Monday, April 8, 2013

EPA Finalizes R-22 Allocations for 2012-2014

By Charlie McCrudden | April 4, 2013 | Leave a Comment

On April 3, the U.S. EPA published in the Federal Register the final rule adjusting the allocation of HCFCs (including R-22 refrigerants) for the years 2012-2014 (2013 Final Adjustment Rule).

According to the Final Adjustment Rule, R-22 allowances for 2013 will rise by about 13% relative to 2012, and decrease by 20% in 2014 relative to 2012. The allocations for the years 2015-2019 will be set in a subsequent rulemaking. These allocations became effective on April 3, 2013.
See the chart below (click to enlarge).

Contractors may want to contact their wholesalers or gas distributors to inquire about any changes in pricing or sales policies in light of the 2013 Final Adjustment Rule. Despite the unexpected increase in the allocations for 2013, the market remains volatile and prices for R-22 may not respond to the increased supply.

The U.S. EPA controls the production and use of HCFCs, including the refrigerant R-22, through a cap and trade program. The amount of virgin R-22 that can be produced in a given year is set by annual allocations. The production and use of HCFCs is slowly being phased out in the United States, because these chemicals are known to damage the ozone layer when released into the atmosphere.

In 2011 the EPA was ordered to reopen the 2009 Allocation Rule that set the allocations for the years 2010-2014. The order came from the U.S. Court of Appeals for the District of Columbia Circuit in a lawsuit filed by two gas producers who charged that the EPA had failed to recognize their legally traded allocations.
In August 2011, the EPA proposed to adjust the R-22 allocations in the three remaining years of the 2009 Allocation Rule (2012-2014).

Based on consultation with industry stakeholders, the EPA determined there was an oversupply of virgin R-22 in the marketplace, evident with low demand, increased reuse of R-22, and low wholesale prices. In 2010, R-22 producers only utilized 86% of their allocations. A trade organization representing the manufacturers and importers of R-22 supported these claims, and advocated for a 20% reduction in allocations for 2012-2014.

Since 2012 refrigerant producers and importers have been operating with only temporary, 12 month authority through “No Action Assurance” letters from the EPA. Without a finalized Adjustment Rule, and without the No Action Assurance letters, virgin R-22 could not be legally produced or imported into the United States. The No Action Assurance letter from the EPA advised allocations would be less than the 2009 Allocation Rule.

The 2013 Final Adjustment Rule sets the allocations for the years 2012 (retroactively), 2013, and 2014.
In 2013, the total amount of R-22 allocated to all producers and importers is about 62.8 million pounds, compared with about 55.4 million pounds allocated for 2012. In 2014, the total allocation of R-22 will drop to 51 million pounds.

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