# 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 REPARED FOR 

### :

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

P REPARED BY 

### :

ICF International 1725 Eye Street, NW Washington, DC 20006

M ARCH 

### 20161 

## Executive Summary This analysis presents an estimate of the overall potential costs associated with a proposed rulemaking to change the listing status of certain high

- GWP alternatives used in refrigeration and air conditioning, foams, and fire suppression

. Exhibit 1 summarizes the regulatory changes analyzed

. Using a 7% discount rate, total annualized compliance costs across the roughly 1 00 affected businesses are estimated to ran ge from $ 59.2 million

– $ 71.3 million . Using a 3% discount rate, total annualized compliance costs are estimated to range from $ 58.8 million

– $ 70.6 million

. 

## Methodology This analysis builds on the general approach taken previously to estimate potential economic impacts on small businesses

— as described in the Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High

- GWP Alternatives used in Refrigeration and Air Conditioning, Foams, and Fire Suppression

— to extend the assessment to all

- sized businesses potentially affected by the rulemaking

. Industries potentially affected by these regulatory changes were prim arily identified by North American Industry Classification System (NAICS) codes

. Costs to affected businesses were calculated using a direct compliance cost method and then annualized. Costs or savings associated with changes in energy efficiency were not estimated because energy efficiency is related to a number of factors, including equipment design and performance characteristics , and not just due to the refrigerant or foam blowing a gent used

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

• Which industries might be affected by t he regulatory changes ;

• The proportion of businesses that could be dir ectly affect ed by the regulatory changes , based on whether the HFCs , HFC blends, PFCs, and other halocarbons affected by the regulatory changes are still

— or were ever — known to be in use, and what proportion of the market the affected substitutes are expect ed to represent at the time that the regulatory changes would come into effect ;

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

• The capital, operating, maintenance, and other direct compliance costs incurred by affected businesses.
Table 1 provides the basic financial assu mptions used in this analysis

. Exhibit 1: Summary of Regulatory Changes Analyzed

• List unacceptable 24 HFCs and HFC blends for new

centrifugal chillers in 202 4

. • List unacceptable 24 HFCs and HFC blends for new

positive displacement chillers in 202 4

. • Lis t 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

- p ressure two component spray foam , and 3) rigid polyurethane one
- com ponent foam sealants in 2020, 2021, and 2020, respectively , except for certain military, space

- and aeronautics

- related applications.

• 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 20 17 , and 3) polyolefin foam in 2020.

• List unacceptable perfluorocarbon s (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 Analysis 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 assumptions to extend the small business economic impact screening assessm ent to those businesses not characterized as small under the Small Business Administration guidelines (hereafter referred to as “larger” businesses)

. 

### Refrigeration and Air Conditioning Assumptions Cost assumptions for the refrigeration and air conditioning sector are summarized below; for more detail, see Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High

- GWP Alternatives

.

• Chillers (Centrifugal and Positive Displacement)

— Nine manufacturers of centrifu gal and positive displacement chillers were identified based on an internet search. Compliance costs incurred as a result of the proposed regulatory changes are based on the assumption that manufacturers would use R

- 450A ( a blend of HFC

- 134a and HFO

- 1234z e ) or R

- 513A (a blend 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 HFC

245fa (or centrifugal chillers that historically used HCFC

- 123); and R

- 450A or R

- 513A i n positive displacement chillers in place of R

- 407C and R

- 410A. 1 It is assumed that there is a one
- time capital cost of approximately $ 51 ,000 associated with transitioning to SolsticeTM

- 1233zd(E) ( UNEP 2012) , and annual costs of $ 3 , 5 00 to $ 4,2 00 for centrifugal chillers and $ 1,1 00 to $ 1,4 00 for positive displacement chillers using R

- 450A or R

- 513A , and $7,800 to $ 8,5 00 for centrifugal chillers using SolsticeTM

- 1233zd(E) , associated with charging the systems

. 2 As a result, it is estimated that each manu facturer of centrifugal chillers and positive displacement chillers could incur an annual cost of roughly $ 2

. 9 million to $ 3

. 3 million and roughly $ 3

. 0 million to $ 3 .8 million , respectively, as a result of the proposed regulatory changes. 3

• Retail Food Refrigeration (Food Processing and Dispensing Equipment)

— Based on an internet search, i t is assumed that there are 20 manufacturers of refrigerated food processing and dispensing equipment

1 The Vintaging Model assumes that by 2024 , new positive displacement chillers no longer use HFC

- 134a (EPA 2014). 2 Chiller compressors can be charged at the manufacturing facility, shipped partially charged and filled on

- site, or shipped dry and filled on site depending on the size and installation location of the system. For the purposes of this analysis, it i s assum ed 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 manufacturers on average sell roughly 54 5 centrifugal chille rs and 2, 681 positive displacement chillers each year that will require transition to an alternative refrigerant . Approximately 41% of new chillers are assumed to transition to SolsticeTM

