Exploring the EPA AIM Act
We all know the Biden Administration is dedicated to climate issues, leading to ideas like the AIM Act. Cutting emissions and reducing greenhouse gases (GHGs) are on the top of their list of priorities.
If you read our discussions about renewable energy credits (RECs), low carbon fuel standards (LCFS), and renewable identification numbers (RINs), you have a clue of where this is going. The US government is setting controls — starting with a cap-and-trade program — to reduce emissions.
But the problem is that major polluters like China and India aren't going to play this game. In the meantime, expect prices at home to skyrocket. And many fat wallets will be getting fatter along the way.
So today, I will explore the EPA AIM Act. I'll discuss how it will affect both big businesses and household economics over the next few years.
The Economics of the AIM Act: Prices Are Already Jumping
I have already explored new US regulations that affect the transportation and trucking industry domestically and the marine shipping industry worldwide. In April, I forecasted that these changes would surely affect your travel and dining costs over the summer. (And now that fall is here, I would love to hear about your post-pandemic summer experiences.)
By now, you've started to notice higher prices at gas pumps and grocery stores. Prices keep climbing by as much as 10% every week, for both retail goods and manufacturing materials. As we come to the end of 2021, fuel is becoming costly, and the automobile market has gone bonkers!
Your friends and family might blame these skyrocketing prices and shortages on the pandemic and supply-chain chokeholds. Then there are the greedy big-box retailers eager to take advantage of stimulus funds. Those assumptions aren't wholly wrong. Big box stores like Walmart and Amazon were the real winners of the pandemic, after all.
But there's another price punch coming to American businesses, which will be passed on to consumers. It comes in the form of the AIM Act, signed in to rule September 23, 2021.
- The goal of AIM is to "phase down" the use of certain refrigerants in the US.
- These refrigerants are known to generate hydrofluorocarbons (HFCs), greenhouse gases that contribute to global warming.
- We've already seen the advent of some new AIM-compliant refrigerants.
- But we'll also need to see changes in cooling technology for every sector that depends on them, from retail to HVAC.
And everyone will be affected, at least in the short run.
Understanding the EPA AIM Act
Per the EPA website, the AIM Act was included as part of the Consolidated Appropriations Act, 2021. But its roots are tied in with the Significant New Alternatives Policy (SNAP). Overall, the US should decrease both production and consumption of HFCs by 85% over the next 15 years.
Supposedly, a global HFC phase-down — not that we expect certain other nations like China and India to attempt it — could avoid up to 0.5° C of global warming by 2100. I cannot validate this math and do not even want to go there since it seems...you know.
Supposedly, that decrease in HCFs in our atmosphere could also save American consumers billions of dollars in future healthcare costs.
But in reality, that means an overhaul of the refrigerants we use and eventually new technology to keep all sorts of stuff cool. From groceries to pharmaceuticals to university HVAC systems, things will be changing! And it's all about reducing HFCs.
What Are HFCs?
Hydrofluorocarbons are a group of industrial chemicals used for refrigeration and cooling. They were developed to replace and phase out stratospheric ozone-depleting substances (ODSs), which were phased out under the Montreal Protocol on Substances that Deplete the Ozone Layer, aka "the Montreal Protocol" of 1987.
- Per the Australian Department of Agriculture, Water, and the Environment, most HFCs climate pollutants have a lifetime of 15 to 29 years in the atmosphere.
- Right now, HFCs represent around 1% of total greenhouse gas output globally.
- But their environmental impact is far greater than carbon dioxide per unit of mass.
Consider the growing population. It increases by about 1% every year. Add our ever-increasing requirements for little niceties like food and medicine. We see why EPA projected HFC consumption/creation to double by 2020 (though I cannot quite make that math work on paper, nor can I prove that occurred). Still, experts say these GHGs could contribute substantially to climate forcing in the atmosphere by 2050 or so.
HFC Fun Facts
- HFCs do not occur in nature at all. They are always artificial.
- In addition to cooling and refrigeration, they're found in aerosol propellants, insulating foams, and fire protection.
