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THE

GLOBAL ENVIRONMENTAL BENEFIT

FROM THE USE OF

HCFC-123 IN CENTRIFUGAL CHILLERS

Prepared for:

TraneA business of American Standard CompaniesUnited States of America

Prepared by:

Tom BatchelorTouchdown Consulting sprl

Belgium

5 SEPTEMBER 2007

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KEY FINDINGS

The Parties to the Montreal Protocol are currently considering six proposals submitted bynine Parties to adjust the control measures on hydrochlorofluorocarbons (HCFCs), whichcould reduce their production and consumption in the future in both developed anddeveloping countries, while permitting exemptions where necessary;

In addition to the benefit to the ozone layer, reductions in the production and consumptionunder the Montreal Protocol have reduced global warming 13 times more than the totalgreenhouse gas emission reduction commitment in the Kyoto Protocol. Recognising this,the G8 Summit in 2007 encouraged the Parties to the Montreal Protocol to phase outHCFCs in ways that support ozone layer, energy efficiency and climate change objectives;

Some of the proposals, in acknowledging the Montreal Protocols benefit to the globalclimate, have suggested an exemption for HCFCs where their continued use underspecific conditions would offer a superior environmental benefit, considering both ozonelayer protection and the global climate;

HCFC-123 refrigerant should qualify for a superior environmental benefit exemption as ithas a small ODP (0.020), small GWP (76) and short half-life (1.3 years). When used incentrifugal air conditioning chillers, it delivers near-zero emissions and energy efficiencythat is up to 13.5% better than the most widely-used centrifugal chiller refrigerantHFC-134a;

HCFC-123 production in ODP tonnes was only 0.5% of the total HCFCs produced in2002. HCFC-123s small production volume, small ODP and short half-life result in a verysmall, observed global tropospheric concentration of 0.03 parts per trillion (ppt),compared with 538 ppt for CFC-12, 157 ppt for HCFC-22 and 26 ppt for HFC-134a;

Chillers using HCFC-123 account for about 30% of the centrifugal chillers worldwide. Asthere are no patent barriers, today there are multiple producers of HCFC-123 in Canadaand China, and manufacturers of HCFC-123 centrifugal chillers in China, Japan, Koreaand the United States;

When compared with the next best alternative centrifugal chiller technology whichoperates on HFC-134a, the total directand indirectbenefits of the current market share ofHCFC-123 centrifugal chillers result in an annual reduction of almost 120,000 tonnes ofCO2-eq per year, which is equivalent to avoiding CO2 emissions from about 40,000 carsevery year. These savings are even more significant when accrued over the 30 yearlifetime of HCFC-123 centrifugal chillers;

Three Parties have proposed a 10-year earlier phase out of HCFCs. Their proposalswould need to exclude the phase out of HCFC-123 to have the same environmentalbenefit as avoiding the direct and indirect impact of the CO2 emissions from an additional7.6 million cars during this 10-year period;

A superior environmental benefit exemption would benefit the global climate when basedon well-defined qualifying criteria that allow one 30-year generation of chillers, withperiodic reviews to confirm the unavailability of a better alternative. There could be aneutral impact on the ozone layer if production of HCFC-123 was made conditional on thedestruction of ozone-depleting substances contained in banks;

An exemption for HCFC-123 would save at least $112 million of Multilateral Fundreserves by not having to pay for the phase out of HCFC-123 chillers in developingcountries. There would be no global environmental benefit from the replacement of theHCFC-123 chillers, and the expenditure would reduce the ability of the fund to pay for thetransfer of non-ozone-depleting technology to other sectors; and

In addition to the global environmental benefit, an exemption for HCFC-123 would allowconsumers to continue to choose between HCFC-123 and HFC-134a chiller technologies,on the basis of environmental performance and competitive pricing, and it would allowpolicymakers and regulators to continue to promote the best available technology thatoffers the best environmental performance.

2

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1. INTRODUCTION

Hydrochlorofluorocarbons (HCFCs) have been increasingly used in the past 15 years toreplace highly ozone-depleting chlorofluorocarbons (CFCs) in a wide-ranging number ofapplications that includes refrigeration, air-conditioning, solvent and foam blowing.

However, even HCFCs are required to be replaced as they have an ozone-depleting potential(ODP), albeit much smaller than CFCs. For this reason, the Parties to the Montreal Protocolagreed in 1992 to classify them as transitional substances

1. In addition, there is also broad

acceptance that there has been a very substantial increase in the production andconsumption of HCFCs over recent years, particularly in Article 5 Parties, which represents amajor problem

2as HCFCs deplete the ozone layer and increase global warming.

In the light of these agreements and problems, nine Parties submitted six proposals to adjustthe HCFC control measure (the Adjustments) in early 2007

3. These submissions proposed,

among other elements, various timetables for the reduction and phase out of HCFCs, andexemptions that would allow the continued use of HCFCs when specific conditions are met.

Recently, the co-chairs of the Contact Group that was established at the Meeting of theParties to the Montreal Protocol in June 2007 invited relevant organizations to share their

analyses and calculations on the various scenarios for accelerated HCFC phase outcontained in the proposed Adjustments of the Protocol, and to provide that information to theSecretariat for posting on the Secretariats website. In addition, two reports

4 5that have

recently analysed the impact of the HCFC phase out did not address the use of HCFC-123 incentrifugal chillers

6.

