Download Destruction of waste ozone depleting substances and synthetic

Submission to DSEWPAC Consultation Paper:
“Destruction of waste ozone depleting substances and synthetic
greenhouse gases program”
Consultation paper on the development of the Destruction of Waste
ODS and SGG Program as part of the Australian Government’s Clean
Energy Future Plan
December 21 2012
Prepared by:
Tim Edwards
President
[email protected]
http://www.ausref.org.au
Contents
Page #
Executive Summary
3
Context
3
Policy Objectives
4
Terminology
5
The Economics of Refrigerant Recovery and
Destruction
6
Policy Recommendations
8
Issues for consultation
9
Further Discussion of Issues Raised in
Consultation Paper
14
Bibliography
Appendices
24
2
Executive Summary
In the following submission we recommend that the Destruction of Waste ODS and SGGs Program
be designed to achieve an increased level of recovery and destruction than has been achieved in
recent years. We propose that the rebate set for recovery and destruction be set at a higher rate –
in line with the carbon price and appropriate to the carbon equivalent levy on Synthetic
Greenhouse Gases. We note that levy fees raised by the Government will be much greater than
rebate payments for destruction because the level of recovery and destruction will be far less in
volume than the amounts paid.
We recommend a flat rate of payment for ODS reflecting that fact that these gases do not attract
levies. However we also note that substantial fees have been paid to Refrigerants Reclaim
Australia over the past 19 years that have generated a substantial volume of reserves that will no
longer be required and should be made available for future recovery and destruction being the
basis upon which they were paid.
We further recommend:
1.
Increased enforcement of the OPSGGM Act, which, in concert with higher incentives for
destruction will provide greater effectiveness. Neither will be fully effective in the absence of
the other.
2.
The rate paid for recovery and destruction of HFCs should be GWP based. Species
identification at the aggregator or destruction operator level is technically and cost feasible.
Enabling the aggregator to use this capability will enable GWP based payments that will flow
back through the supply chain in a competitive market for recovery and destruction.
3.
A reclamation licensing system should be established that requires the licensees to meet a
high standard for refrigerants offered as reclaimed.
The distinction between reuse and reclamation could be that if the refrigerant is transferred
from Company A to Company B it must be reclaimed. Reuse within a company would be
permitted subject to the knowledge and agreement of the contractor’s customer.
Context
The need for a Destruction of Waste ODS and SGGs Program reflects the matter that there is
large inventory of synthetic refrigerants that may be reclaimed or destroyed. Establishment of such
a program needs to be informed by a recovery and destruction policy that sets objectives that
reflect our national commitments. Destruction of Kyoto Protocol gases contributes to the national
commitment to reduce Greenhouse Gas (GHG) emissions. Destruction of Montreal Protocol gases
contributes to the national commitment to phase out the use of Ozone Depleting Substance (ODS)
refrigerants.
All synthetic refrigerants covered by the Kyoto Protocol imported into Australia have been
subjected to the SGG levy (on HFCs) since July 1 2012. The SGG Levy (carbon equivalent levy)
has been imposed to provide a price incentive for the industry to reduce refrigerant GHG
emissions. In parallel imports of HCFCs (Montreal Protocol gases) are being rapidly phased down
to a 15 year servicing tail of 45 metric tonnes per annum between 2016-30301.
1
This compares to 7,200 metric tonnes of HCFC imported in 2002 (3,600 T in 2002). It is a low level of
HCFC availability that will encourage a long anticipated transition away from HCFC based RAC technology.
3
The industry, and RAC end users, will pay substantial fees to import HFC refrigerants, in the order
of $200 M PA for the foreseeable future. Imported refrigerants are dispersed throughout the RAC
supply chain and used in a wide range of RAC equipment – over 30 million individual installations.
The emissions of individual RAC units are therefore impossible to monitor for refrigerant
emissions. The levy has been established at point of importation rather than at the time of
emission on the basis that it is not possible to trace HFC refrigerant emissions at source.
In principle the industry should be able to offset these fees by recovering and destroying
HFC refrigerants and be compensated at the carbon equivalent rate. In so far as the volume
recovered and destroyed does not contribute to national emissions the levy fees paid
should be recoverable by the payee to reward recovery for destruction.
However, the design of the Destruction of Waste ODS and SGGs Program (DWOSP) is a complex
matter because of the many species of synthetic refrigerants with highly differentiated GWPs, the
interaction of the Montreal and Kyoto protocols, and the highly dispersed nature of refrigerant use.
It is also important to recall that Australia has already paid significant fees for recovery and
destruction by way of the Refrigerant Reclaim Australia (RRA) levy of between $0.50 and $2.00
per kilo on imported SGG refrigerants since it commenced operation in 1993. Whilst substantial
funds have been expended for this purpose we understand that RRA has cash reserves that have
yet to be expended.
Because RRA has recovered and destroyed a small proportion of imported gases it has
accumulated substantial reserves (we understand more than $35 million) on the basis that RRA
would be required to address future liabilities for recovery and destruction of SGG refrigerants
(both HFCs and CFCs/HCFCs). RRA has made provision for future recoveries it no longer needs
to fund because this funding will be provided by the Government. There is an important question to
be asked about the proper use of RRA reserves that is not addressed in the consultation paper. It
is ARA’s view that these funds should be transferred to Government to contribute to the recovery
and destruction of the bank of Montreal Protocol gases for which no carbon price will be paid.
Finally it is important to recognise that the SGG levy and increased production costs (fluorspar)
have caused synthetic refrigerant prices to increase dramatically over the past six months. The
exact degree of the price increases is not known but it certainly greater than 100% and considered
to be closer to 200%.
This is a significant factor because the increased cost of all synthetic refrigerants has made
them much more valuable for recovery, reuse and reclamation. Similarly the rebate required
to incentivise recovery for destruction needs to be increased to reflect the increased value
of recovered refrigerants.
