A1. z -0~~~~U o -d fl) (c ~ ~ ~ - - -._ AW c~_ tlc 0~~~~~~~~~0 tv~~qI IF~~~~~ A., 1~~~~~~~~~m; OF" ~I ~~umWL.q ~~~ - ~~~~~~~~ N~~~~~~~~~~~~s_ tgt I-a ~ ~ t t -N w~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t Og h) LCR Sustainable Development Working Paper No. 14 CFC Markets in Latin America December 2002 Prepared for the World Bank by ICF Consulting The World Bank Latin America and the Caribbean Regional Office Environmentally and Socially Sustainable Development Department (LCSES) The authors and the World Bank Montreal Protocol team of the Latin America and Caribbean Regional Office would like to thank the following individuals for their assistance in the preparation of this report: ICF Consulting: Mark Wagner, Pamela Mathis, Jeff King, Ruxandra Floroiu. The World Bank: Regional Task Team: Juan Lopez-Silva, Yewande Awe, Horacio Terraza This working paper series is published by the Environmentally and Socially Sustainable Development Sector Management Unit (LCSES) of the World Bank's Latin America and the Caribbean Regional Office. A list of other papers in the series can be found at the back of the report. The findings, interpretations, and conclusions expressed in this publication are those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The presentation of material in this document and the geographical designations employed do not imply expression of any opinion whatsoever on the part of the World Bank concerning the legal status of any country, territory or area, or conceming the delimitation of its frontiers or boundaries. December 2002 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, NW Washington, DC 20433 Use of photos taken from the United Nations Environment Programme acknowledged in cover design. Contents Foreword ............................ I Executive Summary ............................ 2 Abbreviations ............................ 4 1. Introduction ............................ 5 1.1. Background .................................5 1.2. Objectives .................................6 2. Methodology ............................ 8 2.1. CFC and CFC Substitutes Demand ....8..............................8 2.2. CFC and CFC Substitutes Supply .................................9 2.3. Projections ...................................9 2.3.1. CFC Demand Projections .................................... 9 2.3.2. CFC Substitutes Demand Projections .................................... 11 2.3.3. CFC Supply Projections .................................... 11 2.3.4. CFC Substitutes Supply Projections .................................... 12 2.3.5. CFC and CFC Substitutes Price Projections .................................................. 12 3. CFC Demand ...................................... 14 3.1. Historical Demand .............................................. . 14 3.2. Current Demand by Sector ............................................... 14 3.2.1. Use in Intermediate Goods ........................... 18 3.2.1.1. Foams ............................ 18 3.2.1.2. Aerosols ............................ 23 3.2.1.3. Sterilants ............................ 25 3.2.1.4. Solvents ............................ 25 3.2.1.5. Refrigeration ............................ 26 3.2.1.6. Air-Conditioning ............................ 28 3.2.2. End Use ........................... 29 3.2.2.1. Refrigeration ............................ 29 3.2.2.2. Air Conditioning ............................ 34 4. CFC Supply .................... 41 4.1. Global Production of CFCs: Historical and Current ......................................... 41 4.1.1. Illegal Markets ............... 44 4.2. Characteristics of Latin American CFC Trade .............................................................. 45 4.2.1. Latin American Production of CFCs ................................................................... 45 4.2.2. Latin American CFC Exports ............................ 46 4.2.3. Latin American CFC lmports ............................ 47 Imports to CFC Producing Countries in Latin America (Mexico, Argentina, Venezuela) .. 47 hnports to Non-CFC-Producing Countries in Latin America (Brazil, Chile, Colombia) ..................... 48 4.2.4. CFC Recycling ................................................................. 49 4.2.5. CFC Prices ................................................................. 50 5. Demand for CFC Substitutes ........................ 52 5.1. Global Demand for Major CFC Substitutes .52 5.1.1. HCFCs ....................................... 52 5.1.2. HFCs ....................................... 53 iii V IA Foreword The Montreal Protocol can be considered as an effective multilateral instrument for addressing the global environmental challenge of ozone layer depletion. As a result of advances made through the Montreal Protocol in phasing out ozone depleting substances worldwide, it can be said that the recovery of the ozone layer is on course. In the Latin American region alone, CFC consumption decreased from 31,000 metric tons (MT) per year in 1995 to 20,000 MT in 2000, and is expected to decrease further to 6,000 MT by 2005. In Latin America, progress in reducing regional CFC consumption under the Montreal Protocol has been made through a blend of command and control measures, and technological conversion projects. It is envisaged that supply is sufficient to meet fluctuating market needs. Consequently, elimination of demand is a key objective in order to achieve eradication of CFC use. In this respect, the Montreal Protocol has been successful in catalyzing conversion to CFC alternatives. Against this background, it is important to note that external factors, notably economic crisis and instability in the region have also affected the decreasing regional demand for CFCs. For instance, in Argentina-one of the larger regional markets-Aconsumption decreased from 4,316 MT in 1999 to 2,397 MT in 2000. Similarly, Brazil's consumption decreased from 11,612 MT to 9,275 MT during the same years. Both countries have in recent times suffered significant economic setbacks. While economic factors in the region may have exaggerated the observed reductions in CFC consumption, a downward trend in consumption is nonetheless apparent. The timing of this study corresponds to a period when critical decisions are being made with regard to closure of regional CFC production facilities. In addition, major reductions in CFC use are being achieved in Article 5(1) countries by embarking on compr hensive sectoral phaseout programs. Consequently, completion of this study has been a challenging task due to the dynamic nature of the CFC market. Furthermore, at the time of finalization of this report, CFC elimination programs and policies were being adopted and prepared in some of the major CFC-consuming countries in the region. These latter developments have not been captured in this report. It is expected however, that they will have the effect of accelerating trends in demand reduction and, reducing uncertainties associated with tail-end consumption after 2010. Within this context, although a high level of uncertainty remains with respect to prices of CFCs and CFC substitutes, and to their effect on the pace of implementation of CFC phaseout programs, it is expected that this report will provide new insight into market trends, which will help expedite the CFC control measures being taken by decision makers in the region. 1 Executive Summary This study provides an assessment of Latin American market sectors engaged in the supply and consumption of CFCs. The study was designed to identify those countries that are at greatest risk of falling out of compliance with Montreal Protocol obligations, and the specific market sectors in greatest need of project assistance to expedite phase-out. To this end, the information presented identifies the main producers and importers of CFCs and CFC-alternatives in Latin America, as well as the quantity of these substances used across each of the consuming sectors. The information contained in this report is based on direct information obtained through contact with importers and distributors throughout Latin America, National Ozone Units (NOUs), and available published literature. Based on this analysis, it is clear that CFC consumption in Latin America has declined substantially over the last number of years, as most countries have begun implementing phase-out programs in line with the Montreal Protocol. CFC consumption in the region declined from about 31,000 metric tons (MT) in 1995 to less than 21,000 MT in 2000. In 2000, CFC consumption in Latin America represented approximately 15 percent of global demand for CFCs, or about 19 percent of demand from Article 5(1) (i.e., developing) countries. The major Latin American countries-Brazil, Mexico, Argentina, Colombia, Venezuela, and Chile-account for roughly 90 percent of total regional demand. The refrigeration sector accounted for the lion's share of the region's demand for CFC-12 (nearly 80 percent), while the foams sector accounted for the lion's share of demand for CFC-1 1 (> 80 percent). CFC aggregate consumption is currently at or below allowable levels for all major countries in the region. In terms of meeting the next CFC reduction deadline in 2005 (set at 50 percent of the 1999 baseline), this study indicates that most Latin American countries are believed to be on target. However, this study also suggests that some countries in the region may encounter challenges in meeting allowable consumption targets in 2007 and 2008. In particular, Brazil, Colombia, and Venezuela are projected to face the most difficult challenges in this area. Considering current demand trends, and assuming that phase-out programs continue to be aggressively pursued and up-graded at the national level, approximately 1,000 MT of CFC demand is expected to remain in the region by 2010. It is possible that this demand will be satisfied, at least in part, by stockpile quantities or by increased recovery/recycling.1 It may also be reduced through additional or intensified phase-out efforts. At the global level, supply has declined significantly, and is expected to continue to do so throughout the decade. Production from facilities in most major developed countries closed prior to 1996, and production in China and India will decline steadily through 2010. In addition, plant closures in Europe are possible in the short-term. In Latin America, importers and distributors generally report sufficient supplies and low, stable prices. However, future CFC supply in the region will depend largely on the schedule of CFC closures in Mexico and Venezuela. Assuming that Mexico and Venezuela continue to produce CFCs at 2000 reported levels, Latin America is capable of satisfying its own CFC demands, even if European and Indian producers terminate export production in 2003. Beyond 2004, Mexican and Venezuelan producers should gradually decrease production levels (relative to 2000) by approximately 3,000 MT per year-if they are to meet, but not exceed, projected regional needs. In any case, the Montreal Protocol control schedules will force production to decrease to 50 percent by 2005, and to 85 percent by 2007. Because the refrigeration/air-conditioning and foam sectors account for the first and second largest consumption, respectively, the two sectors should receive the highest priority for reduction options. In the refrigeration/air-conditioning sector, activities will need to target existing old refrigerators, MACs, chillers, commercial refrigeration systems, and other CFC-containing equipment. Action programs need l'Under a business-as-usual scenario, it is projected that CFC supply from recycling will be insufricient to have any significant impact on overall supply, given that the infrastructure for recovery/recycling in Latin America is largely not in place. Current recovery/recycling rates are estimated to be only 2 percent. 2 to be developed, in many cases, with the assistance of the Montreal Protocol Multilateral Fund (MLF). National Phase-out Management Plans or Refrigerant Management Plans are recommended for most countries. Projects should incorporate a component focused on equipment distribution, especially through compressor manufacturers and distributors, since this would arrest future demand for CFCs in aftermarket servicing. In addition, recycling programs based on practical designs (e.g., banks of CFCs), may be appropriate for most countries and should focus on MAC and commercial systems. Additionally, CFC foam blowing agent phase-out programs must be encouraged. Although CFC-1 1 use by large-scale rigid foam producers is being phased out rapidly in most countries in the region, substantial opportunities to reduce CFC-1 1 use by small to medium rigid foam producers still remains-particularly for those producing polyurethane foams. Activities to expedite conversion to CFC alternatives, such as HCFCs, HFCs, hydrocarbons, and carbon dioxide/water should be pursued. Attention should also be given to the phase-out pf non-essential specialty applications in aerosol and cleaning operations that remain in several countries. In the near term, NOUs should monitor technical development in non-CFC MDls as well as any guidance provided by the Executive Committee on this issue. In addition, smaller CFC uses such as industrial electronics and refrigeration cleaning should be targeted for elimination as early as possible, since such uses are considered non-essential. Appropriate reduction of CFC production in Latin America is critical to foster the transition to CFC alternatives and prevent back conversions (i.e., return to CFC use). In particular, CFC producers in Mexico and Venezuela-where production sectdr phase-out schedules have not yet been negotiated- must judiciously limit supply so that CFC prices Oradually rise and allow alternatives to become more competitive in the marketplace. Regarding most CFC substitutes, the increasing regional demand will be met by existing capacity. Additional capacity is projected to be needed, hdwever, to satisfy growing demand for HFC-134a around 2003. Prices of substitutes are expected to decrease over time, although HFC-134a may remain more expensive than CFC-12 for the next few years, until the market stabilizes with higher levels of supply and demand. Theoretically, as CFCs become scarce as a result of phase-out of global production, CFC prices will increase. However, uncertainty remains in relation to the timeframe in which CFCs will be more expensive than substitutes. This uncertainty proVides a reason to continue the conversion and regulation programs at a steady pace in Article 5(1) countries. In addition, import licensing/quota systems could be used as an effective tool in managing phase-out action plans. These systems, in all cases, need to be closely monitored and enforced. Technical support should be provided for the transition to substitutqs in all sectors, including training of technicians for certification; projects for training customs officers (e.g., customs officers must be able to distinguish between CFC-using and alternative refrigeration lequipment); and voluntary partnership programs. Finally, countries must maintain and strengthen ihstitutions and procedures for collecting and reporting CFCs and CFC-substitutes supply and demand data, both on national and regional levels. To this end, the development and use of models or tracking systems should be considered. User-friendly tools such as these, which could be easily and accurately u$ed by decisionmakers, would greatly facilitate data reporting and allow for improved policy analysis. This will allow for improvement of the various phase-out actions; monitoring of the program's achievements; and effective management. Regional awareness and support of the phase-out plans should be improved through the publication and promotion of the phase- out schedule for CFCs. In particular, this will discpurage the purchasing of new CFC refrigeration and air- conditioning equipment. 3 Abbreviations AFEAS Alternative Fluorocarbon Environmental Acceptability Study ATOC Aerosol Technical Options Committee CAC Central Air-conditioning CEIT Countries with Economies in Transition CFC Chlorofluorocarbons CTC Carbon Tetrachloride EO Ethylene Oxide ExCom Executive Committee HCFC Hydrochlorofluorocarbons HFC Hydrofluorocarbons MAC Mobile Air-conditioning MLF Multilateral Fund MP Montreal Protocol MT Metric Tons NAFTA North American Free-Trade Agreement NOU National Ozone Units ODP Ozone Depletion Potential ODS Ozone Depleting Substances OECD Organization for Economic Cooperation and Development OEM Original Equipment Manufacturers OORG Ozone Operations Resource Group PFC Perfluorocarbons RMP Refrigeration Management Plan ROLAC Regional Office for Latin America and the Caribbean ROW Rest of the World UAC Unit Abatement Cost UNEP United Nations Environment Programme 4 1. Introduction 1.1. Background Chlorofluorocarbons (CFCs) have been used widely for different industrial purposes, including refrigerants, propellant in spraying cans, and blowing agents for insulation foams. Of all CFCs, CFC-1 1 and CFC-12 are the most important compounds, because of their extensive use in foam insulation, refrigeration, and air-conditioning, and their high ozone depletion potential (ODP). However, the release of all types of CFCs is an important contributor to the depletion of the earth's ozone layer. To protect the ozone layer, the Montreal Protocol, signed in 1987, targeted the gradual phase-out production and consumption of CFCs. As of July 31, 2000,175 countries had ratified the Montreal Protocol, 130 of which are classified as Article 5(1) countries. For industrialized countries, the primary emitters of ozone depleting substances (ODS) ih 1987, the agreement stipulated a more rapid production and consumption phase-out schedule, with a phase-out on CFC production and consumption by 1996 (except for essential uses and exports to Article 5(1) countries)2 and a similar phase-out for Artide 5(1) countries by 2010 (Annex I provides a detailed list of the phase-out schedule for CFCs). The Montreal Protocol agreement also established later production freezes on halons, hydrochlorofluorocarbons (HCFCs), carbon tetrachloride (CTC), and methyl chloroform (Annex 2 provides a phase-out schedule of HCFCs). The Multilateral Fund (MLF) was created to facilitate technology transfer to Article 5(1) countries through information exchange and investment assistance. The Montreal Protocol is managed through the Ozone Secretariat in Nairobi. The MLF is managed through an Executive Committee (ExCom) with a Secretariat located in Montreal, Canada. As of July 2001, the MLF had provided more than US $1.3 billion in financial and technical assistance to support phase-out activities in more than 100 Article 5(1) countries. This investment is expected to result in the elimihation of approximately 70,000 ODP MT of ODS production, and 155,000 ODP MT of ODS consumption (MLF, 2002). For industrialized countries (non-Article 5(1) parties), consumption levels of Annex A CFCs (i.e., CFC-1 1, -12, -113, -114, and -115) were frozen to 1986 baseline levels in 1989, and then reduced by 75 percent in 1994. In 1996, CFC consumption in industrialized countries was completely phased out, with allowable essential use exemptions gradually to be phased out by January 1, 2010. For Article 5(1) countries, CFC consumption was frozen in July of 1999 at average levels from 1995 to 1997 (the freeze level or base level under the Montreal Protocol). In January 2005, CFC consumption levels will be restricted to 50 percent of freeze levels, then to 15 percent in 2007, and finally to zero consumption by January 1, 2010. Possible basic domestic needs exemptions will still be allowed for Article 5(1) countries, at 15 percent of the freeze level. The consumption3 of CFCs and other ozone depleting substances were further reduced in 1990 by the London Amendment to the Montreal Protocol, which stipulated the complete phase-out of CFCs and carbon tetrachloride by the year 2000 for industrialized countries, and by the year 2010 for developing nations. It also specified the complete phase-out of methyl chloroform by 2005 for industrialized countries, and by 2015 for developing countries. Also, non-Article 5(1) countries may produce ODS to supply requirements of Article 5(1) countries. In 1992, the phase-out schedule was accelerated again, under the Copenhagen Amendments to the Montreal Protocol. In these Amendments, industrialized countries agreed to a complete ban on the manufacture of CFCs, carbon tetrachloride, and methyl chloroform by 1996. The complete production 2 Countries covered by Artide 5, paragraph 1, of the Montreal Protocol are developing countries with a consumption of CFCs less than or equal to 0.3 kilograms per capita, Article 5(1) countries are able to negotiate delays in phasing out ODS in comparison with industrialized countries. They also receive funds from the MLF of the MP to cover the incremental costs of ODS. 3The CFC/ODS consumption corresponds to annual production plus net imports (production + imports - exports). 5 ban on halons was to occur by 1994. In Copenhagen was also adopted a phase-out schedule for the reduction of hydrochlorofluorocarbons (HCFCs) and hydrobromofluorocarbons (HBFCs) for industrialized countries (UNEP, 2002). In 1997, further amendments were made to the Protocol, under the Montreal Adjustments. The Montreal Adjustments, which became effective in June 1998, included a total phase-out of methyl bromide for industrialized countries by 2005 and for developing countries by 2015. The agreement also established an HCFC phase-out schedule for developing countries (UNEP, 2002). As of December 5, 2001, 73 countries have ratified the Montreal Amendment (UNEP, 2002). CFC consumption within Latin America has declined substantially as most countries have begun implementing phase-out programs. CFC consumption declined from about 31,000 metric tons (MT) in 1995 to less than 21,000 MT in 2000. As a region, Latin America was significantly below its allowable consumption level in 1999 (consuming only about 24,500 MT of an allowable 27,000 MT), and most countries within the region are at reasonable consumption levels to meet their next CFC reduction targets in 2005, set at 50 percent of the 1999 baseline. Considering the implementation of projects in the region, consumption is expected to decrease to about 13,000 MT by the year 2003. In 2000, Latin America consumed approximately 15 percent of global CFCs, or less than 19 percent of all developing-country. CFC production in Latin American countries remained relatively stable between 1986 and 1997, at around 30,000 ODP MT, and dropped to about 20,000 ODP MT in 1998. In 1999, Latin American countries produced a total of 22,776 ODP MT, falling within their aggregate 1999 freeze level of 22,780 ODP MT. In 2000, Latin American production declined dramatically to less than 13,000 ODP MT, representing approximately 10 percent of total CFC production globally. 