- 1233zd(E) and 59% are expected to transition to R

- 450A or R

- 513A

. These assumptions are based on 2024 sales of centrifugal chillers and positive displacement chillers estimated by EPA’s Vintaging Model (EPA 2014).3 in the United States. Compliance costs incurred as a result of the proposed regulatory changes are based on the assumption that manufacturers of refrigerated food processing and dispensing equipment will incur an incremental cost of $ 4

- 5 for each piece of equipment they produce associated with using R

450A in low temperat ure applications in place of R

- 404A ( UNEP 201 2 ; 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 $ 2 00

- $ 2 00 ,000, depending on the size o f 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 assumption that small businesses will transition from HFC

- 134a to either R

- 450A or R

- 513A, and large businesses will transition to isobutane (R

- 600a). Assuming an average charge size of 0.16 kg (EPA 2014), it is estimated that small busin ess manufacturers w ill incur an annual cost of roughly $ 1,400 to $ 1.7 million , depending on the size of the firm , associated with the incremental cost of the refrigerant

. 5 , 6 Large business manufactur ers are assumed to incur a one

- time capital investment c ost of $1 5 0,000 to $ 50 0,000 associated with (a) purchas ing new charging equipment, (b) test ing and certify ing equipment to UL standards, and (c) convert ing their facilit ies to accom modate a flammable refrigerant , result ing in an annualized cost of about $ 31 ,000 to $ 102 ,000 per affected large business

. 7

• Cold Storage Warehouses

— Given this industry’s reliance on ammonia, i t is estimated that only four manufacturers produce R

- 404A and R

- 507A cold storage refrigeration systems in the United States . In response to the proposed regulatory changes, these m anufacturers are assumed to transition to R

- 407F in new syst ems, which will cost each manufacturer $20,000 to $ 4 0,000 per year , due to the larger charge size of R

- 407F required (i.e., 1.07 times greater than the charge sizes of R

- 404A and R

- 507A systems) (Honeywell 2012). 8


### Foam **Blowing Assumptions**  In the foams sector, compliance costs generally include one

- time capital costs for a production facility to transition to an alternative blowing agent . I n some cases , th ese capital costs c ould be offset by annual savings associated with lower alternative blowing agent costs ; however , these savings are not accounted for in this

4 For the purposes of this analysis, it is assumed that all refrigerant costs will be incurred by the manuf acturer, although it is possible that some of these costs would be passed on 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 analysis assumes that refrigerator sales are proportionally distributed among manufacturers based on average sales across each establishment size category. 6 For the purposes of this analysis, it is assumed that all refrigerant costs will be incurred by the manufacturer, although it is possible that some of these costs would be passed on to the end

- user. 7 Using a 7% discount rate. 8 For the purposes of this analysis, it is assumed that all refrigerant costs will be incurred by the manufacturer, alth ough it is possible that some of these costs would be passed on to the end

- user.4 direct compliance cost approach . Assumptions are briefly described below; for more detail, please see Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High

- GWP Alternative s
.

• High

- pressure t wo - component s pray f oam — It is assumed that companies still usin g HFC

- 245fa, HFC

365mfc and blends thereof would transition to Solstice TM Liquid Blowing Agent (LBA) 1233zd(E), trans

- 1

- chloro

- 3,3,3

- trifluoroprop

- 1

- ene )

. Capital costs for transitioning to Solstice TM LBA are assumed to be $2 00,000

– $300,000 per facility , ass ociated with the cost of formulation development and compliance testing , which results in an annualized cost of about $ 20 ,000 to $ 70 ,0 00 per affected business

. 9

• Low
- pressure t wo - component s pray f oam — Companies still using HFC

- 134a, HFC

- 245fa, and blends thereof are assumed to transition to Solstice TM Gaseous 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 dev elopment and compliance tes ting, which results in an annualized cost of about $ 4 0 ,000 to $ 175 ,000 per affected business

. 10

• One

- c omponent f oam s ealants

— Companies still using HFC

- 134a and blends thereof are expected to transition to Solstice TM GBA (HFO

- 1234ze). Capital costs for transitioning to HFO

- 1234ze are assumed to be $200,000

– $300,000 per facility to cover the cost of formulation deve lopment and compliance testing, which results in an annualized cost of about $ 20 ,000 to $ 70 ,000 per affected business

. 11

• Flexible p olyurethane f oam — 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 regulatory changes would serve to prevent uptake of methylene chloride into this foam end

- use.

• Integral s kin p olyurethane f oam — Methylene chloride is not known to be used in any integral skin PU foam applications. Therefore, prohibiting the use of methylene chloride in this end

- use is not expected to impact any businesses. The proposed regulatory changes would serve to prevent uptake of methylene chloride into this foam end

- use.

• Polyolefin f oam — Methylene chloride is not known to be used in any polyolefin foam applications. Therefore, prohibiting the use of methylene chloride in this end

- use is not expected to impact any businesses. The proposed regulatory changes would serve to prevent uptake of methylene chloride into this foam end

- use. 

