U.S. Fluorocarbon Industry Economic Analysis

Transcription

1 U.S. Fluorocarbon Industry Economic Analysis Report Prepared by: Joseph M. Steed JMS Consulting April 29, 2013

2 Table of Contents I. Executive Summary... 1 A. Project Definition Objectives Study Methodology The Industry... 2 B. Economic Activity Summary... 3 II. Introduction... 5 A. Study Objectives... 5 B. Background... 5 C. Industry Segments Manufacturing Industries Repair and Maintenance Wholesale and Contracting Other Industries Segment Summary D. Methods E. Overview III. Data Collection and Analysis A. Data Sources B Economic Census Data Data by Industry Data by Product Line i

3 C. Industry Interviews D. Data Analysis Manufacturing Industries Repair and Maintenance Wholesale & Contracting Other Industries IV. Economic Size of the Fluorocarbon Industry A. The United States Fluorocarbon Industry B. Contributing Industries Manufacturing Industries Repair and Maintenance Wholesale & Contracting Other Industries C. Global Impact of the Fluorocarbon Industry V. Appendices A. Data Source Tables Payroll and Employment by Industry NAICS Product Line Codes B. Author s Curriculum Vita Data Tables Economic Size of the US Fluorocarbon Industry Estimated Maximum Economic Size for Other Industries ii

4 Fluorocarbon Industry Economic Analysis I. Executive Summary The broad United States fluorocarbon industry contributes an estimated $158 billion in shipments and services to the country s economy. This output is generated by approximately 729,000 employees with an industry-wide payroll of $32 billion. An analysis of multiple fluorocarbon-using industries developed these estimates based on data from the 2007 US Economic Census, supplemented by information from industry experts. A. Project Definition In order to better understand the role of fluorocarbons in the United States economy, the Alliance for Responsible Atmospheric Policy (Alliance) commissioned an analysis to estimate the total annual sales of goods and services and the number of employees for the broad industry. 1. Objectives The analysis was designed to assess the economic size of the broadly-defined United States fluorocarbon industry, utilizing wherever possible contemporaneous, publicly available information with documented sources and data. All significant fluorocarbon-related economic activities were reviewed, from production of fluorocarbons through manufacture and where appropriate wholesale, maintenance, and installation of products incorporating or directly dependent upon fluorocarbons. Also considered were recovery, recycle, reclaim, and destruction of fluorocarbons. For each industry segment where data are sufficient, estimates are provided of the annual dollar volume of sales or services (including exports), the total annual payroll, and the number of employees. Other significant industries are examined qualitatively. 2. Study Methodology The 2007 US Economic Census is the primary source of data for all fluorocarbon industry segments that can be identified with specific line items in the Census database. Using US manufacturing data to describe the industries, exports are included implicitly, while imports are excluded. Data from industry experts supplement the Census data where classifications are too broad to be specific to fluorocarbon-related economic activity. For two industries, data availability and structural changes in the industry necessitated use of data rather than Some segments are combined for 1

5 reporting to ensure that proprietary information is protected and that all reported results include only aggregated data from multiple producers. Census data sorted by businesses primary industry were used to define average labor productivity, for both payroll dollars and number of employees, for each identified industry. Industry-wide output of goods and services is based on Census data sorted by product line. These data include production from all companies regardless of their primary industry and are a more complete measure of the relevant economic output. Refrigeration & Air Conditioning Equipment Comm. Repair & Maintenance Wholesalers Contractors 3. The Industry The industry segments addressed in the study are displayed in the figure to the right. Household Appliances Motor Vehicle Air Conditioning Equipment Appliance Repair & Maintenance Automotive A/C Service For many segments, Census data alone are sufficient to estimate the economic size of the industry. A few minor contributions from non-fluorocarbon-containing products or services may remain within the data, and some small contributions to other product lines may be similarly excluded. The Medical (metered dose inhaler (MDI)) industry s economic output is based on data from an industry survey. Aerosols are based on industry data for number of containers by category, along with estimates of fluorocarbon fraction and of category prices. Fluoropolymers and Process Agents use Census data supplemented by proprietary estimates of fluorocarbon-related fractions, reported only in the aggregate. Most of these supplementary data are proprietary; therefore, only calculated results are reported. Fluorocarbon Production Polystyrene Foams Medical MDIs Aerosols Fluoropolymers & Process Agents Urethane Foams Fire Protection Semiconductors Halogenated Solvents Reclaim, Recycle & Destruction 2

6 For a few other segments, no specific industry or product line data have been identified for fluorocarbon-related activity. All are part of much larger economic Census categories containing diverse activities. Where possible, estimates are included of the total industry size. However, the fluorocarbon-related portion remains unknown. B. Economic Activity Summary Manufacturing industries comprise $54 billion in shipments and services with 154,000 employees earning $6.5 billion. Repair and maintenance activities add $4.7 billion in services, with a large labor component of 43,000 employees and a $1.4 billion payroll. At the wholesale and contracting level of the industry, the total shipments and services add another $99 billion to the total, with a very large labor force of 532,000 employees earning almost $25 billion. Economic Size of the US Fluorocarbon Industry* SEGMENT VALUE OF SHIPMENTS / SERVICES ($billion) ESTIMATED ANNUAL PAYROLL ($billion) ESTIMATED PAID EMPLOYEES (thousands) Fluorocarbon Manufacturing Refrigeration & Air Conditioning Equip. Mfg Household Appliance Manufacturing Motor Vehicle Air Conditioning Equip. Mfg Foam Manufacturing Medical - MDIs Aerosols Fluoropolymers and Process Agents MANUFACTURING SUBTOTAL Repair & Maint. -- Commercial & Household Automotive AC Service REPAIR & MAINTENANCE SUBTOTAL Air Conditioning Wholesalers Air Conditioning Contractors WHOLESALE & CONTRACTING SUBTOTAL TOTAL *Based on 2007 US Economic Census data supplemented by industry data 3

