What’s going on with – Part 2 – Today’s market

Posted by on Feb 17, 2012

A good question to possibly ask is, “why does this matter now?”. R-22 is available now, and we have until 2020 before the production stops. I guess the good news is that our industry has done a pretty job of changing over to R-410A and moving away from R-22. As a result, the demand for R-22 has actually been less than anticipated in the allocation plans. In 1986, producers of R-22 only utilized 86% of their allocations (source – acca.org). 

The EPA has to legislate these allocations. They have tried to reduce these allocations to not only comply with the law, but also to anticipate the market and demand. That being said, as of the 1st of January 2012, the EPA had not released their allocations for this year. So as of January 1st, the manufacturers of R-22 did not have the authority to produce or import and R-22 – production totally stopped.

If you remember from your high school economics courses, when supply goes down or stops and demand remains relatively constant, the price goes through the roof. As contractors, we saw an increase of almost 3x between December 2011 and January 2012. We also saw rationing – one of our suppliers will only sell 5 drums of R-22 per contractor per week.

On January 20th, the EPA set a letter to producers and importers of R-22 allowing them to resume the production and importing of R-22. But, they have not set final allocation numbers for this year. so, the market is still unsettled.

Over the last month, pricing has settled down a bit, but it is still 2-2 1/2 times the price in December. No one knows exactly where this will go moving forward and how much R-22 will be available for use this year.

The reason that we wanted to post this and give you the details is because a large majority of residential and commercial cooling systems still use R-22. And, while R-22 is not a consumable in the system, as your systems become older, they can begin to leak slowly which will require R-22 to be added.

Hopefully, this information will help you be able to make a good decision about whether to repair or replace a leaking system. Obviously, as R-22 wholesale pricing is up 2-3x, retail will be the same. We saw retail pricing of R-22 in the $80-$90 per pound range. And since a residential air conditioning unit may contain 5 pounds or more, it can get quite expensive to repair an R-22 system.

Next time, I will focus on more of the practical issues facing consumers and contractors this year. I will also discuss “dry-charge” R-22 units that have become available on the market – should you buy one or not?

As always, please feel free to call us at any time to discuss this or any other issues relating to your heating and cooling systems.

You’ll need cold cash to service your air conditioner

By Jim Weiker

Air-conditioner repairs could leave central Ohio homeowners hot and bothered this spring.

This winter, the cost of the refrigerant used in older air-conditioning units jumped more than 200 percent.

That means homeowners who used to pay $150 or $200 to recharge their air conditioners for the summer could pay twice that amount this time around.

“If you’ve got a leaker and need a couple pounds (of refrigerant) to get you through the summer, it’s going to cost you a whole lot more this summer than it has in the past,” said John Frary, service manager with the Favret Co., a Columbus heating and air-conditioning firm.

The price of R-22, the refrigerant used in many older air conditioners, skyrocketed on Jan. 20 after the U.S. Environmental Protection Agency ordered that manufacturers cut production of the material by 45 percent this year.

The wholesale price then “went off the charts,” said Rod Essig, with Carr Supply, a Columbus company that supplies the heating and air-conditioning industry.

The cost of a 30-pound tank instantly leapt from about $150 to about $400. Homeowners who traditionally have paid about $20 a pound during a service charge could now pay about $50 a pound.

The jump is so severe that at least one company, Sears Heating and Cooling in Columbus, might start charging by the ounce.

“We have customers who regularly ask us to add refrigerant every year because they have a small leak,” said Sears Heating owner Paul Schwerling. “But this will be so expensive by the pound.”

The EPA is phasing out R-22 by 2020 because it damages the ozone layer that protects Earth. Most air conditioners built in the past five years, and all air conditioners built in the past two, use a different refrigerant, called R-410A.

Still, an estimated 70 million — as much as 75 percent — of existing home air conditioners rely on R-22, according to industry sources.

January’s EPA announcement prompted such a run on R-22 that many distributors, including Carr, limited the amount that contractors could purchase. Distributors typically don’t stock a lot of R-22 until weather and demand heat up in the spring.

“We got caught with our pants down, along with many other distributors,” Essig said.