Policy Objectives
In this context the design of the DWOSP needs to address a range of design objectives. We see
these as including:
1.
To serve the national interest in reducing GHG emissions. To the extent that synthetic
refrigerants are recovered and destroyed their contribution to national emissions will be
eliminated for Kyoto gases (HFCs).
2.
To serve the national interest in reducing ODS emissions. To the extent ODS emissions are
reduced the national commitment to minimise ODS emissions will be served for Montreal
Protocol gases (HCFC and CFC). Even though destruction of ODS do not contribute to a
reduction of Kyoto SGG emissions, it is still important to recognise this GHG abatement.
3.
To minimise the administrative and economic burden on the industry and government
consistent with meeting Australia’s international commitments.
4
These considerations raise a number of questions:
1.
How much recovery and destruction is enough?
2.
How much recovery and destruction is achievable at what cost?
3.
How sensitive are volumes recovered per annum to the value of rebates available for
destruction?
4.
Who should pay for recovery and destruction of SGGs?
5.
How much should Australia be willing to pay for recovery and destruction of SGGs?
6.
What is the role of recovery for reclamation vs destruction?
Terminology
In the consultation paper the terms end-of-life gases, reuse, recycling and reclamation are used
frequently but we feel with a degree of ambiguity. We therefore define these terms here:
End of Life Gases: Strictly speaking there is no such thing. All synthetic refrigerants can be
reclaimed in the sense of being returned to the manufacturer’s specification and are therefore not
at the end of their life2. We are instructed that the meaning that DSEWPC has in mind is the gases
contained in end-of-life equipment. We find this definition just as unclear in three ways; just
because the equipment is being disposed of does not necessarily mean the refrigerant needs to be
destroyed, the vast majority of end-of-life equipment in Australia by unit count is not degassed
before being shredded such that the volume of recovered end-of-life gas by this definition is very
small, and the meaning RRA applies is also highly ambiguous in the context of product
stewardship when product stewardship has a different meaning from the role of RRA (being strictly
refrigerant destruction or reclamation)3.
The only interpretation of this phrase that makes scientific sense is gases that cannot be
economically returned to their original specification. We are not aware of any research that has
examined this category in economic terms albeit there is considerable international experience. In
general the owner of a large amount of recovered refrigerant has the option to make the gas
available for reclamation or destruction. The selection between these options will be made
primarily on economic grounds.
We therefore recommend that the phrase “ end-of-life gases” not be used because it is not
meaningful. It is possible to refer to waste gases but not end-of-life gases, where waste gases are
gases that are no longer wanted by the owner of the refrigerant regardless of its condition or
source.
Recycle vs Reclaim: The Consultation papers gives these terms specific and differentiated
meanings but the RAC industry at large is not likely to recognise the distinction. Whilst there is a
code of practice that captures the meaning of “reclaim” it does not define “recycling”, and it is a big
step to assume that the code of practice is broadly understood or used. Whilst those intimate with
the language of refrigerant recovery might recognise the distinction we consider the terms
ambiguous for the industry at large.
We note that refrigerant that is recovered for reuse but is not returned to the manufacturers
specification is a significant risk. At the very least it is a risk to energy efficiency, safety and
equipment durability.
2
With the possible exception of zeotropic blends such as R404a and R410a where changes in composition
make reclamation cost prohibitive.
3
Product Stewardship is the whole of life management of a product to minimise environmental impacts;
from production to through life management to end of life management. In the RAC industry the only
meaningful use of this principle is the whole of life management of RAC plant and the constituent
components (i.e. not just the refrigerant).
5
In the following we recommend that all synthetic refrigerants that are recovered for reuse be
required to meet a specified standard (such as ARI 700) and that licensing be introduced to require
that this standard is met by companies that seek to offer refrigerant reclamation. The use of
standards and a licensing mechanism will make the terms meaningful to the industry at large.
The Economics of Refrigerant Recovery and Destruction
The SGG levy has introduced a major economic consideration in the use of refrigerants. This levy
in association with the phase out of HCFCs has caused synthetic refrigerants to be much more
expensive and therefore more valuable to the RAC supply chain. The inevitable consequences of
these changes in the refrigerants market are:
1.
There is significantly greater incentive for refrigerant recovery for reuse and reclamation as a
result of recent refrigerant price increases. Where a kilo of virgin R134a (HFC) cost about
$15 to 20.00 per kg in July 2011 it now costs around $60 to 80.00 according to advice from
industry sources. The increase means that the RAC contractor work force is far more
motivated to recover and reuse this refrigerant. Where the cost of virgin R22 (HCFC) was
$105.00 per kg in July 2011 it now costs about $215.00 per kg, providing a strong incentive to
reclaim.
2.
There is not a direct relationship between the cost of recovery for destruction and the revenue
for this function. The revenue realised by the destruction service provider is a price that will be
set by the DWOSP. The cost of providing recovery and destruction will be influenced /
determined by the design of the DWOSP but has no impact on the revenue value to the
destruction services providers. In establishing a competitive market for destruction services we
are concerned with setting the revenue rate at a level sufficient to attract a high level of
recovery and destruction based on the difference between the revenue realised and the cost
of provision. We are also concerned with setting a rate for recovery and destruction that is in
line with the carbon price, which is the price set by the government to achieve its target rate of
GHG emissions abatement on an economy wide basis.
3.
In establishing a market for destruction services the DSWOP should recognise that the
destruction services provider should have the freedom to set the rates it pays for the supply of
gases for destruction. The DSWOP need only set the rate it pays for destruction of synthetic
refrigerants and allow the service provider to set prices in their supply chain subject to meeting
the objectives of the DSWOP to know the volume of gases destroyed by species.
4.