1.2. Objectives This study provides an assessment of Latin American market sectors engaged in the supply and consumption of CFCs. This study documents the main producers and importers of CFCs and CFC- altematives in Latin America and the quantity of these substances used across each of the consuming sectors. Based on this analysis, broad-based strategies to support country level actions to accomplish the Montreal Protocol phase-out obligations are recommended. To complete this assignment, the World Bank commissioned intemational and regional specialists to undertake the following activities: • Conduct an analysis of supply of CFCs, including import data (supplied by Customs Office in the region), total CFC production capacity and total historical sales by chemical in the Latin American market. Assess companies that produce CFCs in Latin America and the status of production sector phase-out projects. * Conduct an analysis of demand for CFCs by end use, including CFC-consuming equipment stock and companies with remaining CFC demand. * Project supply and demand for probable phase-out scenarios. Consider the status of conversions, including phase-out schedules and phase-out regulations in Latin American countries. * Collect and analyze other information on the CFC market, including total CFC exports from Latin America, prices for CFCs, and status of production and import sources for altematives. The remainder of this report is organized as follows: * Section 2 provides information on the methodological approach used in the report; * Section 3 provides information on CFC demand by sector; * Section 4 provides information on CFC supply and prices; * Section 5 presents an overview of demand for major CFC substitutes; Section 6 presents an overview of the supply of CFC substitutes; Section 7 includes projections of future demand, supply, prices, and strategies for completing CFC consumption and production phase-out for most Latin American countries; 6 Section 8 includes information on national CFC import/export regulations in major Latin American countries; * Section 9 provides conclusions and recommendations; and * Section 10 provides the reference list. 7 2. Methodology To analyze the CFC market in Latin America, this study focuses on the most important factors influencing the market: the supply of CFC and CFC substitutes, prices of CFC and CFC substitutes, cost of equipment replacement, local regulations, import/export requirements, and availability of CFC technology and conversion programs. Factors such as new technology and equipment efficiency were also considered, but in less detail. The methodological approach used in this analysis on CFC markets in Latin America involved two major steps: 1. Gathering historical and current information on the CFC and CFC substitutes demand, and supply (i.e., production + import - export = supply) in Latin America; and 2. Using the information obtained in the first step in a model to determine CFC demand, supply and price projections in the region (including South and Central American countries but excluding Caribbean countries). The following organizations supported this analysis: • National Ozone Units (NOUs) of Argentina, Chile, Brazil, Mexico, Venezuela, and Colombia; * United Nations Environment Programme (UNEP); * UNEP's Regional Office for Latin America and the Caribbean (ROLAC); * The World Bank. 2.1. CFC and CFC Substitutes Demand All reported demand figures were obtained through contact with large importers and distributors. Demand estimates are provided in Exhibits 3-1 to 3-20 (Section 3) for CFCs and in Exhibits 5-4 to 5-6 (Section 5) for CFC substitutes. Demand estimates were developed through consultation with producers, importers, distributors, major original equipment manufacturers (OEMs) and manufacturer associations, and selected end-users. All CFC producers, importers, and major distributors were contacted during the field missions. Associations concemed with CFC consumption as well as suppliers of CFC-containing equipment and parts were also visited.4 Calculations were made after meetings and contacts with parts distributors, associations, professionals and others associated with each sector. Stock of equipment, age and lifetimes of equipment, and quantity of recharges were considered in developing demand estimates. In the case of chillers and mobile air-conditioners (MACs)-used in automobiles, trucks, and buses-the demand estimates were validated through bottom-up calculations in which the following formula was used: (# of Units) * (Average Charge Size) * (Average Annual Leak Rate) = Demand (Example: 200 chillers at 450 kg with 15 percent leak rate = 13.5 MT/yr) Information on number of units was obtained from govemment reports and industry associations. Bottom-up demand calculations were compared to the values provided by the importers and distributors. In some cases, estimates generated using import data were confirmed through contact with major manufacturers of intermediate goods. The inputs and results of these calculations are presented in Section 3. 4Annex 4 provides a list of persons/associations interviewed/visited in this study. 8 2.2. CFC and CFC Substitutes Supply All information on CFC supply was obtained from UNEP (2002) and reported production and capacity estimates. The analysis considered trade between producing and non-producing countries, as well as trade with countries outside the region. The supply information is provided in Exhibit 4-1 (Section 4) for CFCs and in Exhibit 6-1 (Section 6) for CFC substitutes. 2.3. Projections To project demand and supply of CFCs (Section 7), a spreadsheet model was developed. The model input included: Information on historical production and consumption by country, as presented by UNEP (2002); * Regulatory or other requirements for control of production and/or consumption between 1999 and 2010, based on data obtained from the National Ozone Units and the Montreal Protocol Secretariat on Argentina, Colombia, Brazil, Mexico, Chile, Venezuela, India, and China; * Information on estimated retirement of CFC-containing fleets of equipment for major Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Venezuela), based on data presented in Section 3; In developing projections of the demand and supply of CFC substitutes, the following information was considered: Current market size of the CFC substitutes markets in major Latin American countries; and * Predicted growth in market sizes for CFC substitutes in major Latin American countries. Detailed information on each type of projection analyzed is presented below. 2.3.1. CFC Demand Projections To project CFC demand in major Latin American countries, it was assumed that sector phase-out dates specified under the Montreal Protocol are achieved by each country. In addition, projections for CFC demand in major Latin American countries were further developed as follows: Step 1. Determination of current (2000) demand using UNEP (2002) and data presented in Section 3; Step 2. Determination of the anticipated date where demand will be zero, based on data presented in Section 3 on the end of the useful life of equipment; and Step 3. Consideration of assumption that the declining demand is in a linear trend between 2000 and the dates obtained in Step 2. For example: total demand for CFC-12 in the refrigeration sector in Mexico in 2000 was estimated to be about 1,650 MT. It is predicted that the entire market will be replaced by 2010. Thus, assuming a linear decline to zero, the CFC market in the refrigeration sector is assumed to decrease by 165 MT annually. The annual change in CFC-1 1 and CFC-12 demand in MT is shown in Exhibit 2-1. Demand projections for CFC-1 13 were also modeled in this analysis and are presented in Exhibit 7-2 9 2 0000000 COO00 0000000 000000 00000H000000 2000000Z00000002 000000000000fl r000  00000001 I 2t-0C00; 00000. 200000 - ij R 0Q0OOO0NOOCONj *2000O0SI00003 E!00000000000fl 200004a0000000s *00000:0000000: S:00000j000000g S  0000 0oooo 2j0000 S000 &OOOOO 000000 300000§ 000000 jS00000 ONOOOoN.t gOOOOO, 000000 a I  5500000 0000   500000 OOOOO.5 OOOOO 0t0000 00000E 000000 A r000E 002002g *500003 S2000cI fl00000 002000;j 02000fl *;00000j o000Oj *200000 oo;oooj - N N -I  *;0$00 000;2 S3S0000 NOO icoooo. O0iOSOSS 55000053 0300 j j2200003 0-0003 3NNOoo 0n3N008iI 002.0oI -flOOO 2n003 fl0000j 0000' 00'000' "00000 000tN00r,0? I r;0oo2 - Zn 0020! 0N00:2 *50035 *j  !R -suij  3OOOf ot0 N0oo 5Q0oo -g-sooo2 o0jMoj2 2:oooss oNmosowe 2M0000E 0S50So3 3000 00S.S0E,2.! 050fl5 W50000i o0o0% fflj0OOO 00505035 I  ;OOO;  0j0000 05t00 0005 flOOO 00 0Nw030h2I  *53S OOjSO 5000 525000 flr000 09fl0 PZ201-05 005050 5o 0 1 - N - oaQoooO  U SogooS oEjjo - joo jooo o5go o5oo 5 o5joSo 5oooo osgoso 55ooo o$S§o g j5ooo I 000 OOfl IP" 1 * N N - - - 05J p0!00Sp 0Oj5O5 ;55000 rm000s  05!50 20t-0055 ONO5Oj 53300005 0:0505 555000 02;5 ; ii I II i a p i  ji Jj j p  ii Pjii uj'i, lii iO1yjfl,41i I 41 1 41. 1 p ji ig aji ii P ii q 4 Ii   JI  - *11 wHiha aJiak  huh ah!IJa hJIIJa  d p1 Ii I I C  Projections of CFC-1 1 and CFC-12 demand in major Latin American countries in the main sectors: refrigeration, air-conditioning, foams, aerosols, and cleaning (only for CFC-1 1) are presented in Exhibit 7- 2. Exhibits 7-la to 7-If present allowable and projected demand for CFCs in the major countries in Latin America. To project CFC demand in all other countries, it was assumed that all countries comply with the Montreal Protocol. Specifically, for Article 5(1) countries and CEITs, future consumption is assumed to decline linearly from the latest reported consumption figures to reach 2005 targets (when consumption must reach 50 percent of baseline amounts), 2007 consumption targets (when consumption must reach 15 percent of baseline amounts), and final phase-out in 2010. For all developed countries, future CFC consumption for critical uses was assumed to decline linearly from 2000 levels to reach zero in 2006. Section 7 presents allowable and projected demband for CFCs in Latin America (Exhibits 7-1 and 7-1a- 7- If), other developing countries (Exhibit 7-3), and the world (Exhibit 7-4). 2.3.2. CFC Substitutes Demand Projections Model inputs used to project demand for CFC substitutes in Latin America included: * Information on current market size was based on a variety of published sources (e.., UNEP, Ozone Operations Resource Group [OORG]) and consideration of business plans; * For Latin America, HFC and HCFC demand projections were estimated using expert opinion on the projected market size when markets reach full maturity. Estimates of market size for select CFC substitutes (HFC-134a and HCFCA141b) are provided in Exhibit 7-9; and * For all other countries, future demand for major CFC substitutes (i.e., HFC-134a, HCFC-141 b, and HCFC-22) was modeled assuming that all country markets follow the growth rate pattem shown in Exhibit 7-10. (Example: In Exhibit 7-11, total demand for HFC-134a in Argentina in 2000 was estimated to be 450 MT. It is predicted that the market will reach 1,500 MT by 2010. Assuming linear growth based on historical data, the market increases by 105 MT annually). The results for projections of HFC-1 34a, HCFC-22, and HCFC-141 b demand are provided in Exhibits 7- 11 to 7-13. 2.3.3. CFC Supply Projections Supply projections for CFCs were developed as follows: * Current supply was determined using official documented records. * Expected plant shutdowns or phase-out$ between 2000 and 2010 were considered, including those for Argentina, China, India, and North Korea. It was assumed that these countries follow their established production phase-out schedules, presented in Section 4.6 Production in South Korea is assumed to remain constant at its latest reported (2000) level, which is zero. To project future global CFC supply in all other countries where production sector phase-outs have not been finalized (i.e., Mexico, Vehezuela, Italy, Greece, the Netherlands, Spain, and the United States), two scenarios were examined: This includes a list of projects and activities approved for funding at the 36th Executive Committee Meeting (Annex VII, March 2002). 6 For China, compliance with their established production phase-out schedule is only assumed to occur after 2001. This is because available information indicates that China's 2001 production exceeded allowable levels by approximately 15,000 MT (China Environment News, 2001). 11 Scenario 1. Assumes that Mexico and Venezuela continue to produce at 2000 levels until final phase-out in 2010, while the United States and European countries continue to produce at 2000 levels only until 2005, when production is assumed to shut down (Exhibit 7-5a). Scenario 2. Assumes that Mexico and Venezuela continue to produce at 2000 levels until final phase-out in 2010, while the United States and European countries continue to produce at 2000 levels only until 2005, and then decrease production by 50 percent, until final phase-out in 2010 (Exhibit 7-5b). From these two scenarios, the future global CFC marketplace-and in particular, that for Latin America- is illuminated, and the optimal CFC production phaseout schedules for Mexico and Venezuela are revealed. 2.3.4. CFC Substitutes Supply Projections Because estimates of future supply of CFC substitutes are highly speculative and will depend on many factors (e.g., economic growth, CFC phaseout), it was assumed that production levels will be sufficient to meet projected demand. This assumption is defensible, for two reasons: (1) as CFC production is phased out, new capacity will be available for the production of CFC substitutes; and (2) as demand for these substitutes increases, chemical producers will respond to new economic opportunities. As such, this report analyses the future supply of CFC substitutes in terms of estimating the amount of additional production capacity-if any-that may be needed to satisfy demand through 2010. 2.3.5. CFC and CFC Substitutes Price Projections Economic theory suggests that under competitive market conditions, the phase-out of CFCs will cause an increase in prices as users compete for increasingly scarce product. In this setting, CFC users should be willing to pay a price that is at most equal to the price of their most cost effective altemative. Thus, the unit abatement cost (UAC) of the most expensive control actually implemented to meet a phase-out target each year would tend to set the price of CFCs. However, since the MLF partially subsidizes the costs of abatement projects, the relationship between CFC prices and the UAC of the last technology actually implemented does not hold. While it is beyond the scope of the current project to develop estimates that are fully consistent with the impacts that the MLF has on prices, it is also inappropriate to ignore the fact that prices will be depressed by the subsidies. To maintain consistency with the methodology used in ICF (1994), the following assumptions were made in projecting prices of CFCs over time: Price varies linearly from current levels (starting in 2002) and up to 2/3 of the value of the UAC of the most expensive control implemented in the year in which the new CFC use must be phased out.7 UAC is based on the annualized capital and operating costs for the abatement option. In this analysis, UAC values (low and high) were estimated based on UAC values presented in ICF (1994). Rounded UAC values (low-high) for CFC-1 1 are assumed to be $2-11/kg; Rounded UAC values (low-high) for CFC-12 are assumed to be $13-$16/kg. In addition, this study also considers two proxy scenarios. In these cases, CFC-1 1 is assumed to be replaced by HCFC-141 b and therefore the UAC for CFC-1 I was set to be equal with 2/3 of projected HCFC-141b prices in 2010. Also, CFC-12 is assumed to be replaced by HFC-134a and therefore the UAC for CFC-12 was set to be equal to 2/3 of projected HFC-134a prices in 2010. 7 It should be noted that the selection of 2/3 the UAC value is somewhat arbitrary. As mentioned, however, it is based on the fact that the MLF reimburses the costs of CFC phase-out projects in developing countries, causing the price to not equal that set by the UAC of the most expensive controls required to meet phase-out, as it would otherwise be. 12 Exhibit 7-8 presents the CFC price projections in the region starting with the UAC values in 2002. The formula used to calculate these values is: UAC2002 = Price of CFC 1 lbase yeat + (UAC2010 -Price of CFC1 lbaseyJ) 2002 ~~~~~~2010 -2001 (Example: The current price range for CFC-12 Is $4.75 - $4.90/kg. Two-thirds of the UAC for CFC-12 is roughly $8.60 to $10.40/kg.8 Between 2002 and 2010, assuming linear growth, prices will increase by approximately $0.40/kg annually). To develop price projections for CFC substitutes, qualitative information available in the literature and historical pricing trends were considered, as were the expert opinions of importers and other industry representatives. Based on the analysis discussed in Section 7, the following conclusions were drawn: Prices have declined significantly in the last five years. Rates of price decline anticipated through 2010 are presented in Exhibit 7-14; * Demand for HCFC-22 and HCFC-141b will be easily met through current suppliers; * Reductions in HCFC-141 b demand in developed countries are expected after 2003; and * Demand for HCFC-22 in developed countries will decline through 2010. 8 Note that these values, in addition to the high/low UAC values for CFC-12, have been rounded. Due to rounding error, these values do not exactly equal two-thirds of the highAow UAC values shown above. 13 3. CFC Demand 3.1. Historical Demand Historical demand for CFCs is shown in Exhibit 3-1. As presented, CFC demand worldwide dropped by more than 140,000 MT during the period 1995-2000, representing a decrease of about 50 percent of the 1995 global CFC consumption. Latin American demand dropped by approximately 10,200 MT during the same period, corresponding to a decrease of about 33 percent of the 1995 Latin American CFC consumption. 3.2. Current Demand by Sector Consumption of CFCs is classified as demand for 'manufacturing" equipment and demand for "service." Based on the decisions of the Parties, CFC consumers are classified in categories of agreed incremental costs as: * Primary users (chemical producers); * Intermediate users (OEM manufacturing); and * End users. The intermediate users comprise all users of foam, aerosols and sterilants goods as well as all manufacturers of refrigeration (domestic, commercial, and industrial) and air-conditioning (chillers, MACs, and central air-conditioning [CACs]). End users usually comprise all "service" users of refrigeration (domestic, commercial, and industrial), air-conditioning (chillers, MACs, and CACs), and solvents. In this study, CFC demand in Latin America was examined for each of the major consuming sectors: foams and aerosols, refrigeration (domestic and commercial), air-conditioning (MACs, CACs, chillers) and cleaning solvents. These sectors are discussed under two broad categories as presented in sections 3.2.1 and 3.2.2: 1. Use in Intermediate Goods for "manufacture" users; and 2. End Use categories for 'service" users. Exhibits 3-2 to 3-7 provide an overview of CFC demand by market sector for 2000. As shown, the highest demand for CFC-11 is for polyurethane foams. For CFC-1 2, the greatest demand is refrigeration and MACs. Some CFC use is occurring in the aerosols sector in specialty and pharmaceutical applications and in the cleaning of refrigeration equipment applications (CFC-1 13). It should be noted that 2000 sectoral consumption estimates for Venezuela, developed based on information collected from local importers and distributors, represent only 54 percent of the country's reported consumption level. Therefore, 1,224 ODP MT of Venezuela's reported CFC consumption is not accounted for by use (i.e., market sector) in this report. The discrepancy may be due to a variety of factors, including under-reported consumption by importers/distributors, illegal imports, and/or CFC stockpiling. 14 Exhibit 3-1. Consumption of CFCs 1995 to 2000 (ODP Tonnes) 1995 1996 1997 1998 1999 2000 Major Latin American Countries Brazil 10,896 10,872 9,810 9,543 11,612 9,275 Mexico 4,859 4,859 4,157 3,483 2,838 3,060 Argentina 6,366 4,202 3,524 3,546 4,316 2,397 Colombia 2,156 2,302 2,166 1,224 986 1,149 Venezuela 3,220 3,041 3,704 3,214 1,922 2,706 a Chile 933 878 674 738 658 576 Subtotal Major LA 28,430 26,154 24,035 21,748 22,332 19,163 Other Latin American Countries Belize 16 11 20 25 25 9 Bolivia 82 87 58 74 72 79 Costa Rica 159 497 95 (204) 152 106 Ecuador 315 269 320 272 153 230 El Salvador 330 312 278 195 110 99 Guatemala 231 236 207 189 191 188 Guyana 91 41 28 29 40 24 Honduras 118 523 354 157 335 172 Nicaragua 110 83 56 37 53 - Panama 440 355 358 346 301 250 Paraguay 211 159 102 113 345 153 Peru 367 243 259 327 296 347 Uruguay 232 172 193 194 111 107 Subtotal Other LA Countries 2,700 2,988 2,328 1,754 2,184 1,764 TOTAL Latin America 31,130 29,142 26,363 23,502 24,515 20,927 Other Maior DeveloDina Countres (over 5.000 ODP tons) China 75,291 47,089 51,076 55,414 42,983 42,983 b India 6,402 6,937 6,703 5,265 4,143 5,614 Indonesia 8,351 9,012 7,635 6,183 5,866 5,411 Korea, Rep of 10,039 8,220 9,220 5,299 7,403 410 Subtotal Other Major Developing 100,083 71,258 74,635 72,160 60,395 54,418 All Remaining (Non-Major) Developing 52,930 49,001 48,809 43,142 38,801 36,027 TOTAL all Developing Countries 184,144 149,401 149,806 138,804 123,711 111,372 Major Industrialized Countries Australia 2,584 234 184 195 274 6 Canada 4,816 129 136 42 (5) 10 EC/EU 310 6,010 5,636 4,342 4,745 - Japan 23,064 (614) (113) (208) 23 (24) USA 35,530 1,897 743 2,469 2,904 2,613 Other OECDC 467 (38) (38) (44) (70) 1 TOTAL OECD (excluding Mexico) 66,771 7,618 6,548 6,796 7,871 2,606 Eastern Europe, Former Soviet 29,333 16,642 14,253 15,079 16,569 25,063 Republics, Israel and Russian Federation GLOBAL TOTAL 280,248 173,661 170,607 160,679 148,151 139,041 "-" = Not available a Quantified sectoral consumption, developed based on data collected from importers and distributors, is only 55 percent of 2000 reported consumption value. Therefore, 1,224 ODP MT of consumption is not elsewhere classified. b Actual consumption not reported. Because China is a major CFC consumer, for the purpose of this report, it was assumed that their 2000 consumption remained constant with the 1999 value. c Includes Iceland, New Zealand, Norway, and Switzerland. Source: UNEP 2002 15 Exhibit 3-2. Demand for CFC-1 I in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total Total CFC-11 Consumed 794 3,268 1,013 322 204 334 35 5,970 Use by Sector Refrigeration 0 239 0 0 0 0 0 239 Air Conditioning 8 116 26 15 14 2 1 182 Foams 364 2,905 843 267 170 312 33 4,895 Aerosols 227 8 46 11 0 0 1 292 Solvents (Cleaning) 195 0 97 30 20 20 0 362 Source: Data collected from importers and cistibutors (2001); UNEP (2002); World Bank (2002a). Exhibit 3-3. Demand for CFC-12 in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total Total CFC-12 Consumed 2,256 5,945 1,305 1,142 936 220 1,721 13,526 Use by Sector Refrigeration 1,650 4,796 828 885 824 177 1,454 10,614 Air Conditioning 68 781 356 237 62 16 258 1,778 Foams 0 355 52 10 50 0 0 466 Aerosols 448 13 70 10 0 7 9 556 Sterilization 90 0 0 0 0 20 0 110 Source: Data collected from importers and cistributors (2001); UNEP (2002); Wovd Bank (2002a). Exhibit 3-4. CFC Foam Markets in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total CFC-11 Total CFC-1 1 Consumed for Foams 364 2,905 843 267 170 312 33 4,895 Demand by Sector Polyurethane Flexible 0 362 82 0 0 71 2 516 Rigid, exduding panels 0 1,530 205 84 50 44 22 1,935 Panelsa 0 0 188 79 45 56 2 369 Domestic Refrigerators 0 326 123 0 0 111 0 561 Commercial Refrigerators 0 0 66 59 25 5 3 158 Transport 0 330 106 30 20 20 4 511 Others(b) 364 357 49 15 30 5 1 820 Subtotal 364 2,905 819 267 170 312 33 4,870 Extruded polystyrene and polyethylene Food Trays 0 0 25 0 0 0 0 25 Insulation 0 0 0 0 0 0 0 0 Subtotal 0 0 25 0 0 0 0 25 CFC-12 Total CFC-12 Consumed for Foams 0 355 52 10 50 0 0 466 Demand by Sector Extruded polystyrene and polyethylene Food Trays 0 355 17 10 50 0 0 432 Insulation 0 0 35 0 0 0 0 35 Subtotal 0 355 52 10 50 0 0 466 Souse: Data collected from importers and distributors (2001); UNEP (2002). ' 'PUR Panels' represents a sub-category of the FRigid PUR' (UNEP, 1996). However, 'PUR Panels' are presented as a separate category based on the data received from local industry consultants ( all other types of polyurethane foams that are not addressed in this table 16 Exhibit 3-5. CFC Aerosol Markets in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total CFC-11 Total CFC-1 1 Consumed for Aerosols 227 8 46 11 0 0 1 292 Medical 165 8 40 0 0 0 1 213 Snow 0 0 0 0 0 0 0 0 Electronics 62 0 6 11 0 0 0 79 CFC-12 Total CFC-12 Consumed for Aerosols 448 13 70 10 0 7 9 556 Medical 295 13 66 0 0 0 6 380 Snow 0 0 0 0 0 0 0 0 Electronics 153 0 4 10 0 7 3 177 CFC-113 Total CFC- 13 Consumed for Aerosols 10 61 80 18 0 21 0 190 Medical 0 0 0 0 0 0 0 0 Snow 0 0 0 0 0 0 0 0 Electronics 10 61 80 18 0 21 0 190 Source: Data collected from importers and distributors (2001); UNEP (2002); World Bank (2002a). Exhibit 3-6. CFC Refrigeration Markets in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total Total CFC-12 Consumed for Refrigeration 1,650 4,796 828 885 824 177 1,454 10,614 Demand by Sector Domestic New 0 57 58 0 0 53 0 167 Service 804 813 173 94 210 27 509 2,630 Subtotal 804 870 231 94 210 80 509 2,797 Commercial and Industrial New 0 153 44 75 75 5 73 425 Service 829 3,470 409 662 500 83 800 6,753 Subtotal 829 3,623 453 737 575 88 873 7,177 Transport 17 303 144 54 40 9 73 640 Source: Data collected from importers and distributors (2001); UNEP (2002a). Exhibit 3-7. CFC Air Conditioning Markets in Latin America (ODP Tonnes) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total CFC-12 Total CFC-12 Consumed for Air Conditioning 68 781 356 237 62 16 258 1,778 Demand by Sector Mobile New 0 0 0 0 0 0 0 0 Service 30 605 337 188 34 15 207 1,415 Subtotal 30 605 337 188 34 15 207 1,415 Central and Chillers New 0 0 0 0 0 0 Service 38 176 19 49 28 1 52 363 Subtotal 38 176 19 49 28 1 52 363 CFC-11 Total CFC-11 Consumed for Air Conditioning 8 116 26 15 14 2 1 182 Demand by Sector Central and Chillers New 0 0 0 0 0 0 Service 8 116 26 15 14 2 1 182 Subtotal 8 116 26 15 14 2 1 182 Source: Data collected from importers and distributors (2001); UNEP (2002). 