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Questions & Answers about the Proposed HCFC Allowance Allocation System

This page provides a series of questions and answers on the proposed regulations governing the production, import, and export of HCFCs.

If you have questions beyond those in this fact sheet, or would like paper copies of fact sheets or regulations, please call the Stratospheric Ozone Information Hotline at 1 (800) 296-1996 (international callers should dial 1 (202) 343-9210).

Questions

  1. Why is there a cap on production and import of HCFCs?
  2. Why are certain HCFCs singled out for accelerated phaseout in the U.S. and what is that schedule?
  3. Why is EPA instituting an HCFC allowance allocation system?
  4. How would the proposed HCFC allowance system work?
    1. Would the allowances be allocated on a chemical-specific basis?
    2. Would EPA allocate both production AND consumption allowances?
    3. Then which kind of allowances would someone need to expend for each activity?
    4. What is the baseline proposed by EPA to determine allocation of production and consumption allowances?
    5. What if I began producing or importing HCFCs after 1997?
    6. How could I trade allowances with other companies or between types of HCFCs?
    7. What happens with allowance allocations at the different HCFC phaseout dates?
  5. Using my allowances, would I be able to import HCFCs from and export HCFCs to any country?
  6. How do the phaseout and the allowance system affect the import of used HCFCs?
  7. Would this rule change the phaseout schedule for HCFC-141b, HCFC-22, or HCFC-142b?
  8. What are the other rules associated with the HCFC allowance system?
  9. How can I get a copy of the rules?

  1. Why is there a cap on production and import of HCFCs?
    In 1992, the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer (Protocol) established a limit (cap) on the combined production and import of hydrochlorofluorocarbons (HCFCs) for industrialized countries; this went into effect in 1996. A stepwise phaseout schedule was also agreed to: a 35% reduction from the cap in 2004; a 65% reduction in 2010; a 90% reduction in 2015; a 99.5% reduction in 2020; and a total phaseout in 2030. The Parties to the Protocol decided in 1999 to establish a separate cap on production to take effect in 2004 and continue at that allocated level.

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  2. Why are certain HCFCs singled out for accelerated phaseout in the U.S. and what is that schedule?
    The U.S. responded to petitions to accelerate the phaseout of HCFCs with the highest ozone depletion potentials (ODPs) (58 FR 65018, December 10, 1993). The HCFCs with the highest ODPs are HCFC-141b, HCFC-22, and HCFC-142b. Therefore, on January 1, 2003, the ban on the production and import of HCFC-141b, the highest ozone-depleter of the HCFCs, becomes effective. The ban on production and import of HCFC-22 and HCFC-142b does not become effective until January 1, 2010, with extended production allowed for uses in existing equipment made before 2010. On January 1, 2015, all the other HCFCs may no longer be produced or imported unless as a refrigerant to be used in equipment manufactured before January 1, 2020. On January 1, 2020, no HCFC-22 or HCFC-142b may be produced or imported and on January 1, 2030, all other HCFCs may not be produced or imported.

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  3. Why is EPA instituting an HCFC allowance allocation system?
    To ensure that the U.S. achieves the required reductions in production and import of HCFCs that were agreed to under the Protocol, EPA developed a marketable allowance system. Such a system was selected for the chlorofluorocarbon (CFC) phaseout and proved highly successful. It was the most economically efficient system of all the methods considered, being market-based and relatively simple to administer. The allowance system will retain the flexibility for industry to continue to operate efficiently, while ensuring the U.S. does not violate the parameters agreed to as a Party to the Protocol.

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  4. How would the proposed HCFC allowance system work?
    Each producer or importer would be allocated allowances (one allowance per each kilogram of HCFC), based on historical production and import activity. When a company then produces or imports each type of HCFC, they would expend an allowance for each kilogram of the HCFC produced or imported. If a producer expends allowances to make HCFCs, then exports those HCFCs, the producer will receive allowances for the amount exported. The system is based on the need to ultimately balance the global output of HCFCs. More detailed information on the proposed allowance system can be found below.

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    1. Would the allowances be allocated on a chemical-specific basis?
      Yes, they would. To ensure compliance, EPA would need to know which specific chemicals were being produced and imported. This becomes more obvious as potential trades between companies and among types of HCFCs are made. Additionally, the U.S. must report production, imports and exports to the Protocol annually, on a chemical-specific basis.

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    2. Would EPA allocate both production AND consumption allowances?
      Yes. Because the Protocol has instituted both a consumption and production cap, both types of allowances must be allocated and expended as appropriate. When we use the word "consumption", we are referring to the Protocol formula: consumption = production + imports - exports. When we look at the consumption numbers, then, we are looking at all of the activities combined – what has been produced, what has been imported, and what has been exported. The production phaseout refers only to production. Therefore, allocations will be based on historical production, import, and export activity, respectively, as explained below.