In response, this paper:

Discusses the Adjustment proposals that have been submitted on HCFCs, in thelight of comments made by the Parties to the Montreal Protocol at their last meeting;

Quantifies the significant environmental value of the Montreal Protocol in reducingozone layer depletion and global warming;

Examines the policies that the Parties to the Montreal Protocol already have in placeto address climate change;

Reports on the global share of the two major centrifugal chiller technologies, whichoperate on HCFC-123 or HFC-134a;

Highlights alternatives under consideration for use in centrifugal chillers and providesindependent technical advice that supports the ongoing use of HCFC-123 centrifugalchillers as the best available technology;

Shows the criteria that could allow an ozone-depleting substance to qualify for asuperior environmental benefit, which appears to meet with the global environmentconcepts submitted by three Parties in their Adjustment proposals;

Quantifies the environmental benefit to the ozone layer and the global climate ofHCFC-123 centrifugal chiller technology; and

Highlights the benefits to the Multilateral Fund if an exemption is granted forHCFC-123, allowing the continued use of this energy-saving technology.

1 UNEP Handbook for the Montreal Protocol. Resolution on ozone depleting substances (1990): IITransitional Substances; and also Decision III/12.

2 UNEP/OzL.Pro.WG.1/27/9. Report of the twenty-seventh meeting of the Open-ended WorkingGroup of the Parties to the Montreal Protocol; paragraph 173.

3 Draft Decisions [pages 1-13] and proposed adjustments [pages 14-37]. Ozone Secretariat website.4 ICF International (Washington DC). August 2007. Changes in the HCFC consumption and

emissions from the US proposed adjustments for accelerating the HCFC phase out. 26pp.5 ICF International (Washington DC). Memorandum to the European Commission. Assessment of

the Reduction of HCFC production, consumption and emissions under the proposed changed to the

Montreal Protocol. 16pp.6 Chiller and Centrifugal Chiller are synonymous terms used in this report.

3

http://ozone.unep.org/Publications/MP_Handbook/index.shtmlhttp://ozone.unep.org/Meeting_Documents/oewg/27oewg/OEWG-27-9E.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/MOP-19-3E.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/USA-HCFC-Accerelated-phase-proposal.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/USA-HCFC-Accerelated-phase-proposal.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/EC-Submission-on-HCFC-Adjustment-Proposals.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/EC-Submission-on-HCFC-Adjustment-Proposals.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/USA-HCFC-Accerelated-phase-proposal.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/USA-HCFC-Accerelated-phase-proposal.pdfhttp://ozone.unep.org/Meeting_Documents/mop/19mop/MOP-19-3E.pdfhttp://ozone.unep.org/Meeting_Documents/oewg/27oewg/OEWG-27-9E.pdfhttp://ozone.unep.org/Publications/MP_Handbook/index.shtml

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2. ADJUSTMENT PROPOSALS AND DISCUSSIONS ON HCFCs

The six proposals for an Adjustment of the HCFC control measure were discussed bygovernment, industry and NGO delegates at the 27

thOpen-Ended Working Group (OEWG-27)

meeting held in Nairobi (Kenya) in June 2007. At that meeting, the Parties affirmed that therewas a clear need to accelerate the timetable for the phase out of HCFCs7:

In a workshop held immediately before the OEWG-27, delegates expressed strongsupport for careful consideration of the proposed Adjustments and called for furtheraction to protect the planet and accelerate the recovery of the ozone layer. Althoughalternatives to HCFCs were acknowledged as generally available, delegatesconsidered it important that alternatives should be environmentally sound andeconomically viable

8;

In plenary at the OEWG-27 meeting, the Parties expressed different opinions on theprecise timetable to freeze, reduce and phase out HCFCs. Some Parties supportedthe phase out of some HCFCs ahead of others. The Parties discussed whether ornot exemptions should be permitted for HCFCs that were environmentally beneficial,such as those that helped to conserve energy and thereby mitigate against theeffects of climate change

9.

3. MONTREAL PROTOCOL REDUCES GLOBAL WARMING

The OEWG-27 was taking place at the same time as the G8 Summit in Germany. Theleaders and other Heads of State

10at the Summit discussed, and prepared responses to, key

challenges of the world economy, climate change and Africa. The final communiquencouraged countries to:

endeavour under the Montreal Protocol to ensure the recovery of theozone layer by accelerating the phase out of HCFCs in a way that supportsenergy efficiency and climate change objectives11.

The Summit also encouraged countries to implement energy efficiency policies since thesecould contribute to an 80% reduction in greenhouse gases and increase the security ofenergy supplies.

Importantly, the G8 summit Declaration encouraged the phase out of HCFCs to beundertaken in such a way that actions in the Montreal Protocol (elimination of HCFCs) shouldnot undermine progress in the Kyoto Protocol (alternatives to ozone-depleting substancesshould not increase global warming). The Declaration also encouraged the two Protocols notto work in isolation but rather side-by-side to produce agreements that promote globalenvironmental solutions. This was in recognition that the development of common policies

and agreements would inevitably take time, effort and the dedication of policymakers andtechnical experts involved in both Protocols.

7 UNEP/OzL.Pro.WG.1/27/9. Report of the twenty-seventh meeting of the Open-ended WorkingGroup of the Parties to the Montreal Protocol; paragraph 173.

8 UNEP/OzL.Pro.WG.1/27/7. Summary of key issues arising from the Dialogue on futurechallenges to be faced by the Montreal Protocol: Presentation of the Co-Chairs of the Dialogue.

9 UNEP/OzL.Pro.WG.1/27/7. Paragraph 17410 G8: Canada, European Union, Germany, France, Italy, Japan Russia, United Kingdom, USA;

Others: Africa (Algeria, Egypt, Nigeria, Senegal, South Africa), Brazil, China, India & Mexico11

Summit Declaration 7 June 2007. Growth and Responsibility in the World Economy. Page 20,paragraph 59.

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benefit not only the ozone layer but also the global climate, particularly in the light of therecent IPCC report that stated global warming is most likely due to anthropogenic greenhousegas concentrations

15.

This action is urgently required since the hole in the ozone over the Antarctic has appearedearlier than usual and there are indications that it could grow to the largest on record

16. In

regard to the global climate, the Parties to the Kyoto Protocol are currently discussing thegreenhouse gas mitigation potentials and ranges of emission reduction objectives for thepost-2012 commitment period

17.

