[Federal Register: August 25, 2004 (Volume 69, Number 164)]
[Proposed Rules]
[Page 52365-52402]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25au04-21]
[[Page 52365]]
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Part III
Environmental Protection Agency
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40 CFR Part 82
Protection of Stratospheric Ozone: Process for Exempting Critical Uses
From the Phaseout of Methyl Bromide; Request for Information on
Existing and Available Stocks of Methyl Bromide; Proposed Rule and
Notice
[[Page 52366]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 82
[FRL-7802-3]
RIN 2040-0170
Protection of Stratospheric Ozone: Process for Exempting Critical
Uses From the Phaseout of Methyl Bromide
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: EPA is proposing to amend the accelerated phaseout regulations
that govern the production, import, export, transformation and
destruction of substances that deplete the ozone layer under the
authority of Subchapter VI of the Clean Air Act (CAA), as amended.
Today's proposed amendments provide the framework for an exemption
permitted under the Montreal Protocol on Substances that Deplete the
Ozone Layer (Protocol) and Subchapter VI of the CAA and specify the
amount of methyl bromide that may be supplied in 2005 from available
stocks and new production and consumption to meet proposed critical
uses. Specifically, EPA is proposing requirements to govern the
``critical use'' exemption from the production and consumption (defined
as production plus imports minus exports) phaseout for quantities of
class I, Group VI controlled substances (methyl bromide) that are
produced or imported for critical uses. EPA is also proposing the list
of uses that qualify for the critical use exemption in 2005, the amount
of additional methyl bromide that may be produced or imported for those
uses in 2005, and limitations on the sale of existing inventories for
use in critical use categories that are a necessary condition
applicable to those who are granted the privilege in 2005 of obtaining
a dedicated supply of methyl bromide from new production and imports
for critical uses after the scheduled phaseout date.
DATES: Written comments on the proposed rule must be received on or
before October 12, 2004. Any party requesting a public hearing must
notify the contact person listed below by 5 p.m. eastern standard time
on September 7, 2004. If a hearing is requested it will be held
September 10, 2004. If a hearing is held, commenters will have 30 days
to submit follow up comments before the close of the comment period.
Persons interested in attending a public hearing should consult with
the contact person below regarding the location and time of the
hearing.
ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2003-
0230, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
Agency Web site: http://www.epa.gov/edocket. EDOCKET,
EPA's electronic public docket and comment system, is EPA's preferred
method for receiving comments. Follow the on-line instructions for
submitting comments.
E-mail: finman.hodayah@epa.gov.
Fax: 202-343-2337 attn: Hodayah Finman.
Mail: Air Docket, Environmental Protection Agency,
Mailcode: 6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In
addition, please mail a copy of your comments on the information
collection provisions to the Office of Information and Regulatory
Affairs, Office of Management and Budget (OMB), Attn: Desk Officer for
EPA, 725 17th St., NW., Washington, DC 20503.
Hand Delivery: EPA Air Docket, EPA West 1301 Constitution
Avenue, NW., Room B108, Mail Code 6102T, Washington, DC 20460. Such
deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
Instructions: Direct your comments to Docket ID No.OAR-2003-0230.
EPA's policy is that all comments received will be included in the
public docket without change and may be made available online at http://www.epa.gov/edocket
, including any personal information provided,
unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through EDOCKET, regulations.gov, or e-
mail. The EPA EDOCKET and the Federal regulations.gov Web sites are
``anonymous access'' systems, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through EDOCKET or regulations.gov, your e-mail address will be
automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses. For additional information about EPA's public
docket visit EDOCKET on-line or see the Federal Register of May 31,
2002 (67 FR 38102).
Docket: All documents in the docket are listed in the EDOCKET index
at http://www.epa.gov/edocket. Although listed in the index, some
information is not publicly available, i.e., 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 either electronically in EDOCKET or in hard
copy at the Air Docket, EPA/DC, EPA West, Room B102, 1301 Constitution
Ave., NW., Washington, DC. This Docket Facility 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 Air Docket is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: For further information about this
proposed rule, contact Hodayah Finman by telephone at (202) 343-9246,
or by e-mail at finman.hodayah@epa.gov, or by mail at Hodayah Finman,
U.S. Environmental Protection Agency, Stratospheric Protection
Division, Stratospheric Program Implementation Branch (6205J), 1200
Pennsylvania Avenue, NW., Washington, DC 20460. You may also visit the
Ozone Depletion Web site of EPA's Global Programs Division at http://www.epa.gov/ozone
for further information about EPA's Stratospheric
Ozone Protection regulations, the science of ozone layer depletion, and
other related topics.
SUPPLEMENTARY INFORMATION: This proposed rule concerns Clean Air Act
restrictions on the consumption, production and on the use of methyl
bromide (class I, Group VI controlled substance) for critical uses
after the phaseout date of January 1, 2005. Under the Clean Air Act,
methyl bromide consumption and production will be phased out on January
1, 2005, apart from allowable exemptions, namely the proposed critical
use exemption and the existing quarantine and pre-shipment exemption.
With today's action, EPA is
[[Page 52367]]
proposing a framework for how the critical use exemption will operate
as well as specific amounts of methyl bromide to be made available for
proposed critical uses.
Table of Contents
I. General Information
A. Regulated Entities
B. How Can I Get Copies of This Document and Other Related
Information?
C. How and to Whom Do I Submit Comments?
D. How Should I Submit Confidential Business Information (CBI)
to the Agency?
II. What Is the Background to the Phaseout Regulations for Ozone-
Depleting Substances?
III. What Is Methyl Bromide?
IV. What Is the Legal Authority for Exempting the Production and
Import of Methyl Bromide for Critical Uses Authorized by the Parties
to the Montreal Protocol?
V. What Is the Critical Use Exemption Process?
VI. What Are the Details of Today's Proposed Action To Implement the
Critical Use Exemption for Methyl Bromide?
A. What Is the Total Amount of Methyl Bromide That May Be
Supplied for U.S. Critical Uses?
B. What Is the Proposed Regulatory Framework for Implementing
the Critical Use Exemption and What Is a Critical Use Allowance
(CUA) and a Critical Stock Allowance (CSA)?
C. How Will Critical Use Allowances (CUAs) be Distributed?
D. How Are Critical Stock Allowances (CSAs) Distributed?
E. Are Allowances To Be Allocated on a Sector-Specific Basis or
as One Lump Sum for All Sectors?
F. How Many Critical Use Allowances (CUAs) and Critical
Stockpile Allowances (CSAs) Will Producers, Importers and
Distributors Be Allocated?
G. What Are the Tracking Requirements for a Sector- or
Applicant-Specific Allocation?
H. How Do ``Approved Critical Users'' Acquire Methyl Bromide
Under Today's Proposal?
I. Who Is an Approved Critical User?
J. Can New Market Entrants or New Consortia Members Be Approved
Critical Users?
K. What Uses and ``Limiting Critical Conditions'' Are Permitted
Access to the Methyl Bromide Under the Critical Use Exemption?
L. What Are the Reporting Requirements?
M. What Are the Record-Keeping Requirements?
N. How Often Will Critical Use Allowances (CUAs) Be Distributed
and How Are Allowances Expended?
O. Can Allowances Be Traded?
P. Are Allowances Bankable From One Year to the Next?
Q. How Is Unused Critical Use Methyl Bromide Treated at the End
of the Compliance Period?
R. What Are the Enforcement Provisions Governing Critical Uses?
VII. What Are Other Options on Which EPA Seeks Comment?
A. Distribution of Critical User Permits (CUPs) to End Users of
Methyl Bromide?
B. What Is a Critical Use Permit (CUP) and Can It Be Traded?
C. Who Is Eligible To Receive an Initial Allocation of CUPs and
Who May Use CUPs?
D. Who May Hold a CUP?
E. Methods for Distribution of Critical User Permits:
Distribution Based on Data.
F. Submitting Individual Entity Data To Obtain Critical User
Permits (CUPs).
G. Methods for Distribution of Critical User Permits:
Distribution Using Auctions.
H. Frequency of Auctions and Set Asides.
I. Other Methods for Distributing CUPs.
J. Tracking Permits.
K. Redeeming CUPs for Methyl Bromide.
L. Reporting Requirements for CUP Holders.
M. Interaction Between CUPs and CUAs.
VIII. What Conforming Amendments Is EPA Proposing With Respect to
Essential Use Allowances?
IX. Statutory and Executive Order Reviews
A. Executive Order No. 12866: Regulatory Planning and Review.
B. Paperwork Reduction Act.
C. Regulatory Flexibility Act.
D. Unfunded Mandates Reform Act.
E. Executive Order No. 13132: Federalism.
F. Executive Order No. 13175: Consultation and Coordination With
Indian Tribal Governments.
G. Executive Order No. 13045: Protection of Children From
Environmental Health & Safety Risks.
H. Executive Order No. 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use.
I. National Technology Transfer Advancement Act.
I. General Information
A. Regulated Entities
Entities potentially regulated by this proposed action are those
associated with the production, import, export, sale, application and
use of methyl bromide. Potentially regulated categories and entities
include:
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Category Examples of regulated entities
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Industry.......................... Producers, Importers and Exporters
of methyl bromide; Applicators,
Distributors of methyl bromide;
Users of methyl bromide, e.g.
farmers of vegetable crops, fruits
and seedlings; and owners of stored
food commodities and structures
such as grain mills and processors,
Government and non-government
researchers.
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The above table is not intended to be exhaustive, but rather
provides a guide for readers regarding entities likely to be regulated
by this proposed action. This table lists the types of entities that
EPA is aware could potentially be regulated by this proposed action. To
determine whether your facility, company, business, or organization is
regulated by this proposed action, you should carefully examine the
regulations promulgated at 40 CFR part 82, subpart A. If you have
questions regarding the applicability of this action to a particular
entity, consult the person listed in the preceding FOR FURTHER
INFORMATION CONTACT section.
B. How Can I Get Copies of This Document and Other Related Information?
1. Docket. EPA has established an official public docket for this
action under the Office of Air and Radiation Docket & Information
Center, Electronic Air Docket ID No. OAR-2003-0230. The official public
docket consists of the documents specifically referenced in this
action, any public comments received, and other information related to
this action. Although a part of the official docket, the public docket
does not include Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute. The official
public docket is the collection of materials that is available for
public viewing at EPA West, 1301 Constitution Ave., NW., Room B108,
Mail Code 6102T, Washington, DC 20460, phone: (202) 566-1742, fax:
(202) 566-1741. The materials may be inspected from 8:30 a.m. until
4:30 p.m. Monday through Friday, excluding legal holidays. A reasonable
fee may be charged for copying docket materials.
2. Electronic Access. You may access this Federal Register document
electronically through the EPA Internet under the ``Federal Register''
listings at http://www.epa.gov/fedrgstr/. An electronic version of the
public docket is available through EPA's electronic public docket and
comment system, EPA Dockets. EPA prefers that you use the electronic
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http://www.epa.gov/edocket/ to submit or view public comments and access the
index listing of the contents of the official public docket. To locate
the docket on EPA's docket Web site, select ``search,'' then key in the
appropriate docket identification number, in this case OAR-2003-0230.
Additional supporting documents related to this proposed action may be
found in EPA's electronic docket system, docket numbers OAR-2002-0018
and OAR-2003-0017 and in EPA's paper docket, Air Docket ID No. A-2000-
24.
Certain types of information will not be placed in the EPA Dockets.
Information claimed as confidential business information (CBI) and
other information whose disclosure is restricted by statute, will not
be included in the official public docket and will not be available for
public viewing in EPA's electronic public docket. EPA's policy is that
copyrighted material will not be placed in EPA's electronic public
docket but will be available only in printed, paper form in the
official public docket. Although not all docket materials may be
available electronically, you may still access any of the publicly
available docket materials through the docket facility identified in
Unit B.
For public commenters, it is important to note that EPA's policy is
that public comments, whether submitted electronically or in paper,
will be made available for public viewing in EPA's electronic public
docket as EPA receives them and without change, unless the comment
contains copyrighted material, CBI, or other information whose
disclosure is restricted by statute. When EPA identifies a comment
containing copyrighted material, EPA will provide a reference to that
material in the version of the comment that is placed in EPA's
electronic public docket.
