What's holding back customer action on the 2018 F-Gas cliff-edge?


06 December 2017
refrigerant F-Gas refrigeration legislation carbon Trust
Paul Huggins of the Carbon Trust
Paul Huggins, Associate Director, Programmes at the Carbon Trust, looks at the challenges ahead on refrigerant quotas.

There is widespread apprehension about inaction by many in the refrigeration market to the impending F-Gas cliff-edge reduction in refrigerant quota. A 37 per cent reduction compared to the 2015 baseline of the 183 MTCO2-e is, when taking sales of new pre-installed charge equipment into account, actually a 44 per cent reduction. 
By design the F-Gas regulation affects the most harmful refrigerants first, based on global warming potential (GWP). Refrigerant manufacturers (e.g. Honeywell) are removing from EU sale R404A and R507 in early 2018. Activities to meet the F-Gas quota target are already affecting the gas prices. The price of R404A doubled in 2016, and has rising rapidly through 2017. Other high GWP refrigerants are following similar price paths. 
The outcome of a recent Carbon Trust survey on market reaction to the F-Gas regulation can be summarised as, broadly, larger suppliers and customers are responding to the cliff-edge, smaller ones are not. Smaller suppliers and customers need to do much more to effectively manage the significant commercial impacts this cliff-edge will have on their business, e.g.  price rises, lack of supply, reactive, and possibly expensive, equipment modifications or unplanned new equipment purchases. Customers need to do much more to protect themselves from these impacts.
But why has this happened when suppliers and customers have had a long time to prepare for the F-Gas quota phase down?
The typical technology adoption cycle used in the refrigeration industry might not be right for action on F-Gas 
There is an often stated truism in the refrigeration industry that can be summed up as: start with the commercial refrigeration market and the other markets will follow. Many valid points support this statement:  commercial refrigeration customers are more easily identified and fewer in number (e.g. supermarkets), refrigeration technology is very important to their business activities, they have a lot of refrigeration equipment, and the sector makes up the largest proportion of annual F-Gas demand, about 29 per cent.  

There are, however, several issues with this adoption cycle: 
(i) any delay in F-Gas action in the commercial refrigeration market slows the influence this market has on other refrigerant markets
(ii) customers in other refrigeration market have, typically, much lower levels of in-house refrigeration expertise, so often don’t pick up the learnings
(iii) the F-Gas regulation hits all markets at the same time, so there is no time for learnings to be passed along from one sector to another
Commercial refrigeration customers are slower in acting on future F-Gas impacts than expected 
Supermarkets understand the importance of meeting their F-Gas obligations and have invested quite heavily over the last few years in trailing new lower GWP technologies. They are in the process of adopting lower GWP refrigeration alternatives. Tesco has about 250 stores with CO2-based systems and recently committed to roll out R448A to 1,200 stores over the next three years, Waitrose has 48 per cent of its stores using hydrocarbons, M&S moved to R407a some time ago and all new stores run on a hybrid mix of natural refrigerants and HFCs.  

Larger supermarkets are, broadly speaking, planning to remove R404A from a good proposition of their estates by 2020.  Whilst this is good news, the truth is that for all this good work, the largest supermarkets appear to be behind the curve needed to meet the approaching F-Gas regulation cliff-edge. EPPE suggests that 50 per cent of their refrigeration equipment needs to be converted by the end of 2017. That doesn’t look like it's going to happen. 
Stationary air conditioning is some way behind the forecast F-Gas transition curve 
Due to the fragmented nature of the supply chain and customer base, together with less than expected influence from the commercial refrigeration market, the stationary air conditioning market appears to be some way behind where it needs to be on F-Gas action. Product manufactures are pushing ahead with alternative refrigerant options (e.g. R32), but their introduction is possibly a little later than F-Gas policy makers had anticipated. 
Customers find it hard to relate the F-Gas quota to their business activities. It's all a bit too confusing
What does a 44 per cent reduction in the 2015 quota mean in terms that customers can understand?  In real terms, greenhouse gas emissions need to reduce by 90 MtCO2-eq in 2018. The question is how? Data from the European Environment Agency Fluorinated Greenhouse Report 2015 can be used to show this level of emissions reduction is equivalent to: the removal from sale of all R134a supplied in 2015; or equally removal from sale 85 per cent of R404A, 15 per cent of R410A, 80 per cent of R134a, and 30 per cent from a basket of other refrigerant mixtures.  The message is simple, as the market reacts, supplies of the highest GWP refrigerants will reduce, so 50 per cent+ reductions in the supply of R404A, R134a, R507 could very well be seen.  As the supply of R404A is planned to fall to zero in 2020 it should be expected that sale of this refrigerant will curtail strongly in 2018.  
In summary, whilst the F-Gas regulation has already played a positive role in reducing CO2-eq emissions from refrigeration and air conditioning technologies, there is still more to do. Looking to the future, some immediate steps are strongly encouraged: 

(i) suppliers, including the smallest, need to be bolder in the advice they give to their customers. No customers should be sold R404A-based technology, and the selection of alternative, much lower GWP refrigerants should begin at the earliest stages of sales or maintenance conversations, 

(ii) customers need to focus (or refocus) their efforts and remove high GWP refrigerants from their estates before the economic shocks start to hurt. The best commercial protection is to move to the lowest GWP refrigerant they can cost-effectively afford.
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