The rebate for recovery and destruction should be set at a level that is in line with the carbon
price to enable payees to recover their levy fees. If the rebate for recovery and destruction is
too high the RAC industry and users will be paying more than others in the Australian
economy are paying for GHG abatement. If the rebate rate is too low it will fail to attract a high
or sufficient level of recovery for destruction.
5.
The design of the DWOSP will directly impact the cost of recovery and destruction and the
margin for providing this service at any given revenue rate. If the cost is too high the incentive
to recover and destroy will be reduced because the margin between cost and revenue will be
reduced.
6.
However we must keep in mind that the volume of recovery and destruction will fall well short
of the volume of levy fees collected and RRA reserves. Even if the revenue rate for destruction
is set at the carbon equivalent price it will not use a high proportion of the levy fees paid
because only a small proportion of imported gases will be recovered for destruction. As a
result, in principle, the funding is available to compensate those that pay the levy via rebates
sufficient to incentivise a high level of recovery for destruction.
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7.
The incentive to recover and destroy will inevitably compete with the incentive to recover for
reuse or reclamation. If the incentive to recover and destroy is too low relative to the value of
reclaimed gases there will be a low level of recovery and destruction.
8.
The vast majority of refrigerants are held in a large number of small charge units. The high
cost of recovering gases from a large number of small charge uses is labour intensive. This
cost needs to be compensated by a high rebate or it will not arise regardless of other factors.
9.
The treatment of the main categories of synthetic refrigerants should be differentiated
reflecting the differences between the Kyoto Protocol and the Montreal Protocol. Recovery
and destruction of Kyoto gases makes a direct contribution to reduced national emissions.
Recovery and destruction of Montreal Protocol gases calls for elimination of CFCs and
eventual phase out of HCFCs consistent with the Montreal Protocol.
10. The commitment to review the program regularly is important because there are a number of
price elasticities at play that will only be assessed as the result of in market outcomes.
In this context it is important to recognise factors that will influence the design of the DWOSP:
1.
It is possible to measure the SGG species present in a pressure vessel containing recovered
refrigerants. The consultation paper committed the design of the plan to cause species
identification and reporting. The cost of a precise gas certification is about $70.00 per sample.
As result it is more expensive to apply such a test at the 20 kg vessel level ($3.50 per kg) but
it is inexpensive to do so at the 500 kg vessel level ($0.14 per kg).
This is important because it enables precise species identification prior to destruction and
therefore differentiation of the payments to the recovery and destruction supply chain. It also
enables an aggregator to conduct species identification at the point of aggregation if the
aggregator wants to ensure that the claimed species in a vessel are in fact present.
Aggregators may choose to conduct random checks or they may choose to check every 20 kg
vessel because the rebate for high GWP gases warrants such a check.
Further research may be required to establish the cost of species identification. We are
advised that lower cost species identification solutions may be available.
2.
Refrigerant Reclaim Australia has substantial accumulated funds that were paid on the
importation of synthetic refrigerants and have yet to be expended. These funds should be
seen as available to assist in the future recovery and destruction of synthetic refrigerants.
These factors interact. We see four principles that should guide the design of the DWOSP:
1.
The incentive for recovery and destruction should be set at a level that reflects the carbon
equivalent price (levy) paid to import these gases. This consideration should not be influenced
by the question of whether the gas was acquired before or after the presence of the SGG levy.
The current reality is that HFCs attract the levy and any recovery and destruction should be
attributed to the national accounts at this level. This implies an incentive that reflects the
species GWP.
2.
The DWOSP should be differentiated by species because of the different scope of the
Montreal Protocol and the Kyoto Protocol. Montreal Protocol gases should be recovered and
destroyed at high level so as to ensure that Australia meets its international commitments and
is broadly in line with Australia’s commitment to reduce emissions of ODSs, as well as in
recognition of the associated climate benefits and regardless of the opportunity to reclaim
these gases for subsequent reuse. Australia has committed to phase down the use of ODSs.
7
Recovery for reclamation should not be seen as a “cost effective emissions reduction
mechanism” because there is no guarantee that once recovered and reclaimed and returned
to the working bank of refrigerant that it will not leak out or fail to be recovered. If used in
aging, poorly maintained systems, this is in fact highly likely. Reclaiming and reusing gas does
not necessarily reduce the gas manufactured and transported to Australia, as it is just as
arguable that increasing the supply of R22 available for the service market will cause delays in
the replacement of aging R22 systems with new systems using environmentally benign
refrigerants.
Allowing reclaimed ODS gas to continue to be used will prolong, and undermine the intent, of
the HCFC phase out by increasing the supply of R22, reducing the pricing pressures on R22
and reducing the incentive on equipment owners to replace R22 equipment with solutions that
avoid exposure to the SGG levy.
3.
The design of the DWOSP should aim to minimize the cost of recovery and destruction without
undermining the incentive to recover and destroy. The creation of a competitive market for
recovery and destruction will make a significant contribution in this regard. At the same time,
the value of the rebate available to contractors needs to be much higher than the current
amount of $3/kg if it is to incentivise a high degree of recovery for destruction. The vast
majority of the bank of refrigerants is held in small charge units (less than 2 kg). Contractors
and scrap metal dealers need to be compensated for the labour intensive task of recovering
gases from small charge equipment.
An increase in the value of the rebate has the potential to significantly increase the volume of
recovery. This is a central question in the design of the DWOSP.
4.
The design of the policy should include strong enforcement that provides an incentive to avoid
prosecution under the Act regardless of the price incentives. The dual incentives are
considered vital to the success of the policy. Increased enforcement has the potential to
significantly increase the volume of recovery and destruction. We believe the lack of
compliance to date in some sectors has been a major contributor to the low level of recovery
for destruction (for instance the scrap metal industry).
