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1. Introduction

The government has developed legislation enabling the introduction of an emissions trading scheme (ETS) for New Zealand. The scheme is expected to cover all greenhouse gases and all sectors over time. The legislation currently provides for the entry of emissions of hydrofluorocarbon (HFC) and perfluorocarbon (PFC) gases as part of the industrial processes sector on 1 January 2010. Details on that entry, including estimation methodologies, will be part of regulations yet to be drafted.

Emissions of the synthetic greenhouse gases (SGGs) – HFCs, PFCs and sulphur hexafluoride (SF6) – have fundamental differences from other emissions associated with industry and industrial processes. The sources are very disparate and typically small with long lag times between gas utilisation and eventual emission – particularly for HFC refrigerants and for SF6.

Although SF6 emissions have been assessed as relatively low at about 550 kg in New Zealand in 20061 (CRL Energy 2007), its 100-year global warming potential (GWP) is extremely high (1 kg is equivalent to 23,900 kg CO2 emissions for inventory purposes). Most SF6 emissions are being managed and reported under existing Memorandums of Understanding (MOUs) with the major emitters. Many minor emitters and a few major emitters are not subject to any MOU. Officials acknowledge the need to encourage those major emitters to sign the MOU and to undertake reviews of the existing MOUs. This work should have some priority in the short term even though SF6 emissions are proposed to be outside the ETS until 2013.

Nearly all of New Zealand’s PFC emissions are sourced from anode effects while smelting aluminium. This makes ETS coverage relatively easy, as New Zealand Aluminium Smelters has good estimates of its emissions. PFC emissions decreased significantly during the 1990s as a result of process changes (12 tonnes assessed in 2006). PFC-218 is a component of two rarely used refrigerants that has been assessed to be a minor source of emissions (1.2 tonnes imported in 2006, none in 2005). In general, where HFCs are referred to, the discussion will equally apply to PFC-218 and any other PFC uses that may be developed in future.

Therefore HFC emissions are considered to be the most immediate areas of uncertainty where policy advice is needed with regard to implementing an ETS. HFCs are used in a wide range of equipment and products in the refrigeration/air conditioning, aerosols, fire protection and foam-blowing sectors (in decreasing level of significance). The most common HFCs have 100-year GWPs between 650 and 3800. HFC emissions accounted for 742,000 tonnes CO2 equivalent in 2005 (1.0% of New Zealand’s gross greenhouse gas emissions).

1.1 National inventory of HFC emissions

To consider the options for including HFCs (and other SGGs) in the ETS, it is instructive to consider how HFC emissions are calculated for the National Inventory of Greenhouse Gas Emissions. When there is very limited information on how HFCs are used in a country, the only available inventory method is to estimate potential emissions from the sum of HFCs imported into the country as bulk chemicals or contained in equipment minus any exports or destruction (CRL Energy 2007). In effect this simple approach assumes that all HFCs are emitted in their year of import and it ignores the different periods the HFCs are held in stock or contained in various equipment types before emission.

IPCC (2001) states that this approach is not recommended and instead it is good practice to gather information that allows actual emissions to be estimated. For the New Zealand inventory, a combination of methods has been developed over the years to estimate emissions from different HFC applications, some based on IPCC default leakage rates and equipment lifetimes and others based on New Zealand specific data.

For imported or manufactured aerosol cans (or inhalers), this approach means that all HFC propellants are assumed to be emitted within two years from the year of import. At the other extreme, foam insulation and fire protection products are assumed to have very long lives with relatively low annual leakage rates (4.5% and 1.5% respectively).

In between these extremes are the various refrigeration and air conditioning applications with a range of assumed equipment lifetimes, e.g. on the basis of a New Zealand survey, household refrigerators and freezers have been assumed to have longer average lifetimes than in other developed countries so that only 25% are assumed to be retired after 15 years and 50% after 20 years (compared with 50% and 100% for commercial self-contained refrigerators and freezers respectively). The original, full HFC charge is assumed to be emitted on retirement of a household refrigerator (even though a small quantity is collected for destruction). For retired commercial equipment, a portion of the original HFC is assumed to be collected for recycling or destruction (CRL Energy 2007).

