WHAT IS RECYCLING & RECLAMATION'S FUTURE?

Understanding the big picture of refrigerant recovery and reclaim will help keep you and your customers better informed and prepared for the future.

The Clean Air Act contains certain requirements and restrictions that are designed to prevent the release of refrigerant into the atmosphere. Specifically, it requires HVAC/R technicians to recover any refrigerant during the service, repair, or disposal of air conditioning and refrigeration equipment. There's also a requirement that refrigerant which isn't returned to a system owned by the same person must be reclaimed to Air Conditioning and Refrigeration Institute Standard700 (ARI-700) purity specifications before it can be sold to a different system owner. These provisions have created a new business within the HVAC/R industry -- reclaiming refrigerant.
TABLE 1:
Summary of US EPA Certified Reclaimers
Geographic
Coverage		 Local
16		 Regional
18		 US
26
Service
Level		 Reclaim
Only
46		 Integrated
Business
11		 Refrigerant
Manufacturer
3
Sometimes Environmental Protection Agency (EPA) regulations, such as those that implement the Clean Air Act, are designed not to include all the rules an industry must follow in order to satisfy those regulations.

In the case of refrigerant recycling and reclamation, the industry was given the opportunity to create its own business solutions to the new requirements. It responded with the start up of new companies and the expansion of existing companies to provide recovery and recycling equipment, recovery cylinders, refrigerant reclamation and banking services, analytical testing, and disposal of unusable products.

The fast growth and initial prosperity of the reclaim business resulted from the declining supply and rising cost of CFCs. Here we'll take a look at how the profitability of the reclaim business is being affected by the continuing decline in CFC stocks and increasing amounts of R-22, HFCs, and blends being recovered and returned. Also, we'll discuss how the business strategies used to address this changing product mix may not be supportive of the regulatory or environmental needs of the industry. Finally, there are several issues, which everyone should be aware of, that will affect many different segments of the HVAC/R industry.

A Reclaim Market Analysis

For our purposes here, let's define the scope of the refrigerant reclaim business as the collection, consolidation, processing, resale, and/or disposal of refrigerant which your customer can no longer use. In this section, we'll discuss the types of companies involved, the products covered and services offered, market size and growth, cost/profitability, and business strategies for these various types of companies.

The companies that ultimately process refrigerant back to ARI-700 specifications must be registered with the EPA. A list of EPA-approved reclaimers is available from the Stratospheric Ozone Hotline (800-296-1996). Sixty are listed as accepting refrigerant from all sources.

Of these 60 listed reclaimers, you'll find less than half claim to cover the entire U.S. The rest are either local (two states or less) or regional (more than two states, but less than the whole U.S.). About 75% of the companies listed are involved only in reclaim products or services. Eleven are involved in other businesses as well (equipment service, contracting, refrigerant distribution/ wholesaler, etc.)

Three of the reclaimers are refrigerant manufacturers. They receive the majority of returned product from their wholesale distribution customers, who will often take smaller amounts from their customers and consolidate it into larger containers for return.

Products being sent for reclaim fall into three basic categories: CFCs, R-22 and R-134a, and blends. CFCs are already phased out of production, generally priced higher, subject to excise tax, and in shorter supply compared to the other products. R-22 and R-134a are readily available from virgin production and their prices are lower than most other products. Alt of the blends currently available for retrofitting or new applications are covered under patent by the manufacturers, which has special implications for the reclaim industry.

Typical services provided by wholesalers and some contractors include:
• Cleaning refrigerant for a fee and returning it to the owner
• Storage or banking of product
• Transferring refrigerant to a reclaimer for a credit or fee, where the reclaim company then resells the cleaned product
• Disposal of unreclamable product for a fee.

The reclaim market began around 1989 and was dominated by CFC returns. As the market's grown, the amount of returned CFCs has dropped compared to the amount of R-22 returned. and the blends have been entering the reclaim stream in small amounts since 1994. Estimated industry-wide returns for all refrigerant types were less than 1 million pounds returned before 1991, and between 16 - 20 million pounds returned in 1996. For a summary see Table 2.

