Committee The Finance and Expenditure Committee. Climate Change (Emissions Trading and Renewable Preference) Bill. This submission is made by

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1 The Finance and Expenditure Committee Climate Change (Emissions Trading and Renewable Preference) Bill This submission is made by Refrigeration, Air Conditioning Companies Association (R.A.C.C.A) Contact details for this submission are: Select Clerk of the Committee Committee The Finance and Expenditure Committee Select Committee Office Parliament Buildings WELLINGTON (Attn ph Lesley) Submitter Address Submitted by Contact: R.A.C.C.A Refrigeration, Air Conditioning Companies Association PO Box South Auckland Mail Centre 2240 AUCKLAND Graham Sharp Chairman Mike Leggett (General Manager) Ph: Fax Mike@irhace.org.nz Representation: We do not wish to appear before the committee to speak to our submission, this time. However we would like to strongly advocate, on behalf of our membership, for the opportunity to review or be actively involved in any further submissions on this bill or any other proposals that may impact on our membership and industry. We ask that we be kept informed. Consultation: We have consulted with members, industry experts and companies who will be heavily impacted by this bill. Note: The Bill that was available to the public on the government website was not an electronically searchable document. This made it very difficult to search for certain references. An approach for assistance with this resulted in no further advancement. We therefore recommend that in future electronically searchable documents are made available to the public. RACCA (Refrigeration Air Conditioning Companies Association) RACCA is the company association affiliated to the Institute of Refrigeration heating Air-conditioning Engineers of NZ (IRHACE). RACCAs membership encompasses over 110 companies, who willingly accept the responsibility and discipline of a recognized trade association. RACCA members set the industry standards to ensure apprentices and employees are trained to the highest levels reinforcing the professionalism of its members. March 08 1

2 Industry Led Initiatives (Product stewardship in action): RACCA continues to developed and implement industry initiatives. In 1993 IRHACE in discussions with MfE established a Trust for the Destruction of Ozone Depleting Substances. The Ozone Protection Company s in providing the collection and destruction of unwanted and contaminated synthetic greenhouse gases used in the refrigeration and air conditioning industries, is an integral part of protecting our environment from emission damage.this trust collects a voluntary levy from wholesalers (who are also members of RACCA) to fund the costs of destruction of ozone depleting refrigerants and just recently HFC as well. In 2002 the NO Loss campaign was launched along with a Code of Practice for the Reduction of Emissions of Fluorocarbon Refrigerants. This code was applauded and endorsed by the Minister for the environment. Funds were also provided by the Ministry to subsequently published the code and promote the NO LOSS programme. Both initiatives raise awareness in the industry and take a proactive stance on global warming and the safe handling of refrigerants in refrigeration and air conditioning systems. Recently an updated version of the above codes was published Australia and New Zealand Refrigerant Handling Code of Practice 2007, Parts 1 and 2. These codes are available, to anyone, free of charge from the Australian Refrigeration Council's website at While compliance with the Codes is mandatory in Australia, in NZ it is still only voluntary. The codes put greater emphasis on adhering to the New Zealand NO LOSS programme. The challenge now is to make the industry aware of the new codes and their obligations as it would also create an equitable imposition across the entire refrigeration industry in regard to sharing the burden of minimising New Zealand's emissions obligations if all of the refrigeration industry is fully aware of the Codes and their contents. MfE & NZCCCO: The fact that the Ministry has declined our approaches to neither endorse these new codes nor make them mandatory. This we believe will send a wrong message to industry. With so much emphasis now on sustainability, global warming and product stewardship Government should take a lead role in assisting industry to meet these obligations and should be eager to endorse this document, as they did in Refrigerants and the Environment Refrigeration and air conditioning systems, use heat transfer fluids, referred to as refrigerants, to convey heat (energy) around the system. The majority of refrigerants used in systems from, domestic refrigerators through to industrial refrigeration and air conditioning, are synthetic chemical compounds, known as fluorocarbons. Until recently the most common fluorocarbons used, were chlorofluorocarbons (CFC s) and hydochlorofluorocarbons (HCFC s). Due to their chemical stability, non-toxicity and non-flammability nature, they present ideal characteristics for refrigeration applications. However, CFC s and HCFC s are ozone depleting substances and are covered by the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer, to which New Zealand is a signatory. This March 08 2