Calculations for the refrigeration and air conditioning applications are based on a simple approximation that HFC emissions arise only from retirements and from systems that are maintained with top-up refrigerant. This top-down approach avoids the difficulty of estimating the wide range of leakage rates for different equipment (IPCC 2001). The consequence of this approach is that the HFC refrigerant bank2 for each application is generally an over-estimate because it assumes leakage only occurs for equipment that has refrigerant topped up during maintenance.

1.2 ETS proposal for coverage of HFC emissions

The proposed emissions trading legislation currently obliges those undertaking the bulk importation of SGGs to surrender an equivalent number of emission units from 2010 at the end of each reporting period. Bulk importation is a simple proxy for potential emissions. It fails to account for some important elements:

  • the importation of equipment pre-charged with HFCs (estimated at 281 tonnes or 46% of potential HFC emissions in 2006)

  • the competitiveness impacts on domestic refrigeration and air conditioning manufacturers that compete with pre-charged equipment

  • the proportion of potential emissions that are re-exported in manufactured equipment.

It is important to consider the options to deal with each of these issues.

1.3 Purpose and structure of this report

The purpose of this report is to:

  1. summarise the current bulk HFC/PFC imports and the chemical importers (including recent changes) and the likely impact of the ETS on their businesses noting intra-sectoral equity issues where they arise, and the completeness of coverage of domestic emissions from this approach
  2. summarise 2006 bulk and pre-charged imports and emissions broken down into the following sectors: aerosols (including metered dose inhalers), foam blowing, solvents, fire protection, refrigeration (household, commercial self-contained cabinets, supermarkets, transport, dairy farming, industrial coolstores) and air conditioning (household, commercial and vehicle)
  3. give detailed consideration to the practicality (costs and benefits) of applying points of obligation at various points in the supply chain and likely ETS impacts on different stakeholders within each of these sectors and sub-sectors with respect to their significance, the phase-out of HCFC alternatives, and the required accuracy (and consequent compliance costs) of sales and import records for audit purposes
  4. develop very approximate imports and emissions projections for 2015 for the business as usual case, an upstream obligation case (chemical importers only) and a widespread obligation case for a projected CO2 price
  5. detail the chain of ownership of chemicals that are imported then re-exported such that emissions do not occur in New Zealand and discuss whether it is possible (in terms of accuracy) to exclude such chemicals from an upstream (importer) obligation
  6. summarise in a table format the various options for points of obligation in each sector, including listing benefits, economic impacts, records accuracy for auditing, compliance costs for participants, equity issues, incentives for destruction, adoption of new technologies and alternatives.

The format of the report is first a section discussing implications for bulk chemical importers and then sections discussing each of the user sectors (in decreasing order of significance) under the following sub-sections:

  • Stakeholders and potential points of obligation

  • Export implications

  • Compliance costs

  • Potential for alternatives

  • Price impacts

  • Uncertainties

The final summary section identifies the range of risks, costs and benefits of ETS coverage of HFC and PFC emissions.

As a very approximate indicator of potential ETS impacts, an HFC imports and emissions model has been developed for each user sub-sector. The model has been used to estimate the impacts of the upstream obligation and widespread obligation cases compared with the business as usual (BAU) case in 2015 for a $30 per tonne CO2 price (in 2008 dollars). Many of these projections are highly speculative.

An important aspect of the BAU case is that it is assumed that awareness and actions on greenhouse gas emissions mitigation continue to grow, even though there is no ETS coverage in this case. One refrigeration/air conditioning installer with extensive industry experience (Bowen 2008) believes that refrigerant prices or efficiency improvements will not be the major driver in shifting supermarket chains away from HFCs to say CO2 refrigerant. Rather it will be the corporate decisions to reduce ‘carbon footprints’ as public awareness and calls for action grow.

1 Compared with approximately 42 tonnes held in electrical equipment. Other emission sources are assessed to be negligible at around 10 kg per year.

2 The HFC bank is the term used for the accumulated chemical held in imported and New Zealand manufactured equipment minus exports, leakage and equipment retirement (treating any recycling or destruction separately).