Policy Recommendations
The interaction of these principles leads to the following policy implications:
1.
Both increased enforcement of the OPSGGM Act and increased financial incentives for
recovery and destruction are required. Neither will be fully effective without the other.
2.
The policy should recognise the feasibility of species identification. Species identification at the
aggregator or destruction operator level will enable GWP based payments that will flow back
through the supply chain in a competitive market for recovery and destruction.
Species identification enables differential treatments of Kyoto and Montreal Protocol gases.
It is likely that species identification at the destruction facility operator level will be more
efficient because a few large operators will supply this service rather than geographically
dispersed smaller aggregators. However we also believe aggregators should have the right
and take the opportunity to conduct species identification to better manage their recovery
supply chain. The decision as to how they do this can be left to the aggregator because it will
directly influence the aggregator’s ability to distinguish responsible suppliers from irresponsible
suppliers of recovered gases.
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3.
The price for HFC recovery and destruction should reflect the carbon price on a species GWP
basis. It is technically feasible and the aggregator can determine the degree of accuracy
needed to operate an effective supply of gases for destruction to the destruction operator who
can check every vessel submitted.
4.
The price for CFC and HCFC recovery and destruction should be a flat rate and set at a level
considered to be sufficient to attract a high level of recovery and destruction. This level must
be similar to the price of reclaimed CFC and HCFC such that the incentive to destroy these
ODS is similar to their value as reclaimed materials.
5.
The policy should include the development of standards and licensing for refrigerant reuse and
reclamation. We believe that reuse should be discouraged or in fact banned because it
undermines the objectives of the HCFC phase out, leads to safety issues, and may cause a
reduction in efficient operation of RAC equipment if contaminated refrigerant is used. A
reclamation licensing system should be established that requires the licensees to meet a high
standard for refrigerants offered as reclaimed. This policy will require enforcement similar to
the enforcement recommended for organisations licensed to buy synthetic refrigerants.
One basis for the distinction between reuse and reclamation could be that if the refrigerant is
transferred from Company A to Company B it must be reclaimed. Reuse within a company
would be permitted subject to the knowledge and agreement of the contractor’s customer.
Issues for consultation
“Reducing the harmful impact of ODS and SGGs is an important ongoing
environmental goal for the Australian Government. The damaging effect of ODS and
SGGs, when emitted into the atmosphere, is extensively documented and action to
address this has clear international agreement. Destruction incentives contribute new
resources and promote shared responsibility to support the destruction of waste gases
through changing market circumstances. Incentives should support the recovery of
ODS and SGGs for destruction when the gases are not suitable for reclamation or
recycling.
The government invites feedback on the following issues relating to the development
of the Destruction Incentive Program”.
Stakeholder feedback:
Q:
A:
How will reclamation rates change under the equivalent carbon price?
Reclamation rates will increase significantly reflecting the increased value of the
reclaimed refrigerant driven by the higher price of new refrigerant as a result of
the SGG levy (and other factors).
Q:
A:
How will the proposed incentives options affect this?
An incentive for recovery and destruction that is in line with the current value of
the contractor rebate will cause a dramatic reduction in the rate of recovery for
destruction because reclaimed gases will be worth much more than gases
recovered for destruction.
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Q:
A:
What level of destruction incentive could promote recovery from fire
extinguishers, insulation foams, vehicles and domestic or small commercial
refrigerators and air conditioning units?
The destruction incentive for all HFC gases should be determined by one factor
– the GWP of the gas. HCFCs /CFCs should attract a high rate / averagely
higher than HFCs reflecting the generally higher GWP of these gases but also
reflecting the need to provide a strong incentive at a flat rate for all ODS gases.
It is essential that the destruction incentive available from the commencement
of the DWOSP be substantially higher than the incentives offered by the
existing RRA scheme to date. The option proposed in the consultation paper of
only minimal if any change in the rebates available is inadequate to drive an
increase in the very low level of recovery from end-of-life equipment, and
should not be adopted in the design of the DWOSP.
Q:
A:
What is the likely need for HCFC destruction over the coming years?
The need will increase rapidly subject to there being a high incentive for
destruction. In the absence of a high incentive for destruction HCFCs will be
reclaimed and reused. As the very large fleet of existing HCFC equipment
reaches end-of-life in the next 5 -10 years there will be a very high need for
HCFC destruction, as stated in the Burnbank and Energy Strategies (2008)
reports. As a readily available fast-acting emissions abatement strategy,
recovery for destruction of the bank of all ODS (CFCs as well as HCFCs) needs
to be urgently prioritised. Australia should take a leadership role in sharing any
experience and success in these endeavours with all Parties to the Montreal
Protocol.
Q:
A:
What requirements should an accredited destruction provider meet?
There should be considerable flexibility in the requirements demanded of
accredited destruction service providers and new entrants to the market should
be encouraged. Requirements similar to those demanded of holders of a
Refrigerant Trading Authorisation should provide a good basis for these. In
addition, public annual reporting of performance is imperative in the interests of
transparency, and the public interest in being able to measure and assess the
performance of the overall program.
Q:
Should destruction providers have broad coverage or should they be able to
provide targeted services?
Destruction providers should be required to accept gases from any source. The
market will determine who provides what gases for destruction. Regional
sources of gases recovered for destruction should be sufficiently rewarded to
reflect their incremental transport cost however this is not a major factor and
will be addressed by the market if the rebate for destruction is sufficient.
Fostering competition in the provision of destruction, or more accurately
aggregation, services to drive greater recovery volumes is the paramount
consideration, and no restrictions on regionally or sector targeted services
should be imposed.
A:
10
Q:
A:
What requirements should an accredited destruction facility meet?
These have been specified by international agreement through the Technical
and Economic Assessment Panel (TEAP) of the Montreal Protocol. This
performance should be regularly monitored to ensure it is maintained on an
ongoing basis.
