19 July 2017

Avoiding the cliff fall on refrigerant quotas

A-Gas Managing Director John Ormerod explains why warnings about refrigerant shortages could become reality if action is not taken by everyone.

The shift towards the industry buying low GWP refrigerants is gathering pace as 2018 nears and a 37 per cent reduction in the quota for the production of virgin gases becomes a reality. Prices of refrigerants have risen throughout the year and now a major cut in supplies is only five months away the market is bracing itself for further upheaval.

The phase-down cliff in 2018, as described by industry observers, has sharpened some minds but has dulled others. In the former camp Honeywell has announced that it will stop selling R404A and R507 and this has given a clear indication to the market that change is on the way.

In simple terms the 37 per cent reduction means that an enormous chunk of gas supply to the market will disappear next year. If the industry continues with the current mix of products it is buying and installing then we will definitely have shortages of gas in 2018. This cut in high GWP refrigerant is going to hit hard R404A supplies  – the most widely used gas in commercial refrigeration.

From 2020 R404A will be banned from use in commercial refrigeration and so it is bizarre that contractors are still opting for it in new installations. Along with other commentators in the industry, I have warned about the dangers of adopting this head in the sand attitude.

Let’s be clear that a 37 per cent decrease in supplies is a big cut and those ignoring these warnings are only storing up trouble for the future. This is a 37 per cent carbon dioxide equivalent reduction of all refrigerants placed on the market and as R404A has the highest carbon dioxide rating of them all this will have a disproportionate affect on how the quota is consumed.

A 37 per cent cut from its CO2 base means that if we want to continue to buy the same tonnage of refrigerant as we currently do, then we need to make an enormous shift to lower GWP products in order to keep the market balanced – otherwise we run the risk that we use up all the quota selling R404A and there won’t be any left for other refrigerants.

Honeywell’s announcement has been described by some observers as a brave decision but to my mind this points to the reality of the situation. Honeywell have done their homework on the amount of quota they will have available and quickly figured out that combined with the 37 per cent cut, if they carry on selling R404A at the current rate it is probably going to use up more than half of their overall quota.

In this scenario there will not be the availability of other refrigerants to make the transition away from high GWP gases like R404A. By taking this decision it means that Honeywell can guarantee that they will have sufficient volumes of the next generation low GWP gases available.

Contractors and users of refrigeration equipment simply cannot wait until next year before they make the switch to the alternatives. They need an exit plan in place for R404A now.

If installers and end users do not change to low GWP options there is a real risk that there will not be enough of these alternatives to go round to service the market. If as an industry we carry on buying large quantities of R404A at the rate we are doing the fall from this cliff will be a steep one.

One of the quirks of the quota system is that attaching these reductions to a CO2 equivalent tonnage allows the market to grow if people make the change to low GWP products. But if users fail to switch – and in some cases up to now this has been the experience we’ve come across – the quota systems will have the opposite effect on the market of cutting supplies which in turn will lead to shortages.  

To some extent if you let the market run its course within the F-Gas reduction programme you can easily run into these kind of problems. That’s why the message that everyone in the industry should take on board is to make the switch now before it’s too late. Sales of R404A have been declining over the last few years but in some respects not fast enough to demonstrate the fact that everybody has understood the challenge of 2018.

I can only think that installers and specifiers who are still recommending R404A for new equipment are doing so because it is an easy decision. To be fair to them they are probably used to working with the gas and find the switch unsettling.

But if they are unsure about what to do, help is there from their refrigerant supplier who will be happy to advise on the right choice for the job. That aside, price rises driven by supply and demand will probably be the first thing that will influence the minds of the latecomers to the party.

The good news is that the supermarkets have understood the issue because they have a large amount of refrigeration equipment to run and maintain. The recent announcement about the Tesco conversion programme illustrates this and generally speaking the major store chains have grabbed the bull by the horns. It is now up to everyone in the industry to follow suit.

As seen in ACR Journal

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