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3 Stationary Refrigeration and Air Conditioning Equipment

Summary

If a high priority is placed on equitable ETS treatment of bulk chemical HFCs and the large amount of HFCs contained in imported equipment, widespread points of obligation would require compulsory market participation for about 100 importers in this sector (in addition to chemical importers and assuming a low annual threshold for total HFC imports).

A number of the larger equipment importers have current mandatory appliance efficiency reporting requirements, so extra compliance costs to include refrigerants would be minimal (to achieve an auditable standard). However, there is a large range of other equipment importers that would face significant reporting costs as well as the market participation costs that all would experience. Some form of HFC import licensing may be required.

Recommendations are made on the self-contained commercial refrigeration and refrigerated transport sub-sectors (in particular) where much improved knowledge of potential participants would be required before ETS coverage could be considered.

The main impact of ETS price increases (assuming competitiveness concerns are addressed) is likely to be increased investment in improving commercial refrigeration and air-conditioning leakage reduction (including refrigerated transport and coolstores). There will perhaps be a shift to CO₂ systems for new supermarket installations and to ammonia systems in new large coolstores.

There exists the potential for the perverse outcome that until the 2015 phase-out, some HCFCs (that have ozone depleting and global warming properties) would be cheaper alternatives to HFCs covered by the ETS. This would appear to be a strong possibility in the coolstore sector, meaning that the lives of ageing, inefficient equipment are likely to be extended to avoid the costly HFC alternative.

For the national greenhouse gas inventory, the HFC imports, exports and bank¹ for this sector were broken down into seven sub-sectors. The bank estimates for 2006 are presented to indicate their relative significance for future emissions:

Household refrigerators and freezers and dehumidifiers: 196 tonnes (low uncertainty)
Self-contained refrigerated equipment used in the retail food and beverage industry: 58 tonnes (medium to high uncertainty)
Remote cabinet systems as used in supermarkets and some other food retailers: 148 tonnes (low to medium uncertainty)
Household and commercial air conditioners: 176 tonnes (low to medium uncertainty)
Transport refrigeration systems: 45 tonnes (medium uncertainty)
Dairy farm refrigeration systems: 113 tonnes (medium to high uncertainty)
Other refrigeration (mainly industrial and commercial coolstores): 171 tonnes (very high uncertainty).

Mobile air conditioning (MAC) is discussed separately in a later section of this report.

3.1 Stakeholders and potential points of obligation

Widespread points of obligation covering imported equipment containing HFC would require compulsory market participation for a large number of importers in this sector (assuming a low annual threshold for total HFC imports). Up to 20 household and possibly 50 commercial refrigerator/ freezer importers and about 30 household and commercial air-conditioning equipment importers (and an uncertain number of refrigerated transport importers) could be involved, although many of these may be relatively insignificant. Estimates have been made below of the number of potential participants in each sector if a significance threshold was applied of 1000 tonnes CO₂ equivalent (0.3 to 0.8 tonne HFC depending on the HFC mix) or alternatively 100 tonnes. .

The estimates in this section are based on EECA’s MEPS lists of appliance importers and manufacturers (as compiled in January 2006). Some of the 2006 list no longer import these products and responses to CRL Energy’s equipment surveys were far from complete (CRL Energy 2007). EECA would have a more accurate view of current importers and their relative significance in terms of sales volumes, although this information is highly commercially sensitive. Recommendations are made on particular sub-sectors where much improved knowledge of potential participants would be required before ETS coverage could be considered.

Household refrigerators / freezers / dehumidifiers

The number of appliance importers in this sector is up to 20 and refrigerant charges (average less than 0.2 kg) are much lower than for air-conditioning units. Consequently, only about seven importers might be included if say a 1000 tonnes CO₂ equivalent total annual import HFC threshold was applied (perhaps 10–15 for a 100 tonne threshold).