3 international protocol and the 1996 Ozone Layer Protection Act, put in place controls and phase out schedules, for ozone depleting substances. To replace ozone depleting refrigerants, the industry has developed a range of hydrofluorocarbon (HFC) refrigerants. Whilst these refrigerants are not ozone depleting, they (like the ozone depleting refrigerants they replace) all have a Global Warming Potential (GWP). HFC s are listed under the Annex A of the Kyoto Protocol to the United Nations Framework Convention on Climate Change, as Synthetic Greenhouse Gases (SGG s). It is important to appreciate, refrigerants are not used up in the refrigeration process and any refrigerants employed, will either be lost to atmosphere through accidental release, (such as failure, or leakage from the system), recovered and reused, or be collected for disposal (destruction), at the end of their usable life. Their Global Warming Potential, is only realised when the refrigerants are released into the atmosphere. Whilst they are contained within the system, they cause no environmental damage. In the past accidental release has contributed to the majority of refrigerant loss. Whilst accidental release is still the major factor, industry initiatives, such as the Code of Practice for the Reduction of Emissions of Fluorocarbon Refrigerants in Refrigeration and Air Conditioning Applications and the MfE/IRHACE No-Loss Campaign, are contributing to industry awareness of the environmental impact of accidental loss and provide strategies to minimise such losses. These initiatives are having a beneficial effect, as the volume of refrigerant collected for destruction is increasing (refer table 1 - ODS Collected). Concerns with the Proposed Bill Synthetic greenhouse gases used as refrigerants are imported into New Zealand both in bulk (in cylinders) and in pre-charged systems (i.e. domestic and commercial refrigerated cabinets, air conditioning and heat pump systems etc.). Recent surveys suggest that of the approximately 611 tonnes of HFC s imported, 54% (330 tonnes), is bulk imports and 46% (281 tonnes) is pre-charged into imported systems. Bulk imports are used to charge (fill with refrigerant) systems manufactured in New Zealand, as well as used to replace contaminated refrigerant within systems and refrigerant lost to atmosphere through leakage. Whilst supporting the introduction of an emission trading scheme, it appears that the bill will apply the emission trading regime to only the bulk import of synthetic greenhouse gases and not all imported SGG s. (i.e. SGG s imported as part of a system). Assuming this is the case, the effect will have significant implications for the refrigeration and air conditioning industry, creating an imbalance, which will disadvantage New Zealand manufacturers. Page 28 of the explanatory notes under the section Staged entry of sectors into the NZ ETS states: In each sector, there are a range of options for where to place the point of obligation. Points of obligation are designed to: (a) Keep compliance and administration costs low (b) Capture as many of sector s emissions as practicable. (c) Reflect the feasibility of monitoring and verifying emissions at each point. March 08 3

4 (d) Create appropriate incentives to reduce emissions whilst not unduly deterring worthwhile economic activity and investment. Whilst we can appreciate the reasoning behind keeping administrative costs down, the proposal to only target bulk SGG s is at odds with capturing as many sectors as practical, will not assist in verifying emissions and will work against incentives to reduce emissions. It will also: Distort the industry by favouring importers over manufacturers. Impose a penalty on New Zealand based system and appliance manufacturers, compared with imported appliances, for which no carbon tax will be levied. New Zealand manufacturers are already paying a voluntary levy to the Ozone Protection Company, to fund the destruction of refrigerant at the end of its useful life. Importers do not pay this levy for the pre-charged refrigerants they import, yet they benefit from the destruction scheme. The major manufacturers are also significant exporters and the carbon tax will disadvantage exports, unless there is provision for carbon tax claw back on precharged refrigerants in exported appliances. Manufacturers exporting to countries applying a carbon tax or similar penalty, on SGG s pre-charged in systems, will be penalised twice. Manufacturers also face additional costs from increases in energy and fuel. The carbon tax on only bulk SGG s will create a massive incentive for discontinuing manufacturing in New Zealand, moving affected manufacturing off shore (referred to as carbon leakage ). SGG s are manufactured from combinations of components having varying GWP s. It is presumed that the carbon tax will be calculated on the combined GWP. This will distort the price of the various refrigerants, irrespective of their energy efficiency and could cause cheaper lower energy efficiency refrigerants to be used where more energy efficient refrigerants would benefit, by reductions in energy generation emissions. New Zealand due to its small size and agriculture based economy, has unique market requirements and we rely on local manufacturers to provide systems that best serve our needs. Overseas manufacturers, build for an international market and given the minute size of our requirements we have little, if any, influence on the products they make. We have to accept what the international market specifies. We need to encourage not penalise local efficient manufacturing. There will be an incentive to find ways to import systems, or system parts precharged with refrigerant, which works against the intent of the bill. There will be a incentive to use imported pre-charged appliances rather than more energy efficient integrated systems (manufactured on site), in areas such as food retailing (ie supermarkets). Integrated systems (commonly referred to as rack systems ) have a large refrigerant plant feeding multiple retail refrigerated display cabinets and refrigerated storage. Such a system is designed and installed to meet the customer specific requirements and can be configured to provide significant energy savings. It does however, contain significant refrigerant, as the refrigerant plant is remote from the retail cabinets and storage. Similar retailing space can be provided by installing multiple, imported, pre-charged refrigerated cabinets, which would not be subject to the carbon tax. Multiple cabinets will be considerably less energy efficient than a comparable integrated system, contributing to significant CO 2 emissions from energy generation. As SGG s are also used in the insulation of refrigerated appliances, with domestic refrigerators using up to 5 times the SGG in the insulating foam, as in the system. New Zealand manufacturers using SGG s in the insulation will be caught twice creating a substantial disadvantage, compared to importers. March 08 4

