HFC Tax an Unlikely Option for US
Repeal of Australian Legislation a Boost for Opponents of US Tax
Last summer, Australia repealed its carbon tax, which, since July 2012, had been imposed on the country’s leading emitters of synthetic greenhouse gases controlled by the Kyoto Protocol.
(Australia is one of the world’s largest emitters of carbon dioxide per capita. See emissions chart here.)
A tax levy or carbon equivalent price was also imposed on imports of hydrofluorocarbon (HFC) refrigerants under the country’s Ozone Protection and Synthetic Greenhouse Gas Management Acts. This levy, which was proposed to promote the adoption of low-GWP (global warming potential) technologies and to provide an incentive to reduce refrigerant leakage rates, varied based on the GWP of various refrigerants.
Taxes and Death
Opponents of the politically divisive tax ultimately were successful in convincing the Australian Parliament that repeal would lower energy prices, reduce Australians’ cost of living, and boost economic growth. Despite the repeal in Australia, a number of other countries — mainly in Europe — still have HFC taxes or outright bans in place. Could a tax that targets carbon dioxide emissions and refrigerants be headed to U.S. shores?
“I don’t think a tax on HFCs like the one in Australia is likely in the near future in the U.S.,” said Rajan Rajendran, vice president, system innovation center and sustainability, Emerson Climate Technologies Inc. “The appetite for more taxes, regardless the reason, does not exist in the U.S., where the economy and unemployment are still in recovery mode. The divided government makes it difficult for any one party to push tax increases through.
“And, I don’t think [such a tax] is necessary, either,” Rajendran added. “The EPA [U.S. Environmental Protection Agency] has other tools at its disposal like the Significant New Alternatives Policy [SNAP] it is trying to use for the same purpose: regulating the use of high-GWP HFCs.”
While a national tax may be unlikely, it’s possible some states, such as California, may take action on their own.
Mark Menzer, director of public affairs, Danfoss, agreed a carbon tax is unlikely to pass the U.S. Congress. He pointed out that revenue bills must start in the House of Representatives’ Ways and Means Committee, and the Republicans who control the House are often skeptical of tax bills. Furthermore, a U.S. carbon tax could negatively impact the competitiveness of U.S.-manufactured products in the world market. A global carbon tax also is unlikely because of the complexities of global regulation.
“Although a carbon tax could be an effective way of reducing greenhouse gas emissions, there are other, more direct measures that could be implemented including a global phasedown of HFCs with high GWPs through the Montreal Protocol, and an orderly phasedown in the U.S. via SNAP,” Menzer said.
Add Charlie McCrudden, senior vice president, government relations, ACCA, to the list of those who think it’s highly unlikely Congress would pass a carbon dioxide tax — at least in the next four to six years.
“I don’t see the Republican majority backing a carbon tax,” McCrudden said. “The House Republican majority is pretty strong, and I don’t see it losing enough seats to lose power.”
According to McCrudden, the U.S. came close to a carbon tax in 1993 under then-President Bill Clinton’s first budget. It passed the House as a “Btu tax” but never made it through the Senate, and several Democrats who voted for it lost their seats in the next election.
“I think it’s hard to reduce greenhouse gas emissions when you have a growing economy and population,” McCrudden said. “The tax may affect the rate of increase in greenhouse gas reductions, but the costs may hit the economy in a negative way.”
The repeal of the Australian carbon tax, coupled with fears of hurting the U.S. economy, could add fuel to the fire of those pushing back against President Barack Obama’s Climate Action Plan, said Gordon McKinney, vice president and COO, Icor Intl. Inc.
“Other countries have decided they can’t impose radical regulations that are going to hurt their economies,” McKinney said. “So, I think Congress will focus on trying to implement simple, cost-effective ways to curb carbon dioxide emissions that don’t put our economy at a disadvantage compared with other countries that are doing nothing.”
