Peering over the edge of the F-Gas cliff
Friday, January 12, 2018
Regular readers may recall that when I first started writing about the revised F-Gas regulations, back in 2014, I reported some concern that the combination of bans and proposed phasedown of HFCs risked precipitating supply difficulties if the industry did not transition to lower-GWP refrigerants quickly enough.
At the time, a number of people predicted that the year 2018 would be a crucial period for the industry and a critical test of the phasedown. That's because on Jan. 1, 2018, the quota effectively dropped 44 percent, significantly reducing the amount of gas available on the European market.
Back in 2014 this rapid reduction was soon given the label "the cliff," and some soothsayers predicted dire consequences if the industry did not realize what the cliff represented — a steep drop in availability of higher-GWP refrigerants.
Well, ladies and gentlemen of the industry, here we are at the beginning of 2018 staring over the cliff edge, and the feeling is every bit as heart-stopping. Simply put, the industry hasn't moved quickly enough to transition to lower-GWP refrigerants, and the higher-GWP gases are getting scarcer and significantly more expensive as the laws of supply and demand kick in.
Just before Christmas, I was calling out a bona fide Crisis — with a capital C — since the industry is beset by huge price rises. The price of R404A, which has the dubious distinction of being the most ubiquitous high-GWP refrigerant in use in the UK and many parts of Europe, rose tenfold in 2017. There also remains a devastating lack of awareness and therefore preparedness among some end users. More on that later.
I am sure I don't need to spell out for North American readers that the European experience should serve as a cautionary tale, since the Kigali Agreement is set to see a similar phasedown of HFCs (provided President Donald Trump doesn't produce a veto). Lessons should be learned about the way the message goes out to end users as much as the way the market is playing out.
It is worth just spelling out the context as to why this is happening. The intention of the revised regulations were to use both market forces and a big legislative stick to drive the industry away from high-GWP gases.
Simply put, the mechanism would see higher-GWP refrigerants become progressively scarcer via the steadily reducing quota (the volume of HFCs allowed to be placed on the European market) and then ultimately would be banned from use (refrigerant with GWPs above 2,500 will be banned from 2020 both for new equipment and for use in servicing large refrigeration systems).
The theory is that because the quota is based on the GWP of HFCs rather than simply the volume, moving promptly to using lower-GWP gases would not only "future-proof" an end user's own systems but would also effectively help the rest of the industry. End users making the switch would free up more of the quota for everyone else as well as send the old refrigerant for reclamation, further helping availability.
But, on the flip side, if end users don't move quickly enough to convert to lower-GWP systems, those higher-GWP gases would continue to reduce in availability.
Unfortunately, as we sit here in January 2018, it is the latter scenario that is very much playing out. There is mounting concern that smaller contractors particularly will suffer at the hands of the severe price rises and rapidly diminishing availability.
Some countries in Europe — notably Spain — have appealed to the European Commission to slow the pace of the phasedown, because of such fears. But to date there is no indication that the Commission has any intention of acceding. Its view appears to be that there has been plenty of warning.
The problem is compounded by an alarming lack of awareness among the end users of refrigeration. While the commercial refrigeration sector has started to convert in significant volume — at least at the larger end of the supermarket scale — industrial refrigeration appears to be lagging behind.
A recent roundtable debate on industrial refrigeration in November found a supply chain alarmed at the combination of confusion and apathy among industrial customers regarding conversion to lower-GWP refrigerants. One supplier said he was spending an average 90 minutes per day explaining and advising the options for customers.
The industrial refrigeration sector, by its nature, comprises many fragmented sites where the refrigeration expert is only dedicated to that site — in contrast to, say, the supermarket sector, where the refrigeration expert can influence hundreds of sites. So this is seen as a real area where the message of conversion isn't getting through.
In the UK currently, the tightening market has seen new issues emerging.
Some A/C contractors have complained that their refrigerant wholesaler has imposed a quota system on R410A refrigerant, which is classed as a medium-GWP gas, yet has significant stocks of the higher-GWP R404A. The A/C contractors and their representatives argue that R410A often has no lower-GWP alternative (VRF systems, for instance, have not yet been released with the lower-GWP refrigerant R32), so such a quota system threatens to restrict their ability to work.
Industry body Refcom is currently investigating whether this wholesaler and others like it are making an honest attempt to portion out limited stocks of R410A or whether it has instead decided simply to stockpile the higher-value R404A in a bid to make a short-term profit.
Such consequences of the laws of supply and demand are only set to intensify as the impact of the 2018 "cliff" HFC quota reduction plays out. Expect more dispatches from the F-Gas cliff edge.
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