The Kyoto Protocol discussions are taking place at a time when environmental degradationdue to global warming is becoming increasingly evident and appears to be accelerating. Forexample, recent scientific data suggest that the Arctic ice is melting three times faster thanpreviously recorded, which could result in the region being free of summer ice by 2020, somethree decades earlier than predicted

18. Some reports predict that increases in global warming

gases and temperature will eventually reach a tipping point when abrupt, non-linear andirreversible climate change could trigger catastrophic rises in sea level and other devastatingimpacts

19.

4. MONTREAL PROTOCOL POLICIES AFFECTING CLIMATE CHANGE

Policymakers in the Kyoto Protocol and the Montreal Protocol have taken the initiative andreached decisions on a number of occasions that provide a mandate for the Parties in theMontreal Protocol to take action to further protect the global climate:

1. Despite the fact that most ozone-depleting substances have global warmingproperties, the Parties to the Kyoto Protocol deferred to the Montreal Protocol onpolicies and measures to control these substances

20. The Parties to the Montreal

Protocol are therefore in the unique position of having the responsibility to put inplace environmentally-balanced solutions that take into account both the objectives ofthe Montreal and Kyoto Protocols.

2. The Montreal Protocol contains preambular text to the Protocol, as well asamendment and adjustment text, and many requests to the Protocols Technical andEconomic Assessment Panel (TEAP), which collectively encourage action by theParties to the Montreal Protocol to agree policies that contribute to a reduction inglobal warming.

These policies are quite diverse. For example, they encourage the Parties to put inplace those that avoid climatic effects

21and to implement environmentally

suitable alternatives 22

; they include recommendations by TEAP on Life CycleAnalysis (LCA) and Life-Cycle Climate Performance (LCCP); there are reports to theParties provided by TEAP on the ozone layer and the global climate system; aDeclaration at the tenth Meeting of the Parties that high GWP alternativesshouldbe discouraged

23 24; workshops on the Montreal Protocol and Climate in 2005 and

15 IPCC. 2007. Fourth Assessment Report.16 The first Antarctic ozone bulletin for 2007. 28 August 2007. World Meteorological Organisation.17 United Nations Framework on Convention on Climate Change.18 US National Snow and Ice Data Center. London Financial Times, 20 Aug 2007.19 Hansen, J.E. 2007. Scientific reticence and sea level rise. Environ. Res. Lett. 2; 024002 (6pp)20 Kyoto Protocol to the United Nations Framework Convention on Climate Change, with reference

to the Montreal Protocol responsibilities in Articles 1, 2, 5, 7 & 10.21 Montreal Protocol. 2006. Preamble to the Montreal Protocol. Handbook for the Montreal

Protocol on Substances that Deplete the Ozone Layer, Seventh Edition. Page 322 Montreal Protocol. 2006. Article 2F, paragraph 7. Handbook for the Montreal Protocol on

Substances that Deplete the Ozone Layer, Seventh Edition. Page10. Also referred to in theAdjustment Proposal on HCFCs submitted by Iceland/Norway and Switzerland in 2007 (See 3).

23

Montreal Protocol. 2006. Declaration at the tenth Meeting of the Parties, Cairo, Egypt.Handbook for the Montreal Protocol on Substances that Deplete the Ozone Layer. 7th Ed. p 447.

6

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25in 2007 ; and a TEAP report that assessed the measures listed in a previousworkshop in relation to the outcome of the IPCC/TEAP Special Report on Ozone andClimate

26.

5. FUTURE AVAILABILITY OF HCFC-123 CHILLER TECHNOLOGY

HCFC-123 continues to be used in chillers because there is a demand from customers to aircondition commercial buildings and to provide process cooling using technology that providescost-effective energy efficiency.

Legislation in some markets constrains customer choice which reduces the use of HCFC-123technology. In the United States, the market share is approximately 50%, whereas globalmarket share is about 30%

27. Regulatory restrictions on the use of HCFCs in all applications

have suppressed the European and global market for HCFC-123 chillers.

HCFC-123

HCFC-123

GLOBAL (30%)UNITED STATES (50%)

HCFC-123

Figure 1: HCFC-123 chiller technology approximate market share

An acceleration of the phase out of HCFCs by 10 years, as proposed by three Parties in twoof the Adjustment proposals

28, would be environmentally damaging if HCFC-123 was not

exempted from the phase out. There would be a directglobal warming impact as a result ofthe replacement of about 90,000 HCFC-123 chillers by the same number of HFC-134achillers, creating an additional estimated 1,179,000 tonnes of CO

292-eq , which would be equal

to the CO2 emissions from an additional 393,000 cars, in the periods 2020 to 2030 & 2030 to2040.

The indirectglobal warming impact would be even greater, being equivalent to 21,600,000C02-eq emissions from more than 7,200,000 cars, for the same time periods.

24 Decision XVII/19. See Reference cited in Footnote 37 Handbook for the Montreal Protocol.25 Decision XVIII/36. Report of the 18th Meeting of the Parties. Page 59.26 Decision XVIII/12. Report of the 18th Meeting of the Parties. Page 38.27 Global market share is estimated at 25-30%. A nominal value of 30% was used in all calculations.28 From 2030 to 2020 for developed countries, and from 2040 to 2030 in developing counties,

proposed by USA and Argentina/Brazil.29 HCFC-123 has about 30% market share of 8,908 chillers (in 2001, see Footnote 52); 4% growth

rate per year; 2/3rd in non-A5; 1/3rd in A5; car emissions as in Footnote 55. Direct emissionscalculated as 90,002 HFC-134a chillers x 504 kg/chiller x 0.02 loss/year x 1300 GWP = 1,179,386

tonnes of C02-eq., equivalent to the CO2 emissions from 393,129 cars in the periods 2020 to 2030& 2030 to 2040.

