# Preliminary	Cost	Analysis	for	Regulatory	Changes	to the	Listing	Status	of	High-GWP	Alternatives	used	in Refrigeration	and	Air	Conditioning,	Foams,	and	Fire Suppression

P R E P A R E D F O R 

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Stratospheric Protection Division
Office of Air and Radiation U.S. Environmental Protection Agency Washington, D.C. 20460

P R E P A R E D B Y 

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ICF International 1725 Eye Street, NW Washington, DC 20006

F E B R U A R Y 

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## Executive Summary This analysis presents an estimate of the overall p otential costs associated with a proposed rulemakin g to change the listing status of certain high-GWP alter natives used in refrigeration and air conditioning, foams, and fire suppression. Exhibit 1 summarizes the regulato ry changes analyzed. Using a 7% discount rate, tota l annualized compliance costs across the roughly 100 affected businesses are estimated to range from $59 .2 million–$71.3 million. Using a 3% discount rate, to tal annualized compliance costs are estimated to ra nge from $58.8 million–$70.6 million.


## Methodology This analysis builds on the general approach taken previously to estimate potential economic impacts o n small
businesses—as described in the **Economic Impact Screening Analysis for Regulatory Changes to the Listing Stat**  **us of High-GWP Alternatives used in Refrigeration and Air**  **Conditioning, Foams, and Fire Suppression** —to extend the assessment to all-sized businesses potentially affe cted by the rulemaking

**.** Industries potentially affected by these regulatory changes were primarily identified by Nor th American Industry Classification System (NAICS) cod es. Costs to affected businesses were calculated using a direct compliance cost method and then annualized. Costs o r savings associated with changes in energy efficienc y were not estimated because energy efficiency is related to a number of factors, including equipment design and performance characteristics, and not just due to th e refrigerant or foam blowing agent used.

Apart from a few exceptions, this analysis uses the same assumptions as the small business screening analysi s, including those about:

• Which industries might be affected by the regulator y changes;

• The proportion of businesses that could be directly affected by the regulatory changes, based on whether the HFCs, HFC blends, PFCs, and other haloc arbons affected by the regulatory changes are still—or were ever—known to be in use, and what pro portion of the market the affected substitutes are expected to represent at the time that the regulato ry changes would come into effect;

• The alternatives that are implemented in the transi tion away from the HFCs, HFC blends, PFCs, and other halocarbons affected by the regulatory change s, for modeling purposes; and

• The capital, operating, maintenance, and other dire ct compliance costs incurred by affected businesses

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Table 1 provides the basic financial assumptions us ed in this analysis. Exhibit 1: Summary of Regulatory Changes Analyzed

• List unacceptable 24 HFCs and HFC blends for new centrifugal chillers in 2022.

• List unacceptable 24 HFCs and HFC blends for new positive displacement chillers in 2022.

• List unacceptable 24 HFCs and HFC blends for new refrigerated food processing and dispensing equipment in 2021.

• List unacceptable 28 HFCs and HFC blends for new household refrigerators and freezers in 2021.

• List unacceptable 22 HFCs and HFC blends for new cold storage warehouses in 2021.

• List unacceptable HFC-134a, HFC-245fa, and certain HFC blends in 1) rigid polyurethane high-pressure two component spray foam, 2) rigid polyurethane low -pressure two component spray foam, and 3) rigid polyurethane one-component foam sealants in 2020, 2021, and 2020, respectively, except for cert ain military, space- and aeronautics- related applicati ons.

• List unacceptable methylene chloride in 1) flexible polyurethane foam 30 days from date of publication of a final rule, 2) integral skin polyurethane foam in 2017, and 3) polyolefin foam in 2020.

• List unacceptable perfluorocarbons (C 3 F 8 and C 4 F 10 ) in total flooding uses one year after publication of a final rule.2 Table 1: Financial Assumptions used in Cost Analysi s Parameter Assumption Discount rate s 3% and 7% Constant Year Dollars 2015 $ Lifetime for annualizing costs Varies based on equipment type: 25 years for foam manufacturing and centrifugal chiller manufacturer, and 20 years for household refrigerator and freezer manufacturers.