7 Of the $54 billion in shipments and services produced by product manufacturers, almost half, $26.3 billion, is from the manufacture of refrigeration and air conditioning equipment. Home appliances and motor vehicle air conditioning add another $7.3 billion and $5.1 billion, respectively. Thus the broader use of fluorocarbons as refrigerants comprises over 70% of all manufacturing economic activity. The remainder includes foam manufacturing, medical metered dose inhalers, aerosols, and fluoropolymers and process agents. Labor represents roughly 5% to 15% of total deliveries and services, with the bulk material industries typically lower than those of manufactured products and equipment. Refrigeration and air conditioning equipment requires ongoing maintenance to retain performance over time. For commercial and residential equipment, including appliances, the repair and maintenance activity is approximately 6% of annual manufacturing output, very reasonable in light of the multi-year lifetimes of the equipment. For motor vehicle air conditioning, repair and maintenance activities are almost half as large as the annual manufacturing output, reflecting the large fleet of air conditioned vehicles and the demanding nature of this application. Both kinds of maintenance are, as expected, very labor intensive employing 35% as many people as the associated manufacturing industries. A large wholesale industry supports distribution of air conditioning and refrigeration equipment, with contractors doing much of the installation, both residential and commercial. Together, their shipments and services are almost three times those of the associated manufacturing industries with almost five times the labor requirements. Several additional industries are not included in these totals as available data do not allow for separating the portions of the industries that are dependent on fluorocarbons. At least some portion of each of these industries uses fluorocarbons as components or process inputs. The total (where upper limit estimates are possible) of industries in this category would add as much as $74 billion in shipments and services with a payroll of $10.3 billion to 158,000 employees. The actual contributions could be considerably smaller. Although it would be desirable to develop global estimates similar to these US estimates, there is little information available to serve as a basis for estimating the economic size of the global fluorocarbon industry. 4

8 II. Introduction Prepared at the request of the Alliance for Responsible Atmospheric Policy (Alliance), this analysis of the broad fluorocarbon industry provides an estimate of the total economic value of the industry. It examines the total value of sales and services of companies producing or utilizing both fluorocarbons and the equipment directly dependent on fluorocarbons. In addition, estimates are provided for the total payroll and number of employees involved in these enterprises. A. Study Objectives The objectives of the study, as ultimately defined in collaboration with the Alliance, are the following: Assess the economic size of the broadly-defined United States fluorocarbon industry, utilizing wherever possible contemporaneous, publicly available information with documented sources and data. Include all fluorocarbon-related economic activities from production of fluorocarbons through manufacture and where appropriate wholesale, maintenance, and installation of products incorporating or directly dependent upon fluorocarbons. To the extent possible, include recovery, recycle, reclaim, and destruction of fluorocarbons. Report, for each industry segment, estimates of the annual dollar volume of sales or services (including exports), the total annual payroll, and the number of employees. Where data are unavailable, include qualitative discussion of all minor industry segments. B. Background The size of the fluorocarbon industry, by one measure or another, has been of interest for decades. Beyond the interests of businesses in understanding their competitors and the markets they serve, the roles of fluorocarbons in both stratospheric ozone depletion and global climate change have generated a broader need for governments and scientists to understand the scope of the industry. Scientific appraisals of potential environmental impacts require an understanding of the total volume produced of a variety of individual fluorocarbons as well as the usage patterns dictating their eventual destruction or release to the atmosphere. Development and administration of regulations similarly requires an understanding of production volumes and how they are distributed among industries and countries. The implementation of regulations which would be both effective and economically efficient required and continues to require an even broader understanding of the market segments in which the chemicals are employed. But importantly, it is also essential to understand their economic significance as part of any such regulatory effort. 5

9 The diversity of these industries, however, makes the assembly of data sufficient to describe the economic size of the full industry a challenging task. The fluorocarbon-related industries operate independently of each other. There is little direct business motivation to collect a self-consistent set of data across the full industry. Data or estimates for each market are often collected by trade associations or other organizations for specific purposes, but are structured to meet those segmentspecific needs rather than a broader characterization of the industry. For example, there may be industry data on insulating foams as a product, but no reliable breakout of data on the sales volume of those containing fluorocarbons. For certain refrigeration and air conditioning segments, there may be good data on OEM production or sales, but only less reliable data on the service component of the industry. And, in fact, the service component can cut across multiple segments. The final structure of the full set of data has been determined placing priority on completeness rather than ability to provide reliable breakdowns within a given sector. Consideration has also been given to ensuring protection of proprietary information where the number of reporting entities is very small. Although the true economic value of the industry is best appreciated from its global totals, there are no publicly available datasets with the desired economic parameters. The study therefore reports data from the United States only, with some discussion of how it might scale globally. Finally, the base year for which data is most readily available varied from sector to sector. Most of the involved industries are not large growth industries in the US, so to the accuracy of available data, the totals do not vary greatly from year to year. Where an industry is undergoing significant change, a base year has been chosen to best represent the recent state of the industry. C. Industry Segments The role of fluorocarbons in the economy goes well beyond their manufacture by a relatively small number of companies. The basic fluorocarbon products include hydrofluorocarbons (HFCs), hydrochlorofluorocarbons (HCFCs), perfluorocarbons (PFCs) and other mixed halocarbons that contain fluorine. They are sold into a variety of industrial markets and incorporated into products ranging from air conditioning and refrigeration to metered dose inhalers (MDIs) in the pharmaceutical industry. In addition to manufactured products, there are important service industries providing repair and maintenance services generally including fluorocarbon recovery and replacement services in conjunction with other repairs. Distribution and installation of air conditioning and refrigeration involves wholesalers and contractors that represent another significant area of economic activity directly dependent on fluorocarbon-containing equipment. To some extent, the inclusion of downstream activities may be considered to result in double-counting of certain economic value. For example the wholesale distribution of air conditioning equipment includes the value of equipment also reported separately as part of air conditioning manufacturing. This analysis, however, is not a 6