7

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The total direct and indirect benefitsfrom the continued use of HCFC-123 centrifugal chillerswould be equivalent to avoiding emissions from almost 7.6 million cars. Along with othercalculations, they are summarised later in this report (Table 2 Scenario 4).

In order to take advantage of this environmental benefit, a 10-year acceleration of the phaseout schedule in both developing developed countries would need to be accompanied by an

exemption allowing the continued use of HCFC-123 in centrifugal chillers.Knowing this information, policymakers could promote the concept of superior environmentalbenefit, and customers would continue to purchase HCFC-123 chillers because of the energysavings. A free market would continue to encourage choice and ensure competitive pricing ofall technologies.

It is often important for policymakers and regulators to put in place policies that ensure asingle company cannot capture the commercial benefit from any exemption. In regard toHCFC-123, there are no patent restrictions preventing manufacture of the chillers orproduction of the refrigerant. Today, HCFC-123 chillers are manufactured in China, Korea,Japan and the United States; and HCFC-123 refrigerant is produced in Canada and China.An exemption in the Montreal Protocol allowing the continued use of HCFC-123 couldencourage the manufacture of HCFC-123 chiller technology in more countries.

6. HCFC-123 AS THE BEST OPTION FOR CENTRIFUGAL CHILLERS

Some have suggested HFC-245fa is an option, but according to TEAP:

HFC-245fa has operating pressures higher than for HCFC-123 andCFC-11 but lower than for HFC-134a. Its use requires redesign ofcompressors to match its properties, a common requirement for this typeof compressor. In addition, the heat exchangers in an HFC- 245fa chillermust be designed tomeet pressure vessel codes, unlike those for CFC-11 and HCFC-123.

30

Since the operating pressure of HFC-245fa is higher than atmospheric, achieving near-zero

emissions will be more challenging than in HCFC-123 chillers, which operate under virtuallyno pressure and even a slight vacuum as HCFC-123 is a liquid at room temperature.Coupled with relatively high GWP for HFC-245fa of 1020 (HCFC-123 = 76), longeratmospheric life of 7.6 years (HCFC-123 = 1.3 years) and importantly, its lower energyefficiency, HFC-245fa is not an acceptable alternative to HCFC-123.

Others have suggested HFC-134a as a replacement for HCFC-123. Compared withHCFC-123, HFC-134a operates at higher than atmospheric pressure which makes gascontainment within the chiller more challenging. It has a relatively high GWP of 1300, whichwill contribute significantly to global warming. When these factors are considered withatmospheric lifetime of 14 years and lower energy efficiency, HFC-134a becomes lessdesirable for use in large centrifugal chillers, compared to HCFC-123.

Natural refrigerants such as carbon dioxide, hydrocarbons and ammonia have beensuggested as replacements for HFCs and HCFCs in centrifugal chillers. Carbon dioxide,which is used for low temperature refrigeration and is currently under development for use incar air conditioning, is a high pressure gas which is less than half as efficient as HCFC-123.

Hydrocarbons are used in domestic refrigerators and in small stationary air conditioning unitswhere the quantities used are well within safe limits, compared with hundreds of kilograms ofhydrocarbons that would be needed in a chiller

31. Ammonia is flammable, as well as a

30 RTOC 2006. Options for new centrifugal compressor chillers. Report of the Refrigeration, AirConditioning and Heat Pumps Technical Options Committee. 2006 Assessment. Page160-161.

31 Calm, J.M. 2005. Comparative efficiencies and implications for greenhouse gas emissions ofchiller refrigerants. Fourth Int. Symp. on non-CO2 Greenhouse Gases, Utrecht, The Netherlands,

4-6 July 2005. Table 2, page 676. The figure of 2500 kW capacity assumes similar COPs forhydrocarbons and HCFC-123.

8

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32primary eye and upper respiratory tract irritant , which results in regulatory restrictions inmany countries which limit its use.

Compared to HCFC-123, all these options are burdened with some combination of energyefficiency, safety, service and recovery, regulatory, engineering and environmental issues thatmake them less attractive for centrifugal chiller manufacturers, customers and policymakers.

This has led to several significant statements by independent experts that have identifiedHCFC-123 as the best of all the options under consideration:

1. Careless elimination of options that offer low ODP, lowGWP and energy savingscan be more harmful to the environment than beneficial

33

2. HCFC-123 could be allowed in specific air conditioning applications where its usepromotes superior energy efficiency and assures near-zero refrigerant emissions

34

353. Generally, HCFC-123 has the lowest total impact of all examined refrigerants

4. Refrigerant HCFC-123 has a favorable overall impact on the environment that isattributable to five factors - 1) A low ODP 2) A very low GWP 3) A very short

atmospheric lifetime; 4) Extremely low emissions of current designs for HCFC-123chillers 5) The highest efficiency of all current options.

HCFC-123 remains the most efficient refrigerant for water chillers. The continued useof HCFC-123 in chillers would have imperceptible impact on stratospheric ozonewhile offering significant advantages in efficiency, thereby lowering greenhouse gasemissions from associated energy use.

Based on integrated assessments, considering the tradeoffs between negligibleimpacts on stratospheric ozone and important benefits in addressing global warming,these studies recommend consideration of a phase out exemption for HCFC-123

36

7. PRODUCTION AND USES OF HCFC-123

Apart from HCFC-123s use as a refrigerant, it is also used as a fire extinguishing agent andas a feedstock to manufacture other refrigerant blends and fire fighting agents. AlthoughHCFC-123s use as a fire extinguishing agent has been banned in Europe, some exemptionswere authorised recently by the European Community until such time that a cost-effectivealternative becomes available.

