Adaptation required in the air-conditioning and refrigeration industries

New Zealand will phase down use of hydroflurocarbons

Hydroflurocarbons (HFCs) are man-made greenhouses gases widely used in the air-conditioning and refrigeration industries. However, they are significantly more potent in their global warming effect than carbon dioxide.

On 3 October 2019, New Zealand is set to ratify the Kigali Amendment to the Montreal Protocol (Amendment), an international treaty aimed at significantly reducing the level of HFCs in the Earth’s atmosphere over time. The Amendment will enter into force 90 days later on 1 January 2020.  Ratification of the amendment requires New Zealand to reduce HFCs by 85 percent by 2036, as part of an international effort expected to avoid a 0.5 ⁰C increase in global temperature.

Under newly implemented regulations, manufacturing companies importing and exporting HFC will require permits

Last year the Ozone Layer Protection Amendment Regulations 2018 (New Regulations) amended the existing regulations to give effect to New Zealand’s obligations under the Amendment. These regulations establish an import and export permitting system for “bulk” HFCs, administered by the Environmental Protection Authority (EPA). Bulk HFCs include new or recycled HFCs in an unprocessed or pure form.  These are imported and used by domestic manufacturers in refrigeration and air-conditioning equipment in homes, commercial and industrial facilities, and in car air conditioning. Small amounts are used in foam products, aerosols, fire extinguishers and solvents.

Under the New Regulations, from 31 December 2019, a permit will be required to import or export bulk HFC. The Government has set annual limits on the quantity of bulk HFC that can be imported.  The New Regulations gradually reduce these limits over a 17 year period, in accordance with New Zealand’s obligations under the Amendment.  The New Regulations will also ban the import or export of HFCs from countries that are not a party to the Amendment.

There will be an increase in costs while the air-conditioning, refrigeration and other affected industries adapt to these regulations

The phase out timetable in the New Regulations is intended to give advanced certainty to affected industries. We anticipate the following outcomes:

  1. The cost of importing HFC is likely to increase. As the annual supply limits decrease in New Zealand and overseas, the cost for domestic manufacturers to purchase bulk HFC is likely to increase.  These changes are part of a global phase-down, which means supply will reduce globally as there are 68 countries currently party to the Amendment.
  2. The cost of importing products using HFC is likely to increase. Under the New Regulations, a permit is not required to import or export HFC that is within a manufactured product, for example, HFC in car air-conditioning systems or fire extinguishers.  Nevertheless, unless consumer demand significantly decreases, we are likely to see an increase in the cost of products relying on HFC as a result of the decreasing supply.
  3. There will be a risk of cost in changing equipment using HFCs. The global phase-down will mean that the affected industries will need to develop and convert to alternative technologies.  The rate at which safe alternative gases can be brought to market has implications for the supply chain during the transition.

Certain permit applications must be received by the EPA as soon as March 2019

Applicants must apply in 2019 for one of the four different types of permits.

Up to 80 percent of the annual allocation of imports of new bulk HFCs will be allocated to holders of ‘grandparented’ permits. Companies which imported new bulk HFCs in the 3-year period beginning on 1 January 2015 may be eligible for ‘grandparented’ permits.  Applications must be received by the EPA by 18 March 2019.

Twenty percent or more of New Zealand’s total net import quantity of new HFCs each year will be available for special import permits. Applications for special permits close 1 July 2019.

No additional changes have been made through the Emissions Trading Scheme

Importers of HFC are required to be registered with the ETS. These importers face additional obligations under the ETS, separate from the permitting process. The requirements for importers of synthetic greenhouse gases remain the same – so far.  The Government does have the ETS under review, with a view to imposing higher costs on emitters.

Who can help

Related Articles