EPA Finalizes New Rule to Reduce and Reclaim Hydrofluorocarbons | Pillsbury Winthrop Shaw Pittman LLP

EPA recently finalized the HFC Emissions Reduction and Reclamation Rule, which imposes strict requirements on industries relying on HFC-based refrigeration systems.

Prior to the Biden administration leaving office, EPA finalized another rule in its continued push to phase down the use of hydrofluorocarbons (HFCs) by issuing a final rule on October 11, 2024, to establish the HFC Emissions Reduction and Reclamation (ER&R) program. EPA’s new rule, discussed in more detail below, will significantly impact industries that rely heavily on commercial-scale refrigeration systems. Further, companies with facilities that rely on older systems may require more frequent equipment repair or replacement to comply with the rule.

This rule is of particular importance because it is likely to have a significant impact on grocery stores and data centers—two particularly vital sectors in the U.S. economy. Moreover, since the underlying legislation was passed during the previous Trump administration, we expect it to be less subject to the administration’s deregulatory push.

HFCs, the AIM Act, the Kigali Amendment and Three New EPA Rules
HFCs are synthetically produced chemicals used in refrigeration systems, air conditioning units, heat pumps, fire suppression systems, solvents, foam blowing and semi-conductor manufacturing. The use of HFCs has become particularly prevalent in the supermarket and data center industries—two industries where continuous, reliable commercial-scale refrigeration is vital to companies’ operations.

While HFCs are highly effective refrigerants, they are also potent greenhouse gases (GHG). It’s estimated that HFCs currently represent about 2% of total GHG emissions. Leaks from supermarket systems are a significant portion of this challenge, with one study estimating that leaks from U.S. supermarket systems using HFCs equal the emissions impact of burning 65 billion pounds of coal. Likewise, while data centers are estimated to account for 2% of all HFC emissions, considering the rapid expansion of data center operations to support the growth of artificial intelligence, this percentage could grow without additional policy intervention.

The federal government’s interest in phasing out the use of HFCs dates back to the adoption of the Kigali Amendment to the Montreal Protocol on October 15, 2016. The Montreal Protocol is a successful multinational environmental treaty between nations, that was designed to phase out the use of chemicals that deplete the ozone layer. The Kigali Amendment sought to build on the approach of the Montreal Protocol for HFCs.

On December 27, 2020, President Trump signed into law the American Innovation and Manufacturing (AIM) Act, which largely mirrored the goals of the Kigali Amendment. The AIM Act requires the phasedown of HFCs by 85% by 2036 and authorizes EPA to effectuate the phasedown of HFCs in three main ways, by (1) creating a cap-and-trade program for HFCs (2) mandating that industry transition to using lower greenhouse gas alternatives to HFCs and (3) creating an HFC reduction and reclamation program, to reduce the unintended release of HFCs from equipment into the atmosphere. The Senate later ratified the Kigali Amendment on September 21, 2022.

EPA finalized the allocation framework rule in 2021 and the technology transition rule in 2023. The allocation framework rule establishes a cap-and-trade-like system for HFCs, where each year EPA issues allowances to companies that either import or produce HFCs. Companies can trade allowances with one another or bank unused allowances for future flexibility, and the rule gradually reduces the number of allowances issues each year to incentivize using fewer and fewer HFCs. By contrast, the technology transition rule restricts or prohibits the use of certain high-global-warming-potential (GWP) HFCs in specific industrial and commercial sectors, requiring instead that these sectors transition to low-GWP alternatives.

The ER&R Rule
The ER&R Rule marks EPA’s first attempt to focus users of HFCs on reduction and reclamation. The Rule contains broad requirements related to monitoring, repairing and replacing equipment, and the capture and reuse of HFCs. Requirements of the ER&R Rule include:

– The rule establishes leak late thresholds for covered appliances: 30% for industrial process refrigeration systems, 20% for commercial refrigeration systems, and 10% for comfort cooling and refrigerated transport systems. The leak rate varies across companies and facilities. For food retailers (supermarkets, grocery stores, co-ops, supercenters and wholesale clubs), for example, EPA has estimated a 25% industry average leak rate, although EPA GreenChill participants achieved an average leak rate of about 12%. This would put the leak rate threshold for food retailers below EPA’s current assessment of the industry average.

