Refrigerant pricing - what's going on here?

I sat through a meeting the other day with one of the largest refrigerant manufacturers in the world where I hoped to get a better understanding of what is going on with the price of R-22.  For those of you that don't know, R-22, also known as Freon, is the substance that is contained in your air conditioning system.  It is pumped between your outside condenser and inside evaporator by means of a compressor and it changes from liquid to gas and back to cool your home in the summertime.  Many people will experience a time that their air conditioner doesn't work and find that it's frozen up.  Often, the reason for that problem is that there is a leak in their system and refrigerant has escaped to the atmosphere and now the system doesn't work as designed.  Air conditioners are supposed to be a closed system - they don't need to have refrigerant added as a normal part of operation and if they do, it's because there is a leak somewhere in the system that needs to be repaired or the system replaced.

The moral of the story is this - the price of R22 is and will continue to increase and that is a reality that homeowners, contractors, suppliers, manufacturers and the government will all need to deal with in the coming years.   

Anyways, back to the pricing situation.  Way back in 1987, the Montreal protocol was established to phase out ozone-depleting CFCs (chlorofluorocarbons).  You might remember the issues surrounding the use of CFCs in aerosol spray cans (think Aquanet) and the move to alternative propellants and pump spray bottles that resulted from the changes.  That was the phaseout of R12 which was replaced by R22 which is an HCFC.  While much better for the ozone layer, HCFCs like R22 are still bad for it and as a result were the target of the 1992 amendment to the Montreal protocol.  Under the amendment, R22 air conditioners are no longer manufactured starting in 2010 and the complete phaseout is supposed to be complete by 2020.  There are "dry charged" air conditioners that are available that will still run using R22, but we only recommend them in very specific situations where the positives outweigh the negatives (that we'll get to soon) and there is no other option.

Over the last few years, the price of virgin R22 has been rising as the supply has been ramped down and we have needed to increase our pricing to compensate for our increased costs.  We typically have been able to smooth out those increases by purchasing refrigerant in large quantities at the best pricing we can get.  However, the situation is very different this year.  When we inquired about purchasing a large quantity of refrigerant this year, we were told the most we could be sold at a time was 2 or 3 drums and the price was 2 to 3 times higher.  Surely, something was going on here.  That something is the fact that the EPA decided to significantly cut production of R22 at the very end of 2011.  In fact, no R22 was produced for a month or so until the manufacturers coudl figure out how much they would be allowed to produce in 2012.  Just how bad is it?  Let's look at some numbers.

In 2009, the EPA allowed the manufacturer to produce 265 million pounds.  Under the original plan, 2010 was 138M, 2011 was 100M, and 2012 was supposed to be 90 million pounds.  At this moment, the manufacturer has been told they will be allowed somewhere between 55 and 80 million pounds for the year.  That is down significantly from both last year's production and the planned production - almost half at the low end.  The graph below reflects what we're experiencing.

Refrigproduction.png

So, this means a few things for us. First, it's harder for us to get refrigerant to continue to serve our customers that are using R22 (which is most of them) and second, the price has gone up. Substantially.  While we are working hard to solve both problems, a price increase in unavoidable and I'm sure our customers and those of any other contractors paying attention will soon (if not already) discover.  

So why is this happening?  Why did the EPA suddenly cut allowable production amounts?  Remember that Montreal protocol thing and the Ozone layer?  The whole point of getting rid of R22 is to help protect the environment and part of that is making sure as little R22 as possible makes its way into the atmosphere.  The EPA is concerned about 2 things - Leaks and illegal venting to the atmosphere.  Let's address the first one first.  As I said in the first paragraph, an air conditioning system is supposed to be a totally closed system which means that all the refrigerant that is in there is supposed to stay in there - you shouldn't need to add any, in theory, ever.  But reality is different.  Sometimes systems are installed incorrectly and leaks exist in the field-installed joints from day one.  Sometimes systems come from the factory or sometime in the trip to the home develop leaks.  Sometimes environmental factors cause leaks to develop on either the inside or outside coil.  Whatever the reason is, leaks are a fact of life and just about everyone will need to address one in their AC system at some point.  

The EPA realizes that with the amount of refrigerant being produced (and used) every year and the fact that new systems no longer contain R22, that refrigerant had to be going somewhere - and that place is into the atmosphere.  So how can they control that problem?  What can the Government do in order to reduce the leaks?  The only thing they can do - decrease the amount of R22 they will allow to be produced which will in turn increase the price that will make people either (1) make sure the leaks gets fixed or (2) replace the leaking system.

Before we talk about fixing and replacing, let's talk about the other way R22 is getting into the atmosphere - venting.  When an R22 system is replaced, sometimes the system is simply being vented to the air when it is disconnected.  It's quick, it's easy, and it's illegal.  When we replace an old R22 system with a new R410a system, we reclaim all the refrigerant into an approved cylinder using a reclaimer so that when we're done with it, the system can be safely recycled for its base materials without releasing anything into the atmosphere.  We then take that refrigerant and send it to an approved Refrigerant recycler that processes it and resells it back to suppliers and contractors like us to use in R22 systems.  This is an important step for a number of reasons, not the least of which is ensuring quality.  I have already heard of contractors that are skipping this step and just selling reclaimed refrigerant back to customers.  While I suppose that is a step above just venting to the atmosphere, it's still not right. We won't do that because we don't have the sophisticated lab equipment to check the purity before we put it back into a customer's sytsem to ensure reliable operation of the equipment.  

The other side of things is reporting back to the EPA how many pounds are being reclaimed and that is part of what drove this production reduction in 2012.  The EPA wants to see between 27 and 43 million pounds of refrigerant reclaimed every year as part of the process of replacing and servicing R22 systems.  In 2010, only 8 million pounds were recycled with approved suppliers. With such a low amount of refrigerant actually coming back for recycling the EPA has decided to increase the value of R22 by reducing production of virgin material with the hopes the reclaim and recycle industry will pick up.

So, what's a homeowner to do when they need to add R22 back to their system?  For one thing, you need to have that leak found and fixed if possible.  That will be more expensive than just having refrigerant added, but in the long run it will be cheaper and it's the right thing to do for our planet.  The other thing is to start saving for a new R410a system - it's very possible you will want to replace your R22 system earlier than you might have in the past simply because the cost to add refrigerant is going to become painfully expensive in the next few years.  A new system uses R410a which, as of right now, has actually decreased in price and new equipment is more efficient and when it's installed by Illiana Heating and Air Conditioning will provide years of worry free, reliable service.

If you have any questions, feel free to call the office or post a comment or contact us using the contact form.

For more information about the R22 phaseout and what it means for you, go here: http://www.epa.gov/ozone/title6/phaseout/22phaseout.html