August 2017

Some of the biggest industry change seen since the ban on HFCs is occurring in the HVAC&R industry– over a series of articles, we will be looking at what impacts the change will mean.

If you are making decisions around refrigeration assets you need to know significant change is happening in the Heating, Ventilation, Air Conditioning and Refrigeration (HVAC&R) industry that will affect your investments. Global environmental initiatives could make the money you spend now wasted, as systems become outdated, or simply inoperable, due to changes in legislation and as a result, refrigerant availability.

International agreement to phase down HFC’s.

The Paris Climate Agreement has recently become international law, making it the first ever legally binding framework to tackle climate change. New Zealand, the United States, the European Union, China, India and Australia, along with 88 other nations representing 2/3rds of the worlds global emissions, have joined together with the dual goals of holding the increase in the global average temperature to below 2°C and achieving net zero greenhouse gas emissions in the 2nd half of this century.

New Zealand has committed to a 30% decrease from 2005 levels by 2030 with the goal of achieving this by 1) reducing greenhouse gas emissions, 2) planting more trees and 3) buying emission reductions from overseas markets to shore up any shortfalls.

While the Paris Agreement drives lower emission outcomes and energy efficiency initiatives that offer cost savings opportunities, carbon taxes and rising synthetic refrigerant costs offer potential risks. The value from your provider will come with making sure the opportunities in your business outweigh risks.

The biggest industry impact will be seen in response to New Zealand’s commitments to the “Kigali Amendment” of the Montreal Protocol. Described as “monumental”, the deal caps and reduces the use of Hydrofluorocarbons (HFC’s), synthetic refrigerants identified as key contributors to greenhouse gases, with the hope of reducing warming of the planet by an entire half a degree. Over a 100 developing countries, including the United States, the European Union and China (the world’s top carbon dioxide emitter) have ratified the legally binding, complex amendment.

The phase out of Chlorofluorocarbon’s (CFC’s) showed just how successful change under the Montreal Protocol can be. One of the most successful global environmental initiatives ever, the agreement on CFC’s banned their use globally, including in the use of domestic and commercial refrigeration and HVAC systems, to reduce damage to the Ozone layer.

Ironically, it was the success of the CFC ban that led to the demand for “F” gasses, Hydrochlorofluorocarbon’s (HCFC’s) and HFC’s used as replacement refrigerants. It is now understood that while these synthetic refrigerants are not a threat to the ozone layer, they contribute to global warming by trapping heat radiating off the earth and have large Global Warming Potential (GWP)

The ban on HCFC’s and R22.

New HCFC’s are now banned from being imported into New Zealand, though it seems the phase out and its impacts are less widely understood. In particular, the phase out of R22, a commonly used refrigerant, seems to have caught many unaware, as regulations did not impose a use ban. Many of those that have not moved from R22 systems were unprepared for the change and now face costly ongoing bills or unscheduled investment in new systems as they face high prices and the unavailability of R22.

There is no doubt the election of Donald Trump has left everyone wondering just what will happen next. The talk of his Presidency being the end of global climate change initiatives has left many feeling this may be the end of the world, perhaps literally. Yet there is a strong sense that the global trend towards lower emissions strategies and the HFC phase out in particular will not only continue but is inevitable.

The United States makes up 16% of global emissions and while significant, the remaining countries, including New Zealand, who have ratified the agreement are continuing talks at the Climate Change meeting COP22 to understand how to create action plans to ensure the new agreements are not undercut.

If Trumps claims to pull out of the agreement are put into action, it won’t affect the European Union “F” Gas Regulations ban on the use of high GWP refrigerants, work that has already begun. Within this framework, commercial and freezer installations with a GWP of 2500 or more will be banned by 2020, and those with a GWP of 150 or more banned by 2022. Given the number of global manufacturers and suppliers committed to the European market, there is no doubt investment in low GWP refrigerants and the trend towards the use of “natural” refrigerants will continue.

California has led the charge in phasing out high GWP refrigerants in line with Europe, and it will be interesting how this is managed given Trump’s policies. Many have questioned his ability to commit to a coal based economy given the economic investment opportunities and sunk commercial investment in an emission reduction strategy, one that is showing itself to be one of the fastest job creating sectors in the United States. Bloomberg put a figure of $348 billion invested in clean energy last year and estimates meeting a below two-degrees Celsius target “represents roughly $9.4 trillion in renewable energy opportunities over the next 25 year’s”, while the International Energy Agency reports the Agreement represents “a $13.5 trillion investment opportunity over the next 15 years in efficiency and low-carbon technologies”. It is the potential business opportunity that Trump may not be able to turn down.

New Zealand: Trend away from HFC’s already started.

As it is New Zealand (and Australia) will start phasing down HFC’s from 2019, and though Trump may be able to affect the rate of change the New Zealand government is committed to the agreements already signed.

The fact is New Zealand has already supported a trend away from synthetics as costs have continued to rise under the Emissions Trading Scheme. In 2015 we looked at the effect of ETS on the price of refrigerants when the cost of a carbon unit was $6.45kg, it currently sits at $18.90. That makes the carbon cost alone of R404a $37/kg. Compare that to Co2 at $16/kg and you soon see why major players including some of the country’s largest refrigeration users, our supermarkets, are moving to trans-critical and sub-critical CO2 systems.

IRHACE representative Dave Nicholls, who has been doing a lot of work informing industry of the change, calculates New Zealand used over 500 tonnes of synthetic refrigerant in the year to May 2015, a 22% increase over the previous year…Conservative estimates indicate that as much as 70% of refrigerant sales are being used to top up systems that have lost refrigerant through leakage. Estimates are that at current carbon pricing the ETS has added an additional $11 million to the annual wholesale cost of refrigerants, noting that this will increase 33% annually year on year over 3 years as the 2 for 1 subsidies under current ETS policy are removed. To achieve emission targets and the 2° temperature rise ceiling under current policies alone, most scenarios forecast a need for carbon pricing to be at US$80 to US$120/tCO2e.

This is a clear signal to those industries within New Zealand that rely on refrigeration to start taking notice of the changing landscape and potential bottom line impacts of significant changes such as the phase down of “F-gas” refrigerants. As a whole, the HVAC&R industry in New Zealand has not yet understood the sweeping implications with limited “natural refrigerant” expertise and training and low installation numbers providing limited opportunities to improve this. This is causing providers to push familiar F-gas based systems despite their potential to become cost redundant within their lifetime and at significant long term costs to customers.

A challenge to lies in the perception of the availability of alternative refrigerants. Options are still limited, in particular, a number of questions exist about the use of Hydrofluoroolefin’s (HFO’s), in particular, HFO1234yf, the HFC alternate that has not yet been registered in New Zealand for use and as yet, has no known refrigeration installation in New Zealand.

In the next article of this series, we’ll take a look at what the current alternatives to HFC are and what to consider when looking at your commercial refrigeration strategy and investments.

Thanks to Dave Nicholls.

Matthew is Chair of the Climate Controls Companies Association (CCCA) whose aim is to “establish and promote high standards of business competence and industry conduct for companies engaged in the climate controlled environment industry”.