Public comments submitted on computer disks that are mailed or
delivered to the docket will be transferred to EPA's electronic public
docket. Public comments that are mailed or delivered to the Docket will
be scanned and placed in EPA's electronic public docket. Where
practical, physical objects will be photographed, and the photograph
will be placed in EPA's electronic public docket along with a brief
description written by the docket staff.
C. How and to Whom Do I Submit Comments?
EPA is seeking comments on options that are proposed, as well as
all other options and methods that are discussed. You may submit
comments electronically, by mail or through hand delivery/courier. The
preferred method for submitting comments on this proposed rulemaking is
to submit comments to the electronic docket OAR-2003-0230. To ensure
proper receipt by EPA, identify the appropriate docket identification
number in the subject line on the first page of your comment, in this
instance OAR-2003-0230. Please ensure that your comments are submitted
within the specified comment period. Comments received after the close
of comment period will be marked late. EPA is not required to consider
late comments. If you plan to submit comments, please notify Hodayah
Finman, U.S. Environmental Protection Agency, Stratospheric Protection
Division (6205J), 1200 Pennsylvania Ave., NW., Washington, DC 20460,
(202) 343-9246.
Information designated as Confidential Business Information (CBI)
under 40 CFR part 2, subpart 2, must be sent directly to the contact
person for this notice. However, the Agency is requesting that all
respondents submit a non-confidential version of their comments to the
docket as well.
To submit an electronic comment as described below, EPA recommends
that you include your name, mailing address, and an e-mail address or
other contact information in the body of your comment. Also include
this contact information on the outside of any disk or CD ROM you
submit, and in any cover letter accompanying the disk or CD ROM. This
ensures that you can be identified as the submitter of the comment and
allows EPA to contact you in case EPA cannot read your comment due to
technical difficulties or needs further information on the substance of
your comment. EPA's policy is that EPA will not edit your comment, and
any identifying or contact information provided in the body of a
comment will be included as part of the comment that is placed in the
official public docket, and made available in EPA's electronic public
docket. If EPA cannot read your comment due to technical difficulties
and cannot contact you for clarification, EPA may not be able to
consider your comment.
i. EPA Dockets. Your use of EPA's electronic public docket to
submit comments is the preferred method for submitting comments. Go
directly to EPA dockets at http://www.epa.gov/edocket, and follow the
online instructions for submitting comments to docket OAR-2003-0230.
ii. By Mail. Send one copy of your comments to each of the
following two offices: U.S. Environmental Protection Agency, Air and
Radiation Docket (6102), Electronic Air Docket ID No. OAR-2003-0230
Washington, DC 20460 and to U.S. Environmental Protection Agency,
(6205J) 1200 Pennsylvania Ave., NW., Washington, DC 20460, attn:
Hodayah Finman docket no. OAR-2003-0230.
iii. By Hand Delivery or Courier. Deliver your comments to: Hodayah
Finman 1310 L Street, NW., Washington, DC 20005, Attention Electronic
Air Docket ID No. OAR-2003-0230. Such deliveries are only accepted
during the normal hours of operation 9 a.m to 5 p.m.
iv. By Facsimile. Fax your comments to both: (202) 566-1741,
Attention Electronic Air Docket ID No. OAR-2003-0230 and to (202) 343-
2337, Attention Hodayah Finman, Electronic Air Docket No. OAR-2003-
0230.
D. How Should I Submit Confidential Business Information (CBI) to the
Agency?
Do not submit information that you consider to be CBI
electronically through EPA's electronic public docket or by e-mail.
Send or deliver information identified as CBI only to the mail or
courier addresses listed in the FOR FURTHER INFORMATION CONTACT
section, Electronic Air Docket ID No. OAR-2003-0230. You may claim
information that you submit to EPA as CBI by marking any part or all of
that information as CBI (if you submit CBI on disk or CD ROM, mark the
outside of the disk or CD ROM as CBI and then identify electronically
within the disk or CD ROM the specific information that is CBI).
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2. In addition to one complete
version of the comment that includes any information claimed as CBI, a
copy of the comment that does not contain the information claimed as
CBI should be submitted for inclusion in the public docket and EPA's
electronic public docket. If you submit the copy that does not contain
CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly
that it does not contain CBI. Information not marked as CBI will be
included in the public docket and EPA's electronic public docket
without prior notice. If you have any questions about CBI or the
procedures for claiming CBI, please consult the person identified in
the FOR FURTHER INFORMATION CONTACT section.
II. What Is the Background to the Phaseout Regulations for Ozone-
Depleting Substances?
The current regulatory requirements of the Stratospheric Ozone
Protection
[[Page 52369]]
Program that limit production and consumption of ozone depleting
substances can be found at 40 CFR part 82 subpart A. The regulatory
program was originally published in the Federal Register on August 12,
1988 (53 FR 30566), in response to the 1987 signing of the Montreal
Protocol on Substances that Deplete the Ozone Layer (Protocol). The
U.S. was one of the original signatories to the 1987 Montreal Protocol
and the U.S. ratified the Protocol on April 21, 1988. Congress then
enacted, and President Bush signed into law, the Clean Air Act
Amendments of 1990 (CAAA) that included Title VI on Stratospheric Ozone
Protection to ensure that the United States could satisfy its
obligations under the Protocol. EPA has made several amendments to the
regulations since that time.
III. What Is Methyl Bromide?
Methyl bromide is an odorless, colorless, toxic gas, which is used
as a broad-spectrum pesticide and is controlled under the CAAA as a
Class I ozone depleting substance (ODS). Methyl bromide is used in the
U.S. and throughout the world as a fumigant to control a wide variety
of pests such as insects, weeds, rodents, pathogens, and nematodes.
Additional characteristics and details about the uses of methyl bromide
can be found in the proposed rule on the phaseout schedule for methyl
bromide published in the Federal Register on March 18, 1993 (58 FR
15014), and the final rule published in the Federal Register on
December 10, 1993 (58 FR 65018). The phaseout schedule for methyl
bromide was revised in a concurrent proposal and direct final
rulemaking on November 28, 2000 (65 FR 70795), which allowed for the
phased reduction in methyl bromide consumption and extended the
phaseout to 2005. The revised phaseout schedule was again amended to
allow for an exemption for quarantine and preshipment purposes on July
19, 2001 (66 FR 37751), with an interim final rule and with a final
rule (68 FR 238) on January 2, 2003. Information on methyl bromide can
be found at the following sites of the World Wide Web: http://www.epa.gov/ozone/mbr and http://teap.org or by contacting the
Stratospheric Ozone Hotline at 1-800-296-1996.
Because it is a pesticide, methyl bromide is also regulated by EPA
under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
and other statutes and regulatory authority and by states under their
own statutes and regulatory authority. Under FIFRA, methyl bromide is a
restricted use pesticide. Because of this status, a restricted use
pesticide is subject to certain federal and state requirements
governing its sale, distribution, and use. Nothing in this proposed
rule implementing the Clear Air Act is intended to derogate from
provisions in any other federal, state, or local laws or regulations
governing actions including, but not limited to, the sale,
distribution, transfer, and use of methyl bromide. All entities that
would be affected by the proposed provisions must continue to comply
with FIFRA and other pertinent statutory and regulatory requirements
for pesticides (including, but not limited to, requirements pertaining
to restricted use pesticides) when importing, exporting, acquiring,
selling, distributing, transferring, or using methyl bromide for
critical uses. The proposed regulations in today's rulemaking are
intended only to implement Clean Air Act restrictions on the
production, consumption and use of methyl bromide for critical uses
exempted from the phaseout of methyl bromide.
IV. What Is the Legal Authority for Exempting the Production and Import
of Methyl Bromide for Critical Uses Authorized by the Parties to the
Montreal Protocol?
Methyl bromide was added to the Protocol as an ozone depleting
substance in 1992 through the Copenhagen Amendment to the Protocol. The
Parties to the Protocol established a freeze in the level of methyl
bromide production and consumption for industrialized countries at the
1992 Meeting in Copenhagen. The Parties agreed that each industrialized
country's level of methyl bromide production and consumption in 1991
should be the baseline for establishing the freeze. EPA published a
final rule in the Federal Register on December 10, 1993 (58 FR 69235),
listing methyl bromide as a class I, Group VI controlled substance,
freezing U.S. production and consumption at this 1991 level, and, in
section 82.7 of the rule, setting forth the percentage of baseline
allowances for methyl bromide granted to companies in each control
period (each calendar year) until the year 2001 (58 FR 65018). This
phaseout date was consistent with requirements under section 602(d) of
the CAA for newly listed class I ozone-depleting substances that ``no
extension under this subsection may extend the date for termination of
production of any class I substance to a date more than 7 years after
January 1 of the year after the year in which the substance is added to
the list of class I substances.'' Therefore, the 1993 regulation
established a United States phaseout for methyl bromide in 2001.
At their 1995 meeting, the Parties made adjustments to the methyl
bromide control measures and agreed to reduction steps and a 2010
phaseout date for industrialized countries with exemptions permitted
for critical uses. At this time, the U.S. continued to have a 2001
phaseout date in accordance with the Clean Air Act language. At their
1997 meeting, the Parties agreed to further adjustments to the phaseout
schedule for methyl bromide in industrialized countries, with reduction
steps leading to a 2005 phaseout for industrialized countries. In
October 1998, the U.S. Congress amended Subchapter VI of the CAA to
prohibit the termination of production of methyl bromide prior to
January 1, 2005, to bring the U.S. phaseout of methyl bromide in line
with the global requirements specified under the Protocol and to
provide for the exemptions under the Protocol. These amendments were
contained in section 764 of the 1999 Omnibus Consolidated and Emergency
Supplemental Appropriations Act (Pub. L. 105-277, October 21, 1998) and
were codified in section 604 of the CAA. On November 28, 2000, EPA
issued regulations to amend the phaseout schedule for methyl bromide
and extend the complete phaseout of production and consumption to 2005
(65 FR 70795).
Today, in accordance with the 1998 amendments to the CAA, EPA is
proposing to further amend 40 CFR part 82 to implement an exemption to
the 2005 phaseout of methyl bromide that allows continued production
and consumption of methyl bromide for critical uses. Section 604(d)(6)
of the Clean Air Act provides that ``[t]o the extent consistent with
the Montreal Protocol, the Administrator, after notice and the
opportunity for public comment, and after consultation with other
departments or instrumentalities of the Federal Government having
regulatory authority related to methyl bromide, including the Secretary
of Agriculture, may exempt the production, importation, and consumption
of methyl bromide for critical uses.'' 42 U.S.C. 7671c(d)(6). Article
2H (5) of the Montreal Protocol provides that the 2005 methyl bromide
phaseout shall not apply ``to the extent the Parties decide to permit
the level of production or consumption that is necessary to satisfy
uses agreed by them to be critical uses.''
Both section 604(d)(6) and section 614(b) of the CAA address the
relationship between the Montreal
[[Page 52370]]
Protocol and actions taken under Subchapter VI of CAA. Section
604(d)(6) addresses critical uses specifically, while section 614(b) is
more general in scope. Section 604(d)(6) states that ``to the extent
consistent with the Montreal Protocol,'' the Administrator may exempt
methyl bromide for critical uses. Section 614(b) states that Subchapter
VI ``shall be construed, interpreted, and applied as a supplement to
the terms and conditions of the Montreal Protocol, as provided in
Article 2, paragraph 11 thereof, and shall not be construed,
interpreted, or applied to abrogate the responsibilities or obligations
of the United States to implement fully the provisions of the Montreal
Protocol. In case of a conflict between any provision of this
subchapter and any provision of the Montreal Protocol, the more
stringent provision shall govern.''
EPA must take into account not only the text of Article 2H but also
the related Decisions of the Protocol Parties that interpret that text.
