OZONE PROTECTION IN THE UNITED STATES ELEMENT S OF SUCCESS

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ELIZABETH COOK EDITOR

WORLD RESOURCES INSTITUTE OZONE PROTECTION IN THE UNITED STATES ELEMENTS OF SUCCESS

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ELIZABETH COOK, EDITOR

WITH CASE STUDY CONTRIBUTORS:

Reynaldo Forte J. Andrew Hoerner Jeffrey D. Kimes David Lee Robert Livernash David Malakoff Sandra Phillips Stephen R. Seidel Pamela Wexler

WORLD RESOURCES INSTITUTE NOVEMBER 1996 KATHLEEN COURRIER PUBLICATIONS DIRECTOR

BROOKS BELFORD MARKETING MANAGER

HYACINTH BILLINGS PRODUCTION MANAGER

This report is the expansion of work reported in January 1996 in "Marking a Milestone in Ozone Protection: Learning from the CFC Phase-out" by Elizabeth Cook.

The views expressed in these case studies are those of the authors and not of the institutions for which they work.

Each World Resources Report represents a timely, scholarly treatment of a also solicits and responds to the guidance of advisory panels and expert subject of public concern. WRI takes responsibility for choosing the study reviewers. Unless otherwise stated, however, all the interpretation and topics and guaranteeing its authors and researchers freedom of inquiry. It findings set forth in WRI publications are those of the authors.

Copyright © 1996 World Resources Institute. All rights reserved. ISBN 1-56973-088-1 Library of Congress Catalog Card No. 96-061602 Printed in the United States of America on Recycled Paper. CONTENTS

Foreword v 7. BATTLING HALONS 67 Elizabeth Cook Acknowledgments vii How U.S. military forces created halon-recycling 1. OVERVIEW i reserves and sped up the phase-out of halon production Elizabeth Cook

Learning from the CFC and halon phase-out 8. NEW MARCHING ORDERS 77 Pamela Wexler 2. THE SPRAY CAN BAN n Revised military procurement "specs" allow use David Malakoffand Sandra Phillips of alternatives to CFC-113 cleaning solvents How the 1978 ban on CFC propellants in nonessential aerosol products came about 9. SAYING YES TO "NO CLEAN" 87 Pamela Wexler 3. WRAPPING IT UP 21 Substituting engineering for chemicals in the Elizabeth Cook electronics industry Negotiations pave the way to a voluntary phase- out of CFCs in polystyrene food packaging 10. CHILLING OUT... 97 Reynaldo Forte and Robert Livernash 4. TRADING POLLUTION 31 Improving energy efficiency and reducing David Lee refrigerant leaks in commercial "chillers" How a market-based permit system controls CFCs and other ozone-depleters 11. KEEPING CARS COOL 109 Stephen R. Seidel 5. TAXING POLLUTION 39 The auto industry introduces CFC-recycling and J. Andrew Hoerner ends CFC use in new car air conditioners How excise taxes on CFCs provide financial incentives for a faster phase-out ABOUT THE AUTHORS 118

6. DANGLING THE CARROT 55 Elizabeth Cook and Jeffrey D. Kimes A "Golden Carrot" prize encourages firms to develop a super-efficient, ozone-friendlier refrigerator

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS iii FOREWORD

his report asks a profoundly important community agreed—in the Montreal Protocol on question: given hard evidence that Substances that Deplete the Ozone Layer—that human activity is damaging the atmos- action was necessary. phere, can we alter deeply embedded economic habits to forestall it? On January 1, 1996, less than 10 years later, chemical manufacturers stopped producing In the face of the current debate on commit- CFCs for consumption in the United States, ments and measures to reduce greenhouse gas except for a few essential uses. Contrary to early emissions, the question cannot yet be answered. predictions, meeting this Protocol goal did not But in at least one case—the phase-out of ozone- severely disrupt the U.S. economy, trigger mas- depleting substances—the answer is yes, if the sive job losses, or deny popular products or ser- public and private sectors create the right combi- vices to consumers. With considerable ingenuity nation of policies, incentives, and pressures. and aggressive investment in innovation, many U.S. industries eliminated CFC use more Less than a decade ago, chlorofluorocarbons quickly, at lower cost, or with greater environ- (CFCs) were entrenched in the U.S. economy. mental benefits than observers once predicted. More than ioo billion dollars' worth of equip- ment relied on CFCs: which were stable, non- As described in Ozone Protection in the United flammable, non-toxic, cheap to manufacture, States: Elements of Success, several factors made and easy to store. For refrigeration and air con- this swift change possible: the use of marketable ditioning systems in supermarkets, buildings, permits, excise taxes, and other market-based and automobiles; factories producing foam instruments; entrepreneurial government initia- cushions, insulation, and packaging; machines tives, such as removing regulatory barriers; cor- cleaning everything from electronic components porate leadership; and the build-up of both sci- to medical instruments and more, no acceptable entific understanding and environmental alternatives were on the shelf. advocacy.

Not surprisingly, industrial leaders initially Although certainly not cost-free to business, balked at the idea of making do without these the phase-out challenge proved in many cases to substances. But the scientific evidence impli- be an economic opportunity instead of a burden. cating CFCs in stratospheric ozone depletion For example, in the late 1980s, manufacturers of was compelling, and by 1987 the international refrigeration and air-conditioning equipment

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

V feared that giving up extremely efficient CFC to steps still needed to protect the ozone layer, refrigerants would set back their progress including finding safe substitutes for such toward higher energy efficiency. Instead, many ozone-depleters as the pesticide methyl bromide. companies have redesigned equipment to use CFC alternatives and simultaneously improved The CFC phase-out proves that necessity can efficiency. mother invention and that technical solutions that defy the expectations of pessimists and even The U.S. companies that are leading the way outstrip the hopes of optimists can still be in the design of equipment to eliminate or found. To those now in the thick of the climate reduce CFC use are also finding many new over- change debate, the "can do" stories in this report seas markets. In 1995, Robinair, a company that remind us that acting to protect the future can makes refrigerant management tools, sold $22.5 also make the present better. million worth of recycling machines internation- ally, and the Trane Company, a manufacturer of We deeply appreciate the Environmental Pro- large building chillers, has seen its chiller tection Agency's support of this publication. We exports jump 300 percent in the last five years. would also like to thank the Pew Charitable Trusts and the Rockefeller Brothers Fund for The phase-out is well under way in industrial- their support of WRI's outreach efforts on cli- ized countries, and promising signs suggest that mate issues. levels of some of these harmful chemicals in the lower atmosphere are beginning to drop as a JONATHAN LASH result. But the job is not yet completely done. PRESIDENT Environmental leaders are calling our attention WORLD RESOURCES INSTITUTE

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS vi ACKNOWLEDGMENTS

ike many of the ozone-protection initiatives I would like to recognize the following in- documented in this report, completing this dividuals who also lent their time and expertise: project required extraordinary collabora- Ward Atkinson, Tom Barthold, Beth Behrendt, tors. This was truly a group effort, and my Joe Bow, Tom Cortina, Ed Dooley, Paul Faeth, Joe appreciation to the many individuals who partic- Felty, Gary Fernstrom, Cynthia Georgeson, ipated is boundless. Corinna Gilfillan, David Goldstein, Jane Hutterly, Nina Kogan, Robert Langert, Jonathan Lash, Jim First, I would like to thank the case study MacKenzie, Alan Miller, Geno Nardini, Simon authors, who in numerous instances also pro- Oulouhojian, John Passacantando, Walt Reid, vided invaluable expertise and help in conceptu- Mike Thompson, John Wasson, and Tom alizing and preparing the overall report. Steve Watts-Fitzgerald. Andersen, Roger Dower, and Tom Morehouse also contributed unequaled advice and guidance. My gratitude also goes to WRI's Policy Affairs staff for outstanding work releasing "Marking a In addition, I am grateful for the Environmen- Milestone in Ozone Protection: Learning from tal Protection Agency's support of this work. the CFC Phase-out"—a brief introduction to this Throughout the project, the Stratospheric Pro- report—and continuing outreach assistance on tection Branch and Atmospheric Pollution Pre- this project. vention Division's talented staff has provided crucial information and assistance. In particular, Finally, my special thanks to my WRI col- I am indebted to Betsy Agle, Christine Dibble, leagues in the Publications Department whose Drusilla Hufford, Jeffrey Levy, Tom Land, Jean talents I admire: Kathleen Courrier, Hyacinth Lupinacci-Rausch, Reva Rubenstein, and Sue Billings, Bob Livernash, Samantha Fields, and Stendebach. Maggie Powell.

I would not have completed this publication E.C. without the incredible day to day support of Christy Dobbels, Sridevi Nanjundaram, and Kathleen Welch.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS vii OVERVIEW

By Elizabeth Cook

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= ~ ow are efforts to protect Earth's ozone To put these success stories into perspective, layer faring? Year after year, scientists consider how great the challenge of phasing out find the seasonal Antarctic ozone hole CFCs seemed less than a decade ago. In 1987, is growing in size, depth, or duration and the the year governments signed the Montreal Pro- ozone shielding other parts of the globe is tocol on Substances that Deplete the Ozone "thinning." Meanwhile, the press reports, chlo- Layer, Americans were literally surrounded by rofluorocarbon (CFC) prices are skyrocketing, CFCs: these "wonder chemicals" helped cool trade in illegal CFCs is thriving, and attempts to their cars and offices, preserve and package their roll back U.S. laws that safeguard the ozone food, and manufacture their new, high-tech layer—such as the 2001 ban on the pesticide computer and electronics gear. (See Figure 1.) methyl bromide—are as dogged as ever. Clearly, U.S. industries were responsible for using one- the job of halting ozone depletion is far from third of all CFCs produced worldwide—and U.S. finished. companies sold more than $500 million worth of the chemicals every year.2 American goods Yet, by key political measures, progress is and services involving CFCs were worth $28 bil- undeniable. On January 1, 1996, the United lion annually and installed equipment worth States, the world's foremost consumer of ozone- more than $128 billion relied on CFCs.3 Not sur- depleting chemicals, met the internationally-set prisingly, industry uniformly argued that mov- deadline for phasing out production of CFCs for ing away from CFCs would be a prohibitively domestic use.1 Not that long ago, reaching this costly, slow process that would harm the quality ambitious goal without devastating the economy of products and services. was considered to be virtually impossible. Today the "elements of success" that made meeting the But the worst never happened. Today, industry deadline possible can be documented—as they has developed alternatives for virtually all CFC are in the ten case studies included in this vol- applications. The public has not been denied ume—and viewed as models not only for pro- popular products, and the economy has not tecting the ozone layer, but also for tackling been seriously disrupted. In case after case, other tough environmental challenges, such as firms have eliminated CFCs faster, at lower cost, climate change. or with greater technological improvements

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS • "Battling Halons" shows how the U.S. mili- FIGURE l ; I987 U.S. CFC END tary, which helped develop fire-fighting halons USES in the 1940s and became their single largest user, provided the leadership necessary within Solvents Car air the United Nations Montreal Process to end conditioning halon production in industrialized countries on January 1, 1994. Although halons were the least controlled ozone-depleter included in the Aerosols /iilii!IM|:;:J:Plastic foams (32%) million CFC-using cars still on the road. Early on, the auto industry assumed that : Source: U.S. Environmental Protection Agency. retrofitting a car air-conditioning system to Estimates based on the Atmospheric and Health use CFC alternatives would be complex and Effects Framework used to prepare Regulatory Impact cost more than $1,000. Using much simpler Analysis: Protection of Stratospheric Ozone. options, service technicians can now satis- factorily retrofit most working car air condi- than ever imagined. In fact, the whole phase-out tioners for $50 to $150. is proving less costly than the Environmental Protection Agency originally estimated. While the selected case studies tell much of the story of how the United States made the In the following case studies, the World deadlines to phase-out CFCs and halons, they Resources Institute and its collaborators explore cannot tell it all. The U.S. Government response how and why. For example: to ozone depletion included an array of interna- tional, national, and local legislation as well as a • "Chilling Out" describes how manufacturers range of regulations, bans, new product reviews, of large building CFC-based chillers over- and economic instruments. How these actions came fears that the CFC phase-out would set influenced ozone-protection efforts is hard to back progress in making chillers more measure since separating out cause and effect is energy efficient. The industry once thought difficult. Yet, a strong storyline does emerge it would take eleven years to market air con- from these chapters in ozone protection, and ditioning technology that could operate with five important lessons can be drawn: new refrigerants—if, indeed, such a refriger- ant could be developed. Yet, in less than six years, chiller-makers were marketing alter- 1. An environmental goal that can be native systems that ran 40 percent more effi- adjusted to reflect new scientific informa- ciently than models built in the late 1960s tion is crucial. and the 1970s—and 20 percent better than Without question, the main force motivating even some 1990 models. producers and users to invest in alternatives

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS was the international community's decision to ties agreed to a full phase-out and pulled the control CFCs and halons through the Montreal dates forward to January 1994 for halons and Protocol and the eventual adoption of the January 1996 for CFCs.5 (See Figure 2.) The phase-out goal itself. The original 1987 Mon- phase-out schedules—toughened in response to treal Protocol required industrialized countries worsening ozone depletion—set the ground to halve CFC consumption by 50 percent by rules in producing and consuming industries 1998 and freeze halon consumption in 1992.4 and assured that the environmental goal would Through adjustments in 1990 and 1992, Par- be met.

FIGURE 2 U.S. PRODUCTION OF MAJOR CFCS AND POLICY DEVELOPMENTS (THOUSAND METRIC TONS)

Montreal Protocol freezes CFC consumption in 1989, mandates 400-1 50-percent Protocol U.S. bans reduction by 1998 amendment non-essential requires CFC 350- CFC aerosols phase-out by 2000; U.S. CFC tax takes effect 300-

250- Protocol amendment accelerates 200- CFC phase- out to 1996

150-

100-

50- 1 1958 1962 1966 1970 1974 1978 1982 1986 1990 1995

CFC-n CFC-12 j_j CFC-113

Source: 1958-1993, U.S. International Trade Commission; 1994-1995 U.S. Environmental Protection Agency.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 2. Economic instruments can help govern- mandating CFC recycling, product labeling, the ment and industry achieve environmental development of safe alternatives, and the ban of goals with greater flexibility and at lower nonessential uses have changed domestic con- cost. sumption patterns of the controlled substances. Designed to inform the market and smooth the The United States did not take a traditional com- transition to alternatives, these steps have also mand-and-control approach to implementing required EPA to muster additional staff and the phase-out. It did not specify to each and resources. every CFC- and halon-user precisely how to eliminate these chemicals. Instead of prescrip- Is this combination of regulatory tools bring- tive regulation, the U.S. Government used a ing about the CFC phase-out at the lowest possi- combination of regulatory and market-based ble cost? Nobody knows, but the transition to policies. Two innovative tools in this kit were alternatives is costing less than EPA originally EPA's system of tradable consumption permits expected. (See Table 1.) and Congress' tax on ozone-depleting chemicals.

"Trading Pollution," one of the case studies, 3. Innovative government initiatives can explains how the permit system controlled the remove barriers that keep industry from production and importation of CFCs and halons, solving environmental problems cost- but left users relatively free to decide how to effectively. meet reduction targets. 'Taxing Pollution," Along with a market-based policy framework, another study, details how the tax raised revenue government agencies have also taken an entre- and gave users a financial incentive to conserve preneurial approach to helping users find less the chemicals and adopt alternatives. Together, costly CFC and halon alternatives. Once govern- these market-based policies reduced administra- ment redefined its adversarial relationship to the tive costs for EPA and lowered business' record- regulated community and decided to serve keeping expenses and compliance costs as firms instead as a catalyst for change, agencies such as searched for the least expensive compliance the EPA became information brokers for the pri- strategies. They also provided a regulatory struc- vate and public sectors—ready to help users ture that could respond quickly to new scientific scale barriers to adopting alternatives and to developments. The results of a tightening cap on help entire industries phase out ozone-depleters consumption and escalating tax on CFCs have cost-effectively. been extraordinary: In the first four years that both policy tools were in force, CFC consump- For example, the EPA made collaborators of tion was 35 percent below the allowable limit. old adversaries in the search for solutions to (See Figure 3.) ozone depletion. In 1988, the agency invited industry and environmental groups to partici- The permit system and tax are the corner- pate in negotiations that led to a voluntary CFC stones of U.S. ozone policy, but other policy phase-out by the food packaging industry in less decisions and the Clean Air Act Amendments of than a year. "Wrapping it Up" tells how compa- 1990 have also played a role. As mentioned, the nies were subsequently allowed to use hydroflu- firm phase-out date prompted many users to act orocarbon-22 (HCFC-22) as a foam-blowing earlier than required by law in anticipation of agent on an interim basis, which enabled them the eventual ban. Clean Air Act regulations to quickly convert a plant for $50,000 instead of

WRI: OZONE PROTECTION IN THE UNITED STATES: EI.FMENTS OF SUCCESS 4 FIGURE 3 U.S. CFC CONSUMPTION: ALLOWABLE VS. ACTUAL

(thousand metric tons) 350 —,

£2 Allowable 300- —•— Actual

250-

200

150-

100-

1989 1990 1991 1992 1993 1994 1995

Note: CFC consumption appears above the allowable limit in 1989 because the controls did not take effect until July 1989. Source: U.S. EPA, unpublished data. spending up to $2 million to adopt hydrocarbon- and essentially re-engineered the soldering based technology. Since air-pollution controls on process to eliminate the need for CFCs. The hydrocarbons were costly and market pressures result of this unprecedented technical collabora- to rapidly eliminate CFCs strong, the option to tion: a more efficient and effective technique. use HCFC-22 allowed manufacturers to protect One company that achieved a phase-out in three the environment without closing factories or lay- years, Nortel (formerly Northern Telecom), esti- ing off workers. mates that it invested $1 million to purchase and employ new hardware and saved $4 million in EPA also initiated the formation of the Indus- chemical waste-disposal costs and CFC try Cooperative for Ozone Layer Protection purchases. (ICOLP), which fostered cooperation rather than competition in the search for CFC solvent alter- "No clean" technology caught on partly natives. "Saying Yes to 'No Clean'" shows how because the Department of Defense was also major electronics firms together perfected "no willing to collaborate and bend. Military specifi- clean" technology—an underdeveloped Canadi- cations, which required electronics manufactur- an process for which the patent had expired— ers to use CFC-113, kept firms wedded to CFC

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 5 use. EPA and DoD jointly created the Ad Hoc CFCs too. What's more, the incentive pulled an Solvents Working Group to work with industry appliance with advanced technologies onto the to remove this roadblock to the phase-out. "New market in less than two years, instead of the Marching Orders" describes how through this eight or nine typically needed. partnership the main culprit "milspec" (Military Standard 2000) was revised in record time, allowing for the use of "no clean" technology 5. Pre-regulatory cost estimates often far and other alternatives that could pass a bench- exceed the actual cost of complying with mark test of cleaning "as good or better" than environmental regulations because they CFC-113. The shift served as a model for a fail to reflect the technological innovation broader transition from prescriptive milspecs to environmental policies spark. performance-based standards within DoD. Because no one could foresee all of the possible solutions and innovations in advance, early esti- mates of CFC control costs often turned out to 4. Given the opportunity, industry leaders be higher than actual costs. The U.S. phase-out can find ways to innovate and gain com- of CFCs illustrates the limits of economic mod- petitive advantages in response to envi- els that aim to estimate the costs of regulations ronmental challenges. but take a static view of the world. Important The need to eliminate CFCs has forced firms to influences on compliance costs—how firms redesign products and operations. True, substan- respond to environmental goals, flexible market- tial human ingenuity and capital investment based incentives, and innovative government were required, but many companies that made initiatives—often fall outside the compass of meeting the CFC phase-out a priority trans- these assessments. formed a potentially costly liability into a com- petitive advantage. Winners have boosted prod- Before issuing CFC regulations, the U.S. EPA uct performance, found new ways to be efficient, funded economic evaluations of the range of developed low-cost alternatives, and even saved possible control options for reducing emissions money. Chiller efficiency improvements and "no and of the associated social costs. In the early clean" technology hammer this point home. 1980s, the studies examined selected CFC-using sectors.6 More recently, through Regulatory A coalition of utilities, environmental organiza- Impact Analyses (RIAs), EPA also calculated a tions, and government officials tapped in to total cost for implementing the Montreal Proto- industry's innovative and competitive spirit by col and the Clean Air Act in the United States. creating a $3o-million "Golden Carrot" prize to EPA updated these analyses as governments encourage companies to develop a super-efficient adjusted and amended the Protocol, tightening refrigerator/freezer as they redesigned their the controls on ozone-depleters. appliances to eliminate CFCs. Whirlpool won the competition, and in 1994, introduced a new Because EPA changed the scope of each eco- model that exceeds the Department of Energy nomic analysis to reflect the different policy (DoE) efficiency standards by almost 30 percent. options under consideration, it is difficult to find "Dangling the Carrot" explains how financial a consistent measure of CFC control costs. But, incentives and market opportunities helped man- in general, the revised RIAs illustrate that the ufacturers overcome their initial view that they economic models initially overstated regulatory could not meet DoE standards and eliminate compliance costs. Consider the estimated social

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS costs of CFC controls over the period 1989 to the market for its chemical substitutes. In 1989, 2000. In 1988, RIA experts estimated that it DuPont estimated that its HCFC and hydrofluo- would cost $2.7 billion to halve U.S. CFC con- rocarbon (HFC) products would capture 39 per- sumption within ten years—an average cost of cent of the CFC replacement market, while $3.55 per kilogram reduced.7 Four years later, the roughly one third of the market would be lost to RIA estimate for a total CFC phase-out by 2000 non-fluorocarbon alternatives. By 1992, DuPont was $3.8 billion. Even though eliminating the was pegging the market for its substitutes at remaining 50 percent of CFCs would be harder only 26 percent and expected non-fluorocarbon than getting rid of the first half, the estimated solutions to capture almost half the market.10 average cost had dropped 38 percent to $2.20 per (See Figure 4.) kilogram.8 Finally, in 1993, yet another RIA eval- uation of an accelerated CFC phase-out esti- Teasing out the various forces that drove mated that the January 1, 1996 phase-out— ozone-protecting innovations reveals many com- would cost $6.4 billion. The cost of deeper and mon themes, but it also illustrates why eco- faster CFC reductions—and additional environ- nomic models could not possibly incorporate the mental benefits—raised the estimate of per kilo- complex events that led to each answer. Once gram costs only slightly to $2.45.9 (See Table 1.) CFC-users began an earnest search for alterna- tives—within a policy framework that stimulated The economists who developed the 1987 RIA innovation—the estimated cost of compliance did not, of course, deliberately overestimate the fell rapidly. costs of CFC reductions. Rather, they used the best information they had on available control In addition to these five lessons, it is important options. The case studies cover only a handful of to note that these responses were not sheer acts the unexpected technological advances that had of will. In each case, government and industry to be factored into analysts' subsequent cost esti- were moved to action by scientific developments, mates. Even the DuPont Company—the world's intense media coverage, rising public awareness, largest manufacturer of CFCs and perhaps best and effective environmental advocacy. Corporate positioned to predict how CFCs users would leadership also became a powerful force for con- respond—substantially revised its projection of trolling ozone-depleting chemicals. Companies that took bold early steps to eliminate CFCs dra- matically influenced their competitors, suppliers, and employees—as well as policy-makers. TABLE 1 CHANGES IN COST ESTIMATE S OF CFC REGULATIONS Environmental and industry leaders continue to Date of Social Costs call attention to the steps still needed to put the Analysis Policy (1989-2000) Cost/kg use of ozone-depleting chemicals behind us. 1988 50% by 1998 $2.7 billion S3.55 Ozone Protection in the United States: Elements of 1992 100% by 2000 S3.8 billion $2.2O Success reveals these future challenges. Can the 1993 100% by 1996 S6.4 billion $2.45 military sparingly use its halon "reserve" and help develop safe technology to eventually destroy Source: See text. these potent ozone-depleters? Will the cost of retrofitting vehicular air conditioners continue to

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 7 FIGURE 4 CHANGES IN DUPONT'S ESTIMATES OF HOW CFCS MIGHT BE REPLACED

1989 Estimate 1992 Estimate HCFC

Non- HFC Fluorocarbor ^(15%) Non- (48%) Fluorocarbon (32%)

(9%) Conservation Conservation (29%) (26%)

Source: The DuPont Company

decline without the proliferation of new refriger- industry flexibility in meeting them; make use ants in the marketplace causing a cross-contami- of economic incentives; and allow government nation problem and damaging systems? Is the to serve as a catalyst for change. If history is a crackdown on CFC smugglers strong enough to guide, policies that embody these elements will destroy the black market? And, perhaps, above all, stimulate innovative solutions. will science and industry continue to search for CFC alternatives that don't harm the ozone layer and that don't add to global warming? Many of the substitutes that industry has developed to The importance of firm environmental goals is replace CFCs still deplete ozone, though less nowhere more clearly seen than in current potently, and HFC-i34a—the widely adopted efforts to avert climate change. The experience of refrigerant—is itself a greenhouse gas. The super- the United States and many other developed efficient Golden Carrot refrigerator, most new countries in trying to meet greenhouse gas chillers, and new or retrofitted car air condition- reduction pledges in the Framework Convention ers all rely on these compounds. on Climate Change has been disappointing mainly because there has been no enforceable As scientists develop ever more information target. Good intentions aside, national commit- about the impact industrial society is having on ments to reduce greenhouse gases cannot be met Earth's atmosphere and as future responses are by voluntary industry actions alone. A strong sig- fashioned, the lessons of the CFC phase-out nal—an emissions-reduction target—is required should be kept in mind: set firm goals; accord to spark needed change and investment.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS Similarly, how can government determine in experiences reported here or with the underlying advance the best way to lower emissions from finding that smart policies will drive technology each source of a greenhouse gas? Marketable car- innovation and bring compliance costs down. bon permits, carbon taxes, or other market-based approaches would allow each firm to respond to a reduction target in a way that costs the least. Besides wielding such economic instruments, 1. January i, 1996 is also the phase-out deadline for government should also help remove or reduce methyl chloroform and carbon tetrachloride. Under the Protocol, metered dose inhalers, rocket motor manu- barriers to investments in climate-friendly tech- facturing, and laboratory applications have been nologies and provide information on using such approved as essential uses for 1996 and 1997. Also, technologies cost-effectively to cut emissions. In U.S. companies can continue CFC production beyond one example, the U.S. Environmental Protection January 1, 1996 for export to developing countries. Agency's Green Lights Program, government encourages businesses and organizations to 2. "Statement of Kevin J. Fay," in U.S. House of Represen- tatives Subcommittee on Health and the Environment, adopt energy-efficient lighting: participation is Ozone Layer Depletion, Hearings, March 9, 1987, 180. voluntary and government's role is a far cry from that of regulator. In another, government can 3. "Statement of Richard Barnett," in U.S. House of Rep- procure greenhouse gas reduction technolo- resentatives Subcommittee on Health and the Environ- gies—whether high-efficiency chillers, renewable ment, Ozone Layer Depletion, Hearings, March 9, 1987, energy systems, or electric vehicles. 164. 4. United Nations, Montreal Protocol on Substances that On a positive note, emerging U.S. policy on Deplete the Ozone Layer, adopted and opened for signa- climate change suggests that policy-makers are ture September 16, 1987, and entered into force 26 learning these lessons. In July 1996, at the Sec- I.L.M. 1541 (January 1, 1989). ond Conference of the Parties to the Framework 5. United Nations, London Amendment to the Montreal Pro- Convention, the United States admitted that the tocol, adopted and opened for signature June 29, 1990, treaty's non-binding structure has failed and and entered into force 30 I.L.M. 537 (1991); United called for legally binding international green- Nations, Copenhagen Amendment to the Montreal Proto- house gas emissions targets, the use of market- col, adopted and opened for signature November 1992, based policies, and the establishment of a long- and entered into force 32 I.L.M. 874 (1993). term greenhouse gas concentration goal to 11 6. Adele R. Palmer et al., Economic Implications of Regulat- guide private investment. ing Chlorojluorocarbon Emissions From Nonaemsol Appli- cations (Santa Monica, California: The Rand Corpora- What should such targets and goals look like? tion, June 1980); W.E. Mooz et al., Technical Options for The government hasn't said, but as debate heats Reducing Chlorofluorocarbon Emissions (Santa Monica, up over the specifics, policy-makers and compa- California: The Rand Corporation, March 1982). nies unmoved by the many CFC success stories 7. David Lee, U.S. Environmental Protection Agency, per- claim that binding greenhouse gas emissions tar- sonal communication to Elizabeth Cook, World gets will be difficult to meet and economically dis- Resources Institute, calculations based on Regulatory astrous.12 Continue scientific and technological Impact Analysis: Protection of Stratospheric Ozone (Wash- research they say, but wait to take further action, ington, D.C.: ICF Incorporated for EPA, August 1, since climate-protecting technologies and mitiga- 1988), vol. 2. tion measures will cost less in the future. Such 8. David Lee, U.S. Environmental Protection Agency, per- foot-dragging simply doesn't square with the sonal communication to Elizabeth Cook, World

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS Resources Institute, calculations based on Regulatory 10. DuPont Company, "Changes in Estimates of How Impact Analysis: Protection of Stratospheric Ozone (Wash- CFCs Might be Replaced," handout. ington, D.C.: ICF Incorporated for EPA, June 4, 1992). 11. Timothy E. Wirth, Under Secretary for Global Affairs, 9. David Lee, U.S. Environmental Protection Agency, per- statement on behalf of the United States to the Second sonal communication to Elizabeth Cook, World Conference of the Parties at Framework Convention on Resources Institute, calculations based on Addendum to Climate Change, Geneva, Switzerland, July 17, 1996. Regulatory Impact Analysis: Protection of Stratospheric Ozone (Washington, D.C.: ICF Incorporated for EPA, 12. Global Climate Coalition, "U.S. Business Faults Clinton December 1993). Administration Climate Change Policy, Foresees Signif- icant Negative Job, Trade, Economic Impacts," News Release, Washington, D.C., July 17, 1996.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS IO THE SPRAY CAN BAN

By David Malakoff and Sandra Phillips

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nn 1978, the United States became the first ; nation to take precautionary action to pro- Aerosol products—in which fine solid or liquid par- .__j.tect the Earth's stratospheric ozone layer by ticles are suspended in a gas—typically consist of banning the use of chlorofluorocarbons (CFCs) active ingredients, a solvent that suspends them, as propellants in most aerosol (pressurized and a propellant that carries the mixture out of a spray) products. spray can or other pressurized storage container.

Today, the U.S. aerosol ban—announced after In the late 1940s, the invention of an inexpen- three years of scientific controversy and stiff sive valve designed to capitalize on CFCs' many opposition from industry—can be seen as a key selling points, including the ability to be stored dress rehearsal for the ozone-protection debates under relatively low pressure, sparked the begin- that debuted on the larger international stage in ning of the aerosol age. CFCs served as excellent the 1980s. Many issues that have since become propellants for aerosol products because they central emerged in these debates. Two are the produced a fine spray, were non-flammable, did challenge of formulating precautionary policies not react with other ingredients, and posed little in the face of scientific uncertainty and the threat to human health.1 important role that media coverage can play in catalyzing public pressure on government and By 1974, roughly half of the 405 million kilo- industry. grams of CFCs produced in the United States— then the world's leading producer of CFCs—was Finally, while the U.S. aerosol ban did have being used as aerosol propellants.2 Three-fourths of some unexpected, sometimes problematic im- the CFC propellant was used in personal hygiene pacts, overall it has become a story of exceeded products, such as deodorants, antiperspirants, hair- expectations. Despite unresolved scientific sprays, cosmetics, and perfumes; the remainder issues and predictions of economic chaos, the was used in window cleaners, air fresheners, insect shift away from CFC propellants occurred faster, sprays, lubricants, and other aerosol products.' with greater environmental benefits, and with less economic dislocation than many thought In June 1974, chemists F. Sherwood Rowland possible. and Mario J. Molina of the University of Califor-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

II nia at Irvine theorized in a published paper that CFC producers and most aerosol-makers CFCs released into the environment would fought these proposals fiercely and called for eventually rise into the stratosphere, decompose, more study, arguing that the Rowland/Molina and release chlorine atoms that would react with theory was unproven, that government action and destroy the Earth's thin layer of ozone mole- would cause economic chaos and major job cules. 4 The paper was followed in late 1974 and losses in the industry, and that no cost-effective early 1975 by research from the University of CFC-alternatives acceptable to consumers Michigan and Harvard University predicting existed. For example, in 1974 and 1975 a spokes- that—if the Rowland/Molina theory was cor- man for DuPont—the world's leading CFC rect—CFCs could significantly deplete the ozone maker—argued that "there is no concrete evi- layer. 5 dence to show that the ozone-depleting reaction with chlorine takes place" and that government Reporters—some of whom were already aware regulation would trigger "tremendous disloca- of the ozone layer because of a well-publicized tion" in the CFC industry, which he estimated controversy surrounding the proposed Super- contributed $8 billion to the U.S. economy and sonic Transport aircraft (SST)—eventually seized employed 200,000 people. At the same time, a on the story. Soon, Americans were learning representative of Gillette—a major manufacturer that an invisible gas in their hairsprays and of deodorant and other personal hygiene prod- deodorants might be eating away at the ozone ucts—argued that banning CFC aerosols would layer and allowing biologically-harmful ultravio- rob consumers of "freedom of choice. "7 let (UV) radiation to reach the Earth's surface. This radiation, they were told, could harm plants In June 1975, however, several developments and animals—and increase such human health seriously undermined the arguments against problems as skin cancer and cataracts. CFC controls. First, a federal scientific task force established to study the issue found "legitimate Alarmed by the threat, citizens began to orga- cause for concern." Its study noted that the pres- nize to demand government controls on CFCs. tigious National Academy of Sciences would, In November 1974, the Natural Resources within a year, release a major report on the issue Defense Council (NRDC)—an environmental and recommended that federal agencies prepare group—petitioned the Consumer Product Safety to draft regulations for placing warning labels Commission (CPSC) to ban aerosols containing on aerosol products containing CFCs and, even- CFCs. While the petition was eventually denied tually, for controlling their use.8 on grounds that evidence to support the Row- land/Molina theory was too scanty, the NRDC Then, on June 18 of that year, S.C. Johnson petition—and subsequent public education cam- (Johnson Wax)—the nation's largest manufac- paigns by other public interest groups—drew turer of household aerosol products—purchased further attention to the issue. full-page ads in major newspapers to announce that it would immediately end its use of CFC pro- In December 1974, Congress began extensive, pellants worldwide.9 Corporate Chairman Sam widely-publicized hearings on legislation that Johnson explained that the company was "taking called for a major study of CFCs and, if neces- this action in the interest of our customers and sary, a ban on the chemicals.6 Over the next two the public in general during a period of uncer- years, further legislative proposals to ban CFC tainty and scientific inquiry." He also noted that aerosols emerged. the shift was attractive because the company was

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 12 "technically equipped" to take advantage of the Under the final regulations, products defined lower cost of "water-based formulations using as essential were those that had no alternatives other propellants."10 In fact, while the decision to CFCs for safety, health, or national security did cost S.C. Johnson the expansion of its popular reasons. The exempt products included metered hairspray and antiperspirant products in Europe, dose inhalers (MDIs), such warning devices as many of its best-selling products—such as furni- intruder alarms, aerosols of use in maintaining ture polishes—had been incorporating hydrocar- and operating aircraft and military equipment, bon propellants for years.11 pesticides, and lubricants used in pharmaceuti- cal and electronics applications. To ease the tran- Finally, state and federal political developments sition from CFCs, EPA allowed wholesalers and suggested that some form of CFC regulation was retailers who had already purchased CFC inevitable—despite the potential for adverse eco- aerosols on or before April 15, 1979 to sell-out nomic consequences. At the state level, Ore- their stocks. However, inter-state shipments of gon—a $4o-million aerosol market—became the these products were banned so that CFCs could first political jurisdiction to ban the sale of CFC not be diverted from allowed to prohibited aerosols.12 "I'd rather err on the side of caution," uses.18 Despite the years of controversy, "our said Governor Bob Straub as he signed the law.1? course of action seems clear beyond doubt," said New York later passed similar legislation.:4 At the an FDA official in announcing the regulations. national level, public interest groups were Summing up the precautionary thinking behind increasing pressure to regulate CFCs. In June the decision to ban CFC propellants, he said: 1975, NRDC filed suit against the CPSC to com- "It's a simple case of negligible benefit mea- pel the government to ban CFC aerosols. Ten sured against possible catastrophic risk for both state governments joined this effort to convince individual citizens and for society."1? federal regulators to take action.^ Taking stock of these developments, one prominent consultant to aerosol manufacturers was by late 1975 advis- ing its clients to expect a ban on CFC propellants Despite initial fears, the 1978 U.S. ban on CFC by 1977 or 1978.l6 propellants in non-essential products did not reduce product quality or jeopardize consumer In September 1976, the federal government and worker safety, and ultimately it delivered did take action to regulate CFCs after the significant economic and environmental bene- National Academy of Sciences released its long- fits. The landmark unilateral ban has had some awaited report, which validated the ozone-deple- unforeseen and problematic impacts on CFC tion theory. In November 1976, the Food and production, the public perception of aerosol Drug Administration (FDA) proposed regula- products, and the U.S. role in international tions for placing warning labels on a wide range efforts to protect the ozone layer, but on balance of CFC aerosols. The regulations were adopted positive expectations were exceeded. in April 1977.^ In May 1977, the FDA, CPSC, and the Environmental Protection Agency (EPA) jointly announced plans to ban the use of CFCs in many aerosol products. When adopted in To some degree, both the unexpected benefits March 1978, the regulations banned the use of and unforeseen problems associated with the CFCs in "non-essential" aerosols after December ban can be linked to extensive media coverage 15, 1978, but continued to allow "essential" uses. of the controversy. Both broadcast and print

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS skeptical executives within the company—and to industry critics outside. "We had done some homework on the matter," company Chairman Sam Johnson explained. "When it became apparent that keeping [CFCs] in some of our products would harm our reserve of consumer trust and loyalty, we made the commitment to remove the propellant within a week."2^

Like a falling domino, S.C. Johnson's new messages prompted a growing number of con- industry standard set other changes in motion. sumers to reject CFC aerosols in favor of both Suddenly, manufacturers and policy-makers aerosol and non-aerosol alternatives perceived could more easily envision a switch from CFC to be less harmful.20 This early example of propellants that might not bring economic cat- "green consumerism" strengthened a market astrophe. In turn, the realization that regula- trend toward less-expensive non-aerosol prod- tion was likely accelerated industry research ucts (such as roll-on deodorant). The New into alternatives. Even before the 1978 ban York Public Interest Research Group took effect, sales of non-aerosol products (NYPIRG), for example, concluded that the began to increase. Sales of non-aerosol hair- aerosol version of Arid Extra Dry antiperspi- sprays, for example, increased 429 percent rant cost three and one half times more than between 1974 and 1979, while sales of non- the roll-on version. Similar price differences aerosol antiperspirants and deodorants grew were found for Coppertone suntan oil, Bactine by about 150 percent.24 In contrast, sales of first aid spray, and many paints, waxes, and products in spray cans fell by nearly two thirds insecticides.21 between 1974 and 1978.25 Over the same period, industry competition to put a CFC-free Once consumers started buying green and product on the shelf drove down the share of buying smart, some aerosol-makers began a aerosols containing CFCs from 50 percent to search for more alternatives that would appeal just 20 percent, and the share of CFCs used as to this contingent. Hair-product manufac- aerosol propellants fell commensurately.26 In turers, for example, began developing 1974, when the controversy started, half of all pumped, non-aerosol versions of their prod- CFCs produced in the United States were ucts as early as December 1974.22 And other being used as aerosol propellants; by 1980, manufacturers began experimenting with only 5 percent were.2? alternative propellants, including hydrocar- bons, dimethyl ether, and carbon dioxide. Contributing to this rapid shift away from CFC-propelled aerosols was policy-makers' The media-influenced market changes also decision to exempt essential uses of CFC- gave such companies as S.C. Johnson an propellants from any ban. This move reduced opportunity for high-profile ethical leader- opposition to the broader objective of banning ship—and product differentiation. In fact, CFCs from most aerosols, and a variant of this senior officials later explained that the contro- essential-use exemption was used 15 years versy made the company's June 1975 decision later to gain agreement in the 1992 negotia- to drop CFC propellants easier to justify to tions to strengthen the Montreal Protocol on

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 14 Substances that Deplete the Ozone Layer. The damaging chlorine released into the environ- international exemption, which allows CFC- ment. Researchers estimate that between 1974 based metered dose inhalers to remain on the and 1989 the ban kept approximately 4 billion market, is having mixed results. (See Box 1.) kilograms of CFCs out of the environment.33 Had the ban not been implemented, levels of CFCs in the atmosphere would be significantly higher today.