Some industry officials worry that air-conditioning contractors could end up without R-22 altogether this summer, although Talbot Gee, executive vice president of a trade group that represents heating and cooling suppliers, said he thinks there will be enough to meet demand.

Gee’s organization, Columbus-based Heating, Airconditioning & Refrigeration Distributors International, has joined others in an effort to raise R-22 production limits this year. Still, the long-term outlook on R-22 is clear: It will become more scarce and expensive until it vanishes altogether in eight years.

Manufacturers are promoting alternatives to R-22, although Gee said that using them could void warranties.

Industry officials think the rising cost to repair older air conditioners could fuel sales of new units, which can run $3,000 to $5,000.

“If you have a leak and need a refrigerant repair, it may be advantageous to upgrade your system because of cost,” Frary said.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants

Price of R-22 Air Conditioner Refrigerant Drastically Increases

Written by Jesse Muench

We are quite concerned about the recent drastic price increase of R-22 (also called Freon), a coolant used in many air conditioners, due to a regulation put into place by the Environmental Protection Agency (EPA) (http://www.epa.gov/ozone/title6/downloads/Homeowner.pdf) that will phase out the use of R-22 completely by the year 2020. R-22 has been shown to release Hydrochlorofluorocarbons (HCFC’s), which are harmful to the ozone, leading the EPA to gradually eliminate it.

Because of this phase out R-22 refrigerant will gradually be produced less and less, thus diminishing supplies and increasing costs of the coolant. The cost for Freon recently doubled, and is anticipated to eventually triple, placing a major burden on air conditioner owners. The recent spikes in price have put HVAC contractors in a state of frenzy. In the South where air conditioners are used more frequently many HVAC companies are buying as much R-22 as possible thus making it even scarcer and making the price even higher in the North.

If you own an air conditioner that uses R-22 there are two primary issues that will affect you. The first is that as time goes on it will become more and more expensive to add Freon to your air conditioner, and eventually it will be completely unavailable. The second issue is that theft of R-22 from your air conditioner becomes much more likely. As Freon becomes more and more scarce and the prices rise it will become much more valuable, and increase the incentive to steal it.

Most air conditioners 5-10 years or older use R-22. If you are uncertain of what type of refrigerant your air conditioning unit uses don’t hesitate to give us call and we can help you determine if this recent price shift will affect you. We are also available for any questions you have about this change or challenges it may present to you. Feel free to give us a call at 262-677-1037 for any of these questions or for more information. There is also a Frequently Asked Question section on the EPA’s website that can help you better understand what this all means for you. We will keep you updated of any major changes in this matter right here on our blog. Also be sure to watch the video attached below in which our owner Steve Holland briefly discusses what to expect with Freon and how it will affect you.

The information contained in this article have been written for the HVAC industry public or private and are not to copied, reproduced or plagiarized without the written consent of the author. News publications and trade organizations interested in using content contained in this blog/article can contact Steve Holland at Holland Home Services at the Contact Us section of this.

HARDI has recently filed comments on two issues which will undoubtedly have a great impact on HVACR distributors.

HARDI recently filed comments on the Environmental Protection Agency’s (EPA) proposed R-22 allocation rule for 2012-2014. While HARDI supports an orderly reduction of R-22 it was our view that significant market confusion resulted from both the delay in EPA beginning this rulemaking process and concerns and delays with EPA’s “non-enforcement letters” which allow companies to produce and import refrigerants while the rulemaking process is taking place.
 

Last week, HARDI submitted comments to the Department of Energy regarding possible enforcement proposals for the newly established regional efficiency standards for furnaces and air-conditioners. HARDI stated in its comments that while distributors will likely play an active and voluntarily role in communicating the new standards to contractors, the Department of Energy lacks the legal authority to include distributors in enforcement schemes. HARDI maintained that legislative language clearly outlines responsible entities for the energy efficiency of furnaces and air-conditioners and distributors are not a named party.
 

HARDI will continue to update membership on these important issues as developments occur.

EPA Proposes Faster R-22 Phaseout

By Peter Powell

How much HCFC-22 will be available to contractors in 2012 is an unanswered question as the Environmental Protection Agency (EPA) considers a faster phaseout of HCFCs.

