Comment to EPA on AIM Act Restrictions on the Use of Certain Hydrofluorocarbons
The undersigned free-market organizations have a longstanding interest in bringing to light the deleterious consequences of federal regulations, which are often neglected by agencies in their attempts to adopt a regulatory agenda. For this reason, many of us submitted a joint comment to the Environmental Protection Agency in 2021 regarding the agency’s Allocation Framework Rule implementing the American Innovation and Manufacturing (AIM) Act.1 The Allocation Framework Rule set up the agency’s quota system for hydrofluorocarbons (HFCs), a widely-used class of refrigerants that were being restricted under the AIM Act.2 As we detailed in our comment, the rule and underlying agency analysis ignored the real costs to consumers of this new program.3
The agency’s Proposed Rule at issue here, also pursuant to the AIM Act, would target newly manufactured air conditioning and refrigeration equipment in which HFCs are used. This includes residential air conditioning systems. Once again, despite the obvious costs of the proposed constraints on market competition and consumer choice, the agency analysis asserts that there will be no net costs. This finding violates several provisions in the AIM Act and is arbitrary and capricious. For these reasons, we believe the Proposed Rule should not be finalized.
While the primary focus of the AIM Act and Allocation Framework Rule was to phase down the production of HFCs based on their claimed contribution to climate change, the statute also set out a process under which the agency may promulgate rules restricting air conditioning and refrigeration equipment that utilizes these refrigerants.4 These provisions include a process allowing anyone to petition the agency for such restrictions.5 EPA has received numerous such petitions, including many from representatives of the manufacturers of equipment that would be favored under the provisions advocated in their petitions.6
The agency has granted most of these petitions and with this Proposed Rule is now subjecting them to the required public process before they can become law.
Most of the petitions would require that all new equipment of a particular category use refrigerants with a global warming potential (GWP) at or below a certain threshold. While nearly every type of air conditioning and refrigeration equipment is covered under these petitions, this comment will focus on the provisions applicable to residential air conditioners. EPA is proposing to outlaw by January 1, 2025 the manufacture of residential (and light commercial) air conditioners using any HFC with a GWP higher than 700.7
The majority of such air conditioners currently being offered for sale use an HFC blend called HFC-410a. Air conditioners designed to operate with HFC-410a have dominated the residential market for a number of years, due to their combination of superior affordability and quality relative to other available refrigerants. However, HFC-410a has a GWP of 2,088 and thus the manufacture of any new equipment using it would be forbidden by 2025 under the Proposed Rule.8
Among the likely options to replace R-410a systems is R-32 with a GWP of 675, and R- 454b with a GWP of 466.9 Note that these and other refrigerants had lost out to R-410a in the marketplace due to various shortcomings, including cost, performance, and safety. But now, these refrigerants, and the manufacturers of air conditioning systems designed to use them, would be shielded from any further competition with R-410a systems if the Proposed Rule is finalized. It should be noted that, with limited exceptions, refrigerants are not interchangeable and that equipment is specifically designed around a particular refrigerant.
EPA’s REFUSAL TO ACKNOWLEDGE LIKELY REGULATORY COSTS VIOLATES THE AIM ACT AND IS ARBITRARY AND CAPRICIOUS
EPA’s economic assessment of the AIM Act is off to a very poor start. After enactment of the statute in December of 2020, market prices for the HFCs targeted under it soon increased substantially in anticipation of the restrictions to come.10 These sharp increases were well underway during the agency’s deliberations over the Allocation Framework Rule, yet its lengthy “Regulatory Impact Analysis for Phasing Down Production and Consumption of Hydrofluorocarbons (HFCs)” made absolutely no mention of them.11 The agency finalized the rule on October 5, 2021 while completely ignoring actual market prices for HFCs that in many cases had increased several-fold by that point.12 Instead, EPA relied on assumption-driven computer modeling to hypothesize that implementation of the AIM Act would produce net savings for consumers.
