in
accordance with regulations finalized through the Allocation Framework
Rule.
EPA disagrees with the commenter's arguments. To the extent that
the commenter is raising concerns about the allocation methodology
finalized in the Allocation Framework Rule for allocation of calendar
year 2022 and
[[Page 46847]]
2023 allowances, that cannot be properly raised in the context of this
rulemaking. EPA codified regulations outlining how the Agency would
calculate allocation levels as a result of notice and comment
rulemaking (86 FR 55116). EPA's regulations in 40 CFR 84.11(a) make
clear that EPA will look to a company's consumption amounts in
determining market share. The definition of ``consumption'' in the AIM
Act mentions both imports and exports and provides that the quantity of
regulated substances exported from the United States is to be
subtracted from the quantity produced and imported in the United
States. The time to comment and challenge the allocation methodology of
the Allocation Framework Rule has passed, and the Agency is not herein
revisiting allocation of calendar year 2022 or 2023 allowances.
To the extent the commenter is arguing that EPA should not wholly
subtract exports when considering a company's historic consumption
activity under the new methodology being finalized herein for
allocation of calendar year 2024 through 2028 allowances, EPA has
decided it is appropriate to look holistically at a company's
consumption activity, and not import and export activity in isolation.
The statutory scheme phasing down HFCs in the AIM Act measures percent
reductions from a consumption baseline and places restrictions on the
amount of consumption that can occur within a given year within the
United States. The AIM Act and the resultant definitions in 40 CFR 84.3
are clear that exports must be excluded in evaluating consumption
activity. As explained elsewhere in this preamble, EPA has determined
to base allocation of consumption allowances on historic consumption
activity. However, the Agency has also created mechanisms that account
for and acknowledge the subtraction of export from consumption. Because
calculation of consumption subtracts out exports, EPA established in 40
CFR 84.17 the RACA process under which entities exporting HFCs can be
refunded consumption allowances subject to certain regulatory
requirements. Consistent with the statutory and regulatory definitions
of consumption, under the allowance allocation system that EPA is
establishing in this rulemaking, consumption allowances that are
expended to import or produce regulated substances are refunded if
those regulated substances are later exported from the country. If EPA
allocated allowances based on export activity, and such entities
maintained similar export activity in future years, those entities
could receive double allowances (for an allocation based on export
activity plus allowances refunded through the RACA mechanism). EPA does
not think such double attribution is appropriate because, among other
things, it would not accurately reflect the market. Finally, EPA notes
that if an entity is not allocated sufficient allowances for the amount
of regulated substances it is interested in acquiring, it can either
transfer for allowances to import regulated substances directly, or
purchase regulated substances on the open market that have already been
produced or imported without an allowance.
Relatedly, one commenter argued that EPA should allow production of
regulated substances for export without expenditure of consumption
allowances, so long as a producer permanently designates the regulated
substance for export and the substances are in fact exported. The
commenter alleges that this would allow production of regulated
substances near the end of a year for export in the following year. EPA
notes at the outset that this comment is outside the scope of what was
proposed in this rulemaking. EPA did not propose any alterations to the
fundamental activities that require expenditure of allowances and did
not propose or solicit comment related to creating an exemption for
regulated substances produced for export. Further, even if this comment
fell within the scope of this rulemaking, EPA disagrees with the
commenter's suggestion. As explained in the prior paragraph, the AIM
Act is clear in establishing caps on the level of consumption that can
occur each year within the country. If production occurred in one year
and export occurred in another year, EPA could be over the statutory
cap established in the first year under the commenter's suggested
approach.
Some commenters, as a part of a broader set of input on how the
Agency could address anticompetitive behaviors (discussed elsewhere in
the preamble), suggested in their individual comments that the Agency
reduce allowance amounts for entities who have been found to be
engaging in unfair trade practices, e.g., circumvention of applicable
AD/CVDs. For example, the Agency could consider evaluating a percentage
of their historical import activity for allocations, rather than the
entire three-year average. Commenters also suggested that entities who
import HFCs circumventing applicable AD/CVDs could have their future
allocations decreased by the same number of their unused allowances in
the previous year.
As further explained in the following paragraph, EPA has determined
that it is not appropriate to adjust for any unfair trade practices
that have happened in the past when calculating allowance allocations.
As noted, EPA is finalizing a methodology of allocation that is based
on historic production and consumption from 2011 through 2019, which
are years before the AIM Act was enacted and before EPA began the
Congressionally-mandated phasedown of HFCs.
However, EPA emphasizes that the Agency is concerned about
companies not complying with other similar HFC trade provisions, such
as AD/CVDs, as violations of such provisions may create an unequal
environment. Dumping refers to ``when a foreign producer sells a
product in the United States at a price that is below that producer's
sales price in the country of origin (``home market''), or at a price
that is lower than the cost of production.'' \15\ Foreign governments
may subsidize industries by providing financial assistance to benefit
the production, manufacture, or exportation of goods, thereby unfairly
undercutting domestic producers. EPA has determined that the Agency is
not the entity best positioned to handle these issues, and therefore
has determined that it is not appropriate to account for these factors
in the allocation methodology. DoC has been given statutory authority
and mandates to address specific unfair trade practices that the
commenter is concerned about, and DoC attempts to eliminate the unfair
pricing or subsidies and the injury caused by such imports by imposing
additional duties, termed countervailing subsidy duties. The amount of
the subsidies the foreign producer receives from the foreign government
is the basis for the subsidy rate by which the subsidy is offset, or
``countervailed,'' through these higher import duties. Anti-dumping and
countervailing duties are two ways that the United States addresses
dumping and unfair foreign subsidies. The U.S. government can require
that foreign companies involved in dumping and/or benefiting from
subsidization are charged antidumping and/or countervailing duties.
U.S. Customs and Border Protection (CBP) enforces AD/CVD laws by
collecting the applicable cash deposits, administering AD/CVD entries,
assessing and collecting final
[[Page 46848]]
AD/CVD, and enforces AD/CVD on imports that evade AD/CVD orders. This
helps negate the value of the dumping/subsidization for foreign
manufacturers and creates a fairer competition for manufacturers in the
United States. In findings of dumping, DoC issues an order that
requires importing entities to pay AD/CVD for goods covered by the
order (e.g., in this case, certain HFCs and HFC blends). This remedy
means that an effort by EPA to address dumping, in addition to being
outside EPA's expertise, could have the effect of overcorrecting the
unfair trade practice. Additionally, efforts from EPA to remedy unfair
trade practices by way of allowance adjustments would require the
Agency to determine details about factors including but not limited to
scope, timing, appropriate premiums, rationale, and implementation
criteria that EPA does not have sufficient information at this time to
develop.
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\15\ ``U.S. Antidumping and Countervailing Duties.'' Trade.gov,
International Trade Administration. Available at https://www.trade.gov/us-antidumping-and-countervailing-duties.
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Accordingly, as discussed above, EPA is finalizing its proposed
approach to base production allowance allocations on an entity's market
share derived from the average of the three highest years (not
necessarily consecutive) of production of regulated substances between
2011 and 2019 as reported to the GHGRP. EPA is finalizing its proposed
approach to base consumption allowance allocations on an entity's
market share derived from the average of the three highest years (not
necessarily consecutive) of consumption of regulated substances between
2011 and 2019. If an entity does not have three years of data, EPA will
take the average of the years between 2011 and 2019 for which each
company imported HFCs.
Consistent with the regulations established in the Allocation
Framework Rule,\16\ EPA will allocate consumption allowances to
entities that imported bulk substances according to levels of historic
consumption from 2011 through 2019 as reported to the GHGRP. Consistent
with EPA's current practice, allowances will go to entities that
``imported,'' meaning the entities responsible for the ``land[ing] on,
bring[ing] into, or introduc[ing] into'' the United States (see 40 CFR
84.3 (definition of ``import'')). This definition codified in 40 CFR
84.3 and pertinent to the phasedown of HFCs under the AIM Act is
different than, and distinct from, what entities may meet EPA's
regulatory definition of ``importer'' for an individual shipment. This
approach ensures that, for purposes of allowance allocation, only one
entity receives credit as the ``entity that imported'' particular HFCs,
as opposed to looking at any entity that could meet the definition of
``importer'' for an individual shipment, which could result in double,
triple, or quadruple allocation of allowances since a number of
entities could potentially be considered ``importers'' for an
individual import action, even if they were not the entity that
imported the regulated substance, such as customers of the entity that
imported and others indirectly related to the import activity. EPA's
approach also mirrors the AIM Act's phasedown provisions by
distributing allowances to those entities that historically conducted
the same activities now prohibited absent the expenditure of allowances
(see 42 U.S.C. 7675(e)(2); 40 CFR. sections 84.5(a)(2), 84.5(b)(2)).
Allowances are required for the act of importing, not subsequent
transport, blending, or sale of regulated substances that have already
been produced in or imported into the United States.
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\16\ EPA is finalizing a minor modification to the existing
regulatory text in 40 CFR 84.11(a) to clarify EPA's position
established in the Allocation Framework Rule that allowances are
allocated to entities that have historic import activity.
---------------------------------------------------------------------------
EPA will continue to rely on production, import, export,
destruction, and transformation data reported to GHGRP for entity-
specific consumption data.\17\ It is critical to develop an approach to
allocation that helps ensure that only one entity receives credit as
the ``entity that imported'' particular HFCs. Historically, EPA
anticipates that only a single entity has reported import activity to
GHGRP, since there is a single entity, which is ``the person, company,
or organization primarily liable for the payment of any duties on the
merchandize'' required to report a bulk HFC import to GHGRP (see 40
CFR. 98.416(c) (requiring ``each bulk importer of fluorinated GHGs . .
. [to] submit an annual report that summarizes its imports at the
corporate level'' if above specified thresholders); 40 CFR 98.6
(defining ``importer'')). That entity's requirement to assign a
designated representative for GHGRP reporting purposes does not mean
that the designated representative or alternative designated
representative is the entity that is required to report to the GHGRP.
See 40 CFR 98.4. However, EPA is concerned that entities who took
limited if any responsibility for the import, including responsibility
for complying with EPA reporting requirements, may attempt to report
import activity to GHGRP now that EPA has begun implementing the AIM
Act and EPA allocates allowances based on historic import activity. EPA
views this as problematic since if, for example, both a consignee and
an importer of record received credit for the same historically
imported HFCs, this would double-allocate allowances for that single
shipment. This double-allocation would distort the allowance system
such that it was not a best available reflection of historic patterns.
For purposes of determining historic import levels, EPA intends to rely
on the entity that has historically reported the imports for a shipment
to GHGRP. If two or more entities reported the same import to GHGRP in
prior reporting years, EPA would include that import in the allowance
allocation calculation of the entity that first reported the import to
GHGRP or assigned an employee or an authorized third party to report to
GHGRPon the entity' behalf as a designated representative. EPA
considers historic reporting to GHGRP as indicative of the entity that
took primary responsibility for complying with EPA requirements for
that import and considers this a critical data point to determining who
to credit that import to.
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\17\ The GHGRP requires various facilities and suppliers to
annually report data related to GHGs to EPA (see 40 CFR part 98). 40
CFR part 98, subpart OO, ``Suppliers of Industrial Greenhouse
Gases,'' is the section relevant to reporting on HFC production and
consumption. Because the HFCs listed as regulated substances under
the AIM Act are industrial GHGs, EPA has collected data relevant to
HFC production and consumption as defined under the AIM Act. Further
discussion of the GHGRP can be found in the notices and dockets
related to the Allocation Framework Rule.
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For new market entrants that were allocated allowances in 2022 and
2023, EPA proposed an approach to allocate consumption allowances such
that new market entrants would see an equivalent reduction in
allowances between the 2022-2023 and 2024-2028 timeframes as general
pool allowance holders. Since new market entrants did not receive
allowances based on prior import history between 2011 and 2019, and
many new market entrants have no such historic import activity, EPA
proposed to create a value that can serve as a stand in for an average
of the three highest years of consumption of regulated substances
between 2011 and 2019 for each new market entrant. This approach is
intended to ensure that new market entrants and general pool allowance
holders would experience the same proportionate reduction between their
2023 allocation and their 2024 allocation after accounting for the
stepdown caps and other factors, such as the number of application-
specific allowances allocated, finalized changes to the baseline based
on corrected historic reporting, or changes in the
[[Page 46849]]
number of entities who receive allowances.
The vast majority of commenters on EPA's proposed treatment of new
market entrants supported EPA's approach, i.e., the creation and usage
of a stand in market share value. One of these commenters agreed with
EPA's approach, but also asked EPA to consider issuing allowance
allocations to previous new market entrants for calendar year 2024
through calendar year 2028 at the same level as 2022 and 2023. This
commenter noted that the original allowance allocations to new market
entrants were not large to begin with and therefore the total effect on
the general pool would be small, and decreasing the allocations to
these entities may potentially hamper their effective use.
After considering these comments, EPA maintains our view from the
proposed rulemaking that it is appropriate for new market entrants to
see an equivalent reduction in allowances between the 2022-2023 and
2024-2028 timeframes as general pool allowance holders. General pool
allowance holders are entities that have historically been active in
the HFC import market and have comprised the business sector supplying
imported HFCs into the domestic market. As noted elsewhere, a priority
for EPA in developing the allocation methodology has been to provide
for a smooth and seamless phasedown as much as possible. Providing a
greater number of allowances to new market entrants in a manner that
does not account for the nationwide step down in HFC consumption would
take away a relative share of allowances from the entities that have
historically comprised this import business. The commenter has not
provided a compelling reason why such an approach would be beneficial
or reasonable as opposed to EPA's approach which would treat new market
entrants equally to entities with historic imports. EPA does not agree
with the commenter's claim that allocating at original allowance levels
to new market entrants would have a small total effect on the general
pool. On the contrary, new market entrants received in aggregate
approximately 2.5 percent of the total consumption cap in 2023. If EPA
were to allocate the same allowance totals to new market entrants in
calendar year 2024 it would result in these entities receiving
approximately 3.5 percent or greater of the total consumption cap. The
commenter argued that decreasing the allocations to new market entrants
may potentially hamper the effective use of allowances, but the
commenter did not provide any rationale or examples of why the
commenter thought this would be the case. All allowance recipients will
likely be facing a situation where they are allocated fewer allowances
starting with calendar year 2024 than they received previously given
the Congressionally-mandated phasedown of regulated substances. It is
unclear to EPA why new market entrants would struggle more due to that
phasedown than other entities and therefore why new market entrants
should receive different, and arguably, preferential treatment over
historic importing entities. Multiple entities that historically
imported HFCs received a lower allocation amount of calendar year 2023
allowances than new market entrants, so there is no available argument
that new market entrants have lower allocation amounts generally nor
that there is some de minimis threshold under which EPA should not
allocate. When facing lessening allowance allocation levels, companies
may need to be more creative in their business models to make effective
use of HFC consumption allowances, but there are many existing
practices that could be employed to take full advantage of the level of
allowances that are allocated. One such model is a limited container
load model which would entail combining allowances with another entity
who may be in a similar situation. Additionally, the restriction that
new market entrants may not transfer allowances received as part of
those initial provisions will no longer apply beginning in 2024, which
may be useful to certain entities needing or desiring additional
allowances.
One commenter objected to EPA's proposed treatment of new market
entrants, stating that the Agency should not treat these entities in
the same manner as historic importers for the purposes of allowance
allocations past calendar year 2023. This commenter recommended that
EPA conduct an audit of the performance and operations of each new
market entrant prior to any further allowance issuance, and even if
these entities were found to be legitimate and fully compliant with
EPA's reporting regulations, the Agency should prioritize the
allocation of HFC allowances to historic importers.
EPA does not agree with the commenter's general notion that the
Agency should treat new market entrants in a lesser manner than
entities with historic imports. EPA is sympathetic to constraints that
are associated with the likely tightening market as the HFC phasedown
proceeds, and already finalized regulatory provisions that allowed for
a one-time opportunity for new market entrants to apply for, and if
eligible receive, allowances. As explained in the Allocation Framework
Rule, EPA determined that it was appropriate to facilitate
participation by new market entrants in the HFC import business at that
early stage of the mandated phasedown. Given the AIM Act contemplates
continued production and consumption of HFCs following the mandated
phasedown of HFC production and consumption by 85 percent in the United
States, EPA created a one-time opportunity for new market entrants to
apply for a modest amount of consumption allowances to mitigate the
potential for market barriers to companies looking to newly enter the
HFC market and allow businesses experiencing such challenges to import
HFCs directly without the additional step of purchasing allowances.
After finalizing this opportunity in the Allocation Framework Rule and
allowing new market entrants into the HFC allowance system, EPA does
not see, and the commenter has not provided, a compelling reason to
exclude these entities from the allowance system starting in 2024,
after issuing them allowances in 2022 and 2023. All entities who
received consumption allowances as new market entrants were subject to
the regulatory application requirements in 40 CFR 84.15(d)(2), and the
Agency applied an equal amount of scrutiny in evaluating each of their
applications to ensure that certain criteria were met. Accordingly, new
market entrants already demonstrated that they met regulatory criteria
that were designed and finalized in the Allocation Framework Rule to
determine eligibility to enter the allowance system. EPA disagrees that
it is necessary or appropriate for the Agency to conduct an audit of
the performance and operations of each new market entrant prior to any
further allowance issuance. As noted, new market entrants were required
to meet a list of regulatory requirements and submit various planning
documents to EPA to be eligible for new market entrant allowances.
EPA's review included an assessment of whether new market entrant
applicants had a realistic plan to import HFCs were allowances granted.
The commenter does not provide information on what type of audit on
performance and operations would be appropriate and also provides no
rationale as to why this would be appropriate to apply to new market
entrants, but not other allowance recipients. If a new market entrant
is not compliant with regulatory requirements,
[[Page 46850]]
EPA has tools available to deal with that noncompliance, including
administrative consequences and any potentially appropriate enforcement
action. The commenter did not provide a model or details on how the
Agency might prioritize the allocation of HFC allowances to entities
with historic imports over new market entrants, and given the limited
pool of consumption allowances available and high interest in allowance
allocations, EPA can only understand this call for prioritization to
mean that new market entrants would receive no allowance allocation. As
explained previously, EPA does not think such an outcome is
appropriate.
Accordingly, EPA is finalizing the proposed approach to determine
allowance allocations for new market entrants. As explained in the
proposed rulemaking, EPA will determine a stand-in value based on the
number of allowances allocated to each new market entrant in calendar
year 2023 (which is identical to the number of allowances allocated for
calendar year 2022) and the percent reduction all general pool
allowance holders experience in calendar year 2023 relative to the
average of their three highest years of consumption. For reference,
each general pool allowance holder received allowances at a level 32.1
percent below their individual high three-year average in calendar year
2022 and at a level 31.8 percent below their individual high three-year
average in calendar year 2023 due to the differing number of
application-specific allowances that were allocated on September 30,
2022. For the purposes of creating a stand in value for new market
entrants, EPA will divide each new market entrant's calendar year 2023
allowance value by the proportion of allowances received by general
pool allowance holders relative to their high three-year average in
calendar year 2023. Because general pool allowance holders received
allowances equivalent to 68.2 percent of their high three-year average
in 2023, a new market entrant that received 200,000 MTEVe of allowances
in 2023 would be credited with approximately 293,255.1 MTEVe as the
stand in for their high three-year average.
Consistent with EPA's proposal, and having received no adverse
comments, EPA is also finalizing the following with respect to
allocation to new market entrants. If any entity were to qualify under
both the new market entrant and historic production or import
methodologies, the Agency would allocate with the methodology that
issues the greater number of allowances. If a company that has prior
production and/or import activity acquires a new market entrant and EPA
provides approval after considering what has been acquired, such as
physical assets, ongoing customer relationships and history (company
portfolio), or market share, the Agency will add the new market
entrant's high three-year average stand-in value to the acquiring
entity's high three-year average consumption value and would use this
value for future allocation determinations.
After determining eligibility (see section III.C of this preamble)
and entities' market share, EPA is finalizing, as proposed, to use the
same steps as described in the Allocation Framework Rule (86 FR 55147)
and codified at 40 CFR 84.9(a)(2) through (4) and 40 CFR 84.11(a)(2)
through (4) to determine an individual entity's allocation.
Independently for production and consumption allowances, EPA would add
every entity's average to determine a percentage market share of
production and consumption allowances, respectively, for each entity.
EPA would multiply each entity's percentage market share by the total
amount of general pool calendar-year allowances available to determine
each entity's production or consumption allocation.
2. What other allocation methodologies did EPA consider?
As indicated in the proposal to the Allocation Framework Rule (86
FR 27150, May 19, 2021), including in the section seeking advance
comment to inform future rulemakings, EPA considered the
appropriateness of other ways to undertake allowance allocation beyond
allocating allowances to entities based on historic production and
consumption activity at no cost (86 FR 27203). In considering different
allocation mechanisms, EPA considered multiple factors, including ease
of implementation for both the regulated community and the U.S.
government; consistency with the AIM Act; facilitating an efficient
market, such as by collecting and releasing data on production, import,
and inventories of HFCs; transparency and certainty for regulated
entities and the public; distributional effects, such as on new
entrants; responsiveness to changing market conditions (e.g., companies
entering or exiting the market, corporate mergers and acquisitions,
significant quantities of allowances unexpended at the end of the year,
or supply shortages or market disruptions for specific HFCs); small
business implications; minimizing the opportunity for fraud; and other
factors.
The proposal for the current rulemaking contains details about a
fee-based or auction system, including potential advantages as well as
anticipated challenges, and for the reasons described therein, the
Agency did not propose a fee-based or auction system to allocate
allowances in this rule.
To facilitate our continued consideration, separate and apart from
this current rulemaking, EPA invited advance comments on whether there
are any current or potential future disadvantages with the currently
proposed allocation system that could be addressed by an alternate
allocation mechanism, as well as comments on design features or timing
options for alternate allocation mechanisms that EPA could consider
were the Agency to determine at a future point that changes are
warranted. Individual comments are available in the docket to this
rulemaking, and for information purposes, EPA is providing a summary of
key points, though the Agency is not taking any final action based on
these advance comments at this time.
A small number of commenters supported the general ideas and
concepts of a fee-based or auction system, citing that such a system
could, among other things: generate revenue to support continued
research and development of, and also facilitate a faster transition
to, climate-friendlier alternatives; help subsidize increases in the
production capacity of alternatives; lower costs of HFCs for end users;
provide better market transparency; decrease or eliminate fraud; and,
eliminate the need for onerous recordkeeping. One of these commenters
provided general guiderails for how a fee-based or auction system could
be implemented. Generally, the comments in support of a fee-based or
auction system were high level and provided minimal justification,
rationale, or details on how to support their conclusions.
The majority of commenters opposed a fee-based or auction system,
citing that such a system would destabilize the HFC market in the
following ways: market pricing to produce or import HFCs would become
artificially inflated with the cost potentially passed onto consumers;
business continuity would be at a significant risk as there is no
guarantee that the most efficient entities would receive allowances;
availability of needed products to reclaimers would be negatively
impacted; domestic production of goods containing HFCs may shift
outside of the United States at the cost of domestic jobs and
manufacturing; and, domestic interests may not be protected if
additional foreign entities were allowed to
[[Page 46851]]
participate in such a system. Two commenters in opposition to a fee-
based or auction system further argued that the AIM Act provides no
express or implied authority for EPA to auction or to charge a fee for
allocations or allowances.
One of these commenters also contended that the Agency must
consider and respond to comments concerning AIM Act authority to impose
a fee-based or auction system for allowances issued under the Act. The
commenter contended that subsection (k) of the AIM Act, which states
that section 307 of the CAA applies, specifically that the CAA requires
that ``[t]he promulgated rule shall . . . be accompanied by a response
to each of the significant comments, criticisms, and new data submitted
in written or oral presentations during the comment period.'' The
commenter asserted that while they provided extensive input on a fee-
based or auction system during the public comment period for the
Allocation Framework Rule, the Agency did not respond to those
comments. The commenter concluded that EPA cannot avoid responding to
comments in a proposed rulemaking (both the Allocation Framework Rule
as well as the proposed rulemaking for this final rule) that explicitly
raises the issue of allocating allowances through a fee-based or
auction system simply by the Agency asserting that it is only inviting
``advance comments,'' specifically with respect to EPA's implementation
of its existing AIM Act authority for such a system.
As stated in this preamble and the proposed rulemaking, EPA is not
pursuing a fee-based or auction system for allocation of allowances in
this rulemaking. The proposal for the current rulemaking contains
details about a fee-based or auction system, including potential
advantages as well as anticipated challenges, and for the reasons
described therein, the Agency did not propose a fee-based or auction
system to allocate allowances in this rule. Comments on the auction
system thus are not significant to this rulemaking. If EPA were to
consider auctions in the future, the public would have an opportunity
to comment on it at that time.
3. What did EPA consider in developing its final rule as to the
appropriate entities to be allocated allowances?
As outlined in section III.B.1 of this preamble, EPA will be using
a similar methodology to calculate allocation quantities as the initial
framework used for allocating calendar year 2022 and 2023 production
and consumption allowances, with adjustments to accommodate new market
entrants that received allowances pursuant to 40 CFR 84.15 on March 31,
2022. In developing this final approach, EPA considered whether to
allocate production and consumption allowances to entities beyond those
that have historic production and consumption.
As part of this deliberation, EPA considered whether allowance
allocations can be used to incentivize certain behavior such as to
maximize reclamation and minimize releases of regulated substances.
Some commenters to the Allocation Framework Rule encouraged EPA to
issue allowances to reclaimers. The result of this suggestion could be
that reclaimers have allowances available to directly import virgin
regulated substances that they could use to rebalance refrigerant
blends that are slightly off specification after reprocessing recovered
refrigerant. The allowances could be transferred to another entity to
import or produce on the reclaimer's behalf or could be used to ease a
reclaimer's ability to purchase regulated substances from another
entity.
Many commenters on this particular issue expressed that issuing
allowances to reclaimers who are not eligible under the proposed
methodology is not a meaningful way to increase opportunities for
reclamation. One commenter provided general support of granting
consumption allowances to EPA-certified reclaimers on a proportional
basis to the exchange value of the refrigerants they reclaim or destroy
to foster smaller reclaimers who may not be prepared to import on a
larger scale. One commenter suggested that EPA issue allowances to EPA-
certified reclaimers to support rebalancing and increase the
availability of additional material available to support industry
needs; the commenter continued that considering the data available to
EPA, public comments from various stakeholders including reclaimers,
and the Agency's experience in implementing the HFC phasedown, EPA has
asserted no specific basis for rejecting the issuance of EPA-certified
reclaimer allowances. The commenter argued that issuing EPA-certified
reclaimer allowances would foster opportunities for HFC reclamation,
thereby allowing more material to be returned for sale from rebalancing
that would otherwise be sent for destruction and not used. The
commenter also claimed that EPA has made no showing that it has
meaningfully considered the requests of EPA-certified reclaimers with
respect to issuing such allowances, thereby deviating from one of the
AIM Act's mandates. Finally, one commenter suggested that any
allowances used in pursuit of maximizing recovery and reclaim would be
significantly more effective if allocated directly to certified
reclaimers due to existing rigorous reporting obligations, rather than
a general incentive for the general public that may not have experience
in the reclamation field.
EPA does not view issuing allowances to reclaimers that are not
eligible based on the methodology EPA is finalizing in this rulemaking
as a necessary way to increase opportunities for reclamation. If EPA
were to issue allowances specific to reclaimers based on some
specialized status, EPA would reduce the number of allowances available
to other general pool allowance holders, which includes certain
reclaimers. EPA recognizes that reclaimers may need access to some
amounts of at specification HFCs to rebalance reclaimed blends, but our
understanding is that there are generally available mechanisms to
access regulated substances without directly importing them. EPA notes
that some reclaimers have historically imported HFCs and those
reclaimers will receive allowance allocations under the methodology
finalized in this rule based on historic consumption levels. Commenters
have not provided a compelling argument as to why reclaimers that did
not import HFCs have a particularized need to do so now, nor did
commenters provide a defensible basis for how EPA would determine what
quantity of allowances would be needed for rebalancing. Rather, EPA
thinks it is most appropriate to continue to allocate to entities that
have historically imported in order to minimize market disruptions.
Even if certain reclaimers have a new need to directly import HFCs, EPA
provided all entities, including reclaimers, the opportunity to enter
the HFC import business through applying as a new market entrant to the
set aside pool of allowances in accordance with 40 CFR 84.15. Several
reclaimers applied for, and received, new market entrant allowances
from the set-aside pool for calendar years 2022 and 2023. These
reclaimers will be treated in a manner consistent with the previous
discussion in section III.B.1 of this preamble. Further, HFCs can be
purchased on the open market from other allowance holders, or other
distributors and suppliers. The commenters have not explained in any
detail why these three options are not sufficient to accommodate
reclaimer needs, aside from general and conceptual arguments that may
be
[[Page 46852]]
divorced from on the ground experiences and practice. The Agency also
notes that previously reclaimed HFCs that meet the requisite technical
standard for purity (i.e., Air-Conditioning, Heating, and Refrigeration
Institute (AHRI) 700-2016) for refrigerants may be used in lieu of
virgin materials for the purposes of rebalancing, and commenters have
not explained in any detail any considerations for how or why this
additional option would be insufficient. Commenters have also not
meaningfully engaged with the point that the phasedown of HFCs
increases opportunities for use of reclaimed HFCs by restricting the
amount of newly produced and imported HFCs that can enter U.S.
commerce. Commenters have not explained why this increased market
demand is not sufficient, nor why the increased market demand would
necessitate or justify priority access to consumption allowances for
reclaimers.
EPA disagrees with one commenter's characterization that by not
issuing allowances to reclaimers, the Agency is not following through
on the AIM Act's mandates, specifically subsection (h)(2)(A), which
states that ``[i]n carrying out this section, the Administrator shall
consider the use of authority available to the Administrator under this
section to increase opportunities for the reclaiming of regulated
substances used as refrigerants'' (emphasis added). As discussed in the
proposed rulemaking, the Agency need not determine in this rulemaking
whether this provision applies to this action--much less whether it
establishes a requirement that may apply to other actions taken under
the AIM Act--because even assuming that the commenter is correct that
this provision creates a statutory obligation that applies to this
rulemaking, the Agency has undertaken such consideration throughout
this rulemaking process. Nothing in this statutory language requires
that the Agency reach a certain result or use a certain mechanism;
rather, it requires no more than that the Agency consider the potential
to increase opportunities for reclamation of regulated substances used
as refrigerants--and the Agency has done that in the context of this
rulemaking, including in its development of the proposed rulemaking and
in consideration of these comments and potential responses to them.
Moreover, in a separate rulemaking, the Agency is developing a
proposed rulemaking for HFCs and their substitutes for the purposes of
maximizing reclamation and minimizing releases of HFCs from equipment.
EPA issued a notice of data availability and draft report published in
the Federal Register on October 17, 2022 (87 FR 62843) on the current
United States HFC reclamation market and requested comment. EPA also
hosted stakeholder meetings on November, 9, 2022, and March 16, 2023,
to provide information on the upcoming rulemaking, as well as to
provide an opportunity for stakeholder input and questions related to
managing use and reuse of HFCs and substitutes. The agency also has
been meeting with stakeholders individually and by participating in
industry meetings. Comments submitted on the draft report, along with
any input received during the stakeholder meetings and through other
interactions with relevant stakeholders (e.g., EPA participation in
trade association meetings), will inform the future AIM Act subsection
(h) proposed rulemaking.
One commenter argued that EPA should allocate to HVAC original
equipment manufacturers (OEMs) because: an HVAC OEM allocation would
substantially lower OEM and consumer costs and would reduce the chance
of HFC market manipulation; in the absence of allocation, the HFC
market could impede the market acceptance of alternatives; and an HVAC
OEM allocation would encourage a more orderly HFC phasedown by placing
appropriate responsibility on OEMs to transition to lower climate
impact refrigerants, reduce charge volume, and promote more refrigerant
recovery/reclamation. The commenter cited the Agency's allocation
framework for application-specific end uses as demonstrating that an
HVAC OEM allocation would be feasible.
The commenter did not provide details for how such an allocation
category could, or should, be implemented. Additionally, the creation
of such an allocation category would require the Agency to determine
details about scope, eligibility, and implementation that EPA does not
have sufficient information at this time to develop. The commenter also
does not provide anything beyond a conclusory rationale as to why it
would be appropriate to allocate allowances to HVAC OEMs, but not other
OEMs. EPA's chosen allocation methodology that is being finalized in
this rule distributes allowances to entities that historically
conducted the same activities now prohibited absent the expenditure of
allowances. The AIM Act and implementing regulations provide that ``no
person'' shall ``produce'' or ``consume'' HFCs ``without a
corresponding quantity of production or consumption allowances'' (see
42 U.S.C 7675(e)(2); 40 CFR 84.5(a)(2) and 84.5(b)(2)). The Allocation
Framework Rule makes clear that the prohibition on ``consumption''
without corresponding allowances applies specifically to the act of
import (see 42 U.S.C. 7675(b)(6) (defining import as landing on,
bringing into, or introducing into the United States); 40 CFR 84.3
(same); 40 CFR 84.5(b)(1)(i) (requiring consumption allowances ``at the
time of the import'')). Accordingly, the regulations in 40 CFR
84.5(b)(1)(i) prohibit importing HFCs without corresponding allowances,
and state that consumption allowances must be expended ``at the time of
import.'' In short, allowances are required for the act of importing,
not subsequent use of HFCs that have already been produced in or
``imported'' into the United States. EPA notes that OEMs that have
historically directly imported will receive allowance allocations under
the methodology finalized in this rule based on historic consumption
levels. Commenters have not provided a compelling argument as to why
OEMs that did not historically import HFCs have a particularized need
to do so now, and rather EPA thinks it is most appropriate to continue
to allocate to entities that have historically imported to minimize
market disruptions. If certain OEMs that had not previously imported
HFCs had wanted to enter the HFC import business, there was an
opportunity to do so as a new market entrant to the set aside pool of
allowances in accordance with 40 CFR 84.15. The creation of an OEM
allocation category would have also required an accompanying proposal
or solicitation of comment, neither of which were included in the
proposed rulemaking, and as previously noted, the creation of such an
allocation category now would require the Agency to determine details
about scope, eligibility, and implementation that may be informed by a
range of market data and other records to which the Agency does not
currently have access. EPA also lacks information on how such an
allocation category would holistically affect the regulated industry,
including small businesses.
One commenter asserted that if EPA intends to require allowances to
import blends containing regulated substances, allowances must be
allocated to the entities who are importing or combining HFCs to create
HFC blends, and not to the entities who are producing or importing the
individual components of the blends. Specifically, the commenter
[[Page 46853]]
expressed concern that under the proposed allocation methodology,
companies that blend HFCs will suffer an unfair and economically
devastating mismatch between entities that receive allowances and
entities that ultimately bear the burden of the allowance system.
To be clear, importing a blend of chemicals that includes regulated
substances requires expending allowances to account for the regulated
substances within the blend. EPA is making alterations to the
regulations to further clarify and codify the Agency's existing
position on this issue. Those changes and the rationale behind them are
further outlined in section V.C. of this rule. As noted in the prior
comment responses, EPA's chosen allocation methodology that is being
finalized in this rule distributes allowances to entities that
historically conducted the same activities now prohibited absent the
expenditure of allowances. If an entity has historically imported a
blend and reported that import as required to GHGRP (as is the case for
this particular commenter), that entity will be eligible to receive
allowances. An entity that does not directly import blends or
individual HFC components, but combines HFCs obtained on the domestic
market to create an HFC blend, is not eligible for allowances, although
they could have applied as a new market entrant for set-aside
allowances previously in accordance with 40 CFR 84.15. An entity not
importing HFCs, but domestically creating an HFC blend, can continue to
undertake that behavior without any need for allowances. The commenter
has failed to provide reasons as to why an allowance allocation to such
an entity is needed. The commenter states that ``companies that blend
HFCs will suffer an unfair and economically devastating mismatch,'' but
does not explain why that would be the case. Without compelling
arguments or evidence to support a contrary approach, EPA is finalizing
the allocation methodology as proposed.
As noted previously in this section, EPA did not propose to
establish, and is not finalizing, a set-aside pool of allowances beyond
what was created in the Allocation Framework Rule and was allocated
March 31, 2022. EPA recognizes that the goal of the AIM Act is to
establish a national phasedown of HFC production and consumption by 85
percent by 2036, and therefore, while the Agency did offer a one-time
opportunity of a set-aside pool of allowances for calendar year 2022
and 2023, EPA explained in the proposed rulemaking that it does not
view further allocations for a set-aside pool and/or allowances for
entities who have not previously produced and imported HFCs as
supporting the AIM Act's objectives, and accordingly is not
establishing a new set-aside pool of allowances.
Several commenters expressed support of EPA's proposal to not
establish a set-aside pool of allowances for calendar years 2024
through 2028. However, other commenters suggested that EPA should
establish a set-aside pool during this period for entities to: develop
new, innovative, or low-GWP HFC substitutes (for additional new market
entrants as well as existing allowances holders seeking to develop
alternatives for existing equipment); incentivize environmentally
beneficial activities such as reclamation or recovery; provide a margin
of safety pool for the semiconductor industry; or, to ensure against
historical and current barriers that entities wishing to continue or
enter in the HFC market may encounter, e.g., social inequities or
disproportionate allocations to historic entities. One of these
commenters suggested establishing a set-aside pool of allowances at 7.5
MMTEVe, with unused allowances being redistributed to the general pool.