The EPA began the year by issuing a 75-page proposal called Protection of Stratospheric Ozone: Adjustments to the Allowance System for Controlling HCFC Production, Import, and Export.

When and if the proposal takes effect, it would allow less virgin HCFCs to come to market than the previous phasedown announced on Jan. 1, 2010. The previous rule allocated 45.4 KT (100 million pounds) in 2011 and 40.7 KT (90 million pounds) of R-22 for 2012. In this latest proposed rule, the EPA could reduce the quantity available for production and import in 2012 to between 25.1 to 36.2 KT (55 million to 80 million pounds).

The latest proposal from EPA says that the phasedown will range from 11 to 47 percent per year beginning in 2012 and ending in 2014, which is in addition to the 10 percent annual reduction built into the previous rule.

A Proposal for Now

The proposal is just that — a proposal. Comments were invited through Feb. 3, but the EPA may not issue a final ruling until summer.

However, the delay in issuing solid production numbers has led to a period of confusion in the industry. For three weeks, production and importation was not allowed until the EPA issued a non-enforcement letter on Jan. 20 saying the agency would not fine producers as long as they do not exceed the amount of allowances outlined in the letter. The letter said producers and importers combined cannot exceed 55 million pounds for 2012, a 45 percent reduction from 2011, while the EPA finalizes the rule.

As producers resumed production, there were reports of price increases. At the same time R-22 manufacturers were looking at allocation options for their own wholesaler customers.

Richard Rowe, global group president for Arkema, said in late January that Arkema would strive “to serve existing customers with [the amount] of refrigerant they had used in the past for as long as possible during the phaseout of R-22.”

Lincoln Germain, global business director of heat transfer and fluorine products for Honeywell, also noted Honeywell’s focus on current customers and said, “We will not be accepting new customers.”

Jim Bachman, national sales and marketing manager for DuPont Refrigerants, said, “DuPont’s focus is on ensuring supply to our existing, loyal distributors and their downstream customers. Clearly, though, we feel it’s extremely important that industry participants focus on implementing plans to reduce their dependence on R-22 as soon as possible.”

All this factored into a comment from Jay Kestenbaum, senior vice president for product management at Airgas, who stressed the importance of those who deal with refrigerants to rely on “reliable, solid suppliers.” He noted the situation “is not new to our industry as we have seen similar situations during the phaseouts of CFCs, and more recently during shortage periods for HFC-134a in 2005, and just last year during the worldwide shortages of all HFC-125 based blends.”

Reasons for a Faster Phasedown

Those who have followed the issue closely point to several reasons that may be behind the EPA’s proposal to speed up the HCFC phasedown. These include the following:

• The EPA’s concern over a lack of adequate reclamation of R-22, whose reuse is not factored into virgin allocations.

• The agency is perhaps upset over the industry’s aggressive use of an allowance in the 2010 ruling that permits dry-shipping of R-22 components such as condensing units — this despite the fact that many in the industry have campaigned to have the EPA close the so-called loophole.

• The fact that the industry did not use its entire 2010 allocation of R-22 in part because of a sluggish economy and OEM focus on HFC refrigerants in new equipment.

The HFC Aspect

Another aspect of the equation is that nearly all refrigerant manufacturers capable of making virgin R-22 are also manufacturing a wide range of HFC refrigerants that can be retrofitted into R-22 systems — and those HFCs are not subject to any phasedown. Refrigerant manufacturers have been promoting wider use of such refrigerants for a number of years.

In fact, during the AHR Expo in late January in Chicago, a number of manufacturers referenced that.

For example, Gordon Mc-Kinney, vice president and CEO of ICOR International, said, “If HCFC pricing increases at the pace that many predict it will, refrigerant users and equipment owners will be quickly adjusting their own priorities. Many are already ahead of the curve and well acclimated to using R-22 alternatives.”

A statement from Honeywell said, “As R-22 supplies become more expensive and supplies tighten, many of our customers will be looking for alternatives to R-22 to retrofit into their systems.”

DuPont’s Bachman said, “It is critical to consider the impact of the R-22 supply reductions on your business and the benefits that R-22 replacement refrigerants can provide to equipment owners. HFCs offer a viable alternative to R-22.”