There will be an ongoing need for the use of HCFC-123 as a feedstock. For example,HCFC-123 is used as a feedstock to produce HFC-125 which constitutes 50% ofR-410a which, in turn, is acknowledged as one of the main replacements for HCFC-22.HFC-125 replaced halon as a fire extinguishing agent in commercial aviation.

32 OSHA. 1989. www.cdc.gov/niosh/pel88/7664-41.html33 Weubbles, DJ and JM Calm. 1997. An environmental rationale for the retention of endangered

chemicals. Science, 278: 1090 1091.34 Summary of the Science Symposium: Challenges and Perspectives Ozone Layer Protection.

Prague, Czech Republic, 19 November 2004. Chaired by Nobel prize winner Professor MarioMolina. Report of the XVI Meeting of the Parties. Pp 98-100.

35 Decanio S.J., Norman C.S., and L. Fan. 2007. "Opportunities and Challenges for the 20thAnniversary of the Montreal Protocol".Department of Economics, UCSB.Departmental WorkingPapers. Paper 01-07. Page 20. Decanio reference cites Page 285-287 of theIPCC/TEAP Special

Report on Safeguarding the Ozone Layer and the Global Climate System www.ipcc.ch.36 RTOC. 2002. Environmental Evaluation for Retention of HCFC-123 as a Refrigerant for

Centrifugal Chillers. Report of the Refrigeration, Air Conditioning and Heat Pumps TechnicalOptions Committee. 2002 Assessment. Page 120-121.

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Feedstock uses are not scheduled for reduction and phase out in the Montreal Protocol, asozone-depleting substances used for feedstock are consumed in the chemical reaction andnot released to the atmosphere. However, even though the quantity produced is notrestricted, ozone substances produced for feedstock are still required to be reported annuallyto the Ozone Secretariat

37. Therefore, the production of HCFC-123 for feedstock and non-

refrigerant uses are likely to continue, but its continued use as a refrigerant in centrifugal

chillers will depend on an exemption agreed by the Parties.

Figure 2:

0.06 0.15 0.16

1.75

12.24

17.65

0

5

10

15

20

HCFC

-124

HCFC

-225

HCFC

-123

HCFC

-142b

HCFC

-141b

HCFC

-22

Production of HCFCs in2002, in ODP kTonnes.

Data reported to the OzoneSecretariat as requiredunder Article 7 of the

Montreal Protocol, andobtained in 2007.

The production of HCFCs in 2002, the last year for which official statistics allowed comparisonof the production of each of the major HCFCs, showed production was dominated byHCFC-22, HCFC-141b and HCFC-142b, which collectively accounted for 98.8% of allproduction (Figure 2). In comparison, HCFC-123 production in ODP tonnes for all uses wasvery low, accounting for only 0.5% of the total production.

The characteristics of HCFC-123 described by the TEAP above, particularly its low ODP and

short half life, when considered together with the relatively small quantity produced, result inits very limited environmental impact. The observed average global troposphericconcentration of HCFC-123 in 2003 was 0.03 parts per tr illion (ppt), compared with 538 pptfor CFC-12, 157 ppt for HCFC-22 and 26 ppt for HFC-134a

38.

HCFC-123s low tropospheric concentration can be attributed to its small production volumeand short half-life of 1.3 years. The impact on chlorine stratospheric loading, as a result ofthe continued use of HCFC-123 in closed refrigeration systems such as chillers, is almostnon-existent and, moreover, considerably lower than the chlorine/bromine variability fromnatural sources

39.

8. FACTORS INFLUENCING AN EXEMPTION FOR HCFC-123

At OEWG-27 in June 2007, a Contact Group was established to consider the Adjustmentproposals on HCFCs in more detail. The Group members exchanged views on essential useexemptions, including the need for them and their timing, and the pros and cons of a superiorenvironmental benefit exemption or similar phrase, as mentioned in three of the Adjustment

37 UNEP Ozone Secretariat. 2006. Article 7: Reporting of data. Handbook for the MontrealProtocol on Substances that Deplete the Ozone Layer. 7th Edition. Page 17.

38 IPCC / TEAP. 2005. IPCC/TEAP Special Report on Safeguarding the Ozone Layer and theGlobal Climate System Summary for Policymakers and Technical Summary. www.ipcc.ch;Table TS-2, page 21; Table SPM-1 page 7 for UNFCCC Reporting GWP for HFC-134a of 1300.

39

Weubbles, DJ and JM Calm. 1997. An environmental rationale for the retention of endangeredchemicals. Science, 278: 1090 1091.

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46chillers . Replacement of these chillers and destruction of their CFCs would avoidfuture ozone depletion and global warming.

A credit for the production of ozone-depleting substances as a result of their destruction iscurrently permitted in the Montreal Protocol, providing the substances destroyed andproduced belong to the same Annex

47. The Parties would need to allow production (e.g.

HCFC) and destruction (e.g. CFC) in different Annexes to capture the benefit ofODP-equivalent destruction, and to realise the added benefit of reduced global warming whenozone-depleting substances such as CFCs are destroyed.

In the case of HCFC-123, if an exemption were to be granted by the Parties, it would need tobe agreed for one commercial life cycle of a chiller. As a chiller has a commercial life of 30years, the exemption would need to last for 30 years beyond the latest phase out date forHCFCs in the Montreal Protocol control schedule. Such an exemption would be consistentwith the rationale applied in setting the exemption period for metered-dose inhalers used formedical treatments, for example, that take into account the commercial life of the productwhich is about 18 to 24 months.

During the exemption period, it would be appropriate for the TEAP or other similar body toreport to the Parties periodically on whether an alternative with better qualities (than thosedescribed in the first four exemption criteria above) had become available or not. In order notto overburden the reviewers unnecessarily, a suitable review period might be every 5 years,bearing in mind the commercial life of the chiller. Depending on the outcome of the technicalreport, the Parties would then be able to cancel the exemption, if an alternative becameavailable.