Despite predictions to the contrary, the 1978 CFC ban has produced significant economic benefits, and net cost savings to the U.S. economy.28 One While the benefits of the 1978 ban exceeded mid-1980s study concluded that the switch to many analysts' expectations, the loss of aerosol hydrocarbon propellants—which in 1986 cost sales did prompt CFC-makers to aggressively one-third less than CFCs—saved American busi- pursue and develop new markets in other indus- nesses and consumers more than $1.25 billion trial sectors, leading to production increases that (in current dollars) from 1974 to 1983. Net sav- erased some of the gains of the ban. U.S. CFC ings due to the reformulation of products ranged production, for example, dropped from 405 mil- from $64 million in 1977 to $167 million in lion kgs in 1974 to 231 million kgs in 1982—but 1974.2? (Hydrocarbon aerosols cost less partly then rebounded to 400 million kgs in 1988.34 because they require less propellant.) The ban controversy has also had a lingering These savings occurred without reducing effect on public perceptions of aerosol products. aerosol product quality, consumer safety, or To the chagrin of aerosol-makers, many Ameri- worker protection. For example, to maintain cans believe consumer products can still contain product quality, producers adopted new spray- ozone-destroying CFCs. As recently as April valve designs.3° To reduce the dangers asso- 1994, for example, a Roper poll found that 37 ciated with flammable hydrocarbon propellants, percent of Americans believed that the govern- they replaced alcohol bases with water, added ment allowed most aerosol products to contain flame retardants, and reduced pressure level in CFCs;ai99i poll found that 55 percent of the cans.31 And to protect workers, manufactur- Americans shared that belief.35 ers installed new equipment. Because the new hydrocarbon propellants cost less than CFCs, In part, this perception may reflect the fact these investments did not increase production that some widely available—and arguably frivo- costs, though they offset some of the initial sav- lous—CFC-based spraycans did remain on the ings. 32 Suppliers eventually passed some of the market into the 1990s due to loopholes in the cost-savings from reformulation on to con- 1978 ban. These included products which used sumers as market competition drove the prices the chemicals as more than a propellant. For of their aerosol products down. example, in the late 1980s, Friends of the Earth and other environmental organizations success- fully protested the continued use of CFCs in products such as sprayable party streamers ("silly string"), noise horns, and red pepper Apart from its sizable economic benefits, the bear-repellent sprays. These products—along ban greatly reduced the quantity of ozone- with many others considered essential in 1978—

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS BOX 1 IS THE ASTHMA INHALER EXEMPTION ESSENTIAL?

Metered dose inhalers (MDIs) continue to use tamol, the most commonly used medication to CFCs—nearly 12,000 tons annually—under the relieve asthma symptoms. The new product has been terms of the Essential Use Decision of the Parties to approved by 21 countries (as of mid-1996). It is the Montreal Protocol. The Decision, reached at the already on the market in the United Kingdom and 1992 Copenhagen Meeting, facilitated agreement on was approved by the U.S. Food and Drug Administra- accelerating the CFC phase-out to 1996 from 2000 tion in August 1996. But 3M may not immediately by reassuring Parties that they would not have to halt reap the rewards of commercialization. The Parties to critical uses, such as medical applications, for which the Montreal Protocol and the responsible U.S. fed- no alternatives existed.1 eral regulatory agencies have been slow in charting a course for leaving CFC-containing MDIs behind. In While an "essential use" escape valve helped the fact, CFC-containing generics and new formulations United States secure the U.S. CFC aerosol ban and a are still being approved by the U.S. Food and Drug faster international CFC phase-out, the Protocol's Administration.2 exemption for MDIs has recently come under attack. The issue is whether the exemption may be inhibit- In June 1996, the Montreal Protocol's Technology ing the pharmaceutical industry from producing and Economic Assessment Panel suggested that the CFC-free alternatives and penalizing one company Parties consider setting 2005 as the final phase-out that has invested millions to be first to market an date for CFC use in MDIs, with the proviso that the ozone-safe MDI. date be reviewed annually "as it may be possible to accelerate the schedule." The report noted that "the The 3M Company spent eight years and about introduction of new CFC-containing MDIs is a seri- $100 million to develop a CFC-free inhaler for salbu- ous impediment to the expeditious phase-out of CFCs lost their exemption from the ban in 1990 the U.S. government when it subsequently under amendments to the Clean Air Act.36 campaigned for even more stringent worldwide measures."37 Finally, the ban has had a number of sub- tle—but often significant—impacts on the U.S. Paradoxically, however, the ban also had a role in international efforts to protect the downside for the United States in Protocol negoti- ozone layer. First, by acting unilaterally in the ations. For example, after a 1985 U.S. proposal to face of scientific uncertainty—and then suc- ban aerosols worldwide had been rejected by cessfully implementing the ban with minimum European nations and others, the United States difficulty—the United States became a strong faced the prospect of supporting a new proposal and influential leader of the international effort that would do more to protect the ozone layer, but that began in the 1980s to protect the ozone that might also put American industries at a com- layer. In the words of Ambassador Richard petitive disadvantage. European nations could Benedick, the diplomat who represented the comply with proposed cuts in CFC production United States in negotiating the Montreal Pro- simply by banning non-essential CFC aerosols—a tocol, the 1978 ban "lent greater authority to step the U.S. had taken long before—while the

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 16 from MDIs." It recommends that Parties immediately price as the CFC-containing formulation. In the United start discouraging companies seeking to formulate States, 3M expects to sell Airomir for a price that is new CFC products where CFC-free products are avail- comparable to the CFC-containing product. able and halt the acceptance of new CFC product sub- missions for regulatory approval once a satisfactory 3M's new technology is one of many examples of alternative is available.3 Nevertheless, under the technological achievement in the CFC phase-out. But TEAP's suggested phase-out schedule, CFC-free in this case, the regulatory environment that spurred inhalers—such as 3M's new product—may have to industry to overcome its initial pessimism may not compete with CFC inhalers until the year 2005. economically reward the innovator.

It was initially feared that CFCs in MDIs would be 1. United Nations, Report of the Fourth Meeting of the impossible or expensive to replace, but 3M produced a Parties to the Montreal Protocol on Substances that new product, Airomir, that surpasses current MDI tech- Deplete the Ozone Layer (Copenhagen: UN Envi- nology and sells at a comparable price. Developing a ronment Programme, November 25,1992). metered dose inhaler with a new propellant (HFC-I34a) 2. Food and Drug Administration, "Chlorofiuorocar- required a near total re-engineering of this 40-year-old bon Propellants in Self-Pressurized Containers, technology. 3M's new CFC-free delivery system pro- Essential Uses," Federal Register, February 6, duces a reliable dosage, even if the product is not used 1996, vol. 51: 4590. for some time and regardless of whether the canister is 3. United Nations, "Report of the Technology and stored with its valve pointed up or down. And patients Economic Assessment Panel" (UN Environment can easily determine when the new canisters are empty. Programme, June 1996). In the U.K., CFC-free salbutamol lists for the same

United States faced the more difficult job of cut- In the end, the U.S. experience with the ting CFC use in industries, such as refrigeration, aerosol controversy of the 1970s helped pro- where no alternatives yet existed. duce a final agreement on the 1987 Montreal Protocol and subsequent amendments. Under But the United States—its confidence buoyed these agreements, the United States essentially in part by the experience with aerosols— ended CFC production for use in industrialized accepted the short-term risk that its industries countries on January 1, 1996—18 years after it would be less competitive, knowing that the overcame scientific uncertainty to take the decision could produce long-term competitive world's first precautionary steps to control the gains by giving the nation a head start in finding chemicals. alternative technologies.38 Partly for this reason, in international negotiations the United States insisted on CFC production cuts of at least 50 percent; a smaller cut, it feared, would not have What made the 1978 CFC aerosol propellant ban sent the strong market signal needed to get possible and successful? In retrospect, five char- alternatives developed. acteristics stand out:

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS i. Media Coverage strengthened the case for taking precautionary Media coverage helped trigger a sequence of events action in the face of scientific uncertainty. that made it easier for both aerosol manufacturers and policy-makers to envision—and economically S.C. Johnson's high-profile corporate policy justify—a rapid shift away from CFC propellants. signaled that, contrary to many industry claims, it was possible to find cost-effective alternatives Media attention helped squeeze the aerosol that were acceptable to consumers—especially industry by fostering both consumer demand for American consumers increasingly concerned "ozone-friendly" products and public pressure for about CFC aerosols. While the company had a government ban on CFC aerosols. In response already switched to CFC alternatives in most of to these market forces, industry stepped up its products to reduce costs, the leadership move efforts—already under way for economic rea- made its competitors who were calling the scien- sons—to improve less-expensive products, such tific community alarmist (and the need for as pumps, and to reformulate aerosols. Media action unfounded) look like laggards. S.C. John- attention also prompted and assured coverage of son gave policy-makers a clear signal that a ban S.C. Johnson's 1975 decision to immediately drop was technically and economically feasible, and— CFC propellants—the pivotal falling domino. because their customers cared—justified even in light of scientific uncertainty. By establishing a new industry standard worldwide, the company 2. Environmental Advocacy reset competitive marketplace pressures and By aggressively pressuring industry leaders, state forced other aerosol-makers to reformulate their governments, and the federal government, advocacy products in advance of the ban. groups accelerated action on CFCs.

NRDC's 1974 federal petition and subsequent 4. Precautionary Measures 1975 lawsuit, for example, not only attracted pub- The CFC aerosol propellant ban demonstrated that lic attention; it also forced the federal government large environmental and economic benefits can he to quickly evaluate a CFC propellant ban. Local reaped from precautionary action to protect the initiatives, such as the NYPIRG study, gave environment. ammunition to state legislators, who held hear- ings on the issue and eventually, in the case of Even in the face of scientific uncertainty and Oregon, led the way with legislation. Since sub- industry opposition, the U.S. Government acted stantial CFC reductions were achieved well before to protect the ozone layer. In view of later proof the aerosol ban took effect, the threat of regula- that the CFC/ozone depletion theory is correct, tion—in addition to consumer pressure—had an the decision now looks wise and farsighted. The impact. Public interest activities kept the spotlight CFC aerosol ban kept an estimated 4 billion on the CFC problem, further heightening public additional kilograms of CFCs out of the atmos- awareness and re-enforcing consumer trends. phere and saved the U.S. economy $1.25 billion in just ten years. 3. Corporate Leadership S.C. Johnson's early decision to stop selling CFC- 5. Unilateral Action based aerosol products invalidated industry's eco- Unilateral action to protect the ozone layer enabled nomic arguments against CFC controls and the United States to call on both moral suasion and

WRi: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 18 practical experience to convince other nations to reg- 7. Ibid., 180, 195, 239. ulate ozone-destroyers. 8. Ibid., 191.

The 1978 CFC aerosol ban allowed the U.S. 9. Sharon L. Roan, Ozone Crisis: The 15 Year Evolution of a Government to be a strong leader in negotia- Sudden Global Emergency (New York: John Wiley & tions on an international treaty to protect the Sons, Inc., 1989), 59-60; Cynthia Georgeson, S.C. Johnson & Son, Inc., personal communication, May ozone layer. While the United States initially 1996. sought a worldwide CFC aerosol ban to put itself on a level economic playing field with other 10. Bruce Smart, ed., Beyond Compliance: A New Industry countries, ultimately the government took an View of the Environment (Washington, D.C.: World aggressive—rather than a common denomina- Resources Institute, 1992), 86. tor—approach. In seeking a cut of at least 50 11. Ibid., 220. percent in CFC production at the original Mon- treal Protocol negotiations, the United States 12. Sharon L. Roan, Ozone Crisis: The 25 Year Evolution of a considered the economic signal needed to Sudden Global Emergency (New York: John Wiley & prompt industry to develop CFC alternatives, as Sons, Inc., 1989), 49; Lydia Dotto and Harold Schiff, The Ozone War (Garden City, NY: Doubleday and Com- well as what was necessary to protect the ozone pany Inc., 1978), 196. layer. Risking a competitive disadvantage, the United States played a critical role in strengthen- 13. Seth Cagin and Philip Dray, Between Earth and Sky ing the negotiation's outcome. (New York: Pantheon Books, 1993), 206.

14. Lydia Dotto and Harold Schiff, The Ozone War (Gar- den City, NY: Doubleday and Company Inc., 1978), 197. 1. Sharon L. Roan, Ozone Crisis: The 15 Year Evolution of a Sudden Global Emergency (New York: John Wiley & 15. Ibid. Sons, Inc., 1989), 34. 16. Ibid., 195. 2. Michael J. Gibbs and Carole Trippe, CFC Use and Emissions: Scenarios for the World Through 2100 (Wash- 17. Department of Health, Education, and Welfare, "Cer- ington, D.C.: U.S. Environmental Protection Agency, tain Fluorocarbon (Chlorofluorocarbon) Propellants in February 1985), 4. Self-Pressurized Containers," Federal Register, April 29, 1977, vol. 42, no. 83. 3. Michael Kavanaugh, Eliminating CFCsfrom Aerosol Uses: The U.S. Experience and its Applicability to Other 18. U.S. Environmental Protection Agency, "Certain Fluo- Nations (Washington, D.C.: U.S. Environmental Pro- rocarbons in Food, Food Additive, Drug, Animal Food, tection Agency, May 1986), 4, submitted to the UNEP Animal Drug, Cosmetic, and Medical Device Products Economic Workshop on Protection of the Ozone Layer. as Propellants in Self-Pressurized Containers," Federal Register, March 17, 1978, vol. 43, no. 53: 11319. 4. Mario J. Molina and F. Sherwood Rowland, "Stratos- pheric Sink For Chlorofluorocarbons: Chlorine Atomic 19. Lydia Dotto and Harold Schiff, The Ozone War (Gar- Catalyzed Destruction of Ozone," Nature, 1974, v. 249, den City, NY: Doubleday and Company Inc., 1978), 6. no. 5460: 810-812. 20. Richard E. Benedick, Ozone Diplomacy (Cambridge, 5. Lydia Dotto and Harold Schiff, The Ozone War Massachusetts: Harvard University Press, 1991), (Garden City, NY: Doubleday and Company Inc., 27-28. 1978), 19. 21. Seth Cagin and Philip Dray, Between Earth and Sky 6. Ibid., 178. (New York: Pantheon Books, 1993), 206.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 22. Sharon L. Roan, Ozone Crisis: The 15 Year Evolution of a lants in the United States from igyo to ig8o, with a Dis- Sudden Global Emergency (New York: John Wiley & cussion of Applicability of the Analysis to Other Nations Sons, Inc., 1989), 60. (Washington, D.C.: U.S. Environmental Protection Agency, February 1986), 63. 23. S.C. Johnson Wax, "For a Better World," case study prepared for Bruce Smart, ed., Beyond Compliance: A 30. Michael Kavanaugh, Eliminating CFCsfrom Aerosol New Industry View of the Environment (Washington, Uses: The U.S. Experience and its Applicability to Other D.C.: World Resources Institute, 1992). Nations (Washington, D.C.: U.S. Environmental Pro- tection Agency, May 1986), 10, submitted to the 24. Michael Kavanaugh, An Analysis of the Economic Effects UNEP Economic Workshop on Protection of the of Regulatory and Non-Regulatory Events Related to the Ozone Layer. Abandonment of Chlorofluorocarbons as Aerosol Propel- lants in the United States from 1970 to ig8o, with a Dis- 31. Ibid., 9. cussion of Applicability of the Analysis to Other Nations (Washington, D.C.: U.S. Environmental Protection 32. Ibid., 10. Agency, February 1986), 43. 33. Based on memorandum prepared by ICF Incorporated 25. Richard E. Benedick, Ozone Diplomacy (Cambridge, for U.S. Environmental Protection Agency on January Massachusetts: Harvard University Press, 1991), 10, 1995. This figure assumes CFC-based aerosol pro- 27-28. duction would have grown unconstrained at 3.1 per- cent per year until 1989. 26. U.S. Environmental Protection Agency, "Certain Fluo- rocarbons in Food, Food Additive, Drug, Animal Food, 34. U.S. International Trade Commission, Synthetic Animal Drug, Cosmetic, and Medical Device Products Organic Chemicals, U.S. CFC production figures based as Propellants in Self-Pressurized Containers," Federal on combined total of CFC-11, CFC-12, CFC-13 data. Register, March 17, 1978, vol. 43, no. 53: 11301. 35. Roper Starch Worldwide Inc., Environment Study 27. Michael J. Gibbs and Carole Trippe, CFC Use and (Ketchum Public Relations, April 1994), Table 01-B; Emissions: Scenarios for the World Through 2100 (Wash- The Roper Organization, America's Environmental GPA ington, D.C.: U.S. Environmental Protection Agency, (S.C. Johnson & Son, Inc., November 1991), 43. February 1985), 4. 36. U.S. Environmental Protection Agency, "Protection of 28. F. Ando and C. Marshall, Economic Impact of Regulat- Stratospheric Ozone," Federal Register, January 15, ing Chlorofluorocarbon Emissions from Aerosols: A Retro- 1993, vol. 58, no. 10. spective Study (Washington, D.C.: U.S. Environmental Protection Agency, April 1983). 37. Richard E. Benedick, Ozone Diplomacy (Cambridge, Massachusetts: Harvard University Press, 1991), 206. 29. Michael Kavanaugh, An Analysis of the Economic Effects of Regulatory and Non-Regulatory Events Related to the 38. Ibid., 52, 107, 206. Abandonment of Chlorofluorocarbons as Aerosol Propel-

WRI: OZONE PROTECTION IN THE UMTED STATES: ELEMENTS OF SUCCESS 2O WRAPPING IT UP

By Elizabeth Cook

10 V Ne Neon 2'KZ •il l H I

Bil l ii|p|pp||| i Cl Ajgon

• -n the mid-1980s, a few American school- result, in the 1960s, many manufacturers children concerned about protecting the replaced pentane blowing agents with CFCs. _ ozone layer began a modest campaign to Not only non-flammable and safer to use at the end production of disposable foam food packag- plant, the new blowing agent also allowed man- ing made using chlorofluorocarbons (CFCs)— ufacturers to economize by using less poly- packaging such as hamburger boxes and carry- styrene resin and less energy to make a out trays. From these humble beginnings grew product.2 a campaign that eventually produced remark- able and unexpected results. Not only did the By the 1980s, about 35 percent of all U.S. world's largest and most visible fast-food com- foam food packaging was made with CFCs. pany, McDonald's, announce that it would Overall, however, only about 3 percent of the phase out its use of CFC-foams, but the entire CFCs consumed in the United States went into foam-packaging industry signed a landmark making these products.3 voluntary agreement to become the first U.S. industry to quickly end the use of CFCs.

Although it was not a major CFC use, in retro- spect it is not surprising that disposable foam Since the 1950s, food packaging made from packaging—already a visible icon of the excesses polystyrene foam has become common at fast- of a fast-paced, throw-away society to environ- food restaurants, dining halls, and supermar- mental activists—became a potent mid-1980's kets. An effective insulator, foam food packaging symbol of the CFC threat to Earth's ozone layer. is lightweight, inexpensive, rigid, and sanitary. At the time, concerns about the ozone layer had Initially, foam-makers used highly flammable made a dramatic return to the headlines, receiv- hydrocarbon chemicals, such as pentane, to ing media coverage unmatched since the aerosol "blow"—or inject bubbles into—their foam controversy of the 1970s. (See "The Spray Can cups, trays, and boxes. Hydrocarbons, however, Ban.") In part, the publicity was driven by grow- had caused fire-losses and fire-insurance ing scientific understanding of ozone depletion, increases costing millions of dollars.1 As a including such dramatic new developments as

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

21 the 1985 discovery of an "ozone hole" over the tions to this problem that your competitor has Antarctic. already taken (e.g., Burger King prints on the bottom of their packaging that their packages Internationally, such discoveries had prompted are bio degradable)," she wrote. "This pro-envi- complex high-level negotiations on an interna- ronmental statement has certainly won many tional agreement to protect the ozone layer. people over in our movement."6 Domestically, the developments led the U.S. Environmental Protection Agency (EPA) to Then, in April 1987, rising public concern increase the number of staff working on stratos- prompted a powerful politician to join the pheric ozone issues. And, in schools scattered chorus demanding action from McDonald's. across the United States, the growing concern U.S. Senator Robert Stafford (R-VT), a former prompted students to take action—sparking a Chairman of the Senate Environment Commit- chain of events that would have dramatic results tee and a leading environmentalist, wrote the within the U.S. food-packaging industry. company, noting that ozone depletion was a seri- ous issue and that "action by a major corpora- In December 1986, for example, third graders tion like McDonald's would be of inestimable in Portland, Connecticut visited every classroom help" in getting U.S. legislation and perhaps in their school to gather signatures for a petition global action against the increasing use of to McDonald's, a major user of foam packaging. CFCs.7 "Dear McDonald's," began the petition, "we had a speaker come to our school to talk about the On August 5th, 1987, McDonald's responded ozone layer of our atmosphere. He told us that to the pressure by announcing that it was giving chlorofluorocarbons may be destroying our its suppliers 18 months to eliminate CFCs from ozone... We love your food but we think you its packaging.8 Because of its timing—just a could package your food differently...."4 In local month before world leaders would gather in media coverage of the petition, the speaker, one Montreal to sign the Montreal Protocol, which student's father, noted that the effort was "In would halve CFC use in industrialized nations terms of the global effect...a drop in the bucket. by 1998—the McDonald's move attracted a But we are trying to generate public awareness bonanza of positive publicity. of the problem, and with a McDonald's in just about every town it's a place to start."5 Advocacy groups, recognizing the leverage that the decision provided to force other retailers to In March 1987, the grassroots pressure on stop using CFC-packaging, seized the moment. McDonald's intensified when Lois Gibbs, an Days after McDonald's move, for example, activist made prominent by the Love Canal toxic Friends of the Earth (FOE) publicly challenged waste controversy, wrote to McDonald's on other fast-food companies to match the ham- behalf of the Citizen's Clearinghouse on Haz- burger giant—and announced that it would hold ardous Wastes (CCHW), an advocacy organiza- a press conference at the Montreal meeting to tion. Playing to McDonald's marketing sensitiv- publicize responses. At that press conference, ity, Gibbs asked whether the company knew that FOE told reporters that some companies had its packaging contributed to ozone depletion and said they would match McDonald's while others solid-waste woes and that competitors—such as revealed they had never used CFC-packaging in Burger King—were already addressing such the first place. Most important, the corporate problems. "We know there are workable solu- promises made news.9

WRI: OZONE PROTECTION IN THE UNITED STATES: ELKMHNTS OF SUCCESS 22 As publicity increased, local and state govern- of acceptability or non-objection by the FDA is ments also took action. Vermont banned poly- critical to our obtaining product acceptance from styrene foam packaging in all state institutions, our customers and the marketplace, and thus is while Berkeley, California and Suffolk County, critical to our company's survival."11 New York introduced bills to outlaw non- biodegradable and CFC-based packaging. Regulators, however, had a number of con- cerns about Dolco's proposal. First, scientists had calculated that HCFC-22 itself was a weak ozone-depleting substance, though only about 5 Well before McDonald's made its move, a few percent as potent as the CFC it would replace. packaging manufacturers had begun research- Second, HCFC-22 had not been approved for ing CFC alternatives. In the wake of these devel- use in food containers. For these reasons, FDA opments, manufacturers realized they would had warned the company that approval for eventually be forced to abandon CFC blowing HCFC-22 could take more than a year. Dolco agents and sped up their efforts. Despite flam- then sought help from EPA officials to encour- mability and other concerns, some explored a age FDA to prioritize review of the application. return to hydrocarbon blowing agents such as pentane. But, by 1987, this approach faced a The EPA officials wrote to FDA to explain that new obstacle: air-pollution regulations. In 1977, Dolco's proposal was a positive step toward pro- Congress had amended the Clean Air Act, tecting the ozone layer. They noted that Dolco's requiring EPA to control emissions of hydrocar- HCFC-22/pentane mixture represented a 97- bons because they are volatile organic com- percent improvement over CFCs and pressed pounds (VOCs) that help make smog form. FDA to expedite review of HCFC-22's safety. Foam manufacturing plants located in certain They also noted that the McDonald's decision smog-ridden areas would need special permits lent greater urgency to the issue.12 Less than two to emit additional VOCs. Industry analysts pre- months later, on October 9, 1987, FDA notified dicted that the permits would be difficult to Dolco that it could use HCFC-22 for fast-food obtain and estimated that re-engineering plants packaging, but that the agency needed more to meet safety and air pollution concerns would time to review use of the chemical in meat and cost up to $2 million per plant.10 poultry trays, where food would be in longer contact with the foam.1} Fruitful research, however, prompted one manufacturer to propose a way around these obstacles. Just nine days after McDonald's issued its policy, Dolco Packaging met with offi- When EPA agreed to help Dolco clear these cials of the U.S. Food and Drug Administration bureaucratic hurdles, it knew that if one industry (FDA) to seek approval to use hydrochlorofluo- clearly acknowledged the CFC problem—and was rocarbon-22 (HCFC-22) as a blowing agent for optimistic about technical solutions—it would food-service products. Dolco had concluded that send a strong message to other industries, deci- HCFC-22 was economically viable and—when sion-makers, and the public. Looking at the big blended with pentane in a 70/30 ratio—neither picture, EPA also wanted to demonstrate that flammable nor photochemically reactive. Dolco there were economically feasible alternatives to subsequently requested a "letter of non-objec- CFCs that could protect the ozone layer without tion" for the use of HCFC-22: "Such a statement causing factory closings and job losses. EPA knew

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 23 that getting the entire packaging industry to phase out CFCs—and gaining public acceptance Over the next two months, with EPA the go- of the reformulated products—would require two between, the two sides hammered out an agree- developments: industry-wide participation and ment in meetings, conference calls, and heated environmentalists' support for the use of HCFC- discussions. The negotiators produced nine 22 as a blowing agent. drafts of a document that they eventually called "The Fully Halogenated Chlorofiuorocarbon Vol- In February 1988, EPA staff invited manufac- untary Phaseout Program." Meanwhile, the FDA turers and environmental organizations to dis- announced that it would not object to the use of cuss how. Convincing the four environmental HCFC-22 for blowing food-packaging, thus organizations, nine packaging manufacturers, clearing the way for its widespread use, and in two trade organizations, and two chemical com- March 1988, DuPont—a leading CFC-maker— panies to even show up was not easy.:4 Environ- announced plans to stop producing CFCs, mental groups had qualms about negotiating though it didn't set a firm phase-out date. with the makers of a product that their commu- nity was campaigning to eliminate. EPA per- Spurred on by these developments, on April suaded them to participate, however, by arguing 12, 1988, the industry and environmental that the talks could translate scattered con- groups held a widely covered press conference sumer-pressure victories into a wider, model to announce the details of a voluntary CFC- comprehensive CFC phase-out. The packaging phase-out program. The program was supported industry was skeptical too; even if they could by Friends of the Earth (FoE), the Natural gain the support of environmental organizations Resources Defense Council (NRDC), and the for voluntarily eliminating CFCs, could they Environmental Defense Fund (EDF) and was to trust them to maintain their position? be managed by FPI, the industry's trade group.T? Under the landmark program: At the first meeting, Dolco representatives noted that many manufacturers would find HCFC-22 a • Foam manufacturers agreed to end the use preferable alternative because it would not drive of CFCs as soon as possible, and no later up production costs—with estimated conversion than December 31, 1988. averaging only $50,000 per plant—and the shift could occur within 90 days of full FDA approval • HCFC-22 was declared an "interim alterna- for HCFC-22.:5 In contrast, the conversion to tive," and companies committed themselves hydrocarbons would take nine months, cost up to to adopting any new, safe, and economically $2 million—economically viable only for large feasible blowing agent within 12 months of companies. In light of these estimates, representa- FDA approval. tives of the Foodservice & Packaging Institute (FPI)—the industry's trade association—noted • Industry and environmentalists agreed to that the vast majority of CFC-using manufacturers establish a working group to encourage the were willing to switch to HCFC-22.16 development of such a substitute within five years and to meet at that time to reconsider Environmentalists' most important question the program. was whether the industry would set an explicit "date-certain" goal of adopting a totally ozone- • Participants agreed to inform their interna- safe blowing agent. tional affiliates of the program and to

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 24 encourage similar voluntary phase-out pro- called the move "a strategic business response to grams in other countries. competitive challenges."21

To promote enforcement of the voluntary For EPA officials, the agreement crowned its agreement, the industry agreed to public moni- effort to foster an economically viable, industry- toring of CFC and HCFC-22 consumption. Com- wide phase-out of CFCs. "The agreement is a panies would report their annual use of CFCs model of cooperation between industry and the and HCFCs to FPI, which would aggregate the environmental community," said EPA Adminis- data and give it to EPA. In turn, EPA would go trator Lee Thomas. "It...demonstrates industry's public with the information. This monitoring ability to develop inexpensive, technological system—along with the promised CFC phase- alternatives to CFCs."22 out—also quelled environmentalists' fears that there was no way to determine if the agreement would result in a net benefit for the ozone layer since no law stopped other industries from pur- These accolades notwithstanding, implementing chasing the CFCs that the packaging industry no the agreement—while ultimately successful—did longer needed nor prevented HCFC-22 produc- not always go smoothly. Industry continued to tion from increasing unchecked.18 have to contend with state and local government proposals to ban CFC-foam packaging. Legisla- Environmentalists' resolve to back the pro- tors had to be educated about the CFC phase-out gram was also strengthened by additional safe- program, and those interested in ozone protec- guards. For example, they reserved the right to tion had to be convinced to take aim at other— reconsider their support for the agreement if much larger—sources of CFC emissions. new scientific information—or improved alter- natives—became available. And they retained The three environmental groups that supported the right to raise concerns about solid waste the agreement were criticized by grassroots issues related to disposable packaging. activists for "selling out" the movement. To be sure, explaining to the public and the media why In announcing the program, the industry said the switch to HCFC-22 would be beneficial was it wanted to set an international example of difficult. In fact, when McDonald's publicized its environmental responsibility by exceeding the new CFC-free packaging without specifying that requirements of the Montreal Protocol. "At some containers were made with a weaker ozone- times it may have seemed that there were two depleter, the parties to the agreement were sides of the [ozone] question, with business on accused of deception and environmental groups one side and the environmentalists on the other were accused of undercutting local initiatives to side," an FPI spokesman said. But "we are all reduce toxics and trash.23 The three environmental subject to the same environment. We are not organizations were thus forced to explain that they adversaries."X9 neither endorsed HCFC-22 as a long-term solu- tion nor the use of disposable packaging.24 In their statement, FoE, NRDC, and EDF applauded the packaging industry and chal- lenged other industries to follow suit: "We're pleased and hope other industries will adopt the By 1990, emerging scientific data made it clear same responsible course," said F0E.20 EDF that HCFC-22 would not be an acceptable

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS "interim" CFC substitute for long. In fact, new data prompted environmental groups to push for controls on HCFCs in the Montreal Protocol and in domestic efforts to amend the Clean Air Act. When Congress enacted the Clean Air Act Amendments of 1990, the law banned the use of HCFCs in non-insulating foams (i.e., packaging) as of January 1, 1994. While some companies felt systems have been perfected, companies can they had been led to believe they would be able to recover their investments for flammability and use HCFC-22 longer, in essence, the industry emissions controls in about 18 months.2? Where had shaped its own regulatory destiny—it had VOCs are heavily restricted, manufacturers use five years to stick with HCFC-22. But the law was HFC-i52a, another flammable blowing agent, the writing on the wall, and by 19 91 many com- though one exempt from VOC regulations. panies had begun switching from HCFC-22.25 Today, no U.S. company uses it. Thanks to new technological developments, a few industry pioneers are now blowing poly- Participants in the agreement have kept their styrene foam using only small quantities of car- promises of follow-up cooperation. As a result, bon dioxide (C02). In 1991, Dow Chemical intro- the program's benefits now extend beyond U.S. duced this patented approach, which utilizes C02 borders. For example, FoE's international affili- temporarily removed from the atmosphere.?0 ates successfully pushed for similar phase-outs Using gases naturally present in the atmosphere in Canada, the Netherlands, and the United appears to be the way of the future.?1 Kingdom.26 Corporations with plants abroad, such as Fort Howard, with production sites in Building on its success with the food-packag- Toronto and Hong Kong, completed conversions ing industry, EPA went on to catalyze voluntary overseas.27 Perhaps most important, the U.S. environmentalist-supported actions by other industry shared its technical expertise with the CFC-users, including the mobile automobile air- international community through FPFs partici- conditioning and electronics industries. (For pation in the Montreal Protocol's Flexible and example, see "Keeping Cars Cool.") As for Rigid Foams Technical Options Committee. McDonald's, in November 1990, the fast-food giant announced it would no longer use foam The alternatives working group established by packaging.32 The corporation switched to paper- the agreement also held meetings, but the major based materials, citing a commitment to reduce effort was one by an FPI technical committee solid waste. Subsequently, McDonald's has formed during the negotiations. The committee, worked with environmentalists to promote sus- which still exists, has fostered unprecedented tainable forestry practices and environmentally cooperation among competitors, initially to iden- improved paper manufacturing as well. tify environmentally preferable blowing agents and later to consider other environmental and As the debate between plastic and paper con- safety issues.28 tinues, one thing is certain: disposable foam products—at least those made in industrialized Today, many manufacturers have switched to countries—no longer harm the ozone shield. hydrocarbon blowing agents. Since hydrocarbons Unfortunately, some developing countries con- are cheaper than HCFCs and because the safety tinue to use CFCs for this purpose, so the task

WRl: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 26 of helping the rest of the world adopt safer alter- adopt a low-cost CFC substitute and achieve a natives still remains. rapid, industry-wide phase-out.