10 summary of value added by the industry, but rather a measure of the impact on the overall economy in terms of financial transactions and employment. Therefore all activities are included with no attempt to remove the value of inputs to each industry. 1. Manufacturing Industries Fluorocarbon Manufacturing comprises the manufacture of all fluorocarbon materials examined in this study. The other manufacturing industries represent the markets into which fluorocarbons are sold. The largest industrial segment is Refrigeration and Air Conditioning Equipment Manufacturing. This includes residential air conditioners as well as commercial applications like industrial chillers and rooftop units, commercial refrigeration, and refrigerated transport. The full range of air conditioning applications is included, such as unitary air conditioning, window units, split systems, heat pumps, and dehumidifiers. Beyond the direct manufacture of equipment in this category, it is important to consider the manufacture of compressors and other components designed for specific fluorocarbon refrigerants. In the course of the study, data were not found to support the detailed breakdown of the various air conditioning and refrigeration segments using the customary industry segmentation by type of equipment. All commercial and residential air conditioning and refrigeration applications are grouped into a single segment for purposes of the study, except for mobile air conditioning and home appliances. A very small percentage of commercial units may employ other refrigerants, but these have not been excluded. The Household Appliance Manufacturing industry employs fluorocarbons in refrigerators, freezers, and water heaters, either as a refrigerant or as a component of insulating foam. Although some appliances use alternate refrigerants or foam-blowing agents, the percentage containing no fluorocarbons in either use is believed to be quite small. Thus all such appliance manufacture is included in the reporting for this segment. The vast majority of motor vehicles include air conditioning in the United States, comprising a significant application for fluorocarbons. The Motor Vehicle Air Conditioning Equipment Manufacturing industry, including compressors and other components, is included in a separately reported segment. The reported estimates may also include a small portion of units employing other refrigerants. The Foam Manufacturing industry uses fluorocarbons as blowing agents for certain types of foams where the fluorocarbons are retained within the foams for their insulating or cushioning value. These represent only a portion of all foams, primarily transportation and construction foams made with either polyurethane or polystyrene, and shipping pads made with polyurethane. A relatively small amount of shaped cushion manufacturing without fluorocarbons could not be excluded from the reporting, but comprises less than 4% of the total, and a de minimis fraction of the overall industry. Fluorocarbons serve as propellants for metered dose inhalers (MDIs) used by the pharmaceutical industry for delivery of respiratory drugs. The Medical MDIs segment as reported here includes only HFCs and not any remaining uses of CFCs or HCFCs. 7

11 This is more representative of the recent state of the industry and the selected sales value data are from However, there is not large growth in the overall industry, and the reported totals are not expected to be greatly different from the total for all fluorocarbon MDIs in prior years. The greater part of the fluorocarbon involvement in the Aerosols industry disappeared when CFCs were banned from this application several decades ago. However, HCFCs were employed for certain applications for a time and some remaining applications, especially hairsprays, colognes, perfumes, and room and personal deodorants utilize HFCs today. Fluorocarbons are also used in the production of other materials, either as a raw material consumed to make the new materials or as a process agent which makes production of the new materials possible. Fluoropolymer manufacturing changes the raw material fluorocarbons form to manufacture thermoplastic resins, plastics, and elastomers. Fluorocarbons are used as process agents in the manufacture of certain nonwoven materials and manufactured fibers. Because there are relatively few manufacturers involved in these often-proprietary processes, these applications are grouped for reporting purposes as Fluoropolymers and Process Agents. 2. Repair and Maintenance Most of the manufacturing industries served by fluorocarbons lead to retail products which are used and eventually disposed of without servicing or repair or where any repairs do not involve the fluorocarbon components. However, the large manufacturing segments producing air conditioning and refrigeration equipment, both stationary and mobile, and household appliances lead to products which are often serviced repeatedly throughout their lifetimes. Importantly, the repair and maintenance activities generally involve the addition and/or recovery and replacement of refrigerants. Repair and Maintenance Commercial and Household groups all servicing of commercial and residential air conditioning equipment as well as the repair of household refrigerators and freezers. Mobile air conditioning service is reported separately as Automotive AC Service. 3. Wholesale and Contracting Although not all industries are tracked further down the value chain toward consumers, again the refrigeration and air conditioning industries are unique in that their distribution and installation are largely conducted by either manufacturers themselves or by businesses specializing in these activities. By contrast, for example, although chemical wholesalers often distribute some fluorocarbons, they constitute a very small portion both of the wholesalers sales and of the broad fluorocarbon industry. The wholesale distribution of air conditioning and refrigeration equipment is often conducted by businesses covering the full range of heating, ventilation, and air conditioning, of which air conditioning is a large part and can be identified and reported separately as Air Conditioning Wholesalers. 8

12 Most air conditioning and refrigeration equipment is installed by contractors who typically handle some combination of plumbing, heating, and air conditioning. These businesses may range from single employees to large contractors with many employees and multiple locations. The air conditioning portion of their work is reported as Air Conditioning Contractors. 4. Other Industries Some applications of fluorocarbons represent niche roles in much larger industries where it is difficult to apportion the value directly attributable to fluorocarbons. Where possible, an upper limit will be established for economic value, and their role in the economy is discussed qualitatively. Fire Protection was a significant industry prior to regulations of ozone depleting substances, notably the Halons. Replacement fluorocarbons, including both HCFCs and HFCs are now being utilized for fire extinguishers and extinguishing systems, but it is not possible easily to separate them from the manufacture of other fire extinguishers. This application is believed to make only a small contribution to the overall industry s economic value, even when considered at both the manufacturing and wholesale levels. Semiconductor Manufacturing utilizes specialized fluorocarbons in certain process steps, most often as etchants in the production of chips. There is little information about how broadly the materials are used in semiconductor applications, and most semiconductor processes are highly proprietary. However, a very large fraction of chips are likely to involve fluorocarbons at some point during their manufacture. Despite the specialty nature of the fluorocarbons used and relatively small volume versus other fluorocarbon applications, the very high value of the semiconductors themselves implies a significant contribution to the economic value of the fluorocarbon industry. The Halogenated Solvents industry includes fluorocarbon solvent applications, but also more widespread use of other halogenated solvents. Following the regulation of CFC solvents, there has been widespread switching to non-fluorocarbons for many applications. The remaining uses comprise niche markets like precision cleaning of such equipment as aircraft instruments. The niches are quite specific, and not easily identifiable separately from applications not utilizing fluorocarbons. Although some are high in value, the volumes are very small, and would make at most a de minimis contribution to the overall economic value of the industry. Supporting many of the fluorocarbon manufacturing industries, but especially refrigeration and air conditioning, is a set of activities involving Recovery, Recycle, Reclaim, and Destruction of fluorocarbons. Originally developed to support CFC-using businesses as the manufacture of CFCs was being phased out, these businesses have performed a similar role for HCFCs and have the ability to function as needed for HFCs. However, much of their activity is spread among a variety of industry codes. 9

