January 18, 2021
COVID-19 economic relief, energy efficiency and hydrofluorocarbons. It may feel like the answer to “name three random items.” However, there is a definite through line given the Omnibus spending bill that the U.S. Congress passed in late December.
A major focus of the legislation is Coronavirus aid for businesses and residents. But also included in the bill are statutes that have both immediate and long-term implications for the HVACR industry. This includes several provisions and tax credit extensions to encourage building- and homeowners to make energy-saving upgrades. The bill also contained the American Innovation and Manufacturing (AIM) Act — legislation that requires a phasedown of the production and consumption of hydrofluorocarbons (HFCs) per the schedule in the Kigali Amendment to the Montreal Protocol.
So what does this ultimately mean?
The changes made to the IRS Section 179D Commercial Building Tax Deduction, in particular, are significant. The tax deduction allows eligible building owners to claim up to $1.80 per square foot for qualified improvements made to HVAC and hot-water systems, as well as lighting and envelope upgrades, that reduce total energy and power consumption by 50 percent or more in comparison to minimum requirements set by ASHRAE Standard 90.1-2001 90.1-2007 (both for buildings and systems placed in service after January 2016).
The December legislation made the tax deduction permanent, meaning it will no longer have to be renewed by Congress. Going forward, the bill will also be indexed to inflation so the tax deduction will rise above $1.80 per square foot over time. Reference to the latest ASHRAE standard will be required two years following the conclusion of Department of Energy’s determination process. For more details on how to calculate energy savings, visit energy.gov.
Next is the AIM Act, which requires an 85 percent phasedown of HFCs over 15 years. While the task may sound intimidating, all relevant sectors will work together to achieve this goal. The sectors consuming HFCs include foam-blowing insulations, aerosols, mobile HVAC, stationary HVAC, and refrigeration and chillers. And several of these industries have already started transitioning to lower-GWP refrigerants, which has a significant impact on reducing HFCs.
For the HVACR sector specifically, the AIM Act provides crucial support for the transition to these next-generation refrigerants. The law helps ensure the regulatory certainty and market stability needed for a smooth changeover. The U.S. Environmental Protection Agency will begin the process of drafting implementation regulations this year. But given the change in Administration, it will be difficult for EPA to issue a final rule by October, as directed by Congress. The related requirements, starting with a 10 percent reduction of HFCs, aren’t expected to be in place until 2022.
How does this affect individual companies?
While businesses are not likely to experience a direct impact in the short term, they might experience an increasing effect as refrigerants including R-134a and R-410A start to phase out over the next three to four years. To that end, Daikin and other manufacturers have committed to R-32 as the ideal alternative to R-410A. Learn more about the reasons to choose R-32 by visiting www.r32reasons.com.