The agency’s two recent actions introduce enhanced restrictions on hydrofluorocarbons and provide a series of compliance dates for industry stakeholders.
On October 5, 2023, the US Environmental Protection Agency (EPA) issued two rules, one final and one proposed, to phase down hydrofluorocarbons (HFCs) under the bipartisan American Innovation and Manufacturing Act of 2020 (AIM Act). The agency’s recent actions represent major steps in the Biden administration’s goal to significantly reduce HFCs over the next decade.
HFCs are a group of chemical refrigerants and potent greenhouse gasses (GHGs), commonly used in foam products, cooling systems, aerosols, and fire suppressants. International focus on managing these compounds sharpened in the 1980s, when countries agreed in the Montreal Protocol to shift global markets away from the ozone-depleting chlorofluorocarbons (CFCs) — the then dominant strain of refrigerant and aerosol chemicals — toward HFCs. Although HFCs are less damaging to the ozone layer than CFCs, they have global warming potential (GWP) values (a figure that allows comparison of relative climate impact of a GHG) hundreds or thousands times higher than carbon dioxide (CO2), which has a GWP equal to 1. In 2016, nearly 200 countries adopted the Kigali Amendment to the Montreal Protocol agreeing to a global phasedown of production and use of HFCs. The US ratified that amendment on October 31, 2022.
The AIM Act specifies 18 “regulated substances” — HFCs with 100-year GWP values ranging from 53 to as high as 14,800 — that EPA must regulate. As described in this Latham blog post, the AIM Act directs EPA to reduce HFCs in three ways: (1) an allowance allocation program to phase down HFCs, (2) a technology transitions program to facilitate next-generation technologies, and (3) regulations to maximize reclamation and minimize HFC releases from equipment. Under the first prong, EPA promulgated the Allowance Allocation and Trading Program in November 2021 with amendments in September 2023. In its current action, EPA published its final rule under the second prong, its technology transitions authority, and its proposed rule under the third prong, its reclamation authority. Affected sectors must comply with changing regulations as early as 2025 or risk enforcement actions.
EPA, through these actions, aims to provide a clear timeline to manufacturers, producers, and consumers for the transition away from HFCs and to achieve the AIM Act’s goals of reducing HFCs to 70% of historic baseline levels by 2029 and 85% by 2036. EPA estimates that, taken together, the final rule and the proposed rule would reduce GHG emissions by at least 225 million metric tons of CO2 from 2025 to 2050 and provide savings and benefits of over $10 billion, with climate benefits and savings of approximately $270 billion.
Final Rule — Technology Transitions
The technology transitions rule aims to accelerate the transition away from HFCs in areas and sectors of the US economy where EPA has determined that substitutes to HFCs are already or are close to becoming available. EPA promulgated this final rule in response to third-party petitions seeking sector-specific HFC restrictions under the AIM Act, which EPA granted on October 7, 2021, and September 19, 2022.
EPA’s final rule sets maximum GWP limits on HFCs and HFC blends for most subsectors that use the compounds. With staggered compliance start dates by sector beginning as early as January 1, 2025, and as late as January 1, 2028, EPA’s rule prohibits manufacturing or importing products in affected sectors that exceed EPA’s GWP limits. EPA will also prohibit, three years after the start date of each sector’s ban on manufacture and import, that sector from selling, distributing, or exporting products that exceed that sector’s GWP limits.
The rule sets out three major categories of sectors that are subject to the final rule:
- Foam: Certain industry sectors use foams manufactured with blowing agents that contain HFCs. Such foams are used in building materials, furniture, appliance insulation, cushioning, packaging materials, containers, filler, and sound proofing. Beginning January 1, 2025, EPA is restricting the use of HFCs and HFC-blends that have a GWP of 150 or more in the following foam subsectors: polyurethane, extruded polystyrene, phenolic insulation board and bunstock, polyisocyanurate laminated boardstock, and polyolefin. These restrictions apply to the manufacture and import of all new products containing foams. Foam products manufactured with blowing agents that exceed the 150 GWP limit will also be banned from being sold, distributed, offered for sale, or exported as of January 1, 2028.
- Aerosols: EPA has imposed a GWP limit of 150 on HFC and HFC-blend aerosol products. Consumer aerosol products exceeding the 150 GWP limit will be banned from manufacture and import beginning January 1, 2025, whereas certain technical aerosol products (i.e., specialized products used solely in commercial and industrial applications) must comply by January 1, 2028. The prohibition on sale, distribution, offering for sale, and export of aerosols subject to the final rule begins three years after the ban on manufacture and import (January 1, 2028, for consumer aerosols, and January 1, 2031, for technical aerosol products).
