{"id":8176,"date":"2016-11-02T21:39:03","date_gmt":"2016-11-03T01:39:03","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/international-climate-policy-heats-up-the-business-of-cooling\/"},"modified":"2016-11-02T22:31:02","modified_gmt":"2016-11-03T02:31:02","slug":"international-climate-policy-heats-up-the-business-of-cooling","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/international-climate-policy-heats-up-the-business-of-cooling\/","title":{"rendered":"International Climate Policy Heats Up the Business of Cooling"},"content":{"rendered":"

On October 15, 2016 ~150 nations signed an agreement to phase out the use of hydrofluorocarbons (HFCs) in air conditioners (A\/Cs) and refrigerators.8<\/sup> This agreement is an amendment to the Montreal Protocol that phased out use of chlorofluorocarbons (CFCs) known to be depleting the ozone layer.3,12<\/sup> As a consequence, CFCs were replaced with HFCs resulting in a 135-billion-ton reduction in CO2<\/sub> (carbon dioxide) emissions and the recovery of the ozone layer.3<\/sup> Similar to the original protocol, the new agreement requires nations to institute regulations that phase out the use of HFCs in appliances with the goal of reducing emissions from 5.0 to 1.2-gigatons by 2050. Scientists believe a reduction of this magnitude will decrease the global average temperature rise by 0.5\u00b0F.11,12<\/sup> HFC emission reductions will be achieved using a three-tiered approach: developed countries (USA) will end HFC production and use by 2019, other developed countries (China and Brazil) by 2024, and developing countries (India, Pakistan) by 2028.4,12<\/sup><\/p>\n

Why are we phasing out HFCs if this chemical replaced CFCs? The answer is that while HFCs do not deplete the ozone layer, HFCs are a highly stable greenhouse gas that contribute to global warming by creating a blanket around the Earth that traps in heat.11<\/sup> The global A\/C market is expected to grow at astonishing rates in developing countries with an estimated 700 million new units to be installed, therefore, it is projected that if HFCs are not replaced with a more environmentally safe technology, then we may expect a 10% increase in greenhouse gases by 2050 and could witness an average global temperature increase of 1\u00b0F by 2026.1,3,7<\/sup> Climate changes of this scale is why nations have rallied together to sign this agreement.<\/p>\n

Response to the new regulations by chemical and appliance manufacturers has been mixed. While several alternative coolants exist (e.g. propane) many are not approved for the intended use, are flammable, or have an undetermined safety profile.10<\/sup> Companies are concerned with the associated costs transitioning to new technologies that could require multimillion dollar investments in manufacturing and design.10<\/sup>\u00a0However, Honeywell International anticipated the new regulations and proactively developed new coolant technologies to replace HFCs. Since 2000, Honeywell has invested $500 million in R&D to develop their Solstice product line (Figure 1).5,8<\/sup> Solstice is composed of hydrofluoroolefin (HFO) that has many benefits when compared to HFCs including a shorter atmospheric lifetime and being less toxic when compared to a single molecule of CO2<\/sub>.5,8<\/sup><\/p>\n

\"Figure<\/a>
Figure 1: Honeywell Solstice Product Line (9)<\/figcaption><\/figure>\n

The impact of Solstice on Honeywell\u2019s current and future business is tremendous. While Solstice is not considered a monopoly because other companies have developed alternative coolants, Honeywell has strategically positioned itself to reap the benefits of the new regulation by investing significant resources in R&D early-on, patenting the product (e.g. HFO-1234yf in automobiles)6<\/sup>, creating partnerships with appliance manufacturers worth $3.4 billion, and obtaining approval for use by the EPA.10<\/sup> Due to the limited number of entrants to market because of the regulatory unknowns, Honeywell\u2019s technology will one of the few products on the market that appliance manufacturers can use in order to comply with the new regulations. Consequently, Honeywell projects Solstice generating $1 billion in annual revenue by 2020.10<\/sup><\/p>\n

One point of concern regarding the new regulations is the impact of price on new technologies and consumer behavior. An estimated 2% price increase may not deter consumers in developed countries, but will likely negatively impact developing countries like India.10<\/sup> India is currently experiencing an A\/C market boom with estimated growth of 15-30% over the next decade (Figure 2).9<\/sup> Growth is attributed to both an increase in household income, a decrease in A\/C prices, and India\u2019s hot climate.2<\/sup> Only 6-9% of the Indian population owns an A\/C, however, it is usually the first appliance purchased by a family.1<\/sup>\u00a0There is worry that an aggressive HFC phase out will make A\/Cs unaffordable in this market.<\/p>\n

\"Figure<\/a>
Figure 2: The Growing Indian Appliance Market (14)<\/figcaption><\/figure>\n

