Refrigerant Mandates Face Muddled Future

by Peter Powell
December 6, 2010

Prediction of R-22 Shortfalls in 2010 Did Not Materialize

Mandates governing reduced production of virgin HCFC-22 kicked in early in 2010, but, unlike what was predicted, ended up not affecting contractors all that much. The general consensus is that will probably be the case in 2011 also.

Another small step-down in R-22 production is required come 2011 at the same time contractors will continue to deal with the wild card issue of “dry shipped” R-22 condensing units.

A deluge of legislative initiatives from the Obama administration that could have affected the cost and supplies of HFC refrigerants didn’t get much traction in 2010 and appear more than likely in 2011 to get mired in the mud of an even more divided Congress as the result of the recent mid-term elections. Meanwhile, the potential of the U.S. Environmental Protection Agency (EPA) and state governments moving forward with their own environmental agendas remains an unknown.

THE HCFC ISSUE

On Jan. 1, 2010, a mandated reduction in the manufacturing of virgin R-22 went from 65 percent of the 1999 baseline year to 25 percent. That 110 million metric tons (MT) of new refrigerant was below a predicted demand of 137 MT overall for R-22. Yet, the prediction of some that there could be shortfalls in 2010 did not materialize.

“The industry today has a surplus of virgin R-22 when all the models called for a multi-million pound deficit,” said Gordon McKinney of ICOR International, a manufacturer of refrigerants. “Many believe this surplus could continue through next year and beyond.”

Several more million metric tons of virgin R-22 will be taken out of production come this Jan. 1 as the step down in annual production continues until it reaches 10 percent of 1999 levels in 2015, but as McKinney noted, a continued sluggish economy, moderate weather patterns and a continuing shift to HFC refrigerants could keep supplies of R-22 for aftermarket use adequate.

“If the housing market and general economy improves, and we have a good, hot summer across most the country in 2011, we could see the R-22 surplus lean out and prices begin to rise,” said McKinney. “Even then we believe that more people will move to alternative refrigerants as a long-term, cost-effective option rather than depend on an unpredictable supply chain.”

The wild card is the decision of a number of OEM manufacturers to continue to produce R-22 residential condensing units for aftermarket use, “dry-shipping” them without R-22 and having technicians field-charge them. The decision followed a U.S. EPA ruling that took effect on Jan. 1, 2010, saying entire systems could no longer be manufactured but “components” could be as long as they were not factory-charged with R-22.

While many thought only parts such as compressors and valves would continue to be made for aftermarket repair, manufacturers saw enough demand for entire condensing units to re-amp production of such components during 2010.

How the “dry-ship” issue plays out in 2011 depends on how many such units end up having to be charged onsite with R-22.

“A significant quantity of units would have to be installed to begin to dent the glut of R-22,” said Kevin Zugibe of Hudson Technologies, which sells refrigerant.

“Installation of dry-shipped units will increase the installed base of R-22 equipment,” said Chuck Broadus of Airgas, a supplier of refrigerants. “This will increase demand for R-22. The impact on supply of R-22 will depend on the number of units installed, which is unknown at this time.”

HFCs AND LEGISLATORS

Congressional activity was watched closely through 2010 to see how it might impact the future of HFCs and overall costs as with cap-and-trade issues.

It ends up virtually nothing happened in 2010 and probably won’t happen in 2011. As noted by Talbot Gee, vice president of the Heating Air-conditioning and Refrigeration Distributors International, “HFC regulations did not go anywhere and will not go anywhere.”

The 1,000-pound gorilla at the start of 2010 was the American Clean Energy & Security Act (ACES), also known as the Waxman-Markey bill, named for U.S. Reps. Henry Waxman and Edward Markey.

The bill had HFCs factored into cap-and-trade regulations and provisions for buy-ins that would add to the cost of HFCs. But as far back as mid-2009, the bill had barely passed the Democratic controlled House of Representatives by a vote of 219 to 212. Now as the result of the November 2010 mid-term elections, the House will be controlled by Republicans and Waxman will lose chairmanship of the House Energy and Commerce Committee and Markey the Select Energy Independence and Global Warming Committee.

Even though passage of the bill stands on record in the House, “no vote is planned in the Senate and ACES is likely dead,” said Ted Gartland of Allied Representatives, an industry veteran who closely monitors legislative matters.

Charlie McCrudden, vice president for government relations, Air Conditioning Contractors of America, agreed. “There is no chance this bill will pass Congress in the next two years, and most likely even the next four years. President Obama said as much in his press conference the day after the election.”

Howard Latin, an environmental law professor from Rutgers Law School, doubts anything will ever come out of Congress regardless of which party is in power. He told an audience at a sustainability fair this summer in Oregon, Ill., that “Climate change (legislation) in the House is pathetic and weak. Elected officials are afraid of what it will do regarding jobs and the economy.”

Regarding the hodgepodge of state mandates and efficiency standards, McCrudden said, “Many states are developing their own retrofit incentive programs with federal dollars. Each has pursued a different path and a patchwork quilt of programs that favors different types of appliances. For example, some states give rebates for higher efficiency furnaces and air conditioners while other offer rebates for higher efficiency ‘white goods’ like dishwashers and clothes washers. A few common themes have emerged: Since it’s public money being floated to benefit private homeowners, there needs to be some form of quality assurance that the equipment is installed properly. We’ve recommended that states require installing contractors to adhere to ACCA’s Quality Installation Standard for HVAC equipment qualifying for rebates or incentives.”

McCrudden also offered some perspectives on how the EPA might act. “We may see the Obama Administration, through the EPA, use the Clean Air Act through a regulatory rule to restrict or limit the emission of carbon dioxide and other greenhouse gases. The EPA does have the authority under a recent Supreme Court ruling to regulate green house gases starting on Jan. 2, 2011. If that were to occur, there are enough votes in Congress to delay the implementation of the rule for at least two years. In the next Congress, there could be changes made to our national energy policy, but it will be incremental change.”

GLOBAL

Don’t expect much on a global level, say some observers. While the Montreal Protocol of the 1980s did change the HVACR sector, the subsequent Kyoto Protocol of the 1990s never got United States support for a specific commitment in GHG reductions and many countries agreeing to their own targets did not reach them until the worldwide recession kicked in. The most recent Copenhagen Accord of 2009 produced neither specific targets nor commitments to reach them.

Rutgers’ Latin blames this on the phenomena of recent years classifying countries as “developed” (the United States, Canada, European countries, for example) or “developing” (China, India, Mexico, for example). “Ultimately, developed and developing countries have opposite positions. There is no common ground. All the two sides do at international conferences is try to strengthen their positions,” he said.