Ready for Change: A Breakdown of the Latest Sustainability and Refrigeration Regulations

Heraclitus, an ancient Greek philosopher, famously said, “There is nothing permanent except change.” This observation resonates deeply with business owners today, especially as companies face shifting sustainability regulations. These changes are acutely felt in the evolving requirements around refrigerants — critical components in cooling systems that are significant contributors to greenhouse gases (GHGs).

The Challenge: Navigating New Refrigeration and Sustainability Regulations

Businesses are grappling with the challenge of keeping up with new and complex sustainability regulations, particularly those related to refrigerants. This blog post provides a guide to understanding these regulations and outlines actionable steps you can take to ensure compliance — and to capitalize on the opportunities they present. This information is based on the Environmental Protection Agency’s (EPA) proposed rule and published in the Federal Register on October 19, 2023.

Key Takeaways:

• Overview of California’s sustainability regulations
• Detailed insights into the American Innovation and Manufacturing (AIM) Act
• Economic impacts of refrigerant regulations on businesses
• The importance of effective asset management
• Overview of additional leak repair standards
• Practical steps for businesses to prepare and comply

The New Regulations Shaping Sustainability

California, at the forefront of environmental regulation change, introduced two bills that speak directly to business owners. SB 253, the Climate Corporate Data Accountability Act, which requires companies operating in California with revenues exceeding a billion dollars to disclose their GHGs comprehensively, starting in 2026. This includes not just direct emissions but also those associated with their energy use and supply chains, as well. The Climate-Related Financial Risk Act, SB 261, requires businesses with more than $500 million in annual revenues operating in California to detail their climate-related financial risks and adaptive strategies by 2026.

The term “operating” in these two bills means that businesses with even a single location in California are subject to the requirements.

Beyond California, the American Innovation and Manufacturing (AIM) Act, enacted in December 2020, empowers the EPA to significantly reduce the use of hydrofluorocarbons (HFCs), potent chemicals used in everything from walk-in coolers to air conditioning systems. The AIM Act not only mandates a gradual reduction in HFC production and consumption but also oversees their management and the adoption of greener alternatives. The compliance deadlines are tied to a phasedown schedule, which requires a reduction in HFC production and use by specific percentages over the coming years. The schedule aims to reduce HFCs by 85% by 2036. The EPA provides allowance allocations to companies to produce or import HFCs, which are adjusted annually based on this phasedown schedule.

If your business relies on HFCs, think of this phasedown like a shrinking budget:

• 2022-2023: Your HFC “budget” was reduced to 90% of your typical usage
• 2024-2028: Your budget shrinks to 60%
• 2029-2033: By this point, you’ll only have access to 30% of your original HFC allowance
• 2034-2035: Your HFC budget dwindles to a mere 20%
• 2036 and beyond: Your allowable HFCs will be capped at 15% of your initial usage

For businesses everywhere, this signals a clear need to transition away from HFCs and prepare for a future where operating more sustainably is the norm.

The Economic Imperative for Change

Jonathan Tan, co-founder of the Ratio Institute, a 501(c)(3) focused on driving profitability through best sustainability workplace practices within food retail, emphasizes the financial urgency of this transition, “I estimate that refrigerants today cost the industry in North America about $800 million annually.”

Tan, with more than two decades of experience in energy efficiency, emphasizes that the rising cost of HFCs, especially with the AIM Act’s phase-down targets, makes sustainable alternatives increasingly attractive. “When it comes to new refrigeration systems, think of it like this: If you spend $1 more on a system that uses natural refrigerants instead of HFCs, you’ll see between $2 to $8 in financial benefits over the system’s lifetime. “Similarly, if you’re updating an old system, investing an extra $1 in a natural refrigerant system could yield up to $4 in economic returns over the system’s lifetime.”

Tan predicts that the AIM Act will have widespread impact, “The AIM Act is going to impact everybody. “The big jump is 79% by 2029, and I expect HFC refrigerants to increase in price by double-digit CAGR (compounded annual growth rate) through 2029.”

“The AIM Act is going to impact everybody.”

— Jonathan Tan, co-founder of the Ratio Institute 

The Importance of Asset Management

Tan highlights the importance of asset tracking in light of the pending regulations: “Everyone will be required to track their assets and the respective synthetic refrigerants if not doing so already.” This means asset management is essential for staying ahead of these changes. It’s a strategic approach that involves monitoring refrigerant usage, detecting leaks early, and ensuring systems are running optimally. These practices not only align with regulatory compliance but also lead to significant cost savings and a reduced environmental impact. Leum Fahey, director of product management at ServiceChannel adds, “Effective asset management is key to enhancing business sustainability and cultivating a greener brand image.” But it goes beyond simply tracking assets, as Fahey points out, “This approach [to facilities operations] involves the judicious use of resources and insights from data, minimizing energy waste and emissions, and updating outdated equipment with modern, environmentally friendly alternatives.”

