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May 29, 2023

Phasing out HFC refrigerants poses a major cost dilemma for grocers

Transitioning to new cooling systems that comply with federal and state laws can

Transitioning to new cooling systems that comply with federal and state laws can cost retailers $1 million or more per store. But delaying action could also be expensive, experts say.

While hydrofluorocarbons (HFCs) are widely used in commercial refrigerants and air conditioning systems, the federal government and states have enacted laws to curb their use. And experts say those measures will impact grocers sooner than they may realize.

At the end of 2020, Congress passed legislation directing the Environmental Protection Agency (EPA) to phase down the production and importation of HFCs by 85% by 2036. The EPA now sets HFC allowances around production, importation and consumption for specific time periods.

In addition to the federal law, several states, including California, Vermont, Washington and New York, have passed legislation or pledged to enact regulations limiting HFC usage.

Grocers need to start working on reducing their HFC usage now — if they haven't already — to avoid skyrocketing refrigerant costs and potential liability issues, industry experts said.

These phase downs are already on large grocers’ radar, said Aaron Daly, vice president of strategic development at Ecology Action and former energy management director at Whole Foods Market.

"I think if you’re a large company, you’ve absolutely got to focus in California right now," Daly said, referring to the state's HFC prohibitions, which require the state to reduce HFC emissions 40% below 2013 levels by 2030. "You’ve got to deal with those stores first. You also should have the view that any new store that you build or any major overhaul that you’re already planning that you incorporate retrofitting refrigerants into that model."

In its Supermarket Scorecard 2022, the Environmental Investigation Agency, an international NGO, found the largest U.S. supermarket chains continue to "inexcusably lag behind European counterparts" in their adoption of HFC-free technology.

Kroger noted in its most recent Environmental, Social and Governance (ESG) report that it plans to steadily replace refrigerant infrastructure in its stores to reach required HFC levels and is developing a strategy to align its refrigerant emissions goals with the federal requirements. Starting in California, Kroger is aiming to achieve a roughly 15% reduction in baseline companywide refrigerant emissions by 2030.

"We continue to transition to lower-GWP [global warming potential] refrigerants as they become commercially available and economically viable, to meet our GHG-reduction target and to meet forthcoming state and federal requirements," Kroger said in the report.

Meanwhile, smaller grocers aren't doing much at the moment to address HFCs, Daly said, given the myriad of ongoing industry challenges they face.

While large retailers have the resources and access to information to help make the transition process smoother, Daly said independent grocers lack many of these advantages. There are more than 21,500 stores across the U.S. run by independent grocers, per the National Grocers Association.

"I think that the refrigerant phase-down regulations are going to be very difficult for them," Daly said.

Daly predicts that market volatility will result from the reduction in HFC refrigerant supply as the phase-down progresses, likely leading to price hikes. Back in 2021, the Department of Energy noted that EPA regulations would likely cause the cost of certain HFCs to rise and for their availability to drop.

"We already have a shortage in the supply of technicians and companies. There's also a huge backlog and getting access to new equipment," Daly said. "So all that is to say, if a company decides to wait until everyone else is retrofitting [stores] to do it, it's going to cost them a lot of money."

FMI - The Food Industry Association (FMI) has echoed that point, noting in a blog post last summer that the price per pound of refrigerants will increase and the expense of maintaining existing systems will also increase as HFCs are phased out.

Switching to an HFC-free cooling system can cost retailers more than $1 million per store, Carol Abel, the trade group's vice president of education program development, said in the post.

"Transitioning to new refrigeration technology is a significant and expensive undertaking for retailers," Abel said.

Abel said that grocers should consider making a store-by-store schedule for implementing a new refrigeration architecture and installing new equipment. Along with that, they should stay up-to-date on state and federal regulations, monitor current equipment and repair leaks, and look into other refrigerant architecture options as well what services current vendor partners can offer.

Quickly creating a refrigerants phase-out plan, which doesn't cost a lot, can help grocers avoid cost increases and implementation delays, Daly said.

"It's much easier for people to plan on refrigerant upgrades and retrofits if they do it in combination with their energy planning and programming," Daly said, noting that investing in energy and refrigerant efficiency measures at the same time can be cost effective.

Grocers, especially independents, need to watch out for liability risks that could arise from not raising enough capital to make the refrigerant changes in time, Daly said.

"For any company, really taking action sooner rather than later will be helpful if they can do it in a cost-effective manner," Daly said.

Typically, the older a store is, the higher the GWP of its refrigerants are, Daly said.

The good news for grocers is that new technologies and systems with little to no GWP are available, FMI noted.

"Natural refrigerants such as CO2, ammonia, hydrocarbons, and propane are climate-friendly alternatives to HFCs," Abel said. "Up to this point, retailers have been reluctant to transition to HFC alternatives due to upfront costs and concerns about service readiness and technology availability."

Modular propane equipment, for example, is very energy efficient, cheap to buy and not difficult to retrofit, Daly said. CO2 condensing units are another option that grocers can consider switching to, Daly said.

Kroger said that it plans to build seven new retail stores using carbon dioxide refrigerant technology between 2022 and 2024.

"Transitioning to this ultra–low GWP refrigerant has the potential to reduce per-store emissions by more than 200 tons of carbon dioxide equivalent (CO2e) annually," Kroger said in its ESG report.

Grocers can also reduce the amount of refrigeration they need by taking energy-efficiency steps like putting doors on open display cold cases, Daly said.

Utility rebates can help incentivize smaller grocers to fund an energy efficiency project that helps them move away HFCs, Daly said.

Laws and regulations aside, Daly had previously told Grocery Dive that refrigerants should be the first of their sustainability areas that grocers address because of the potential cost savings and environmental benefits.

"You can reduce your refrigerant burden and you can save money on energy from doing retrofits and I think if I was operating a large company, I would be doing it now myself," Daly said.