COVID-19 Stimulus Comes with HFC Phase-Out and More

You could say that one thing we’ve gotten used to in 2020 is being surprised. And when it comes come climate change legislation, the end of 2020 was no different. In the last days of the 2020 federal legislative cycle, the giant Covid-19 “Omnibus” Spending Bill also included important provisions from the previously-stalled American Innovation and Manufacturing (AIM) Act. This new law (in Section 103) will bring the US in alignment with the Kigali Amendment to the Montreal Protocol with an HFC refrigerant phase-out, spurring job creation supporting energy efficiency and the transition to natural refrigerants! Good news for jobs in a troubling economy and good news for climate fighting climate change.

In addition to the HFC refrigerant phase-out provisions of the legislation, there are other big wins for climate action and energy efficiency, including:

  • The energy efficiency tax credits under Section 179D are made permanent

  • A new timeline for carbon capture tax credits that will help spur growth in new technologies

  • An extension of tax credits for utility-scale wind and solar installations

  • And others I haven’t deduced from the 2100+ pages of the bill

Some of these key provisions will impact the HVAC and refrigeration landscape for years to come.

Why is the HFC phase-out important?

The phase-out of HFCs will bring about a massive shift in how we use refrigerants in the U.S. The refrigerants included in the phase-out list are the most popular gases currently used to cool food in grocery stores and air-condition buildings.

The field of refrigerants available for replacing these HFCs is limited. The next generation of refrigerants will likely be “the natural refrigerants” such as carbon dioxide, ammonia, and hydrocarbons.

As I’ve noted before, we’ve been down a similar path when we phased out of the ozone depleting refrigerants, starting in the ‘90s. That was the Montreal Protocol. The next step, the Kigali Amendment to that protocol, phases out HFCs due to their high contribution to global warming potential (or GWP).

The GWP of HFCs has a detrimental impact on the atmosphere. HFC refrigerants trap atmospheric heat at rates between 1,500 and 15,000 times that of carbon dioxide, when released into the atmosphere. All the refrigerants we use eventually end up there over time. So, you can see that these gases have a super-sized impact on climate change. In fact, the phase out of HFCs has such a big impact on the climate that the Rhodium Group estimates that this single piece of legislation roughly offsets the rollbacks in federal standards over the last four years.

“The cumulative emissions impact of the HFC phasedown and 45Q extension [sic: the extension of tax credits for utility grade wind and solar] over the next 15 years is larger than the combined effect of rolling back both the federal GHG standards for cars and trucks and a package of federal standards regulating methane from oil and gas operations, the most significant climate-related rollbacks under the Trump administration. So, in effect, these two big-ticket energy package provisions may go a long way towards reversing the emissions impact from the last four years of climate rollbacks under the Trump administration.”[1]

What to expect?

I think it’s reasonable to expect the rollout of HFC phase-outs to proceed something like the phase-out of ozone depleting refrigerants went previously. That is that many businesses and industries will complain that it’s not possible, and others will adapt and see it as an opportunity. Phasing out HFCs will be slow but drive a predictable and steady churn of HVAC and refrigeration equipment for the next one to two decades as the stocks of existing refrigerants dwindle, and equipment turnover is accelerated.

How does this impact energy efficiency?

Accelerated turnover of equipment is a great opportunity for energy efficiency. The large capital costs required for investment will demand that prudent building planners take a careful look at the life cycle costs of owning and operating central plants and refrigeration equipment in particular. Large retrofits like these are key opportunities for capitalizing on change by looking at the added benefits, and minimal incremental costs of the most efficient retrofit alternatives.

Will there be incentives for replacing HFCs?

Actually, there already are in California. Well sort of… There were, but the small allocation of funds to date under the states F-gas Incentive Program has already been spoken for. But there may be additional opportunities, and some that may combine energy efficiency and refrigerant replacement.

Under California’s HFC Phaseout Bill SB 1013 (aka CA Cooling Act) the Air Resources Board and the CPUC are cooperating to recognize the parallel policy objectives of energy efficiency and greenhouse gas reduction efforts. To date this has been limited to the CPUC recognizing the equivalent GHG reductions of HFC emissions in the calculation of avoided costs used to evaluate the costs and benefits of energy efficiency. However, this is a work-in-progress and has not yet been used in practice to enact incentives or rebates directly. But the bill puts the authority in place to do so, and the policy would align with the state’s overarching climate mitigation and energy efficiency goals.

So, if you want to “future-proof” your building, campus, or energy efficiency program, you need to keep the HFC phase out on your radar. And if you have questions about how best to do that, contact us anytime.

[1] Climate Progress in the Year-End Stimulus, The Rhodium Group, Dec. 22, 2020.


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