By instructing its suppliers to provide them a CFC product within 18 months, McDonald's What made the food packaging experience suc- pushed manufacturers to move beyond the cessful? In retrospect, four characteristics stand Montreal Protocol's 50-percent CFC reduction out: requirements. In essence, McDonald's estab- lished an accelerated CFC phase-out as the goal. The company also shifted responsibility for the 1. Environmental Advocacy problem "up stream" to packaging manufactur- Polystyrene foam food packaging visibly symbolized ers and increased demand in the marketplace the threat that CFCs posed to the ozone layer, and for a CFC-free product. McDonald's corporate pressure on McDonald's offered the public a tangible acceptance of the CFC problem was used by way to express its concern. Senator Stafford to gain support for CFC con- trols, by Friends of the Earth to challenge other The ozone layer and the gases destroying it— fast-food companies, and by EPA to encourage as well as the ultraviolet rays ozone screens expedited FDA approval of HCFC-22 as an alter- out—were essentially invisible to the public's native blowing agent. National and international eye. But disposable packaging—and McDonald's news coverage showed that the world would restaurants—were in full view. As a result, pub- notice leadership to protect the ozone layer. By lic awareness sparked a chain of events that stepping out front, McDonald's learned the produced an industry-wide phase-out extraordi- value of pro-active environmental actions in narily quickly. The children's petitions, the building customer confidence—an experience grassroots groups' protests, and Senator that later may have motivated the company to Stafford's appeal represented important cus- use its market clout to promote solid waste tomer concerns and public image problems that reduction and sustainable forestry. forced McDonald's to respond. The availability of alternatives to CFC-blown foam containers Dolco Packaging's early research on alternative was a key factor convincing the corporation to blowing agents prepared the company to change its packaging. Further, public pressure respond to its customers' increasing concerns stimulated state and local legislative initiatives about CFCs. Dolco's efforts to navigate the fed- targeting polystyrene, sending another strong eral bureaucracy and obtain prompt approval for signal to packaging manufacturers that they the use of HCFC-22 cleared the way for all man- would need to reformulate their product. ufacturers to have a viable near-term CFC sub- stitute. Full industry participation in the volun- tary program—the key to solving the problem of 2. Corporate Leadership product differentiation—would not have been McDonald's announcement not only prompted possible without the Foodservice & Packaging ozone-protecting changes in packaging manufactur- Institute's involvement. The trade association's ing; it also allowed the public to see the company as commitment to helping its members find an a leader rather than a target. Dolco Packaging and affordable and environmentally acceptable CFC the Foodservice e[ Packaging Institute's leadership substitute ran deep—witness its willingness to made it possible for packaging manufacturers to negotiate an unconventional program with EPA

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 27 and environmental organizations. FPI grasped the importance of serving as a model for other "FPI member companies were between industries to follow. Adopting this broader objec- tive, and sharing the industry's experience inter- a rock and a hard place! They had nationally, demonstrates the association's com- orders to fill and large investments in mitment to ozone protection went beyond machinery, but pressure was mounting serving its members' needs. to stop using CFCs. At first, meeting with environmentalists to find a solu- 3. Constructive Government tion was looked upon as hopeless. But, The EPA made the voluntary phase-out program possible by working with packaging manufacturers with the urging of the EPA, we gave it a to remove barriers to an economically feasible CFC try. What resulted was not only a solu- alternative and initiating a dialogue between indus- tion, but a win-win-win situation. A try and environmentalists. win for each of the two sides that negoti- At the time the foam packaging industry was ated the phase-out and, most important, feeling heat for using CFCs, EPA had no pro- a win for the environment." gram to issue regulations to ban CFC use in spe- Joseph W. Bow, President, cific industries. EPA staff knew that a CFC Foodservice & Packaging Institute phase-out by manufacturers would have to be voluntary and economically feasible. The indus- try-wide phase-out took place swiftly because EPA encouraged FDA to expedite approval of The negotiations were difficult, but in the end, HCFC-22 use in foodservice products and per- the program reflected a shared understanding of suaded EDF, FOE, and NRDC to support the the goals and positions of the diverse partici- adoption of HCFC-22 on an interim basis. As a pants. Had the parties not sat down together to result, foam-makers could stop using CFCs with- exchange views, environmental groups probably out serious economic loss. Because all competi- would not have been as sensitive to arguments tors acted together, they could assure their cus- that HCFC-22 offered some manufacturers eco- tomers and the public that no foam packaging nomic and technical advantages over hydrocar- would contain CFCs. Environmentalists' recogni- bons. Nor would industry have agreed to accept tion of industry's effort helped suppliers respond HCFC-22 as only an interim option. Initially to marketplace pressures. The negotiations—and skeptical, both sides learned from experience the voluntary program—would not have taken that government could be a constructive force in place if it were not for EPA's initiative. moving industry beyond minimum environ- mental compliance—and that such steps can be taken without significant economic hardship. 4. Unusual Collaboration Successful negotiation and implementation of the Negotiating and implementing the voluntary voluntary phase-out program sprang from uncom- program challenged environmentalists and mon cooperation among government, industry, and industry to do business in new ways. The partic- environmental organizations, as well as among ipating environmental groups accepted incre- industry competitors. mental steps as progress. They also proved to be

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 28 reliable partners in explaining a complex agree- 9. Friends of the Earth, "Friends of the Earth Announces ment to their members, policy-makers, and the 'Styro-Wars' Success," press release, September 22, public. Facing pressure to leave CFCs behind, 1987. packaging suppliers were united by their need to 10. United Nations, Technical Progress on Protecting the find a workable solution and meet the program's Ozone Layer: Rigid and Flexible Foams Control Report deadline. Competitors shared technical experi- (New York, NY: United Nations Environment Pro- ences with each other more openly than they gramme, June 30, 1989). had in the past. When new scientific develop- 11. Dolco Packaging Corp., personal communication to ments made it clear to the environmental Thomas Brown, Food and Drug Administration, Sep- groups that governments would need to phase tember 21, 1987. out HCFCs too, the companies that had adopted 12. J. Craig Potter, U.S. Environmental Protection Agency, HCFC-22 were neither pleased nor completely personal communication to Gerad L. McGowin, Food surprised since environmentalists had warned and Drug Administration, undated. that new scientific information could affect how long they supported the program. With the CFC 13. Gerad L. McGowin, Food and Drug Administration, phase-out behind it, the industry forged ahead to personal communication to J.W Buffington, Dolco Packaging Corp., October 9, 1987. figure out how to move on from HCFC-22. 14. U.S. Environmental Protection Agency, memorandum to Central Docket Section, Docket No. A-87-20.

15. U.S. Environmental Protection Agency, Federal 1. Creative Industries, Inc., personal communication to Register, December 14, 1987, vol. 52, no. 239:47511. Hearing Clerk, Food and Drug Administration, Janu- ary 18, 1977. 16. Friends of the Earth, meeting notes, February 8, 2. Western Foam Pak Inc., personal communication to Hearing Clerk, Food and Drug Administration, Janu- 17- Natural Resources Defense Council, Environmental ary 18, 1977. Defense Fund and Friends of the Earth, "Statement of Support for The Foodservice Packaging Institute's 3. Foodservice and Packaging Institute, Inc., "Voluntary Fully Halogenated Chlorofluorocarbon Voluntary CFC Phase Out by Foodservice Disposables Manufac- Phaseout Program," April 12, 1988. turers Was an Industry First," EPA Stratospheric Ozone Articles, April 7, 1995: 1-2. 18. Foodservice and Packaging Institute, Inc., Fully Halo- genated Chlorofluorocarbon Voluntary Phaseout Program, 4. Carolyn Caprioglio, "Youths Ask Restaurant Not to April 12, 1988. Use Styrofoam," The Middletown Press, December 4, 1986: 17. 19. Joseph W. Bow, Foodservice and Packaging Institute, Inc., statement at press conference, April 12, 1988. 5. Ibid., 19. 20. Friends of the Earth, "Styro-Wars Success: FOE Lauds 6. Lois Marie Gibbs, personal communication to Nancy Industry Initiative," press release, April 12, 1988. Gardner, The McDonald's Corporation, May 4, 1987. 21. Environmental Defense Fund, "EDF Hails Interim 7. "McDonald's Asked to Change Foam Packaging," The CFC Phase-Out Program for Fast-Food Plastic Foam," Star-Ledger, April 24, 1987. press release, April 12, 1988.

8. Cass Peterson, "McDonald's Repackaging Sandwiches 22. Lee Thomas, U.S. Environmental Protection Agency, to Guard Ozone," Washington Post, August 5, 1987. statement at press conference, April 12, ic

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 23. Curtis A. Moore, "McTruth: Fast Food for Thought," 28. Joseph W. Bow, Foodservice and Packaging Institute, Washington Post, December 10, 1989: C5; Citizen's Arlington, VA, personal communication, June 1995. Clearinghouse for Hazardous Wastes, Inc., "Let's Call it Something Else," Everyone's Backyard, January-Feb- 29. United Nations, 3994 Report of the Flexible and . ruary 1990: 7-8. Foams Technical Options Committee, (New York, NY: United Nations Environment Programme, 1995). 24. David D. Doniger, "McTruth: A Reply," Washington Post, December 16, 1989: A30. 30. Dow Chemical Company, Press Release, "A Break- through in Environmental Protection: Dow Licenses 25. United Nations, iggi UNEP Flexible and Rigid Foams Technical Options Report (New York, NY: United Nations Polystyrene Foam Sheet Blowing Agent Technology," Environment Programme, December 31, 1991). April 12, 1991.

26. Elizabeth Cook, "Global Environmental Advocacy: Citi- 31 United Nations, 1994 Report of the Flexible and Rigid zen Activism in Protecting the Ozone Layer," Ambio, Foams Technical Options Committee, (New York, NY: October 1990, vol. 19, no. 6-7: 335. United Nations Environment Programme, 1995).

27. "A Boost for the Ozone Layer," Packaging Digest, Sep- 32. Paul Farhi, "McDonald's Trashing Its Foam Con- tember 1988. tainers," Washington Post, November 2, 1990: Ai.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 30 /I,

TRADING POLLUTION

By David Lee

r v

S C I Ar

-•**-- ven before the 1987 Montreal Protocol on nations, but did not specify how nations should •v-' Substances that Deplete the Ozone Layer reach these goals. This freedom allowed officials 1*_ was signed, environmental regulators in EPA's Stratospheric Ozone Protection Pro- around the world were pondering the thorny gram to consider a wide array of policy tools for question of how their governments were going reaching the goals, including outright bans on to meet the ambitious goals set by the landmark specific chemical uses, special taxes, and tradi- agreement. The question was especially vexing tional "command-and-control" regulations, which for U.S. regulators who had to deal with the the agency had long used to specify the technolo- world's largest and most diverse market for gies an industry had to use to control pollution. ozone-depleting chemicals and a highly com- plex policy-making environment. But after extensive discussions with the private sector—and an examination of the agency's own Scaling these challenges, officials at the U.S. political, staff, and budgetary constraints—EPA Environmental Protection Agency (EPA) devised rejected traditional command-and-control regula- an innovative, market-based regulatory system tion and other approaches as politically unfeasi- that both enabled the United States to more ble, bureaucratically cumbersome, or too expen- than meet its obligations to an evolving Protocol sive.1 Instead, the agency created an innovative and provided government and industry with market-based system rooted in a growing body of enormous flexibility and cost-savings. While the theoretical research on harnessing market forces system has not worked perfectly, it has demon- to protect the environment.2 By relying on "mar- strated how rapidly and cost-effectively market- ketable permits" to reduce the use of ozone- based regulatory regimes can address serious depleting substances, EPA proposed to put the environmental problems. theory to one of its first major practical tests.

The Montreal Protocol—in both its original and amended versions—set stringent and ambitious In 1988, the agency launched its market-based ozone-layer-protection goals for developed system by assigning annual permits—called

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 31 "allowances"—to five CFC producers, three CFC-11, which was assigned an ODP of 1. For halon producers, fourteen CFC importers, and instance, CFC-113 was calculated to have an six halon importers.? (The agency had consid- ODP of .8, or 80 percent of the ozone-destroy- ered auctioning the allowances to users, but ing power of CFC-11. decided that an auction with unstable prices would cause too much market confusion during In 1990, amendments to the Clean Air Act the initial years of the program.) altered EPA's marketable permits system. Con- gress did away with the basket concept and Allowances permitted a company to make or assigned each CFC and halon separate import a certain quantity of CFCs and halons for allowances that took into account the chemical's the U.S. market; usually, how much depended ODP and its applications. Even so, companies on the company's market share in 1986. could continue weighted "inter-pollutant Allowances also let companies produce an addi- trades"—trading, for example, an allowance to tional 10 percent for export to developing make one kind of CFC for one to make nations if they documented that the chemicals another—if the total ODP values of the two were indeed shipped overseas. In accordance chemicals were identical. Also, to "pay" the envi- with the Protocol, the total volume of production ronment and reduce the total quantity of chemi- and imports permitted by an allowance declined cals available, the amendments imposed a i-per- over time. cent "offset discount" on all allowance trades. For example, if a company traded 100 kilograms of Companies could trade their allowances, both CFC allowances to another company, 1 kilogram within their own company and to other firms, of CFC allowances would be retired from use.4 even to those operating outside the United States, though these trades had to be reported to EPA. (Its Office of Atmospheric Programs devel- oped policies and tracked allowances, while its Office of Enforcement monitored compliance.) Many factors influenced the U.S. market for ozone-depleting chemicals in the wake of the Originally, EPA did not issue separate Montreal Protocol. But, available data suggest, allowances for each of the five CFCs and three EPA's marketable-permits system greatly helped halons covered by the regulatory system. Com- U.S. companies to meet Protocol requirements panies could make or import any combination without major disruptions and at lower cost of chemicals within a "basket" of related ozone- than anticipated. For example, from 1989 to depleters. A CFC producer, for example, could 1994 CFC consumption, defined by the Protocol switch from making one kind of CFC to another as production plus imports, minus exports—fell without violating its quantity of allowances. This consistently below allowable levels in the United system was flexible, but since the two chemicals States. In 1990, U.S. CFC production was only might have different ozone-destroying powers, 60 percent of 1986 output, a full 40 percent EPA introduced a weighting system that allowed lower than regulation required then. In 19 91, companies to stay within their allowance by CFC production dropped to half of 1986 output, exchanging small volumes of potent ozone- though regulations required production to be destroyers for larger volumes of less-potent only 15 percent lower. By 1994, CFC production chemicals. Each chemical's ozone-depleting had dropped to under 25 percent of 1986 levels, potential (ODP) was calculated in relation to slightly below the legal limit.5

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 32 During roughly the same period, EPA esti- both government and industry great flexibility. mates, the cost of these reductions fell by at This room to maneuver allowed the U.S. Govern- least 30 percent, from an anticipated $3.55 per ment to quickly adapt to the Montreal Protocol's kilogram of CFCs to $2.45.6 Such results are changing requirements—whether to a toughened due partly to the advantages that the marketable timetable or to the addition of a new controlled permits system delivered to both the govern- chemical. The 1987 Montreal Protocol required ment and industry. Specifically, the system: industrialized countries to freeze halon produc- tion in 1992 and cut CFC consumption by 50 • lowered administrative costs for government percent by 1998. In 1990, 1992, and 1995, Par- and compliance costs for industry; and ties listed new substances (methyl chloroform, carbon tetrachloride, hydrochlorofluorocarbons, • gave both government and industry the flex- and methyl bromide), agreed to full phase-outs, ibility needed to quickly adapt to changing or accelerated phase-out schedules.9 market conditions and the Montreal Proto- col's increasingly stringent requirements. EPA officials could react swiftly to these changes by simply issuing new rules that simply One major way that EPA lowered costs was by reduced annual allowances for some chemicals tightly focussing on a small but key regulated or created allowances for newly controlled chemi- community. In the late 1980s, EPA estimated cals. EPA's own analysis and discussions with that the United States was home to more than industry helped determine the cost impact of fur- 10,000 CFC and halon "user sectors." Develop- ther reductions. Each of these rulemakings took ing and enforcing a traditional command-and- EPA about one year to complete. (Most conven- control regulatory system for so many users tional rulemakings take far longer. It took three would, the agency predicted, cost $23 million years for EPA to finalize CFC-recycling regula- annually and require at least 32 people. In the tions for stationary air-conditioning and refriger- system's first year alone, the agency estimated, ation equipment, for instance, mainly because industry would spend more than $300 million specific technologies and standards, including on reporting and record keeping.? refrigerant purity standards and vacuum levels for recycling equipment, have to be defined.10) In contrast, only a handful of U.S. firms pro- duced or imported ozone-depleters, so EPA Since the allowance system did not mandate decided to start with them. This tack paid off. By specific technologies, companies were free to working with this small but key group of suppli- immediately try new technologies. In many ers, the agency lowered its start-up costs and ran cases, this freedom hastened the shift to alterna- the system with only four people—two monitoring tives that were cheaper than increasingly expen- compliance and two writing regulations and oper- sive ozone-depleters. In turn, demand for cer- ating the computerized allowance-tracking system. tain ozone-depleters fell, and the allowances In addition, industry's reporting and record-keep- used for making these compounds could be ing costs dropped dramatically: in 1989, EPA pro- traded for those for chemicals still in demand. jected these costs would amount to only $2.4 mil- For example, as the solvent industry abandoned lion during the first year of the system.8 CFC-113 for such alternatives as aqueous clean- ing, "no-clean," and recycling, demand for the Another way the system reduced costs and chemical dropped. Responding quickly to this increased economic efficiency was by allowing market change, companies began trading

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 33 allowances to make or import chemicals still in in Canada in 1993; by trading allowances, high demand, such as CFC-12. Between 1992 DuPont ran its remaining plants more effi- and 1994, in fact, CFC allowances traded for ciently. Within the industry more broadly, trades CFC-12 rose from about 14 million to 26 million allowed companies that had decided to drop out kilograms. These trades were prompted by con- of the market to sell their allowances to other tinuing demand from owners of air-conditioned companies. cars and other CFC-12 users who had no low- cost alternatives.11 The total volume of trades handled by EPA's allowance-tracking system is evidence that An examination of 1994 CFC consumption industry took advantage of the system's flexibil- further shows how the trading system allowed ity. From 1992 to 1995, producers and importers industry to shift production and imports to meet made roughly 30 to 40 trades a year to change market demands. In 1994, producers and the mixture of chemicals they produced or importers held allowances for 25 percent of the imported. Still, most trading goes on among 1986 baseline for each of the five major CFCs. companies. In 1992, the most active year, com- As a result of trades, some compounds were panies bought and sold 171 allowances totaling produced and imported at levels well below the 73 million kilograms. These trades include all 25 percent cap, while others compounds were compounds managed by the system—CFCs, produced and imported in quantities much halons, carbon tetrachloride, and methyl chloro- higher. For example, CFC-113, CFC-114, and form—and represent 13 percent of the total CFC-11 were produced at only roughly 7, 10, and quantity of available allowances for 1992.:4 (See 10 percent of 1986 baseline levels, respectively, Figure 1.) whereas CFC-12 and CFC-115 were produced at 39 and 84 percent. Total U.S. consumption of all The active trading of allowances indicates that five chemicals, however, remained under the EPA has kept the "transaction costs" of execut- allowable 25-percent cap. Continued demand for ing a trade quite low. Before firms trade, they CFC-12 to service car air conditioners and for must get EPA's approval. The agency promises CFC-115 to maintain low-temperature supermar- to process requests within three days and does ket-refrigeration systems accounts for these not require information on the money trends.12 exchanged. Unlike EPA's Acid Rain Program, where sulfur-dioxide emissions permits are Trades also allowed companies with facilities traded at the Chicago Board of Trade, the market in more than one nation to rationalize their value for CFC allowances is not routinely re- operations in an orderly fashion. In 1993, for ported to EPA. When interested parties ask EPA example, Dow Chemical ended methyl chloro- where they can purchase allowances, the agency form production in Canada when the market directs them to the Federal Register notice that declined and shifted 4.5 million kilograms of lists the original allowance holders and to such production to the United States. It cost Dow less industry trade groups as the Alliance for to boost U.S. production and ship the chemical Responsible Atmospheric Policy.:5 back to Canada (through a trade) than to run two under-capacity plants. (At the end of 1993, Dow stopped methyl chloroform production in the United States too.p Similarly, DuPont While EPA's marketable permits system has closed the world's largest CFC-n/CFC-12 facility generally exceeded expectations, some glitches

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 34 FIGURE 1 ALLOWANCE TRADING OF OZONE-DEPLETING CHEMICALS

# of trades kgs traded, in millions 200 120

International International Intra-Company Intra-Company 100 -- 160 -. Inter-Company Inter-Company

80 120

60

40

40 i 20 \i 1989 1990 1991 1992 1993 1994 1995 1989 1990 1991 1992 1993 1994 1995

Note: Inter-company and international trades include trades of CFCs, halons, carbon tetrachloride, and methyl chloroform. There are no intra-company trades in 1989-1991; prior to the Clean Air Act Amendments of 1990, EPA assigned CFC and halon allowances as "baskets."

Source: U.S. Environmental Protection Agency, unpublished data. have required special government action. For atmosphere. In addition, EPA had to issue spe- example, where markets were diffuse or where cial regulations to ensure that CFC recycling consumers had trouble getting information, equipment met strict standards so that recycled additional regulatory and government-led con- CFCs were pure enough to use. (See "Keeping sumer education efforts were needed. To get the Cars Cool.") word out on mobile air-conditioners in automo- biles, for instance, government had to solicit While such rules may be seen as traditional industry's voluntary cooperation in informing command-and-control regulations requiring car-owners and a vast network of service shops additional government and industry funds to about the need to recycle or replace CFCs, fix implement, they do provide good information to leaky systems, and not vent chemicals into the the market. Purity standards, for example,

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 35 assure customers that their equipment will not and increasing costs. Accordingly, the U.S. Gov- be harmed by low-quality chemicals. Similarly, ernment has launched a multi-agency effort to labeling regulations—which require manufac- curb smuggling and keep better track of CFC turers to let consumers know that the product trade. In 1996, EPA required importers of recy- either contains or was manufactured with an cled CFCs to obtain approval from the agency ozone-depleting chemical—help buyers make first.1? Before then, EPA maintained tabs only fully informed choices. And, the Significant New on importers of newly produced chemicals. (See Alternatives Policy (SNAP) program protects the "Taxing Pollution.") public and workers by screening CFC replace- ments for their health and environmental impacts. As the marketable permits system illustrates, a At times, EPA's efforts to supplement its mar- market-based regulatory regime can help meet a ket-based programs have been controversial. complex environmental challenge. In large part, EPA's 1994 decision to compel DuPont to con- the policy has been succeeding because of three tinue producing CFCs for one year, instead of defining characteristics: ending production a year early, sprang from the agency's deep involvement in efforts to help auto companies and millions of consumers to service 1. Cost-effectiveness their CFC-based car air conditioners. Although EPA's marketable permits system minimized the DuPont intended to retire its production administrative costs of implementing the Montreal allowances, EPA's rational was that quicker reduc- Protocol in the United States. tions in CFC emissions needed to be balanced with easing the impact of the CFC phase-out on The marketable permits system allowed EPA consumers. Environmentalists criticized the move to focus on a small regulated community. since leaving the market alone would in this Instead of attempting to regulate thousands of instance have accelerated ozone protection.16 types of use, the agency zeroed in on the far fewer producers and importers. This move EPA's marketable permits system has also vastly simplified implementation, record-keep- been challenged by a growing black market in ing, and monitoring. Under the Clean Air Act, ozone-depleters. Since late 1993, illegally EPA issued several other ozone-protection regu- imported CFC-12 has become widely available. lations within this market-based framework. The contraband refrigerant is sold into a diffuse These actions informed the market and pushed network of purchasers who service automobile along the phase-out. They do require substantial air-conditioners or light refrigeration equip- resources, but the agency's administrative costs ment—a development that has required would have been much higher under a purely stepped-up enforcement command-and-control system.

This black market developed in response to a number of factors, including the high cost of an 2. Flexibility excise tax levied on CFCs, confusion about The permit system allowed EPA to swiftly imple- whether the tax applied to imported recycled ment changes in the phase-out schedule and gave CFCs, and the success of the marketable per- industry great flexibility in meeting the Protocol's mits system itself in restricting CFC supplies requirements.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 36 A "cap and trade" environmental program like Regulation: A New Era from an Old Idea?," Ecology Law the one EPA uses to control ozone-depleters is Quarterly, vol. 18, no. 1: 1-42; and Daniel J. Dudek and only effective if the goal or "cap" it sets is tough John Palmisano, "Emissions Trading: Why is this Thor- enough to solve the problem. Worsening ozone oughbred Hobbled?," Columbia Journal of Environmen- tal Law, vol. 13, no. 217: 217-256. depletion led governments to repeatedly strengthen the Montreal Protocol. In turn, a 3. U.S. Environmental Protection Agency, Federal Register, simplified rulemaking system allowed EPA to August 12, 1988, vol. 53, no. 156. respond quickly to tighten the regulatory cap on ozone-depleters. The ability to trade allowances 4. U.S. Environmental Protection Agency, Federal Register, enabled industry to adapt to changing market July 30, 1992, vol. 57, no. 147. demands without overtopping the shrinking 5. U.S. Environmental Protection Agency, Stratospheric consumption cap. Protection Division, Allowance Tracking System, unpublished data.

3. Economic Efficiency 6. Calculations complied by David Lee, U.S. Environmen- Allowance trading data demonstrates that the tal Protection Agency, based on Regulatory Impact tradable permit system worked efficiently in the Analysis: Protection of Stratospheric Ozone (Washington, marketplace. D.C.: ICF Incorporated for EPA, August 1, 1988) and Addendum to Regulatory Impact Analysis: Protection of Stratospheric Ozone (Washington, D.C.: ICF Incorpo- The trends evident in the allowance trades rated for EPA, December 1993). show how producers and importers shifted the chemical mix they supplied to market as users 7. U.S. Environmental Protection Agency, Regulatory adopted alternatives. In later years, most Impact Analysis: Protection of Stratospheric Ozone (Wash- allowances have been used to provide CFCs for ington, D.C.: August 1, 1988), vol. 2. applications where alternatives cost more and to service refrigeration and air-conditioning sys- 8. Ibid. tems. Trades have also allowed companies to 9. United Nations, Montreal Protocol on Substances that close plants and operate remaining facilities Deplete the Ozone Layer, adopted and opened for signa- more efficiently. Together, these efficiencies have ture September 16, 1987, and entered into force 26 helped industry implement the phase-out at I.L.M. 1541 (January 1, 1989); United Nations, London lower cost than anyone anticipated. Amendment to the Montreal Protocol, adopted and opened for signature June 29, 1990, and entered into force 30 I.L.M. 537 (1991); United Nations, Copenhagen Amendment to the Montreal Protocol, adopted and opened for signature November 1992, and entered into 1. For example, EPA did not pursue a CFC tax because force 32 I.L.M. 874 (1993). the agency did not believe it could accurately gauge the environmental impact of a tax nor that it had the authority to set a tax through regulation. In 1989, Con- 10. U.S. Environmental Protection Agency, Federal Register, gress did enact an ozone-depleter tax. (See "Taxing July 30, 1992, vol. 57, no. 147; U.S. Environmental Pro- Pollution.") tection Agency, Federal Register, December 10, 1993, vol. 58, no. 236; U.S. Congress, Clean Air Act Amend- 2. For further discussion of the use of trading for environ- ments, [P.L. 101-549, Section 608], November 15, 1990. mental improvements, see Robert N. Stavins, "Transac- tion Costs and Markets for Pollution Control," 11. U.S. Environmental Protection Agency, Stratospheric Resources, Spring 1995, no. 119: 9; Robert W. Hahn and Protection Division, Allowance Tracking System, Robert N. Stavins, "Incentive-Based Environmental unpublished data.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 37 12. Tom Land, U.S. Environmental Protection Agency, per- 15. U.S. Environmental Protection Agency, "Protection of sonal communication to Elizabeth Cook, World Stratospheric Ozone: Administrative Changes to Final Rule to Phase Out ODCs," Federal Register, May 10, Resources Institute, September 1996. 1995, vol. 60, no. 90: 24970.

13. Connie Deford, Dow Chemical, personal communica- 16. Martha M. Hamilton, "EPA Asks Du Pont Co. to Make tion to David Lee, U.S. Environmental Protection CFCs in '95: Environmentalists Criticize Agency's Agency, October 1995. Move," Washington Post, December 18, 1993: Ci. 17. U.S. Environmental Protection Agency, "Protection of 14. Tom Land, U.S. Environmental Protection Agency, per- Stratospheric Ozone: Administrative Changes to Final sonal communication to Elizabeth Cook, World Rule to Phase Out ODCs," Federal Register, May 10, Resources Institute, September 1996. 1995, vol. 60, no. 90: 24970.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS TAXING POLLUTION

By J. Andrew Hoerner

V \c

S ( I Ar

i * "he Ozone-Depleting Chemicals Tax is a election-year pledge to not impose any new central element of the innovative and taxes. The dominate motive for the tax as finally -_- effective U.S. ozone protection policy. It passed was to promote new clean technologies has successfully encouraged the development of and provide federal tax revenue.? cost-effective recycling and replacement tech- nologies. Together, the tax and related policies Public discussion of a federal tax on ozone- have reduced the consumption of ozone- depleting chemicals was sparked in late 1986 by depleting chemicals far more than the Montreal a World Resources Institute (WRI) study advo- Protocol and the subsequent London and cating an environmental excise tax on certain Copenhagen Revisions required.1 Along with CFCs. Authors Alan Miller and Irving Mintzer environmental benefits, the tax has brought fed- proposed a $5 per pound tax to reduce produc- eral revenue—some $2.9 billion in its first five tion of ozone-depleting chemicals and encour- years. (See Table 1.) Although there has been age the development of substitutes.4 some problem with evasion and illegal trade, federal efforts to crack down on CFC smugglers Over the next three years, the Reagan and Bush are curbing this traffic. On balance, this path- Administrations and members of both the U.S. breaking tax stands as a model for the use of House of Representatives and the U.S. Senate fiscal incentives for environmental purposes.2 responded to growing scientific evidence of a threat to the ozone layer with an array of propos- als that included taxes or fees on ozone-depleting chemicals. Out of this series of competing pro- The Omnibus Reconciliation Act of 1989 posals the final legislation slowly emerged. (OBRA-89) imposed a new federal tax on ozone- depleting chemicals. When President George Bush signed it, he capped a four-year bipartisan effort to forge a tax proposal that would encour- The first proposal to impose an excise tax on age cuts in consumption of these chemicals, ozone-depleting chemicals came from Rep. promote the development of alternatives, gener- Fortney (Pete) Stark (D-CA) in June 1987. ate federal revenue, and be in keeping with his Stark's goals were to curb production, create

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 39 imported products manufactured or produced with ozone-depleting chemicals. And manufac- TABLE 1 OZONE-DEPLETING turers would be taxed on floor stocks of ozone- CHEMICALS TAX REVENUE depleting chemicals so they wouldn't avoid the ($ MILLION) tax by stockpiling these chemicals before the tax took effect. Under the new bill, the taxable 1990 1991 1992 1993 1994 imports and stockpiled chemicals would be 202 644 568 768 676 taxed at the same rate as the ozone-depleting 11 Source: IRS data, unpublished. chemicals production and importation tax. Rev- enues from the bill were to go into the Trea- sury's general fund.12 incentives for alternative chemicals, encourage recycling, and raise money.5 The Joint Commit- In early 1989, this bill was presented for con- tee on Taxation, expecting it to raise $300 mil- currence to the Senate, where three Senators lion in 1988, included the tax in its revenue-rais- were preparing tax proposals on ozone-depleting ing options document on July 6, 1987.6 But the chemicals. r3 committee never held a hearing on the bill.

In 1988, the EPA, under President Reagan, proposed implementing a marketable permit The first Senator to introduce an ozone- auction system whereby manufacturers of depleting chemicals tax proposal was California ozone-depleting chemicals could buy production Republican Pete Wilson. Wilson proposed fund- rights.7 The administration included revenue ing part of his "Kids in Day Care Services Act" from these permit fees in its budget proposal for (S. 55) through a $1 per pound tax on ozone- fiscal year (FY) 1990.8 A similar proposal was depleting chemicals (increasing to $4 per pound then put forward by the Bush Administration in by FY 1993). The estimated revenue from the tax 1989. After the Reagan proposal, four House would have been $2.6 billion, $300 million of Representatives individually introduced legisla- which would have been deposited into a fund tion proposing to tax ozone-depleting chemicals. for research on alternative chemicals.^ None passed as stand-alone legislation. Instead, two years after Stark first proposed legislation, Wilson's motive for the ozone-depleting chem- the House passed the Omnibus Budget Recon- ical tax was primarily to raise revenue. But the ciliation Act of 1989, incorporating the "Ozone primacy of the child-care provision should not Protection and CFC Reduction Act" (H.R. ni2).9 eclipse the environmental concern reflected by the bill. In his introductory statement, for exam- Introduced by Rep. Stark on February 23, ple, Wilson espoused the benefits of reducing 1989, this bill imposed a tax on the use of CFCs ozone-depleting chemical production. The bill's 11, 12, 22, 113, 114, 115, and halons 1211, 1301, objective, he said, was eliminating windfall prof- and 2402. Producers and importers of CFCs its, thereby "remov[ing] the incentive to delay and halons would pay a base tax amount (reach- the introduction of chemical substitutes."^ The ing $5 per pound in 1994), multiplied by the Wilson bill was not enacted.16 number of pounds of the chemical, multiplied by the chemical's ozone-depleting potential On March 2, 1989, Max Baucus (D-MT) intro- (ODP).10 Importers would also pay a tax on duced a second bill. His "Chlorofluorocarbons

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 4O and Halon Reduction Act" (S. 503) was not an icals such as CFCs, halons, or other chemi- excise tax, but a surcharge to be administered by cals...."22 Gore also wished to promote new tech- the EPA.1? The base rate to be charged was nology: half the revenues of the tax would be twenty-five cents in 1990 for CFCs, increasing devoted to a newly created Ozone Layer Conser- to $2.50 in 1993, and a flat rate of $1.50 for vation Trust Fund (much more than under the halons. As in Stark's proposal, the tax was to be Wilson and Baucus plans). The fund would help proportional to the ozone-depleting potential of support government cooperation with the pri- the taxed chemicals. vate sector to develop new alternatives and to find ways for the U.S. Government to help The Baucus bill would have established an American business export these technologies.2? Ozone Layer and Climate Protection Trust Fund, which would have received up to $100 million to provide grants for research into chemical substi- tutes and new products whose use did not In its budget reconciliation bill, the Senate require CFCs or halons.18 The purpose of the somewhat inconsistently incorporated two ver- bill was reportedly to curb production of ozone- sions of the plan to reduce ozone-depleting depleting chemicals and to encourage the devel- chemicals: the Baucus proposal reported out of opment of safe substitutes.J9 Limiting windfall the Environment and Public Works Committee profits or raising revenue were not the primary and the Finance Committee tax proposal based stated objectives. The bill emerged from the on the House bill similar to Gore's but without Environment and Public Works Committee and the technology fund.24 The final bill passed by was added to the Senate version of the Omnibus Congress and signed into law was based primar- Budget Reconciliation Act. ily on the latter.25 In its final form, this bill cre- ated an excise tax on manufacturers' or The third Senator to introduce an ozone- importers' sale or use of ozone-depleting chemi- depleting chemical tax bill was Al Gore (D-TN). cals, taxable imported products, and floor stocks. On May 1, 1989, Gore introduced the "Ozone The base amount of tax—$1.37 per pound for Layer Conservation Act" (S. 871).2O Like Stark's 1990 and 1991, $1.67 for 1992, and $2.65 for bill, Gore's was a tax rather than a fee. It was 1993 and 1994—was to increase yearly by forty- based on the ozone depletion potential of the five cents per pound after 1994.2<5 taxed chemicals and increased from $1 per pound initially to $5 per pound by 1994. Like The Conference bill never contained an envi- Stark, Gore proposed taxing floor stocks and ronmental trust fund and revenues from the imported products made with ozone-depleting Ozone-Depleting Chemicals Tax were destined chemicals, and exempting recycled ozone-deplet- for deposit in the Treasury's general fund. Rep. ing chemicals from the tax. Modifications within Stark did not believe earmarking excise taxes the Senate Finance Committee made the Stark was good tax policy, according to one former and Gore bills even more similar.21 staffer.3? In any case, the ultimate reason for dropping the technology fund and for choosing The purpose of his legislation, said Gore, was a tax over a fee was to raise revenue. The Con- "to protect human health and natural ecosys- gressional budget resolution obligated the tems from all known and potential dangers due House Ways and Means Committee and the to depletion of the stratospheric ozone layer, Senate Finance Committee to raise substantial which is or would be caused by manmade chem- additional revenue. Taxes but not auctions fall

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 41 within the jurisdiction of the tax-writing com- the business energy credit for solar and geother- mittees, and Administration officials privately let mal energy.34 To accelerate phase-out of ozone- on that a tax on producers would not be depleting chemicals and help pay for the Green regarded as violating the President's "Read my Tax Package, Congress increased the Ozone- lips: no new taxes" pledge.28 Thus, the tax rate Depleting Chemicals Tax, making it the largest was set mainly to meet a revenue target, not to source of revenue for the Energy Policy Act. The cover the (probably much higher) value of envi- increase of the tax was expected to raise $991 ronmental damages.29 million over five years.35

In the House Budget Committee report accompanying the Conference bill, the Ways and Means Committee expressed concern about Since 1989, the tax rate has been changed sev- ozone depletion and recommended the tax as a eral times. The rates contained in the later bills way to "permit market forces to aid the work of supersede those in the earlier bills. (See Table 2.) finding substitutes and fostering reduced use of In all three bills, the tax rate was specified for ozone-depleting chemicals."3° The enacted legis- the initial years and set to increase by an addi- lation was aimed at accelerating the phase-out of tional $0.45 per year thereafter. So, for instance, ozone-depleting chemicals and raising revenue, the tax rate in 1996 is $5.35 plus $0.45, or more than at achieving an optimal emissions $5.80, and the tax rate in 1997 will be $6.25. level or capturing windfall profits associated This predictable increase was probably as impor- with the phase-out.31 tant to the incentive effect of the tax as the cur- rent tax itself, as both producers and consumers of ozone-depleting chemicals planned ahead.