And all continued to urge contractors to make more use of the numerous refrigerant reclamation options in place, which allow recovered R-22 to be brought back to ARI-700 purity standards and reintroduced to the market without being counted as part of the virgin R-22 allocations.

Gauging Supply

With the industry currently assuming 55 million pounds — rather than the 90 million pounds anticipated — coming to market in 2012, the question of shortages is being brought up.

Honeywell’s Germain said in late January he anticipates “spot” shortages through 2012.

Jonathan Melchi, director of government affairs for the Heating, Airconditioning, and Refrigeration Distributors International (HARDI), a wholesaler trade association, said he did believe the market would tighten yet does not anticipate a large shortfall through 2012. He credited this to large supplies of R-22 currently being held by wholesalers and their customers, as well as a still sluggish economy.

DuPont’s Bachman said, “The reductions in the proposed rule are significant and major changes in business practices are necessary to avoid a supply shortfall.”

However the allocation situation plays out, there is general support for the willingness of the EPA to set up a timeline for continual phasedown through 2014, although there are differing views on what the percentages should be. And it was noted that even though the phaseout is being sped up, there still appears there will be some virgin R-22 available until the spigot is turned off in 2020, except for a 0.5 percent trickle continuing to 2030.

CO2 Projects on the Rise

By Peter Powell

 

No technology has been generating more attention in recent months than the use of R-744 (CO2) as a refrigerant. Throughout 2012, The NEWS and its exclusive refrigeration e-newsletter, FROSTlines, will publish reports and case histories on how R-744 is being used worldwide. Here are some of the latest announcements from a variety of sources.

 

Online Information

Danfoss has launched an online information portal that discusses CO2 as a refrigerant. It explains why the company considers CO2 among the most attractive refrigerants in industrial refrigeration and food retail applications and what kind of efficiency, safety, and environmental advantages can be achieved when using CO2 systems.

According to a report in the online publication R744.com, “There are a list of myths and assumptions as regards the use of CO2 as refrigerant that are only partly true or simply outdated. As a leading provider of solutions also for CO2 systems, Danish-based Danfoss has collected all these possibly misleading assumptions about CO2 to explain them in a comprehensible way. Myths such as the safety, efficiency, or costs of CO2 systems are discussed or overruled by case studies that prove the opposite.”

Heat Pumps

The South Korean companies Samsung and LG received government funding to develop CO2 heat pump water heaters. Samsung Electronics developed the prototype of the CO2 heat pump water heater, the Eco Cute, under the South Korean government’s project to support technological development of domestic companies. Samsung was subsequently chosen to develop medium- to large-size commercial CO2 heat pump water heaters, and LG Electronics was selected to develop smaller-sized residential units.

Transcritical in London

Harrods, the London department store, has installed a CO2 transcritical refrigeration system in its food hall. The existing HCFC-22 and HFC-404A refrigeration systems cooling the cold rooms and food cases have been replaced with a CO2 plant room using parallel compression technology. The plant room houses three HT/LT transcritical CO2 systems, each delivering 160 kW of cooling.

Transcritical Report

At the ATMOsphere Europe 2011 conference, Christoph Brouwers and Lothar Serwas from Carrier Commercial Refrigeration reported on the use of CO2 in direct expansion systems (DX).

They presented a case study from 2010 based on Carrier’s installation of approximately 150 stores with CO2OLtec™ transcritical systems in operation. These stores gained 18.5 MW of medium temperature refrigeration capacity. It was stated that the energy performance of these systems was mainly attractive at average annual temperatures of up to +15˚C.

Carrier also presented a study during the Chillventa 2010 Congress, maintaining that up to 19˚C, CO2 refrigeration systems would outperform other refrigerants. The same study concluded that CO2 systems would perform slightly better than other refrigerants between 20 and 26˚C.

In October 2011, Carrier put CO2OLtec TM direct expansion (DX) systems in some 300 stores. The systems offer 33 MW medium temperature refrigeration capacity with estimated emissions savings of 77,600 tons of CO2 equivalent emissions.