Self-contained refrigerated equipment

Self-contained retail refrigerators and freezers are charged at the time of manufacture and have very low leak rates. Based on a sample of loosely defined Customs categories, this is a sector covering a vast range of equipment including all frozen food display cases, reach-in refrigerators and freezers, beverage merchandisers and vending machines and large retail display cases that include a self-contained refrigeration unit. There are also various classifications of water coolers, ice cream, ‘soft serve’ and ‘slush’ machines, bar fridges, blood bank and laboratory fridges/freezers, ice makers, blast chillers, milk coolers, ice cream freezers and small cool boxes. Statistics New Zealand’s import figures for imported commercial cabinets are unfortunately not as detailed as for the household sector, with just a simple breakdown to refrigerator and freezer units (often no distinction between small water coolers and large chiller units).

On the positive side, Skope is the largest New Zealand manufacturer of commercial cooler and freezer cabinets (75% exported to Australia) and the company provided very detailed data on unit sizes, sales and refrigerant amounts for the inventory (CRL Energy 2007). EECA made available sales information for the range of unit types and sizes gathered from its MEPS survey (with brand names removed). An industry expert in this sector (Miller 2008) was also very helpful in providing an assessment of the whole New Zealand market, including large numbers of commercial refrigeration units not included in EECA’s MEPS survey.

Overall there were considerable difficulties in deciding how to deal with contradictory data for this sub-sector and an estimate of 50 potential points of obligation is highly speculative. Miller estimated that about 20 companies imported the vast majority of commercial units. Inventory calculations for these companies suggest that nearly all would fall within a 100 tonnes CO₂-equivalent annual import HFC threshold but none would reach a 1000 tonnes threshold.

Remote cabinet systems

Since these systems are all charged in New Zealand with imported bulk chemical, the HFCs would be covered by the ETS.

Household and commercial air conditioners

Industry sources (including Bowen 2008 and Murphy 2007) stated that as well as all household air-conditioning units, almost all commercial equipment is imported pre-charged with refrigerant. The combination of increasing single-phase unit sales and the rapid shift from R22 to R410A are the reasons for the estimate of a near doubling (from 2005) of imported air-conditioning equipment HFC to 94 tonnes in 2006. The air-conditioning importers generally indicated the switch to HFC had only happened significantly during 2004 and 2005.

Refrigerant charge amounts are much greater for air-conditioning than for refrigeration units: 0.75 kg for up to 4 kW cooling capacity, 1.5 kg for 4‑8 kW, 2.0 kg for 8‑12 kW and 2 to 12 kg for commercial three-phase units ranging up to 65 kW.

These factors, together with the shorter average lifetime for air-conditioning equipment, mean that within a few years HFC emissions from this sub-sector may become the dominant emissions source within the refrigeration and air-conditioning sector.

EECA’s list of air-conditioning importers (minus smaller ones no longer importing) totals about 30 companies, including three companies labelled ‘manufacturers’. An accurate estimate of the total HFC imports for each company could only be made if there was access to detailed EECA data. There is a group of about seven major importers that probably account for more than 75% of total imported units. Given that a total of 94 tonnes HFC in air-conditioning imports has been estimated in 2006, a high proportion of the 30 companies may be included for a 100 tonnes CO₂-equivalent annual HFC threshold (and perhaps more than 10 for a 1000 tonnes threshold).

Ivan Tottle pointed out that air-conditioning installers would also be concerned if HFC held in imported equipment were not be covered by the ETS. Currently New Zealand-manufactured equipment is considered of higher efficiency than many imported brands. If only the New Zealand-manufactured equipment is subjected to the ETS pricing, it could lead to reduced efficiency air-conditioning units being used – as well as the reduced competitiveness for local manufacturers (Tottle 2008).

Transport refrigeration systems

Thermo King and Transcold are the two companies that import pre-charged refrigeration units that are fitted to trailer units and self-powered (or ‘cab-over’) trucks. The consensus estimates were that there are now about 900 and 1000 respectively of these pre-charged units in New Zealand, with about 100 new units of each imported annually. In addition, there are approximately 2500 ‘off-engine’ (or ‘direct-drive’) vans and trucks that are very difficult to estimate because no statistics are kept on the range of imported used Japanese vehicles (CRL Energy 2007). Two hundred of these units were assumed to be imported annually, probably by a wide range of vehicle importers.

Refrigerant charge sizes of 10 kg, 6 kg and 2.5 kg respectively were estimated for these three different-sized units. A range of HFC phase-in rates were assumed for the different units. The conclusion was that 2 tonnes of HFC was imported in these units in 2006, adding up to an estimated bank of 18 tonnes. This suggests that currently fewer than 10 refrigerated truck importers may be included for a 100-tonnes CO₂-equivalent annual HFC threshold (and perhaps none for a 1000-tonne threshold).