The 1990 London revisions to the Montreal Pro- Manufacturers and importers must pay the tax tocol added two new chemicals to the list of when the first sale is made or when the ozone- ozone-depleting chemicals scheduled for phase- depleter is first used in production. The tax due out—carbon tetrachloride and methyl chloro- form.32 Accordingly, in the Omnibus Budget Reconciliation Act of 1990 (OBRA-90), Con- gress expanded the Ozone-Depleting Chemicals TABLE 2 TAX RATES ON OZONE- Tax to apply to these two chemicals.33 DEPLETING CHEMICALS ($/POUND) On October 8, 1992, Congress passed the National Energy Policy Act of 1992 (NEPA- OBRA-90 NEPA-92 92)—the most comprehensive energy legislation New All in a decade. Several provisions of that law, later Year OBRA-8g Chemicals Chemicals known as the Green Tax Package, encouraged 1990 i-37 — — energy conservation and increased development 1991 :-37 i-37 — of renewable energy resources: income tax 1992 1.67 :-37 — exclusions for employer-provided mass transit; 1993 2.65 1.67 3-35 utility subsidies for purchase of energy conser- 1994 2.65 3.00 4-35 vation equipment; deductions for clean-fueled J995 — 3.10 5-35 vehicle property; and a permanent extension of

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 42 is calculated by multiplying the number of depleting chemicals will continue to pay annual pounds produced or imported times the base tax floor stocks tax based on the annual 45-cent amount per pound times a factor representing increase in the tax rate. the long-term potential of a pound of that chem- ical for depleting ozone relative to a pound of As for exceptions and exemptions, the basic CFC-n. (See Table 3.) tax does not cover hydrochlorofluorocarbons (HCFCs): Congress felt that these chemically In addition, a floor stocks tax was imposed on similar but less potent ozone-depleters would be stocks of ozone-depleting chemicals held when useful transition substitutes. Environmentalists the tax came into force in 1990 at the same have pressed Congress to include HCFCs and rates for each chemical as for new consump- the pesticide methyl bromide—but so far with- tion.36 The tax also applies in subsequent years, out success.37 but generally imposes no liability because there is a credit against the tax for the ozone-depleting Other exceptions are halons and the CFCs chemical tax previously paid. However, the tax used to make foam insulation. Both were taxed does impose an additional liability on those who at a reduced rate of $.25 per pound. Also, NEPA- are maintaining stocks of ozone-depleting chem- 92 legislation gave special treatment to the icals when the rates go up. From 1996 on, pro- CFCs used as medical sterilants and metered duction (except for essential uses) has been dose inhalers—taxing the sterilant at $1.67 per banned, and those who hold stocks of ozone- pound for one year, and the inhalers at the reduced rate until August 1996, when the phar- maceutical industry succeeded in removing the 8 TABLE 3 CHEMICALS COVERED BY tax altogether.3 THE OZONE-DEPLETING CHEMICALS TAX Certain uses that do not pose environmental risks are also excluded from the tax. These Ozone Depletion include feedstocks in the manufacture of Chemical Potential another chemical if the feedstock is completely OBRA-8g consumed in the process. Such an exemption must be approved by the Secretary of the Trea- CFC-n 1.0 sury.39 If one taxed chemical is used to produce CFC-12 1.0 another taxed chemical, the production of the CFC-113 0.8 first is excluded from tax but not the second.^0 If CFC-114 1.0 an ozone-depleter is mixed with other chemicals CFC-115 0.6 without being consumed, its use is taxable; if it Halon 1211 3.0 is fully recycled, it isn't taxed unless it is Halon 1301 10. o imported.^1 (In general, recycled chemicals are Halon 2402 6.0 OBRA-90 not controlled by the Montreal Protocol, so Carbon tetrachloride imports are not restricted.) Methyl chloroform O.I Minor CFCs 1.0

Source: IRC §4682(3) and (b). When an ozone-depleting chemicals tax was first being considered, manufacturers and users

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 43 feared that it would damage the industry's inter- national competitiveness. Congress agreed and designed provisions to offset the competitive burden of the tax. First, imports and exports of ozone-depleting chemicals were taxed generally in accordance with the destination principle; i.e., importers had to pay the tax on imported chemi- cals and any tax paid on exports was rebated. This prevents foreign producers with no com- parable tax from preying on U.S. manufacturers, and lets U.S. exports compete on a level playing The tax on imports is applied to items on an field with those of other nations that have not Internal Revenue Service (IRS) list of more than adopted a tax.42 ioo products manufactured using ozone-deplet- ing chemicals.46 The importer can calculate the Arguably, this tax rebate eliminates the envi- tax in any of three ways. If the importer docu- ronmental price signal in nations that purchase ments the exact consumption of ozone-depleting ozone-depleting chemicals from the United chemicals used to produce a unit of the States, but Congress saw the issue differently. imported good with sufficient and reliable infor- First, because the ozone-depleting-chemicals mation, the tax will be imposed based on the market is internationally competitive, taxing U.S. actual use. If the importer does not supply exports would simply shift production to other actual production data, the IRS will calculate the countries without any corresponding environ- tax based on the average consumption of ozone- mental benefit.43 Perhaps more important, depleting chemicals in the production of compa- increasing the price of exports could induce rable domestic goods. Absent such comparables, importers in less-developed countries—who were the IRS is empowered to impose a five percent permitted to increase their consumption under ad valorem tax. the Montreal Protocol—to switch to domestic production. It was hoped that by keeping the export price low, the spread of ozone-depleting chemical production technology could be inhib- The United States adopted production and con- ited until superior substitutes were available.44 sumption caps and the Ozone-Depleting Chemi- cals Tax at the same time. As a result, untan- To protect the U.S. market from predation, gling the relative contribution of the regulations products manufactured with ozone-depleting and the tax to achieving reductions is difficult. chemicals are subject to an import tax equal to Clearly, the combination has been extremely what would have been paid had the product effective, and there is some reason to believe been manufactured in the United States.45 that the tax on ozone-depleting chemicals low- These products are of two types: products that ered production more than regulatory caps alone contain ozone-depleting chemicals, such as would have. In 1990, the year the tax was refrigerators and automobile air conditioners; imposed, total CFC consumption dropped to and products that are manufactured using 440 million pounds down from 700 million ozone-depleting chemicals but do not contain pounds in 1989. Indeed, from 1990 through them, such as electronic components that are 1993, consumption was consistently less than 65 cleaned with CFC solvents. percent of the allowable level. (See Figure 1.)

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 44 BOX 1 COMPLIANCE PROBLEMS —THE BLACK MARKET

Like all excise taxes, the one on ozone-depleting ecutions and confiscated 1.2 million pounds of chemicals requires enforcement to prevent evasion. CFCs.3 Government officials estimate that at least 16 mil- lion pounds of illegal imports of CFC-12 entered the Meanwhile, regulators are removing ambiguities United States annually in 1993 and 1994.1 This con- in the law exploited by smugglers. The IRS has traband amounts to at least 6.5 percent of the CFCs made it clear that recycled CFCs are subject to the legally consumed in 1993, and 11.5 percent of 1994's tax when imported, and EPA regulations issued in legal CFC consumption. 1996 require importers of recycled chemicals to get pre-approval from the agency 15 days before the Smuggling typically takes three forms. Ozone- chemicals leave the port of origin and provide proof depleting chemicals being transhipped to another that the chemicals are indeed recycled.4 Along with country through the United States can be diverted an EPA-sponsored toll-free number for reports of for U.S. consumption. In daisy-chaining, a series of suspected smuggling, these regulatory moves help sales can include a fictitious party as the "importer" law enforcement officials keep better track of the nominally liable for the tax. Or, ozone-depleting CFC trade since now that the CFC phase-out dead- chemicals can be imported and mislabeled as a dif- line has passed virtually all legal imports are in recy- ferent chemical. cled chemicals.

The U.S. Customs Service, Environmental Protec- 1. Tom Watts-Fitzgerald, Assistant U.S. Attorney, tion Agency (EPA), Internal Revenue Service (IRS), Southern District of Florida, Chief of Environ- Federal Bureau of Investigation, and Department of mental Crimes Section, Miami, Florida, personal Justice have formed an anti-smuggling task force communication, August 1996. and launched Operation Cool Breeze from South 2. U.S. Department of Justice, News Release, Florida—the hub of the CFC black market. In Sep- "Miami Federal Grand Jury Indicts Four in Multi- tember 1996, in the operation's largest indictment Million Dollar 'Freon' Excise Tax Fraud Scheme," yet, prosecutors charged three Miami residents and September 5,1996. the Miami-based Refrigeration U.S.A. Inc. with ille- 3. Tom Watts-Fitzgerald, Assistant U.S. Attorney, gally importing more than 9 million pounds of CFC- Southern District of Florida, Chief of Environ- 12 and failing to pay more than $22 million in excise mental Crimes Section, Miami, Florida, personal taxes. The defendants allegedly provided EPA with communication, August 1996. false bills of lading, indicating that the chemicals 4. U.S. Environmental Protection Agency, "Protec- had been re-exported when, in reality, they had been tion of Stratospheric Ozone: Administrative sold domestically.2 As of August 1996, the Depart- Changes to Final Rule to Phase Out ODCs," Fed- ment of Justice's National CFC Enforcement Initia- eral Pxgister, May 10,1995, vol. 60: 24970. tive and Operation Cool Breeze had handled 14 pros-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 45 tion of the five CFCs originally covered by the FIGURE i U.S. CFC Montreal Protocol. (See Figures 2 and 3.) By 1995, CONSUMPTION the taxed price of these chemicals was nearly AND REGULATORY triple the untaxed price. The price effects on other CFCs are comparable. Although Congress CAPS (SUM OF rejected capturing a share of windfall profits as a MAJOR CFCS IN rationale for the tax, the tax appears to have held CFC-n EQUIVALENT) down untaxed prices, at least early in the phase- out, though now that the caps are binding the price excluding the tax has increased substantially. thousands of pounds) 800,000 Arguably, the low level of actual consumption relative to the caps could reflect an unrelated 700,000 \ general decline in CFC consumption. However, 600,000 \ the caps were set well below the level the EPA's business-as-usual production forecast made in 500.000 \ ' 1987.47 Before 1989, the consumption of CFC-11 8 400,000 and CFC-12 grew faster than projected in 1987.4

300,000

200,000 FIGURE 2 WHOLESALE PRICE OF CFC-11 100,000

o — , -\ (dollars per lb) 1989 1990 1991 1992 1993 1994 1995

^ Actual consumption —•-— Excluding Tax 7.00- 3 Regulatory CAP ^^^^ Including Tax 6.00- Note: Major CFCs include the CFCs covered by OBRA-89 (CFC-11,12,113, 114, and 115). 5.00- Consumption is above the cap in 1989 because the cap did not enter into force 4.00- until July 1996. 3.00- Source: U.S. EPA, unpublished data. 2.00- J . i What evidence is there that the tax itself has 1.00- reduced ozone-depleting chemical consumption? Certainly, the price impact of the tax has been 1 1 1 j | | substantial. The tax immediately doubled the 198S 1987 1988 1989 1990 1991 1992 1993 1994 1995 Source: Chemical Marketing Reporter and prices of CFC-11 and CFC-12, which together calculations by author. account for more than two thirds of the produc-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

46 FIGURE 3 | WHOLESALE PRICE OF FIGURE 4 U.S. CFC -11 CFC-12 | CONSUM PTION AND REG ULATORY (dollars per lb) CAPS

8.00- Excluding Tax 1"" (thousands of pounds) — Including Tax 1 7.00- 280,000

I 6.00- 240,000 / \. 5.00- i 200,000 •••"•"'"•I/

H \ •'- s 4.00- 160,000

3.00- 120,000 •41

•", «%- '^ 2.00- 80,000

1.00- i ^ ftp '^j 40,000

0.00- i 1 i ! 1 I 1 1 0 ii • _^*^ 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1986 1987 1988 1989 1990 1991 1992 1993 1994 Source: Chemical Marketing Reporter and CAPS calculations by author. —™™" Consumption ...... Projection

Actual production fell in 1989 relative to 1988, Source: U.S. EPA Regulatory Impact Analysis: but not to the cap level for CFC-12, the most Protection of Stratospheric Ozone, Vol. 1, December important CFC, and not appreciably below the 1987; U.S. International Trade Commission, and cap level for CFC-n. Production declined dramat- U.S. EPA, unpublished data. ically when the tax was imposed and remained well below the caps until 1994's steep reduction in allowable consumption. (See Figures 4 and 5. j

Another informative comparison is between The U.S. experience with the Ozone-Depleting production trends in the United States relative to Chemicals Tax provides policy-makers several those in the rest of the world.49 As Figure 6 good reasons for using financial incentives to shows, between 1986 and 1989 U.S. production protect the environment. grew slightly while global production fell slightly. But from the year that the ozone-depleting chem- ical tax took effect (1990), U.S. production of the i. Effectiveness five CFCs covered by the Montreal Protocol has Environmental taxes can be effective tools to achiev- fallen faster than world production. ing environmental goals.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 47 FIGURE 5 U.S. CFC-12 FIGURE 6 GLOBAL AND U.S. CONSUMPTION CFC PRODUCTION AND REGULATORY CAPS (ratio to 1986 production)

1.40 (thousands of pounds) 1.20 450.000

400,000 1.00

350,000 0.80 ***** 300,000 0.60 250,000

200,000 0.40

150,000 0.20 100,000 0.00 50.000 1986 1987 1988 1989 1990 1991 1992 1993 0 Global production less U.S. production 1986 1987 1988 1989 1990 1991 1992 1993 1994 **-"*" U.S. production H CAPS ^^^~ Consumption Projection Note: See endnote 53 for an explanation of the global production data used in this figure. Note: CFC-12 consumption is above the cap in Source: AFEAS, U.S. EPA unpublished data, and 1994 due to CFC allowance trading under U.S. International Trade Commission. U.S. EPA's marketable permits system. Source: U.S. EPA Regulatory Impact Analysis: Protection of Stratospheric Ozone, Vol. i, December major CFCs and the production allowed under 1987; U.S. International Trade Commission, and the caps was about 34 percent of CFC-n-equiva- U.S. EPA, unpublished data. lent production. For CFC-11 and CFC-12, the reduction below the cap level was 106 percent of the difference between the caps and the busi- ness-as-usual projection. If much of this differ- ence is attributed to the tax, as seems plausible, The consumption data discussed above clearly then the tax can be viewed as a primary instru- establish that taxes can be powerful tools for ment of U.S. ozone policy. Indeed, since the environmental protection. For example, between caps have never been the binding constraint, it 1990 and 1994 the cumulative difference is possible that much of the observed reduction between actual U.S. consumption of the five is in response to tax incentives.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 2. Complementary BOX 2 A REVENUE SHORTFALL Tax tools can make regulations more effective. Although the ozone-depleting chemicals tax The tax on ozone-depleting chemicals and played a primary role in reducing CFC produc- related policies have been so effective in inducing tion below the amount allowed under the caps, reductions in ozone-depleting chemical consump- it does not follow that the caps had no effect. tion that revenues have fallen well below the initial Knowledge that a phase-out was coming pro- projections of the staff of the Joint Committee on vided certainty that a market for replacement Taxation. (See Figure 7.} This shortfall occurred chemicals and technologies would exist. With even though additional chemicals were added in the tax, this stimulated aggressive development 1991 and the tax rate increased in 1993. and commercialization of CFC substitutes. The caps kept industry from seeing the tax as simply FIGURE 7 OZONE-DEPLETING another cost of business to be passed on to pur- chasers, while the tax signaled economic CHEMICALS TAX rewards for phasing out production faster than REVENUE (ACTUAL the regulations required. VS. PROJECTED) EPA also worked hard in promoting research (millions of dollars) on CFC alternatives and disseminating the 1400 results. By linking the availability of substitutes to a price signal that makes adopting them eco- 1200 nomically advantageous, policy-makers made

1000 both programs more effective. On balance, then, the tax, regulatory, and research measures 800 together caused a more powerful response than any of the three would have alone. The potential 600 "••I for such synergies should be explored for other

400 ?:L kinds of environmental protection—for instance, by combining toxic chemical taxes and 200 »'\« emission standards or electricity taxes and appli- ance-efficiency standards or gasoline taxes and

1990 1991 1993 1994 vehicle fuel-economy requirements.

Actual Projected 3. Competitiveness Maintained Note: Revenue projections are based on OBRA-89. The competitive burdens of environmental taxes They do not include additional revenue can be offset through border adjustments. expected when Congress expanded the tax and increased the base rate. However well an environmental tax, such as the Source: IRS and 1989 Joint Committee on one on ozone-depleting chemicals, advances Taxation. environmental goals, it inevitably raises con- cerns about the competitiveness of pollution- intensive industries. For this reason, countries

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 49 fear to introduce major new pollution taxes technology-forcing role of environmental taxes is without adopting complementary policies to off- often overlooked in conventional economic set their effects on industry's competitiveness. analyses of environmental taxes, which typically Moreover, the environmental benefits of pollu- assume that technology is fixed. But in the case tion taxes will not be realized if pollution-emit- of ozone-depleting chemicals, the development ting activities are simply relocated from high-tax of new technology proved crucial. to low-tax countries. In 1982, an EPA assessment of the possible The border adjustments adopted in the Ozone- responses to the risk of ozone depletion found Depleting Chemicals Tax is one such offsetting that there were feasible alternatives available for policy. By taxing imported ozone-depleting chem- only one third of all CFC applications.51 As late icals and imported products manufactured with as 1986, industry studies found that no satisfac- those chemicals, the United States assured that tory substitutes for CFCs existed or were on the its domestic market for ozone-depleting chemi- immediate horizon.52 In 1987, the Montreal Pro- cals would not be invaded by less responsible for- tocol was signed, and it became apparent that eign producers. Similarly, by rebating the tax on CFC use would be drastically reduced regardless exports, the U.S. Government protected its of economic consequences. This realization set domestic producers from losing market share— off a race within the industry to discover and quite legitimate since a loss of U.S. market share market acceptable alternatives. The definition of would not benefit the global environment. what is technically and economically possible changed almost overnight.53 Other forms of offset to competitive burdens are possible. In particular, aggressive efficiency In 1988, the EPA found that CFC production and technology-promotion measures could be could be halved by 2000, but at a social cost of considered. But the U.S. experience with border about $2.7 billion over that period.54 Just four adjustments on ozone-depleting chemicals years later, a complete elimination was esti- embodied in manufactured goods demonstrates mated to cost 30 percent less on a per-unit basis these can be implemented without imposing than had been anticipated in 1988. What's unacceptable administrative or compliance bur- more, EPA found many of the alternatives now dens. 5° These border adjustments may offer a in use or expected to be by 2000 will be cheaper useful model for other major environmental than the CFCs they replace, providing a net taxes, such as carbon or energy taxes proposed social benefit.55 in Europe and the United States. The lesson of this experience is that economic and engineering models in which the future is 4. Technology Promotion expected to look much like the past can't accu- Market-based incentives can drive technological rately project the economic consequences of advances that make major environmental initiatives environmental policies. Time after time, techno- dramatically more effective and less expensive. logical strides have brought costs down below those forecast with only known technologies in Congress' stated purpose in passing the mind. This is especially true if the environmental Ozone-Depleting Chemicals Tax was to harness policy prescribes a goal (such as by setting emis- market forces in developing substitutes for those sion caps) or provides an incentive (such as a tax) chemicals and ways to reduce their use. This rather than specifying the technology to be used.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 5° 11. Ibid. 1. United Nations, Montreal Protocol on Substances that Deplete the Ozone Layer, adopted and opened for signa- 12. Perry Plumart, former staffer, Representative Fortney ture September 16, 1987, and entered into force 26 "Pete" Stark, telephone interview, October 6, 1995. I.L.M. 1541 (January 1, 1989); United Nations, London Amendment to the Montreal Protocol, adopted and 13. U.S. Congress, Congressional Record, 1989, vol. 135: S opened for signature June 29, 1990, and entered into 12908. force 30 I.L.M. 537 (1991); United Nations, Copenhagen Amendment to the Montreal Protocol, adopted and 14. Ibid, p.5361. opened for signature November 1992, and entered into force 32 I.L.M. 874 (1993). 15. Ibid. 16. LEXIS, Bill Tracking Report, Senate Bill 55, 101st Ses- 2. Portions of an earlier version of this case study appeared in J. Andrew Hoerner, "Tax Tools for Protect- sion, 1989. ing the Atmosphere: The Ozone-Depleting Chemicals 17. U.S. Congress, Congressional Record, March 2,1989, Tax," Green Budget Reform (London, United Kingdom: vol. 135: S 2018-9. Earthscan Publications Limited, 1995). 18. Ibid. 3. Thomas Barthold, "Issues in the Design of Environ- mental Excise Taxes," journal of Economic Perspectives, 19. Ibid. Winter 1994, vol. 8, no. 1: 133-151. Peter R. Merrill & Ada S. Rousso, "Federal Environmental Taxation," pre- 20. U.S. Congress, Congressional Record, May 1, 1989, vol. sented to the Eighty-third Annual Conference of the 135: S 4542, S 4545. National Tax Association, San Francisco, California, November 13, 1990. 21. U.S. House of Representatives, House Conference Report No. 101-386, November 21, 1989: 606. Senator 4. Cass Peterson, "U.S. Tax on Chlorofluorocarbons Gore and Representative Stark collaborated on the leg- Sought to Help Save Ozone Layer; Institute Recom- islation (Perry Plumart, former staffer, Representative mends Global Controls, Reduction of Emissions," Fortney "Pete" Stark, telephone interview, October 6, Washington Post, November 30, 1986: A4. 1995)- 5. U.S. Congress, Congressional Record, June 30, 1987, 22. U.S. Congress, Congressional Record, May 1, 1989, vol. vol. 133: E 2681. 135: S 4542, S 4545.

6. U.S. Congress, Joint Committee on Taxation, JCS-iy- 23 Ibid

24. LEXIS, Bill Tracking Report, H.R. 3299, 101st Session, 7. U.S. Environmental Protection Agency, "Advance 1989. Notice of Proposed Rulemaking," Federal Register, August 12, 1988, vol. 53, no. 156. 25. U.S. House of Representatives, House Conference Report No. 101-386, November 21, 1989: 606. 8. "Environment: Reagan Budget Calls for Windfall Profit Tax on Chlorofluorocarbons," Daily Report For Execu- 26. U.S. House of Representatives, House Conference tives, January 11, 1989, DRE No. 7. Report No. 101-386, November 21, 1989: 607.

9. U.S. Congress, Omnibus Budget Reconciliation Act of 27. Perry Plumart, former staffer, Representative Fortney 1989, P.L. 101-239, E)ecember 19, 1989. "Pete" Stark, telephone interview, October 6, 1995.

10. Dennis P. Harkawik, "How Congress Seeks to Tax 28. For an insightful discussion of the politics around the CFCs," Air Conditioning, Heating, el Refrigeration News, creation of the ozone-depleting chemicals tax by an September 18, 1989, vol. 178, no. 3: 12. insider, see Thomas Barthold, "Issues in the Design of

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 51 Environmental Excise Taxes," Journal of Economic Per- large portion of the world's producers can be induced spectives, Winter 1994, vol. 8, no. 1: 133-151. to join, an origin-type tax system—taxing embodied ODPs on import with a credit for taxes previously 29. Thomas Barthold, "Issues in the Design of Environ- paid, and no rebate on export—would produce a mental Excise Taxes," Journal of Economic Perspectives, greater environmental benefit with only a very slight Winter 1994, vol. 8, no. 1: 133-151. additional impact on the competitiveness of the indus- tries in nations adopting the tax. For a discussion of 30. U.S. House of Representatives, House Committee on this issue, and of GATT restraints on border adjust- the Budget Report on H.R. 3299, House Report 101-247, ments on environmental taxes, see J. Andrew Hoerner September 29, 1989: 1333. and Frank Muller, "The Impact of a Broad-Based Energy Tax on the Competitiveness of U.S. Industry," 31. Richard A. Westin and Sanford E. Games, "Environ- Tax Notes, June 21, 1993, vol. 59, no. 12: 1681-89. Note mental Taxes in the United States," in Sanford E. that although GATT has not ruled on the allowability Gaines and Richard A. Westlin, eds., Taxation for Envi- of the border adjustments in the ozone-depleting ronmental Protection: A Multinational Legal Study (New chemicals tax—no complaint has been brought— York, New York: Quorum Books, 1991), 220 (text GATT has approved the quite restrictive trade accompanying footnotes 211 and 212). covenants in the Montreal Protocol itself. United Nations Environment Programme, Report of the Ad 32. United Nations, London Amendment to the Montreal Hoc Working Group on the Work of Its Third Session Protocol, adopted and opened for signature June 29, (Geneva, Switzerland: UNEP, May 8, 1987), 15-17. 1990, and entered into force 30 I.L.M. 537 (1991). 43. However, it is worth noting that this concern may 33. U.S. House of Representatives, House Conference have been exaggerated in a world where foreign pro- Report No. 101-964, October 27, 1990: 1048. ducers are also subject to the production caps of the Montreal Protocol and London Revisions. Under the 34. U.S. Congress, National Energy Policy Act of 1992, caps, foreign producers can only increase their pro- P.L. 102-486 (1992); J. Andrew Hoerner, "article duction for export by reducing their production for name," Tax Notes, October 12, 1992, vol. 57, no. 155. internal use.

35. U.S. House of Representatives, House Conference 44. Thomas Barthold, "Issues in the Design of Environ- Report No. 102-1018, October 5, 1992:419. mental Excise Taxes," Journal of Economic Perspectives, Winter 1994, vol. 8, no. 1: 133-151. 36. Internal Revenue Code, Section 4682(h)(i). 45. Internal Revenue Code, Sections 468i(b)(2), 4682^). 37. Friends of the Earth, memorandum, "Options to Strengthen the Tax on Ozone-Depleting Chemicals," 46. Internal Revenue Service Notice 90-8, 1990-5 Internal March 1993. Revenue Bulletin 14; Internal Revenue Service Notice 90-9, 1990-5 Internal Revenue Bulletin 21. 38. U.S. House of Representatives, House Conference Report No. 104-737, August 1, 1996:277. 47. U.S. Environmental Protection Agency, Office of Air and Radiation, "Regulatory Impact Analysis: Protec- 39. Internal Revenue Code, Section 4682^(2) (A)(ii); tion of Stratospheric Ozone, Vol. I. Regulatory Impact Internal Revenue Service Notice 90-8, Section II(e)(2), Analysis Document," December 1987: 4-15. 1990-5 Internal Revenue Bulletin 14. 48: U.S. International Trade Commission, Synthetic 40. For example, most carbon tetrachloride is consumed Organic Chemicals (Government Printing Office, Wash- in the production of taxed CFCs. ington, D.C., various volumes); U.S. Environmental Protection Agency, unpublished data. 41. Internal Revenue Service Notice 90-8, Section IV(b)(3), 1990-5 Internal Revenue Bulletin 14. 49. Alternative Fluorocarbons Environmental Acceptability Study (AFEAS), Production, Sales and Atmospheric 42. A destination-type tax system may not be ideal for Release of Fluorocarbons through igg4, (Washington, taxes on global externalities. It may be that, provided a D.C.: AFEAS, 1995). The AFEAS producer surveys

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS capture virtually all the production in the OECD but Corporation for the U.S. Environmental Protection exclude much of the production in the developing Agency, March 1982. world and the former planned economies. It should be noted that, because the latter are not subject to pro- 52. Alliance for a Responsible CFC Policy, "A Search for duction limits under the Montreal Protocol, their pro- Alternatives to the Current Commercial Chlorofluoro- duction has been increasing as a share of the global carbons," paper submitted to the U.S. Environmental production. AFEAS estimated that such non-covered Protection Agency, February 1986. production amounted to about 25 percent of global production in 1993. Thus it may be more accurate to 53. Richard Monastersky, "Decline of the CFC Empire," regard this comparison as between U.S. and other Science News, April 9, 1988, vol. 133, no. 15: 234-35. OECD production, although some of the production takes place in facilities in Argentina, Brazil, Mexico, 54. U.S. Environmental Protection Agency, "Regulatory South Africa and Venezuela. Impact Analysis: Protection of Stratospheric Ozone," review draft, June 15, ic It should be noted, however, that border adjustment was made on many goods for which the burden of the 55. For an insightful discussion of this point with a more tax was trivial—much less than one percent. To reduce detailed analysis of the ozone-depleting chemical administrative costs, border adjustments should be replacement cost declines, see Elizabeth Cook and Alan applied only when the tax as a percentage of the cost Miller, "Framing Policies to Reduce Greenhouse Gas of the good exceeds a de minibus level. Emissions and Promote Technological Innovation: Lessons from Other Environmental Challenges," pre- W. Mooz et al., "Technical Options for Reducing Chlo- sented to the Climate Change Analysis Workshop, rofluorocarbon Emissions," paper prepared by Rand Springfield, Virginia, June 6-7, 1996.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 53 DANGLING THE CARROT

By Elizabeth Cook and Jeffrey Kimes

H Ne

(.1 \r

L- : •J' hey said it couldn't be done. A major barrier, however, was cost. History had shown that there was no market incentive =::_: In the mid-1980s, American manufac- for manufacturers to invest additional capital in turers of household refrigerators and freezers developing and introducing super-efficient argued that they could not meet recently refrigerators. Consumers had proven unwilling adopted national energy-efficiency standards— to buy efficient products if the purchase price and eliminate CFCs too. Industry believed that was significantly higher than other models, even all the potential substitutes for CFCs—which are if the payback from energy savings was quick. used as refrigerants and insulating gases in refrigerators and freezers—had deficiencies: To hurdle the cost barrier, in late 1987, the some would make the appliance less energy- Natural Resources Defense Council (NRDC) efficient, while others cost more, reduced relia- suggested offering economic incentives to man- bility, or presented safety problems. Above all, ufacturers to develop products that met both the envisioned substitutes required a massive, energy and CFC requirements. The incentives, expensive redesign of refrigerators, compres- NRDC argued, could help change the industry's sors, and factories.1 perception that tackling the two issues involved unresolvable trade-offs. The environmental While pessimism among CFC-using indus- group noted that the utility companies that were tries about the prospect of finding alternatives already providing cash rebates to customers who ran high during this period, refrigerator-makers bought efficient products were a logical source were among the most doubtful. In contrast, of funds for such an incentive.3 environmentalists contended that CFC controls and energy conservation were indeed linked Five years later, this concept came to life: the because of the shared potential for innovative "Golden Carrot," a utility-sponsored incentive responses.2 Along with officials at the U.S. Envi- package worth tens of millions of dollars, was ronmental Protection Agency (EPA), environ- born. In June 1993, after an extensive competi- mental groups argued that retooling for energy tion among manufacturers, a national coalition efficiency and CFC control could be done at the of public and private utilities awarded a $30- same time. million Golden Carrot incentive contract to

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 55 Whirlpool Corporation to introduce a new laborative—a joint effort by utilities and environ- super-efficient, non-CFC refrigerator. By April mental organizations to explore how to expand 1994, the Golden Carrot had enabled Whirlpool and strengthen energy-conservation programs. to deliver to stores a refrigerator that was: The collaborative's discussions tackled an • priced competitively to similarly sized and issue that faced utilities across the country: how equipped models; to make demand side management (DSM) pro- grams more effective. DSM energy-efficiency • cooled without a CFC refrigerant; programs reduce electricity use by offering util- ity customers incentives—such as rebates for • insulated with foam made from weaker purchases of energy efficient appliances—to cut ozone-depleting chemicals known as consumption. By reducing demand, utilities HCFCs; increase profits by avoiding the costly construc- tion of new generating plants. • able to surpass 1993 federal energy effi- ciency standards by roughly 30 percent;^ and Utilities, however, were wrestling with a num- ber of problems with DSM programs. Rebate • developed in less than two years, instead of programs, for example, had increased the sales the eight or nine years typically needed to of energy-efficient appliances over small areas, develop such new technologies.5 but had not produced sales increases every- where—primarily because the market was too small for manufacturers to justify the costs of developing new super-efficient appliances. Many factors and a unique collaborative effort led to the creation of the Golden Carrot Program: One utility in the collaborative, Pacific Gas and like-minded interests that had been working Electric (PG&E), which had operated refrigerator- independently on related problems converged. rebate programs for ten years, decided to try to Alone, these interests might have taken decades influence manufacturers' research and develop- to develop a new super-efficient refrigerator. ment programs by putting up roughly $75,000 Together, they harnessed market forces creatively for a demonstration project. When Gary Fern- and pushed technological innovation faster than strom of PG&E described the utility's plan to offer regulations or market trends would have. a willing producer what he dubbed a "golden car- rot" to help design a super-efficient refrigerator, The Golden Carrot can be traced back to NRDC encouraged PG&E to pursue the idea on a events in California in the late 1980s. At the larger scale. Instead of setting the goal as a proto- time, many environmentalists had become con- type, the group proposed a competition for a cerned that California utilities had started to larger pool of funds and a goal of actually getting decrease spending on energy conservation pro- the new technology to the market. In the competi- grams. NRDC documented the trend in a report tive bidding process envisioned, the utility com- to the state's Public Utilities Commission pany's investment would deliver an improved (PUC)—a report that the media read to mean product at the lowest possible cost.? that California was slipping from its role as the nation's leader in energy conservation.6 In The California PUC bought the idea and response, the PUC initiated the California Col- authorized PG&E to put up $1 million to jump

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS start the project. According to NRDC's David benefits. Specifically, if a more efficient product Goldstein, the utility's decision to provide seed could be developed before the federal govern- money was critical for "it turned what some ment set the 1998 appliance energy-efficiency might perceive as a crackpot idea into a pro- standards, the program could influence those gram." However, PG&E and NRDC decided that standards and the efficiency of every refrigerator additional money and utility-partners would be built.10 At the time, the Department of Energy needed to get the program off the ground.8 (DOE) was about to set the 1993 standards and had plans to promulgate 1998 standards around Meanwhile, similar ideas were brewing in other 1995. If the industry's "can't do" attitude pre- parts of the country. The Washington State Energy vailed, the CFC phase-out could be used as an Office, for example, was exploring ways to pro- excuse to not advance the 1998 standards much mote a new generation of refrigerators and look- beyond 1993's. A large incentive was critical to ing for funding sources—either government or capture the rare opportunity to simultaneously utilities—to entice a manufacturer to take the lead. improve energy efficiency and eliminate CFC usage during the redesign "window of opportu- And, in Washington, D.C, EPA staff had tried nity" offered by the phase-out—and to push one to convince refrigerator manufacturers that they of the manufacturers out ahead of the pack. At could produce efficient refrigerators with CFC the meeting, the parties decided to work together alternatives. EPA-funded research had con- to establish a "golden carrot" competition. cluded that there were "multiple pathways" to super-efficient, CFC-free refrigerators, and this analytical work gave both the agency and envi- ronmentalists confidence that the goal could be The next step was recruiting more utilities to met.9 The agency was also considering how it enlarge the carrot and to develop program could assemble a commercialization program details. PG&E organized a San Francisco work- and had begun asking utilities to combine pro- shop on high-efficiency appliances to encourage grams that provided incentives for retiring older, utilities to pool their funds. NRDC, ACEEE, and inefficient refrigerators with programs that EPA reached out to state regulatory agencies and would promote the sales of new technology. This utilities as well. Meanwhile, follow-up meetings idea, however, did not catch on since most of the helped crystallize ideas for the program's struc- utilities that had been rebating high-efficiency ture. By mid-1991, with the help of legal advi- appliances were phasing out their programs. sors, the "golden carrot" concept was formalized though the establishment of two non-profit enti- It didn't take long for these various efforts to get ties: the Consortium for Energy Efficiency (CEE) wind of each other, and in 1990, NRDC, PG&E, and the Super Efficient Refrigerator Program, and Washington State Energy Office met with the INC. (SERP). EPA in Washington, D.C. to discuss opportunities for collaboration. The American Council for an CEE's goals are to accelerate the commercial- Energy Efficient Economy (ACEEE) joined the ization of energy-efficient technologies, promote discussions on how to create a market-based pollution prevention, and coordinate utility mar- incentive for super-efficient technology. ket transformation programs to increase the penetration of efficient new products, initially The parties recognized that the timing of any through SERP. Collaborating organizations program could have a huge impact on its overall could ask utilities to join SERP, and takers could

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 57 redirect funds from traditional rebate programs 2. Corporate Reliability (22 points). The bid- to the Golden Carrot incentive program. Recruit- der's experience with the proposed technology ment gathered momentum when ACEEE suc- and other issues, such as marketing strategy, the cessfully encouraged the National Association of procedure for collecting customer-tracking infor- Regulatory Utility Commissions (NARUC) to mation, and the strength of the product war- endorse SERP. ranty were evaluated.

3. Bonus (3 points). Bids that proposed designs without the use of any HCFCs could earn two By mid-1992, 24 utilities had committed $30 bonus points. A manufacturer could also earn million to SERP for the Golden Carrot. Competi- up to one point for designs that had no air tion designers envisioned awarding the money to movement between the freezer and refrigerating the manufacturer that could develop and distrib- sections. This feature makes food last longer.:4 ute the most energy-efficient, non-CFC refrigera- tor in the shortest time and with the least cost. Whirlpool and Frigidaire received the highest Funds would not be awarded for up-front scores for their proposals, and SERP asked both research and development; instead, the winning companies to build prototype appliances for manufacturer would receive a small payment for evaluation. After the prototypes were judged, every Golden Carrot refrigerator actually shipped SERP awarded Whirlpool the Golden Carrot in into participating utility service territories. The June 1993. The company agreed to deliver the payments would allow the manufacturer to offer first new refrigerators for testing by January an environmentally superior product at a com- 1994. For Whirlpool to receive the entire $30 petitive price, and over time the incentive would million Golden Carrot, it will have to sell about boost demand for the new product and help off- 250,000 refrigerators in areas served by SERP set the maker's development costs.11 utilities, which it proposed to do by mid-1997.15

Concerned about anti-trust violations, SERP obtained a Department of Justice Business Review Clearance for the program and managed the com- petition without manufacturers' direct involve- Whirlpool's winning appliance includes a num- ment. But it did consult manufacturers when the ber of new features and promises to significantly Request for Proposals was drafted so it would be cut energy use. (See Box 1.) But the company sensitive to market realities and adequately protect says it does not represent radically new technol- confidential business information.12 ogy; rather, it is a collection of advanced tech- nologies that had previously been too expensive By October 1992, SERP had received fourteen to combine.16 entries to the competition.^ Evaluators scored the entries on three criteria: Despite its advances, some environmentalists have criticized Whirlpool for not going far 1. Net value of efficiency gain (75 points). The enough to protect Earth's atmosphere. Green- type and size of the refrigerator, energy con- peace, for example, protested the company's sumption, the delivery schedule, and the decision to use ozone-depleting HCFCs in the requested incentive award per refrigerator all foam insulation and HFC-i34a as a refrigerant. counted. HCFC-141B has roughly 10 percent of the

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS ozone-depleting strength of the CFC it is replac- BOX l THE GOLDEN CARROT ing, and HFC-i34a is a potent greenhouse gas. FRIDGE Greenpeace also opposes the continued use of fluorocarbons in general because some of its Whirlpool's winning Golden Carrot refrigerator production inputs, such as hydrofluoric acid 1 includes a number of technologies, including: (HF), are toxic. ?

• HFC-i34a refrigerant; On its own, Greenpeace is promoting the use of a hydrocarbon-based refrigeration system • HCFC-141B blown foam; known as Greenfreeze, which uses isobutane as the refrigerant and cyclopentane as the foam- • a high-efficiency compressor and evaporator blowing agent. Greenpeace campaigners man- fan motor; aged to get some European and Japanese refrig- erator manufacturers to produce this technology • a "fuzzy-logic" microprocessor that minimizes and to spread it to such developing countries as defrosting based on freezer conditions and the China with help from the German government 18 frequency with which the door is opened; and and the ozone treaty's multilateral fund.