TABLE 2:
Historical Product Mix
Relative percent of product type returned:
Type(%) 1989 1990 1991 1992 1993 1994 1995 1996
CFCs
R-22
R-134a
Mixed		 100
0
0
0		 99.5
0.5
0
0		 98
2
0
0		 70
30
0
0		 47
53
0
0		 49
49
1
1		 48
50
1
1		 35
62
2
1
Estimated Total Returns
(million lb.)		 <1 <1 <1 2 4 7 12 18


In terms of future projections, it's expected that the amount CFCs returned will decline steadily until only a small amount is being sent back. It's also expected that the amount of R-134a and blends will increase significantly over the next few years. These projections are summarized in Table 3.

TABLE 3:
Projected Future Product Returns
Type(%) 1998 1999 2000 2005 2010
CFCs
R-22
R-134a
Mixed		 25
70
3
2		 15
75
6
4		 5
80
9
6		 1
70
17
12		 0
50
30
20


A profitability analysis of this business is straightforward: compare the "street price" of the products to the average cost to reclaim. This cost should include factors like cylinder fleet maintenance, transportation, unloading or transfer operations, analyses, cleaning and processing, and repackaging. Capital costs for equipment should also be factored in, and finally, the analysis should be adjusted for any credits or fees charged to get the refrigerant back from the customer.

I've estimated several cost factors for typical operations involving clean and return, buyback-clean-repackageresell, and return-for-disposal operations. Determining these costs on a per pound basis relies heavily on how many pounds get processed at one time, with smaller batches costing more to handle and process than larger batches. Discussions with several reclaim companies revealed that typically the average cost to reclaim refrigerants falls between $1 - $3 / lb.
Figure 1 illustrates the profitability of the business based on which products are being returned. In many cases, the cost to reclaim R-22 or R134a is higher than what can be recovered from the resale of the reclaimed product, and therefore, fees are often charged to take them back. In contrast, CFCs sell for higher prices and companies may offer credits to attract this product.

Blends fall into a special category for reclaimers. Almost all of the commercially available blends are under patent protection from their manufacturers. If a reclaim company receives a used refrigerant blend which is out of specification, then "fixes" the composition so it meets the blend specification, they may be infringing on patent rights. In addition, the separation and purification of mixed refrigerants to recover the individual component s is Much more expensive than typical 'ingle component reclaim operations. In most cases, the reclaimer must dispose of mixed refrigerants at a significant cost per pound.

Trouble Ahead?

The business strategy of the local or regional reclaim-only companies is straightforward: they'll maximize profitability by keeping distribution and processing costs low, accept as much high purity CFCs as they can handle, and reject low purity or low priced products (e.g. R-22). The shifting product mix away from CFCs will pose a problem for these companies. In the short term, they're faced with customers who are buying a variety of new products, as well as reclaimed CFCs, and they must buy and resell the other products in order to move their reclaim inventories. In the long term, they'll be faced with less profitable products.

Integrated reclaimers have some other main business base and use reclaim to compliment that business. For contractors or wholesaler /distributors who also provide reclaim, the added service helps sell the main products or services they offer. The profitability of reclaim may not be as important as the overall profitability of the company and, therefore, the range of products and services may be more comprehensive. In addition, the reclaimed product helps supplement the company's refrigerant supply needs.

Manufacturers are generally interested in providing newly manufactured products. However, it's a responsible business practice to offer a program to take back the products they manufacture and sell to their customers. They generally offer reclaim as a customer service rather than a separate product/ service. Their cost to reclaim the refrigerant depends largely on whether they reclaim the product internally or contract with an independent reclaimer.

In the not-too-distant future the whole issue of reclaimed refrigerants will begin to change, here are some items that will have to be dealt with:
• CFCs are profitable to reclaim while other products are not. As the product mix shifts away from CFCs to R-22 and the
 • newer products, the reclaim business looks less profitable.
• Companies will employ business strategies to limit losses and maximize profits, such as charging fees or restricting
•the return of products.
• Business strategies that improve profitability don't support the environmental intent of the no-vent regulations; if
•companies don't have anywhere to return recovered refrigerant, or if they'll be charged to return it, they may not be
•diligent in their efforts to recover it in the first place.

Jim Lavelle is the technical sales manager at National Refrigerants, Inc.
For more information, call 800-262-0012 or send e-mail to info@refrigerants.com.