Under customary international law, as codified in the 1969 Vienna
Convention on the Law of Treaties (8 International Legal Materials 679
(1969)) both the treaty text and the practice of the parties in
interpreting that text form the basis for its interpretation. Although
the United States is not a party to the 1969 Convention, the United
States has regarded it since 1971 as ``the authoritative guide to
current treaty law and practice.'' See Secretary of State William D.
Rodgers to President Richard Nixon, October 18, 1971, 92d Cong., 1st
Sess., Exec. L (November 22, 1971). Specifically, Article 31(1) of the
Vienna Convention provides that ``[a] treaty shall be interpreted in
good faith in accordance with the ordinary meaning to be given to the
terms of the treaty in their context and in light of its object and
purpose.'' Article 31(3) goes on to provide that ``[t]here shall be
taken into account, together with the context: (a) any subsequent
agreement between the parties regarding the interpretation of the
treaty or the application of its provisions.'' In the current
circumstances Decisions of the Parties can be construed as subsequent
consensus agreements among the Parties to the Montreal Protocol,
including the United States, regarding the interpretation and
application of the Protocol.
In accordance with Article 2H(5), the Parties have issued several
Decisions pertaining to the critical use exemption. At their Ninth
Meeting in 1997, the Parties issued Decision IX/6 which established
criteria applicable to the critical use exemption. In paragraph 1 of
Decision IX/6, the Parties agreed as follows:
(a) That a use of methyl bromide should qualify as ``critical''
only if the nominating Party determines that:
(i) The specific use is critical because the lack of
availability of methyl bromide for that use would result in a
significant market disruption; and
(ii) There are no technically and economically feasible
alternatives or substitutes available to the user that are
acceptable from the standpoint of environment and health and are
suitable to the crops and circumstances of the nomination;
(b) That production and consumption, if any, of methyl bromide
for critical uses should be permitted only if:
(i) All technically and economically feasible steps have been
taken to minimize the critical use and any associated emission of
methyl bromide;
(ii) Methyl bromide is not available in sufficient quantity and
quality from existing stocks of banked or recycled methyl bromide,
also bearing in mind the developing countries' need for methyl
bromide;
(iii) It is demonstrated that an appropriate effort is being
made to evaluate, commercialize and secure national regulatory
approval of alternatives and substitutes, taking into account the
circumstances of the nomination * * * Non-Article V [Developed
country] parties must demonstrate that research programmes are in
place to develop and deploy alternatives and substitutes* * *
The Parties also agreed in Decision IX/6 that the technical panel
(discussed below) that reviews nominations and makes recommendations to
the Parties regarding approval of critical use exemptions, would base
its review and recommendations on the criteria in paragraphs (a)(ii)
and (b). The criterion in paragraph (a)(i) was not subject to review by
this technical panel.
At the First Extraordinary Meeting of the Parties in March of 2004,
the Parties issued several decisions that address the agreed critical
uses, the allowable levels of new production and consumption for
critical uses, the conditions for granting critical use exemptions, and
reporting obligations. Decision Ex. I/3 covers the agreed critical uses
and allowable levels of new production and consumption for the year
2005. This Decision includes the following terms:
1. For the agreed critical uses set forth in annex II A to the
report of the First Extraordinary Meeting of the Parties to the
Montreal Protocol for each Party, to permit, subject to the conditions
set forth in decision Ex. I/4, the levels of production and consumption
set forth in annex II B to the present report which are necessary to
satisfy critical uses, with the understanding that additional levels
and categories of uses may be approved by the Sixteenth Meeting of the
Parties in accordance with decision IX/6;
2. That a Party with a critical-use exemption level in excess of
permitted levels of production and consumption for critical uses is to
make up any such difference between those levels by using quantities of
methyl bromide from stocks that the Party has recognized to be
available;
3. That a Party using stocks under paragraph 2 above shall prohibit
the use of stocks in the categories set forth in annex II A to the
report of the First Extraordinary Meeting of the Parties to the
Montreal Protocol when amounts from stocks combined with allowable
production and consumption for critical uses exceed the total level for
that Party set forth in annex II A to the present report;
4. That Parties should endeavor to allocate the quantities of
methyl bromide recommended by the Technology and Economic Assessment
Panel as listed in annex II A to the report of the First Extraordinary
Meeting of the Parties;
5. That each Party which has an agreed critical use should ensure
that the criteria in paragraph 1 of decision IX/6 are applied when
licensing, permitting or authorizing the use of methyl bromide and that
such procedures take into account available stocks. Each Party is
requested to report on the implementation of the present paragraph to
the Ozone Secretariat;
The agreed critical uses and allowable levels of production and
consumption are set forth in annexes to the Parties' report. Decision
Ex I/4 addresses the conditions for granting and reporting critical-use
exemption for methyl bromide.
Decisions IX/6, Ex. I/3, and Ex. I/4 are subsequent consensus
agreements of the Parties that address the interpretation and
application of the critical use provision in Article 2H(5) of the
Protocol. For example, Decision Ex. I/3 reflects a decision called for
by the text of Article 2H(5) where the parties are directed to ``decide
to permit the level of production or consumption that is necessary to
satisfy uses agreed by them to be critical uses.'' EPA intends to
follow the terms of Decisions IX/6, Ex. I/3, and Ex. I/4. This would
ensure consistency with the Montreal Protocol and satisfy the
requirements of Section 604(d) (6) and Section 614(b) of the CAA.
Decision Ex. I/3 recognizes that article 2H(5) of the Protocol
contemplates that the Parties will make two separate determinations
when establishing the critical use exemption. First, the Parties agree
on the total amount and categories
[[Page 52371]]
of uses that are deemed critical under the criteria established in
Decision IX/6. Second, the Parties determine the maximum level of new
production and consumption that should be permitted because it is
necessary to satisfy those critical uses. Under paragraph 1 of Decision
Ex. I/3, the first of these determinations (the ``agreed critical
uses'') is reflected in annex II A to the report of the First
Extraordinary Meeting of the Parties. For the United States, the
Parties agreed to 16 critical uses for methyl bromide and authorized
use of 8,942 metric tons of methyl bromide for these critical uses. The
second of these determinations is set forth in annex II B which allows
the United States 7,659 metric tons of production and consumption of
methyl bromide to satisfy critical uses. Where the level of agreed
critical uses exceeds the level of new production and consumption
determined by the Parties to be necessary to satisfy those uses, a
Party is to utilize available stocks of methyl bromide to fill the gap.
Decision Ex. I/3, para. 2. Parties are to ensure that the total use of
methyl bromide material supplied from existing stocks and new
production and consumption does not exceed the overall level of use
agreed to be critical. Decisions Ex. I/3, para. 3. Thus, Decision Ex.
I/3 establishes two caps with respect to methyl bromide for 2005--one
on the level of new production and consumption for critical uses and
one on the total usage of methyl bromide in the agreed critical use
categories.
Under Decision Ex I/3, the United States is allowed to use a total
of 8,942 metric tons of methyl bromide in 2005 to satisfy critical
uses. In accordance with Decision Ex I/3, the quantity of new
production and consumption in combination with the amount of stocks
determined to be available for the specified critical uses cannot
exceed for 2005 the amount of 8,942 metric tons. Because of the cap on
the amount of methyl bromide available for the specified critical uses,
EPA will not authorize new production and consumption that, when
combined with use of available stocks, would exceed the agreed critical
use level of 8,942 metric tons. The methyl bromide to satisfy those
uses may be derived from available stocks of material or new production
and consumption. The upper limit on the amount of new production and
consumption for the specified critical uses is 7,659 metric tons.
However, this level of new production and consumption was authorized by
the Parties subject to compliance with the conditions set forth in
Decisions Ex. I/3 and Ex. I/4. One of these conditions, in paragraph 5
of Decision Ex. I/3, provides that ``each Party which has an agreed
critical use should ensure that the criteria in paragraph 1 of decision
IX/6 are applied when licensing, permitting or authorizing the use of
methyl bromide and that such procedures take into account available
stocks.'' Thus, in deciding the level of new production and consumption
allowed in the United States, EPA is proposing to consider the amount
of methyl bromide from stocks recognized by EPA to be ``available'' for
critical uses.
In addition, to prevent the total use levels of methyl bromide from
exceeding the critical use cap, Paragraph 3 of Decision Ex I/3 requires
that Parties prohibit the use of stocks of methyl bromide under certain
circumstances. This provision states ``that a Party using stocks under
paragraph 2 above shall prohibit the use of stocks in the categories
set forth in annex II A to the report of the First Extraordinary
Meeting of the Parties to the Montreal Protocol when amounts from
stocks combined with allowable production and consumption exceed the
total level for that Party set forth in annex II A to the present
report.'' This restriction applies in countries where methyl bromide
material necessary to meet the agreed critical uses is derived from a
combination of available stocks and new production or imports. In this
situation, a Party may not allow the total amount of material supplied
from stocks and new production and consumption to exceed the level of
use for categories determined by the Parties to be critical. This
restriction is necessary to ensure that a Party's total level of use in
critical use categories does not exceed the level which formed the
basis for the Parties' decision to authorize new production and
consumption at particular levels. This limitation was deemed to be a
necessary condition applicable to Parties authorized under the critical
use exemption to produce or import a dedicated supply of methyl bromide
to meet critical needs after the 2005 phaseout of methyl bromide.
Thus, in accordance with Decision Ex. I/3, if EPA authorizes new
production and consumption to supplement available stocks, EPA will
restrict the use of existing stocks of methyl bromide in cases where
use of stocks combined with the authorized level of new production and
consumption could exceed the critical use cap. In light of the Parties'
agreement in Decision Ex. I/3 that such a restriction is needed to
implement Article 2H(5) of the Protocol, EPA is authorized under
sections 604(b)(6) and 614(b) of the Clean Air Act to regulate the use
of existing stocks of methyl bromide. EPA's power under section
604(b)(6) to exempt new production, importation, and consumption of
methyl bromide for critical uses exists ``to the extent consistent with
the Montreal Protocol.'' 42 U.S.C. 7671c(b)(6). Because the Parties
have interpreted the Protocol to impose such a use restriction as a
condition for the authorization of new production and consumption for
critical uses, EPA will adhere to the same restriction in its domestic
implementation of the critical use exemption. This adherence is
consistent with section 614(b) of the Clean Air Act. 42 U.S.C.
7671m(b).
Although many parts of the Montreal Protocol and Subchapter VI of
the Clean Air Act focus on controlling the production and consumption
of ozone depleting substances, select provisions also require
restrictions on the use of such substances. For example, section 605 of
the Clean Air Act restricts the use of class II substances
(hydrochlorofluorocarbon) to a limited number of applications starting
in 2015. 42 U.S.C. 7671d(a). Section 608 of the CAA requires the
Administrator to promulgate regulations to reduce the use and emission
of class I substances during the service, repair, and disposal of
appliances and refrigeration equipment. 42 U.S.C. 7671g. The essential
use exemption in sections 604(d)(1)-(3) authorizes limited production
of controlled substances subject to the limitation that such substances
may only be used in specific applications. 42 U.S.C. 7671c(d).
Likewise, the critical use exemption under section 604(d)(6) permits
exempted production, importation, and consumption but only ``for
critical uses.'' 42 U.S.C. 7671c(d)(6). Thus, under the essential use
and critical use exemptions, new production and consumption is
necessarily restricted to particular use categories.
In the case of the critical use exemption for methyl bromide, the
Parties recognized in Decision Ex. I/3 that the use restrictions on
newly produced material must also extend to the use of existing stocks
of such material in those use categories for which new production and
consumption has been permitted by the Parties under the exemption. As
noted above, such a restriction is necessary to ensure that Parties
abide by the critical use representations underlying the authorization
of new production and consumption. Where new production and consumption
is authorized because sufficient material is not available from
[[Page 52372]]
existing stocks, then the predicate for this decision would be
undermined if Article 2H(5) of the Protocol was interpreted to permit
unrestricted use of existing stocks in the categories of use that may
utilize newly produced or imported material. Furthermore, placing such
a limitation on the use of existing stocks encourages the entities in
possession of the methyl bromide material to make it available for
critical uses. This limitation reduces the incentive for entities to
withhold methyl bromide material from the market in order to induce EPA
to authorize more new production.
