Several months after the AIM Act passed into law, the EPA has started to hammer out specific policies for enacting its HFC phasedown.
Elsewhere, many states continue to consider or pass some sort of their own decarbonization legislation. While these are state or sometimes municipal efforts, proponents know that unlike the previous four years, their basic goals have the support of the White House.
With one EPA rule proposed and a menu of state initiatives underway, the unfolding reality for HVAC distributors is that the specifics of these policy rollouts are going to matter — possibly quite a bit.
Wrong Place For Refillable Debate
The EPA’s initial proposed allocation rule has raised concerns with HARDI and others that its reach is exceeding its grasp. HARDI’s Alex Ayers has gone over four main components of the rule for members in recent communications. The two with the most disruptive potential in HARDI’s estimation pertain to refrigerant cylinders.
Electronic tracking system for refrigerant cylinders. Remember that the Aim Act’s goal is to phase down use of HFC refrigerants, and that widespread refrigerant reclamation is a key part of continuing maintaining availability for existing HVAC equipment as HFC refrigerant manufacture tapers off over 15 years.
And as the saying goes, “If you aren’t measuring, you’re just guessing.”
The idea behind a tracking system is to maintain a decent understanding of overall HFC use and inventory. The effect would depend on design and execution.
“The general consensus on the refrigerant tracking proposal is that it brings a massive burden with no benefit to the stated goals,” read a joint statement from HARDI and the Refrigeration and Refrigerants Council. The organizations see it as ineffective for stopping illegal imports. They also expect that the proposed QR code approach would fail, with codes becoming ineffective due to tank use and wear.
Refillable cylinders. In the proposed rule’s current form, all newly filled or imported cylinders would need to be refillable as of July 1, 2023. Existing cylinders could remain in use through the end of that year. HARDI believes this element of the rule exceeds the authority granted to the EPA in administering the phasedown. It also believes that better tactics exist for reducing venting of HFC refrigerants.
The groups in the joint statement believe this component could drive some smaller distributors out of the market altogether.
“We’re now moving product in two directions rather than one,” they wrote about such a scenario, adding that this provision would also mean increased warehouse expenses and possible local code requirements.
“Each refrigerant manufacturer typically manages their own deposits for refillables,” they continued. “Keeping this organized between manufacturers would be a logistical mess.”
The groups worry that this provision would in practice favor “industrial gas companies that utilize bulk tank and cylinder rental fees. This would displace product normally sold through a distribution that provides required support and training for a highly technical product.”
Not All Bad …
This EPA rule is not finalized, and none of this is a lost cause for distributors in the bigger picture. Ayers has reiterated HARDI’s desire to work with the EPA to support the allocation system while avoiding unnecessarily burdensome measures.
The association’s priorities continue to include “ensuring proper certification and training of technicians and contractors, increasing recovery for reclaim, and ensuring a robust reclaim market is available to supply” its members.
In the face of some reactions that range from understandable questions to cynical scare tactics, Ayers has sought to set the record straight regarding phasedown impacts.
“Many customers and consumers may believe this rule will require them to replace existing working equipment,” he said. “It is important to remind the public that this rule will not require the replacement of any equipment, and future rulemakings specific to air conditioning and refrigeration equipment will impact new equipment only.”
Furthermore, while HVAC distributors are at the crux of this transition and will understandably focus on consequences for their businesses, law firm Pillsbury Winthrop Shaw Pittman LLP offered projected effects for a broader population.
“EPA estimates that the proposed HFC phasedown process will generate annual net benefits of $2.6 billion in 2022, which reflects abatement costs of $200 million and social benefits of $2.8 billion.
“The draft Regulatory Impact Analysis also estimates annual net benefits of $17.9 billion by 2036 — the year by which the AIM Act intends to reduce 15% of the HFC baseline.”
What’s Infrastructure? And Who Pays?
The occasional, inevitable conflict between representing a constituency and considering policy for the greater population can be hard to manage. The Biden administration’s American Jobs Plan (AJP) proposal creates some of that tension for distributors as well.
Critics of the AJP have commonly pointed to how far the so-called infrastructure proposal extends beyond “roads and bridges.” However, Steve Rossi, the American Supply Association’s government affairs director, has made the case that along with roads and bridges, “buildings are an important and essential part of infrastructure as well. This also includes the essential systems that go into the buildings.”
Rossi said the ASA also supports more investment in applied technology training, supported in the AJP outline, in order to build trade education in schools and plant the seeds for a stronger workforce.
At the same time, the ASA joined dozens of associations “to oppose the Biden administration’s job-killing tax proposals” in a letter from a group called America’s Job Creators for a Strong Recovery.
The group wrote that “employers support smart infrastructure” and oppose possible tax increases on corporations and top-bracket earners to pay for the initiatives. American Job Creators for a Strong Recovery did not get into specifics about its preferred definition of “smart infrastructure” or how these things might better be paid for.
Of course, negotiations about Congressional passage of any part of the AJP have been fraught, and much or all of this topic may become a moot point in the coming months.
Electrification, Within Reason
As the Biden administration pushes decarbonization ideas that often emphasize electrification measures aimed at significantly reducing fossil fuel use — and as some localities go as far as banning new natural gas hookups — ASA has sought to educate its members on the difference between decarbonization and electrification.
