We’ve all heard the phrase when hell freezes over. It’s probably one of the more overused statements in the English language. Recently, while trying to figure out a way to describe a recent meeting in Washington regarding the Environmental Protection Agency’s (EPA) rulemaking to govern the allocation of HCFC-22 (R-22) for the years 2015-2019, the phrase came to me as the only way to describe what I saw and heard. On a coincidentally cold day in our nation’s capital, it appeared that all of the stakeholders in the room — producers, distributors, reclaimers, environmental advocates — all agreed to one major point, that there is an oversupply of R-22 in the system.
Normally we would applaud the EPA for being able to bring these groups together. Unfortunately the reason that these parties all identified the same problem was that EPA had erred greatly in establishing the allocation for the years 2013 and 2014. The rule also included the year 2012, but was released after 2012. It’s D.C. logic, so please bear with me. In what was a shock to nearly everyone in the refrigeration community, the EPA decided to allocate roughly 33 million more pounds of R-22 than had been anticipated.
Because the EPA had not issued the allocation rule to govern the production of refrigerants in 2012 and the start of 2013, they needed to issue temporary notices allowing the marketplace to function. In each of these notices the EPA opted to take the maximum reduction that had been proposed. Therefore, most of the folks who follow these things closely assumed that the EPA would likely finalize the path that they had already started down. That was not to be the case and when the rule finalizing the 2012-2014 allocation was released, inventory that had been purchased under market conditions which signaled diminished supply, suddenly became devalued due to the oversupply of R-22 that EPA provided.
Throughout 2013, I heard consistently from distributors who were upside down on their inventory of R-22 and faced tough questions from customers who wondered what was going on with the continued price fluctuation of this product. Their requests were consistent, “We need to reduce the supply of R-22 and we need to do it in an orderly manner that we can plan our businesses around.”
It did appear that the EPA heeded the call of HARDI and other groups and in their proposal(s) to govern the R-22 allocation from 2015-2019 — which marks the end of the production and importation of R-22 in the United States — they provided what I believe were a few interesting proposals. EPA’s preferred plan would set the 2015 allocation at 30 million pounds and follow a straight-line reduction in the years following. An additional proposal would set the 2015 allocation level at 22 million pounds and take a straight-line reduction over the next five years. EPA also provided a three-year reduction scenario, which would cease production/importation of R-22 two years earlier than had been planned.
However, for some the EPA’s plan was not aggressive enough. A group of reclaimers and environmental activists stated to EPA that, due to oversupply, their businesses and the environment had been harmed and that EPA should remedy this by not issuing allocation in 2015. HARDI took objection to this approach for two main reasons. The first was that due to the timing of when this rule would be published, distributors would find out mere weeks before Jan. 1, 2015 that there would be zero allocation and that could significantly alter business plans. The second reason was that there is nothing orderly about going to a zero-sum approach in 2015. How do you communicate that to customers? What type of affect will that have on other industry segments? It’s simply not workable.
But returning to my hell freezes over statement that began this column, it appears that there is agreement on two major points.
• Everyone seems to agree that there is an oversupply of R-22 in the marketplace.
• Nobody has yet lobbied for an allocation above EPA’s stated preference.
It appears that EPA is doing the unthinkable, which is to get an entire industry and environmental advocates on roughly the same page. It’s just too bad that it took a mistake to achieve that feat.