The sections below briefly describe the cost assump tions to extend the small business economic impact screening assessment to those businesses not charac terized as small under the Small Business Administr ation guidelines (hereafter referred to as “larger” busin esses).


### Refrigeration and Air Conditioning Assumptions Cost assumptions for the refrigeration and air cond itioning sector are summarized below; for more deta il, see **Economic Impact Screening Analysis for Regulatory C hanges to the Listing Status of High-GWP Alternativ**  **es**

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• Chillers (Centrifugal and Positive Displacement) —Nine manufacturers of centrifugal and positive displacement chillers were identified based on an i nternet search. Compliance costs incurred as a res ult of the proposed regulatory changes are based on the assumption that manufacturers would use R-450A (a blend of HFC-134a and HFO-1234ze) or R-513A (a b lend of HFC-134a and HFO-1234yf) in centrifugal chillers in place of HFC-134a; SolsticeTM-1233zd(E) in low-pressure centrifugal chillers in place of HF C245fa (or centrifugal chillers that historically us ed HCFC-123); and R-450A or R-513A in positive displacement chillers in place of R-407C and R-410A

. 1 It is assumed that there is a one-time capital cos t of approximately $51,000 associated with transition ing to SolsticeTM-1233zd(E) (UNEP 2012), and annual costs of $3,500 to $4,200 for centrifugal chillers and $1,100 to $1,400 for positive displacement chil lers using R-450A or R-513A, and $7,800 to $8,500 for ce ntrifugal chillers using SolsticeTM-1233zd(E), associated with charging the systems. 2 As a result, it is estimated that each manufacture r of centrifugal chillers and positive displacement chillers could i ncur an annual cost of roughly $2.9 million to $3.2 million and roughly $3.0 million to $3.8 million, r espectively, as a result of the proposed regulatory changes. 3

• Retail Food Refrigeration (Food Processing and Disp ensing Equipment) —Based on an internet search, it
is assumed that there are 20 manufacturers of refri gerated food processing and dispensing equipment

1 The Vintaging Model assumes that by 2022, new posit ive displacement chillers no longer use HFC-134a (E PA 2014).

2 Chiller compressors can be charged at the manufact uring facility, shipped partially charged and fille d on-site, or shipped dry and filled on site depending on the size and in stallation location of the system. For the purposes of this analysis, it is assumed that all charging costs will be incurred by the manufacturer, although it is likely that some of these costs would be passed on to the end-user.

3 Annual costs are based on the assumption that manu facturers on average sell roughly 540 centrifugal c hillers and 2,654 positive displacement chillers each year that will require transition to an alternative refrigerant. Approximately 41% of new chillers are assumed to transition to SolsticeTM-123 3zd(E) and 59% are expected to transition to R-450A or R-513A. These assumptions are based on 2022 sales of centrifugal chillers and positive displacement chillers estimat ed by EPA’s Vintaging Model (EPA 2014).3

in the United States. Compliance costs incurred as a result of the proposed regulatory changes are bas ed on the assumption that manufacturers of refrigerate d food processing and dispensing equipment will incur an incremental cost of $4-5 for each piece ofequipment they produce associated with using R450A in low temperature applications in place of R- 404A (UNEP 2012; Alpine Freezer 2015). With units estimated to sell for $10,000 a piece on average, m anufacturers are estimated to incur on average an annual incremental cost of roughly $200-$200,000, d epending on the size of the firm. 4

