The 2008 election will alter the political landscape in Washington with certain changes to the make up of the Congress and the occupant of the White House. As we learned in civics class, the legislative branch has the power to write the laws and the executive branch has the power to promulgate those laws into rules and then enforce them. Sometimes the two branches of government work in concert and sometimes they conflict. We won’t know what the new leadership will look like until Election Day, but we do know it will impact the hvacr industry.
The road for a legislative bill in Congress to a promulgated and enforced rule is a long one. In some cases, it takes several Congressional sessions just to pass a bill into law. Once passed, it may take another few years before the federal agencies and the Office of Management and Budget write the laws into rules that can be enforced. On top of that, the rules are periodically reviewed, a process that can take more time.
Two key issues to the hvacr industry are teed up for action by the new Congress and the McCain or Obama administration that takes power next January. First, the Department of Energy (DOE) will review and consider raising the current federal minimum 13 SEER air conditioning rule. Meanwhile, Congress plans to tackle global warming and climate change with a proposed cap and trade program on HFCs.
The Energy Independence and Security Act of 2007, passed by Congress after nearly a year of deliberation, included provisions granting the DOE new authorities when setting minimum energy-efficiency standards for heating and cooling products. Under the law, the next time DOE reviews these standards, it is authorized to set higher minimums for up to two regions of the country where the climate demands higher air conditioning use.
This is a huge change in appliance standards that will have a dramatic effect on the hvacr industry. For more than three decades, federal law has set a single national minimum energy-efficiency standard that was periodically reviewed and raised when it was technologically feasible, economically justified, and would result in demonstrable energy savings. The law benefited consumers, made life simple for manufacturers, and appeased energy efficiency proponents.
In June, the DOE opened the process with the release of a Rulemaking Framework Document designed to “describe procedural and analytical approaches the DOE anticipates using to evaluate and update the existing energy conservation standards for residential central air conditioners and heat pumps.” In The Framework Document, the DOE detailed 55 specific issues on which the DOE seeks comments and feedback from stakeholders on aspects of the rulemaking process. The DOE intends to review the comments before releasing an Advanced Notice of Proposed Rulemaking (ANOPR) in fall 2009. After taking comments, the DOE will release a Notice of Proposed Rulemaking (NOPR) in fall 2010, concluding with a published final rule by June 2011, and an effective date of June 2016.
To download a copy of the Rulemaking Framework Document, visit: www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/cac_framework.pdf.
The hvacr industry should carefully monitor this rulemaking process. ACCA is very concerned about the enforcement of regional standards along the borders between regions. A regional standard scheme could create ripe opportunities for dishonest contractors to skirt the law and take advantage of unsuspecting homeowners or business owners. Moonlighters could easily transport a cheaper, lower-efficiency product across an artificial and unenforced border, undercutting the legitimate contractors.
The rulemaking may enact a radical change to decades of appliance efficiency law. It represents an unprecedented amendment in federal policy that could open the door to other appliances. It is vital that the DOE carefully consider the ramifications to the hvacr industry’s small-business contractors. Enforcement of current law is done at the manufacturer level—nothing leaves the loading dock that is below the minimum efficiency standard. Under regional standards, enforcement must occur at the installation site and products are not allowed to be installed in every location. Manufacturers, distributors, and contractors will have to deal with new logistics as three separate minimum- efficiency standards may exist. And manufacturers and distributors may have a difficult time dealing with shortages in regions.
Despite the fact that the leading climate change bill on Capitol Hill imploded after only a week of debate in the Senate, Congress will be pushing a “cap and trade” proposal next year to control the emission of CO2 and other greenhouse gases, such as HFCs. Cap and trade programs are designed to limit emissions using a regulatory marketplace that provides financial incentives for reducing emissions below the cap. Unused allowances can be traded, sold, or banked by emissions producers.
A greenhouse gas cap and trade program will almost certainly drive up the price of fossil fuels, raw materials and components for manufacturing, and transportation fuels because it’s essentially a tax on combustion and emission.
But most important to the hvacr industry, it will cap the production of hydrofluorocarbons (HFCs). Unlike CO2, methane, nitrous oxide, other by-waste and by-product gases targeted by a greenhouse gas cap and trade program, HFC refrigerants are manufactured with a direct purpose that serves the needs of society. Despite the fact that HFCs make up only 2% of emitted greenhouse gases globally by volume, they have a significantly higher global warming potential relative to CO2.
Under cap and trade proposals, domestic production and importation of HFCs would be capped in year of enactment (the base year), then reduced incrementally the following 40 years until production is 30% of the base year amount. During the production phase out, production allowances would be given to refrigerant producers and some would be sold at auction. In the base year, 95% of the allowance would be granted and 5% would be withheld for auction. Each year, the amount of allowance granted would decline, while the amount withheld for auction increased, until year 20, when 100% of the allowances would be available through auction. This doesn’t mean contractors would have to buy refrigerant at the auction (that’s for producers), but it most certainly means an increase in the price of refrigerant since the supply will decrease.
The hvacr industry is the most significant user of HFC refrigerants. A successful cap and trade program on HFCs must not unintentionally harm the hvacr marketplace and allow for an adequate deferment period before imposition of such a groundbreaking system in light of the accelerated phase out of Hydrochlorofluorocarbon (HCFC) refrigerants by 2020. The proposal floating around Capitol Hill would phase out the last remaining class of commercialized refrigerants in the marketplace without a viable alternative. Manufacturers, distributors, and contractors need ample time to absorb these changes in the marketplace. With the potential for a higher minimum SEER requirement in 2016, the demand for HFCs will expand.
If the goal is to reduce CO2 emissions and limit production or release of greenhouse gases, then there needs to be incentives for two important stakeholders, the handlers and users of HFCs. One reason the industry is facing such scrutiny is because a small percentage of refrigerant is reclaimed or destroyed. The rest escapes or is vented into the atmosphere. Limiting the consumption through a cap-and-trade program only uses the “stick” approach without the complementary “carrot” to bring the bad actors in from the shadows. In order to guarantee success, auction funds should go to consumer education programs, tax incentives for installing high efficiency equipment, enforcement of the EPA’s Clean Air Act Section 608 program, and destruction premiums for those who handle refrigerants. Contractors are the primary users who handle refrigerants. Section 608 compliance is expensive and time consuming, placing the legitimate contractor on an uneven playing field against those who routinely violate the law. Financial incentives must be offered to those who physically handle refrigerants that are eventually reclaimed and destroyed to foster compliance.
Expect the new Congress and White House to tackle this thorny issue in 2009, followed by a lengthy rulemaking process. ν
Charlie McCrudden serves as the Director of Government Relations for the Air Conditioning Contractors of America (ACCA), a position he has held since March 2006. Before working for ACCA, he served in a similar capacity for the National Utility Contractors Association, which represents construction companies that build and maintain America’s water and underground infrastructure. From 1992-1998, Charlie worked on Capitol Hill as a legislative assistant for former Ohio congressman James A. Traficant Jr. He holds a bachelors degree from Franklin and Marshall College and a master’s degree from the University of Virginia.
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