Hall’s Refrigerated Transport advised that it had taken over 20–30 older refrigerated rail units and four larger units from Toll Rail. In the absence of better information, it was concluded that the quantity of HFC would be negligible compared with the refrigerated truck fleet.

Royal Wolf Trading was able to provide an overview of 5000–6000 three-phase refrigerated containers and 2000–3000 single-phase units owned and leased in New Zealand (rather than owned by overseas shipping companies). These are all pre-charged and contain respectively 5–6 kg and 3 kg refrigerant (some HFC and some HCFC). Five hundred and 50 three-phase and 250 single-phase units were assumed imported per year and it was concluded that 3.5 tonnes of HFC was imported in these units in 2006 adding up to an estimated bank of 27 tonnes (CRL Energy 2007). This suggests that currently fewer than 10 refrigerated container importers may be included for a 100 tonnes CO₂ equivalent annual HFC threshold (and perhaps only one for a 1000 tonne threshold).

The relative significance of the refrigerated shipping industry is not known – apparently this issue was considered to be too difficult to include in the Montreal Protocol (Roke 2008).

Dairy farm refrigeration systems

Since these systems are all charged in New Zealand with imported bulk chemical, the HFC would be covered by the ETS.

Other refrigeration (mainly industrial and commercial coolstores)

Since these systems are all charged in New Zealand with imported bulk chemical, the HFC would be covered by the ETS.

3.2 Export implications

There are major equity and competitiveness issues to be addressed for three large New Zealand manufacturers (and perhaps some smaller ones) that export high proportions of their products. Fisher & Paykel (household refrigerators/freezers), Skope (commercial self-contained refrigerators/freezers) and Temperzone (commercial air-conditioning units) would all face unacceptable losses of competitiveness if their exported HFC was not exempted from the ETS. Exemption would be consistent with the inventory methodology and would avoid the potential for the HFC becoming an additional point of obligation in the country the equipment is exported to.

McAlpine Hussman Ltd also indicated it exported small amounts of HFC in commercial refrigeration equipment in 2005. On checking with a manager at their Tauranga manufacturing plant (Prestidge 2008), it was established that the number of units being exported to Australia and the South Pacific is a relatively small proportion of the company’s sales and around 95% are empty remote cabinets. The annual total of exported HFC is likely to be well below a 100 tonnes CO₂-equivalent annual HFC threshold.

There has been no comprehensive study to discover if there are any other relatively small exporters of equipment containing HFC.

The issues regarding a relatively simple exemption mechanism, compliance costs and commercial sensitivity were addressed in the Bulk Chemical Importers section 2.2 above.

3.3 Compliance costs

This section considers the likely compliance costs for the large range of equipment importers in this sector that would result from widespread points of obligation covering imported equipment containing HFC. (The minimal compliance costs for exports exemption were covered in Section 2.2.)

Some equipment importers were contacted by telephone and asked how much work would be required to comply with the auditable annual reporting that would be associated with widespread points of obligation (stressing that this is a possibility for discussion that is not currently proposed in the legislation).

Electrolux (one of the largest household refrigerator importers) considered that MEPS reporting for EECA was not onerous although the spreadsheet format could be improved (Webster 2008). The company supported the MEPS scheme as a means of improving efficiency, although there are concerns that EECA does not undertake sufficient monitoring to ensure that cheap inefficient brands are removed from the marketplace. The representative believed that adding refrigerant amounts to the current MEPS reporting system would result in minimal additional compliance costs.

The Skope representative believed the reporting would be much easier now than a few years ago because all their systems are in place for reporting exports to Australia to comply with their refrigerant legislation (King 2008). He notes that in 2006/07, there were 695 Australian licences for importing refrigeration and air-conditioning equipment containing an HCFC or HFC refrigerant charge and he considers it would not be a huge administrative task to include similar companies in the ETS for the smaller New Zealand economy.