13 5. Segment Summary The fluorocarbon industry serves a broad range of downstream industries, all of which generate significant contributions to the US economy. The figure to the right summarizes the industry segments discussed in this report. Where quantitative estimates of industry size are unavailable, a qualitative review is included. D. Methods Refrigeration & Air Conditioning Equipment Household Appliances Comm. Repair & Maintenance Wholesalers Contractors Appliance Repair & Maintenance Industry data from trade associations, government sources, and a variety of individual contacts were reviewed to identify one or more sources that could be used to define the economic size of the fluorocarbon industry. The United States 2007 Economic Census was found to have useful data for a large portion of the industry and was chosen as the primary source. For several of the industry segments, the desired estimates could be directly extracted from the 2007 Census database, with reasonable assumptions about scaling available employment data. Fluorocarbon Production Motor Vehicle Air Conditioning Equipment Polystyrene Foams Medical MDIs Aerosols Fluoropolymers & Process Agents Urethane Foams Fire Protection Automotive A/C Service For some segments, the available details in the Census data were insufficient to isolate the fluorocarbon-related portion of the data from the broader category for which data were available. In such cases, supplemental data from industry experts permitted estimates based on assumed fractions of reported categories. Semiconductors Halogenated Solvents Reclaim, Recycle & Destruction For other, mostly small segments, there remained insufficient information to make reasonable estimates. In those cases, the industries are discussed qualitatively to give a perspective on their significance to the overall economic impact of the industry. 10

14 E. Overview The remainder of the report provides a more detailed description of the selection and processing of the data, followed by a discussion of the economic summary results for each segment and an estimate of the total impact. Finally, some the appendices provide additional detail on the specific data used in each industrial segment. 11

15 III. Data Collection and Analysis A. Data Sources Many portions of the fluorocarbon industry compile statistics on the size and growth of their industries, but most employ measures best suited to their industry needs. Few collect statistics on dollar volume, focusing rather on units produced, such as volumes for bulk chemicals or number of final products for assembly industries. If there is a measure of average pricing, it is possible to infer annual dollar volumes, but such price statistics are rarely collected, to avoid potential antitrust issues. A search was performed to identify public sources of information for the various industries, particularly through trade associations. Some data found were useful in testing the reasonableness of study estimates, but most sources were insufficient to allow the desired estimates of the economic size of the fluorocarbon industry. Some industry data sources were available only to paid subscribers, and were not used directly in the study. Data published by the Air Conditioning, Heating, and Refrigeration Institute were most suited to this study, and were drawn largely from US Economic Census data. Data from the full Economic Census, conducted every five years, most recently in 2007, were found to provide a good basis for most of the economic activities of interest to the study and were chosen as the basis for this report. It is important to note that use of this dataset also allows for relatively straightforward updating of the study when the 2012 Economic Census data are published. B Economic Census Data The 2007 Economic Census comprises a large database of information reported by businesses in the United States. Each company reports for each of its locations the dollar volume of sales for each product line or service manufactured or sold at that location, using the North American Industry Classification System (NAICS) codes to describe the products and services. The data are available online from the US Census Bureau, and can be searched using the American Fact Finder. Census data are estimated for the smallest companies, expected to count for no more than 3% of the value of shipments for the industry. The data are also subject to nonsampling errors. Some companies could be missed; NAICS classifications may be chosen incorrectly; questions can be interpreted differently; data may be recorded incorrectly; and so on. However, precautions are taken throughout the process to minimize the effects of such errors, and they are expected to be small compared to other sources of uncertainty in the present study. 1. Data by Industry Each reporting site also identifies the primary NAICS industry to which it belongs and reports employment data for the location, including both annual payroll and the number of paid employees, along with the total value of shipments and services for the location. The employment data are not allocated among industries if the location 12

16 produces products belonging to more than one NAICS industry code, but are associated only with the primary industry for each site. Individual site data, of course, are not accessible, but values can be obtained for both payroll and annual dollar volume of goods and services classified by primary industry of the reporting location. Because these industry data summarize annual dollar volume of goods and services by primary industry, some of the value reported is associated with product lines which are parts of other industries. Also some of the actual value for a given product line comes from businesses with different primary industries and is not included in these industry totals. Thus industry data do not provide the best measure of annual dollar volume of goods and services for a given product line. The employment data included in industry data, however, provide excellent productivity measures for a given industry, as they summarize all businesses for which that given industry is primary. All employment and payroll estimates included in this study rely on the values of Payroll as a Percent of Shipments and Services, and Number of Employees per Million Dollars of Shipments and Services which are derived from the reported industry data 2. Data by Product Line As noted earlier, each business reporting to the Census provides the annual dollar volume of shipments and services for each product line associated with the site. These are totaled and combined with employment data to produce the industry data. However, the goods and services values are also summarized by product line across all reporting sites in the Census database. Furthermore, the product line data are often broken down into far more specific subsets of the product lines used to define the primary industry. These product line data also include all producers of a given product line, regardless of the primary industry for the location at which they are produced, and they exclude sales of other product lines. Thus they provide a more accurate representation of the totals for a given product line than do the data summarized by primary industry. In many cases, the product and industry data are quite similar, as most of a given product line is manufactured by companies for which that product line is primary. In other cases, the product lines of interest are associated with multi-product sites and the totals by industry and by product line can be quite different. Where the NAICS product lines are sufficiently specific to be ascribed completely to a fluorocarbon-related industry, they can be used directly to provide estimates Annual Value of Goods and Services of those industries for this study. In other cases, the NAICS product lines group certain fluorocarbon-related products and services with similar products and services which are not associated with fluorocarbons. In such cases other inputs are required to provide the estimates of the relevant portion of the Annual Dollar Volume of Goods and Services for the product lines of interest. 13