Q:
Is it feasible to identify the species of gases presented to accredited destruction
facilities before incentive payments are made?
Yes, this is a matter that warrants absolute certainty and a costs assessment.
We are advised that low cost equipment is available. We are also advised that
high precision requires laboratory services that are available throughout the
country that are affordable if a little more expensive. The key matter is that it is
up to the aggregator to decide whether to incur this expense.
A:
Q:
A:
Who should be able to claim incentive payments from destruction providers and
what conditions should they be required to meet?
Any person qualified and licensed by ARC to handle and recover gases from an
RAC system should be able to present a recovery cylinder to a destruction
provider and claim an incentive payment. Greater effort is required from
ARC/DSEWPC to ensure that scrap metal, automotive dismantling, municipal
waste transfer facility and demolition industry workers handling end-of-life
equipment containing ODS and SGGs are aware of and follow the legal
obligations that are currently unenforced, and are made aware of the additional
revenue streams available to them by responsibly recovering waste
refrigerants. Incentive payments should be set by the destruction provider
reflecting their costs of operation and their willingness to incentivise supply of
recovered gases.
Q:
A:
What is the quantity of high GWP SGGs that will likely be sent for destruction?
We consider the volume of SGGs available for destruction will be determined by
the incentives provided by the destruction provider, and influenced by the
effectiveness of any compliance and enforcement measures undertaken. Those
that offer a high rate will attract a large volume because it will be worthwhile
for the contractor to recover gases from small charge units which contain the
vast majority of the gases. If the destruction provider is not prepared to offer a
high rate for supply they will attract a small volume. Until we see the market
operate we will not know the volume however we estimate that the volume
available from end of life equipment alone is 2,000 tonnes per annum.
Q:
A:
Should high GWP gases be included in the destruction program?
All gases with a GWP over 100 should be included and the incentive paid by the
government should reflect the GWP of the gases offered for destruction.
11
Q:
A:
Q:
A:
Q:
A:
Q:
A:
If high GWP gases are included in the destruction program, what incentive
should they receive and should there be restrictions on who can claim
incentives?
The rebate offered should be the carbon equivalent price and the requirement
should be independent validation of the accuracy of the destruction providers
evidence that the volume of gases by GWP were in fact destroyed. Given the
high value of very high GWP gases, there may need to be restrictions imposed
on who can present these gases for destruction to reduce the risk of theft, but
this may well be able to be managed by the destruction providers exercising
discretion in dealing only with known and trusted customers.
Are there any other manufacturing or business models that would destroy SGGs
or ODS through their use or manufacture?
Not to our knowledge.
What factors should influence decision making about whether to fund
destruction for these purposes and the method for funding the destruction in
such examples?
Actions taken to reduce emissions should be rewarded at the carbon price
subject to validation.
Would a flat rate incentive payment provide a workable program for industry?
A flat rate is not appropriate for HFCs because the objective of the program is
to maximise Australia’s GHG emissions abatement, and it is cost and technically
feasible to determine the GWP. There is funding available and the rest of the
economy is being compensated at the carbon price. In addition RRA reserved
funds should be made available.
A flat rate is appropriate for HCFCs / CFC because their value is not directly
influenced by the SGG levy and their destruction is not reflected in the national
GHG emissions inventory. However the rate needs to be set at a high rate in
view of the high price of these gases and the incentive to reclaim them. If we
want to recover and destroy these high GWP, ODS we will need to provide an
incentive sufficient to incentivise recovery for destruction as opposed to
reclamation.
Q:
A:
If a GWP based flat rate was implemented, which calculation would industry
prefer:
o
the average of the gas species and volume of ODS and SGGs sent for
destruction during the past year
o
the gas species and volume in the Australian bank of equipment
o
the gas species and volume imported to Australia in the previous year
A flat rate for HFCs is not appropriate. A flat rate for ODS should be at least
90% of the reclaim value of these gases as measured by the reclaim prices for
ODS refrigerants at a point in time survey of the market.
12
Q:
A:
Are there any other ways to calculate a flat rate incentive payment?
Not that we are aware of, however the key point is that it is propose to
establish a market for recovery and destruction. The supply chain for this
purpose will and should function as a competitive market where the HFC rebate
price is based on the GWP value of the gases destroyed by any destruction
provider and any aggregator supply chain.
Q:
To what extent would it be practical and cost effective for destruction providers
to measure the composition of gases surrendered to them?
We are advised that the costs of a gas chromatograph test is about $70.00 per
sample with a high degree of precision. We are also advised that lower costs
may be available. We consider it practical and necessary to conduct this
examination at the destruction provider level, which will determine the rate
paid to the aggregator. We also believe it is the aggregator’s decision as to the
extent of species identification at the contractor level.
A:
Q:
A:
What technology options are available to do this and what are the costs?
We are not authoritative on this matter, but consider companies in the ToxFree
network to have substantial expertise.
Q:
Where gas composition measurement is practical and cost effective would the
benefits of GWP-based rebates flow through the supply chain and to whom?
It is practical and cost effective and the benefits will flow from the destruction
services provider to the aggregator to the contractor. The aggregator will
decide the level of incentive they are required to pay contractors to recover and
submit materials so as to minimise failures to recover gas.
A:
Q:
A:
Q:
A:
Q:
A:
Where gas composition measurement is not practical, how would destruction
providers structure the incentives paid to the supply chain? For example, would
they be based on average GWP or a lower rate?
It is practical and necessary.
How would industry manage the flexible prices of a GWP-based model after
2015?
This question will only be answered closer to 2015. In principle the levy should
reflect the market carbon price and the recovery structure should reflect this
prices for HFCs. The recovery structure for CFCs/HCFCs should remain stable
at a flat rate as above.