With respect to the suggestion to establish a set-aside pool to
develop new, innovative, or low-GWP substitutes, commenters did not
provide a clear range of entities or activities that would meet the
suggested category, other than being existing or prospective suppliers
of HFCs or HFC substitutes. The Agency's views on issuing allowances to
reclaimers that are not otherwise eligible based on the final
methodology for 2024 through 2028 has been discussed elsewhere in this
rule and, for the reasons explained in those discussions, EPA is not
finalizing such a set-aside pool to incentivize reclamation. As for
creating a margin of safety pool specifically for the semiconductor
industry, the Agency reiterates that we did not propose to change the
methodology for issuing application-specific allowances, and the
existing application-specific allowance allocation methodology codified
at 40 CFR 84.13 will continue to apply as finalized in the Allocation
Framework Rule. Further, EPA has not heard concerns with sufficient
specificity to believe that there is a need for a set-aside pool
specific to the semiconductor industry in addition to the allowances
already provided under the application-specific allocation. In applying
for application-specific allowances, all eligible entities can provide
information on unique circumstances facing their businesses, which are
taken into account in the Agency's calculation of application-specific
allowance allocations.
As part of the Allocation Framework Rule, EPA conducted a
preliminary review of entities that had previously imported HFCs and
that were HCFC allowance holders (available in the docket for the
Allocation Framework Rule) and solicited comment on whether any
individuals have experienced structural barriers inhibiting their
earlier access to the HFC import market, including if there was
difficulty entering the HFC import market based on criteria such as
business location, employment of socially or economically disadvantaged
individuals, or other criteria related to business ownership, employee
characterization, or business location. As explained in that
rulemaking, EPA was interested in collecting the information requested
to better understand whether such issues are affecting entry into this
market and to explore future opportunities to ensure a more equitable
marketplace. Commenters did not provide evidence or detailed
information that would indicate that certain businesses have
historically and could continue to experience difficulty entering the
HFC market as a result of structural barriers or social or economic
inequities. Our review of public comments received from the proposed
rulemaking associated with this rulemaking did not yield any such
records either.
Lastly, several commenters also provided suggestions for what the
Agency might consider in the next allocation methodology, e.g.,
allowance incentives for destruction and a set-aside pool that
prioritizes the top performers with respect to providing recovered
refrigerants to reclaimers in the previous year. Comments explicitly
framed as being for consideration in future rulemakings have not been
considered for this final rule and the Agency is not responding to
those comments at this time.
C. How is EPA accounting for past production or import activity to
determine allocation eligibility?
To be eligible to receive general pool allowances for 2024 through
2028 based on historic production and import activity (i.e., for
entities that produced and imported regulated substances in 2011
through 2019), EPA proposed that an entity must have produced (for
production and consumption allowances) or imported (for entities only
receiving consumption allowances) HFCs in 2021 or 2022. EPA had a
similar requirement in the Allocation
[[Page 46854]]
Framework Rule, specifically requiring production or import in
2020.\18\ As part of the proposal, EPA considered using a rolling set
of years to confirm activity, but as explained in that rulemaking,
using a rolling set of years would not provide the same stability since
allowance holders could come into and out of the allocation system,
thereby affecting everyone's relative share of available allowances and
reducing predictability. EPA also explained that it does not want to
incentivize entities in each subsequent rolling set of years' entities
to continue importing or producing small quantities that would
otherwise be outside the entity's plans in future years just to
maintain position to receive future calendar year HFC allowances. EPA
also took comment on simply basing allocations on historic reported
data between 2011 and 2019, without including an additional eligibility
requirement relating to whether the entity produced or imported HFCs in
recent years, such as 2021 or 2022. The discussion in this section of
the preamble referencing production or import activity in 2021 or 2022
is germane only to whether an entity was active in those years for the
purposes of determining whether that entity is eligible to receive
allowances. EPA is not evaluating the specific amounts that entities
may have produced or imported in these years, and the Agency's
finalized approach in confirming that entities were active in 2021 or
2022 should not be interpreted as EPA evaluating entity-specific
activity in those years to inform the number of allowances that each
eligible entity receives. The years that EPA is relying on to determine
how many allowances each eligible receives is discussed elsewhere in
the preamble. As noted in those other sections, EPA has concerns about
how representative quantities produced or imported in 2021 and 2022 may
be, but EPA has determined that some level of demonstrated activity in
those years is still a useful metric for purposes of determining
whether to allocate allowances
---------------------------------------------------------------------------
\18\ EPA also allowed for an entity to identify individual
circumstances for not importing in that year due to the COVID-19
pandemic. EPA did not propose a mechanism to allow an entity to
request individualized consideration if they did not produce or
import in 2021 or 2022.
---------------------------------------------------------------------------
Some commenters supported EPA's proposal of requiring activity in
either 2021 or 2022 as a prerequisite for general pool entities
receiving allowances. One commenter opposed the proposed qualification,
citing that such a requirement could penalize entities who are trying
to maximize efficiency by outsourcing production or importation but who
plan to remain in the market and service existing customers. The
commenter suggested that the more relevant consideration would be
whether an entity's allowances were expended in the affected years, and
that if the Agency were to finalize this specific provision, that there
be a way for entities to request unique consideration in the event they
did not produce or import in 2021 or 2022.
EPA disagrees with the commenter. This additional eligibility
requirement, that an entity has demonstrated import or production
activity in 2021 or 2022, is intended to exclude entities from
receiving allocations that are no longer undertaking the activities for
which allowances are required (i.e., production and import). Under the
commenter's proposal, an entity that is transferring all of their
allowances is no longer undertaking activities for which allowances are
required. EPA understands that the commenter may be interested in
receiving an allocation such that the commenter has allowances to sell
and transfer, but the commenter failed to provide a rationale aligned
with the AIM Act and the HFC phasedown program for why it would be
appropriate in such a situation for EPA to continue to allocate to an
entity that is not itself using allowances. Entities who choose to buy
and sell HFCs within the United States, e.g., as servicing companies or
distributors, instead of directly producing or directly importing HFCs
may continue to do so without receiving allowances. EPA is interested
in avoiding allocating to entities that had historic import or
production data in the 2011-2019 timeframe, but have since ceased
operations or shifted away from HFC production or import. Allocating
allowances to entities that cannot or will not use them could be
disruptive to the market during the phasedown if allowances go
unexpended or could result in windfall profits to an entity that will
only use the allowances to transfer for a price. The practical effect
of not allocating allowances to an entity due to their inactivity would
be a pro rata increase of allocation levels to other entities receiving
allowances from the general pool allocation.
One commenter suggested that EPA require entities to be active in
the market in 2022 to receive allowances for 2024 through 2026. This
commenter further provided a method for redistributing unused
allowances. The commenter provided a formula that would allocate more
in future years to entities that used more of their allowances. For
example, an entity that used 100 percent of its allowances in year 1
would receive more allowances in year 2 or 3 as a result of the number
of unused allowances in year 1 than an entity who only used 80 percent
of its allowances that year. The method would count transfers the same
as if an entity used its allowances to produce or import. The commenter
notes that such a model provides all the advantages that EPA is looking
to achieve, including: relying on historic data from 2011 through 2019
for allocations; transparency of available data; ensuring that entities
who are no longer active in the HFC market or active at all do not
receive allowances; and adjusting for unrepresentative activity, i.e.,
large numbers of imports in certain years prior to AD/CVD findings and
actions, that might have informed previous allocations, but not be
representative of more current real-world conditions.
EPA is not finalizing an approach in line with the commenter's
suggestion. EPA disagrees with the commenter on the benefit of moving
allowances away from entities based on a single year of allowance
expenditure. There are many factors that could lead to an entity
expending fewer allowances in a given year beyond a permanent shift in
business model, such as a temporary change in customer demand or delays
in a foreign supplier fulfilling contracts. In such situations, EPA
does not want to establish perverse incentives to encourage an entity
to expend allowances to import more HFCs than the entity otherwise
needs or to otherwise penalize an entity that does a one-time transfer
of allowances. Further, the commenter's model would require EPA to
determine details about scope, criteria, and implementation for which
we do not have sufficient information at this time to consider
finalization of such a method. Additionally, the commenter's suggested
pre-requisite for entities to have been active in 2022 as well as the
commenter's proposed time period for when the model would apply are not
consistent with the Agency's proposals. The commenter does not provide
rationale for why evaluating only 2022 would be appropriate in lieu of
evaluating either 2021 or 2022, nor does the commenter provide a
rationale for why the Agency should issue allowances using the proposed
model for 2024 through 2026 only.
Relying on information from 2021 or 2022 solely for the purpose of
determining eligibility for allowances will ensure companies receiving
allowances are still actively producing or importing regulated HFCs,
regardless of who received allowances in calendar
[[Page 46855]]
years 2022 and 2023. Allowing two years, as opposed to a single year,
provides additional time to demonstrate activity in the market, and is
intended to reduce the impacts of supply chain delays, temporary
changes in demand, or other business decisions. Some entities also
import small volumes of HFCs and may not need to import every year.
Entities who would be eligible to receive allowances based on this
criterion would not need to have produced or imported HFCs in both
years, nor would entities need to have produced or imported at any
particular level in either year.
EPA proposed to use a fixed set of years (i.e., 2021 and 2022) to
determine eligibility for entities to be allocated allowances for
calendar years 2024 through 2028 to provide a degree of clarity and
certainty to entities during this period and to minimize disruption to
existing supply chains that have adjusted to the 2022 and 2023
allowance allocations. By finalizing this approach, all market
participants will be able to generally understand their own and other
allowance holders' market share for the 2024 through 2028 period as of
October 1, 2023, because there would not generally be shifts in how
many entities EPA is allocating allowances to and the relative share of
allowances going to those entities. Looking to behavior in 2021 or
2022, specifically to determine whether entities were actively
producing or importing HFCs, would also have administrative benefits to
EPA. For example, determining annual allocations will be more
streamlined because EPA will rely on data that has been vetted and
reviewed at a single point in time in advance of the calendar year 2024
allocation as well as all allocations through calendar year 2028. The
commenter's scenario is also one that the Agency was trying to avoid,
i.e., issuing allowances to entities that are no longer in the HFC
production or import business.
The Agency provided one final opportunity, separate from the
proposed rulemaking, to entities to verify, and if necessary correct,
the data available to the Agency on entities' historic consumption
activities from 2011 through 2021 for the purposes of the AIM Act. The
Agency transmitted an electronic communication or letter to all
entities that were known, or likely, to have had consumption activity
of regulated substances from 2011 through 2021 that they had until
September 26, 2022, to verify, and if necessary correct, such data.
Additionally, in the proposal for this rulemaking, EPA stated that
''[i]f there is any entity that did not receive a letter or electronic
communication from EPA that had consumption activity of regulated
substances from 2011 through 2021, EPA is hereby providing notice that
for the purposes of future HFC allowance allocations under the AIM Act,
EPA will not consider any data unless submitted to EPA through the
Electronic Greenhouse Gas Reporting Tool (e-GGRT) by the close of the
comment period on December 19, 2022.'' The Agency was explicit that
after this final opportunity for entities to make corrections to
historic data, ``EPA does not intend to consider any data revisions in
allocation decisions'' where the revisions would be taken into account
when determining the annual allocation issued by October 1 of each year
for 2024 and future year allocations (87 FR 66383). After consideration
of the public comments on this issue, EPA continues to find these
considerations compelling. Accordingly, the Agency will not consider
any additional revisions to historic data for the purposes of allowance
allocations for these years.\19\
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\19\ Data submitted as of December 19, 2022, that has been
certified and verified will be taken into account when determining
the annual allocation issued by October 1 of each year for 2024
through 2028. EPA will not consider revisions after this date in the
2024 through 2028 and all future year allocations, where relevant.
If information reveals an entity has provided false, inaccurate, or
misleading information, EPA reserves the right to issue
administrative consequences to adjust allowances downward (in the
same year or a subsequent year). Regardless of whether or not EPA
applies an administrative consequence, EPA may also pursue any and
all appropriate enforcement action.
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EPA did not propose to allow companies that were inactive in 2021
and 2022 to request individualized consideration for whether they were
active in the market, and EPA disagrees with one commenter's contention
that it would be appropriate to do so. EPA allowed for individualized
consideration for failure to import in 2020 in the Allocation Framework
Rule, given 2020 was a strikingly unique year due to the COVID-19
pandemic and supply chain disruptions. Further, EPA was only looking to
one year to verify company activity, whereas under this rule EPA is
looking to see if a company was active in either 2021 or 2022. The
commenter has failed to explain why those years produced unique
challenges equivalent to the pandemic and supply chain disruptions of
2020 and also has failed to explain why looking across two years of
data, as opposed to one, would not rectify any such challenges, i.e.,
if 2021 were equally as challenging with respect to the pandemic and
supply chain disruptions of 2020, any import activity in either 2021 or
2022 regardless of quantity would meet the Agency's proposed activity
requirement. Allowing two years, as opposed to a single year, provides
additional time to demonstrate activity in the market, and is intended
to reduce the impacts of supply chain delays, temporary changes in
demand, or other business decisions.
Accordingly, for the reasons discussed above, EPA is finalizing its
proposal that to be eligible to receive general pool allowances for
2024 through 2028 based on historic production and import activity
(i.e., for entities that produced and imported regulated substances in
2011 through 2019), an entity must have produced (for production and
consumption allowances) or imported \20\ (for entities only receiving
consumption allowances) bulk regulated substances in 2021 or 2022.
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\20\ EPA will look to the statutory and regulatory definition of
``import'' to determine whether an entity imported bulk regulated
substances in 2021 or 2022. An argument that an entity could fall
within the regulatory definition of ``importer'' will not be
relevant to this analysis.
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The Agency considered and took comment on whether new market
entrants should be required to import in 2022 to be eligible for
allocation of allowances for calendar years 2024 through 2028. Several
commenters were supportive of requiring recipients of set-aside
allowances as new market entrants to import in 2022 to be eligible for
allocation of consumption allowances for calendar years 2024 through
2028. One such commenter suggested that EPA evaluate whether new market
entrants' consumption activity in either 2022 or 2023 was consistent
with EPA's rationale for allocating those allowances in the first
place, i.e., entities that did not use their allowances, or used their
allowances in a manner that was wholly inconsistent with the new market
entrant provisions, should not be eligible to receive allowances for
calendar year 2024 through 2028. One additional commenter generally
supported an approach where new market entrants must have imported in
calendar year 2022 to receive allowances. Another commenter supported
not requiring activity in 2022 for a new market entrant to be eligible
for future general pool allowances, noting that some smaller entities
might not have been able to amass resources to fully use their
allowances in either 2022 or 2023. This commenter further cited that
new market entrants may not have been able to order products or
finalize agreements with parties such as banks and customs brokers
until after issuance of their allowances on March 31, 2022.
[[Page 46856]]
EPA disagrees with commenters that took the position that new
market entrants should be required to import at some point in 2022 to
be eligible to receive general pool allowances for calendar years 2024
through 2028. Most new market entrants are, as their name suggests, new
to the HFC import market and would not reasonably be expected to have
any import activity in 2021. At the same time, data for the 2023 period
would not be available and verified in time for allocation decisions
for the allocation of calendar year 2024 allowances. Therefore, if the
Agency applied eligibility criteria to new market entrants at all, it
would need to look to 2022 for import activity. Accordingly, for these
entities, EPA would not be able to look across two years for import for
most new market entrants, unlike for general pool participants. EPA
anticipated that most new market entrants would make use of allocated
allowances and import regulated substances in 2022, but EPA previously
recognized that new market entrants might have difficulty
operationalizing their business to begin importing regulated substances
in 2022 if the entity was fully new to this aspect of the import
business. As a result, in the Allocation Framework Rule the Agency took
the position that EPA would ``not reduc[e] allowances to new market
entrants in 2023 for failing to use all the allowances issued in 2022''
(86 FR 55159). The commenters do not provide any rationale to counter
these concerns raised by EPA in the proposal. The commenters also do
not provide rationale on why it would be appropriate to look to only
one year of data for entities that were brand new to the HFC import
market, while allowing historically active companies to produce or
import at any point in any quantity over a two-year span. Such an
approach would seem to disadvantage entities that could have
significant difficulty living up to such a requirement. A commenter
suggested that EPA evaluate whether new market entrants' consumption
activity in either 2022 or 2023 was consistent with EPA's rationale for
allocating those allowances in the first place, but does not explain
what it would mean for a new market entrant to use their allowances in
a manner that was wholly inconsistent with the new market entrant
provisions or how EPA would implement such a provision. EPA recognizes
that entities who received allowances as new market entrants are in a
variety of industries, and therefore determining whether they used the
allowances in a manner consistent with the new market provisions would
require us to determine details about scope, criteria, and
implementation across each of the affected industries, i.e., one size
does not fit all. We do not have sufficient information at this time to
make such determinations. The Agency also notes that the vast majority
of these entities did import regulated substances and have had direct
contact with EPA by way of required reporting or direct emails
regarding implementation of the HFC phasedown. Accordingly, EPA is
finalizing an approach that will not require any import activity of new
market entrants for those entities to be eligible for allocation of
calendar year 2024 through 2028 allowances.
To determine entities' eligibility for allowance allocations, EPA
will rely on data that have been reported pursuant to the 40 CFR part
84 requirements. EPA will rely on data reported no later than February
14, 2023, which aligns with the reporting deadline for fourth quarter
calendar year 2022 HFC reports under the HFC allocation requirements at
40 CFR part 84, subpart A.\21\ Further, EPA is finalizing as proposed
that in cases where allowances were not expended at the time of
production and/or import of HFCs, that production and import would not
count as activity for eligibility purposes. In other words, EPA will
only consider production and import of HFCs where allowances were
expended as required when determining whether an entity is eligible for
allowances. For example, imports where entities received non-objection
notices for transformation or destruction, and imports where entities
have notified EPA of transhipments consistent with our regulations will
not be eligible for consideration when determining whether an entity is
eligible for allowances. Additionally, entities who imported or
attempted to import regulated HFCs in 2022 (absent 2021 import
activity) without the necessary allowances will not be eligible to
receive allowances beginning in 2024, even if they had historic import
activity between 2011 and 2019. The distinction of 2022 versus 2021
import activity is integral in this particular circumstance because
there were no HFC phasedown-driven limits on import activity in 2021,
whereas the phasedown of HFCs instituted controls on import activity by
way of consumption allowances beginning in 2022. To reiterate, entities
who had production or import activity in either 2021 or 2022 would be
eligible for production and/or consumption allowances, unless an entity
only has activity in 2022 that occurred without any required allowance
expenditure.
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\21\ For more information, visit https://www.epa.gov/climate-hfcs-reduction/hfc-allocation-rule-reporting-and-recordkeeping.
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Related to the criteria for appropriate entities to receive
allowances, the Allocation Framework Rule provides an extensive
discussion of how EPA may remedy activity by entities that violate DoC
and CBP trade laws via administrative consequences. The proposed
rulemaking associated with this final rule did not explicitly speak to
these types of anticompetitive behaviors, e.g., AD/CVD findings, or any
potential remedies. However, the Agency received at least eight
comments during the public comment period for this proposed rulemaking
offering a variety of mechanisms for how EPA may address such behavior.
One set of suggestions was for the Agency to either not issue
allowances to, or revoke allowances from, entities who have
circumvented AD/CVDs because their share of the U.S. HFC market was
initially established through the sale of unfairly traded (i.e.,
dumped) imports and that share was subsequently maintained based on
circumvention of the antidumping duty orders issued by the DoC.
Commenters suggested that any otherwise unissued or revoked allowances
should be distributed to domestic producers of HFCs.
As discussed elsewhere in the preamble, EPA has determined that it
is not appropriate to base allowance allocation calculations on any
unfair trade practices that have happened in the past, specifically in
the 2011 through 2019 timeframe before the AIM Act was enacted and
before EPA began the Congressionally-mandated phasedown of HFCs.
However, EPA emphasizes that the Agency is concerned about companies
not complying with all trade provisions applicable to the import of
HFCs, including any AD/CVDs, as violations of such provisions may
create an unequal environment. In the Allocation Framework Rule, EPA
finalized a requirement that any entity importing HFCs subject to an
AD/CVD order issued by DoC that received allowances must provide
documentation of payment of the AD/CVD duties for HFCs imported from
January 1, 2017, through May 19, 2021, the date of the proposed
rulemaking, or provide evidence that those imports were not subject to
AD/CVD for those years. Commenters also suggested applying
administrative consequences to the allowances of circumventing
importers; eliminating or reducing the ability for circumventing
importers to transfer allowances; and, reducing allowance amounts for
circumventing importers (the last of
[[Page 46857]]
which is discussed elsewhere in the preamble). As discussed in the
Allocation Framework Rule, there are a variety of situations or
circumstances in which EPA may exercise its authority and discretion to
levy administrative consequences. This would include a situation where
an entity has not paid a required AD/CVD within the required time
frame. However, EPA's determination to issue administrative
consequences is generally separate from this rulemaking and would be
based on the specific situation or circumstance identified. EPA will
continue to consult intergovernmental partners, e.g., CBP, as
appropriate.
D. Can allowances be transferred or conferred prior to the calendar
year?
EPA proposed to clarify that entities may confer or transfer
allowances at any point after they are allocated until the allowance
expires at the end of the calendar year for which it was allocated. In
the Allocation Framework Rule EPA established 40 CFR 84.5(d), which
provides that all production, consumption, and application-specific
allowances are valid only for the calendar year for which they are
allocated (i.e., January 1 through December 31). The intent of this
provision was to state that allowances could only be expended in the
calendar year for which they were issued. However, EPA recognized at
proposal that use of the term ``valid'' could be read as ambiguous with
regard to whether it allows for transfers and conferrals before the
calendar year. Allowances can only be expended to cover imports or
production in the calendar year for which they are allocated, but EPA
proposed to amend 40 CFR 84.5(d) to more clearly state that entities
may confer or transfer allowances before January 1 of the calendar
year.
Commenters widely supported EPA's proposed revision to resolve
potential ambiguity. Commenters stated that this clarification will
smooth business transactions and reduce potential delays. EPA received
no adverse comment on this proposed revision. As a result, EPA is
finalizing the proposed amendment to the prohibition in 40 CFR 84.5(d)
to more clearly state that entities may transfer and confer their
allowances upon their allocation, including ahead of January 1 of the
calendar year for which the allowances were allocated. This amendment
does not permit an allowance holder to expend an allowance valid in one
calendar year in any other year, e.g., a calendar year 2024 allowance
can only be expended for a regulated substance produced or imported in
2024 even if the allowance was transferred or conferred in the last
quarter of 2023.
The Agency hopes that this added clarity will facilitate allowance
holders' planning for that upcoming year. EPA encourages allowance
holders, including application-specific allowance holders, to undertake
transfers and conferrals early in the year and, where possible, well in
advance of when regulated substances would need to be produced or
imported. For more information on when a producer and importer must
possess and expend allowances, see 40 CFR 84.5, with the changes being
finalized in this rule discussed in section V.A of this preamble.
EPA also received comments stating that the existing 5 percent
transfer offset was too high. Multiple commenters recommended that the
Agency reduce the offset, such as to 1 percent or 0.1 percent, to
encourage transfers and facilitate a smoothly operating transfer
market. One commenter directly asserted that EPA effectively reopened
the 5 percent offset provision because the offset is directly related
to EPA proposals to clarify the timing of allowance transfers and other
transfer-related provisions concerning the submittal of importer of
record information, requirements related to transfers, and those
required of repackagers.
EPA responds that the Agency did not reopen the transfer offset
provisions in this rulemaking's proposal, did not solicit comments on
the matter, and did not propose revisions to the transfer offset
provisions. Comments on this issue are out of scope for this
rulemaking. Generally speaking, an agency reopens an issue when it
either explicitly or implicitly indicates it is reexamining its former
choice. National Min. Ass'n v. U.S. Dept. of Interior, 70 F.3d 1345,
1351 (D.C. Cir. 1995). A reviewing court will consider whether ``the
entire context'' of a rulemaking demonstrates that the Agency is
substantively reconsidering an existing regulation. Growth Energy v.
EPA, 5 F.4th 1, 21 (D.C. Cir. 2021). Nothing in EPA's proposal suggests
that EPA was substantively reconsidering the transfer offset amount.
The proposal to clarify the timing of allowance transfers in 40 CFR
84.5(d) in no way implies that EPA is reconsidering the transfer offset
amount codified in 40 CFR 84.19(a)(1). Neither does the invitation for
comment on the proposed new paragraph in 84.19(a)(5) clarifying that
allowances can be expended by companies with specified affiliation
without a transfer. See, e.g., National Ass'n of Reversionary Property
Owners v. Surface Transp. Bd., 158 F.3d 135, 142 (D.C. Cir. 1998)
(``When an agency invites debate on some aspects of a broad subject . .
. it does not automatically reopen all related aspects including those
already decided.'').
Even if this issue was reopened as part of this rulemaking, which
it was not, commenters did not provide any information that would lead
EPA to change its decision as to the appropriate parameters for the
transfer offset provision. As discussed in the Allocation Framework
Rule at 86 FR 55154, the AIM Act provides significant discretion to EPA
in choosing an appropriate offset level. The Agency considered public
comments during development of the Allocation Framework Rule and
concluded that a five percent offset was the right value to balance a
net environmental benefit without creating an overly burdensome
requirement that would discourage trading necessary to meet market
demands. Allowances are issued to companies at no cost and transferors
retain 95 percent of the value of something provided for free if they
choose to transfer those allowances. Furthermore, allowances are not a
property right of the allowance holder and EPA has been directed by
Congress to require an offset if companies choose to transfer those
allowances. EPA is not taking final action with respect to the transfer
offset provisions in this rulemaking.
IV. How is EPA updating the consumption baseline?
Subsection (e)(1) of the AIM Act directs EPA to establish a
production baseline and a consumption baseline and provides the
equations for doing so. In the Allocation Framework Rule, EPA initially
calculated and codified the production and consumption baselines
according to the formulas outlined in subsection (e)(1) of the AIM Act.
In this rulemaking, the Agency proposed to update the consumption
baseline to account for corrected data. In this action, EPA is
finalizing an updated consumption baseline, and associated phasedown
schedule, to account for these corrected data.
The AIM Act instructs EPA to calculate the consumption baseline by,
among other things, using the average annual quantity of all regulated
substances consumed in the United States from January 1, 2011, through
December 31, 2013. In subsection (e)(2)(C) of the AIM Act, Congress
provided the HFC phasedown schedule measured as a percentage of the
baseline. In the Allocation Framework
[[Page 46858]]
Rule EPA codified the consumption baseline as 303,887,017 MTEVe at 40
CFR 84.7(b)(2) and the total allowance quantities that could be
allocated for each year at 40 CFR 84.7(b)(3). A complete description of
EPA's process in developing the codified baseline figure can be found
in the Allocation Framework Rule at 86 FR 55137-55142.
After EPA finalized the Allocation Framework Rule, one company
informed EPA that the 2011 and 2012 HFC import data that it had
reported to the GHGRP and certified per 40 CFR 98.4(e)(1) as true,
accurate, and complete under penalty of law, was, in fact,
significantly more than its actual import quantities. Because EPA used
the company's 2011 and 2012 HFC import data in the calculation of the
consumption baseline, the Agency's calculated and codified consumption
baseline was high. The company then submitted and certified revised
reports. EPA verified the corrected data by reviewing the importer's
invoices and comparing the reported data to import data provided by
CBP.
In this rulemaking, the Agency proposed to update the consumption
baseline and associated phasedown schedule based on corrected and
verified data from the one company that identified an error in its
historic reporting. Specifically, EPA proposed to revise the
consumption baseline from 303,887,017 MTEVe to 300,257,386 MTEVe, a
decrease of 3,629,631 MTEVe, to account for that error. The Agency also
stated that it would include any additional verified data revisions
from the 2011 through 2013 timeline in the revision to the consumption
baseline.
As described in the proposal, separate from and concurrent with
this rulemaking, EPA provided an opportunity for entities to verify,
and if necessary correct, the data \22\ available to EPA on those
entities' historic consumption activities from 2011 through 2021 for
purposes of the AIM Act. EPA sent an electronic communication or letter
to all entities that were known, or likely, to have had consumption
activity of regulated substances from 2011 through 2021 that they had
until September 26, 2022, to verify, and if necessary correct, the data
available to EPA on those entities' historic consumption activities
from 2011 through 2021.\23\
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\22\ These data were certified per 40 CFR 98.4(e)(1) by the
importer as true and accurate under penalty of the CAA at the time
of original submission.
\23\ This request was for purposes of implementing the AIM Act.
Nothing in this letter or in the complementary process described
below relieves any entity of obligations under the GHGRP regulations
codified in 40 CFR part 98. EPA notes that failure to submit a
report or reporting a fraudulent report may be considered a
violation of the CAA subject to penalties and fines.
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EPA provided further notice through this rulemaking's proposal of a
final opportunity to submit corrected data to the Agency through e-GGRT
by the close of the comment period on December 19, 2022, in the case
that any entity with consumption activity of regulated substances from
2011 through 2021 did not receive a letter or electronic communication
from EPA. To allow EPA to verify the reported data in a timely manner,
anyone reporting past consumption data for the first time must have
provided transactional records (e.g., bills of lading, invoices, or CBP
entry forms). Through EPA's data review, approximately 10 additional
entities provided verifiable revised values for reporting years 2011
through 2013.
Multiple commenters supported EPA's proposal to adjust the
consumption baseline to reflect corrected historical data. With respect
to adverse comments on the proposal, one commenter expressed concern
that the consumption baseline does not reflect the market's growth
since the baseline years of 2011 through 2013. Another commenter stated
that the Agency should account for an anticipated need of additional
HFCs for heat pumps, and underreporting due to smaller producers and
importers being under the threshold of reporting to the GHGRP, by
increasing the consumption baseline.
EPA disagrees with comments opposed to EPA's proposal. Subsection
(e)(1) of the AIM Act provides specific formulas that describe how to
establish the baselines and specifies data that enter into these
formulas. In this rulemaking's proposal, the Agency described the data
collection and verification efforts used in the Allocation Framework
Rule to establish the consumption baseline and in this rulemaking to
revise the consumption baseline (86 FR 66382-66383). EPA does not have
discretion to increase the consumption baseline based on one
commenter's understanding of market growth after the baseline years,
which are identified in the statute, or another commenter's claims
regarding possible future demand. In response to one commenter's
suggestion that EPA needs to adjust the baseline to account for
underreporting due to smaller producers and importers being under the
threshold of reporting to the GHGRP, EPA disagrees with the commenter's
premise that there is a notable flaw in EPA's codified baseline as a
result of GHGRP reporting thresholds. As discussed in the Allocation
Framework Rule (86 FR 55140-55141), the Agency used multiple
appropriate sources of data to calculate the consumption baseline,
conducted significant outreach in its data collection efforts, and
specifically attempted to contact through letters and emails companies
that may not have been reporting to GHGRP because they were below the
GHGRP reporting threshold. EPA has also provided extensive public
notification through a variety of venues of how reported data is used
to establish the baseline. Entities have had numerous opportunities to
correct potential underreporting due to being under the threshold of
reporting to the GHGRP. The Agency used this more complete dataset,
including later opportunities to correct data as described in this
section, to establish and update the consumption baseline. The proposal
in this rulemaking to adjust the consumption baseline was narrowly
limited to correcting data that contribute to the previously
established consumption baseline and through the processes described
above, and did not implicate the general approach used to calculate the
baseline.
One commenter stated that the baseline data should be open and
searchable so the public can review and identify errors. As noted in
the initial Notice of Data Availability (86 FR 9059, February 11, 2021)
and the Allocation Framework Rule (86 FR 55191-55195), the Agency
acknowledges the importance of data transparency and accountability.
EPA intends to release certain available data to the public while
respecting information entitled to confidential treatment. The most
recent release of data is available at https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act. However, the company-specific
data, including production, import, export, and destruction data, used
to establish the baselines are confidential and cannot be publicly
released. As discussed in the Allocation Framework Rule (86 FR 55192),
many of the data elements reported to 40 CFR part 98 subpart OO were
determined to be, and are treated as, confidential by EPA (see, e.g.,
76 FR 30782, May 26, 2011; 76 FR 73886, November 29, 2011; 77 FR 48072,
August 13, 2012, 78 FR 71904, November 29, 2013; and, 81 FR 89188,
December 9, 2016).\24\ Transactional records also include information
that is not publicly available. EPA has provided aggregated information
concerning baseline data as available,
[[Page 46859]]
such as in a memorandum titled ``HFC Production and Consumption Data--
Final Rule'', available in the docket for the Allocation Framework Rule
(Docket ID No. EPA-HQ-OAR-2021-0044). In this action the Agency is
providing additional aggregated information concerning changes to the
consumption baseline in a memorandum titled, ``Docket Memo on Revisions
to HFC Consumption Baseline'', available in the docket for this
rulemaking. However, given the confidentiality of most data involved in
the Agency's baseline calculation, it is not feasible for EPA to
release information detailed enough to meet the commenter's request for
an open and searchable dataset that allows the public to review and
identify discrepancies to the baseline data while respecting existing
confidentiality determinations and governing regulations.
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\24\ For a summary, see https://www.epa.gov/sites/production/files/2020-09/documents/ghgrp_cbi_tables_for_suppliers_8-28-20_clean_v3_508c.pdf.
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As part of EPA's review process, EPA also identified an additional
update to be made to the consumption baseline calculation to improve
accuracy. Specifically, EPA reviewed offsite transformation and
destruction totals reported by companies for the 2011-2013 period,
and--after filtering out totals already reported elsewhere as onsite
transformation and destruction--subtracted these totals from overall
consumption. Additional information on this change can be found in the
memorandum titled, ``Docket Memo on Revisions to HFC Consumption
Baseline'', available in the docket for this rulemaking. EPA changed
the production baseline in a separate action to reflect the additional
transformation and destruction identified.
Based on the considerations discussed above, EPA is finalizing
updates to the codified consumption baseline with the corrected data.
Incorporating the corrected data from this rulemaking's proposal, and
further updates separate from this rulemaking, EPA is revising the
consumption baseline from 303,887,017 MTEVe to 302,538,316 MTEVe, which
is a decrease of 1,348,701 MTEVe. The Agency reiterates here that EPA
did not reopen the production baseline in this rulemaking.
The revision of the consumption baseline amounts to less than a 1
percent change in the baseline. Once EPA applies the relevant phasedown
step to the baseline and then allocates the resulting allowances among
eligible recipients, the change in the consumption baseline is expected
to have a small effect on individual entities' allocations. Further,
this revised consumption baseline starts affecting allowance
allocations for calendar year 2024. Because of the prior framing of
EPA's regulations, specifically the fact that there was no prior
allocation methodology that would apply to calendar year 2024
allowances and beyond, no entities should have had a reasonable
expectation of allowance allocation levels for any individual entity.
Therefore, EPA expects that this alteration of the consumption baseline
will not affect the regulated communities' reasonable reliance
interests.
Revising the consumption baseline changes the total consumption cap
in MTEVe for regulated substances in the United States in each year
after the revision takes effect. Therefore, EPA is revising the table
of production and consumption limits at 40 CFR 84.7(b)(3) by replacing
the current values in Table 2, column 2 of this preamble with the
values in column 3.
Table 2--Revised Limit of Total Consumption Allowances
----------------------------------------------------------------------------------------------------------------
Previously codified
Year total consumption Revised total
(MTEVe) consumption (MTEVe)
----------------------------------------------------------------------------------------------------------------
2024-2028..................................................... 182,332,210 181,522,990
2029-2033..................................................... 91,166,105 90,761,495
2034-2035..................................................... 60,777,403 60,507,663
2036 and thereafter........................................... 45,583,053 45,380,747
----------------------------------------------------------------------------------------------------------------
V. How is EPA revising requirements related to allowances for import?
EPA made several proposals based on the experience gained in
implementing the HFC phasedown program to date under the existing 40
CFR part 84 regulations. In this section, EPA discusses amendments to
codify the point in time that an allowance must be expended as well as
who can expend allowances. We also discuss a regulatory amendment to
clarify the existing requirement that allowances must be expended to
import bulk regulated substances regardless of whether the import is of
an HFC that is imported as a single component substance (such as HFC-
134a) or whether the HFC is part of a multicomponent substance (such as
HFC refrigerant blend R-410A). Additionally, EPA discusses a proposed
amendment concerning importation of heels when the precise weight of a
container of regulated substances in unknown, which EPA is not
finalizing.
A. Codifying the Point in Time That an Allowance Must Be Expended To
Import Regulated Substances
Under 40 CFR 84.5(b)(1) EPA prohibited persons from importing bulk
regulated substances except, among other conditions and with limited
exceptions, ``[b]y expending, at the time of the import, consumption or
application-specific allowances in a quantity equal to the exchange
value-weighted equivalent of the regulated substances imported.''
Through implementing the HFC allocation system, EPA has described the
exact point in time used to determine which calendar year allowance
would need to be expended for each import of a regulated substance. EPA
has spoken explicitly to this issue, including through a December 21,
2021, post on our HFC phasedown Frequently Asked Questions web
page.\25\ EPA stated that a marine vessel waiting off the coast of the
United States in December 2021, that berthed in January 2022, would be
required to expend a calendar year 2022 allowance for any HFCs that
berth at a port in the United States in 2022. EPA proposed to
incorporate this previously stated interpretation into the 40 CFR part
84 regulatory text. Specifically, EPA proposed to revise the
prohibition language in 40 CFR 84.5(b)(1)(i) to remove the point that
an allowance must be expended ``at the time of import'' and instead
require that an allowance be expended at the time of ship berthing \26\
for vessel arrivals, border crossing for land arrivals such as
[[Page 46860]]
trucks, rail, and autos, and first point of terminus in U.S.
jurisdiction for arrivals via air.
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\25\ EPA. Phasedown of Hydrofluorocarbons Final Rule Frequently
Asked Questions. https://www.epa.gov/climate-hfcs-reduction/phasedown-hydrofluorocarbons-final-rule-frequently-asked-questions.
\26\ EPA has and continues to interpret berth to mean ``to moor
(a ship) in its allotted place at a wharf or dock.''