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    3. Then which kind of allowances would someone need to expend for each activity?
      The expending of allowances would follow the process used in the CFC allowance system. To produce an HCFC before that HCFC's phaseout date, you would expend one production and one consumption allowance for each kilogram produced. To import, you would expend one consumption allowance for each kilogram exported. For exports, you would receive back one consumption allowance per kilogram exported.

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    4. What is the baseline proposed by EPA to determine allocation of production and consumption allowances?
      EPA is not proposing one baseline year for everyone. Instead, among the years, 1989, 1994, 1995, 1996 and 1997, each company will be allocated both production and consumption allowances reflecting their year of highest reported HCFC consumption (on an ODP-weighted basis). EPA determined that all reported HCFC consumption, using the highest of these five years for each company, would keep the U.S. under its Protocol cap.

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    5. What if I began producing or importing HCFCs after 1997?
      Under this allowance system, it is still possible for a company to transfer its production and consumption allowances to another company on a temporary or permanent basis. As explained below, it will still be possible to import used HCFCs without using consumption allowances.
      EPA is also proposing to grant available HCFC consumption allowances to late entrants into the HCFC import market that can successfully meet certain criteria. EPA believes that such new entrants would likely be small businesses whose owners and operators were unfamiliar with EPA's plans to begin work on an allowance system until the Advance Notice of Proposed Rulemaking (ANPRM) was published on April 5, 1999. Where a person, acting in good faith and prior to the publication of the ANPRM, established a business whose primary income was derived from importing HCFCs, EPA will consider potential allowance allocation on a case-by-case basis.

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    6. How could I trade allowances with other companies or between types of HCFCs?
      This marketable allowance system lets a person trade one kilogram of an HCFC to another company, who would receive one kilogram of that same type of HCFC. It would also permit a trade within a company or between companies, from one type of HCFC to another type. Because each of the HCFCs have varying levels of ODP, each of them has been assigned an ODP number. When trades occur between chemicals, they must be weighted by ODP. That is to say, if a company wants to trade its 100 kilograms of HCFC-22 (with an ODP weight of 0.055) to another company that wants to use the allowances as HCFC-141b (with an ODP weight of 0.11), the 100 kilograms of HCFC-22 would equal 50 kilograms of HCFC-141b. You would begin by multiplying the kilograms of the HCFC you want to trade by the ODP of that HCFC. Then you would divide that number by the ODP of the HCFC that you want to receive. That would give you the number of kilograms that the trade represents on an ODP-weighted basis.

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    7. What happens with allowance allocations at the different HCFC phaseout dates?
      Bear in mind that there is both a consumption and a production phaseout. Let's look at these one at a time. For the consumption phaseout, no HCFC-141b consumption allowances would be allocated as of January 1, 2003. Consumption allowances of one HCFC could not be traded for use as HCFC-141b allowances. On January 1, 2010, when HCFC-142b and HCFC-22 are phased out, no HCFC-142b or HCFC-22 allowances would be allocated (except for use in equipment made before 2010).
      The Parties have also set a production cap that remains constant over the next several years, but the production under these allowances can only be exported. Therefore, after January 1, 2003, HCFC-141b could continue being produced, using export production allowances allocated under the production cap, for export only.

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  5. Using my allowances, would I be able to import HCFCs from and export HCFCs to any country?
    In its November 1999 Meeting, the Parties to the Protocol agreed to ban trade in HCFCs with Parties that have not ratified the Copenhagen Amendments of 1992, beginning in 2004. The list of Parties that have ratified the Copenhagen Amendments is available at the UNEP site.

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  6. How do the phaseout and the allowance system affect the import of used HCFCs?
    Unlike virgin HCFCs, there are no Protocol restrictions on the quantity of used HCFCs. However, the U.S. has established a rigorous petition process, where a person must receive EPA approval before used HCFCs may be imported. While allowing trade in quantities of already existing used material can offset the need for new global production and help ease the transition to alternatives, the U.S. petition system ensures that the HCFCs were in fact used before being allowed as an import.

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  7. Would this rule change the phaseout schedule for HCFC-141b, HCFC-22, or HCFC-142b?
    This rule does not change the phaseout schedule for any of the HCFCs.

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  8. What are the other rules associated with the HCFC allowance system?
    An ANPRM (64 FR 16373) was published on April 5, 1999, in which the many options for an allowance system were discussed. The comments on the ANPRM were reviewed in preparation of the Proposed Rule (66 FR 38064, July 20, 2001) covered by this summary. We are planning to publish a final rule in 2001.

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  9. How can I get a copy of the rules?
    All the phaseout rules are available at the ODS phaseout main page.

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