As I write, it’s been a good month for global environmental agreements. First, the Paris Agreement was ratified and so entered into force on 4 November 2016. Although some environmentalists will rightly say that it’s currently inadequate, it is an extremely significant step forward. This is because it’s setting a very clear signal about the direction of travel, and smart businesses are very good at responding to this. Trillions of $ of investment are starting to flow in new directions, and many companies are investing for the new reality, significantly ahead of governments and regulators.
An example of this is in the surprisingly important area of the refrigerant gases used inside cooling systems, heat pumps and some types of insulation.
To step back a few years, in 1985, British Antarctic Survey discovered the Ozone Hole above Antarctica (there’s one above the North Pole too) which was letting though high levels of cancer causing UV rays. This rapidly led to a global agreement to phase out the CFC refrigerants that were causing the problem: the Montreal Protocol was signed in 1987, and was strengthened a few years later. Very slowly the Ozone hole started to recover, although it will probably be 2070 before it’s back to normal.
One of the reasons for the rapid agreement was that once corporations noticed that consumers cared and were showing this by switching away from aerosols (which used the supposedly inert refrigerants as a propellant) they stopped denying the need. They realised that as they had the R&D capacity, developing alternatives to CFCs could give them a very nice competitive advantage.
When the change came, consumers barely noticed the difference, except that they were now told that it was important to take their old fridges and freezers to be recycled properly, so the refrigerants could be extracted.
In aerosols, manufacturers switched to propane. This led to a few unfortunate incidents where people didn’t realise that, as their hairspray now included an inflammable propellant, it would be a bad idea to smoke while spraying their hair. Hand operated, propellant free sprays became much more common, and several innovative companies in the Cambridge area made a very nice living from developing electronic aerosol technology for more critical applications.
The main replacements for CFC refrigerants were HFCs, but, as the industrial chemists had already realised, the problem was that these were spectacularly powerful greenhouse gases, which were expected to contribute about 0.5C to the global temperature rise by 2100. As concern about climate change has grown, it has become increasingly clear that these HFCs will have to be phased out too.
This has meant that since the early 2000s, the big manufacturers of refrigerant gases like Honeywell have been quietly developing climate friendly alternatives to HFCs. Others have been developing or improving alternative refrigeration systems using “natural” refrigerants like Carbon dioxide or Ammonia. Once they’d proven them, these companies then pushed for stronger regulation to grow the market.
This is now happening. First the EU agreed to start phasing out HFCs from January 2015 and then in October 2016, a global phase out was agreed at a meeting in Kigali, Rwanda. Interestingly, most countries had already assumed this would happen when they submitted their plans for reducing their contributions to climate change, as part of the Paris Agreement.
In parallel with the technical developments, companies throughout the cold supply chain, including Tesco, Waitrose and Coca Cola have been starting to try out the new systems, taking the opportunity to improve energy efficiency at the same time. For example, Waitrose plans to have finished fitting HFC free fridges across its entire estate by 2021, and even by 2013 it was reporting that this had helped it reduce its energy consumption by 20%.
Some of these energy saving measures are simple, so for example, simply fitting doors to refrigerated display units can cut energy use by 33%. Tesco is rolling this out across all its smaller stores (and is under consumer pressure to expand this to big stores too). Initially some retailers were worried that doors would affect sales by reducing impulse purchases, but the evidence refutes this..people linger longer if not in a chilly draught and it seems that doors help reduce shoplifting!
These developments are important, because cooling accounts for 14% of UK electricity and the refrigerated food supply chain is an important part of this. Demand for cooling is also growing rapidly in the developing world, and climate change will only increase this.
Overall, I think the story demonstrates very nicely the true relationship between regulation, innovation and business. Pressure from consumers on environmental issues stimulates leading companies to develop solutions. Once successful, they then push for regulation to increase the market, and this in turn drives more innovation and results in significant shifts in global markets.
Far from regulation being bureaucratic “red tape” that should be eliminated at all costs, well designed regulation encourages innovation.