– The rule requires owners or operators of a covered appliance to repair a leak within 30 days of the appliance exceeding the applicable leak rate threshold. The owner must then conduct multiple verification tests to ensure that the repairs were effective and then conduct ongoing leak inspections after the system returns to acceptable operating conditions.

– If the owner or operator cannot successfully repair the appliance within the required time frame, the owner or operator must move to retrofit or retire the appliance and submit a detailed plan to EPA for how it will do so.

• Owners and operators of certain new (and some covered existing) appliances will be required to install and use automatic leak detection systems, to ensure accurate and effective detection of HFC releases.
• The rule establishes a baseline “reclamation standard”; reclaimed HFC refrigerants can contain no more than 15% virgin HFCs by weight and must be labeled as such.
• Servicing and/or repair of refrigerant-containing equipment must be done with reclaimed HFCs in supermarket systems, refrigerated transport and automatic commercial icemakers. This means that companies in these sectors will be required to purchase refrigerants using reclaimed HFCs, which may be more costly than refrigerants made with virgin HFCs.
• Numerous new requirements for the fire suppression sector have been introduced, including a requirement that recycled HFCs must be used in installation of certain new fire suppression systems. Likewise, certain existing fire suppression equipment must be serviced with recycled HFCs, and HFCs must be recycled before disposing of fire suppression equipment.
• The rule mandates recovery of HFCs from disposable cylinders prior to their disposal.
• Recordkeeping and Label Requirements

– The rule establishes new recordkeeping requirements. Records must be kept for each covered refrigerant-containing appliance for a period of three years in either paper or electronic format, including records documenting the full charge of appliances; invoices that document when the refrigerant is added or removed, a leak inspection is performed, a verification test is conducted, or other maintenance is performed; retrofit and retirements plans and extension requests; and the suspension and restart of any regulatory deadlines.

– Owners and operators must report specified information, including when seeking an extension to complete repairs or a retrofit and retirement plan.

– Reclaimed refrigerant must be labeled and certified as such, to ensure that purchasers and users of reclaimed refrigerants are using products that meet the qualifications of EPA’s new 15% standard.

Practical Considerations for Owners and Operators of HFC Systems
Supermarkets, data centers, and other impacted industries are encouraged to carefully review and then take steps to comply with the ER&R Rule. This includes evaluating the characteristics and makeup of a company’s HFC-containing systems, such as the age of each system; whether each system has leaked or otherwise had operating issues before; and whether existing systems may require the addition of an automatic leak detection system. Likewise, companies are encouraged to begin investing in HFC repair training for employees and contractors to help ensure compliance with the new rules and recordkeeping requirements.

Companies constructing new data centers are further encouraged to review the rule and ensure their plans for new facilities include a system that complies with the full suite of EPA’s phasedown rules (including the technology transitions rule). In the context of the E&R Rule, the company should evaluate whether a system will require an automatic leak detection system and whether it can access adequate HFC repair support to comply with the rule in the event a leak is detected.

With President Trump’s return to office and a renewed focus on deregulation, owners and operators must keep a close eye on potential shifts in HFC enforcement and cost impacts. While a dramatic rollback of the AIM Act or the HFC phasedown appears unlikely—given its bipartisan roots and initial passage by President Trump during his previous term—new enforcement discretion or regulatory relief could emerge to mitigate compliance costs, particularly given its potential impact on administration priorities. For instance, the administration might relax certain deadlines or prioritize economic growth considerations, potentially affecting grocery retailers (where new regulatory burdens could drive up food costs) and data center developers (a stated economic priority).

Against this backdrop, companies should:

• Review current HFC compliance strategies to ensure they are flexible enough to accommodate any adjustments in enforcement;
• Budget for possible cost fluctuations in reclaimed HFCs and related technology mandates; and
• Stay alert for enforcement guidance or policy statements from EPA that could signal shifts in deadlines or penalties.

Pillsbury will continue to monitor these developments and provide timely insights into how evolving federal policies and the ER&R rule may affect your business.

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