The proposed exemption could be considered as an adjustment to the HCFC control measure,since no substance is being removed or added to the control schedule

48. In effect, the

exempted substance would still be under the HCFC control schedule and listed in the relevantAnnex. The record shows that the four main exemptions to the reduction and phase out ofozone-depleting substance in the Montreal Protocol, including Basic Domestic Needs,Essential Uses, Critical Uses and Quarantine & Pre-shipment, were all added using theAdjustment procedure. Moreover, the precedent has been to agree to language in therelevant Articles in the Protocol to permit a Party to take an advantage of an exemption under

certain conditions, when a control measure is initially adjusted.

Looking to the future, the Parties considered that the results of a study reported by TEAPpursuant to decision XVIII/12 which they considered could make an important contribution tothe discussions on the value of a superior environmental benefit exemption

49. In addition, a

further TEAP study, specifically on essential uses and on HCFC-123, could be solicited50

.This seems particularly relevant as TEAP emphasised that any climate benefits arising from aphase out of HCFCs would depend on the climate performance of alternative systems

51.

9. ENVIRONMENTAL BENEFIT OF AN EXEMPTION

As described above, any production of HCFCs to satisfy an agreed exemption would be offsetby the verified destruction of the equivalent ODP quantity produced, resulting in a neutralimpact on the ozone layer.

The remaining global warming impact of an exemption can be measured on an annual basis

46 TEAP. 2004. Conclusions. Report of the TEAP Chiller Task Force. UNEP Ozone Secretariatwebsite, TEAP Reports.

47 Handbook for the Montreal Protocol on Substances that Deplete the Ozone Layer. For example,Page 23 showing Annex A substances; and Article 7(c) Reporting of Data.

48 Personal communication, 20 June 2007, James A. Losey, attorney specialising in the MontrealProtocol. Skadden, Arps, Slate, Meagher and Flom LLP. 1 page.

49 UNEP/OzL.Pro.WG.1/27/9. Paragraph 18350 UNEP/OzL.Pro.WG.1/27/9. [Contact Group] Co-chairs consolidated issues paper on proposals

for phase out of HCFCs. Annex II, page 44.51 UNEP/OzL.Pro.WG.1/27/9. Paragraph 82

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in terms of direct and indirect effects, when the number of chillers manufactured annuallyis known.

Trane manufactures both HCFC-123 and HFC-134a chillers. Based on Tranes annual salesrecords, about 30% of the 8,908

52large chillers produced annually operate on HCFC-123.

These chillers have a verified near-zero emission rate of 0.5%53

per year. The directglobal

warming due to emissions would be 327 tonnes CO2-eq. per year

54

. In relative terms, thedirectglobal warming impact of new HCFC-123 chillers operating on the market each year isequivalent to the annual global warming impact of emissions from about 100 cars

55(Table 2,

Scenario 1).

The indirectglobal warming impact (due to energy demand) of chillers is much greater thantheir direct (due to leakage) impact. The global annual indirect global impact of theseHCFC-123 chillers is 76.6 million kWh/year

56 57 58, , and equal to 556,000 tonnes CO2-eq. per

year59

, equivalent to 185,000 cars (Table 2, Scenario 1).

Conversely, replacement of the 30% global market share currently held byHCFC-123 centrifugal chillers, if this refrigerant were not available in the future, with the nextbest alternative which is an HFC-134a centrifugal chiller, would result in an additionaldirectglobal warming impact of 34,692 tonnes CO2-eq. per year

60, equivalent to the annual global

warming impact of emissions from about 11,500 cars (Table 2, Scenarios 1 and 2).The additional direct emissions occur because potential emissions of HFC-134a fromcentrifugal chillers are about 4 times higher than for HCFC-123 centrifugal chillers asHFC-134a is an intermediate or high pressure refrigerant. In contrast, HCFC-123 is held in acentrifugal chiller as a liquid, which allows it to operate under virtually no pressure or evenunder a slight vacuum. The result is that air leaks in to an HCFC-123 chiller, rather thanrefrigerant leaking out. A purge system is attached to all HCFC-123 centrifugal chillers toexpel the air and to retain the HCFC-123 inside the chiller.

Conversely, replacement of the 30% global market share currently held byHCFC-123 chillers, if this refrigerant were not available in the future, with the next bestalternative which is a HFC-134a chiller, would result in an additional indirectglobal warmingimpact of 85,954 tonnes CO2-eq. per year, equivalent to the annual global warming impact of

about 28,500 cars (Table 2, Scenario 2).

The direct global warming impact of the HFC-134a chillers at 70% global market share iscurrently 81,700 tonnes CO2-eq. per year, equivalent to the annual direct global warmingimpact of about 27,200 cars (Table 2, Scenario 3).

52 RTOC. 2006. World market characteristics - overview. Report of the Refrigeration, AirConditioning and Heat Pumps Technical Options Committee. 2006 Assessment. Table 9-5, P 151.

53 United States Green Building Council. Leadership in Energy and Environmental Design, NewConstruction version 2.2, Energy and Atmosphere Credit 4 (for 2% default leak value), CreditInterpretations & Rulings (for 0.5% leak value approved for Trane HCFC-123 centrifugal chillers).

54

0.30 x 8,908 chillers x 322 kg/chiller x 0.005 loss/year x 76

54

GWP = 327 tonnes CO2-eq. / year55 Assuming average of 200g CO2 / km / car, and average 15,000 km / car / year travelled.56 Efficiency of 0.448 for HCFC-123; 0.517 for HFC-134a; equivalent full load hours 2000; number

of chillers discounted by 20% to take into account 20% non-carbon energy sources57 COP = 7.03. Air-conditioning and Refrigeration Institute (ARI) registration of Earthwise

CenTraVac chiller has an efficiency of 0.448 kW/ton which is 13.5% better than the next bestHFC-134a chiller technology. Trane press release, 16 December 2005.