### Fire Suppression and Explosion Protection **Assump tions**  N o b usinesses are assumed to be affected by the proposed 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 establishments per business, which varies depending on the size of the business

. 10 Ibid. 11 Ibid.5 Vintaging Model, which is informed by industry input. The Vintaging Model estimate s that 0.2% of the market uses HFC

- 23 in total flooding systems in 2015, with the remaining using halon 1301, other HFCs (e.g., HFC

227ea) , and agents with zero ODP and low G WP, including fluoroketone, inert gas, CO 2 , powdered aerosols, foam, and water mist (EPA 2014). 

## Results Using the methodology and additional assumptions described above, Table 2 below summarizes the estimated number of businesses potentially affected by the proposed regulatory options as well as the estimated annualized cost s by sector at a 7% discount rate. Table 3 summarizes the estimated annualized costs by sector at a 3% discount rate

. Using a 7% discount rate, total annualized compliance costs across affected businesses are estimated to range from $ 59

. 7 million

– $ 71

. 9 million . Using a 3% discount rate, total annualized compliance costs across affected businesses are estimated to range from $ 5 9

. 3 million

– $ 7 1

. 2 million. This analysis assumes the minimum cost to comply with the proposed regulatory changes

. E missions reductions associated with the regulated commun ity ’s compliance with the se changes were also investigated

. 12

12 See EPA 2016, ‘Climate Benefits of the Proposed SNAP Program Status Change Rule ’

.6 Table 2 : Estimated Compliance Cost of the Regulatory Changes using a 7% Discount Rate

Sector Estimated Number of Businesses Impacted by the Rule a Higher Lower
Annualized Costs b Annualized C osts b Refrigeration and Air Conditioning 5 0 $69,878 ,000 $58 , 288 ,000 Centrifugal Chillers <10 $29,3 6 5 ,000 $ 25,892 ,000 Positive Displacement Chillers $33,799,000 $27,039,000 Food Processing and Dispending Equipment 20 $419,000 $335,000 Household Refrigerators and F reezers 20 $5,810,000 $4,678,000 Cold S torage W arehouses <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 $71,904 ,000 $59,739 ,000 Totals may not sum due to independent rounding.

a It is possible that some businesses will be affected for multiple types of equipment , resulting in a lower 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 be affected is shown. b In cludes annualized upfront capital costs as well as recurring annual costs.7 Table 3: Estimated Compliance Cost of the Regulatory 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 5 0 $69,659 ,000 $ 5 8,213 ,000 Centrifugal Chillers <10 $29,352 ,000 $25,879 ,000 Positive Displacement Chillers $33,799,000 $27,039,000 Food Processing and Dispending Equipment 20 $419,000 $335,000 Household Refrigerators and F reezers 20 $5,604,000 $4,616,000 Cold S torage W arehouses <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 $71 , 219 ,000 $59 , 331 ,000 Totals may not sum due to independent rounding.

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

## References The following references are cited in this memorandum; see also Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High

- GWP Alternatives used in Refrigeration and Air Conditioning, Foams, and Fire Suppression for a full list of references used for this analysis.
Alpine Freezer. 2015. Soft Serve Machines. Available online at: http://www.alpinefreezer.com/soft

- serve
machines/ . Accessed November 2, 2015.
D u Pont. 2014. Opteon XP10: Product Information Bulletin Low GWP Replacement for R

- 134a. Available online at: https://www.chemours.com/Opteon_Stationary/en_GB/assets/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/EPAactivities/MAC_Report_2013.pdf

. Environmental Protection Ag ency (EPA). 2014. Vintaging Model, Version VM IO File v4.4_10.13.14.xls Environmental Protection Agency (EPA). 2016. Climate Benefits of the Proposed SNAP Program Status Change Rule. Honeywell. 2015. Solstice® N13 (R

- 450A) Refrigerant: Low GWP HFO Blend Alternative for R

- 134a. Available online at: http://www.honey well

- refrigerants.com/europe/wp

- content/uploads/2015/04/Honeywell

Solstice

- N13

- Brochure.pdf

. Honeywell. 2012. HFC Retrofit Guidelines

– HFC

- 404A & HFC

- 507 to HFC

- 407F. Available online at: http://www.honeywell

- refrigerants.com/india/?document=hfc

- retrofit

- guide

- focuses

- on
- converting

- 404a

and

- 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 online at: http://www.ozone.unep.org/Assessme nt_Panels/TEAP/Reports/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 Ozone Depleting Substances. Available online at : http://ozone.unep.org/Assessment_Panels/TEAP/Reports/TEAP_Reports/teap

- task

- force

- XXIII

- 9

- report

may2012.pdf

. U.S. Census Bur eau. 2012. 2012 County Business Patterns. Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employment Size for the United States, All Industries: 2012. Retrieved November 3 , 2015 from: http://www.census.gov/econ/susb/

The White House. 2015. FACT SHEET: Obama Administration and Private

- Sector Leaders Announce Ambitious Commitments and Robust Progress to Address Potent Greenhouse Gases. Available online at: https://www.whitehouse.gov/the

- press
- office/2015/10/15/fact

- sheet

- obama

- administration

- and

- private

sector

- leaders

- annou nce
.