EUROPEAN COMMISSION Strasbourg, 5.4.2022 SWD(2022) 96 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on fluorinated greenhouse gases, amending Directive (EU) 2019/1937 and repealing Regulation (EU) No 517/2014 {COM(2022) 150 final} - {SEC(2022) 156 final} - {SWD(2022) 95 final} - {SWD(2022) 97 final}



Table of contents 1.Introduction: Political, sectoral and legal context 1.1.EU Climate Ambition, Paris Agreement and Montreal Protocol 1.2.Sectors involved and need to perform a sectoral analysis 1.3.The EU F-gas Regulation (Regulation (EU) No 517/2014) 2.Problem definition 2.1.What is the problem? 2.1.1. Insufficient emission savings 2.1.2. Long-term compliance issues with the Montreal Protocol 2.1.3. Challenges to implementation and enforcement 2.1.4. Monitoring gaps: Gases and activities covered as well as rules on reporting process and data verification 2.1.5. Lack of clarity and coherence 3.Why should the EU act? 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action 3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General (review) objectives 4.2.Specific (review) objectives

5.What are the available policy options? 5.1.What is the baseline from which options are assessed? 5.2.Description of the policy options 5.3.Options discarded at an early stage 6.What are the impacts of the policy options? 6.1.Environmental impacts 6.1.1. Emission savings from quota system and prohibitions 6.1.2. Other emission savings 6.1.3. Energy use 6.1.4. Other environmental effects 6.2.Cost to business 6.2.1. Technological costs and HFC costs for F-gas using industries / equipment operators 6.2.2. Administrative Costs 6.3.Macroeconomic effects 6.3.1. Effects on GDP 6.3.2. Effects at sectoral level 6.3.3. Effects on consumption, investment and innovation 6.3.4. Distribution of cost across EU regions 6.3.5. Impact on consumer prices 6.3.6. Distribution of cost across business size

6.3.7. Impact on competitiveness 6.3.8. Impact on trade flows (imports and export) 6.4.Social effects 6.4.1. Effects on employment 7.How do the options compare? 8.Preferred option 9.How will actual impacts be monitored and evaluated? A1Procedural information A2Synopsis report of stakeholder consultations A3Who is affected and how? A4Analytical methods A5Evaluation of Regulation (EU) No 517/2014 A6Individual Measures A7Operationalising the HFC placing on the market (POM) quota system (phase-down) going forward A8Separate production phase-down A9Prohibitions considered in the impact assessment A10Detailed analysis on reporting and verification thresholds A11Detailed information on emissions A12AnaFgas Cost Modelling Results A13Detailed modelling results of GEM-E3

A14Detailed information on administrative costs A15Detailed information on foams recovery



Glossary Term or acronym Meaning or definition AC Air conditioning which here is considered to also include heat pumps AnaFgas model Detailed bottom-up model for sectors and sub-sectors using F-gases. AnaFgas = „Analysis of fluorinated greenhouse gases in the EU“ AR (4/5/6) 4th, 5th or 6th Assessment Report of the International Panel on Climate Change (IPCC) Bank(s) The amount of substance (e.g. HFC) contained in existing equipment (e.g. refrigerators, foams), chemical stockpiles and other products, including after their end of useful life; or recovered and stored ready for use BDR EEA’s “business data repository”, where annual reporting by companies is received and stored Bulk (HFC, F-gas) Refers to HFC gas/F-gases in containers (for transport, storage etc.) as opposed to already filled into products (e.g. an aerosol spray can) or equipment (e.g. an air conditioner) Capex Capital expenditure CERTEX IT system that allows to exchange data (“certificates”) on relevant F-gas shipments between the central EU F-gas Portal & HFC Licensing System and custom offices in the Member States directly; IT precursor of the European Single Window Environment for Customs CDW Construction and demolition wastes CN EU Combined Nomenclature; tool for classifying goods to meet the requirements of common customs tariff and external trade statistics https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/customs-tariff/combined-nomenclature_en CO2e(quivalent) The CO2 equivalent is the quantity of a gas in metric tonnes multiplied by its associated global warming potential (GWP). This is used to compare the emissions from various greenhouse gases based upon their global warming potential Consumption The quantity of HFC produced plus imported, minus exported minus destroyed. Calculation of consumption under the Montreal Protocol excludes non-virgin bulk imports and exports, as well as substances intended for feedstock and process agent use ECHA European Chemicals Agency EEA European Environment Agency EPEE European Partnership for Energy & Environment. An industry association that includes inter alia large F-gas producers, large equipment manufacturers and service personnel representatives ESR Effort Sharing Regulation: Regulation (EU) 2018/842 as well as the proposal for a Regulation amending this regulation (COM(2021) 555 final) ETS EU’s Emission Trading System F-gases Fluorinated greenhouse gases Feedstock use Use of a substance, e.g. an F-gas, in a process where it undergoes chemical transformation to synthesise other chemicals and in which the substance is entirely converted from its original composition F-gas Regulation Regulation (EU) No 517/2014 GDP Gross domestic product GHG(s) Greenhouse gas(es) GWP Global Warming Potential. It is a metric for determining the relative contribution of a substance to climate warming. The GWP indicates how much (solar) energy the emissions of 1 ton of a gas will absorb (and thus contribute to climate warming) over a given period of time, e.g. 100 years for GWP100, relative to the emissions of 1 ton of carbon dioxide (CO2). HFCs Hydrofluorocarbons; F-gases listed in Annex I of F-gas Regulation HFC-23 Trifluoromethane; an HFC with a very high GWP (14,500 according the IPPC`s 4th Assessment Report) HFOs, HCFOs Unsaturated HFCs that can substitute HFCs in many applications. Synthetically produced substances that break up quickly in the atmosphere and therefore have a low GWP. HCFOs are slightly different chemically as they also include a chlorine atom in the molecule. Both are listed in Annex II, Section I. HFEs Fluorinated ethers, listed in Annex II HV High-voltage IPCC Intergovernmental Panel on Climate Change. United Nations body for assessing the science related to climate change. https://www.ipcc.ch/ ISG European Commission Inter Service Group accompanying the impact assessment Kigali Amendment Added HFCs to the regulated substances under the Montreal Protocol MAC Mobile air conditioning (in particular as relating to AC in passenger cars) MDIs Metered dose inhaler used for medical purposes, e.g. asthma sprays MMR Monitoring Mechanism Regulation (Regulation (EU) No 525/2013): mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change (Montreal) Protocol The Montreal Protocol on Substances that Deplete the Ozone Layer, an international treaty governing the protection of stratospheric ozone. It also regulates the HFCs since the Kigali Amendment (2016). MV Medium-voltage NF3 Nitrogen trifluoride (an F-gas listed in Annex II) ODS Ozone-depleting substance(s) Opex Operational expenditure Person days Full-time equivalent (working time) PFAS Per- and polyfluoro alkyl substances, synthetic organofluorine chemical compounds that have multiple fluorine atoms attached to an alkyl chain. They are substances of concern due to the longevity in the natural environment (“forever chemicals”). PFCs Perfluorocarbons; F-gases listed in Annex I of F-gas Regulation PfS Production for sale POM (Placing on the market) Supplying or making available to third persons within the European Union for the first time, for payment or free of charge RAC Refrigeration and air conditioning (includes heat pumps) Reclamation Reprocessing of a recovered ODS in order to meet the equivalent performance of a virgin substance, taking into account its intended use Recovery Collection and storage of ODS from products and equipment or containers during maintenance or servicing or before disposal Recycling Reuse of a recovered ODS following a basic cleaning process REIO Regional Economic Integration Organisation; The EU is considered a REIO under the Montreal Protocol RSB Regulatory Scrutiny Board RV Reference value SF6 Sulphurhexafluoride; an F-gas listed in Annex I of the F-gas Regulation SME Small and medium enterprises Single Window European Single Environment for Customs; https://ec.europa.eu/taxation_customs/general-information-customs/electronic-customs/eu-single-window-environment-for-customs_en SO2F2 Sulfurylfluoride, an F-gas used in pest control currently not listed in the F-gas Regulation Switchgear Switchgear is used to in electric transmission and power systems to control, protect and isolate electrical equipment TARIC TARIC = Integrated tariff of the EU (M)tCO2e (million) tonnes CO2 equivalent TFA Trifluoroacetic acid; a persistent chemical that is formed by the breakdown by some HFCs and HFOs in the atmosphere; accumulates in surface and fresh waters and has been shown to have phytotoxic effects Totex Total expenditure UNFCCC United Nations Framework Convention on Climate Change VRF system Variable Refrigerant Flow; an AC system that allows endusers to control several air conditioned spaces (e.g. rooms) individually 1.Introduction: Political, sectoral and legal context 1.1.EU Climate Ambition, Paris Agreement and Montreal Protocol Fluorinated greenhouse gases (F-gases) are man-made chemicals that are very strong greenhouse gases (GHG), often several thousand times stronger than carbon dioxide (CO2). Together with carbon dioxide, methane and nitrous oxide, they belong to the group of GHG emissions covered under the Paris Agreement on Climate Change. F-gas emissions amount today to 2.5 % of EU’s total GHG emissions, but have doubled from 1990 to 2014, in contrast to other GHG emissions which have fallen. This is because F-gases typically replaced ozone-depleting substances (ODS) in areas where the EU prohibited ODS to protect the Ozone layer, as required under the Montreal Protocol on substances that deplete the ozone layer (hereafter the Protocol). Since 2006 the EU has had policies in place to reverse this increasing trend of F-gas emissions and the EU Regulation on fluorinated greenhouse gases (hereafter: the Regulation) is one of the key instruments at EU level to do so and contributes to reaching the EU climate targets. Recently, the EU increased its climate ambition through the European Climate Law, adopted in 2021. This law establishes a binding overall net GHG reduction target of at least 55% by 2030 compared to 1990 and climate neutrality by 2050. The law is based on the 2030 Climate Target Plan which underlines that achieving this ambition will require action in all sectors and that all policy instruments relevant for the decarbonisation of our economy must work in coherence, while setting the agenda to reinforce them. In this context, the proposed revision of the Effort Sharing Regulation (ESR) increases the ambition of the binding annual greenhouse gas emission targets for Member States from 2021 to 2030 for sectors not covered by the existing EU Emissions Trading System (ETS). F-gas emissions are included in the ESR and represents almost 5% of all GHG emissions covered. Member States’ individual targets relate to this overall basket of GHGs and there are no sub-targets for the sectors covered. Consequently, the EU or the Member States do not have any binding targets specific to F-gas emissions. The Regulation could contribute more to achieving the EU’s climate targets. It is targeting a number of sectors falling within the scope of the ESR, where EU action has proven to be particularly well placed to achieve emission reductions in a cost-effective manner. By reviewing and reinforcing this Regulation, additional F-gas emission savings at EU level can help Member States achieve their proposed higher ESR GHG emission target and improve the overall cost-effectiveness, while leaving margin to Member States on how best to achieve the required overall GHG targets across all sectors and gases in the ESR. For F-gases Member States can e.g. apply national fiscal measures (see Annex A5.4.2.2 on additional Member States action). In addition, there is an urgent need to improve implementation and enforcement (see section 2.1.3) and to align fully with new obligations under the Protocol (see section 2.1.2), whose initial principal objective was to protect the ozone layer. However, because hydrofluorocarbons (HFCs) emissions were increasing also globally (partly as result of the ODS phase-out) and knowing that the Protocol had eliminated ODS successfully in similar applications, the Parties decided in 2016 to contribute to the goals of the Paris Agreement on Climate Change by imposing the Protocol’s tried and true obligations also for HFCs (“Kigali Amendment”). Therefore, since 2019 the EU and its Member States must respect mandatory maximum annual limits for production and consumption of HFCs that are being gradually reduced over time (“phase-downs”). This is purely a climate protection measure, since HFCs themselves are not relevant for ozone depletion. Moreover, there are no emission monitoring or targets under the Protocol. Instead, HFC emissions are monitored under the Paris Agreement. It has been estimated that the Kigali Amendment alone will prevent, until 2100, climate warming of up to 0.4 degrees. In the latest IPCC report, pathways to limit global warming at 1.5°C require emission decreases for F-gases of up to 90% by 2050 globally compared to the year 2015. In addition to phasing down HFCs, the Protocol requires Parties to have a trade licensing system and report annually on HFC production and trade. All Parties must take their own action to fulfil their obligations. There is general support for fine-tuning the Regulation and many stakeholders and Member States have signalled that it should be done with urgency. The European Parliament called “… on the Commission to present an ambitious revision of the F-Gas Regulation by the end of 2021 in order to accelerate the phasing out of hydrofluorocarbons (HFC); [..] believes that additional action should also be taken against the use of sulphur hexafluoride (SF6)”. The Commission has therefore decided to propose changes to the Regulation and this report is an impact assessment of the measures considered. It also includes an evaluation of the current Regulation in Annex A.5. 1.2.Sectors involved and need to perform a sectoral analysis The main uses of F-gases are as refrigerants in refrigerators/freezers, air conditioners (AC, which is hereafter understood to include heat pumps); as blowing agents for foams; as solvents; and in fire extinguishers, metered dose inhalers (MDIs), technical aerosol spray cans as well as an insulation medium in electrical transmission. Emissions occur when these appliances are manufactured, used, or taken out of service. Some of them leak throughout their lifetime (e.g. refrigeration), others can be 100% emissive at the time of use (e.g. MDIs). As the different F-gases have different climate impacts, it is necessary to determine F-gas demand/use in the different sectors concerned and the specific gases used in order to estimate future emissions. Furthermore, emission abatement costs vary significantly between sectors. For comparability to other GHG emissions, F-gases are expressed in terms of the warming impact (“climate forcing”) they would have in a 100 years timespan relative to CO2, referred to as the Global Warming Potential (GWP). Thus, this report distinguishes between demand for F-gases and emissions of these gases and expresses both of these quantities in tonnes CO2 equivalent, i.e. tCO2e and their weight in metric tonnes (t). Hydrofluorocarbons (HFCs) are by far the most relevant F-gas group, as they represent ca. 85% of F-gas emissions (see Annex A5.4.1.4), but use and emissions from other substances such as perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3) are also relevant. 1.3.The EU F-gas Regulation (Regulation (EU) No 517/2014) F-gas emissions can be reduced by (i) avoiding that F-gases are used in the first place (i.e. reduce the demand for F-gases), or (ii) ensuring there are measures to prevent emissions or leaks when the gases are produced, used and disposed of (“containment”). To this end the 2014 Regulation had the following specific objectives:

