The future of refrigerants Jim Wolf Global Policy Associates May 2015

Overview Current and future environmental policy Refrigerant comparisons Future refrigerants Today, we will start by focusing on policy development within the Montreal Protocol, with focus on ozone depletion abatement, and the United Nations Framework Convention on Climate Change, which of course focuses on climate change abatement. In addition, we will discuss various national plans being created in response to global climate change. Once we see that there are pressures on all refrigerants, we’ll review those available today from a balanced approach to the environment. This information provide insights into the criteria future refrigerants will need to address, as provides an environmentally-balanced approach for consideration of today’s refrigerants and their applications in the marketplace.

Montreal Protocol OZONE-DEPLETING substances .” Adopted in Montreal on September 16, 1987 Objective “To control and eventually eliminate … OZONE-DEPLETING substances .” Among 6 major chemicals, CFC and HCFC refrigerants were classified as an Ozone Depleting substances, and subject to phase outs.

Kyoto Protocol December 1997, Kyoto Japan, Conference of Parties Kyoto Protocol focus is on Global Warming. Among 6 major chemicals, HFC refrigerants were classified as Global Warming, or Greenhouse Gases, and subject to restrictions. The most important of these meetings occurred in December, 1997 in Kyoto Japan - Conference of the Parties Three, or COP-3. This slide highlights the key elements of this meeting. (More details can be found in CFC-Article-1.) Allow the audience to read these highlights and underscore the major points. 7% reduction from 1990 emission levels in the U.S. by the years 2008 to 2012. There are six gases included in the basket, including importantly for our industry, HFC’s. To date there are over 80 countries that have signed the Kyoto Protocol. While this is a highly controversial issue, we believe it will fundamentally help to change, affect and ultimately shape the future for all industries around the world.

Efficiency Drives Environmental Impact What’s more, is the chemical's efficiency, as this has an INDIRECT effect on the GWP of the chemical. That is to say, the less efficient the chemical, or the equipment that can be manufactured as a result of the chemical properties, will have a LIFETIME of CO2 impact by the coal that is needed to be mined, transported, and burned.

Important Environmental Policy Montreal Protocol (UNEP) Kyoto Protocol (UNFCCC) Country Policies and Regulations

Montreal Protocol: HCFC Phase out Dates

US EPA Accelerated Phase-out Rule (Unchanged) CFCs 1996 All CFCs 0 % (Production) HCFCs 1996 Cap at 2.8% (3.1%) of 1989 Consumption of CFCs plus HCFCs 2003 HCFC-141b 0 % (Production) 2010 HCFC-142b (No New Product Use) HCFC-22 (No New Product Use) 2020 HCFC-22 0 % (Production) HCFC-142b 0 % (Production) HCFC-123 (No New Product Use) HCFC-124 (No New Product Use) 2030 All HCFCs 0 % (Production)

Expected new HCFC demand1 ODP Weighted U.S. HCFC Use and HCFC Cap 15 HCFC Production Cap Actual HCFC usage Actual R-123 usage 65% - 2004 10 Million Kilograms CFC-11 Equivalent 35% - 2010 Sep07 MP Change 5 Here’s an graphic depiction of the HCFC reduction schedule set by the Montreal Protocol and implemented by the U.S. EPA. In 2004, developed countries such as the U.S., must reduce Kg/ODP by 35 percent. This doesn’t mean that U.S. industry can produce 65 percent of the amount of R-123 that it did in 2003. This means that the U.S. must decrease production of enough HCFCs to realize a 35 percent reduction in Kg/ODP. By eliminating R-141b, which was only used in the foam blowing industry and is highly emissive, the U.S. met its target of reducing HCFCs by more than 35 percent. This is the same thing in 2010 when another 35 percent needs to be reduced. We can achieve that by reducing R-22. In 2015, the U.S. is not implementing any additional reductions because the Kg/ODP reduction in 2004 and 2010 will more than meet the additional 10 percent reduction requirement. It’s also important to be very clear, that the Montreal Protocol doesn’t limit the amount of R-123 that can be produced between now and 2030. Also, there is no phase out for the use of recycled and recovered R-123. It can be used and resold forever, including recycled and recovered R-123 from other countries. 25% Expected new HCFC demand1 10% - 2015 0.5% - 2020 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 1http://epa.gov/ozone/title6/phaseout/ServicingNeedsRevisedDraftReport_September.2006.pdf