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A few commenters noted their support of EPA's proposal to codify
the point in time that an allowance must be expended to import bulk
regulated substances. One commenter noted that finalizing this proposal
would serve to reduce uncertainty. EPA received no adverse comments on
this proposal.
EPA is finalizing the regulatory revisions as proposed to
incorporate the Agency's preexisting interpretation on when an
allowance must be expended to import bulk regulated substances.
Providing specificity on this point in the regulations helps ensure
consistent and accurate accounting associated with allowance use for
all importers. For context, the point in time that a vessel berths, a
truck or other vehicle crosses the border for land arrivals or the
first point of terminus in U.S. jurisdiction for planes may be
reflected as the ``Conveyance Arrival'' date for shipments, which
importers or their brokers with access to the Automated Broker
Interface (ABI) may find through an ACE Cargo Manifest/In-Bond/Entry
Status Query. However, regardless of the date identified in ABI as the
``Conveyance Arrival,'' it is the importer of record's obligation to
ensure that it has expended the appropriate calendar year allowances in
the appropriate quantity and at the appropriate time to align with
regulatory requirements.
EPA is not amending the regulatory definition of ``import.'' The
Allocation Framework Rule at 40 CFR 84.5(b)(1)(i) prohibits the
importation of bulk regulated substances without expending the required
allowances, with limited exceptions. Since the definition of ``import''
in the AIM Act and the 40 CFR part 84 regulations finalized in the
Allocation Framework Rule includes an ``attempt to land on, bring into,
or introduce into, any place subject to the jurisdiction of the United
States,'' it is clear that the existing statutory and regulatory
framework prohibit an entity from attempting to land, bring, or
introduce regulated substances into the United States without expending
the required allowances, unless the importer meets one of the limited
exceptions in the regulations. EPA does not intend or interpret this
regulatory definition to narrow prohibited behavior as defined under
the AIM Act and the associated scope of liability with attempts to
land, bring, or introduce regulated substances into the United States
without requisite allowances.
To codify this position clearly, EPA proposed to add language at 40
CFR 84.5(b) that states: ``No person may attempt to land bulk regulated
substances on, bring regulated substances into, or introduce regulated
substances into, any place subject to the jurisdiction of the United
States without meeting one of the categories set forth in 40 CFR
84.5(b)(1).'' EPA did not receive any adverse comments on this proposal
and is finalizing this requirement as proposed. These changes to 40 CFR
84.5(b) do not alter the existing scope of liability for attempting to
land, bring, or introduce regulated substances into the United States
without requisite allowances.
EPA proposed an alternative to revise the text at 40 CFR
84.5(b)(1)(i) to specify that the calendar year allowances that must be
expended are based on the time a ship berths for vessel arrivals,
border crossings for land arrivals, and first point of terminus in U.S.
jurisdiction for arrivals via air. This alternative proposal focused on
defining which calendar year of allowances would be required to be
expended rather than the precise point in time an allowance needs to be
expended. EPA did not receive any comments that supported this
alternative proposal or otherwise advocated for the Agency to take this
pathway at finalization over the primary proposal. As noted earlier in
this section, EPA is finalizing the primary proposal to codify the
point in time an allowance must be expended, so the Agency is not
finalizing this alternative.
EPA noted at the proposal stage that if the Agency were to finalize
the proposed regulatory revision to 40 CFR 84.5(b)(1)(i), EPA proposed
to also require that the importer of record be in possession of
allowances in the amount that will need to be expended at the time of
filing their advance report under 40 CFR 84.31(c)(7). A few commenters
were opposed to this aspect of EPA's proposal. One commenter noted that
since the purpose of the advance notification requirement is for EPA to
confirm that an importer has sufficient allowances available to import
a regulated substance, this additional requirement is unnecessary since
an entity must have allowances before being notified that they may
proceed with an import. Another commenter noted that EPA had not fully
analyzed whether this proposed requirement was necessary considering
other enforcement and compliance tools. EPA agrees to some extent with
commenter's characterization. As explained in the Allocation Framework
Rule, the advance notice reporting requirement is intended to allow
``EPA to verify if allowances are available or the HFCs have prior
approval for import in the case of HFCs imported for destruction or
transformation under 40 CFR 84.25, or imported for transhipment under
40 CFR 84.31(c)(3), and confirm whether a shipment should be allowed to
clear Customs or not'' (86 FR 55186). However, the advance notice
reporting requirement cannot function as intended without an entity
possessing allowances at the time the notification is made. For
example, if an entity received a transfer of allowances moments before
a ship berthing, that entity would have allowances at the time the
allowances must be expended, but the advance notification process would
not have been able to function as intended. If an entity does not
possess requisite allowances for the import of bulk regulated
substances at the time of the advance notice reporting, EPA will not be
able to verify if allowances are available and whether the shipment
meets EPA's HFC requirements to be released from CBP's custody. Given
that advance reporting is required near in time to when allowances must
be expended, EPA does not anticipate this requirement would be a burden
on regulated entities but does anticipate it would have significant
benefits for EPA implementation and enforcement efforts. For example,
ensuring that entities possess the requisite allowances for an import
of bulk HFCs at the time of advance notice reporting will help decrease
unnecessary EPA review of shipments, which in turn will help decrease
delay in CBP clearance. Entities will be better positioned to take
legal possession of their bulk HFC goods from both an EPA and CBP
perspective as soon as possible. Therefore, EPA is finalizing the
requirement as proposed.
B. Who must expend allowances for import?
EPA proposed to specify that only the importer of record can expend
allowances for an import of regulated substances. One commenter agreed
that this proposed requirement ``facilitates clarity, transparency and
accountability'' and that it is consistent with customs law for the
importer of record to be the sole designated party in this regard. EPA
acknowledges the commenter's support. EPA received no adverse comment
on this proposal. For the following reasons, EPA is finalizing this
amendment as proposed. Under CBP requirements, the importer of record
is ultimately responsible for the correctness of the entry
documentation and all associated duties, taxes, and fees.\27\
Specifying that only the importer
[[Page 46861]]
of record can expend allowances for an import facilitates clarity,
transparency, and accountability. It can be difficult for EPA to
compare import records and other filings from CBP against advance
notification records and the balance sheet of existing allowance
holders without a clear expectation of how the entity that will expend
allowances for an import of regulated substances would be identified in
CBP filings. This can slow down EPA and CBP processing of imports at a
minimum, and in the worst-case scenarios can hamper EPA's ability to
identify shipments to be held at the border to halt potentially illegal
shipments from entering the United States. As a real-world example,
during EPA review of HFC imports, there was a single import entry with
six unique entities (referred to as parties), where at least three
parties, based on their named roles in the entry, could expend
allowances to cover the import under EPA's existing regulations. This
situation can be particularly confusing and lead to uncertainty if
multiple listed parties in an entry are allowance holders. Requiring
that only the importer of record may expend allowances for a shipment
addresses this difficulty because EPA will be able to advise CBP to
hold or deny entry of merchandise where the importer of record is not
an allowance holder or had not filed appropriate reports for the
destruction, transformation, or transhipment of imported merchandise.
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\27\ CBP. Tips for New Importers and Exporters. https://www.cbp.gov/trade/basic-import-export/importer-exporter-tips.
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Making the regulatory change will help strengthen EPA's ability to
track the importation of regulated substances and expenditure of
allowances and support compliance assurance. The Agency is also
concerned about instances where allowance holders may try to circumvent
the requirements in 40 CFR 84.19, including but not limited to the
requisite offset for inter-company transfers of allowances. EPA has
received inquiries from entities seeking to facilitate imports on an
allowance holder's behalf where the facilitating entity would be listed
on all available CBP paperwork and appear in meaningful ways to be the
``importer.'' In such instances, it would seem that the facilitating
entity is truly importing regulated substances, and using a separate
entity's allowances to do so. In such an instance, it seems more in
line with existing EPA regulations and the AIM Act that either the
allowance holder take on the role as the importer of record or for the
allowance holder to transfer allowances to the facilitating entity.
EPA also proposed amending 40 CFR 84.5(b) to make it clear that a
person who meets the definition of an importer will be liable unless
they can demonstrate that the importer of record possessed and expended
the appropriate allowances. The Allocation Framework Rule at 40 CFR
84.3 defines ``importer'' broadly to include the importer of record and
any person who imports a regulated substance into the United States,
the person primarily liable for the payment of any duties on the
merchandise or an authorized agent acting on his or her behalf, the
consignee, the actual owner, and the transferee, if the right to draw
merchandise in a bonded warehouse has been transferred. This would
revise regulations established through the Allocation Framework Rule at
40 CFR 84.5(b)(2) that state that ``[e]ach person meeting the
definition of importer for a particular regulated substance import
transaction is jointly and severally liable for a violation of
paragraph (b)(1) of this section, unless they can demonstrate that
another party who meets the definition of an importer met one of the
exceptions set forth in paragraph (b)(1).'' EPA received one supportive
comment on this proposal noting that it would help EPA enforce the
phasedown program. EPA received one adverse comment on this proposal
from an entity that argued that entities that are not the importer of
record would not have sufficient knowledge of the import transaction to
ensure regulatory compliance and would not have the ability to force an
importer of record to comply with EPA regulations. The commenter also
argues that EPA's proposed amendment would not enhance compliance, but
rather inject confusion into the process and have a potentially harsh
result on ``parties who have not done anything wrong and do not have
the knowledge or control over the transaction to ensure compliance.''
The commenter also notes that EPA's proposal is untenable for customs
brokers.
EPA notes at the outset that under EPA's proposed change, a customs
broker would not be liable unless they fall under the regulatory
definition of importer. If a customs broker is only acting as a broker,
EPA understands that the broker would not fall under the regulatory
definition of ``importer'' and therefore would not have any potential
liability. If, for example, a customs broker also took on the role as a
consignee, then the entity would fall under the regulatory definition
of ``importer'' and could have potential liability if bulk HFCs were
imported without expenditure of the requisite allowances. Moving beyond
the specific point on customs brokers, adding language in 40 CFR
84.5(b) tied with the regulatory definition of ``importer'' helps EPA
maintain the integrity of the HFC Allocation Program by imposing broad
liability on parties involved in importing HFCs. EPA disputes the
commenter's contention that entities falling under the definition of
``importer'' are too far removed from the transactional process to have
requisite knowledge to ensure allowances are appropriately expended.
EPA also notes that parties could contractually allocate risk through
their business relationships. While this may be an alteration of
preexisting business practices, EPA believes that this is a worthwhile
alteration because without this approach, EPA could be forced to pursue
enforcement actions for illegal imports against insolvent entities or
entities without assets in the United States. While the importer of
record must be the entity possessing and expending allowances for
imports of bulk regulated substances, making this regulatory amendment
clarifies that if this requirement is not met, EPA has discretion to
pursue enforcement action and/or administrative consequences on all
entities that meet the definition of importer for violations of those
requirements. Given these considerations, EPA is finalizing this
amendment as proposed.
C. Existing Requirement To Expend Allowances for Regulated Substance
Components of Blends
In addition to clarifying when an allowance must be expended and
the entity permitted to expend allowances for import, EPA proposed to
revise 40 CFR part 84.5(b)(1) to reflect and further clarify the
existing requirement that allowances must be expended to import bulk
regulated substances regardless of whether the import is of an HFC that
is imported as a single component substance, i.e., neat substance, or
whether the HFC is part of a multicomponent substance, i.e., a blend or
mixture containing one or more regulated substances. EPA is finalizing
this clarification as proposed.
EPA stated in the Allocation Framework Rule ``allowances [are]
necessary to produce or import [a] blend, or more precisely, the
regulated HFC components contained in the blend'' (86 FR 55142). Under
the Agency's existing regulations, the requisite number of allowances
to import a multicomponent substance in bulk is determined by the
exchange values of the blend components that are regulated substances.
As EPA explained in the Allocation Framework Rule, if a blend contains
multiple regulated
[[Page 46862]]
substances, then the exchange values of each component are used to
determine the number of necessary allowances (86 FR 55133-55134). If a
blend contains components that are not regulated substances, then those
components are not included in determining the number of necessary
allowances. While the Allocation Framework Rule already made this
requirement clear, we proposed to revise the regulations so that they
more explicitly reflect the already existing requirement to expend
allowances for import of bulk multicomponent substances equivalent to
the EVe quantity of regulated substance components contained within the
blend. This proposed change to the regulations would therefore further
enhance clarity but would not change the scope of existing
requirements.
One commenter asserted that EPA does not have the authority to
require allowances for HFC blends. The commenter cited section
103(c)(3)(B)(i) \28\ of the AIM Act, specifically ``for the purposes of
phasing down production or consumption of regulated substances'' as
reason for why the statute does not authorize EPA to require producers
or importers of HFC blends to acquire or hold allowances. They continue
that section 103(c)(3)(B)(ii) subsequently states that the prohibition
on designating HFC blends ``does not affect the authority of the
Administrator to regulate under this Act a regulated substance within a
blend of substances.'' The commenter argues that the language is not
itself a grant of regulatory authority, but rather clarifies that any
other authority of EPA to regulate is not diminished by subsection (i),
and that subsection (ii) does nothing more than preserve EPA's ability
to regulate HFC blends in ways that do not implicate ``phasing down
production or consumption.'' The commenter asserts that
103(c)(3)(B)(ii) cannot permissibly be interpreted as a separate grant
of authority to EPA to require allowances for HFC blends based on the
chemical feedstocks that were used to produce those HFC blends before
the products were imported into the United States, and that such a
reading would allow EPA for all practical purposes to treat HFC blends
as regulated substances, which is exactly what subsection (i)
prohibits. Instead, the commenter suggests that if Congress had
intended for EPA to require allowances for HFC blends, it could have--
and arguably would have--so stated in clear simple language. The
commenter argues that Congress chose to specifically prohibit EPA in
subsection (ii) from designating or regulating blends for phase-down
purposes, while leaving intact EPA's authority to regulate HFC
components for purposes other than the HFC phasedown.
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\28\ While EPA is duplicating the comment's method of citing the
AIM Act in summarizing the comment, we understand the comment to be
referencing 42 U.S.C. 7675(c)(3)(B)(i)-(ii), which we primarily
refer to as subsection (c)(3)(B)(i)-(ii) of the AIM Act.
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In further support of their views on this topic, the commenter
asserts that HFC blends are chemical mixtures created by physically
combining component HFCs into a new product that has unique physical
chemical properties, including being an azeotropic mixture in which the
gaseous components physically interact to create new behaviors. They
note that HFC blends cannot be easily separated back into their
component feedstocks without complex fractionation equipment, and for
all practical purposes, an HFC blend is an entirely different substance
than the chemical components from which it was manufactured, i.e., the
original HFC feedstocks that were used to manufacture the blend lose
their individual identity and become part of a new substance.
EPA disagrees with the commenter's characterizations and
contentions. The arguments raised by this commenter were recently
raised to, and rejected by, the D.C. Circuit in a challenge to the
Allocation Framework Rule. Heating, Air Conditioning & Refrigeration
Distributors Int'l v. EPA, No. 21-1251 (D.C. Cir. June 20, 2023) (``EPA
has statutory authority to regulate HFCs within blends . . . because an
HFC within a blend remains a regulated HFC under the Act.''). Importing
a blend of chemicals that includes regulated substances requires
expending allowances to account for the regulated substances within the
blend. This requirement was first introduced in the Allocation
Framework Rule and has been an integral requirement since the beginning
of the HFC phasedown. As relevant here, the regulations finalized in
the Allocation Framework Rule provide that ``[n]o person may import
bulk regulated substances'' except by expending allowances ``in a
quantity equal to the exchange-value weighted equivalent of the
regulated substances imported'' (40 CFR 84.5(b)(1)). In the preamble to
the Allocation Framework Rule, EPA explained that ``allowances [are]
necessary to produce or import [a] blend, or more precisely, the
regulated HFC components contained in the blend'' (86 FR 55142). In
this final rule, EPA is revising 40 CFR part 84.5(b)(1) to further
clarify the existing requirement that allowances must be expended to
import bulk regulated substances regardless of whether the import is of
an HFC that is imported as a single component substance, i.e., neat
substance, or whether the HFC is part of a multicomponent substance,
i.e., a blend or mixture containing one or more regulated substances.
As described in the Allocation Framework Rule, the necessary number of
allowances to import a blend is determined by the exchange values of
the blend components that are regulated substances, and that existing
requirement is not changed by this rulemaking. Similarly, if a blend
contains multiple regulated substances, then the exchange values of
each component are used to determine the number of necessary
allowances. Likewise, if a blend contains components that are not
regulated substances, then those components are not included in
determining the number of necessary allowances. The statute identifies
in 42 U.S.C. 7675(c)(1) regulated substances by molecular formula, and
chemicals with that molecular formula can be present in a blend even
where there are other substances that are also part of the blend.
This approach, requiring allowances to import bulk substances
containing regulated substances, whether the regulated substance is
contained in a blend or is a single component substance, is based on a
straightforward reading of the statute. The commenter challenges EPA's
approach based on the savings provision in 42 U.S.C. 7675(c)(3)(B)(i),
but that provision has no relevance here. Subsection (c)(3)(B)(i)
limits EPA's authority to designate additional regulated substances,
but EPA has not and is not designating any blend as a new regulated
substance. Subsection (c)(3)(B)(ii) provides that subsection
(c)(3)(B)(i) ``does not affect the authority of [EPA] to regulate under
this Act a regulated substance within a blend of substances.'' 42
U.S.C. 7675(c)(3)(B)(ii). That provision confirms the congressional
understanding that the default statutory framework allows for
regulation of a regulated substance within a blend of substances, and
EPA does not assert that (c)(3)(B)(ii) is a grant of authority. EPA's
approach here and in the Allocation Framework Rule is exactly what
subsection (c)(3)(B)(ii) states is permissible. Importing a regulated
substance requires expending allowances (see 42 U.S.C.
7675(e)(2)(A)(ii); 40 CFR 84.5(b)(1)). A person who imports a blend
that contains regulated substances is,
[[Page 46863]]
necessarily, also importing the regulated substances within that blend,
and, accordingly, must expend allowances for the regulated substances
so imported.
Any contrary approach would significantly undermine the allowance
program by creating a massive loophole. Under the approach that the
commenter advocates, an importer could blend a regulated substance with
something else--even another regulated substance--and would become
exempt from the annual phasedown limits. Under the commenter's theory,
even a miniscule amount of something else mixed into a regulated
substance could immediately free the resulting mix from regulation
under the allowance program. That would allow for circumvention of the
allowance program and nullify the statutory phasedown of HFC
consumption that Congress directed in the AIM Act. See Cnty. Of Maui v.
Haw. Wildlife Fund, 140 S. Ct. 1462, 1473 (2020) (``We do not see how
Congress could have intended to create such a large and obvious
loophole in one of the key regulatory innovations of [the statute].'').
A blend released to the environment would have a climatic effect based
on its constituent substances as individual molecules, not based on the
fact that it was blended. It would also put domestic producers at a
disadvantage if foreign blends could be imported without being subject
to limits under the allowance program. Many HFCs are imported as blends
currently, and a transition to new blends with lower global warming
potentials is an expected part of the industry's response to the
phasedown of HFCs, including blends of HFCs and hydrofluoroolefins
(HFOs). Under the approach taken in this rule, importing such blends
will still require allowances for the regulated substance components,
although fewer allowances than importing an unblended regulated
substance or a blend that is entirely comprised of regulated
substances. That is important because if the importation of blends were
entirely free from the allowance program, then the allocation program
would not necessarily result in a transition from higher to lower
exchange value blends.
The commenter's approach would also create a mismatch in the
allowance program. The statute directs EPA to establish the consumption
baseline by considering ``the average annual quantity of all regulated
substances consumed in the United States'' between 2011 and 2013 (see
42 U.S.C. 7675(e)(1)(C)(i)). Consistent with a straightforward reading
of ``all regulated substances consumed,'' EPA included in that quantity
all regulated substances contained within imports of HFC blends.
Specifically, EPA relied largely on data about historic HFC production
and consumption that had been reported to EPA through the GHGRP under
40 CFR part 98, subpart OO (see 86 FR 27164 which describes data
available through GHGRP). Imports of HFCs within blends were required
to be reported under that program (see 40 CFR 98.416(c)(1) (reporting
requirement for bulk imports of fluorinated GHGs); see also 86 FR 9059,
9063, February 11, 2021) (``Under the [GHGRP], each importer and
exporter of [HFCs] must submit an annual report that includes total
mass in metric tons of each [HFC] imported and exported, including each
[HFC] in a product that makes up more than 0.5 percent of the product
by mass.''). Also, when allocating allowances, EPA assigned consumption
allowances to companies by relying largely on historical data reported
to the GHGRP, which included historical imports of HFCs within blends.
Given that regulated substances within blends were part of the baseline
calculation and that historic imports of regulated substances within
blends are considered in the allocation of allowances, there is no
unfairness in requiring the expenditure of allowances for future
imports of regulated substances within blends. On the contrary, if
allowances are not required for the regulated substance components of a
blend, then the allowance program will not operate as intended. That
would mean that the number of available allowances is higher than
otherwise due to historical imports of regulated substances within
blends but that allowances need not be spent for future such imports.
Such a mismatch would undermine the Congress's statutory phasedown
scheme.
EPA disagrees with the commenter's contention that an HFC blend is
an entirely different substance than if the chemical components were
still in their single substance state. The Agency notes at the outset
that the commenter's use of terms like ``feedstocks'' and
``manufacturing'' \29\ diverges from the Agency's use of those terms.
Creating a blend is a completely different process from producing HFCs
in the first instance, in which feedstock chemicals are entirely
consumed as part of a production process. As described in the materials
provided by the commenter, the blending process may create an
azeotropic mixture among the constituent single component HFCs that
functions in some ways like a single substance (e.g., the entire
mixture has the same boiling point). The Agency notes that an
azeotropic mixture exists in a vapor-liquid equilibrium based on
interactions among the constituents, but the individual components are
not transformed and no new substance is produced. Regulated substances
do not lose their identity when they become part of a blend. As
explained initially in the response to comments to the Allocation
Framework Rule, available in the docket for that action, the components
in a blend (and the amount of each component) can be identified after
blending and separated through technology such as fractionation and
distillation. (see ``Response to Comments'', pg 193, Docket ID No. EPA-
HQ-OAR-2021-0044). De-constituting a blend, while it may involve
reprocessing and upgrading recovered substances through mechanisms such
as filtering and drying, does not require individual constituents of
the blend to undergo any chemically transformational changes.\30\
Because the creation of a blend does not create a new chemical, and the
components are not chemically altered in the process, separating a
blend simply results in unpackaging the individual components. Through
blending, the components form a mixture, not a new compound, and no
chemical bonds are formed or broken in the blending. Unlike the
production of regulated substances, in which a feedstock chemical can
be entirely consumed as part of the production process, HFC components
remain in the blend and are discernable using technology such as
refrigerant analyzers or gas chromatography. Creating a blend merely
involves repackaging existing molecules of HFCs in various ratios. The
commenter has not disputed these facts on the record aside from
blanket, unsupported statements.
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\29\ For example, the commenter claims that ``[t]he original
HFCs feedstocks that were used to manufacture the blend lose their
individual identity and become part of a new substance'' (emphasis
added).
\30\ See, e.g., EPA's draft October 2022 report, ``Analysis of
the U.S. Hydrofluorocarbon Reclamation Market: Stakeholders,
Drivers, and Practices,'' available at https://www.regulations.gov/document/EPA-HQ-OAR-2022-0606-0002.
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EPA is finalizing the proposed revision to 40 CFR part 84.5(b)(1)
to more explicitly reflect the existing requirement to expend
allowances for import of bulk multicomponent substances equivalent to
the EVe quantity of components that are regulated substances and are
contained within the blend. As an example, R-410A is a common
refrigerant in air
[[Page 46864]]
conditioning and heat pump applications and is composed of an equal
mixture of HFC-32 (difluoromethane) and HFC-125 (pentafluoroethane).
HFC-32 and HFC-125 are regulated substances with exchange values of 675
and 3,500, respectively. 100 kg of R-410A contains 50 kg each of HFC-32
and HFC-125. The exchange value of 100 kg of R-410A is the sum of the
exchange value of the individual components, i.e., 208,750 kg EVe (50 *
675 + 50 * 3500) or 208.75 MTEVe. An entity must expend 208.8
allowances to import 100 kg of R-410A.
While not a blend, the Agency also wishes to provide additional
clarity on whether refrigerant that contains oil or lubricant would
qualify as a bulk regulated substance. EPA's regulatory definition of
``bulk'' is codified in 40 CFR 84.3, and reads in part, ``. . .A
regulated substance that must first be transferred from a container to
another container, vessel, or piece of equipment to realize its
intended use is a bulk substance. A regulated substance contained in a
manufactured product such as an appliance, an aerosol can, or a foam is
not a bulk substance.'' Most regulated substances sold as refrigerants
also contain a small amount of lubricant or oil. These lubricants are
necessary for the correct functioning of the refrigerant in a air-
condition, refrigeration, or heat pump system. The Agency is clarifying
that regulated HFCs containing lubricants or oil are considered bulk
regulated substances as the HFC must first be transferred a container
to a piece of equipment in order to realize its intended use as a
refrigerant. This is consistent with the preamble discussion on the
same subject in the Allocation Framework Rule (86 FR 55129). Allowances
are necessary for the production or import of these containers of
regulated substances with oil or lubricant.
D. Consideration of Presumed Amount for Heel Imports of Unknown
Quantity
As established under 40 CFR 84.5(b)(1)(i), any import of bulk
regulated substances in any quantity, including heels, requires the
expenditure of allowances equal to the exchange-value weighted
equivalent of the regulated substances imported. EPA made clear in the
Allocation Framework Rule that the Agency was ``requiring imports of
heels to involve allowance expenditure'' because ``EPA sees no
statutory basis to exempt imports of heels from the requirement to
expend allowances.'' (86 FR 55183). A heel is ``the amount of a
regulated substance that remains in a container after the container is
discharged or offloaded (that is no more than 10 percent of the volume
of the container)'' (40 CFR 84.3).\31\ Some entities have expressed
concern that there may be situations where an entity does not know the
precise weight of the heel imported until the container arrives at the
entity's U.S. facility. Because the heel is the residual remainder left
in a container, entities should know the type of regulated substance of
which the heel is composed, so EPA understands this concern to be that
an entity may not know the precise volume or weight of regulated
substance remaining. An entity needs to know the volume or weight of
the heel to calculate the number of allowances necessary to expend for
the import of that heel.
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\31\ EPA views this as an amount that is no more than 10 percent
by weight of the amount of that same substance that is typically
sold in a ``full'' container of that size. For example, if a
``full'' cylinder of HFC-134a typically contains 25 pounds of HFC-
134a, then 2.5 pounds or less of HFC-134a remaining in the cylinder
would be considered a heel.
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To address this potential concern, EPA proposed to establish a
standard presumption of an HFC heel content of 10 percent of the total
potential volume of that container in EVe terms, if the heel weight has
not been measured or documented prior to import. Under the proposed
approach, the entity would also have utilized the 10 percent
presumption for the advance notification requirement of 40 CFR
84.31(c)(7). Given the possibility that an importer could have used
this provision to underreport how much HFC they are importing (e.g.,
claiming a heel when the container holds more HFC than 10 percent of
the volume of the container), EPA stated that it could presume the
container is full unless the importer demonstrates otherwise, such as
with records documenting the actual weight. The Agency also requested
comment on whether a provision like this was needed or if importers had
resolved the early concerns with determining the heel weight prior to
import.
As an alternative, EPA also noted in the proposal that it was
considering an option of allowing the importer of record to submit a
provisional estimate of the quantity of heel imported, but requiring
within a two-week period that the provisional estimate be corrected to
match the exact amount of the imported HFC heel content. EPA invited
comment on how this alternative option could align with the proposal to
codify the point in time that an allowance must be expended to import
regulated substances. The Agency noted that it was unsure how and when
allowances would be expended under this provisional estimate model, and
if allowances are expended based on the provisional estimate, how
expended allowances would be reconciled with the corrected exact amount
of imported heel. EPA also stated it had concerns of what the
enforcement implications of this approach would be and sought comment
on whether such an approach would create avenues for an entity to
illegally import that are not currently present under EPA's existing
regulations.
In response to EPA's request for comment on whether a provision
like this was needed, one commenter stated that large containers such
as isotanks, tank trailers or rail cars typically have measured weights
and that it expected smaller ton tanks and cylinders (e.g., 30 pound
cylinders typically used for servicing) would be more likely to use
such a provision. However, the commenter did not specify or document
why this would be the case. The commenter did not provide
justification, aside from unsupported assertions, of why practical
considerations of weighing heels in small tanks and cylinders would be
different from larger containers. Even if certain current business
practice does not include the routine weighing of smaller ton tanks and
cylinders prior to imports of heels to the United States, EPA is
unaware of, and the commenter did not explain, why these business
practices could not be changed to ensure that such imports are weighed.
As a result, EPA does not agree that the Agency needs to make revisions
to our existing provisions to address the issue at this time.
Commenters did not think the proposed 10 percent standard
presumption was appropriate and recommended a lower number. They
asserted that 10 percent is higher than the typical heel content. Some
commenters supported the proposal to establish a standard presumption
under different conditions. One commenter recommended a 5 percent
presumed heel volume and other commenters suggested in a general way a
significantly lower presumption. EPA acknowledges commenters'
opposition to a 10 percent presumption and support for a standard
presumption under different conditions; however, the Agency is not
finalizing a standard presumption in any case, regardless of the
quantity being imported. EPA proposed the standard presumption at the
10 percent level as an inherently conservative estimate of what
quantity would be a heel in a container, but commenters note that this
presumption may be too high for some imports of heels. Using this
presumption could
[[Page 46865]]
result in importers expending more allowances than were needed for the
import if the actual heel volume was below the standard presumption.
While any presumption is open to abuse, lowering the presumption makes
it more likely that fewer allowances are expended than would normally
be required if the heel amount was actually higher. This would be
especially true if EPA does not revise the definition of heel to lower
the percentage from 10 percent. For example, if a heel can be up to 10
percent by volume, but the standard presumption for imports is five
percent, an importer could underreport by up to five percent of the
volume and not violate EPA's regulations. Such an approach would be
contrary to corresponding prohibitions in subsection (e)(2)(A)(ii) of
the AIM Act and 40 CFR 84.5(b)(1)(i). The Agency noted concern for the
potential to circumvent expending the necessary allowances if the
Agency were to adopt a lower standard presumption. Commenters did not
provide information which would alleviate EPA's expressed concerns that
importers could use this provision to underreport the amount of HFCs
they are importing and not expend the correct corresponding number of
allowances. As a result, EPA is not finalizing any changes and is not
establishing a standard presumption or a change to the definition of
``heel.''
Several commenters supported EPA's alternative approach
contemplating consideration of allowing a provisional period to
measure, report, and expend allowances for heels that are not measured
prior to import. However, the commenters stated that a two-week
provisional period to report the measured weight was too brief due to
geographic and logistical concerns. The commenters suggested instead a
three-week provisional period. One commenter stated without supporting
information that the smaller shipments most likely to use such a
provision would need the additional time to reach their destination and
be weighed. Commenters who supported a provisional period suggested
that entities could submit corrected weight information to EPA
electronically. EPA acknowledges commenters' interest in the idea that
EPA introduced at proposal regarding a provisional period, but the
Agency remains uncertain how this proposal would align with the
requirement which we are finalizing in section V.A of this preamble
which specifies the point in time that an allowance must be expended
for an import. Even if EPA were not codifying a requirement that
allowances must be expended at a specific point in time, existing
requirements under 40 CFR 84.5(b)(1)(i) prohibit any import of bulk
regulated substances in any quantity, including heels, without
expending allowances equal to the exchange-value weighted equivalent of
the regulated substances imported. It is also unclear to the Agency how
the electronic notification and recorded transactional data would be
validated for shipments which have already been imported and received.
Commenters did not provide information that reconciled these concerns.
Several commenters supported combining a standard presumption with
a provisional estimate. One commenter stated that a 10 percent
presumption could apply if the provisional value were not corrected and
two commenters suggested standard presumptions lower than the 10
percent level. EPA maintains the same concerns as described above in
this section regarding a lower standard presumption and provisional
estimate. As noted, there is the potential that a standard presumption
lower than 10 percent could result in insufficient expenditure of
allowances when compared to the exchange-value weighted equivalent of
the regulated substances imported. EPA also maintains concerns with the
provisional estimate regarding how and when allowances would be
expended and how expended allowances would be reconciled with the
reported amount of imported heel. This would have implementation and
enforcement challenges and is open to abuse, especially given the final
weight would be measured after the import has occurred and at a private
facility away from the port.
As noted in the Allocation Framework Rule (86 FR 55183), imports of
heels require allowance expenditure, and heels in containers can be
weighed to determine the mass of regulated substance and the requisite
allowance expenditure. As discussed above in this section, EPA is
unaware of why existing requirements may be impracticable and
commenters did not resolve the Agency's concerns with the potential of
underreporting or abuse of the proposed and recommended revisions to
these requirements. In response to a request for comment, commenters
did not provide information supporting the need for a revision to
existing practices. As noted earlier in this section, commenters widely
opposed the primary proposal's 10 percent presumption as higher than
warranted and EPA disagrees that a lower standard presumption would be
warranted. The Agency remains uncertain of how a provisional period
would interact with allowance expenditure requirements and commenters
did not resolve EPA's expressed concerns in the Allocation Framework
Rule and this rulemaking's proposal about the potential for abuse of
associated provisions. Considering the adequacy of existing
requirements, the adverse comments received to EPA's primary and
alternative proposals, and the Agency's expressed concerns, EPA is not
finalizing either the primary or alternative proposals, nor making any
changes regarding the import of heels. In the absence of any changes,
existing requirements under 40 CFR 84.5(b)(1) to expend allowances
equal to the exchange-value weighted equivalent of the heels imported
still apply. Furthermore, the requirement under 40 CFR 84.31(c)(7) to
include the quantity (in kilograms) in the advance notification of
import requirement still applies, and section XI.A.2 of this preamble
establishes additional requirements to specify net weight (or net
product weight) and gross weight (net weight plus container weight), as
well as unit of mass (i.e., kilogram), for each container in the
shipment in the pre-import notification.
EPA reiterates that it did not propose and is not finalizing any
changes to the export requirements for heels, so exporters are required
to know the precise quantity of HFCs in a heel for an export, just as
importers are required to know the precise quantity of HFCs in a heel
that is being imported. EPA was clear in the proposed rulemaking that
its proposals on the topics of heels would only apply to imports of
HFCs and that EPA was not proposing to change the requirement to know
the quantity of HFCs in a heel for an export. Further, anyone
requesting an additional consumption allowance under 40 CFR 84.17 and
anyone exporting HFC heels must continue to report the actual weight of
a heel that is exported.
VI. How is EPA clarifying and revising recordkeeping and reporting
requirements?
EPA established recordkeeping and reporting requirements in the
Allocation Framework Rule, in accordance with subsection (d) of the AIM
Act. These requirements can be found in 40 CFR 84.31. The Agency
proposed to make amendments to certain recordkeeping and reporting
requirements as well as proposing new recordkeeping and reporting
requirements based on experience gained in implementing the HFC
phasedown. EPA is finalizing some of these proposals.
[[Page 46866]]
A. How is EPA modifying the import reporting requirements?
In the Allocation Framework Rule, EPA established reporting
requirements for importers at 40 CFR 84.31(c). In this action the
Agency is finalizing amendments which include specifying reporting
obligations that fall to the importer of record, modifying elements of
the advance notification requirement, and clarifying how to consider
import of heels. EPA is finalizing all these amendments to provide
additional detail on requirements and further promote transparency and
consistency in implementation and enforcement of the HFC Phasedown
program.
1. Specify Reporting Obligations on the Importer of Record
To align with the proposal discussed in section V.B of this
preamble that only the importer of record may expend allowances for the
import of bulk regulated substances, EPA proposed to specify that
certain reporting obligations fall to the importer of record.
Specifically, EPA proposed that the importer of record, or their
authorized agent,\32\ would be required to file the advance
notification report pursuant to 40 CFR 84.31(c)(7), and the importer of
record will be required to make quarterly reports pursuant to 40 CFR
84.31(c)(1). EPA received no adverse comments on this proposal and is
finalizing the changes as proposed. EPA is making these amendments to
improve clarity of who must fulfill certain reporting requirements with
the Agency and also ease EPA implementation in aligning the reporting
requirement with the entity obligated to expend allowances for the
import.
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\32\ For purposes of providing advance notification of import
through a system such as the ABI, the vast majority (if not all)
notifications for the imports of regulated HFCs have been filed by
customs brokers who are licensed and regulated by CBP to assist
importers and exporters in meeting Federal requirements governing
imports and exports. EPA included ``authorized agents'' as
permissible reporting entities to accommodate this standard business
practice.
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2. Modify Advance Notification of Import Requirements
EPA's regulations contained in 40 CFR 84.31(c)(7) require ``[a]
person importing a regulated substance, or their agent,'' to report
certain information ``no later than 14 days before importation.'' The
regulation enumerates several required elements that must be included
in an advance notification of import filed through the CBP-authorized
electronic data interchange system, such as the ABI. To align with the
proposal that only the importer of record may expend allowances for the
import of bulk regulated substances, EPA proposed to specify that the
advance notification reporting obligation falls to the importer of
record, or their authorized agent.
One commenter alleged that EPA was in effect deeming brokers as
importers of records with the associated responsibilities and
liabilities. The commenter stated that a customs broker is not an
importer of record and asked EPA to distinguish between the importer of
record and their agents, in particular making clear that the importer
of record is responsible for the accuracy of information provided.