Much like its analysis of costs under the Allocation Framework Rule, the agency’s modeled assessment of costs under the Proposed Rule is completely untethered to reality. It falls well short of the AIM Act’s requirement that the agency shall rely on “the best available data,” and take into account “affordability for residential and small business consumers,”13 and is arbitrary and capricious.
The Proposed Rule Reduces Consumer Choice and Thus Raises Prices
It should be obvious that R-32 or R-454b or other new systems will be more expensive than they would otherwise be once they no longer face competition from R-410a systems. But nowhere is this market reality mentioned in the Proposed Rule and supporting analysis.
The agency assumes, without support, that the new systems “would typically not need extensive redesign and would be expected to have a similar cost….”14 It even suggests that there may be cost savings over time in the form of more energy efficient systems. The agency concludes that “overall, the proposed rule is expected to provide net savings to the economy, which may in turn be passed on to small businesses and residential consumers.”15
Assumptions that alternative systems are cost competitive are highly implausible given that manufacturers could have dropped R-410a and switched to them at any time, with or without the Proposed Rule. But in any event, the proper economic comparison is not between the cost of an R-32 or R-454b system and an R-410a system, but the cost of an R-32 or R-454b system with and without the restrictions under the Proposed Rule. The continued availability of R-410a systems would exert a measure of competition and price discipline on the new systems that will be absent if they are outlawed. For this reason, even consumers who ultimately choose R-32 and R-454b systems are better off without the Proposed Rule than with it. There can be no doubt that the Proposed Rule’s constraints serve to raise prices, and the agency’s analysis is deficient for failing to acknowledge this.
The agency concedes that it relies on information provided by the companies and trade associations that petitioned for the Proposed Rule, asserting that they are “well-positioned and incentivized to gather and have access to information regarding many of the factors in subsection (i)(4), including the best available data on many if not most of the subfactors in subsection (i)(4)(B). ”16 In reality, these rent-seeking entities are incentivized to downplay any adverse consumer impacts attributable to the products for which they are seeking to secure a captive market via the Proposed Rule. Note also that these are some of same interested-party sources cited as support for the assertion that the Allocation Framework Rule would be cost-free, even as actual prices for HFCs were skyrocketing.17
Relying so heavily on such self-interested entities hardly qualifies as using the best available data, all the more so given their unimpressive track record in predicting the costs of the AIM Act thus far as well as the implausibility of their claims that the Proposed Rule’s restraints on competition and product choice won’t impose costs.
Mandating Uncompetitive Refrigerants in New Equipment Doesn’t Benefit Consumers
It is important to emphasize that the Proposed Rule reduces rather than expands market choice. Any manufacturer that prefers to make systems designed to run with R-32, R-454b, or any other refrigerant compliant with the proposed 700 GWP cap has been free to do so at any time, with or without the AIM Act and with or without finalization of the Proposed Rule. The only thing the Proposed Rule does is hand those alternative systems the entirety of the new equipment market by outlawing competition with R-410a systems. In addition to higher prices, doing so also raises other issues associated with the use of problematic refrigerants.
Instead of acknowledging the reality that these alternative refrigerants have imperfections, EPA assumes that they are comparable to (or better than) R-410a.
Nowhere does the agency explain why these alternative refrigerants were nobody’s first choice and why the Proposed Rule is needed in order for them to secure market share. Rather, it asserts without evidence that air conditioning systems “would be expected to have a similar cost and similar performance with either the regulated substance or the substitute.”18 In reality, as noted in a study conducted for the Clean Energy Manufacturing Analysis Center, “[e]xisting ‘alternative’ refrigerants have limitations (e.g., toxicity, flammability, efficiency) that have restricted their use until now.”19
For example, both R-32 and R-454b have a flammability classification higher than that of R-410a.20 Thus, flammability risks would likely increase for most new residential systems under the Proposed Rule. Legitimate questions whether these risks can be eliminated by the 2025 deadline may constitute a violation of the consumer protections in the AIM Act, including the requirement that safety be taken into account.21 At the very least, we urge caution regarding continued agency reliance on “information from petitions” regarding safety, as these petitions were submitted on behalf of the companies seeking to make and use the flammable refrigerants at issue.22
The Proposed Rule Would Lead to Higher Repair Costs Not Accounted For in the Analysis
Beyond raising the purchase price of new air conditioning equipment, the Proposed Rule would also lead to higher repair costs over the life of these systems. The agency dismisses service costs by saying that they “comprise only a small fraction of income for residential consumers.”23 This blanket assertion is not a valid reason to ignore these costs.
