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Climate Rent-Seeking Backfiring on Chemours

In perhaps the most egregious example of climate change-related rent seeking to date, chemical giants Chemours and Honeywell have joined forces with environmental activists to restrict a widely-used class of refrigerants called hydrochlorofluorocarbons (HFCs) on the grounds that they are greenhouse gases. Both companies have patented a number of substitute refrigerants used in a wide range of air conditioning and refrigeration equipment, and all are priced considerably higher than the HFCs they hope to push aside. Their lobbying has achieved successes—specifically, the European Union has imposed HFC restrictions on member nations, and the United Nations has adopted global HFC production limits through the Kigali Amendment to the Montreal Protocol. But the EU scheme is showing signs of being undercut through widespread cheating, and the Trump administration, which has thus far declined to impose similar measures on Americans, is looking wise for not following Europe’s lead.    
 
The rent seekers were hoping to profit from their captive market, but economic reality is now intervening. Chemours recently announced disappointing second quarter earnings, due in significant part to the “continued impact of illegal imports of HFC refrigerants into the EU from China.” Both the sales volumes of Chemours’ patented substitute refrigerants and the prices the company can charge for them have been affected, the company notes in its quarterly results. It turns out that the users of air conditioning and refrigeration equipment in Europe are reluctant to switch to the new stuff, thus creating a black market opportunity for the banned HFCs that China is now exploiting. And, although the black market prices for HFCs are up to ten times higher than before the EU restrictions, many still prefer them to Chemours’ substitutes. 
 
All of this provides important warning signs for U.S. policymakers thinking about following the EU’s lead and restricting HFCs. First, suggestions that the transition to the new refrigerants and equipment designed for them will be cheap and easy cannot pass the laugh test—the fact that there is a substantial EU black market in HFCs puts the lie to these claims. Another lesson is that outlaw nations like China will take advantage of the opportunities provided by HFC restrictions by continuing to make whatever the market demands, and are the real winners from such measures.   
 
Overall, the EU experience shows that the best thing President Trump can do for homeowners, car owners, and small business owners that rely on air conditioning and refrigeration is to continue opposing HFC restrictions.