Fujitsu (one of the main air-conditioning equipment importers) considers any additional reporting to be onerous but HFC reporting would not add major compliance costs to the current MEPS requirements (Freeman 2008). The representative said she had to merge a couple of different reports to generate information for the inventory HFC survey. If there were more regular reporting, they would amend their financial reporting system to include the HFCs.

Panasonic (another of the main air-conditioning equipment importers) also did not see any difficulty in extending MEPS reporting to include refrigerants (Day 2008). The company has had issues with insufficient EECA checks of cheap, low-efficiency imports that are being sold through TradeMe, home shows and even car yards.

Advance (a smaller air-conditioning equipment importer) considered that MEPS reporting is “not a huge chore” (Pilbrow 2008). Extending this to include calculations for refrigerant types and amounts would not be difficult for the range of models for most importers. The added cost would not be an important issue as long as there was “a level playing field”.

Temperzone considered that for equity reasons, all imported equipment should be subject to the same charges as equipment manufactured in New Zealand (Curran 2008). It was important that competitors that manufacture in Asian countries face the same costs that Temperzone will face. The company would have no extra costs from the compliance reporting.

Fisher & Paykel expressed similar views stating that “our biggest concern is that both imports and exports of high-GWP refrigerants in finished products as well as in bulk must be counted” (Roke 2008).

Arrow Refrigeration (a major commercial refrigeration importer and installer) stated some contrary views because the company finds the MEPS reporting process “painful” (Miller 2008). The annual MEPS returns require “heaps of calculations” that take a great deal of management time (too complex for administrative staff). The company has written to EECA suggesting that instead of re-entering data collated the year before, it would be much easier if most of the information could be carried over from the initial registration and simply adding the new sales numbers. Refrigerant quantities could be included relatively easily compared with the range of information EECA requires. The process would only involve MEPS equipment but there are numerous categories of MEPS-exempt commercial refrigeration units. He very helpfully provided estimates of the unit numbers, refrigerant types and amounts for the inventory (CRL Energy 2007). However, the exercise demonstrated that it would not be simple for the range of MEPS-exempt equipment importers.

In conclusion, almost all respondents to this brief survey indicated that it would be relatively easy to extend current MEPS reporting (for year ending March) to include refrigerant amounts. None could give a specific estimate of the amount of additional time it would require and none indicated any understanding of what market participation would mean. However, the sample is biased towards larger importers who have well established reporting systems. Particular note should be taken of Arrow’s response pointing out the difficulties in the self-contained commercial refrigeration sub-sector, especially for units not subject to MEPS reporting. There are several importers in this diverse sub-sector and in the unregulated refrigerated transport sub-sector.

It is recommended that a more detailed study of the self-contained commercial refrigeration and refrigerated transport sub-sectors is undertaken to obtain a better understanding of the number of participants and potential compliance costs resulting from widespread points of obligation.

3.4 Potential for alternatives

A report from the International Institute of Refrigeration (2007) describes ‘cutting edge’ R&D in a number of refrigeration and air-conditioning applications. Stirling cycle refrigeration and non-vapour-compression technologies (magnetic refrigeration,² solar refrigeration, desiccant technology, thermoacoustic refrigeration, thermoelectric cooling, large-scale absorption based air-conditioning) could be of interest in the long term but R&D regarding natural refrigerants (ammonia, CO₂, hydrocarbons) is being actively pursued. Ammonia could gain ground in medium-capacity refrigeration applications but doubts were expressed whether ammonia can secure a significant share of the air-conditioning market given the safety risks. Potential applications of CO₂ were described as numerous, but noted the important obstacle of the construction costs of equipment suitable for the high pressures involved when CO₂ is used.

The Australian Greenhouse Office commissioned a survey (ICF Consulting 2003) of over 30 refrigeration and air-conditioning manufacturers, distributors and experts on “most promising options for reducing greenhouse gas emissions in 2020”. CO₂ systems were expected to achieve 20–50% market penetration by 2020 in the cold storage sector and 10–20% in the retail food sector. Hydrocarbons were expected to achieve >50% market penetration by 2020 in the household refrigeration and MAC sectors, 20–50% in the retail food and refrigerated transport sectors. Secondary loop systems³ use HFCs and/or natural refrigerants and were expected to achieve 20–50% market penetration by 2020 in the retail food and cold storage sectors but less than 10% in the commercial air-conditioning sector.

