Businesses Demand More Regulation (Really!)

img class="alignnone size-full wp-image-101732" title="refrigerators" src="/files/wxrimport/2011-08/refrigerators.jpg" alt="" width="468" height="305" /><

The prevailing narrative about regulation is that businesses want the Environmental Protection Agency to lighten up. So, why did five appliance manufacturers recently ask EPA to tighten rules involving air conditioners and ozone-depleting refrigerants?

Or, to put it another way, is the Obama administration undercutting Ronald Reagan's signature environmental accomplishment through sloppy rule writing?

Here's the back-story: In 2009, the Obama EPA adopted a rule banning, starting in 2010, the sale of any appliance containing hydrochlorofluorocarbon-22 (HCFC-22) refrigerants, which deplete the stratospheric ozone layer that shields us from harmful ultraviolet rays. HCFC-22 is commonly called R-22, which replaced the even more harmful R-12 that was phased out in the 1980s.

The rule was designed to carry out a 2007 international agreement, championed by the Bush administration, to accelerate a planned phase-out of HCFCs. The phase-out is based on the Montreal Protocol, the seminal treaty that President Reagan got passed in 1987. Thanks to Reagan's strong backing, the treaty was swiftly negotiated and ratified after scientists had turned up evidence that chlorine-based refrigerants were depleting the ozone layer. Which, parenthetically, makes Reagan, not attention hog Al Gore, the real Ozone Man.

When EPA wrote the 2009 rule, however, the agency left a loophole. While air conditioner components can't be sold if they contain HCFCs, they can be sold "dry," meaning HCFCs can be added when the components are installed in old air conditioning systems.

Let's bring this down to earth. Say your old air conditioner’s compressor konks out. The intent of EPA's dry exemption is to enable you to replace the bad part. The exemption's broad wording, however, allows consumers to buy a dry replacement "condensing unit" containing fans, motor, compressor, and condensing coils. The condensing unit is the guts of the air conditioner. Replacing it amounts to turning an old HCFC air conditioner into a new HCFC air conditioner and extending its life for years.

Foul, cried manufacturers Carrier, Johnson Controls, Lennox, Ingersoll Rand/Trane, and Daikin/McQuay International in an August 15 letter to EPA asking the agency to stop the sale of dry condensing units that can be charged with HCFCs at installation sites.

"Like the famous 1940s and 1950s United States automobiles that prowl the streets of Havana using completely rebuilt or replaced engines, residential HCFC equipment could be in service well past the time it would otherwise be retired or replaced," says a rule-making request that Carrier filed with EPA last February.

The loophole created an incentive for manufacturers playing a regulatory arbitrage game to market and sell dry replacement condensing units as cheaper alternatives to new air conditioners charged with ozone-safe refrigerant. Which is exactly what has happened. Sales of dry HCFC condensing units, which are later filled with the problematic HCFC refrigerants, are soaring. Manufacturers that retooled to build air conditioners with safer refrigerants have reluctantly entered the dry component business to keep up with clever rivals that leveraged the loophole into a business model.

It's a safe bet that the five manufacturers complaining to EPA will be pilloried as rent-seekers trying to put the squeeze on those clever competitors through government coercion instead of by beating them in the marketplace. Especially by the tinfoil hat types who still believe that the Montreal Protocol was an anti-business plot and are curiously silent about Reagan's instrumental role in getting it passed.

Government rules shape every marketplace. U.S. policy that administrations of both parties have supported since Reagan's time is to phase out chemicals that deplete the earth's protective ozone layer. There's no sense in Obama's EPA undercutting that policy through sloppy rule writing.