17 3.2.1. Use in Intermediate Goods Exhibit 3-8 presents CFC consumption by use category ('intermediate goods' and "end use") in 2000, estimated based on data from Exhibits 3-2 to 3-7. The total demand for CFCs for use in intermediate goods in major Latin American countries was 7,225 MT, representing close to 35 percent of total CFC demand in Latin America. Exhibit 3.8. CFC Consumption (MT) by Use Category in Major Latin American Countires in 2000 Brazil Mexico Argentina Venezuela Chile Colombia Use in Intermnediate Goods 3,792 1,139 1,192 390 418 295 End Use 5,483 1,921 1,205 1,092 158 854 Source: Analysis of data from Exhibits 3-2 to 3-7. Brazil, with a demand of 3,792 MT for CFCs, had the largest consumption in intermediate use, which accounted for approximately 52 percent of total CFC consumption in intermediate goods in major Latin American countries. Argentina was the second largest consumer, with CFC consumption totaling 1,192 MT. The following sections present more detailed analyses of each major sector for each major Latin American country. 3.2.1. 1. Foams CFCs are used to manufacture rigid foams for furniture and for insulation of refrigeration units. Foam systems are sold with CFC-1 1 already in the formulation, and in formulations that require the consumer to provide CFC-1 1 during use.9 CFC-1 1 use by large-scale rigid foam producers is being phased out rapidly in most countries, with continued strong declines anticipated after the year 2000. However, in 2000, there remained substantial opportunities to reduce CFC-1 1 emissions from small to medium rigid foam producers. Exhibit 3-2 provides information on 2000 CFC-1 1 demand by the foam sector in major Latin American countries. In 2000, Latin America used CFCs as a blowing agent in about 30 percent of all blowing technologies. The primary blowing agents used were HCFCs (50 to 60 percent), while 10 to 20 percent used cyclopentane (TEAP, 2000). Consumption of CFC-1 1 for foam production in Latin America was estimated to be 4,895 MT in 2000, mainly for use in production of polyurethane foams. As shown in Exhibit 3-3, consumption of CFC-12 for foam production in Latin America was estimated to be 466 MT in 2000, all of which was consumed as extruded polystyrene and polyethylene, and more than 75 percent of which was consumed in Brazil. CFC-12 use in foams has been almost entirely replaced by CFC alternatives. There are 14 major types of insulating foams produced globally. Primary uses include appliance insulation, residential and commercial building insulation, and specialty applications, such as refrigerated storage, transport, and pipe insulation. These products have historically used CFCs but are now mainly using HCFCs. In future, they are expected to use HFCs, as the technology is developed and the Montreal Protocol is implemented across all nations (ARAP, 2001). The following discussion provides additional detail on foam markets in the major Latin American countries. The foam subsector classifications presented in this report are in accordance with the definitions of the Executive Committee.10 Estimates were derived from data provided by major importers and distributors, and are presented in Exhibit 3-4. 9 All large consumers buy CFC-1 1 and polyol separately (bulk, ton-tank, or drums), and prepare the blend themselves. 10 Polyurethane foams indude rigid, flexible, panels, new domestic/commercial refrigeration, transportation and others; extruded polystyrene and polyethylene foams include food trays and insulation (TEAP, 2000). 18 I Foam Markets in Major Latin American Countries Brazil. Brazil's foams sector achieved the highest success in converting to non-ODS alternatives than any other sector in Brazil. More than 100 investment projects have been approved under the MLF, more than half of which are already being implemented. HCFC-141b was the selected altemative to CFC-1 1 in the majority of insulation foam manufacturing cases, both in the foams and refrigeration sectors. About 45 percent of domestic refrigeration production has been converted to cyclopentane. However, CFC demand for foams remains solid, as many projects have not yet been completed. Further reductions are expected to be realized between 2002 and 2003. According to the revised Brazilian legislation-in the process of being approved by the National Council for the Environment (CONAMA)-the phase-out date for the CFC consumption in the manufacture of new products in this sector was December 2001 for all enterprises that were not registered at the Brazilian environmental agency (IBAMA). Those registered by the end of 2000 are to follow the phase-out program according to approved assistance under the MLF, and the phase-out date will depend on the availability of funds and project implementation duration, provided that it does not go beyond 2007. Based on ExCom 36 (2002) decision, Brazil received funding to eliminate about 645 MT of CFC-1 1 in the foam sector through future projects of which about 21 percent (136 MT) will be eliminated from the manufacture of rigid polyurethane and flexible integral skin foams at Ariston Polimeros, Pretty Glass, Tolling Quimica, and Toro. Three future projects will convert 114 MT to HCFC-141 b technology, and one project will convert 22 MT of CFC-1 1 to water/methylene chloride/hydrocarbon-blown technology. Mexico. CFC-1 1 has been used extensively as a foaming agent, predominantly for insulating polyurethane foams (in domestic and commercial refrigeration, construction panels, coating industrial pipes, roof coating) and mixed with polyols for polyurethane's foaming systems (used for injecting molding into shoe soles and automotive parts, among other uses). Most CFC-1 1 uses have been replaced with HCFC-141 b as a result of several projects funded by the MLF. Few projects have selected hydrocarbons (e.g., hexane or cyclopentane) as an alternative. Current CFC-1 1 consumption will be completely phased out once the final projects in the foams sector are approved and implemented. In 2002, the ExCom approved funding for a foams sector phase-out plan, to be implemented by UNDP, within a period of 18 months following the 36 th ExCom meeting. In the initial phase of the plan, 145 ODP MT are to be phased out (ExCom 36, 2002). In 1992 a voluntary agreement was signed between the foam manufacturers and the environmental authorties to substitute methylene chloride for CFC-1 1 use as a blowing agent for flexible foams (e.g., slab stock). The substitution required investments in exhaust systems, but methylene chloride offers savings in operating costs. The remaining CFC-1 1 foam consumption is for integral skin and other polyurethane system uses. * Argentina. CFC-1 1 consumption declined across all foams segments, with significant declines occurring in the commercial refrigerator end use. The majority of new domestic refrigerators now use cyclopentane as a blowing agent (e.g., Whiripool refrigerators). According to ExCom 36 (2002), Argentina will receive funding for preparation of a terminal phase-out program in the foams sector. * Venezuela. According to ExCom 36 (2002), project funding to develop a national ODS phase-out plan in the foams sector was approved for Venezuela. One approved project implemented, by the United Nations Industrial Development Organization (UNIDO), is scheduled to eliminate CFC- 11 in the manufacture of integral skin foams at Manufacturas Enveta, C.A. Cumana. . Colombia. Funding has been approved for a project targeting a terminal phase-out program in the foams sector in Colombia (ExCom 36, 2002). . Other Latin American Countries. In the rest of the region, consumption of CFC-12 in the foams sector was zero. However, in 2000, 33 MT of CFC-1 1 were consumed in the polyurethane foams 19 subsector, with the majority of consumption (22 MT) being in rigid foam applications. As of October 2001, projects expected to eliminate the consumption of CFCs in foams at five plants in Uruguay (Sudamtex del Uruguay, S.A. Ronit Ltd., Maxi, Divino S.A., and Poliflex Ltd.) were on going. Additionally, projects aimed to eliminate CFC consumption in multiple foams subsectors in Bolivia and Peru have been approved for funding (ExCom 35, 2001). In 2002, there were no business plans approved in the foams sector in the rest of the region (ExCom 36, 2002). Polyurethane (PUR) Foams According to Dow Polyurethanes, global demand for PUR continues to grow, both in traditional market segments and new applications. The growth rate for PUR is estimated at four percent per year, driven by the emerging economies of Latin America and Eastem Europe, and by the mature markets of the U.S. and Western Europe. In 1999, global PUR consumption was approximately 6.8 million MT, of which Latin America accounted for 15 percent (Dow News, 1999). Flexible Polyurethane (PUR) Foams Flexible polyurethane foam is mainly used for fumiture cushioning, carpet underlay, auto seating, and bedding. Below is a discussion of consumption by this subsector in selected countries: Brazil. It is estimated that in 2000, 362 MT of CFC-1 1 were consumed for PUR foams. This amount corresponds to roughly 12 percent of Brazil's CFC-1 1 consumption in foams, and represents approximately 70 percent of CFC-1 1 demand for flexible PUR foams in the entire Latin American region. According to ExCom 36 (2002), Brazil received funding to phase-out 23 MT of CFC-1 1 by conversion to methylene chloride/LIA technology in the manufacture of flexible polyurethane box foam at Tecnosono. * Mexico. No CFC-1 1 was consumed in 2000 in this subsector. * Argentina. In 2000, 82 MT of CFC-1 1 were consumed in flexible foams, corresponding to about 10 percent of the total CFC-1 1 consumed for foams. Projects have recently been completed where liquid carbon dioxide (LCD) or methylene chloride replaced CFC-1 1. After 2001, there was no remaining consumption of CFC-1 1 in the manufacture of flexible foams, as a result of phase- out projects. * Venezuela. CFCs are not used in this subsector. The blowing agent used is methylene chloride and water. * Chile. There is only one important flexible foam producer in Chile, Colchones Rosen. This producer uses CFC-1 1 in part of their production of soft foam. The firm has resisted government efforts to change to LCD technology. In 2000, an estimated 71 MT of CFC-1 1 were consumed by the flexible foams sector, corresponding to about 23 percent of the national CFC-1 1 consumed in foams annually. * Colombia. CFC-1 1 is not used in the manufacture of flexible foams in Colombia. * Other Latin American Countries. In 2000, the CFC-1 1 demand for flexible foams corresponded to less than one percent of the 2000 CFC-1 1 demand for this subsector in the region. In Ecuador, use of CFC-1 1 in the fabrication of flexible foams was eliminated through the replacement of CFC-1 I with methylene chloride in a plant belonging to Elasto, S.A. 20 Rigid Polyurethane (PUR) Foams Latin America accounts for 10 to 15 percent of global polyol consumption-an essential raw material for Rigid PUR-and is a strong growing market in the long-term (e.g., capacity was expanded substantially in Argentina, Brazil, and Colombia). Within the rigid PUR foams subsector, there are five segments: (1) pipe insulation, (2) thermoware, (3) domestic and commercial refrigerators and freezers, (4) continuous/ discontinuous panels, and (5) spray foams (OORG, 2001). Cyclopentane, HFC-134a, and HCFC-141b are now the main alternative blowing agents in rigid PUR foams. HFC-245fa and HFC-365 are also being used in this subsector. Other than these CFC alternatives, HCFC-22 and blends of HCFC-22 and -141 b are now used in panels of rigid PUR. Fiberglass, rock wool, and cellulose can also substitute for rigid foam insulation. In the long term, HCFCs, HFCs, and carbon dioxide (C02)twater will be the replacement technologies for this foam sector. Brazil. In 2000, CFC-1 1 consumption for rigid PUR foams was 1,530 MT, corresponding to about 52 percent of national CFC-1 1 consumption for foams in 2000. Examples of current projects implemented in this subsector to replace CFC-1 1 with HCFC-141 b in the manufacture of rigid PUR foams include those at Randon Implementos S.A., Sao Rafael Ind. Com., M. Agostini, S.A., and Recrusul SEA. Brazil is to receive funding to convert approximately 290 MT of CFC-1 I to HCFC-1 41 b in the manufacture of rigid PUR foams at Isojet, Isosister, Fibral, Helioteck, Decorfrio, Repor, and Simonaggio. In 2000, CFC-1 1 was not used in the manufacture of foam panels in Brazil, given the completion of conversion projects in this subsector (ExCom 36, 2002). * Mexico. There was no CFC-1 1 consumption in this subsector in 2000.11 * Argentina. Many small producers continue to use CFC-1 1, often buying polyurethane systems with the blowing agent incorporated. In 2000, 205 MT of CFC-1 1 were used in this subsector, excluding foam panels. This corresponded to about 25 percent of the total CFC-1 1 demand for foams in that year. According to five PUR suppliers-Bayer, Dow, BASF, Huntsman and Eco- Pur-new PUR systems began being produced exclusively with HCFC-141 b in mid-2001. Also, several conversion projects supported by the MLF have been completed or are now underway. In 2000, over 190 MT of CFC-1 1 were consumed in foam panels. Venezuela. The major polyurethane suppliers are BASF, Bayer, Industria Urequimicos, Sinthesis S.A. and Poliresin. Demand for CFC-1 1 in rigid PUR foams remained strong through 2000, representing 31 percent of the total demand for CFC-1 I for foams in that year. However, the suppliers have started to offer systems with HCFC-141b. Chile. There are many medium and small producers of PUR systems in Chile. Chile PUR is an association that represents approximately 30 companies, using systems that use blowing agent to manufacture spray applicators and panels. The more important suppliers are Quimica Anglo Chilena (Huntsman), Adiquim (Bayer), BASF Argentina, Plasfi (Spain), Dow and Oxiquim. Oxiquim is the main importer and distributor of CFCs from Quimobasicos in Mexico. Oxiquim also produces polyols, and has a strong influence in this sector. These producers can use either CFC-1 1 or HCFC-141 b, but because of the lower cost of CFC-1 1 systems (10 percent less than the HCFC-141 b systems), CFC-11 has been the agent of choice. In 1996, CONAMA started a program (with MLF support) to convert old machinery to new technologies through a World Bank competitive bidding system, based on cost-effectiveness. Examples of current projects of CFC- 11 conversion to HCFC-141 b include those applied at Inversiones Overjuna (Metalcargo), The small and very small enterprises using polyurethane systems for piping insulation and spray foams obtain their material (originally, CFC-1 1) from System Houses. These suppliers are already providing systems based on HCFC- 141b. 12 vVhile most small and some medium users typically buy drums of polyol (about 250 kg) pre-blended with CFC-1 1 (or HCFC-141 b), many also purchase these materials separately (i.e., [70 kg] drums of CFC-1 1 and [220 to 250 kg] drums of pure polyol), and then prepare the blend themselves (Cristodero, 2002). Normally, small producers can afford to buy a whole drum of polyol. Therefore, small foam users purchase CFC-1 1 through PUR re-sellers either pre-blended or separately. 21 Multipanel, Polimin, Anglo Chilena, Asit6m, Haschke, Superfrigo, Sindelen, Adiquim, and Frigocar. Recently, the majority of CFC-1 1 use in the manufacture of domestic refrigerators in Chile was phased out, leaving only 44 MT of CFC-1 1 consumed in the foams subsector in Chile in 2000. Colombia. In 2000, 45 MT of CFC-1 1 were consumed in panels, and another 50 MT of CFC-1 1 in other rigid foams. Polyurethane suppliers are now increasing the usage of HCFC-1 41 b in foam systems, especially in the domestic refrigerator segment. There are conversion projects underway in this segment. Some notable examples include the elimination of CFC-1 1 in the manufacture of rigid PUR foams through the use of HCFC-141 b at Fermat S.A., Daniel J. Fernandez and Cia. Ltd., lndufrio, and Cia Ltd., Rojas Hnos, Ltda (ExCom 36, 2002). Moreover, intemational agencies (e.g., World Bank, UNDP) supported the phase-out of CFC-1 1 by conversion to HCFC-141b technology at 29 Colombian enterprises. * Other Latin American Countries. It is estimated that there is some use of CFC-1 1 in the manufacture of rigid foams in other Latin American countries. Data gathered from experts suggest that in 2000, demand was about 22 MT, representing approximately 67 percent of the total CFC-1 1 demand for foams in all non-major Latin American countries. Several projects aimed at reducing the use of CFC-1 1 in rigid PUR foams by replacing the existing low-pressure foam units with high-pressure units or with CO2/water systems are underway in the region. Amongst these are on-going projects in manufacturing plants in Ecuador (Indurama, Durex, and Ecasa) and one in Uruguay (Etchepare-Gil S.A.). CFC-1 1 consumption for panel foams was insignificant in 2000 (2 MT). In Bolivia, 5 MT of CFC-1 1 were expected to be converted to HCFC- 141 b through an on-going project at Quimica Andina (ExCom 36, 2002). Integral Skin Foams The flexible integral skin foams are mainly used in transportation (e.g., steering wheels, armrests, bicycle saddles), whereas the rigid integral skin foams are used for furniture (typically wood imitation moldings) and for electrical and electronic cases. The use of CFCs in integral skin applications can be replaced by the use of water, pentane, or HFC-1 34a. The long-term alternative is expected to be a blend of CO2 and water (WBG, 1998). No data were available on this subsector in Latin America. However, according to ExCom 36 (2002), Brazil received funding to phase-out 196 MT of CFC-1 1 by converting to HCFC-141 b technology in the manufacture of flexible integral skin foam and water-blown technology for flexible molded foam at Arquespuma, lndaru, and Steel Plastik. Two projects in Brazil were scheduled to have converted ODS to a non-CFC technology in the manufacture of flexible foam (slab stocks) at Suavestar, S.A. and to low index/additive technology in the manufacture of flexible box foam at Rozen S.R.L by September 2002. Also, Venezuela will phase-out 32 MT of CFC-1 I by converting to water-blown systems in the manufacture of flexible polyurethane foams at Manufacturas Enveta, C.A. Cumana. Extruded Polystyrene (PS) and Polyethylene (PE) Foams Latin America will have solid growth in the polystyrene market, mainly as a result of the evolution of plastic packing in Argentina and Brazil. Growth rates for polystyrene in Latin America are projected to be 5.2 percent per year through 2005 (Dow News, 2000). However, the economic advantages of hydrocarbons as an altemative will be the main driver in this subsector. Brazil. In 2000, PS foams in food trays consumed 355 MT of CFC-12. In the southem part of Brazil, MOVIMAX continues to use CFC-12 in the manufacturing of polyethylene, but will have to convert to HCs or another altemative by 2007. * Mexico. No CFCs were used in this subsector in 2000. 22 * Argentina. In 2000, 77 MT of CFCs were consumed in this subsector, of which 32 percent corresponded to CFC-1 1 (used in PS foams). CFC-1 2 was used by both PS foams (17 MT in food trays) and PE foams (35 MT in insulation). Production of PE foams with CFC-12 was replaced with isobutane technology by the end of 2001. * Venezuela. There continues to be some consumption of CFC-12 in this sector. In 1999, the major PS foam producer, Molanca, began converting from CFC-12 (200 MT/year) to HCs. In 2000, an estimated 10 MT of CFC-12 were consumed in PS foams. * Chile. There is no CFC consumption in this subsector. In 1997, Chimolsa, a food tray manufacturer, converted from CFC-12 to HCFC-22. * Colombia. In 1998, after the conversion of CFC-12 as a foaming agent to HCs (butane) by the major polystyrene foam manufacturer (Ajover), only one manufacturer (Multidimensional) has continued to use CFC-12 in products such as food trays and beverage cups. In 2000, 50 MT of CFC-12 were consumed in PS foams. Multidimensional had planned to implement a CFC conversion project (CFCs to HCs) because their machinery is very old. However, the conversion cost was very high and the project was cancelled. Although this company continues to use CFC- 12 in its products, their costs are not competitive and, consequently, the company's market share is declining. Other Latin American Countries. Based on information from contractors, there were no CFCs consumed in this subsector in 2000. However, as of October 2001, one project in Panama was listed as on-going with an initial elimination target of 42 MT of CFCs in the manufacturing of extruded PS at Productos Moldeados America S.R. Ltda (Plastico Modemos) (UNEPTIE, 2002). 3.2.1.2. Aerosols CFC-1 1, CFC-12, and CFC-1 13 are still important components of several aerosols products. CFC-1 1 and CFC-12 are widely used in metered dose inhalers (MDls), while CFC-113 is used as a solvent. CFC-12 is also used as a propellant. MDI applications have proven alternatives in the market, such as HFC-134a, HFC-227, and dry powder inhalers (DPIs). In this study, total usage for this sector was estimated based on import data. All estimates were confirmed by contacts in the aerosols manufacturing business. Information on the aerosols market in Mexico was obtained from the World Bank (2002a). Exhibit 3-5 presents the CFC aerosols markets breakdown in Latin America in 2000. Use of CFC-1 2 totaled 54 percent of CFC consumption in the aerosols market (556 MT), while consumption of CFC-1 1 represented about 28 percent. The remaining demand for CFCs in this sector was for CFC-1 13. Based on data collection, total CFC consumption in the aerosols sector in Latin American countries was 1,038 MT in 2000, corresponding to about 5 percent of the total CFC consumption in the region. Approximately 57 percent of the CFC consumption in this sector was for use in pharmaceuticals as MDls. The remaining use of CFCs within the aerosol sector was for specialty electronics cleaning. As the use of CFCs in MDls represents more than half of the CFC aerosols market in Latin America, the remainder of this study separates discussions on aerosols based on "MDIs" and 'non-MDls." Metered Dose Inhalers (MDIs) ATOC (Aerosol Technical Options Committee) estimated that a total of 9,000 MT of CFCs were used worldwide in the manufacture of MDls in 1999, including an estimated 1,500 MT in Article 5(1) countries (TEAP, 2000). Brazil. In 2000, CFC MDI consumption was estimated to be approximately 21 MT annually, corresponding to about 26 percent of Brazil's CFC consumption of aerosols. 23 * Mexico. For the manufacture of MDls in Mexico, blends of CFC-1 1 and CFC-12 continue to be used, although non-ODS alternatives, including not-in-kind altematives, are used to a limited extent. According to a recent study conducted by the World Bank (2002a), approximately 165 MT of CFC-1 1 and 295 MT for CFC-12 are used in the manufacture of MDls each year. This sector will require assistance from the MLF to reach phase-out targets. * Argentina. The most significant use of CFCs is by two MDI producers: Glaxo-Wellcome and 3M. The altemative propellant is HFC-134a. However, development of new CFC-free MDI products is underway. One Argentine company that will be converting to non-CFC MDI products under the World Bank's program is Pablo Casara. * Venezuela. There is only one industrial aerosols producer, Spray Quimica CA. This firm uses CFC-1 13 and CFC-1 1 as cleaning solvents and CFC-1 2 as a propellant. Spray Quimica is attempting to develop products with chemical CFC substitutes, but the company reports technical and economic barriers. * Chile. There is no production of MDIs in Chile. * Colombia. CFCs are not used in this market in Colombia. * Other Latin American Countries. It is estimated that 1 MT of CFC-1 1 and 6 MT of CFC-12 were consumed in 2000 for MDls. Uruguay received approval for funding to develop an MDI transition strategy project (ExCom 36, 2002). No other information on other countries is available. Other Aerosol Products (non-MDls) The OORG reports that there are no technical barriers for the transition to alternatives for non-MDI aerosol products, and that these applications are not considered essential uses overall. However, CFCs are still consumed in some specialty aerosol products in Article 5(1) countries. Based on ATOC estimates, in 1999, CFC consumption in the non-MDI aerosols sector in Latin America was 500 MT, corresponding to about 6 percent of the total CFC consumption in CEITs and Article 5(1) countries (TEAP, 2000). * Brazil. In 2000, 61 MT of CFC-1 13 were used as solvent aerosols for electronics cleaning, corresponding to about 74 percent of the national annual CFC demand in this sector. * Mexico. Only three companies use CFCs in aerosols to produce specialty products such as circuit cleaners, demoulding agents and others. In 2000, 225 MT of CFCs were used for electronics cleaning. Of this amount, 117 MT of CFC-1 2, 43 MT of CFC-1 1, 5 MT of CFC-1 13, and an unspecified 60 MT of CFC-12, 11, and 113 are used annually (World Bank, 2002a). Based on this reported usage, this analysis assumed that 153 MT of CFC-12, 62 MT of CFC-1 1, and 10 MT of CFC-1 13 were used in 2000. * Argentina. In 2000, 90 MT of CFCs were used for electronics cleaning. CFC-1 13 was the predominant CFC used in electronics (89 percent). According to ExCom 36 (2002), Argentina received funding to convert 60 MT of ODS (CFC-1 1, -12, -113, and MCF) to HCFCs for technical aerosols at the filling plant Electroquimica Delta. Venezuela. In 2000, an estimated 39 MT were used in electronics cleaning, representing all of Venezuela's CFC consumption in the aerosols sector. CFC-1 13 consumption was about 46 percent of this demand. Chile. No CFCs are used in personal or home care aerosols. The only usage of CFCs is for electronic cleaning aerosols. CFC-12 (7 MT) is used as a propellant and CFC-1 13 (21 MT) as a solvent. 