Alert 11.19.20
DOE Announces Its Hydrogen Plan
The Hydrogen Program Plan establishes a strategic framework to coordinate DOE’s hydrogen research, development and demonstration activities.
Alert
04.02.21
Hydrofluorocarbons (HFCs) are greenhouse gases commonly used in a variety of applications including refrigeration, air-conditioning, building insulation, fire extinguishing systems, refrigerated shipping and aerosols. The use of HFCs is particularly prevalent in the supermarket and data center industries—two important U.S. sectors that rely on commercial-scale refrigeration systems to operate. For example, it has been reported that annual HFC emissions from U.S. grocery stores have the equivalent climate potential of 49 billion tons of coal. The data center cooling industry has been reported to contribute to more than two percent of global HFC emissions.
Due to their high global warming potential, HFCs are widely considered as one of the most potent drivers of climate change. For that reason, an ambitious HFC phasedown has long been touted as a critical climate strategy. In fact, a quadrennial Scientific Assessment of Ozone Depletion report issued in October 2018 noted that a concerted, worldwide HFC phasedown effort could avoid up to 0.5°C of global warming.
To that end, the recently passed American Innovation and Manufacturing (AIM) Act of 2020, H.R. 133, sec. 103, requires EPA to pass regulations that will reduce U.S. HFC production and use by approximately 85 percent over the next 15 years. While some sectors will be spared from this phasedown, the majority of companies will be required to transition their facilities to non-HFC refrigerants in order to comply with the EPA’s new regulations. The AIM Act directs EPA to issue a final rule on the HFC phasedown on or before September 23, 2021, and it is expected that EPA’s proposed rule and public comment period will begin this spring or early summer.
Of course, transitioning to an HFC-free alternative cooling system is much easier said than done. The deceptively simple act of swapping one coolant for another often requires extensive and costly upgrades to a business’s facilities and operations. This program will impact businesses in a number of ways. Affected industries would be well-advised to closely monitor or participate in the EPA’s rulemaking process. Some impacts may be positive. For example, because the AIM Act includes a cap-and-trade system for HFCs, companies which are early movers could generate revenue by selling unneeded allowances.
I. Overview of the AIM Act
On December 27, 2020, President Trump signed into law the AIM Act, which was tucked into last year’s massive omnibus legislation known as the Consolidated Appropriation Act of 2021 (P.L. 116-260). The AIM Act is the product of bipartisan agreement and directs the EPA to spearhead a phasedown of both HFC production and consumption in the United States. The AIM Act marks the return of federal HFC regulation, an area formerly rife with uncertainty after the legality of prior HFC regulations was called into question in a series of federal court decisions.
Additionally, the passage of the AIM Act brings the United States in line with the ambitious climate change goals under the Kigali Amendment. The Kigali Amendment—an amendment to the 1987 Montreal Protocol treaty—is a global pact to phase down HFCs worldwide over the coming decades. The U.S. signed the Kigali Amendment in 2016, however, it was largely ignored by the previous Administration. On January 27, 2021, President Biden signed an Executive Order directing his administration to forward the Kigali Amendment for Senate ratification, where it is expected to pass.
In short, the AIM Act will cut U.S. production and use of HFCs by approximately 85 percent over the next 15 years. In addition to setting monitoring and reporting requirements for HFC uses, AIM grants the EPA authority to undertake the following actions:
The AIM Act mandates a nationwide HFC production and consumption reduction, based on an average of 2011-2013 levels as the baseline, of at least 10 percent by 2023, 40 percent by 2028, 70 percent by 2033, 80 percent by 2035, and finally 85 percent by 2036, AIM Act, sec. 103(e)(2)(A)-(C). AIM directs EPA to implement these reductions through regulations promulgated before September 23, 2021. AIM Act, sec. 103(e)(3). Specifically, EPA is required to calculate the allowable quantity of HFCs that may be used each year, then allocate allowances to companies to allow the consumption and production of HFCs up to the limit. AIM also authorizes EPA to impose a more stringent phasedown schedule than that set forth in the Act. AIM Act, sec. 103(f).
AIM contains a narrow exception for niche applications of HFCs deemed “essential uses” for which there are no substitute chemicals. These uses include defense sprays, medical inhalers, polyurethane foam for marine and trailer use, semiconductor manufacturing, and mission-critical military end uses. The exception protects these uses from HFC regulation (other than reporting requirements) for five years and mandates that EPA allocate the full number of allowances that are necessary for such “essential uses.” See AIM Act, sec. 103(e)(4). The Act also creates a three-year grant program for small businesses, allocating $5 million annually toward increasing recovery and reclamation of refrigerants reaching their end-of-life. AIM Act, sec. 103(h)(5).
II. Impacted Industries
The impacts of AIM will be highly significant in the supermarket and data center industries, both of which do not qualify as essential uses, but heavily rely on cooling systems which utilize HFCs.
Because the AIM Act requires EPA’s final rule to be issued by this September, EPA’s rulemaking process is anticipated to begin in the next few months.
Supermarkets, data centers and other impacted industries are encouraged to take immediate steps to prepare for the EPA’s forthcoming HFC regulations. Companies in these sectors would be wise to participate in the EPA rulemaking to ensure the regulations appropriately consider their business needs. The amount of allowances EPA grants a particular industry, and the speed at which EPA mandates the phasedown of particular HFCs, will have a significant impact on the costs the AIM Act imposes on businesses over the next 15 years. Pillsbury is well-suited to provide public policy and rulemaking support to ensure this emerging regulatory framework is enacted in a way favorable to long-term business interests, to assist clients in the sourcing and development work necessary to transition their facilities and operations to non-HFC alternatives, and to help clients develop the compliance programs necessary to comply with the AIM Acts new regulatory framework.