The report said, “Carrier is now working on overcoming the commonly referred to ‘CO2 equator’ which goes through Southern Europe along the northern shore of the Mediterranean, defining the efficiency limit CO2 systems compared to traditional HFC systems when assessed on a yearly average ambient temperature basis of maximum 15˚C.”

Oil Separator

The online publication R477.com reported that U.S.-based Temprite launched an addition to its 130 Series of coalescent oil separators for transcritical CO2 applications. The new 139A model is designed for high efficiency in larger R-744 refrigeration systems.

“The Temprite 130 Series is optimized for CO2 transcritical refrigeration applications and builds on the previous success of Temprite’s 920 and 920R Series coalescent oil separators, both extensively used in subcritical applications for many years,” the report said.

“The 130 Series utilizes the most efficient oil-refrigerant filtering/separation technology available. An efficient oil-gas separation technology becomes both more important and challenging when using CO2, as the refrigerant has a higher density than conventional refrigerants.

“Ambient outdoor temperature can also be troublesome for CO2 systems. Now, the manufacturer has developed the new 139A separator to bring maximum thermal efficiency especially to large CO2 refrigeration systems. With twice the separation capacity of the Model 137A, large-rack refrigeration users may find that one 139A will replace two 137A oil separators.”

Booster Compressor

In the Brazilian publication Engenharia e Arquitetura, Bitzer engineer Alessandro da Silva explained how working with very low evaporation temperatures multi-stage compression, such as in booster systems, can help to avoid high compression rates that can compromise compressor volumetric efficiency.

The report said, “The booster compressor is a single-stage compressor operating at the low-pressure stage of the cooling system with its discharge connected to the suction side of the high-pressure compressor. The two external pressure levels of the compressor system enable it to deliver refrigerated air to all refrigeration points in a system at the required temperatures. Booster systems can substantially reduce the rate of compression resulting in longer life of compressors and lower power consumption and are one of the most suitable systems for low temperatures. Booster systems can avoid some of the problems associated with single-stage compression systems.

“CO2 racks that include a booster system have compressor valve plates designed to ensure high rates of mass flow. The motors installed in the semi-hermetic CO2 compressors are larger than those in HCFC-22, HFC-404A, or HFC-507 systems, due to the need for greater capacity cooling.” However, the CO2 compressors are physically much smaller when compared with those for the previously mentioned f-gas systems.

ACCA Publishes ComforTool on R22 Prices

Feb 13, 2012

The Air Conditioning Contractors of America (ACCA), the nation’s largest association of indoor environmental systems professionals, has published its latest ComforTool for ACCA members to help educate customers. The newest addition to this series of flyers, “Why Is The Price Of R-22 Refrigerant So High?” explains the reason for the recent jump in the price of R-22 refrigerant and what may happen in the future.“The recent spike in the price of R-22 has caused a lot of frustration and confusion among contractors and their customers,” says Paul T. Stalknecht, ACCA president & CEO.

“This ComforTool serves as an explanation of what is going on in the market and how the the price of the refrigerant is out of the control of the contractors. We hope this will help our members deal with some of the push back they are getting from their customers in response to the price increases," Stalknecht says.

ACCA members can download the R-22 ComforTool, and any of the previous ComforTools, at no charge, at acca.org/comfortools.

What You Need to Know About Air Conditioning Refrigerants

HCFC-22 (also known as R-22) has been the refrigerant of choice for residential air conditioning and heating systems for more than forty years; regrettably for the environment R-22 contributes to ozone depletion (mostly from leaks). R-22 is also considered a greenhouse gas. The manufacture of R-22 creates a by-product (HFC-23) known to contribute to global warming.

R-22 is going to be phased out over the coming years as part of an agreement to end production of HCFCs; therefore, manufacturers of residential air conditioning systems are offering equipment that uses ozone-friendly refrigerants; however, homeowners may be misinformed about how much longer R-22 will be available to service their air conditioning and heating systems.