24 I * Colombia. No 2000 CFC demand in the aerosols sector was registered in Colombia. 3.2.1.3. Sterilants CFCs are usually used in gaseous state to sterilize medical instruments. In Article 5(1) countries and in some countries with economies in transition (CEITs), the use of CFC-12 in sterilization is estimated to be less than 1,500 MT. Although HCFCs are good substitutes for CFC/ethylene oxide (EO) blend historically used as sterilants, many users in Article 5(1) countries view this option as significantly more expensive than the traditional mixtures of EO/CFC and EO/CO2 (TEAP, 2001). Nonetheless, CFC use in sterilant mixtures has been practically eliminated in all markets, including those in Latin America (see Exhibit 3-3). * Brazil. In 1995, CONAMA finalized Resolution no. 13/95, allowing the use of CFC-12 in the sterilants sector until December 31, 2000. This resolution was replaced by Resolution no. 267, published in December 2000, which stipulated the phase-out of CFCs by January 1, 2001.'3 The only enterprise that sold CFC-12 (with EO) now sells pure ethylene oxide, a more cost effective change than the other expensive proposed alternatives. * Mexico. CFC-12 was historically used to manufacture the sterilant blend "12/88," composed of 12 percent EO and 88 percent CFC-12. In 2000, 90 MT of CFC-12 continued to be used for this purpose (World Bank, 2002a). HCFCs or HFCs can be used as substitutes for CFC-12 in this blend, but it should be noted that HCFCs can only be used as temporary alternatives to CFCs in Mexico, as these chemicals are already forbidden for use in new equipment in hospitals. Other, longer-term solutions to CFC-12 in this use in Mexico include pure EO and not-in-kind altematives, such as plasma or gamma radiation. • Argentina. In 2000, the use of 67 MT of CFCs was eliminated at Asistos through the execution of a World Bank project that targeted the cbmplete elimination of CFC-12 used in combination with EO for sterilization purposes (MP, 2000). In conducting this study, no CFC-12 demand was identified during 2000. (Industry contacts reported that pure EO or the blend called 'Oxyfume 2000" (EO/HCFC-22/HCFC-124) is now being used, although there are some concerns regarding the cost of these altematives.) * Venezuela. No CFC-12 demand for sterilization was identified during 2000. In the past, there were two EO importers, Praxair and VOC, which produced the CFC-12/EO blend. Praxairis no longer in business and VOC is importing the Oxyfume 2000 blend from the UK. * Chile. Oxiquim indicated that the annual volume of CFC-12 used in sterilants is 20 MT. Indura produces a blend of CFC-12/EO for sterilization. * Colombia. No CFC-12 demand was identified during 2000. (Industry contacts reported that the Oxyfume 2000 blend is now being used in its place.) * Other Latin American Countries. No CFC-12 was consumed in sterilization applications in 2000. 3.2.1.4. Solvents The solvent market includes use in dry, precision, metal, electronics and plastics cleaning, paints (inks), coatings, and adhesives. The solvent market has changed dramatically over the past decade. 13 Some discrepancies were found as customs data were reviewed. Brazil has a licensing system in place to control foreign trade quotas of ODS, but this system does not prevent CFC shipment under custom codes for other chemicals. To address this problem, there is a signed bilateral cooperation between Brazil and Germany's governments to develop a customs training program ($oares, 2002). 25 Previously, CFCs were the overwhelming solvent of choice for many market segments, because of their effectiveness, low cost, and non-flammability. Alternatives now exist for almost all applications of ozone- depleting solvents. Solvent alternatives include alcohols, aliphatic hydrocarbons, HCFCs, HCFC blends, aqueous and emulsion cleaners, and water-based adhesives. The use of CFCs in solvents for cleaning applications has nearly been eliminated in Latin America (see Exhibit 3-2). Markets with continued consumption in 2000 include: CFC-1 1 is most often used for cleaning refrigeration circuits and air-conditioning equipment. An estimated amount of 362 MT of CFC-1 1 was used in the cleaning sector in Latin America in 2000 (see Exhibit 3-2). Mexico's cleaning subsector consumed about 54 percent of the total CFC-1 1 consumed in 2000 for cleaning in the major Latin American countries. Mexico received funding to prepare a phase-out plan in the solvents sector (ExCom 36, 2002). This project is to be implemented by UNIDO. * CFC-1 13 is still used as a cleaning solvent in the removal of flux from electronic assemblies, usually mixed with another chemical, such as methanol or ethanol. In 2000, 190 MT of CFC-1 13 were consumed for electronics cleaning in Latin America (see Exhibit 3-5). Argentina and Brazil's consumption represented the bulk of total CFC-1 13 consumption of the region. Argentina received funding for an investment project to be implemented by UNIDO (ExCom 36, 2002). The project will involve conversion of CFC-1 13 and TCA (1,1,1-trichloroethane). In 2000, global sales of CFC-1 13 were about 950 MT. About 93 percent of these sales were in the short lifetime end-use category (less than 1 year, e.g., aerosols, cleaning/drying, solvents). The rest of CFC-1 13 global sales (about 65 MT) were in the long lifetime end-use category (1-12 years, e.g., refrigerant, blowing agent, predominantly as heat transfer fluids in heat pumps and similar enclosed systems) (UNFCOC, 2002). CFC-1 13 is often used as a contact cleaner as well as a lubricant solvent in the process of syringe manufacture. HCFC-141b and its azeotropic blends containing alcohols are currently used as substitutes for CFC-1 13. Also, HCFC-225 (often used as a retrofit chemical) and perfluorocarbons (PFCs)-used only in electronics and precision cleaning applications-are valuable alternatives to CFC-1 13. Carbon dioxide snow cleaning is also considered a new cleaning technique that can be used to replace CFC-1 13 in some applications (STOC, 1998). Local users of solvents typically report special considerations and/or a lack of suitable non-CFC altematives. Furthermore, the low price of readily available CFCs, contributes to the reluctance to the phase-out CFCs, although it should be given high priority. 3.2.1.5. Refrigeration As presented in Exhibit 3-6, consumption in the refrigeration intermediate use category includes (a) domestic refrigeration (manufacturing), and (b) commercial and industrial refrigeration (manufacturing). Domestic Refrigeration (Manufacturing) * Brazil. In 2000, 870 MT of CFC-12 were used in domestic refrigeration, approximately 7 percent of which was consumed in the manufacturing sector. * Mexico. Since 1997, no new refrigerator manufacturing capacity has been installed using CFCs (either as blowing agent or refrigerant). In 2000, there was no CFC-12 consumed for the manufacture of domestic refrigeration systems. 26 * Argentina. In 1995, cyclopentane replaced the blowing agent CFC-1 1 in the production of about 250,000 domestic refrigerators annually. The major manufacturers of refrigerants have converted or are in the process of converting their production facilities from CFC-12 to HFC-134a. Two major companies Frimetal and Autosal are in the process of converting to isobutane. Some of the small manufacturers that used CFC-12 have closed their facilities or are producing at very low rates. In 2000, a total of 231 MT of CFC-12 were consumed in this sector, of which 25 percent was used in manufacturing. * Venezuela. There is no local manufacturer of domestic refrigerators in Venezuela. As a result of an agreement between Venezuela, Mexico, and Colombia, the domestic refrigerators are produced in Mexico and Colombia and imported by Venezuela. Venezuela imports the refrigerators predominantly from Colombia. * Chile. There are two domestic manufacturers of refrigerators in Chile: Companlia Tecno Industrial (CTI) and SINDELEN. CTI accounts for 80 percent of the market, and has already converted to HFC-134a refrigerant and cyclopentane foaming agent. SINDELEN is in the process of converting to HFC-134a and HCFC-141 b. In 2000, the manufacturing of domestic refrigerators accounted for about 66 percent of the CFC-12 (53 MT) used in this sector. Colombia. At the present time, none of the factories that produce refrigerators for domestic applications or for commercial uses in Colombia use CFCs. There are five domestic refrigerator manufacturers: Mabe, Haceb, Icasa, Indusel, and Challenger. They manufacture for domestic markets and also for export, mainly to Venezuela. All five manufacturers have converted to HFC- 134a refrigerant and HCFC-141b blowirig agent for foam. By 1995, HCFC-141b had already replaced CFC-1 1 in the production of about 300,000 domestic refrigerators annually. By 2000, there was no CFC-12 consumption for new domestic refrigeration. Other Latin American Countries. In 1995, annual production of 24,000 refrigerators was converted to cyclopentane in Uruguay, and about 180,000 units replaced CFC-1 1 with HCFC- 141 b in Peru (FKW, 1996). In El Salvador, there is an on-going project which initially targeted the elimination of 22 MT of CFC-1 1 and CFC-12 in the manufacturing of domestic refrigerators and freezers at Prado SA de CV. Also, in Ecuador, there is an on-going project to convert 44 MT of CFC-12 per year to HFC-1 34a at two manufacturing plants of domestic refrigerators: Ecuatoriana de Artefactos SA (ECASA) and Indurama SA. These companies stopped consuming CFC-1 2 in 2001 and 2002, respectively. Commercial and Industrial Refrigeration (Manufacturing) Brazil. The manufacture of new equipment consumed 153 MT of CFC-12, corresponding to about 4 percent of the Brazilian CFC-12 demand in the entire commercial refrigeration sector (new and service). Mexico. Nearly all new commercial refrigerators made in Mexico or imported contain HFC-134a or low ODP azeotropic blends (very few bf which contain hydrocarbons). Mexico received funding for preparation of a phase-out plan in refrigeration to reduce the remaining manufacturing use in this sector (ExCom 36, 2002). Therefore, in 2000, there was virtually no demand of CFC- 12 for manufacturing of commercial and industrial refrigeration equipment. * Argentina. A lower rate of commercial activity during 2000 caused a decline in the volume of CFC-12 being used in the manufacture df new equipment and for servicing. The total demand of CFC-12 for the new and service sector was 453 MT. About 10 percent of this amount was consumed in the manufacturing of comniercial refrigeration. * Venezuela. In Venezuela, there are many small manufacturers using mainly HCFC-22 and CFC- 12 as refrigerants. For insulation, during 2000, manufacturers still used a high percentage of 27 CFC-1 1, but were beginning the conversions to HCFC-141 b. Since there is currently a large supply of CFC-1 2 compressors, and there are many small manufacturers, the conversion to altematives in this segment has been slow. New equipment accounted for the consumption of 75 MT of CFC-12 in 2000. Chile. In Chile, importers sell directly to large and medium end users. Shops that sell refrigeration spare parts only handle limited amounts of refrigerants. In commercial refrigeration there is only one important manufacturer, MIMET, which has converted to HFC-134a and R-404A (blend composed of 44 percent R-125, 52 percent R-143a, and 4 percent R-134a) as refrigerants, and HCFC-141 b as the blowing agent. The data presented in Exhibit 3-10 represent the situation in 2000 and do not reflect conversion projects completed in 2001. In 2000, 5 MT of CFC-12 were consumed for new equipment. * Colombia. There are small manufacturers of commercial refrigeration equipment that use CFC- 12, HCFC-22, and HFC-134a as refrigerants. However, CFC-12 is the dominant refrigerant of use. Important manufacturers in the commercial area that have already adopted alternative technologies containing CFC substitutes include indufrial Westell, Inducol, Wonder, Friomix, and Refrigeration Supernordico. In 2000, new equipment consumed 75 MT of CFC-12. * Other Latin American Countries. In 2000, the CFC-12 consumption for new equipment was 73 MT. In addition to the CFC consumption discussed above, it should also be noted that a blend of CFC-1 15 and HCFC-22 is used in large commercial and industrial refrigeration, such as cold storage warehouses, commercial ice machines, industrial process refrigeration units, and transport refrigeration. Detailed information on the region's CFC-1 15 consumption, however, is not included in this report 3.2.1.6. Air-Conditionin. Currently, CFCs are not being used in the air-conditioning manufacturing sector (see Exhibit 3-7). Instead, new air-conditioning equipment use HCFC-22, HCFC-123, HFC-134a, and blends (e.g., R-404A and R-410). Mobile Air-Conditioning, MACS (Automobiles, Trucks, and Buses) * Brazil. Due to national legislation, prepared by Prozon and approved by CONAMA, the CFC-12 consumption in automotive air-conditioning sector for all new models was eliminated in January 1997. CFC-12 was replaced by HFC-134a. The revised legislation, currently in the process of being approved by CONAMA, prohibits assembly of air-conditioning units with CFC-12, in any car, new or old. * Mexico. The main car manufacturers in Mexico are General Motors, Ford, Chrysler, Nissan, and Volkswagen. Since 1994, all cars made in Mexico or imported have replaced CFC-12 with HFC- 134a refrigerant. * Argentina. There are four car manufacturers in Argentina: General Motors, Ford, Fiat, and Chrysler. All new cars are manufactured using HFC-134a, not CFC-12. Venezuela. There are five car manufacturers in Venezuela: Ford, General Motors, Chrysler, Toyota and Mitsubishi/Hyundai. More than 90 percent of the cars produced contain air- conditioning equipment. In the middle of thel990s, the manufacturers started to convert from CFC-12 to HFC-134a. During the last three years, no new car air-conditioners were manufactured with CFC-12. 28 * Chile. The only car manufacturer in Chile is General Motors, which has a small assembly plant that does not consume any CFC-12. Since the early 1990s, no imported cars have contained CFC-12. * Colombia. There are three domestic car assemblers: General Motors, Renault, and Mazda. Conversion to HFC-1 34a refrigerant began in the middle of the 1990s, and by 2000, no new cars were manufactured with CFC-12. * Othercountries. In Ecuador, the car manufacturers began installing HFC-134a MAC systems in 1997. Presently, almost all automobile$ have MAC systems installed, as well as many of the trucks. There is no production of MAC systems or parts in Ecuador and all new cars are imported. 32.2. End Use Total consumption of CFCs in end use applications in major Latin American countries was over 10,700 MT in 2000 (see Exhibit 3-8). This represented over 50 percent of total CFC use in the Latin American region in 2000. The majority of CFC use was in the refrigeration and air-conditioning sector. 3.2.2. 1. Refrigeration Refrigerator production in Latin America was eslimated to be 8.4 million units in 2000, corresponding to an estimated 10 percent of global refrigerator production (FKW, 1996). The greatest consumption in the refrigeration sector was for CFC-12, estimated to total more than 10,600 MT annually (see Exhibit 3-6). Wthin these end uses, consumption is segmented as follows: * Domestic refrigeration (service) * Commercial and Industrial refrigeration (service) . Compressors * Other specific use in commercialAndustrial refrigeration Domestic Refrigeration (Service) Domestic refrigeration includes household refrigerators, which consists of two critical components: a refrigerant and a thermal insulator. Both components require safe, energy efficient chemicals. As suggested by Exhibit 3-6, most household refrigerators have transitioned from CFCs (CFC-1 1 used as foam thermal insulation, and CFC-12 used as refrigerant) to HCFCs, HFCs, and HCs. Most transitions have been to HCFC-141 b or cyclopentane as blowing agents for foams, and HFC-134a or isobutane as refrigerants (Brownstein, 2000). Exhibit 3-9 and Exhibit 3-10 provide additional information on CFC-12 consumption in domestic refrigeration applications in major Latin American countries. This information complements the data presented in Exhibit 3-6. 29 Exhibit 3-9. Domestic Refrigeration Units: Stock (2000) Country Estimated Percent of Estimated Date Average Average Implied Reported Stock (#s) of Stock Using of Retirement of Charge Annual Demand Total Refrigerators CFCs CFC Fleet (kglunit) Emission (Bottom-up Demand for Rate (% of Estimate) Aftermarket charge) (MT)(a) Service (MT) Mexico 12,000,000 85% 2005 0.25 15% 383 804 Brazil 60,000,000 90% 2010 0.25 15% 2,025 813 Argentina 4,800,000 95% 2020 0.25 15% 171 173 Venezuela 2,200,000 85% 2017 0.25 15% 70 94 Colombia 4,500,000 85% 2017 0.25 15% 143 210 Chile 1,000,000 95% 2020 0.25 15% 36 27 TOTAL 2,121 Source: Official govemment reports and discussion with industry associations, 2001. Note: (a) Implied demand = [(stock) x (% of stock using CFCs) x (average charge per unit) x (average annual emission rate)]/ 1,000 Exhibit 3-10. Domestic Refrigeration Units: Practices (2000) Country Are All New If, No, What Is Recovery and Approximate Refrigerators Percentage of Recycling Practiced Percentage of Service Manufactured Refrigerators are During and (Disposal) Jobs and Imported Still Manufactured Service/Disposal (a) where Recovery is with HFC-134a? with CFC-12? Performed (% of jobs) (Yes/No) Mexico Yes Yes-low 5 Brazil Yes(b) - No Argentina No 55 Yes-negligible- 2 Venezuela Yes 0 Yes-negligible- 2 Colombia Yes 0 Yes-negligible 2 Chile No 84(c) Yes-negligible 2 Source: Official government reports and discussion with industry associations, 2001. Notes: (a) In general, recovery/recycling practices in LAC region have shown poor results. Further attention is needed to designfimplement remaining phase-out program in refrigeration sector (b) Some remaining use of CFC is reported for new equipment in Brazil prior to the completion of conversion projects. (C) All CFC-12 use for manufacture of new refrigerators in Chile were phased out in 2001. Brazil. In 2000, 870 MT of CFC-12 were used in domestic refrigeration, 93 percent of which was consumed in service. In 2000, only two CFC conversion projects in the domestic refrigeration sector remained incompleted, both of which are scheduled for completion by 2002. In this sector, CFC-12 has been replaced with HFC-134a, and CFC-1 1 with cyclopentane and HCFC-141 b. * Mexico. In 2000, the CFC-12 consumption was over 800 MT for the service of domestic refrigeration systems. • Argentina. In 2000, a total of 231 MT of CFC-12 were consumed by this sector, of which about 75 percent was used in servicing. The volume of CFC-12 for servicing has declined as consumers have replaced rather than repaired equipment. However, the recent economic 30 downturn in Argentina may reverse this trend, The crisis has forced producers to reduce sales output. * Venezuela. In 2000, 94 MT of CFC-12 were consumed in the servicing sector. * Chile. In 2000, domestic refrigeration demanded 80 MT of CFC-12, of which the service sector consumed about 34 percent. * Colombia. In 2000,210MT of CFC-12 were consumed in the service of domestic refrigerators. * Other Latin American Countries. In 2000, over 500 MT of CFC-12 were consumed only for the servicing of domestic refrigeration. Commercial and Industrial Refrigeration (Service) Exhibit 3-11 provides available information on the stock of existing commercial and industrial refrigeration equipment in major Latin American countries. This information complements the data presented in Exhibit 3-6. It should be noted that the data presented here represent best estimates based on top-down calculations made by industry experts in the region. Exhibit 3-11. Data on Commercial Refrigeration Units (2000) Country Estimated Percent of Estimated Date Implied Reported Total Stock Stock of Retirement of Demand Demand for (# of Units) using CFC Fleet (Bottom-up Aftermarket CFCs Estimate) Service (MT) (MT)(a) Mexico 750,000 - - 829 Brazil 5,000,000 80 - - 3,470 Argentina 2,200,000 40 2015 - 409 Venezuela 2,500,000 50 2015 - 662 Colombia 2,000,000 75 2015 - 500 Chile 400,000 25 2015 - 83 TOTAL 5,953 Source: Official govemment reports and discussion with industry associations, 2001. Notes: () - = not available given wide variability in charge sizes and leak rates. • Brazil. In 2000, servicing of commercial refrigerators reportedly demanded 3,470 MT of CFC-12, corresponding to nearly 50 percent of the Latin American region's reported total CFC-12 demand for aftermarket servicing in this sector. * Mexico. The commercialAindustrial refrigeration aftermarket service sector consumed 829 MT of CFC-12 in 2000. * Argentina. A lower rate of commercial activity during 2000 caused a decline in the volume of CFC-12 used in the manufacture of new equipment and for servicing. The total demand of CFC- 12 for the new and service commercial/industrial refrigeration sector was 453 MT, 90 percent of which was consumed in the service market. Argentina received funding for preparation of an umbrella project in the commercial refrigeration sector that will be implemented by UNIDO (ExCom 36, 2002). 31 Venezuela. In 2000, 662 MT of CFC-12 were consumed for the servicing of commercial/industrial refrigeration equipment, while only 75 MT were used in new equipment in this sector. Venezuela has an on-going project for implementation of recovery and reclamation of refrgerants (ExCom 36, 2002). Through this project, implemented by UNDP, 10 recovery/recycling machines will be distributed from October 2002 through March 2003. Chile. In 2000, 83 MT of CFC-12 were consumed for servicing. The data presented in Exhibit 3- 10 are for 2000 and do not reflect conversion projects completed in 2001. According to a 2002 study conducted by the World Bank (2002c), consumption of CFC-12 in this end use was reduced to 55 MT in 2001. * Colombia. According to large distributors, the use of CFC-12 for servicing commercial refrigeration equipment is the major source of CFC demand in Colombia. In 2000, 500 MT of CFC-12 were consumed by the servicing commercial refrigeration sector. * Other Latin American Countries. In 2000, 800 MT of CFC-12 were consumed for servicing. Other Specific Uses in Commercial/lIndustrial Refrigeration New commercial refrigeration equipment includes refrigeration equipment used in refrigerated transport (trucks, ships, reefers), cold storage, and supermarkets. Exhibit 3-12 and the following discussion provide additional information on consumption characteristics for CFC-12 use in these commercial and industrial service applications. Exhibit 3-12. Refrigerant Usage in Commercial and Industrial Applications End Use ODS Refrigerant Possible Replacement Small Commercial Equipment CFC-12 HFC-134a Large Retail Food R-502, HCFC-22 HCFC-22, HFC-Blends, HCs, Ammonia Transport Refrigeration CFC-12 HFC-134a Source: Contact with small OEMs, 2001. CFC-12 is still the predominant technology for new commercial refrigeration systems (small equipment only). The entire stock of CFC-12 commercial refrigeration equipment is estimated to be more than 10 million units. There is significant demand for CFC-12 in the commercial refrigeration sector, as thousands of smaller users of commercial refrigeration equipment remain active. There will likely be continued demand for CFC-12 for both new equipment and aftermarket servicing. A. Refrigerated Transport (Trucks, Ships, Reefers) Transport refrgeration is essential in today's society, to preserve and protect food, drugs and medical supplies for people worldwide. This market includes transport of refrigerated products with reefers, and ships, including intermodal reefers and refrigerated railcars, as well as road transport including trailers, diesel trucks, and small trucks. Exhibit 3-13 and Exhibit 3-14 provide information on the CFCs in trucks and containers in major Latin American countries in 2000. In Venezuela, Argentina, Colombia, and Chile, the total estimated number of trucks in 2000 was 219,000, with an average charge of 2.5 kg per unit. In 2000, the total reported demand for the aftermarket service of transport trucks and containers in the region was approximately 450 MT of CFC-12. In 2000, Brazil registered the highest consumption of CFC- 12 in this sector. Transport refrigeration systems have begun to transition from using CFCs to HCFCs and HFCs. Ammonia, hydrocarbons, and carbon dioxide are also used in this sector, but to a lesser extent. 