·Discourage the use of F-gases with high Global Warming Potential and encourage the use of alternative substances or technologies when they result in lower GHG emissions without compromising safety, functionality and energy efficiency; ·Prevent leakage from equipment and proper end of life treatment of F-gases in applications; ·Facilitate convergence towards a potential future agreement to phase down HFCs under the Protocol; ·Enhance sustainable growth, stimulate innovation, and develop green technologies by improving market opportunities for alternative technologies and gases with low GWP. It was also intended that the F-gas sector would contribute its fair share to achieving the EU 2030 climate targets (as per Roadmap 2011). At the time the Commission prepared its proposal in 2011, it was estimated that costs would be up to €50/tCO2e abated economy wide to achieve the old, (less ambitious) climate targets. This threshold was applied to design the measures in the Regulation. Subsequently, it was estimated that these measures would result in F-gas emission reductions of 60% in 2030 compared to 2005. Many F-gas appliances use electricity and lead to indirect GHG emissions related to energy use, which over the lifetime of the equipment are typically higher than the direct emission of F-gases. Therefore, climate-friendly alternatives to F-gases in such appliances are only considered to be more climate-friendly in this assessment if they can reach at least the same level of energy efficiency as the existing F–gas technology. In parallel, the EU Eco-Design Directive is ensuring progress on indirect emissions by setting minimum standards on efficiency. The alternatives must also be safe to use. The current Regulation avoids emissions (by reducing demand and ensuring better containment, see above) and enables control and oversight through the following measures (more detail in Annex A5): ·A quota system limits the HFC amount importers and EU producers may place on the EU market every year (measured in tCO2e). Quota is principally needed for HFC gases in bulk, but HFCs charged into certain equipment also fall under the quota system. The quota system results in reducing the HFC supply to the EU market. This (initially) results in higher HFC prices that incentivise a shift towards climate-friendly alternatives and reduces future HFC demand. It also promotes leakage prevention, recycling and reclamation of HFCs that can be used without need for quota. The amounts available each year are meant to only cover the need for HFCs in those new and existing appliances where the analysis done in 2011 expected it to be too expensive or infeasible to use climate-friendly alternatives. There are some exemptions, e.g. HFCs used for MDIs, military and semiconductor manufacture do not require quota. ·Prohibitions restrict the placing on the market (POM) of specific F-gas products and equipment (e.g. types of new refrigeration and AC equipment, foams and aerosols) and some F-gas uses (e.g. servicing (refilling) of larger, existing refrigeration systems with high GWP HFCs). Prohibitions relating to HFCs complement the quota system since they prevent that actors that could easily replace HFCs continue to use them e.g. due to lack of awareness of alternatives (market failure). This reduces the risk of undue shortages and HFC prices for the sectors that are depending on HFCs. ·The measures to prevent emissions where F-gases are produced or used include requirements to avoid intentional releases or leakage, mandatory leak checks of equipment, keep company records on F-gas related activities, recover gas at the end of equipment life, compulsory training and certification of technical personnel, and producer responsibility schemes (the latter only encouraged). Most of these “containment” measures were already introduced by the 2006 F-gas Regulation. ·For the purpose of controlling and monitoring the policy as well as anticipating global rules on HFCs under the Protocol, licensing of imports and exports, labelling of F-gas containers and equipment as well as annual company reporting on their F-gas related activities including independent verification of their data is required. Furthermore, Member States must have effective, proportionate and dissuasive penalties; in case a quota is exceeded, the Commission must also impose a quota reduction. ·While Member States are not required to report directly on emissions under the Regulation they must establish systems to acquire F-gas emissions data that enable them to report F-gas emissions under the EU’s GHG monitoring mechanism. The Regulation covers F-gases listed in Annex I (HFCs, PFCs and SF6) and Annex II (H(C)FOs; fluorinated ethers, alcohols and others). In general, measures only apply to Annex I gases, except that production, trade and some uses of Annex II gases must be reported annually by companies. Each F-gas has a designated name (e.g. HFC-134a or R-134a) and a specific GWP (e.g. HFC-134a has 1430). In many cases the gases are not used in their pure form but as mixtures (or “blends”, e.g. R-404a, which includes 3 different HFCs listed in Annex I). On the basis of their composition it is possible to assign a specific GWP also for mixtures. Because F-gases are used in many types of appliances, many different actors are affected by the Regulation, and in different ways. This is also because there are different gas types covered (e.g. HFCs, PFCs, SF6) and/or the activities these stakeholders carry out are diverse (e.g. import of gas or equipment, production of gas or equipment, equipment maintenance, equipment or product use). After a preceding decade of increasing year-on-year emissions of F-gases, they started to fall from 2015, resulting in a 6% reduction by 2019 (see A5.6.2.1.1). This is a direct result of the EU F-gas policies which began in 2006 (see A5.2.1.3), lowering the use of (i.e. demand for) HFCs as well as better containment (and thus less emissions from equipment) in the major HFC-using sectors (e.g. refrigeration, AC). Conversely, emissions of SF6 and PFCs, where there are no strong, direct policy drivers at EU level, have been rather constant since 2010 (see A11.1.1). Annex II gases result in smaller amounts of up to 1MtCO2e/year; NF3 and F-gases used as inhalation anaesthetics (i.e. isoflurane, desflurane) being the most relevant. H(C)FOs are emitted in large metric quantities, but their climate relevance is low (see 6.1.4). There are also some on-going emission of some F-gases not yet controlled or monitored (see 2.1.4). The Regulation has close links to other EU legislation notably Directive 2006/40/EC on Mobile AC which bans refrigerants with a GWP higher than 150 to be used in the AC of new passenger cars from 2017. There are also some similarities with the Regulation (EC) 1005/2009 on substances that deplete the ozone layer, which is being reviewed in parallel. While the two reviews will not impact on each other, they affect similar stakeholders and sectors, as well as similar activities (trade, equipment use etc.) by using similar control measures. Both industry and authorities have therefore called for them to be closely aligned on the relevant rules (e.g. regarding custom controls, leakage rules, definitions etc.). Furthermore, given the relevance of indirect emissions from energy use of F-gas equipment (see above), there are close synergies with energy policies, in particular the Eco-design Directive. Furthermore, there are important links to EU waste and chemical (e.g. REACH, industrial emissions) legislation as well as to rules for customs, market surveillance, environmental crime, whistleblowing and the setting of safety standards. More detail is provided in Annex A5.6.4.2. 2.Problem definition 2.1.What is the problem? The evaluation (Annex A5) found that the current Regulation has been mostly effective as regards its original objectives and that its individual measures are all required and work well together. Thus, the overall concept and approach of the Regulation is not put into question. This finding is clearly supported by all stakeholders (industry, authorities and others) that consider the current F-gas Regulation the gold standard in the world. The EU market supply of hydrofluorocarbons (HFCs) has declined by 37 % in metric tonnes and 47 % in terms of tCO2e from 2015 until 2019. There has been a clear shift to the use of F-gas alternatives with lower GWP as well as natural alternatives (e.g. CO2, ammonia, hydrocarbons) in many types of equipment. The quota system had also positive impacts on equipment leakage rates (declining) and reclamation of HFCs (increasing). There is consensus that the EU leadership demonstrated through the Regulation was instrumental in obtaining an international agreement to reduce HFCs. Finally, as a direct result of the legislation, F-gas emissions have decreased year-on-year starting in 2015 after a decade of rising amounts. Nevertheless, the evaluation concludes that there is a need to revise and fine-tune the Regulation to address the following issues: I.In light of the more ambitious EU climate targets and the observed progress on innovation, there is scope to achieve further emission reductions. .