The challenge to Honeywell is how they can offset the increased cost of Solstice with decreased manufacturing costs to maintain A\/C pricing that is affordable by the growing lower\/middle class families in India. Honeywell has designed several Solstice offerings as drop-in technologies in order to have minimal impact on design changes by manufacturers. However, it is likely that Honeywell catered to manufactures in developed countries and that other costs savings can be extracted by Honeywell working directly with manufacturers in developing countries (e.g. Voltas in India) to identify additional efficiencies with product design fit within manufacturing.2<\/sup> The resources required to foster such partnerships could be supported by the Montreal fund to help finance these activities to support India phasing out HFCs before 2028 while making A\/Cs affordable to the Indian consumer. (767 words)<\/p>\n

References<\/u><\/strong><\/p>\n

    \n
  1. Barry, E. and Davenport C. \u201cEmerging Climate Accord Could Push A\/C Out of Sweltering India\u2019s Reach\u201d. Oct. 12, 2016. New York Times.<\/li>\n
  2. \u201cCooling India with Less Warming: The Business Case for Phasing Down HFCs in Room and Vehicle Air Conditioners\u201d. June 2013. CEEW, IGSD, NRDC, TERI in cooperation with Confederation of Indian Industry (CII).<\/li>\n
  3. Cornwall W. \u201cNations sign major deal to curb warming chemicals used for air conditioning\u201d. October 15, 2016. Science.<\/li>\n
  4. Harder A. and Gold R. \u201cCompanies Readying for New Limits to Emissions From Air Conditioners, Refrigerators\u201d. October 15, 2016, Wall Street Journal.<\/li>\n
  5. \u201cHoneywell Solstice Products are Meeting Demand for Environmentally Preferable Solutions\u201d. Oct. 10, 2016. Honewell.com, http:\/\/www.honeywell.com\/newsroom\/news\/2016\/10\/honeywell-solstice-products-are-meeting-demand-for-environmentally-preferable-solutions<\/a>.<\/li>\n
  6. https:\/\/www.1234facts.com\/about-us\/patents\/<\/a>. Oct. 2014. Honeywell.<\/li>\n
  7. Mooney C. and Dennis B. \u201cThe World is About to Install 700 Million Air Conditioners. Here\u2019s What That Means for the Climate\u201d. May 31, 2016. Washington Post.<\/li>\n
  8. Nayak M. \u201cUS Companies Brace for Climate-Friendly Alternatives in Cooling Systems\u201d. October 16, 2016. Reuters.<\/li>\n
  9. Shah, N, Wei M, Letschert V, Phadke A. \u201cBenefits of Leapfrogging to Superefficiency and Low Global Warming Potential Refrigerants in Room Air Conditioning\u201d. October 2015. Ernest Orlando Lawrence Berkeley National Laboratory. (Figure 1)<\/li>\n
  10. Tangel A. and Mann T. \u201cAppliance Makers Try to Keep Their Cool as Rules Change on Refrigerants\u201d October 18, 2016. Wall Street Journal.<\/li>\n
  11. \u201cTo Coldly Go\u201d. Sept. 24, 2016. Economist<\/li>\n
  12. Worland J. \u201cCountries Reach Landmark Deal to Limit Global Warming From Air Conditioners\u201d. October 15, 2016. Time.<\/li>\n
  13. http:\/\/image.slidesharecdn.com\/honeywell-solstice-hfo-refrigerants-presentation-2016-160308195331\/95\/honeywell-solstice-future-role-of-hfo-refrigerants-1-638.jpg?cb=1457467269 (cover image)<\/li>\n
  14. http:\/\/www.honeywell.com\/newsroom\/news\/2016\/10\/honeywell-solstice-products-are-meeting-demand-for-environmentally-preferable-solutions (Figure 2)<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    New regulations due to climate change present challenges to businesses, but by anticipating market trends and fostering innovation to develop safe, environmentally friendly products, some companies have positioned themselves to succeed in this transitional environment.<\/p>\n","protected":false},"author":2114,"featured_media":8177,"comment_status":"open","ping_status":"closed","template":"","categories":[1265,1272,1271,1226,1266,1263,1264,1262,1270,1267,1261,1269,1268],"class_list":["post-8176","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-air-conditioners","category-chemical-manufacturing","category-emission-reductions","category-global-warming","category-greenhouse-gases","category-hfcs","category-honeywell","category-hydrofluorocarbons","category-indian-air-conditioning-market","category-international-climate-policy","category-montreal-protocol","category-new-coolant-technologies","category-solstice"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nInternational Climate Policy Heats Up the Business of Cooling - 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