This kind of a restriction on the use of existing stocks is also
authorized under the essential use exemption for production or import
of CFCs and other class I controlled ozone-depleting substances as a
condition for allowing new production and consumption. However, for
practical reasons the Parties and EPA have never needed to expressly
impose such restrictions under the essential use exemption. The limited
quantities of CFCs and methyl chloroform produced and consumed in the
United States under the essential use exemption have historically been
held by the users of such substances. In addition, the number of
essential uses and size of the user community is very small. Essential
uses have been limited to use of CFCs as propellants in asthma inhalers
by not more than 10 companies and the servicing of space vehicles by
the National Aeronauticsal and Space Administration. Thus, it has been
much easier under the essential use exemption for the Parties and EPA
to determine how much existing material is available to the essential
users and to ensure that the exempted production and consumption in a
given year was not grossly exceeding the level of essential need. In
the case of the essential use exemption, the Parties never agreed to a
Decision that limited the amount of material available from stocks for
uses deemed essential. However, the Parties track the stocks of these
essential use materials to ensure the exempted production and
consumption does not result in a growing stockpile.
In contrast, in the case of methyl bromide, the majority of
existing stocks of methyl bromide are not owned and controlled by users
but by producers, distributors, and importers of such material. There
are also hundreds of potential users and many uses for methyl bromide.
In addition, the Parties have authorized a greater number of critical
uses for methyl bromide (16 categories in the U.S. for 2005), and these
uses were identified based on specific limiting conditions under which
methyl bromide use in those categories becomes critical. In this
situation, there is more risk that the use level in critical use
categories could exceed the level of agreed critical use without
express regulation. In the case of essential use allowances, there was
no need for an express restriction on use of existing stocks because
the marketplace and the user community self-regulated. However, in a
situation such as methyl bromide where the distribution patterns of the
material are different and the user group and critical use profile is
much larger, the EPA can no longer rely solely on self-regulation to
ensure the appropriate use level.
Thus, in accordance with these authorities, EPA is proposing a
limit on the sale of stocks of methyl bromide to the approved users
permitted to obtain new production and consumption for their critical
uses. We propose that holders of stocks will only be authorized to sell
methyl bromide for critical uses by expending critical stock allowances
(CSAs) allocated by EPA through this rulemaking action. The proposed
limitation on the sale of stocks is narrowly defined and applicable
only to the categories of critical uses for which new production and
consumption has been authorized because of a demonstrated critical need
for methyl bromide in that category under certain limiting conditions.
Consistent with Decision Ex. I/3, those critical users who benefit from
the greater assurance of obtaining a dedicated supply of methyl bromide
for critical uses in 2005 from new production or imports, as a
condition of obtaining this benefit, have limited access to existing
stocks of methyl bromide to avoid exceeding the overall critical use
cap established in Decision Ex. I/3.
EPA is proposing a limitation on the amount of stocks that may be
sold to the end-users, defined as ``approved critical users'' (see
description below in Section VI.I.), who may obtain a dedicated supply
of methyl bromide from new production or imports under the critical use
exemption. In addition, EPA is proposing that end-users in these same
categories listed in Decision Ex. I/3, who applied for an exemption but
were determined in the preparation of the U.S. government nomination to
have technically and economically feasible alternatives to methyl
bromide available for their circumstances of use (thus lacking the
critical need for methyl bromide) would not have access to methyl
bromide from stockpiles. Thus, EPA is proposing that holders of pre-
phaseout stocks would not be permitted to sell these stocks in 2005 to
end-users in nominated sectors who do not have the ``limiting critical
conditions'' (see Section VI.K below) that make methyl bromide use
critical for the categories listed in Decision Ex I/3. In reviewing
applications and developing the U.S. nomination for 2005 critical use
exemptions, the U.S. government determined and submitted documentation
that in particular circumstances there is a critical need for methyl
bromide, and that for the other circumstances in that sector there are
technically and economically available alternatives to methyl bromide
(e.g., curcurbit production in Michigan with less than moderate fungal
pathogen infestation). EPA is proposing that end-users in sectors
nominated by the U.S. that do not have the specified ``limiting
critical conditions'' would not have access to stocks of methyl bromide
because, without the limiting critical conditions, they can use the
technically and economically feasible alternatives. EPA seeks comment
on these proposed limitations.
The Agency recognizes there may be other options for controlling
access to methyl bromide inventories after the phaseout if necessary to
maintain use below the cap set forth in Decision Ex. I/3. Other groups
of users who might be subject to controls on use of stocks could
include: (1) Those users who did not apply for a critical use
exemption, (2) those users who did apply but whose category of use did
not, under any limiting condition, meet the conditions necessary to be
included in the U.S. government nomination for critical use exemptions,
or (3) those users who applied and were nominated by the U.S.
government but whose use was not included among the agreed critical
uses for 2005 set forth in the Parties' Decision Ex I/3. Thus, we
request comment on whether these groups of users should also be subject
to a limitation on the use of stocks of methyl bromide produced or
imported prior to the phaseout and whether we may establish such a
limitation under applicable legal authority.
V. What Is the Critical Use Exemption Process?
The procedural requirements for the critical use exemption are
delineated in Decision IX/6 of the Parties to the Protocol. As applied
in the United States, users of methyl bromide who believe they may meet
the criteria to qualify for a critical use exemption may make an
application to EPA for inclusion in the U.S. nomination of critical
uses. Starting in 2002, EPA began notifying applicants as to the
availability of the application, and the
[[Page 52373]]
deadline to apply, with a notice in the Federal Register (68 FR 24737)
and an announcement on the methyl bromide Web site at http:/www.epa/.gov/ozone/mbr.
Applicants for the critical use exemption must
provide information demonstrating to the U.S. government that the
specific use of methyl bromide is critical because (1) the lack of
availability of methyl bromide for that use would result in significant
market disruption, and (2) the applicants have no technically and
economically feasible alternatives or substitutes to methyl bromide
available to them that are acceptable from the standpoint of
environment and health and are suitable to the crops and circumstances
of use. Applicants for the exemption must also submit information on
their use of methyl bromide, on research into the use of alternatives
to methyl bromide, on efforts to minimize use of methyl bromide and to
reduce emissions and on the specific technical and economic results of
testing alternatives to methyl bromide. Applicants may apply as
individuals or as part of a group of users (a ``consortium'') who face
the same limiting critical conditions (i.e. specific conditions which
establish a critical need for methyl bromide).
The U.S. government reviews applications and creates a package for
submission to the Ozone Secretariat of the Protocol for uses nominated
as having a critical need for methyl bromide beyond the phaseout. Each
Party must justify such a request by determining that (1) the specific
use is critical because the lack of availability of methyl bromide for
that use would result in a significant market disruption; and (2) there
are no technically and economically feasible alternatives or
substitutes available to the user that are acceptable from the
standpoint of environment and health and are suitable to the crops and
circumstances of the nomination.
The critical use nominations (CUNs) of various countries are then
reviewed by a technical committee that advises the countries that have
ratified the Protocol (the ``Parties'' to the Protocol). This technical
committee is known as the Methyl Bromide Technical Options Committee
(``MBTOC'') of the Technical and Economic Assessment Panel (``TEAP'').
The TEAP is an advisory body to the Parties to the Protocol and is
directed by the Parties to provide assessments and reviews for
consideration by the Parties at their annual meetings. The TEAP has
subgroups called Technical Option Committees that are organized to
focus on specific topic areas of interest to the Parties. Based on the
recommendations of MBTOC and TEAP and their own review of the Critical
Use Nominations (CUNs) submitted by various countries seeking a
critical use exemption, the Parties, at their annual meetings, take
decisions to authorize critical use exemptions which ``permit the level
of production or consumption [of methyl bromide] that is necessary to
satisfy uses agreed to them to be critical uses'' (Article 2H,
paragraph 5).
After decisions by the Parties, for each control period, EPA will
provide an opportunity such as this for comment on the amounts of
methyl bromide that may be supplied under the critical use exemption
and the end uses eligible to use critical use methyl bromide.
EPA recognizes that users of methyl bromide who qualify for a
critical use exemption and producers and importers of methyl bromide,
need to have certainty regarding the amounts of methyl bromide that
will be available under this proposed exemption and the additional
regulatory procedures that govern the production and use of critical
use methyl bromide before the phaseout date of January 1, 2005.
Therefore, EPA is considering all available regulatory procedures that
will allow affected entities to have operational certainty about an
exemption in advance of the phaseout date.
VI. What Are the Details of Today's Proposed Action To Implement the
Critical Use Exemption for Methyl Bromide?
In today's proposed action, the Agency is proposing both (1) the
regulatory framework for how the critical use exemption will operate;
(2) and the allocation of allowances established under this framework
to methyl bromide producers, importers and suppliers for the 2005
control period.
A. What Is the Total Amount of Methyl Bromide That May Be Supplied for
U.S. Critical Uses?
EPA is proposing a determination that the United States has a
critical use level for methyl bromide of 8,942,214 kilograms for 2005
(including amounts from available stocks and new production or
imports). This is the amount that the U.S. government included in the
U.S. Critical Use Nomination as adjusted by the Parties in Decision Ex
I/3. This amount is adjusted from the 9,777,288 kilograms originally
nominated by the U.S. government. The difference between the two
amounts is accounted for by the following adjustments as determined by
MBTOC, TEAP and the Parties to the Montreal Protocol: (a) The removal
of methyl bromide for tobacco seedling float trays, totaling 1,323
kilograms, a use category that the Parties agreed did not meet the
conditions for a critical use exemption, (b) a reduction of 53,328
kilograms to account for the market uptake of sulfuryl fluoride, a
newly registered alternative for the fumigation of stored food items,
(c) a reduction of 635,027 kilograms from strawberry field uses of
methyl bromide due to further adoption of alternatives, in particular
emulsified 1,3 dichloropropene formulations, (d) a reduction of 145,367
kilograms for turfgrass production to reflect lower application rates
using mixtures with lower concentrations of methyl bromide, and (e) a
small number of kilograms based on rounding adjustments. EPA seeks
comment on the amount of methyl bromide the Agency has determined to be
necessary to satisfy the critical uses authorized by the Parties for
2005. EPA refers commenters to the E-Docket where the U.S. nominations
and additional responses to MBTOC are available. These are the
technical documents which are the basis for the Parties and EPA's
determination. At this time, EPA does not have additional information
to indicate that it should adjust the amounts authorized by the
Parties, but seeks comments on whether additional research and data is
available with respect to the deployment of alternatives, the adoption
of emission reduction technologies, and the other criteria listed in
Decision IX/6.
Based on the review of the nominations discussed above, the Parties
to the Montreal Protocol allowed the United States to permit up to
7,659 metric tons of newly produced and imported quantities of methyl
bromide for the agreed critical uses set forth in Annex II.a of
Decision Ex I/3 if this amount is determined by EPA to be necessary to
satisfy the agreed critical uses. Supplies of methyl bromide for
critical uses may be obtained by end users from available stocks of
methyl bromide, or, new production or imports.
EPA is proposing to consider adjusting the authorized level of new
production and consumption for critical uses by the amount of
``available'' stocks (consumption is defined as production plus imports
minus exports). As recognized by the Parties, the level of existing
stocks may differ from the level of available stocks. Under this
approach, EPA will assess how much methyl bromide is available from
existing inventories and then determine how much is available to meet
market demand for critical uses. The Decisions by the Parties recognize
that assessment
[[Page 52374]]
of existing inventory should account for inventory intended to meet the
needs of developing countries. Decision Ex I/3 (2) further states,
``That a Party with a critical-use exemption level in excess of
permitted levels of production and consumption for critical uses is to
make up any such difference between those levels by using quantities of
methyl bromide from stocks that the Party has recognized to be
available.'' Thus, Decision IX/6 and Decision Ex I/3 recognize that not
all existing stocks may be available to meet critical uses. The EPA has
the authority to make this determination, and has developed an analysis
for developing an estimate of available stocks which it believes is
consistent with the Clean Air Act and with Decision Ex I/3.
