AIRAH flags a refrigerant black market after carbon levy

By Lyn Drummond

15 May 2012 – A refrigerant black market could be among the dramatic outcomes of a steep carbon equivalent levy due to be imposed by the federal government after 1 July, according to the Australian Institute of Refrigeration Air Conditioning and Heating.

In concerns raised by the institute with the federal government chief executive officer Phil Wilkinson said the levy’s price impact across the main refrigerant gases would range between 300 and 500 per cent at the point of import.

He said the $16 billion industry which employed 160,000 people, was critically important to maintenance of hygienic food and indoor comfort, and yet the federal government has indicated that revenue from the levy would be entirely directed to consolidated revenue with no part to be directed to an investment in education and support for the industry’s transition.

“Any industry that was forced to absorb an overnight price increase greater than 300 per cent would be severely strained,” Mr Wilkinson said.

“The rapid inflation in refrigerant gas values, without any immediate change in supply or demand, will create strong incentives for avoiding the levy, and encourage the formation of a refrigerant black market. This will cause increased compliance costs, reduced collection of the levy, unsafe practices and flouting of the law,” he said.

“At the same time, the price shock caused by the levy will accelerate migration to alternative technology, and to lower global-warming-potential gases – both good things.

“Yet without adequate awareness of the issue through education and training, the HVAC & R industry faces workplace health and safety issues. And the levy will undoubtedly hurt small business and the economy in already difficult times,” Mr Wilkinson said.

The government communiqué calls for the formation of an interdepartmental committee, with representatives from government and industry, to provide funding in support of awareness-raising with industry and to allocate seed funding to extend the federally regulated refrigerant handling scheme to include all refrigerants.

Government communiqué calls for:

  • the urgent formation of an interdepartmental and industry committee
  • Funding to develop materials and hold forums to drive communication with industry
  • An information campaign
  • Seed funding to extend the current refrigerant handling licensing scheme to include all refrigerants and improve industry awareness about compliance and enforcement
  • A fair allocation of a proportion of the carbon-equivalent levy on refrigerant gases to be reinvested in the future of this essential industry.

Industry background

The HVAC & R industry in Australia is estimated to directly employ at least 160,000 people, and in 2006 was estimated to be worth approximately $16 billion. AIRAH said:

  • The industry is essential for the daily production and preservation of hundreds of thousands of tonnes of fresh, hygienic food, the maintenance of comfort conditions in all major public and private buildings, and is a cross-cutting technology in every sector of the economy.
  • Refrigerant gases comprise about 1 per cent of Australia’s annual direct greenhouse gas emissions.
  • The industry is committed to energy efficiency. It consumes up to 21.9 per cent of all distributed electricity in Australia which in 2006 resulted in 7 per cent of all greenhouse gas emission in Australia in that year.
  • All synthetic refrigerant gas is imported into Australia, either in bulk cylinders, or in equipment charged with gas.
  • Damaging outcomes are already starting to occur in the supply chain for refrigerant gases, and for HVAC&R services and equipment in the lead up to the introduction of the levy.
  • The impact on the average household, where a few hundred grams of gas is used in a domestic refrigerator or in a vehicle air conditioner, is expected to be minimal.
    However, the impact on some business sectors, particularly small businesses – in agriculture, food, refrigerated transport, hospitality, speciality food retailing, small commercial buildings, and in the health and aged care sectors – is expected to be both dramatic and unexpected by the end users.

Economics of the levy
The carbon-equivalent levy on bulk imports and pre-charged equipment is estimated to raise $300 million a year.

  • About 5700 tonnes of refrigerant gas were imported in bulk cylinders or in equipment in 2010. These gases have global warming potential of between 1300 and 3900, depending on the type of gas.
  • The price impact of the carbon-equivalent levy at the point of import will vary across the main refrigerant gases, ranging between 300 and 500 per cent. That increase at point of import will be passed down the supply chain as the additional costs of insurance, administration, finance, security, lost custom and numerous other business costs are inflated due to the levy’s impact.
  • Representatives of the Australian government have told the HVAC&R industry that all funds raised by the levy are going to consolidated revenue, and there is no allocation for reinvestment in the industry in any form to aid the transition to a low carbon emission HVAC&R industry.

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