On September 23, 2021, EPA issued a final rule entitled, “Phasedown of Hydrofluorocarbons: Establishing the Allowance Allocation and Trading Program under the American Innovation and Manufacturing (AIM) Act.” Specifically, the AIM Act directs EPA to phase down production and consumption of HFCs to 15% of their baseline levels in a stepwise manner by 2036 through an allowance allocation and trading program.
Figure 2: The HFC production and consumption phasedown schedule as outlined in the AIM Act. Courtesy of EPA)
To implement the allowance allocation and trading program, EPA has:
- Established the HFC production and consumption baselines from which reductions must be made according to the formulas provided in the AIM Act;
- Codified the phasedown schedule (see Figure 2);
- Established an initial methodology for issuing allowances for 2022 and 2023 that:
- Issues allowances to companies that produced and/or imported HFCs in 2020, based on the three highest non-consecutive years of production or import between 2011 and 2019.
- Issues “application-specific allowances” directly to the entities that operate within the six applications listed in the AIM Act. These entities will be able to confer their allowances to producers or importers to acquire needed HFCs.
- Sets aside some allowances for application-specific end users and small importers that are only identified after the public comment period ends and new market entrants.
- Established a methodology for trading allowances between companies, while requiring an offset of allowances to further benefit the environment. The offset is 5% of the amount transferred and is reduced from the transferor’s allowance balance.
An allowance is the unit of measure that EPA uses in order to control production and consumption of HFCs. On October 1, 2021, EPA issued allowances for 2022 to companies that produced and/or imported HFCs in 2020. These allowances that will be valid between January 1 and December 31 of a given year, also known as a “calendar-year allowance" (see Figures 1 and 3). A calendar-year allowance represents the privilege granted to an entity to produce or import regulated substances in that year.
Figure 3: Production allowances allocated to each company for 2022. (Courtesy of EPA)
Entities will need to expend allowances in order to produce or import bulk HFCs. Producing HFCs will require expending both production allowances and consumption allowances. Importing HFCs will require expending only consumption allowances. Additionally, a third category of allowances called “application-specific allowances” can be used to either produce or import HFCs for use in the six applications listed in the AIM Act.
To ensure compliance with the phasedown limits, this final rule:
- Establishes an electronic tracking system for the movement of HFCs through commerce;
- Requires the use of refillable cylinders and container labeling requirements;
- Establishes administrative consequences (e.g., revocation or retirement of allowances) for noncompliance that would be in addition to any civil and criminal enforcement action;
- Requires third-party auditing of companies’ recordkeeping and reporting; and
- Provides transparency of HFC production and consumption data for the general public and participants in the market, and supports enforcement and compliance efforts.
In addition, to prevent illegal trade in HFCs, EPA is coordinating with other federal agencies, in particular, U.S. Customs and Border Protection.
An advance copy of the final rule is available at https://www.epa.gov/climate-hfcs-reduction/final-rule-phasedown-hydrofluorocarbons-establishing-allowance-allocation , which will be updated once the rule is published in the Federal Register.