32 Exhibit 3-13. Data on Refrigerated Transport Trucks Country Estimated % of Fleet Estimated Average Average Implied Reported Stock of using Date of Charge Annual Demand Total Equipment(a) CFCs Retirement (kg/unit) Emission (Bottom-up Demand for of CFC Rate (% of Estimate) Aftermarket Fleet charge) (MT)(b) Service (MT) Mexico - - 2007 - 40% - 8 Brazil - - 2007 2.5 40% - 196 Argentina 140,000 45% 2010 2.5 40% 63 141 Venezuela 42,000 - 2010 2.5 40% - 54 Colombia 30,000 - 2010 2.5 40% - 40 Chile 7,000 - 2010 2.5 40% 9 TOTAL 449 = not available. (a) All stocks of equipment containing CFCs consist of CFC-12 and do not include CFC-1 1 used in foams or in small quantities for repair. (b) Implied demand = [(stock) x (% of fleet using CFCs) x (aVerage charge per unit) x (average annual emission rate)]/1,000 Source: Official government reports and discussion with industry associations, 2001. Exhibit 3-14. Data on Refrigerated Transport Containers Country Estimated Estimated Datb Average Average Implied Reported Stock of CFC- of Retirement of Charge Annual Demand Total containing CFC Fleet (kg/unit) Emission (Bottom-up Demand for Equipment(") Rate (% of Estimate) Aftermarket charge) (MT)(b) Service (MT) Mexico 2005 - - - 8 Brazil - 2007 - - - 107 Argentina 18,000 2002 5 6% 5 3 Venezuela Colombia Chile TOTAL 118 = not available. (4) All stocks of equipment containing CFCs consist of CFC-1 2 and do not include CFC-1 1 used in foams or in small quantities for repair. (b) Implied demand = (estimated stock) x (average charge per unit) x (average annual emission rate)] /1,000 Source: Official government reports and discussion with industry associations, 2001. 33 B. Cold Storage and Supermarkets Most cold storage facilities and large retail food supermarkets in major Latin American countries have been converted from CFCs to HCFC-22 or HFC blends. For some cold storage facilities, there has been a return to the use of ammonia, but safety concerns and regulations in some countries restrict its use (WBG, 1998). The following points summarize available information on the use or conversion of CFCs in the cold storage/supermarket end use in major Latin American countries: Chile. Cold storage of export products is a vital sector in Chile. There are large refrigerated warehouses that use HCFC-22 and R-502 (blend composed of 48.8 percent R-22 and 51.2 percent R-1 15) for lower temperatures. In 1997, INRA was the first company to retrofit compressors from R-502 to R-404A. Conversion was successful in motivating others to retrofit. However, there is a limited use of R-502 in the large commercial food preservation in Chile. Colombia. In Colombia, there are few supermarkets, so CFCs are not widely used in this end use. Over the last 2 years, however, supermarket chains have begun to emerge, but new equipment in this use has employed HCFC-22 and R-404A, not CFCs. Mexico. In Mexico, the World Bank implemented projects to convert the largest chains of supermarkets using CFCs to HCFCs and HFCs. Argentina. In Argentina, nearly all supermarket chains have been converted to CFC-alternatives (HCFC-22 or HCFC blends). C. Compressors CFC compressors are still widely available and continue to be supplied by small manufacturers in Brazil. CFC-1 1 and CFC-12 have been used in large chillers that employ centrifugal compressors (WBG, 1998). In terms of appropriate CFC substitutes, HCFC-22 compressor technology is already available in several Article 5 countries and has been used mainly in small chillers. The experiences gained from the European market suggest that hydrocarbons (e.g., isobutane) can be used as an altemative to CFC-12 in compressors. In Colombia, the compressors are imported primarily from Brazil. Major suppliers of compressors in Colombia are Indufrial, Wonder, Inducol, and Refrigeracion Supemordico. These commercial refrigeration enterprises have converted the manufacturing process requiring CFCs for refrigerator compressors. One of the national compressor manufacturers using CFC-12, Comandinos, was scheduled for inclusion in the conversion project, but has since filed for bankruptcy. In Chile, small commercial refrigerator manufacturers still use CFC-12 compressors, including R-502. Because prices of CFCs are stable, CFC equipment users have not had motivation to retrofit their equipment. 3.2.2.2. Air Conditioning The highest demand for CFCs in the air-conditioning sector is for use in the mobile sector (over 1,400 MT of CFC-12), followed by use in central air-conditioning and chillers (363 MT). Total CFC demand in the air-conditioning sector was estimated to be 1,778 MT in 2000 (Exhibit 3-7). There are several different types of refrigerants used by smaller types of air-conditioning equipment. CFC-12 is used to service older motor vehicle and central air-conditioning systems. Central air- conditioning in old systems also uses CFC-1 1. Ammonia is a common refrigerant in the industrial sector, but it is not often used as a replacement for CFCs. 34 Mobile Vehicle Air-Conditioning, MACs, (Automobiles, Trucks, and Buses) In the MAC sector, the only recommended alternative to CFC-12 is HFC-134a. HFC-134a system installations are now standard in new automobiles, trucks, and buses. Products are being developed for retrofitting older models which may prove costly if the corresponding hoses and compressors are not compatible with the new chemicals. Still, CFC-1 2 remains critical for aftermarket servicing of the mobile fleet. CFC-12 systems can be installed in older vehicles without MAC systems at a lower cost than alternative systems (i.e., R-134a). Based on market research conducted for this study, total demand for servicing automobiles is estimated to be 1,415 MT. This amount represents the qLuantity needed for partial and total recharges for system repair. Refrigerant recovery practices at service vary by country. Exhibits 3-15 to 3-18 present information on the air-conditioned fleet. Shipping fleets represent a very small market in Latin America. Only fishing fleets have a significant market share, but they are currently using HCF¢-22. Exhibit 3-15 and Exhibit 3-16 present the characteristics and emissions profile for the automobile fleet containing CFC-12 in major Latin American countries. In Argentina, a lower rate of commercial activity during 2000 caused a decrease in the volume of CFC-12 being used in the manufacture of new equipment and for servicing in that year. In 2000, the total fleet of cars containing CFC-12 in the regioh was approximately 5.7 million. Of the major Latin American countries, the greatest percent of CFC-1 2 demand in 2000 for MACs aftermarket servicing was in Brazil, while the lowest CFC-12 demand in this use was in Chile (see Exhibits 3-7, 3-15, and 3-16). Exhibit 3-15. Characteristics of Automobile Fleet Containing CFC-12 (2000) Country Total Current Percentage of total Expected Retirement Fleet of Carsl Fleet Represented Date for CFC-12 Fleet Containing by CFC-1 2 Cars (a) CFC-12 Mexico 400,000 20 2005 Brazil 2,100,000 60 2007 Argentina 1,600,000 75 2010 Venezuela(b) 1,266,667 - 2010 Colombia(b) 226,667 2007 Chile"b) 100,000 2005 Source: Official government reports and discussion with industry associations. Notes: = not available. (a) Data for Venezuela, Colombia. Chile not available but would be needed in the design of a refrigeration project. ,' Estimated based on reported demand. 35 Exhibit 3-16. Automobile Fleet Containing CFC-12: Emission Profile (2000) Country Total Current Average Average Implied Reported Fleet of Cars Charge Annual Demand Total Containing (kgiunit) Emission Rate (Bottom-up Demand for CFC-1 2 (% of charge) Estimate) Aftermarket (MT)(a) Service (MT) Mexico 400,000 1 15% 60 30 Brazil 2,100,000 1 15% 315 445 Argentina 1,600,000 1 20% 320 315 Venezuela(b) 1,266,667 1 15% 190 188 Colombia(b) 226,667 1 15% 34 34 Chile("" 100,000 1 15% 15 15 TOTAL 1,026 Source: Official govemment reports and discussion with industry associations, 2001. Notes: (a) Implied demand = [(current fleet) x (average charge) x (annual average emission rate)] / 1,000 (b) Estimated based on reported demand. In 2000, all new cars in Latin America were manufactured and imported with HFC-134a (Exhibit 3-17). Exhibit 3-18 presents the fleet characteristics for buses containing CFC-12 in 2000. The total CFC-12 demand in the aftermarket service market for buses was 182 MT, with Brazil accounting for approximately 88 percent of this use. In Argentina, it was estimated that 6,000 buses contained CFCs in 2000 with an estimated demand in aftermarket service of 22 MT of CFC-12. Exhibit 3-17. Automobile Fleet Containing CFC-12: Practices Country Are All New Cars Is Recovery and Approximate Manufactured Recycling Percentage of and Imported Practiced During Service Jobs with HFC-134a? Service/Disposal where Recovery is (Yes/No) Performed (% of jobs) Mexico Yes Yes 10 Brazil Yes Yes 2.5 Argentina Yes Yes-negligible 2 Venezuela Yes Yes-negligible 2 Colombia Yes Yes-negligible 2 Chile Yes Yes-negligible 2 Source: Official govemment reports and discussion with industry associations, 2001. 36 Exhibit 3-18. Bus Fleet Containing CFC-12: Fleet Characteristics Country Estimated Percent of Estimated Implied Reported Number of Fleet Using Date of Demand Total Buses CFCs Retirement of (Bottom-up Demand for CFC Fleet Estimate) Aftermarket (MT)(a) Service (MT) Mexico 0 0 - 0 0 Brazil - - 2007 - 160 Argentina 6,000 40 2005 - 22 Venezuela - - - - <1 Colombia - - - - <1 Chile - - - - <1 TOTAL 182 Source: Official govemment reports and discussion with industry associations, 2001. Notes: "" = not available. (a) Insufficient information to calculate implied demand. Brazil. The CFC-12 consumption in the automotive air-conditioning sector for all new models was eliminated in January 1997. The remaining consumption in the sector is for maintenance services. * Mexico. There are approximately 2 million MAC systems in Mexico, of which an estimated 20 percent are still using CFC-12 refrigerant (see Exhibit 3-16). Based on bottom-up estimates, this leads to an implied demand of about 60 lMT per year for servicing, although reported consumption figures obtained from industry experts irodicate that only half that amount was in fact sold into the automobile servicing market in 2000. This discrepancy may be explained by a variety of factors, such as a prevalence of CFC-12 vehiclep operating without functioning air-conditioning systems, an overestimation of the CFC-12 fleet, underreported CFC-12 sales, etc. Mexico received funding for a new project in the MAC sector that was implemented by IBRD (ExCom 36, 2002). * Argentina. All new cars are manufactured using HFC-134a. For servicing, there has been a significant increase in the demand for HFC-1 34a, although demand for CFC-12 still exists. * Venezuela. New car air-conditioners sold in Venezuela no longer contain CFC-12 (they contain HFC-134a). Official data on the production, import, export, and total fleet of cars were unavailable. Fleet estimates were back calculated based on reported consumption of CFC and assumed charge sizes and leak rates. * Chile. Based on data collected for this report, an estimated 15 percent of all air-conditioned cars use CFC-12. However, this estimate may be low, according to a recent report by the World Bank (2002c), which indicates that in 2001, total aftermarket demand for CFC-12 from the MAC sector in Chile was approximately 30 MT. * Colombia. By 2000 all the newly manufactured cars contained HFC-134a. The imports followed a similar pattem to domestic production. It is estimated that there are between 100,000 to 130,000 cars remaining in 2000 that contain CFC-12. In addition, a project has been approved to eliminate production of CFC-12 for aftermarket equipment. 37 Chillers (Industrial and Air-Conditioning Use) Large centrifugal chillers are the most efficient in terms of kilowatt of electricity per ton of cooling. These chillers are practical only in large applications and, therefore, use large quantities of refrigerant, require the largest investments, and offer the most energy savings from replacement with non-CFC-based chillers. The CFC phase-out has had a positive effect on the chiller market. For example, many large chillers have been replaced by a series of smaller chillers that have the same cooling capacity, but are more reliable and have more convenient maintenance schedules. In 1993, about 130,000 CFC-11 and CFC-12 chillers were estimated to be in service worldwide. In 1994, UNEP estimated that there were approximately 8,000 CFC-11 and 2,000 CFC-12 chillers in service in Article 5(1) countries, containing about 4,000 MT of CFCs. Because developed countries dominate centrifugal and screw chiller manufacturing and effectively ceased production of CFC chillers in 1993, no significant numbers of new CFC chillers should have been produced after that date. However, the number of CFC chillers produced after 1993 in developing countries is unknown. It is estimated that there are between 60,000 and 100,000 CFC chillers remaining in service today. Of this, it is estimated that approximately 15,000 CFC chillers remain in service in developing countries, containing an estimated 6,000 MT of CFCs (Gorman, 2002). Exhibit 3-19 and Exhibit 3-20 provide information on the demand for CFCs for chiller applications in major Latin American countries in 2000. Exhibit 3-19. Chillers: CFC-11 Stock (2000) Average Implied Reported Estimated Average Annual Demand Total Number of CFC- Age of Average Emission (Bottom-up Demand for 11 Chillers in Chillers Charge Rate (% of Estimate) Aftermarket Country Operation (years) (kglunit) charge) (MT)(a) Service (MT) Mexico(b) 1,500 20 400 15 90 8 Brazil 1,700 20 400 30 204 116 Argentina 350 25 450 15 24 26 Venezuelatc) 150 30 450 20 14 15 Colombia 200 25 450 15 14 14 Chile 50 20 400 10 2 2 TOTAL 181 Source: Official govemment reports and discussion with industry associations, 2001. Notes: (a) Implied demand = [(Number of chillers) x (Average Charge) x (Average annual emission)]/1000 (b) National stock was estimated based on regional surveys (Mexico Chiller Concessional Lending Pilot Project, 1999). (') A 2002 report on CFC chillers in Venezuela suggests that the 2000 estimates presented here are too high. The World Bank (2002b) report reveals that as of October 2002, approximately 70 CFC-1 1 chillers were in operation and that the annual demand for aftermarket service was less than 6 MT. In addition, the report found that the average age of CFC chillers in Venezuela is 22 years, not 30. 38 Exhibit 3-20. Chillers: CFC-12 Stock (2000) Estimated Average Implied Reported Number of Average Annual Demand Total CFC-12 Age of Average Emission (Bottom-up Demand for Chillers in Chillers Charge Rate (% of Estimate) Aftermarket Country Operation (years) (kg/unit) charge) (MT)(') Service (MT) Mexico - - - - - 38 Brazil 1,700 20 400 30 204 176 Argentina 420 25 450 10 19 19 Venezuela(b) 500 30 450 20 45 49 Colombia 500 25 450 11 25 28 Chile 20 20 400 10 1 1 TOTAL 312 Source: Official govemment reports and discussion with industry associations, 2001. Notes: = not available. (a) Implied demand = [(Number of chillers) x (Average Charge) x (Average annual emission)] /1000 (b) A 2002 report on CFC chillers in Venezuela suggests that the 2000 estimates presented here are too high. The World Bank (2002b) report reveals that as of October 2002, approximately 225 CFC-12 chillers were in operation and that the annual demand for aftermarket service was less than 14 MT. In addition, the report found that the average age of CFC chillers in Venezuela is 22 years, not 30. Brazil. Based on estimates provided in Exhibits 3-19 and 3-20, an estimated 3,400 CFC- containing chillers are in service in Brazil. The average charge size is assumed to be 400 kg/unit, and average leak rate is assumed to be 30 percent per year. Based on this information, bottom- up estimates of CFC demand are somewhat higher than reported quantities, which total close to 300 MT per year. Mexico. The total number of CFC-1 1 chillers in Mexico is estimated to be 1,500, and the number of chillers containing CFC-12 is unknown. The average charge size is assumed to be 400 kg/unit with an average leak rate of 15 percent per year. Total CFC demand for aftermarket service in chillers is estimated to be 46 MT. Argentina. About 770 chillers are in service in Argentina: approximately 45 percent contain CFC- 11, and 55 percent contain CFC-1 2. The average charge size is assumed to be 450 kg with an average leak rate of 10 to 15 percent per year. Total CFC demand for aftermarket service is about 45 MT. Venezuela. Many chillers in Venezuela were installed in steel industrial plants, hospitals, and hotels built in the 1960s. The chillers primarily were produced by Westinghouse (a company that no longer operates). Additional equipment manufacturers include Trane, Carrier, and York. According to data and information gathered from industry experts, there were an estimated 650 chillers in Venezuela in 2000; 500 of which contained CFC-12, and 150 of which contained CFC- 11. Total CFC demand for aftermarket service in that year was estimated to be 64 MT. However, a recent report by the World Bank (2002b) reveals that these estimates may have been too high. The World Bank report indicates that by October 2002, about 32 MT of CFC-1 1 and nearly 102 MT of CFC-12 were installed in chillers, with annual demand for aftermarket service totaling less than 6 MT for CFC-1 1, and less than 14 MT for CFC-12. The significantly lower stock estimates in 2002 may be partly explained by the successes of recent CFC chiller phaseout projects in Venezuela, implemented through the World Bank (ExCom 36, 2002). 39 Chile. In 2000, there were approximately 70 chillers containing CFCs in Chile. Seventy-one percent of these chillers were estimated to contain CFC-1 1. In general, the machines are well maintained and have low leak rates (estimated at 10 percent per year) with an average estimated charge of 400 kg/unit. Total CFC demand for aftermarket service is 3 MT. In the last several years, there has been a decrease in the use of CFCs in this subsector, and an increase in the use of HCFC-22 and HFC-134a. Colombia. There are approximately 700 chillers in service in Colombia: 200 chillers contain CFC- 11, and 500 contain CFC-12. The average charge size is assumed to be 450 kg/unit, and leak rates are believed to be relatively low (between 11 and 15 percent). Total CFC demand for aftermarket service is estimated at 42 MT. Carrier, Trane, and York manufacture the majority of chillers in Colombia. These manufacturers now use non-CFC refrgerants, namely HCFC-22, HFC-134a, and HCFC-123. The World Bank is undertaking a chiller replacement program in Colombia. 40 4. CFC Supply This section focuses on production and net imports of CFCs in Latin America. The analysis also considers the historical and current situation of global CFC production, and describes trends in the global supply market. Trade flow maps are illustrated in Annex 3. 4.1. Global Production of CFCs: Historical and Current Historical production of CFCs (CFC-1 1, -12, -113, and -115) is shown in Exhibit 4-1. CFC production worldwide dropped by more than 120,000 ODP MT during the period 1995-2000. During the same period, production in Latin American countries dropped by nearly 22,000 ODP MT. In 2000, with Brazil production shutting down, Latin America's contribution to global production decreased significantly. In 2000, production of CFCs in Latin America corresponded to an estimated 10 percent of the total world market. The world's largest producer is China, with India being the second largest. As of 1999, India, China, and Russia have been produced the bulk of CFC supply worldwide, accounting for more than 45 percent of global production in that year. Combined, all developing countries produced about 97,000 MT of CFC in 1999 (66 percent of the global total), while developed countries produced approximately 30,000 MT (Oberthur, 2001). In 2000, production in South Korea was brought to zero. In 2001, production in Russia was brought to zero. In 2000, global annual production of CFC-113 and CFC-115 was estimated at 1,100 MT. Production of CFC-1 13 accounted for approximately 80 percent of this total (UNFCOC, 2002). The main producers include: China. In 1999 China had 37 CFC-producing enterprises, producing 44,739 MT of CFCs. This corresponded to about 31 percent of the global total for that year. Historically, China's largest CFC producers have been (SEPA et al., 1998): -Jiangsu Meilan Electric Chem. Plant -Zhejiang Juhua Florochem.1 Co., Ltd. -Shanghai Chlor-Alkail Chem. Co. Ltd. -Shandong Jinan 3F Chem. Co. Ltd. -Jiangsu Changshu Refrig. Plant -Zhejiang Dongyang Chem. Plant -Hubei Wuhan Changjiang Chem. Plant -Fujian Shaowu Floro-Chem. Plant -Guangdong Xiangshen Chem. Co. Ltd. -Sichuan Zigong Fujiang Chem. Plant Under a recent agreement with MLF, China is implementing a production sector phase-out to achieve CFC production phase-out by 2010 (OORG, 2001). Exhibit 4-2 presents the CFC production phase-out schedule for China. However, in 2001, annual production of CFCs in China had increased, to about 51,000 MT (China Environment News, 2001). Eventually, CFC-1 1 and CFC-12 plants closures in China will contribute to significant reductions in worldwide CFC supply (OORG, 2002). The production phase-opt in China is largely designed to meet domestic consumption, thus no significant CFC exports are anticipated. 41 Exhibit 4-1. Global Production of CFCs 1995 to 2000 (ODP MT) 1995 1996 1997 1998 1999 2000 Latin American Countries Argentina 2,800 2,632 2,804 2,954 3,101 3,027 Brazil 11,751 9,434 9,362 7,986 11,286 0 Mexico 15,737 8,959 8,431 5,252 5,530 7,546 Venezuela 4,285 4,413 5,663 3,652 2,859 2,281 TOTAL Latin America 34,573 25,438 26,260 19,844 22,776 12,854 Other Developing Countries China 46,672 44,016 50,324 55,402 44,739 47,870 India 21,780 22,460 23,658 20,013 22,499 20,404 Korea, Dem. Ppis Rep 765 242 203 112 106 77 Korea, Rep of 9,746 8,621 9,239 5,528 7,238 0 Romania 22 0 0 0 0 0 South Africa 1,627 0 0 0 0 0 TOTAL Other Developing 80,612 75,339 83,424 81,055 74,582 68,351 Industrialized Countries Australia 3,850 0 0 0 0 (3) France 244 (35) 0 (131) 0 0 Italy 6,193 8,475 7,011 7,578 6,423 7,081 Japan 29,757 705 165 (59) 0 0 Greece 2,453 1,450 1,530 765 1,210 1,828 Netherlands 12,245 13,293 14,844 15,049 15,721 12,303 Spain 5,435 5,424 6,405 5,570 5,839 5,439 United Kingdom 4,029 4,098 3,708 3,316 1,417 0 USA 34,728 676 739 191 436 461 Other Industrialized 0 (58) (75) (160) (52) (185) TOTAL OECD (excluding Mexico) 98,934 34,028 34,327 32,119 30,994 26,924 Eastem Europe Czech. Rep. 320 7 12 6 11 5 Lithuania (6) - - - - - Russian Federation 39,322 16,770 14,732 13,808 18,417 25,536 TOTAL EASTERN EUROPE 39,636 16,777 14,744 13,814 18,428 25,541 GLOBAL TOTAL 253,755 151,582 158,755 146,832 146,780 133,670 "-! = Not available a Actual production was not reported for 2000. The value presented here was derived by assuming a linear decline from 1999 production to 2001 production, which was estimated to be 51,000 MT (China Environment News, 2001). Source: UNEP 2002. Exhibit 4-2. China CFC Production Phase-Out Schedule Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Production CFC 44,739 40,025 36,195 32,815 29,915 25,235 18,595 13,125 8,360 6,630 2,700 0 (MT) Source: Sector Plan for CFC Production Phase-out in China, (Closure Part, December 19, 1998). 