II.Long-term compliance with the Montreal Protocol is not ensured. III.There are a number of challenges for current implementation and enforcement: Illegal activities, rogue traders and the lack of skilled technicians. IV.There are some monitoring gaps (gases and activities covered and the rules on the reporting process and data verification). V.There is a need for more internal clarity and coherence concerning some prohibitions, instructions to customs, containment measures, and definitions. These issues, their drivers and potential developments are described in more detail below. 2.1.1.Insufficient emission savings (I)Status quo of the issue The evaluation shows that the EU F-gas policy could contribute more to saving climate-relevant emissions and the climate policy ambition has increased: -The existing F-gas legislation was based on modelling assumptions that aimed at contributing to the 2011 Low Carbon Roadmap for 2050 , which had an ambition level in line with reducing greenhouse gas emissions by 80% by 2050 compared to 1990. -Further emission reductions are possible to support the new climate targets. Abatement costs for HFC sectors so far have been relatively low (on average €6/tCO2e abated) and due to recent technological developments there are many areas where further abatement could happen at costs much below that required in other sectors. The sector has seen huge innovation jumps in recent years (see evaluation, A5.6.1.4) and more alternatives are available that are not fully incentivised by the existing rules. -The EU has in the meantime raised its climate ambition for 2030 by increasing the 2030 target from 40% greenhouse gas reductions to at least 55% net greenhouse gas emissions reductions compared to 1990. The in-depth analysis in support of the Commission Communication on ‘A clean Planet for all’ already included projections that confirmed that in order to contribute to a credible pathway towards climate neutrality, also F-gas emissions reductions would have to be stepped up. The impact assessments in support of the policy initiatives under the Fit for 55 package proposed in 2021 included an updated Reference projection (which includes the existing F-gas legislation) as well as a number of policy scenarios. Also for these projections, using the GAINS modelling tool to represent all non-CO2 emissions, significant additional F-gas emission reductions should be achieved by 2030 compared to the existing policies under Reference projections. -Modelling done in the course of the evaluation indicated that F-gas emission reductions in the baseline will fall short of what was estimated to be a cost-efficient contribution to meet the EU greenhouse gas ambition from the 2011 Low Carbon Roadmap (see Annex A11). -Furthermore, to reach climate neutrality by 2050, further replacement of F-gases is already needed in the medium term due to a long lag between the new use of F-gases and the point in time where such use results in emissions (usually several years and can be over 50 years in the case of insulation foams and switchgear). (II)Drivers -The fundamental underlying problem is that the market will not deliver the possible emission savings without policy intervention (market failure), due to a number of factors including upfront costs (even though there are energy savings during the project lifetime) and unwillingness to move away from past technologies. -No quota limits are set after 2030 and the allowed total quota of HFCs is higher than needed (i.e. too much HFCs are allowed even where alternatives could be used instead). As the quota system is based on a modelling exercise using existing technologies in 2011, F-gas appliances that could easily use alternatives today are not sufficiently forced to do so. HFC uses exempted from quota are not subject to any limitation (e.g. MDIs). -The evaluation also identified other areas with potential for reducing F-gas use and thus emissions, e.g. inhalation anaesthetics as well as SF6 in switchgear (see A5.6.3), where there is no direct policy driver in place. -The general obligation to limit F-gas emissions does not cover all relevant F-gases or actors. -There is no clear obligation to recover HFCs from insulation foams at the end of life. (III) How the problem will evolve

An unnecessarily high use of F-gases will continue and have lock-in effects for a considerable amount of time due to equipment servicing needs and long equipment lifetimes. This will lead to future F-gas emissions that could be avoided. Assuming that the quota limit in 2030 is not exceeded until 2050 (despite the current lack of a legal limit for that time horizon), the annual baseline emissions will decrease to about 44 MtCO2e by 2030 and 27 MtCO2e by 2050, from 92 MtCO2e in 2020. The emissions will come mostly from switchgear (ca. 6 MtCO2e), MDIs (ca. 4 MtCO2e), stationary AC (ca. 8 MtCO2e in 2050) and mobile AC (ca. 5 MtCO2e). Refrigeration is the only major sector where emissions mostly disappear by 2050 (see Annex A11.1). 2.1.2.Long-term compliance issues with the Montreal Protocol The evaluation found that the current Regulation is not fully aligned with the rules of the Montreal Protocol and that for this reason long-term compliance was not ensured (see A5.6.4.1.1). Irrespective of the need to save more climate-relevant emissions to achieve the EU Climate targets (2.1.1), non-compliance with the global rules must be avoided, since this would imply clear reputational losses for the EU, not least since the EU is a clear frontrunner in setting ambitious F-gas policies that often serve as best practice example for the actions of many other countries. (i) Status quo of the issue The following issues complicate future EU compliance: -The Protocol’s future targets on HFC consumption. The EU consumption is today safely below the limit set in the Protocol but the quota system as currently regulated does not continue beyond 2030. Simply extending the current rules beyond 2030 may not be sufficient to meet the future Protocol targets. This is linked to the fact that the quota system metric used by the Regulation (i.e. “placing on the market”) uses other parameters than the Protocol’s “consumption” metric. For instance, “placing on the market” includes some HFC equipment, but exempts some HFCs (e.g. for MDI or other uses) that are fully counted under the Protocol. Depending on how these different parameters develop in the future (e.g. if HFCs used in MDIs keep growing strongly), EU compliance on the Protocol’s consumption limit may be jeopardised. Also, the Regulation’s exemption from the quota system for small quantities is not aligned with the Protocol where no such exemption exists. -The Protocol’s separate limits for HFC production: There are currently no specific production limits in the EU and it cannot be guaranteed that a Member State would not exceed its national production limit (including starting new production). Several Member States have called on the Commission to include a separate production phase-down. -The Protocol’s reporting requirements: Data are not collected on small trade transactions while this is prescribed by the Protocol. -The Protocol’s prohibition to trade with non-Parties from 2033: This concerns importers from and exporters to countries that have not yet ratified the Kigali Amendment. Currently no such provision exists in the Regulation. (ii) Drivers -The Regulation does not regulate quotas beyond 2030. -Some uses of HFCs are only exempted under the EU quota system (not by the Protocol): The exempted use of HFCs for MDIs represented 10% of the overall EU HFC market in 2019 and the use has grown by 45% since 2015. The exempted uses for semiconductors and military represent below 1% of the market. -The Regulation does not allow direct control of produced HFC quantities. -There are minimum annual HFC thresholds for quota and reporting which exempts these quantities while such an exemption is not foreseen by the Protocol. -Trade with non-Parties to the Protocol is allowed under the Regulation. (iii) How the problem will evolve -Protocol Consumption phase-down: EU-27 compliance from 2034 onwards is not automatically ensured (even if the 2030 limit is extended). In a ‘low-consumption’ scenario, the calculated consumption would end up below the Protocol limit set for the EU in 2036, but in a ‘high-consumption’ scenario the EU would exceed the Protocol’s consumption limits already from 2034. This is mainly due to potential use for MDIs that could represent 30% of the HFC demand in 2030. -Protocol production phase-down: The risk that a Member State is not complying increases over time as the production limits become stricter and the placing on the market of HFCs for MDIs remains unrestricted. -Protocol reporting requirements: EU reporting will remain incomplete as regards small trade transactions. -Protocol prohibition to trade with non-Parties from 2033: Without specific action, the EU will not comply with the Protocol. In the meantime, the absence of EU action will not help incentivise ratification elsewhere.

