CRI Focus Areas

Economic Impact of Kigali Amendment Ratification

David. T. Stevenson, Policy Director | 12/2/2018

(Originally published on 7/23/2018)
Executive Summary
    A debate is under way as to whether U.S Senate ratification of the Kigali Amendment to the Montreal Protocol will be good for the U.S. economy.  At its heart the treaty aims to replace hydrofluorocarbons (HFC) refrigerants with a new class of lower global warming potential hydrofluoroolefins (HFO) refrigerants with developed countries sending money to the United Nations to assist developing countries with the cost of conversion.  The Obama Administration approved U.S. participation, but never sent it to the Senate for ratification.  The refrigeration industry is now asking President Trump to refer the treaty to the Senate for ratification. 
    We find ratification will not improve our balance of trade deficit as claimed by the refrigeration industry, and will cost US consumers up to a peak cost of $8 billion a year in refrigerant premiums, and up to $2 billion in investments for refrigerant recycling equipment.  In addition the US will send the United Nations Multilateral Fund $1.3 billion to assist developing countries switch to HFO refrigerants with much of that investment wasted or spent on administrative costs.  All for a reduction in global warming that is too small to measure.
    An industry financed study, “Economic Impacts of U.S. Ratification of the Kigali Amendment” by JMS Consulting, makes the claim ratification of the Kigali Amendment will improve the US balance of trade $12.5 billion a year, adding 33 thousand jobs.  This is based on a single assumption that ratification will provide regulatory certainty to encourage industry R&D investment to create uniquely advanced products with a new refrigerant that will create a competitive advantage in foreign markets.  However, over the last two decades US air conditioning and refrigeration equipment manufacturers led the world in improving equipment energy efficiency by 40 to 750 percent!  During that same period export share of the US market barely grew while imports increased five-fold. 
    A big reason for the increase in imports is equipment manufacturers themselves moved production to other countries. Almost half our imports are now coming from NAFTA allies Mexico and Canada, with China and South Korea supplying another 37 percent.  Clearly, our competitive advantage did not save American jobs in the past, and is unlikely to do so in the future.  Not ratifying Kigali will establish regulatory certainty just as surely as ratification. 
    The industry financed study also claims Kigali follows the successful United Nations Montreal Protocol example of switching refrigerants to lower ozone depletion.  In reality there is doubt stratospheric ozone changed much after 1997.  Money contributed to the Multilateral Fund over the next two decades had little impact, and we are committed to continue paying into the fund until 2030.  Continued payments have had the perverse effect of rewarding countries that are slow to switch refrigerants.  The US could have walked away from the treaty twenty years ago with little environmental impact.  Kigali extends US participation in the Montreal Protocol requiring almost $1.3 billion in contributions between 2019 and 2050.
   Notice there is no explanation of how ratification works to provide this regulatory certainty.  Section 115 of the Clean Air Act requires the EPA to write regulations to support treaties.  The NRDC wants to test Section 115 in court to allow international treaties to override US sovereignty to force the EPA to regulate in favor of the new refrigerants without involving Congress.  Carbon dioxide regulation would be next.
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