EU F-gas Regulation under review
In June 2021, the EU adopted the European Climate Law. The act introduces a legal framework to reach the goal set out in the European Green Deal – for Europe’s economy and society to become climate-neutral by 2050. The law also sets the (intermediate) target of reducing net greenhouse gas (GHG) emissions by at least 55% by 2030. In order to achieve this goal, the EU launched the Fit for 55 package: a set of proposals to revise and update existing EU environmental legislation.
One of the last proposals in the Fit for 55 package is the European Commission’s proposal for a regulation on fluorinated greenhouse gases. The proposal would repeal Regulation (EU) No 517/2014, the current ‘F-gas Regulation’. In this Newsflash we provide insight into the existing legal framework on F-gases and the upcoming changes in the EU.
1. Montreal Protocol
Regulation of fluorinated greenhouse gases (F-gases) started in the late 80s.
In 1987, the international community reached a landmark multilateral environmental treaty, the Montreal Protocol, to regulate the production and consumption of chemicals referred to as ozone depleting substances (ODS). The treaty aimed to phase down the consumption and production of the different ODS (mainly hydrochlorofluorocarbons, HCFCs, a subcategory of fluorinated gases). The Protocol proved to be a successful tool.
However, another type of F-gas, hydrofluorocarbons (HFCs), were introduced as non-ozone depleting alternatives to support the phase-out of CFCs and HCFCs. While these substitutes are not ozone depleting substances, HFCs have a high global warming potential.
HFCs are GHGs that contribute potentially hundreds to thousands of times more to climate change per unit of mass than other GHGs.
To address this climate threat, the Parties to the Montreal Protocol reached an agreement on 15 October 2016, in Kigali, Rwanda to phase down HFCs. Under this amendment, countries agreed to add HFCs to the list of controlled substances and approved a timeline for their gradual reduction by 80-85% by the late 2040s.
2. Regulation (EU) No 517/2014
In the EU, HFCs are currently regulated by the F-gas Regulation which has been in force since 2015. This regulation replaced the previous regulation of 2006. The initial 2006 regulation – although influenced by the Montreal initiative – was based on the Kyoto Protocol (an international environmental agreement introducing binding GHG emission targets for the Parties to the Protocol).
The measures of the F-gas Regulation can be summarized as follows:
Rules on containment of F-gases: Prevent emissions of F-gases from existing equipment by making checks, proper servicing and the recovery of gases at the end-of-life phase of equipment mandatory;
Rules restricting HFC products placed on the market: Limit the total amount of HFC F-gases that can be sold in the EU and will phase them down in steps. A quota system was implemented for producers, importers and exporters of products that sets a quantitative limit for the amount of HFCs that can be placed on the market each year;
Rules controlling the use of F-gases: Ban the use of F-gases in many new types of equipment where less harmful alternatives are widely available (e.g. fridges in homes or supermarkets, air conditioning, foams, and asthma sprays)
These measures aim to reduce emissions by two-thirds by 2030, in comparison to 2014 levels.
3. The proposed review
Today, F-gases amount to 2.5% of total GHG emissions in the EU. The European Climate Law mentions that the F-gas Regulation is a key instrument for the reduction of F-gas emissions.
The 2030 emission savings postulated by the current regulation, are unlikely to be fully achieved. Moreover, the European Commission argues that there is an unused potential to save more emissions. And, while the F-gas Regulation was adopted ahead of the Kigali Amendment, it cannot fully ensure compliance with all the obligations from the Protocol as amended.
Therefore, on 5 April 2022, the European Commission published a legislative proposal to update Regulation 517/2014 to control F-gases more tightly. The proposal introduces modifications to some of the existing provisions, extending their scope and ambition as well as introducing some new provisions to enhance compliance, enforcement, implementation, and monitoring.
Here is an overview of the key provisions set out in the proposal.
Control of production – use of F-gas and the quota system
New restrictions on the use of F-gas in equipment: In addition to the existing prohibitions set out in the 2014 regulation, the new proposal imposes new restrictions and prohibitions on the marketing of specific products and equipment that contain, or whose functioning relies upon F-gases.
Production rights: The proposal introduces a new initiative to control the production of HFCs, i.e. production rights. The Commission will be responsible for allocating these production rights, based on past production. The production rights are transferable between undertakings within the same Member State.
Quotas: The current regulation implemented a quota system for producers and importers of HFCs. The proposed regulation tightens the quota system, extends the phase-down targets beyond 2030 and makes the requirements for quota applications stricter. Only importers and producers established within the European Union that have experience in trading of chemicals for three consecutive years prior to the allocation period will be allowed to submit a declaration for a quota allocation. The allocation of quotas will now be subject to the payment of a fixed amount. In this regard, the proposal introduces a new electronic system, the F-gas Portal, which replaces the current electronic registry.
Trade with third countries: The proposal introduces a new set of rules regarding trade. It introduces a license regime for the import and export of fluorinated greenhouse gases and equipment containing F gases (or whose functioning relies upon F gases).
The proposal also prohibits, from 1 January 2028, imports and exports of HFCs and products and equipment containing HFCs from and to any State that is not bound by the provisions of the Montreal Protocol. Exceptions exist for third countries in full compliance with the obligations set out in the Montreal Protocol.
Reporting
Another change brought by the proposal is a stricter threshold for reporting obligations and a requirement for a third-party audit. Reporting and auditing requirements do exist under the current legislation but they apply when a certain quantity of CO2, equivalent to HFCs, is put on the market. Under the new regulation, that specific amount will be lowered.
Enforcement
In addition to the new cooperation obligations between Member States, the proposal introduces stricter penalties.
Member States must establish at least three types of penalties: fines, confiscations/seizure of illegally obtained goods and suspensions or revocations of the authorisation to carry out activities under the regulation. The criteria to be considered when designing penalties are set out by the regulation and include nature/gravity, intention/negligent character and past infringements. Member States are instructed to implement maximum fines of at least five times the market value of the concerned gases/products and equipment unlawfully traded or placed in the market. This amount would go up to at least eight times the market value for repeat infringements. Member States must instate a competent authority with powers to impose and enforce penalties.
4. Conclusion
In short, the F-gas Regulation 517/2014 is a key element in the EU’s global climate policy. F-gases are responsible for a significant part of greenhouse gas (GHG) emissions in the EU. The European Commission’s proposal aims to play an important role in reducing emissions from F-gases.
The proposed legislation would change the existing quota system, gradually reducing the supply of hydrofluorocarbons (HFCs). It would also ban F-gases in specific applications and update the rules with respect to implementing best practices, leak checking, record keeping, training, waste treatment and penalties. The current licensing system and labeling obligations are to be strengthened in order to improve enforcement of trade restrictions. Finally, the proposal aligns EU legislation with the requirements of the Montreal Protocol to reduce the production of HFCs.