42 India. India has 4 production plants in operation. In 2000, total CFC production was 20,404 MT, representing an estimated 15 percent of global production. The major producers of CFCs in India include (The Gale Group, 2002): -Chemplast Sanmar -Gujarat Fluorochemicals -Navin Fluorine Industries (Arvind Mafatlal Group) -SRF Limited In November 1999, the Executive Committee approved India's CFC production sector project to gradually phase-out CFC production from 1999 to 2010. India's national CFC production phase- out schedule through 2010 is shown in Exhibit 4-3. While India's CFC production will primarily be for domestic consumption, a portion will also be available for export. Exhibit 4-3. India CFC Phase-Out Schedule Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Production 22,499 20,404 18,693 16,941 15,058 13,176 11,294 7,342 3,389 2,259 1,130 0 CFC (MT) Source: www-esd. worldbank.org/mp/TMMonthllndiapres.html South Korea. South Korea has one CFC production unit. The sole manufacturer is Ulsan Chemical Co., Ltd. In 1999 Korea produced 7,238 MT of CFC. In 2000, production was zero. North Korea. In 2000, North Korea produced 77 MT of CFCs for domestic consumption. By 2003, production in North Korea will be phased out entirely. European Countries. In 2000, European Countries produced 26,651 MT of CFCs, corresponding to an estimated 20 percent of the global total. Today, Italy, Greece, the Netherlands, Spain and the UK continue to produce CFCs for essential uses (MDls) and for export for basic domestic needs of Article 5(1) countries). Specifically, the companies producing CFCs in Europe are: -Atofina (Spain) -Solvay (Italy) -SICNG (Ste. Industries Chemiques du Nord de la Gece)/PFI (Greece) -Honeywell (Netherlands) -Rhodia (UK) The combined capacity of these plants for all CFCs is less than 100,000 tons. However, there is political pressure on European producers to cease (or reduce) supply. The Netherlands has decided to continue to manufacture CFCs, but only for essential uses and about 20 percent of basic domestic needs of Article 5(1) countries. This will help decrease the overall production from Westem Europe (OORG, 2002). Latin American Producers. The only CFCs manufactured in Latin America are CFC-1 1 and CFC- 12. Today, only three plants continue to produce CFCs in Latin America: -Quimobasicos (Mexico) -FIASA (Argentina) -Produven (Venezuela) 43 Brazil stopped production of CFCs in 1999. With the closure of the CFC plant in Brazil, total capacity for production of CFCs in1999 in Latin America was approximately 40,000 MT.14 Total Latin American production of CFCs in 1999 was about 23,000 MT, corresponding to about 16 percent of total global CFC production (Oberthur, 2001). In 2000, production dropped considerably, to approximately 12,850 ODP MT (UNEP, 2002). Based on contact with large CFC importers, Latin American countries that do not produce CFCs obtain supply through imports from producers in Latin America, Europe, and/or Asia. Of the remaining producers in Latin America, only Argentina has defined a production phaseout schedule. According to the agreement, FIASA will produce as follows: 2002 - 2004: 3,020 ODP MT 2005 - 2006: 1,647 ODP MT 2007 - 2009: 686 ODP MT 2010: 0 ODP MT • Russia. Russian CFC production dropped to less than 17,000 ODP MT in 1998 (down by 87 percent from its 1986 production), totaling less than 10 percent of the global production. Annual CFC production in Russia for 1999 was less than 14,000 MT, again corresponding to about 10 percent of the global total (UNEP, 1999). By the end of 2001, all of Russia's CFC production had terminated. * United States. With some exceptions for essential uses, the United States banned the import of CFCs in 1996. The U.S. produces less than one MT annually (Oberthur, 2001; OORG, 2001). Historical producers of CFCs in the U.S. included: -DuPont -Allied Signal -Atofina 4.1.1. Illegal Markets The Montreal Protocol has imposed decreasing limits on CFC supply, and thus, an illegal market of CFCs has evolved. Closure of the CFC production sector is considered essential to stopping the illegal flow of CFCs to industrialized countries. Worldwide CFC smuggling operations range from small to sophisticated entrepreneurs. As it is almost impossible to distinguish between new and recycled CFCs, traders illegally bring CFCs into industrialized countries in the guise of recycled substances or exports to developing countries. In 1995, at least 10,000 MT of CFCs (mostly CFC-1 1 and -12) were smuggled into the U.S. and European Union from Russia, India and China. Japanese authorities have discovered that at least 100,000 bottles of CFC-12 were illegally brought into Japan in 2001, falsely labeled as motor oil. In Mexico and China, smugglers can buy CFC-12 for $1.00 or $2.00/pound, and sell it illegally in the U.S. for $20 to $25/pound (Associated Press, 2001). Sources from the U.S. Environmental Protection Agency (U.S. EPA) have said that it is impossible to estimate the quantity of illegal CFCs crossing the U.S. border. It is believed that, until old cars are retired and developing countries stop producing CFCs, CFCs smuggling will continue. However, with production closure complete in Russia, production phase-out projects underway in India and China and pending in Latin America, most production sources from developing countries are under 14 Based on a comparison of published production data (Oberthur, 2001) to actual capacity data (provided by producers), utilized capacity is generally 40 to 50 percent. Legislation to restrict and negotiations to phaseout production are considered in assessing future market conditions in Section 5. 44 control. Thus, illegal trade is expected to diminish. Based on available information, only one case of illegal imports was discovered in Venezuela. Within the Latin American region, as demand is reduced over the next few years to meet Montreal Protocol limits, it is expected that only small amounts of illegal CFCs will be imported. While customs departments should include this issue in their training and work programs, illegal trade of CFCs is not expected to be a significant issue within the region. Smuggling is important in producing countries such as Venezuela, where local CFC prices tend to be higher than international prices. 4.2. Characteristics of Latin American CFC Trade The structure of the supply chain for CFCs in Latin America involves three major producers and a relatively small number of importers that obtain supply from other developing and OECD countries. As previously described, key producers are in Mexico, Venezuela, and Argentina. Major importers in Latin America obtain supply from Latin American producers, Europe, and to a lesser extent, Asia. Major importers/distributors, the origin of imports, and the destination of exports are identified by country. 4.2.1. Latin American Production of CFCs As previously discussed, CFC-1 1 and CFC-12 are produced in Latin America. The producers are: * Quimobasicos, Mexico * Produven, Venezuela * FIASA, Argentina Latin America's capacity for production of CFCs is around 40,000 MT (20,000 from Mexico, 12,000 MT from Venezuela, and 8,000 MT from Argentina). Total annual CFC production in Latin America in 2000 was 12,854 MT (UNEP, 2002). Regional plants mainly supply regional markets. As reported by contacts from Mexico, external suppliers are offering CFCs, but regional agreements such as the Andean pact, Mercosur, and bilateral pacts favor regional business. The Latin American CFC market depends primarily on supplies from Mexico, Venezuela, Argentina, and Europe. * Mexico Production. The leading CFC producer in Latin America is Mexico, with a total production of approximately 7,500 MT of CFC in 2000 (UNEP, 2002). Quimobasicos has two plants in Mexico, capable of producing CFC-1 1, CFC-12 and HCFC-22. Only one plant (which is also a swing plant) is producing CFCs, and has a capacity of 11,500 to 13,000 MT, depending on the CFC-1 1/CFC-12 production ratio. This plant supplies 99 percent of the Mexican CFC consumption. The other plant has a capacity of 7,000 MT of HCFC-22. DuPont closed its CFC production plants in 1997, but continues to function as a distributor of CFCs, purchasing CFCs and HCFC-22 from Quimob6sicos. The UNIDO is currently pursuing a production-sector phase- out project with Quimobasicos (ExCom 36, 2002). * Argentina Production. FIASA is the only producer of CFC-1 1 and -12 in Argentina. Nearly 72 percent of total CFC production in 2000 was exported. FIASA covered about 35 percent of the Argentina CFC consumption in 2000. This firm produced 3,027 MT of CFCs in 2000. As discussed in Section 4.1, a production phase-out schedule for FIASA has been negotiated. Production will be decreased by about 55 percent in 2005, and then by another 42 percent in 2007, until final phase-out in 2010. * Venezuela Production. Produven is the sole national manufacturer of CFC-1 1, CFC-12, and HCFC-22, with a total capacity of 12,000 MT. Production of CFCs in 2000 was 2,281 MT. The company is a joint venture of PEQUIVEN (subsidiary of Petroleos de Venezuela-Pdvsa), and France's Atofina (formerly Elf Atochem). The plant's ownership has passed to local investors. Produven supplies about 50 percent of domestic CFC consumption and exports nearly 42 percent 45 of its CFC production to the rest of the Latin American region. All of its HCFC-22 production (on the order of 570 MT) is sold domestically, satisfying about 35 percent of Venezuelan demand. Produven has two big distributors in Venezuela: Comercial San Antonio and Indugas. These distributors purchase chemical in iso-tanks and ton-tanks, and refill their own cylinders. The World Bank is preparing a project to phase-out CFCs production in Venezuela. The scope of this project should also consider the supply/demand information presented herein. * Brazil Production. Brazilian production of CFC-1 1, CFC-12, and HCFC-22 ceased in 1999. 4.2.2. Latin American CFC Exports Mexico, Venezuela, and Argentina export CFCs to other countries in Latin America. Mexico Exports. In 2000, Mexico exported approximately 4,000 MT of CFCs as shown in Exhibit 4-4. Exhibit 4-4. Mexico CFC Exports (MT) in 2000 Chemical MT CFC-11 620 CFC-1 2 3,465 Unknown (CFC-11/-12) 1,165a Source: Contact with large exporters, 2001. a This amount was undocumented. It represents the amount of unaccounted CFCs imported into Venezuela, which, for the purposes of this report, is assumed to have originated from Mexico. The destination of all 2000 CFC exports from Mexico is shown in Exhibit 4-5. Exhibit 4-5. Destination of Exports from Mexico (MT) in 2000 Central America Guatemala 409 Nicaragua 204 El Salvador 204 Costa Rica 245 Honduras 82 Panama 82 Subtotal 1,226 South America Brazil 1,143 Colombia 767 Venezuela 1,300a Argentina 532 Chile 245 Other SA 38 Subtotal 4,025 Source: Contact with large exporters, 2001. a This amount reflects the total reported quantity of CFCs imported into Venezuela, which, for the purposes of this report, is assumed to have been exported from Mexico. The origin of most of this amount, however, was not documented. Note: All figures are rounded based on estimated percentage of total exports. Sums may not add to total due to rounding. 46 * Argentina Exports. In 2000, Argentina exported about 2,300 MT of CFCs, representing about 70 percent of FIASA's CFC exported production. The largest destination of Argentina's exports of CFC-1 I and -12 is Brazil. Argentina also exports CFC-12 to Paraguay, Uruguay, and Chile. Exporters reported that 98 percent of CFCs exported out of Argentina were produced in Argentina. Thus, it is not common for importers to import in an effort to supply an export market. In recent years, there have been no significant changes in CFC export trends. The destinations of Argentina's 2000 CFC exports are presented in Exhibit 4-6. Exhibit 4-6. Destination of Exports from Argentina (MT) in 2000 Country CFC-11 CFC-12 Brazil 110 1,978 Chile 0 13 Uruguay 14 87 Paraguay 0 92 Source: Contact with large exporters, 2001. * Venezuela Exports. In 2000, Venezuela exported 916 MT of CFCs. Produven exports mainly to Argentina, Brazil, Dominican Republic, and Colombia. Venezuela exports CFC-1 1 only to Colombia and Cuba, while CFC-12 is exported to ten Latin American countries. The destinations of Venezuela's CFC exports in 2000 are presented in Exhibit 4-7. Exhibit 4-7. Destination of Exports from Venezuela (MT) in 2000 Country CFC-11I CFC-12 Argentina 212 Brazil - 110 Colombia 127 49 Ecuador - 72 Peru - 60 Chile - 10 Dominican Rep. - 200 Cuba 8 37 Panama - 21 Curacao - 10 Source: Contact with large exporters, 2001. 4.2.3. Latin American CFC Imports In 2000, total CFC imports in Latin America were about 18,800 MT. In 2000, Brazil, Chile, and Colombia imported a total of 10,765 MT of CFCs, corresponding to about 60 percent of the total CFC imports in the region. The three producing countries (Mexico, Argentina, and Venezuela) also imported CFCs totaling 7,022 MT. These imports were used to meet national demand and for re-export. The remaining Latin American countries imported about 1,052 MT of CFCs. Latin American producers supply about 40 percent of the CFC demand in the region. The other major sources are European suppliers. New licensing systems in many countries in the region (e.g., Brazil, Colombia, Venezuela, and Mexico) will serve to limit the number of importers. Imports to CFC Producingq Countries in Latin America (Mexico. Argentina, Venezuela) Mexico Imports. Historically, imports from the United States predominated because of low import tariffs, as a result of the North American Free Trade Agreement (NAFTA). But this is no longer the case, since CFC production facilities in the U.S. have been closed. Today, all imports in Mexico are from non-Latin American countries, including the Netherlands, France, and Spain. 47 Quantities imported in 2000 were approximately 10 MT of CFC-1 1 and 15 MT of CFC-12. The main distributors in Mexico are Quimobasicos and DuPont, each of whom have many sub- distributors. No further details were available on sub-distributors, as such information is considered confidential. About 60 percent of total CFC-1 1, CFC-12, and HCFC-22 consumed in Mexico are distributed by Quimobasicos. DuPont distributes most of the remaining 40 percent. Argentina Imports. Argentina imports approximately 1,600 MT of CFCs. Approximately 67 percent of national demand is met through imports, 33 percent of which are from Mexico (Quimobasicos), 13 percent from Venezuela (Produven), 52 percent from Europe (Italy, Netherlands, France, Spain, England), and 2 percent from others. In 2000, the largest importers in Argentina were: DuPont Argentina, Giacomino SA, FIASA, Tecunion, York Arg., Atofina-Carrier and Alkanos. York Air-conditioning and Refrigeration Inc. began importing in 2000, for re-selling in the air-conditioning and refrigeration market. While producers and importers sell directly to OEMs and important end-users, the majority of the CFC volume is sold through distributors. Large distributors include: Algeon, AnSal Ref., Totaline, Sanguinetti, Polar Ref., Ref. Omar, Ref. Indumet, Proplast, Eurosur, Ref. Norte, Ref. Goldman, Ref. Ciudadela, Almagro Ref. and Electrofrig. * Venezuela Imports. In 1999, the Venezuelan Government issued Decree NO 3220 which controlled the import of ODS substances according to Montreal Protocol schedules.'5 The total annual volume of imports authorized from January 2000 to December 2004 is 135 MT (16 MT of CFC-1 1 and 119 MT of CFC-12). There are now only five companies authorized to import CFC- 11/-12. The authorized importers and their market share are: Refriquim 41% Interfrigo 41% Refrielectric 8% Corporacion Saira 6% Holanda-Venezuela 4% In 2000, more than 1,300 MT of CFCs were imported into Venezuela, well in excess of the established quota. While much of this import quantity was undocumented, this analysis assumes that the source of the imports was Mexico, as Quimobasicos is the major source of documented CFC-1 1/-12 imports. Imports to Non-CFC-Producin. Countries in Latin America (Brazil, Chile, Colombia) * Brazil Imports. There are a limited number of importers in Brazil. Based on official govemment records, a total of more than 3,200 MT of CFC-1 1 was imported from Argentina, Belgium, France, Mexico, the Netherlands, Switzerland, and Venezuela. A total of more than 5,500 MT of CFC-12 was imported from Argentina, France, Italy, Mexico, and Venezuela. Chile Imports. Mexico's Quimobasicos is the most important supplier of CFCs, having exported more than 200 MT to Chile in 2000 (equivalent to approximately 3 percent of Quimobasicos total production in that year). However, Venezuela's Produven and Argentina's FIASA also contribute to the Chilean CFC market, but only to a small extent. Based on information obtained from exporters in Argentina, FIASA exported 9 MT of CFC to Chile in 2000. * The largest importer in Chile is Oxiquim, which expects no near-term shortages or price increases. Because of low CFC prices from Quimobasicos, there is no incentive for other importers to compete with Oxiquim. In general, all importers report a large decline of CFC-1 1 demand, as a result of the foam sectors conversion to CFC altematives. Demand for CFC-12 is declining at a much lower rate as a result of continuing aftermarket service demands. 5 The same decree forbids the importation of disposable containers. 48 Colombia Imports. Produven (Venezuela) and Quimobasicos (Mexico) are the major CFC suppliers in Colombia. CFCs are also imported from Holland (Honeywell) and recently, from England (National Refrigerants). The quantity and sources of CFC-1 1 imports into Colombia are as follows: Venezuela: 127 MT The Netherlands: 54 MT Mexico: 23 MT India: 1 MT CFC-12 imports are as follows: Mexico: 744 MT Europe: 185 MT Venezuela: 49 MT China, India, and U.S.: 7 MT Overall, there are 22 registered importers. Four of them account for almost 80 percent of the total importation: Cabarria SA, Incopar, ICI/Huntsman and Ajover."6 To ensure compliance, each company can import according to average consumption during 1996 to 1998. During servicing, small disposable cans (340 grams) are preferred, and are often refilled for some importers from gas in ISO-tanks. The OEMs use 30- and 50-pound disposable cylinders (dacs). No imports of R-502 or R-1 15 (R-502 component) were identified. However, sales of these products were reported, primarily for fishing fleets. According to importers, there is a distributor in Barranquilla that makes a blend of R-12 and R-22, sold as R-502. There was insufficient data available to estimate quantity of R-502/R-1 15 involved in this market segment. Other Latin American Countries. Central America obtains CFCs primarily from Mexico. Total trade is estimated to be more than 1,000 MT annually. Other South American countries obtain supply from Europe, Venezuela, and Argentina. Total trade in these countries is estimated to be more than 1,000 MT annually. 4.2.4. CFC Recycling To date, CFC recycling has had limited penetration in Article 5(1) countries. Rough estimates by experts reveal that the recovery/recycling rate in Latin America is on the order of approximately 2 percent, and that the infrastructure to perform recovery/recycling operations is largely not in place. Actual recovery/ recycling rates, of course, vary by country. Mexico implemented one large CFC recycling and recovery project based on a centralized collection system. This project has apparently been cancelled due to low profitability and the inability to attract sufficient business. Early recycling projects in Asia have also faced difficulties. To be successful, CFC recycling project designs require the following: 1. A well perceived market shortage of CFC that is also reflected in relatively high prices for new CFC, compared to recycled CFC; 2. Policies that promote and favor the use of CFC substitutes, such as HFC-134a, as well as recycled CFC; and 16 Ajover is a polystyrene foam producer for food trays. Its plant was converted to hydrocarbon (butane) in 1998. 49 3. Onsite recycling for MAC sector and for systems with larger charges of CFC. Recycling projects that are focused on household refrigerators, or cases where the compressor is damaged (i.e., requires system cleaning), are not likely to succeed. Despite the current low levels of recovery in Latin America, it is generally regarded within the Montreal Protocol community as an important tool and often a key component in Refrigerant Management Plans (RMPs) and National Phase-out Management Plans (NPMP) that focus on the refrigeration and air- conditioning service sectors. MAC recycling is included in the design of NPMP in Thailand and Malaysia, as well as in the Bahamas Terminal Phase-out Management Plan. It is also likely that CFC recycling could be a component in remaining phase-out actions in Latin America, particularly as the supply of CFC becomes more limited. 4.2.5. CFC Prices Based on data collected from large importers and distributors, Exhibit 4-8 provides an overview of current prices of CFCs in the Latin American market. These are wholesale retail prices which include containers. Average prices, not including the higher values reported for Mexico, are $2.64/kg for CFC-1 1, and $4.14/kg for CFC-12. Prices in Mexico are higher than average prices in Latin America because voluntary quotas of imports have sharply restricted supplies. Generally, import prices in other Latin American countries are similar to prices in the major Latin American countries, and therefore, this analysis assumed that the prices in these countries was equal to the average price in all major Latin American countries. It should be noted, however, that because these countries have lower import volumes, prices in some countries may be slightly higher than those in the major Latin American countries. Exhibit 44. Prices of CFCs ($/kg) COUNTRY CFC-11 CFC-12 Mexico 7.90 - 9.50 10.20 -12.25 Brazil 1.80-2.00 5.40 - 6.60 Argentina 1.90 - 3.30 2.90 - 3.60 Chile 2.20 - 2.90 2.60 - 2.80 Colombia 2.30 - 3.50 3.00 - 4.00 Venezuela 3.00 - 3.50 4.50 - 6.00 Other 2.24 - 3.04 3.68 - 4.60 Source: Contact with large importers and distributors, 2001. Exhibit 4-9 presents information on import tariffs for CFCs. Latin America has not used taxation policy as a way of controlling CFC use through higher prices. The tariff levels are relatively modest and derived primarily from general tax policy. There is no indication that this situation will change. With recent and future shut downs of CFC production plants, it is expected that the prices for CFC-1 1 and -12 will increase as supply continues to decrease. However, the effect of future shut downs on price is uncertain. Despite plant closures, prices in all Article 5(1) countries are still low-ranging from $1.10 to $1.40/kg for CFC-1 1 and between $1.50 and $2.00/kg for CFC-12 (OORG, 2002)-and are not expected to increase significantly in the near-term (OORG, 2002). This situation is perhaps a result of a corresponding decrease in CFC demand, which, combined with the decrease in CFC supply, is keeping the price of CFC essentially unchanged. 50 Exhibit 4-9. CFC Import Tariffs COUNTRY CFC Import Tariff (%) Import Tariff Applicability Mexico 2 NAFTA only 10 European Union Brazil 12.5 All Countries Argentina 10.4 Mexico/ Venezuela 13 All Others Chile 0 Mexico 1.76 Argentina 8 All Others Colombia 0 Venezuela 2 Mexico 10 All Others Venezuela 10 All Countries Source: Contact with importers, 2001. NOTE: Only taffs for the major Latin American countries are presented. 51 5. Demand for CFC Substitutes The primary altematives to CFCs are hydrochlorofluorocarbons (HCFCs), hydrofluorocarbons (HFCs), and non-fluorocarbon alternatives such as hydrocarbons. In particular, the most common altematives are: * HCFCs: HCFC-22, HCFC-141b, HCFC-123, HCFC Blends * HFCs: HFC-134a, HFC-245fa, HFC Blends * Hydrocarbons (HCs): Cyclopentane, Isobutane (R-600a), and Propane (R-290), HC Blends The remainder of this section describes the current status of global demand for each of these alternatives, in addition to several other non-fluorocarbon altematives that have captured a lesser share of the CFC-substitutes market. Characterizations of the CFC substitute markets by major end use sectors are also included in this section. 5.1. Global Demand for Major CFC Substitutes In the short- to medium-term, HFCs (with zero ODPs) are major candidates to replace CFCs and HCFCs, but may not be suitable for long-term use because of their high global warming potential (GWP). The refrigeration and automotive air-conditioning industries have already begun to develop alternative technologies using HCs and C02, to address this long-term replacement challenge (Agrawal, 2001). Other CFC-substitutes being considered include HCFC-123, ammonia (R-717), and methylene chloride. 5.1. 