• thick doors containing an extra inch of Others have taken issue with environmental insulation. claims for the SERP model. In October 1995, Ozone Action and the Environmental Law Foun- The 1995 models include several improve- dation sued Whirlpool for advertising its winning ments: new vacuum panel technology replaced product as featuring a "CFC-free refrigeration sys- some of the HCFC-blown foam insulation, and tem." The suit—which also lists Amana, General formed-in-place insulation filled the crevices of Electric, and several retailers as defendants— previously hollow door moldings. argued that companies that use the term "CFC- free" mislead the public into believing their prod- The company estimates the 1994 appliance will ucts will not deplete the ozone layer when they 1 reduce energy usage from the 953 kWh/yr used are, in fact, using HCFCs in the foam insulation. ? by equivalent models to 670 kWh/yr and that the Based on Federal Trade Commission guidelines, cost of operating the unit will be about S55 per the move aimed to keep pressure on U.S. manu- year. If all SERP refrigerators are distributed as facturers to produce completely ozone-safe refrig- scheduled, analysts say residential energy bills erators, in particular using Greenfreeze technol- 20 would be reduced by over $1 billion and energy ogy. The lawsuit was settled in December 1995, use by over 1 billion kWh over the next 15 years.1 when manufacturers agreed that any CFC-free claims would be accompanied by a clarification of 21 1. John W. Feist et al., "Super Efficient Refrigera- the HCFC content of their refrigerators. tors: The Golden Carrot from Concept to Real- ity," Proceedings ACEEE 1994 Summer Study on Responding to these concerns, Whirlpool Energy Efficiency in Buildings (Washington, notes that it has reduced use of HCFC-blown D.C.: American Council for an Energy-Efficient insulation in the 1995 models of its SERP refrig- Economy, August 1994, vol. 3). erator through the use of vacuum panels. But the company argues that hydrocarbon-based refrigeration technology is not ready for use in

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 59 the United States since hydrocarbons pose a fire risk in frost-free models (which require a heater) and cyclopentane-blown foam would exact an energy-use penalty.22 Still, Whirlpool has adopted hydrocarbons in small, manual-defrost models built in some of its European opera- tions. Whirlpool's willingness to utilize hydro- carbon technology in its foreign operations sug- gests the company is investigating whether this ucts—products that are available to consumers technology and other CFC alternatives have in service areas outside the SERP program. But promise for the future.23 results have been mixed. For example, strong consumer interest in the Golden Carrot refriger- ator prompted Whirlpool in October 1994 to make a similar "Energywise" refrigerator avail- able to consumers in non-SERP areas. The The Golden Carrot's success can be evaluated in Energywise product costs about $1,500, up to two ways. First, how deeply has the new product $150 more than the Golden Carrot refrigerator.28 penetrated the market in the participating utili- The higher priced appliance did not sell well, so ties' service areas? Second, has Whirlpool's the company pulled it in April 1995. Still Golden Carrot refrigerator influenced the design Whirlpool is integrating Golden Carrot technolo- of other products? gies into some of its refrigerators, making them safer for the ozone layer and, eventually, super- While it is too early to fully assess market pen- efficient users of energy.29 etration, Whirlpool reports that since SERP models first appeared in retail stores in April The market forces unleashed by the Golden 1994, sales have been very good.24 "We've had a Carrot program also seem to be pulling some of tremendous consumer response ever since win- Whirlpool's competitors into the market. For ning the competition," said Jeff Fettig of example, industry observers say that it was no Whirlpool's marketing division after pushing the coincidence that General Electric (GE) introduced product for just six months. "We get letters daily a high-efficiency model that offers ozone-protect- from consumers all over the U.S. wanting to ing features in time to compete with the April know where they can buy one."25 1994 debut of Whirlpool's SERP model. (The GE Profile surpasses 1993 energy-efficiency standards Recent downward trends in the retail appliance by 20 percent and uses HFC-i34a refrigerant and market, however, may force Whirlpool to change HCFC-based insulation.) Since GE did not have its forecast of selling 250,000 units by 1997.26 Golden Carrot funds to reduce the sales price of One problem is that, under the Golden Carrot its new model, the company's move was seen as rules, Whirlpool may not sell the SERP appliance an attempt to gain a competitive edge. GE was outside the service areas of the participating utili- immediately able to market its product nationally, ties. This restriction has made national advertis- not just in areas served by SERP utilities.3° ing campaigns and distribution difficult.2? Cost continues to dissuade other companies There are signs that the Golden Carrot pro- from jumping into the market, however. gram is influencing the design of similar prod- Frigidaire, the runner up in the Golden Carrot

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 60 contest, decided not to manufacture and market "Reaching an agreement of this sort, more than their SERP contest model because it would be three years prior to the new standard's effective more expensive than comparable models and date, really eases the way for manufacturers by the company believed consumers would not be providing an extra year's lead time," said Bob willing to pay extra for the energy savings. Holding of the Association of Home Appliance Manufacturers .34

Unfortunately, the future of the consensus standards is in doubt. The DOE 1996 funding One original intention of the Golden Carrot bill passed by both houses of Congress and competition was to change industry's view of signed by President Clinton places a one-year how energy efficient it could make refrigerators moratorium on new appliance energy standards. without using CFCs. This change, SERP spon- In a move that undermines the consensus sors believed, could encourage regulators to set agreement, some manufacturers, including Gen- higher energy-efficiency standards. Subsequent eral Electric, have pressed for the ban. Only events suggest that the SERP sponsors might be Whirlpool continues to actively support the right. negotiated standards.35

In late 1992, the appliance industry proposed that revisions to the 1993 efficiency standard be addressed through consensus-building—rather than through traditional rulemaking, which is A continuing benefit of the SERP program is typically polarized and confrontational. In 1994, the model it provides for using public-private the consensus-building process—which involved partnerships to accelerate the development and many of the same players that had designed and adoption of high efficiency, environmentally participated in the SERP process—produced a improved products. The Consortium for Energy series of efficiency-improvement proposals for Efficiency, for example, has developed a new DOE's 1998 standards.31 The draft standards, Golden Carrot effort involving horizontal-axis published in July 1995, call for an energy-effi- clothes washers. This technology offers large ciency improvement of 29.6 percent for the cat- energy-savings over conventional top-loading egory of refrigerator equivalent to Whirlpool's machines, but loses out in the market because it SERP model.32 According to David Goldstein, costs more.36 And the Clinton Administration is this efficiency target—which is almost identical modeling one of its climate-protection initiatives to the improvement achieved by Whirlpool's on the Golden Carrot "market pull" concept. The Golden Carrot refrigerator—is hardly accidental. Climate Change Action Plan—designed to fulfill "The experience that engineers at the refrigera- U.S. climate treaty obligations—creates Golden tor companies gained in considering or compet- Carrot programs for manufacturers of industrial ing for the SERP award led them to have a air compressors, pumps, fans, and drives.37 much greater level of comfort with higher levels of efficiency to the experience in past rulemak- ings," says Goldstein.33 So what made the impossible possible? What The consensus-building effort has helped made Whirlpool take advantage of the CFC industry shape its own regulatory destiny. phase-out's redesign "window of opportunity" to

WRi: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 61 develop and market a refrigerator that is safer for erators through their advocacy and purchases. the ozone layer and super-efficient, when conven- The collaboration that created the Golden Carrot tional industry wisdom once claimed this could incentive serves as a model for how different not be done? And why are the Golden Carrot's interests can work together to overcome obsta- benefits likely to be broader than this one achieve- cles to introducing even more environmentally ment? The 1998 draft consensus energy effi- superior appliances. ciency standards testify to industry's change of mind about what can be achieved without CFCs. 2. Financial Incentives Three key factors contributed to this outcome: The $30 million financial prize offered by 24 public and private utilities enabled Whirlpool to clear the economic barriers to developing and marketing an 1. Unusual Collaboration environmentally improved refrigerator on an accel- The Golden Carrot incentive was a brainchild of erated basis. creative collaboration—a voluntary public-private partnership that pushed technological innovation The Golden Carrot program demonstrates that faster than regulations or market trends would have. environmental goals can be achieved through financial incentives that harness market forces. When representatives of environmental groups, The CFC phase-out required appliance manufac- electric utilities, state energy agencies, and the turers to re-tool their factories to make refrigera- EPA got together in 1990, they had overlapping tors that utilized new refrigerants and insulating but not identical interests. Energy providers were materials. Few were inclined to invest the addi- concerned primarily with developing a successful tional capital to adopt advanced technologies DSM initiative and had little interest in the CFC when consumers had not demonstrated their issue while environmentalists and EPA were willingness to pay a higher initial cost for a pressing for a solution to both problems. more energy-efficient product. By subsidizing Through dialogue, creativity, and hard work, they these additional costs, the Golden Carrot incen- developed a program that took advantage of tive pulled a product onto the market that defied strategic regulatory opportunities (pending CFC earlier prognostications that addressing ozone phase-out and efficiency standard revisions) and depletion and energy efficiency involved irresolv- removed barriers (high economic costs) to meet- able tradeoffs. The GE Profile is evidence that ing their respective goals (ozone protection, the Golden Carrot program is helping to trans- energy conservation, and market transformation). form the market more broadly. Whirlpool's deci- Designing a program that gained the support of sion to stop selling the Energywise model due to these diverse interests and then enlisting appli- poor sales, however, demonstrates that the per ance manufacturers' participation required extra- unit payment, which enables the company to ordinary collaboration. The SERP coalition built sell its SERP model at a competitive price, is trust among its supporters and, through careful crucial. outreach, with the appliance industry, paving the way for the first-ever consensus negotiations for setting appliance efficiency standards. 3. Corporate Leadership and Competition The Golden Carrot program exists today because Environmentalists and consumers will con- utilities backed the effort and some appliance manu- tinue to judge the SERP winner and other refrig- facturers were willing to compete for the incentive.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 62 These participants recognized that environmental According to a close observer, Whirlpool has leadership is one way to gain a competitive edge. made an ideological transformation by broaden- ing its customer base to include utilities and the If PG&E had not put up the initial $i million environment as well as consumers.?8 If political to kick-start the Golden Carrot program and had pressure from some parts of the industry doesn't not worked to recruit other utility sponsors, the derail the consensus standards and deny society concept may never have become a reality. Simi- the ultimate outcome, the Golden Carrot Program larly, if appliance-makers had not submitted will spark widespread production of highly effi- SERP proposals, new technologies would not cient refrigerators manufactured to a new stan- have been so quickly pulled onto the market. dard with ozone protection in mind. These participants were driven by economic benefits—reducing utility operating costs or gaining an additional share of the refrigerator market. They saw value in transforming envi- 1. Russell M. Sasnett, General Electric Company, per- ronmental and regulatory challenges into an sonal communication to the Honorable John D. Din- economic opportunity. gell, March 5, 1987. 2. David B. Goldstein, "Reduced CFC Emissions and Whirlpool's experience of winning the Golden Energy Conservation: A Linkage of Solutions," (pre- Carrot appears to have driven home the benefits sented to the Conference on Substitutes and Alterna- of environmental leadership. The company is the tives to CFCs and Halons, Washington, D.C., January only one actively supporting the consensus 1998 13-15. 1988). efficiency standards, and it is participating in the 3- Ibid. CEE's horizontal-axis clothes washer competition. 4. John W. Feist et al., "Super Efficient Refrigerators: The Golden Carrot from Concept to Reality," Proceed- ings ACEEE 1994 Summer Study on Energy Efficiency in "Our partnership with Whirlpool has Buildings (Washington, D.C.: American Council for an Energy-Efficient Economy, August 1994, vol. 3). made it possible to bring a super- 5. Carolyn Verwyst, Whirlpool Corporation, personal efficient, environmentally friendly refrig- communication, September 1995. erator to market sooner than we thought 6. Chris Calwell and R. Cavanagh, The Decline of Conser- possible, thereby better serving our com- vation at California Utilities: Causes, Costs, and Remedies mon customers. With its advanced tech- (San Francisco, CA: Natural Resources Defense Coun- cil, 1989). nology, it will transform the very nature of the market by encouraging all manu- 7. Gary Fernstrom, Pacific Gas and Electric Company, personal communication, October 1995. facturers to develop and deliver appli- 8. David Goldstein, Natural Resources Defense Council, ances that are as efficient—and without personal communication, October 1995. CFCs." 9. Much of this research work was eventually summa- —Ray Farhang, SERP Chairman, rized in U.S. Environmental Protection Agency, Multi- Southern California Edison Company39 ple Pathways to Super-Efficient Refrigerators (Washing- ton, D.C.: Office of Atmosphere and Indoor Air Programs, June 1993).

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 63 10. Michael L'Ecuyer et. al., "Stalking the Golden Carrot: A 22. Matthew L. Wald, "New Refrigerators: Just How Utility Consortium to Accelerate the Introduction of Friendly To Ozone Layer?" New York Times, October Super-Efficient, CFC-Free Refrigerators," Proceedings 19, 1995: C2. ACEEE iggi Summer Study on Energy Efficiency in Buildings (Washington, D.C.: American Council for an 23. "Export to Developed Countries: CFCs or Alterna- Energy- Efficient Economy, August 1992, vol. 5). tives?" Global Environmental Change Report, October 6, 1995, vol. 7, no. 19: 1-3. 11. Ibid. 24. "Whirlpool to Market Efficient Refrigerator Nation- 12. John W. Feist et al., "Super Efficient Refrigerators: wide," Global Environmental Change Report, October The Golden Carrot from Concept to Reality," Proceed- 14, 1994, vol. 6, no. 19: 7. ings ACEEE igg4 Summer Study on Energy Efficiency in Buildings (Washington, D.C.: American Council for an 25. "Designing a Winner," Appliance Manufacturer, May Energy-Efficient Economy, August 1994, vol. 3). 1994, vol. 42, no. 5: W-20.

13. Ibid. 26. Ray Farhang, Southern California Edison Company, personal communication to U.S. Environmental Pro- 14. Michael L'Ecuyer et. al., "Stalking the Golden Carrot: A tection Agency, September 1995. Utility Consortium to Accelerate the Introduction of Super-Efficient, CFC-Free Refrigerators," Proceedings 27. Carolyn Verwyst, Whirlpool Corporation, personal ACEEE ig$2 Summer Study on Energy Efficiency in communication, September 1995. Buildings (Washington, D.C.: American Council for an Energy-Efficient Economy, August 1992, vol. 5). 28. "Whirlpool to Market Efficient Refrigerators Nation- wide," Global Environmental Change Report, October 15. John W. Feist et al., "Super Efficient Refrigerators: 14, 1994, vol. 6, no. 19: 7. The Golden Carrot from Concept to Reality," Proceed- ings ACEEE 1994 Summer Study on Energy Efficiency in 29. Carolyn Verwyst, Whirlpool Corporation, personal Buildings (Washington, D.C.: American Council for an communication, November 1995. Energy-Efficient Economy, August 1994, vol. 3). 30. "GE High-end CFC-free Refrigerator," HED-The 16. Carolyn Verwyst, Whirlpool Corporation, personal Weekly Home Furnishings Newspaper, January 17, 1994, communication, September 1995. vol. 68, no. 3: 213.

17. Kathy O'Keefe, Greenpeace, personal communication 31. Statement of David Goldstein, Energy Program Direc- to World Resources Institute, September 21, 1995. tor, Natural Resources Defense Council, October 18, 1994. 18. Klaus Meyersen, "Know-How Transfer to Article-5 Countries: Hydrocarbon Technology," (presented to 32. U.S. Department of Energy, "Notice of Proposed Rule- 1995 International CFC and Halon Alternatives Con- making," Federal Register, July 20, 1995, vol. 60, no. 139. ference & Exhibition, October 23-25, 1995). 33. David B. Goldstein, Natural Resources Defense Coun- 19. Ozone Action v. Amana Refrigeration, Inc., No. cil, personal communication to Long Island Lighting, 973286 (Superior Court of California, San Fran- September 21, 1995. cisco County, October 18, 1995). 34. "Bob Holding Statement for Press Conference," Asso- 20. Ozone Action, "Refrigerator Industry and Retailers ciation of Home Appliance Manufacturers, October 18, Mislead Consumers Touting Products as 'Ozone Safe': 1994. Ozone Action and Environmental Law Foundation File Suit," News Release, October 19, 1995. 35. Howard S. Geller, "The G.O.P.'s Costly Electricity," New York Times, October 13, 1995: A33. 21. "Ozone Labeling Suit Settled, New Ones Filed," Global Environmental Change Report, January 12, 1996, vol. 8, 36. "Whirlpool Wins the Golden Carrot," Global Environ- no. 1: 7. mental Change Report, July 9, 1993, vol. 5, no. 13: 7.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 64 37- President William J. Clinton and Vice-President Albert 39. Whirlpool Corporation, "Award-Winning $30 Mil- Gore, Jr., The Climate Change Action Plan (Washington, lion Refrigerator From Whirlpool Corporation in D.C.: The White House, October 1993), 14. Washington For White House Conference on Cli- mate Change Action Plan," News Release, April 21, 38. David Goldstein, Natural Resources Defense Council, *994- personal communication, October 1995.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 65 BATTLING HALONS

By Elizabeth Cook

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S (I Ar

",~n the 1940s, the U.S. Army funded fire-sup- required a 50-percent reduction by 1998. In , pression research that eventually led to the 1990, however, governments strengthened the - widespread military and civilian use of fully protocol to phase out halons in these countries halogenated hydrocarbon chemicals called in 2000, and in 1992 they moved up the phase- "halons." Highly effective and easy to use, these out to January 1, 1994.3 (Developing countries compounds offered many benefits over the fire- have until 2010 to phase out halons.) extinguishing agents then in use. By 1986, the American armed forces—particularly the U.S. Although the protocol exempts "essential" Air Force—had become the largest U.S. users halon uses from the phase-out, the toughened of the two most popular halons, consuming standards basically ended the military's reliance about 34 percent of all halon 1211 produced and on halons as the primary fire-protection agent of 6 percent of halon 1301.1 The chemicals were choice.4 U.S. military support for the Montreal used to fight fires in combat vehicles, ships, Protocol and leadership looking for alternatives and aircraft, and in large computer, telecommu- proved crucial to moving halons from the least nications, and maintenance facilities. controlled of the ozone-depleting substances in 1987 to the first phased out.5 In the 1980s, however, researchers identified halons as unusually strong ozone-depleters. Halon 1301 has 12 times the ozone-depleting potential (ODP) of chlorofluorocarbon 11 (CFC- Initially, many military officials predicted that 11), while halon 1211 has an ODP of 5.1.2 Accord- finding alternatives would be prohibitively com- ingly, the 1987 Montreal Protocol categorized plex and expensive. Both Navy and Air Force halons as Group II ozone-depleting substances. officials, for example, predicted that completely But because these substances were in use in ending halon use could take 30 years.6 military forces and shortages would pose national security concerns, the agreement sim- Even before the Montreal Protocol was ply froze consumption in industrialized coun- adopted, however, armed services within the tries at 1986 levels by 1992. By contrast, more U.S. Department of Defense (DoD) had started stringent controls on the less potent CFCs looking for alternatives to halons. The main goal

WRi: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 67 was to reduce costs, but ozone depletion was (UNEP). Other representatives from the Army also an issue. As early as the mid-1970s, for and Navy joined the committee and ultimately example, the Naval Research Laboratory in played key roles in promoting halon recycling Washington, D.C., began examining possible and shaping the international community's replacements for halon 1301.7 In the 1980s, both evolving approach to halon regulation.12 (See the Navy and Air Force also sponsored Box 1.) research.8

By 1986, military officials realized that the United Nations would probably include a provi- sion on halon use in a treaty to protect the Once the Protocol was signed, DoD determined ozone layer and began discussions with the U.S. where and how halons were being used by the Environmental Protection Agency (EPA) on how armed services and in what quantity. After a year equipment, facilities, and mission procedures of study, it found that some 37 percent of overall might be affected by such controls. The Deputy military halon use was for discharge testing of Assistant Secretary of the Air Force for Environ- fire systems, 32 percent was used for fire-fight- ment, Safety and Occupational Health and other ing training (such training accounted for 71 per- officials encouraged the military services to help cent of the Air Force's halon consumption), and formulate halon policy, rather than react to 18 percent was accidentally discharged.^ events.9 In response, the Air Force became vocal in both domestic and international discussions This data, along with other information on of halon policies. halons and emerging new fire-protection tech- nologies, was presented at a November 1988 con- For example, in September 1987—in one of ference at Tyndall AFB. Sponsored by EPA and the U.S. military's first shows of support for the Air Force Engineering and Service Center, ozone-layer protection—the Air Force met EPA's the meeting drew representatives from each of request to send researchers from its Civil Engi- the military services, the fire-protection industry, neering Support Agency at Tyndall Air Force halon manufacturers, and several foreign govern- Base (AFB) in Florida to Montreal Protocol ments.14 This conference paved the way for long- negotiations.10 Besides advising the U.S. delega- term—though not always smooth—cooperation tion, these researchers sponsored a sophisticated by the military, industry, and regulators to find computer simulation showing how to reduce the alternatives to halons. Participants agreed that: need for halons during fire-fighter training, how new equipment could be used to recycle halon • cooperative research and development rather than vent it to the atmosphere, and how a (R&D) programs were essential, though shift to miniaturized fire-protection systems potentially problematic for industry since could drastically reduce the amount of halon the EPA could not predict future regulatory needed to protect critical equipment.11 controls on proposed alternatives and the military could not guarantee viable market Shortly after the Protocol was negotiated, an prices; Air Force officer from Tyndall was named co- chair of the Halons Technical Options Commit- • many important basic research questions— tee established by the Protocol and administered such as how halons worked—needed answers by the United Nations Environment Programme before alternatives could be developed;

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 68 BOX l INTERNATIONAL LEADERSHIP INITIATIVES

As an active member of international military joined with EPA and UNEP to help military services organizations, the U.S. military also promoted ozone and industrial users in Latin America and China protection among its counterparts worldwide. Since begin halon recycling.4 Now the fire-protection 1969, for example, the United States has partici- industry in China and other countries understand pated in the North Atlantic Treaty Organization's the need to eliminate halons—vital since in many of (NATO) Committee on the Challenges of a Modern these countries this industry comprises a large num- Society (CCMS), which examines the military from ber of small enterprises and has no strong associa- the perspective of broad societal needs and norms. tion to disseminate information on new regulations In September 1991, CCMS sponsored its first con- and technologies. By bringing together small busi- ference on the Role of the Military in Implementing ness owners to see how recycling equipment works, the Montreal Protocol in the United States. In Janu- U.S. experts have helped introduce halon alterna- ary 1994, it sponsored a follow-up conference in tives and supported the work of the Montreal Proto- Belgium.-1 col multilateral fund for helping developing nations phase out ozone-depleting substances. I After the first of these meetings, NATO supported ! a November 1992 proposal to amend the Montreal 1. J. M. Cadiou, Assistant Secretary General for Scien- ; Protocol to end halon production sooner—in 1994 tific and Environmental Affairs, North Atlantic : instead of the year 2000—and to eliminate barriers Treaty Organization, letter to Dr. M. Tolba, Execu- ! to international trade in recycled halons.2 The trade tive Director, UN Environment Programme, . provisions helped promote halon recycling and November 20,1992. helped reassure nations reluctant to support the 2. Ibid. faster phase-out that halons would be available to 3. "First International Symposium on Halon Replace- meet essential military and civil aviation uses.5 ment in Aviation Report," (Reston, Virginia: Febru- • NATO support for these provisions helped make ary 10,1993). I halons the first ozone-depleter to be removed from 4. Catharine Cyr, Chief of Naval Operations, Environ- ! production. mental Protection, Safety, and Occupational Health I I Division, memorandum to Tom Morehouse, Insti- I The military has also shared its experience in tute for Defense Analysis, "Navy Educates Devel- I halon recycling with other countries. The U.S. Navy oping Countries," August 5, 1995.

developing "drop-in" alternatives to some All three services defined mission critical halons—the first hope of many observers— needs for which alternatives were not currently would be extremely difficult; and available. The Army needed to make sure that armored fighting vehicles could survive battle- in the short-term, the military could signifi- field fires and prevent casualties from fires and cantly reduce halon releases by changing explosions (i.e., crew compartment explosion inspection, testing, and maintenance prac- suppression and fire prevention). The Navy tices and by restricting halon use to critical wanted to suppress shipboard fire and explo- applications. sion and protect aircraft from fire while the Air

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 69 Force needed to protect aircraft during ground enable ongoing collaboration with industry, in J operations. 5 April 1989, EPA and several DoD agencies cre- ated the government-managed Halon Alterna- In 1989, halon-reduction steps were outlined tives Research Consortium, a voluntary public- in Dot) Directive (6050.9) on chlorofluorocar- private association dedicated to identifying, bons (CFCs) and halons. The Directive also supporting, and sharing non-proprietary results called for replacing systems that flooded large of research.20 Within a few months, however, rooms or facilities with halon 13 01 with small fire legal issues prompted the transformation of the extinguishers, ending the discharge of halons Consortium into the non-profit Halon Alterna- during training, and minimizing accidental dis- tives Research Corporation (HARC). Managed charges by making systems more reliable. by industry, HARC did foster several important R&D projects, but it eventually became mainly In 1990, the Air Force also ended the use of an information clearinghouse and de facto trade halon fire-fighting systems in facilities on the association.21 drawing boards, forcing architects and engineers to incorporate such alternatives as water sprays Early plans called for HARC to coordinate and dry chemicals. Designers and contractors research costing up to $25 million. But three who missed the point were reminded that "no major developments made the effort unneces- construction contracts will be awarded which sary. First, the first company to develop a propri- include...fire protection equipment/systems uti- etary replacement stood to gain so much that lizing halon I3OI."IS Army officials issued a sim- significant private R&D funds became available. ilar letter in March 1990.17 Second, success in rethinking fire suppression and fire-fighter training reduced the need to Another step forward came in 1991, when replace halons in many non-essential uses, mak- DoD's Director of Defense Research and Engi- ing the military market for alternatives smaller neering formed the Halon Alternatives R&D than the former military market for halons. Steering Group to formulate a Department-wide And, third, the growing viability of halon recy- strategic plan for identifying and developing cling reduced anticipated demand for drop-in halon alternatives. In June 1992, the Steering replacements. For manufacturers this meant Group released a draft "Technology Strategy for that halon replacements were likely to be needed Alternatives to Ozone-depleting Chemicals for in mostly low-volume specialty products. Weapon Systems." The goal was to integrate the efforts of all military departments into a coher- Halon recycling had become a viable strategy ent and comprehensive strategy for identifying for several reasons. The large inventories of and developing alternatives. (An exception was halons already in store in fire-fighting systems for halon 2402, which is used for missile thrust would over time become available for recycling booster l8 as the equipment was replaced. As controls on halon production eliminated most non-essential halon uses, enough "banked" recycled halons would remain to meet critical needs. Most important, in 19 91 the UNEP Halons Technical To move the military toward this goal, it avidly Options Committee estimated that existing promoted research into alternatives and orga- "banks" of halons were large enough to service nized efforts to recycle current halon stocks. To critical needs for the foreseeable future and

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 7° advised the Parties to the Protocol that global Why this sea change? First, large-scale halon- halon production could end in 1994.22 recycling efforts were already under way in the United States, and the military had cut its need The phase-out recommendation reflected for halons radically. Then, in 1992, HARC's progress in how the Technical Options Commit- review of halon-recycling issues concluded that tee, the fire-protection industry, and the military industrial-scale recycling would require a new viewed the halon issue. When the Committee centralized organization to coordinate opera- met in early 1989, members disagreed on tions, giving industry the cue to establish the whether direct halon replacement or a phase-out Halon Recycling Corporation, an information was possible. Some believed that reductions of broker that matches sellers of excess halon to only a few percentage points could be achieved buyers.26 Emerging support for such a banking and supported production cuts only if adequate system helped military leaders envision a work- alternatives were available. Others believed that able phase-out. short-term reductions in the use of halons 1211 and 1301 were possible if current alternatives Although the corporation met commercial were used and if planners redesigned fire-protec- customers' needs, the military could not risk tion systems to eliminate non-essential uses.33 running out of halons during times of armed Most halon producers and fire-protection-system conflict. In 1992, DoD established its own manufacturers considered reductions impossible Ozone Depleting Chemical Reserve, which is or halons indispensable for some uses. Halon managed by the Defense Logistics Agency users, environmentalists, and experts from (DLA). Although the Halon Recycling Corpora- nations with strong environmental movements, tion handles primarily halons, the DLA Reserve however, believed that significant reductions deals with halons, refrigerants, and solvents reg- were possible. Military experts saw substantial ulated by the Montreal Protocol. It acquires opportunities to reduce halon use and supported recovered materials and until the 1994 halon more stringent controls, but recognized a core phase-out also newly-produced ones.27 DoD offi- long-term need for essential uses. cials expect the Reserve to supply the military with "mission critical" chemicals until the year The committee's first report, released in mid- 2035, or 2050 for some applications.28 It is 1989, reflected these differences of opinion. It expected to handle 10 million lbs. of halon in concluded that "direct replacements" of halons total. (Anticipated peak amounts are 100,000 were "unlikely to be available within the next lbs. of halon 1202 and up to 3 million lbs. each decade" but that "clean alternative agents with of halons 1211 and 1301. Halon 1202 is used for lower ODPs for specific uses are a realistic goal on-board fire protection in a few older models of if trade-offs in fire extinguishment capability, military aircraft.) As of October 1995, the toxicity, and/or other characteristics are accept- Reserve contained 100,000 lbs. of halon 1202 able."24 (Toxicity was a major consideration and 2 million lbs. each of halons 1211 and since halon fire-extinguishers are often used in enclosed occupied spaces.) By 1993, however, the committee concluded that a 1994 phase-out was both technically and economically feasible and that there was "no justification for granting Despite the military's progress on halons, some halon production/consumption essential-use environmental groups question the operation of exemptions for 1994."25 the DLA Reserve. Some assert that a large halon

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 71 stockpile could reduce incentives to seek alterna- Scientific Assessment Panel, which in 1994 tives for remaining halon uses, while others fear evaluated the remaining steps governments that newly produced halons are illegally making could take to hasten the recovery of the ozone their way into halon banks as recycled chemi- layer. The panel concluded that if all the halons cals. Ozone Action, for example, cites develop- locked in equipment today were never released, ing countries and Russia—which has admitted the ozone loss that would occur in the future to producing halons in violation of the Montreal would be 10 percent less than expected with full Protocol's phase-out—as potential sources of Protocol compliance. For comparison, the scien- new halon. Although no cases of illegal halon tists concluded that containing CFCs would imports into the United States have been docu- make a 3-percent difference.32 FoE contends that mented, the activist group urges stricter enforce- the development of environmentally safe halon- ment of the Protocol so DLA's Reserve and other destruction technology deserves higher priority halon banks don't get bigger than they need to from industry and the military.33 The group be.3° As a safeguard against acquiring illegally urges the military to show the same leadership imported new halons, DLA requires evidence of on halon destruction as it has in accelerating the previous ownership of recycled material. Fur- production phase-out. ther, the DLA obtains only enough controlled materials for the Reserve to satisfy the military's estimated needs. By early 1994, recycling and careful scrutiny of Other organizations are working to improve halon use had allowed the U.S. military to elimi- halon banks. Recognizing that banking can obvi- nate most halon uses—but not all. While early ate the need for future halon production, hopes of finding drop-in, one-for-one replace- Friends of the Earth launched The Halon Recov- ments for most halon uses remain unfulfilled, ery Campaign to solicit halon-bank donations the military has eliminated many halon uses by from public and private entities. In this grass- reassessing fire-protection needs, changing roots program's early stages, FoE gave the col- training and testing practices, and shifting to lected halons to the DLA on the premise that both time-tested and innovative alternatives. government stewardship of halons is preferable to their wide dispersal in private hands. The In many military facilities, more sensitive fire DLA, however, stopped accepting halon 1211, and smoke detectors, along with many common- because the Reserve has a sufficient supply of sense engineering changes, have reduced the the chemical. FoE now works with the Halon need for halons and "false alarm" discharges. In Recycling Corporation to make sure the col- training and equipment testing, computer simu- lected halon 1211 and 1301 is directed only to lations and other approaches have ended the critical needs where human life, national secu- once-routine practice of venting large quantities rity, or the environment are at stake, and where of halons to the atmosphere. And the search for no commercially viable alternatives exist.31 alternatives has sparked the development of inno- vative systems that use such inert gases as argon The excessive supply of 1211 and increasingly and nitrogen, as well as renewed interest in tradi- severe ozone depletion has led FoE to argue that tional standby water sprayers and sprinklers. the ultimate goal of halon banks must be to store halons for safe destruction. The group's Still, most services have at least one key type position is backed up by the Montreal Protocol's of facility or weapons system in which halons

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 72 have been hard to replace. The Army has found no suitable alternative for halon 1301 in sup- pressing explosions and protecting the occu- pants of armored fighting vehicles, and the Air Force and the Navy have found no suitable non- corroding substitute for halon 1211 in flight lines, carrier decks, and fighting aircraft-engine fires.34

Halon use continues in high-cost, long-lived Montreal Protocol process to phase out halons weapon systems with integrated ship and air- in the 1990s. Initially, military analysts pre- craft fire-protection systems (such as the F-15 dicted that finding alternatives to halons would and F-16) and in armored fighting vehicles, such be prohibitively complex and expensive. But as the Mi tank and the Bradley. DoD officials say later, a "can do" spirit enabled the military to current alternatives cannot be made to work in end many halon uses relatively quickly and these combat systems, so the only practical alter- more easily than once thought possible. native is to plan to use reserve recycled material until the weapons are retired and to continue Four factors contributed to this outcome: looking for substitutes. New systems, however, can more easily be designed to use alternatives. The Navy F/A-18E/F and V-22, for example, will 1. Military Leadership not have halon 1301 systems, but will use an Military officials decided to become leaders in for- inert gas-generating system for fire protection. mulatingboth domestic and international halon policies, rather than to simply react to events. Most alternatives to halon 1211 uses have been identified, but alternatives for certain halon 13 01 The opportunity for the military to participate uses remain much more elusive. A handful of in technical discussions about what could be substitutes are now commercially available, but done to mitigate halon uses proved key to the some have extremely long atmospheric lifetimes successful phase-out. Once the military decided and high global warming potentials and there- to work with environmental policy-makers, offi- fore do not provide an ultimate solution. cers gained leadership positions on key inter- national committees and became important DoD officials remain committed to working technical advisors to other influential military with the fire-protection industry to develop organizations, such as NATO. Environmentalists advanced agents. In a recent report to Congress, are looking to DoD for continued leadership, in the services also reaffirmed their commitment particular for developing and executing a plan to to continue converting weapon systems and safely destroy stockpiled halons once they are no facilities to halon alternatives. 35 longer needed for critical uses.

