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Manasota Air Conditioning Contractors Association

HVACR Industry Not Happy With EPA Sell-Through Provisions

Thursday, December 14, 2023 2:25 PM | Anonymous

The Environmental Protection Agency (EPA) recently released its final rule regarding the transition to low-GWP refrigerants in new refrigeration, air conditioning, and heat pump (RACHP) systems, and many in the HVACR industry are not happy with parts of the new regulation. The rule addresses subsection (i) of the AIM Act, entitled “Technology Transitions,” which provides EPA with the authority to restrict the use of regulated HFCs in sectors or subsectors where they are used.

This final rule, published October 24, 2023, sets a maximum GWP limit on the HFCs or HFC blends that can be used, and in a few subsectors, EPA has listed specific HFCs or HFC blends that are restricted. Compliance dates and GWP limits vary based on the sector and subsector, but for stationary air conditioning and heat pumps, the final rule calls for a 700 GWP limit for most new comfort cooling equipment, including chillers, starting January 1, 2025. VRF systems would have until January 1, 2026 to comply with the restrictions.

For most new commercial refrigeration systems used in supermarkets and convenience stores, the rule mandates a 150 or 300 GWP limit, with compliance dates ranging from 2026 to 2028, depending on the size of the equipment.

“We did not expect the lack of a sell-through period for essentially any field-charged HFC system.”

- Chris Czarnecki
Director of government relations and advocacy

Sell-Through Saga

For new RACHP systems, many in the industry were expecting the rule to include a sell-through period of at least a year for most types of equipment, so that distributors and contractors would not be left with inventory that could not be legally installed. Instead, EPA unexpectedly included a “date of install” requirement for some types of equipment, which means complete, new, split-system air conditioners and heat pumps, for example, must now be installed no later than January 1, 2025.

“We did not expect the lack of a sell through-period for essentially any field-charged HFC systems,” said Chris Czarnecki, director of government relations and advocacy at ACCA. “This is because the rule does not provide any discrepancy between the date of installation and date of manufacture for systems charged in the field. Manufacturing is considered ‘complete’ once the system is charged and completely ready to be turned on by the rule's definition.”

Indeed, the rule divided almost all sectors into self-contained “products” and field-assembled “systems,” with vastly different compliance schemes, which was unexpected based on the proposed rule, said Jennifer Butsch, regulatory affairs director at Copeland.

“While ‘products’ have a three-year sell through period, ‘systems’ do not have any sell-through provision,” said Butsch. “For those ‘systems’ that are rated and sold as a matched set, such as in residential HVAC, this could risk stranding inventory in the channel unless they can be used as components for service.”

To further clarify the distinction between a product and a system, EPA states that a RACHP product is considered to be functional upon leaving the factory, and examples include window air conditioning units, refrigerators, and stand-alone display cases. On the other hand, a system is assembled and charged in the field using multiple components.

“Products are something that can be plugged in, like a window air conditioning unit or a refrigerator. These have compliance restriction dates that are associated with the fact that they are products,” said Allison Cain, environmental policy analyst at EPA, in a recent GreenChill webinar. “Systems are those that are assembled and charged in the field and would need to be installed by a technician, such as a supermarket direct expansion system with a centralized compressor room.”

Differentiating between self-contained products and field-assembled systems definitely came as a surprise and added a level of complexity, as well as some challenges that the industry wasn’t prepared for, said Butsch.

“Managing installation dates is inherently challenging for all parties through the channel,” she said. “Traditionally this was only required for larger field-erected systems such as chillers, large rooftops, supermarket refrigeration racks, and industrial scale systems. Under this rule, any connection of the refrigerant loop appears to trigger the field-assembled provision, throwing unitary split and any refrigeration applications that need field connection of refrigerant circuit — even when pre-charged in the factory — into this category with a compliance date based on installation.”

Legacy Systems

A silver lining for some in the HVACR industry is that under this rule, a product or a system may be serviced and repaired throughout its useful life, which includes replacing components as needed. As it stands now, components required to repair existing RACHP equipment may continue to be manufactured, imported, sold, distributed, or exported indefinitely.

Refrigeration Technician.

SERVICE AND REPAIR: Under EPA’s final rule, a product or system may be serviced and repaired throughout its useful life, which includes replacing components as needed. (Staff photo)

“We were pleased to see EPA follow through with their inclusive posture towards the repair of HFC systems and the manufacturing of replacement parts,” said Czarnecki. “This rule was written to let existing systems be used until the end of their useful life, and that is something we appreciate EPA taking into consideration.”

This means for outdoor split air conditioners and heat pumps, EPA would allow the replacement of the outdoor R-410A condensing unit followed by the indoor coil at a later date, essentially allowing these split systems to be partially replaced indefinitely, said Butsch.

“This is different from other regulation such as in California, where if a condensing unit is replaced in a split system, this would necessitate compliance with the requirement to use a <750 GWP refrigerant,” she said. “Customers will be forced to comply with the most restrictive requirement — state or federal.”

Still, the separation of products and systems is a serious issue, said Glenn Haun, general manager of refrigerants at Arkema, and while EPA’s subsequent guidance clarified the definitions, there is confusion as to how this can work in the marketplace.

“It appears that under this rule, components for R-410A system repairs can be produced and installed indefinitely, as well as imported already charged without expending allowances, thereby providing additional supply of HFCs, bypassing the phasedown requirements,” he said. “Many of our customers, wholesalers, and distributors are very concerned that if a reasonable sell-through period does not apply to installation of systems, it will create large quantities of stranded equipment, and the industry will not be ready to comply. We understand that EPA is aware of this issue and plans to resolve it.”

Possible Changes Ahead

How EPA plans to resolve this issue was still up in the air at the time this article was written, but at the recent HARDI Conference in Phoenix, Arizona, Alex Ayers, director of government affairs at HARDI, said that some relief may be coming. He noted that in a recent letter, EPA acknowledged that stranded inventory may be an issue with the January 1, 2025 installation date mandated in the final rule.

“They gave us some language that says they are potentially looking at moving the installation date from January 1, 2025, to January 1, 2026,” said Ayers. “‘Potentially’ has a lot of implication, but overall we consider this letter to be good news. It's just a question of how good it's going to be. To me, the No. 1 thing is that it gives the supply chain time to eliminate stranded inventory.”

Ayers cautioned that the industry should not look at this as another year to sell R-410A equipment, as manufacturers are already planning to transition to low-GWP equipment in 2024. Manufacturers do not want to supply R-410A equipment for an extra year, he added, and it’s also very likely there would be a limitation on when these systems can be manufactured and installed at a later date.

“I believe the most likely scenario is that EPA delays the installation deadline for one year for residential and light commercial air conditioners and heat pumps that use high-GWP refrigerants such as R-410A until January 1, 2026 — as long as that system was manufactured prior to January 1, 2025,” said Ayers. “VRF and VRV may be similar, but because they already have an extra year, EPA hasn't been quite as forthcoming in saying they will give them until 2027. What they have said is that they're going to do something — it's just less of an indication of what that relief is exactly going to be.”

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