17 C. Industry Interviews To supplement Economic Census data where the product lines are insufficiently specific to characterize fluorocarbon-related product lines, a number of contacts were made with industry experts to assist in the development of appropriate estimates. For several industries, the experts assisted in identifying specific relevant product lines and indicating which should be included in their entirety and which included products not associated with the fluorocarbon industry. For the latter, the experts were able to identify alternate sources of data from which the relevant portion could be estimated. D. Data Analysis The Annual Dollar Volume of Goods and Services is determined for each industry by utilizing the data from the 2007 Economic Census sorted by product line, supplemented by industry expert input where necessary, as described below. The payroll and employment figures for each industry are estimated by using the productivity figures derived from 2007 Economic Census data sorted by industry. It is assumed that companies citing that industry as primary are representative of productivity in production of that product line by all companies. That is, the Annual Payroll and Number of Employees are estimated by multiplying the Annual Dollar Volume of Goods and Services for a given product line by the corresponding industry productivity figures. Payroll and employment figures thus assume that productivity measures are similar for all companies manufacturing a given product line, regardless of the company s reported primary industry. They also assume in some cases that productivity measured across a broad product line can be applied to all subcategories within that product line. Although these are both reasonable assumptions, they do imply that employment and payroll are somewhat more uncertain than sales of goods and services. The specific NAICS codes used for Census data sorted by industry, along with the derived industry productivity values are given in Appendix A.1. The codes used for Census data sorted by product line are listed in Appendix A.2. Each segment s data is described in more detail below, including notations of how the product line data compare with the industry data. This provides one test of the reasonableness of using industry productivity data for specific product lines. 1. Manufacturing Industries The manufacturing industries included in the study include both bulk materials and manufactured wholesale or retail products in which fluorocarbons play a fundamental role in either process or product performance. 14

18 a) Fluorocarbon Gas Manufacturing Industry Data: Industrial Gas Mfg.; a broad segment including a variety of commercial industrial gases. Product Line Data: Fluorocarbon Gas Mfg.; represents only 13% of Industry Data total, but productivity measures do not vary widely within this industry and employment data should be representative. The product line data for the fluorocarbon gas manufacturing industry may include some contributions from small specialty uses not included among downstream industries discussed in the report. This segment is quite straightforward given the specificity of available Census data. No additional information was required. b) Refrigeration & Air Conditioning Equipment Mfg. Industry Data: Refrigeration, Air Conditioning and Forced Air Heating equipment manufacturing, including compressors and parts, but excluding controller and sensor manufacture. Product Line Data: Air Conditioning, Refrigeration, Heat Pumps, Dehumidifiers, Room AC units, Chillers/Rooftop, and parts only; this comprises 88% of Industry Data total, excluding only heating equipment. Some segments making up this industry utilize alternate refrigerants. The reported data may include equipment utilizing CO 2 and NH 4, but these would contribute a small amount to the industry total. No additional information was required for this segment. Although room air conditioners are included in these totals, other household appliances are reported separately. c) Household Appliance Manufacturing Refrigerators & Freezers Both Industry Data and Product Line Data are specific to household refrigerators and freezers; Product Line is 96% of Industry Data total. Water Heaters Industry Data: Other major household appliances; Product Line Data: Hot Water Heaters only, comprising 39% of the Industry Data total. Although some appliances use alternative refrigerants or foam blowing agents, virtually all are assumed to include fluorocarbons in at least one of these applications. 15

19 Again, the Economic Census data are sufficient to describe this segment without additional industry input. d) Motor Vehicle Air Conditioning Equipment Mfg. Both Industry Data and Product Line Data are specific to Motor Vehicle Air Conditioning equipment manufacture, including compressors. Product Line total is 90% of Industry Data total. No additional assumptions or inputs were required. e) Foam Manufacturing Two separate sets of data make up the overall foam manufacturing segment. (1) Urethane & Other Foam Mfg. Industry Data: All urethane and other foam (ex. polystyrene), regardless of product type. Product Line Data: Transportation products, protective shipping pads and shaped cushions, and building and construction polyurethane foam products; 30% of industry. No data are available to separate shaped cushions that use other blowing agents from shipping pads in the code that combines the two; therefore from 0% to 4% of the Foam Manufacturing segment may be non-fluorocarbon-related. (2) Polystyrene Foam Mfg. Industry Data: Polystyrene foam product manufacturing. Product Line Data: Transportation foam products and building and construction foam products; 24% of the Industry Data total. The selected product Line data are all assumed to use fluorocarbons. A small, but unknown portion may use other blowing agents. f) Medical -- MDIs Industry Data: Pharmaceutical preparation manufacturing. This is a broad segment covering many kinds of pharmaceuticals Product Line Data: There is no breakdown of data within the Economic Census allowing an estimate of the fluorocarbon-containing products. Instead, the Product Line data have been provided by IMS Health, using monthly data from March 2011 through March The data cover only 16

20 HFC (referred to within the industry as hydrofluoroalkanes, or HFA) MDIs; excludes any HFC use in DPIs and nebulizers, as well as CFCcontaining MDIs. The transition from regulated fluorocarbons to HFCs has been significant in the years since Therefore, because the data cover only HFCs, the more recent data better reflect the overall market than would 2007 data. Overall industry growth is sufficiently small that use of the more recent data creates minimal uncertainty in the total. The Product Line total is less than 4% of the Industry Data total, lending additional uncertainty to the assumption that productivity data can be used confidently to estimate employment; however, the productivity data do not vary markedly from similar industries, and the assumption appears very reasonable. g) Aerosols Industry Data: All other miscellaneous chemical product manufacturing is the NAICS code defined to include the production and filling of aerosol products. Product Line Data: Aerosol products using fluorocarbons are diverse in nature and are contained in a variety of NAICS product lines. Therefore, an independent estimate was made. The number of containers filled, by application category, was obtained from the 59 th CSPA Annual Product Survey. Average retail pricing for each category was estimated based on an informal survey of internet and retail stores. Finally, the fraction of each product category made using fluorocarbons was estimated by industry sources. The result of multiplying number of containers, average price, and fraction containing fluorocarbons provides a dollar volume for each category. The sum for all categories is reported. It corresponds to 7% of the Industry Data total. Because the underlying product information is partially restricted to subscribers to the CSPA Survey and partially based on proprietary industry estimates, the underlying calculations are not presented in further detail. However, the results are dominated by the two largest categories, both of which have relatively stable pricing, minimizing the overall uncertainty. h) Fluoropolymers and Process Agents Fluorocarbon use in manufacture of fluoropolymers and as process agents in other industrial processes involves a very small number of businesses with very specific applications. Although the general types of applications are known, there is little collected data on these products. To protect proprietary information, only the estimated totals of all such uses are reported. Data were assembled as described below for each category and then combined. (1) Fluoropolymer Manufacturing 17