2. Innovative Collaboration In the end, the U.S. military, which had helped The Department of Defense fostered and supported give birth to halons in the 1940s, provided the coordinated cooperative research that led to the leadership necessary within the United Nations development of alternatives.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 73 The military established an objective and quan- forceful advocates of sensible and more environ- tifiable methodology for addressing its halon mentally protective regulation. dependence. Categorizing uses as those that were unique to the military and those driven pri- Militaries around the world still face daunting marily by industry standards provided a frame- challenges in finding alternatives for some criti- work for working with regulators and the fire- cal halon uses. But if current estimates of supply protection industry to solve the problem. While and demand prove accurate, today's supplies the search for drop-in replacements to halons hit should meet critical needs for the foreseeable many dead ends, the military provided early future. Responding to concern that the ready funding and a framework for coordinating availability of recycled halons will slow the research among the U.S. government, the private search for replacements and that more needs to sector, and other national governments. be done to advance halon-destruction technol- ogy, U.S. military leaders point out that their leadership made halons—in 1987 the least con- 3. Beyond Conventional Wisdom trolled of the ozone-depleters—the first to be Military planners realized that many halon uses phased out in 1994. could be eliminated simply by rethinking facility design, testing requirements, and training practices. 1. U.S. Environmental Protection Agency, The Tyndall By taking a technical approach to the problem, Conference on Halon, the Ozone Layer, and Research on Alternative Chemicals (Tyndall Air Force Base, Florida: military planners overturned many early U.S. EPA, Office of Air and Radiation and the U.S. Air assumptions about the cost and difficulty of Force Engineering and Services Center, November replacing halons. Once the user community 15-17, 1988), chapter 2; Assistant Secretary of Defense joined efforts to find ways to curb halon use, (Production and Logistics) personal communication to the Honorable John D. Dingell, Chairman, Subcom- conventional wisdom about the irreplaceability mittee on Oversight and Investigations, House Com- of halon gave way to creative thinking. mittee on Energy and Commerce, May 12, 1989, with attached statement of Mr. William H. Parker III, Deputy Assistant Secretary of Defense (Environment), 4. Constructive Government April 18, 1989. Military support for an accelerated phase-out of 2. National Oceanic and Atmospheric Administration et halon production and reduced trade barriers for al, Scientific Assessment of Ozone Depletion: igg4 recycled halons helped make viable large-scale halon (Geneva, Switzerland: World Meteorological Organiza- "reserves" and commercial "hanks" so military plan- tion, February 1995). ners can meet their remaining needs well into the next century. 3. London Amendment to the Montreal Protocol, adopted and opened for signature June 1990, and entered into force 30 I.L.M. 537, 1991; Copenhagen The military, in essence, removed itself as the Amendment to the Montreal Protocol, adopted and main barrier to an accelerated halon phase-out. opened for signature November 1992, and entered The creation of DLA's halon Reserve—among into force 32 I.L.M. 874, 1993. the first in the world—put the United States on 4. United Nations (UN), Report of the Fourth Meeting of the cutting edge of innovative solutions to the Parties to the Montreal Protocol on Substances that ozone-layer protection. And it demonstrated that Deplete the Ozone Layer (Copenhagen, Denmark: UN the regulated community can itself become Environment Programme, November 25, 1992). This

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 74 report decided that (a) a controlled substance should 11. "Air Force Tries Halon Alternatives," Not Man Apart, qualify as "essential" only if: (i) It is necessary for the September-October 1987: 7. health, safety, or critical for the functioning of society; and (ii) There are no available technically and econom- 12. United Nations (UN), "Halons Fire Extinguishing ically feasible alternatives; and (b) Production and con- Agents Technical Options Report, Final Report of the sumption should be permitted only if the controlled Halons—Technical Options Committee," Montreal Pro- substance is not available in sufficient quantity and tocol on Substances that Deplete the Ozone Layer (Copen- quality from recycled sources. hagen, Denmark: UN Environment Programme, August 11, 1989). 5. This case study is drawn in large part from materials provided to the World Resources Institute by Tom 13. Ibid. Morehouse, adjunct researcher at the Institute for Defense Analyses, Alexandria, Virginia, and Stephen 14. U.S. Environmental Protection Agency, The Tyndall Andersen, U.S. Environmental Protection Agency. Conference on Halon, the Ozone Layer, and Research on Alternative Chemicals (Tyndall Air Force Base, Florida: 6. "Statement of Mr. Gary D. Vest," Deputy Assistant U.S. EPA, Office of Air and Radiation and the U.S. Air Secretary of the Air Force, Environment, Safety and Force Engineering and Services Center, November Occupational Health, to the Ad Hoc Subcommittee on 15-17, 1988), chapter 2. Consumer and Environmental Affairs, Senate Govern- mental Affairs Committee, United States Senate, 15. U.S. Department of Defense/U.S. Environmental Pro- December 17, 1991. tection Agency/Industry at Halon/CFC discussion meeting, Fairfax, Virginia, December 1987. 7. Ronald S. Sheinson, "Laboratory Through Full Scale, The U.S. Navy Halon Total Flooding Replacement Pro- 16. Hq USAF/LEED message 131445, September 1990 to gram," Halon Replacements: Technology and Science, the major commands and field operating agencies, American Chemical Society Series. (December 1995), subj: Limitations of Chlorofluorocarbons and Halons. No. 611, 175-188. 17. "Halon Fire Extinguishing Agents and Protection of 8. Catharine Cyr, Chief of Naval Operations, Environ- Electronic Equipment Installation," Army Engineer mental Protection, Safety, and Occupational Health Technical Letter 1110-3-426, March, 23, 1990. Division, memorandum to Tom Morehouse, Institute for Defense Analysis, "Navy Educates Developing 18. Ibid. Countries," August 5, 1995. 19. "Report to Congress: U.S. Department of Defense 9. U.S. Environmental Protection Agency, "Characteris- Ozone-Depleting Substance Reduction Program" tics of Halons—Factors to be Considered in the Iden- (Washington, D.C.: Office of the Deputy Under Secre- tification of Substitute Fire Extinguishing Agents," tary of Defense for Environmental Security, August draft memorandum; Letter from Gary D. Vest, 1995), 46. Deputy Assistant Secretary of the Air Force for Installations, Environment and Safety to AF/LEY, 20. Background materials for Mr. Gary Vest (SAF/RQ), subj: Air Force Usage of Chlorofluorocarbons, Chlo- and background materials for Dr. Stephen Andersen rofluorocarbons and Halons-Action Memorandum, (U.S. EPA), prepared for the first meeting of the Steer- January 10, 1987. ing Committee for the Consortium for Alternatives to Halons, April 18, 1989; Mr. Thomas Cortina, executive 10. "Statement of Mr. Gary D. Vest," to the Ad Hoc Sub- director, Halon Alternatives Research Corporation, committee on Consumer and Environmental Affairs, Arlington, Virginia, telephone interview, August 2, December 17, 1991; United Nations (UN), 1994 Report 1995. of the Technology and Economics Assessment Panel for the 2995 UNEP Assessment of the Montreal Protocol on Sub- 21. Mr. Thomas Cortina, executive director, Halon Alter- stances That Deplete the Ozone Layer (New York, New natives Research Corporation, Arlington, Virginia, tele- York: UN Environment Programme, 1995), 9. phone interview, August 2, 1995.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 75 22. United Nations (UN), "Report of the Halons Technical tives Conference, Washington, D.C., October 23-25, Options Committee," Montreal Protocol: 1991 Assess- 1995)- ment (New York, New York: UN Environment Pro- gramme, December 1991). 30. John Pasacantando, Ozone Action, personal communi- cation to Elizabeth Cook, World Resources Institute, 23. Ibid., p. 19. April 1996.

24. Ibid. 31. Corinna Gilfillan and Robin Eisman, "The Halon Recovery Campaign: Working at the Community Level 25. United Nations (UN), Recommendations on Nomina- to Accelerate the Phase-out of Halons (presented at tions for Essential Use Production/Consumption Exemp- Halon Options Technical Working Conference, Albu- tions and International Bank Management of Halons querque, New Mexico, May 7-9, 1996). (New York, New York: UN Environment Programme Halons Technical Options Committee, July 1993), 3-4. 32. National Oceanic and Atmospheric Administration et al, Scientific Assessment of Ozone Depletion: igg^ 26. Halon Alternatives Research Corporation, Implemen- (Geneva, Switzerland: World Meteorological Organiza- tation Committee letter to general membership, July tion, February 1995). 13, 1992- 33. Corinna Gilfillan, Friends of the Earth, personal com- 27. Minutes of the seventh meeting of the DoD Halon munication to Elizabeth Cook, World Resources Insti- Alternatives R&D Steering Group, October 13, 1994 tute, May 1996. (Office of the Director of Defense Research and Engi- neering, April 26, 1995, item 83). 34. Ibid.

28. Minutes of the sixth meeting of the DoD Halon Alter- 35. "Report to Congress: U.S. Department of Defense natives R&D Steering Group, March 3-4, 1994 (Office Ozone-Depleting Substance Reduction Program" of the Director of Defense Research and Engineering, (Washington, D.C.: Office of the Deputy Under Secre- October 12, 1994, item 12). tary of Defense for Environmental Security, August 1995), Sections 3 and 4. 29. Ron Sibley, "Federal Agency Banking Program" (pre- sented to 1995 International CFC and Halons Alterna-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 76 NEW MARCHING ORDERS BS15liag£^gEEBiSJ^

By Pamela Wexler

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-«-^ o a surprising extent, achieving a break- teamed up to develop a testing program for CFC ''• i through in the development of CFC-free alternatives. With this groundwork in place, Mil- I alternatives in the cleaning and manufac- itary Standard 2000—the key standard specify- ture of electronic components depended on ing the use of CFC-113 for soldered electrical and revising procurement practices in the Depart- electronic assemblies—was revised in February ment of Defense—a major consumer of these 1991. products. The momentum needed to reduce the mili- The task wasn't easy. Within DoD in the late tary's reliance on CFCs continued through 1992 1980s, there was widespread reliance on and and 1993, pushed by the Bush administration, satisfaction with CFC cleaning, and many DoD by Congress, and by determined technical officials believed that alternative products would experts from civilian and military organizations. be inferior. Furthermore, DoD honestly believed it could meet the Montreal Protocol's initial 50 Several factors contributed to this process: percent reduction requirement through recy- cling and recovery and without dramatically • Realizing that DoD would need extensive changing "standard operating procedure." A information before accepting alternatives, senior official told Congress in 1989, "[The Pro- EPA formed a working group to coopera- tocol] essentially requires DoD to manage bet- tively address the challenges of cleaning ter...these products. It is a 'conserve now' policy without CFC-113. Between 1988 and 1990, the Services are enthusiastically acting on the group developed benchmark tests for now...."1 evaluating CFC alternatives that industry and the military widely accepted. Nevertheless, the Protocol itself stimulated experimentation with the revision of military • The urgency of the issue increased, both for specifications (or "milspecs"), and in a remark- DoD and for the electronics industry. The ably short time DoD responded. Between 1988 1990 amendments to the Clean Air Act pro- and 1990, stakeholders from government, vided a relatively narrow "national security" industry, and the non-governmental community exemption for producing and using CFC-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 77 114, halon 1211, halon 1301, and halon 2402. tronics and aerospace applications is the mili- To secure an exemption, DoD had to show tary. But the impacts of milspecs go even farther. that adequate substitutes were not available. Companies hoping to sell to DoD at some future Still, CFC-113 was not included in the time use them too. So do many manufacturers exemption list.2 in such fields as airlines and high quality con- sumer products, since milspecs provide a • On February 11, 1992, the Bush administra- trusted level of safety and reliability. What's tion announced that it was unilaterally accel- more, electronics manufacturers producing erating the CFC production phase-out from assemblies for both the military and commercial 2000 to 1995. Almost immediately, the Air civilian markets typically cleaned all assemblies Force began considering strategies for with the same equipment, and so used milspecs achieving a complete CFC ban. for guidance.4

• In October 1992, Congress passed a fiscal U.S. milspecs also became de facto interna- 1993 Defense Reauthorization Act that tional standards. Other nations and such inter- severely restricted the use of any ozone- national organizations as NATO adopted U.S. depleting substances in new DoD contracts milspecs wholesale because they are so exact- after June 1, 1993. In a May 1993 directive, ing. As CFCs became more widely used in the DoD required formal evaluation of current United States, emerging electronics industries contracts to see if alternatives to CFCs were elsewhere sought to adopt what they regarded available. as a sophisticated American practice: cleaning electronic assemblies with CFC-based solvents. Above all, the CFC phase-out served as a Manufacturers designed components to be model for a subsequent broader transition from compatible with CFCs but not necessarily with prescriptive "milspecs" to performance-based other solvents or with water, thus unintention- standards within DoD.3 ally creating technical barriers to alternatives. U.S. manufacturers were contractually tied to the use of these chemicals, so there was little impetus to develop alternatives, especially The military preferred rosin-based fluxes in elec- given general satisfaction with performance tronics assemblies because these materials were and cost. long-lasting and reliable, and CFCs were consid- ered optimal for removing rosin residue. Fear- Overall, it was estimated in 1989 that U.S. ing that non-CFC cleaners would be unable to milspecs created demand (directly or through remove these residues and could weaken or influence on civilian uses) for over 50 percent of destroy some of the wire bonds and intercon- CFC-113 use in tne electronics industry world- nects, the military had previously rejected alter- wide.5 Military Standard 2000 was particularly native cleaning technologies for printed circuit crucial, since it provided the standard require- board (PCB) assemblies. ments for soldered electrical and electronic assemblies. Altogether, some 500 military speci- CFC-113 was the solvent of choice for products fications directly required chlorinated solvents, made to U.S. military specifications, and manu- CFCs, and halons. Another 9,000 did not facturers naturally design for the largest and directly require ozone-depleting substances, but most demanding buyer, which for many elec- could not be met without using them.6

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 78 contractor could be expected to confront the entire milspec system, and contractors' allies within the military didn't know where to begin.

In 1987, EPA met frequently with experts from electronics firms to explore the availability of alternatives to CFC-113. Hearing repeatedly that U.S. military procurement specifications required firms to manufacture their electronic At the time the Protocol emerged, forces both components using CFC-113, EPA concluded that within and outside the U.S. military were think- the military cleaning standard was a major bar- ing about how to improve procurement. Innova- rier to developing CFC alternatives.9 tive manufacturers regarded the milspecs sys- tem as ill-suited to the private sector, which EPA's initial challenge was engaging DoD in must react quickly to market forces and techni- the CFC issue. Laws or regulations promul- cal innovation. One executive pleaded, for gated for reasons other than national defense instance, that "[r]evising and updating...specs were always evaluated against DoD's primary and standards should be a priority concern. national security mission. Military exemptions Many...do not meet the stated goal of a 5-year from environmental requirements were cus- review cycle. [T]he end result can be a loss of tomary and reflected suspicion that environ- world confidence in the quality of U.S. prod- mental regulations would diminish readiness, ucts.'^ In a rapidly changing technical environ- encumber weapons systems development, and ment, milspecs could easily become obsolete. distract commanders from their missions. And by making it hard for defense contractors to Controls on CFCs for environmental reasons adopt new innovative technologies, milspecs were seen as particularly incompatible with hindered the development and introduction of national defense, since little information had environmentally preferable products and manu- been collected on alternatives. EPA first had to facturing processes. tackle widespread suspicions that ozone-deplet- ing substances could not be replaced in elec- Military contractors were not alone. Inside tronics manufacturing. According to a DoD DoD, milspecs were under scrutiny. Procure- report, "Substitute compounds and new ment officers knew they were burdensome to processes have not been adequately tested for contractors and added to acquisition costs, mission critical applications...some applica- whether for a chocolate chip cookie or an F-16. tions specific to DoD and essential to the defense mission have limited prospects for With the Montreal Protocol in place and pres- 10 sure mounting to phase out CFCs, military sup- readily available substitutes." pliers began investigating private-sector alterna- tives that performed at least as well as and at Recognizing the need for active DoD participa- less cost than those using CFC-113. But chang- tion, the Stratospheric Protection Division at ing the military specification system was admin- EPA—led by Dr. Stephen Andersen—organized istratively daunting—revising any one milspec briefings to alert the Department of Defense to could typically take years.8 No single military the ozone depletion issue and the importance of

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 79 the military in developing solutions. EPA invited experience evaluating printed circuit boards—was industry representatives to the DoD briefings, chosen as a test site. It was also hoped that the providing DoD suppliers with a forum for out- use of a military site would ensure the credibility lining how insistence on a single technology— of the testing procedures and results. CFC-113-based cleaning systems—was inhibiting consideration of alternatives and, possibly, slow- Between 1988 and 1990, the Working Group ing DoD's ability to select new higher-perform- developed a program of benchmark testing for ance technology. evaluating CFC alternatives. More than 80 indi- viduals representing equipment and product EPA's strategy was three-pronged: (1) to edu- manufacturers, government, and academia initi- cate DoD about the impact of milspecs on global ated a strategy for phasing out CFC-113 an& CFC use; (2) to prompt DoD to evaluate the mil- switching to performance standards in electronics spec system and its impacts on innovation; and cleaning. In all, they met dozens of times to orga- (3) to suggest to DoD that the CFC phase-out nize, summarize, design and implement their presented an opportunity to become an environ- strategy. mental and technical leader. The process had three phases: Recognizing the primacy of DoD's mission, EPA agreed that there would be no compro- 1. performing CFC-113 cleaning tests that mises on product performance. Any alternatives would provide a benchmark for comparing to CFC-113 would have to be "as good or better" alternatives later; than existing products and methods, and EPA would form a working group in which stake- 2. evaluating alternative chemicals against the holders could carefully evaluate options for benchmark and certifying those that cleaned cleaning without CFC-113. In addition to EPA "as good or better" than the benchmark; and and DoD, this Working Group included the Institute for Interconnecting and Packaging 3. evaluating the acceptability of new technolo- Electronic Circuits (IPC) as well as Texas Instru- gies, such as water-soluble fluxes and con- ments, AT&T, Ford, Digital Equipment Corp., trolled atmosphere soldering, known as "no Nortel, Motorola and Honeywell. clean."

In March 1988, this new Ad Hoc Solvents With the help of experienced engineers and sci- Working Group began to tackle the practical entists, the testing program earned acceptance issues related to phasing out ozone-depleting sub- within industry and the military. During Phase stances in the United States, especially in military II, the Working Group evaluated alternative applications. With DoD's approval, developing a cleaners offered by vendors and "qualified" many process for shifting from prescriptive to perfor- as acceptable substitutes for electronic cleaning mance standards was on the agenda. Since no applications. Before long, no alternative that had standardized procedures for testing printed circuit not passed through the program could find a boards existed at the time, the group began by place in the military or commercial market. developing both a test protocol and a multiconfig- uration test board that would satisfy the needs of Progress reports and results were disseminated most manufacturers. The Naval Avionics Center through publications supported by various stake- at China Lake, California—which had extensive holders, including UNEP, IPC, and the Industry

WRI: OZONE PROTECTION IN THE UNITED STATES: EIEMENTS OF SUCCESS 80 Cooperative on Ozone Layer Protection (ICOLP). tagon's overall budget was cut dramatically in the The organized testing program demonstrated the late 1980s. (The environmental portion of the feasibility of replacing CFCs and eliminated DoD budget was increasing, but mainly to cover doubt about the technical quality of alternatives. the management of unrelated hazardous waste.) Interest in revising the milspec was widespread, but nothing was forcing the system to change.

With the active participation of DoD representa- tives, the Working Group made significant progress in identifying and evaluating alterna- At about the time the Montreal Protocol was tives during the 1988-90 period. But the military amended in 1990, numerous events combined to made few operational changes during this create a sense of urgency within both DoD and period. When program managers were asked the electronics industry. First, the London what kinds of testing they needed to validate Amendment to the Protocol established a phase- alternatives, each had their own ideas about out of CFC production in industrialized countries, appropriate protocols.11 Costs prevented the Pen- effective January 2000. Second, 1990 amend- tagon from certifying alternatives for every pro- ments to the U.S. Clean Air Act narrowed the gram individually, and program managers availability of the national defense exemption.^ resisted attempts to centralize the certification of alternatives, fearing that environmental regula- In response to these new developments, DoD tions would compromise safety. In addition, DoD contractors began working directly with DoD issued no strong policy directive. Program man- program managers to test and build confidence agers were rewarded for bringing systems in on in alternatives. For instance, General Dynamics time and on budget, not for taking risks or Plant #4 began testing CFC alternatives for the accommodating international environmental F-16, and Texas Instruments began seeking goals. Even after UNEP's Technical Options alternatives for use in the HARM missile pro- Committee publicly traced over half of 1989 gram. Progress on one front helped build confi- worldwide CFC-113 use in the electronics indus- dence and momentum in others. try to purchases set in motion by the U.S. mil- spec, both the military and its suppliers dragged These efforts came on the heels of an industry their feet. The 50 percent phase-out called for by campaign to get Congress more involved in the the Protocol had simply not created a sense of phase-out issue. By November 1989, Congress urgency within DoD, even though the military had authorized an industry-government DOD- had agreed to participate in the Working Group CFC Advisory Committee that required DoD to and even though the testing program proved track and report its progress on phasing out successful. ozone-depleting substances, including the costs and feasibility of using alternative compounds Adopting new internal operating procedures and technologies.14 The 45 committee members was also seen as time-consuming, burdensome from DoD, EPA and industry also sparked fur- and costly. Revising close to 35,000 milspecs, the ther dialogue between the department and its Pentagon estimated, would cost $35 million in suppliers. administrative activities alone and up to $250 million would be needed to qualify new materials In mid-1991, the Advisory Committee reported and research and develop alternatives.12 The Pen- that substitutes were either available or emerg-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 8l ing for most DoD applications. The report rec- one. The timing was perfect too: that same day, ommended that DoD name an office responsi- the Bush Administration announced that it was ble for coordinating activities to eliminate ozone unilaterally accelerating the CFC production depleters (e.g., research and development pro- phase-out from 2000 to 1995. grams, milspec revisions, and contract modifica- tions), monitoring the phase-out, and getting In the face of harsh public scrutiny over pro- substitutes and alternatives into use.:5 curement practices, the revised phase-out target (agreed to by the Parties to the Montreal Proto- In November 1991, a General Accounting col in Copenhagen later in 1992) overpowered Office report accused DoD of failing to take the Pentagon's resistance and inertia. Almost steps necessary to ensure compliance with the immediately, the Air Force began considering a scheduled year-2000 production phase-out.I<5 complete CFC ban. Four months later, in June Acknowledging that DoD had established policy 1992, DoD approved a policy on ozone-deplet- goals, GAO expressed concern about the pace of ing chemicals. Echoing the 1991 GAO Report, DoD's progress: DoD's new position was that CFCs are neither necessary nor desirable, and project managers DoD has not taken certain actions that are from that point on were expected to certify an needed to eliminate its use of ozone-deplet- alternative or demonstrate why no satisfactory ing chemicals...and continue its mission substitute for the ozone-depleter could be requirements beyond the time when these found. chemicals are no longer commercially pro- duced. Unless DoD takes positive action Finally, even though the CFC issue had now in several key areas, it is likely to have reached the highest levels of DoD, the technical to continue using ozone-depleting chemicals and administrative challenges of eliminating for many years after the scheduled produc- ozone-depleting chemicals permeated the entire tion phase-out.1? military. Some five hundred milspecs would need to be modified. Suppliers had no idea how to reconcile the conflict between current con- tracts and the new DoD phase-out policy. Even Milspecs also got caught up in the environmen- where proven alternatives existed and contrac- tal campaign against harmful and toxic chemi- tors were prepared to implement them, some cals. The 1986 Emergency Planning and Com- contracts still prohibited substitution. As a con- munity Right-to-Know Act established the Toxics tractor from the Raytheon Corporation put it: Release Inventory (TRI), a public database detail- ing chemical releases and transfers by U.S. This military specification is a potentially manufacturing facilities. The TRI gave environ- powerful tool for change. The problem is mental activists more specific and voluminous that while it applies to new contracts, it information than ever before. On February 11, doesn't automatically apply to existing con- 1992, the NGO-led National Toxic Campaign tracts...The only way we can gain approval to Fund issued a report attributing 37 percent of all switch...is by requesting individual contract nationally reported CFC-113 emissions to the modifications. But this contract-by-contract Pentagon. The revelations were splashed across review has been slow..and it involves consid- the media: CBS led its evening news broadcast erable duplication of time and effort, and is with the story and USA Today ran it on page costly to all parties.18

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 82 No process had been designed for modifying was another formidable administrative hurdle. the many thousands of contractual arrange- Luckily, advances in computerized information ments between the military and its suppliers. systems allowed manufacturers and users to The legal departments of the services feared comprehensively search the manuals for refer- they would be swamped if they had to modify ences to ozone-depleting substances. For exam- every contract. :9 Even more disturbing to manu- ple, at Kelly Air Force Base in San Antonio, facturers were differing judgments about the Texas, home of the C-17 aircraft, staff created a acceptability of alternatives being issued by pro- "chemical dictionary" program that was so gram managers at different facilities. Adding successful in locating references to ozone- fuel to the fire, military comptrollers were dis- depleting substances that the Air Force began mayed that a major policy change had been digitizing all of its technical manuals. By 1992, issued without any attempt to estimate the the procedures developed at Kelly were adopted costs. by Air Force Material Command. DoD also began distributing technical information and The Pentagon also was facing another dead- contract revisions electronically. By comple- line. Passed by Congress in October 1992, Sec- menting Pentagon efforts to digitize its techni- tion 326 of the fiscal 1993 Defense Reauthoriza- cal information system, the CFC issue helped tion Act barred the use of any ozone-depleting pave the way for eliminating other hazardous substance in new DoD contracts after June 1, substances and promoting pollution prevention. 1993.2O As late as April 1993, no DoD plan was in place for carrying out Section 326. With new procurement on or after June 1 threatened, pres- sure to develop specific steps to eliminate ozone- depleting chemicals from DoD contracts intensi- With procedures in place for eliminating con- fied. Finally, on May 20, 1993, DoD required tractual references to ozone-depleting sub- formal evaluation of current contracts to deter- stances, the phase-out at DoD proceeded in mine whether they could be carried out using earnest. Progress on CFCs triggered other economically and technically feasible CFC alter- important changes: nearly one year after DoD's natives. If so, the new policy stated, the contract CFC policy was announced, Secretary of office had to modify the contract accordingly. Defense William Perry set the stage for a sweep- Further, no contract could be modified or ing overhaul of military procurement systems.22 extended without reviewing it for references to A June 1994 memo on milspec reform char- ozone-depleting substances. The language tered "process action teams" to develop a strat- accompanying DoD's May directive was res- egy and action plan for making greater use of olute: "it is important to learn how to live with- performance and commercial specifications. out CFCs."21 According to the memo, moving to perform- ance-based standards was "one of the most Unfortunately, contract modification was not important actions that DoD can take to make the only challenge. These contracts also sure that we are able to meet our military, eco- required the creation of maintenance manuals nomic and policy objectives." Perry's directive for each military system, many of which called didn't abolish milspecs, but indicated that they for the use of ozone-depleting substances. would be continued only when it could be justified Identifying thousands of additional references that performance or commercial specification alter- to ozone-depleters in these technical manuals natives were not possible.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS The system that had in 1988 been regarded as dence deepened concern about the ozone layer untouchable had by 1992 been reinvented. The and controls on ozone-depleting substances experience of eliminating CFCs did more than were strengthened, the momentum created by reveal weaknesses in the milspec system, it the Working Group's testing procedures could proved that the alternative—performance stan- be tapped. By 1990, a concerned community dards—could be cheaper and easier, and that had been formed and the way paved for excising they could deliver products needed to support references to ozone-depleting substances in the national security mission. milspecs.

2. Outside Pressure and Public Information How was such a dramatic turnaround accom- Pressure from private and public sector interests, plished so quickly? Three elements were augmented by the availability of important TRI crucial: data, made the Pentagon more interested in responding fully to the challenge.

1. Collaboration and Government Leadership Getting DoD to change its ways was a chal- Exceptional cooperation among stakeholders, bol- lenge for EPA and environmentalists, who had stered by strong leadership from EPA, provided the to learn how to interact constructively with the technical and political credibility necessary to dis- military services. But pressure from the media mantle a significant DoD barrier to the CFC and Congress generated by military contractors phase-out. and environmental activists drove home the need for aggressive action to eliminate CFCs in The revision of Military Standard 2000 was the military. Using information from the Toxics ultimately a technical challenge: only with proof Release Inventory, environmental NGOs that alternatives performed acceptably would the revealed the full extent of DoD's CFC-113 use. military agree to revise the milspec. But the Media coverage reinforced public concern over technical change could not have occurred with- ozone loss and drew attention to the U.S. mili- out a foundation of common concern and tary's contribution to a global problem. The mutual respect among industry, DoD, and EPA. 1990 Amendments to the Clean Air Act also Also important was EPA's attitude that environ- sent a clear message that few, if any, military mental problems were solvable through coopera- applications would receive special treatment. tion and without compromising military perfor- mance—or national security. 3. Seizing the Opportunity In convening the Working Group, EPA's first DoD and its contractors took advantage of the move was to set up the benchmarks program. ozone issue to create a real world laboratory for Bringing DoD and its suppliers together to test building confidence in performance-based standards. and certify CFC alternatives built confidence among both military and contractors that alter- Despite widespread dissatisfaction with mil- natives did exist, and that they could work. The specs both in the Pentagon and among private Working Group also heightened awareness of contractors, revising the procurement system the ozone issue within the DoD community and was seen as a monumental if not insurmount- identified key stakeholders. As scientific evi- able task. For individual contractors, attacking

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 6. U.S. Department of Defense Chlorofluorocarbon Advi- the system was simply too costly—a single revi- sory Committee Report, Recommendations foe Eliminat- sion typically took four to five years. ing the Use of Ozone Depleting Compounds in the Defense Sector, for the Committee on Armed Services, U.S. Congress, July 26, 1991. When concern over ozone depletion emerged, contractors and the military managers both real- 7. "Statement of Stanley Siegel, Vice President, Aero- ized they had been handed an opportunity. Pro- space Industries Association of America," in U.S. viding a common concern around which diverse House Armed Services Subcommittee on Investiga- interests could converge, revising Military Stan- tions, Hearings, July 22, 1989. dard 2000 provided a good laboratory for seeing 8. U.S. Department of Defense, "Recommendations for how a shift to performance-based standards Eliminating the Use of Ozone Depleting Compounds might work. The urgency created by the acceler- in the Defense Sector" (Washington, D.C.: DOD-CFC ation of the phase-out prompted DoD to develop Advisory Committee, July 26, 1991). procedures for doing away with a particular set 9. Stephen O. Andersen, U.S. Environmental Protection of milspecs, but the experience demonstrated Agency, personal communication to Pamela Wexler, the value of reevaluating procurement more Center for Global Change, University of Maryland, generally. In the end, revised Military Standard July 1996. 2000A was issued in February 1991—less than three years from the time the Ad Hoc Working 10. U.S. Department of Defense, "DoD Program to Reduce the Unnecessary Release of Chlorofluorocar- Group was organized. bons and Halons Into the Atmosphere" (Washington, D.C.: July 1990).

11. General Accounting Office, "Ozone Depleting Chemi- 1. "Statement of William H. Parker, III, Deputy Assistant cals—Increased Priority Needed if DoD is to Eliminate Secretary of Defense (Environment)," in U.S. House of Their Use" (Washington, D.C.: November 1991). Representatives Subcommittee on Oversight and Investigations, Hearings, April 18,1989. 12. U.S. Department of Defense, "Recommendations for Eliminating the Use of Ozone Depleting Compounds 2. U.S. Congress Clean Air Act, [42 U.S.C. 7401-7626, in the Defense Sector" (Washington, D.C.: DOD-CFC Section 604], July 14, 1955: 397. Advisory Committee, July 26, 1991).

3. This case study is drawn in large part from materials 13. U.S. Congress, Clean Air Act, [42 U.S.C. 7401-7626, provided to the World Resources Institute by Tom Section 604], July 14, 1955: 397. Morehouse, adjunct researcher at the Institute for Defense Analyses, Alexandria, Virginia, and Stephen 14. U.S. Congress, National Defense Reauthorization Act Andersen, U.S. Environmental Protection Agency. for Fiscal Years 1990-91, P.L. 101-189 [H.R. 2461], November 29, 1989. 4. "Recommendations for Eliminating the Use of Ozone Depleting Compounds in the Defense Sec- 15. U.S. Department of Defense, "Recommendations for tor," in Department of Defense Chlorofluorocarbon Eliminating the Use of Ozone Depleting Compounds (CFC) Advisory Committee Report of the U.S. Con- in the Defense Sector" (Washington, D.C.: DOD-CFC gress Committee on Armed Services, July 26, 1991: Advisory Committee, July 26, 1991). 36. 16. General Accounting Office, "Ozone Depleting Chemi- 5. United Nations (UN), Technical Progress on Protecting cals—Increased Priority Needed if DoD is to Eliminate the Ozone Layer: Electronics, Degreasing and Dry Clean- Their Use" (Washington, D.C.: November 1991). ing Technical Options Report (New York, New York: UN Environment Programme, June 30, 1989). 17. Ibid.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 18. "Statement of Robert Whitcomb, Director of Manufac- 21. John Deutch, Under Secretary of Defense for Acquisi- turing Programs, Raytheon," in U.S. House Armed tion, U.S. Department of Defense, "Memorandum for Services Subcommittee on Investigations, Hearings, DoD Standardization Activities," May 20, 1993. July 22, 1989. Undersecretary Deutch's memo formally announced the Congressional directive contained in Section 326 19. Allen Hoppe, Chief, Air Force Environmental Law and which prohibited new contracts from requiring the use Litigation Division, memorandum for distribution to of ODSs. Deutch's memo also implemented a plan for Air Force Legal Service Agency, November 30, 1992. reviewing and modifying existing contracts that con- tained ODS requirements. 20. U.S. Congress, Defense Reauthorization Act for Fiscal Year 1993, P.L. 102-484 [H.R. 5504, Section 326]. 22. William J. Perry, U.S. Secretary of Defense, "Memo- randum on Specifications and Standards: A New Way of Doing Business," June 29, 1994.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 86 SAYING YES TO "NO CLEAN"

By Pamela Wexler

Ne

Cl Ar

y, a " hen the Montreal Protocol on Sub- )% stances that Deplete the Ozone Layer Traditional assembly of electronics products *? was signed in 1987, few commercial requires a "flux" to deoxidize metal components alternatives existed for CFC-113, an affordable before they are soldered. Once soldered, the and effective chemical widely used in the elec- assembly must then be cleaned to remove con- tronics industry to remove solder flux from ductive and corrosive flux residue, make protec- printed circuit board assemblies and to clean tive coatings stick, prevent corrosion, and facili- other electronic, optical, and precision compo- tate inspection and testing. In 1986, removal of nents. Replacing CFC-113 in these applications solder flux from printed circuit boards alone would be tough: in the two decades preceding accounted for nearly 40 percent of worldwide the Protocol, use of this chemical had skyrock- CFC-113 consumption.2 Precision cleaning appli- eted as the electronics and other high-tech cations of such sensitive instruments as gyro- industries grew rapidly. In 1987, all indications scopes, disk drives, medical equipment, and were that the use of CFC-113 would continue on optical components, as well as specialty compo- its upward trajectory. nents such as semiconductors produced in cont- amination-controlled environments, constituted Yet ultimately, many of the largest users the second major use of CFC-113. actually phased out this supposedly indispens- able chemical within five years or less, saving Numerous chemical properties made CFC-113 money and improving production in the the solvent of choice for removing solder flux process. The dramatic shift involved some from the tiny spaces between electronic compo- significant discoveries, achieved through what nents. It is strong enough to remove solder flux one expert termed "the substitution of engi- from printed circuit board assemblies, but neering for chemicals." In the electronics sec- doesn't degrade most polymers and coatings, so tor, one of the most extraordinary cost-saving it was perfect for use with plastics and other sol- responses was the refinement and commer- vent-sensitive materials. cialization of an underdeveloped "no-clean" production method first conceived in the When the Montreal Protocol was signed, 1960s.1 worldwide consumption of CFC-113 totaled

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS around 392 million pounds. Global consumption had gone up dramatically since the 1970s, both Firms that faced a potential cut in CFC supplies in total and on a per capita basis.3 In just three were extremely concerned about how much sub- years between 1976 and 1979, U.S. sales of CFC- stitutes would cost and how well they would per- 113 soared from 65.5 to 130 million pounds. form. Studies for EPA prior to 1987 concluded that no single ideal substitute for all CFC-113 The rapid expansion of the CFC market in the applications existed, and research suggested that late 1970s reflected revolutions under way in the technical options were limited. Throughout high-tech industries. Officials in the electronics the early 1980s, chemical producers of CFC-113 industry believed that CFC-113 was essential for and their customers asserted vigorously that alter- cleaning high-quality assemblies, and future natives had been explored and found wanting.8 growth in its use as a solvent was anticipated to be high.4 In 1986, the Rand Corporation pro- Industry efforts to develop acceptable replace- jected that U.S. use of CFC-113 would grow ments began in earnest in 1975 after publication faster than GNP, by approximately 5 percent of the ozone depletion hypothesis. The first annually throughout the 1990s and as much as attempts were not promising. In 1980, a Rand 9 percent annually worldwide.5 study for EPA concluded that "[EJvery substitute solvent that has come to our attention has some Ironically, environmental considerations were known or suspected risk associated with its use. driving the use of CFC-113. The boom in the Some may be hazardous to the health of work- electronics industry led to concerns about work- ers, while others are photochemically reactive ers' exposure to toxic chemicals, hazardous and thus might contribute to smog."9 Two years waste disposal, and volatile organic compounds later, Rand came to the conclusion that aqueous (VOCs) in the air. CFC-113 was low in toxicity, cleaning systems—fine on low- to moderate- nonflammable, stable, not classified as a VOC density boards—would not work nearly as well by U.S. environmental regulations, and practi- as CFC-113 on the dense boards that were gain- cally odorless. Also, workers could safely experi- ing ground in the market. For the solvent-using ence fairly high exposures, so the need for costly sector, Rand identified only three promising air circulation or dilution precautions was options for significantly reducing CFC emis- reduced. These benefits came at a low price too. sions: improved operating practices, carbon- As late as 1988, a pound of CFCs cost less than absorption recovery of CFC-113, and external a dollar, and constituted less than 1 percent of waste reclamation. Even these were unproven in the total cost of most cleaning applications.6 practice and, Rand projected, would reduce total CFCs had seemingly become indispensable. As CFC-113 emissions by about only 15 percent.10 an AT&T official observed, "CFCs are strongly favored by shop personnel. They have only a With abundant CFCs, great technical difficul- slight innocuous odor. They evaporate quickly ties, and high projected costs for alternatives, and leave no residue... To eliminate the last industry had few incentives in the 1970s to usage of CFCs at several factories, it was actually search for substitutes. In March 1986, a large necessary for the local coordinator to physically industry trade group—including DuPont, the remove spray cans from the local tool boxes and inventor and largest manufacturer of CFCs— benches of workers. One local coordinator had formed to respond to the possibility of CFC observed that 'you don't make any friends when regulations, but this alliance publicly announced you get rid of CFCs.' "7 that its members had suspended research on

WRI: OZONE PROTECTION IN THE UNITED STATKS: ELEMENTS OF SUCCESS alternatives after concluding that satisfactory be produced in six to eight years:5 given "ade- compounds could not be developed in the fore- quate regulatory incentives" to overcome con- seeable future." Members of the electronics sumer resistance to an expected price penalty. industry, speaking primarily through the Ameri- One year later, the United States signed the Mon- can Electronics Association (AEA), also were treal Protocol, agreeing to halve total CFC use by skeptical about the feasibility of CFC reductions. 1998.16 In public testimony, AEA argued that because solvent substitutes carried greater risks and DuPont's abrupt shift and increasing interna- costs, the electronics industry could at most be tional concern together lent urgency to the expected to slow its growth in CFC emissions ozone-depletion issue. The electronics industry through a combination of substitutions, contain- remained confident that the 50 percent reduc- ment, and recycling.12 tion would come from other sectors in which CFC substitutions were easier and less costly, but began to worry about whether enough CFCs would be available to meet expected growth in As scientific evidence of threats to stratospheric demand. ozone accumulated, pressure to develop policy began to mount. In May 1985, a Nature article DuPont's reversal also alarmed users. When reported the inexplicable 50 percent reduction in the company did an about-face, many users real- springtime levels of ozone over Antarctica—the ized DuPont had not been completely forthcom- ozone "hole.":3 Despite continuing uncertainty ing.1? In any case, DuPont's decision to resume about the relationship between chlorine and ozone research (and commercialization) on substitutes destruction, the hole nevertheless demonstrated plus users' fears that a chemical it relied on that the atmosphere was more vulnerable than would soon disappear from the market com- either theory or environmentalists had suggested. bined to spur electronics firms to begin their own research programs. Initial responses to reports of an ozone hole were mixed. EPA planned to continue negotiations on consensus science, but industry began re-evalu- ating its stance. Some segments of industry began The challenge companies faced in eliminating to seriously consider the possibility of eventually ozone-depleting substances to comply with the eliminating all ozone-depleting substances. But Protocol was technically difficult, expensive, and the large chemical companies, particularly solvent- potentially disruptive. CFC-113 was once thought makers, continued to stress the costs and difficul- so essential to the electronics industry that ties of sharp reductions and worked to postpone Protocol negotiators discussed excluding the regulation as long as possible.1** chemical from controls. In January 1988, at a public EPA hearing on proposed rules to imple- But as scientific understanding increased, the ment the Montreal Protocol, an American Elec- prospects for an international agreement limiting tronics Association representative warned that CFC use became more likely. Just six months EPA had "overstated the prospects for viable after signing the industry statement rejecting fur- alternatives for certain CFC-113 uses in electron- ther research into substitutes as fruitless, ics manufacturing." For most fast-growing appli- DuPont reversed its position. In September cations, the "prospects for substitution are not 1986, DuPont announced that substitutes could encouraging."18