2.1.3.Challenges to implementation and enforcement The evaluation highlighted a number of challenges related to implementation and enforcement that are reducing the effectiveness of the Regulation: -Illegal imports of HFCs that are not counted under the EU quota system. -Rogue traders: A multiplication of gas importers that enter the market for speculative reasons and/or benefit disproportionately from the quota system. -A lack of skilled technicians for equipment using climate-friendly alternatives. 2.1.3.1.Illegal imports (I)Status quo of the issue There is clear evidence that HFCs are being imported without quota. Obviously, the amount is by its very nature difficult to determine, but the situation is clearly unsatisfactory and harming the effectiveness of the quota system and legitimate business interests. More than half of the respondents in the public consultation considered that certain measures in the F-gas Regulation were not effectively preventing illegal activities. The measure which was rated least effective was Member States penalties. It has been a priority for the Commission to address the issue and while some progress has been made, it has proven to be quite challenging under the current F-gas rules, notably when imported HFCs are neither reported under the F-gas Regulation nor declared at customs (i.e. smuggled). Industry and the European Anti-fraud Office (OLAF) note that perpetrators are exploiting the fact that custom controls, market surveillance activities and penalties vary widely between Member States and that the use of special custom procedures (e.g. “transit”), goods in “temporary storage”, small customs offices without the relevant know-how and online sales are making enforcement more difficult. (II)Drivers -The quota system results in EU HFC prices that are several times higher than world market prices and makes it very profitable to sell HFCs in the EU. -The Regulation is not sufficiently clear on the enforcement role of customs and surveillance authorities (e.g. registration checks; quota limit checks; confiscation of illegal goods) and the requirements for importers. -HFC imports under special customs procedures do not require quota and it is difficult to monitor if the HFCs are suddenly released in the EU without quota; -It is difficult to monitor imports via on-line sales that are subject to quota; -Non-EU countries starting later than the EU with HFC restrictions and licensing; -Very heterogeneous penalties in Member States, some of which may not be dissuasive. While in some countries criminal sanctions are possible, in others the perpetrators risk fines that are considerably smaller than the profit made from gas smuggling. (III) How the problem will evolve The quantities of HFCs circumventing the quota system will remain at an unsatisfactory level. The incentive to trade illegally will continue or even increase as EU HFC prices may increase further, when the quota limits become tighter. The situation may improve somewhat when more and more Parties ratify the Kigali Amendment and CERTEX and the EU Single Window Environment for Customs can be used for more systematic controls of HFC imports. However, this link can only be fully effective with more specific obligations in the Regulation and it will not address HFCs that are not correctly declared. 2.1.3.2.Rogue traders: Multiplication of gas importers with speculative motives (IV)Status quo of the issue The evaluation shows that the number of quota holders increased by a factor of more than twenty from 2012 to 2019 and that this type of increase is undesirable. It has happened for the following reasons. Quota is allocated partly to market participants based on historic market share, i.e. “grandfathering”, partly from a quota reserve (ca 11%) whose distribution is based on a declared intention to market HFCs, including to new companies. This electronic declaration requires a registration process to the electronic registry operated by DG CLIMA, which was initially a low burden process requiring little more than a VAT number. Many companies were set up without previous links to the gas trade and company owners with several affiliates have applied for multiple quota shares. This is undesirable because: (i) genuine F-gas traders obtain very low quota shares from the reserve, (ii) preventing illegal imports is more challenging due to the high number of quota holders with small quota amounts and (iii) there is a higher risk that the gas is not treated appropriately due to lack of experience of the new players. The Commission clarified the registration rules in the Implementing Regulation (EU) 2019/661 and the number of quota holders fell by one third in 2021 compared to 2019/2020. Still, many quota holders appear to be in the system for purely speculative reasons given that quotas are easily obtained and gases can be sold for profit on the EU market. Furthermore, following the change of registration rules, the Commission must now verify if potential quota holders have the same beneficial owner and this delays annual quota allocation to companies which in turn is reducing their planning certainty.

(V)Drivers -The quotas are allocated for free but represent an important economic value because of an HFC price difference between the EU and world market, which is generated by the EU quota system. -New entrants may apply for quota without any links to the gas sector and the Regulation is not very prescriptive as to who can apply for quotas. -There is no flexibility in the quota allocation system e.g. to temporarily withhold quota for future (re-)distribution in cases under investigation and to address major market disruptions. (VI) How the problem will evolve The number of quota holders will most likely remain at a high level (around 2000) or even increase if the HFC prices increase further due to the quota system. This high number will make it even harder for genuine traders to sustain their business, as the quota shares will become smaller when the overall quota limits are being reduced. They will also have relatively low planning security and market disruptions cannot be addressed. A high risk of undetected illegal imports will also remain and an excessive and ineffective administrative effort will persist for Member States and the Commission. 2.1.3.3.Lack of skilled technicians (I)Status quo of the issue A Commission report from 2016 concluded that there is a lack of skilled technicians that can handle equipment using climate-friendly alternatives such as naturals (e.g. ammonia, CO2, hydrocarbons) and H(C)FOs. These alternatives have different properties from HFCs, e.g. many of them are flammable and therefore require different skills and handling know-how. While training and skills for Annex I gases are currently ascertained by the extensive rules in the Regulation, there is notably a lack of training facilities offering practical training on the alternative substances. The stakeholder consultation showed that there have been some improvements in the meantime, but this challenge has remained a piecework puzzle and the situation varies greatly between Member States. The lack of qualified technicians can pose liability issues for equipment manufacturers and a broad range of stakeholders confirmed that this issue is still preventing a wider roll-out of climate friendly technologies. (II)Drivers The Regulation is not requiring Member States to have mandatory training and certification programmes covering the climate-friendly alternatives. It is only required for Annex I gases (since 2006). The legislative framework complemented by existing standards at the European level appears appropriate28 to ensure safe handling of equipment but a mandatory EU-wide certification scheme does not exist. (III) How the problem will evolve EU-wide availability of training and evidence of skills will not be ensured and a lack of skilled personnel will continue to persist, at least for the medium term. This will slow down the introduction of green technologies. 2.1.4.Monitoring gaps: Gases and activities covered as well as rules on reporting process and data verification (I)Status quo of the issue Production, trade activities, destruction and feedstock use of Annex I and II substances needs to be reported, but there is no monitoring of certain “new” fluorinated greenhouse gases that also appear relevant (e.g. sulfurylfluoride) as pointed out by the evaluation (A5.6.1.1). Some of these new gases as well as some of the gases already in Annex II (i.e. H(C)FOs, NF3, F-gases used as anaesthetics) appear to be emitted in relevant quantities (up to 1 MtCO2 annually), but they are not subject to emission prevention measures. MDIs and containers with relevant Annex II substances do not need to carry a label to identify them as F-gases with a GWP such as is the case for all containers of Annex I substances, so users may not be aware of their relevance for climate change. There are also other data gaps on emissions from the use of switchgear and RAC equipment. The quantities of gases being reclaimed and recycled (see evaluation, A5.6.1.1) or exported in equipment are unknown and the reporting on exempted gases is incomplete since the recipients of these gases do not report. Finally, the evaluation found that the requirement to have reporting data linked to quota use verified by a third party auditor, which is crucial for the ex-post control of quota use and thus for compliance checking and enforcement, is currently ineffective as these auditor reports are currently of highly varying quality (see A5.6.1.5). Moreover, 80% of quota holders in 2021 were not obliged to have a verified report because they had dropped below the verification threshold. The dates and some thresholds for reporting and verification of bulk and equipment are inconsistent and inefficient. (II)Drivers -Annex II is outdated and Annex I does not list all F-gases with relevant emissions. -Labelling rules are incomplete (Annex II substances, MDIs). -The reporting rules do not include leakages, recycling/reclaim activities, recipients of exempted gases, and HFC use beyond placing on the market and export in equipment.

-There are inefficiencies in threshold levels and dates for reporting and verification, and too little detail on the verification process and its requirements. (III) How the problem will evolve Monitoring gaps will persist and pose a risk that new issues cannot be spotted. Important emissions, e.g. of sulfurylfluoride, NF3, inhalation anaesthetics and H(C)FOs, that could be avoided with prevention measures, will continue to occur. Market surveillance, compliance checking and emission reporting is less effective due to lack of data. The verification and reporting process will continue to place a significant burden on compliant companies, but would remain ineffective in spotting perpetrators. 2.1.5.Lack of clarity and coherence Ideas on how to improve internal clarity and coherence of the rules have been collected throughout the implementation period and the stakeholder consultation. Such issues hamper the effective implementation of the Regulation and should therefore always be addressed. These clarifications relate to the scope of some of the existing prohibitions and the quota system, the rules on custom controls and market surveillance, the containment measures, and definitions in the Regulation (see Annex A6.5). 3.Why should the EU act? 3.1.Legal basis The legal basis for taking action is Article 192(1) of the Treaty on the Functioning of the European Union, in line with the objective to preserve, protect and improve the quality of the environment; protect human health; and to promote measures at international level to deal with climate change. 3.2.Subsidiarity: Necessity of EU action The evaluation concluded that implementing co-ordinated action at EU level is required to ensure compliance with the Montreal Protocol. The EU and the EU Member States, as Parties to the Protocol, have a number of requirements to fulfil (see 1.2). There are also similar requirements in international trade agreements that the EU has concluded and reporting obligations on emissions of some F-gases under the UNFCCC. The EU is considered a regional economic integration organisation (REIO) under the Protocol, and therefore complies with these requirements at Union level (e.g. reporting, licensing system, consumption phase-down). This requires relevant legislation at the same level. A hypothetical implementation of these commitments under the Protocol at Member State level is very difficult to reconcile with the general principles of the EU internal market and the free movement of goods. The only exception is the Protocol’s HFC production phase-down schedule, which requires compliance at Member States level. , 3. Subsidiarity: Added value of EU action The Regulation has a clear added value by implementing co-ordinated action at EU level to facilitate reaching the EU climate goals. A successful reduction of F-gas emissions has been achieved to date due to the HFC quota system, prohibitions and containment measures working together. If Member States instead were using different measures and ambition levels, this would most likely result in lower overall emission reductions for these gases in these sectors. By way of example, a Union-wide quota system can push for the introduction of alternatives across all (sub-)sectors, including in the more difficult areas, something that cannot be achieved by fragmented approaches at national levels. Furthermore, a key benefit of action at EU level is the efficiency improvements and achievement of economies-of-scale, avoiding unnecessary costs to industry to adapt to different rules in different Member States. A joint approach across Member States makes it easier to enforce F-gas reduction policies and allows for lessons learned and knowledge sharing across Member States. Common legislation has also enhanced the market for new alternatives, benefiting from the size of the single market and providing an additional incentive for their development and commercialisation. All types of stakeholders overwhelmingly agree on the EU added value, in particular the competent authorities of Member States. The progress achieved as a result of EU policies on F-gases facilitates the task of Member States to reach their own national targets to reduce a basket of GHGs under the ESR. 4. Objectives: What is to be achieved? 4.1.General (review) objectives The review must ensure that the F-gas Regulation contributes to the ambitious climate objectives under the European Green Deal. Furthermore, it is paramount to ensure compliance with rules under the Protocol, and enable good enforcement of the rules in an efficient, coherent and clear manner. 4.2.Specific (review) objectives To reach those general objectives and based on the findings in the evaluation, the review measures will target the following specific review objectives:

A.Achieve additional F-gas emission reductions to contribute to reaching the 55% of emissions reductions by 2030 and net carbon neutrality by 2050. B.Fully align with the Protocol. C.Facilitate enhanced implementation and enforcement on matters of illegal trade, the functioning of the quota system and the training needs on F-gas alternatives. D.Improve monitoring and reporting to fill existing gaps and improve process and data quality for compliance. E.Improve clarity and internal coherence to support better implementation and understanding of the rules. There is no expected trade-off between these review objectives and therefore also no hierarchy. The aim is to target all of them. However, whereas the objective to fully align with the Montreal Protocol does not leave much margin for manoeuvre, the other objectives can be achieved to a varying extent. As the aim of this review is the fine-tuning of the Regulation currently in force, its original objectives as listed in section 1.3 remain valid. The only exception is the original objective to facilitate reaching an international agreement. Since this was achieved in 2016 (see 1.1), that objective has become obsolete. Instead, the Regulation must now aim to ensure compliance with those new international rules (objective B above). In the public consultation, stakeholders were asked to what extent they agreed to the first three review objectives on a scale from 1 (fully agree) to 5 (strongly disagree). The objective improving implementation and enforcement, was seen as the most relevant with an average response of 1.6. This was followed by the objective to ensure EU long-term compliance with Montreal Protocol (with an average response of 1.8). The objective to raise ambition in light of the Green Deal and technological progress was also generally supported, albeit to a slightly lower degree (an average response of 2.2), with some industry organisations commenting that the key focus needed to be on improving implementation and enforcement while aligning with the Montreal Protocol in case where such alignment is necessary. The same organisations added that the Regulation does not need to be aligned "downwards" in case in-depth analysis would reveal that the Regulation is more ambitious than the Kigali Amendment. 5.What are the available policy options? 5.1.What is the baseline from which options are assessed? The baseline, against which policy options are assessed, assumes that the Regulation remains in place unchanged. The demand for F-gases (and their resulting emissions) are modelled taking into account the existing F-gas using applications, their emissions rates and the amount and type of F-gas used (see section 6 and Annex A4.2.1). F-gas demand is the sum of quantities of F-gases used in the initial first filling of equipment and the re-filling in the servicing of equipment during its lifetime. Emissions are the sum of emissions of F-gases lost during the lifetime of equipment (lifetime emissions) and F-gases that are released to the atmosphere during disposal of old equipment (disposal emissions). The ongoing review of the ODS Regulation will not affect the F-gas baseline, as the changes envisaged do not affect F-gas use (i.e. demand; see also section 1.2 and 1.3). As regards the proposed higher ESR targets for Member States, any emission savings that are not achieved by (future) EU legislation, including for F-gases, would have to be picked up by the Member States themselves to achieve their overall GHG target, by taking additional measures in any of the sectors regulated by the ESR. This includes additional action on F-gases to achieve their overall GHG reduction targets, as they have done in the past (e.g. taxes on HFCs, tax breaks for using alternatives, measures to further encourage better HFC management or waste practices (see A5.4.2.2)). Whereas existing Member State F-gas actions already form part of the F-gas baseline, future F-gas actions at Member State level that could increase F-gas emission savings in the EU are not assumed at this stage, e.g. measures that further prevent emissions at the stage of use or decommissioning of installations. This is because the degree to which Member States will pursue further action in this policy area in the future is difficult to foresee. It is however rather unlikely that Member States will introduce further sectoral prohibitions or more detail on national reporting rules, while further action on e.g. waste policies or financial incentives for alternatives are probable. Furthermore, some types of actions (e.g. national HFC prohibitions) would not reduce EU F-gas emissions further, as they would rather tend to shift HFC demand and emissions within the EU and/or between sectors, given that the EU has one common EU HFC quota limit. Finally, even if Member States are taking additional new F-gas measures at a later stage, the latter are unlikely to have a decisive impact on the effectiveness of the measures chosen at EU level, given that they would be rather of a complementary, auxiliary nature (e.g. incentives, waste policies, market surveillance). Overall demand for F-gases in tCO2e will decrease until 2030 and increase slightly thereafter until 2050, see Figure 1 . This is driven by a decrease in demand for HFCs from 89 MtCO2e in 2020 to 25 MtCO2e in 2050, while demand for SF6 increases from 28 to 48 MtCO2e. Other F-gases (PFCs, H(C)FOs and NF3) are only contributing with less than 1 MtCO2e per year. The HFC demand is strongly decreasing in refrigeration equipment (elimination of R404a) and in some AC applications until 2030 (see Annex A11.1.1). Climate-friendly alternatives to the propellant used in MDIs are also emerging, but industry is expecting a rather slow market uptake, i.e. only 1% in 2026 going to 50% in 2050. The increase in SF6 demand is due to a market growth of 2 % for electrical equipment that continue to use SF6, e.g. for smart grids and infrastructure for renewable energies. Other sectors contribute relatively little to the overall demand after 2023, e.g. demand for uses such as foams, fire protection, non-medical propellants and solvents mostly disappears. As a result of these developments of the demand, emissions will decline from 92 MtCO2e in 2020 to 44 in 2030 and 27 MtCO2e in 2050 (see A11.1.2). This is mostly related to declining HFC emissions (highest demand decrease), while the share of SF6 emissions is growing from 16% to 26% between 2030 and 2050 (even if there is also a decline in absolute quantities, 7MtCO2e (2030) and 5 MtCO2e (2050)). As regards SF6 emissions, the electrical transmission industry informs that losses are low and thus emissions are assumed to be relatively low (EU-wide monitoring data are not available). There are also some persisting legacy emissions of SF6 (from windows, etc.), other SF6 uses and F-gas losses from production (by-production and fugitive emissions). Due to the long lifetimes of insulation foams in buildings (e.g. 50 years), emissions of end-of-life losses when these foams are broken down or landfilled are expected to pick up after 2050. The total annual cost of technological change in the baseline scenario would on average be 240 Mio €/year in the period 2024-2036. Most costs would be incurred in the refrigeration and the mobile A/C sector (without the passenger cars). By 2050, costs of technological change would be strongly negative (i.e. cost savings due to less operational costs, e.g. energy savings) in refrigeration and stationary AC, while there would still be some costs for mobile AC. See detail in Annex A12.5. Due to the increasing scarcity of quotas until 2030, higher HFC gas prices may impact on those users that still use HFCs. Figure 1. Baseline demand of HFCs, SF6 and other F-gases in climate terms (MtCO2e) A factor in the baseline development is also be the underlining demand for the products that may make use of F-gases. Other EU policies can impact this. This is for instance the case for the demand for heat pumps due to energy and climate policies. Recent developments following the invasion of Ukraine by Russia have increased the call for a faster energy transition. The REPowerEU Communication underlined the role of increased uptake of heat pumps in the heating of buildings in this specific situation. This can improve energy efficiency and reduce natural gas consumption. It pointed towards doubling the pace of deployment of heat pumps, with 10 million newly installed heat pumps over the next 5 years and 30 million by 2030. With a focus on replacing existing gas boilers, this ambition mainly relates to the installation of hydronic heat pumps (e.g. air to water or ground to water heat pumps). Whereas it was not possible for this impact assessment to capture the consequence of such developments in the baseline, a short assessment was made of what its impacts would be on the considered options consider in section 6.1.4. 5.2.Description of the policy options As mentioned above, the overall approach relying on a quota system for placing on the market HFCs, accompanying prohibitions of use of F-gases and containment measures to reduce any remaining emissions should be kept. Most stakeholders agree to this and abrupt changes would result in uncertainty for business. Consequently, this review is fine-tuning the Regulation with the aim to provide policy responses to the problems identified (section 2). The relationship between the problems, the specific review objectives and the required policy responses are visualised in Figure 2 .