1. HCFCs HCFC demand grew rapidly in the mid-1990s, as they were increasingly used to replace CFCs in various applications (AFEAS, 2001). Globally, HCFCs are consumed for refrigeration, air-conditioning, foams, aerosols, and solvent uses. Currently, HCFC-141 b is in high demand, with consumption exceeding 100,000 MT annually (AFEAS, 2001). HCFC-141b is used as a substitute for CFC-1 1 as a foaming agent, mostly for polyurethane foams used for insulation (both in refrigerators and insulating panels). HCFC-141 b is the lowest-cost and leading blowing agent in North America for PUR thermal insulation (Boswell, 2001; Ouellette, 2000). HCFC-141 b provides insulating values close to those obtained with CFC-11. Highly energy efficient foam insulation, blown with HCFCs and HFCs, is installed as home and building insulation, and in appliances such as refrigerators and freezers. Advantages over the non-fluorocarbon altematives include up to 15 percent more insulation value. However, as the deadline for HCFC phase-out draws nearer in Europe and Japan (over the 2002-2003 period for HCFC-141 b) and the U.S. (at the end of 2003 for new HCFC- 141 b), the polyurethane industry is increasing efforts to develop and supply cleaner altematives for rigid foams. HFCs, pentanes, and various blends are all being considered as next-generation rigid insulation foaming agent. Currently, the leading candidates to replace HCFC-141 b include liquid HFCs (HFC-245fa and -365mfc), gaseous HFC-134a, and hydrocarbons (cyclopentane, isopentane, and n-pentane) (Schut, 1999). Globally, HCFC-22 consumption is more than 200,000 MT annually, and accounts for approximately 60 percent of total HCFC demand (Boswell, 2001). Most demand for HCFC-22 is for refrigeration uses. While in the U.S. HCFC-22 still dominates the commercial refrigeration market (for large compressors in low temperature applications), markets for HCFC blends are significantly increasing in Europe and Japan. The decdine of HCFC-22 in dispersive uses (e.g., cell thermoset foams) is currently balanced by growth in fluoropolymer (feedstock) uses, which is close to 40 percent of total production. In the future, key changes will occur in Europe, as legislation on the use and production of HCFCs is tightened. With the replacement of HCFC-22 in Europe (primarily with HFC blends), in response to use controls under Regulation 2037/2000, a 65 percent decline in the use of HCFC-22 is predicted to occur between 1997 and 2008 (OORG, 2002; AFEAS, 2002). 52 The Montreal Protocol specifies a January 1, 2003 phase-out date for HCFC-141 b for developed countries (other than the United States). Because HCFC-22 and HCFC-142 have lower ODPs than HCFC-141b, the Montreal Protocol requires that these chemicals be phased out by 2007. However, HCFC-22 and -142 have limited applications in rigid PUR foam, and are used mostly in blends with HCFC-141b. HCFC-124, which has an even lower ODP value and is used as a constituent in refrigerant blends, may be used until 2010. In addition, HCFC-123, with an ODP value yet lower than that of HCFC- 124, is also used in chillers. Developing countries must stop production and consumption of HCFCs by 2040. In addition to the HCFCs already discussed, a number of HCFCs blends are used as refrigerants. Exhibit 5-1 presents a list of the more common HCFC refrigerant blends currently in use: Exhibit 5-1. Common HCFC Blends: Type and Composition HCFC Blend Type Ratio of Components Replacement for: Temperature (type; %) R-401A R-22/R-152a/R-124; 53113/34 R-12 Medium/High R-401B R-22/R-152a/R-124; 61111/28 R-12, R-500 Low/Medium R-402A R-125/R-290/R-22; 60/25/15 R-502 Low/Medium/High R-402B R-125/R-290/R-22; 38/2/60 R-502 Low/Medium R-409A R-22/R-124/R-142b; 60125/15 R-12 Medium/High Source: U.S. EPA, 1998; Dupont, 2002. 5.1.2. HFCs Commercially available throughout the world, HFCs are energy efficient, low in toxicity, cost-effective and safe for use. They are truly useful compounds to manufacturers as they provide insulating foams that help save energy and reduce CO2 emissions. Demand for HFCs worldwide is increasing rapidly, especially in the refrigeration and air-conditioning sectors (AFEAS, 2001; Lerner, 2001; Ouellette, 2000). The highest demand is for HFC-134a (GWP of 1,300), for use in air-conditioning systems (Boswell, 2001; Asia Pulse, 2000). Since the phasing out of CFCs began in the 1980s, the demand for HFC-134a has increased from 3,000 MT/year to 140,000 MT/ year in 2000. Global demand for HFCs is increasing by about 10 percent per year, against a 2 to 3 percent increase in production capacity (Ouellette, 2000; CMR, 1999; Lerner, 2001). Recently, demand fdr HFC-134a for aftermarket servicing has been increasing as well (Link, 1999). Manufacturers are tending to expand their existing HFC-134a facilities rather than build new ones, given that the market is still developing and some uncertainty remains. Most HFCs are used for energy-consuming applications such as refrigeration and air-conditioning. The insulating foam sector is expected to become the second largest source of HFC use. HFC use is expected to grow rapidly as CFCs and HCFCs are replaced with HFC-134a, HFC-245fa and HFC- 365mfc. Other sources of HFC use are industrial solvent applications, medical aerosol products, semiconductor manufacture, and non-insulating foams (IPCC, 2001). Based on Boswell (2001) and interviews with distributors, Exhibit 5-2 summarizes the uses and applications of HFCs worldwide. Exhibit 5-2. Common HFCs: Type and Applications HFC Type HFC-134a HFC-245fa HFC-227ea HFC-4310 HFC-152a HFC-32 HFC-125 Refrigeration Foam Fire Solvent Aerosols; Blend Blend Application and air- blowing suppression; Refrigerant constituent constituent conditioning; agent Refrigerant blends Foam blowing agent Source: Interviews with distributors, 2001; Boswell, 2001. 53 Use of HFCs is also expected to rise significantly, as HFC-134a has primarily replaced CFC-12 in new MACs, and the worldwide automobile industry is growing. In 2000, 65 to 75 percent of MACs in service contained HFC-134a globally. Furthermore, it is projected that between 2000 and 2010, 70 to 80 percent of all new MACs will contain HFC-134a (IPCC, 2001). Retail food systems are expected to partially transition to HFC-1 34a and HFC-containing blends. Often, these systems have higher refrigerant emission rates because of certain equipment characteristics, such as large charge size and extensive piping. Conversely, refrigerant emissions from chillers are relatively low as a result of the continued use of low pressure refrigerants, such as HCFC-123, and the low leak rates of new HFC-134a units. HFC blends are also available on global markets and are mainly used for commercial refrigeration, air- conditioning applications (unitary, residential, and commercial), industrial processes (food processing and cold storage), and transport refrigeration (IPCC, 2001). Exhibit 5-3 presents a list of common HFC refrigerant blends. Exhibit 5-3. Common HFC-Blends: Type and Composition HFC Blend Type Ratio of Components (type; %) Replacement for: R-404A R-1 25/-143a/- 34a; 44/52/4 R-502 R-407A R-32/-125/-134a; 20/40/40 R-502 R-407B R-32/-125/-134a; 10/70/20 R-502, R-22 R-407C R-32/-125/-134a; 23/25/52 R-22 R-410A R-32/-125; 50/50 R-22 R-507 R-125/-143a; 50/50 R-502 Source: AREP, 2002. These HFC blends are imported and sold in dacs or cylinders. Currently, the only blends with significant market penetration are those for low temperature applications, used to replace R-502 (e.g., R404A). New products such as gaseous HFCs for refrigerant blends are also becoming established in the market. New HFCs are fully penetrating the refrigerant blend markets (e.g., HFC-32 and HFC-125, both used as constituents in refrigerant blends), after a long induction period. Growth in HFC-32 consumption has been projected to be as high as 25 percent per year (CW, 2002). HCFC phase-out schedules worldwide will drive the development of further manufacture of HFCs. 5.1.3. Non-Fluorocarbon Alternatives Although fluorocarbons dominate the CFC replacement markets, there are several applications where other technologies have been adopted. The most important to note is the use of hydrocarbon (HC) technologies as foam blowing agents (World Bank, 1996; IPCC/TEAP, 1999; U.S. EPA, 2001). However, the penetration in the foams market is considerably limited by cost and safety concerns for larger users. The risks associated with the use of HCs have limited their adoption in countries like Mexico and Brazil. However, in other Latin American countries, experts predict that between 35 and 60 percent of the foams markets will adopt HC technology by 2010. HCs are also being examined for use as a refrigerant. Other non-fluorocarbon altematives are CO2 and methylene chloride as foam blowing agents, and ammonia as a refrigerant. The remainder of this subsection characterizes the current markets of each of these altematives in more detail. 5.1.3.1. Hydrocarbons (HCs) Hydrocarbon use as a refrigerant and blowing agent has been slow as a result of flammability concems. However, where safety concerns can be resolved through investment in necessary equipment or training, these compounds are being used as replacements to CFCs, mostly in rigid foams (Ozone Depletion Network Online Today, 2000). Once mixed with polyol and isocianate, it loses its flammability, making it 54 entirely safe for end users. However, this is not the case for isobutane, which the public perceives as being potentially explosive. Hydrocarbon technology has already been adopted by some developed countries, particularly in Europe and Japan, and is also slowly penetrating developing countries. Hydrocarbon use (e.g., cyclopentane) competes with HCFC-141 b as a foam-blowing agent. While HCFC-1 41 b has been the dominant substitute of CFC-1 1 in the foams sector, many large domestic refrigerator manufacturers have begun to use cyclopentane as the blowing agent. Studies report that if all refrigeration systems worldwide were to use hydrocarbons, total demand would represent approximately 0.1 percent of total liquefied petroleum gas (LPG) sales (World Bank, 1996). Butane is also used as a replacement for CFC in polystyrene production, and hydrocarbons have been widely adopted as propellants for aerosols (IPCC/TEAP, 1999). 5.1.3.2. Ammonia (R-717) While demand for ammonia has not been widely impacted by the CFC phase-out, it has been adopted in a variety of applications, mainly low-temperature refrigeration. Ammonia is used in air-conditioning as well as in food processing (e.g., wine sector). Ammonia can also be used in open drive screw chillers (200-1,500 kW, 50-400 tons), provided that safety issues are addressed. However, it is not well suited for centrifugal chillers (1000 kW, 300 tons) because of its low molecular weight (A.D.Little, 2001). In Argentina, ammonia's market share relative to HCFC-22 has not changed dramatically as a result of the Montreal Protocol, according to a recent (though limited) survey of ammonia suppliers and refrigeration companies. Uses of ammonia discpssed in the remainder of this section are generally limited to Argentina, Mexico, and Brazil, as data were only available on these countries. 5.1.3.3. Carbon Dioxide (COQ) and MetLhylene Chloride (MC) CO2 has been used as blowing agent of polystyrene foams by some industries. CO2 and methylene chloride have already replaced most CFC use for flexible foams production. In the flexible foams sector, large producers with continuous machines are switching from CFC-1 1 to liquid carbon dioxide. Medium and small producers (box-foam machines) are switching from CFC-1 I to methylene chloride. Also, carbon dioxide is used blended with ethylene oxide (EO) to substitute the 12/88 EO/CTC blend in the sterilants sector. 5.2. Demand for CFC Substitutes in Latin America by Sector Demand for HCFCs and HFCs in Latin America Is shown in Exhibits 5-4 and 5-5, respectively. The trend has been towards increasing demand for HCFCs and HFCs as substitutes to CFCs. In 1999, the major Latin American countries consumed 5 percent of total global HCFC consumption, and 96 percent of total consumption from the Latin American region. The remainder of global HCFC consumption is concentrated in OECD countries (73 percent), other (non-Latin American) developing countries (21 percent), and CEITs (1 percent) (Oberthur, 2001). Exhibit 5-6 presents the global demand for CFC substitutes by end use sector in 2000. The remainder of this section characterizes each of these end use sectors in detail. All information is based on interviews with representatives of large importers and distributors in the major Latin American countries. 55 Exhibit 5-4. Demand for HCFCs in Latin America (MT) In 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total Total HCFC-22 Consumed 2,700 9,498 1,646 1,597 580 691 836 17,648 Commercial & Industrial Refigeration 350 5,330 768 850 180 325 390 8,193 Transport Refrigerabon 50 139 190 87 40 40 27 573 Air Condibioning 2,300 4,029 639 660 360 226 411 8,625 Aerosols 0 0 49 0 0 0 2 51 Foams 0 0 0 0 0 100 5 105 Total HCFC-123 Consumed for Air Conditioning 10 5 15 0 1 0 2 32 Central and Chillers New 9 5 14 0 1 0 1 30 Service 1 0 1 0 0 0 0 2 Total HCFC-141b Consumed for Foams 14,150 3,361 148 88 460 188 184 18,569 Polyurethane Rigid 2,500 321 90 30 50 110 2 3,103 Panels 3,000 400 36 25 45 45 7 3,558 Domestic Refrigerators 5,700 1,980 3 0 350 0 0 8,033 Commercial Refrigerators 1,500 300 8 20 10 25 9 1,872 Transport 600 300 8 12 0 8 0 928 Others 850 50 3 1 5 0 165 1,074 Total HCFC Consumed for Sterilization <60 <60 <1 <1 <1 <1 <1 <105 Source: Contact with impolters and distributors, 2001. Exhibit 5-6. Demand for HFC-134a for Refrigeration and Air Condffioning in Latin America (MT) in 2000 Mexico Brazil Argentina Venezuela Colombia Chile Others Total Total HFC-134a Consumed 3,700 1,814 450 200 174 101 258 6,697 Use by Sector Refrigeration 3,300 1,201 108 15 138 21 191 4,974 Air Conditoning 400 613 341 185 36 80 66 1,721 Total HFC-134a Consumed for Refrigeration 3,300 1,201 108 15 138 21 191 4,974 Use by Sector Domestic New 1,900 1,181 48 0 100 10 0 3,239 Service 500 0 2 5 15 1 21 544 Commercial and Industrial New 650 0 30 5 17 9 28 739 Service 250 0 3 5 6 1 11 276 Transport 0 20 25 0 0 0 2 47 Total HFC-134a Consumed for Air Conditioning 400 613 341 186 36 80 66 1,721 Mobile New 300 483 200 65 16 14 43 1,121 Service 100 130 127 115 15 61 22 570 Subtotal 400 613 327 180 31 75 65 1,691 Central and Chillers New 0 0 12 4 4 4 1 25 Service 0 0 2 1 1 1 0 5 Subtotal 0 0 14 5 5 5 1 30 Total HFC Consumed for Solvents <1 <1 <1 <1 <1 <1 <1 <7 Source: Contact with imports and distributors, 2001. 56 Exhibit 5-. Global Demand for CFC Substitutes by Sector ('000 MT) (2000) HCFC-22 HCFC-141b HFC-134a All other HFCs Total Demand by Sector 375 130 135 35 Refrigeration/rAC 185 0 102 25 Foams 15 112 2 0 Solvents 0 18 6 0 Aerosols 0 0 24 5 Other 176a 0 2 5 a This amount represents feedstock consumption. 5.2.1. Foams The largest users of CFCs for foam production have implemented projects to convert to non-CFC foam blowing agents. Manufacturers of non-continuous panels, as well as spray and injection applicators are switching from CFC-11 to HCFC-141 b. Suppliers of polyurethane systems are now offering HCFC-141 b as a replacement for CFC-1 1 in these markets. In this sector, the majority of the producers buy the polyurethane systems with the blowing agent indluded in the polyol. Therefore, the polyurethane system suppliers drive the transition to CFC-1 1 substitutes. However, with MLF support, manufacturers of large rigid foam panels are changing from CFC-1 1 to n-pentane. Cyclopentane, pentane, iso-pentane and blends are considered good alternatives to HCFC-141 b. Historically, CFC-12 was used as blowing agent in the extruded polystyrene board foam industry. However, since the CFC phase-out in the early 1990's, HCFC-142b has been used. The most viable non-ODS alternatives for this industry are HFC-134a and CO2 (Arthur D. Little, 2001). No OEMs have adopted HFCs to replace CFC-1 1. Experts predict that by 2010, market penetration of HFCs for foam blowing in Latin America may reach 5 percent (Boswell, 1999). For polystyrene and polyethylene foams, large producers changed from CFCs to hydrocarbons (n- butane). Medium-sized producers are in the process of changing from CFCs to hydrocarbons, with the support of the MLF. Information on consumption of HCFC-141b in the foam sector and the breakdown in segments is provided in Exhibit 5-4. In 2000, nearly 18,600 MT of HCFC-141b were consumed in the foam sector in Latin America, with only 1 percent of total consumption coming from the smaller Latin American countries. In 2000, HCFC-141 b was not used in the domestic and transport refrigeration sectors. The following points highlight the areas of HCFC-141 b consum1ption by subsector in the major Latin American countries. Brazil. The transition from CFC-11 to HCFC-141b is well underway in Brazil, with HCFC-141b expected to reach full market penetration in 2005 (White, 2000). In 2000, about 3,400 MT HCFC- 141 b were consumed in foams, which cdrresponded to about 18 percent of the total consumption in Latin America. The majority of HCFCA141b use (about 60 percent) was as a blowing agent in the foam insulation for domestic refrigerators. Another 18 percent of national HCFC-141b consumption in 2000 was in the commercial and transport refrigeration sectors; about 12 percent of consumption was in foams in the panels segment. Hydrocarbons are not expected to be used extensively as a replacement for CFC-1 1. In Brazil, there are 4 enterprises using cyclopentane as a CFC substitute in foam systems: BSH Continental (2 factories), CCE, Esmaltec, and Multibras. Total consumption of cyclopentane is 600 MT per year. Adoption of cyclopentane has been limited because of the high costs associated with complying with national safety regulations. Additionally, the integral skin sector uses 15 MT of hexane annually. 57 * Mexico. HCFC-141 b has been widely used as a replacement for CFC-1 1 for a number of years. In 2000, about 14,200 MT of HCFC-141 b were consumed in foam applications, which corresponded to about 76 percent of the total HCFC-141 b consumption in Latin America in 2000. The domestic refrigeration sector in Mexico consumed about 40 percent of the total HCFC-141 b consumption in the country, followed by the polyurethane panels subsector, which totaled about 20 percent. Other important uses of HCFC-141b in the foams sector were in the panels segment and the commercial refrigeration subsector. Based on information from local consultants, the HCFC-141b market in Mexico is expected to continue to grow, at least in the near-term. In the long-term, HCFC-141 b consumption in Mexico will be strongly influenced by whether or not the United States-its major trading partner-will allow systems containing HCFC-141 b to be imported beyond 2003. As such, Mexico's long-term consumption trend for HCFC-141b is uncertain. Hydrocarbons are not used as CFC-1 1 replacements, given flammability concerns. * Argentina. In 2000, about 150 MT of HCFC-141 b was used in the foams market. To date, the main uses for HCFC-141b consumption in the foams sector in Argentina have been for rigid and panels polyurethane segments (about 60 percent and 24 percent, respectively).17 By 2010, HCFC-141b is expected to account for 35 percent of total consumption in the foams market. By this time, the market penetration for hydrocarbons is expected to reach 60 percent, with cyclopentane becoming the primary replacement for HCFC-141b in the foam markets. There is also a limited amount of CO2 and methylene chloride technology being used for flexible foams. * Chile. Large-sized Chilean manufacturers of refrigerators are in the process of converting from CFC -11 to cyclopentane or HCFC-141 b. HCFC-22 was formerly used as a blowing agent by only one company, IPAC, which has already shifted to HCFC-141b. In 2000, about 1 percent of total Latin American consumption of HCFC-141b was consumed in Chile. In that year, about 60 percent of Chile's total HCFC-141 b consumption was in the rigid polyurethane segment. For the remainder of the polyurethane foams market, conversion to HCFC-141 b will continue to expand as prices become more competitive with CFC-1 1. Once markets are fully transitioned in 2010, HCFC-1 41 b is projected to penetrate 55 percent of the total foams market. By this time, the market penetration for hydrocarbons is projected to reach 40 percent, while the remaining 5 percent of the total foams market is expected to use HFCs. * Colombia. All CFC conversions in the foams markets have been to HCFC-141b. Some conversions to HCFC-141b in smaller spray and panel markets are still underway. In 2000, the primary use of HCFC-141b was in the domestic refrigeration segment. Rigid and panels polyurethane segments both consumed about 20 percent of the country's HCFC-141 b consumption in the foams market. Once markets are fully transitioned, in 2010, HCFC-141b is projected to penetrate 60 percent of the foams market. By that time, HCs are projected to penetrate 35 percent of the foams market, with the remainder of the market (5 percent) expected to use HFCs. * Venezuela. Use of HCFC-141 b is increasing as foam system suppliers begin to offer this as a replacement to CFC-1 1. In 2000, HCFC-141 b consumption in the foam market was the smallest of all major Latin American countries, totaling less than 1 percent of the region's 2000 consumption. By 2010, once markets are fully transitioned, HCFC-141 b is expected to penetrate 45 percent of the foams market in Venezuela, while hydrocarbons are expected to reach about 50 percent of this market, and HFCs, the remainder. As Exhibit 5-4 shows, the most common new fluorocarbon consumed in the foams sector in Latin America is HCFC-141 b. However, some HCFC-22 use (105 MT) was also noted. Chile, the only major Latin American country that consumed HCFC-22 in this market, accounted for about 95 percent of annual HCFC-22 consumption for foams in the region. 7 During the field survey, information was obtained as separated data into rigid PUR and panels PUR. 58 5.22. Refrigeration In developing countries, the refrigeration market is generally characterized by equipment with high leak rates, and service operations that do not have access to recovery/recycling equipment. Country-specific information on demand for HFCs (e.g., HFC-134a) and HCFCs (HCFC-22, HCFC-1 23) in the refrigeration sector is provided in Exhibits 5-4 and 5-5. The demand for HCFC-22 as a refrigerant was greater than 8,700 MT in 2000. In the same year, demand for HFC-134a in the refrigeration sector was approximately 5,000 MT. Domestic Refrigeration (New and Service) Fluorocarbons are used as both refrigerant and foam blowing agent for insulation. Historically, the refrigerant used in domestic refrigeration was CFC-1 2, and the typical blowing agent was CFC-1 1. CFC- 12 in this use has since been replaced primarily by HFC-134a and, to a lesser extent, isobutane; CFC-1 1 has since been replaced primarily by HCFC-141 b and cyclopentane, as well as HCFC-22 and HFC-134a. Future alternative foam blowing agents may include HFC-245fa and HFC-365mfc, which result in foams that possess thermal conductivity comparable to that of HCFC-1 41 b foams, and about 10 percent lower to that of cyclopentane foams (A.D. Little, 2001). Penetration of isobutane compressors in domestic refrigerators in Latin America was below 10 percent in 1996 (World Bank, 1996). In 2000, 3,783 MT of HFC-134a were used in Latin America in the domestic refrigeration sector (see Exhibit 5-5). Demand for HFC-134a in manufacturing applications accounted for approximately 65 percent of the total amount used in the region in this sector. The following points summarize the key points characterizing the domestic refrigeration markets in all of the major Latin American countries. * Brazil. The markets for HCFC-22 and HIFC-134a are strong. In 2000, 1,181 MT of HFC-134a were consumed in domestic refrigeration for new equipment, which accounted for approximately 36 percent of the total HFC-134a consumed in the region in manufacturing applications. Interestingly, no HFC-134a was reportedly used in servicing domestic refrigerators. * Mexico. In 2000, Mexico accounted for approximately 60 percent of total HFC-134a consumed in Latin America in manufacturing of new domestic refrigerators (1,900 MT). Servicing applications consumed 500 MT of HFC-1 34a, which accounted for about 92 percent of the total HFC-1 34a consumed in this sector in all of Latin America. * Argentina. Frimetal, a domestic refrigeration company located in Rosario, Argentina is currently converting its entire production line to hydrocarbons (isobutane and cyclopentane). Whiripool (Argentina) also has a prototype domestic refrigerator model with an isobutane compressor. Autosal, with license from the Liebher Group from Germany, is producing refrigerators in San Luis, Argentina, with hydrocarbons used as the refrigerant charge and as a blowing agent. However, most companies have converted to HFC-134a. In 2000, 48 MT of HFC-134a were consumed in manufacturing applications, and only 2 MT of HFC-134a were consumed in servicing applications. * Chile. According to information obtained from importers and distributors in 2001, 11 MT of HFC- 134a were consumed in the domestic refrigeration sector in Chile in 2000. National manufacturing operations accounted for almost all of the HFC-134a consumed (10 MT). For foam blowing agent in the production of domestic refrigerators, cyclopentane is used. However, it should be noted that this information conflicts with new data from the World Bank (2002c), which indicates that in 2001, there was no consumption of HFC-134a in the servicing or manufacture of domestic refrigerators. * Colombia. In 2000, 100 MT of HFC-1 34a were consumed in the manufacturing of new domestic refrigerators, and 15 MT of HFC-134a were consumed in servicing applications. 