• Household Refrigerators and Freezers —According to the U.S. Census Bureau (2012), there are 23 manufacturers of domestic refrigeration equipment. Compliance costs incurred as a result of the proposed regulatory changes are based on the assump tion that small businesses will transition from HFC-134a to either R-450A or R-513A, and large busi nesses will transition to isobutane (R-600a). Assuming an average charge size of 0.16 kg (EPA 201 4), it is estimated that small business manufacturers will incur an annual cost of roughly $1,400 to $1.7 million, depending on the size of th e firm, associated with the incremental cost of the r efrigerant. 5,6 Large business manufacturers are assumed to incur a one-time capital investment cost of $150,000 to $500,000 associated with (a) purchasing new charging equipment, (b) testing and certifying equipment to UL standards, and (c) converting their facilities to accommodate a flamma ble refrigerant, resulting in an annualized cost of about $31,000 to $102,000 per affected large busine ss. 7

• Cold Storage Warehouses —Given this industry’s reliance on ammonia, it is e stimated that only four manufacturers produce R-404A and R-507A cold storag e refrigeration systems in the United States. In response to the proposed regulatory changes, these manufacturers are assumed to transition to R-407F in new systems, which will cost each manufacturer $ 20,000 to $40,000 per year, due to the larger charge size of R-407F required (i.e., 1.07 times gr eater than the charge sizes of R-404A and R-507A systems) (Honeywell 2012). 8


### Foam Blowing Assumptions In the foams sector, compliance costs generally inc lude one-time capital costs for a production facili ty to transition to an alternative blowing agent. In some cases, these capital costs could be offset by annu al savings associated with lower alternative blowing agent cos ts; however, these savings are not accounted for in this

4 For the purposes of this analysis, it is assumed t hat all refrigerant costs will be incurred by the m anufacturer, although it is possible that some of these costs would be passed o n to the end-user.

5 Annual costs are based on 2021 estimated sales of household refrigerators and freezers (approximately 11 million units) using EPA’s Vintaging Model (EPA 2014). This analysi s assumes that refrigerator sales are proportionall y distributed among manufacturers based on average sales across each es tablishment size category.

6 For the purposes of this analysis, it is assumed t hat all refrigerant costs will be incurred by the m anufacturer, although it is possible that some of these costs would be passed o n to the end-user.

7 Using a 7% discount rate.

8 For the purposes of this analysis, it is assumed t hat all refrigerant costs will be incurred by the m anufacturer, although it is possible that some of these costs would be passed o n to the end-user.4

direct compliance cost approach. Assumptions are br iefly described below; for more detail, please see **Economic Impact Screening Analysis for Regulatory Changes to**  **the Listing Status of High-GWP Alternatives**

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• High-pressure two-component spray foam —It is assumed that companies still using HFC-245fa , HFC365mfc and blends thereof would transition to Solst iceTM Liquid Blowing Agent (LBA) 1233zd(E), **trans** -1- chloro-3,3,3-trifluoroprop-1-ene). Capital costs fo r transitioning to SolsticeTM LBA are assumed to be $200,000–$300,000 per facility, associated with the cost of formulation development and compliance testing, which results in an annualized cost of abo ut $20,000 to $70,000 per affected business. 9

• Low-pressure two-component spray foam —Companies still using HFC-134a, HFC-245fa, and ble nds
thereof are assumed to transition to SolsticeTM Gase ous Blowing Agent (GBA) (HFO-1234ze).Capital costs for transitioning to HFO-1234ze are assumed to be $ 500,000–$600,000 per facility to cover the cost of extensive formulation development and compliance te sting, which results in an annualized cost of about $40,000 to $175,000 per affected business. 10

• One-component foam sealants —Companies still using HFC-134a and blends thereof are expected to transition to SolsticeTM GBA (HFO-1234ze). Capital c osts for transitioning to HFO-1234ze are assumed to be $200,000–$300,000 per facility to cover the cost of formulation development and compliance testing, which results in an annualized cost of abo ut $20,000 to $70,000 per affected business. 11

• Flexible polyurethane foam —Methylene chloride is not known to be used in any flexible polyurethane (PU) foam applications. Therefore, prohibiting the use of methylene chloride in this end-use is not expected to impact any businesses. The proposed reg ulatory changes would serve to prevent uptake of methylene chloride into this foam end-use.

