On June 17, China ratified the Kigali Amendment, the United Nations treaty provision that restricts future production of a widely used class of refrigerants called hydrofluorocarbons (HFCs) on the grounds that they are greenhouse gases. And like so many other climate change policies, the Kigali Amendment gives Chinese-based companies opportunities to gain at the expense of American consumers.
The good news is that the U.S. has not ratified this ill-advised and costly treaty—President Biden has yet to submit it to the Senate for the Constitutionally required ratification vote. The bad news is that Congress slipped similar domestic restrictions on HFCs into the big spending/COVID relief bill last December, and the Environmental Protection Agency has already started the process of implementing these costly provisions. Expect the cost of air conditioning and refrigeration to go up—and expect China to capitalize.
HFCs are refrigerants used in the majority of home and vehicle air conditioners as well as most commercial and public buildings. They are also used in the refrigeration equipment that millions of businesses rely on, from the equipment in restaurant kitchens to the industrial process refrigeration systems needed by many manufacturers. Repairs costs for existing equipment will rise as HFC supplies are constrained and prices rise. The purchase price for equipment prices will also increase as systems are redesigned to use one of the acceptable alternative refrigerants, many of which carry a substantial price premium.
Either way, China wins. As the world’s major producer of HFCs, Chinese-based makers will get the largest share of the controlled market in future supplies needed to keep all those existing systems running—and what these companies can’t make legally they may just make illegally.
In fact, prices to recharge a home air conditioner after a leak—a majority of which use an HFC called HFC-410a—are already on the rise, possibly in anticipation of the upcoming restrictions.
Chinese companies are also poised to produce much of the Kigali-friendly new refrigerants and equipment for export and sell it for a premium in the U.S. market. Even many U.S. companies in this sector have substantially outsourced to China.
China will even qualify for subsidies from the U.S. Shockingly, the Kigali Amendment categorizes China as a developing nation, and as such it is eligible for compliance assistance from a United Nations Fund to which the U.S. is the largest contributor. So American taxpayers will be helping Chinese companies make the transition to the costlier alternative refrigerants and equipment.
The bottom line is that Kigali Amendment and its U.S. equivalent are going to make it more expensive to stay cool, and Chinese companies are well-positioned to profit at the expense of American consumers.