EPA has solicited information on existing and available stocks from
approved critical users and from producers, importers, and major
distributors of methyl bromide in the United States through a
combination of the critical use exemption applications and information
request letters sent to entities pursuant to Section 114 of the Clean
Air Act. In developing today's action for the 2005 compliance period,
EPA believes it has sufficient information to make a preliminary
assessment about the level of existing and available stocks. However,
to update this information about existing and available stocks, EPA is
publishing in today's Federal Register a Section 114 Information
Request asking any person who has stocks of methyl bromide they hold
for sale or transfer to another entity as of August 25, 2004, that are
unrestricted (not for quarantine and preshipment and produced solely
for export to Article 5 countries) and not under contract for delivery
to a specific end-user to submit information to EPA by September 23,
2004. For years beyond 2005, EPA describes later in this proposed
rulemaking annual reporting requirements that will provide the Agency
with sufficient information to assess the level of existing and
available stocks.
EPA proposes to use the following approach, based on reasoning
described below in this section, to assess how much of the existing
stocks are available for critical uses. EPA seeks comment on the
proposed method and reasoning described in the following paragraphs.
EPA proposes to use a top-down methodology which involves deducting the
amounts of stocks that are unavailable (not available for critical
uses) from the existing stocks. This methodology can be represented as
follows: AS = (ES + B)-E1-E2-C-N-D, where AS = available stocks; ES =
existing stocks or unrestricted total stocks held in the United States
by producers, importers, distributors, and applicants in 2004; B =
banked stocks of methyl bromide that were produced or imported with
expended critical use allowances in a given year that were unused
during that year; E1 = stocks not produced with Article 5 allowances
held for export to developing countries; E2 = amounts held for export
to developed countries in 2004; C = amounts held in catastrophic
reserve; N = amounts held for transition management in non-critical use
categories in 2005, and; D = the estimated drawdown of stocks by U.S.
and international consumers in 2004. In this methodology, existing
stocks (ES) do not include restricted stocks of methyl bromide that
were produced under the exemptions for quarantine and preshipment and
with expended Article 5 allowances to meet the basic domestic needs of
Article 5 countries. The information, judgments, and assumptions we
used to quantify each of the factors in the methodology described above
are further elaborated below and also in a Technical Support Document
that can be obtained following the specific instructions below.
Although the discussion of the methodology and factors above and
below are specific to the proposed determination of available stocks
for 2005, EPA is proposing this methodology as part of the regulatory
framework that EPA will use in each control period after 2005 for the
U.S. determinations of available stocks.
Export is an important global consideration in determining the
level of available stocks for domestic critical uses. The U.S. faces
different circumstances from many other Parties because it is a methyl
bromide producer country as well as a user country. Unlike the majority
of the Parties that have authorized critical uses for 2005, the U.S.
has stocks of methyl bromide to meet global demands in 2004 for methyl
bromide not just for developing countries but for developed countries
as well. Therefore, particularly in the case of the U.S., stocks held
by U.S. companies are not necessarily available for U.S. users. This is
a different case from Parties that satisfy their demand for methyl
bromide strictly through imports. Any stocks available in the
distribution chain of an importing country are presumably imported for
the express purpose of meeting the demands of domestic end users. EPA
believes that an accurate accounting of available stocks must take into
account the global demand for the product in both developed (E2) and
developing (E1) countries as authorized under the Protocol.
Furthermore, the U.S. is the world's largest supplier of methyl
bromide. In the event of an unforeseen catastrophe such as the
destruction of a production plant, EPA believes that a strategic buffer
should be held in reserve in order to meet real time global demand for
methyl bromide. Since U.S. companies supply a significant portion of
the world, a catastrophe in the U.S. would not only affect U.S. users
but would affect those users who have authorized critical uses in
developed countries as well as the users in developing countries who
have not yet phased out methyl bromide. EPA estimates that a
catastrophic plant incident that resulted in unforeseen shutdown could
result in a three month supply disruption and that a catastrophic
buffer (C) equal to the amount of methyl bromide produced for both
domestic and overseas markets for transformation, quarantine and
preshipment, and critical uses for that period of time is necessary to
prevent a significant impact on many industrial sectors using methyl
bromide as a feedstock, on global trade that relies on methyl bromide
to protect the introduction of invasive species, and on agricultural
sectors globally that have recognized critical needs to fumigate with
methyl bromide.
In addition, some entities in the U.S. did not apply for a critical
use exemption because they intend to meet their small, limited needs
through existing U.S. inventories of methyl bromide. EPA therefore
would set aside an amount (N) from the existing stockpile to meet the
needs of end users who did not apply for an exemption but who are still
using methyl bromide during their transition to alternatives.
Finally, stocks in the United States will continue to be sold and
used by domestic and international consumers throughout the 2004
calendar year, in advance of the January 1, 2005 phaseout date. This
drawdown (D) should be considered in determining the amount of stocks
available for critical uses in 2005.
EPA is proposing to use the methodology described above to develop
an estimate of the portion of existing stocks available for critical
uses. In Decision Ex. I/3, the Parties agreed that for 2005 the United
States had demonstrated a level of critical use of 8,942,214 kilograms
of methyl bromide. However, the Parties only authorized the United
States to produce up to 7,659,000 kilograms of methyl bromide for
critical uses in 2005 with the understanding that the United States
[[Page 52375]]
would likely have stocks available. EPA is proposing to issue critical
use allowances (CUAs) for new production and import for the agreed
critical-use categories at a level not to exceed any amounts of methyl
bromide authorized by the Parties to be produced and imported to
satisfy critical uses. In the event that EPA determines that the
available stocks are greater than the difference between critical use
levels and authorized production, EPA is proposing to adjust the CUAs
issued by the additional amount of available stocks relative to the
level of production and import authorized by the Parties.
As discussed in the Technical Support Document, this methodology
(AS = (ES + B)-E1-E2-C-N-D), yields a range of methyl bromide available
from existing stocks from 5 percent to 9 percent of U.S. consumption
baseline (1,283,214 to 2,326,000 kilograms). Therefore EPA proposes to
allocate critical use allowances (CUAs) authorizing 7,659,000 to
6,616,214 kilograms of new methyl bromide production or import for the
agreed critical-use categories in 2005. This proposed quantity of new
production or import is the difference between the total amount of
methyl bromide use authorized by the Parties for the agreed critical-
use categories in Decision Ex I/3, an amount of 8,942,214 kilograms,
and the amount of available stocks of 1,283,214 to 2,326,000 kilograms.
Since EPA is proposing a range of available stocks equal to or greater
than 1,283,214 kilograms, which is equal to five percent of the U.S.
baseline, final action may allocate somewhat less than the full amount
of new production and import that was authorized by the Parties in Ex
I/3.
In making the proposed determination of available stocks described
above, EPA derived the total amount of existing stocks (ES) from
information that EPA currently has on the amount of methyl bromide
stocks held by a small number of companies in the United States as of
the end of 2003. As described above, EPA is seeking to update its
information on existing stocks (ES). Because no methyl bromide has been
produced to date under the critical use exemption, the quantity of
banked critical use methyl bromide (B) is zero in 2005.
The majority of the information EPA currently has on existing
stocks was obtained through responses to Section 114 requests that EPA
sent to a small group of companies. However, each of these companies
claimed their responses to EPA's request to be Confidential Business
Information. As a result, EPA is not authorized to release this
information until it completes the process for evaluating these claims
prescribed by the Agency's CBI regulations at 40 CFR part 2, subpart B.
EPA is currently evaluating the merits of these claims in accordance
with these procedures and expects to make a final determination on the
CBI claims prior to finalizing the proposed critical use exemption
regulation. Pending the completion of the process required under 40 CFR
part 2, subpart B, EPA is treating the companies' methyl bromide
stockpile information as CBI. In addition, EPA is treating the
aggregate total of the stocks held by these companies as CBI because of
concerns that publication of the aggregate amount could allow the small
number of producers, imports, and distributors who know the size of
their own holdings to calculate the amounts claimed as CBI by their
competitors.
Because EPA has not yet completed its review of these CBI claims
regarding methyl bromide stocks, this notice does not include the total
amount of existing stocks (ES) and other quantitative values that EPA
derived to determine available stocks using the methodology set forth
above. EPA is concerned that the amount of existing stocks (ES) could
be revealed by simple arithmetic if EPA were to publish its methodology
for determining available stocks and quantify all the values used to
derive the amount of available stocks except for the amount of existing
stocks.
However, to provide the public with a meaningful opportunity to
comment on its approach, EPA has published the estimated amount of
available stocks in this notice and described the methodology used to
derive this figure. EPA has also prepared a detailed Technical Support
Document which elaborates on the reasoning and methodology that EPA
used in developing estimates for each of the factors described above.
Interested parties may find a copy of this document within EPA's
electronic docket, Electronic Air Docket ID No. OAR-2003-0230, and
EPA's paper docket, Air Docket ID No. A-2000-24. If, in accordance with
the procedures set forth in 40 CFR part 2, subpart B, EPA determines
that all or part of the information on existing stocks of methyl
bromide stocks may be released to the public, EPA will place this
information in the docket and quantify the other values in the formula.
To implement this limitation on total methyl bromide use in
critical use categories on a national basis in 2005, EPA proposes to
prohibit entities holding stocks of methyl bromide from selling or
distributing such material to critical use categories for which new
production and import is authorized under Decision Ex I/3, unless that
entity holds a ``critical stock allowance'' allocated by EPA. EPA
proposes to allocate ``critical stock allowances'' (CSAs) in an amount
between 1,283,214 to 1,987,000 kilograms estimated by EPA to be
available from stocks for the agreed critical-use categories. In the
event that market forces reveal that EPA has under-predicted the amount
of material available from stocks, EPA proposes that holders of
critical use allowances (CUAs) may retire such allowances in exchange
for additional critical stock allowances (CSAs) which would be issued
by EPA.
The Agency seeks comment on an additional option for making the
determination regarding the amount of methyl bromide available from
existing stocks and seeks comments on this option and the proposal. For
the 2005 calendar year, the Agency could make a determination that the
amount of methyl bromide available from existing stocks is simply based
on the difference between the limit on methyl bromide for critical uses
(8,942 metric tons) and the limit on new production and import (7,659
metric tons) in the Decision Ex. I/3. This approach would reflect the
fact that the Decision anticipates that each Party will determine how
to take into account methyl bromide available from existing stocks.
EPA seeks comment on the amounts of critical use allowances (CUAs)
and critical stock allowances (CSAs) proposed for allocation under the
critical use exemption framework. EPA also seeks comment on its
methodology for quantifying available stocks for 2005. In particular,
EPA requests comment on whether it should employ the methodology for
identifying available methyl bromide from existing stocks in a more
qualitative than quantitative manner.
B. What Is the Proposed Regulatory Framework for Implementing the
Critical Use Exemption and What Is a Critical Use Allowance (CUA) and a
Critical Stock Allowance (CSA)?
EPA proposes to implement the critical use exemption by using an
allowance system.
EPA believes an allowance system that regulates the production and
import of critical use methyl bromide, as opposed to regulating the
actual users of methyl bromide, is the simplest and most transparent
method available for ensuring U.S. compliance with Protocol
obligations. There are relatively few entities that produce and import
methyl bromide that EPA regulates under the CAA and these entities are
already
[[Page 52376]]
providing high quality reporting data to EPA that is verifiable and
easy to track. In accordance with Protocol obligations and CAA
requirements the EPA primarily regulates production and consumption
(defined as production plus imports minus exports) of ozone-depleting
substances. Given that the universe of producers and importers is
considerably smaller than the universe of end users, and that producers
and importers generally have more infrastructure for regulatory
compliance than end users, this method of regulation is proven to be
cost effective for ensuring U.S. compliance with obligations under the
Montreal Protocol and requirements under the CAA.
Thus, EPA proposes to create critical use allowances (CUA) which
would entitle the allowance holder (producer or importer) to produce or
import 1 kilogram of methyl bromide for the exclusive purpose of
satisfying the needs in agreed critical-use categories during the 2005
control period (calendar year). A CUA holder would expend one allowance
for producing or importing one kilogram of methyl bromide.