- Refrigeration, Air Conditioning, and Heat Pumps (RACHP) Products and Equipment: EPA has targeted self-contained, factory-completed products as well as larger, field-assembled systems, including cold storage warehouses, data center cooling equipment, industrial process refrigeration, retail food refrigeration, refrigerated transport, household refrigerators and freezers, residential and light commercial air conditioning and heat pumps, and motor vehicle air conditioners. GWP maximum limits for RACHP products and equipment range from 150 to 700, with compliance dates beginning as early as January 1, 2025, and as late as January 1, 2028.Although EPA will prohibit the installation of new RACHP systems with HFCs that exceed the maximum GWP limit, the rule does not restrict the continued use and maintenance of existing products and RAHCP systems.
The final rule also includes labeling requirements for all foams, aerosols, and RACHP products, specified components, and systems, with requirements taking effect for each subsector at the same time as the manufacture and import prohibition. Labeling must indicate which specific HFC compound or blend is used and the date of manufacture or, at minimum, the four-digit year. For aerosols and foams, if a sector uses multiple HFCs (i.e., in a blowing agent) the label must either identify all such HFCs and their relative proportions or specify that the blend has a “GWP < 150.” Sectors must also label HFC-containing systems with the refrigerant charge capacity.
Each of these HFC sectors (other than field-charged systems) must also report their data annually within 90 days of the end of the calendar year. This obligation begins with calendar year 2025 data, which will be due March 31, 2026. Specific reporting requirements for covered entities in the RACHP, aerosols, and foam sectors vary but generally require reporting the specific HFCs or HFC blends used and the annual masses of each.
Proposed Rule — Reduction and Reclamation
EPA’s proposed rule would restrict HFCs through an Emissions Reduction and Reclamation Program, amendments to the Resource Conservation and Recovery Act (RCRA), and updated HFC enforcement and compliance requirements. The proposed rule would not prohibit continued use of existing HFC equipment.
EPA’s proposed management program primarily targets HFCs through the following actions:
- Leak Repair Requirements: EPA regulates leak repair in this rulemaking both to minimize the release and maximize the reclaiming of HFCs.Leak repair requirements apply to refrigerant appliances that contain HFCs and have a charge size of at least 15 pounds or use HFCs or an HFC substitute with a GWP above 53 (except appliances used in residential and light air conditioning or heat pumps). EPA proposes staggered compliance dates based on the weight and GWP of a relevant refrigerant. EPA is also requiring automatic leak detection systems for industrial process and commercial refrigeration appliances with at least 1,500 pounds of an HFC-containing refrigerant with a GWP above 53.
- Uses of Reclaimed HFCs: Reclaiming refrigerants allows companies to continue to use equipment, sometimes even after equipment phase-out dates, while supporting a transition toward HFC substitutes. Given forecasts of increased future demand of HFCs in the sectors EPA is regulating, reclaimed HFCs will likely be in high demand. EPA has proposed a limit of no more than 15% virgin HFC refrigerants — those which are newly produced — by weight in any HFC or HFC-blend reclaimed refrigerant. Certified reclaimers would need to maintain records and labels for compliance purposes. EPA’s proposals on HFC reclamation would begin in 2028 to give industries time to adjust to these business practices.
- Fire Suppression: EPA is proposing to require minimized releases of HFCs during services, repairs, disposals, or installations of fire suppression equipment. EPA has proposed January 1, 2025, as the compliance date for fire suppression measures.
- Container Tracking: EPA is proposing that companies transporting HFCs must ensure that their containers display machine-readable tracking identifiers, such as a QR code, and that sectors must send disposal cylinders to EPA-certified reclaimers or fire suppressant recyclers. EPA proposed staggered compliance dates, with the earliest starting on January 1, 2025.
EPA has also proposed enforcement and compliance standards, including labeling, reporting, and recordkeeping. The rule also proposes amendments to RCRA that would establish alternative standards for spent refrigerants that are recycled for reuse and has proposed these standards apply to HFCs.
Final Technology Transitions Rule: Industry stakeholders should be mindful of relevant compliance dates on the final rule. The rule will become effective 60 days after its Federal Register publication. The rule notes that any party seeking to petition for judicial review of the rule must do so in the US Court of Appeals for the District of Columbia within that 60-day period.
Proposed Reduction and Reclamation Rule: EPA has requested comments within 60 days after the proposal is published in the Federal Register.
Given the global push and the US commitment to phasing down HFCs over the next decade, EPA is likely to continue to conduct rulemakings further restricting HFCs, encouraging reclamation and leak reduction, and facilitating EPA enforcement. Latham & Watkins will continue to monitor developments in this area.
This post was prepared with the assistance of Sam Wong.