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April 15, 2013
Class II allowances issued

In conformance with a 2010 court order, the EPA is adjusting HCFC-22 and HCFC-142b allowances for the years 2012, 2013, and 2014.

HCFC-22 and HCFC-142b, the most commonly used HCFCs, are Class II compounds developed as transitional substitutes for Class I substances, which are more damaging to the earth’s protective ozone layer.  Both classes must be phased out under the Montreal Protocol, to which the United States is a party, with the complete phaseout of all HCFCs required by 2030. 

The EPA Class II regulations provide companies with both production and consumption allowances based on their activities with the regulated substances in baseline years.  Consumption allowances permit an entity to produce and/or import virgin HCFCs in a given control period (i.e., calendar year).  Production allowances permit an entity to produce virgin HCFCs in a given control period.  Domestic production of HCFCs requires the use of both production and consumption allowances.

Partial vacatur of 2009 rule

In a 2009 final rule, the EPA originally established baselines and calendar-year allowances for HCFC-22 and HCFC-142b.  Affected companies challenged the rule, alleging it was impermissibly retroactive because in setting the baselines for the new regulatory period, the EPA did not take into account certain interpollutant baseline transfers the companies had performed during the prior regulatory period. 

Eventually, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of industry, stating that the Agency’s refusal to account for the petitioners’ baseline transfers of interpollutant allowances was impermissibly retroactive.  The effect of the court’s partial vacatur was to void the HCFC-22 and HCFC-142b baselines as well as the percentage of baseline allocated for HCFC-22 and HCFC-142b. 

New baselines

On August 5, 2011, the EPA published an interim final rule correcting allowances for 2011, as required by the D.C. Circuit.  The current action establishes company-by-company HCFC-22 and HCFC-142b baselines and production and consumption allowances for 2012–2014.  Specifically:

  • The EPA is providing fewer calendar-year HCFC-22 consumption allowances and more calendar-year HCFC-22 production allowances than in the 2009 rule.  The Agency determined that the need for virgin HCFC-22 in the United States is lower than the EPA anticipated in 2009 and is adjusting consumption allowances accordingly.  Because other countries have different approaches to phasing out HCFC-22, the EPA considers that this increase in the number of production allowances will also ensure that U.S. companies can continue to meet demand for HCFCs in global markets. 
  • The EPA is providing “meaningful compensation” for 2010 calendar-year HCFC-22 and HCFC-142b allowances that companies would have received under the adjusted baselines.  The EPA will issue recoupment allowances for that purpose in 2013 and 2014.
  • The EPA is updating HCFC-142b baselines and annual allowances and is allocating approximately the same amount of calendar-year consumption allowances as in the 2009 rule.  Due to the recalculation of HCFC-142b baselines, calendar-year HCFC-142b production allowances are higher than in the 2009 rule, but have been calculated using the same methodology.  Therefore, while the percentage of baseline issued for HCFC-142b is the same for both consumption and production allowances, the recalculated production baseline is now significantly larger than the consumption baseline, resulting in an overall increase in calendar-year production allowances compared with the 2009 action.
  • The EPA is modifying the regulatory transfer language to more explicitly reflect the Agency’s policy on interpollutant HCFC allowance transfers; that is, that interpollutant HCFC transfers can occur only on an annual basis going forward.

EPA’s final rule adjusting HCFC allowances was published in the April 3, 2013, FR.

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