EPA is finalizing the regulatory change as proposed to specify that
the advance notification reporting obligation falls to the importer of
record, or their authorized agent. This change in the regulatory text
is intended to improve clarity of who must submit the advance
notification reports and also ease EPA implementation in aligning the
reporting requirement with the entity obligated to expend allowances
for the import. However, in response to the comment received, EPA is
making a minor adjustment to clarify the Agency's intent with this
change to make clear that the obligation to file the advance notice
falls to the importer of record. Due to existing business
relationships, as outlined in footnote 31, if the importer of record so
chooses, the advance notice may be filed by the importer of record's
authorized agent. However, the authorized agent is not liable if the
importer of record fails to meet this reporting requirement.
EPA proposed to add required elements pursuant to 40 CFR
84.31(c)(7). For all modes of transport, EPA proposed to require the
container number(s) of the shipment (if applicable). EPA also proposed
that for maritime shipments, the vessel name and the International
Maritime Organization (IMO) number must be included as part of the
advance notification. Some commenters stated that they were not in
favor of EPA's proposal for reasons such as not being clear what the
additional reporting elements would bring to EPA or arguing that the
additional elements would be overly burdensome since shipment specific
information was already required to be submitted to CBP. One commenter
also noted that some information, such as the IMO number, may not be
available to the importer at the time of the advance notification.
After considering these comments, including consideration of the
existing EPA and CBP reporting requirements and associated data points,
EPA agrees with commenters that the IMO number and vessel name are data
elements that are largely duplicative of already available information.
Accordingly, EPA is not finalizing that aspect of the proposal.
However, EPA is finalizing the proposal to add the container number
associated with the shipment (as applicable) as a required element for
the advance reporting notification. Based on review of our existing
data, EPA deems this information is useful for confirming imports that
arrive in large tank containers with capacities in excess of 15,000 kg
(often referred to as ISO (International Organization for
Standardization) tanks), especially as EPA creates a future container
tracking system. Having ISO tank container numbers included in advance
reporting notifications will assist EPA in aligning the future
container tracking system numbers with the ISO tank container numbers
that are reported to CBP.
EPA's current regulations in 40 CFR 84.31(c)(7) require provision
of the ``quantity'' (in kilograms) of each import in the advance
notification of import. To improve clarity in the Agency regulations
and provide for consistent treatment across regulated entities, EPA
proposed to specifically require the provision of both the net weight
(or net product weight) and gross weight (net weight plus container
weight), as well as unit of mass (i.e., kilogram), for each container
in the shipment in the pre-import notification. Some commenters
supported this proposal as a helpful clarification. A few commenters
did not support the requirement to provide the gross weight in the pre-
import notification; one argued the gross weight of the container does
not serve a purpose when reporting or tracking HFC consumption. Some of
these commenters were also opposed to providing the unit of mass,
arguing that providing it would be duplicative and overly burdensome
since there is shipment specific information required to be submitted
to CBP prior to importation that includes this information. EPA is
finalizing this requirement as proposed, specifically to require
entities to include reporting of net and gross weight, as well as the
unit of measure for each, in their advance notification report. EPA is
finalizing inclusion of all three of these elements to resolve
ambiguity and standardize reporting. Even if some of this information
is submitted to Customs, net weight and unit of mass are needed for the
Agency to confirm how many allowances will be required to expend for an
upcoming import. Gross weight can be, among other things, a helpful
[[Page 46867]]
indicator as to what type of container a bulk HFC shipment will arrive
in and this information can be used to assist EPA and partner agencies
in identifying at an earlier stage in the overall import process
potentially violative shipments of bulk HFCs. This data is especially
useful if the net and gross weights appear inconsistent for the
specific HFC or HFC blend reportedly being imported. These
disaggregated data elements can also be particularly important in
situations where it may not be apparent from shipment documentation
whether the reported weight value consisted of the net weight of the
imported HFCs or the gross weight of the container. In other words,
having both the net and gross weights also allows EPA to better confirm
the accuracy of the reported data and ensure the accurate number of
allowances is being expended.
Currently 40 CFR 84.31(c)(7) requires the submission of advance
notification ``no later than 14 days before importation'' of any
regulated substance. EPA made clear in footnote 97 of the preamble of
the Allocation Framework Rule that ``EPA is using the term `date of
importation' consistent with CBP's definition at 19 CFR 101.1'' (86 FR
55182). To ensure consistency EPA proposed to amend 40 CFR 84.31(c)(7)
to clarify that our reference to ``before importation'' in the
Allocation Framework Rule means ``before the date of importation
(consistent with the definition at 19 CFR 101.1).'' EPA also proposed
to clarify in 40 CFR 84.25(a)(1)(v) and 40 CFR 84.31(c)(3)(i)(D) that
these references are consistent with the definition at 19 CFR 101.1.
EPA did not receive adverse comment on these clarifying edits and is
finalizing these revisions as proposed. The ``Import Date'' box on CBP
Form 7501, ``Entry Summary,'' as well as CBP Form 214 for entries where
importers are applying for foreign-trade zone admission and/or status
designation may provide information about the date of importation, but
it is the importer's obligation to ensure that it has submitted its
advance notification report in a timely manner regardless of the date
identified in the Import Date box on these forms. The Agency notes that
the requirement of advance notification prior to the date of
importation does not preclude entities from following other established
and required processes from CBP, including but not limited to the
submission of CBP Form 3461 (Entry/Immediate Delivery for ACE). EPA
also reiterates that all imports of bulk HFCs, regardless of value,
must be filed in a manner that allows for the required advance
notification.
As noted earlier in this subsection, the regulations finalized in
the Allocation Framework Rule require prior notification no later than
14 days in advance. EPA proposed to distinguish between modes of
transport and to shorten the prior notification requirement for truck,
rail, air, and other non-sea arrivals to 5 days prior to the date of
importation. EPA also noted that the Agency was considering whether to
shorten the prior notification for arrivals by sea to 10 days. Some
commenters supported EPA's proposal to shorten the prior notification
requirement for truck, rail, air, and other non-sea arrivals to 5 days.
Some commenters also supported EPA reducing the advance notification
timeline for sea arrivals to 10 days, and one even argued for a shorter
timeframe. No commenters opposed these shortened timeframes. EPA is
finalizing both of these shortened times; advance notification reports
will be due 5 days in advance for truck, rail, air, and other non-sea
arrivals and will be due 10 days in advance for sea arrivals. Importers
bringing in goods via these transportation modes may not have the
necessary information available at least 14 days in advance under
current standard market practice. However, prior notification is
important for EPA and CBP to be able to adequately review the shipment
and relevant information. EPA based the 5-day prior notification in
part on consultation with CBP about similar notification provisions
used by other Federal government agencies and in part on information
obtained through our stakeholder meetings that included customs brokers
that have experience with importing a range of goods.
EPA also received other comments that did not directly relate to
proposed provisions. One commenter requested that EPA explicitly allow
that an importer can clear customs as soon as they receive a ``may
proceed'' message regardless of whether the requisite timeline has
passed from the advance notification requirement. In other words, if an
importer of record files their advance notification, arrives at a land
border two days later, and receives a ``may proceed'' from CBP, EPA
understands the commenter to be requesting that bulk HFCs can be
imported at that point as long as the requisite number of allowances
are expended for the import. EPA is not making regulatory changes based
on this comment. However, for purposes of furthering the public's
understanding, EPA also notes that it views the requirements around,
and prohibitions on, the action of importing to be separate from
reporting requirements. If an entity receives a ``may proceed'' from
CBP and expends the requisite allowances for a bulk HFC shipment, that
importation action is permissible. However, if the action occurs before
the requisite time period has passed following filing of the advance
notification report, then the entity would have a reporting violation
because they did not file the advance notification report sufficiently
ahead of the importation activity.
One commenter requested that shipper/importer names and location
``confidentiality be removed for Customs documents'' filed for
regulated substances to help industry monitor for compliance. EPA
understands the commenter to be requesting that the Agency not treat
certain elements of the advance notification report as CBI. In section
IX.C of the Allocation Framework Rule, EPA outlined that certain data
elements would not be entitled to confidential treatment (86 FR 55191-
55195). Among other things, EPA finalized a determination to not
provide confidential treatment to company-level, chemical-specific data
on individual import and export shipments, including source country,
port of entry, and the importer name and number. For further detail,
The Classification of Data Reported Under the HFC Phasedown Rule memo
in the docket for the Allocation Framework Rule documents the Agency's
determination of whether to provide or to not provide confidential
treatment for each individual reported data elements (Docket ID No.
EPA-HQ-OAR-2021-0044). EPA did not propose any changes to those
determinations, is not revisiting those determinations in this
rulemaking, and therefore is not making any alterations in this
rulemaking. To the extent that commenter was requesting EPA to alter
how CBP handles data, EPA does not have the ability to alter CBP's
approach on this issue and invites the commenter to raise any concerns
with CBP, as appropriate.
One commenter stated that EPA should revise the term ``Origin'' in
the HFC import advance-notice filing to ``country(ies) of Manufacture
for regulated substance(s)''. The Agency notes that under 40 CFR
84.31(c)(7)(xi) there is an existing requirement that ``Origin
Country'' must be reported as part of the advance notification. EPA's
proposed changes to 40 CFR 84.31(c)(7) did not explicitly include
modifications to the existing requirement to report ``origin country''
under 84.31(c)(7). EPA is not finalizing any change to that particular
data element, but does not believe any change is needed in
[[Page 46868]]
response to commenter's concern because EPA interprets this term
consistent with CBP's ``Country of Origin'' definition, which is ``the
country of manufacture, production, or growth of any article of foreign
origin entering the United States.'' \33\
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\33\ https://www.cbp.gov/trade/rulings/informed-compliance-publications/marking-country-origin-us-imports.
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3. Clarify the Reporting of Heels
EPA clarified in its proposal that the HTS Code for a regulated
substance, regardless of whether or not comprising a heel, must be
used, and not the HTS codes for U.S. goods returned or empty
containers. EPA did not make a specific proposal related to this
clarification, but rather included this statement in the proposal for
this rulemaking to communicate the Agency's expectation clearly to
stakeholders and the regulated community. One commenter did note its
support for this position and noted its opposition to loopholes that
mask illegal trade including the use of HTS code use for U.S. goods
returned or empty containers containing illegal refrigerant.
One commenter expressed the opinion that heels do not warrant
additional scrutiny because associated losses are negligible and the
fact that heels comprise valuable product incentivizes maximum
recovery. EPA disagrees with the commenter's characterization that
EPA's concern and discussion on heels is unwarranted or that EPA's
clarification in the preamble would apply additional scrutiny to heels.
Rather, the Agency's clarification explained that consistent
requirements for the HTS Code apply to all imports of bulk HFCs,
whether those imports comprise heels or more filled containers. In this
particular section, the Agency is reiterating that the HTS Code for the
regulated substance must be used for the import of any regulated
substance. Reporting all volumes of regulated substances with the
applicable HTS Code for the contained HFCs regardless of value
facilitates accurate treatment of the imports of these regulated
substances under EPA regulations.
4. Changes to and Requirement of Importer of Record Information
EPA proposed to require the submission of certain information
directly to EPA that had been voluntarily provided, in part, through
the importer of record form (EPA Form #5900-556). EPA proposed a
regulatory requirement that certain information must be submitted by
any entity anticipating being the importer of record for a shipment of
regulated substances by November 15 of the prior calendar year. In
other words, an entity that anticipates being the importer of record
for a shipment of HFCs during calendar year 2024 must submit the
required information by November 15, 2023. If an entity is not issued
allowances directly from EPA, is the recipient of transferred or
conferred allowances and it is impracticable for the entity to submit
the importer of record form by November 15, EPA proposed that the
importer of record form be submitted within 15 calendar days of
receiving the Agency's non-objection notice for conferral or inter-
company transfer. EPA also proposed that if changes are necessary on
the importer of record form after its initial submission that those
changes be made at least 21 calendar days prior to any import of bulk
regulated substances for which the concerned entity will be the
importer of record after the change in information occurs.
EPA proposed that if an entity receiving allowances (either
allocated directly by EPA or through a conferral or transfer) includes
subsidiaries, entities majority owned and/or controlled by the same
individual(s), and/or ``Doing Business As'' (DBAs) as part of its form,
the corporate structure of the entity receiving allowances must also be
provided, and the description of the corporate structure must, at a
minimum, explicitly show the relationship between the allowance holder
and each subsidiary, entity that is majority owned and/or controlled by
the same individual(s), and/or DBA. An entity also would need to
provide the owners, and their respective percentage of ownership, of
each subsidiary, entity that is majority owned and/or controlled by the
same individual(s), and DBA on the submitted form. EPA received no
comments on these proposals and is finalizing them as outlined in the
proposal for this rulemaking. As explained in the Allocation Framework
Rule and reiterated in section VIII.C of this preamble, movement of
allowances between a parent company and its subsidiaries, or among
companies that are commonly owned, may occur without a transfer (86 FR
55145). However, there may be instances where these corporate
relationships are not immediately clear to EPA. The importer of record
form provides information on corporate relationships to EPA, and
accounting for such instances would ensure not only that allowances are
being expended by the right entity, but also that reviews of shipments
are not unnecessarily delayed. In a similar manner, entities receiving
allowances may operate under different names, e.g., DBA, where it is
not immediately clear to the Agency that the DBA is associated with the
allowance holder. To further efficient and accurate review of imports
by EPA, the Agency reminds regulated entities of the importance of
ensuring that when an allowance holder or associated subsidiary, entity
that is majority owned and/or controlled by the same individual(s),
and/or DBA provides advance notification of import filed through a CBP-
authorized electronic data interchange system, such as the ABI, that
the importer of record number accurately aligns with the name of the
importer.
EPA further proposed that an entity would need to indicate on the
required Importer of Record form how many allowances will be expended
by each other affiliated entity (e.g., subsidiaries, majority owned
and/or controlled), specifically a quantity of allowance that will be
expended by each affiliated entity identified by name and importer of
record number(s). EPA noted that it was considering, as an alternative,
requiring information as part of the advance notification requirement
of 40 CFR 84.31(c)(7) that would specify which entity was allocated the
allowances or received the allowances through a transfer that are
associated with an individual shipment. EPA did not receive comment on
either of these proposals and is not finalizing these requirements at
this time. After consideration of other requirements being finalized in
this rulemaking, the Agency has determined that these additional data
points are not needed given the finalization of requiring the importer
of record form.
One commenter recommended that the ``Importer of Record'' should
reflect the name of the allowance holder on HFC import advance-notice
filings, customs documents, and quarterly reporting of imports. Another
commenter recommended EPA require that all advance notification of
import and associated CBP documents specifically list the name of the
Allowance Holder as it appears on EPA's allowance allocations as the
``importer of record.'' The commenter further requested that if a sub-
entity is involved in the shipment, that name should also be listed
along with the name of the Allowance Holder. The commenter believes
that requiring this additional information would facilitate tracking of
compliance for each participant's consumption allowances. As outlined
in section V.B. of this preamble, EPA is finalizing in this
[[Page 46869]]
rulemaking a requirement that only an importer of record can expend
allowances to import bulk regulated substances. Put another way, an
allowance holder must be listed as the importer of record on a shipment
to expend allowances for that shipment. Finalizing this requirement
largely addresses the issue noted by the commenter. In addition, in
this section EPA outlines how it is finalizing requirements related to
information on importers of record. Specifically, EPA is amending its
regulations to require submission of an importer of record form that
includes the names of all subsidiaries, entities majority owned and/or
controlled by the same individual(s), all DBAs, and any corresponding
importer of record numbers, even if the importer of record number(s) is
identical for the subsidiaries, entities majority owned and/or
controlled by the same individual(s), and/or DBAs as it is for the
allowance holder. This change ensures EPA has the relevant information
necessary to determine the importer of record has sufficient allowances
to import regulated substances.
5. Joint and Several Liability for Importer Reporting Requirements
In section VI.A.1 of this preamble EPA is finalizing its proposal
to specify that the importer of record is responsible for advance
notification reporting obligation of 40 CFR 84.31(c)(7) \34\ and
quarterly reporting requirements of 40 CFR 84.31(c)(1). EPA noted in
its proposal that such changes to the reporting requirements could have
an adverse impact on compliance with and/or EPA's ability to enforce
reporting obligations. Accordingly, EPA proposed to apply joint and
several liability for violations of the quarterly reporting and the
advance notification reporting requirements. Specifically, EPA proposed
in 40 CFR 84.31(c)(10) that each person meeting the definition of an
importer is jointly and severally liable for a violation of the
quarterly reporting requirements at 40 CFR 84.31(c)(1) unless they can
demonstrate that the importer of record fulfilled the quarterly
reporting requirements, and in 40 CFR 84.31(c)(11), EPA proposed that
each person meeting the definition of an importer is jointly and
severally liable for a violation of the advance notification
requirements at 40 CFR 84.31(c)(7) unless they can demonstrate that the
importer of record or their authorized agent fulfilled the advance
notification requirements.
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\34\ This reporting obligation may permissibly be filed by an
importer of record's authorized agent.
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EPA did not receive any comments germane to this particular
proposal. EPA flagged some potential downsides to this proposal and
requested comment on potential reporting difficulties that could be
associated with extending joint and several liability for these
reporting requirements and on the potential burden or downsides
associated with the proposed joint and several liability. Joint and
several liability would require individuals involved in the import of
HFCs to coordinate to ensure reporting is complete and accurate, so EPA
also sought comment on whether additional resources and/or processes
would be helpful to support this coordination and prevent duplicative
reporting for the same import. Although the Agency did not receive
responses to these comment solicitations, after further consideration
EPA is not finalizing this proposal to apply joint and several
liability for any reporting violations at this time. The importer of
record is solely responsible for the advance notification reporting
obligation of 40 CFR 84.31(c)(7) \35\ and quarterly reporting
requirements of 40 CFR 84.31(c)(1). If EPA experiences challenges with
enforcement and compliance following finalization of specifying reports
must be filed by the importer of record, EPA may revisit this issue in
a future rule.
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\35\ This reporting obligation may permissibly be filed by an
importer of record's authorized agent.
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The importer of a regulated substance in 40 CFR 84.31(c)(2) must
maintain certain records to document each import. EPA sought comment on
whether more specificity is needed than ``importer,'' for example to
define that recordkeeping obligations would fall specifically on the
importer of record, and took comment on the effectiveness, accuracy,
and completeness of the importer bearing responsibility for the
recordkeeping in this section. EPA received no comment on this issue,
so is not finalizing any adjustment to 40 CFR 84.31(c)(2) at this time.
B. Consideration of Modifying Recordkeeping and Reporting Requirements
Regarding Expending Allowances
In the Allocation Framework Rule, EPA codified various
recordkeeping and reporting requirements for producers and importers of
HFCs in, respectively, 40 CFR 84.31(b) and 40 CFR 84.31(c). In this
rulemaking, EPA proposed to add an obligation that producers and
importers must maintain same day documentation of any allowances
expended, include that record as part of the required quarterly report,
and certify to EPA as part of their quarterly reporting that they
expended the requisite number of allowances on the dates specified in
the form for each date-specific production or import transaction.
Commenters widely opposed the proposed requirements for same day
documentation as both overly burdensome and insufficiently justified,
and stated that existing recordkeeping and reporting requirements
adequately provide the information necessary for EPA to carry out
associated inspection and monitoring of allowance expenditures. One
commenter stated that EPA's ``allocation tracking digital system'' as
established in 40 CFR 84.23 that will begin January 1, 2025, would
provide the necessary information. Another commenter stated that an
enforceable recordkeeping and certification requirement, in addition to
being burdensome, creates an unnecessary enforcement risk in the case
of a minor and unintentional error without an associated benefit as
compared to existing requirements. One commenter suggested that EPA
should require recordkeeping over different time period as opposed to
daily.
EPA notes that existing provisions in 40 CFR 84.31(b)(3) and 40 CFR
84.31(c)(2) already require dated records of the information used to
determine allowance expenditure. After considering comments received
concerning burdens associated with the proposed requirements and the
adequacy of existing requirements, EPA is not finalizing these
proposals concerning same day documentation of any allowances expended.
EPA notes that without any changes, the existing regulations in 40 CFR
84.31(b)(3)(i) already require producers to keep dated records of the
quantity of each regulated substance produced at each facility, and
under 40 CFR 84.31(c)(2)(v) importers must keep records of the date on
which regulated substances were imported, along with a copy of the bill
of lading for the import. Additionally, apart and separate from this
rule, EPA has inspection and information gathering authorities under
section 114 of the CAA, 42 U.S.C. section7414, and the regulations
promulgated at 40 CFR part 84.
C. Modify the Reporting of Regulated Substances Produced for
Transformation, Destruction or Use as a Process Agent at a Different
Facility Under the Same Owner
As noted in this rulemaking's proposal, under 40 CFR
84.31(b)(2)(i)-(iii) EPA required that each producer of
[[Page 46870]]
a regulated substance include in the quarterly report for each facility
information on the quantity of each regulated substance produced for
use by the producer or a second party in processes resulting in their
transformation, destruction, or use as a process agent. There are
situations, however, where regulated substances are produced at one
facility, but transformed, destroyed, or used as a process agent at
another facility owned by the same entity. Such situations are distinct
from regulated substances transformed, destroyed, or used at the same
facility where the regulated substances were produced and those
transformed, destroyed, or used by an entity different from the one
that produced the regulated substances. EPA proposed that 40 CFR
84.31(b)(2)(i)-(iii) be modified to include requirements to report the
name, quantity, and recipient facility for regulated substances
produced at one facility for, correspondingly, transformation,
destruction, or use as a process agent at another facility owned by the
same entity. One commenter expressed its general support for the
proposal, and another commenter noted that this reporting would provide
greater transparency. EPA did not receive adverse comments on this
proposal.
EPA is finalizing these proposed modifications to the reporting of
regulated substances produced for transformation, destruction or use as
a process agent at a different facility under the same owner. Since EPA
requires the names and quantities of transformed or destroyed regulated
substances produced or imported by another entity to be reported at the
facility level under 40 CFR 84.31(e)(1), these revisions to these
sections will establish consistency within the regulations under 40 CFR
part 84. Furthermore, these revisions will provide greater transparency
within the system and better align with current AIM Act reporting forms
and the GHGRP, both of which track transformation, destruction, and use
as a process agent by facility. This facility-level reporting will
increase transparency, such as for environmental justice concerns, so
that local communities have better insight into how regulated
substances may move between facilities owned by a single entity. Such
information will also provide EPA a better understanding of industry
practice, help verify disposition of regulated substances, and may
inform future rulemakings.
D. Considered Additional HFC Production Facility Emissions Reporting
Requirements
EPA stated its intention in the Allocation Framework Rule to
``continue to monitor the impacts of [the HFC phasedown] program on HFC
and substitute production, and emissions in neighboring communities, as
we move forward to implement this rule'' (86 FR 55129). As noted,
previously, there is significant uncertainty about how the phasedown of
HFC production and the issuance of allowances by themselves, as well as
the interactions with market trends independent of this rulemaking,
could affect production of HFCs and HFC substitutes--and associated
emissions--at individual facilities, particularly in communities that
are disproportionately burdened by air pollution. EPA continues to be
concerned about the potential for environmental justice concerns due to
the release of toxic chemicals that are feedstocks, catalysts, or
byproducts in the production of HFCs or HFC substitutes.
To help inform EPA's ability to track emission changes over time,
EPA proposed to build on the one-time reporting requirement and require
annual reporting of HAP, ODS, and HFC emissions from each facility's
HFC production line emissions units (86 FR 55129). In the proposal, the
Agency explained that the reporting requirements could provide data on
the impacts of HFC production and inform policies, regulations, and
other decisions, including to carry out EPA's commitment to
environmental justice. In the proposal, EPA stated that it was
considering a range of options to apply to determine the emissions
required to be reported under this proposed approach, including
continuous emissions monitoring systems, stack testing, material
balance, EPA emission factors, or the compliance method required under
the most recent permit issued to the facility pursuant to 40 CFR part
70 or 40 CFR part 71, under the facility's operating permit for sources
without a permit under 40 CFR part 70 or 40 CFR part 71, or using
federally recognized procedures if emissions cannot be determined using
the compliance methods from the facility's air permit. EPA also sought
comment on whether fenceline monitoring would be appropriate. Further,
EPA sought comment on the advantages and disadvantages of this
approach, what metrics should be reported, and how EPA could use this
data to better understand the role that HFC production plays in
emissions of HAP, HFCs, and ODS. Specifically, EPA sought comment on
which singular option for determining emissions, as listed above, would
allow for effective monitoring of these emissions. EPA also requested
comment on methods of emissions estimation or monitoring currently in
practice and whether those methods are appropriate for monitoring
emissions at HFC production facilities. EPA also requested comment on
whether it would be appropriate or feasible to require each facility
producing an HFC to report on an annual basis the quantity of each
criteria air pollutant, and its precursors, for which EPA has
established a National Ambient Air Quality Standard, emitted by the
facility and the quantity of each such pollutant emitted annually from
each HFC production line on an emission unit basis. EPA also took
comment on whether the data listed in the proposal for additional
reporting are already required under different authorities.
A few commenters were supportive of the proposal to require annual
reporting from HFC production facilities' emissions units and requested
that EPA extend the requirement to reporting on emissions from the
production of HFOs and other HFC substitutes, as well as criteria
pollutants and precursors. The commenters shared publicly available
facility-level emissions data from HFC production facilities and agreed
that requiring unit-specific emissions data would assist efforts to
meaningfully conduct analyses and address potential concerns. The
commenters further stated that emissions from production of HFC
substitutes, whether collocated with HFC production facilities or
located separately, are also important considerations when evaluating
overall emissions and community risks. The same commenters generally
supported the requirement for facilities to use the continuous emission
monitoring systems approach for estimating these emissions. One
commenter noted that CAA section 114(a) provides ample authority for
proposed unit-specific requirements, and for expanding those
requirements. EPA acknowledges commenter's supportive comments and
requests to broaden the requirements proposed, but also notes that the
commenters did not substantively address EPA's questions outlined in
the proposal about whether such requirements would allow EPA to
effectively monitor HFC production-related emissions at these
facilities and how they might be finalized in this action. Other
commenters opposed EPA's proposal regarding these annual
[[Page 46871]]
reports. Commenters stated that the costs associated with the proposed
monitoring and reporting requirements were too great compared with the
benefits, the proposed monitoring and reporting requirements were
duplicative, or that current monitoring and reporting requirements were
sufficient. Many of these comments also expressed concerns that if the
reporting requirement proposal were implemented, it would
disproportionately impact U.S. producers over foreign counterparts. One
of these commenters stated that EPA did not provide documentation to
support the Agency's claim of examining other sources of data, such as
the National Emissions Inventory and the Toxics Release Inventory
(TRI). The commenter also stated that the proposed reporting
requirements do not appear to be contained in EPA's Information
Collection Request (ICR) Supporting Statement, and that it was not
apparent that EPA has described its authority to collect such data,
indicated the utility/users of the data, addressed non-duplication,
consulted adequately with stakeholders, or examined the effects of less
frequent collection.
The Agency did not receive comments that were explicitly in favor
of fenceline monitoring requirements, but several commenters opposed
EPA's consideration of fenceline monitoring. One comment specific to
fenceline monitoring stated that fenceline monitoring would not be
meaningful for assessing environmental justice for certain facilities,
due to the surrounding area being rural and majority White. Commenters
also described challenges associated with fenceline monitoring, such as
the difficulty in separating facility emissions from other sources in
the area. Comments also stated that EPA had not provided sufficient
notice of proposed monitoring requirements.
The Agency also received numerous comments contending that EPA does
not have sufficient legal authority to implement emissions monitoring
and reporting requirements proposed. One commenter stated that CAA
sections 112(d) and (f) are more appropriate programs to regulate HAP
emissions from HFC or HFO production facilities, specifically National
Emission Standards for Hazardous Air Pollutants requirements under 40
CFR part 63, subparts F, G, H, and I. Many commenters who opposed the
reporting requirements generally stated that these proposed reporting
requirements fell outside EPA's authorities under the AIM Act and CAA,
and in particular, EPA did not have the authority to require reporting
on emissions other than HFCs. Another commenter stated that EPA's
reasoning for collecting more emissions data is inconsistent with
proposed obligations. They further explained that EPA is interested in
identifying disparate impacts from the phasedown, but the proposal to
gather emissions data would only gather information from U.S. producers
of HFCs; thus, HFC emissions would decrease while emissions from HFC
substitutes would increase, and the consideration of the impacts from
production of HFC substitutes is missing from the proposal.
At this time, EPA is not finalizing the proposal to require
reporting on annual emissions of HAP, ODS, and HFC emissions from each
facility's HFC production line emissions units or require fenceline
monitoring. The decision to not finalize the proposed requirements was
made in part because of the Agency's evaluation of the comments we
received and the determination by the Agency that additional analyses
by EPA are necessary to consider other reporting requirements. Some of
the areas that EPA would like to consider more thoroughly include
technical aspects of emissions reporting and monitoring and associated
costs and benefits. As noted at proposal, the Agency is aware that
emissions data reporting is required for some larger facilities, and
can be obtained, at the facility- or process-level, through the
National Emissions Inventory (NEI), TRI, and Title V permits. EPA has
analyzed some of this data and provided it in Chapter 6 of the RIA
Addendum accompanying this final rule. Further, EPA has updated the
final RIA Addendum based on information received in the one-time
producer reports submitted in 2022. The Agency will continue to assess
emissions data already reported by HFC production facilities under
existing requirements and what data, or level of data quality, would
still be meaningful to assess any emissions trends related to HFC
production or changes in production based on the phasedown. If
additional data is needed, EPA will consider the best mechanism,
including a targeted CAA section 114 information collection request for
additional data from production facilities, and authority for
collecting emissions data. The Agency may also consider the costs of
various emissions monitoring systems and the resulting data quality;
current industry practices, operations, and controls; the link between
production of HFCs and emissions, including where a facility may switch
which HFC is produced; and the relationship between the production of
HFCs and HFC substitutes. This type of information may allow EPA to
better identify if there are data gaps and determine how best to
address any gaps. Because the Agency is not finalizing this proposal at
this time, EPA is not responding to the comments in this action, but we
anticipate further considering the comments before taking any potential
future action.
VII. How is EPA revising sampling and testing requirements?
In the Allocation Framework Rule codified at 40 CFR 84.5(i), EPA
established the requirement to label containers containing a regulated
substance that are sold or distributed, or offered for sale or
distribution, and for certain entities to confirm the accuracy of the
labels by testing a representative sample of contents to verify that
the composition matches the container label. In that section of the
regulation, the Agency also codified a prohibition on the sale or
distribution of regulated substances for use as a refrigerant that did
not meet specifications in appendix A to 40 CFR part 82, subpart F. In
this rulemaking EPA proposed to establish additional verification
requirements and codify procedures to test a representative sample.
Specific testing requirements create a consistent approach that
smooths implementation and provides greater assurance on the accuracy
of these container labels. Representative sampling provides a means to
verify that a collected sample represents all components of the tested
regulated substance and uses this smaller sample to infer that the
composition of regulated substances within a wider population of
cylinders matches the composition of the collected sample. The
requirement to undertake sampling and testing, and defining specific
methodology and requirements for sampling and testing, are important to
provide clarity and direction to regulated entities, ensure that
individual labels accurately reflect the contents of bulk regulated
substances within containers, and reduce the frequency that mislabeled,
misrepresented, or off-specification regulated substances enter
commerce.
EPA proposed to (1) modify 40 CFR 84.5(i)(3)(i) to add that already
required sampling and testing of regulated substances must follow a
combination of appendix A to 40 CFR part 82, subpart F, and EPA Method
18 in Appendix A-6 to 40 CFR part 60 to verify the label composition
for all applications; (2) add a requirement to sample and test under
specified methodology to ensure compliance with the existing
requirements concerning
[[Page 46872]]
specifications in 40 CFR 84.5(i)(3)(ii); (3) define the records
required under 40 CFR 84.31 associated with testing and add
recordkeeping requirements to 40 CFR 84.31 \36\ for fire suppressant
recyclers and repackagers to ensure results from required testing are
maintained; (4) add definitions at 40 CFR 84.3 of ``batch'' and
``representative sample'' and clarify the relationship between these
terms; (5) add a definition at 40 CFR 84.3 for ``laboratory testing''
such that laboratories used by regulated entities to meet the existing
requirement in 40 CFR 84.5(i) must be accredited and follow the test
methods in appendix A to 40 CFR part 82, subpart F, and EPA Method 18
where appropriate; and (6) add a requirement that certificates of
analysis accompany all imports of regulated substances.
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\36\ These two references to the required records and added
recordkeeping requirements were incorrectly listed as 40 CFR 84.33
in this rulemaking's proposal at 87 FR 66392, but it was clear
contextually that EPA was referring to recordkeeping provisions in
40 CFR 84.31, as directly stated in the proposal's preamble section
VII.B at 87 FR 66394 and in the proposed regulatory text at 87 FR
66407-66408.
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EPA is finalizing these provisions with some modifications based on
comments received on the proposed rulemaking.
A. Sampling and Testing Methodology Requirements
In the Allocation Framework Rule EPA established sampling and
testing provisions in 40 CFR 84.5(i) that addressed verification of the
contents of repackaged regulated substances that were initially
unlabeled or mislabeled (40 CFR 84.5(i)(2)), compositions of regulated
substances (40 CFR 84.5(i)(3)(i)), and specifications of regulated
substances used as refrigerants (40 CFR 84.5(i)(3)(ii)).
i. Sampling and Testing
In appendix A to 40 CFR part 82, subpart F, EPA codified a modified
version of AHRI 700-2016, Specifications for Refrigerants. AHRI 700
standards have been widely applied to analyze HFCs in a variety of
contexts. Appendix A to 40 CFR part 82, subpart F contains requirements
and procedures of how to sample and test specified single component and
multicomponent regulated substances used as refrigerants (as listed in
section 2 of appendix A to 40 CFR part 82, subpart F). Section 5 of
appendix A to 40 CFR part 82, subpart F contains applicable sampling
and testing procedures. Sampling requirements describe how to obtain
samples for analysis and how to conduct sample preparation for testing.
Testing methods describe how to analyze samples and ensure adherence
with composition and specification requirements. General testing
requirements to ensure accuracy of the tests are included in section 5
of appendix A to 40 CFR part 82, subpart F. Specific measurements, such
as the boiling point or critical point, are used to characterize the
regulated substance. Characteristics and limits of allowable
contaminants are listed for specific HFCs and HFC blends in section 6
of appendix A to 40 CFR part 82, subpart F.
EPA did not identify such sampling and testing methodologies
particularly designed for or widely applicable to certain regulated
substances used as non-refrigerants. In appendix A to 40 CFR part 82,
subpart F, EPA incorporated by reference the 2008 Appendix C for
Analytical Procedures for AHRI Standard 700-2014. Parts 7 and 9 of the
2008 Appendix C for Analytical Procedures for AHRI Standard 700-2014
contain sampling and testing methodologies that apply to a listed set
of HFC refrigerants, including HFC-23, HFC-134, HFC-125, HFC-143a, HFC-
41, HFC-152a, HFC-134a, HFC-143, HFC-245fa, HFC-32, and HFC-152. These
testing methods can also be applied to non-refrigerant uses of the same
HFCs. HFC-365mfc, HFC-227ea, HFC-236cb, HFC-236ea, HFC-236fa, HFC-
245ca, and HFC-43-10mee are not included among the list of HFCs that
these testing methods apply to. Other approaches to test HFCs include
EPA emission testing methods and ASTM standards. At proposal, EPA
described that EPA Method 18 appears to be appropriate for the HFCs
regulated under the AIM Act, including those not listed in the 2008
Appendix C for Analytical Procedures for AHRI Standard 700-2014, and
would provide a well-established standard used in other EPA regulatory
programs.
EPA codified requirements in 40 CFR 84.5(i)(3)(i) that sampling
must be done consistent with appendix A to 40 CFR part 82, subpart F
for regulated substances sold or distributed or offered for sale and
distribution as refrigerants. EPA requires in 40 CFR 84.5(i)(3)(i) that
entities verify that the composition of regulated substances matches
the container labeling by testing a representative sample of contents,
but EPA did not require that test methods for refrigerants be
consistent with appendix A to 40 CFR part 82, subpart F, and the Agency
did not specify the sampling or testing methods that must be used for
regulated substances for non-refrigerant uses.
EPA proposed revising 40 CFR 84.5(i)(3)(i) to add requirements to
use the testing methodology prescribed in appendix A to 40 CFR part 82,
subpart F for regulated substances offered for sale and distribution as
refrigerants and the following sampling and testing methods \37\ for
regulated substances offered for non-refrigerant uses:
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\37\ Although EPA's proposal referred to proposed ``testing
methods'' for regulated substances offered for non-refrigerant uses,
testing methods also include prescribed sampling provisions that are
appropriate for the given testing methodology. For clarity, in this
final rule EPA is referring to these finalized requirements as
sampling and testing methods, though sampling is already encompassed
in testing methodologies.
Table 3--Proposed Non-Refrigerant Regulated Substance Sampling and
Testing Methods
------------------------------------------------------------------------
Regulated substance Sampling and testing method
------------------------------------------------------------------------
HFC-23, HFC-134, HFC-125, HFC-143a, HFC- Part 7 of 2008 Appendix C for
41, HFC-152a. Analytical Procedures for AHRI
Standard 700-2014,
incorporated by reference in
appendix A to 40 CFR part 82,
subpart F.
HFC-134a, HFC-143, HFC-245fa, HFC-32, Part 9 of 2008 Appendix C for
HFC-152. Analytical Procedures for AHRI
Standard 700-2014,
incorporated by reference in
appendix A to 40 CFR part 82,
subpart F.