In addition, in order to implement its obligations under the
Protocol to control the amount of methyl bromide used in 2005 in the
agreed critical use categories, EPA is also proposing to create
critical stock allowances (CSAs). A CSA would entitle the allowance
holder (producer, importer, distributor or applicator) to sell 1
kilogram of methyl bromide of available stockpiled material to an
approved critical user. For example, a distributor with 100 CSAs may
sell 100 kilograms of stockpiled methyl bromide to an approved critical
user for use in an agreed critical use category of fumigation. EPA is
proposing to prohibit the sale of methyl bromide stocks to an approved
critical user for critical uses without a critical stock allowance.
Thus, EPA would control the total amount of stocks that can be sold or
distributed to the critical use categories authorized by the Parties
through the allocation of a limited number of critical stock
allowances.
The issuance of critical stock allowances (CSAs) does not obligate
holders of stocks to make these quantities available to critical uses
if they choose for practical or business reasons not to sell or
distribute stocks to critical uses. However, EPA believes that these
firms will respond to market conditions.
The CSA would be expended upon the sale of methyl bromide to an
approved critical user, which would include instances where an approved
critical user contracts with a distributor to provide fumigation
services. A CSA would not be expended upon the transfer of methyl
bromide from producers or importers to a distributor. See the
additional discussion below on transfers of CSAs.
EPA seeks comments on the proposed allowance allocation framework
for implementing the ``double cap'' agreed to in Decision Ex I/3 by the
Parties to the Protocol
C. How Will Critical Use Allowances (CUAs) Be Distributed?
With today's action, EPA is proposing to allocate critical use
allowances (CUAs) to producers and importers of methyl bromide on a
pro-rata basis based on their 1991 consumption baseline levels. EPA
proposes using historic 1991 baseline levels of consumption allowances
to allocate CUAs because it is consistent with the method of allocation
currently in place under the phaseout of methyl bromide and because EPA
has easily verifiable baseline data for 1991.
EPA is proposing to use consumption baselines and not production
baselines because critical use methyl bromide can be legally sourced in
the U.S. through either domestic production or import. A critical use
allowance (CUA), as described in Section VI..B. of this proposed rule,
entitles the allowance holder either to produce or to import one (1)
kilogram of methyl bromide. Therefore, EPA believes that the production
baseline would be inappropriate to use since it would exclude importers
from meeting the needs of critical uses.
Although EPA is proposing to distribute allowances to producers and
importers based on the 1991 baseline, EPA recognizes an option of
allocating allowances to producers and importers based on the volume of
material marketed over a previous historic period, such as the
immediate past four years. EPA does not have adequate data to create a
new baseline of marketed material for methyl bromide producers and
importers. EPA believes that acquiring sufficient, credible data of
this nature would require the Agency to review all transaction records
for each sale made by a methyl bromide producer or importer to a
distributor, other supplier, or directly to end users. The Agency is
concerned that it would take a long time to compile, receive and
analyze such detailed information. In addition, such a process of
compiling and submitting the information to make a new baseline
determination would impose additional burden on the regulated
community. This burden would likely be annual since the volumes of
marketed material would not remain static from year-to-year after 2005.
EPA also recognizes another allocation method that would equally
divide the number of allowances amongst those entities with historic
production and consumption. EPA believes that this would be the
simplest approach to allocating allowances. However, a simple division
of the critical use allowances (CUAs) based on the number of entities
involved would grossly distort historic and current relative market
shares of the regulated entities; some would receive far more than
their historic production and consumption and others would receive far
less. Allocating allowances based on volume of recently marketed
material may more closely reflect current market shares for each
company, but, for reasons involving the annual burden on industry and
government discussed above, this is not a desirable distributional
mechanism. Therefore, EPA is proposing to allocate allowances based on
the 1991 historic baseline that has been used for more than a decade in
the U.S. to determine relative market shares among producers and
importers. Allocating CUAs based on each company's 1991 baseline
allowances (on a pro-rata basis) is a better reflection of market share
than simply dividing the number of allowances by the total number of
entities, and would be less burdensome than conducting a detailed
recent historical market share analysis on a an annual basis. Using the
1991 historic baseline method for distributing CUAs is consistent with
how EPA has allocated methyl bromide production and consumption
allowances for the past decade under the methyl bromide phaseout.
During stakeholder meetings prior to development of this rule, one
stakeholder suggested that EPA give the allowances to a third party
not-for-profit entity who would in turn auction the allowances to the
producers, importers, and distributors. After the producer, importer
and distributor purchased the requisite number of allowances, these
entities could then expend the allowances as described in Sections
VI.B. and VI.N. of this proposed rule. The revenue derived from the
auction would be used by the not-for-profit entity to fund transitions
to alternatives where the alternatives are technically available but
not economically feasible and research into alternatives to methyl
bromide where no technically feasible alternatives exist to date. Under
the allowance auction approach, no additional activities would be
required of the end users but they would receive
[[Page 52377]]
a substantial benefit in the form of the transition fund described
above in this paragraph. One of the economic benefits of the auction
would be the redistribution of windfall profits that the producers and
importers of methyl bromide currently receive under the phaseout of
methyl bromide and that will be extended under the proposed critical
use exemption. There are relatively few producers and importers of
methyl bromide and the regulatory-induced scarcity created by the
Protocol and CAA means higher prices can be charged and the additional
profits are then received and kept by the producer and importer
companies. Under an auction however, producers and importers would pay
for the right to produce or import methyl bromide, thereby decreasing
their windfall profits. Apart from a small amount of money to maintain
operations of the not-for-profit entity, in theory the revenues derived
from the auction could be transferred to end users of methyl bromide to
ease the economic burden of their phaseouts.
A second stakeholder commented that an auction could be established
as follows. EPA would distribute allowances to producers and importers
as described in this NPRM which would entitle the companies to take two
actions (a) produce and import kilograms of methyl bromide up to the
number of allowances held, or (b) auction the allowances to critical
end users. The end users would then turn in their allowances to the
methyl bromide supplier at the time of purchase.
A similar allocation method that would address the windfall profit
issue is as follows. EPA would distribute CUAs to end users. The users
would then sell the allowances to producers and importers who would
then be able to produce or import critical use methyl bromide. This
distribution system would allow windfall profits to be captured by the
users. Problems with this system are the same ones discussed with
distributing allowances to a not-for profit entity as described in the
preceding paragraph.
EPA seeks comments on today's proposed method for allocating
critical use allowances (CUAs) and the many other options for
allocating CUAs described above, as well as the magnitude of burden
associated with any of the options that would adjust existing
baselines.
D. How Are Critical Stock Allowances (CSAs) Distributed?
EPA proposes to allocate CSAs on a pro-rata basis between each of
the identified entities that holds stocks. EPA will pro-rate the total
amount of stocks that the Agency has determined are available between
each known entity relative to the percentage of the total existing
stocks they hold. For example, if company A holds one percent of all
existing stocks and EPA determines that 1,000 kilograms of stocks are
available, EPA will issue that company 10 critical stock allowances
(CSAs). EPA believes this is the most equitable and least arbitrary
method available for allocating CSAs.
Based on information currently available, EPA proposes to issue
CSA's to the small group of companies that had stocks of methyl bromide
in 2003. The amount allocated to each of these companies (and any other
company that may come forward) will be determined in the final rule on
the basis of comments and additional information collected by EPA. EPA
proposes to allocate critical stock allowances (CSAs) on a pro-rata
basis to the companies based on the amount of stocks held by each
entity and the Agency's assessment of the available methyl bromide from
stocks for critical uses.
In today's Federal Register, EPA is requesting additional
information on the amount of available stocks in the United States.
Elsewhere in today's Federal Register EPA is publishing a notice under
Section 114 of the CAA calling for every entity to submit to EPA by
September 23, 2004, information on their stocks of methyl bromide that
are unrestricted (not for quarantine and preshipment and produced
solely for export to Article 5 countries). An entity that does not
submit information to EPA regarding stocks of methyl bromide they hold
for sale or transfer to another entity as of August 25, 2004, will not
receive critical stock allowances (CSAs) in the allocation made in the
final rule. Such entities will not, therefore, be able to sell methyl
bromide to any of the approved critical users in the 16 agreed
critical-use categories defined in Decision Ex I/3 by the Parties to
the Protocol.
As noted above, EPA is currently evaluating (in accordance with the
procedures in 40 CFR part 2, subpart B) whether the inventory amounts
held by individual entities are entitled to be withheld from the public
as confidential business information. If EPA makes a final
determination that the amount of stocks held by each entity is not
confidential business information, then the final rule will contain the
specific amounts of CSAs allocated to each entity on the basis of the
information submitted to EPA. However, if EPA determines that
individual company holdings of methyl bromide stocks are CBI, then the
final rule will list the names of the entities issued CSAs without
including the amounts. EPA would then confidentially inform each party
of amount of CSAs allocated to them for 2005. Alternatively, EPA might
be able to allocate CSAs on a pro-rata basis without revealing the
amount of existing stocks held by each party. This is because the CSA
allocation would be a pro-rata percentage of ``available'' stocks,
which may be a lesser amount than the aggregate of existing stocks held
by all the companies, and therefore would not reveal the actual amount
held by each of the companies.
E. Are Allowances To Be Allocated on a Sector-Specific Basis or as One
Lump Sum for All Sectors?
Decision Ex I/3 (4) states that, ``Parties should endeavor to
allocate quantities of methyl bromide'' in accordance with the
recommendations made by the Technology and Economic Assessment Panel
(TEAP) as listed in agreed critical-use categories. EPA is therefore
requesting comment on a sector-based allocation of allowances, as well
as several other more flexible methods for making allocations.
1. Sector-Specific Allocation
EPA seeks comments on a sector-specific allocation of critical-use
allowances (CUAs) and also a sector-specific allocation of critical
stock allowances (CSAs). Under a sector-specific option, in 2005 EPA
would create and allocate 16 different types of CUAs, one type for each
critical use category authorized by the Parties. End users of methyl
bromide made applications to EPA for an exemption and the U.S.
government created a nomination of uses with similar circumstances to
be considered by the Parties. The nomination aggregated similar
circumstances of methyl bromide use into sectors. In a sector-specific
allocation scheme, each producer and importer of methyl bromide would
be allocated 16 different types of CUAs on a pro-rata basis in relation
to their overall 1991 consumption baseline. For example, assume
producer A has a consumption baseline that equals 50% of total
allowable U.S. consumption. If the Parties authorized new production of
100 kilograms of methyl bromide for tomatoes and 20 kilograms of methyl
bromide for flower nurseries, EPA would allocate 50 tomato critical use
allowances (tomato CUAs) and 10 flower nursery critical use allowances
(flower nursery CUAs) to company A. See Section VI.F. below for the
proposed sector-specific allocation of
[[Page 52378]]
CUAs to individual producers and importers. The methyl bromide produced
or imported with a tomato CUA could only be sold and used for growing
tomatoes by an approved critical user that has the limiting critical
conditions cited as the basis for the critical methyl bromide need in
the nomination that was subsequently authorized by the Parties.
EPA recognizes that not all allowance holders (producer/importers)
may want or need allowances of all types. For example, some allowance
holders may supply only certain geographic markets or certain sectors.
If EPA were to implement an allocation scheme, such as a sector-
specific system, that is more restrictive than the current market, EPA
would permit allowance trading amongst allowance holders. For instance,
a tomato CUA holder in Region A would be able to trade with a tomato
CUA holder in Region B; however, a tomato CUA holder would not be
allowed to trade with a strawberry CUA holder in Regions A and B.
Section 607 of the CAA allows for trading in part to encourage
rationalization in the industry. It would be difficult for EPA to know
exactly which company services which particular group of end users.
However, the market-based mechanisms (transfers of allowances)
described later in this preamble may rectify such issues under a
sector-specific allocation scheme.