21 Industry Data: Thermoplastic resins and all synthetic rubber are the two industry codes that include fluoropolymer manufacturing. Product Line Data: For thermoplastic resins, fluoropolymers are reported as other and no specific kind resins, along with other specialty resins. Based on input from multiple industry experts, the fraction of each category made using fluorocarbons has been estimated and multiplied by the Census product line data. Similarly, within the synthetic rubber industry, fluoropolymers are reported within the thermoplastic elastomers and other elastomers line items within the synthetic rubber group. Again, proprietary industry input formed the basis for estimates of the fraction using fluorocarbons. The estimated fluorocarbon-based Product Line data are only 3% of combined Industry Data totals, because of the many types of polymers making up the industry. However, few productivity differences are expected among segments, and the industry productivity data should be representative for the fluorocarbon-containing fraction. (2) Process Agents Industry Data: Nonwoven fabric and non-cellulosic fibers are the two major industry categories containing products manufactured using fluorocarbon process agents. Product Line Data are available for the relevant subcategories of all nonwoven fabric and polyolefin manufactured fibers. However, fractions of each produced using fluorocarbons are proprietary and unavailable. Industry sources verify that the total for this segment makes only a de minimis contribution to the economic size of the overall industry. A small contribution is included in the reported size of the combined fluoropolymer/process agent segment, reflecting knowledge that the overall segment does indeed contain some use of fluorocarbons. 2. Repair and Maintenance Repair and maintenance have been included only for air conditioning and refrigeration industries where the majority of such work directly involves the fluorocarbon containing systems in the equipment. a) Repair & Maintenance -- Commercial & Household Although analyzed separately, both commercial and household repairs and maintenance are reported as a combined total. The inclusion of household air conditioning in the commercial category makes the Census data split somewhat artificial and potentially misleading. 18

22 (1) Repair & Maintenance Commercial Refrigeration Industry Data: All commercial refrigeration and air conditioning repair is included in the broader category of repair and maintenance of all commercial machinery and equipment. Product Line Data: More specificity is available within the product line category for repair and maintenance of refrigeration and air conditioning equipment; this includes all central and room AC repair, and comprises 6% of the broader all-commercial-equipment repair industry. As with several other segments, Product Line data are a small percentage of the industry total, but productivity measures are again assumed to be similar throughout the broad Industry. (2) Repair & Maintenance Household Appliances Industry Data: All major household appliance repair and maintenance are grouped together in the industry data. Product Line Data: All major household appliance repair and maintenance also form a single category in the product line data. To estimate the fraction applicable to refrigerators, freezers and water heaters, the repair and maintenance of household appliances is assumed to be proportional to the value of the manufactured appliances themselves. At the manufacturing level, refrigerators, freezers, and water heaters are 29.7% of the total value of manufactured major household appliances; therefore, this same fraction was applied to the maintenance of that equipment. The assumption that maintenance expenses for different household appliance categories scale proportionately to sales dollar volume for the same appliances creates some uncertainty in this category, but the total of the category is less than one percent of the industry, and the uncertainty much smaller than that.. b) Automotive A/C Service Industry Data: Repair and servicing of automotive air conditioners is included within the all general automotive repair industry code. Product Line Data: Product line data are more specific, with a code for heating/air services for cars and light trucks. Although this category likely includes some service unrelated to air conditioning, the combination of the heating and air systems in automotive applications and the pervasiveness or air conditioning in the US auto market make it reasonable to assume the entire category can be included 19

23 The Industry Data and productivity values for this segment are based only on companies declaring automotive AC service to be their primary industry. Product Data, on the other hand, are based on all such work done by businesses engaged in other forms of automotive repair, the latter constituting a very large portion of the work. Thus the Product Data exceed Industry Data (177%); however, the productivity of businesses specializing in this work is expected to be representative regardless of the primary industry of the business performing this work. 3. Wholesale & Contracting A large portion of the air conditioning and refrigeration industry distributes its products through merchant wholesalers, including the sales and branch offices of manufacturing companies themselves. Similarly, the vast majority of such equipment is installed by contractors specializing in heating, ventilation and air conditioning equipment. a) Air Conditioning Wholesalers The analysis considered all wholesalers, identifying only two industry groupings with potentially significant contributions. All identifiable data referred to air conditioning equipment or supplies. (1) HVAC Wholesalers Industry Data: Merchant wholesalers of warm air heating and air conditioning equipment and supplies. Product Line Data: All air conditioning and heat pump equipment, parts, supplies, and refrigerants. Despite the double-counting of resold products included in manufacturing segments, these are separate businesses making a separate contribution to the overall economic activity of the industry. (2) Chemicals and Allied Products Wholesalers Industry Data: A small amount of fluorocarbons is sold by wholesalers in the other chemicals and allied products category, largely as refrigerants. Product Line Data: Broad product lines handled by chemicals and allied products wholesalers do not allow identification of fluorocarbon-related data other than a negligible amount of air conditioning and refrigeration equipment (refrigerants). The contribution from this segment is assumed, based on the available data, to be small enough to be a negligible part of the overall industry. Therefore, only the HVAC wholesaler category is included. 20