HFC-365mfc, HFC-227ea, HFC-236cb, HFC- EPA Method 18; appendix A-6 to
236ea, HFC-236fa, HFC-245ca, HFC-43- 40 CFR part 60--Test Methods
10mee. 16 through 18.
------------------------------------------------------------------------
EPA also requested comment on whether EPA Method 18 is an
appropriate sampling and testing method to require for HFCs that are
not covered in the requirements in appendix A to 40 CFR part 82,
subpart
[[Page 46873]]
F, i.e., HFC-365mfc, HFC-227ea, HFC-236cb, HFC-236ea, HFC-236fa, HFC-
245ca, HFC-43-10mee, as proposed and listed in Table 3 of this preamble
above, or if EPA could rely on appendix A to 40 CFR part 82, subpart F,
including appendix A1 and the incorporated appendix C to AHRI Standard
700-2014, for all sampling and testing requirements.
One commenter supported the proposed sampling and testing
requirements. Other commenters stated that existing practices
sufficiently ensure that composition and specification standards are
met without codifying further requirements. The commenters that opposed
the proposed testing requirements cited concerns about burden,
feasibility, and potential implications on business operations. One
commenter suggested an analysis that would focus on organic purity and
composition for purposes of confirming the identity of imported
regulated substances should be used rather than EPA codifying required
sampling and testing methodology such as the AHRI 700 standard
specification incorporated into appendix A to 40 CFR part 82, subpart
F.
The Agency understands that business and industry practices are
intended to ensure that regulated substances sold or distributed meet
commercial requirements. As described below, the Agency acknowledges
concerns about potential burden and is making some changes from the
proposal. EPA appreciates the benefits, where appropriate, of
accommodating standard industry practices and providing flexibility for
laboratories. However, as explained in the Framework Rule, testing and
sampling requirements for regulated substances helps to ensure correct
identification and labeling, which among other things, helps to ensure
accurate quantities of allowance expenditures.
One commenter suggested EPA provide the opportunity to demonstrate
that alternative analytical methods are equivalent to those specified
(or incorporated by reference) in appendix A to 40 CFR part 82, subpart
F, and EPA Method 18. In response to this comment, EPA is making
adjustments to the requirements being finalized. Section 5.3 of
appendix A to 40 CFR part 82, subpart F (which is based on AHRI 700-
2016) identifies the test methods in the section as ``referee tests''
and states that, ``[i]f alternative test methods are employed, the user
must be able to demonstrate that they produce results at least
equivalent to the specified referee test method.'' In the proposal, as
outlined in Table 3 of this preamble, EPA did not propose to include
Section 5.3 of appendix A to 40 CFR part 82, subpart F. However, in
response to the comments received, in the regulatory requirements
finalized in this action the Agency points out that by including
section 5 of appendix A to 40 CFR part 82, subpart F, alternative test
methods may be used when the alternative test methods have been
demonstrated to produce at least equivalent results to the referee test
methods in appendix C to AHRI Standard 700-2014. The referee test for
refrigerant identification is specified in section 5.3 of appendix A to
40 CFR part 82, subpart F as gas chromatography as described in 2008
appendix C to AHRI Standard 700-2014 (incorporated by reference, see 40
CFR 82.168(b)(2)). Appendix C to AHRI Standard 700-2014 contains
several different gas chromatography methods, specialized for different
refrigerant types. Section 7 of each method in appendix C to AHRI
Standard 700-2014 (i.e., for Parts 7 and 9) provides information
concerning the sensitivity, precision, and accuracy of that test
method. Therefore, to demonstrate that an alternate test method is
equivalent, it is sufficient to demonstrate that the alternate test
method can achieve the same sensitivity, precision, and accuracy as the
referee test method.
A few commenters raised concerns about EPA's proposal to require
use of EPA Method 18 for certain regulated substances not covered in
the methodology in appendix A to 40 CFR part 82, subpart F. One
commenter stated that EPA Method 18 applies to analysis of gaseous
emissions and not to pure substances. Another commenter stated that EPA
Method 18 is overly burdensome to regulated entities. Some commenters
noted available alternatives. One commenter stated that methods for
non-refrigerant regulated substances already exist in American National
Standards Institute (ANSI)/American Society of Heating, Refrigerating
and Air-Conditioning Engineers (ASHRAE) Standard 34, have applicable
methods in AHRI 700, or for any not listed in AHRI 700, ISO 9001
certification provides confirmation that sampling procedures,
analytical methods, calibration procedures, manufacturing
specifications and sales specifications are documented and followed.
One commenter suggested that EPA allow use of ASTM standards for HFC-
227ea, HFC-125, and HFC-236fa when offered for sale or distribution for
fire suppression, specifically ASTM D6231, D6541, and D6064 (for HFC-
125, HFC-236fa, and HFC-227ea, respectively), which incorporate ASTM
D6806. The commenter stated that ASTM D6806 dictates gas chromatography
calibration methods for accuracy, while the ASTM D6064 standard
provides rigorous gas chromatography setting protocols in the body of
the standard. The commenter stated these standards are important to the
fire protection community and are used as industry references in
varying contexts.
EPA acknowledges the comments and is making some changes from the
proposal as described below. EPA appreciates the benefits, where
appropriate, of accommodating standard industry practices and providing
flexibility for laboratories. However, it is also important that the
testing methods used to verify the composition of all bulk HFCs achieve
a certain level of accuracy. As described below, EPA is codifying
requirements through this rulemaking to ensure accurate testing and
consistency throughout the HFC regulatory environment but is providing
flexibility by only requiring either applicable portions of EPA Method
18 or ASTM D6806. EPA Method 18 provides for any gas chromatography
method that separates all compounds and quantitates all peaks with 5
percent of the total peak area. ASTM D6806 provides a performance-based
specification of gas chromatography analysis and is included in the
fire suppression standards referenced in comments as a testing method
to analyze purity. For the reasons described in this section, the
Agency believes that these approaches are sufficiently general to not
be burdensome to regulated entities and that EPA's modifications are
responsive to the concerns raised in comments.
Appendix A to 40 CFR part 82, subpart F, 2008 Appendix C to AHRI
Standard 700-2014, and ANSI/ASHRAE Standard 34 do not include specific
testing methodologies for determining the quality of HFC-227ea, HFC-
236cb, HFC-236ea, HFC-236fa, HFC-245ca, HFC-365mfc, and HFC-43-10mee.
As a result, the Agency proposed the use of EPA Method 18 because it
specifies analytical methods that are applicable to determining the
composition of non-refrigerant HFCs, including quality control,
calibration, and analytical procedures related to gas chromatography.
EPA was not aware of other alternative testing methodologies that
suitably address the necessary test procedures for HFC-227ea, HFC-
236cb, HFC-236ea, HFC-236fa, HFC-245ca, HFC-365mfc, and HFC-43-10mee.
EPA acknowledges that EPA Method 18 is designed to measure gaseous
organics
[[Page 46874]]
emitted from an industrial source and includes provisions, particularly
related to sampling, which are not directly related to the requirements
under 40 CFR 84.5(i)(3). The EPA proposed to codify the requirement to
use EPA Method 18 as a whole for the identified regulated substances,
but in referring to the entirety of EPA Method 18, including the
aforementioned provisions that are not directly related to the
requirements under 40 CFR 84.5(i), the proposed form of the requirement
could have posed unnecessary burden on laboratories performing testing
of regulated substances. Accordingly, for the specified HFCs that are
not listed in appendix A to 40 CFR part 82, subpart F, EPA has
identified relevant portions of EPA Method 18 that are applicable to
these HFCs, and the Agency is finalizing this narrower subset of
relevant portions. As an alternative to these relevant portions of EPA
Method 18, the Agency is also allowing the use of ASTM D6806 to analyze
these HFCs and is incorporating ASTM D6806 by reference in 40 CFR
84.37. ASTM D6806 is a performance-based standard of gas chromotography
methods that defines what is required for a user to demonstrate that a
method to be used is valid. This standard allows flexibility for a
laboratory to apply appropriate testing methods, such as industry
standards which have recently been reviewed and validated, ensures that
the testing meets standard practices, and broadly applies to non-
refrigerant regulated substances that are not listed in appendix A to
40 CFR part 82, subpart F.
These changes from proposal also address in a consistent approach
one commenter's request to allow the use of testing methods ASTM D6231,
D6541, and D6064 for non-refrigerant HFCs used in fire suppression and
EPA is incorporating these three standards by reference in 40 CFR
84.37. Relevant components of ASTM D6231 and D6541 are included in the
finalized requirements because those standards reference and specify
the use of ASTM D6806 as the test method to conduct the purity
analysis. ASTM D6064 has also been demonstrated to be equivalent to the
designated referee test method in appendix C to AHRI Standard 700-2014
and therefore can be used as an alternative test method for non-
refrigerant HFCs prescribed requirements in appendix A to 40 CFR part
82, subpart F. Commenters also cite to ISO 9001. EPA notes that ISO
9001 is a quality management program that is not specific to laboratory
testing, refrigerants, or HFCs, and has determined not to include the
standard in the regulations being amended through this final rule.
One commenter asked that EPA exempt from the testing requirements
fire protection equipment manufacturers that would qualify as
repackagers and instead allow those entities to rely on a certificate
of analysis to verify the composition of a container. The commenters
described that fire equipment manufacturers that would qualify as
repackagers purchase bulk regulated substances, transfer the bulk
regulated substances into system cylinders or portable extinguishers
which constitute final products, and then the bulk regulated substances
are not transferred or removed until servicing or decommission. The
commenter specifically requested that the repackager not be required to
retest the substance before or after it has been transferred into a
system cylinder or a portable fire extinguisher. The commenter also
stated that fire suppressant recyclers should not have to retest bulk
regulated substances after they have been transferred from an original,
larger batch container into a system cylinder or portable extinguisher
if the repackager has already tested a representative sample of the
regulated substances within the batch container.
EPA understands the commenter to be requesting that fire protection
equipment manufacturers that would qualify as repackagers be exempted
from the requirements established in the Allocation Framework Rule at
40 CFR 84.5(i)(3)(i), which specifies that entities recycling for fire
suppression or repackaging regulating substances (for any use) must
test a representative sample of the recycled or repackaged regulated
substances before they are initially sold or distributed. The commenter
references a practice related to transferring regulated substances into
system cylinders or portable extinguishers. With respect to portable
extinguishers, EPA notes that under the definition of ``bulk'' in 40
CFR 84.3, a regulated substance contained in a fire extinguisher is not
a bulk substance. As a result, fire extinguishers are not subject to
any requirements under 40 CFR part 84, subpart A, including the
sampling and testing requirements.
With respect to system cylinders, they are bulk regulated
substances and are therefore subject to requirements in 40 CFR part 84,
subpart A. Under the requirements being finalized in this rule, testing
of regulated substances is required any time a qualifying action, such
as repackaging, is performed on the regulated substances. Given the
importance of verifying the label matches the contents of a container
of HFCs, the Agency does not see a basis to allow fire protection
equipment manufacturers that would qualify as repackagers to rely on a
certificate of analysis instead of performing sampling and testing to
verify the composition of the larger batch container like all other
repackagers. Retesting individual cylinders is not required once they
have been initially sold. The Agency's definition of representative
sample as described and finalized below in section VII.C of this
preamble allows for testing of the original, larger batch container if
the composition of the original batch container is the same as the
intended composition of the smaller bulk container. In other words, an
entity could retain a recycled batch of regulated substances in a
larger container, test a representative sample of the bulk regulated
substances within that larger container, transfer bulk regulated
substances from the larger container to a population of smaller
containers, and apply those test results to verify the composition of
the smaller containers. Similarly, this approach would also be
appropriate when repackaging HFCs from one original, larger batch
container to smaller bulk containers (e.g., system cylinders), so long
as the composition of the original, larger container is intended to
match the smaller containers. EPA stresses that under this definition
of the representative sample, the repackager retains the burden to
ensure that the test represents the composition in the population of
containers but allows for process controls or other quality control
techniques to make this demonstration.
EPA sought comment on whether to extend the testing and sampling
requirement in 40 CFR 84.5(i)(3) to exporters (or exporters that
request additional consumption allowances under 40 CFR 84.19) to verify
the regulated substances being exported match the label and, where
relevant, the request for additional consumption allowances. One
commenter responded without specific information that existing
requirements along with auditing requirements should be sufficient to
confirm regulated substances being exported match the container label.
The Agency disagrees. Exported regulated substances may include
inventory introduced prior to the establishment of requirements under
40 CFR part 84 and available information may not be able to confirm the
composition of such exported regulated substances. Regardless of
whether the exported regulated
[[Page 46875]]
substances were produced prior to 2022, sampling and testing
requirements for exported HFCs helps ensure EPA is collecting accurate
information to gauge U.S. consumption relative to the annual limit
prescribed in the AIM Act. Sampling and testing is also important for
RACAs, where EPA relies on submitted documentation to evaluate the
verified quantity of regulated substances exported and issues
consumption allowances equivalent to the quantity of regulated
substances that were exported. EPA is concerned about the possibility
of fraud if there are not adequate safeguards in place, such as a
requirement to confirm the quantity of regulated substance(s) in the
container(s) matches the label and documentation being submitted to EPA
and CBP. The Agency also notes that auditing requirements under 40 CFR
84.33 do not provide a means to ensure the accurate identification of
regulated substances documented as exported. Accordingly, EPA is
extending the testing and sampling requirements to regulated substances
that are exported. The Agency does not expect this requirement to add
significant additional burden, since the destination for each container
of regulated substances may not be known at the time the container is
filled and producers, importers, and all other repackagers and cylinder
fillers would follow one sampling and testing methodology for each HFC
or HFC blend regardless of whether this requirement was extended to
exports.
EPA also sought comment on whether to extend the testing and
sampling requirements to additional entities, including others that
sell or distribute regulated substances, or that offer them for sale
and distribution as well as those that transform, use as a process
agent, destroy, or receive application-specific allowances in the six
applications listed in subsection (e)(4)(B)(iv) of the AIM Act to
further ensure the label matches the regulated substance in containers
and aid in the detection of off-specification and potentially non-
compliant containers of regulated substances. Two commenters stated
that it was not necessary to extend the testing and sampling to
additional entities that receive application-specific allowances in the
six applications listed in subsection (e)(4)(B)(iv) of the AIM Act, due
to existing industry and regulatory practices that already require high
purity standards. One commenter stated that the proposed sampling and
testing requirements may in fact contribute to contamination of these
high purity materials. Another commenter stated that its industry
sector is already subject to rigorous sampling, testing, and data
requirements under existing Federal regulations. The Agency appreciates
the commenters' input and is not extending the current testing and
sampling requirements to the additional entities listed. EPA notes that
the testing and sampling requirements under 40 CFR part 84, subpart A
apply to the entity initially performing the relevant action. As an
example, an entity that produces regulated substances for use in
metered dose inhalers must first test a representative sample of the
regulated substances prior to sale or distribution. Other entities
(e.g., metered dose inhaler manufacturers) may then purchase the
regulated substances without having to conduct further testing. The
recipient entity is only required to conduct additional testing if a
qualifying action such as repackaging is performed on the regulated
substances.
For the reasons described previously, EPA is finalizing revisions
to 40 CFR 84.5(i)(3)(i) to add requirements to use the testing
methodology prescribed in appendix A to 40 CFR part 82, subpart F for
regulated substances offered for sale and distribution as refrigerants
and the sampling and testing methods in Table 4 of this preamble for
regulated substances offered for non-refrigerant uses. The Agency is
also extending the requirements in 40 CFR 84.5(i)(3)(i) to regulated
substances that are exported. Once these revisions go into effect,
regulated entities will be required to use the sampling and testing
methods applicable to the list of target analytes provided at each
method. Since appendix C to AHRI Standard 700-2014 (incorporated by
reference in Sec. 84.37) does not include specific test procedures for
determining the quality of regulated substances that are not used as
refrigerants, EPA is also requiring the use of either sections 8
through 13 of EPA Method 18 as applicable or ASTM D6806 (incorporated
by reference in Sec. 84.37 for HFC-227ea, HFC-236cb, HFC-236ea, HFC-
236fa, HFC-245ca, HFC-365mfc, HFC-43-10mee, isomers of listed regulated
substances, and blends of regulated substances not used as a
refrigerant. EPA Method 18, ``Measurement of gaseous organic compound
emissions by gas chromatography,'' can be found at appendix A-6 to 40
CFR part 60--Test Methods 16 through 18.
Table 4--Finalized Non-Refrigerant Regulated Substance Sampling and
Testing Methods
------------------------------------------------------------------------
Regulated substance Sampling and testing method
------------------------------------------------------------------------
HFC-23, HFC-134, HFC-125, HFC-143a, HFC- Appendix A to 40 CFR part 82,
41, HFC-152a. subpart F, Sections 1, 2, 3,
5.1, 5.2, 5.3, 7, 8; Part 7 of
2008 Appendix C for Analytical
Procedures for AHRI Standard
700-2014--Normative
(incorporated by reference in
Sec. 84.37).\3\
HFC-134a, HFC-143, HFC-245fa, HFC-32, Appendix A to 40 CFR part 82,
HFC-152. subpart F, Sections 1, 2, 3,
5.1, 5.2, 5.3, 7, 8; Part 9 of
2008 Appendix C for Analytical
Procedures for AHRI Standard
700-2014--Normative
(incorporated by reference in
Sec. 84.37).\3\
HFC-365mfc, HFC-227ea, HFC-236cb, HFC- Sections 8,\1\ 9, 10, 11,
236ea, HFC-236fa, HFC-245ca, HFC-43- 12,\2\ and 13 of EPA Method 18
10mee. as applicable--appendix A-6 to
40 CFR part 60--Test Methods
16 through 18. Or ASTM D6806-
02 (2022), Standard Practice
for Analysis of Halogenated
Organic Solvents and Their
Admixtures by Gas
Chromatography (incorporated
by reference in Sec.
84.37).\4\
------------------------------------------------------------------------
\1\ Only applicable portions of section 8 as specified here are
required. Canisters may be used in place of bags for the purposes of
these requirements. A sampling and analysis procedure under section
8.2 which provides for a representative sample is required (while
section 8.2.1.5 is likely most appropriate, other procedures may be
acceptable). Sections 8.4.1, 8.4.2.1, and 8.4.2.2 are required.
\2\ ``Dry basis'' concentrations do not need to be recorded.
\3\ ASTM D6064-11 (reapproved 2022), Standard Specification for HFC-
227ea, 1,1,1,2,3,3,3-Heptafluoropropane (CF3CHFCF3) (incorporated by
reference in Sec. 84.37) may be used as an alternative for non-
refrigerant regulated substances offered for fire suppression use.
\4\ ASTM D6231/D6231M-21, Standard Specification for HFC-125
(Pentafluoroethane, C2HF5) (incorporated by reference in Sec. 84.37)
and ASTM D6541-21 Standard Specification for HFC-236fa, 1,1,1,3,3,3-
Hexafluoropropane, (CF3CH2CF3), (incorporated by reference in Sec.
84.37) reference ASTM D6806 and may be used as an alternative for non-
refrigerant regulated substances offered for fire suppression use.
[[Page 46876]]
ii. Specifications
In the sampling and testing section of the proposal, EPA proposed
to clarify that the existing requirement at 40 CFR 84.5(i)(3)(ii), that
no person may sell or distribute, or offer for sale or distribution,
regulated substances as a refrigerant that do not meet the
specifications in appendix A to 40 CFR part 82, subpart F--
Specifications for Refrigerants, is applicable for a single component
substance, i.e., neat substance, or a multicomponent substance, i.e., a
blend or mixture containing one or more regulated substances. EPA
received no comments on this aspect of the proposal, and is finalizing
the clarification as proposed.
EPA also proposed to add a requirement under 40 CFR 84.5(i)(3)(ii)
that entities producing, importing, reclaiming, recycling for fire
suppression, or repackaging regulated substances must verify the
applicable refrigerant specifications using the sampling and testing
methodology prescribed in appendix A to 40 CFR part 82, subpart F. One
commenter supported the proposed sampling and testing requirements. One
commenter stated that not all HFC sales specifications conform exactly
with AHRI 700 (e.g., SAE J2776 specifications for automotive HFC-134a
allow a higher moisture level than AHRI 700). The commenter was
incorrect in its statement that the allowed moisture contents vary
between SAE J2776 and AHRI 700. The moisture limit in SAE J2776
references the AHRI 700 requirements, and both, along with the existing
requirements in appendix A to 40 CFR part 82, subpart F, set the
moisture limit as 10 ppm by weight. EPA also understands that HFC-134a
which meets the specifications in Table 1A of appendix A to 40 CFR part
82, subpart F would be suitable for automotive use. However, the Agency
acknowledges potential challenges for regulated substances recycled in
accordance with 40 CFR part 82, subpart B for use as a refrigerant in
motor vehicle air conditioning (MVAC) and MVAC-like appliances to meet
the requirements in appendix A to 40 CFR part 82, subpart F. Under a
change being finalized at 40 CFR 84.5(i)(3)(ii), the act of recycling
would not require an entity to verify that the recycled MVAC
refrigerants meet the specifications in appendix A to 40 CFR part 82,
subpart F.
When recycling of regulated substances occurs for use in MVAC and
MVAC-like appliances, the refrigerant is typically recovered using a
recycling machine from MVAC/MVAC-like appliances (e.g., to remove some
impurities) and transferred to a holding container. It is then either
recharged into the same equipment it was recovered from as part of the
same servicing event or held in that container until it is used to
recharge other MVAC/MVAC-like appliances. Generally speaking, the
regulated substance is not being transferred between containers and/or
service shops, and the refrigerant is not being distributed or sold
further in a container. There is not a label that would need to be
verified and the recycled HFC is not being repackaged. Requiring this
refrigerant to meet a higher standard than already required by existing
EPA regulations and testing to confirm regulated HFC refrigerants meet
a higher specification standard in these instances prior to sales is
unnecessary for purposes of 40 CFR 84.5(i)(3)(ii) and would be contrary
to standard industry practices. Accordingly, and consistent with
longstanding requirements under 40 CFR part 82, EPA is excepting
regulated substances used as refrigerants in MVAC and MVAC-like
appliances from the general prohibition in 40 CFR 84.5(i)(3)(ii), so
long as the regulated substance(s) was used only in an MVAC or MVAC-
like appliance, is to be used only in MVAC or MVAC-like appliances, and
is recycled in accordance with 40 CFR part 82, subpart B. Accordingly,
regulated substances recycled solely for use in MVAC and MVAC-like
appliances may be sold, distributed, or offered for sale or
distribution without meeting the full specifications in appendix A to
40 CFR part 82, subpart F.
As discussed above in this section, EPA reiterates that the testing
and sampling requirements under 40 CFR part 84, subpart A apply to the
entity initially performing the relevant action. As an example, testing
and sampling are required prior to the first sale or distribution of
regulated substance in a newly filled or imported container. Testing is
not required for future points of sale or distribution if regulated
substances are not further processed or transferred between containers.
EPA sought comment on whether to establish purity and other
specifications for non-refrigerants similar to those found in appendix
A to 40 CFR part 82, subpart F or if the proposed approach of requiring
the label to match the nominal composition of regulated substance(s) in
the container is sufficient to ensure purchasers know the contents of
the container and that all entities can verify the number of allowances
that needed to be expended when the regulated substances in the
container were imported or produced. The Agency did not receive comment
on this issue and is not finalizing purity and other specifications for
non-refrigerant regulated substances at this time. For illustrative
purposes, EPA is noting the specifications for regulated substances in
Table 5.
Table 5--Regulated Substance Specifications
------------------------------------------------------------------------
Regulated substance Specifications
------------------------------------------------------------------------
HFC-23, HFC-32, HFC-125, HFC-134a, HFC- Refrigerant use: All in Table
143a, HFC-152a, HFC-227ea, HFC-236fa, 1A of appendix A to 40 CFR
HFC-245fa. part 82, subpart F.
Non-refrigerant use: Testing
results match nominal
composition on label.
HFC-41, HFC-134, HFC-143, HFC-152, HFC- Refrigerant use: All in
236cb, HFC-236ea, HFC-245ca, HFC- appendix A1 to 40 CFR part 82,
365mfc, HFC-43-10mee. subpart F.
Non-refrigerant use: Testing
results match nominal
composition on label.
------------------------------------------------------------------------
Collectively, the changes ensure that defined procedures are used
to perform testing on representative samples of single component HFCs
or multicomponent HFC blends by all entities that produce, import,
reclaim, recycle for fire suppression, or repackage HFCs. Regulated
substances used as refrigerants, with limited exception, must conform
to the specifications provided in appendix A to 40 CFR part 82, subpart
F, or, if not listed therein, the Generic Maximum Contaminant Levels in
appendix A1 to 40 CFR part 82, subpart F. EPA is not establishing
specification requirements for regulated substances that are not used
as refrigerants. However, the
[[Page 46877]]
changes require that samples of both single component HFCs and
multicomponent HFC blends for any use shall be quantitatively analyzed
for each component expected based on the container label, air and other
non-condensables, impurities (both volatile impurities and halogenated
unsaturated volatile impurities), and high boiling residue. Among other
purposes, compliance with these requirements ensures the label matches
what is in the container.
B. Recordkeeping of Tests
EPA proposed to modify the existing recordkeeping requirements in
40 CFR 84.31 to specify that the types of records required to be
maintained related to testing results include instrument calibration,
sample testing data files, and results summaries of both sample test
results and quality control test results that are in a form suitable
and readily available for review.
One commenter expressed support for the modified recordkeeping
requirements. Another requested that the requirements follow best
practices and avoid unnecessary duplication of other requirements. One
other commenter requested EPA consider whether these requirements would
be overburdensome and unnecessary. Commenters also asked for
clarification on which instrument calibration records were intended to
be maintained and what qualifies a form as suitable for review. EPA
responds that these recordkeeping requirements may be necessary to
support enforcement efforts under the HFC Phasedown program if EPA
identifies an off-specification or mislabeled container of regulated
substances and needs to confirm proper testing was conducted to verify
the contents of the container(s). The commenter did not identify any
alternative best practices, duplication, or particular undue
recordkeeping burden associated with the proposed recordkeeping
requirements. The Agency is unaware of such concerns as well and sees
value in requiring the documentation to be maintained. These records
support the integrity of this testing regime by enabling EPA to assess
on inspection records, which document and validate test results. In
response to requests for clarification, EPA clarifies that instrument
calibration documentation must include records in accordance with the
required sampling and testing methodologies such that an outside
observer can reasonably assess whether the correct methodology was
followed and to verify test results. As one example, ISO 17025 requires
that retained records include calibration dates, results of
calibrations, adjustments, acceptance criteria, and the due date of the
next calibration or the calibration interval. A suitable form consists
of dated paper or electronic documentation organized to clearly
associate test results with the tested regulated substances and
containing all related and applicable calibration, quality control, and
audit trail \38\ documentation for given test methods and results. In
reviewing comments received and the Agency's proposal, EPA has
determined that these dated records, including audit trail
documentation of any modifications to records, are critical to ensure
data integrity and allow outside observers to verify the validity of
testing methodologies and results. Under standard practice entities may
revise initial records after an error has been discovered. Such
modifications could also reflect intentional efforts to conduct fraud.
Audit trail documentation provides a transparent way to identify and
assess such changes. The Agency understands that there are existing
options in the data collection software that would present minimal
increased burden and can be turned on to track changes to the various
files associated with the analysis performed on the instrument. As a
result, EPA is adding audit trail files as a component of the
recordkeeping requirements, as well as finalizing the remaining
recordkeeping requirements as proposed.
---------------------------------------------------------------------------
\38\ Secure, computer-generated, time-stamped audit trails are
used to independently record the date and time of operator entries
and actions that create, modify, or delete electronic records.
---------------------------------------------------------------------------
EPA proposed to extend the general recordkeeping requirement for
test records to include recyclers for fire suppression and repackagers
since the existing requirement in 40 CFR 84.5(i)(3)(i) requires fire
suppressant recyclers and repackagers to test a representative sample
of regulated substances before they are sold. The Agency did not
receive comment on the proposal. Consistent with the request for
comment on whether to extend the testing and sampling requirements, EPA
also sought comment on whether to extend these requirements to other
entities, such as by establishing recordkeeping requirements in 40 CFR
84.31(d) for exporters. As described above in section VII.A of this
action, the Agency is extending the testing and sampling requirements
to regulated substances that are exported. EPA did not receive comment
on the issue of whether to extend related recordkeeping requirements to
other entities. The Agency considers it appropriate that all entities
subject to the sampling and testing provisions in 40 CFR part 84,
subpart A must maintain associated records. Accordingly, in this
action, EPA is finalizing its proposal to extend the recordkeeping
requirement for test records from producers, importers, and reclaimers
to include recyclers for fire suppression and repackagers. The Agency
is also establishing test records recordkeeping requirements for
exporters. Specifically, EPA is adding recordkeeping provisions at,
respectively, 40 CFR 84.31(j)(3)(ii) and 84.31(k)(1), and 40 CFR
84.31(d) requiring that recyclers for fire suppression, repackagers,
and exporters maintain dated records of batch tests of regulated
substances packaged for sale, distribution, or export, including
information on instrument calibration, sample testing data files, audit
trail files, and results summaries of both sample test results and
quality control test results that are in a form suitable and readily
available for review.
Associated with this proposal to extend the general recordkeeping
requirement for test records to include recyclers for fire suppression
and repackagers, the Agency also provided interpretations on how it
understood the terms ``fire suppressant recyclers'' \39\ and
``repackagers'',\40\ requested comment on whether existing
interpretations and guidance provide sufficient clarity, and requested
comment on whether to codify these interpretations in regulatory
definitions. One commenter suggested the Agency codify a definition of
``fire suppressant recycler'' with two significant modifications. The
first modification was to remove the reference to purity
[[Page 46878]]
testing, as existing NFPA standards require that the agent be tested
for purity before it is reused as a fire suppressant. The commenter
stated that EPA's language may imply that testing was optional under
NFPA standards. The second modification was the removal of the last
sentence, as commenters believed the phrase ``market use'' added
confusion to the definition. The Agency understands that the references
to purity testing and market use are unnecessary to explain which
actions and entities are included within the definition. Including
other edits for clarity, EPA accordingly is codifying the following
definition of ``fire suppressant recycler'': ``Generally, an entity
that collects used HFC fire suppressants and directly resells those
collected and aggregated HFCs--with or without any additional
reprocessing--to another entity for reuse as a fire suppressant (also
referred to as a ``recycler for fire suppression'' in this subpart). An
entity that collects and aggregates used HFC fire suppressants for
distribution to another entity for reprocessing before being sold for
reuse as a fire suppressant would not be a fire suppressant recycler.
An entity that resells HFC fire suppressants that have already been
reprocessed for use as a fire suppressant by another entity would not
be a fire suppressant recycler.''
---------------------------------------------------------------------------
\39\ EPA presented the following interpretation at proposal:
Generally, an entity that collects used HFC fire suppressants and
directly resells those recovered HFCs--with or without any
additional reprocessing including testing for purity--to another
person for reuse as a fire suppressant would qualify as a fire
suppressant recycler (also referred to as a ``recycler for fire
suppression'' in 40 CFR part 84, subpart A). A person that recovers
and aggregates used HFC fire suppressants for distribution to
another entity for reprocessing before being sold for reuse as a
fire suppressant would not be a fire suppressant recycler. Reselling
HFC fire suppressants that have already been recovered and
subsequently reprocessed by another person would not be a fire
suppressant recycler. In effect, a fire suppressant recycler is the
first entity to reintroduce recovered HFC fire suppressants into the
market use as fire suppressant. 87 FR 66394, n.48.
\40\ The Agency presented the following interpretation at
proposal: EPA views repackagers and cylinder fillers interchangeably
under the regulations at 40 CFR part 84, subpart A, and would define
repackagers as entities who transfer regulated substances, either
alone or in a mixture, from one container to another container prior
to sale or distribution or offer for sale or distribution. 87 FR
66394, n.49.
---------------------------------------------------------------------------
The Agency did not receive comment on whether to codify a
definition of ``repackagers'' and in this action is codifying the
definition of ``repackagers'' to mean ``entities who transfer regulated
substances, either alone or in a blend, from one container to another
container prior to sale or distribution or offer for sale or
distribution.'' Establishing a defined term in 40 CFR 84.3 will improve
clarity and support compliance with the sampling and testing
requirements for repackagers being finalized in this rule. This is
particularly relevant and helpful given the comments received on this
rule from fire suppressant recyclers.
A commenter also expressed concern regarding how these definitions
may be applied to the fire suppression industry. The commenter stated
that fire equipment distributors that service equipment directly and
through cylinders exchanges should not be considered fire suppressant
recyclers. Servicing may consist of transferring the HFCs from the
equipment and transferring the HFCs directly back into the same
equipment, or through a cylinder exchange where customers return their
equipment and receive different previously serviced equipment. EPA
understands that direct servicing entails periodically removing bulk
regulated substances from the system cylinder and transferring it to a
holding tank in order to perform a hydrostatic test to evaluate the
cylinder's integrity. The bulk regulated substances are not recycled or
otherwise processed and are then returned to the same system cylinder
for continued use in the same application. In other words, it is the
system cylinder that is receiving the servicing and not the regulated
substance. As described in this section above, this direct servicing of
a system cylinder is not intended to result in resale or redistribution
of regulated substances because the same regulated substances are
returned to the same original customer. The key distinguishing feature
for why this activity does not fall under the definition of a fire
suppressant recycler is the fact that the regulated substance is not
being resold to another entity but is being returned to the original
owner. The Agency notes that a cylinder exchange, where regulated
substances and/or system cylinders are recovered from one entity's
equipment and sold or distributed to another entity would fall under
the definition of ``fire suppressant recycler,'' unless the company
recovering the cylinder is sending the regulated fire suppressant to
another entity that will do the recycling and repackaging before the
regulated substance is sold for use in fire suppression equipment.
The same commenter expressed concern that EPA's interpretation of
repackagers may include fire equipment distributors which return
serviced equipment to customers. EPA agrees that fire equipment
distributors could be repackagers under this definition, especially if
they remove regulated substances from one system cylinder and fill a
different cylinder with those regulated substances. The Agency
understands that the primary concern identified in the comment is that
some fire equipment distributors, who service a limited number of
system cylinders in a year, may be subject to the rule and that this
would be a significant burden on those entities given they are
generally returning the regulated substance to the same system cylinder
it was recovered from. Given the intent is to allow for servicing of
the cylinder, not the regulated substance, under this final rule EPA is
explicitly exempting from the definition of repackager a fire equipment
distributor (or other related entity) only servicing system cylinders
for fire suppression equipment--that is returning the regulated fire
suppressant to the same system cylinder it was recovered from after the
system cylinder is serviced.
In combination, under this final rule, entities servicing system
cylinders for fire suppression equipment are not a fire suppressant
recycler or a repackager if they return the same regulated substances
to the same original customer in the same system cylinder it was
recovered from after the system cylinder is serviced. Further, if you
are returning the same regulated substances to the same system cylinder
it was recovered from after the system cylinder is serviced, you are
not a repackager. In response to comments on cylinder exchanges, if
cylinders are exchanged and never opened, that would not be considered
repackaging, but could be categorized as fire suppressant recycling if
the regulated substance is collected from one entity and then
distributed to another entity. This activity would fall under the
definition being finalized in this rule and would be covered by other
provisions in this rule (e.g., the container tracking requirements
previously finalized in 40 CFR 84.23).
C. Define ``Batch'' and ``Representative Sample'' and Clarify the
Relationship Between These Terms
The Allocation Framework Rule established that reclaimers,
producers, and importers are required to maintain records of the
results of ``batch'' tests of regulated substances and EPA is extending
requirements to maintain dated records of batch tests for fire
suppressant recyclers, reclaimers, and exporters in this rule.
Testing requirements codified at 40 CFR 84.5(i)(3)(i) in the
Framework Rule require testing of a ``representative sample.''
Preceding subsections of this preamble outline revisions EPA is making
to 40 CFR part 84, subpart A with respect to sampling and testing
requirements.
EPA proposed to add a definition of ``batch'' to 40 CFR 84.3 and
did not receive comment on this issue. In this action the Agency is
adding to this proposed definition the phrase ``with the same nominal
composition'' to clarify that a batch is associated with a larger
population (e.g., a common set of mixing tanks or other larger
container that the population of cylinders was filled from) for the
purposes of sampling and testing required by this rule. For example, a
batch of R-410A cylinders could be the cylinders that were filled after
blending two or more larger ISO tanks of HFC-125 and HFC-32. The
revised definition is that ``batch'' means a vessel, container, or
cylinder from which a producer, importer, reclaimer, recycler, or
repackager transfers HFCs
[[Page 46879]]
directly for sale or distribution, or for repackaging for sale or
distribution; or a population of small vessels, containers, or
cylinders with the same nominal composition that a producer, importer,
reclaimer, recycler, or repackager directly offers for sale or
distribution. EPA is finalizing this definition of ``batch'' for the
reasons explained later in this section.
EPA also proposed a two-part definition of representative sample.
The first part defines a representative sample of a container for sale
as a sample collected from a container offered for sale or distribution
using a sampling method that obtains all components of HFC(s) in an
unbiased and precise manner. For the second part, EPA defines a
representative sample of a batch as a sample that can be used to infer
that the composition of HFC(s) in a population of containers offered
for sale or distribution that constitute, or are derived from, the
batch are within stated tolerances (e.g., within the specifications
established in the tables in section 6 of appendix A to 40 CFR part 82,
subpart F, such as composition and percent by volume air and other non-
condensables). Sampling and testing methods established in 40 CFR
84.5(i)(3) provide procedures and metrics to conduct sampling of the
regulated substance within a container and testing to determine whether
the batch meets stated tolerances. Recordkeeping requirements for
sampling and testing in general and batch testing in particular provide
documentation that allows EPA to assess the validity of sampling and
testing and any inferences based on use of representative samples. EPA
did not receive comment on this issue and is finalizing the definition
of ``representative sample'' as proposed for the reasons explained
later in this section.