It is important to note that the flammability issues associated with several of the new refrigerants are not merely a safety concern, but also an economic one. The extra precautions service technicians must undertake when dealing with such refrigerants would add to the time and cost of repairs, and may also impact installation and disposal costs.
The Proposed Rule includes a section on “contractor training costs,” which concedes that the new refrigerants pose flammability and other challenges that service technicians must master, but it never takes the logical step of acknowledging that these challenges will very likely translate into higher repair bills.24
Further, the Proposed Rule encourages a proliferation of refrigerants simultaneously in use, which adds complications and costs to the repair process. No single frontrunner has yet emerged as the best replacement for R-410a, and the Proposed Rule does not provide enough time for that process to play out. Further, the Proposed Rule is by nature an interim one – the GWP 700 threshold was arbitrarily chosen and very likely will be lowered in a future rulemaking, leading to yet more refrigerants forced into use. Undoubtedly, the companies developing and using GWP 400 or 200 or 100 refrigerants will petition the agency for future rounds of competition-limiting rules as is occurring with the Proposed Rule here.
As a result, service technicians will need to be trained and equipped to handle a large and growing number refrigerants in residential systems. Some of the equipment required to service residential systems is refrigerant-specific, leading to a costly redundancy of such equipment that will undoubtedly be passed on to consumers.
The proliferation of refrigerants under the Proposed Rule would also increase the risk of refrigerant cross-contamination and commingling. Adding the wrong refrigerant to a system (or even the correct refrigerant if contaminated with traces of another) can lead to serious and costly damage and also make reclamation much more difficult.
Note also that, unlike R-410a systems which have been refined and improved upon over the last twenty-plus years, the GWP 700-compliant systems are not similarly battle tested in the American market. The first generation of this equipment may or may not have the same reliability as the systems they are replacing, and repairs may be more common.
None of these equipment lifecycle costs are included in the agency’s assessment.
The Proposed Rule Fails To Consider the Environmental Justice Impacts of Higher Air Conditioning Costs
As with the Allocation Framework Rule, the Proposed Rule’s lengthy discussion of environmental justice does not consider the possibility that such regulations would raise air conditioning costs on those least able to afford them. Instead, it focuses primarily on hypothetical future releases from production facilities making replacement refrigerants and the impacts on surrounding communities.25 Not only is this discussion irrelevant to the Proposed Rule—releases from such facilities are heavily regulated under separate authority in the Clean Air Act and other statutes—but it ignores the direct impacts on air conditioner affordability.
The health and welfare benefits of air conditioning are substantial. The most comprehensive study on the subject estimates that widespread market penetration of residential air conditioning in the U.S. has prevented up to 18,000 deaths annually.26 Beyond mortality reductions, air conditioning also enhances the quality of life, including improved learning and labor productivity.27 Such benefits receive scant attention in the Proposed Rule and supporting economic analysis.
Of course, these benefits accrue only to those who can afford air conditioning. Not surprisingly, data from the Energy Information Administration’s Residential Energy Consumption Survey (RECS) finds that low-income households are less likely to have air conditioning.28 Heat-related mortality and morbidity is higher among those with low incomes, especially seniors, and lack of access to air conditioning has been identified as a major contributor.29
The Proposed Rule engages in speculation that climate change disproportionately burdens “the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations….”30 But nowhere is there any consideration of the disproportionate impacts on those same groups of costlier air conditioning. Any assessment of potential disproportionate impacts of federal rulemakings should consider both costs as well as benefits.31
Granted, the agency has taken the position, however far-fetched, that the Proposed Rule is unlikely to impose costs. Even so, EPA should have at least considered the possibility that the agency’s assessment may be optimistic (as we already know to be the case with the Allocation Framework Rule) and thus explored the environmental justice implications should the cost of purchasing and maintaining air conditioning increase.