58 Birol, F. 2006. Presentation: World Energy Outlook 2006. Chief Economist, InternationalEnergy Agency, OECD. Slide2: The Reference Scenario World primary energy demand.

59 Base: 30% of the 8,908 centrifugal chillers operating on HCFC-123 have an average capacity of1400 kW, and an energy co-efficiency of performance of 7.03 (Footnote 57); about 80% of globalelectricity is derived from carbon-based energy sources (Footnote 58).

60 (0.30 x 8,908) chillers x 504 kg/chiller (Footnote 66) x 0.02 loss/year x 1300 GWP (Footnote 38) =

35,019 tonnes CO2-eq. per yearminus the current impact of the installed HCFC-123 chillers of 327tonnes CO2-eq. per year, making a total of 34,692 tonnes CO2-eq. per year

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The indirect global warming impact of the HFC-134a chillers at 70% global market share iscurrentlyabout 1.5 million tonnes CO2-eq. per year, equivalent to the annual global warmingimpact of about 499,000 cars (Table 2, Scenario 3).

When compared with the next best alternative centrifugal chiller technology which operateson HFC-134a, the total indirect and indirect benefits of the 30% global market share ofHCFC-123 centrifugal chillers result in an annual reduction of about 120,300 tonnes ofCO2-eq. per year, which is equivalent to avoiding emissions from almost 40,000 cars everyyear. Moreover, these savings are even more significant when accrued over the 30 yearlifetime of the HCFC-123 centrifugal chillers.

These scenarios are summarised in Table 2 Scenarios that demonstrate the environmentalbenefit of HCFC-123 chillers.

Table 2: Scenarios that demonstrate the environmental benefit of HCFC-123centrifugal chillers

Direct1

global warmingimpact per year

Indirect2

global warmingimpact per year

Environmental ImpactNo

Scenario Tonnes- Number of Tonnes- Number ofCO -eq.2 cars for

theseemissions

CO -eq. cars for2theseemissions

HCFC-123 chillers, current globalmarket share approximately 30%

327 109 555,850 185,3361

30% market share ofHCFC-123 chillers replaced byHFC-134a chillers

2 35,019 11,673 641,804 213,880

Current environmental benefit of HCFC- Avoids 34,692 tonnes Avoids 85,634 tonnes

123 centrifugal chillers per year, at about30% market share (based on 1 and 2above)

CO -eq. per year, equal to CO -eq. per year, equal to2 211,564 cars per year 28,545 cars per year

TOTAL directand indirectbenefits of the Avoids an additional 120,327 tonnes CO -eq. per year,2current 30% global share of equal to 40,109 additional cars per yearHCFC-123 centrifugal chillers per year

HFC-134a chillers, current globalmarket share of approximately 70%

81,711 27,237 1,497,543 499,1613

10 year acceleration of the HCFCphase out in developed anddeveloping countries, as proposedby 3 Parties, resulting in thereplacement ofHCFC-123 chillers with HFC-134achillers from 2020 to 2030, and2030 to 2040

4 1,179,386 393,129 21,612,648 7,204,216

1Due to leakage;

2Due to carbon-based energy use leading to CO release2

10. ENERGY EFFICIENCY OF HCFC-123 CENTRIFUGAL CHILLERS

As demonstrated in the previous section, HCFC-123 centrifugal chillers can contributesignificantly to energy savings over their lifetime of about 30 years. The energy efficiency

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advantage of HCFC-123 is another significant environmental benefit. HCFC-123 chillers havebeen independently-verified

61as 13.5% more energy efficient than the next best chiller.

HCFC-123s greater energy efficiency results in less electrical demand, and therefore lesscarbon dioxide generated when using carbon-based energy sources.

The methods used to determine energy efficiency for comparison with other centrifugal

technologies are important. In practice, as the air-conditioning load in a building decreases ina typical multiple chiller system, one chiller shuts off and loads the remaining chillers closer tofull load. In this way, the system controls ensure the chillers operate at full load a higherpercentage of the time than the building air-conditioning demand. Full load efficiency is abetter indicator of chiller energy usage than weighted part load values. Whether under full orpart load, HCFC-123 consistently maintains its energy efficiency advantage compared toother refrigerants.

Energy savings are a top priority in many countries to meet CO2 emission targets and toconserve energy for important uses. As air conditioning consumes slightly more than onequarter of the electricity used in commercial buildings, efficiency improvements can result insignificant cost-effective energy reduction, reduction in energy-related greenhouse gasemissions, and a reduction in the need for in the electrical infrastructure investment.

Acknowledging the value of enhanced energy efficiency, further engineering modifications toHCFC-123 chillers are planned which will boost energy efficiency even more. Thesemodifications include the use of magnetic bearings for frictionless operation and computer-assisted controls. These projects to improve energy-efficiency will only be financed if there isan exemption for HCFC-123 in the Montreal Protocol, which is necessary to justify thesignificant commercial investment in such innovation.

The implications of efficient use of energy through better performing chillers are significant.Computer simulations of energy demand in commercial buildings have shown thatcommercial building space could be expanded by about 20% without the requirement foradditional electricity generation, and even more with the replacement of low efficiency chillerswith the best available technology

62.

Based on a simulation of energy consumption in commercial buildings in Hong Kong, as anexample, could expect to reduce atmospheric pollutants and greenhouse gas emissionsassociated with energy use by 18% or more with the implementation of best-available, cost-effective energy-efficient chillers such as those that operate on HCFC-123.

11. COST OF REPLACING CHILLERS TO THE MULTILATERAL FUND

The majority of new centrifugal chillers use either HCFC-123 or HFC-134a.HCFC-123 is a low pressure refrigerant first commercialised in 1989 to replaceCFC-11. HFC-134a is an intermediate to high pressure refrigerant, commercialised in thesame year and used to replace CFC-12, and the blend R-500 that contains CFC-12.

