Cooling India: Financing the Cost of Transition to Refrigerants with Lower Climate-Change Impact

With the world’s leading scientists finding that cutting climate change pollution is affordable and essential and with this week’s historic US-China announcement to reduce domestic greenhouse gas emissions, action on fighting climate is gaining momentum. Next week, our global leaders have an immediate opportunity to take even stronger action. At the Montreal Protocol meeting, starting on Monday in Paris, countries could seize one “low hanging fruit” opportunity by agreeing to move forward on phasing down hydrofluorocarbons (HFCs), which are potent and fast-growing heat-trapping gases. Reducing the use and emission of these dangerous chemicals, largely used for cooling, is not only good for the planet, but it’s also good for business.

Air conditioning use is on the rise, especially in Asian markets. More than 116 million air conditioning units are forecast to be in service in India by 2030—more than 20 times the current number—so addressing HFCs presents an immediate business and climate opportunity. Shifting to climate friendly coolants makes business sense for the Indian market because it will help Indian industry move away from outdated chemicals and technologies. Indian firms will be better off building domestic and export industries based on more current and sustainable alternatives than if they rely on yesterday’s technology.

In fact, room air conditioner models using environmentally superior HFC alternatives are already on the market in India, and these models are demonstrating superior energy efficiency. By saving energy and operating costs, these new products make a strong case for coordinated international action to phase down HFCs. Our recently concluded research (available here and here) highlights two alternatives to high climate impact refrigerants that room air conditioner companies in India are pioneering. Experience with products using these two alternatives – R-32 (or HFC-32) and R-290 (propane) – proves that new room air conditioner technology is on the market already and can be deployed safely at competitive costs, while also delivering energy savings to the electrical grid and the end user.

The Montreal Protocol’s Technological and Economic Assessment Panel has carefully studied the costs of an industry transition to phase down HFCs. The leading team of experts found that the transition to refrigerants with low global warming impact is economically viable for room ACs. The Montreal Protocol provides a mechanism for funding transition costs for firms in developing economies through its Multilateral Fund, commonly called the MLF. The Montreal Protocol provides a framework under which agreed incremental transition costs for industry are covered.

Over the Montreal Protocol’s 25-year history, the MLF has successfully raised and delivered more than $3 billion for transitions in developing countries, and currently provides about $500 million/year in assistance to firms in developing countries, facilitating their phase-out of CFCs, HCFCs, and many other ozone-depleting greenhouse gases. Using the proven financing mechanism of Montreal Protocol to phase down HFCs offers a distinct advantage over the financing system just getting going under the climate agreement. The MLF is up and running right now, so that it can help countries immediately and it focuses specifically on this class of gases and technologies. Current proposals for amendment of the Montreal Protocol include commitments by developed countries to provide additional funding for the MLF.

If during the discussions next week, the parties to the Montreal Protocol start serious talks on amending the treaty to phase down HFCs, Indian industry could take advantage of funding from the MLF very quickly. There are three main categories of costs incurred by an industry transition that the Multilateral Fund can cover:

One-Time Design and R&D costs – The Multilateral Fund can provide assistance to refrigerant suppliers to develop or license technology for new chemical processes and to acquire suppliers of new raw materials. The Fund can pay for R&D investment to retool appliances to use new refrigerants and more efficient components, such as compressors specifically designed for use with R-32 and R-290.

Factory Retrofitting Costs – The Multilateral Fund can also provide funding for chemical manufacturers to modify their factories to make new chemicals. As both R-32 and R-290 are unpatented, chemical firms would be able to manufacture them without paying royalties. Appliance manufacturers can also receive assistance to upgrate production facilities to safely handle flammable refrigerants.

Unit Manufacturing Costs – The Fund can also provide support to cover agreed-upon incremental costs of components, refrigerants, and other inputs that go into an R-290 or R-32 AC product. ACs currently sold with R-32 and R-290 refrigerants are competitively priced with systems using R-410a and R-22 for a similar or better level of energy efficiency.

Action on HFCs offers an opportunity to find common ground and build confidence in the difficult international discussions on climate protection. It can also create commercial opportunities for Indian companies. We will continue to research the business case and urge our global leaders to take advantage of the institutions and mechanisms that already exist under the Montreal Protocol to finance costs of phasing down HFCs and tackle the low hanging fruit in the fight against climate change.