THE CLAIMED CLIMATE BENEFITS FROM THE PROPOSED RULE ARE OVERSTATED
It is difficult to see how the Proposed Rule could plausibly reduce the greenhouse gas contribution from HFCs beyond what is already mandated by the AIM Act and Allocation Framework Rule. The quantities of allowable HFCs are, on a GWP-weighted basis, already constrained by law. Indeed, the sharp jump in HFC prices in the very first year of the AIM Act (the quotas get considerably tighter in future years) is a real-world indication that every last ounce will be needed. The Proposed Rule would, at most, merely reallocate this limited amount towards a somewhat different mix of HFCs and end uses. Agency speculation that the Proposed Rule would somehow spark overcompliance with the existing quotas strains credibility and is not the best available data.
It should also be noted that approximately 74 percent of the greenhouse gas contribution attributable to air conditioning systems comes from the indirect carbon dioxide emissions associated with the electricity needed to run them, and not the small amount of refrigerant that leaks out.32 Thus, if the agency’s optimistic assumptions of comparable or superior energy efficiency with the new refrigerants prove wrong, the Proposed Rule could lead to increased greenhouse gas emissions.
Nonetheless, the agency calculates substantial climate benefits through 2050. It estimates reduced greenhouse gas emissions ranging from 134 to 903 million metric tons carbon equivalent (MMTCO2e) by 2050 and, based on its estimate of the social cost of HFCs (SC- HFCs), calculates present value of resulting benefits ranging between $5 billion and $51 billion in 2020 dollars.33 Although the agency asserts that these calculations play no role in its deliberations over the Proposed Rule, they are nonetheless included in considerable detail and thus we believe it important to highlight several concerns with them.
The monetized benefits of reduced HFC emissions are based on the 2021 Interagency Working Group on the Social Cost of Greenhouse Gases (IWG 2021).34 As several of us have detailed in other regulatory contexts, there are numerous flaws with IWG 2021, nearly all of which serve to exaggerate the climate benefits of avoided emissions.35 Among them are the use of improperly-low discount rates, reliance on climate models that have consistently overstated actual warming, and downplaying the capacity for adaptation to mitigate climate impacts.36
Overall, questions about whether the Proposed Rule would reduce greenhouse gas emissions as much as estimated (if at all), compounded by concerns whether the dollar value of reducing emissions has been exaggerated, renders the agency’s calculations of climate benefits well short of best available data.
The Proposed Rule would serve to outlaw the types of residential air conditioning systems that currently predominate in the new equipment market and replace them with systems with a variety of shortcomings. Yet the agency’s modeled analysis would have us believe that creating a captive market for these replacement systems would leave consumers better off. For the reasons we have described, the agency’s analysis falls well short of the best available data standard required under the AIM Act and under the Information Quality Act, and is arbitrary and capricious because it bears little relation to economic reality.37 We urge the agency to withdraw the Proposed Rule.
Ben Lieberman, Senior Fellow Center for Energy and Environment Competitive Enterprise Institute
Garrett Bess Vice President, Heritage Action for America
Tom Pyle Presidentm, Institute for Energy Research
Adam Houser, Director of Public Outreach, Committee For A Constructive Tomorrow
Donna Jackson, Director of Membership Development Project 21
Mandy Gunasekara Senior Policy Analyst, Independent Women’s Forum
E. Calvin Beisner, Ph.D., President Cornwall Alliance for the Stewardship of Creation
William Hild Executive Director Consumers’ Research
Beverly McKittrick, Director, Regulatory Action Center FreedomWorks Foundation
Thomas Sheahen, Ph.D. Chairman, Science & Environmental Policy Project
David Stevenson, Director, Center for Energy & Environmental Policy Caesar Rodney Institute
Paul Gessing President, Rio Grande Foundation
Brian Balfour, Senior Vice President of Research John Locke Foundation
Saulius “Saul” Anuzis President, 60 Plus Association