Are HFCs Headed Towards a Price Hike?

By Danielle Wright, NASRC Executive Director, and Keilly Witman, NASRC's Policy Expert

Retailers are experiencing the painful transition from R-22 as prices have doubled, or even tripled, with no end in sight. The question retailers need to consider next is whether the commitments made by the United States under the Kigali Amendment to the Montreal Protocol will drive similar price increases for R-404A and R-407A.

The Kigali Amendment to the Montreal protocol, adopted in 2016, mandates the phasedown of Hydrofluorocarbons (HFCs). The amendment establishes a timetable for all developed and developing countries to freeze and then reduce production and use of HFCs. To meet its target, the United States will need to reduce HFC use by 40% by 2024. 

The HFC phasedown will be implemented through EPA production allocations for chemical manufacturers in a way that is similar to the way the R-22 phase-out was implemented. Each chemical manufacturer will be awarded a maximum amount of carbon dioxide equivalent that they will be allowed to manufacture each year, and e each chemical manufacturer will develop its own strategy on how to translate that carbon dioxide equivalent into HFC production. For instance, a chemical manufacturer that is allocated 100,000 pounds of carbon dioxide equivalent, can choose to manufacture approximately 25 pounds of R-404A, or they can choose to manufacture about 70 pounds of their patented HFO blend.

This will drive the chemical manufacturers to invest their allocation towards the more profitable HFO blends, rather than the lower-priced high GWP HFCs, such as R-404A and R-407A. If you had the choice to sell 70 pounds of a patented HFO blend at $20 per pound or 25 pounds of R-404A at $10 per pound, which choice would you make?

With reduced supply of high GWP HFCs and the very high demand for those HFCs for supermarket refrigeration systems, the price of those high GWP HFCs will go up. Eventually, the current price premium of the HFO blends will disappear, which makes the HFO blends even more attractive.

The European market, another leading indicator for what might happen in the U.S., is accelerating the phasedown of HFCs well ahead of the Kigali Amendment schedule. HFC prices have already begun to increase due to the reduction in supply. According to the Environmental Investigation Agency (EIA), one major producer has increased the price of R-404a by over 60% in the first quarter of 2017.

The potential price increase of high GWP HFCs is just another challenge added to the list of hurdles that supermarket retailers face when it comes to refrigerant management. Natural refrigerants are the ideal solution, as they “future-proof” your business against future phase-outs and phasedowns. They are also insulated from refrigerant price volatility driven by chemical manufacturer production levels.

Natural refrigerants have their own hurdles when it comes to technology costs, service technician availability, and the lack of codes and standards. Now is the time to focus on overcoming these hurdles, so that retailers can avoid the uncertainty and cost of multiple refrigerant change-outs. How can you take action? Join one of NASRC’s progress groups and contribute to the real change today.