Companies that import, produce, or reclaim HFCs should carefully review – and consider submitting comments on – a new rule proposed by the U.S. Environmental Protection Agency (EPA), which will determine not only the process for allocating HFC allowances but also obligations relating to import notifications and recordkeeping.

On October 20, 2022, EPA released a pre-publication version of the proposed rule, Phasedown of Hydrofluorocarbons: Allowance Allocation Methodology for 2024 and Later. The proposed rule would continue EPA’s implementation of the American Innovation and Manufacturing Act’s (AIM Act) provisions requiring EPA to phase down hydrofluorocarbon (HFC) use in the United States by 85% over a 15-year period. See 2 U.S.C. § 7675.

The current allowance allocation methodology applies only to the 2022 and 2023 allocations. EPA proposes establishing a new methodology for allocating HFC production and consumption allowances from the general pool available for 2024 through 2028. (Application-specific allowances, used for semiconductor and metered-dose inhalers and other designated sectors, would be allocated via the same approach currently in effect; the new rule would not affect that methodology.) Under the AIM Act phase-down schedule, available allowances will drop in 2024 from 90 percent of the baseline (i.e., historical) level to 60% of the baseline level.

EPA describes the proposed methodology for the general allowances as generally similar to that used for 2022 and 2023 allocations. The proposed rule would incorporate new entrants to the HFC market into the general allowance pool; lower the HFC consumption baseline by 3.6 million metric tons of exchange value equivalent (approximately 1.2%) relative to the original baseline codified in EPA’s 2021 Framework Rule based on “corrected data submitted to EPA;” require annual emissions reporting from HFC production facilities; and make additional adjustments to implementation, compliance, and enforcement provisions, including revising certain recordkeeping and reporting requirements.

EPA also released a Draft Addendum to the Regulatory Impact Analysis for the Phasedown of Hydrofluorocarbons that accounts for changes in the expected cost of the entire HFC phasedown under the AIM Act. Because the proposed rule would lower the consumption baseline, which is used in part to determine the maximum allowed consumption in future years, EPA says it will impose $69-71 million in annual incremental net costs between 2024 and 2050 for a total cost increase of $740 million (net present value). The public is encouraged to submit comments on the regulatory impact analysis along with its comments on the proposed rule itself.

Comments on the proposed rule are due 45 days after publication in the Federal Register. If requested within five days of publication, there will be an opportunity for a virtual public hearing within 15 days after publication. Once published, the public docket will be available on www.regulations.gov.

Beveridge & Diamond's Consumer Products and Product Stewardship, Global Supply Chains practices work with U.S. and multinational companies that make, distribute, transport, or sell consumer products in a hyper-competitive and evolving consumer goods market. B&D’s Air and Climate Change practice group helps private and municipal clients navigate all aspects of compliance with Clean Air Act regulations for criteria pollutants, hazardous air pollutants, greenhouse gases, and permitting processes. Firm attorneys have represented business interests in the negotiation and implementation of multilateral environmental agreements and other international initiatives. For more information, please contact the authors.