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Rule2023-14312

Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology for 2024 and Later Years

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Published

July 20, 2023

Effective

September 18, 2023

Issuing agencies

Environmental Protection Agency

Abstract

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.

Full Text

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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <a href="https://www.regulations.gov">https://www.regulations.gov</a> 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a> 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: <a href="/cdn-cgi/l/email-protection#1a7c7f7b6e727f6834707572745a7f6a7b347d756c">[email&#160;protected]</a>. You may also
visit EPA's website at <a href="https://www.epa.gov/climate-hfcs-reduction">https://www.epa.gov/climate-hfcs-reduction</a> 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
CO<INF>2</INF>--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
MMTCO<INF>2</INF>e--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

[[Page 46837]]

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)

[[Page 46838]]

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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[[Page 46839]]

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 (CO<INF>2</INF>).
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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. <a href="https://ozone.unep.org/sites/default/files/2019-05/SAP-2018-Assessment-report.pdf">https://ozone.unep.org/sites/default/files/2019-05/SAP-2018-Assessment-report.pdf</a>.
\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
(MMTCO<INF>2</INF>e). 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 <a href="https://doi.org/10.5194/acp-22-6087-2022">https://doi.org/10.5194/acp-22-6087-2022</a>.
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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 <a href="https://www.ipcc.ch/report/ar4/wg1">https://www.ipcc.ch/report/ar4/wg1</a>.
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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\
---------------------------------------------------------------------------

\10\ In 2029, the production and consumption caps decline to 30
percent of baseline.
---------------------------------------------------------------------------

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

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
MMTCO<INF>2</INF>e 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 MTCO<INF>2</INF>e) between 2020 and 2021, and 14
companies had 2021 import activity of at least double their 2020 import
activity expressed in MTCO<INF>2</INF>e.
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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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
MMTCO<INF>2</INF>e, 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\ <a href="https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act">https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act</a>.
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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.'' <a href="http://Trade.gov">Trade.gov</a>,
International Trade Administration. Available at <a href="https://www.trade.gov/us-antidumping-and-countervailing-duties">https://www.trade.gov/us-antidumping-and-countervailing-duties</a>.
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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.
---------------------------------------------------------------------------

\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 <a href="https://www.epa.gov/climate-hfcs-reduction/hfc-allocation-rule-reporting-and-recordkeeping">https://www.epa.gov/climate-hfcs-reduction/hfc-allocation-rule-reporting-and-recordkeeping</a>.
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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 <a href="https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act">https://www.epa.gov/ghgreporting/ghgrp-data-relevant-aim-act</a>. 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 <a href="https://www.epa.gov/sites/production/files/2020-09/documents/ghgrp_cbi_tables_for_suppliers_8-28-20_clean_v3_508c.pdf">https://www.epa.gov/sites/production/files/2020-09/documents/ghgrp_cbi_tables_for_suppliers_8-28-20_clean_v3_508c.pdf</a>.
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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. <a href="https://www.epa.gov/climate-hfcs-reduction/phasedown-hydrofluorocarbons-final-rule-frequently-asked-questions">https://www.epa.gov/climate-hfcs-reduction/phasedown-hydrofluorocarbons-final-rule-frequently-asked-questions</a>.
\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. <a href="https://www.cbp.gov/trade/basic-import-export/importer-exporter-tips">https://www.cbp.gov/trade/basic-import-export/importer-exporter-tips</a>.
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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
ensur

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