Here’s the latest news…

According to HARDI (Heating, Air Conditioning, Refrigeration Distributors International):

• The Environmental Protection Agency (EPA) has suggested a reduction of allocation rights of R-22 between 11% and 47% in each year (2012-2014). This proposal was not expected.
• While they are ruling, it is illegal for a company to produce or import R-22 refrigerant into the United States. Companies must receive a letter from the EPA which allows them to legally produce/import refrigerant; however letters have been delayed (until January 20, 2012).
• The EPA’s letter calls for a 17% reduction from the original R-22 baseline, or a 45% reduction off of the 2011 allocation (which was approximately 100 million pounds). Manufacturers and producers are operating under guidance that only 55 million pounds will be approved in 2012. If the final rule calls for less than a 45% reduction, a manufacture/producer can produce/import their allocated amount.
• An oversupply of R-22 in the marketplace has led the EPA to consider a more aggressive phase down.
• The Alliance for Responsible Atmospheric Policy (of which HARDI and all major refrigerant producers are members) suggests a 20% reduction in consumption allowances off of the 2011 allowance numbers.

What does all this mean for the homeowner?

As R-22 is phased out, non-ozone-depleting alternative refrigerants are being introduced.

• There is a list of substitutes for R-22 which the EPA has deemed acceptable.
• Existing units using R-22 can continue to be serviced with R-22. There is no EPA requirement to change or convert R-22 units for use with a non-ozone-depleting substitute refrigerant.
• Manufacturers have redesigned air conditioning and heating equipment to work with new non-ozone-depleting refrigerants.
• Homeowners should look for HVAC vendors that train their technicians in installation of substitute refrigerants.
• Homeowners should look for HVAC vendors which recover, recycle, and reclaim refrigerants.
• The best thing homeowners can do for the environment and their wallet is purchase a highly energy-efficient system with a high SEER specification and Energy Star® label.

EPA mandate heats up freon prices

by Ryan Naquin

You may be singing the summertime blues the next time your air conditioner runs out of freon. An EPA mandate is pushing up the costs for air conditioning units made before 2010.

The freon used in air conditioners is called r-22, and it's expected to more than double in price.

Verlon Wulf, a local repairman, has worked with air conditioners for more than 25 years. He says the majority of the work he does during the summer months is on one thing.

"We get a lot of calls where they have a leak and something is going on, when we do have to get out there and add some refrigerants to it, and of course most of that is for r-22," says Wulf.

Unfortunately, r-22 is about to get more expensive.

"Before, if you wanted to add some r-22 it was probably about $20 a pound something like that, now it's up closer to$45 to $50 a pound."

The price will now increase due to an Environmental Protection Agency mandate that forced a change in all A/C units built at the beginning of 2010. Those units take r-4-10-A freon, which is better for the environment.

"The new refrigerants, because of the mix and the blend that they are, dissipate a whole lot quicker so when it does leak out into the atmosphere it does a lot less damage," adds Wulf.

The EPA mandate also forced manufacturers to cut back on the production of r-22 freon, which makes the price go up because inventory is down.

The newer freon is still about $20 a pound. The average air conditioner holds between five and ten pounds.

The EPA mandate also phases out the production of r-22 freon by 2020.

Freon For Older Air Conditioners Is Being Phased Out

Written by Patrick Phillippi

Greensboro, NC - Approximately eighty percent of air conditioners across the country are going to have to replaced by 2020, and the price to simply service air conditioners with Freon is going to triple, this as a result of new emission standards from the Environmental Protection Agency.

Air conditioners five to ten years old or older use R22 Freon, which is being phased out for the new Freon, R422.

This phase out is causing the prices for R22 to skyrocket, according to Vicky Maness of Kay Heating and Air. The prices consumers will be pay this summer will be almost triple the price, Manes said,"It is definitely going to be a shock knowing what they paid last year."

The R22 Freon will no longer be produced after 2020, and because older air conditioners only use R22, they will all have to be replaced.

And with the cost of replacing an air conditioner starting at $5,000, many consumers will be faced with a hard reality.

Rodney Smith, a supplier of R22, says of the price rise, "It is like nothing I have ever seen, ever. I think the reaction from consumers is going to bordering on outrage."

As R22 Freon continues to phase out of production, the price of this freon could continue to rise, making it even more expensive to service air conditioners.

And the impact will be widespread, "Apartment complexes, homeowners, businesses, any equipment that has R22 Freon it's going to affect them right now." said Maness.