Almost 50 times the needed volume can be produced! Will There Be Enough R123 2020-2030- 0.5% of 1989 level of “equivalent” R-11 Assumptions: Chillers in US with R-123 (50,000 chillers) Average chiller size: 500 tons Refrigerant charge: 2 lbs/ton (1.7) Average charge/chiller: 1000 lbs 0.5% leakage rate/yr (50,000 chillers) x (1000 lbs/chiller) x (0.5% leakage rate/year) = 250,000 lbs/yr 0.5% cap from 1989 levels equates to 12,100,000 lbs/year of R-123 Almost 50 times the needed volume can be produced!

Will R-123 continue to be manufactured ? R-123 is used as a feedstock to produce R-125 R-125 is 50% of the blend that makes R-410A ( replacement for R-22) R-125 is 25% of the blend that makes R-407C This slide shows the specifics associated with continued R-123 capacity available for feedstock applications. Since R-123 is not emitted in this process, and goes through a chemical change resulting in a non-ODS, this application is not controlled by the Montreal Protocol. So that you don’t think this is only a theoretical example, Trane’s procures R-123 refrigerant for centrifugal chillers produced in China from Blue Sky, and Chinese refrigerant producer. The majority of Blue Sky’s R-123 capacity is used for R-125 feedstock production, so refinement of R-123 for refrigerant usage is a good leverage on their production investments.

Climate change policy Kyoto Protocol created in 1997 European Union CO2 cap & trade program, and HFC regulation enacted in 2005 Activity in 2015 Climate Change negotiations for 2015 agreement Cap & trade programs/legislation Montreal Protocol proposals on HFC phase down EU regulation on HFCs U.S. HFC regulation Canadian regulation consultation

U.S. Senate Climate Change Legislation S. 2191 – Lieberman – Warner bill (Cap and Trade Program) Caps greenhouse gas emissions Reduces greenhouse gas emissions Greenhouse gas coverage Carbon dioxide Methane Nitrous oxide Sulfur hexafluoride Perfluorocarbons Hydrofluorocarbons, HFCs (Separate basket) - Cap set in 2012 70% reduction by 2037 This bill has passed the Senate Environment & Public Works committee, and is expected to reach the senate floor for debate sometime in April to June. This bill is not expected to become law this year, although it is always possible. Shaping of the bill will continue. Some type of greenhouse gas control law is expected to become law within the next 2-3 years. Cap & Trade is the most popular form of control within congress today.

HFC Cap vs Business as Usual Demand Low-GWP solutions needed Cap is based on Title X of Lieberman-Warner Climate Security Act Business as usual demand based on US EPA Vintaging Model Shortage seen immediately upon implementation requires: Responsible use improvements Transition from HFCs to out-of-kind solutions Transition from current high-GWP HFCs to safe, efficient, low-GWP solutions are desired Low-GWP solutions are not available on the market today Trane supports preservation of current high-GWP HFCs until safe, efficient alternatives are available. Currently available low-GWP alternatives such as CO2 bring significant issues: Very low efficiency for CO2 at stationary AC conditions Safety issues with hydrocarbons, ammonia Price signal (increase) is driven by auction: In 2010, the baseline is reduced by 5% with the reduction available to allocation holders via auction. Auction amount is increased until it reaches 100% in 2031. Price increase based on GWP & volume demand

H.R. – 2454, Waxman – Markey legislation - Establishes baseline of average of 2004, 2005, and 2006 consumption of HFCs - Phase down of production of HFCs: . 12.5% reduction in 2013 . 22.5% reduction by 2017 . 33% reduction by 2020 . 54% reduction by 2025 . 70% reduction by 2029 . 85% reduction by 2033 - Passed House (6/26/09) and sent to Senate

