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Wholesalers in Early Days of New Allocations

February 6, 2012
KEYWORDS EPA / hcfc / R-22 / refrigerants
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HCFC-22 may not have been historically a refrigeration refrigerant, but it sure has been high on the minds of those wholesalers who deal with a lot of refrigeration products.

It began years ago with the phase out of CFCs, causing many refrigeration equipment manufacturers to shift to R-22 in low temperature applications — even if initially a bit challenging — while awaiting later generations of equipment working with HFCs such as 404A and 507.

But even as the shift began in earnest to HFCs, there were still those end users who liked R-22 for cost reasons and for its ability to work with familiar mineral oils rather than the new POEs required with first generation HFCs.

Since the start of 2012, the wholesalers’ love affair with R-22 has hit a potentially hard bump in the road thanks to the United States Environmental Protection Agency (EPA). The proposal by the EPA to speed up the phase down of R-22 (see the related feature story "EPA Proposes Faster R-22 Phaseout" in this issue of The NEWS) has become the primary focus of all wholesalers including those who deal mainly with refrigeration equipment as well as the No. 1 topic of HARDI’s Refrigeration and Refrigerants Council.

As this story is being written in late January, how the issues related to pricing and supplies of R-22 play themselves out are unclear.

At this story’s deadline, it had only been a few days since the EPA pointed to a 55 million pound production limit of R-22 versus a previously anticipated 90 million pounds. In those few days, wholesalers have basically been saying they are still in the process of understanding the implications of the step down in available virgin R-22, how to communicate that to their employees, and what to say to their contractor customers.

It is certainly on the platter of topics for the Refrigeration and Refrigerants Council which asked for HARDI member comments. Members had until the end of January to provide feedback so HARDI could offer input on the topic sought by the EPA by Feb. 3.

To guide members in their thought process, HARDI drew attention to a number of points. Among them:

• The EPA’s “non-enforcement” letter called for a 17 percent reduction from the original R-22 baseline, or a 45 percent reduction off of the 2011 baseline. In 2011 the total R-22 allocation was approximately 100 million pounds. Currently manufacturers and producers are operating under guidance that only 55 million pounds will be approved in 2012. If the finalized rule calls for less than a 45 percent reduction, a manufacturer/producer could produce and import up to their allocated amount.

• “From 2005-2010 (2011 data is not yet available), only 77 percent of Consumption Allowances for HCFC-22 were used. These figures along with comment from stakeholders to the EPA, regarding the oversupply of R-22 in the marketplace and concerns of stockpiling, have led EPA to consider a more aggressive phase down.”

• “In 2011, EPA sought comment from the Alliance for Responsible Atmospheric Policy, of which HARDI and all major refrigerant producers are members, regarding a suggestion for a more aggressive reduction in R-22. The Alliance formally submitted a suggestion for a 20 percent reduction in Consumption Allowances from the 2011 allocations.”

During the recent Air Conditioning, Heating, and Refrigeration Exposition (AHR Expo) in Chicago, Jonathan Melchi, Director of Government Affairs for HARDI, spoke to DC Magazine. He said EPA is hoping this guidance drives demand for reclaimed R-22, but HARDI has little reason to believe that there is a danger of an immediate shortage of R-22. “Let’s put it this way,” said Melchi, “had we known last January that allocations were decreasing by 45 percent this January, we’re not so sure the market would have changed significantly during that time.”

Thanks to the disruptions created by EPA’s “non-enforcement” letters last week, HARDI has growing concerns about flaws in the process that fuel rampant speculation and have led to unnecessary and wild supply and pricing fluctuations.

“While no one can blame the refrigerant producers from protecting themselves from potential EPA enforcement actions, it is troubling to see aspects of a proposed rule effectively implemented by EPA many months before the final rule and all accompanying analyses have been completed,” said Talbot Gee, HARDI executive vice president. “On the positive side, while not being a justification for how this has gone down, there is reason to believe these recent supply and price uncertainties for R-22 could spur much-needed replacement of legacy R-22 refrigeration and HVAC commercial equipment which would not only eliminate users’ exposure to R-22 speculation, but also reduce operating costs through improved energy efficiency and tighter systems.”

OTHER ISSUES

Even as the latest EPA proposal seems to push the industry to an even wider acceptance of HFC refrigerants, especially those that can be used as retrofits in R-22 systems, much attention also is being drawn to HCs and CO2 as other alternatives in refrigeration applications.

Melchi said acceptance of such refrigerants “Is going to be an education process” first for the wholesaler to understand such refrigerants and then for “the distributor to educate contractors.”

It is happening, such as what is taking place in Canada, where Dennis Larson, sales and marketing manager, Refrigerative Supply, said, “One of the areas we have identified is CO2 as a refrigerant and the other is energy savings in the refrigeration industry both on large industrial projects or small restaurant application for walk in boxes.”

It is all part of an overall strategy, he said. “Our focus will be on training frontline sales staff. That training is focused on refrigeration … we have a lot of new staff added as we expand and product knowledge is certainly front and center. We are currently working with a major refrigeration manufacturer to identify individual sales people that will embrace training in our organization and lead their branch in refrigeration knowledge. The training will encompass specific product, application of that product, and identify contractors that we can work with to provide solutions to their refrigeration needs.”

Publication date: 02/06/2012

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