• Integral skin polyurethane foam —Methylene chloride is not known to be used in any integral skin PU foam applications. Therefore, prohibiting the use o f methylene chloride in this end-use is not expecte d to impact any businesses. The proposed regulatory c hanges would serve to prevent uptake of methylene chloride into this foam end-use.

• Polyolefin foam —Methylene chloride is not known to be used in any polyolefin foam applications. Therefore, prohibiting the use of methylene chlorid e in this end-use is not expected to impact any businesses. The proposed regulatory changes would s erve to prevent uptake of methylene chloride into
this foam end-use.


### Fire Suppression and Explosion Protection Assumptio ns No businesses are assumed to be affected by the pro posed regulatory changes. PFCs (i.e., C 3 F 8 and C 4 F 10 ) are not used currently in new fire extinguishing equipment. These assumptions are based on modeling by EPA’s

9 Using a 7% discount rate. The range in annualized costs is dependent on the average number of establi shments per business, which varies depending on the size of the business.

10 **Ibid.**

11 **Ibid.**5

Vintaging Model, which is informed by industry inpu t. The Vintaging Model estimates that 0.2% of the m arket uses HFC-23 in total flooding systems in 2015, with the remaining using halon 1301, other HFCs (e.g., HFC227ea), and agents with zero ODP and low GWP, inclu ding fluoroketone, inert gas, CO 2 , powdered aerosols, foam, and water mist (EPA 2014).



## Results Using the methodology and additional assumptions de scribed above,6

Table 2 below summarizes the estimated number of bu sinesses potentially affected by the proposed regul atory options as well as the estimated annualized costs b y sector at a 7% discount rate. Table 3 summarizes the estimated annualized costs by sector at a 3% discou nt rate.

Using a 7% discount rate, total annualized complian ce costs across affected businesses are estimated t o range from $59.2 million–$71.3 million. Using a 3% discou nt rate, total annualized compliance costs across a ffected businesses are estimated to range from $58.8 millio n–$70.6 million. This analysis assumes the minimum cost to comply with the proposed regulatory changes. Emissi ons reductions associated with the regulated commun ity’s compliance with these changes were also investigate d. 12

12 See EPA 2016, ‘Climate Benefits of the Proposed SN AP Program Status Change Rule’.7

Table 2: Estimated Compliance Cost of the Regulator y Changes using a 7% Discount Rate

Sector Estimated Number of Businesses Impacted by the Rule a Higher Lower

Annualized Costs b Annualized Costs b

Refrigeration and Air Conditioning 50 $69,265,000 $57,776,000 **Centrifugal Chillers** <10 $29,096,000 $25,655,000 **Positive Displacement Chillers** $33,799,000 $27,039,000
**Food Processing and Dispending Equipment** 20 $419,000 $335,000 **Household Refrigerators and Freezers** 20 $5,810,000 $4,678,000 **Cold Storage Warehouses** <10 $142,000 $69,000

Foams 50 $2,026,000 $1,452,000 **High-Pressure Two-Component Spray Foam** 40 $1,414,000 $943,000
**Low-Pressure Two-Component Spray Foam** <10 $606,000 $505,000
**One-Component Foam** <10 $6,000 $4,000 **Flexible Polyurethane Foam** 0 $0 $0 **Integral Skin Polyurethane Foam** 0 $0 $0 **Polyolefin Foam** 0 $0 $0
Fire Suppression 0 $0 $0 **Total Flooding** 0 $0 $0

ALL SECTORS 100 $71,291,000 $59,227,000 Totals may not sum due to independent rounding.

a It is possible that some businesses will be affecte d for multiple types of equipment, resulting in a l ower total number of discrete businesses affected by the rule. However, since it is not known how many businesses would be affected by multiple equipment types, the total maximum number of businesses that could b e affected is shown.

b Includes annualized upfront capital costs as well as recurring annual costs.8

Table 3: Estimated Compliance Cost of the Regulator y Changes using a 3% Discount Rate