5 It will remove any incentive for importers to use low Global Warming Potential (GWP) refrigerants, or non SGG s, as foam blowing agents. Most importantly, we believe the effect of targeting only bulk SGG s is contrary to the aim of the legislation and sends the wrong message to New Zealanders and to our overseas trading partners. By counting all SGG imports and exports, whether in bulk, or pre-charged in imported systems, a fair and equitable system would be created and makes more sense than providing an industry assistance package to address the inequity that counting only bulk creates. Counting the small amount of SGG s in some imported appliances (i.e. domestic refrigerators), could be seen as administratively difficult. However, Australia has developed a methodology to address this and we have confirmation from New Zealand exporters that the systems works efficiently. Australian Legislation The Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 is Federal Legislation covering both Ozone Depleting and Synthetic Greenhouse Gases 1. Key components of the Legislation are: Importers of ozone depleting and synthetic greenhouse gas refrigerants, either in bulk, or contained in equipment, are required to have an import license. The legislation makes it mandatory for the refrigeration and air conditioning industry to recover and safely dispose of ozone depleting and synthetic greenhouse gas refrigerants. The import license records enable a levy to be imposed on all refrigerant imported into Australia in both pre-charged systems, as well as in bulk. It also allows for the levy to be clawed back on exports both in pre-charged units and in bulk. The Relationship Between Refrigeration Technology and Energy Emissions Refrigeration technology can play an increasing role in reducing CO 2 emissions from energy generation and any impediment created by this bill could affect the benefits the technology can provide. It is important to note that the greenhouse gas emissions from refrigerants, which only occur if the refrigerant is lost to atmosphere, are only a small part of the greenhouse gas emissions from refrigeration and air conditioning systems. Considerably greater emissions occur from the energy used during the lifetime of the system and also during both manufacture and destruction. By encouraging the use of more energy efficient systems, the industry can have a significant effect on the overall emissions over the lifetime of the system. SGG s when used in heat pumps for residential, commercial and industrial heating, can provide enormous energy efficiency benefits over traditional heating methods. The encouragement of heat pumps over less energy efficient heating technologies, is essential to reducing our increasing energy consumption and increased CO 2 emissions from generation. These energy benefits have been developed to also heat water for residential use and more importantly for commercial and industrial process. This is relatively new technology in New Zealand and with encouragement has the ability to provide massive energy savings. In applying the NZ ETS to SGG s used as refrigerants, we need to ensure we do not discourage the use of these technologies, which have the ability to reduce greenhouse gas emissions. March 08 5

6 Comments/Recommendations on the Proposed Bill Given the Australian experience it would not seem to difficult to count all imports and exports of SGG s, whether in bulk or in system charges and it makes more sense than industry assistance packages to address the inequity of just counting bulk imports. The advantages are likely to be: It will ensure that local manufacturers and importers are competing on an equal basis and will assist in ensuring that local manufacturing is retained. It will provide an incentive to use the chemicals in the system and insulation that have low emissions, with both domestic manufacturers and importers on a level playing field. It will encourage the use of energy efficiency technologies, with the benefit of reducing emissions from energy generation. The collection of data on SGG usage and emissions will be easier and considerably more accurate. The collection of accurate import information on SGG s will provide both the government and industry a better understanding of potential emissions and provide the opportunity to implement programmes and strategies to target reducing emissions. A carbon tax on imports of SGG s both in bulk and pre-charged in systems will ensure that importer are committed to the market and are readily identifiable. It would assist the OPC in collecting a levy on all imported refrigerants (i.e. both bulk imported and imported pre-charged refrigerant), to fund the eventual destruction of refrigerants, reducing the levy required per kg and ensuring that all importers are participating in the scheme. All industry is asking for is a level playing field for manufacturers and importers. March 08 6