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 89 But over the next year, published reports on the 1960s, but let the patent expire after being opportunities for reducing use of CFC-based sol- unable to achieve acceptable soldering results. vents became decidedly more optimistic. A Depart- ment of Energy review published in 1989 con- The hunt for alternative cleaning methods got cluded that "[A]s much as a 75-percent reduction in much more serious only after the Protocol was demand [for solvents] may be accomplished adopted. Numerous electronics companies through recycling and the shift to aqueous or alco- immediately began exploring alternative clean- hol-based cleaning solutions."^ In the year after ing methods. Internationally, a group of experts the Montreal Protocol was signed, announcements from industry, government, and academia about potential substitutes were made almost daily. formed under the auspices of the U.N. Environ- The search for CFC alternatives became competi- ment Programme in 1988. These Technical and tive, and the race was on to develop and install the Economic Assessment Panels (TEAPs) traveled most cost-effective technology. worldwide, conducting global surveys, spotlight- ing new technologies, and publicizing trends. In the case of "no clean," corporate and inter- national leadership and cooperation played an In March 1989, at the invitation of the Ger- important role in the process: man government, the Solvents TOC visited the German firm Seho Lotanlagen to examine a "no • Several key companies—AT&T, Ford, IBM, clean" controlled-atmosphere soldering Motorola, Nortel (formerly Northern Tele- machine. By technical standards, Seho's demon- com), Texas Instruments, and Seiko stration was judged a failure—the solder joints Epson—made early announcements that were poor, the component parts were too oxi- they intended to phase out CFCs ahead of dized, the flux was mismatched, and the solder- the Protocol schedule and were actively ing wave was poorly formed. Test boards had seeking technical solutions. solder skips and solder-ball formation. But the UNEP-sponsored professionals who hovered • The United Nations Environment Pro- around the "no clean" machine were excited gramme Solvents, Coatings and Adhesives about the technological promise of Seho's con- Technical Options Committee (Solvents cept—halting oxidation and thus virtually elimi- TOC) created an international forum for nating the need for fluxes. promising technology. Experts from the Solvents TOC working for • The Industry Cooperative for Ozone Layer AT&T, Ford, and Nortel persuaded their compa- Protection (ICOLP) helped foster a spirit of nies to experiment with the equipment. The cooperation among the innovator companies. group pinpointed the factors that could be harm- ing performance and ways to make the technol- ogy effective. Several companies, including AT&T, Motorola, Northern Telecom and Texas Instruments, placed orders for the $100,000+ For many decades welding and soldering experts machines, and their engineers began trying to have recognized the potential to assemble com- perfect Seho's concept.20 ponents using low solids flux and/or controlled- atmosphere soldering chambers. For example, a The solder wave problem was corrected in just Canadian company patented such an approach in a few weeks. Within a few months, one team

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 90 discovered that the Seho gas monitoring and spirit can be found in the dissemination of control system was badly mis-calibrated. With Nortel's "board duster," a device that determines proper chamber gas control, soldering quality the amount of flux residue left after soldering. improved dramatically. Elsewhere, engineers at Although the device is patentable, Nortel per- AT&T Bell Laboratories were developing spray mitted fellow manufacturers to duplicate it free fluxing machines that could precisely apply the of charge as one contribution to ozone layer optimal amount of flux to printed circuit boards, protection.22 while Nortel was developing equipment to verify flux concentrations on production boards. More generally, that spirit has suffused the community challenged by ozone layer protection Despite confidence in Seho's approach, corpo- that now gathers at the annual International rate researchers working alone couldn't improve CFC and Halons Alternatives Conference, which Seho's design enough. Each modification is cosponsored by the Alliance for Responsible seemed to create more problems than it solved, Atmospheric Policy in cooperation with EPA, and no single company possessed all the requi- Environment Canada, and the United Nations site technical skills or financial resources needed Environment Programme. Since the first confer- to forge ahead. But while U.S. engineers were ence in 1988, attendance has risen to over 2,100 working to refine Seho's idea, a collaboration participants from more than 50 countries. emerged to share the technical information needed to perfect "no clean" technology. The market clout of ICOLP's founders—cor- porate giants Nortel, AT&T, Motorola, Boeing, In October 1989, nine multinationals, in- Digital, Ford Motor, General Motors, General cluding some of the world's largest electronics Electric and Texas Instruments—drew in manu- firms, in partnership with U.S. EPA and others, facturers and suppliers of components, boards, formed the Industry Cooperative for Ozone Layer and flux who were excited by the potential mar- Protection (ICOLP). Each suspected that going it ket. In 1990, Nortel hosted the first workshop alone would be slow and expensive, but they all on "no clean" technology at its plant in Canada. might gain as much as they gave from tapping In October 1993, EPA and ICOLP published the into expertise and information from throughout first complete technical description and a the industry. Though competitors, ICOLP mem- methodology for selecting "no clean" ber companies took the unprecedented step of processes.23 committing to share funds, experts, and informa- tion about their experiences.21

This public-private partnership gave rise to The challenge companies faced in eliminating precisely the synergy needed. Encouraged by CFC-113 to comply with the Protocol was met EPA, businesses contributed their best experts through incremental innovations—a crescendo and production engineers. Participating compa- of adjustments and refinements sustained nies toured each others' facilities, conducted through extensive information sharing, rather tests, distributed results, and cooperatively pub- than a lightning-bolt breakthrough. Still, the lished technical papers to reveal their work. electronics industry's strategic importance, strong research orientation, and short product Driving this technical progress was a spirit of lifetimes helped these equipment manufacturers cooperation. One illustration of the cooperative to move fast. Engineers working for these high-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 91 tech leaders also greeted the CFC elimination supplies of chemicals essential for production challenge with excitement, taking immense per- was an important motivating factor, but so was sonal satisfaction in being in the vanguard of environmental leadership on the part of a few technology development and implementation. key individuals. The likelihood that government would institute a total CFC phase-out convinced EPA leadership was also crucial. In the United some companies to join in, and memories of lia- States, EPA and DoD formed an Ad Hoc Sol- bilities for improperly disposed of hazardous vents Working Group in March 1988 to develop a waste silenced more than a few cynics. program for testing and evaluating alternative cleaning procedures, clearing the way for the The fact that firms saved money by adopting revision of military specifications that required "no clean" methods that avoid the use of sol- the use of CFC-113. (See "New Marching vents cannot be underestimated, but participat- Orders.") EPA sparked collaboration among com- ing corporations reaped a great deal more indi- petitors, particularly large multinationals. It rectly. The corporations saved by pooling helped defuse skepticism about alternatives and research and development resources, and their made companies aware of the competitive disad- personnel have been enriched by contact with vantages they could expect to suffer as chemicals the best and brightest at other firms. Some became scarcer and more expensive. EPA also firms report that collaboration on ozone layer provided public recognition to reward companies protection has led to cooperation on pollution and promote change. One EPA program begun prevention and other environmental issues. in 1990 to recognize individual and corporate Eliminating CFCs enhanced the credibility of leaders gives out awards that are prized and fre- corporate environment departments, often quently mentioned in advertisements and annual boosting support for other cost-saving environ- reports. mental goals, such as waste reduction. And firms that took leadership roles reaped immense EPA also spearheaded formation of ICOLP. public relations benefits, domestically and Companies feared an industry cooperative might abroad. However hard to quantify, improved constitute an antitrust violation. But EPA had employee morale, higher quality production, and previously worked to obtain Justice Department enhanced relationships with regulators and envi- approval for the formation of private consortia ronmental groups certainly boost bottom lines. for public interest research purposes,24 partly by producing a 250-page briefing book on the Nortel. In 1988, Nortel, a worldwide telecom- National Cooperative Research Act (NCRA). The munications company based in Canada, was book contained copies of consortia that had been using roughly one million kilograms of CFCs formed under the act, copies of incorporation per year in its 42 manufacturing plants and nine papers and by-laws, and other materials. EPA research labs worldwide.25 The bulk of this was staff also met with ICOLP to answer questions the CFC-113 used to clean electronic compo- and supported the ICOLP application when it nents in telecommunications products. was submitted to the Department of Justice. Nortel was one of several large electronics The impetus to perfect "no clean" technology companies that took a more pro-active position also was driven by corporate, technical, and eco- than the American Electronics Association after nomic considerations that differed for each par- the adoption of the Montreal Protocol by pro- ticipating firm. Concern about the reliability of moting the rapid elimination of CFCs.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 92 Nortel set the standard for the early phase-out ozone layer and uneasy about its over-reliance by announcing in the fall of 1988 that it would on a chemical whose phase-out was imminent. halve its use of all CFCs by December 1991. Fur- Suspecting that the phase-out would affect sup- ther, Nortel indicated publicly that it would elim- ply and price, AT&T began a research program inate CFCs totally in worldwide operations "as to develop alternatives in 1985. In 1989, the soon as technically and operationally possible."26 company announced its goals of reducing sol- Foreseeing the phase-out agreed to in the Lon- vent use of CFC-113 in manufacturing opera- don Amendments to the Montreal Protocol, Nor- tions by 50 percent by the end of 19 91 and tel was privately aiming for total elimination in eliminating all CFC use by 1994.28 This sched- the same three-year time frame. ule was faster than national and international regulations required and was supported by the To implement the corporate-wide commitment CEO and Board of Directors for economic rea- throughout a decentralized production system, sons (to avoid the higher costs imposed by the the company created task forces focussing on CFC tax) and because the company had a CFC conservation, the development of alterna- strong commitment to being an environmental tives, and outreach to other stakeholders in the leader. AT&T facilities in Madrid, Bangkok, CFC phase-out (such as chemical manufactur- and Guadalajara were designed to be CFC-free ers, equipment-makers, and government agen- from the start.29 cies). Senior leadership encouraged employees to work in the task forces, to test substitutes, Over the period from 1986 to 1994, as CFC and to take part in technical workshops within costs increased from about 60 cents per pound and outside the company. Production managers to around $14 per pound, AT&T estimates that were given a directive and the independence it has saved around $44 million in raw mater- needed to innovate on the shop floor. Nortel ial costs by eliminating CFC usage from sol- headquarters spurred employees on by keeping dering processes and generally from other close track of CFC solvent purchases and con- applications.3° sumption at every facility, triggering an informal competition to "get to zero" first. Motorola. Initial key decisions at Motorola were made in 1989 when the company publicly The accelerated timetable was realized: on Jan- committed to phase out CFCs by the end of uary 10, 1992, 60 corporate locations worldwide 1992 and emissions of all ozone-depleting celebrated "A Clear Day" to herald the successful substances by 1993. In its search for alterna- elimination of CFCs in Nortel manufacturing tives, Motorola focussed principally on terpine, operations. To meet its 1991 phase-out goal, a citrous derivative. This option was attractive Nortel invested approximately $1 million to pur- because it was technically feasible. Ultimately, chase and employ new hardware, but saved $4 Motorola discovered that it was possible million in avoided costs of chemical waste dis- through the use of different fluxes and other posal and CFC purchases over the three-year production changes to eliminate the cleaning phase-out.27 Better yet, Nortel found that its new process entirely. By early 1993, cleaning manufacturing process is more efficient and of had been eliminated from up to 60 percent higher quality. of Motorola's production processes; today, that figure is even higher. Terpine is used in ATe[T. Like its industry counterparts, AT&T, those few other processes that still require became increasingly concerned about the cleaning.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 93 Ford Motor. The Ford Motor Company devel- Developing "no clean" technologies presented oped "no clean" inert gas soldering processes to suppliers and users with large research and test- replace CFC solvent cleaning systems. Eliminat- ing costs, and companies didn't know whether ing CFC-113 emissions in this way opened up EPA and DoD would approve the new technolo- room on the production floor. Flux material gies. EPA helped catalyze the interest in perfect- usage was reduced by 20 percent and thinner ing "no clean" technology, sparked innovation by purchases were completely eliminated. Capital accelerating the dissemination of testing data, equipment expenditures were quickly recovered and supported critical private sector collabora- and additional long-term savings were realized tion through ICOLP. in materials consumption, quality products, and equipment reliability.?1 3. Partnerships Unprecedented technical cooperation among com- petitors was crucial to the development of "no clean" How did electronics firms so quickly give up technology. their favorite solvent, CFC-113, and develop such innovative solutions as "no clean" technology? The range of skills needed to develop impor- Three contributing factors stand out: tant technologies like "no clean" are rarely con- centrated within a single institution. Even for the technically sophisticated ICOLP member 1. Corporate Leadership institutions, perfecting a process as complicated High-level leadership within companies was a as "no clean" could not be accomplished single- potent force for successful phase-out initiatives. handedly or inexpensively. But when these play- ers combined their technical expertise and mar- In the case of "no clean" technology break- ket clout, it was possible to commercialize and throughs were not achieved by special research implement "no clean" technologies rather divisions, but by production managers, often at a quickly. While commercial rivalry has not been plant level, backed by senior management that entirely absent, the depth and extent of coopera- provided the leadership and resources. Goal-set- tion has been remarkable. Technology that in ting announcements by senior management, capi- other circumstances might have been closely tal outlays for product testing and implementation, guarded as industrial secrets instead has been and support for employee participation at confer- shared widely and written up in scientific and ences and in working groups and committees trade journals. The "no clean" experience unleashed creativity at the production level. High- demonstrates that problems typically thought to level managerial involvement (often by a senior be insurmountable—such as antitrust and intel- vice president for environment) proved essential lectual property—are not always real barriers. in the search for non-traditional solutions.

1. This case study was based in part on research commis- 2. Industry-Government Collaboration sioned but not published by the U.S. Congressional While most of the credit for developing and imple- Office of Technology Assessment. menting "no clean" technologies should go to 2. ICF Incorporated, Chloroftuorocarbons in the Electronics individual corporations, governmental involvement Industry: A Use and Substitute Analysis (Washington, was beneficial and perhaps necessary. D.C.: August 31, 1987).

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 94 3. U.S. Environmental Protection Agency, Regulatory 12. "Statement of Bud Ward, American Electronics Associ- Impact Analysis: Protection of Stratospheric Ozone, ation," in U.S. Environmental Protection Agency, Exhibit 3-5 (Washington, D.C.: December 1987), 3-9. Stratospheric Ozone Protection, Hearings, January 7, 1988, 131. 4. E.I. Du Pont De Nemours & Co., "Position Paper on Chlorofluorocarbon/Ozone Depletion Issue," August 13. Joe C. Farman, B.G. Gardiner, and J.D. Shanklin, 1979; E.I. du Pont de Nemours & Co, "Alternatives to "Large Losses of Total Ozone in Antarctica Reveal Sea- Fully Halogenated Chlorofluorocarbons: the Du Pont sonal ClOx/NOx Interaction," Nature, May 16, 1985, Development Program," Fluorocarbon/Ozone Update, vol. 315: 207-210. June 1980. As late as February 1986, a paper pre- sented by the Du Pont Company and presented at an 14. Richard E. Benedick, Ozone Diplomacy (Cambridge, EPA workshop concluded that "all promising [alterna- Massachusetts: Harvard University Press, 1991), 134. tive] compounds identified have one or more limita- tions." Alliance for Responsible CFC Policy, A Search 15. "Du Pont Position Statement on the Chlorofluorocar- for Alternatives to the Current Commercial Chlorofluoro- bon/Ozone/Greenhouse Issues," Environmental Con- carbons, February 24, 1986. servation, 1986, vol. 13, no. 4: 363-364.

5. James K. Hammitt et al., Product Uses and Market 16. United Nations (UN), Montreal Protocol on Substances Trends for Potential Ozone-Depleting Substances, that Deplete the Ozone Layer, adopted and opened for ig8$-2ooo (Santa Monica, California: Rand Corpora- signature September 16, 1987, and entered into force tion, 1986). 26 I.L.M. 1541 (January 1, 1989).

6. Forest Rheinhardt, "Du Pont Freon Products Divi- 17. Alan S. Miller, Center for Global Change, University of sion," Harvard University, Harvard Business School Maryland, personal communication to Pamela Wexler, Case Study (Washington, D.C.: prepared for the Center for Global Change, University of Maryland, National Wildlife Federation, January 1989). March 1995.

7. W. Boyhan, "Approaches to Eliminating Chloro- 18. "Statement of Bud Ward, American Electronics Associ- fluorocarbon Use in Manufacturing," Proceedings of the ation," in U.S. Environmental Protection Agency, National Academy of Sciences, February 1, 1992, vol. 89, Stratospheric Ozone Protection, Hearings, January 7, no. 3: 812-814. 1988, 131. 19. Energy Information Administration (EIA), Potential 8. Adele R. Palmer et al., Economic Implications of Regu- Costs of Restricting Chlorofluorocarbon Use (Washington, lating Chlorofluorocarbon Emissions From Nonaerosol Applications (Santa Monica, California: The Rand Cor- D.C.: EIA Service Report SR/ESD/89-01, August poration, June 1980); WE. Mooz et al., Technical 1989). 27. Options for Reducing Chlorofluorocarbon Emissions 20. Stephen O. Andersen, U.S. Environmental Protection (Santa Monica, California: The Rand Corporation, Agency, personal communication to Pamela Wexler, March 1982). Center for Global Change, University of Maryland, February 1995. 9. Adele R. Palmer et al., Economic Implications of Regu- lating Chlorofluorocarbon Emissions From Nonaerosol 21. Therese Keane, The International Cooperative for Ozone Applications (Santa Monica, California: The Rand Cor- Layer Protection (ICOLPj 3990-1995: A New Spirit of poration, June 1980). Industry and Government Cooperation (Washington, D.C.: Masterprint, June 1995). 10. WE. Mooz et al., Technical Options for Reducing Chloro- fluorocarbon Emissions (Santa Monica, California: The 22. Ibid. Rand Corporation, March 1982). 23. U.S. Environmental Protection Agency, No-Clean Sol- 11. Alliance for Responsible CFC Policy, A Search for Alter- dering to Eliminate CFC-11} and Methyl Chloroform natives to the Current Commercial Chlorofluorocarbons, Cleaning of Printed Circuit Board Assemblies (Washing- February 24, 1986. ton, D.C.: 1993)-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 95 24. Therese Keane, The International Cooperative for Ozone National Academy of Sciences, February i, 1992, vol. 89, Layer Protection (ICOLP) lggo-iggy. A New Spirit of no. 3: 812-814. Industry and Government Cooperation (Washington, D.C.: Masterprint, June 1995), 14. 29. Therese Keane, The International Cooperative for Ozone Layer Protection (ICOLP) iggo-iggy. A New Spirit of 25. Margaret Kerr, statement (presented to the UNEP Work- Industry and Government Cooperation (Washington, shop on Substitutes and Alternatives to CFCs and D.C.: Masterprint, June 1995), 26. Halons, The Hague, Netherlands, October 19-21,1988). 30. Joe Horine, AT$T Environment and Safety Report: igg4 26. Ibid. (Basking Ridge, New Jersey: AT&T, 1994), 4.

27. Therese Keane, The International Cooperative for Ozone 31. Jay Baker and Peter J. Sinkunas, "CFC Solvent Elimi- Layer Protection (ICOLP) iggo-iggy. A New Spirit of nation in Electronics Soldering: Ford Motor Com- Industry and Government Cooperation (Washington, pany," igg4 International CFC and Halon Alternatives D.C.: Masterprint, June 1995). Conference and Exhibition: Conference Proceedings (Washington, D.C.: Alliance for Responsible Atmos- 28. W. Boyhan, "Approaches to Eliminating Chlorofluoro- pheric Policy, 1994), 472-475. carbon Use in Manufacturing," Proceedings of the

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 96 CHILLING OUT

By Reynaldo Forte and Robert Livernash

I Si-

Ai

' n the late 1980s, many industries didn't efficient chiller, which were established by 1988, think they could both eliminate CFCs and were an additional incentive. =, maintain product quality. Especially pes- simistic were manufacturers of refrigeration and air-conditioning equipment—including large building "chillers." The January 1996 cutoff of domestic CFC pro- duction created a difficult technical and competi- In a March 1987 letter to House Energy Chair- tive challenge for manufacturers of chillers, the man John D. Dingell (D-Mich.), Air-Condition- standard cooling system for large buildings, and ing and Refrigeration Institute President Arnold added another financial challenge to the list fac- Braswell expressed his concern about a rapid ing building owners. Chillers are so-named phase-out of CFC chillers. "Some phase-out because they chill water that is then used to cool schedules we have heard of, such as five or six air. An estimated 80,000 CFC chillers were in years, are simply impossible," Braswell said, service in 1992.2 Most contained a thousand or adding that it "would take at least eleven years to more pounds of refrigerant; older units often get new equipment on the market using a new leaked as much as 25 percent of their CFC refrigerant, assuming that such a refrigerant charge annually. 3 could be developed."1 Already struggling through hard economic Remarkably, chiller manufacturers pulled CFC times in the early 1990s and faced with a number chillers off the market before January 1,1993— of expensive government mandates, such as pro- less than six years later. Although chiller manufac- viding accessibility for the handicapped, building turers originally thought a CFC phase-out would owners that used cooling units with CFC refriger- set back progress on making chillers more energy ants now had some difficult choices before them. efficient, the opposite proved true. Indeed, com- They could install new safeguards and maintain petition in the industry spurred leaders to intro- older chillers with CFC refrigerants, thus gam- duce new chillers that use alternative refrigerants bling on future supplies of CFCs; convert these and accelerate improvements in energy efficiency. chillers to use alternative refrigerants; or buy new Utility-sponsored rebates for the buyer of a more chillers that use alternative refrigerants.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 97 To some extent their hand was being forced by to control costs. The CFC phase-out created an the highly competitive chiller-manufacturing industry race to develop alternative products and industry. York International introduced the first a significant additional incentive to make chillers CFC-alternative chiller in 1988, using the refrig- more efficient. It also probably compressed the erant hydrochlorofluorocarbon (HCFQ-123. ^n pace at which building owners converted or mid-1992, three chiller companies—York, The replaced equipment. Trane Company, and McQuay (formerly Snyder General)—announced their intention to stop sell- ing CFC-based equipment in the United States by January 1, 1993.4 A short while later, Carrier In 1995, chiller manufacturers sold almost was the first to announce a worldwide phase-out 10,000 new units, a 32-percent increase over the of CFC-using equipment by the end of 1994. previous year. Non-CFC chillers were being Well before the CFC production phase-out, all shipped around the world, especially to Europe, major chiller manufacturers voluntarily halted Asia, and Latin America.6 In the United States, the sale of CFC chillers, offering in their place however, the pace of conversions has proven chillers with alternative refrigerants that utilized somewhat disappointing. By the time of the Jan- both energy and refrigerant more efficiently. uary 1996 production ban, U.S. building owners had converted or replaced fewer than 15,000 (18 Two other actors—utilities and EPA—also percent) of the nation's 80,000 CFC units. By deserve credit for this rapid shift. Utilities offered the start of 1999, chiller manufacturers estimate generous rebates to owners to encourage them to that 43 percent of all units will have been con- invest in more energy-efficient systems that verted or replaced. That still leaves more than would forestall the need for new powerplants by 45,000 units running on CFCs.7 As a result, reducing energy demand. (Chiller equipment is many more units will need CFCs for servicing the single largest consumer of energy in large far longer than expected, and less refrigerant commercial buildings.5) EPA helped facilitate the will be available for reuse because fewer CFC process by "pushing" industry along. The agency units will be taken out of service. Thus, while provided a forum for chiller manufacturers and substantial progress has been made to improve operators. The international and domestic policy new equipment, the story is far from finished. process also contributed some confusion to the outcome. The EPA could not begin developing rules and regulations for acceptable alternative refrigerants until after Congress passed the For the three key actors—building owners, Clean Air Act Amendments in late 1990, so both chiller manufacturers, and utilities—several manufacturers and building owners were playing forces drove change: a difficult guessing game in the late 1980s and early 1990s. 1. Laws and Regulations. Under Section 612 of the 1990 amendments to the Clean Air Act, the Overall, the chiller story has been driven by Environmental Protection Agency was required market forces. Each company's aggressive effort to establish the Significant New Alternatives to capture a large market share with environ- Policy (SNAP) program, which would identify mentally friendlier technologies was reinforced alternatives to ozone-depleting substances and by the utility industry's interest in reducing publish lists of acceptable and unacceptable sub- energy demand and by building owners' desire stitutes. After the final rule was published in

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 98 March 1994, it became illegal to use any substi- to help turn up substitutes.9 In 1986, CFC-11 tute that EPA determined would harm human was selling for about $.70 per pound. A com- health or the environment if other substitutes bination of the excise tax and market conditions that reduced overall risk were currently or poten- has pushed the current price up in the tially available.8 $11-14 Per lb. range.10 The price signals created by the tax have had a powerful impact in lower- The development of the SNAP rules presented ing CFC consumption. (See "Taxing Pollution.") both building owners and chiller makers with a difficult guessing game. In the early 1990s, 2. Standards. The confusion about alternatives before EPA could issue rules providing guidance was eased as industry and EPA agreed to cooper- and requirements for CFC refrigerant manage- ate in developing standards and promulgating ment, chiller operators began planning for the Clean Air Act rules on phasing out CFC refriger- disappearance of CFC refrigerant supplies. The ants. EPA stressed that every company needed technical advice they received from chiller man- to look at which alternative refrigerant would ufacturers didn't always help since each manu- best fit its needs and understand that one com- facturer, protecting its market niche during the pound was not the best solution for everyone. phase-out, promoted its own vision of the future based on the technologies it was marketing. The manufacturers of chillers were the driving Confused, some of the chiller operators simply force in updating the various ARI (Air Condition- stood back and waited for someone else to take ing and Refrigeration Institute) standards and in the first step. creating new ASHRAE (American Society of Heating, Refrigerating, and Air-Conditioning For the manufacturers, the challenge proved Engineers) standards. For example, ASHRAE even greater. The 1987 Montreal Protocol put the standard 90.1 sets minimum energy-efficiency industry on notice that CFCs were on their way levels for new chillers. Since CFC-11 is theoreti- out, but the federal government offered little cally more energy-efficient than most alterna- guidance about acceptable alternatives. To make tives, ASHRAE standards reflect the assumption chillers with alternative refrigerants commer- that chillers with alternative refrigerants would cially available to operators in time for the phase- be less energy-efficient than chillers with CFCs. out and to allow time for product redesign and But since numerous engineering innovations testing, they needed to begin selecting technolo- greatly improved efficiency, in most cases new gies and strategies during the late 1980s, well equipment is more efficient than the minimum before EPA was to rule on which alternative standards. According to a 1993 study in New refrigerants were acceptable. To make matters England, new chillers between 150 and 300 tons worse, many refrigerant manufacturers had not had an average installed efficiency between 0.68 decided which refrigerants to make for chillers and 0.70 kilowatts of power per ton of refrigera- nor determined which had passed toxicity tests. tion produced (kW/ton)—substantially better With the large amounts of product development than the ASHRAE-required 0.84 kW/ton.11 capital at risk, this uncertainty intensified compe- tition and conflicts among chiller manufacturers. EPA used both ASHRAE and ARI standards as the basis for many of its rules for CFC Another significant incentive, of course, was refrigerant recycling (some are directly refer- the "ozone-depleter tax" enacted by Congress in enced). In fact, the standards have become inter- 1989 to raise revenue and permit market forces national guidelines for reducing CFC emissions.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 99 Under EPA rules, CFC, hydrofiuorocarbon (HFC), and HCFC refrigerants cannot be vented to the atmosphere during servicing, conversion, or replacement. Owners of equipment with charges of greater than 50 pounds are required to repair equipment leaks when those leaks together would result in the loss of more than a certain percentage of the equipment's charge over a year. For the commercial and industrial process refrigeration sectors, leaks must be repaired when the appliance leaks at a rate that would release 35 percent or more of the charge powerplants and by increasing energy savings. over a year. For all other sectors, including com- Many utilities offered to provide building own- fort cooling, leaks must be repaired when the ers with audits, simulations, and rebates for appliance leaks at a rate that would release 15 installing high-efficiency chillers. Rebates can percent or more of the charge over a year.12 reduce the payback time for building owners and substantially broaden the market for a com- 3. The Bottom Line. Economic considerations prehensive package of improvements or the were important for all three players. For build- installation of new chillers. Yet, the future avail- ing owners, installing a new chiller represented ability of such rebates is in doubt as demand a sizable capital investment; a 1,000-ton chiller side management (DSM) budgets rapidly would cost at least $250,000. But building own- decline in response to utility industry deregula- ers would typically spend that amount every tion. Continuing opportunities for low-cost three years in operating costs and might spend financing, however, may help mitigate this $2.5 million—ten times the initial capital cost— trend. over the 30-year life of the chiller. So the effi- ciency and annual energy costs of a chiller With only four large-capacity CFC-based couldn't be ignored either. Though expensive, a chiller manufacturers in the United States, the comprehensive package of improvements could potential conversion or replacement of 80,000 provide enough energy savings to pay back the chillers presented an enormous market opportu- initial investment in three to four years.:3 Own- nity and an intense competitive challenge to ers had to consider this investment in the develop reliable and cost-effective chiller tech- broader context of other cost-saving building nologies. Manufacturers were also being driven improvements and other capital expenditures. by the demand in the marketplace for more Further complicating the choice were the energy-efficient equipment; not developing such prospect of deregulation of the electric utility equipment could mean a substantial loss of industry and the uncertain impact that might market share. have on electricity prices.

For utilities, an aggressive program to work with building owners to install high-efficiency The CFC phase-out presented a daunting techni- chillers and improve building efficiency would cal challenge for the chiller industry. Chillers yield potentially large rewards by reducing both come in two basic types. Vapor expansion tech- peak demand and capital requirements for new nology utilizes the cooling effect produced when

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS IOO compressed liquids expand into gases, while Carrier introduced a revolutionary new tur- absorption technology takes advantage of the bine engine technology that makes chillers temperature changes that occur as gases are up to 17 percent more efficient than their absorbed into and out of a secondary fluid. The previous units.16 This technology recovers switch to new refrigerants requires basic energy that would otherwise be lost during changes in design and tooling because the phys- the vapor expansion cycle. While turbine ical and thermodynamic properties of new technology is commonly used in automotive refrigerants differ from those of CFCs. and other industries, using it in chillers rep- resented a technological breakthrough Accommodating new refrigerants gave manu- because of the need to accommodate a facturers and engineers the chance to simultane- refrigerant stream consisting of both liquid ously improve energy efficiency, reduce refriger- and vapor. Carrier has also introduced a new ant consumption rates, and decrease operating line of chillers with built-in containment costs. The companies that were the most suc- and a design leak rate of less than 0.5 per- cessful were those that were flexible and able to cent of the charge annually.:? work in an uncertain environment. All four manufacturers made significant progress: McQuay International was a pioneer in devel- oping chillers based on HFC-i34a to replace • The Trane Company improved its already CFC-12 and CFC-500 chillers. The company highly efficient Earth-Wise Centravac chillers adapted its highly efficient dual-compressor to achieve 0.50 kW/ton and better by using centrifugal chillers to HFC-i34a. These microprocessor-based controls and incorpo- chillers are equipped with two compressors, rating an economizer cycle. Trane two oil coolers, two oil pumps, and two con- redesigned its purge system, resulting in trol panels so they can operate at 60-percent near zero servicing emissions, and incorpo- capacity using only one compressor at full rated over 200 design changes that together load.18 reduced refrigerant emissions to less than 0.5 percent per year.:4

• York International expanded the operational range of screw chillers, providing high effi- Chiller makers have focussed their efforts pri- ciencies in the lower capacity range; intro- marily on electric chillers using HFC and HCFC duced a natural gas engine-driven chiller designs, but some have also improved gas- in conjunction with Caterpillar, Inc., offer- absorption chillers utilizing non-fluorocarbon ing the best performance for gas-driven alternatives. Environmental groups concerned chillers operating at less than full capacity; about the environmental impact of HFCs and and developed a third-generation variable HCFCs, in terms of global warming and ozone speed drive for centrifugal chillers that depletion, see promise in non-fluorocarbon achieves energy savings of up to 30 per- designs.r9 cent over fixed-speed designs.*5 York is also replacing systems operating at 0.80 These systems are constructed very differently kW/ton and higher with ones operating at from CFC chillers. Some can use either lithium 0.60 kW/ton and lower—sometimes sub- bromide or ammonia refrigerants and are com- stantially lower. mercially available today. Some run on natural

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

IOI gas for on-site electricity generation and use the cling are all part of maintenance and operation waste heat for heating and air conditioning. In of today's chillers. large buildings, such systems can be connected to the local power grid so that the local system can buy power from and sell power to the cen- tralized system. On-site electricity generation with waste heat used for heating and cooling has Building owners have to consider several criteria many advantages, including zero ozone deple- when deciding whether to retrofit, replace, or tion, higher energy efficiency, reduction in the adopt containment measures for their chillers. peak electricity load, and possible compatibility Chiller replacement cost, operating expenses, with a transition to solar hydrogen and solar servicing requirements, remaining service life, absorption air conditioning.20 the projected availability and cost of refrigerants, and other factors drive this decision. Other non-fluorocarbon refrigerants, such as carbon dioxide, water, ethers, and hydrocarbons, One option building owners have is to use an are under some consideration for use in future energy service company, which can conduct a chillers.21 comprehensive life cycle cost analysis for the alternative chiller options. Owners in no finan- cial position to retrofit or replace their chillers may instead decide to keep the systems tight and stockpile CFC refrigerants needed to run Chiller operators and enterprises providing the system until it can be retrofitted or replaced, installation, maintenance, and repair services though this choice is riskier than the others also innovated in response to the impending since future availability of CFCs is unknown. phase-out of CFCs. As concern heightened over the prospect of increasingly scarce CFC refriger- Option 1: Maintain Existing Equipment. Owners ant supplies and as EPA refrigerant recycling opting to maintain the chillers they have with rules took effect, chiller operating and servicing CFC refrigerants are to some extent venturing personnel developed and refined techniques to into uncharted waters. To comply with EPA's reduce refrigerant leakage and venting. With CFC-recycling regulations, building owners help from industry, EPA developed training and must train and certify service technicians under certification rules and educational materials that EPA-certified guidelines, install new equipment accelerated this trend, both by raising conscious- designed to minimize refrigerant losses, keep ness of the issue and by helping chiller servicers meticulous records of refrigerant purchase and formulate plans for reducing CFC emissions use, immediately identify and repair refrigerant during chiller operation and repair. leaks, and locate reserve refrigerant supplies. These modifications vary depending on the size In the last five years, almost every aspect of and age of the unit. A 15-year old, 500 ton refrigerant development, marketing, and service chiller, would cost about $20,000 to $30,000 has changed. Highly efficient refrigerant purge for parts and labor.22 and recovery systems, built-in containment, extensive refrigerant monitoring and manage- What this strategy might ultimately cost over ment through leak detection and microprocessor the next decade is less clear, however. For exam- control, and far-reaching reclamation and recy- ple, as CFC supplies dwindled, prices would

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 102 rise. If they could get any CFCs at all, building made this retrofit a success was a new, owners almost certainly would be paying high smaller, more efficient chiller driveline—a prices that could make maintenance more 900-horsepower (hp) motor, downsized expensive. Even so, many building owners with from the original 2,000-hp motor, and a newer CFC-n chillers may choose this option 1,035-ton single-stage compressor—along until their units age. with a new starter and controls.