Sector Estimated Number of Businesses Impacted by the Rule Higher Lower

Annualized Costs a Annualized Costs a

Refrigeration and Air Conditioning 50 69,046,000 57,701,000 **Centrifugal Chillers** <10 $29,083,000 $25,642,000 **Positive Displacement Chillers** $33,799,000 $27,039,000 **Food Processing and Dispending Equipment** 20 $419,000 $335,000 **Household Refrigerators and Freezers** 20 $5,604,000 $4,616,000 **Cold Storage Warehouses** <10 $142,000 $69,000

Foams 50 $1,560,000 $1,118,000 **High-Pressure Two-Component Spray Foam** 40 $1,089,000 $726,000
**Low-Pressure Two-Component Spray Foam** <10 $467,000 $389,000
**One-Component Foam** <10 $5,000 $3,000 **Flexible Polyurethane Foam** 0 $0 $0 **Integral Skin Polyurethane Foam** 0 $0 $0 **Polyolefin Foam** 0 $0 $0
Fire Suppression 0 $0 $0 **Total Flooding** 0 $0 $0

ALL SECTORS 100 $70,606,000 $58,818,000 Totals may not sum due to independent rounding.

a Includes annualized upfront capital costs as well as recurring annual costs.9 

## References The following references are cited in this memorand um; see also **Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High-GW**  **P Alternatives used in Refrigeration and Air Condit ioning,**  **Foams, and Fire Suppression** for a full list of references used for this analys is.

Alpine Freezer. 2015. Soft Serve Machines. Availabl e online at: http://www.alpinefreezer.com/soft-servemachines/ . Accessed November 2, 2015.

DuPont. 2014. Opteon XP10: Product Information Bull etin Low GWP Replacement for R-134a. Available onli ne at: https://www.chemours.com/Opteon_Stationary/en_GB/as sets/downloads/opteon-xp-10-pib.pdf

Environmental Protection Agency (EPA). 2013. Global Mitigation of Non-CO2 Greenhouse Gases: 2010-2030 Available online at: http://www.epa.gov/climatechange/Downloads/EPAactiv ities/MAC_Report_2013.pdf

. Environmental Protection Agency (EPA). 2014. Vintag ing Model, Version VM IO File v4.4_10.13.14.xls

Environmental Protection Agency (EPA). 2016. Climat e Benefits of the Proposed SNAP Program Status Chan ge Rule.

Honeywell. 2015. Solstice® N13 (R-450A) Refrigerant : Low GWP HFO Blend Alternative for R-134a. Availab le online at: http://www.honeywell-refrigerants.com/europe/wp-con tent/uploads/2015/04/HoneywellSolstice-N13-Brochure.pdf

. Honeywell. 2012. HFC Retrofit Guidelines – HFC-404A & HFC-507 to HFC-407F. Available online at: http://www.honeywell-refrigerants.com/india/?docume nt=hfc-retrofit-guide-focuses-on-converting-404aand-507-to-lt&download=1

. United Nations Environment Programme (UNEP). 2010. 2010 Report of the Refrigeration, Air Conditioning and Heat Pumps Technical Options Committee. Available o nline at: http://www.ozone.unep.org/Assessment_Panels/TEAP/Re ports/RTOC/RTOC-Assessment-report-2010.pdf

United Nations Environment Programme (UNEP). 2012. Report of the Technology and Economic Assessment Panel, Additional Information on Alternatives to Oz one Depleting Substances. Available online at: http://ozone.unep.org/Assessment_Panels/TEAP/Report s/TEAP_Reports/teap-task-force-XXIII-9-reportmay2012.pdf

. U.S. Census Bureau. 2012. 2012 County Business Patt erns. Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employ ment Size for the United States, All Industries: 2 012. Retrieved November 3, 2015 from: http://www.census.gov/econ/susb/

The White House. 2015. FACT SHEET: Obama Administra tion and Private-Sector Leaders Announce Ambitious Commitments and Robust Progress to Address Potent G reenhouse Gases. Available online at: https://www.whitehouse.gov/the-press-office/2015/10 /15/fact-sheet-obama-administration-and-privatesector-leaders-announce

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