According to local experts in the refrigeration and air-conditioning industry (Bowen 2008, Cleland 2008), use of alternative HFCs or technologies in almost all sectors will be driven by international developments rather than New Zealand prices (usually a low proportion of installed costs). Apart from an increased focus on maintenance to minimise leakage (very high in refrigerated transport and some supermarkets and coolstores), the ETS pricing will drive a shift in some sub-sectors where alternatives are currently economically viable. Long equipment lives mean that shifts will mainly be in new installations, e.g. supermarkets and coolstores.

There might be some conversion to lower-GWP alternative HFCs or HCFCs but there are not many ‘drop-in’ alternatives that do not require major system changes. There exists the potential for the perverse outcome that until the 2015 phase-out, some HCFCs (that have ozone depleting and global warming properties) would be cheaper alternatives to HFCs covered by the ETS. This would appear to be a strong possibility in the coolstore sector (still dominated by R22), meaning that the lives of ageing, inefficient equipment are likely to be extended to avoid the costly HFC alternative (Cleland 2008).

Hydrocarbons are used in a few (mainly European) imported household refrigerators. They could also be used as alternative refrigerants for many new dairy farm systems given their relative isolation in relation to the flammability issue (Cleland 2008).

Recycling is an alternative that is covered in Section 9 below.

3.5 Price impacts

The impact of a $30 per tonne CO₂ price on average refrigerant prices will be substantial and should lead to some major changes in this sector in the long term. It would be equivalent to a basic price increase (before mark-ups) of $39/kg for R134A, $52/kg for R410A and $98/kg for R404A (compared with respective wholesale prices from Section 2.4 of $12/kg, $17/kg and $15/kg).

In the opinions of some installers, even $100/kg extra on R404A will have only a slow shifting effect on the majority of supermarket systems. Once technical problems are better sorted out, most new ones and replacements after 15-year lifetimes may be CO₂ but this will only represent about 20% of the total by 2015. Price and efficiency will not be the main driver compared with corporate policies to reduce ‘carbon footprints’ as public awareness grows (Bowen 2008, Oliver 2008).

In the self-contained cabinets and household refrigerators sectors (if importers are obliged to purchase permits), the cost increase will be almost negligible. This would probably mean a negligible shift in import refrigerant types for these sectors by 2015, unless the likes of Coca Cola etc make international corporate decisions to shift away from HFCs (to perhaps CO₂) (Bowen 2008, Cleland 2008, King 2008).

Household air-conditioning importers believe the higher prices will have a significant impact on their sector (because the refrigerant amount is so much higher at around 1 kg) but they can not see what the alternative technology will be. A commercial air-conditioning installer (Bowen 2008) sees the refrigerant price as a much lower proportion of total installation costs and so much less likely to be a major driver. Alternatives appear to be much less likely by 2015 and very dependent on international developments (more so than supermarket refrigeration).

Some installers (Bowen 2008, Oliver 2008) and a chemical importer (Tottle 2008) consider the main impact of ETS price increases is likely to be increased investment in improving commercial refrigeration and air-conditioning leakage reduction (including high leakage rates for refrigerated transport and some industrial coolstores). There will perhaps be a shift to CO₂ systems for new supermarket installations and ones that are refurbished after average 15-year lifetimes. Ammonia systems will become more attractive in new large industrial coolstores but there are no obvious alternatives for small to medium coolstores or for dairy refrigeration.

Bulk importers, manufacturers and others (Cleland 2008) would have major concerns about equity and competitiveness and reduced energy efficiency if imported equipment is not covered by the ETS. Temperzone considered that for equity reasons, all imported equipment should be subject to the same charges as equipment manufactured in New Zealand (Curran 2008). It was considered very important for its competitiveness that competitors that manufacture in Asian countries should face the same costs. An additional point made by a chemical importer (Tottle 2008) is that commercial air-conditioning installers would be concerned that the higher cost for New Zealand-manufactured air-conditioning units may mean that lower efficiency imported units will be chosen by customers on cost grounds alone.

Fisher & Paykel and Skope have made similar arguments that loss of competitiveness compared with imported equipment would have major impacts on their businesses that could result in transferring production overseas (Roke 2008, King 2008).

