In a long-awaited move that will set a new course for the U.S. HVAC&R industry, the U.S. Environmental Protection Agency (EPA) announced a final rule on September 23 establishing an allowance, allocation and trading program for HFCs under the American Innovation and Manufacturing (AIM) Act.

Starting January 1, 2022, allowances will be needed to produce or import bulk HFCs, with limited exceptions.

This action follows several years during which the Trump administration did not pursue HFC regulations, leaving the states to enact their own rules. Coming just four months after an initial proposal, the final rule opens the door for more proactive adoption of climate-friendly, natural refrigerant-based HVAC&R systems.

The final rule will enable the EPA to separately phase down production and consumption of HFCs in the U.S. by 85% over the next 15 years. (Consumption is defined as the amount of HFCs newly added to the U.S. market through production and import, minus exports and destruction.) It aligns with the global HFC phase-down schedule set by the Kigali Amendment to the Montreal Protocol, which the U.S. Senate is expected to ratify this year.

To prevent illegal trade in HFCs, EPA is coordinating with other federal agencies, in particular the U.S. Customs and Border Protection, via a new interagency task force.

“This comprehensive plan to slash HFCs is also a watershed moment in modernizing implementation of our climate policies,” said Avipsa Mahapatra, Climate Campaign Lead at EIA, in a statement. “A robust compliance and enforcement regime using real time data and information as announced today will be essential to truly deliver on U.S goals to address the climate crisis.”

The new rule is the first of three regulations established under the AIM Act to address HFCs, part of the Biden Administration’s plans to cut greenhouse gas emissions by 50-52% from 2005 levels by 2030. The next two rules will address maximizing reclamation and minimizing releases from equipment; and facilitating the transition to next-generation technologies through sector-based restrictions.

The total emission reductions of this first rule from 2022 to 2050 are projected to amount to the equivalent of 4.6 billion metric tons of CO2 – nearly equal to three years of U.S. power sector emissions at 2019 levels, according to the EPA.

Under the new rule, the EPA sets the HFC production and consumption baseline levels from which reductions will be made, establishes an initial methodology for allocating and trading HFC allowances for 2022 and 2023, and creates a “robust, agile, and innovative” compliance and enforcement system, the EPA says on its website, which noted that the actual rule will be “posted soon.” EPA intends to develop a separate notice-and-comment rulemaking to establish allowance criteria for 2024 and later years.

New allowances on October 1

By October 1 of each year, beginning in 2021, the EPA must issue production and consumption allowances for the following calendar year. Thus the first set of allowances will take effect on January 1, 2022. The EPA has also established a methodology for allowance trading between companies, while requiring  an offset of allowances to further benefit the environment.

The baseline period runs from January 1, 2011, through December 31, 2013, and encompasses 303.89 MMTEVe (million metric tons of exchange value equivalent, which is equivalent to CO2e) of consumption and 382.55MMTEVe of production. Through 2023, consumption and production levels must be cut by 10% of baseline, gradually increasing to 85% in 2036.

Companies that may be affected by the final rule include those that “produce, import, export, destroy, use as a feedstock, reclaim, package, or otherwise distribute HFCs,” says the EPA.  Companies may also be affected if they use HFCs to manufacture refrigeration and air-conditioning equipment, foams, aerosols, and fire suppressants, or use HFCs in one of the six applications specified in the AIM Act. (Refrigeration and air-conditioning are not among those applications.)

The EPA’s compliance and enforcement system features strong measures that prevent and identify illegal activity in the United States and ensure compliance with the obligations under the AIM Act. It includes an electronic tracking system using QR codes for the movement of HFCs through commerce. In addition the agency:

  • Requires the use of refillable cylinders and container-labeling requirements;
  • Establishes administrative consequences (e.g., revocation or retirement of allowances) for noncompliance that would be in addition to any civil and criminal enforcement action;
  • Requires third-party auditing of companies’ recordkeeping and reporting; and
  • Provides transparency of HFC production and consumption data for the general public and participants in the market, and supports enforcement and compliance efforts.

“This comprehensive plan to slash HFCs is also a watershed moment in modernizing implementation of our climate policies.”

Avipsa Mahapatra, EIA

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