Kerry - Lieberman legislation (American Power Act) - Establishes baseline of average of 2004, 2005, and 2006 consumption of HFCs - Phase down of production of HFCs: . 12.5% reduction in 2013 . 22.5% reduction by 2017 . 33% reduction by 2020 . 54% reduction by 2025 . 70% reduction by 2029 . 85% reduction by 2033 - Introduced May 11, 2010

HFC PHASE DOWN PROPOSAL Submitted in 2010, 2011, 2012, 2013, 2014 & 2015 Proposal by Canada, U.S., and Mexico to transfer HFC controls to Montreal Protocol Baseline of average of 2011 – 2013 consumption and production of HFCs + 50% of HCFCs Phase down of production/consumption of HFCs in Developed Countries: - 10% by 2019 ; 35% by 2024; 70% by 2030; 85% by 2036 Proposals submitted by Micronesia from 2010 –2015 New proposals submitted by India and EU in 2015 . Amendment proposals to be considered 12/2015

Amendment Proposals to Montreal Protocol U.S., Canada, & Mexico: Phasedown: 2019 – 90%, 2024 – 65%, 2030 – 30%; 2036 – 15% . EU: Phasedown: 2019 – 85%, 2023 – 60%, 2028 – 30%; 2034 – 15% . India: Phasedown: 2018 – 90%, 2023 - 65%, 2029 – 30%; 2035 – 15% . Micronesia: Phasedown: 2017 – 85%, 2021 – 65%, 2025 – 45%, 2029 – 25%; 2033 – 10%

HFC PHASEOUT LAWS Switzerland Denmark Austria Air conditioners HFC ban - 2005 Denmark GENERAL HFC ban - 2006 Cooling plants, heat pumps & air conditioning Plant HFC ban - 2007 Austria Air conditioning and Mobile refrigeration HFC ban 2008 This chart shows the specific gases to be covered and regulated under the Kyoto Protocol. Note that even though CFCs and HCFCs are Global Warming Gases, they are not covered under this protocol due to their separate coverage already under the Montreal Protocol. Likewise, HFCs which have no ozone depletion are not covered under the Montreal Protocol, but because they do have Global Warming Potential, they are covered here in the Kyoto Protcol. Also, the reduction percentages are not gas specific but are combined. So, for example, greater savings in CO2 can be credited to allow growth in HFC’s, as long as the combined emissions are reduced overall. The Base periods shown are the dates which will be used to determine compliance with the reduction levels agreed to in the treaty. Primarily it will be 1990, except that HFCs will likely use 1995 since not many HFCs were yet in use in 1990.

European Union - HFC Regulations Stationary air conditioning & refrigeration - (2005) - Containment and recovery of HFCs - Training and Certification of technicians Automobile HFC-134a Ban – (2005) - No new vehicles with HFCs - GWP greater than 150 in 2011 - No servicing in 2019 EU Regulation on HFCs

EU Regulation on HFCs – Adopted April 2014 Phase down schedule for HFCs from baseline of the average from 2008 to 2011: Years Quantity Allowed 2015 100% 2016-17 93 2018-20 63 2021- 23 45 2024-26 31 2027-29 24 2030 21

1st. Petition to remove HFC-134a from SNAP List NRDC, IGSD, and EIA Petition filed with EPA Administrator - May 7, 2010 Primary request for removal of HFC-134a for auto Secondary request for removal of HFC-134a for aerosols, fire suppression, foam blowing agents, refrigeration, and air conditioning sector Regulation proposed to de-list HFC-134a use in autos (2022) and insulation (2017)

2nd. Petition to remove HFC-134a from SNAP List IEA petitioned EPA on April 26, 2012 - Remove HFC-134a and blends for any ODS in non-essential uses - Remove HFC-134a and blends for every end- use where more benign alternatives are available NRDC petitioned EPA on April 27, 2012 - Remove HFC-134a for household and retail food refrigerators & freezers 3rd. Petition expected to remove HFC-134a from chillers