24 b) Air Conditioning Contractors Industry Data: Data are reported for the grouping of plumbing, heating, and air conditioning contractors. No product line data are available for contracting, so manufacturing product line data are used as a proxy for scaling. Approximately 50.3% of plumbing, heating, and air conditioning equipment manufacturing is comprised of refrigeration, heat pump, and air conditioning equipment. To estimate the value of contracting services, the service value is assumed to be proportional to the values of the various kinds of equipment manufactured. Therefore, 50.3% of the contractors business is the estimated fluorocarbon-related portion. The large contribution from labor in the contracting business might not be proportional to the value of manufactured products. Thus the scaling assumption must be considered approximate. No data from the industry are available to further test the assumption. 4. Other Industries For several other industries, the reporting codes containing fluorocarbon-related activity can sometimes be identified, but there is insufficient information to determine the fluorocarbon-related portion. Where possible, the data have been used to determine an upper limit for the case in which all such activity is considered fluorocarbon-related. In other instances, that approach is meaningless due to the number of large categories involved. a) Fire Protection Fluorocarbons are utilized as fire suppression or extinguishing agents, and have been analyzed at both the manufacturing and merchant wholesale levels. (1) Fire Extinguishers Industry Data: Manufacture of fire extinguishing equipment is included in the NAICS code for all other miscellaneous manufacturing. Product Data: All fire extinguishing equipment, both portable/handheld and fixed systems, including parts are included in a single product category. The fraction containing fluorocarbons is unknown, so the category as a whole represents an upper limit. (2) Fire Equipment Wholesalers Industry Data: There is a specific industry code for merchant wholesalers of fire extinguishers and fire safety equipment. 21

25 Product Data: A specific product code also exists for fire extinguishers and fire safety equipment. Again, however, the fraction containing fluorocarbons is unknown No industry sources have been identified which estimate the fraction of fire extinguishing equipment utilizing fluorocarbons, at either the manufacturing or wholesale levels. It is known, however, that those applications are specialty, high-value niche markets, and a relatively small portion of the overall fire protection market. b) Semiconductors Industry Data: Fluorocarbons are used as etching gases in the production of most semiconductor chips, including integrated circuits, memory, and microprocessors. All are reported under the semiconductor and related device manufacturing industry. There may also be small applications in other related industries but which are assumed here to be de minimis. Product Data: The semiconductor and related device manufacturing product line contains essentially all fluorocarbon related products, but may also include products not produced using fluorocarbons in any process steps. The entire category, then, establishes only an upper limit on the actual economic contribution. Although it is known that fluorocarbon etchants have extensive application in the production of semiconductors, the industry is notable for the proprietary nature of its processes. No estimate has been found for the percentage of products utilizing fluorocarbons at one or more steps in their production. c) Halogenated Solvents Fluorocarbon solvents are used primarily for specialty applications in a variety of industries, generally playing a small role in a variety of much larger industries. No listing of the specific applications or of the extent of use in those applications has been identified. For any applications where fluorocarbon solvents may be used exclusively, it is possible that appropriate industry or product codes would be available, but no such applications were identified. d) Recovery, Recycle, Reclaim, and Destruction There are no Industry or Product Line data specific to these activities. All are included within larger categories. Nor have independent data sources been identified. Some of these activities are reported within categories already addressed in the study, including manufacture and wholesale of the relevant recycled materials. Economic activity in this segment that is not captured by other segments is assumed to be small enough to be a de minimis part of the overall industry. 22

26 IV. Economic Size of the Fluorocarbon Industry A. The United States Fluorocarbon Industry The broad fluorocarbon industry in the United States is estimated to contribute approximately $158 billion in shipments and services to the country s economy, and to employ as many as 729,000 employees with a total payroll of $32 billion. The estimates are based on the 2007 US Economic Census, supplemented by additional information from industry experts. Manufacturing industries comprise $54 billion in shipments and services with 154,000 employees earning $6.5 billion. Repair and maintenance activities add $4.7 billion in services, with a large labor component of 43,000 employees and a $1.4 billion payroll. At the wholesale and contracting level of the industry, the total shipments and services add another $99 billion to the total, with a very large labor force of 532,000 employees earning almost $25 billion. These industry estimates have been compared to estimates from industry associations and reviewed in most cases by industry participants familiar with proprietary or non-public evaluations. There are some systematic uncertainties due to human error or to possible improper reporting of data in the Economic Census. Nonetheless, all estimates appear to be reasonable in the face of these cross-checks. VALUE OF SHIPMENTS/SERVICES ($billion) MANUFACTURING REPAIR & MAINTENANCE WHOLESALE & CONTRACTING ESTIMATED ANNUAL PAYROLL ($billion) ESTIMATED PAID EMPLOYEES (thousands) Several additional industries are not included in these totals as available data do not allow for separating the portions of the industries that are dependent on fluorocarbons. At least some portion of each of these industries uses fluorocarbons as components or process inputs. The total (where upper limit estimates are possible) of industries in this category would add as 23

27 much as $74 billion in shipments and services with a payroll of $10.3 billion to 158,000 employees. The actual contributions could be considerably smaller. Economic Size of the US Fluorocarbon Industry* SEGMENT VALUE OF SHIPMENTS / SERVICES ($billion) ESTIMATED ANNUAL PAYROLL ($billion) ESTIMATED PAID EMPLOYEES (thousands) Fluorocarbon Manufacturing Refrigeration & Air Conditioning Equip. Mfg Household Appliance Manufacturing Motor Vehicle Air Conditioning Equip. Mfg Foam Manufacturing Medical - MDIs Aerosols Fluoropolymers and Process Agents MANUFACTURING SUBTOTAL Repair & Maint. -- Commercial & Household Automotive AC Service REPAIR & MAINTENANCE SUBTOTAL Air Conditioning Wholesalers Air Conditioning Contractors WHOLESALE & CONTRACTING SUBTOTAL *Based on 2007 US Economic Census data supplemented by industry data TOTAL B. Contributing Industries Fluorocarbons play an important role in a variety of processes and products, each of which leads to significant economic activity. The original manufacturing of fluorocarbons themselves constitutes a relatively small portion of the total economic activity. For most downstream manufacturing industries, although the fluorocarbons may play an essential process role or provide key product performance characteristics, the cost of fluorocarbons represents a small portion of total manufacturing costs. For air conditioning and refrigeration, the largest manufacturing contributor, there are also both an associated repair and maintenance activity and a large wholesale and contracting 24

