EPA Proposes Major Changes for Distributors in HFC Phasedown Rule

This week the EPA released a pre-publication proposed rule that is the first regulatory step in phasing down the production and consumption of all HFC products including many common refrigerants used today in addition to foams, aerosols, and fire-protection systems. Included in the rule to help ensure compliance are new restrictions and requirements that will impact distributors, contractors, importers, and producers of refrigerants. The rule phases down the production and import of HFCs for domestic consumption over a 15-year period between now and 2036 in line with the American Innovation and Manufacturing Act.

Most of the proposed rule deals with establishing the allocation process that will be used to determine which companies can produce or import HFC products. Of importance to wholesale distribution are the new compliance measures. The four compliance measures included in the rulemaking are:

• Establish an electronic tracking system for the movement of HFCs through commerce;

• Require the use of refillable cylinders;

• Establish administrative consequences (e.g., revocation or retirement of allowances) for noncompliance that would be in addition to any civil and criminal enforcement action; and

• Establish recordkeeping and reporting, third party auditing, and data transparency requirements.

The requirement to use refillable refrigerant cylinders will be a major shift for US distributors and could have a potential impact on how returned cylinders containing A2L refrigerants are handled to meet fire code requirements for storage of flammable gases. Refillable cylinders will also impact how distributors store and ship the returned cylinders for refill. Under the proposed rule all newly filled or imported cylinders will need to be refillable after July 1, 2023, however remaining disposable cylinders can be sold until December 31, 2023 using current practices.

Starting on January 1, 2024 all cylinders, including any remaining disposable cylinders, will be required to be tracked using a proposed EPA tracking system utilizing QR codes on every cylinder tied to a centralized database that will identify the producer/importer, HFC contained in the cylinder, and the chain of custody of the cylinder as it makes it way to the “final customer.” The proposed rule defines the final customer as the final user of the cylinder, which would be the contractor using the refrigerant in the field, not the home or building owner. Under the proposed rule distributors would need to track individual cylinders with their EPA identifier information and report which cylinders are sold to which customers. The proposed tracking system has the potential to be very onerous as it is currently written.

Certain information collected by the tracking system will be made public including total inventory of HFCs and the producer/importer. EPA is requesting comment if information on downstream sellers and buyers should be kept confidential. One of the intentions of this tracking system is to ensure public knowledge of inventory levels as products are phased down to prevent the price swings seen in the R-22 market as supplies of virgin refrigerant
decreased.

With the widely reported announcement of this proposed rulemaking and its impact on the Biden Administration’s climate goals many customers and consumers may believe this rule will require them to replace existing working equipment. It is important to remind the public that this rule will not require the replacement of any equipment and future rulemakings specific to air-conditioning and refrigeration equipment will impact new equipment only. As the production of virgin HFC refrigerants decreases, additional supplies of reclaimed refrigerant will become available to meet demand but only if enough HFC refrigerants are reclaimed. Distributors should work with customers who recover refrigerants to make sure pure recovered refrigerants are returned to ease the reclaim process.

This proposed rule sets the general timetable for total HFC production across all products using HFCs. The HVACR industry recently sent two petitions to the EPA asking for timelines for industry specific changes affecting air-conditioning and refrigeration. See our blog post on these petitions for a proposed timeline of equipment specific phaseouts.

EPA is required to finalize this rule by the end of September and will open a 45-day comment window when the proposal is published in the Federal Register, EPA will also host a public hearing on the proposed rule 15 days after the proposal is published. HARDI is seeking feedback from distributor members about how the proposed changes will impact your business and plans to host informational events about the proposed rule in the near future.

If you have any questions please reach out to Alex Ayers (aayers@hardinet.org). HARDI will continue to monitor these regulations as they are released and will update you on relevant information.