CAFE Standard for cars and light trucks National Highway Traffic Safety – DOT Final rule published May 7, 2010 Requires average 34.1 mpg by 2016 Provides 6 mpg credit for use of non-HFC (134a) air conditioning system

Federal Acquisition Regulation – Proposed Rule – 5/11/15 Affects DOD, GSA, and NASA purchases Adds restriction on procurement of products containing high GWPs Requires agencies to procure, when feasible, alternatives to high GWP HFCs (R-134a, R-410a, R-407C) and to non-ODP refrigerants used in air conditioners. Limits purchase of equipment containing HFCs and/or HCFCs

Environment Canada – Consultation Meetings Consultation meetings – March 2015 Residential air conditioning: no manufacture or import of equipment with HFCs or HFC blends with GWP above 750. Commercial and Industrial air conditioning: no manufacture or import of equipment with HFCs or HFC blends with GWP above 750.

Rio+20 UN Conference on Sustainable Development Conference concluded on June 22, 2012 Agreement document – “The Future We Want” HFC provision: “We support a gradual phase-down in the consumption and production of HFCs.”

The Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants Announced February 16, 2012 Covers black carbon, methane & HFCs Voluntary effort to reduce climate pollutants 43 countries: Bangladesh, Canada, Chile, Colombia, Dominion Republic, Ethiopia, Ghana, Japan, Maldives, Mexico, Netherlands, Nigeria, Norway, Republic of Korea, Sweden, United States, EU (27 countries), plus World Bank and UNEP

Relative COPs: R-123 = 7.435 R-22 = 6.984 R-134a = 6.937 R-410a = 6.56 Propane = 6.834 Ammonia = 7.261 C02 = 3.4

Ozone Depletion Potential & Global Warming - Balancing ODP vs GWP Future of Refrigerant Discussion – Speaker Notes Ozone Depletion Potential & Global Warming - Balancing ODP vs GWP CFC-11 12 113 114 HCFC-22 123 141b 142b HFC-32 125 134a 143a 152a 227ea 236fa 245fa 404A R-123 Discussion (Slide 3): ODP versus GWP The next slide allows a quick walk through of the focus and information that lead to decisions we live with today. Background on the Graph: Common refrigerants (those that were evaluated during the Montreal and Kyoto Protocols) are shown on the Y axis. The X axis has two scales. To the left of center is ODP, with CFC-11 used as unity, i.e., given the value of one. To the right of center is GWP, with CO2 as the base, with a value of one. Note, the chart is further broken down with the top third representing CFCs, the middle third representing HCFCs, and the bottom third representing HFCs. Look at the top third and ask yourself this question, “Why are the world regulators trying to get owners out of CFCs as soon as possible?” The answer is, “they are bad actors on both the ozone depletion and global warming fronts”. Now look at the HCFCs and HFCs. The beauty of the slide is that it can be used to tell the past, present and, very likely the future of the refrigerant issue. (use jump offs at the top of the chart allow you to look at this graph in respect to either the Montreal or Kyoto Protocol) Looking at both sides, the decision can be offered to the audience on what is the most “balanced” refrigerant to be used. HFC32 and HFC152a become obvious choices, but as seen, they are slightly flammable and lacking other particular properties that HVAC equipment manufacturers desire. Once those are removed, R-123 surfaces to the top as the next best selection. Now, using the same scale, we can place today’s refrigerants on the same scale and do the same evaluation. It can be seen that some of the most pursued refrigerants of today (R-407C and R-410A) have elevated GWP, and as such are becoming under tight scrutiny about lacking a balanced approach. 407C 410A 1.0 0.8 0.6 0.4 0.2 0.0 0.0 2000 4000 6000 8000 10000 ODP (relative to R-11) GWP (relative to CO2) J. M. Calm and G. C. Hourahan, “Refrigerant Data Summary,” Engineered Systems, 18(11):74-88, November 2001 (based on 1998 WMO and 2001 IPCC assessments). © JMC 2001 CONFIDENTIAL AND PROPRIETARY INFORMATION OF TRANE