EPA is making these changes to allow for the common scenario when
testing of a batch is used to satisfy the requirement for ``testing of
a representative sample'' to verify that the composition of HFCs in
containers matches the container labeling, while also requiring that
these batch test results produce valid labels for individual
containers. The definition of ``representative sample'' creates
consistency between sampling and testing regulations in 40 CFR part 84,
subpart A and the implied notion of a representative sample in appendix
A to 40 CFR part 82, subpart F where specific methods for sampling
containers are outlined. The definitions of ``batch'' and
``representative sample'' in combination ensure that testing of one
portion of a batch produces test results that are characteristic of the
population of cylinders which may be filled from that batch. These
changes will help clarify the recordkeeping requirements associated
with maintaining records of ``batch tests.''
D. Laboratory Methods and Accreditation
The existing regulations at 40 CFR 84.5(i)(2)(ii) \41\ provide an
option to importers that want to repackage regulated substances that
were initially either unlabeled or mislabeled to ``[v]erify the
contents with independent laboratory testing results and affix a
correct label on the container that matches the test results before the
date of importation (consistent with the definition at 19 CFR 101.1) of
the container.'' The regulations codified in the Framework Rule did not
provide any detail on what would be required to ensure independence nor
on the quality of the analysis that would be required of ``laboratory
testing.'' To implement this provision fully, EPA proposed to define
``laboratory testing'' as the use of the sampling and testing
methodology \42\ prescribed in 40 CFR 84.5(i)(3) by a laboratory that
is accredited to ISO 17025.\43\ This phrase ``laboratory testing'' is
not currently used anywhere else in 40 CFR part 84, subpart A, so the
first part of the proposal was only intended to apply to situations
where a cylinder is unlabeled or mislabeled and the importer is
correcting that label before the date of importation (consistent with
the definition at 19 CFR 101.1). This was intended to make clear that
laboratory testing requires, for purposes of 40 CFR part 84, subpart A,
the use of a consistent methodology and specified testing methods. EPA
proposed to require that laboratories must be accredited to be used for
purposes of meeting the 40 CFR 84.5(i)(2)(ii) requirements to repackage
initially unlabeled or mislabeled regulated substances. This was
intended to make clear that laboratory testing requires, for purposes
of 40 CFR part 84, subpart A, the use of a consistent methodology and
specified testing methods. The Agency sought additional comment on
whether the AHRI Certified Refrigerant Testing Laboratory program and
others should be allowed in addition to ISO 17025 laboratories.
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\41\ This reference was incorrectly listed as 40 CFR
82.5(i)(2)(ii) in this rulemaking's proposal at 87 FR 66395. But it
was clear contextually that EPA was referring to repackaging
provisions in 40 CFR 84.5(i)(2)(ii), as stated in the proposed
regulatory text at 87 FR 66405.
\42\ The proposed regulatory text cited the sampling and testing
methodology prescribed in 40 CFR 84.5(i)(c). That reference was a
clear typographical error. The sampling and testing methodology is
prescribed in 40 CFR 84.5(i)(3), as discussed in section VII.A of
the proposal at 87 FR 66392-66394 and the proposed regulatory text
at 87 FR 66405-66406.
\43\ In November 2017, ISO/International Electrotechnical
Commission (IEC) published a new version of the test laboratory
accreditation standard, ISO/IEC 17025:2017. In addition to adding a
definition of ``laboratory,'' the new version replaces certain
prescriptive requirements with performance-based requirements and
allows for greater flexibility in satisfying the standard's
requirements for processes, procedures, documented information, and
organizational responsibilities. ISO/IEC 17025:2017 is the version
EPA proposed and is finalizing to incorporate by reference.
Interested persons may purchase a copy of ISO/IEC 17025:2017 from
the source provided in 40 CFR 84.37(b)(1), and it is available at
https://www.techstreet.com/standards/iso-iec-17025-2017?product_id=2000100.
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The Agency also sought comment on whether to require that all
testing under 40 CFR 84.5(i)(3) be conducted by an independent and/or
accredited laboratory. The Agency sought further comment on whether
other safeguards are in place at laboratories that are currently
typically used by this regulated community that are similar in nature
to accreditation, such as certification by an independent third party,
that would decrease the importance of testing being conducted by an
independent and/or accredited laboratory. In effect, EPA was seeking
comment on whether to use the phrase ``independent laboratory testing''
or ``laboratory testing'' in 40 CFR 84.5(i)(3) in addition to
84.5(i)(2)(ii).
EPA did not receive comment on its proposal to specifically require
laboratories be accredited to meet the requirements under 40 CFR
84.5(i)(2)(ii) to repackage initially unlabeled or mislabeled regulated
substances. Commenters strongly opposed requiring all testing under 40
CFR 84.5(i)(3) be conducted by an independent and/or accredited
laboratory. Commenters stated that the requirement would be burdensome,
redundant, and may interfere with internal quality control and
operations. As noted in section VII.A of this preamble, two commenters
also stated that existing industry and regulatory practices require
high purity standards and one commenter noted that existing Federal
regulations for its industry sector also have rigorous sampling,
testing, and data requirements.
If EPA were to require accreditation or certification, commenters
generally opposed potential requirements that laboratories conducting
testing must be accredited to ISO 17025 and instead suggested a variety
of alternatives. One commenter suggested EPA consider flexibility in
implementing testing laboratory accreditation or certification
provisions, including specifically
[[Page 46880]]
allowing use of in-house laboratories when they meet similar quality
safeguards as ISO 17025 certification. Two commenters stated that their
facilities and associated laboratories were already certified to ISO
9001 and further requirements were unnecessary. One commenter stated a
preference for AHRI standards because AHRI standards are specific to
HFCs. Multiple commenters variously recommended that acceptable
certifications include AHRI Certified Refrigerant Testing Laboratories,
ISO 9001, or those in compliance as described in EPA's Quality Program-
Related Regulations, which include overarching quality management
system standards such as ISO 9001 and ISO/TS 16949. Commenters stated
that these certifications are suitable to ensure testing and sampling
goals, better align with existing industry practices, and would be less
burdensome to industry.
EPA acknowledges the support for allowing the use of all
laboratories, including in-house laboratories, that meet suitable
quality standards, and is not finalizing a requirement that all
laboratory testing under 40 CFR 84.5(i)(3) be done by independent
laboratories. However, the Agency is finalizing a requirement that
laboratory testing under 40 CFR 84.5(i)(3) be done by an accredited or
certified laboratory. EPA places weight on the fact that laboratory
accreditation bodies assess a variety of aspects of a laboratory,
including the technical competence of staff; the validity and
appropriateness of test methods; traceability of measurements and
calibration to national standards; suitability, calibration, and
maintenance of the testing environment; sampling, handling, and
transportation of test items; and quality assurance of test and
calibration data. Accreditation ensures that laboratories follow good
laboratory practices and that their operations have been reviewed by a
recognized accreditation authority. The Agency notes that ISO 9001 and
EPA's Quality-Program Regulated Regulations are quality-management
programs that are not specific to laboratory testing or HFCs. EPA
acknowledges commenters' support for allowing AHRI Certified Laboratory
Program certification in addition to ISO 17025 accreditation. The AHRI
certification program is less rigorous than ISO 17025, but does address
HFCs and refrigerants and is commonly used by entities regulated by
this rule. On review of other safeguards in place at laboratories that
are currently typically used by this regulated community that are
similar in nature to accreditation, such as certification by an
independent third party, the Agency also identified the Occupational
Safety and Health Administration's (OSHA) Nationally Recognized Testing
Laboratory program under 29 CFR 1910.7 as a suitable alternative
certification program that is well-established and ensures laboratories
follow good laboratory practices. OSHA recognizes laboratories as
meeting the requirements in 29 CFR 1910.7 to perform testing and
certification of products using consensus based test standards. These
requirements are: the capability to test and evaluate equipment for
conformance with appropriate test standards; adequate controls for the
identification of certified products, conducting follow-up inspections
of actual production; complete independence from users (i.e., employers
subject to the tested equipment requirements) and from any
manufacturers or vendors of the certified products; and effective
procedures for producing its findings and for handling complaints and
disputes. OSHA regularly inspects and audits these laboratories to
verify that they sustain the quality of their operations and continue
to meet the requirements for recognition.
As discussed at proposal, EPA has determined that additional
stringency is justified with respect to the 40 CFR 84.5(i)(2)(ii) since
the regulatory revisions apply to unlabeled or mislabeled container(s).
Under 40 CFR 84.5(i)(2)(ii), as revised under section VIII.B of this
preamble, the importer of record is required in cases of repackaging
unlabeled or mislabeled containers to verify the results with
independent laboratory testing. In addition to the general requirements
established in this rulemaking that sampling and testing must be
conducted by accredited or certified laboratories that use the
methodologies prescribed in 40 CFR 84.5(i)(3), EPA is maintaining the
existing requirement that these laboratories verifying results under 40
CFR 84.5(i)(2)(ii) must be independent. As noted previously, the Agency
acknowledges commenters' concerns regarding a broader independent
laboratory testing requirement and is not finalizing a requirement
under 40 CFR 84.5(i)(3) that all laboratory testing be conducted by an
independent laboratory.
One commenter noted that it may take time to acquire appropriate
certification and/or accreditation. To ensure sufficient time for
entities to comply, EPA is delaying the effective date of the
requirement for laboratories to attain accreditation or certification
under one of the three options until October 1, 2024.
After considering comments received, the Agency is finalizing the
requirement that ``laboratory testing'' means the use of the sampling
and testing methodology prescribed in 40 CFR 84.5(i)(3) by a laboratory
that is accredited to ISO 17025 in accordance with ISO/IEC
17025:2017(E) (incorporated by reference in Sec. 84.37) or certified
under the AHRI Refrigerant Testing Laboratory Certification Program in
accordance with the AHRI Refrigerant Testing Laboratory Certification
Program Operations Manual and the AHRI General Operations Manual (both
incorporated by reference, see Sec. 84.37) or recognized under OSHA's
Nationally Recognized Testing Laboratory program in accordance with
requirements codified at 29 CFR 1910.7. EPA is also adding the term
``laboratory testing'' to sampling and testing requirements in 40 CFR
84.5(i)(3)(i) and 40 CFR 84.5(i)(3)(ii). Along with the existing
independent laboratory testing requirements in 40 CFR 84.5(i)(2)(ii),
the codified definition of ``laboratory testing'' in 40 CFR 84.3
applies to these three instances in 40 CFR 84.5(i).
E. Certificate of Analysis for Imports of Regulated Substances
To aid in the review and monitoring of imports of HFCs, EPA
proposed requiring that certificates of analysis records accompany all
imports of regulated substances. A certificate of analysis provides a
record that the applicable sampling and testing methodology has been
used to verify the composition. Under the proposal, certificates of
analysis would include documentation of the sampling and testing that
is used to verify the composition of bulk regulated substance(s)
offered for sale or distribution.
One commenter supported the proposed requirement that certificates
of analysis accompany all imports, but suggested that this be
electronically connected to the shipment, such as through an ACE
document submission, instead of physically accompanying the shipment.
Several commenters agreed that certificates of analysis are typically
provided to the importer along with other documents required to
facilitate the import, but opposed the proposed requirement that
certificates of analysis physically accompany imports due to concerns
about how practical it would be to hold the certificate on the imported
container and the fact that containers will be out of the importer's
custody during transit.
[[Page 46881]]
EPA understands that importers are typically in possession of
certificates of analysis and did not expect the proposed requirement to
change current practices. The Agency appreciates that there may be
situations where the certificate of analysis is not available
physically with the shipment, but sees a value in ensuring ready access
to documentation available for inspection to verify the identity,
composition, and necessary allowance expenditure for the import of
regulated substances. In light of the comments received, the Agency
agrees that the identified goals can be achieved either by the
certificate of analysis physically accompanying the import or by having
the documentation electronically connected to the shipment.
Several commenters also stated, without supporting information,
that it is not practical to require certificates of analyses for the
import of heels. EPA understands that business practices may not entail
retesting residual amounts of regulated substances remaining in
containers after most of the regulated substances have been transferred
out of the container or otherwise used and prior to import of the
cylinder with its remaining heel content, and that the heel may
reasonably be expected to be tested at further transfer or processing
steps. However, the Agency sees benefits in verifying the composition
of all regulated substances imported, particularly in the case of heels
where EPA has particular concerns about potential for illegal or
misrepresented imports. As discussed in the Framework Rule, (86 FR
55178-55179) a goal of these labeling and testing requirements is to
deter illegal activity and promote accurate and clear labeling, while
also simplifying the process for EPA, in coordination with CBP for
imports, to deduct a sufficient number of allowances at the point of
import. This also reduces the safety risk of shipping and storing
unlabeled cylinders and the potential to damage equipment resulting in
the release of refrigerant and harm to the environment. Requiring
limited labeling and testing requirements to verify material produced,
imported, and sold matches the label supports EPA's efforts to confirm
the contents of the container and thereby maintain the integrity of
Allowance Allocation program by assuring the appropriate number of
allowances are deducted for production and consumption of HFCs. In
response to the commenters' concerns, the Agency notes that a
certificate of analysis which certifies the content of regulated
substances used to fill the container is acceptable to document the
composition of the remaining heel content if there is a reasonable
expectation that the information in the certificate of analysis is
still valid and applicable to the container's heel. A certificate of
analysis is effective whether the regulated substances originated in
the United States or internationally, but regardless must meet the
requirements specified at 40 CFR 84.3 ``Certificate of Analysis.''
Commenters did not provide any specific reasons why this requirement
would be incompatible with business practices. For the reasons
described above in this paragraph, EPA is not excepting imports of
heels from the general requirement to include a certificate of
analysis.
EPA also took comment on whether to require that the sampling and
testing conducted prior to import that provides the associated
certificate of analysis must be conducted by a laboratory accredited
under ISO 17025. One commenter stated that the requirement that the
certificate of analysis be provided by a laboratory accredited under
ISO 17025 would be particularly burdensome and was unnecessary due to
existing auditing and verification requirements.
Considering commenter input, EPA established requirements (as
discussed in section VII.D of this preamble) that sampling and testing
under 40 CFR 84.5(i)(2) and 40 CFR 84.5(i)(3) must be conducted by
laboratories accredited to ISO/IEC 17025:2017(E), certified under the
AHRI Refrigerant Testing Laboratory Certification Program, or
recognized by OSHA's Nationally Recognized Testing Laboratory program.
EPA is also providing until October 1, 2024, to comply with this
requirement, so laboratories testing regulated substances in the United
States or abroad have sufficient time to become accredited or
certified. The Agency believes that these accreditation or
certification requirements as finalized do not result in an undue
compliance burden on the importer. Further, the commenter did not
specify how existing auditing and verification requirements are
sufficient to ensure compliance, and EPA does not see how these
existing requirements would verify the contents of imported containers
of regulated substances. Certificates of analysis contain information
concerning import contents and sampling and testing methodology beyond
that of existing auditing and verification requirements. Accreditation
or certification requirements for laboratories that prepare these
certificates of analysis provide additional safeguards to ensure that
sampling and testing follow good laboratory practices. Therefore, EPA
is finalizing requirements that sampling and testing to provide a
certification of analysis must meet the same certification or
accreditation requirements as all sampling and testing under 40 CFR
84.5(i)(3).
Accordingly, after considering the comments on this issue, EPA is
finalizing requirements that the certificate of analysis physically
accompany the import or be submitted electronically to the Agency by
loading an image of the document to the Document Image System, such as
is required for non-objection notices under 40 CFR 84.25 and
transhipments under 40 CFR 84.31(c)(3), at the same time as the advance
notice required under 40 CFR 84.31(c)(7). This requirement will provide
EPA additional information to confirm the number of allowances that
need to be expended at the time of import.
VIII. What other revisions is EPA finalizing?
In addition to what is outlined in the prior sections, after
considering public comments EPA is finalizing a number of additional
proposed regulatory changes based on both lessons learned and current
practices that have proved useful in implementing the HFC phasedown.
A. Define the Term ``Expend''
Under the AIM Act and EPA's implementation of the HFC phasedown, a
person must expend allowances to produce or import regulated substances
outside of limited exceptions. In the Allocation Framework Rule, EPA
did not codify a regulatory definition of ``expend'' in 40 CFR 84.3.
EPA proposed to amend 40 CFR 84.3 to include a definition of expend,
specifically to define expend to mean to subtract the number of
allowances required for the production or import of regulated
substances under 40 CFR part 84 from a person's unexpended allowances.
In section V.A of this preamble we are codifying the point in time that
determines when calendar year allowances are expended and in section
V.B of this preamble we are codifying that importers of record must
expend allowances. EPA is finalizing the addition of a regulatory
definition of ``expend'' as proposed to accompany these regulatory
revisions to provide additional specificity on how parties are required
to implement these requirements.
One commenter sought clarity on how this definition of expend
applies to application-specific allowance holders. The commenter stated
that the proposed
[[Page 46882]]
definition refers only to the production or import of regulated
substances and does not explain how it relates to the conferral and
expenditure of allowances for application-specific allowance holders.
The commenter requested that EPA clearly state if this definition
applies to application-specific allowance holders and if it does, how
would it apply. Under the Allocation Framework Rule, entities that are
allocated application-specific allowances have the ability to use those
allowances to import bulk regulated substances directly or to confer
their application-specific allowances to others to enable those others
to import or produce regulated substances for use in the specified
application. If an entity that is allocated application-specific
allowances imports bulk regulated substances directly, the entity must
expend allowances to cover that import. In such an instance, the
requirement to expend allowances, and the accompanying definition of
``expend,'' would apply to the application-specific allowance holder.
If an entity allocated application-specific allowances confers those
allowances to another entity to produce or import regulated substances
on their behalf, that other entity that received the conferral would
expend the allowances as needed for the import and production.
B. Modify Labeling Requirements
Under the Allocation Framework Rule, EPA codified labeling
requirements in 40 CFR 84.5(i)(1) to require a person who is selling,
distributing, offering for sale or distribution or importing containers
containing a regulated substance that the container include ``a label
or other permanent markings stating the common name(s), chemical
name(s), or ASHRAE designation of the regulated substance(s) or blend
contained within, and the percentages of the regulated substances if a
blend.'' EPA proposed several revisions to this regulatory text. First,
EPA proposed revising 40 CFR 84.5(i)(1) to require a ``permanent
label'' in place of ``a label or other permanent marking.'' Among other
things, EPA solicited comment on any implementation challenges
associated with requiring a ``permanent label.''
EPA received several comments that strongly opposed the proposed
revision from ``a label or other permanent markings'' to ``permanent
label'' for several reasons, including the challenges associated with
requiring a permanent label when paired with EPA's separate
requirements, which were not reopened in this rulemaking, regarding
refillable cylinders. Commenters explained that in such a situation
affixing a permanent label for a particular regulated substance would
limit the use of the container and an entity would no longer be able to
use containers interchangeably (e.g., they switch the type of HFC or
HFC blend that they put into a cylinder once it is returned). Two
commenters were also uncertain how such a requirement would be
implemented and sought clarification with more details on the
implementation of a permanent label. Two other commenters also asked
that EPA provide further clarification on the impact the proposed
revision will have on the market because certain containers would be
removed from regular circulation effecting how returned containers are
processed and reused which is independent of the return and demand rate
of each product. After reviewing public comments filed and considering
the points made by the commenters, EPA is not finalizing this proposed
amendment and will leave the existing text in 40 CFR 84.5(i)(1)
requiring ``a label or other permanent marking.'' EPA does note that in
addition to the requirements in 40 CFR part 84, regulated parties are
also required to follow all other applicable Federal regulations,
including those from the Department of Transportation in 49 CFR part
172. EPA also proposed to add more detail and specificity on the
regulatory labeling requirements. With slight revisions, EPA proposed
to make changes to 40 CFR 84.5(i)(1) to include the following features
such that all labels or other permanent markings must be:
Durable and printed or otherwise labeled on, or affixed
to, the external surface of the bulk HFC container;
Readily visible and legible;
Able to withstand open weather exposure without a
substantial reduction in visibility or legibility;
Displayed on a background of contrasting color; and
If a container of regulated substances is contained within
a box or other overpack, the exterior packaging must contain legible
and visible information of what regulated substance is contained
within.
One commenter made a general claim that EPA's proposal ``would
impose labeling obligations above and beyond existing requirements,''
that any benefit of the proposal ``would appear to be minimal,'' that
EPA does not cite to a particular problem the Agency is trying to
solve, and that EPA should instead rely on existing regulations under
OSHA and the Department of Transportation's Pipeline and Hazardous
Materials Safety Administration. The commenter does not provide any
specific concerns or engage with EPA's proposal in any particularity.
EPA is finalizing these regulatory additions as proposed. EPA proposed
these additional requirements to ensure that labels could be readily
viewed, read, and understood as containers of regulated substances move
across US borders and through commerce and those benefits are inherent
in the form of the proposed requirements. All of the additional
requirements relate to making the labels easier to view, which in turn
will aid compliance and enforcement officers to identify potentially
violative or fraudulent goods. These revisions are intended to help
ensure that all containers of regulated substances would have labeling
that is easily visible and legible and would contain information that
is necessary for inspection and enforcement, as appropriate. As
outlined in detail in the Allocation Framework Rule, the Agency has
significant concerns about the potential for and impact of illegal
trade in regulated substances. This concern is particularly heightened
at the start of a new phasedown step. The requirements of the HFC
phasedown are implemented at a variety of locations, including at
border entries and industrial facilities. As a result, EPA relies on a
diverse array of law enforcement officials to aid in compliance efforts
related to the 40 CFR part 84 requirements. Without appropriate
labeling, containers of regulated substances may not be readily
distinguishable from containers of other products. These provisions are
intended to facilitate inspections by providing durable labels that
clearly identify contents.
EPA proposed as a complementary measure to add prohibitions at 40
CFR 84.5(i)(2) that no one other than the importer of record may
repackage or relabel regulated substances that were initially unlabeled
or mislabeled. EPA proposed to change the prior text, which applies to
importers, to allow only the importer of record to undertake these
actions. Additionally, the prior regulatory text did not preclude
relabeling; it only precluded repackaging, but the regulatory text is
intended to apply to regulated substances that were ``initially
mislabeled or unlabeled.'' EPA received no adverse comments on these
issues and is finalizing these regulatory amendments as proposed for
the reasons outlined in the proposal.
[[Page 46883]]
C. Clarify Ability To Move Allowances Among Companies With Certain
Affiliation Without a Transfer
EPA made clear in the Allocation Framework Rule that in calculating
the quantity of allowances to allocate, ``for purposes of determining
the quantity of past imports, EPA is treating all companies majority
owned and/or controlled by the same individual(s) as a single company,
even if there is no corporate parent'' (86 FR 55145). EPA also
considers all parent,\44\ subsidiary,\45\ sister,\46\ and commonly
owned \47\ companies together in determining past imports.
Complementarily, it is EPA's longstanding practice that allowances can
be expended by parents, subsidiaries, sister, or commonly owned
companies without a transfer. EPA proposed to revise the regulatory
text at 40 CFR 84.19(a) to codify this practice for additional clarity
for allowance holders.
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\44\ In referring to a parent, EPA means a company that has a
majority, i.e. at least fifty percent, stake in another company.
\45\ In referring to a subsidiary, EPA means a company that is
majority, i.e. at least fifty percent, owned by another company.
\46\ In referring to a sister company, EPA means an entity
related to another entity by a shared corporation with majority
ownership.
\47\ In referring to a commonly owned company, EPA means a
company that is related to another company by a shared individual
owner or owners, where there is at least (1) a single individual
that owns 30 percent or more of each company or (2) individuals with
direct family relationships (parent, child, sibling, or spouse) that
own a majority of each company.
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EPA invited comments on potential negative implications of this
proposal and on whether the proposed revisions to the text adequately
capture the appropriate entities. EPA did not receive comment on this
proposal or these issues and is finalizing the revision to 40 CFR
84.19(a) as proposed that allowances can be expended by parents,
subsidiaries, sister, or commonly owned companies without a transfer.
Given that EPA considers historic activity together for these companies
in determining a single quantity of allowances to allocate, it is
appropriate to allow companies in this situation to expend from the
single pool of allowances through different arms of its corporate
chain. Therefore, it seems inappropriate to require a transfer,
including a petition to the Agency and a transfer offset, when EPA
considers these commonly owned companies as a single entity for
purposes of calculating and allocating allowances.
D. Revise Required Elements To Request Additional Consumption
Allowances
In the Allocation Framework Rule EPA created a process, known as a
RACA, by which a person may obtain consumption allowances equivalent to
the quantity of regulated substances exported by that person (40 CFR
84.17). Through implementation of the existing regulations, EPA has
learned that its review of RACAs could be more efficient if exporters
provided additional information with their initial RACA requests,
resulting in faster reviews by EPA and responses to exporters. We
expect the additional information to also decrease the need for follow
up requests to exporters to verify the reported information. EPA
proposed to require that RACA applicants submit the following
additional data points: (1) ITNs for all shipments regardless of
monetary value, destination country, or other characteristics that
could otherwise exempt or preclude an exporting entity from obtaining
an ITN, (2) conveyance names, (3) IMOs of the vessel(s) carrying the
export, as applicable and (4) container numbers (e.g., ISO tank
numbers). EPA requested comment on whether there are any additional
data points that would aid the Agency in quickly verifying the
information provided in a RACA application, including but not limited
to customs release documents from the country receiving the exports and
proof of receipt at the final destination. EPA also requested comment
on whether any entity that may apply for a RACA would have difficulty
gathering and submitting the additional data points proposed. EPA also
sought comment on whether the Agency should require the reporting of
certain EEI, which are data that must be filed through the Automated
Export System (AES), to aid in EPA's review of RACAs to verify export
data more generally similar to those required under 40 CFR 84.31(c)(7).
Several commenters were opposed to EPA's proposal to add additional
required elements for RACA applications. Commenters claimed that
requiring additional data points as part of RACA applications would be
unnecessary and burdensome. In addition, one commenter noted that it
may be difficult for an exporter to obtain additional data as they
would have to rely on third parties who may not be motivated to provide
such information. One commenter noted that the information on the ITN
is comprehensive and should be sufficient to enable EPA review when
paired with already required export documents. One commenter noted that
EPA has been able to process RACAs with the information required under
the Allocation Framework Rule, so it is unclear why additional data is
needed.
In this final rule, EPA is revising the regulation to require, as
part of an application for RACAs, ITNs for all shipments regardless of
monetary value, destination country, or other characteristics that
could otherwise exempt or preclude an exporting entity from obtaining
an ITN. EPA is also finalizing a requirement that exporters provide all
international export declaration documentation, i.e., EEI, which is
electronically filed within AES. EPA is not finalizing the proposal
with respect to, and therefore will not be requiring, conveyance names,
IMOs of the vessel(s) carrying the export, and container numbers. EPA
is finalizing these additional information requirements to enable the
Agency to more quickly locate exports and review RACA applications
expeditiously. Through implementation of the existing 40 CFR 84.17
regulations, we learned review of RACAs could be more efficient if
exporters provided additional information with their RACA requests. An
ITN is received as confirmation that the EEI has been accepted in the
AES. If there are multiple containers, the EEI should list containers
and the net weight associated with the ITN. Having these additional
data elements will enable EPA to validate reported exports against the
AES. Because the corresponding AES shipment record merely validates and
records the data provided as-is and may not capture data associated
with the final export, EPA may request additional verification if there
are discrepancies in the requested RACA amounts when compared to the
AES shipment record or final export data available to EPA and CBP.
RACAs may be granted only for the amounts of verified exports of bulk
regulated substances.
One commenter recommended that EPA revise the existing requirement
at 40 CFR 84.17(a)(8) that the exporter must submit the bill of lading
as part of a request for consumption allowances for fire suppressant
manufacturers or for individual bulk tanks containing less than 1,500
pounds of regulated substances. The commenter stated that in lieu of
requiring the bill of lading, the Agency should accept the AES filing
document and the OEM's shipping letter of instruction. The commenter
argued that for fire suppressant manufacturers, the bill of lading does
not always designate the agent weight, but the AES filing contains the
ITN, the export date, agent weight by HTS code and the destination
country, which are easily cross referenced with the commercial
[[Page 46884]]
invoice and shipping letter of instruction and is binding by the fact
it is a CBP submittal. EPA disagrees with the commenter's
recommendation to exclude fire suppressant manufacturers or small
shipments from the general requirements to submit the bill of lading as
part of the RACA submittal. The Agency understands that in some cases
the bill of lading may not include information such as the agent
weight. In such cases entities may submit supplementary documentation
that provides the necessary information, such as the AES filing
document and the OEM's shipping letter of instruction. EPA reiterates
that entities have an obligation to include in their RACA submittal all
required information to the Agency.
In the proposal, EPA also noted that it was considering amending
the regulations to require that exporters provide documentation to
verify an allowance was expended when the regulated substance being
exported was produced or imported, though the RACA requirements
finalized in the Allocation Framework Rule allow an entity to receive a
refund on allowances for an export regardless of when the HFC was
initially produced or imported. One commenter opposed this concept, but
also requested that if this were to be finalized, EPA allow an entity
to designate a year of production if regulated substances produced in
different years are comingled into a large tank, vessel, or sphere, so
long as the producer keeps clear and contemporaneous records. EPA is
not finalizing a requirement that allowances be expended for the
production or import of regulated substances in order for export of
those substances to be eligible to receive RACAs.
Some commenters request that EPA revise its regulations such that
allowances granted through a RACA could be used in a subsequent
calendar year. One commenter noted that because of long lead times for
foreign suppliers and shipping, it is difficult to apply for and obtain
RACAs, and then import with allowances provided by the RACA all in one
year. As noted in the prior paragraph, EPA is not requiring allowances
be expended for regulated substances in order for export of those
substances to be eligible to receive RACAs. Therefore, RACAs do not
have to be obtained in the same year a regulated substance is produced
or imported. However, EPA did not propose changes to the provision that
EPA will allocate allowances through a RACA for the same calendar year
in which an export occurred. Therefore, this comment is outside the
scope of this rulemaking. However, if EPA were to consider the comment,
the Agency disagrees with the change recommended by the commenter. EPA
is maintaining the requirement that both the export and the RACA occur
in the same calendar year and that any refunded allowances must also be
expended in that same calendar year. This is necessary to ensure that
the statutorily defined production and consumption reduction targets
are met each calendar year.
One commenter requested that EPA modify the RACA application to
allow for reporting exports of blends (e.g., R-407C, R-410A) rather
than requiring listing of HFC blend components. The commenter's request
relates to how EPA has structured its form and not directly to
regulatory requirements. EPA intends to make the change requested by
the commenter on the RACA application form, and this alteration has
been reflected in the updated ICR associated with this rule. If EPA
grants a RACA request for export of a regulated substance blend, the
amount of allowances refunded continues to be based on the regulated
substance components of the blend, and not the blend as a whole.
One commenter requested that the exporter be authorized to request
additional allowances for any person that had originally supplied the
allowances expended to produce or import the exported material or,
alternatively, an exporter could be authorized to designate any person
as the recipient. The commenter argued that such flexibility would let
the persons involved in production or importation followed by export to
decide among themselves by contract how to handle allowances. EPA
considers this comment to be outside the scope of this rulemaking since
EPA did not propose any changes to the current regulation at 40 CFR
84.17(b)(1)(ii), that provides additional consumption allowances can go
to the producer, importer, or exporter. If any entity receiving
allowances through a RACA wants the allowances to go to a different
entity, the allowances can be transferred pursuant to 40 CFR 84.19.
E. Considered Petitions To Import Regulated Substances for Laboratory
Testing With Eventual Destruction
In reviewing import activity, EPA learned that some entities may
import small amounts of regulated substances for laboratory testing to
determine the type and amount of any impurities in the United States,
after which point the substances are destroyed. The current regulations
require allowances to be expended in these instances. In most
situations, the regulated substances are virgin material, but may not
meet the exact specifications required by the producer or for the
intended applications. Even if these regulated substances could be
considered used, there are no provisions in the current regulations to
allow for an intermediary step (such as laboratory testing) prior to
destruction without expending allowances.
Based on information available at the time of proposal, EPA did not
consider laboratory testing of regulated substances that are ultimately
bound for destruction as meriting an exemption from expending
allowances, but EPA solicited comment on whether a petition process
like that in 40 CFR 84.25(b) would be appropriate and necessary, and on
the number of entities that would potentially make use of a petition
process as well as the frequency and quantity of such imports. EPA
stated in the proposal that the Agency would consider finalizing a
petition process if compelling comments were received demonstrating
that these tests cannot be performed in the countries of use or that
the scope of these activities warrant a regulatory petition process.
EPA noted at proposal that the frequency, quantity, and number of
potentially affected entities were not fully known, though the Agency
did not believe that that they were of sufficient scale to necessitate
a regulatory petition process for the entities to be exempt from
expending allowances.
EPA received two comments in support of such a petition process.
Both commenters focused on marine applications of regulated substances,
where commenters noted it can be difficult to test within a country of
origin. One commenter requested that EPA allow the import of regulated
substances for laboratory testing without the requirement of a petition
to EPA and without a limit to keep the sample size below a certain
numeric level. The other commenter requested that EPA provide an
exemption or blanket permitting system that could be utilized by
shipping lines to facilitate the import of a test sample of 0.5kgs or
less per sample, but that after testing the regulated substance be
reclaimed, not destroyed. Both commenters noted that a petition process
could be beneficial, but provided little to no rationale as to why
imports to conduct laboratory sampling needed to proceed without
expenditure of allowances. One commenter's suggestion to not require
samples to be destroyed, but rather reclaimed, following laboratory
testing appears directly counter to the AIM Act. The calculation of
consumption
[[Page 46885]]
subtracts out destruction, and therefore subsequent destruction of an
imported regulated substance would result in net zero consumption if
the import and destruction occur in the same calendar year. However, if
a regulated substance was imported without expenditure of consumption
allowances and not subsequently destroyed, those regulated substances
would count toward consumption, but would not be accounted for in EPA's
allowance system, and therefore would be in excess of the consumption
cap established by Congress. Moving beyond this particular argument,
neither commenter provided compelling reasons as to why EPA should
create a unique exemption pathway for regulated substances brought in
for laboratory sampling. The commenters have not provided a sufficient
case to overcome the skepticism EPA noted at proposal. Therefore, EPA
is not establishing such a petition process in this final rule.
IX. What are the costs and benefits of this action?
In the Allocation Framework Rule, EPA conducted a Regulatory Impact
Analysis (RIA) which estimated the costs and benefits of the phasedown
of HFCs directed by the AIM Act, as implemented through the Allocation
Framework Rule. That RIA estimated benefits and costs for the HFC
phasedown between 2022 and 2050, including assuming for analytical
purposes that the allocation system would continue unchanged for years
past the initial period (i.e., for 2024 and beyond). This final rule
continues the use of an allocation methodology that is substantially
similar to the Allocation Framework Rule and this action will not
result in any significant changes to the phasedown program as a whole,
and thus does not fundamentally change the assumptions made in the
Allocation Framework Rule RIA.
Therefore, for this action EPA is updating the Allocation Framework
Rule RIA via an RIA addendum, and as described below. EPA is not
conducting a new RIA because the Allocation Framework Rule already
analyzed estimated benefits and costs over the time period covered by
this rule. As described in this preamble, we are adjusting the
consumption baseline, revising particular recordkeeping and reporting
requirements, and carrying out other limited revisions to the existing
regulations. These revisions would generally apply starting in 2024. In
this section we discuss two discrete changes to the analysis of
benefits and costs as presented in the RIA for the Allocation Framework
Rule. First, we are providing an analysis of the incremental change in
benefits and costs associated with the adjustment to the consumption
baseline from 2024 through 2050 relative to the benefits and costs
estimate for the same time period as estimated in the supporting
analysis for the Allocation Framework Rule. Separately, we have
adjusted estimated costs associated with the HFC phasedown from 2024
through 2050 due to updating assumptions for an abatement option used
in the analysis.
This analysis is intended to provide the public with updated
information on the relevant costs and benefits of this action and to
comply with Executive Orders. The analysis does not form a basis or
rationale for any of the actions EPA is implementing in this
rulemaking. The Allocation Framework Rule, its RIA, and supporting
documentation provide more detail on our analysis methodology of the
costs and benefits of the HFC phasedown between 2022 and 2050, and are
available in the docket for this action (Docket ID No. EPA-HQ-OAR-2022-
0430). More information on the analysis for this action is available in
an addendum to the Allocation Framework Rule's RIA in the docket for
this action.
As discussed in section IV of this preamble and a memorandum
titled, ``Docket Memo on Revisions to HFC Baseline,'' available in the
docket for this rulemaking, this rule reduces the consumption baseline
by 1.35 MMTEVe (approximately 0.44 percent) relative to the baseline
codified in the Allocation Framework Rule at 40 CFR 84.7(b)(2). With a
lower consumption baseline, more abatement will be necessary in each
year starting in 2024 to reduce HFC consumption from its business-as-
usual level to a level below the maximum allowed consumption. However,
for the years 2029 through 2050, the abatement options modeled in the
original Allocation Framework Rule RIA using the higher baseline had
already sufficiently lowered consumption below the level required
through the updates made in this rulemaking. As a result, no additional
abatement options are needed in these years and no incremental costs
are accrued. More detail is provided in the RIA addendum for this rule.
Reducing the consumption of HFCs reduces the emissions of HFCs,
although the time profile of emissions reduction can vary depending on
the application the HFCs are used in. For example, reducing HFCs used
in aerosols may result in the avoidance of a more near-term emissions
release (assuming the product would be used in the same year) while
other types of equipment and products (e.g., AC units) typically emit
HFCs more gradually over time. Taking these dynamics into account,
EPA's Vintaging Model is used to calculate consumption and emissions of
HFCs under a ``business-as-usual'' forecast and an alternative scenario
in which the AIM Act allowance allocation phasedowns are in effect and
abatement options are undertaken. The delta between these two scenarios
results in the estimated reduction in consumption and emissions of HFCs
in each year resulting from this rule.