Would the hybrid model be a workable program for industry?
There is no need for a hybrid model if our recommendations are accepted.
13
Further Discussion of Issues Raised in Consultation Paper
NB: In order to respond to all the “Stakeholder Feedback” questions, and to sections of the
consultation paper on which comment is not explicitly sought but which are deserving of
discussion, this submission follows the structure provided by the consultation paper. For
clarity, quotations from the consultation paper are highlighted in tan shaded text boxes.
Quotes from other documents are provided in green shaded text boxes and figures.
Overview / Summary
The questions of incentives and pace of transition
The Government’s Clean Energy Future Plan is part of a long-term plan to reshape the
Australian economy, cut carbon pollution, drive innovation and help avoid the increased costs
of delaying action on climate change. ARA’s position is that the new destruction program
scheme needs to contribute to all these, and in particular the latter.
As set out below, in spite of the relative success of the RRA program when compared on a per
capita basis with other much more populous jurisdictions, the evidence shows that in the past
Australia’s industry run arrangements have fallen well short of what could have been
achieved, and much remains to be accomplished.
In view of the slow ramp up of recovery volumes and a stagnant rate of growth in recent
years, needed action to raise the level of ambition in reducing emissions of refrigerant gases
and significantly increasing recoveries and the proportion of end of life systems and
equipment ought not be further delayed.
“The Destruction of Waste ODS and SGG Program is intended to provide incentives
to recover SGGs and ODSs for destruction when they are not suitable for reuse,
recycling or reclamation.” (p. 5)
It is agreed that the key challenge in the design of the Destruction of Waste ODS and SGGs
program will be setting the incentive at a sufficiently high level to maximise recovered
volumes available for destruction. Even if combined with an unprecedented compliance and
enforcement effort, this will necessarily be much higher than the level of incentive currently
offered to contractors.
The objective described of “building on” the level of achievement of the current RRA scheme
is far too modest and lacking in ambition. Acceptance of anything other than a substantial
increase of volume recovered for destruction will amount to important missed opportunities
for emissions abatement, and an acceptance of increased costs of delayed action on climate
change.
14
The implicit presumption that gases should only be destroyed when they are not suitable for
reuse, recycling or reclamation should be replaced with a clear policy preference for
destruction of any gas that is able to be successfully recovered. In order to maximise the
environmental benefits of the program, it is preferable to dispose of the “bird in the hand”
rather than release it “into the bush” in the hope of getting it back again one day. It is far more
probable that the bulk of any gas sent back out into the working bank for reuse will result in
its subsequent emission, either through life or at equipment end-of-life.
“The approach proposed in this paper is that the new program would transition
gradually from the current industry-based refrigerant recovery and destruction
scheme. The first year of the destruction program would provide a financial incentive
for collecting and destroying waste ODS and SGGs at a rate informed by the product
stewardship scheme currently operated by Refrigerant Reclaim Australia.” (p.5)
“This approach would provide a stable planning outlook for industry and recognises
that there is both a long life and large existing bank of SGGs and ODS in Australia
for which an equivalent carbon price has not been paid but which would over time
become available for destruction at end of life.
As indicated above, the ARA view is that there is little or no value in a gradual transition. No
case is presented in the consultation paper as to why this is needed, or that any uneccessary
costs would be imposed by raising the level of ambition and establishing as an objective a
much higher level of recovery.
Establishment of the Government funded Destruction of Waste ODS and SGGs program
presents an opportunity to make a clear break with the past. Significantly raising the level of
ambition by establishing a higher target for recovery, creating a higher level of incentive to
achieve this, and presenting the trade with a welcome new revenue stream will all combine to
assist in ‘selling’ the CEF reform package in general, and in justifying the imposition of the SGG
levy on HFCs in particular.
If anything, a more “stable planning outlook” would be provided by commencing the new
program with a clearly established set of goals and communication of the objectives of the
volume of refrigerant sought and rate of incentives to be provided to achieve these. Rather
than failing to take the opportunity to address well understood deficiencies in the RRA
arrangements, and leaving open large uncertainties about the outcome of proposed annual
and major quadrennial reviews, much greater planning certainty could be provided to
industry by being clear from the outset about the objectives of the new program.
Little if any advantage is to be gained by adopting a “steady as she goes” approach achieved by
a gradual transition from a scheme that was established with a very low level of ambition, that
has been slow to ramp up the volumes recovered in the first 10 years, has levelled off since
the licensing reforms introduced by the previous Government and a reduction in the rebate
payable to contractors (from $5.50 t $3.00 per kg) and has failed to recover any significant
proportion of the gas available from the most ubiquitous sources of end-of-life equipment,
15
namely domestic and small commercial air conditioners (both split systems and window
types), motor vehicle air conditioning systems and domestic refrigerators and freezers.
Any attempt to convince the public, and a highly sceptical trade, of the merits of the reformed
waste refrigerant recovery and destruction arrangements will be greatly assisted by the
ability to communicate that the reform is being driven by the need to pay attention to the
important RAC sector.
Framing the imposition of the levy on HFCs as being necessary to be able to afford a much
higher level of recovery and destruction of both the Kyoto and Montreal ‘Super Greenhouse
Gases’ would be an important and useful additional argument. This would substantially assist
in establishing the case that the Government is taking climate change seriously, and is
implementing policies that will be effective in achieving fast acting, near term emissions
abatement, as well as longer term transition across the economy.
Combined with industry education and awareness initiatives, a declaration of policy intent to
raise the level of compliance among all those responsible for handling SGG refrigerant gases,
particularly those contained in systems and equipment reaching end-of-life, would help to
signal a new approach is being taken by Government, and that necessitates the establishment
of the Destruction of Waste ODS and SGGs program.