To develop policy responses, detailed policy measures (e.g. a specific prohibition, a specific improvement on custom checks) were collected from stakeholders and external experts during the consultations, including from F-gas authorities and customs, and/or designed on the basis of the expertise acquired implementing this policy. Some of the collected measures were deemed infeasible and discarded from the outset based on different considerations of feasibility as outlined in Annex A6.6. A detailed description of all the detailed measures is given in Annex A6. Three different policy options were then designed by assigning detailed measures to each of the options. As there is no EU target for F-gas emissions, it is a political choice to how much the Regulation should contribute to saving emissions, and what the effort should be in addressing the issues of implementation and monitoring. However, compliance with the Protocol must be safeguarded in all cases. Thus the detailed measures were assigned on the premise that all options should do the latter as well as improve internal clarity and coherence, but that the resulting contribution to the other objectives should give a choice on the basis of the different expected levels of costs and effort (low-medium-high). The ensuing assessment then establishes how much the options actually contribute to the other objectives, and a policy choice can be made on the basis of the balance between achievable benefits and the cost and effort level involved. The original assigning of measures to the options was done on the basis of ex ante expected impacts and efforts and/or costs involved. This approach was considered the most useful, in particular since Option 1 largely reflects the view expressed by some industry associations in the stakeholder consultations, which maintain that today`s Regulation is sufficiently ambitious and the review should merely align with global rules and address the challenges to implementation and control. Option 3 is advocated by other stakeholders, notably the NGOs and by some manufactures that want to invest in innovative climate-friendly technologies also in niche sectors where this may become expensive and Option 2 reflects the middle ground. It is therefore politically relevant to explore the impacts of all three options. The three options are described in more detail below and an overview of the bundling of individual measures in the three options are given in Table 1 . The individual measures are mostly compatible and complementary to each other and all complementary measures included in Option 1 are also included also in Option 2, just as all complementary measures in Option 1 and 2 are also included in Option 3. Moreover, any improvements seeking to clarify the rules or make them more coherent are included in all three options. ·Option 1: Align with the Protocol & low cost measures This option is a low cost/low effort option. It includes all measures to ensure long-term compliance with the Montreal Protocol. It also includes any beneficial measures in the responses to the objectives that were expected to result in very low costs and effort, if any. To align with global rules, the sizeable quota exemption for MDIs and the de minimis thresholds for quota and reporting are removed. The HFC quota levels after 2030 are set to (just) ascertain that the Protocol consumption phase-down can be met in the long run and under all circumstances. A separate HFC production phase-down, a ban on trade with non-parties to the Protocol from 2033 and flexibility to allow further alignment with new international rules are introduced. To complement the HFC quota system, some low-cost prohibitions to use F-gases in new cooling and fire equipment and a low-cost measure to prevent emissions from one specific type of insulation foam (“sandwich panels”) using HFCs is included. Low cost measures to improve control, implementation and monitoring include that energy efficiency aspects are added to the training curriculum for equipment service personnel. Furthermore, rules for customs will be clarified and reinforced and it will be stipulated that importers need to have sufficient quota and appropriate labelling at the moment of import or physical entry. The improvement of the rules concerning reporting and verification increases efficiency and supports compliance checking. Some new relevant substances are added. ·Option 2: Achieve proportionate emission reductions and implementation improvements Option 2 requires moderate costs and effort. In addition to the measures in Option 1, Option 2 will seek to reduce emissions further, but only to the point where a sub-sector would not have to pay more than marginal sectoral abatement costs expected for the economy overall to reach carbon neutrality in 2050 (see below). The alignment measures are essentially the same as Option 1, but the prohibition to trade with Parties that have not ratified the Kigali Amendment is slightly advanced to 2028, in order to provide an incentive for timely ratification by remaining Parties and to ensure that the global HFC reduction measures of the Kigali Amendment provides the envisaged benefit to the climate. The HFC quota levels are more restrictive than in Option 1. The levels are set to ensure that HFCs are only available for appliances where it is not yet possible to replace (highly warming) HFCs. As replacement is undertaken with gradually increasing costs, such marginal abatement costs at sub-sectoral level should remain below €390/tCO2e until 2050. This cut-off to exclude difficult sectors was chosen as a benchmark to be comparable to the effort needed in other areas following the 2050 Roadmap modelling. Additional F-gas prohibitions with specific GWP limits and dates complement the phase-down. They relate to stationary AC; smaller refrigeration equipment; personal care products and skin cooling equipment, inhalation anaesthetics and switchgear. Where prohibitions conflict with safety rules (e.g. use of flammable substances) or where F-gases are needed in niche applications, they may still be used. Obligatory F-gas recovery and destruction (or re-use) from insulation foams will cover also laminated boards (besides sandwich panels) which in this way would achieve full synergies with a similar measure proposed in the review of the ODS Regulation. Finally an obligation to prevent emissions during activities such as manufacturing, storage and transport will be extended to all actors on the Union market and also cover some Annex II and new gases to be added. Additional measures at moderate costs to improve control and implementation are included, e.g. a price to pay for quota to disincentivise speculative behaviour and to limit the participants to serious gas traders and EU producers. The initial allocation price is set at 3€/tCO2e. This measure will also include some flexibility to manage the quota system. Moreover, penalties at Member State level will be subject to more prescriptive requirements. Labelling will be slightly extended and the type of evidence needed when placing bulk gases on the market will be specified in more detail. Also, Member States are required to provide certification and practical training for relevant climate-friendly alternatives and equipment containing H(C)FOs, and installing, servicing, maintenance or repair that involves the refrigerant-carrying circuit with H(C)FOs will only be allowed by certified personnel in analogy to other F-gases. To close monitoring and reporting gaps, a new obligation to report for recipients of quota-exempted HFCs and some reclamation facilities not yet covered is also added. To facilitate the mandatory verification of F-gas reporting, an electronic verification process will be included. Member States are encouraged to establish databases on activities such as servicing, leak checking and sales, for better market control and to derive real-world emission rates. ·Option 3: Maximum feasibility and implementation improvements Option 3 is a high cost option. In addition to the measures in Option 1 and Option 2, Option 3 will include all measures that seek to achieve the maximum GHG emission reductions based on today’s technical feasibility while taking into account energy efficiency and safety aspects. It also includes all measures regarded as feasible to improve control, implementation, and monitoring, including those proposed by stakeholders, regardless of the price or effort involved. This option was examined in order to see what price tag would be necessary to take all feasible measures considered, and what would be the added value of achieving them. This option has the steepest quota system that is assuming replacement of high and medium high GHGs as soon as this is technically possible, even if marginal abatement costs at sub-sectoral level go up faster, and beyond €390/tCO2e already before 2050. Additionally, it removes exemptions for military equipment and semiconductors, which both relate to small amounts being consumed. To further improve implementation, measures that come with a relatively high burden are included, e.g. mandatory certification for importers and online sellers and a requirement to have a declaration of conformity and record keeping to prove the origin of the gases for all downstream HFC sellers. Reporting would be extended to exporters of equipment to better gauge the effect of EU produced goods elsewhere and to recycling companies (in addition to reclamation). Better estimation of emissions are obtained by requiring operators of switchgear in electrical transmission to report and Member States to establish databases on available company data on servicing, leak checking and sales data. Table 1 shows the individual measures and their grouping under the review objective they are targeting, and how they relate to each policy option. A more detailed description of the measures is given in Annex A6. Mutually exclusive measures are indicated with an ‘*’. All other measures are complementary and are shown as follows: -Option 1 includes all measures shaded [white]. -Option 2 includes measures shaded light grey plus [white] (except “* Option 1”) -Option 3 includes measures shaded dark grey, plus those in [white] and light grey (except “* Option 1” and “* Option 2”)

Objective A – Achieving additional emission reductions A1: Increasing the ambition of the HFC quota system (mutually exclusive) ·* Option 1: Steps included after 2030 to ensure long-term compliance with the Protocol, only ·* Option 2: Steeper phase-down with HFC replacement where feasible at proportionate costs ·* Option 3: Steepest phase-down ensuring maximum HFC replacement where feasible at any cost A2: New prohibitions for F-gases above a certain GWP limit and from a specific date ·Prohibitions related to F-gases in fire protection equipment and small hermetic RAC systems and PFCs in RAC equipment ·Prohibitions related to stationary AC, smaller refrigeration equipment, personal care products (e.g. creams, mousses, foams), skin cooling equipment, one inhalation anesthetic and switchgears. F-gases still allowed if strictly necessary e.g. due to health or safety rules, and lack of alternatives. Such exemptions will be subject to labelling. A3: Extend requirements for the prevention of F-gas emissions ·Require emission prevention also for some Annex II and newly added gases, and for all EU actors during gas production, equipment manufacturing, storage, transfer and transport A4: Recovery obligation of insulation foams blown with HFCs ·Require destruction or reuse of HFCs in metal-faced panels ·Require destruction or reuse of HFCs in laminated boards in built-up structures and cavities, unless infeasible and subject to documentation Objective B – Seeking alignment with the Montreal Protocol B1 & B2 : Achieve alignment, remove (some) exemptions not foreseen by the Montreal Protocol ·Include HFC use for Metered dose inhalers (MDIs) under the quota system and remove minimum thresholds for the quota system and reporting ·Include HFC use for military & the semiconductors under the quota system B3 & B4 Achieve Montreal Protocol alignment production phase down limits and non-Party trade ·Include a separate HFC production phase-down at entity level mirroring the Protocol and prohibit trade in bulk HFCs from/to any country not Party to the Kigali Amendment (from 2033 in * Option 1; 2028 in Option 2 and 3) Objective C – Improving implementation and enforcement C1: Extend certification and training for RAC technicians ·Add energy efficiency aspects to the required knowledge for training and certification ·Require that certification/training covers equipment with F-gas alternatives, and require certification when carrying out certain activities on RAC equipment containing H(C)FOs (now only for Annex I) C2: Including detailed rules to empower customs and surveillance authorities; C3: Facilitate the use of the EU “Single Window Environment for Customs” & C4: Limit the quota system to genuine F-gas traders and producers ·Reinforced rules on special custom procedures and physical entry of prohibited goods ·Tighter rules on quota use and availability ·Require minimum penalties for non-compliance ·Require evidence to be provided by EU producers and importers on HFC23 destruction of by-production and require labelling of some Annex II and new gases as well as labelling MDIs as containing F-gases ·Introduce an allocation price of €3/CO2e for EU producers and importers. Use the revenue to cover administrative costs to operate the quota registry and the Protocol licensing systems. Also, include flexibilities to react e.g. if the quota allocation price is having unintended effects; in case of major HFC market disruptions; when cases are unsettled at the moment of annual quota allocation or to require certain skills/characteristics for quota holding companies ·Require documentation for downstream sales for bulk HFC/F-gases (e.g. “declaration of conformity”) and record keeping and mandatory certification for bulk importers and undertakings selling bulk F-gases online Objective D – Improving Monitoring and Reporting D1: Reporting scope – substances ·Include new PFCs in Annex I and include new substances in Annex II D2: Reporting scope - F-gas related activities ·Include recipients of quota-exempted HFCs and all undertakings performing reclamation of F-gases ·Include exporters of products and equipment containing F-gases and other fluorinated substances (plus registration obligation and undertakings performing recycling (in addition to reclamation) of F-gases D3: Emission reporting ·*Option 2: Encourage Member States to use electronic reporting systems for collection of F-gas and emissions data (mutually exclusive) ·* Option 3: Require Member States to use electronic reporting systems for collection of F-gas and emissions data (mutually exclusive) and operators of switchgear and electrical equipment to report on SF6 emissions D4: Reporting process and data verification ·Streamline reporting and verification rules, thresholds and dates for EU producers and importers of bulk and of equipment ·Introduce an electronic verification process (separately for bulk and pre-charged products and equipment) Objective E – More Clarity and Coherence Envisaged improvements to make the Regulation more clear and coherent Are included in all three options, see Annex A6.5 for details The different ambition levels for the HFC quota system in Options 1, 2 and 3 are shown in Table 2 , alongside the maximum quota under the baseline. However, the baseline is not directly comparable to the three options because, contrary to the three options, HFCs used for MDIs do not require quota in the baseline (exempted) and thus the baseline quota is not covering any need for HFCs for MDIs. The quota limits for Option 1 are set to ensure that the Protocol’s consumption limits can be met. Option 2 is based on the need to supply HFCs for appliances, for which it is not feasible to use climate friendly alternatives by 2050 below marginal abatement costs of €390/tCO2e or not feasible at all. Option 3 only ensures supply for appliances where it is infeasible to use alternatives. The feasibility is based on technologies known today. Thus by the time the future F-gas Regulation is reviewed, it is highly likely that the quota system schedule can be further strengthened in line with new technological developments. Years Baseline Option 1 Option 2 Option 3 2024-2026 37.54 49.04 41.70 41.04 2027-2029 25.17 36.67 17.69 15.96 2030-2032 19.87 31.37 9.13 6.92 2033-2035 19.87 28.72 8.45 5.79 2036-2038 19.87 20.54 6.78 5.47 2039-2041 19.87 20.54 6.14 5.01 2042-2044 19.87 20.54 5.49 4.54 2045-2047 19.87 20.54 4.85 4.08 2048 and later 19.87 20.54 4.20 3.62 Note: Quantities needed for MDIs are only included in the options but not in the baseline, this explains why all options have higher initial quota allowances (MDIs are ca. 10 MtCO2 today) 5.3.Options discarded at an early stage The possibility to repeal the Regulation and rely on voluntary agreements or national measures was discarded from the outset. Firstly, the current measures have overall been effective to meet its objectives. The Regulation remains necessary and has clear EU added value in light of EU climate objectives as well as the EU’s international commitments. Secondly, voluntary action or national measures would result in lower emission reductions and would even endanger the progress made so far. Thus the option would be inconsistent with the EU’s new and more ambitious climate objectives. Thirdly, the existing types of rules provide a clear signal to industry and are accepted by stakeholders, as clearly shown by the consultations. Furthermore, a number of detailed measures that would appear to target the problem drivers (including measures proposed by stakeholders) were discarded at an early stage because they did not fulfil certain criteria that were applied to screen the options (See discarded measures and the reasoning behind eliminating them in Annex A6.6). 6.What are the impacts of the policy options?