What’s Going on with R-22

By Charlie McCrudden | January 30, 2012
Recent actions by the U.S. Environmental Protection Agency (EPA) regarding HCFCs have led to uncertainty about the availability of R-22 in the coming months and years. In response, contractors have noticed a ramp-up in the chatter about R-22 and price changes as some manufacturers and importers have amended their sales policies.

This situation is the culmination of several factors, including the continued implementation of the federal government’s policies regarding HCFCs, current market conditions, and delays in the regulatory process.

As most contractors know, the EPA controls the production of HCFCs, including the refrigerant known as R-22, through allowances that limit how much each gas manufacturer and importer can produce or import in a given year. Under the implementation of the Montreal Protocol, the production and use of R-22 is slowly being phased out.

In August 2011, the EPA proposed to adjust the allocations in place for the years 2012-2014. This adjustment was necessary because of a lawsuit filed by two HCFC producers who had completed a legal trade of allocations that EPA had failed to recognize in its allocations released in 2009.

EPA consulted with industry stakeholders before proposing to reduce the annual allocations. In gathering information used to develop the August 2011 allocation adjustment, EPA found that there was an oversupply of R-22 in the marketplace, partly evident by a lack of demand, increased reuse of R-22, and low wholesale prices. In fact, in 2010, producers of R-22 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.

By the end of 2011, EPA had yet to finalize its adjustment proposal for the 2012-2014 allocations. But EPA did release a subsequent version of the August 2011 adjustment proposal on December 30, 2011, one that proposed to reduce the allocations for 2012-2014 between 11-47%.

Without a finalized adjustment rule, the producers and importers of R-22 were stuck in a legal limbo – on January 1, 2012, they did not have the authority to manufacture or import R-22. Recognizing this problem, on January 20, 2012, EPA sent “non-enforcement” letters to the producers and importers of R-22, alerting them that they could resume the manufacture and import of R-22 in the interim even though EPA had yet to set the new allocation amounts. The non-enforcement letter advised that production would be curtailed by 45% of their last allocation amount, the high end of the allocation adjustment proposal.

It is expected that the EPA adjustment proposal will take at least until the summer of 2012 to be completed. The end result could be a reduction in R-22 allocations somewhere between 11-47%, meaning it is likely the final adjustment proposal will be less than the interim 45% reduction and that more R-22 may be produced or imported.

ACCA has been following this issue to provide contractors with the most up-to-date and precise information available. We will continue to monitor the allocation adjustment rulemaking process and alert members of any progress or actions taken by EPA.

UPDATE: February 2, 2012

The last two weeks have been like no other in the industry.

As a follow-up to the regulatory alert posted last week, I thought I would try to give some further background on what’s driving the uncertainty in the R-22 marketplace.

Two factors make the R-22 market different from a typical open and competitive marketplace where the rules of supply and demand govern.

First, as everyone knows, the use of R-22 is slowly, but actively being phased out by the EPA under the Montreal Protocol. About every five years, the manufacture and import of R-22 is stepped down under a program http://www.epa.gov/ozone/title6/phaseout/hcfc.html designed to phase out the production and use by 2030.

Second, under the phase down, the production and import of R-22 marketplace is tightly controlled through production and consumption allocations granted by the EPA, typically on a five year basis.
In regulating the marketplace and setting the production and import allocations, EPA is making certain assumptions about how much R-22 will be necessary for servicing needs going forward. (Remember that as of 2010, newly manufactured R-22 cannot be used in newly manufactured appliances, only servicing existing equipment.)

During the phase down, EPA has repeatedly tried to make clear that it wants to oversee a smooth transition away from the HCFCs. That’s partly the reason for the allowing the continued manufacture of dry charged R-22 condensing units.

As part of that transition, EPA wants to promote recovery and reclamation of R-22 for continued servicing needs, but also encourage changeover to non-ozone depleting substance alternatives, refrigerants like 410A.

It’s impossible to predict exactly where EPA will decide to set the allocation amounts for 2012-2014. As noted in the regulatory alert, the earliest their decision will come out is this summer. Until then you can expect to see more uncertainty about price and availability.

Charlie McCrudden is ACCA Vice President for Government Relations.