EPA Announces Quota System for HFC Imports; Set for 85% Reduction by 2036
The Environmental Protection Agency on Sept. 23 released a final rule that sets a quota system for imports of hydrofluorocarbons that will eventually reduce imports of the greenhouse gases by 85 percent by 2036. The new regulations provide for company-specific allocations of allowances to import HFCs in 2022 and 2023, with allowances after that to be set in a future Federal Register notice. EPA intends to issue 2022 allowances by Oct. 1, it said in the final rule, which has yet to be scheduled for publication.
“This final rule is the first regulation under the [American Innovation and Manufacturing] Act to address HFCs, which are potent greenhouse gases commonly used in refrigerators, air conditioners, and other applications,” EPA said in a press release. “This final rule sets the HFC production and consumption baseline levels from which reductions will be made, establishes an initial methodology for allocating and trading HFC allowances for 2022 and 2023, and creates a robust, agile, and innovative compliance and enforcement system.”
EPA to Set Company-Specific Import Allowances by Oct. 1 Each Year
Going forward, EPA will by Oct. 1 of each year issue production and consumption allowances for the following calendar year. The allowances will be based on a formula provided by the AIM act that considers past HFC, hydrochlorofluorocarbon and chlorofluorocarbon amounts, EPA said in a fact sheet.
For 2022 and 2023, EPA will base company import allocations on the three highest years of production or consumption between 2011 and 2019. “EPA is issuing allowances to active HFC producers and importers operating in 2020 and is giving individualized consideration to circumstances of historical importers that were not active in 2020,” the agency said. “EPA is establishing the allowance allocation framework for two years and intends to undertake a subsequent rulemaking to govern allocations for calendar years 2024 and beyond.”
EPA will also issue “application-specific allowances” to end users in the following six applications: propellants in metered dose inhalers (MDIs), defense sprays, structural composite preformed polyurethane foam for marine use and trailer use, etching of semiconductor material or wafers and the cleaning of chemical vapor deposition (CVD) chambers within the semiconductor manufacturing sector, mission-critical military end uses, and onboard aerospace fire suppression.” These end users will be able to confer their allowances to importers to allow for the import of the HFCs they are allocated.
EPA is also establishing a small pool of “set-aside allowances” for end users in application-specific sectors EPA has not yet identified, importers that otherwise would have qualified for consumption allowances but have not yet been identified, and importers that are new market entrants. “Companies seeking to receive allowances via the set-aside should submit applications by November 30, 2021,” EPA said.
EPA’s final rule establishes a system for holders of allowances to trade and sell them. However, a 5% “offset” of the amount transferred will apply, and is reduced from the transferor’s allowance balance, EPA said.
The final rule creates a process for imports that don’t require the expense of allowances in two situations – virgin HFCs imported for use in a process resulting in their transformation (as feedstocks) or destruction, and HFCs that are imported for the purposes of disposal at a destruction facility using an approved destruction technology. Importers will need to petition EPA at least 30 working days before the shipment’s arrival at the U.S. port.
Increased Oversight of Imports, Container Tracking and Third-Party Auditing
The final rule includes a “multifaceted approach to deter, identify and penalize illegal activity,” EPA said, noting evidence of evasion of similar European Union standards since those were established. Tools include “administrative consequences for allowance holders, requiring use of refillable cylinders, increased oversight of imports including transhipments and HFCs imported for transformation, comprehensive tracking of containers of HFCs as they are imported, sold and distributed, and third-party auditing,” EPA said.
“EPA has also determined that much of the quarterly production and consumption data provided to the Agency will not be provided confidential treatment and will be affirmatively released without further process. This data transparency will incentivize compliance and allow the public and competing companies to identify and report noncompliance to EPA,” the agency said.
ACE Filing Requirements Mostly the Same; Protests, PSCs May Result in Enforcement
While EPA will set new importer filing requirements in ACE to track imports of HFCs, the agency says most of the data elements it requires are already gathered under CBP regulations. “For ease of implementation and to avoid duplicative electronic reporting, information required to be reported under EPA’s part 84 regulations will be submitted as import filings and collected through a CBP electronic system (e.g., ACE and its successor platforms). CBP will make these import filing data elements available to EPA for review,” EPA said in the final rule.
The data elements must be filed no later than 14 days before importation. “Although EPA acknowledges that CBP allows an importer to correct reported data elements for a certain period of time after the goods clear Customs, data elements reported pursuant to these part 84 regulations must be reported no later than 14 days prior to importation. EPA will make its determination on whether an importer has sufficient allowances for the import at the time of review based on the information provided.”
If an importer files a valid post-summary correction (PSC) with CBP or files a protest that CBP approves that would change the number of allowances expended, EPA will adjust the importer’s allowance balance. “If after correction the amount imported exceeds an importer’s available allowances, the importer would be in violation of 40 CFR part 84, subpart A and would be subject to administrative consequences and enforcement action.”
However, EPA will require the submission of new data on the Chemical Abstracts Service (CAS) number of the HFCs being imported “and, for HFCs that are in a mixture with other HFCs or other substances, either the ASHRAE numerical designation of the refrigerant or percentage of the mixture containing each regulated substance,” it said. “EPA is also requiring that non-objection notices issued consistent with section 84.25 and proof that the importer has reported a transhipment to EPA consistent with 84.31(c)(3) be provided to CBP electronically by loading an image of the document to the Document Image System, or successor platform.”