Option 2: Convert Existing Equipment. Building The retrofitted chiller system is projected to owners considering converting their chillers to save more than 1.3 million kWh per year and alternative refrigerants have several choices. In a reduce the building's peak electrical demand simple conversion, only seals, lubricants, and by 415 kW. These efficiency improvements other incompatible materials are changed, such earned an installation rebate of over conversions usually reduce the chiller's full-load $86,000 from Pacific Gas & Electric capacity and efficiency. The cost of a simple con- (PG&E), and will cut the Bank's operating version is about 20 to 30 percent of the cost of a expenses by about $65,000 annually. The new chiller. In engineered conversions, losses in total cost of the retrofit project was approxi- capacity and efficiency are minimized by mately $350,000, so the investment will pay mechanical modifications such as gear changes. for itself in around four years.24 Such conversions, which usually cost about half as much as new equipment, reduce perform- Option 3: Install New Equipment. This option ance slightly. In driveline conversions, the entire requires the chiller operator to make a signifi- motor and compressor driveline assembly plus a cant investment. But besides completely elimi- new package of microprocessor controls are nating dependence on CFC refrigerants, it installed. Performance loss isn't a problem, but allows the operator to capitalize on other the conversion cost about 60 to 80 percent of a improvements in design, such as enhanced new chiller. 23 Finally, since many chillers are energy efficiency and decreased refrigerant con- substantially oversized for their applications, a sumption. As part of the installation, building driveline conversion can be combined with a owners generally install high-efficiency lighting significant reduction in chiller capacity, actually and make other improvements to reduce cooling increasing efficiency. For example: loads, so the new unit can be smaller and less expensive than the one it replaces.25 • The Bank of America Building in San Fran- cisco is undergoing a chiller retrofit, thus For example: saving more than 1.3 million kilowatt-hours of energy (kWh) per year. The retrofit • In 1992, the managers of the John Muir allowed one of three 30-year-old centrifugal Medical Center in Walnut Creek, California, chillers—a 1,750-ton, multi-stage unit—to be realized that something had to be done converted from CFC-12 refrigerant to HFC- about the center's cooling system. From 134a. Thanks to numerous energy-saving 1964 to 1989, the center had expanded from measures previously taken, the facility's 100,000 square feet and one 260-ton chiller cooling load was reduced, so the chiller to 368,000 square feet and four chillers. A could be downsized to more closely match 560-ton unit was installed in 1974, and two current load, thus increasing operating effi- 200-ton units were installed in 1989 in a ciency and central plant diversity. What second cooling plant. By 1992, it was appar-

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 103 ent that the original cooling capacity could and 20 percent better than even some 1990 no longer handle cooling needs on the models. Gains since 1990 exceed progress made hottest days of the year. The center's aging from 1975 to 1980 in response to the energy cri- chillers were becoming less reliable and sis. 27 (See Figure 1.) more expensive to repair and the system used CFCs, which the center's managers The economic benefits of these improvements wanted to eliminate. depend heavily upon how many chiller operators invest in replacing their CFC chillers with the With the help of energy and design consul- more efficient non-CFC chillers and how tants, the center looked exhaustively at pos- quickly. Based on current trends, EPA estimates sible solutions, at the present and future that in 1999, U.S. chiller operators will be sav- costs of energy and refrigerants, at types ing 7 billion kilowatt hours per year—reducing and combinations of equipment, and at the nation's annual energy bill by $480 mil- opportunities to add capacity, improve relia- lion.28 In addition, chiller owners will save bility, simplify operations and maintenance, money as a refrigerant consumption and leak- and improve comfort. After much study, the age drop and the use of smaller systems increas- center team decided to install two new alter- ingly fit the bill. native refrigerant 550-ton, electrically driven centrifugal chillers in one cooling plant, U.S. chiller manufacturers also are being (electricity savings: 33 percent); rearrange rewarded abroad for their efforts as markets the cooling water piping and pumps for open in other countries. As CFC phase-outs pro- added flexibility; and consolidate the cooling ceed in other countries, chiller operators there towers into a single new dual-tower installa- encounter many of the same difficulties experi- tion to improve efficiency and indoor air enced in this country. U.S. chiller manufacturers quality. can now offer products already redesigned to resolve the difficulties. As a result, foreign sales The budget for the project was $1.3 million, of chillers by at least one U.S. manufacturer but the center estimated annual savings of (Trane) have risen approximately 300 percent in $50,000 per year, and Pacific Gas and Elec- the last 5 years.2? tric contributed a $27,000 rebate.26 During the first summer of operation, the new Finally, the environment is benefitting. EPA plant alone was able to support the entire estimates that if all installed CFC chillers were facility, saving an additional $30,000. replaced with new near-zero emission chillers, global warming would be reduced by as much as if some 36 million metric tons of carbon dioxide per year were kept out of the atmosphere. Fur- The phase-out of CFCs in chillers is providing thermore, the increased energy efficiency of new impressive environmental and economic bene- chillers is forecast to reduce annual power plant fits. Even though utility rebate programs were in emissions by more than 10 million metric tons place by 1988, the jump in energy efficiency of carbon dioxide.?0 Since chillers last 25 years occurred mostly after 1990, when the CFC on average, the total combined decrease in phase-out began. New chillers are up to 40 per- greenhouse gas emissions over this time period cent more energy-efficient than the models they would total over 1,000 million metric tons of are replacing from the late 1960s and 1970s— carbon dioxide equivalent—the same impact as

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 104 FIGURE 1 TREND OF INCREASING EFFICIENCY IN CHILLERS

1973-1980 1990 0.9- Energy Crisis Protocol amendment requires CFC phase-out by 2000; U.S. CFC tax takes effect 0.8-

0.7-

S 0.6- o 1987 U Utilities begin rewarding chiller efficiency, Montreal 0.5- Average efficiency Protocol mandates 50% cut Good efficiency in CFC use 0.4- 1 1 r T —I— T ~i r 1975 1980 1985 1990 1995

Gains since 1990—made during the CFC phase-out—exceed progress made in response to the energy crisis.

Note: Graph indicates efficiency at full load capacity.

getting 9.6 million cars—about 7.5 percent of The CFC phase-out forced chiller manufac- the U.S. fleet—off the road.31 turers to redesign their products and presented them with an unusual opportunity to capture new market share with potentially large domestic and overseas sales. Competition to bring new technol- What elements contributed to the early phase-out ogy on line first has been keen, and advertising— of CFCs, improved refrigerant leakage control, using ozone protection, energy efficiency, green- and enhanced energy efficiency in new chillers? house gas mitigation, and improved refrigerant leak rates as selling points—aggressive. By turn- ing a potential liability into an advantage, the 1. Competitive Opportunity chiller industry has delivered superior products to Chiller manufacturers transformed the CFC phase- the marketplace. New high-efficiency chillers leak out challenge into a competitive opportunity. less than 0.5 percent of their refrigerant charge

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 105 per year and are up to 20 percent more energy- businesses have adopted new more environmentally efficient than their already efficient predecessors sound refrigerant-handling practices. from the early 1990s. The ozone-depletion issue has forever changed the status quo in the operation and service of 2. Economic Incentives chillers and other refrigeration equipment. It is Utility energy efficiency rebates and the CFC tax cre-no longer acceptable to vent refrigerants to the ated economic incentives for building owners to retro-atmosphere. Advanced leak control technology, fit or replace their CFC chillers, which in turn createdrecovery, and recycling, and refrigerant conser- a market demand for improved chiller equipment. vation are here to stay.

Electric utilities and building owners looking to cut operating costs became market forces for more efficient and less leaky chillers. The cost of convert- 1. "Letter from Arnold W. Braswell, President, Air-Condi- ing or replacing chillers can be rapidly offset by tioning and Refrigeration Institute," in House of Rep- resentatives Subcommittee on Health and the Environ- reduced annual energy costs and utility rebates. Fur- ment of the Committee on Energy and Commerce, ther, by switching to alternative refrigerants, build- Ozone Layer Depletion, Hearings, March 9, 1987, ing owners insulated themselves from the cost of 534-540. increasingly expensive and scarce CFC supplies. 2. Air-Conditioning and Refrigeration Institute, "World Demand for Chillers Sets New Record, Huge U.S. Market Looms For Replacement Units," News Release, 3. Government-Industry Cooperation April 3, 1996. Cooperation among chiller manufacturers, industry associations (such as ARI and ASHRAE), and 3. Thomas A. Mahoney, "Chillers Lose 25% of Charge EPA smoothed the transition away from CFCs. Annually," The Air Conditioning, Heating and Refrigera- tion News, July 13, 1992, vol. 186, no. 11: 40.

When the phase-out began, plans for adopting 4. "Chiller Manufacturers to Halt Shipments of CFC alternative refrigerants were fraught with uncer- Equipment," Air Conditioning, Heating

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 106 10. Eugene Smithart, The Trane Company, personal com- Committee (New York, New York: UN Environment munication to Reynaldo Forte, U.S. Environmental Programme, 1994). Protection Agency, August 1996. 22. J.R. Parsnow, Director, Environmental Systems Mar- 11. "Commercial Space Cooling and Air Handling Tech- keting, Carrier Corporation, personal communication nology Atlas," E Source, June 1995, no. TA-SC-95: to Reynaldo Forte, U.S. Environmental Protection 284-290. Agency, January 25, 1995.

12. U.S. Environmental Protection Agency, "Protection of 23. Chris Robertson et al, "Turning the CFC Phase-out Stratospheric Ozone; Refrigerant Recycling," Federal Into Energy and Dollar Savings," E Source, June 1994, Register, May 14, 1993, vol. 58, no. 92. no. TM-94-3.

13. "Commercial Space Cooling and Air Handling Tech- 24. York International Corporation, "Bank of America nology Atlas," E Source, June 1995, no. TA-SC-95: Banks on Energy Savings With HFC-i34a Chiller 284-290. Retrofit Project," News Release, November 5, 1993.

14. "Carrier, Trane Announce Chiller Efficiency Improve- 25- Chris Robertson et al., "Turning the CFC Phase-out ments," Global Environmental Change Report, April 22, Into Energy and Dollar Savings," E Source, June 1994, 1994, vol. 6, no. 8: 7. no. TM-94-3.

15. Robert W. Schmitt, York International, letter to Rey- 26. Vincent Scoccia, "John Muir Medical Center," Energy el naldo Forte, U.S. Environmental Protection Agency, Environmental Management, Winter 1996: 27-31. June 16, 1995. 27. Trane Company, "CFC's: Today There Are Answers," 16. Mathew J. Chadderdon, Carrier Corporation, letter to pamphlet (La Crosse, Wisconsin: August 1994). Reynaldo Forte, U.S. Environmental Protection Agency, June 23, 1995. 28. Air-Conditioning and Refrigeration Institute, "World Demand for Chillers Sets New Record, Huge U.S. 17. "Carrier Lowers Chiller Leakage Rates," Global Envi- Market Looms For Replacement Units," News Release, ronmental Change Report, September 9, 1994, vol. 6, April 3, 1996. no. 17: 8. 29. Eugene Smithart, The Trane Company, personal com- 18. Jay Eldridge, "The Improvement in Energy Efficiency munication to U.S. Environmental Protection Agency, and Leakage Control in Chillers: Case Study Elements," 1995. McQuay International, Minneapolis, Minnesota. 30. Calculations compiled by Reynaldo Forte, U.S. Envi- 19. Greenpeace, "Climbing Out of the Ozone Hole," Sup- ronmental Protection Agency, are based on the plement, Washington, D.C., January 1993. replacement of the 80,000 large capacity chillers in use in 1992 and approximately 20,000 HCFC-22 20. Arjun Makhijani and Kevin R. Gurney, Mending the screw chillers, with HFC and HCFC chillers with Ozone Hole (Cambridge, Massachusetts: MIT Press, near-zero emissions at today's energy efficiency levels. 1995), 147. 31. Ibid. 21. United Nations (UN), 1994 Report of the Refrigeration, Air Conditioning and Heat Pumps Technical Options

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 107 KEEPING CARS COOL

By Stephen R. Seidel

C.I Ar

• n the late 1980s, the CFCs used in car air transition took three years less than the most " conditioners had become the country's optimistic predictions in 1987. p.largest single source of CFC emissions. The cooling systems were leaky, and service techni- Much of the CFC phase-out has been invisible cians routinely vented the CFC refrigerant to to the public. Even though computers, foam the atmosphere during repair. No commercial fast-food packaging, seat cushions, and refriger- recycling equipment existed, and numerous ators have shifted away from CFCs, few con- barriers stood in the way of a viable recycling sumers have even a clue that any of these prod- program. Many questions had to be answered. ucts contained or was manufactured with CFCs, Could recycled CFCs perform well and reliably let alone that a change has occurred and that in car air conditioners? How clean would the CFC use has been eliminated. refrigerant need to be? Could recycling equip- ment be designed to meet this standard? And When it comes to vehicle air conditioning, the how should equipment be certified? story is different. While roughly 40 million newer cars are now equipped with systems to In January 1988, EPA invited automobile- handle HFC-i34a, CFC-12 still circulates as a makers, service associations, equipment manu- refrigerant in 96 million vehicles.1 Consumers facturers, and environmentalists to join together are learning the hard way about the CFC phase- to answer these questions. Through collabora- out because servicing their vehicles' air-condi- tion, the group resolved all of the technical tioning systems costs more now as CFCs grow issues within one year, laying the foundation for scarcer and the tax on CFCs escalates. As CFC a national CFC-recycling program. In parallel prices climb even higher as supplies dwindle with the group's fast progress, auto-makers and system retrofits become necessary as CFCs invested substantial capital and personnel to run out, the CFC phase-out will hit home with develop and introduce air conditioners with even more of the American public. Fortunately, alternative refrigerants. By 1994, manufacturers the cost of retrofits is proving to be far lower had incorporated HFC-i34a, a CFC substitute than originally feared. Widespread recycling and with no ozone-depleting characteristics, into air CFC stockpiles are also taking some of the pain conditioners in virtually all new models. The out of the transition.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 109 this routine practice was logical. But as produc- The 1987 signing of the Montreal Protocol sent tion controls raised the price of CFCs and the a clear signal to auto-makers that the end of environmental implications became clear, the CFC-12 as the refrigerant of choice for new cars Environmental Protection Agency, industry, and was in sight. By the late 1980s, the industry con- environmentalists launched plans to recapture sensus was that HFC-i34a could replace CFC-12. them for re-use. Testifying before a Senate subcommittee in May 1987, a Motor Vehicle Manufacturers Associa- tion (MVMA) representative called it "a promis- ing alternative." If no setbacks were encoun- Recapturing and recycling CFCs made perfect tered, the association estimated, the switch-over environmental sense, but was not initially eco- would take only about seven to eight years, nomical. During the late 1980s, no recycling though some members said that another two equipment existed, much less any standards for years would be needed to incorporate the refrig- setting up recycling programs. First, no standard erant into all their product lines.2 of purity existed for refrigerant; the only existing specification applied to virgin CFC-12. At the The MVMA 1987 statement also sounded a time, recycled CFCs could not be refined to that note of caution that would resound in the years level of purity without prohibitively expensive to come. After commenting that vehicle servic- equipment. Second, the auto-service industry ing accounted for 75 percent of CFC use in this had no way to verify that recycling machines sector, the MVMA representative stated that would clean up used refrigerant to meet any "Any rollback of CFC production must, there- agreed-upon standard, and without an accepted fore, assure that there is an adequate amount standard it was impossible to make and market available for servicing existing vehicles for a commercially viable equipment. Third, a ques- number of years into the future."? tion remained whether or not auto manufactur- ers would approve using recycled CFCs under Once faced with a need to cut back CFC pro- their existing warranties. If they didn't, why duction and conserve supplies, the industry dis- would vehicle owners or service shops even con- covered a huge source of CFC waste in then- sider recycling? Finally, even if these questions standard servicing practices. Any car-repair could be answered, the bottom line depended on manual published before the late 1980s states whether service shops would buy and use the that when an empty air-conditioning unit is to equipment and whether customers would pay be serviced, the first step is to fill the system for the service. with CFC-12 and then look for any leaks. In mal- functioning systems, this first step itself led to To resolve such issues, in 1988 EPA pulled further CFC leakage. If repairs were made, any together a group of industry representatives from remaining charge was typically vented and the auto manufacturers, equipment manufacturers, system flushed and cleaned with CFC-11 service technician associations, standard- setting (another potent ozone-depleter) before it was and testing organizations, and environmental again refilled with CFC-12. If additional leaks groups. Together they formed the Ad Hoc Auto- were found, the process would be repeated. mobile Recycling Working Group, co-chaired by experts from General Motors, EPA, and the At the time, CFCs were inexpensive to pro- Mobile Air Conditioning Society (MACS). Within duce and buy and were considered harmless, so a year, a purity specification was agreed to by all

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS no participants and adopted as part of the Society of Automotive Engineers (SAE) standards. Car-mak- ers agreed to accept the SAE standard for service under new car warranties and Underwriters Lab- oratories (UL) came up with a process for testing equipment and certifying models that could ade- quately purify CFCs. Soon after, equipment-mak- such trade organizations as MACS and the ers began commercializing certified CFC-recy- International Mobile Air Conditioning Associa- cling machines.4 tion to develop training manuals and outreach programs for the service sector. And many auto- Working together, these key groups cleared the makers announced that all of their dealerships way for a successful recycling program. One key would recycle CFCs during service. participant, Simon Oulouhojian, Executive Director of MACS, describes why the effort Although voluntary progress was under way, worked. "Quite frankly, I was reluctant to get Friends of the Earth and Natural Resources involved because I expected the same old trench Defense Council—two environmental groups warfare. The EPA would say 'Just do it. We don't that had participated in the Ad Hoc Group—got know or care how—that's your problem.' The it concerned that only a mandatory recycling environmentalists would take a similar position. program would maximize CFC reductions and And our industry would have the whole mess then stepped up pressure both at the state level dumped on our laps and be made to look like and within Congress to make recycling manda- the villains. That hasn't happened, though." In a tory. They also advocated a ban on the small January 1989 statement, he described how the cans of CFC refrigerant that do-it-yourselfers adversarial roles gave way to a new mode of con- would use to re-charge their leaky car air condi- sensus-building. "Instead, EPA has said, 'We've tioners. As they worked with local activists and got a problem. How do we solve it?' The envi- legislators to design laws, the groups ensured ronmentalists have said 'How can we help?' that SAE standards were adopted and sought Industry has responded in kind, and it seems to industry collaborators' views on realistic time be paying off for everyone."5 schedules for phasing in recycling. Before long, Florida, Hawaii, Vermont, Oregon, and Califor- There was a consensus that recycling was a nia had enacted laws. "win/win/win" situation. Cutting CFC emis- sions from this industry would reduce the need Many industry representatives in the Ad Hoc for new CFCs to service cars already on the Group supported a uniform national recycling road. It would mean new sales for equipment program. This requirement would level the play- manufacturers and a new procedure (and there- ing field and insure that one shop could not fore revenue) for service facilities. For environ- underprice another by avoiding the expense of mentalists and the public, it was the most signif- recycling and simply venting CFCs to the atmos- icant, tangible action consumers could take to phere. Also, if the equipment was mass pro- help protect the ozone layer. duced, better technology would be available at a lower price. In the Clean Air Act Amendments Clearing technical hurdles, however, did not of 1990, Congress instructed EPA to make CFC guarantee that service shops would invest in the recycling at large automobile service shops equipment, so the Ad Hoc Group worked with mandatory starting January 1, 1992, relying

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS

III exclusively on technical standards adopted by Auto-manufacturers immediately realized that the Ad Hoc Committee. Shops servicing fewer consumers might be reluctant to purchase a car than ioo air conditioners in 1990 were given an with a soon to be obsolete air-conditioning sys- additional year to comply. Recognizing that the tem, particularly when the dealership across the substitute HFC-i34a, while ozone-safe, was a street was advertising that its cars had CFC-free potent global warming gas, Congress also systems. From the first introductions of HFC- required that any substitutes would need to be 134a by Nissan in one 1992 model and Mer- recycled as of 1995.6 What had started out as a cedes-Benz in its 1992 S-Class, it took about two voluntary program had evolved—with the sup- years for almost the entire fleet of new cars and port of those involved—into a mandatory one. light trucks to be converted.10

The push for recycling spurred a high-growth industry—the manufacture and distribution of recycling equipment. One company, Robinair, was awarded the Governor of Ohio's E award for Now that the January 1996 ban on CFC produc- excellence in exporting for its high sales of CFC tion has taken effect, a remaining issue is how recycling equipment abroad. In 1995, Robinair to service the 96 million vehicles cooled with sold $80 million worth of refrigerant manage- CFC-12. The answer depends on several factors, ment equipment—S22.5 million of it into inter- including the supply and price of CFC-12, the national markets. 7 cost of retrofits, and each car's warranty status.

For vehicles under warranty, manufacturers recommend the use of CFC-12 in CFC-12 sys- Car-makers started abandoning CFC-12 for tems and HFC-i34a in HFC-i34a systems. Any HFC-i34a in new cars in October 1989, when deviation from this recommendation could void Volvo announced that it would eliminate CFC the manufacturers' warranty. For vehicles not use in its new vehicles by the end of 1994.8 under warranty, owners who need to service their Soon, Nissan followed suit, announcing that it car air conditioners have four choices: using would stop using CFC-12 in its new air-condi- CFC-12 as long as supplies last; retrofitting the tioning systems by the end of 1993.9 These early system with HFC-i34a; retrofitting with refriger- commitments underscored automobile manu- ant blends; or rolling down the windows.11 facturers' and chemical producers' confidence that any technical or health and safety barriers to the use of HFC-i34a would be manageable and that the primary issue was cost. At the beginning of 1996, the total inventory of In general, companies changed the air-condi- CFC-12 in the United States totaled an estimated tioning systems as they put newly designed vehi- 80 to 160 million pounds (exclusive of CFC-12 cles into production. Those with more extensive in operating refrigeration and air-conditioning and diversified lines had a more complicated equipment that will be reclaimed in the future). switch over. Still, once the first cars started The refrigerant is held by chemical manufactur- showing up in dealerships with HFC-i34a air- ers, chemical packagers and reclaimers, equip- conditioning systems in 1992 models, the race ment manufacturers, automotive parts chains to switch to HFC-i34a quickly picked up speed. and distributors, stationary/commercial air-

WRi: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 112 conditioning and refrigeration distributors, device, checking the unit for leaks, replacing wholesale-buying clubs, and some vehicle ser- parts, and then re-charging with CFC-12) has vice facilities. Much of the available stock is in become more expensive during the CFC phase- the hands of relatively few companies.12 out. According to a recent MACS survey, for consumers needing parts and refrigerant, the National demand for CFC-12 in 1996 is esti- cost nearly doubled from $75 in 1991 to $140 in mated to be about 70 million pounds. Vehicle 1995. The cost of complete system service rose air conditioners account for more than half. 16 percent, from $290 in 1991 to $338 in Demand is expected to drop sharply throughout 1995.r9 Increases in refrigerant cost and Clean the remaining years of this decade. The current Air Act requirements to use recovery/recycling inventory is expected to provide an abundant equipment are pushing the price up. The aver- supply in 1996, but shortages are likely in 1997 age shop has two recycling machines, which run or 1998 unless more CFC-12 equipment is retro- $i,ooo-$3,5oo apiece and last about five fitted or replaced.1? Spot shortages are already years.20 But, the MACS survey suggests, federal occurring in some regions; during May 1996, mandates alone don't explain increases in aver- the price of a 30-pound jug of CFC-12 nearly age repair costs. In response to higher CFC doubled to $400.^ By July, it had risen to prices, consumers may be opting for more $660.T5 In August, it dropped down some, rang- expensive leak-repair service instead of just peri- ing from $400 to $500.l6 odically getting another charge of a refrigerant.21 This "top off" service of just adding refrigerant The scarcity of supplies should strengthen the to the system cost $66 in 1995, compared to market for CFC-12 reclamation and could fur- less than $30 when CFCs weren't regulated. The ther encourage illegal imports. Although esti- Clean Air Act does not prohibit technicians mates are extremely difficult to make, govern- from providing "top off" service, but it does ment officials estimate that at least 16 million require them to use recovery/recycle equipment pounds of CFC-12 were illegally imported into if they repair the system.22 the United States annually in 1993 and 1994. Federal efforts to control this illegal trade have In the past, do-it-yourselfers could save money had some success; since late 1993, there have by re-charging their cars themselves. But the been 14 prosecutions and 1.2 million pounds of Clean Air Act restricts sales of ozone-depleting CFCs have been confiscated.^ refrigerant to certified technicians, so the handy can no longer legally recharge their own cars CFC-12 will rise in price each year due to a with such compounds. federal tax on CFCs. Distributors who have stockpiled supplies in 1995 (the last year of pro- duction) have paid an excise tax of $5.35 per pound. Each year they continue to hold the CFCs, they will have to pay an additional 45 Initial estimates indicated that auto air-condi- cents per pound for a floor stocks tax.18 tioning retrofits would be complex and cost from $1,000 to $i,5oo.23 A 1993 study con- ducted for auto manufacturers concluded that over half of all vehicles of all model years would Servicing a CFC-12 air conditioner with CFC-12 require changes costing $651 to $1,200 each to (that is, removing the CFC-12 through a recovery use HFC-i34a, while fewer than 30 percent of

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 113 the newest models (1993 and 1994) could be machines and hold them for pickup by a com- retrofitted for $150 to $300.24 pany that can reformulate the blend.

Since then, the cost prognosis has dramatically The automobile industry and service market improved, though manufacturers caution that has geared up to reach a large retrofit market not all systems can be successfully retrofitted. that has not fully developed because CFCs are The higher estimates reflect the assumption that still available. But in anticipation of rising numerous components, including the compres- demand, industry appears to be inventing a sor, would need to be replaced to maintain per- more simple and often affordable solution to the formance and durability. More recently, Ford has CFC phase-out challenge. put together a full line of retrofit kits that main- tain such performance without compressor replacement. A retrofit for Ford's most popular models costs from $200 to $4oo.25 The transition to alternative refrigerants has not Other auto-makers and some service facilities been entirely smooth. An emerging problem for are taking an even less expensive approach. service shops and car owners is refrigerant con- They are evacuating CFC-12 from the system, tamination. When different refrigerants get adding the proper lubricant, changing the fit- mixed together, they can harm air-conditioning tings, and recharging with HFC-i34a. Only systems and recycling machines. The emer- under extreme operating conditions can system gence of several blends that have not yet passed performance suffer as a result.26 The cost of EPA muster is worsening the situation.2? Some retrofitting a working car air conditioner to of these compounds can legally be sold, but oth- HFC-i34a has dropped to $5o-$i5o this way, and ers are being introduced illegally. If EPA does one survey of seven service shops that per- not rule within 90 days after a manufacturer has formed such retrofits found customer satisfac- submitted an alternative refrigerant for approval, tion running high.27 the manufacturer can market its product while a decision is pending. Unfortunately, the approval Numerous companies have also developed process mandated by the Clean Air Act's Signifi- what they claim are near "drop-in" refrigerant cant New Alternatives Program (SNAP), often substitutes that can be installed for $100. Using takes longer than 90 days.3° Refrigerants can be environmental and safety information, EPA has marketed for up to 30 days after EPA lists them listed several refrigerant blends as acceptable as unacceptable. replacements for CFC-12, but the agency does not test these substitutes for system perform- Several industry groups are pressing EPA to fix ance or compatibility with components. Pen- the contamination problem. MACS Worldwide zoil's blend, FRIGC, which has been field-tested, petitioned the agency to tighten controls on has been marketed on an accelerated basis in refrigerant-reclamation facilities and to require response to sky-rocketing CFC prices.28 Most labeling on supplies that meet purity specifica- such refrigerant blends contain ozone-depleting tions to help service professionals sort good substances known as hydrochlorofluorocarbons refrigerant from bad. The Association of Interna- (HCFCs), less potent than CFCs. Blends cannot tional Automobile Manufacturers (AIAM) has be recycled in a shop. Technicians must handle gone further, petitioning EPA to suspend blends with dedicated service and recovery approval of any alternative refrigerant other than

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 114 HFC-i34a until the repercussions of having so far and the noteworthy cooperation among numerous refrigerants in the marketplace can be key groups, success here too may be possible. fully evaluated. AIAM fears that the proliferation of refrigerants will have negative environmental, Four factors have contributed to the achieve- safety, economic, and performance impacts. The ments to date: sharply written petition asserts: "EPA is undoing a well thought out and executed plan to eliminate CFCs from motor vehicles that provided signifi- 1. Unusual Collaboration cant environmental benefits with minimal con- Friendly collaboration among government agencies, sumer inconvenience."?1 industry leaders, and environmentalists—stimulated by the EPA—led to the rapid introduction ofCFC A formal response to the petitions is still pend- recycling at auto-service facilities. ing, but EPA agrees that refrigerant contamina- tion is a serious issue and is implementing previ- Within one year, the Ad Hoc Automobile ous industry proposals to address it. Through the Recycling Working Group removed the techni- SNAP program, EPA conditions the use of new cal barriers to widespread use of CFC-recycling refrigerants in four ways. First, technicians must equipment. Through collaboration, industry have dedicated recovery/recycle equipment. Sec- and environmental leaders expedited environ- ond, there must be unique service fittings on the mental protection faster than government offi- car, refrigerant containers, and charging equip- cials could have on their own. Setting up a pro- ment to prevent the accidental mixing of refriger- gram that was initially voluntary helped ants. Third, new and retrofitted cars must carry a industry to design it to its satisfaction and to label clearly specifying the type of refrigerant influence the mandatory recycling program, used. And, finally, the original CFCs must be thus shaping its own regulatory destiny. Thanks removed before the unit is recharged.?2 EPA has to these cooperative efforts, CFC recycling in also initiated an aggressive outreach program to the automobile service industry was the first stress good practices and inform technicians of national CFC recycling program to take effect these regulatory requirements. under the Clean Air Act Amendments of 1990. Now, such cooperative efforts will be crucial for solving the contamination problem, as will EPA's willingness to acknowledge and respond In the phase-out of CFCs in vehicle air condi- to this unintended consequence of the SNAP tioners, two of the critical elements are firmly in program. place—widespread recycling and a shift to HFC- 134a in new cars. The third element, servicing current vehicle systems, poses the most formi- 2. Economic Opportunities and Incentives dable challenge. The market is responding, Business opportunities and the introduction of a offering lower-cost retrofits to consumers, but CFC tax created incentives for rapidly introducing efforts must be made to stop refrigerant contam- CFC recycling. ination. The auto industry must also minimize the environmental impact of substitute com- Early action on CFC recycling in the auto pounds and continue its search for alternative industry has put U.S. companies in the fore- refrigerants that are both ozone-friendly and cli- front of CFC recycling-equipment manufactur- mate-safe. Given the substantial progress made ing. Recycling requirements and process

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS "5 changes have spurred new businesses and jobs 2. "Statement of Dr. Fred Bowditch, Vice President, Tech- at home and boosted sales of U.S. environmen- nical Affairs, Motor Vehicle Manufacturers Associa- tal technology around the world. Further, the tion," in U.S. Senate Subcommittee on Environmental Protection, Stratospheric Ozone Depletion and Chloroflu- excise tax on CFCs made it cost-effective for ser- orocarbons, Hearings, May 14, 1987, 504. vice shops to purchase and use recovery- and recycling-machines. 3. Ibid.

4. Stephen Andersen and Jean Lupinacci, U.S. Environ- 3. Corporate Leadership and Competition mental Protection Agency, personal communication to Marcel Halberstadt, Motor Vehicle Manufacturers The first auto-makers to offer consumers new cars Association, January 19, 1989. with CFC-free air conditioners influenced their com- petitors and sped up the phase-out industry wide. 5. Mobile Air Conditioning Society, Statement to the Media, January 27, 1989. Car-makers converted new models to HFC- 6. U.S. Environmental Protection Agency, "Protection of 134a more quickly than they had originally pro- Stratospheric Ozone," Federal Register, July 14, 1992, jected. The faster switch-over is in part due to vol. 57, no. 135. competitiveness among auto-makers. By step- ping out in front, Mercedes Benz, Nissan, and 7. Christina McNeal, International Sales Manager, Robi- Volvo accelerated the introduction of these new nair, division of SPX Corporation, Montpelier, Ohio, systems. personal communication, August 1996. 8. Volvo Cars of North America, "Volvo to Eliminate CFC Use by 1995," News Release, October 27, 1989. 4. Market Forces A potentially huge market for inexpensive auto air- 9. Nissan Motor Company, "Nissan to Ban CFCs on conditioning retrofits has spurred auto industry spe- Cars," News Release, August 2, 1989. cialists to come up with retrofit solutions that cost 10. Mercedes-Benz of North America, Inc., "Corporate dramatically less than expected. Leadership in Elimination of CFCs from Automo- biles," News Release, March 7, 1995. As extensive industry testing and technological change drive down the cost of retrofits, the pri- 11. "Solving the Refrigerant Puzzle," Motor, April 1996: 41. vate sector is responding. Contrary to earlier 12 U.S. Environmental Protection Agency, Report of expectations, in many cases compressors and Supply and Demand of R-12 in the United States hoses do not need to be replaced. And the worst (Washington, D.C.: ICF Incorporated for EPA, July fears of very high (as high as $1,500) costs are 14,1996). proving unfounded since retrofitting can now cost as little as $100. 13. Ibid. 14. Thomas A. Mahoney, "Contaminated R-12, Rising Prices Begin to Disrupt Auto Aftermarket," Air Condi- tioning, Heating e[ Refrigeration News, May 20, 1996, i. Christine Dibble, U.S. Environmental Protection vol. 198, no. 3. Agency, personal communication, August 1996; U.S. Environmental Protection Agency, Report of Supply and 15. Aaron Lucchetti and Gabriella Stern, "Freon's Price Demand of R-12 in the United States (Washington, D.C.: Gives Motorists Chills," Wall Street Journal, July 11, ICF Incorporated for EPA, July 14, 1996). 1996: Bi, 2.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 16. Simon Oulouhojian, Mobil Air Conditioning Society, Strategic Reserve" (Ann Arbor, Michigan: November 3, Upper Darby, Pennsylvania, personal communication, J993)- August 1996. 25. Ford Motor Company, "HFC-i34a Retrofit Kit Applica- 17. Tom Watts-Fitzgerald, Assistant U.S. Attorney, South- tion Chart," pamphlet. ern District of Florida, Chief of Environmental Crimes Section, Miami, Florida, personal communication, 26. "Solving the Refrigerant Puzzle," Motor, April 1996: August 1996. 41- 18. U.S. Congress, House Conference Report No. 101-964, at 27. Stephen Colmery, ICI Klea, "Field Experiences of the 1048, 1990; U.S. Congress, P.L 102-486, 1992. Automotive Aftermarket With Vehicles Retrofitted to HFC-i34a" (presented to International Conference on 19. Ward Atkinson, 1995 Field Survey Mobile Air Condition- Ozone Protection Technologies, Washington, D.C., ing Service Data Book (East Greenville, Pennsylvania: October 24, 1995). Mobile Air Conditioning Society Worldwide, June 1996), 11. 28. "Freon Price Accelerates FRIGC Rollout," Global Envi- ronmental Change Report, July 26, 1996, vol. 8, no. 14: 20. U.S. Environmental Protection Agency, Analysis of Fac- tors Affecting R-12 Mobile Air Conditioning Servicing Costs in the United States (Washington, D.C.: ICF 29. "Solving the Refrigerant Puzzle," Motor, April 1996: Incorporated for EPA, May 1996). 41.

21. Ward Atkinson, 1995 Field Survey Mobile Air Condition- 30. U.S. Environmental Protection Agency, "Final Rule- ing Service Data Book (East Greenville, Pennsylvania: making," Federal Register, March 18, 1994, vol. 59: Mobile Air Conditioning Society Worldwide, June 13044. 1996), 11. 31. Philip A. Hutchinson, Jr., Association of International 22. Ward Atkinson, Society of Automotive Engineers, per- Automobile Manufacturers, Inc. (AIAM), personal sonal communication, September 1996. communication to Carol Browner, U.S. Environmental Protection Agency, July 8,1996. 23. Mobile Air Conditioning Society, "Retrofitting the CFC-12 Fleet: Some More Of The Story," News 32. U.S. Environmental Protection Agency, Choosing and Release, June 4, 1996. Using Alternative Refrigerants for Motor Vehicle Condi- tioning (Washington, D.C.: May 1996). 24. Automotive Consulting Group, "CFC Phase-Out Analysis and the Determination of the Required

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS 117 ABOUT THE AUTHORS

F Ne mine * Won 9.0 211.2

5 Cl Ar

" is a Senior Associate in the Climate, is a senior editor at the World Energy, and Pollution Program at the World Resources Institute and the principal writer of the Resources Institute. She specializes in global climate White House Council on Environmental Quality change and ozone issues. Prior to joining WRI, she annual report 1994-95, and 1996. directed Friends of the Earth-USA's Ozone Protection Campaign. is on the administrative staff of the College of the Atlantic in Bar Harbor, Maine. He . is Acting Branch Chief of the Substi- writes widely on science and environmental issues tutes Analysis and Review Branch of the U.S. Envi- and is a former Editor of Friends of the Earth, the news ronmental Protection Agency's Stratospheric Protec- magazine published by Friends of the Earth-USA. tion Division. He implements the Significant New Alternatives Policy program and monitors the global is a Senior Associate with ICF Con- warming effects of CFC and HCFC substitutes. sulting Group. She specializes in strategic communi- cation on energy efficiency, global climate change, •; > " :' ' -"" is the Senior Policy Analyst and ozone issues. for the Environmental Tax Program in Washington, D.C. - - serves as Special Coordinator for Climate Change as an agency representative at the is an environmental engineer in the Council on Environmental Quality. He formally Air and Toxics Division of the U.S. Environmental directed the U.S. Environmental Protection Agency's Protection Agency's Region 9. His focus is the phase- activities related to the Montreal Protocol and its out of ozone-depleting substances and the develop- domestic implementation. ment of substitutes. I 2:1:1 ?! ? :":::.[::v consults on international environmen- is the Program Manager for ENERGYSTAR tal policy and teaches a class on global environmental Financing in the U.S. Environmental Protection change in the University of Maryland Honors Pro- Agency's Atmospheric Pollution Prevention Division. gram. She spent the previous seven years as Senior Formerly, he was the Chief of the Program Imple- Research Associate at University of Maryland's Center mentation Branch of the Stratospheric Protection for Global Change, working on the legal and institu- Division. tional issues of atmospheric protection.

WRI: OZONE PROTECTION IN THE UNITED STATES: ELEMENTS OF SUCCESS WORLD RESOURCES INSTITUTE

1709 New York Avenue, N.W. The World Resources Institute (WRI) is an Washington, D.C. 20006, U.S.A. independent center for policy research and technical assistance on global environmental WRI's Board of Directors; and development issues. WRI's mission is to Maurice F. Strong Chairman move human society to live in ways that protect John Firor Earth's environment and its capacity to provide Vice Chairman John H. Adams for the needs and aspirations of current and Manuel Arango future generations. Robert 0. Blake Derek Bok Bert Bolin Because people are inspired by ideas, empow- Robert N. Burt David X Buzzelli ered by knowledge, and moved to change by Michael R. Deland greater understanding, the Institute provides— Sylvia Earle Alice F. Emerson and helps other institutions provide—objective Shinji Fukukawa information and practical proposals for policy William M. Haney, III Cynthia R. Helms and institutional change that will foster envi- Calestous Juma ronmentally sound, socially equitable develop- Yolanda Kakabadse Jonathan Lash ment. WRI's particular concerns are with glob- Jeffrey T. Leeds ally significant environmental problems and Thomas E. Lovejoy Jane Lubchenco their interaction with economic development C. Payne Lucas and social equity at all levels. Robert S. McNamara Scott McVay William F. Martin Matthew Nimetz The Institute's current areas of work include Paulo Nogueira-Neto economics, forests, biodiversity, climate change, Ronald L. Olson Ruth Patrick energy, sustainable agriculture, resource and Florence T. Robinson environmental information, trade, technology, Roger W. Sant Stephan Schmidheiny national strategies for environmental and Bruce Smart resource management, and human health. James Gustave Speth Mostafa K. Tolba Alvaro Umana In all of its policy research and work with Victor L. Urquidi Pieter Winsemius institutions, WRI tries to build bridges between George M. Woodwell ideas and action, meshing the insights of scien- tific research, economic and institutional analy- Jonathan Lash President ses, and practical experience with the need for J. Alan Brewster open and participatory decision-making. Senior Vice President Walter V. Reid Vice President for Program Donna W. Wise Vice President for Policy Affairs Robert Repetto Vice President and Senior Economist Thomas H. Fox Vice President Marjorie Beane Secretary-Treasurer

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