A widespread border obligation on all equipment imports would remove any competitiveness concerns for relatively high compliance costs while limited exemptions on locally manufactured equipment would achieve the same result for relatively low compliance costs. Instead of limited exemptions, these manufacturers could be given free ETS allocations to protect their competitiveness with the extra compliance costs from market participation.

In summary, the main impact of ETS price increases (assuming competitiveness concerns are addressed) is likely to be increased investment in improving commercial refrigeration and air-conditioning leakage reduction (including refrigerated transport and coolstores). There will perhaps be a shift to CO₂ systems for new supermarket installations and to ammonia systems in new large coolstores.

In terms of projected HFC usage and emissions, CRL Energy assesses that there may be surprisingly little impact from the ETS pricing by 2015 (assuming the equivalent for $30 per tonne CO₂ in 2008 dollars). These projections are highly speculative. Based on the assumption that the business as usual (BAU) case will include major international technology developments and corporate decisions to reduce ‘carbon footprints’, these shifts will happen regardless of the ETS price level. Consequently, it is assessed that the ETS pricing will have negligible impact compared with BAU on HFC imports or emissions in the household or self-contained refrigeration or refrigerated transport sub-sectors.

The major price influence (assuming competitiveness concerns are addressed) is likely to be increased investment in preventing leakage and helping to drive supermarket chains away from HFCs to CO₂ refrigerant in up to 20% of installations by 2015. Because the lifetimes of these systems are about 15 years before total overhaul, the pricing impact on total emissions from this sector is likely to be less than 10% below BAU. Similarly, the shift for new coolstores (and dairy refrigeration systems) to ammonia and other alternatives will largely be driven by the HCFC phase-out and corporate environmental policies rather than ETS pricing, so the overall emissions impact from ETS pricing may be much less than 10% below BAU.

The ETS pricing may however influence the sales of the lower-priced brands of household air-conditioning units (because of the relatively large charge of refrigerant and shorter lifetimes). This might result in 10% fewer imports by 2015 than BAU (and consequent lower retirement emissions about 10 years after the ETS introduction).

3.6 Uncertainties

Uncertainties for compliance reporting for chemical importers (and for limited exemptions) would be relatively low compared with uncertainties about how to cover all significant equipment importers for widespread points of obligation.

Many equipment manufacturers and importers are currently required to report their sales for the EECA MEPS scheme. Their reporting is much more detailed than what would be required for ETS compliance with a widespread point of obligation, but it could be a good reporting basis (with refrigerant additions) for the majority of equipment that would be covered by such an ETS.

It was strongly emphasised in the inventory recommendations that staff of the Ministry of Economic Development or Ministry for the Environment should be given access to Customs information (as has happened in the past) in order to get the much more accurate import data for individual bulk chemical shipments (CRL Energy 2007).

For equipment containing HFCs, import records would be much less useful because of inadequate classifications in Customs records. Consideration would have to be given to some form of licensing to import HFCs. This licensing would carry with it an obligation to report import levels accurately together with average refrigerant charge calculations for comparison with the threshold. This would require guidelines to be developed with default refrigerant charges – so that equipment importers would know early on how likely they were to cross the threshold and be required to purchase ETS units.

The big uncertainties for future projections will be the big unknowns in the inventory – the hugely significant coolstores (where it will become more cost-effective to shift larger ones to ammonia), dairy farms and refrigerated transport.

1 There is insufficient information to accurately estimate the accumulated HFC bank for each sub-sector but these approximate figures serve to indicate relative significance.

2 Magnetocaloric materials heat up when they are positioned in a magnetic field and cool down to a lower temperature than their initial temperature when this field is removed. For many years, these materials operated only at extremely low temperatures but some new materials capable of operating at room temperatures, with more powerful permanent magnets, have emerged over the past few years.

3 Secondary loop technologies can use a wide variety of fluids in the primary loops and secondary loops (e.g. ice slurry, water, organic and non-organic salts, alcohols, and others). The survey focused on SLS using HFCs and ammonia as primary refrigerants and ice slurry as a secondary refrigerant. Information is provided on a promising new SLS technology, which uses a mixture of propylene and distilled water as the secondary refrigerant.

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