The air conditioning and refrigeration industries are accustomed to change.
Indeed, manufacturers had been bracing for an international climate regulation targeting them, and representatives of the industries even had a seat at the negotiating table.
Global leaders last month celebrated completion of a deal to phase down worldwide emissions of chemical coolants called hydrofluorocarbons, or HFCs, used in air conditioners and refrigerators. Manufacturers already investing in new solutions were hopeful consumers would not experience significant cost increases.
“We are manufacturers trying to deal with realities of making these things work,” said Kevin Messner, senior vice president of policy and government relations at the Association of Home Appliance Manufacturers.
In interviews with The Daily Signal, representatives of sectors in the appliance industry described the challenges and opportunities ahead in complying with the terms of a new global climate deal that Secretary of State John Kerry called “the single most important step” taken so far to limit climate change.
On Oct. 15, in Kigali, Rwanda, more than 170 countries, including the U.S., China, and India, agreed to limit the use of HFCs. They account for a small percentage of greenhouse gases in the atmosphere, but are considered more powerful than carbon dioxide.
The phasedown would begin in 2019, with the goal of a global reduction of 80 percent in the use of HFCs by 2047.
The agreement came in the form of an amendment to the 1987 Montreal Protocol, an international treaty ratified during the Reagan administration and designed to protect the Earth’s ozone layer.
This means the deal is legally binding, unlike a higher-profile international climate change accord approved in Paris last year. That agreement targeted carbon emissions and required only voluntary pledges from countries to comply.
While the HFC deal has received little criticism from business interests or Republicans in Congress, at least one leading skeptic of climate change says the agreement should require Senate approval. The State Department is reviewing whether the HFC amendment requires approval as a treaty.
“Should the Obama administration proceed to formalize acceptance of the latest amendment to the Montreal Protocol, the Senate must be involved,” Sen. Jim Inhofe, R-Okla., told The Daily Signal in a written statement, adding:
The Montreal Protocol has been formally amended four times since it entered into force with each one going through the advice and consent process in the Senate. Despite the message from the Obama administration, the limitations of Senate-granted authority to the Montreal Protocol have not changed.
‘Writing on the Wall’
In response to the original Montreal Protocol, which phased out use of chlorofluorocarbons, the ozone-depleting coolants known as CFCs, manufacturers transitioned to a replacement chemical: HFCs.
While HFCs are healthier for the ozone layer, many scientists say they, like CFCs, are a strong agent that produces climate change.
In anticipation of the regulations, companies collectively have spent billions of dollars researching a replacement for HFCs and redesigning manufacturing equipment.
“It’s not normal for industries to ask to be regulated,” said Frances Dietz, vice president of public affairs at the Air-Conditioning, Heating, and Refrigeration Institute, a major industry group. Dietz added:
But if you look at it from a business perspective, predictability is very important. Even if it’s something you’d rather not have to do, at least if I know what’s coming I can prepare for it. We saw the writing on the wall and set ourselves up, so we were not surprised. It’s an interesting story that everybody is on the same page.
Sergio Chayet, director of a master’s program in supply chain management at Washington University in St. Louis, says suppliers such as Chemours, Honeywell, Arkema, and Daikin have invested in research and development on what they call HFOs, or hydrofluoroolefins. An alternative to HFCs, they quickly degrade in the atmosphere, limiting how much heat they trap.
These suppliers have been actively securing patents and building production facilities in the U.S., China, and Japan, some of which already are operational.
Making a Change
Some alternatives to HFCs are in use. For example, a coolant called HFO-1234yf is becoming the standard chemical used to air-condition new cars in the U.S. and European Union.
But other alternatives have not been approved in the U.S.
Critics of HFO-1234yf question its safety and cost. The New York Times reports the alternative coolant is at least 10 times more expensive than the one it replaces.
Costs are higher, Chayet said, because the HFO industry is highly concentrated and protected by patents, giving the limited participants pricing power.
But, he said, HFOs require little up-front capital investment because the cooling process is similar to that of HFCs. That is, it’s relatively easy to retrofit manufacturing equipment to produce the new coolant.
HFO-1234yf is also considered mildly flammable, although not as much so as hydrocarbon, another potential alternative coolant.
Nick Richards, a spokesman for General Motors Co., told The Daily Signal that the Detroit-based company has produced more than a million light-duty vehicles globally with the new refrigerant, HFO-1234yf, since 2013.
Richards referred to HFO-1234yf as the “most highly tested refrigerant ever to be developed,” and said prices for the coolant have reduced “significantly” in the past few years.
“The refrigerant remains a cost-effective way to meet environmental standards around the globe,” Richards said. “Vehicle hardware changes required to use the new refrigerant do not add any significant cost to the overall product.”
‘Design to Reality’
Some industry groups question whether alternative coolants can be proved safe and effective in the timeline required by regulations.
Before the international agreement, the Environmental Protection Agency issued a rule phasing out HFCs in new appliances sold in the U.S., such as refrigerators, by 2021.
Messner, of the Association of Home Appliance Manufacturers, said that meeting the 2021 deadline—instead of the 2024 date proposed by the industry—will cost an additional $230 million.
“Engineers don’t like uncertainty, and that’s where we are right now,” Messner said. “Everyone is assuming the safety standards will change [allowing widespread use of new coolants] and that could happen in a year, in 10 years, or it could never happen. That’s nice for everyone to assume, but as engineers, we need to design to reality.”
Industry groups say most large companies acknowledge the short-term costs of the transition away from HFCs, but are confident the regulations won’t impose a significant burden on the industry—or consumers.
Consumer prices for appliances eventually may rise as much as 2 percent, a figure in line with previous coolant phasedowns, according to Kevin Fay, executive director of the Alliance for Responsible Atmospheric Policy, an industry group that represents chemical companies and appliance makers. Fay told The Daily Signal:
All things considered, would we like to be spending resources on other issues? Absolutely, but at the same time, in terms of addressing energy efficiency and getting products out there providing health and safety to the customer, the agreement allows that process to move forward in something of a smoother fashion.
Developing countries with hotter temperatures, meanwhile, could feel more of an impact.
In one, India, millions of people are on the verge of being able to afford their first air conditioner, cooled by HFCs.
Under the deal, India and other hotter countries such as Saudi Arabia, Iran, and Pakistan have a more lenient timetable to reduce HFC levels.
“For developing countries, some have argued the increased costs due to patents could end up making refrigeration and air conditioning unaffordable for many entry-level consumers,” Chayet said. “However, there is also evidence from the Montreal accord of patent holders licensing their technology, technology diffusion, and mass production all working to push prices down.”