Your commercial air conditioning system uses refrigerant, a chemical that allows the system to cool your facility. While an AC system’s refrigerant supply is self-contained, leaks do occasionally develop. If you’ve recently tried to service or even tune up your commercial HVAC system, you may have noticed a sudden increase in prices. Since the start of this year, refrigerant costs have gradually risen from $70 a pound to more than $300 per pound in some cases.
Why is this happening? While higher prices can be a result of supply shortages, this is not the case. These recent increases are primarily due to new regulations and international tariffs affecting the refrigerant market. Continue reading below for more information about why costs are rising.
Fortunately, There’s No Shortage
While the overall supply of refrigerants is stable, the unexpected jump in price caught the attention of some distributors. Buying in bulk was no longer as cost-effective as it normally was. Many companies dialed back their purchases as a result. And in some cases, customers who regularly placed large orders have been temporarily restricted from doing so. This ensures more customers have access to the refrigerant they require. Waiting for prices to stabilize may appear to be a supply shortage, but the industry is simply being cautious.
So Why Are Costs Rising? Higher refrigerant prices are a direct result of other countries competing against the U.S. economy. Other countries abroad are subsidizing their own refrigerant production, which lets them overwhelm the U.S. markets with an artificially inexpensive supply. When these policies work, U.S. manufacturers are driven out of the market, after which the global supply is controlled by another country. This is called “dumping” and can lead to economic monopolies.
In an attempt to counter these policies, the U.S. government responded with anti-dumping tariffs and made them retroactive to June 18, 2019. Suppliers suddenly have larger expenses to pay on the past product, and there is some uncertainty around future pricing as well. This is causing the price of available refrigerants to spike and fluctuate while the industry adjusts. Currently, refrigerants entering the country are subject to a tax of around 210% percent. The U.S. could replenish refrigerant stockpiles through European markets, but costs there are similarly prohibitive. Even with tariffs in place, European refrigerant is still more expensive.
R125 Is a Chemical Component of today’s Refrigerants
The issue is further complicated by monopoly control of R125, a key component in several different refrigerants. Manufacturing the most common refrigerant, R410A requires R125. R125 is also affected by the anti-dumping tariff, leaving American companies with very few options.
Will This Affect New Refrigerants and HVAC Equipment?
Some industry professionals are waiting to see if the increase in price affects the adoption of new refrigerants. An official transition to newly developed refrigerants is scheduled for 2022 (soon), but it is difficult to know if the anti-dumping tariffs will affect the rollout.
Similar to how the U.S. phased out R22 refrigerant over a period of 10 years, R410a will be gradually replaced by more efficient and environmentally-friendly alternatives like R32. The 10-year transition allows the industry time to even out. When R410a compatible systems start to fail, R32 and other A2L refrigerants should be much more readily available. An environmental policy like the Montreal Protocol may also influence future prices. Provisions drafted for this legislation dictate that refrigerant prices must steadily increase to spur the transition to R32. As R410a is phased out, the higher costs also mirror the diminishing global supply.
You May Not Be Able to Avoid Overpaying, But We’ll Help Minimize Risk
Finding a leak in your refrigerant supply is already frustrating without the punishingly high costs. Local service companies including Service Experts Commercial HVAC are taking steps to help their customers avoid these increased costs. We’ll do our best to maintain a steady supply of refrigerant while advising you on cost-effective solutions for staying cool and comfortable. Give us a call today at 289-201-2346 for more information.