On December 26, 2023, the U.S. Environmental Protection Agency (EPA) published an Interim final rule updating its October final rule restricting the use of some hydrofluorocarbons (HFCs), a key substance used in refrigeration and cooling technologies in residential, commercial, transportation, and industrial settings. The Interim final rule to EPA’s Phasedown of Hydrofluorocarbons: Restrictions on the Use of Certain Hydrofluorocarbons Under the American Innovation and Manufacturing Act of 2020 gives the regulated community a new 45-day notice and comment period to provide input on EPA’s proposed adjustments to the final rule, which restricts the use of HFCs in aerosols, foams, refrigeration, air conditioning, and heat pump equipment.

Brief Background: HFCs and the AIM Act

Congress gave EPA the mandate to regulate HFCs over the coming years due to their high “global warming potential” (GWP) in the American Innovation and Manufacturing (AIM) Act of 2020 as part of the Consolidated Appropriations Act of 2021. According to EPA, HFCs are “potent greenhouse gases developed and manufactured as replacements for ozone-depleting substances” used in aerosols, A/C, refrigeration, and similar cooling applications. The impacts of HFCs on the climate can be hundreds to thousands of times greater than the equivalent amount of carbon dioxide (CO2). EPA measures this impact by a substance’s GWP. Whereas CO2 has a GWP of 1, one kilogram of an HFC with a GWP of 700 has an impact on the climate that is 700 times greater than one kilogram of CO2.

The AIM Act mandates the phasedown of certain HFCs by 85 percent of their historical baseline by 2036. The Act authorizes EPA to address HFCs through three main mechanisms: 1) phasing down of production and consumption of listed HFCs, 2) managing HFCs and their substitutes, and 3) facilitating the transition to new technologies that use alternatives to traditional HFCs through sector-based regulatory restrictions. EPA already finalized a rule to phase down production by establishing an allocation and trading program for HFC producers and importers. This past October, the agency also commenced a new rulemaking for managing HFCs with the stated aim of maximizing reclamation and minimizing releases of HFCs through equipment leaks.

EPA’s New HFC Use Restrictions

EPA’s most recent action is the agency’s first time implementing the AIM Act’s “Technology Transition Program” to restrict the use of higher-GWP HFCs in certain sectors or subsectors where alternative lower-GWP HFCs are (or will soon be) widely available. Outside entities, including original equipment manufacturers, initiated this rulemaking by submitting 12 Technology Transition Petitions to EPA requesting certain sectors be regulated. The petitions included requests for regulatory deadlines and provided EPA with technical information to facilitate the rulemaking.

The October final rule provides deadlines after which the manufacture, import, sale, and installation of products and systems that use high-GWP HFCs will be prohibited. Products and equipment use different HFCs each with different GWPs, therefore each restriction is tied to the particular GWPs of HFCs used in the relevant products and equipment. The following products that use high-GWP HFCs will be impacted starting January 1, 2025, after which products must use lower-GWP HFC alternatives:

  • Residential and light commercial air-conditioning and heat pump products;
  • Residential dehumidifiers;
  • Household refrigerators and freezers;
  • Retail food refrigeration units;
  • Vending machines;
  • Refrigerated transportation containers;
  • Chillers (e.g., comfort cooling products);
  • Aerosol products (including certain cleaning, lubricant, anti-corrosion sprays, and wound and bandage care sprays); and
  • Foam products using HFCs (e.g., appliance foam, marine floatation foam, and rigid polyurethane spray foam).

Importantly, the final rule provides a three-year sell-through period to allow continued sales of existing factory-completed product inventory that use high-GWP HFCs for three years after their manufacture and import compliance dates. The agency had initially proposed a one-year sell-through period for such products but provided a much longer window in response to commenters’ concerns about stranded inventory.

Some exemptions to the phase out of high-GWP HFCs apply to niche industries and uses. Later compliance deadlines also apply to other products and equipment, such as data center cooling equipment, industrial process refrigeration, commercial ice machines, and refrigerated food processing and dispensing products.

EPA excluded components needed to service or repair equipment that use high-GWP HFCs from its restrictions on manufacture, import, sale, and distribution. As public comments underscored, restricting components would otherwise render existing equipment unusable long before the end of its useful life and unintentionally force purchasers and end-users to replace entire systems far ahead of schedule.

Finally, the rule imposes labeling, reporting, and recordkeeping requirements on manufacturers and importers of regulated equipment.

At least some aspects of the final rule have been challenged in the D.C. Circuit.

The Interim Final Rule Update

Shortly after EPA published the October final rule, EPA received a letter from HVAC industry stakeholders requesting a revised deadline for installing systems manufactured or imported before January 1, 2025. They flagged that the October final rule’s provision on “residential or light commercial air-conditioning or heat pump systems” set the same compliance deadline for manufacturing, importing, selling, distributing, and installing such equipment, which would have widespread and unintended consequences.

As EPA describes in the just-published interim final rule, many residential and commercial development projects require multiple years of planning, designing, permitting, and finally, constructing. Building designs are tailored to fit many factors, including the type of A/C equipment to be installed, and local building codes. Builders therefore order equipment long before it is installed, sometimes without knowing the final installation date. As industry pointed out, the January 1, 2025, deadline for installing currently available (and already purchased) equipment using higher GWP HFCs would have caused up to $1 billion in stranded inventory and economic harm across the sector and subsector.

Responding to these concerns, EPA’s interim final rule provides an additional year, until January 1, 2026, for the installation of new residential and light commercial A/C and heat pump systems that use components manufactured or imported prior to January 1, 2025. Importantly, to qualify for the extended compliance deadline, all components of a system using the higher GWP HFC must be manufactured or imported prior to January 1, 2025.

Final Call for Notice and Comment

The Interim final rule gives the public 45 days to comment on the agency’s proposed update. EPA states that it is specifically interested in comments on the incremental costs and benefits of the update, including avoiding impacts such as stranded inventory, and on the incremental impacts to regulated entities regarding compliance (e.g., avoiding the need to amend existing, or obtain new, building permits). EPA will accept comments until February 9.