The Multilateral Fund (MLF) has so far allocated approximately $3 million to convert CFC-11chillers in India and Thailand to HCFC-123 chillers

63. A further $18 million has been allocated

for a range of activities associated with the conversion of CFC chillers to CFC-free technologyincluding project preparation, workshops, demonstration projects and training manuals. Thisallocation includes a global demonstration project, which has the goal of replacing 150 chillers

61 Independent third-party verification is the most reliable indicator of energy efficiencyperformance, rather than anecdotal evidence or company opinion.

62 Calm, J.M. 2007. Centrifugal chiller efficiency benefits beyond reduced operating costs. Acton Climate Change Now or Never. Proc. Int. Conf. on Climate Change, ICCC, Hong Kong, 29-31 May 2007. Paper ICCC-080,2007.

63

MLF Project Database. August 2007. Multilateral Fund for the Implementation of the MontrealProtocol.

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64at a cost of $20.6 million ($13.8 million will come from MLF reserves). This globaldemonstration project allows calculation of the average replacement cost per chiller of about$140,000.

An adjustment by the Parties to eliminate all HCFCs, without an exemption for HCFC-123 foruse in centrifugal chillers, would result in owners in developing countries of HCFC-chillers

being eligible for financial assistance to install replacement chillers. Based on an averagechiller cost above, the estimated cost to the MLF to replace HCFC-123 chillers with HFC-134achillers would be at least $112 million

65. The cost could be considerably higher because of

recent increases in the costs of raw materials such as steel, and the configuration of theinstalled equipment.

Many Parties would question the environmental benefit of this potential expenditure since theHCFC-123 centrifugal chillers would be converted to HFC-134a centrifugal chillers.Compared to HCFC-123 chillers, HFC-134a chillers have 56% greater gas loading

66, lower

energy efficiency and greater gas containment challenges due to their high operatingpressure, all features which are known to exacerbate global warming.

In the Co-chairs Summary of the Challenges Workshop, many representatives from Article

5(1) Parties expressed the desire to discuss difficulties that might be faced by Article 5 Partiesin phasing out HCFCs

67. HCFC-123 should not be on the difficult list as HCFC-123

centrifugal chillers are the best-available technology. An exemption would also allow the MLFto focus expenditure on other sectors that require the transfer of climate-friendly technology.

12. CONCLUSIONS

The phase out dates for HCFCs first agreed by the Parties to the Montreal Protocol some 15years ago were based solely upon consideration of their ODP values. Today, when choosingthe best refrigerant for the environment, the science recognises that additional considerationsof global warming potential, energy efficiency, leakage rate, atmospheric life and the mode ofapplication are all factors that need to be considered simultaneously.

Even in the light of clear connections between climate and ozone protection, co-investment torealise joint benefits has been difficult to accomplish under the current treaty frameworks

68.

Because the Kyoto Protocol was agreed 10 years after Montreal Protocol, this time lag hasmade it very difficult to make decisions in both Protocols to achieve common environmentalobjectives. The Parties to the Montreal Protocol took the decision in 1992 to eventually phaseout HCFCs. In 1997, the Kyoto Protocol was created as a global response to climate change,and at the same time it deferred decisions on ozone-depleting substances to the Parties tothe Montreal Protocol, even though they have global warming properties. This defermentmay have increased the difficulty of achieving common environmental solutions.

Despite these administrative difficulties, the Parties to the Montreal Protocol now have aprime opportunity to overcome the 10-year gap by supporting environmentally-balanced

64 MLF Project GLO/REF/47/DEM/268. August 2007. Global chiller replacement project in China,India, Indonesia, Jordan, Malaysia, Tunisia and the Philippines. MLF Project Database.

65 RTOC reported 8,908 chillers globally of which 30% are HCFC-123 2,672. Assuming 30% ofthese are in developing countries 800 chillers X average cost of $140,000 per chiller = $112million.

66 RTOC. 2006. Inventories of Chiller Equipment and Refrigerant in Service Centrifugal Chillers.Report of the Refrigeration, Air Conditioning and Heat Pumps Technical Options Committee.2006 Assessment. Table 9-4, Average charge level and capacity. Page 149.

67 UNEP/OzL.Pro.WG.1/27/7. Summary of key issues arising from the Dialogue on futurechallenges to be faced by the Montreal Protocol: Presentation of the Co-Chairs of the Dialogue.

68 Decanio S.J., Norman C.S., and L. Fan. 2007. "Opportunities and Challenges for the 20thAnniversary of the Montreal Protocol".Department of Economics, UCSB.Departmental Working

Papers. Paper 01-07. Page 7.

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policies that take into account the goals of both the Montreal and Kyoto Protocols. Allowingthe continued use of HCFC-123 and its energy-saving technology would be anenvironmentally-balanced solution that addresses the goals of both Protocols.

The environmental benefit of HCFC-123 centrifugal chillers could be realised only ifHCFC-123 is exempted from phase out. Previously submitted scientific and technicalassessments on chiller technologies have provided policymakers with the detailed informationnecessary to fine tune69 an HCFC phase out, while at the same time allowing desirable usesof HCFCs in applications where emissions are near zero or there are overriding energyefficiency benefits.

For further information, please contact:

Mr James WolfAmerican Standard5622 Columbia Pike, Suite 408Falls Church, VA 22041

United States of America

Tel: +1-703 820 2039 TraneCell: +1-703 898 7476 A business of American Standard

CompaniesFax: +1-703 820 2053E-mail: asdwolf@aol.com www.trane.com

69 Guus J. M. Velders et al. 2007. The importance of the Montreal Protocol in protecting climate.Proc. Nat. Acad. Sci., Vol. 104 (12): pp 4814-4819

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