These steps could include designing tighter systems that use less refrigerant charge, as well as increased training for installing and servicing contractors and equipment owners.
“A lot of people have worked very hard to move us off ozone-depleting substances and onto a new generation of HFCs that have proven to be safe, reliable, and efficient,” McKinney said. “We can curb CO2 emissions without having to trash an entire generation of refrigerants.”
Even in the unlikely event a carbon tax was to be implemented in the U.S., the benefits would be uncertain, according to Jon Melchi, director of government affairs, Heating, Air-conditioning, and Refrigeration Distributors International (HARDI).
“Taxing something may increase awareness of it, but whether the additional cost reduces usage is debatable,” Melchi said. “Look at the gasoline tax. It certainly hasn’t deterred gasoline usage or pushed people toward alternatives on a widespread scale.”
Melchi also questions how revenue generated from a carbon tax would be applied. While the revenue may be used for environmental causes, it might be easier to get Republican buy-in if part of it was earmarked for deficit reduction, he said.
Either way, if this were to occur, it would be just one more thing for distributors to deal with. “If this tax was collected in the channel, distributors would have to explain such a cost increase to customers, or the contractor would have to explain it if it was a fee collected from the end user.”
Rajendran noted that, ultimately, all taxes imposed on manufacturers, contractors, and distributors get passed on to the consumer. There are direct impacts, such as higher prices for new equipment and servicing, but also potential positives, such as a greater focus on recovery and reuse, more money and time spent on maintenance, and perhaps better training for technicians.
“However, these could be achieved through other means as well — the EPA’s Greenchill, for example,” Rajendran said. “Carbon taxes on HFCs could cause people to move away from HFC-based technology to others, like CO2, ammonia, propane, and HFOs [hydrofluoroolefins] or HFO blends, but all of these have their own set of technical and/or safety issues that can lead to higher costs, as well.”
Menzer and McCrudden said manufacturers would likely bear the biggest brunt of a carbon tax.
“The greatest impact would be felt by manufacturers through an investment in their own facilities and a redesigning of their product lines to comply with regulations,” Menzer said. “It would have an adverse effect on U.S. manufacturing and competitiveness, and ultimately impact U.S. jobs.”
“A carbon tax would hit all segments of the HVACR supply chain differently, but each would feel a pinch through increased fuel and transportation costs,” McCrudden concluded. “Since manufacturing would have the highest energy-intensive work, I think the OEMs would face the biggest cost increases.”
SIDEBAR: HFC Tax: ‘The Wrong Fix’
The saga of the hydrofluorocarbon (HFC) tax in Australia is one of a comparatively small industry — the HVAC industry — getting hit by an economy-wide tax approach that just didn’t fit, said Greg Picker, executive director, Refrigerants Australia.
“The HVAC industry is not adverse to sensible environmental regulation,” Picker told The NEWS. “We realize refrigerant gases are potent, and they should be sensibly used and sensibly controlled. But the HFC tax that imitated the larger carbon tax was just the wrong fix for the problem.”
Kevin O’Shea, president of the Refrigeration and Air Conditioning Contractors Association – Australia, noted the tax made some high-GWP (global warming potential) refrigerants very expensive. “Some increased by 400 percent,” he said. “Since the tax was repealed in July 2014, prices have reverted to pre-tax levels.”
Picker said the price jump at the importer level was magnified at every step of the supply chain, leading to significant increases by the time refrigerants reached the end user. “All of this happened for good economic reasons, but none that anyone in the government ever expected or intended,” he said.
The problems kept coming. The sudden onset of the tax led to stockpiling, and when word began to spread the tax would be repealed, a virtual buyers’ strike took place as everyone waited for the lower, post-tax prices.
“Different policy mechanisms deliver different outcomes,” Picker said. “One of the things the industry kept pointing out to government was that an HFC phasedown would provide far more certainty about emissions reductions for the industry than a carbon price for refrigerants.”
Publication date: 1/26/2015