A detailed bottom-up stock model of the F-gas using sectors was constructed (AnaFgas model) in order to calculate demand and emission scenarios of F-gases, for the baseline and the policy options, as well as energy use of the relevant equipment, for the EU27+UK in the period of 2000 to 2050 . An attached cost module allows quantification of related costs to the operators of equipment relying on F-gases or their alternatives. In AnaFgas, all emission and demand estimates are derived from bottom-up approaches, i.e. by estimating demand and emissions per sector through the use of underlying drivers. Macroeconomic effects were modelled using the JRC’s GEM-E3 model. The models are described in detail, including the assumptions behind and any limitations, in the Annexes A4.2 and A4.3. 6.1.Environmental impacts 6.1.1.Emission savings from quota system and prohibitions The reduction in future emissions is determined largely by the ambition level of the quota system and accompanying prohibitions. Option 1 will lead to higher emissions compared to the baseline scenario until 2046, falling slightly below thereafter ( Figure 3 ). The total cumulative emissions of Option 1 from 2024 to 2050 are 1,050 MtCO2e, which is higher than the baseline emissions of 1,016 MtCO2e. Annual emissions in 2050 are estimated to be 25 MtCO2 for Option 1, which is 7% below the baseline. The total higher cumulative emissions in Option 1 is somewhat counterintuitive. It is related to the fact that on the one hand it is not necessary to impose any additional limitations on the use of HFCs for the sectors already covered by the phase-down in the early years (the EU consumption is currently well below the Protocol limit) and on the other hand, the way MDIs are being included under the quota system. In the initial phase 2024-2026 significantly more quota is allocated to fully provide the MDIs with HFCs (i.e. starting the ‘phase-down’ with 100%) to allow for a smooth transition of this sector. This careful approach is likely to give the sector more time initially than needed in practice, and assumed in the baseline, for starting the technological transition. As a result, there would be more quota available for other sectors (e.g. refrigeration, AC), thus slowing down the pace of replacement in these other sectors and leading to higher amounts of HFCs stored in equipment. This will slightly increase the amount of emissions in the short to medium term. The HFC demand (i.e. “use”) in Option 1 does fall under the baseline from 2037 onwards, but emissions only fall below the baseline from the year 2046. By contrast, both Option 2 and Option 3 will lead to significantly lower emissions compared to the baseline (and Option 1). Emission savings are achieved starting already in 2025 and continue until 2050. The difference in savings between Option 2 and 3 is relatively small and is mainly due to further abatement in a few sub-sectors (mobile AC in buses, metro and trains). The total cumulative emissions until 2050 would be 763 and 736 MtCO2e under Option 2 and 3, respectively. Compared to the baseline (and Option 1), this is a further drop in cumulative emissions of 25% and 28%, respectively (253 MtCO2 less in Option 2 and 280 MtCO2 less in Option 3). Annual emissions in 2050 are estimated to be 14 and 13 MtCO2e for Option 2 and 3, respectively (see also Annex A11.1.2). The remaining emissions for Option 1 in 2050 are almost double that amount (see above). Option 2 and 3 are considered to be in line with the objective of reaching climate neutrality by 2050. They reduce the need for carbon-removal policies to compensate for emissions that cannot be avoided in 2050 to achieve net climate neutrality. It is likely that even stricter F-gas policies can be introduced later (before 2050) at lower costs than today in light of new future technological developments. At a sectoral level the differences in emissions relate largely to the stationary AC sector and MDIs ( Table 3 ). There are significant differences in transition speed between Option 1 (and the baseline) on the one hand, and Option 2 and 3 on the other. Some further savings are also achieved in refrigeration and mobile air-conditioning by the more ambitious options. Restrictions on switchgear introduced by Options 2 and 3 would lower demand compared to Option 1 and the baseline, but emission reductions would happen rather slowly due to the very long lifetimes of the equipment (50 years). For the remaining sectors the differences between the options (and the baseline) are small. Figure 3: Modelled emissions of F-gases for the different options in the EU27 (based on reductions from the quota system and prohibitions only) Sector Baseline Option 1 Option 2 Options3 Refrigeration 128 134 112 107 Stationary AC 284 311 169 169 Mobile AC 187 187 150 127 Switchgear 78 78 71 71 MDIs 138 138 66 66 Other 200 200 196 196 Total emissions until 2050 1 016 1 050 763 736 Source: AnaFgas modelling 6.1.2.Other emission savings 6.1.2.1.Emission savings from enlarged obligations to prevent emissions In addition to the savings above, Options 2 and 3 can further reduce emissions by requiring emission prevention measures for some Annex II and new substances, notably SO2F2 as well as some inhalation anaesthetics. Yearly emission savings from 2024 could be at least 1 MtCO2e each for both SO2F2 and the anaesthetics. For NF3 the savings potential is lower. Climate relevant emission savings from H(C)FOs are small and prevention is targeting the avoidance of possible persistent breakdown products (see 6.1.4). Thus Option 2 and 3 could add ca. 54 MtCO2e by 2050 cumulatively to emissions saved by the phase-down and prohibitions. 6.1.2.2.Emission savings from the recovery of insulation foams Recovery of HFC insulation foams, when buildings are being renovated or demolished, can also result in emission savings. About 1.9 MtCO2e could be emitted as a result of inappropriate end-of-life treatment until 2050 (all in the period 2045-2050), but in the time thereafter end-of-life emissions will rise further and persist for a long time in the baseline due to remaining foams in buildings of ca. 45 MtCO2e of HFCs in 2050. Option 1 would recover up to 20% of these emission, while Options 2 and 3 could recover at least 35% of these emissions (see Annex A15). There are strong synergies with the envisaged recovery of foams containing ozone-depleting substances (where there is a much higher potential to avoid emissions), as the collection and treatment process would be the same. 6.1.3.Energy use The technological conversion to more climate-relevant alternatives results in some energy savings in the refrigeration and AC sector. For Options 2 and 3, average energy savings are approximately 2‑3 GWh per year for the 2024-2036 (i.e. 2030) period (Annex A12.6), due to the deployment of slightly more energy-efficient low-GWP technologies (alternative solutions are not accepted if they result in lower energy efficiency). For Option 1 average 2024-2036 final energy use is about 1 GWh per year higher than the baseline. In the 2050 time horizon, all three policy scenarios result in energy savings, ranging from 2 GWh per year (Option 1) to 8-9 GWh per year (Option 2 and 3). These savings are however relatively small (about 0.1 % - 0.3 % of baseline energy use in the RAC (i.e. refrigeration, air conditioning including heat pumps) sectors in the 2024–2036 time horizon, or 0.1 % – 0.5% in the 2050-time horizon. The energy savings result from the early replacement of older equipment with new alternative equipment that is more energy efficient. The savings are therefore higher for the more ambitious options.