EPA believes that an allocation scheme that is more restrictive
than the ``lump sum'' approach described below, such as the sector-or
applicant-specific allocation, would provide greater assurance to each
sector or group of applicants that some defined amount of methyl
bromide would be available for that particular user group. However,
under a sector-or applicant-specific system, if the user group did not
use its entire allowable amount of methyl bromide, it would not be
available for other approved critical users. So too, if a group needed
more methyl bromide because they had a particularly bad pest
infestation or demand for their product suddenly increased, the group
would not be able to secure additional quantities without first seeking
approval from the Parties during the annual nomination process and
obtaining a higher allocation through EPA's subsequent notice-and-
comment rulemaking which is resource and time intensive. A more
restrictive sector-or applicant-specific allocation provides more
certainty to each group but at the cost of flexibility.
2. Lump Sum Allocation
EPA requests comment on the option of creating one pool of CUAs and
one pool of CSAs that can be used to supply critical use methyl bromide
across sectors in what is known as a ``lump sum'' or ``universal''
approach. This means that critical use methyl bromide produced or
imported with CUAs could be used for any of the agreed critical-use
categories. Likewise, with a lump sum allocation of critical stock
allowances (CSAs), the limited inventory that is available for sale
into the critical use market would be for any of the agreed critical-
use categories.
Under a universal allocation system, EPA anticipates that the
actual critical use will closely follow the sector breakout listed by
the TEAP and incorporated into Decision Ex I/3. The TEAP
recommendations are based on data submitted by the U.S. which in turn
are based on recent historic use data under the current methyl bromide
phaseout market which is a ``universal'' system. In other words, the
TEAP recommendations agreed to by the Parties are based on current use
and the current uses are taking place in a marketplace where all methyl
bromide users compete for the lump sum. Thus, EPA expects that 2005 use
under a universal approach will look similar to the TEAP
recommendations and annex II a in Decision Ex I/3. To the extent that
any discrepancies between expected and actual use in 2005 occurs, a
later section of today's proposed rulemaking describes tracking and
reporting requirements that will help verify actual use by sector and
help refine future U.S. nominations for critical use exemptions by
highlighting differences between amounts nominated for a sector,
recommended by TEAP, and agreed by the Parties and the actual use by
that sector during the 2005 control period.
EPA would like to note that currently the methyl bromide market
under the phaseout reductions (since 1994) operates as a ``universal''
or ``lump sum'' system. All end users of methyl bromide compete in the
same marketplace for methyl bromide under the phaseout regulations. EPA
believes that no critical user will face a situation where they cannot
access approximately the same levels of methyl bromide that they have
historically been able to access during the years of the phaseout
because the U.S. government used recent historic data (1997-2001) in
determining how much to nominate for each sectors critical use and this
use data is based on amounts of methyl bromide obtained under a
universal market.
In addition to the logistic and administrative reasons for
implementing a universal allocation scheme, there are significant
economic reasons to implement such a lump sum approach. The more
restrictive the methyl bromide caps are, the less efficient the
distribution of methyl bromide one would expect in the market.
According to economic theory, under a universal cap, methyl bromide
would go to those users with the highest marginal cost of substitution
who would set the price of methyl bromide. This price of methyl bromide
would lead those users with marginal costs of substitution lower than
the price of methyl bromide to move instead to an alternative that may
not have been previously economically feasible, thus resulting in a
comparatively more efficient distribution of material and an overall
lower cost of compliance for the regulated community as a whole. EPA
estimates that the cost savings to the regulated entities of an
illustrative sector-specific approach may be between $20 to $27 million
when compared to a complete phase out of methyl bromide; the cost
savings under an illustrative universal approach may be $22 to $31
million (see section VII a for more information on this analysis).
Thus, the universal approach results in a greater cost savings to the
regulated entities overall. A full discussion of this cost estimate may
be found in the docket for today's rulemaking.
3. Applicant-Specific Allocation
EPA requests comment on making allowances specific to critical use
exemption applicants. Under this option, in 2005 EPA would create and
allocate 51 different types of CUAs and 51 different types of CSAs, one
for each authorized critical use exemption applicant. Again, these
allowances would be distributed to producers and importers in a pro-
rated fashion and would be tradable amongst them. EPA recognizes that
the more types of allowances we create, the more administratively and
logistically complex the regulation becomes for the regulated
community. With added administrative complexity generally comes a
higher cost of implementation which may include costs associated with
generating more specific information and greater inflexibility in the
market.
4. Hybrid Allocation Options
EPA also is requesting comment on a hybrid approach that would
create sector- or applicant-specific CUAs and universal or ``lump sum''
CSAs. EPA realizes that stocks may be held by
[[Page 52379]]
distributors and applicators. Unlike producers and importers whom EPA
has historically regulated, some of these entities are smaller or more
specialized. For example, EPA is aware of a distributor and custom
applicator based on the East Coast that only services customers in the
eastern part of the U.S. It is unlikely that this East Coast
distributor and applicator will have any customers from the California
fruit tree nursery sector that was authorized for critical use methyl
bromide, since this is a region the distributor and applicator does not
service. Thus, an allocation of fruit tree nursery CSAs would be of
little practical use to this company. If the allocation were sector-
specific, the company could trade its fruit tree nursery CSAs with one
of the distributor/applicator companies that operate in California.
However, if the company on the east coast was allocated only a small
number of fruit tree nursery CSAs, it may not be worth the time and
cost to find a suitable trading partner and engage in the trade.
Therefore, EPA recognizes a hybrid option that would allocate sector-
specific or even applicant-specific CUAs, but universal CSAs. The
universal CSAs would alleviate problems associated with dividing small
quantities of inventories scattered throughout the distribution system
into many different types of end uses that may be of little use to a
distributor in a specific geographic location. In addition, the
universal CSAs would provide some flexibility to the end user community
in the event that unanticipated market forces drive up demand in a
particular commodity area or pest outbreaks in a particular crop are
unusually high in a particular growing season.
EPA recognizes that another option would be to make CUAs and CSAs
universal but require distributors and others who sell methyl bromide
directly to end users to ``endeavor'' to make quantities of critical
use methyl bromide available to their customers as prescribed in
Decision Ex I/3 annex IIA. This option would rely on entities at the
point of sale to ration methyl bromide to their customers the same way
they have been doing under the phaseout--based on each client's
historical purchases--in essence giving each sector (customer) the
right of first refusal to a specific quantity of methyl bromide.
However, under a scheme where distributors endeavor to make the
critical use methyl bromide available in accordance with the quantities
associated with specific-sectors in annex IIA of Decision Ex I/3, the
methyl bromide, whether from CUAs or CSAs would still be ``universal,''
and distributors would have the flexibility to move quantities of
critical use methyl bromide from one sector that does not need their
full amount, to another sector that may have higher than anticipated
need.
Finally, regarding the allocation of critical use allowances (CUAs)
for new production and import of methyl bromide after the January 1,
2005, phaseout, EPA recognizes another hybrid option that would
allocate a percentage on a sector-specific basis and a percentage on a
universal, lump sum basis. This option of allocating a percentage of
the CUAs as sector-specific and a percentage of CUAs as universal would
provide some measure of assurance for each applicant as well as
providing flexibility if a few of the sectors faced greater need for
methyl bromide in the 2005 control period.
EPA wishes to note that the circumstances that are the basis for
the U.S. sector nominations and the TEAP recommendations for specific
sectors may have changed since that data was submitted. However, since
EPA will not issue allowances for more critical use methyl bromide than
the amount authorized by the Parties, this proposed rulemaking provides
stakeholders with the opportunity to request flexibility in how
allowances are distributed to accommodate changes in the marketplace
that have transpired since the TEAP review. This NPRM represents part
of EPA's endeavor to allocate methyl bromide in accordance with TEAP's
recommendations. Thus, EPA seeks comment on the universal, sector-
specific, applicant-specific, and hybrid methods for allocating CUAs
and CSAs. In addition, for the hybrid approaches, EPA also requests
comment on the portion of the authorized quantity that should be made
sector- or applicant-specific, if any, and what portion should be made
universal. EPA will evaluate and reconcile these comments and then
publish a final rule that describes how allowances will be distributed.
F. How Many Critical Use Allowances (CUAs) and Critical Stockpile
Allowances (CSAs) Will Producers, Importers and Distributors Be
Allocated?
EPA proposes using one of the options described in the immediately
preceding sections of this rulemaking notice to allocate critical use
allowances and critical stock allowances to producers, importers, and
distributers. We described two basic options for making the allocation
of critical use allowances (CUAs)--a sector-specific allocation or a
universal allocation--and hybrids of these two options. In addition, we
propose a universal allocation of critical stock allowances (CSAs).
The Tables immediately below are illustrative examples of how a CUA
allocation would appear under a universal allowance allocation scheme
(Table I) as compared to a sector-specific allowance allocation scheme
(Table II). For purposes of this illustration, we assumed an overall
allocation of critical use allowances equal to 7,285,414 kilograms,
which is approximately the middle of the range that we are proposing.
When we take final action on this proposal, the individual allocations
reflected in the following tables may increase or decrease by a
proportionate amount depending on whether the total amount of critical
use allowances that we issue is on the higher or lower end of the
proposed range. Likewise, the amounts in the tables would differ if we
were to employ one of the hybrid options to allocate allowances. In
addition, the Agency is still collecting information in a Section 114
Information Request being published concurrently with today's action,
so the final rule will take into account updated data on the amount of
inventory that is available for critical uses.
The distribution of CUAs to specific producers and importers of
methyl bromide for a universal allocation may appear as in Table I. The
distribution of CUAs to specific producers and importers of methyl
bromide for a sector-specific allocation may appear as in Table II. The
proposed distribution of CSAs would be as follows for a universal
allocation (Table III).
Table I.--Critical Use Allowance Allocation for the Calendar Year 2005
(Universal)
------------------------------------------------------------------------
Number of
critical use
Company/universal allocation allowances
(kilograms)
------------------------------------------------------------------------
Great Lakes Chemical Corporation........................ 4,427,693
Albemarle Corporation................................... 1,820,736
AmeriBrom, Inc.......................................... 1,005,814
Trical, Inc............................................. 31,171
---------------
Total............................................... 7,285,414
------------------------------------------------------------------------
[[Page 52380]]
Table II.--Critical Use Allowance Allocation for the Calendar Year 2005 (Sector Specific)
----------------------------------------------------------------------------------------------------------------
Number of critical use allowances (kilograms) for each company
for each sector
Sector-specific allocation; approved critical------------------------------------------------------------------
use sectors Great Lakes
Chemical Albemarle AmeriBrom, Inc. Trical, Inc.
Corporation Corporation
----------------------------------------------------------------------------------------------------------------
Chrysanthemum cuttings--rose plants........... 14,563 5,989 3,308 103
Curcurbits--field............................. 588,133 241,850 133,603 4,141
Dried fruit, beans and nuts................... 42,955 17,664 9,758 302
Eggplant--field............................... 36,423 14,978 8,274 256
Forest tree nurseries......................... 95,323 39,198 21,654 671
Fruit tree nurseries.......................... 22,678 9,325 5,152 160
Ginger production--field...................... 4,555 1,873 1,035 32
Mills and processors.......................... 239,155 98,344 54,327 1,684
Orchard replant............................... 349,660 143,785 79,430 2,462
Peppers--field................................ 537,381 220,979 122,074 3,783
Smokehouse ham................................ 449 185 102 3
Strawberry fruit--field....................... 908,020 373,392 206,269 6,393
Strawberry runners............................ 27,227 11,196 6,185 192
Sweet potato-- field.......................... 40,023 16,458 9,092 282
Tomato--field................................. 1,418,739 583,408 322,287 9,988
Turfgrass..................................... 102,409 42,112 23,264 721
Total..................................... 4,427,693 1,820,736 1,005,814 31,173
----------------------------------------------------------------------------------------------------------------
Table III.--Critical Stock Allowance Allocation
------------------------------------------------------------------------
Number of critical stock
Company allowances (kilograms)
------------------------------------------------------------------------
Company A........................... Reserved, pending resolution of
CBI claim and Section 114
request.
Company B........................... Reserved, pending resolution of
CBI claim and Section 114
request.
Total........................... 1,656,800
------------------------------------------------------------------------
G. What Are the Tracking Requirements for a Sector- or Applicant-
Specific Allocation?