“Any retailer operating large HVAC systems must now manage their refrigerant usage with the same strictness as sectors like grocery and convenience stores.”

— Leum Fahey, director of product management at ServiceChannel 

While these regulations may initially seem daunting due to financial and logistical considerations, forward-thinking business owners see them as an opportunity to optimize operations, reduce costs, and enhance their brand image. Tan is currently working with many small, rural grocers, which are embracing these regulatory changes more than the bigger grocers, perhaps in large part, because smaller businesses tend to be more personally invested. “It’s literally their money, it’s their livelihood on a day-to-day basis,” says Tan.

The EPA’s Latest Proposed Changes to Refrigerant Management

The EPA has proposed new regulations for refrigerant management, marking the most significant updates since the 1994 Clean Air Act. Here’s a breakdown of these major changes:

New Leak Repair Standards

Target: High GWP HFCs

New Standards: The following leak rates will apply to systems containing 15 lbs. or more of HFCs or their substitutes:

• 10% leak rate for comfort cooling systems (e.g., air conditioning)
• 20% leak rate for commercial refrigeration (e.g., grocery store refrigerators)
• 30% leak rate for industrial refrigeration (e.g., cold storage facilities)

Important Deadlines

Immediate: For systems with 50 lbs. of HFCs or more, businesses have 90 days to start tracking all equipment unless the refrigerant has a GWP of less than 53 (essentially CO2-based systems).

12 Months: For systems with 15 lbs. or more of HFCs, businesses must comply within a year, which expands coverage to over 65% of all HVAC/R equipment.

12 Months (ALDS): All systems must comply with the Automatic Leak Detection System (ALDS) requirements within a year. For example, all equipment containing 15,000 lbs. or more of a refrigerant containing an HFC or a substitute for an HFC with a GWP above 53 (new and existing appliances) will be required to have an automatic leak detector.

These proposed changes aim to tighten control over refrigerant use and leaks, pushing businesses to adopt more sustainable practices. If your business uses significant refrigeration, it’s essential to understand and prepare for these new regulations.

What Businesses Need to Know and How to Prepare

Who Will Be Affected?

Businesses with significant refrigeration needs will need to pay close attention to the new regulations. This includes businesses such as:

• Grocery stores and supermarkets
• Cold storage facilities
• Distribution centers
• Manufacturers with refrigeration requirements

Companies currently using high GWP (Global Warming Potential) refrigerants will be especially impacted. These businesses will be prioritized as regulations evolve, but it’s important for all companies to stay informed as standards are likely to expand to encompass a wider array of industries over time. “Historically, we’ve focused on sectors with a heavy reliance on high GWP refrigerants, but with recent regulatory shifts, any retailer operating large HVAC systems must now manage their refrigerant usage with the same strictness as sectors like grocery and convenience stores,” says Fahey.

What to Expect?

• Phasing Out High GWP Refrigerants: There will be a gradual requirement to transition from high GWP refrigerants to those with a lower environmental impact.
• Stricter Leak Monitoring and Repair: Enhanced inspections and repair protocols will be implemented to minimize emissions.
• Mandatory Record-Keeping and Reporting: Detailed documentation of refrigerant usage and management will be required.
• Potential Equipment Upgrades: While not immediately mandatory, it is advisable for companies to consider upgrading older, inefficient units to better comply with upcoming standards and optimize energy usage.

How to Best Prepare?

• Proactive Approach: Assess your current refrigerant use and complete an asset inventory (e.g., maintenance costs; value on books; annual refrigerant costs; and a full inventory of gas charge, gas type, and leak rate) to stay ahead of regulatory deadlines.
• Expert Consultation: Engage with energy and sustainability consultants to ensure you meet compliance requirements and identify opportunities to save energy.
• Budget Planning: Set aside funds for potential equipment upgrades or replacements to stay aligned with new environmental guidelines.
• Staff Training: Train your team in proper refrigerant handling and leak detection techniques to reduce environmental impact and comply with stricter regulations.

Embracing Change for a Competitive Edge

The shift towards operating more sustainably isn’t just about meeting new regulations — it’s about securing a competitive advantage in a rapidly changing landscape. By proactively addressing these regulations, businesses can position themselves as leaders in environmental stewardship while reaping the benefits of cost savings and operational efficiency. Fahey emphasizes this point, “This benefits the environment and aligns with the expectations of consumers who favor responsible businesses — it can lead to increased revenue by appealing to eco-conscious customers and reducing operational costs.”