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US Focus: A change is coming

The industry in the US is waiting on a number of legislative and regulatory issues, inlcuding the R22 phase-out, regional standards and tax reform, Jen Anesi

This year could shape up to be a busy year in the US, as a regional standards resolution inches closer, the delayed employer mandate for providing employee healthcare looms and other issues come to a head that affect the industry.

Regional standards

On 9 December 2013, the US Court of Appeals for the DC Circuit adopted a briefing schedule in the ongoing regional standards lawsuit after a schedule was jointly submitted in September by the US Department of Energy; the American Public Gas Association; Air Conditioning Contractors of America; the Air-Conditioning, Heating, and Refrigeration Institute; Heating, Air-conditioning, and Refrigeration Distributors International; and other parties involved in the regional standards lawsuit.

Those involved in the lawsuit now have until 15 April to brief the court on three issues – the settlement agreement between the APGA and DOE, HARDI’s motion to continue the case, and the merits of the lawsuit itself.

The problem, say industry leaders, is that the lawsuit has the potential to linger through the end of 2014 and beyond, leaving manufacturers and distributors in the lurch as the 1 January 1 2015 implementation date for air conditioner and heat pump energy-efficiency standards approaches.

David Calabrese, AHRI’s general counsel and senior vice-president, public policy, said the court has indicated it will schedule an oral hearing, likely this summer, which means the case “will not likely be resolved until late fall of 2014, at the earliest”. Meanwhile, AHRI has indicated it will likely file a motion to stay the implementation date of the air conditioner standards, possibly in early 2014. Jon Melchi, HARDI’s director of government affairs, said HARDI would also make such a motion a top priority.

HCFC-22 phaseout

At the end of 2013, the US Environmental Protection Agency proposed the final step in the phaseout of virgin hydrochlorofluorocarbon-22 by 2020. In 2012, the EPA allowed 55m lbs of R-22 to be produced or imported. In 2013, production was bumped up to 62.8m lbs, then brought back to 51m lbs for 2014.

Due to the surplus of R-22 in 2013, and the subsequent price drop, the industry has seen the demand for alternative refrigerants decrease.

ACCA senior vice-president of government relations Charlie McCrudden said the proposed linear allocation draw-down –which allows 30m lbs in 2015, 24m lbs in 2016, 18m lbs in 2017, 12m lbs in 2018, 6m lbs in 2019, and zero in 2020 – helps industry leaders know what to expect in the coming years.

“What we’ve seen with the allocation and the adjustments they’ve made to the allocation rule are price spikes and fluctuation in prices due to uncertainty about supply,” Mr McCrudden explains. “I’m hopeful that they can finalise this rule quickly so there is a smooth transition and we can avoid the uncertainty we’ve seen in the past few years.”

Mr Melchi says HARDI is also keeping a close eye on the rule, which may not be finalised until mid-2014: “The allocation rule will have an immediate impact on a lot of folks. We’re certainly watching how the allocation rule goes and how it sets the plate for the phaseout of R-22.”

Tax reform

In late 2013, Senate Finance Committee chairman Max Baucus released a series of staff discussion drafts detailing proposals to overhaul the nation’s tax code. While not a final plan by any means, the discussion drafts are intended to create a conversation on tax reform between Republicans and Democrats in hopes of initiating some kind of tax reform.

“This is the first serious conversation on tax reform we’ve had in a while,” McCrudden said. “Whether it goes anywhere or not has yet to be decided, but everybody is watching this one more closely than I’ve seen in a long time.”

AHRI assistant vice-president of congressional affairs Guido Zucconi said Senator Baucus’ tax reform proposal “might see the light of day in 2014”, although it may also just be an academic exercise – a starting point for discussions and positioning on the reforms.

“Tax reform may be one of the big issues this year,” Mr Zucconi says. “If they finally do some sort of regulatory relief, that’s a great starting point. We have heard rumours that Congress might pick up the pieces of the Shaheen-Portman bill and do an energy-efficiency and regulatory relief pared-down package.”

Mr McCrudden said there is potential for industry businesses, including contractors, to benefit from tax reform this year: “It would be great to see some relief for pass-through entities – those are the partnerships, LLCs, and S corporations. A lot of small businesses are organised as pass-through entities. They pay higher taxes than their C corporation counterparts because they pay taxes on a 1040 form, so revenue looks like income,” Mr McCrudden explains. “When you tax income at a higher rate, it has the unintended effect of taxing many small businesses at that higher rate. Some of the tax reform proposals have talked about providing relief from this disparity – that would be great to see.”

To view a timeline of events in the regional standards case, visit http://bit.ly/RegionalStandards

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