In the event that EPA puts in place a final rule that issues
sector- or applicant-specific allowances, EPA must devise a system that
would ensure compliance with the sector/applicant level caps. EPA
believes that tracking types of allowances expended (e.g. pepper CUAs)
in order to ensure compliance with a sector cap is essentially an
accounting question and therefore describes a system that controls
production and import at a sector- or applicant-level through different
types of CUAs. EPA is proposing a system where entities in the supply
chain such as producers, importers, and distributors would create and
keep an on-going log of the amount and, if the final rule allocates on
a sector- or applicant-specific basis, the type of critical use methyl
bromide (i.e., eggplant CUAs), on a per kilogram basis, acquired and
sold during the year. In addition, entities that acquire critical use
methyl bromide from a supplier would sign a self certification form
indicating that they understand they are taking possession of a certain
number of kilograms of critical use methyl bromide of a specific type.
EPA believes that it is the responsibility of the distributor or other
supplier to place orders with producers or importers for critical use
methyl bromide of the appropriate type to meet the needs of their
customers which means that a distributor may have to call more than one
company to find the correct type of material in sufficient quantity to
meet demand (see Sections VI.L. and VI.M. for more information on
record keeping and reporting requirements).
During the public meetings on potential allocation framework
options held during the summer of 2003, a participant suggested that
EPA require the use of a database system to track critical use methyl
bromide. Currently, a real time database system is being used in the
state of California to track the use of 1,3-dichloropropene and ensure
that the township caps are not exceeded. Under this option, EPA would
require registrants to populate the database with information on the
allowable critical uses, the approved critical users, and the amount of
critical use methyl bromide produced, imported or available from
critical stockpiles. Distributors and applicators would consult the
database and reserve a specific amount of critical use methyl bromide
when an order is placed for the material or for fumigation with
critical use methyl bromide. The reservation would freeze the amounts
of critical use methyl bromide for 14 days--at which point the company
that made the reservation would lose its reservation unless it
indicated that the material had already been used in a fumigation. This
database could be created by EPA through a contractor or EPA could
require regulated entities to utilize existing commercial database
programs. EPA believes that producers, importers, distributors, and
applicators would likely have to make some capital expenditures to be
able to use the database for tracking purposes. EPA believes that the
database approach would provide high quality use data on critical use
of methyl bromide and that it could be used under a sector specific or
applicant specific approach to ensure that distributors and other
points of sale do not exceed total allowable amounts of critical use
methyl bromide for that particular use. EPA seeks comment on the use of
a commercially available database system to track the sale of critical
use methyl bromide.
H. How Do ``Approved Critical Users'' Acquire Methyl Bromide Under
Today's Proposal?
With today's action, EPA is proposing that approved critical users
(end users) within an agreed critical-use sector, that also have the
``limiting critical conditions'' for their specific circumstances of
use, acquire methyl bromide following a system nearly identical to the
existing procedures under the quarantine and preshipment exemption
(QPS) to the phaseout of methyl bromide (68 FR 237 (January 2, 2003)).
The phrases ``approved critical user'' and ``limiting critical
condition'' are further discussed below in Sections I. and K.,
respectively. EPA proposes that approved critical users of methyl
bromide who wish to acquire critical use methyl bromide, or who
contract for
[[Page 52381]]
fumigation with critical use methyl bromide, will self certify that
they are approved critical users at the time of purchase. The
certification requirement would be part of the reporting and
recordkeeping requirements set forth in section 82.13 of its
regulation.
To implement this regulation, EPA will create a form that an
approved critical user will complete with basic information about the
user (name, location of fumigation, consortium, etc), the number of
kilograms to be purchased and the area to be treated, the agreed
critical-use category (i.e. tomatoes, bean storage, etc.), and a check
list of the applicable limiting critical conditions approved by EPA and
the Parties (e.g. karst topography, heavy to moderate nutsedge
infestation). The form would be signed by the approved critical user
(purchaser) of the methyl bromide and given to the supplier of methyl
bromide to indicate that the purchaser is acquiring exempted critical
use methyl bromide from the supplier to use in accordance with the
exemption and bears the full penalty of law for providing false
information or for use that is not in accordance with the critical use
exemption regulations.
EPA is proposing that producers, importers, and distributors will
be prohibited from selling methyl bromide in critical use categories
without obtaining a self-certification from an approved critical user.
If an approved critical user seeks methyl bromide from stocks existing
prior to 2005, then the user must find a supplier who holds a
sufficient amount of critical stock allowances (CSAs) to sell methyl
bromide to an agreed critical-use category. To obtain methyl bromide
produced or imported in 2005 under the exemption, the approved critical
user must go to a supplier who has methyl bromide newly produced or
imported through expended 2005 critical use allowances (CUAs).
I. Who Is an Approved Critical User?
An approved critical user is entity who obtains the benefit of
acquiring newly produced or imported methyl bromide that is dedicated
for use in those use categories that have been agreed to be critical.
Such users benefit under the critical use exemption because they have
certainty that methyl bromide will be available for their critical
needs because this newly produced and imported methyl bromide cannot be
used for other purposes or by non-critical users. However, a condition
for obtaining the benefit of this dedicated supply of methyl bromide
after the phaseout date is that approved critical users will see their
access to existing, previously unrestricted stocks of methyl bromide
limited when necessary to ensure that total use of methyl bromide in
critical use categories does not exceed the overall critical use cap
established in Decision Ex. I/3.
EPA is proposing to define an ``approved critical user'' as an
entity whose circumstance of methyl bromide use is covered by an
application that is included in the U.S. nomination and subsequently
authorized by a Decision of the Parties to the Montreal Protocol for a
critical use exemption and then determined, through this EPA notice-
and-comment rulemaking, to be eligible for exempted critical use methyl
bromide (see Section A. of this notice of proposed rulemaking). Thus,
EPA proposes to define an ``approved critical user'' as a person
meeting the following two criteria:
(1) The user, for the applicable control period, applied to EPA for
a critical use exemption or is a member of a consortium that applied
for a critical use exemption for a use and location of use that was
included in the U.S. nomination, authorized by a Decision of the
Parties to the Montreal Protocol, and then finally determined by EPA in
a notice-and-comment rulemaking to be a critical use in that location,
AND
(2) The user has an area in the applicable location of use that
requires methyl bromide fumigation because the area is subject to a
limiting critical condition.
To summarize, EPA proposes that in order to qualify as an approved
critical user, you must satisfy the following conditions: (1) You must
have submitted or belong to a group that submitted an application to
EPA for a critical use exemption for the specific control period; (2)
the use and circumstances of use included in your application must have
been nominated by the U.S. for a critical use exemption; (3) the
Parties to the Protocol must agree in a Decision that your use and
circumstance is a critical use and then, (4) through this notice-and-
comment rulemaking EPA must identify your use as a critical use and
your circumstance as a limiting critical condition. EPA requests
comment on the proposed criteria for being an ``approved critical
user'' described above and, in particular, comment that addresses these
criteria in the context of the language of Decision IX/6 and Decision
Ex I/3.
The Agency recognizes there may be other ways of defining an
``approved critical user'' in the context of Decision IX/6 and Decision
Ex I/3, such as the following: (1) Not including criterion number two
above (the limiting critical condition); (2) not including criteria
numbers one and two above and instead defining approved critical user
broadly to include any user in one of the agreed critical-use
categories in Annex II.A. of Decision Ex I/3. We request comment on
whether such an alternative definition of ``approved critical user''
would be more appropriate and consistent with Decisions IX/6 and Ex. I/
3.
J. Can New Market Entrants or New Consortia Members Be Approved
Critical Users?
EPA proposes that an approved critical user can include a member of
a consortium during the control period even if the user was not a
member at the time the application was submitted to EPA. In today's
proposal, EPA is defining consortium as an organization representing a
group of methyl bromide users that has collectively submitted an
application for a critical use exemption on behalf of all members of
the group. The members of a consortium would be determined by the rules
established by the consortium. Members could either be required to
formally join the consortium (i.e., by submitting an application or
paying dues) or may automatically become members upon meeting
particular criteria (i.e. a grower of a specific crop in a particular
region). EPA does not believe that it is up to the Agency or to
distributors and third party applicators of methyl bromide to discern
between different types of consortium members.
For example, the Southern Forest Nursery Management Cooperative
consists of a certain number of forest seedling nursery operators. The
Cooperative made an application to EPA for a critical use exemption
that only included its members. Therefore, only members of the
Cooperative would qualify as approved critical users pursuant to the
consortium's application. However, if a company that was not a member
of the Cooperative at the time of the application in 2002 decided to
join the cooperative in 2004, EPA is proposing that the company be
eligible to access critical use methyl bromide available to members of
the consortium once the exemption takes effect in 2005 since the
company would be a member of the Cooperative during the control period.
A second example is the California Strawberry Commission, which
made an application to EPA to cover all strawberry growers in the state
of California. Because the initial application was made on behalf of
all growers in that state, any strawberry grower in California
regardless of the
[[Page 52382]]
date when he first entered the market is considered by EPA to be a
member of the consortium. Thus, a new strawberry grower who enters the
market in California in 2005 and who meets the limiting critical
condition for the agreed critical-use category would be able to access
the critical use methyl bromide under the framework set forth in
today's proposal.
In summary, EPA proposes that an approved critical user may include
an entity who newly enters the market of a crop/use that has a limiting
critical condition; an entity who switches to a crop/use that has a
limiting critical condition; an entity who increases production of a
crop/use that has a limiting critical condition; or an entity who
switches production of a crop/use with a limiting critical condition
from one physical location to another. In each instance, such an entity
would need to meet the limiting critical condition and qualify as a
member of consortium that applied for and obtained a critical use
exemption.
Under the second example described above, any consortium that
applied for an exemption for a broad geographic group of users may in
fact be encouraging free riders. However, EPA believes that those
consortia that applied on behalf of an entire state or region in their
initial application believe that all users in that location need a
critical use exemption based on technical and economic criteria.
Therefore, if a new user enters the market place in that same location,
EPA believes that the user would have automatically become a member of
the consortium as if he had entered the market at the time the
application was made. Therefore, the only remaining relevant question
is whether or not the new market entrant in the geographic area meets
the limiting critical condition and therefore may be an approved
critical user.
In public meetings, EPA received a suggestion from the affected
community which called for allowing critical use exemptions to only be
made available to those users who are ``users of record.'' A user of
record was suggested to be an approved critical user who was engaged in
production of a crop or commodity in a critically-exempted sector
immediately prior to the control period. The effect of such a provision
would be to require any entity that was not a user of record to use an
alternative to methyl bromide for the first year it engages in crop or
commodity production. After the first year, the new market entrant
would become a user of record and would be able to avail himself of
critical use methyl bromide. EPA believes that this system may provide
an incentive for new entrants to try alternatives to methyl bromide.
However, this system would be difficult to administer outside of the
state of California where such information is already tracked by state
regulators. In addition, critical use methyl bromide will only be
available for those users who do not have any technically and
economically feasible alternatives available to them; therefore, a
requirement such as the one suggested would foreclose any new entrants
altogether.
EPA believes that in order to accommodate the ever shifting
marketplace, growers and other users of methyl bromide should be
allowed to increase or move production as needed so long as total U.S.
production and import of methyl bromide for use in a given sector
remains under the limits authorized by the Parties and determined to be
a critical use in the U.S. through notice-and-comment rulemaking.
Therefore, EPA is proposing an option in today's notice that allows for
shifts in the marketplace (market entry and exit, and rotation into new
production areas) while still ensuring fairness to those groups who
applied for a CUE. It is important to note that the amount of methyl
bromide that may be supplied for critical uses in a calendar year
(control period) will not increase even if the number of users or
treated area increases. The only way the amount of methyl bromide
available for critical uses will be increased is if the Parties
authorize such an increase and EPA incorporates the increase into its
phaseout regulation through notice-and-comment rulemaking.
Under the proposed framework outlined in this section, users who
have the limiting critical condition but who are not users or members
of a group of users that submitted an application to EPA, are not
eligible critical users. For example, a consortium applied on behalf