6.1.4.Other environmental effects Impact on H(C)FO emissions The reduced use of highly warming HFCs is resulting in an increased use and emissions of the climate-friendly H(C)FOs; e.g. HFO-1234yf being the most frequently used. HFO-1234yf emissions today come mainly from ACs in passenger cars and are expected to triple between 2020 and 2029 for all policy options and the baseline (mostly due to the MAC Directive). After 2029, emissions will only be increasing slightly under the baseline and Option 1, whereas emissions under Option 2 and 3 will rise more strongly and be 16% higher than the baseline by 2050 (see graph in Annex A11.2). While they contribute very little to climate change, H(C)FOs emissions may lead to the formation of trifluoroacetate (TFA) in the atmosphere . TFA is considered as being highly persistent and highly mobile in the environment and appears to accumulate in surface waters (and groundwater). It is still a matter of on-going research to what extent higher levels of TFA in the environment would result in dangerous ecotoxicological consequences in the future. Furthermore, a recent publication has linked some H(C)FOs to the formation of HFC-23, which has a very high GWP. Impact of faster role out of heat pumps as envisaged by REPowerEU To reach the 2030 climate target and climate neutrality by 2050, the Commission has proposed to increase the share for renewable energy in the energy mix by 2030 to 40%. To reach that share, a high growth rate for heat pumps is assumed leading up to the installation of notably around 30 million hydronic heat pumps by 2030. In response to the natural gas crisis due to recent geopolitical events, the Commission has proposed to advance this roll-out and achieve a doubling of deployment rates and install 10 million of such heat pumps in the next 5 years. While it is necessary to reduce both emissions from energy use and from F-gases, it is crucial that the quota system includes sufficient quantities of HFCs for those new and existing heat pumps that still need HFCs. Based on AnaFgas modelling, and under the policy option 2, the total required HFC demand for heat pumps (including air-to-air splits and VRF systems) for new systems as well as for servicing the existing systems will decrease very rapidly over the years in CO2e. By 2030 its demand will only be about 25% of that in 2020. Even if growth rates should turn out to be higher than those assumed in the AnaFgas model, it would not dramatically alter the total required HFC demand. In the assessed option 2, with a prohibition for stationary heat pump with a rated capacity of up to 12 kW with F-gases with a GWP of 150 or more except if required to comply with safety rules, most new heat pumps are within this category and thus do not need HFCs after 2025. Even if the ban on some installations would be implemented at a later moment, for instance from 2027 onwards to allow the market to accommodate the ramp up of initial production to accommodate significant short-term growth in heat pumps in the 5 year period 2022-2026, impacts on required quota for this additional deployment is very limited. An estimate was made what the impact would be on demand for F-gases of meeting the increased heat pump ambition as expressed in REPowerEU, assuming that the prohibition for stationary heat pump with a rated capacity of up to 12 kW with F-gases with a GWP of 150 or more would only start in 2027. It was estimated that the additional growth needed would increase the annual demand for F-gases by around 3.1, 2.7 and 1.4 million tCO2e in the years 2024-2026. This is small compared to the 41.7 million tCO2e available as quota under option 2, also considering that the MDI sectors is allocated a 100% of quota in these years even though alternatives to replace HFCs are available and quantities of quota authorizations covering several years of HFC equipment imports are currently banked by equipment importers (i.e. they will not require additional quota in the next years). The heat pump categories that still need some HFCs in new equipment in 2030 (i.e. medium-sized heat pumps and VRF systems) can also significantly reduce the GWP of the refrigerant used, which implies that their need expressed in CO2e will decline very rapidly. The total demand for heat pumps is small relative to the total HFCs needed for all HFC-using sectors (12% in 2030 and 5% in 2040). Since the quota system is designed to cover the required amount for all HFC-using sectors (no earmarking), there is considerable built-in flexibility for higher consumption than expected in some sectors, as it may be counterbalanced by lower than expected consumption in other sectors. If the uptake of alternatives is too slow, this would result in higher HFC prices until the market reacts, but would in principle not result in gas unavailability. It should be noted that if the situation should occur that a market disruption is threatening (which has not been the case in the first six years of the phase-down), all options include the possibility for the Commission to adjust the quota level. Thus, the phase-down appears coherent with the targets for renewable energy, even if the significantly higher heat pump growth needed in the light of the current natural gas energy crisis and a resulting slightly slower conversion of small heat pumps to climate-friendly alternatives is taken into account. 6.2.Cost to business 6.2.1.Technological costs and HFC costs for F-gas using industries / equipment operators Business may be faced with changes in costs relating to: ·Technological adjustments resulting in changes in investment costs and operating expenditures (e.g. energy use, maintenance costs) for users of mainly new equipment that are shifting to (more) climate-friendly alternatives. ·Higher HFC prices (“HFC price premium”) resulting in higher HFC equipment prices and maintenance costs for users that continue to rely on equipment using HFCs. Based on the experience of the last six years, both types of costs are fully passed through to the end user of the equipment. However, it should be noted that the user costs resulting from the HFC price premium will benefit the sellers of HFCs, who receive the quota free of charge mainly based on historic grandfathering. Thus the net effect of higher gas prices on the economy is neutral (distributional effect). If a quota allocation price is introduced (Option 2 and 3), the effect would similarly be neutral overall, but some of the net costs would result in revenue for the authorities from the quota allocation price. To correctly describe the different costs for different stakeholders, we discuss in the following the (i) technological adjustment costs for users of new alternative equipment, (ii) related emission reduction costs, (iii) HFC price premiums paid by users relying on HFCs, (iv) total adjustment costs for all equipment users, and (v) distributional effects of higher price premiums and the impact of an allocation price. 6.2.1.1.Technological adjustment costs for users that shift to climate-friendly solutions Average annual costs that arise from changing to climate-friendly equipment, either new investment into alternative equipment or operating alternative equipment, e.g. the technological adjustment costs, will vary between 2, 12 and 116 Mio €/year for Options 1, 2 and 3, respectively, for all sectors combined in the time horizon 2030 (i.e. the 2024-2036 interval). At sector level there are large differences ( Table 4 ). The targeted refrigeration and air conditioning (RAC) users will in fact see benefits because higher investment costs are in general counterbalanced by lower operating cost (e.g. better energy efficiency). These savings are highest under Options 2 and 3 where beneficial alternatives are introduced more quickly. On the other hand, users of new mobile AC (excluding passenger cars) and new switchgear without SF6 will have higher costs compared to the baseline. Additional costs for these sectors are estimated to be 3.6 % for switchgear/SF6 under both Option 2 and 3, and 0.4% (Option 2) and 1.0% (Option 3) for mobile AC of the baseline costs.

In the long run (2050) equipment users will overall save costs compared to the baseline, in particular for the more ambitious Options 2 and 3. Option 2 and Option 3 differ only slightly. In 2050, these options have savings of just over 1 billion €/year, which is more than twice the amount resulting from Option 1. The largest savings are achieved in AC applications including heat pumps as well as commercial refrigeration. The savings achieved result from replacement of older equipment with new alternative equipment (lower maintenance costs) and are therefore mostly related to the effects of the quota system and the accompanying prohibitions. Data at sub-sector level is given in Annex A12.3. Sector time horizon Option 1 Option 2 Option 3 Refrigeration 2024- 2036 average -24.2 -67.5 -124.8 Stationary AC 2024- 2036 average 26.1 -82.6 -82.6 Mobile AC 2024- 2036 average 0.0 109.1 270.6 Propellants, solvents & fire protection 2024- 2036 average 0.0 3.1 3.1 Foam 2024- 2036 average 0.0 0.0 0.0 Other HFCs 2024- 2036 average 0.0 0.0 0.0 Switchgear (SF6) 2024- 2036 average 0.0 49.3 49.3 Annual cost for all sectors combined 2024- 2036 average 1.9 11.5 115.7 Annual cost for all sectors combined In 2050 -456.1 -1024.6 -1040.1 6.2.1.2.Emission reduction costs To judge the cost-efficiency of the options, emission reduction costs (i.e. abatement costs) are calculated. Since new equipment will leak (i.e. emit) over many years, emission reduction cost compare the cost of technological change for investment in and operation (e.g. maintenance costs, energy use) of equipment based on low-GWP alternatives during its lifetime to the emissions saved during the lifetime of the respective equipment. These costs are determined for new equipment installed (i) each year during the 2024-2036 timeframe and (ii) in 2050. The HFC price premium (see 6.2.1.3) is not considered here, because it is (i) a distributional cost, and not a net cost for the economy (see 6.2.1.5), and (ii) these premiums are paid by the users of HFC equipment, rather than those using alternative equipment as a result of the policy options assessed. The resulting estimated emission reduction costs are shown in Table 5 . In the 2024-2036 time horizon, Option 2 and 3 will result in cost savings (i.e. negative costs) of 36€/tCO2e abated and 23 €/tCO2e abated, respectively for the economy as a whole. In the long-term perspective (2050), Option 1 results in cost savings at almost -178 €/t CO2 abated, since emissions savings would be mostly limited to the cost-efficient sub-sectors of refrigeration and AC (and the other sectors therefore do not show up in the calculation). Under Option 2 and 3, the analysis shows average benefits for the economy as a whole, estimated at 63 €/t CO2e and 52 €/tCO2e, respectively. The cost savings come mostly from reduced maintenance costs, in particular energy use. This indicates that action in most F-gas sectors is very cost-efficient. It is therefore also in general more economical in view of actions taken elsewhere, in other sectors of the economy. There are however large differences in the marginal abatement costs at the sub-sectoral level (see Annex A12.4). Costs related to Option 3 (through a stricter phase-down) reach up to 2,111 €/t CO2e abated (train AC), whereas the highest abatement costs under Option 2 are estimated to be 334 (buses AC) and 336 (switchgear) €/tCO2e. Thus, Option 3 will have, in a few sub-sectors (e.g. AC in trains, buses and metros), marginal abatement costs that are significantly higher than what is being estimated as necessary (390 €/t CO2e abated by 2050) for the economy as a whole in modelling until 2050. Table 5. Emission reduction costs (i.e. abatement costs) per sector and in total for all sectors. Sector time horizon for new installed equipment Option 1 Option 2 Option 3 total emission reductions vs. baseline* Cost of technological change emission reduction cost+ lifetime-integrated emission reductions compared to baseline Cost of technological change of lifetime-integrated emission reductions Calculated emission reduction cost+ lifetime-integrated emission reductions compared to baseline Cost of technological change of lifetime-integrated emission reductions Calculated emission reduction costs + Mt CO2e Mio € € / t CO2e Mt CO2e Mio € € / t CO2e Mt CO2e Mio € € / t CO2e Refrigeration 2024- 2036 -1.9 -5.5 NA+ 1.7 -120.8 -72.5 2.1 -188.6 -91.6 Stationary A/C 2024- 2036 -3.0 196.9 NA 7.3 -559.4 -76.3 7.3 -559.4 -76.3 Mobile A/C 2024- 2036 0.0 0.0 NA 1.7 96.2 57.9 2.9 303.9 106.4 PropellantsSolvents Fire fight. 2024- 2036 0.0 0.0 NA 2.5 3.3 1.3 2.5 3.3 1.3 Foam 2024- 2036 0.0 0.0 NA 0.0 0.0 NA 0.0 0.0 NA Other HFCs 2024- 2036 0.0 0.0 NA 0.0 0.0 NA 0.0 0.0 NA SF6 2024- 2036 0.0 0.0 NA 0.7 79.5 115.8 0.7 79.5 115.8 For all sectors 2024- 2036 -4.9 191.4 NA 13.8 -501.1 -36.3 15.4 -361.2 -23.4 For all sectors In 2050 4.4 -781.1 -178.1 16.1 -1005.2 -62.7 16.3 -841.2 -51.7 Source: AnaFgas cost modelling *negative values indicate emission increases vs. baseline + NA: not applicable: no emission reduction costs can be calculated as emissions increase n.b. The emission reduction costs shown relate to new equipment installed in the period 2024-2036 (average) and in 2050 6.2.1.3.HFC price premium for users that rely on HFCs From 2015-2019 the phase-down system resulted in an increase in HFC prices on the EU market compared to the prices before the phase-down started. While EU prices have been fluctuating, on average the price increase (premium) is estimated to be around 8 €/t CO2e at gas distributor level (see Annex A5.6.1.1 and A4.2.10.1). Thus, new HFC equipment and products and the servicing of such equipment (e.g. refilling supermarket refrigeration or old passenger cars with virgin HFCs) became more expensive for users. To determine the future impact on users it is necessary to understand how this premium would change under each option compared to the HFC price development that would occ