Natural Refrigerant Considerations CO2 Low Temp/Refrigeration/Automotive Very low efficiency in HVAC applications CO2 has half the efficiency of R-22 and R410A Hydrocarbons Stationary Air Conditioning Safety issues on application, service, recovery Ammonia Low Temp/Process Chiller Applications Limited opportunities for safe applications Safety and environmental issues, service, recovery Water Stationary Air Conditioning Low efficiency in normal HVAC applications

Options For HVAC Refrigerants Fluorocarbons “Natural” Refrigerants Ozone Depleters (Montreal Protocol) Non- Ozone Depleters (Kyoto Protocol) Class 1 High ODP CFC’s Class 2 Low ODP HCFC’s Higher GWP Lower GWP R-134a R-410A R-407C R-32 R-152a Propane Butane CO2 Ammonia Water R-11 R-12 R113 R-500 R-22 R-123 GWP GWP ODP GWP ODP GWP GWP ODP ODP GWP GWP ODP GWP ODP -ODP Concerns -GWP Concerns - Flammable ODP -Toxicity Concerns -Efficiency Concerns -Cost Concerns GWP

How is the industry responding? Refrigerant producers are developing new refrigerants: Near zero ODP, very low GWP, energy efficient & safe Commercial availability began in 2015 Equipment manufacturers are analyzing new refrigerants: Energy efficient, safe & low emissions Equipment availability by 2015 - 2022

Projected Replacements High Pressure (R-22/R-410a) R-32 (GWP=685/716) 2L flammable R-32 blends (GWP= 400/600) . 2L flammable Medium Pressure (R-134a) R-1234yf (GWP<10) - Automobile Expensive, significant efficiency loss R-1234ze (GWP<10) - Chillers Moderate price Blends (GWP= 500/650) – non flammable Low Pressure (R-123) , R-1233 zd(E) (GWP<10) - Chillers . Moderate price . Non-flammable Blends (GWP= 170/200) – non flammable / CONFIDENTIAL AND PROPRIETARY INFORMATION OF TRANE

Refrigerant Safety Classifications ASHRAE 34 & Proposed ISO 817 Flammability Class 1, non-flammable most refrigerants used today, like R-22, R-134a, R123, 410a, 407C Class 2L, new class slightly flammable refrigerants <10 cm/sec burning velocity, most new HFO’s, R32 Class 2, more flammable, R152 Class 3, explosive, like propane As identified on the previous page, flammability safety is a big concern. In this regard, various safety standards have been working on how to address the flammability concerns. As most are likely familiar with are the 3 classes of flammability for ASHRAE standard 34. Class 1 non-flammable, class 2 and 3 increasing flammable In the past, all the new refrigerants maintain non-flammability and fit well into this classification system. Some HFC’s like R32, R143a are flammable by this classification system and were ignored as potential candidates during the ODP transition since they could be blended with non-flammable refrigerant to obtain the safety required. In the last transition, R32 gained a lot of attention around it’s unique flammability properties, and a new classification system was developed to potential handle these “slightly flammable refrigerants” As identified earlier new refrigerants like R1234yf and R1234ze were also 2L flammable. These refrigerants are easy to ignite and sustain a flame, but more research is needed into the hazards of combustion of these materials. 2L class key to use of low GWP HFOs

OLD 1st. Generation 2nd. Generation CFC-11 HCFC-123 R-1233zd(E) Blends CFC-12 HFC-134a R-1234yf (auto) R- 1234ze (chiller) Blends (chiller) HCFC-22 HFC- 410a HFC - 32 or Blends HFC – 407C HFC – 32 or Blends

The Future of HCFCs and HFCs: R-22, R-123, R-134a, R-410a, and 407C will be available for servicing existing equipment Cost of current refrigerants will increase Carbon tax factor: R-22 (1800) vs. R-410a (2000); R-123 (77) vs. R-134a (1430) New refrigerants will cost 4 to 10 times more than HFCs 25