Blame it on Global Warming….
Global warming gets blamed for a lot of things – weather patterns, rising seas, those desperate images of polar bears without hope of land. But you can now officially blame the rising cost of your refrigeration bills on it too.
We’re seeing prices of refrigerant climb as importers increase prices, up to 100% in the last 4 months. The cause of rising costs? The short answer is Global Warming.
Importers are required to offset the cost of the emissions produced by refrigerants as part of our international obligations to reduce global warming impacts. The importer of the product must surrender (buy) carbon credits to offset emissions, with this cost added to the wholesale price.
How much added cost you can expect will depend on three things:
- The refrigerants Global Warming Potential (GWP)
- The cost of carbon credits and
- The amount of refrigerant you use (or leak)
The impact of GWP (bear with me).
GWP is used to calculate the number of carbon credits required to offset a refrigerants emissions impact, relative to Carbon Dioxide (CO2). 1 carbon credit = 1,000kgs of CO2 equivalent. The higher the GWP, the more credits needed. For example:
1 kg of R404a has a GWP of 3,922kgs of CO2. For every 1kg of R404a 3.92 carbon credits are required to be surrendered. For a 700kg site with an average leak rate of 20% that’s around $3,290+GST on top of the cost of the refrigerant, if the cost of carbon is around $6 per tonne. That’s about $25 per kg of R404a more than usual.
The cost of carbon credits.
As of May 31st 2016 the 2 year grace period that allowed companies to surrender offshore carbon units expired, making it compulsory to use NZ units (NZU), in effect creating a domestic market. With cheap overseas credits no longer available and demand increasing, prices are being pushed up with end users seeing the impact. From a low of $1.60, the NZU has been climbing steadily.
Picking which way prices will go is like picking a win in the stock market. You’d expect prices will continue to rise and even out as the domestic market finds a balance. But Ollie Belton at Carbon Forest Services has pointed out there are 125 million NZU that are being held by companies who, if they decided to release them into the market, may depress prices.
Not to mention the fact the government has given themselves the ability to create credits if they need to, in effect giving them the ability to manage prices as they do the inflation rate. Post the changes, International forces and domestic policy rules will cause market volatility and while we can presume prices will continue to rise the unpredictability of the market will make decisions on carbon credit purchasing and cost forecasting difficult.
Demands for pricing transparency?
It will be interesting to see if customers start to demand more transparency around these costs. Energy and oil companies have already faced public pressure in 2012 about creating transparency on margins added to credit costs and there is growing pressure that carbon credit programs shouldn’t be profited on at the expense of customers.
Ollie has also mentioned the growth in companies allowing customers to choose the carbon offset programs that the NZU come from. This allows companies to differentiate themselves on the “quality” of the NZUs they purchase. He points to the difference between credits generated by burning methane from a land fill project in the Ukraine versus those generated by a permanent native conservation project in Wellington, and believes consumers should be aware of where credits come from.
Of course the easiest solution is to install CO2 or other “natural” refrigerant systems with a low GWP. In fact prices may even drop, as more companies move to natural systems in the face of increasing cost and regulatory pressures on synthetic refrigerants. If you aren’t on naturals, check out tips on how to reduce the amount of refrigerant you’re using in the face of rising costs.
More information on the ETS and how it operates can be found at www.climatechange.govt.nz