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October 11, 2021
EPA announces hydrofluorocarbons phasedown

Congress enacted the American Innovation and Manufacturing (AIM) Act on December 27, 2020, which gives the EPA authority to:

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  • Phase down production and consumption of hydrofluorocarbons (HFCs);
  • Maximize reclamation and minimize HFC releases from equipment; and
  • Facilitate the transition to next-generation technologies through sector-based restrictions on HFCs

The final rule, issued by the EPA late September 2021, “sets the HFC production and consumption baseline levels from which reductions will be made, establishes an initial methodology for allocating and trading HFC allowances for 2022 and 2023, and creates a robust, agile, and innovative compliance and enforcement system.”

HFCs are potent greenhouse gases that were developed for use in refrigeration, air conditioning, aerosols, fire suppression, and foam blowing. They were developed to replace ozone-depleting substances (ODS) such as chlorofluorocarbon (CFC) refrigerants.  At the time of their introduction, HFCs were considered an improvement because, although they do contribute to global warming, they do not affect the ozone layer directly.  However, their global warming potentials are hundreds to thousands of times more harmful than carbon dioxide (CO2).

This final rule codifies how the EPA will reach a goal of 85% reduction below baseline levels by 2036.

“EPA has established U.S. production and consumption baselines using a formula provided by the AIM Act that considers past HFC, hydrochlorofluorocarbon (HCFC), and chlorofluorocarbon (CFC) amounts.  By October 1 of each year, EPA must issue production and consumption allowances for the following calendar year, relative to those baselines” according to the EPA Fact Sheet on the Phasedown.

The fact sheet also contains tables detailing the HFCs included in the AIM Act and the maximum number of allowances the EPA can allocate each year.

“EPA estimates that the present value of the cumulative net benefits of this action are $272.7 billion from 2022 through 2050.  In 2036 alone, the year the final reduction step is made, this rule is expected to prevent 171 MMTCO2e (million metric tons of carbon dioxide equivalent) emissions – roughly equal to the annual GHG emissions from one out of every seven passenger vehicles registered in the United States,” states the EPA Fact Sheet.

Key provisions

Key provisions of the regulation include:

  • Establishing HFC production and consumption baselines from which reductions must be made according to the formulas provided in the AIM Act.
  • Codifying the phasedown schedule.
  • Establishing an initial methodology for issuing allowances for 2022 and 2023 that:
    • Issues allowances to companies that produced and/or imported HFCs in 2020, based on the three highest non-consecutive years of production or import between 2011 – 2019.
    • Issues “application-specific allowances” directly to the entities that operate within the six applications listed in the AIM Act.  These entities will be able to confer their allowances to producers or importers to acquire needed HFCs.
    • Sets aside some allowances for application-specific end users and small importers that are only identified after the public comment period ends and new market entrants.
  • Establishing a methodology for trading allowances between companies, while requiring an offset of allowances to further benefit the environment. The offset is 5% of the amount transferred and is reduced from the transferor’s allowance balance.

Compliance measures

To ensure compliance with the phasedown requirements, the regulations:

  • Establish an electronic tracking system for the movement of HFCs through commerce;
  • Require the use of refillable cylinders and container labeling requirements;
  • Establish administrative consequences (e.g., revocation or retirement of allowances) for noncompliance that would be in addition to any civil and criminal enforcement action;
  • Require third-party auditing of companies’ recordkeeping and reporting; and
  • Provide transparency of HFC production and consumption data for the general public and participants in the market and supports enforcement and compliance efforts.

To prevent black market trading of HFCs, the EPA states it is working closely with other federal agencies, including U.S. Customs and Border Protection.

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