That difference is important because to a large extent, the distinction defines the ASA’s position. Electrification is one leg of the decarbonization table, joined by energy efficiency and conservation, low-carbon fuels, and reducing non-combustion greenhouse gases.
The association supports programs to reduce greenhouse gas emissions, reducing the intensity of carbon use for the benefit of the environment.
“However,” its position statement read, “we do not support electric-only policies. We have concerns that the full impact of total electrification has not been thoroughly considered … and is not appropriate for the diverse building stock found throughout the U.S.”
The ASA endorses “coordination and harmonization of policies” regarding decarbonization. It seeks to avoid a process that spills from necessarily complex to something more unmanageable for distributors.
It also would like to preserve a more fuel-neutral approach at the end of the supply chain, maintaining a wider range of choices for consumers.
The ASA position takes a moderately unusual step of encouraging consumer incentives, which typically come from one or more levels of government.
“Consideration should be given to providing the consumer an interim incentive, to encourage consumers to be early adopters and promoters” of decarbonization policies that do not tilt too far toward electrification at the end user’s point of contact.
Jim Kentzel, ASA director of codes and standards, organizes a state legislature tracking program at www.asa.net/advocacy/issues-agenda/state-issues where wholesalers and others can check on initiatives each week.
Josh Green, vice president of government and industry affairs for A.O. Smith, spoke to this issue and why distributors should pay attention to it at a June 28 ASA webinar.
“Decarbonization policies are going to continue to multiply, and they’re going to be different. We need consistent approaches that are step-wise and pragmatic,” he said.
Green noted that “space and water heating will continue to be the focal points of building decarbonization policies certainly for the next decade or more.”
ASA continues to work with ACCA, AHRI, HARDI, and other groups in pursuit of striking what it feels is the best policy balance.
Same As The Old Boss (So Far)
Finally, one Trump administration decision that earned a conspicuous lack of support from HVAC groups at the time was the “tariff war” with China and tariffs involving some other countries as well.
Six months in, the Biden administration has declined to roll back many of those tariffs with the highest consequences for construction and HVAC. Add in a wave of materials shortages that often have unrelated causes — but combine to create a collective shock of availability and pricing — and the inaction does not go unnoticed.
UNCHOPPED: American General Contractors of America leadership sees recent shortages and price spikes for materials like lumber and aluminum as more than sufficient reason to roll back tariffs the previous administration implemented on various imports from China. (Photo Courtesy nmai.si.eu (CC0 1.0))
“Federal officials can help get more construction workers employed by removing tariffs on essential construction materials such as lumber, steel and aluminum,” said Stephen Sandherr, chief executive officer for Associated General Contractors of America (AGC).
“These tariffs are causing unnecessary harm to construction workers and firms, as well as to the administration’s goals of building more affordable housing and infrastructure,” Sandherr said.
If the current combination of pressures from tariffs, lumber shortages, and potential energy policy overhauls are enough to make distributors want to pour themselves a drink, there may be a silver lining. The current administration did recently suspend Trump-era 25% tariffs on a list of products from Britain. One of those products: single-malt Scotch.
Example: Heat Pump Water Heaters
In the June 28 American Supply Association webinar on greenhouse gas policy impacts, Bradford White’s Bob Wolfer took a balanced look at a piece of equipment that sums up much of the trade-off inherent to large-scale energy policy initiatives such as electrification. Wolfer is the manufacturer’s manager of government relations.
BIG POTENTIAL, SMALL MARKET SHARE: Extremely efficient heat pump water heaters have come a long way since this 2014 test at Maximum Energy Efficiency Research Laboratory, but they still represent only 5% of the market. (Photo Courtesy Oak Ridge National Laboratory, CC BY 2.0)
Electric heat pump water heaters, he explained to attendees, use a refrigeration cycle for primary water heating and tap into some electrical element to assist as needed. Wolfer summed up the basic design as “like a refrigerator in reverse.”
The approach can result in efficiencies triple that of standard electric resistance storage water heaters, he said. As a result, many code changes “have been heavily biased toward these types of products.”
He assured attendees that they function similarly to other common household appliances despite their rarity. However, he continued, they present their own complications.
In existing buildings, retrofits may require electrical panel upgrades. They also may necessitate more physical space or require louvers to be added on doors or walls.
As a result, a plumber, an electrician, and possibly a licensed refrigerant professional may be required, depending on the jurisdiction.
In new construction, installation is simpler but these units may still slightly decrease overall living space.
Heat pump water heaters represent next-level performance with some installation hurdles, but they also face a challenge that is nothing new: 80% of hot water heater installations are emergency replacements.
So, Wolfer said, adoption will have to overcome a decision-making situation that is often not the most hospitable for discussing a newer technology, possible space-related accommodations, and a higher first cost to the consumer.
Wolfer concluded that any electrification policies should not only require or highly incentivize these products, but they should include comprehensive training programs for a technician base that is largely unfamiliar with a product currently composing only 5% of the U.S. water heater market.
“Heat pump water heaters are very efficient,” he said, “but these challenges must be considered by policymakers” as they craft new measures.