A modest increased investment in compliance and enforcement, and the first exercise of
existing powers under the Act would greatly assist in achieving a goal for a much higher level
of recovery, and ensure a rapid uptake of the increased financial incentives available under
the new Destruction of Waste ODS and SGGs program.
It would not take more than a small number of prosecutions, and the establishment of a
reasonable apprehension of getting caught to effect major behaviour change among the scrap
metal and demolition industries, especially once the realisation is established that there is
some additional money to be made by complying with long established but widely ignored
legislative obligations.
“Key considerations for the design of the Program detailed in this paper include:
1. eligibility criteria for destruction providers and destruction facilities to be approved as
participants in the Program
2. implementation processes, including the conditions for obtaining destruction incentives
3. options for determining the rate of destruction incentive payments
4. the level of financial incentives in influencing destruction and reclamation practices. “
Key considerations that also require inclusion in the design of the DWOSP include:
 Objectives of the Program – what is it trying to achieve?
 What volume of gas is available to be recovered?
 How much of this gas can be recovered at what cost?
 What kind of enforcement measures of existing law would be sufficient to drive up the
current low levels of compliance in handling waste gas contained in end-of-life equipment?
16
1. Introduction
1.1. Legal framework
“It is an offence under the Act to emit an ODS or SGG“ (p.9)
While the offence exists, its impact on behaviour is limited in the absence of any prosecution
and/or enforcement. As noted in the first section of this submission, using small number of
prosecutions to send a signal to the industry that the law needs to be adhered to, and presenting a
credible threat of getting caught is an essential concomitant condition to an increased rate of
incentive that needs to be made available to ensure compliance and to maximise recovered
volumes.
1.2. Imports of ODS and SGG in Australia
Among other things, it is stated:
 “There is an estimated bank of 40 100 metric tonnes of ODS and SGGs in refrigeration and
air conditioning equipment, up from 30 600 in 2006.

“Approximately 1000 metric tonnes of ODS and SGGs in refrigeration and air conditioning
equipment reaches end of life annually.”

“Around 500 metric tonnes of ODS and SGGs are destroyed annually.”

“Approximately 500 metric tonnes of waste ODS and SGGs from end-of-life equipment are
reclaimed, recycled or emitted into the atmosphere each year.”
One of the main impediments to the design of the Program is the lack of confidence or
uncertainty in the data that is publically available relating to the size of the bank, the rate of
emissions, the volume of imports by species of gas, the volume of gas that is contained in
equipment and systems reaching end of life p.a. by sector, and the total volume of potentially
recoverable waste gases.
The lack of a model of the cost curve of the amount of gas that might be available at particular
rates of rebate payable as incentives for recovery, or expenditures on enforcement of
compliance makes an informed assessment of the options particularly difficult.
However it should be noted that the Energy Strategies (2008) assessment states that the
volume of gases in end-of-life systems in 2006 were 1,053 tonnes and expected volumes in
end of life systems in 2018 would be 3,203 tonnes. Given that we are now halfway between
these points it is only reasonable to assume that 2012 volumes should be in the order of 2000
tonnes.
17
Taking into account that the sum total of recoverable volumes includes a significant
proportion of gases obtained in the course of servicing existing equipment and systems, the
volumes of waste gas available from end-of-life systems are not an accurate reflection of the
total potentially recoverable volume.
2006 Total 30,574
2006 EOL 1,053
2018 EOL 3,203

Approximately 40 metric tonnes of SGGs used in aerosols were emitted in 2010.
ARA believes that these numbers are in fact much higher, and that this means there is much
greater scope for the new Destruction of Waste ODS and SGGs Program.
While emissions from Metered Dose Inhalers (MDIs) are hard to avoid, it is reasonable to
assume that significant proportion of these emissions are from novelty applications such as
klaxons, silly string, cork poppers, keyboard sprays and the like. Alternatives are available for
the vast majority of such uses, and there is no reason to maintain the current exemptions in
the regulations that currently permit these frivolous and unnecessary emissions.
2. Objectives of destruction
Provision of new destruction incentives by the Australian Government needs to also recognise that
the level of incentive provided in the past has been insufficient to achieve compliance with
legislative obligations to recover waste gas from end-of-life equipment. The new destruction
incentives need to be supported by a strong political leadership and a declaration of policy intent to
raise the level of ambition and to set goals of what is an achievable volume of recovery and need
to use additional resources and choose to raise enforcement to meet this objective.
It is recognised that assuming proposed expenditure is based the current price of destruction per
kg of $24.00, the funds provided will be sufficient to achieve doubling or tripling of the current
volumes.
Year
2013-2014
2014-2015
2015-2016
Budgeted Funds
$23.4 M
$28.7 M
$37.5 M
Volume (Kg) recoverable @ $24.00/Kg
975,000
1,195.88
1,562.5
To achieve a higher annual volume of recovered gas for destruction, it is ARA’s contention that a
much higher level of incentive will be required
18
3. Reclamation
Reclamation is a cost-effective emissions reduction mechanism as returning waste gas to new
gas extends the life span of ODS and SGGs currently in Australian equipment and reduces the
amount of replacement gas manufactured and transported to Australia.
The incentive rate paid under the Destruction of Waste ODS and SGG Program may affect the
viability of reclamation in Australia. A destruction program with a lower incentive rate would
favour recycling and reclamation rather than destruction. Paying a higher rate for destruction
may encourage destruction of gases that could have been suitable for recycling or reclamation.
As discussed above, reclamation should not be seen as an emissions reduction mechanism as
there is no certainty that the gas will not leak out once it is put into another system. This is in fact
highly likely. In respect of ODS, by increasing the supply of these gases reclamation can
undermine the intent of the phase out by keeping equipment using ODS operating for longer than
otherwise might have been the case, and reducing the pace of the transition to more
environmentally benign systems.
