Refrigerants No Longer Cool – Countries Agree to Phase Out HFCs

Chemicals producers stand to benefit from rapid growth of alternative coolants




Last month, global leaders penned the second breakthrough climate deal of the past year, a plan to phase out the family of hydrofluorocarbons (HFCs), powerful heat-trapping gases. Unlike last year’s Paris accord, the deal is binding, and trade sanctions can be used to punish offenders. HFCs will be phased out according to a specific timeline, to be replaced by less harmful substitutes. Developed nations are on an accelerated timetable and will help finance the transition by less-wealthy countries. The Kigali deal (as it has been since named) may avert a warming of the planet by 0.5 degrees Celsius, helping keep the planet below the two-degree mark that many scientists agree will cause significant, lasting impacts on the world’s climate


The deal amends the 1987 Montreal Protocol that banned the use of CFCs, the ozone-depleting chemicals long used as refrigerants. Chemical manufacturers replaced CFCs with HFCs, eliminating ozone-hole concerns but boosting the amounts of high global warming potential (GWP) gases in the atmosphere. Now companies have the opportunity to develop alternatives with minimal or no global warming power, opening up new market opportunities. In fact, many top chemicals companies supported the deal, an instance where business interests were aligned with the international community. In fact, in 2014 a group of top refrigerant producers and users committed to reducing the use of HFCs in partnership with the U.S. Government.


Many companies anticipated the regulatory trends, and several have already spent years developing alternative refrigerants. For example, Honeywell invested $900 million on alternative cooling chemicals, and sales of its HFC alternatives are rising rapidly. The company also partnered with DuPont to produce automotive refrigerants with up to 99.9% lower GWP than existing HFCs, an effort to capture the predicted surge in automobile (and auto air conditioning) use in emerging markets.  


SASB’s accounting metrics for the chemicals industry capture the potential market for alternative refrigerants. The accounting metric “Revenues from products designed for use-phase resource efficiency” is intended to capture the growing market for chemicals and chemical-derived products that enhance energy or materials efficiency, as well as GHG emissions reductions during the use-phase. Some firms already report revenues from efficiency-enhancing products, including DuPont, which in its 2013 Form 10-K reported sales of $1.5 billion, or nearly ten percent, from this category of products.


Companies that can cost-effectively address the growing demand for efficiency solutions economy-wide could benefit from faster revenue growth. However, a large share of companies either do not address the topic or discuss it in vague, broad terms in their Securities and Exchange Commission filings.


Figure 1. The current state of disclosure in SEC filings on revenue from products designed for use-phase efficiency by the top ten largest publicly traded chemicals companies.



By encouraging companies to report information on this topic in a standardized manner, investors can gain insight into how companies are positioned to capitalize on this key market opportunity.




Henrik Cotran is SASB’s Resource Transformation sector analyst. Please follow @SASB_Res_Transf for regular updates on sustainability topics and trends for the sector.