In my first article — “Economically destructive cap and trade for HFCs is here” — I looked at the Kigali Amendment part of the American Innovation and Manufacturing Act or AIM. There the big problem is that the HFC cap is based on 8-10 year old data, which is mostly missing and probably inaccurate for today.
However, AIM adds some major rules to Kigali, rules which have their own problems.
In particular AIM singles out 6 industries and applications that use a lot of HFCs for special treatment. They get what are called “mandatory allocations” of allowances. In principle this means they get all the allowances they need for certain uses, for the next five years. Whether this actually happens or not is a serious problem.
Here is a condensed and edited version of the AIM text that names these special industries and uses:
“... for the 5-year period beginning on the date of enactment of this Act, the Administrator shall allocate the full quantity of allowances necessary, based on projected, current, and historical trends, for the production or consumption of a regulated HFC for the exclusive use of that HFC in an application solely for—
(aa) a propellant in metered-dose inhalers;
(bb) defense sprays;
(cc) structural composite preformed polyurethane foam for marine use and trailer use;
(dd) the etching of semiconductor material or wafers and the cleaning of chemical vapor deposition chambers within the semiconductor manufacturing sector;
(ee) mission-critical military end uses, such as armored vehicle engine and shipboard fire suppression systems and systems used in deployable and expeditionary applications; and
(ff) onboard aerospace fire suppression.“
I think (bb) defense sprays refers to things like pepper spray and bear spray. It is amusing that these and things like trailer foam are considered essential while air conditioning is not, but I digress.
EPA has two big problems here: (1) Who are these people? and (2) How much HFC do they need for the next five years? In a way these industries and uses have been nationalized because EPA gets to say how much is “necessary”.
By way of a start EPA commissioned so-called “market characterization” studies of the non-defense cases. (They may be deferring to DOD for the others.) Some of the more organized industries have responded to these studies by filing critical comments in conjunction with EPA’s recent Notice of Data Availability or NODA.
Here, as in the case of the HFC cap (called a baseline) discussed in my previous article, the uncertainties are great. Take the metered-dose inhaler industry for example. These inhalers are critical for medical care for a great many people so it is vital that there be no AIM induced shortages.
This problem is clearly flagged in comments by an industry group called the International Pharmaceutical Aerosol Consortium or IPAC. The EPA study is the “Market Characterization of the U.S. Metered Dose Inhaler Industry” prepared by ICF (“the ICF report”). Metered-dose inhalers are referred to as MDI.
Here is an example of IPAC’s deep concern about the uncertainty of need:
“The ICF report cites the EPA Vintaging Model (VM) in several instances. It is essential that the assumptions and data used in the VM are transparent and validated. For example, the ICF report states that under the EPA VM, it is estimated HFC MDI sales decreased by 31% between 2015 and 2018. This statement does not comport with IPAC’s general understanding of the market and ICF notes in footnote 12 that it is possible that the market remained constant or increased during that period. We agree and would presume that the market remained constant or increased, rather than decreased. This is a very important data point and we strongly urge that it be validated prior to relying on it for purposes of decision- making.”
So did MDI usage drop by 31%, or stay constant, or increase by some unknown amount? How can EPA allocate the “necessary” HFC allowances if this fundamental fact is unknown?
The industry firm Kindeva, who makes MDIs, flagged other huge uncertainties in their NODA comments. Here is a striking example:
“Kindeva conducts market research of the current utilization of MDIs. This is achieved through analysis of prescribing and sales trends. Market analysis utilizing IQVIA1 data for 2017, 2018 and 2019 indicates that annual US MDI sales grew from 93.7 to 97.5 million units, a sustained growth in line with the growth of alternative delivery formats namely dry powder inhalers (DPIs) and soft mist inhalers. This data suggests the ongoing popularity of the MDI format for patients and prescribing physicians. The ICF report presents an interval of MDI utilization between 56 and 123 million MDIs in the US: “Given the various assumptions and uncertainties associated with EPA (2020) and the Koura model, it is likely that actual annual HFC MDI use in the United States is between 56 and 123 million MDIs.” The IQVIA data aligns with the upper end of the range of the ICF report. It is worth noting the IQVIA data presents only prescription sales...”
So EPA’s own study suggests that usage is somewhere between 56 and 123 million. This is a huge gap. How is EPA supposed to allocate a specific number of allowances for MDIs given this enormous uncertainty?
Surely it is better for EPA to err on the side of abundance rather than shortage, given that people’s health and maybe even lives may be at stake. The upcoming proposed regulation implementing AIM will be extremely interesting in this regard!
The Semiconductor Industry Association posted similarly critical comments on the “Market Characterization” for their industry. They point out that semiconductors are fundamental to the economy and that America is a global leader in their manufacture. Here shortages could be economically crippling.
In short, it is far from clear how EPA can establish allowance allocations for the mandatory industries and HFC uses that meet the AIM requirement of necessity. Both human and economic health may hang in the balance.
There are other potentially huge issues in the AIM rules that deserves quick mention.
First, it is not clear whether or not these mandatory allowances come out of the general pot of allowances for all HFC uses. If they do come out of the general pot then the initial 10% reduction might be considerably larger for the non-mandatory uses like air conditioning.
Note too that there is a massive 40% cut scheduled for 2024, less than three years away. This may well be technologically and economically impossible. Ironically, while AIM specifically allows EPA to speed up the HFC phase out, there is no provision for slowing it down to make it work. Technological change on this massive scale takes time.
In closing, I have worked in the field of regulatory confusion for many years and AIM is probably the worst case I have ever seen. EPA is about to implement a rapidly declining cap on an economically and medically critical substance with virtually no solid information on the extent of its use or the feasibility of substitution.
Even worse it is doing this incredibly dangerous thing for a foolish reason, namely climate change. The mandatory cost-benefit analysis should be very interesting, given that most HFCs are probably not even emitted into the atmosphere.
EPA’s proposed AIM regulations are due out soon because of the mandatory fast track. Stay tuned!