28 industry. For repair, maintenance, and contracting, all labor-intensive activities, almost a third of their deliveries and services revenue is devoted to payroll. There are a few industries where, although the full industry can sometimes be defined, the portion utilizing fluorocarbons has not been determined. 1. Manufacturing Industries Of the $54 billion in shipments and services produced by manufacturers, almost half, $26.3 billion, is from the manufacture of refrigeration and air conditioning equipment. Home appliances and motor vehicle air conditioning add another $7.3 billion and $5.1 billion, respectively. Thus the broader use of fluorocarbons as refrigerants comprises over 70% of all manufacturing economic activity. The remainder includes 30 Manufacturing Industries ($ billion) ESTIMATED ANNUAL PAYROLL ($billion) VALUE OF SHIPMENTS / SERVICES ($billion) 100 Manufacturing Labor (thousands) 50 - ESTIMATED PAID EMPLOYEES (thousands) 25

29 foam manufacturing, medical metered dose inhalers, aerosols, and fluoropolymers and process agents. Labor represents roughly 5% to 15% of total deliveries and services, with the bulk material industries typically lower than manufactured products and equipment. a) Fluorocarbon Gas Manufacturing A relatively small number of US companies are involved in fluorocarbon manufacturing, and makes up only a bit over 2% of the total of all fluorocarbon-related manufacturing. The industry is estimated to contribute $1.2 billion in goods and services, employing 1,400 employees with a payroll under $100 million. Yet this industry s products are integral to several significant portions of the domestic economy. b) Refrigeration & Air Conditioning Equipment Mfg. The manufacturing of refrigeration and air conditioning equipment, including compressors and other key parts, represents the largest industry whose product design and performance is directly dependent on the refrigerant used, with the vast majority employing fluorocarbons. The industry provides over $26 billion in deliveries and services, with the efforts of 89,000 employees earning a payroll over $3.5 billion. c) Household Appliance Manufacturing Manufacturing of home refrigerators, freezers, and water heaters, virtually all of which contain fluorocarbons as refrigerants or in insulating foams, makes up an industry of almost $7.3 billion. The estimated employment is almost 18,000 with a payroll over $750 million. This is the second largest of the contributing industries. d) Motor Vehicle Air Conditioning Equipment Mfg. The manufacture of motor vehicle air conditioning, including compressors and key parts, is estimated to be the third largest segment at $5.1 billion. Employment is similar to the home appliance segment, with almost 17,000 employees and a payroll near $750 million. Employment appears to be somewhat high relative to the payroll for this industry, but is likely impacted by the inclusion of parts manufactures. e) Foam Manufacturing Insulating foams include fluorocarbons to achieve high insulating value with relatively thin foams. Certain padding, especially for shipping, also includes fluorocarbons. Together, they are estimated to have shipments and services value of $4.9 billion, employing 18,000 people with a payroll of almost $650 million. f) Medical MDIs Medical applications represent a market where a relatively small amount of fluorocarbons play a critical role in very high value products. Considering only metered dose inhalers (MDIs) containing HFCs, this industry is estimated to produce over $5.1 billion in deliveries and services. Employment estimates, which are more uncertain for 26

30 this industry, total fewer than 6,000 employees, but at high value jobs with a payroll estimated at over $400 million. g) Aerosols As with other of the smaller contributing industries, the aerosol market is difficult to assess directly from the Census data and required additional input from the industry. The shipments and services are estimated to be about $1.3 billion, with 3,000 employees and a payroll under $200 million. Most such applications are higher value uses where the fluorocarbon plays an important product performance role relative to other propellants. h) Fluoropolymers and Process Agents Fluorocarbons constitute the fundamental raw material building block for the polymerization processes producing fluoropolymers. In other processes, they play a key role as a process aid enabling production of materials with specific desirable product characteristics. Together, these industries have an estimated output of over $2.7 billion, employing almost 3,000 employees with a payroll under $200 million. Due to a relatively small number of manufacturers involved and the groupings of products available from the Census, these estimates are also somewhat more uncertain than for other industries. 2. Repair and Maintenance Refrigeration and air conditioning equipment requires ongoing maintenance to retain performance over time. For commercial and residential equipment, including appliances, the repair and maintenance activity is approximately 6% of annual Repair & Maintenance Repair & Maint. Labor 3.0 ($ billion) (thousands) Repair & Maint. -- Commercial & Household Automotive AC Service Repair & Maint. -- Commercial & Household Automotive AC Service ESTIMATED ANNUAL PAYROLL ($billion) VALUE OF SHIPMENTS / SERVICES ($billion) ESTIMATED PAID EMPLOYEES (thousands) 27

31 manufacturing output, very reasonable in light of the multi-year lifetimes of the equipment. For motor vehicle air conditioning, repair and maintenance activities are almost half as large as the annual manufacturing output, reflecting the large fleet of air conditioned vehicles and the demanding nature of this application. Both kinds of maintenance are, as expected, very labor intensive employing 35% as many people as the associated manufacturing industries. a) Repair & Maintenance Commercial & Household Repair and maintenance of refrigeration and air conditioning equipment, including household appliances, is estimated to be a $2 billion industry, employing over 17,000 employees with a $640 million payroll. Although it is a relatively small contributor to the overall value of goods and services, the employment is significant. b) Automotive AC Service In the motor vehicle air conditioning business, service tends to be more frequent, and the work again quite labor intensive. Automotive AC service is estimated to total over $2.6 billion, employing over 25,000 employees with a $750 million payroll. 3. Wholesale & Contracting A large wholesale industry supports distribution of air conditioning and refrigeration equipment, with contractors doing much of the installation, both residential and commercial. Together, their shipments and services are almost three times those of Wholesalers & Contractors Wholesale/Contract. Labor 90.0 ($ billion) Air Conditioning Wholesalers Air Conditioning Contractors (thousands) Air Conditioning Wholesalers Air Conditioning Contractors ESTIMATED ANNUAL PAYROLL ($billion) VALUE OF SHIPMENTS / SERVICES ($billion) ESTIMATED PAID EMPLOYEES (thousands) 28