Based on this approach, EPA estimates that the lowering of the HFC
baseline would reduce total HFC consumption by additional 6.34 MMTEVe
and would reduce HFC emissions by an additional 0.05 MMTEVe relative to
the previous estimate from the Allocation Framework Rule, for the
period of 2024-2050. By multiplying the change in emissions of each HFC
in each year by the social cost of HFCs for that HFC for that year, the
monetary value of the climate benefits of the emissions reduction can
be estimated. From 2024 through 2050 at a discount rate of 3 percent in
2020 dollars, this baseline adjustment results in incremental climate
benefits of $2.9 million, costs of $175 million, and a net cost of
$172.1 million. These reductions in HFC emissions and associated
climate benefits are all attributable to the baseline adjustment.
As detailed in section VI and portions of other sections of this
preamble, EPA is also finalizing in this rulemaking a number of updates
to the recordkeeping and reporting requirements originally established
in the Allocation Framework Rule. While some of these updates represent
clarifications of the existing requirements, others represent
additional requirements that impact the total anticipated compliance
costs of this rule. The Agency notes that general testing requirements
were already established under the Allocation Framework Rule. EPA
expects that flexibilities offered in this action to accommodate
existing credential and testing practices will result in negligible
additional costs. Specific amendments resulting in additional
anticipated cost burden include the annual importer of record reporting
requirements and the maintenance of sampling/testing records. As a
result of these updates, EPA estimates that, starting in 2024,
recordkeeping and reporting costs will increase by approximately
$370,570 annually relative to the previous estimates from the
Allocation Framework Rule.
[[Page 46886]]
Taking into account both the baseline adjustment and the updated
recordkeeping and reporting costs, EPA estimates the incremental cost
of this rule to be $344 million from 2024 through 2050 (in 2020
dollars, using a discount rate of 3 percent). Relative to the value of
cumulative net benefits for the HFC Allocation Program between 2022 and
2050 that was originally calculated in the RIA for the Allocation
Framework Rule, this increase represents a 0.1 percent decrease in
cumulative net benefits. Although EPA is using the social costs of HFCs
for purposes of this analysis, this action does not rely on the
estimates of these costs as a record basis for the Agency action, and
EPA would take the same final action even in the absence of the social
costs of HFCs.
EPA also updated an abatement option used in the analysis to
reflect the most recently available information. Specifically, the
previous analysis assumed that some consumption of HFC-134a could be
abated by transitioning the foam-blowing agent used to produce extruded
polystyrene (XPS) boardstock foam. If XPS foam producers shifted from
using a combination of HFC-134a and CO2 to a mixture of
liquid carbon dioxide (LCD) and alcohol, all of the HFC consumption
associated with producing XPS foam could be avoided. However, prior to
this rulemaking EPA received comment from two foam manufacturers that
the abatement option of using LCD/alcohol has not been proven to meet
the safety and performance standards required in the United States and
would not be a viable option. While the LCD/alcohol technology is
successfully used in other countries, we understand that U.S. companies
expect XPS foam production to transition from using HFC-134a/
CO2 to blends containing a hydrochlorofluoroolefin and/or an
HFO. This revision of an abatement option did not result in any changes
to the emissions or benefits, because these options are applied to
reduce consumption to the respective phasedown step. The updated
assumption resulted in a cost increase of $2.7 billion from 2024-2050
at a 3 percent discount rate relative to the prior estimate provided
with the Allocation Framework Rule RIA. The effect is slightly less
than a 1 percent change in the estimated net benefit of the HFC
phasedown in 2022-2050. This revision solely reflects a change in
assumptions. It is not the result of a regulatory change and does not
reflect a change in costs from actions finalized in this rule.
EPA received two comments stating that the Agency did not support
assumptions made in the analysis of costs and benefits associated with
the proposed rulemaking, particularly noting burdens imposed due to
proposed same day documentation requirements and recordkeeping and
reporting requirements for small businesses. Another commenter
questioned whether EPA had fully analyzed the burdens associated with
the proposed same day documentation of allowance expenditures, stated
that the Agency did not document the associated burden. The same
commenter stated that EPA was incorrect in its assumption in the
economic impact screening analysis that small businesses were not
expected to experience any additional compliance or administrative
costs due to proposed recordkeeping and reporting changes. The
commenter did not cite any particular costs that may be incurred by
small businesses, but noted generally that the Agency proposed new
recordkeeping and reporting requirements.
EPA is not finalizing the proposed same day documentation
requirements and there will be no associated costs. Accordingly, in the
RIA addendum included in the docket for this action the Agency does not
assess potential costs of such a requirement. In response to comments,
EPA acknowledges that there are minor additional costs associated with
the revised recordkeeping and reporting changes which were not
accounted for in this rulemaking's proposal, i.e., as discussed earlier
in this section, the annual importer of record reporting requirements
and the maintenance of sampling/testing records. In this action the
Agency analyzed and incorporated those costs of $370,570 into the RIA
addendum and economic screening analysis.
Another commenter stated that the economic screening analysis did
not support its assumption that additional HFC could be purchased at a
10 percent premium if entities had not received sufficient allowances
for their operational needs. The commenter further stated that in its
screening analysis the Agency did not assess availability and pricing
of domestic HFC supply (whether virgin or reclaimed), consumer
acceptability, supply chain disruptions, and equipment compatibility
together as related factors.
EPA disagrees with the assertion that its modeling assumption of
HFC pricing was unsupported and that its analysis did not consider
related factors in its assessment of potential economic impacts. The
Agency notes its discussion of these issues in the screening analysis.
Based on past experience with the ODS phaseout, the Agency understands
its assumptions to be reasonable. Anecdotal feedback indicates that HFC
prices increased in 2021 and 2022 based on a number of factors,
including supply chain disruptions, a global pandemic, antidumping
duties and other tariffs, passage of the AIM Act, and the Allocation
Framework Rule. However, in its analysis EPA used the independent price
information available to the Agency. EPA also explained that
transitioning to substitutes, increased recovery, reclamation, leak
reduction, and prior inventory in combination support the assumption
that sufficient domestic supply of HFCs will be available for entities
to meet demand without significant price increases. This assumption is
based on estimates of refrigerant available for recovery and
reclamation from EPA's Vintaging Model,\48\ actual reclamation amounts
reported to EPA,\49\ and a review of the available servicing tail from
previous EPA rulemakings related to the HCFC Allocation System.
Additionally, consistent with the ODS phaseout, we expect that
inventory built prior to 2022 (and to a lesser extent in 2022 and 2023)
will also be a source of HFCs for the market in 2024 and later years.
The commenter did not explain the relevance of consumer acceptability
as a related factor. EPA is unaware of a reason that HFCs or HFC
substitutes would be unacceptable to consumers. The Agency also notes
that, unlike the chemical-specific allocation system for HCFCs during
the ODS phaseout, EPA is issuing allowances on an exchange value-
weighted basis through the HFC phasedown program. This, in combination
with opportunities described above in this paragraph to transition to
substitutes, increase recovery, reclaim, reduce leaks, and use prior
inventory, provides flexibility for entities to manage potential issues
with equipment computability. While the Agency's past experience
phasing out ODS did not show a clear correlation between reduction in
allocations and price in these markets, and EPA acknowledges that there
may be differences in market responses between the ODS phaseout and HFC
phasedown, EPA conservatively used a 10 percent
[[Page 46887]]
increase in domestically sourced HFCs relative to the current price to
model potential impacts on small businesses.
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\48\ U.S. Environmental Protection Agency (EPA). 2022b.
Vintaging Model. Version VM IO file_v5.1_03.23.22.
\49\ U.S. Environmental Protection Agency (EPA). 2020. Summary
of Refrigerant Reclamation Trends. July 2020. Available online at:
https://www.epa.gov/section608/summary-refrigerant-reclamation-trends.
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For informational purposes, considering the incremental change to
the consumption baseline associated with this rule, updates to
recordkeeping and reporting costs, and the separate update to the
analytical model described further in the addendum in the docket for
this rulemaking, the present value of cumulative net benefits for the
HFC Allocation Program between 2022 and 2050 is now estimated to be
$269.9 billion.
X. How is EPA considering environmental justice?
As part of the RIA addendum for the proposed rulemaking, EPA
updated the environmental justice analysis that was previously
conducted for the Allocation Framework Rule. The updated environmental
justice analysis used the same analytical approach used previously,
along with updated data on cancer and respiratory risks. The analysis
also included the addition of another facility that reported HFC
production and reviewed TRI data for 2020 and 2021.
Executive Order 12898 (59 FR 7629, February 16, 1994) and Executive
Order 14008 (86 FR 7619, January 27, 2021) establish Federal executive
policy on environmental justice. Executive Order 14096, signed April
21, 2023, builds on the prior Executive Orders to further advance
environmental justice (88 FR 25251).
Executive Order 12898's main provision directs Federal agencies, to
the greatest extent practicable and permitted by law, to make
environmental justice part of their mission by identifying and
addressing, as appropriate, disproportionately high and adverse human
health or environmental effects of their programs, policies, and
activities on people of color and low-income populations in the United
States. EPA defines environmental justice as the fair treatment and
meaningful involvement of all people regardless of race, color,
national origin, or income with respect to the development,
implementation, and enforcement of environmental laws, regulations, and
policies.\50\ Meaningful involvement means that: (1) Potentially
affected populations have an appropriate opportunity to participate in
decisions about a proposed activity that will affect their environment
and/or health; (2) the public's contribution can influence the
regulatory Agency's decision; (3) the concerns of all participants
involved will be considered in the decision-making process; and (4) the
rule-writers and decision-makers seek out and facilitate the
involvement of those potentially affected.\51\ The term
``disproportionate impacts'' refers to differences in impacts or risks
that are extensive enough that they may merit Agency action. In
general, the determination of whether there is a disproportionate
impact that may merit Agency action is ultimately a policy judgment
which, while informed by analysis, is the responsibility of the
decision-maker. The terms ``difference'' or ``differential'' indicate
an analytically discernible distinction in impacts or risks across
population groups. It is the role of the analyst to assess and present
differences in anticipated impacts across population groups of concern
for both the baseline and proposed regulatory options, using the best
available information (both quantitative and qualitative) to inform the
decision-maker and the public.\52\
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\50\ See, e.g., ``Environmental Justice.'', EPA, 4 March 2021,
https://www.epa.gov/environmentaljustice.
\51\ The criteria for meaningful involvement are contained in
EPA's May 2015 guidance document ``Guidance on Considering
Environmental Justice During the Development of an Action.'' EPA, 17
February. 2017, www.epa.gov/environmentaljustice/guidance-considering-environmental-justice-during-development-action.
\52\ The definitions and criteria for ``disproportionate
impacts,'' ``difference,'' and ``differential'' are contained in
EPA's June 2016 guidance document ``Technical Guidance for Assessing
Environmental Justice in Regulatory Analysis.'' EPA, https://www.epa.gov/sites/production/files/2016-06/documents/ejtg_5_6_16_v5.1.pdf.
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A regulatory action may involve potential environmental justice
concerns if it could: (1) create new disproportionate impacts on people
of color, low-income populations, and/or indigenous peoples; (2)
exacerbate existing disproportionate impacts on people of color, low-
income populations, and/or indigenous peoples; or (3) present
opportunities to address existing disproportionate impacts on people of
color, low-income populations, and/or indigenous peoples through the
action under development.
Executive Order 14008 calls on agencies to make achieving
environmental justice part of their missions ``by developing programs,
policies, and activities to address the disproportionately high and
adverse human health, environmental, climate-related and other
cumulative impacts on disadvantaged communities, as well as the
accompanying economic challenges of such impacts.'' Executive Order
14008 further declares a policy ``to secure environmental justice and
spur economic opportunity for disadvantaged communities that have been
historically marginalized and overburdened by pollution and under-
investment in housing, transportation, water and wastewater
infrastructure, and health care.'' In addition, the Presidential
Memorandum on Modernizing Regulatory Review calls for procedures to
``take into account the distributional consequences of regulations,
including as part of a quantitative or qualitative analysis of the
costs and benefits of regulations, to ensure that regulatory
initiatives appropriately benefit, and do not inappropriately burden
disadvantaged, vulnerable, or marginalized communities'' (86 FR 7223,
January 26, 2021). EPA also released its June 2016 ``Technical Guidance
for Assessing Environmental Justice in Regulatory Analysis'' (2016
Technical Guidance) to provide recommendations that encourage analysts
to conduct the highest quality analysis feasible, recognizing that data
limitations, time and resource constraints, and analytic challenges
will vary by media and circumstance.
In the Allocation Framework Rule, EPA established the baselines for
the production and consumption of regulated substances, determined the
quantity of allowances that would be available nationwide according to
the AIM Act's phasedown schedule, and created an allowance allocation
and trading program. EPA also summarized the public health and welfare
effects of GHG emissions (including HFCs), including findings that
certain parts of the population may be especially vulnerable to climate
change risks based on their characteristics or circumstances, including
the poor, the elderly, the very young, those already in poor health,
the disabled, those living alone, and/or indigenous populations
dependent on one or limited resources due to factors including but not
limited to geography, access, and mobility (86 FR 55124-55125).
Potential impacts of climate change raise environmental justice issues.
Low-income communities can be especially vulnerable to climate change
impacts because they tend to have more limited capacity to bear the
costs of adaptation and are more dependent on climate-sensitive
resources such as local water and food supplies. In corollary, some
communities of color, specifically populations defined jointly by both
ethnic/racial characteristics and geographic location, may be uniquely
vulnerable to climate change health impacts in the United States.
[[Page 46888]]
EPA has not assessed climate-based impacts to communities that
surround HFC production facilities for this rule or as part of the
Allocation Framework Rule. The location of HFC production facilities
has no significant bearing on the climate impacts that these
communities will experience.
As detailed in the Allocation Framework Rule and its accompanying
RIA, the phasedown of HFCs in the United States will achieve
significant benefits associated with reducing climate change. However,
as described in the RIA for the Allocation Framework Rule and in the
RIA addendum for this rule, there continues to be significant
uncertainty about how the phasedown of HFC production, the issuance of
allowances, and market trends independent of this rulemaking could
affect production of HFCs and HFC substitutes--and associated air
pollution emissions--at individual facilities, particularly in
communities that are disproportionately burdened by air pollution.
Characteristics of Communities Surrounding HFC Production Facilities
For the environmental justice analysis performed to support the
Allocation Framework Rule, EPA reviewed the available evidence from the
published literature and from community input on what factors may make
population groups of concern more vulnerable to adverse effects (e.g.,
cumulative exposure from multiple stressors), including but not limited
to the 2009 and 2016 Endangerment Findings and the reports from IPCC,
the US Global Change Research Program, and the National Research
Council. It was also important to evaluate the data and methods
available for conducting an environmental justice analysis.
EPA's 2016 Technical Guidance does not prescribe or recommend a
specific approach or methodology for conducting an environmental
justice analysis, though a key consideration is consistency with the
assumptions underlying other parts of the regulatory analysis when
evaluating the baseline and regulatory options. Where applicable and
practicable, the Agency's RIA examined certain metrics for an
environmental justice analysis comprising more than just climate change
effects, including: the proximity of entities receiving allowances to
populations disaggregated by race and ethnicity, low-income
populations, and/or indigenous peoples; the number of entities
receiving allowances that may be adversely affecting population groups
of concern; the nature, amounts, and location of regulated HFC
production facilities that may adversely affect population groups of
concern; and potential exposure pathways associated with the production
of the regulated HFCs or with chemicals used as feedstocks, catalysts,
or byproducts of HFC production unique to particular populations (e.g.,
workers). The environmental justice analysis is described in the RIA
for the Allocation Framework Rule and is based on public data from the
TRI, GHGRP, EJSCREEN (an environmental justice mapping and screening
tool developed by EPA), Enforcement and Compliance History Online, and
Census data. In addition, the analysis integrated suggestions received
during the public comment period to the extent possible. The
environmental justice analysis also contains information on non-
production releases (as defined by TRI), water releases, and offsite
disposal for chemicals used in HFC production. The analysis of
potential environmental justice concerns focused mainly on
characterizing baseline emissions of air toxics that are also
associated with chemical feedstock use for HFC production. As noted in
the RIA for the Allocation Framework Rule, there is uncertainty around
the role that HFC production plays in emissions of these air toxics. In
addition, EPA conducted a proximity analysis to examine community
characteristics within one and three miles of these facilities. The
Agency also explored larger radii (5 and 10 miles) in response to
public comments that releases from these facilities may travel longer
distances.
The relatively small number of facilities directly affected by the
proposed rulemaking enabled EPA to assemble a uniquely granular
assessment of the characteristics of these facilities and the
communities where they are located. The environmental justice analysis,
which examines racial and economic demographic and health risk
information, found heterogeneity in community characteristics around
individual facilities. The analysis showed that the total baseline
cancer risk and total respiratory risk from air toxics (not all of
which are due to emissions from HFC production) varies, but is
generally higher, and in some cases much higher, within 1 to 10 miles
of an HFC production facility. The analysis also found that higher
percentages of both low-income and Black or African American
individuals live near several HFC production facilities compared with
the appropriate national and state level average. EPA noted in the
final rule for the Allocation Framework Rule, and reiterates here, that
it is not clear the extent to which these baseline risks are directly
related to HFC production, but some feedstocks, catalysts, and
byproducts are toxic (e.g., carbon tetrachloride, tetrachloroethylene,
and trichloroethylene (TCE) and some are potentially carcinogenic. All
HFC production facilities are near other industrial facilities that
could contribute to the Air Toxics Screening Assessment (AirToxScreen)
cumulative cancer and respiratory risk; the number of neighboring TRI
facilities within one mile of an HFC production facility ranges from 1
to 13, within 3 miles there are 2 to 20 neighboring TRI facilities,
within 5 miles there are 2 to 33 neighboring TRI facilities, and within
10 miles there are 6 to 67 neighboring TRI facilities.
It is not clear how emissions related to HFC production compare to
other chemical production at the same or nearby facilities.
Additionally, some HFC substitutes, such as HFOs, use the same
chemicals as feedstocks in their production or release the same
chemicals as byproducts, potentially raising concerns about local
exposure. Emissions from production facilities manufacturing non-
fluorinated substitutes (e.g., hydrocarbons and ammonia) could also be
affected by the phasedown of HFCs. However, there is still limited
information regarding how much of each substitute would be produced,
which substitutes would be used, and what other factors might affect
production and emissions at those locations, so it continues to be
unclear to what extent this rule may affect baseline risks from HAP for
communities. Further, the HFC phasedown schedule prescribed by
Congress--with a 40 percent reduction by 2024, a 70 percent reduction
by 2029, an 80 percent reduction by 2034 and an 85 percent reduction by
2036--may also reduce the potential for a facility to increase
emissions above current levels for a prolonged period, if at all. EPA
reiterates its commitment to continue monitoring the impacts of this
program on HFC and substitute production, and emissions in neighboring
communities, as we move forward to implement this rule.
As described in the proposed rulemaking, EPA updated the
environmental justice analysis that was done as part of the Allocation
Framework Rule. Not much time has elapsed since this rule was signed in
September 2021, and the Agency still does not have enough data to
determine how the implementation of the HFC phasedown may affect
production and
[[Page 46889]]
emissions at facilities that produce HFCs and their substitutes. For
this reason, EPA followed the analytical approach used in the
Allocation Framework Rule RIA to provide updated data on the total
number of TRI facilities near HFC production facilities and the cancer
and respiratory risks to surrounding communities. This update included
the use of the most recent data available for the AirToxScreen data set
from 2019, replacing the 2014 National Air Toxics Assessment (NATA)
data used in the previous analysis. Additionally, EPA updated the list
of HFC production facilities as part of this analysis to include an
additional ninth facility that reported production of HFCs in 2022.
Finally, EPA has updated the list of toxic chemicals potentially used
as a feedstock or catalyst or released as a byproduct of HFC production
based on information reported to EPA under the Allocation Framework
Rule (see 40 CFR 84.31(b)(1)).
In addition, EPA included a demonstration of a microsimulation
approach to analyze the proximity of communities to potentially
affected HFC production facilities. Microsimulation is a technique
relying upon advanced statistics and data science to combine disparate
survey and geospatial data. It has long been used in a variety of
economic and social science research and has been used before by EPA
(in the context of understanding the implications of underground
storage tank impacts on groundwater). Recent advances in data science
and computational power have increased the availability of
microsimulation for applications such as environmental justice
analysis. The demonstration analysis included in the RIA addendum
contributes to understanding communities that may warrant further
environmental justice analysis.
The updated environmental justice analysis found that for eight of
the nine facilities identified as HFC producers, the demographic data
are identical to that included in the Allocation Framework Rule RIA.
The racial, ethnic, and income figures for the 8 communities within 1,
3, 5, and 10 miles of the respective facilities are drawn from the most
recent American Communities Survey data from 2019. Using the updated
2019 AirToxScreen data, the total cancer risk and total respiratory
risk generally decreased compared with the previous analysis for the
communities surrounding several production facilities. Additionally,
looking across the nine HFC production facilities, the risks from air
emissions (not all of which necessarily stem from HFC production),
while varied, were still generally higher, and in some cases much
higher, within one to three miles of an HFC production facility and
compared with the overall national and state averages.
For the additional ninth facility, Islechem, the total cancer risk
and total respiratory risk within 1 to 10 miles of the facility were
similar to or lower than the risks based on the national and state
average. The proportion of low-income and Black or African American and
other communities of color were lower than the national and state
averages and increased with increasing distance from this facility.
Characteristics of Communities Surrounding HFC Substitutes Production
Facilities
As mentioned above in this section, emissions from facilities
producing fluorinated and non-fluorinated substitutes may also be
affected by the phasedown of HFCs. In the Technology Transitions
rulemaking under the AIM Act (proposal at 87 FR 76838, December 15,
2022), EPA is conducting an environmental justice analysis to assess
the potential impacts of that proposed rulemaking by examining the
characteristics of communities near facilities producing HFC
substitutes (e.g., hydrocarbons, CO2, ammonia, HFOs) used in
the sectors or subsectors addressed in the petitions.
With the restriction on use of certain HFCs, EPA anticipates that
the production of HFC substitutes will increase. Accordingly, for the
environmental justice analysis for the proposed Technology Transitions
Rule, EPA identified 14 facilities producing predominant HFC
substitutes that may be impacted by that rule and where production
changes may impact nearby communities. Overall, the Technology
Transitions Rule will reduce GHG emissions, which will benefit
populations that may be especially vulnerable to damages associated
with climate change. However, the manner in which producers transition
from high-GWP HFCs could drive changes in future risk for communities
living near facilities that produce HFC substitutes, to the extent the
use of toxic feedstocks, byproducts, or catalysts changes, and those
chemicals are released into the environment with adverse local effects.
The analysis for the proposed Technology Transitions Rule showed
that a higher proportion of individuals identified as African American
or Black and as Hispanic with respect to race live in proximity to the
identified facilities compared with the national average or the rural
areas national average. Importantly, the comparison to the rural area
national average is more striking, because so many of the facilities
are rural. While median income is not significantly different for the
communities near the facilities (slightly lower than the national
average but slightly above or equal to the rural median income), there
is a higher proportion of very low-income households in these
communities. Additionally, total cancer risk and total respiratory risk
is higher than either the rural national average or the overall
national average in communities near the facilities. The analysis shows
that the risks are higher for those within the 1-mile average radius
and decrease at the 3-mile, 5-mile, and 10-mile radii.
EPA notes that the averages may obfuscate potentially large
differences in the community characteristics surrounding individual
production facilities. Analysis of the demographic characteristics and
AirToxScreen data for the 14 identified facilities shows that there are
significant differences in the communities near these facilities. The
racial, ethnic, and income results are varied but, in almost all cases,
total cancer risk and total respiratory risk are higher for the
communities in proximity to the sites than to the appropriate (rural or
overall) average when compared with the national or state results.
Additionally, some facilities are in communities that are quite
different from the aggregate results discussed in this section above.
The aggregate results show that the communities near the facilities
tend to have a slightly lower proportion of neighboring individuals
identified as White and a higher proportion identified as African
American or Black and as Hispanic with respect to race, in several
cases. In several cases, however, the communities near specific
facilities have higher percentages of White individuals than either the
state or national averages.
More information was provided in conjunction with that proposed
rulemaking, and EPA intends to issue the final rule later this year.
EPA sought input on the environmental justice analysis contained in
the RIA addendum for the proposed rulemaking for this action, as well
as broader input on other health and environmental risks the Agency
should assess. In the proposed rulemaking, EPA sought data or analysis
to identify whether it is reasonable to expect net increases in
emissions, and if so, how we might analytically isolate the impacts of
this program (e.g., effects resulting from the phasedown itself, the
trading of production allowances, or some other factor) that would
enable the
[[Page 46890]]
Agency to conduct a more nuanced analysis of changes in releases
associated with chemical feedstocks and byproducts for HFC substitutes,
given the inherent uncertainty regarding where, and in what quantities,
substitutes will be produced. EPA sought comment and further discussion
of the use of microsimulation approaches and techniques for the RIA
addendum and other program activities. The Agency sought comment on
whether updating the analysis provided with the Allocation Framework
Rule would be useful and what additional insight it might provide for
the environmental justice analysis.
EPA received one comment related to the environmental justice
analysis in the RIA. The commenter stated that there was no analysis in
the RIA addendum's environmental justice analysis of how emissions of
various HFC feedstocks, catalysts, and byproducts affect nearby
communities, and asserted that it would be important to know for each
facility which chemicals were included and their impact on cancer and
respiratory risks. The commenter also stated that because the RIA
addendum doesn't quantify TCE feedstock emissions from HFC/HFO
production, it is not possible to understand the impact of TCE
feedstock on their facility's fenceline concentrations without
substantial supplementation of record. They explained that there were
multiple chemical facilities near their facility, and their TCE
feedstock emissions account for less than 0.1 percent of total cancer
risk.
EPA acknowledged in the RIA addendum for this rulemaking's proposal
the many limitations of the environmental justice analysis, as
described by the commenter, including the fact that each facility
generally produces several chemical products and nearby communities are
exposed to multiple sources of toxic emissions. Due to the lack of
consistent data, the Agency was not able to analyze community exposures
from and risks due specifically to feedstocks, catalysts, and
byproducts used in HFC production. Due to these limitations, EPA has
stated in the environmental justice analysis in the RIA addendum that
the Agency cannot make conclusions about the impact of this rule on
individuals or specific communities. Instead, the analysis serves to
identify the characteristics of communities surrounding HFC production
facilities to better ensure that future actions, as more information
becomes available, can improve outcomes. However, EPA has updated the
environmental justice analysis accompanying this final rule to include
a list of chemicals that may potentially be associated with HFC
production. It also provides 2019 through 2021 TRI data for each
facility, including the reported air emissions for chemicals that may
be associated with HFC production. See new section 6.4 of the final RIA
addendum.
The commenter also stated that the RIA addendum needs to be updated
to reflect 2018 AirToxScreen data, which shows a lower total potential
cancer risk than the 2014 NATA data and 2017 AirToxScreen. EPA agreed
that the environmental justice analysis in the RIA addendum needed to
reflect more recent data. As described above, EPA updated the
environmental justice analysis to include the most recent 2019
AirToxScreen dataset released.
XI. Judicial Review
The AIM Act provides that certain sections of the CAA ``shall apply
to'' the AIM Act and actions ``promulgated by the Administrator of
[EPA] pursuant to [the AIM Act] as though [the AIM Act] were expressly
included in title VI of [the CAA].'' 42 U.S.C. 7675(k)(1)(C). Among the
applicable sections of the CAA is section 307, which includes
provisions on judicial review. Section 307(b)(1) provides, in part,
that petitions for review must only be filed in the United States Court
of Appeals for the District of Columbia Circuit: (i) when the agency
action consists of ``nationally applicable regulations promulgated, or
final actions taken, by the Administrator,'' or (ii) when such action
is locally or regionally applicable, but ``such action is based on a
determination of nationwide scope or effect and if in taking such
action the Administrator finds and publishes that such action is based
on such a determination.'' For locally or regionally applicable final
actions, the CAA reserves to the EPA complete discretion whether to
invoke the exception in (ii).
The final action herein noticed is ``nationally applicable'' within
the meaning of CAA section 307(b)(1). The AIM Act imposes a national
cap on the total number of allowances available for each year for all
entities nationwide. 42 U.S.C. 7675(e)(2)(B)-(D). In this rulemaking,
EPA is adjusting the baseline from which that total number of
allowances is derived. The action noticed herein establishes a
methodology to distribute that finite set of allowances in a nationally
applicable rule. EPA is also establishing other nationally applicable
regulations for reporting, recordkeeping, and other implementation
measures. In the alternative, to the extent a court finds the final
action to be locally or regionally applicable, the Administrator is
exercising the complete discretion afforded to him under the CAA to
make and publish a finding that the action is based on a determination
of ``nationwide scope or effect'' within the meaning of CAA section
307(b)(1).\53\ In deciding to invoke this exception, the Administrator
has taken into account a number of policy considerations, including his
judgment regarding the benefit of obtaining the D.C. Circuit's
authoritative centralized review, rather than allowing development of
the issue in other contexts, in order to ensure consistency in the
Agency's approach to allocation of allowances in accordance with EPA's
national regulations in 40 CFR part 84. The final action treats all
affected entities consistently in how the 40 CFR part 84 regulations
are applied. The Administrator finds that this is a matter on which
national uniformity is desirable to take advantage of the D.C.
Circuit's administrative law expertise and facilitate the orderly
development of the basic law under the AIM Act and EPA's implementing
regulations. The Administrator also finds that consolidated review of
the action in the D.C. Circuit will avoid piecemeal litigation in the
regional circuits, further judicial economy, and eliminate the risk of
inconsistent results for different regulated entities. The
Administrator also finds that a nationally consistent approach to the
issues addressed in this rule constitutes the best use of agency
resources. The Administrator is publishing his finding that the action
is based on a determination of nationwide scope or effect in the
Federal Register as part of this action. For these reasons, this final
action is nationally applicable or, alternatively, the Administrator is
exercising the complete discretion afforded to him by the CAA and finds
that the final action is based on a determination of nationwide scope
or effect for purposes of CAA section 307(b)(1) and is hereby
publishing that finding in the Federal Register. Under section
307(b)(1) of the CAA, petitions for judicial review of this action must
be filed in the United States Court of Appeals for the District of
Columbia Circuit by September 18, 2023.
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\53\ In the report on the 1977 Amendments that revised section
307(b)(1) of the CAA, Congress noted that the Administrator's
determination that the ``nationwide scope or effect'' exception
applies would be appropriate for any action that has a scope or
effect beyond a single judicial circuit. See H.R. Rep. No. 95-294 at
323, 324, reprinted in 1977 U.S.C.C.A.N. 1402-03.
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[[Page 46891]]
XII. Statutory and Executive Order Review
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 14094: Modernizing Regulatory Review
This action is a ``significant regulatory action'' as defined under
section 3(f)(1) of Executive Order 12866, as amended by Executive Order
14094. Accordingly, EPA submitted this action to the Office of
Management and Budget (OMB) for Executive Order 12866 review.
Documentation of any changes made in response to the Executive Order
12866 review is available in the docket. EPA prepared an analysis of
the potential costs and benefits associated with this action. This
analysis ``Addendum to the Regulatory Impact Analysis for the Phasedown
of Hydrofluorocarbons'' is available in the docket for this action
(Docket ID No. EPA-HQ-OAR-2022-0430) and is briefly summarized in
section IX of this preamble, titled, ``What are the costs and benefits
of this action?''.
B. Paperwork Reduction Act (PRA)
The information collection activities in this rule have been
submitted for approval to OMB under the PRA. The ICR document that EPA
prepared has been assigned EPA ICR number 2685.04 and revises OMB
Control No. 2060-0734. You can find a copy of the ICR in the docket for
this rule (Docket ID. No. EPA-HQ-OAR-2022-0430), and it is briefly
summarized here.
Subsection (d)(1)(A) of the AIM Act specifies that on a periodic
basis, but not less than annually, each person that, within the
applicable reporting period, produces, imports, exports, destroys,
transforms, uses as a process agent, or reclaims a regulated substance
shall submit to EPA a report that describes, as applicable, the
quantity of the regulated substance that the person: produced,
imported, and exported; reclaimed; destroyed by a technology approved
by the Administrator; used and entirely consumed (except for trace
quantities) in the manufacture of another chemical; or, used as a
process agent. EPA collects such data regularly to support
implementation of the AIM Act's HFC phasedown provisions. EPA requires
quarterly reporting to ensure that annual production and consumption
limits are not exceeded. It is also needed for EPA to be able to review
allowance transfer requests, of which remaining allowances is a major
component of EPA's review. In addition, EPA collects information to
calculate allowances, to track the movement of HFCs through commerce,
and to require auditing. Collecting these data elements allows EPA to
confirm that the entity has not exceeded its allowed level of
production and consumption and that the aggregated annual quantity of
production and consumption in the United States does not exceed the cap
established in the AIM Act. As described above in this preamble, EPA is
finalizing revisions to the recordkeeping and reporting requirements
and new requirements.
All information sent by the submitter electronically is transmitted
securely to protect information that is CBI or claimed as CBI
consistent with the confidentiality determinations made in the
Allocation Framework Rule. The reporting tool guides the user through
the process of submitting such data. Documents containing information
claimed as CBI must be submitted in an electronic format, in accordance
with the recordkeeping requirements.
For reference, EPA continued to use data collected under the ICR
for the GHGRP (OMB Control No. 2060-0629) as well as the associated
reporting tool, the e-GGRT in developing this rulemaking. EPA also
earlier requested an emergency ICR for a one-time collection request
pertaining to data necessary to establish the U.S. consumption and
production baselines as well as to determine potential producers,
importers, and application-specific end users who were not subject to
the GHGRP (OMB Control No. 2060-0732). EPA is not revising either ICR
through this rule.
Respondents/affected entities: Respondents and affected entities
will be individuals or entities that produce, import, export,
transform, distribute, destroy, or reclaim certain HFCs that are
defined as a regulated substance under the AIM Act. Respondents and
affected entities will also be individuals and entities who produce,
import, or export products in six statutorily specified applications: a
propellant in metered dose inhalers; defense sprays; structural
composite preformed polyurethane foam for marine and trailer use; the
etching of semiconductor material or wafers and the cleaning of
chemical vapor deposition chambers within the semiconductor
manufacturing sector; mission-critical military end uses, such as
armored vehicle and shipboard fire suppression systems and systems used
in deployable and expeditionary applications; and, on board aerospace
fire suppression.
Respondent's obligation to respond: Mandatory (AIM Act).
Estimated number of respondents: 10,234.
Frequency of response: Quarterly, biannual, annual, and as needed
depending on the nature of the report.
Total estimated burden: 58,057 hours (per year). Burden is defined
at 5 CFR 1320.3(b).
Total estimated cost: $7,931,630 per year, includes $1,028,100
annualized capital or operation & maintenance costs.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
C. Regulatory Flexibility Act (RFA)
I certify that this action will not have a significant economic
impact on a substantial number of small entities (SISNOSE) under the
RFA. The small entities subject to the requirements of this action
include those that may produce, import, export, destroy, use as a
feedstock or process agent, reclaim, or recycle HFCs. EPA estimates
that approximately 35 of the 276 potentially affected small businesses
could incur costs in excess of 1 percent of annual sales and that
approximately 28 small businesses could incur costs in excess of three
percent of annual sales. Because there is not a significant number of
small businesses that may experience a significant impact, it can be
presumed that this action will have no SISNOSE. Details of this
analysis are presented in ``Economic Impact Screening Analysis for
Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology for
2024 and Later Years.'' (Docket ID EPA-HQ-OAR-2022-0430).
D. Unfunded Mandates Reform Act (UMRA)
This action does not contain any unfunded mandate as described in
UMRA, 2 U.S.C. 1531-1538 and does not significantly or uniquely affect
small governments. The action imposes no enforceable duty on any state,
local, or tribal governments.
E. Executive Order 13132: Federalism
This action does not have federalism implications. It will not have
substantial direct effects on the states, on the relationship between
the national government and the states, or on the distribution of power
and responsibilities among the various levels of government.
[[Page 46892]]
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications as specified in
Executive Order 13175. EPA is not aware of tribal businesses engaged in
activities that would be directly affected by this action. Based on the
Agency's assessments, EPA also does not believe that potential effects,
even if direct, would be substantial. Accordingly, this action will not
have substantial direct effects on tribes, on the relationship between
the Federal government and Indian tribes, or on the distribution of
power and responsibilities between the Federal government and Indian
tribes, as specified in Executive Order 13175. Thus, Executive Order
13175 does not apply to this action. EPA periodically updates tribal
officials on air regulations through the monthly meetings of the
National Tribal Air Association and has shared information on this
rulemaking through this and other fora.
G. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
Executive Order 13045 (62 FR 19885, April 23, 1997) directs Federal
agencies to include an evaluation of the health and safety effects of
the planned regulation on children in Federal health and safety
standards and explain why the regulation is preferable to potentially
effective and reasonably feasible alternatives. This action is subject
to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is a
significant regulatory action under section 3(f)(1) of Executive Order
12866, and EPA believes that the environmental health or safety risk
addressed by this action has a disproportionate effect on children.
Accordingly, EPA has evaluated the environmental health and welfare
effects of climate change on children.