- Most HFCs are contained in equipment. Emissions are the result of wear and tear, faulty maintenance, or leakage.
The US administration says it's time to double down on HCFs. They also say we'll start with a cap-and-trade program to control the largest polluters.
Installing a Cap-and-Trade Program
Back in July, I discussed Biden's pledge to cut emissions and how cap-and-trade programs work.
In a nutshell:
- Known polluters are monitored, and a pollution cap is established.
- They receive an allowance of credits equal to their current output.
- For the first year or two, organizations can continue to pollute as usual, but no more.
- Organizations that pollute less than their credit allowance can sell excess credits to other companies and investors.
- There's usually some way to earn credits, like planting trees or preserving forests.
Businesses that rely on refrigerants will need to look at their equipment closely, and many HVAC systems will need to be overhauled.
Industries Affected by AIM
Food storage and pharmaceuticals are the prominent sectors that come to mind. Any business that requires cold storage at a USDA-approved facility is definitely on the hook. We're thinking about big dairy and big meat — and the cold storage facilities they use.
- Power plants
- Pulp and paper
- Coal mines
- Waste management
I can't help but point out that increasing waste management costs will cascade through every other US business, plus kicking municipal governments and military bases right in the sack. But I digress.
Key Players by Name
The EPA published a list of companies that import/export/use/destroy HFCs.
Notable names include:
Here's What Will Happen
I expect to see skyrocketing prices for everything from household goods to industrial supply materials — but primarily for American-made products. China and India (classified as developing nations) can continue business as usual.
The Cost for US-Made Goods Will Skyrocket Thanks to EPA AIM
Imagine you need a new flashlight for the garage. So you head over to Wally World to buy it. But instead of costing $8.99, it's going to cost $30 or more. That's because practically every business that plays a part in building a home-use flashlight is paying more to do so. It begins with petroleum, which needs to be extracted overseas. Then, the chemicals in the light bulb need to be stored. Finally, AIM will affect the price of plastic and cardboard packaging.
Then Wally World needs to take a higher cut, too. Their costs are growing tremendously, from new HVAC refrigerants in stores and warehouses to new waste disposal charges. It's dizzying!
But there, just to the left of that $30 American-made flashlight, sits a cheaper one from China. It's yours today for only $9.99. We know which one you'll choose because we'd do the same. After all, you'll need that extra twenty bucks in the gas tank.
Will the AIM Act Stick?
As of September 23, 2021, the AIM Act is the law. So yes, it's here to stay — unless we realize that the next generation of refrigerants is somehow more dangerous to the environment or human health. That could eventually happen, just as it happened with ODS chemicals becoming obsolete.
Will Everyone Play Ball?
I am glad you asked! Historically, I seen non-compliance in other nations, particularly for the Montreal Protocol and other environmental initiatives. The Biden Administration is taking the AIM Act very seriously, though.
According to this White House briefing, we can expect:
- An inter-agency task force dedicated to halting illegal trade of HFCs
- A strongly enforced phasedown of domestic HFC use
- A certified system of tracking HFCs
And finally, the administration plans to impose fines and even imprisonment for those who try to evade the system.
AIM and the Department of Defense
The Department of Defense (DoD) plans to spend at least $8 million in the next five years researching and developing new coolants. According to the White House briefing, these efforts will include:
- Evaluation of low-GWP alternatives for refrigerants in aviation systems and ground vehicles, plus environmental control units (ECUs) at field kitchens
- Evaluation of low-GWP fire suppressants, and
- More research on compliant refrigerants to replace those currently used by the Navy
That note about the Navy is critical. Aircraft carriers run on nuclear power and need a lot of cooling capacity.
AIM Could Be Great News for VCs and Real Estate Developers Who Get On the Wagon
Both state and federal governments have dedicated tremendous funds to supporting AIM. This could be a huge boon for your organization at tax time! Between tax incentives and tax credits, any new venture or residential housing complex that complies and shows reduced usage of certain refrigerants over time can safeguard their income.