It is highly doubtful that any reclamation activities in Australia will prevent overseas fluorochemical
manufacturers from manufacturing any product, as any volume likely to be reclaimed here will be
unnoticeable on the global market. It may do something to reduce the need to import new
refrigerant, in the case of HFCs, but this does not amount to an emission reduction. If any volumes
of R22 that are reclaimed could be deducted from the 45 tonnes of permissible imports each year
from 2016 – 2030, this could result in an environmental benefit by assisting a swifter HCFC phase
out.
The DWOSP should have a clear preference for the destruction of any gas that is recovered.
4. Additional abatement
Currently, it is estimated that around 1000 tonnes of ODS and SGG is available for destruction
each year from end-of-life refrigeration and air conditioning equipment, although only around 500
tonnes is destroyed and the remainder most likely recycled or emitted. This suggests there is
scope for expanding ODS and SGG recovery efforts.
It is difficult to understand on what basis the 1000 tonnes estimate of gas available from endof-life equipment is made. The Energy Strategies (2008) report estimated that slightly more
than this was available in 2006 and they projected a tripling by 2018. It stands to reason that
now in 2012 we should have at least 2000 tonnes reaching end of life. Especially if foams are
taken into account there is a high level of probability this is a very conservative number.
Total 30,574
2006 - 1,053
2018 - 3,203
19
The consultation paper asserts:
The 2008 report by Energy Strategies & Expert Air5 suggests that over half of the retiring 2006
stock of sealed window and wall air conditioning units were not degassed at end of life. Up to 60
per cent of scrapped vehicles with air conditioning are thought to contain residual refrigerant.
This is not an accurate account of what the Energy Strategies (2008) report says. There is a
much smaller proportion of gas recovered from end-of-life air conditioning systems.
With regard to smaller split systems and residential systems current practice would
suggest that the vast majority of equipment that reaches end-of-life is removed by a builder
or DIY renovator and is dumped without being evacuated by a refrigeration technician. As
such, it is expected that recoveries from this large class of equipment are negligible.
-Energy Strategies (2008), p.45
Similarly, in respect of motor vehicles, while the estimate of 60% still containing residual
refrigerant is correctly stated, the far more pertinent fining is that “SGGs are recovered from
possibly as little as 2% of these vehicles”, a highly relevant consideration.
These points are reinforced by the following:
There is no evidence of significant recoveries from end-of-life residential
appliances, sealed air-conditioning equipment (such as window/wall units that
are often removed by people who are not licensed refrigeration mechanics) and
very little (<3%) from passenger vehicles.
-Energy Strategies (2008), -p.44
The following quotes from Energy Strategies (2008) highlight additional abatement
opportunities that are inadequately considered in section 4 of the consultation paper:
The next largest opportunity is in the area of registered mobile air-conditioning units.
Some 600,000 vehicles are reaching the end of their useful life every year in Australia
and SGGs are recovered from possibly as little as 2% of these vehicles, while as many as
60% of them are estimated to still have a gas charge in the air-conditioning equipment
when they get to the scrap yard.
-Energy Strategies (2008), - p.46
“The large majority of refrigerant recovered is from the commercial refrigeration and
air- conditioning industry, with increasing quantities coming from the mobile airconditioning service industry. “
“An obvious opportunity to increase recoveries from end-of-life equipment would
involve making inspection and recovery of gas from equipment at scrap metal yards
mandatory before the equipment can be processed. “
-Energy Strategies (2008), p.46
20
“The largest volume of end-of-life SGGs is in the stationary air-conditioning area. Industry
intelligence suggests that it is well known that unlicensed operators and installers
without reclaim equipment still operate in the residential and light commercial markets.
Older window units and other sealed units are sent to scrap with a significant charge. In
fact on the basis of the age of the stock of equipment, in this area, over 50% of the retiring
stock in 2006 is estimated to be window/wall units which are predominantly sealed units
that are not pumped-down when removed.
“They are simply sent to scrap for destruction and release of their gas charge, all of which
will be HCFCs.”
-Energy Strategies (2008), p.45
The position taken in the consultation paper appears to suggest that additional abatement
will be too hard, and too costly to achieve. With a combination of greater determination to
enforce existing legislation and the availability of a higher financial incentive to recover waste
gases from end-of-life equipment a much higher volume of gas is potentially recoverable than
is suggested in the consultation paper.
The existing bank of CFC/HCFC foam is likely to be large due to activity prior to the global
switch to pentane in the mid 1990s. A lot of old refrigerators will be CFCs. The industry
stopped using CFCs in large production quantities in Australia right up to the cut off in
1994 because CFCs had better performance characteristics and cost benefits. There was
not a lot of HCFC 141b activity prior to the cut-off. Most participants admitted waiting
until the last minute before switching to HCFCs.
-Energy Strategies (2008), p.46
21
Appendix:
Performance of existing recovery and destruction arrangements
Design of the new Destruction of Waste ODS and SGGs Program needs to be informed by a
frank and comprehensive assessment of the ambition and performance of the existing
arrangements. Time and resource constraints prevent us from presenting the needed level of
analysis, but the following evidence and brief observations are offered in the hope that a more
penetrating assessment of efforts to date is made.
A point avoided by the selection of only the past 10 years of RRA recovery data in the
consultation paper is that the first 10 years of voluntary operation of the scheme was
characterised by a comparatively low volume of recoveries. This contributes to the average
annual recovery volume of only 215 tonnes over the lifetime of the scheme. It was only once
the December 2003 amendments to the OPSGGM Act took effect that recoveries began a
period of steady growth. This was disrupted by the reduction of the contractor rebate from
$5.50 to $3.00 following the granting of authorisation by the ACCC in 2008.
RRA Recoveries 1993-2011 (Tonnes)
600
500
400
300
Tonnes
200
100
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
0
22