GHGs, including HFCs, contribute to climate change. The GHG
emissions reductions resulting from implementation of this rule would
further improve children's health. The assessment literature cited in
EPA's 2009 and 2016 Endangerment Findings concluded that certain
populations and life stages, including children, the elderly, and the
poor, are most vulnerable to climate-related health effects. The
assessment literature since 2016 strengthens these conclusions by
providing more detailed findings regarding these groups'
vulnerabilities and the projected impacts they may experience.
These assessments describe how children's unique physiological and
developmental factors contribute to making them particularly vulnerable
to climate change. Impacts to children are expected from heat waves,
air pollution, infectious and waterborne illnesses, and mental health
effects resulting from extreme weather events. In addition, children
are among those especially susceptible to most allergic diseases, as
well as health effects associated with heat waves, storms, and floods.
Additional health concerns may arise in low-income households,
especially those with children, if climate change reduces food
availability and increases prices, leading to food insecurity within
households. More detailed information on the impacts of climate change
to human health and welfare is provided in section III.B of the
Allocation Framework Rule.
H. Executive Order 13211: Actions That Significantly Affect Energy
Supply, Distribution, or Use
This action is not a ``significant energy action'' because it is
not likely to have a significant adverse effect on the supply,
distribution, or use of energy. This action applies to certain
regulated substances and certain applications containing regulated
substances, none of which are used to supply or distribute energy.
I. National Technology Transfer and Advancement Act and Incorporation
by Reference
This action involves technical standards. EPA is allowing the use
of ASTM D6064-11, ASTM D6231/D6231M-21, ASTM D6541-21, and ASTM D6806-
02 as relevant for sampling and testing performed on regulated
substances. ASTM D6064-11 addresses specification requirements for HFC-
227ea as a fire-fighting medium, references relevant sampling
requirements, and prescribes test method procedures using gas-liquid
chromatography. ASTM D6231/D6231M-21 addresses specification
requirements for HFC-125 as a fire-fighting medium and references
relevant sampling and testing requirements, including purity testing in
accordance with ASTM D6806. ASTM D6541-21 addresses specification
requirements for HFC-236fa as a fire-fighting medium and references
relevant sampling and testing requirements, including purity testing in
accordance with ASTM D6806. ASTM D6806-02 provides a general standard
procedure for determining impurities, stabilizers, and assays of
halogenated organic solvents and their admixtures by gas
chromatography. ASTM D6806-02 does not provide a specific method of gas
chromatography, but rather defines provide performance-based
specifications of what is required for a user to demonstrate that a
method to be used is valid. EPA is incorporating by reference ASTM
D6064-11 (reapproved 2022), ASTM D6231/D6231M-21, ASTM D6541-21, and
ASTM D6806-02 (reapproved 2022). These standards are available for
purchase from ASTM International at 100 Barr Harbor Drive, PO Box C700,
West Conshohocken, PA, 19428; tel.: 610.832.9500; [email protected];
website: https://www.astm.org/, or https://www.astm.org/d6064-11r22.html, https://www.astm.org/d6231_d6231m-21.html, https://www.astm.org/d6541-21.html, and https://www.astm.org/d6806-02r17.html.
The cost of electronic copies are $57 for ASTM D6064-11 (reapproved
2022), $50 for ASTM D6231/D6231M-21, $50 for ASTM D6541-21, and $50 for
ASTM D6806-02 (reapproved 2022). The cost of obtaining these testing
methods are not a significant financial burden for laboratories. The
Agency is including ISO 17025 and the AHRI Refrigerant Testing
Laboratories Certification Program among the accreditation and
certification requirements for testing laboratories. Accordingly, the
Agency is incorporating by reference ISO/IEC 17025:2017(E), General
requirements for the competence of testing and calibration
laboratories, Third Edition, published November 2017, the AHRI
Refrigerant Testing Laboratory Certification Program Operations Manual
Dec 2019 (AHRI RTL OM), and the AHRI General Operations Manual Jan 23
(AHRI General OM). ISO/IEC 17025:2017(E) specifies general requirements
for competence, impartiality, and consistent operation of laboratories.
The standard is applicable to all organizations performing laboratory
activities, regardless of the number of personnel. This standard is
available for purchase from Techstreet at 3025 Boardwalk Drive, Suite
220, Ann Arbor, MI 48108; tel.: 855.999.9870; email:
[email protected]; website: http://www.techstreet.com/, or https://www.techstreet.com/standards/iso-iec-17025-2017?product_id=2000100. The
cost of an electronic copy of ISO/IEC 17025:2017(E) is approximately
$162. The cost of obtaining this accreditation standard is not a
significant financial burden for laboratories. The AHRI Refrigerant
Testing Laboratory Certification Program specifies requirements to
validate that
[[Page 46893]]
laboratories can accurately perform the test methods prescribed in AHRI
Standard 700 on any refrigerant. The AHRI RTL OM outlines the
procedures and policies of the Performance Rating of the RTL
Certification Program operated by AHRI. This AHRI RTL OM is used in
conjunction with the AHRI General OM for AHRI Certification Programs,
which outlines the general procedures and policies of the Performance
Certification Program operated by AHRI. Where the AHRI General OM and
the AHRI RTL OM differ, the product-specific AHRI RTL OM prevails.
These standards are freely available from AHRI at 2311 Wilson
Boulevard, Suite 400, Arlington, VA 22201, tel.: 703.524.8800; website:
https://www.ahrinet.org. Therefore, EPA concludes that the ASTM, ISO/
IEC 17025:2017(E), and AHRI standards being incorporated by reference
are reasonably available.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
Executive Order 12898 (59 FR 7629, February 16, 1994) directs
Federal agencies, to the greatest extent practicable and permitted by
law, to make environmental justice part of their mission by identifying
and addressing, as appropriate, disproportionately high and adverse
human health or environmental effects of their programs, policies, and
activities on minority populations (people of color and/or Indigenous
peoples) and low-income populations.
EPA believes that the human health or environmental conditions that
exist prior to this action result in or have the potential to result in
disproportionate and adverse human health or environmental effects on
people of color, low-income populations and/or Indigenous peoples. EPA
carefully evaluated available information on HFC production facilities
and the characteristics of nearby communities. Based on EPA's analysis,
as discussed in section X of this preamble, EPA finds evidence of
environmental justice concerns near HFC production facilities from
cumulative exposure to existing environmental hazards in these
communities. Further details of this analysis are presented in
``Addendum to the Regulatory Impact Analysis for the Phasedown of
Hydrofluorocarbons.'' (Docket ID EPA-HQ-OAR-2022-0430).
EPA believes that it is not practicable to assess whether this
action is likely to result in new disproportionate and adverse effects
on people of color, low-income populations and/or Indigenous peoples.
The Agency recognizes that phasing down the production of HFCs may
cause significant changes in the location and quantity of production of
both HFCs and their substitutes, and that these changes may in turn
affect emissions of HAP at chemical production facilities. Given
uncertainties about which and in what quantities HFC substitutes will
be produced, EPA cannot determine how this rule would affect existing
disproportionate adverse effects on communities of color and low-income
people as specified in Executive Order 12898. This rule will continue
to reduce emissions of potent GHGs relative to what those effects would
have been without the HFC phasedown, which as noted earlier in section
II of this preamble and the Allocation Framework Rule will reduce the
effects of climate change, including the public health and welfare
effects on overburdened and underserved communities such as low-income
communities and communities of color, and/or indigenous peoples. In the
Allocation Framework Rule and this action EPA additionally identified
and addressed environmental justice concerns by assessing available
information to analyze baseline human health or environmental
conditions, conducting updated analyses based on more recently
available data, and providing meaningful participation opportunities
for people of color, low-income populations and/or Indigenous peoples
or tribes. In the Allocation Framework Rule and this rulemaking, EPA
also solicited comment on whether these changes pose risks to
communities with environmental justice concerns and what steps, if any,
should be taken either under the AIM Act or under EPA's other statutory
authorities to address any concerns that might exist. The information
supporting this Executive Order review is contained in section X of
this preamble, and our environmental justice analysis in the RIA
addendum, available in the docket for this rulemaking.
K. Congressional Review Act (CRA)
This action is subject to the CRA, and EPA will submit a rule
report to each House of the Congress and to the Comptroller General of
the United States. This action qualifies under the CRA's definition set
forth in 5 U.S.C. 804(2).
List of Subjects in 40 CFR Part 84
Environmental protection, Administrative practice and procedure,
Air pollution control, Chemicals, Climate Change, Emissions, Imports,
Incorporation by reference, Reporting and recordkeeping requirements.
Michael S. Regan,
Administrator.
For the reasons set out in the preamble, EPA is amending 40 CFR
part 84 as follows:
PART 84--PHASEDOWN OF HYDROFLUOROCARBONS
0
1. The authority citation for part 84 continues to read as follows:
Authority: Pub. L. 116-260, Division S, Sec. 103.
Subpart A--Production and Consumption Controls
0
2. Amend Sec. 84.3 by adding the definitions ``Batch'', ``Berth'',
``Certificate of analysis'', ``Commonly owned'', ``Expend'', ``Fire
suppressant recycler'', ``Majority owned'', ``Repackagers'', and
``Representative sample'' in alphabetical order to read as follows:
Sec. 84.3 Definitions.
* * * * *
Batch means a vessel, container, or cylinder from which a producer,
importer, reclaimer, recycler, or repackager transfers regulated
substances directly for sale or distribution, or for repackaging for
sale or distribution; or a population of small vessels, containers, or
cylinders with the same nominal composition that a producer, importer,
reclaimer, recycler, or repackager directly offers for sale or
distribution.
Berth means to moor a ship in its allotted place at a wharf or
dock.
* * * * *
Certificate of analysis means a document that certifies the
contents of an import meets the nominal composition following sampling
and testing requirements prescribed in Sec. 84.5(i)(3) for the
appropriate regulated substance or blend of regulated substances.
* * * * *
Commonly owned: An entity that is related to another entity by a
shared individual natural person(s), where either:
(1) There is at least a single individual that owns 30 percent or
more of each entity; or
(2) Individuals that share a direct family relationship (parent,
child, sibling, or spouse) own a majority of each entity.
* * * * *
Expend means to subtract the number of allowances required for the
[[Page 46894]]
production or import of regulated substances under this part from a
person's unexpended allowances.
* * * * *
Fire suppressant recycler means, generally, an entity that collects
used HFC fire suppressants and directly resells those collected and
aggregated HFCs--with or without any additional reprocessing--to
another entity for reuse as a fire suppressant (also referred to as a
``recycler for fire suppression'' in this subpart). An entity that
collects and aggregates used HFC fire suppressants for distribution to
another entity for reprocessing before being sold for reuse as a fire
suppressant would not be a fire suppressant recycler. An entity that
resells HFC fire suppressants that have already been reprocessed for
use as a fire suppressant by another entity would not be a fire
suppressant recycler.
* * * * *
Majority owned means when a corporate entity has at least a fifty
percent stake in another entity.
* * * * *
Repackagers means entities who transfer regulated substances,
either alone or in a blend, from one container to another container
prior to sale or distribution or offer for sale or distribution. An
entity that services system cylinders for use in fire suppression
equipment and returns the same regulated substances to the same system
cylinder it was recovered from after the system cylinder is serviced is
not a repackager.
Representative sample means a sample collected from a container
offered for sale or distribution using a sampling method that obtains
all components of regulated substance(s) in an unbiased and precise
manner; and a sample that can be used to infer that the composition of
regulated substance(s) in a population of containers offered for sale
or distribution that constitute, or are derived from, the batch, are
within stated tolerances.
* * * * *
0
3. Effective October 1, 2024, amend Sec. 84.3 by adding the definition
``laboratory testing'' in alphabetical order to read as follows:
Sec. 84.3 Definitions.
* * * * *
Laboratory testing means the use of the sampling and testing
methodology prescribed in Sec. 84.5(i)(3) by a laboratory that is
accredited to ISO 17025 in accordance with ISO/IEC 17025:2017(E)
(incorporated by reference, see Sec. 84.37), or certified under the
AHRI Refrigerant Testing Laboratory Certification Program in accordance
with the AHRI RTL OM and AHRI General OM (both incorporated by
reference, see Sec. 84.37), or recognized under OSHA's Nationally
Recognized Testing Laboratory program in accordance with requirements
codified at 29 CFR 1910.7.
* * * * *
0
4. Amend Sec. 84.5 by:
0
a. In paragraph (b)(1) introductory text, after the text
``substances,'' adding the text ``either as a single component or a
multicomponent substance,'';
0
b. Revising paragraph (b)(1)(i);
0
c. Removing the word ``or'' at the end of paragraph (b)(1)(iii);
0
d. Removing the period at the end of paragraph (b)(1)(iv) and adding
``; or'' in its place;
0
e. Adding paragraph (b)(1)(v);
0
f. Redesignating paragraphs (b)(2) through (b)(6) as paragraphs (b)(3)
through (b)(7) and adding a new paragraph (b)(2);
0
g. Revising the newly redesignated paragraph (b)(3); and
0
h. Revising paragraphs (d) and (i).
The additions and revisions read as follows:
Sec. 84.5 Prohibitions relating to regulated substances.
* * * * *
(b) * * *
(1) * * *
(i) If the importer of record possesses at the time they are
required to submit reports to EPA pursuant to Sec. 84.31(c)(7), and
expends at the time of ship berthing for vessel arrivals, border
crossing for land arrivals such as trucks, rails, and autos, and first
point of terminus in U.S. jurisdiction for arrivals via air,
consumption or application-specific allowances in a quantity equal to
the exchange-value weighted equivalent of the regulated substances
imported, whether present as a single component or a multicomponent
blend. The required amount of allowances must be calculated to the
tenth, but a minimum expenditure of 0.1 allowances is required for any
import of regulated substances;
* * * * *
(v) All imports pursuant to paragraph (b)(1)(i) or (ii) of this
section must be physically accompanied by a certificate of analysis, if
the certificate of analysis has not been electronically submitted
pursuant to Sec. 84.31(c)(7)(xvi).
(2) No person may attempt to land bulk regulated substances on,
bring regulated substances into, or introduce regulated substances
into, any place subject to the jurisdiction of the United States
without meeting one of the categories set forth in Sec. 84.5(b)(1).
(3) Each person meeting the definition of importer for a particular
regulated substance import transaction is jointly and severally liable
for a violation of paragraph (b)(1) of this section, unless they can
demonstrate that the importer of record possessed and expended
allowances in accordance with the requirement outlined in paragraph
(b)(1)(i) or (v) of this section or another party who meets the
definition of an importer met one of the exceptions set forth in
paragraphs (b)(1)(ii) through (iv) of this section.
* * * * *
(d) Calendar-year allowances. All production, consumption, and
application-specific allowances may only be expended for production or
import occurring in the calendar year for which the allowances are
allocated (i.e., January 1 through December 31). No person may expend,
transfer, or confer a production, consumption, or application-specific
allowance after December 31 of the year for which it was issued.
Entities may transfer or confer their production, consumption, or
application-specific allowances before January 1 of the calendar year
for which the allowances were allocated.
* * * * *
(i) Labeling. (1) As of January 1, 2022, no person may sell or
distribute, offer for sale or distribution, or import containers
containing a regulated substance that lacks a label or other permanent
markings stating the common name(s), chemical name(s), or ASHRAE
designation of the regulated substance(s) or blend contained within,
and the percentages of the regulated substances if a blend. The label
or other permanent markings must be:
(i) Durable and printed or otherwise labeled on, or affixed to, the
external surface of the bulk regulated substance container;
(ii) Readily visible and legible;
(iii) Able to withstand open weather exposure without a substantial
reduction in visibility or legibility;
(iv) Displayed on a background of contrasting color; and
(v) If a container of a regulated substance is contained within a
box or other overpack, the exterior packaging must contain legible and
visible information of what regulated substance is contained within.
(2) No person other than the importer of record may repackage or
relabel regulated substances that were initially unlabeled or
mislabeled. In order to repackage the regulated substances, the
importer of record must either:
(i) Expend consumption allowances equal to the amount of allowances
that
[[Page 46895]]
would be required if each cylinder were full of HFC-23; or
(ii) Verify the contents with independent laboratory testing
results and affix a correct label on the container that matches the
lab-verified test results before the date of importation (consistent
with the definition at 19 CFR 101.1) of the container.
(3)(i) No person producing, importing, exporting, reclaiming,
recycling for fire suppression, or repackaging regulated substances,
whether as a single or multicomponent substance, may sell or
distribute, or offer for sale or distribution, those regulated
substances without first conducting laboratory testing of a
representative sample of the regulated substances that they are
producing, importing, exporting, reclaiming, recycling for fire
suppression, or repackaging to verify that the composition of the
regulated substance(s) matches the container labeling using the
sampling and testing methodology prescribed in appendix A to 40 CFR
part 82, subpart F for regulated substances offered for sale and
distribution as refrigerants and using the following sampling and
testing method for regulated substances offered for non-refrigerant
uses:
Table 1 to Paragraph (i)(3)(i) Non-Refrigerant Regulated Substance
Sampling and Testing Methods
------------------------------------------------------------------------
Regulated substance Sampling and testing method
------------------------------------------------------------------------
HFC-23, HFC-134, HFC-125, HFC-143a, HFC- Appendix A to 40 CFR part 82,
41, HFC-152a. subpart F, Sections 1, 2, 3,
5.1, 5.2, 5.3, 7, 8; Part 7 of
2008 Appendix C for Analytical
Procedures for AHRI Standard
700-2014--Normative,
(incorporated by reference in
Sec. 84.37).\3\
HFC-134a, HFC-143, HFC-245fa, HFC-32, Appendix A to 40 CFR part 82,
HFC-152. subpart F, Sections 1, 2, 3,
5.1, 5.2, 5.3, 7, 8; Part 9 of
2008 Appendix C for Analytical
Procedures for AHRI Standard
700-2014--Normative,
(incorporated by reference in
Sec. 84.37).\3\
HFC-227ea, HFC-236cb, HFC-236ea, HFC- Sections 8,\1\ 9, 10, 11,
236fa, HFC-245ca, HFC-365mfc, HFC-43- 12,\2\ and 13 of EPA Method 18
10mee. as applicable--appendix A-6 to
40 CFR part 60--Test Methods
16 through 18. Or
ASTM D6806-02 (2022), Standard
Practice for Analysis of
Halogenated Organic Solvents
and Their Admixtures by Gas
Chromatography (incorporated
by reference in Sec.
84.37).\4\
------------------------------------------------------------------------
\1\ Only applicable portions of section 8 as specified here are
required. Canisters may be used in place of bags for the purposes of
these requirements. A sampling and analysis procedure under section
8.2 which provides for a representative sample is required (while
section 8.2.1.5 is likely most appropriate, other procedures may be
acceptable). Sections 8.4.1, 8.4.2.1, and 8.4.2.2 are required.
\2\ ``Dry basis'' concentrations do not need to be recorded.
\3\ ASTM D6064-11 (reapproved 2022), Standard Specification for HFC-
227ea, 1,1,1,2,3,3,3-Heptafluoropropane (CF3CHFCF3) (incorporated by
reference in Sec. 84.37) may be used as an alternative for non-
refrigerant regulated substances offered for fire suppression use.
\4\ ASTM D6231/D6231M-21, Standard Specification for HFC-125
(Pentafluoroethane, C2HF5) (incorporated by reference in Sec. 84.37)
and ASTM D6541-21 Standard Specification for HFC-236fa, 1,1,1,3,3,3-
Hexafluoropropane, (CF3CH2CF3), (incorporated by reference in Sec.
84.37) reference ASTM D6806 and may be used as an alternative for non-
refrigerant regulated substances offered for fire suppression use.
(ii) No person may sell or distribute, or offer for sale or
distribution, regulated substances, whether as a single or
multicomponent substance, as a refrigerant (except if recovered from
and recycled for use in motor vehicle air conditioning or motor vehicle
air conditioning-like appliances in accordance with 40 CFR part 82,
subpart B) that do not meet the specifications in appendix A to 40 CFR
part 82, subpart F--Specifications for Refrigerants, or, if not listed
therein, appendix A1 to 40 CFR part 82, subpart F. For persons who are
producing, importing, reclaiming, recycling for fire suppression, or
repackaging regulated substances, the applicable specifications must be
verified using laboratory testing and the sampling and testing
methodology prescribed in appendix A to 40 CFR part 82, subpart F.
* * * * *
0
5. Amend Sec. 84.7 by
0
a. In paragraph (b)(2), removing the text ``303,887,017'' and adding in
its place the text ``302,538,316''; and
0
b. Revising the table in paragraph (b)(3).
The revisions read as follows:
Sec. 84.7 Phasedown schedule.
* * * * *
(b) * * *
(3) * * *
Table 2 to Paragraph (b)(3)
------------------------------------------------------------------------
Total production Total consumption
Year (MTEVe) (MTEVe)
------------------------------------------------------------------------
(i) 2022-2023..................... 344,299,157 273,498,315
(ii) 2024-2028.................... 229,521,263 181,522,990
(iii) 2029-2033................... 114,760,632 90,761,495
(iv) 2034-2035.................... 76,507,088 60,507,663
(v) 2036 and thereafter........... 57,380,316 45,380,747
------------------------------------------------------------------------
0
6. Amend Sec. 84.9 by:
0
a. In paragraph (a) introductory text, add ``2022 and 2023'' after the
words ``calendar year''; and
0
b. Redesignating paragraph (b) as paragraph (c) and adding a new
paragraph (b).
The revision reads as follows:
Sec. 84.9 Allocation of calendar-year production allowances.
* * * * *
(b) Starting with the allocation of 2024 calendar years allowances,
the relevant Agency official will issue, through a separate
notification, calendar year production allowances to entities that
produced a regulated substance in 2021 or 2022, or both 2021 and 2022.
The allocation of calendar years 2024, 2025, 2026, 2027, and 2028
production
[[Page 46896]]
allowances is calculated as follows for each entity:
(1) Take the average of the three highest annual exchange value-
weighted production amounts that each eligible entity reported to the
Agency for calendar years 2011 through 2019. If an entity, or commonly
owned or controlled group of entities, does not have consumption
amounts for three years between calendar years 2011 through 2019, the
relevant Agency official will take the average of available year(s) of
consumption for calendar years 2011 through 2019;
(2) Sum every entity's average values determined in paragraph
(b)(1) of this section and determine each entity's percentage of that
total;
(3) Determine the amount of general pool production allowances by
subtracting the quantity of application-specific allowances for that
year as determined in accordance with Sec. 84.13 from the production
cap in Sec. 84.7(b)(3); and
(4) Determine individual entities' production allowance quantities
by multiplying each entity's percentage determined in paragraph (b)(2)
of this section by the amount of general pool allowances determined in
paragraph (b)(3) of this section.
* * * * *
0
7. Amend Sec. 84.11 by:
0
a. In paragraph (a) introductory text, removing the text ``calendar
year'' and adding in its place the text ``calendar years 2022 and
2023'' and removing the word ``importers'' and adding in its place the
text ``entities that imported''; and
0
b. Removing paragraph (c), redesignating paragraph (b) as paragraph (c)
and adding a new paragraph (b).
The addition reads as follows:
Sec. 84.11 Allocation of calendar-year consumption allowances.
* * * * *
(b) Starting with the allocation of 2024 calendar years allowances
the relevant Agency official will issue, through a separate
notification, calendar year consumption allowances. The allocation of
calendar year 2024, 2025, 2026, 2027, and 2028 consumption allowances
is calculated as follows for each entity:
(1) For new market entrants that were allocated allowances pursuant
to Sec. 84.15(e)(3), take the allowances allocated for calendar year
2023 and divide that value by the proportion of calendar year 2023
consumption allowances received by general pool allowance holders
pursuant to paragraph (a) of this section relative to their high three
average calculated pursuant to paragraph (a)(2) of this section;
(2) For entities that produced or imported a regulated substance in
2021 or 2022, or both 2021 and 2022, and have not been allocated
allowances pursuant to Sec. 84.15(e)(3), the relevant Agency official
will calculate and issue allowances. This calculation and issuance will
be to a single entity if multiple entities with historic consumption
data are related through shared corporate or common ownership. The
relevant Agency official will take the average of the three highest
annual exchange value-weighted consumption amounts, which for entities
related through shared corporate or common ownership or control would
be aggregated and averaged at the corporate or common ownership level,
that each eligible entity reported to the Agency for calendar years
2011 through 2019. If an entity, or commonly owned or controlled group
of entities, does not have consumption amounts for three years between
calendar years 2011 through 2019, the relevant Agency official will
take the average of available year(s) of consumption for calendar years
2011 through 2019;
(3) If an entity has a value calculated under paragraphs (b)(1) and
(b)(2) of this section, take the single higher value;
(4) If an entity allocated allowances pursuant to Sec. 84.15(e)(3)
was acquired by an entity that has a market share calculable under
paragraph (b)(2) of this section, and EPA has approved this
acquisition, sum the value calculated under paragraph (b)(1) of this
section for the entity allocated allowances pursuant to Sec.
84.15(e)(3) with the value calculated under paragraph (b)(2) of this
section disregarding any historic consumption activity by the entity
allocated allowances pursuant to Sec. 84.15(e)(3), except this
paragraph (b)(4) shall not apply to an entity allocated allowances
pursuant to Sec. 84.15(e)(3) that has a higher value calculated under
paragraph (b)(2) of this section than under paragraph (b)(1) of this
section;
(5) Sum every entity's values as determined in paragraphs (b)(1),
(2), (3), and (4) of this section and determine each entity's
percentage of that total;
(6) Determine the amount of general pool consumption allowances by
subtracting the quantity of application-specific allowances for that
year as determined in accordance with Sec. 84.13 from the consumption
cap in Sec. 84.7(b)(3); and
(7) Determine individual entities' consumption allowance quantities
by multiplying each entity's percentage determined in paragraph (b)(5)
of this section by the amount of general pool allowances determined in
paragraph (b)(6) of this section.
0
8. Amend Sec. 84.17 by:
0
a. Revising paragraphs (a)(8) and (9); and
0
b. Adding paragraphs (a)(10) and(11).
The revisions and additions read as follows:
Sec. 84.17 Availability of additional consumption allowances.
* * * * *
(a) * * *
(8) A copy of the bill of lading and the invoice indicating the net
quantity (in kilograms) of regulated substances shipped and documenting
the sale of the regulated substances to the purchaser;
(9) The Harmonized Tariff Schedule codes of the regulated
substances exported;
(10) Internal Transaction Numbers for all shipments; and
(11) All international export declaration documentation (i.e.,
electronic export information), which is electronically filed within
AES.
* * * * *
0
9. Amend Sec. 84.19 by adding paragraph (a)(5) to read as follows:
Sec. 84.19 Transfers of allowances.
(a) * * *
(5) An entity does not need to follow the procedures in this
paragraph (a) to expend allowances possessed by another entity that is
majority owned by it, it majority owns, related to it through majority
ownership, or commonly owned with it.
* * * * *
0
10. Amend Sec. 84.25 by revising paragraph (a)(1)(v) to read as
follows:
Sec. 84.25 Required processes to import regulated substances as
feedstocks or for destruction.
(a) * * *
(1) * * *
(v) The U.S. port of entry for the import, the expected date of
import, and the vessel transporting the material. If at the time of
submitting the petition the entity does not know this information, and
the entity receives a non-objection notice for the individual shipment
in the petition, the entity is required to notify the relevant Agency
official of this information prior to the date of importation
(consistent with the definition at 19 CFR 101.1) of the individual
shipment into the United States;
* * * * *
0
11. Amend Sec. 84.31 by:
0
a. Revising paragraphs (b)(2)(i) through (iii);
[[Page 46897]]
0
b. In paragraph (b)(3)(xi), after the text ``distribution'' adding the
text ``, including instrument calibration, sample testing data files,
audit trail files, and results summaries of both sample test results
and quality control test results that are in a form suitable and
readily available for review'';
0
c. In paragraph (c)(1) introductory text, after the text ``importer
of'' adding the text ``record of'';
0
d. In paragraph (c)(2)(xviii), after the text ``distribution'' adding
the text ``, including instrument calibration, sample testing data
files, audit trail files, and results summaries of both sample test
results and quality control test results that are in a form suitable
and readily available for review'';
0
e. In paragraph (c)(3)(i)(D), after the text ``date of importation''
adding the text ``(consistent with the definition at 19 CFR 101.1)'';
0
f. Revising paragraph (c)(7);
0
g. Adding paragraph (c)(9);
0
h. Redesignating paragraph (d)(2) as (d)(3) and adding a new paragraph
(d)(2);
0
i. Revising paragraph (i)(4)(i);
0
j. Revising paragraph (j)(3); and
0
k. Redesignating paragraph (k) as paragraph (l) and adding a new
paragraph (k).
The additions and revisions read as follows:
Sec. 84.31 Recordkeeping and reporting.
* * * * *
(b) * * *
(2) * * *
(i) The quantity (in kilograms) of production of each regulated
substance used in processes resulting in their transformation by the
producer; for any regulated substance that is used in processes
resulting in their transformation at a facility that differs from the
facility of production, but both facilities are owned by the producer,
the name, quantity (in kilograms), and recipient facility of each
regulated substance; and the quantity (in kilograms) intended for
transformation by a second party;
(ii) The quantity (in kilograms) of production of each regulated
substance used in processes resulting in their destruction by the
producer; for any regulated substance that is used in processes
resulting in their destruction at a facility that differs from the
facility of production, but both facilities are owned by the producer,
the name, quantity (in kilograms), and recipient facility of each
regulated substance; and the quantity (in kilograms) intended for
destruction by a second party;
(iii) The quantity (in kilograms) of production of each regulated
substance used as a process agent by the producer; for any regulated
substance that is used as a process agent at a facility that differs
from the facility of production, but both facilities are owned by the
producer, the name, quantity (in kilograms), and recipient facility of
each regulated substance; and the quantity (in kilograms) intended for
use as a process agent by a second party;
* * * * *
(c) * * *
(7) Additional reporting for importers of record. The importer of
record must include the following no later than 10 days if arriving by
marine vessel or 5 days for non-marine vessel prior to the date of
importation (consistent with the definition at 19 CFR 101.1), via a
U.S. Customs and Border Protection-authorized electronic data
interchange system, such as the Automated Broker Interface (authorized
agents may permissibly file on behalf of an importer of record):
(i) Cargo Description;
(ii) Net weight;
(iii) Container number(s) associated with the shipment, as
applicable;
(iv) Gross Weight;
(v) Weight Unit of Measure;
(vi) Port of Entry;
(vii) Scheduled Entry Date;
(viii) Harmonized Tariff Schedule (HTS) code;
(ix) Harmonized Tariff Schedule (HTS) Description;
(x) Origin Country;
(xi) Importer of Record Name and Associated Number;
(xii) Consignee Entity Name;
(xiii) CAS Number(s) of the regulated substance(s) imported and,
for regulated substances that are in a mixture, either the ASHRAE
numerical designation of the refrigerant or the percentage of the
mixture containing each regulated substance;
(xiv) If importing regulated substances for transformation or
destruction, a copy of the non-objection notice issued consistent with
Sec. 84.25;
(xv) If importing regulated substances as a transhipment, a copy of
the confirmation documenting the entity reported the transhipment
consistent with paragraph (c)(3)(i) of this section; and
(xvi) A certificate of analysis, if the certificate of analysis is
not physically accompanying the shipment pursuant to Sec.
84.5(b)(1)(v)).
* * * * *
(9) Importer of record information. (i) Any entity that falls under
any of the following criteria must submit the information outlined in
paragraph (c)(9)(ii) of this section:
(A) That is issued allowances by EPA and anticipates being the
importer of record for a shipment of regulated substances; or
(B) That is not issued allowances by EPA, but receives transferred
or conferred allowances.
(ii) The following information must be submitted to EPA by the date
specified under paragraph (c)(9)(iii) of this section:
(A) Names of all subsidiaries;
(B) Entities commonly owned or majority owned by the same person or
persons;
(C) Alternative names under which the entity does business;
(D) Importer of record numbers; and
(E) If providing information under paragraph (c)(9)(ii) (A), (B),
or (C) of this section:
(1) The relationship between the allowance holder and each
subsidiary and each entity commonly owned or majority owned by the same
person or persons, including alternative names under which each listed
entity does business; and
(2) If applicable, the identity of owners and their respective
percentage of ownership.
(iii) The information outlined in paragraph (c)(9)(ii) of this
section must be submitted each year by:
(A) November 15 after being issued allowances for an entity that
falls under paragraph (c)(9)(i)(A) of this section; or
(B) within 15 calendar days of receiving a non-objection notice for
conferral of application-specific allowances pursuant to Sec. 84.13(h)
or for inter-company transfer of consumption allowances pursuant to
Sec. 84.19(a) for an entity that falls under paragraph (c)(9)(i)(B) of
this section.
(iv) If changes occur to the information previously provided to the
Agency, such changes must be transmitted to the Agency at least 21 days
prior to expenditure of allowances pursuant to Sec. 84.5(b)(1)(i).
* * * * *
(d) * * *
(2) Recordkeeping. (i) Exporters must maintain dated records of
batch tests of regulated substances packaged for sale or distribution,
including instrument calibration, sample testing data files, audit
trail files, and results summaries of both sample test results and
quality control test results that are in a form suitable and readily
available for review.
(ii) [Reserved]
* * * * *
(i) * * *
(4) * * *
(i) Reclaimers must maintain records, by batch, of the results of
the analysis
[[Page 46898]]
conducted to verify that reclaimed regulated substance meets the
necessary specifications in appendix A to 40 CFR part 82, subpart F
(based on AHRI Standard 700-2016), including instrument calibration,
sample testing data files, audit trail files, and results summaries of
both sample test results and quality control test results that are in a
form suitable and readily available for review. Such records must be
maintained for five years.
* * * * *
(j) * * *
(3) Recordkeeping. (i) Recyclers must maintain records of the names
and addresses of persons sending them material for recycling and the
quantity of the material (the combined mass of regulated substance and
contaminants) by regulated substance sent to them for recycling. Such
records must be maintained on a transactional basis for five years.
(ii) Recyclers must maintain dated records of batch tests of
regulated substances packaged for sale or distribution, including
instrument calibration, sample testing data files, audit trail files,
and results summaries of both sample test results and quality control
test results that are in a form suitable and readily available for
review.
(k) Repackagers. Persons who transfer regulated substances, either
alone or in a blend from one container to another container prior to
sale or distribution or offer for sale or distribution must comply with
the following recordkeeping requirements:
(1) Recordkeeping. Repackagers must maintain dated records of batch
tests of regulated substances packaged for sale or distribution,
including instrument calibration, sample testing data files, audit
trail files, and results summaries of both sample test results and
quality control test results that are in a form suitable and readily
available for review.
(2) [Reserved]
0
12. Add Sec. 84.37 to read as follows:
Sec. 84.37 Incorporation by reference.
Certain material is incorporated by reference into this part with
the approval of the Director of the Federal Register under 5 U.S.C.
552(a) and 1 CFR part 51. All approved incorporation by reference (IBR)
material is available for inspection at EPA and at the National
Archives and Records Administration (NARA). Contact EPA at: U.S. EPA's
Air and Radiation Docket; EPA West Building, Room 3334, 1301
Constitution Ave. NW, Washington, DC, 202-566-1742. For information on
the availability of this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations.html or email
[email protected]. The material also may be obtained from the
following sources.
(a) Air-Conditioning, Heating, and Refrigeration Institute (AHRI),
2311 Wilson Boulevard, Suite 400, Arlington, VA 22201; phone:
703.524.8800; website: www.ahrinet.org.
(1) 2008 Appendix C to AHRI Standard 700-2014, 2008 Appendix C for
Analytical Procedures for AHRI Standard 700-2014--Normative, copyright
2008; into Sec. 84.5(i).
(2) [Reserved]
(b) ASTM International, 100 Barr Harbor Drive, PO Box C700, West
Conshohocken, PA 19428; phone: 610.832.9500; email: [email protected];
website: www.astm.org/.
(1) ASTM D6064-11 (reapproved 2022), Standard Specification for
HFC-227ea, 1,1,1,2,3,3,3-Heptafluoropropane
(CF3CHFCF3), approved November 1, 2022; IBR
approved for Sec. 84.5(i).
(2) ASTM D6231/D6231M-21, Standard Specification for HFC-125
(Pentafluoroethane, C2HF5), approved June 1, 2021; IBR approved for
Sec. 84.5(i).
(3) ASTM D6541-21, Standard Specification for HFC-236fa,
1,1,1,3,3,3-Hexafluoropropane, (CF3CH2CF3), approved June 1, 2021; IBR
approved for Sec. 84.5(i).
(4) ASTM D6806-02 (reapproved 2022), Standard Practice for Analysis
of Halogenated Organic Solvents and Their Admixtures by Gas
Chromatography, approved May 1, 2022; IBR approved for Sec. 84.5(i).
0
13. Effective October 1, 2024, amend Sec. 84.37 by adding paragraphs
(a)(2) and (3) and (c) to read as follows:
Sec. 84.37 Incorporation by Reference.
* * * * *
(a) * * *
(2) AHRI RTL OM December 2019, Refrigerant Testing Laboratory
Certification Program Operations Manual, copyright 2019; IBR approved
for Sec. 84.3.
(3) AHRI General OM--January 2023, General Operations Manual,
copyright 2022; IBR approved for Sec. 84.3.
* * * * *
(c) International Organization for Standardization (ISO), Chemin de
Blandonnet 8, CP 401--1214 Vernier, Geneva, Switzerland; tel.: + 41 22
749 01 11; fax: + 41 22 733 34 30; email: [email protected]; website:
www.iso.org.
(1) ISO/IEC 17025:2017(E), ``General requirements for the
competence of testing and calibration laboratories'', Third Edition,
published November 2017; IBR approved for Sec. 84.3.
(2) [Reserved]
[FR Doc. 2023-14312 Filed 7-19-23; 8:45 am]
BILLING CODE 6560-50-P