59 * Venezuela. The HFC-1 34a market for the domestic refrigeration sector was not strong in Venezuela in 2000; only 5 MT of HFC-134a were consumed in servicing applications. * Other Latin American Countries. In 2000, HFC-134a consumption in domestic refrigeration service applications was 21 MT, representing only a fractional amount of the annual HFC-1 34a consumption in the region. Commercial and Industrial Refrigeration (New and Service) Another primary use of HFC-134a is as a substitute of CFC-12 for commercial refrigeration. In 2000, 1,015 MT of HFC-1 34a were consumed in Latin America in this sector in both manufacturing and servicing applications (see Exhibit 5-5). CFC-12 was replaced by HFC-134a in medium temperature refrigeration applications and R-502 was replaced by R-404A in low temperature refrigeration end uses. There is currently minor use of HFC blends for small to medium commercial refrigeration. In supermarkets, R-502 was replaced by HCFC-22 and R-404A. The ternary blends (e.g., R-404A, R-407A) designed for retrofitting are not widely used in supermarkets and chillers. Some multinational subsidiaries retrofit existing equipment, but the volume has not been significant. In Argentina, there is limited adoption of refrigerant blends in retrofit operations. • Brazil. HCFC-22 is the dominant refrigerant used in commercial and industrial applications. No HFC-134a was consumed in commercial refrigeration in Brazil. Use of ammonia as a refrigerant in the commercial refrigeration is very limited. There is only one manufacturer of commercial refrigeration units in the country (Multibras) that consumes ammonia, with annual demand of 6 MT. * Mexico. In 2000, 900 MT of HFC-134a were consumed in commercial and industrial refrigeration applications in Mexico, making it the dominant refrigerant in this end use, and accounting for approximately 89 percent of the total HFC-134a consumed in Latin America in this sector. New commercial and industrial refrigeration equipment consumed 650 MT of HFC-134a, while service applications consumed 250 MT. An estimated 350 MT of HCFC-22 was also used in commercial and industrial refrigeration. * Argentina. HCFC-22 was the dominant refrigerant used in commercial and industrial refrigeration applications in 2000, accounting for 768 MT. R-404A consumption in this end use was 63 MT in 2000, while the use of HFC-134a was only 33 MT. Of the HFC-134a used in this subsector, new equipment accounted for 91 percent. * Chile. HCFC-22 is the dominant refrigerant used in this end use, accounting for 325 MT in 2000. HFC-134a accounted only for 10 MT, with 90 percent of this amount used in the manufacturing of new equipment. According to the World Bank (2002c), consumption of both of these altematives increased in 2001, with an estimated 390 MT of HCFC-22 and nearly 50 MT of HFC-134a having been consumed in this end use. * Colombia. HCFC-22 is the primary CFC substitute used in this end use, accounting for 180 MT in 2000. In the same year, HFC-134a consumption accounted for a meager 23 MT, 17 MT of which was used in the manufacturing of new equipment, and 6 MT of which was consumed in service applications. About 20 MT of R-404A was also consumed in this end use in 2000. * Venezuela. HCFC-22 is the dominant refrigerant used in the commercial and industrial refrigeration end use, accounting for approximately 850 MT in 2000. In the same year, 10 MT of HFC-1 34a and 10 MT of R-404A were consumed in this sector, with both manufacturing and serving having an equal share of the market. 60 Other Latin American Countries. HCFC-22 is the primary refrigerant used in this end use in other Latin American countries. HFC-1 34a is also used to a limited extent, with 39 MT consumed in this subsector in 2000. Compressors Chillers are typically defined by the type of compressor used. Centrifugal compressors (with installed charges greater than 1,000 kW) most commonly use a low-pressure refrigerant, such as HCFC-1 23, or a medium pressure refrigerant, such as HFC-134a. The screw compressors (with installed charges between 200 and 1,500 kVV, the scroll compressors (with installed charges up to 200 kW), and the reciprocating compressor (with installed charges up to 500 kW) use HCFC-22, HFC-134a, R407C, or R410A (A.D. Little, 1999). Worldwide, it is estimated that isobutane compressors for domestic refrigerators comprise at least 5 percent of the total compressor market. Isobutane compressors for domestic refrigerators are more popular in Europe, where as many as 15 percent of all compressors that are sold use isobutane. 5.2.3. Air-Conditioning Mobile Air-Conditioning (MA Cs) and Stotionary Air-Conditioning All of the car manufacturers and OEMs in the automotive industry have adopted HFC-134a to replace CFC-12 refrigerant. However, while CFCs are rio longer installed in new MACs, they continue to exist in old MAC systems, and technicians can use new CFC-12 to service old or new MACs. HFC-134a consumption in the MAC sector for new and service applications was estimated to be about 1,700 MT in 2000, and is expected to continue to increase with rising sales of new vehicle. Some CFC units are still used in the aftermarket. HCFC-22 is now the most widely used refrigerant for residential air-conditioning and large supermarket applications. Demand for HCFC-22 in air-conditioning sectors was greater than 8,600 MT in 2000 (Exhibit 5-4). HCFC blends are also being considered for some retrofit operations. In the short term, most experts believe that HCFC-22 will continue to be used extensively. Information on demand for HCFCs (HCFC-22, HCFC-123) and HFCs (e.g., HFC-134a) by country and market segment is provided in Exhibits 5-4 and 5-5, respectively. The following discussion highlights key points by country. . Brazil. The markets for HCFC-22 and HIFC-134a are strong. In 2000, the air-conditioning sector consumed approximately 4,030 MT of HCFC-22. Use of HFC-134a accounted for approximately 36 percent of Latin America's total consumption in MAC applications. As the fleet of equipment containing HFCs and HCFCs reaches maximum market penetration, between now and 2010, demand for these chemicals will continue to increase. Equipment retrofits to HCFCs and HFCs could lead to reduced emissions of ozone depleting substances. . Mexico. HFCs and HCFCs are being adopted to replace CFC-1 and CFC-12 in air-conditioning markets. In 2000, 2,300 MT of HCFC-22 were consumed in all air-conditioning applications in Mexico, accounting for approximately 27 percent of the amount consumed annually in this sector in Latin America. 400 MT of HFC-134a were consumed in the MAC sector in Mexico, 75 percent of which was used in the manufacture of new cars. . Argentina. HFCs and HCFCs are being adopted to replace CFC-1 1 and CFC-12 in air- conditioning markets. In 2000, approximately 8 percent of the HCFC-22 consumption in this sector in Latin America was for air-conditioning applications in Argentina. In the MAC sector, 200 61 MT of HFC-134a were consumed in new cars, while 127 MT of HFC-134a were consumed in servicing applications. * Chile. In 2000, consumption of HCFC-22 in all air-conditioning applications was about 230 MT, which accounted for approximately 3 percent of total annual consumption of HCFC-22 in this sector in Latin America. Consumption of HFC-134a was 75 MT in 2000, with servicing applications accounting for approximately 81 percent of this amount. * Colombia. In 2000, HCFC-22 consumption in the air-conditioning sector was 360 MT, representing 4 percent of the region's total consumption in that sector. HFC-134a consumption in the MAC sector was 31 MT, with relatively equal market shares in both manufacturing (16 MT) and servicing (15 MT) applications. * Venezuela. In 2000, 660 MT of HCFC-22 were consumed in air-conditioning applications, accounting for approximately 8 percent of the region's total annual consumption in this sector. In the MAC sector, 180 MT of HFC-1 34a were consumed, with consumption in service applications representing 64 percent of the amount consumed in this sector. * Other Latin American Countries. In 2000, 66 MT of HFC-134a were consumed in the MAC sector in other Latin American countries, totaling about 4 percent of the region's annual HFC-1 34a consumption in this sector. HCFC-22 consumption in air-conditioning applications was about 400 MT. This accounted for approximately 5 percent of the region's annual HCFC-22 consumption in this sector. Other CFC-substitutes Ammonia is a widely used refrigerant in industrial refrigeration, but its use has not changed as a result of the CFC phase-out. Ammonia is not generally used as a CFC substitute in Mexico and Brazil. Significant market segments that use ammonia in their facilities include: fruit warehouses, meat industries, fishing industries, ice-cream and dairy manufacturers, and distribution centers for fresh foods. In Mexico, ammonia is used only for large industrial cold storage facilities. In Argentina, hydrocarbon use as a refrigerant across all end uses is anticipated to comprise less than 2 percent of the market at maximum market penetration. Hydrocarbons are also finding a limited use as refrigerants (approximately 2 percent of the market) in the manufacture of domestic refrigerators in Colombia. Chillers Refrigerant choice for chillers varies by region. In the U.S., HCFCs and HFCs dominate as the refrigerants of choice; in Europe, HFCs dominate; and in Article 5(1) countries, HCFCs, HFCs and ammonia are most common. Prior to the CFC phase-out, about 70 percent of centrifugal and screw chillers-which represented less than 30 percent of the total global chiller market-contained CFCs. All other chillers (i.e., positive displacement chillers, also known as air and water cooled chillers) contained HCFC-22, not CFCs (Gorman, 2002). HCFC-123 has been a viable altemative to CFC-1 1 in certain chiller applications. In low pressure systems, manufacturers use HCFC-1 23 for new equipment and to retrofit old CFC-1 1 systems. Volumes are typically low because there are relatively few systems and they tend to operate with very low leak rates. In 2000, about 30 MT of HCFC-123 were consumed in chiller applications in Latin America. Argentina holds 50 percent of the annual market share (15 MT), followed by Mexico (10 MT), and Colombia and Chile (5 MT each). HFC-134a is one of the main altematives being adopted for use in central air-conditioners and medium- pressure chillers. The primary suppliers of altemative central chiller equipment are Trane, Carrier, and 62 York. In 2000, about 30 MT of HFC-134a were consumed in chiller applications in Latin America, about half of which was consumed in Argentina (14 MT). Venezuela, Brazil, and Colombia were the next largest users. HFC blends, including R-407C, R-410A, and R-410B,18 are also available for use in chillers. 5.2.4. Aerosols Use of CFCs in aerosol applications has decreased dramatically in recent years. The most significant change is that hydrocarbon propellants now dominate the consumer aerosol product sector. In 2000, 51 MT of HCFC-22 were consumed for use in aerosols in major Latin American countries. Demand for HFC- 1 34a for aerosol products is expected to increa$e as a result of the high cost of PFCs for electronics cleaning. However, while HFCs are not as expensive as PFCs, their price relative to CFCs is still prohibitively expensive. HFCs and other substitutes may begin to see increased use as specialty and MDI aerosol manufacturers begin to substitute the use of CFC-11, CFC-12, and CFC-113. Data on substitute markets in this sector is not substantial, as CFCs continue to be strong market players, and consumer products generally transition to hydrocarbons. The following points summarize the key market characterizations of substitutes in the aerosols sector in each of the major Latin American countries. . Brazil. Hydrocarbons are being used as propellants in consumer applications, but no information is available to estimate total market size at this time. Use of HFCs in this segment was not identified. . Mexico. Nearly all aerosol plants in Mexico were converted to CFC substitutes without financial assistance from the MLF. During year 2001, 180 million cans were filled in Mexico, most of them using hydrocarbon blends as propellants. The predominant hydrocarbon blend is propane/isobutane. The proportion for each component of the blend depends on the desired pressure. In 2000, Mexico consumed 4,860 MT of propane and 11,340 MT of isobutane. . Argentina. HCFCs are being used as high-pressure propellant for dusters and other specialty aerosol applications (e.g., party snow). In 2000, total aerosols production was 367 million units. The HCFC-22 consumption in aerosol applications was 49 MT in 2000 (see Exhibit 5-4). Hydrocarbon propellants have been also widely adopted in consumer applications. In 2000, 36,000 MT of hydrocarbons were consumed in aerosol applications. Also, less than one metric ton of HFC-134a was used for MDI in Argentina in 2000. 5.2.5 Sterilants Blended HCFC-22 and HCFC-124 is being used in an ethylene oxide blend to replace CFCs. This new blend is widely used in all of the major Latin American countries. In 2000, less than 100 MT of HCFCs were consumed in sterilization applications in Mexico and Brazil (see Exhibit 5-4). Pure ethylene oxide (EO), as well as a C02/EO blend (90/10), are also used in some instances. 5.2.6. Solvents CFCs are still being used in the solvent sector. The most important application is use of CFC-1 1 to clean refrigeration and air-conditioning equipment. Other uses include metal cleaning, electronics, shoe sole manufacturing and fumiture production. Users generally feel that there is not an adequate substitute. HFC-134a, HCFC-141b, and HCFC-225 are also used as CFC substitutes (including some aerosols formulations) for cleaning solvents. According to industry experts, most CFC-1 13 and methyl chloroform was replaced with no clean and semi-aqueous technologies. In 2000, less than 7 MT of HFC-134a were consumed in Latin America in solvents applications (see Exhibit 5-5). 18 R-410B is composed of 45 percent R-32 and 55 percent R-125. 63 6. Supply of Major CFC Substitutes This section characterizes the supply of CFC substitutes. Section 6.1 focuses on HCFCs and HFCs, first describing the global market, and then the Latin American market. Section 6.2 describes the supply of other alternatives, including hydrocarbons, ammonia, carbon dioxide, and methylene chloride, as well as their prices in Latin America. 6.1 HCFCs and HFCs Both HCFCs and HFCs are produced by manufacturers worldwide. The most common HCFCs and HFCs include: * HCFC-22 * HCFC-141b/-142b * HFC-134a * HFC-32 * HFC-125 * HFC-152a • HFC-245fa * HFC-227ea 6.1.1. The Global Market The current size of the global market for HCFCs and HFCs is estimated to be more than 500,000 MT annually (AFEAS, 2001; Lemer, 2000). HCFCs have historically accounted for more than 80 percent of total sales. Growth in production of HCFCs was rapid in the 1990s with increases in demand for HCFC- 141 b dominating the growth. However, in recent years, HFC-1 34a growth has also been rapid. Production of HFC-134a is currently estimated to be growing at 15 percent annually (AFEAS, 2001). Sections 6.1.1.1. through 6.1.1.3. describe the global market of HCFCs and HFCs in more detail, focusing on major suppliers, historical supply, and production. 6.1.1.1. Maior Suppliers The major global suppliers of HCFCs and HFCs are located throughout North America, Europe, South America, and Asia (Lerner 2001, Mollett 2000). In 2000, annual global production of HCFCs (HCFC-22, - 124, -141b, and -142b) was approximately 425,000 MT. Annual global production of HFC-134a was 132,013 MT in 2000 (AFEAS, 2001). Exhibit 6-1 presents the regional production capacity for select CFC substitutes. Exhibit 6-1. Regional Production Capacity For Select CFC Substitutes ('000 MT) (2000) HCFC-22 HCFC-141b/142b HFC-134a All other HFCs Latin America >20 0 0 0 North America 200 90 100 60 Europe 165 70 40 30 Japan 90 25 35 7 China >80 0 <1 0 Korea <10 <10 0 0 Taiwan <10 <10 0 0 Global Total >500 >180 >175 >90 64 Together, North America and Europe make up the lion's share of global HCFC and HFC production-an estimated 80 percent (with 48 percent from North America and 32 percent from Europe). In 2001, the major suppliers and their relative capacities (within their respective regions) were as follows (Chemical Market Reporter, 2001): North America * DuPont, USA 34% * Honeywell, USA 28% * Atofina, USA 19% * Other 19% Europe * Ausimont, Italy 16% * Atofina, France 31% * Solvay, Germany 20% * Other 33% The major suppliers in Latin America and Asia are as follows (World Bank, 1996; Ouellette, 2000; Boswell, 1999; Boswell, 2000; Lerner, 2001; Chiina CR, 1999; Mollett, 2000): Latin America (HCFC-22 production only) * Quimobasicos, Mexico • Produven, Venezuela * FIASA, Argentina Asia Mitsui-DuPont Fluorochemicals, Japan * Asahi Glass, Japan * Showa Denko, Japan Daikin Industries, Japan * Maruzen Petrochemical, Japan • Xian Jinzhu Modern Chemical Industries Co., Ltd., China 6.1.1.2 Historical SuPPlj Based on data from AFEAS (2001), the historical trend in the global supply of HCFCs and HFCs is shown in Exhibit 6-2. Exhibit 6-2. Historical Olobal Production of Selected CFC Substitutes l(Source: AFEAS 2001) 300,000 250,000 -_ HCFC-22 200,000 --HCFC141b *0 _ 150,000 HCFC142b 0 100,000 - = ~~~~~~~~HFC-134a 100,000 _ _ _ _ _ a. 50,000 - 0 1990 1992 1994 1996 1998 Year 65 6.1.1.3 Production HCFCs As shown in Exhibit 6-2, total global production of HCFCs was estimated to be more than 400,000 MT in 1999, equivalent to 36,788 ODP MT (AFEAS, 2001; Oberthur, 2001; UNEP, 2002). In 2000, global production totaled 31,287 ODP MT, with the United States producing more than 45 percent of this total (UNEP, 2002). HCFC-22 accounts for approximately 60 percent of total global HCFC production (Boswell, 1999). HCFC- 22 production has increased as feedstock use for fluoropolymers. Indeed, more than 50 percent of global demand is for fluoropolymers. However, HCFC-22 phase-out is underway in Europe and Japan, causing demand to be significantly reduced. In 2010, production of HCFC-22 will be phased in the U.S., and two-thirds of the production from other developed countries will be curtailed. Given the reduced global demand on the horizon, the viability of opening a new production facility in a developing country to meet current demand would be questionable. Furthermore, the transition to alternatives is projected to be advancing quickly in major global markets. Possible alternatives to HCFC-22 for major refrigeration products, identified by the R-22 Alternative Evaluation Program (AREP, 2002), are new refrigerants or refrigerant blends, including: HFC- 134a, propane, ammonia, HFC-32/125 (60%/40%), HFC-32/134a (30%/70%), and HFC-32/125/134a (23%/25%/52% or 30%/10%/60%). In Europe, the emphasis is on a new HCFC-22 replacement blend, R-41 7A (or ISCEON 59)-a zeotropic, 3-component blend that consists of 50% HFC-1 34a, 46.6% HFC- 125, and 3.4% HC-600 (butane). R-41 7A is suited for both air-conditioning and refrigeration uses (OORG, 2000). Atofina is the world's second largest producer of HCFC-22. As the largest supplier to the air-conditioning and refrigeration market with four production sites on three continents, Atofina has decided to reduce its R-22 capacity because of the looming phase-out in refrigeration uses. Therefore, the company has decided to cease production at its Wichita (USA) plant at the end of 2002 (USGS, 2002). Additionally, ATO Changsu Fluor (China) currently produces HCFC-22 refrigerants. The objective of this plant is to supply the Chinese and Asian markets initially, and to increase its capacity in response to world demand for HCFCs as well as HFCs in the longer term (Atofina, 2002a). INEOS Fluor also produces HCFC-22 sold as ARCTON-22, at its world-scale production unit in the UK. The other major HCFCs produced include HCFC-141b, HCFC-142b, and HCFC-123. In Europe, current production levels of HCFC-141 b and HCFC-142b are around 70,000-80,000 MT per year (OORG, 2002). Producers expect significant declines in production of HCFCs after 2010, once restrictions on use of HCFC-22 in refrigeration equipment and HCFC-142b in foam insulation begin (Boswell, 1999; Boswell, 2001). Markets for HCFC-141b are in transition. Demand is rapidly increasing in Article 5(1) countries, but use may soon be restricted in developed nations such as the United States (Lerner, 2000; Ashford, 2000). Applications for HCFC-22 are likely to remain viable and environmentally acceptable for Article 5(1) countries beyond 2010. Acceptable foam technologies will likely continue to be HCFC-141b, in addition to non-HCFC alternatives such as cyclopentane, HFC-134a, and liquid carbon dioxide. HFCs HFCs dominate the refrigeration market because of their properties, price, safety and availability. HFC production facilities are located in the United States, Italy, France, Japan, China, UK, and Germany (World Bank, 1996; Ouellette, 2000; Boswell, 2001). 66 Global production of all HFCs (mainly HFC-134a) has increased by a factor of five - from 25,000 MT in 1993 to about 120,000 MT in1998 (TEAP, 2002). Since 1996, global HFC production capacity has grown at an annual rate of approximately 15 percent (AFEAS, 2001; Boswell, 2001; Link, 1999; Lerner, 2001). The 1998 TEAP Assessment projects that by 2015, global HFC production will be approximately 340,000 tons. It is also estimated that between 2010 and 2015, annual growth in HFC production will be about 2.5 percent per year. HFC-134a is widely used in refrigeration and air-conditioning applications. It is presently the most common HFC in production, with market growth at 10 percent per year (Link, 1999; Boswell, 1999; Boswell, 2001). Currently, global production of HFC-134a is at 130,000 MT, and is projected to grow another 18 percent-to 160,000 MT-by 2005 (Campbell, 2002). In the near future, HFC-134a production is projected to grow at an annual rate of 2 to 3 percent (Ouellette, 2000; CMR, 1999; Lerner, 2001). The three large HFC-134a producers are Atofina, DuPont and INEOS Fluor(OORG, 2002). Atofina is a global leader in the production of HFC-1 34a, with plants in the U.S. and Europe. Atofina's plant at Pierre- Benite (France) will be expanded in 2002, in response to growing demand in Europe and in other overseas markets. Additionally, expansion of the Calvert City plant in the U.S. has been completed, primed for production as soon as the market requires (Atofina, 2002b). INEOS Fluor is also a global leader in the manufacture of HFC-1 34a, and is the only company with production facilities in each of the world's key markets: U.S. (St. Gabriel), Europe (Runcom, UK), and Asia (Mihara, Japan) (Ineos Fluor, 2001). INEOS Fluor is the leading manufacturer of medical propellants. Production of pharmaceutical grade HFC-134a began at the facility in UK in 1995 - the only dedicated plant of its kind in the world. China will start up HFC-134a production in 2004, with plans to produce 5,000 MT by 2005 (OORG, 2002). The market for HFC refrigerant blends (e.g., 400 series blends, see Exhibit 5-3) is developing as HCFC refrigerants are being replaced. According to forecasts from the European manufacturers of HFCs, growth in consumption over the next ten years will be strongest growth for R-41 OA and HFC-134a, while only limited growth is projected for R-404A. A market decline is projected for R-407C after 2002-2003 (OORG, 2000). Thus, the key HFC refrigerants supplementing HFC-134a appear to be HFC-32 and HFC-125 (OORG, 2002). The HFC-143a blends have found market penetration as a result of its relatively high GWP (OORG, 2000). HFC-32 is a key component of new HFC blends, such as R-407C and R-410A, which have developed as substitutes for R-22. As a result, it is the fastest growing HFC. Great Lakes Chemical Corporation (Arkansas, U.S.A.) is the world's leading producer of HFC-32. Great Lakes increased its HFC-32 capacity production unit by more than 100 percent. This capacity is expected to meet the growing global need for HFC-32 for the next five years (OzonAction, 2000). In March 2002, Atofina started producing HFC-32 at its Zaramillo facility (Spain) and plans to double the capacity at this plant to keep pace with market growth. Atofina is the only European producer of HFC-32, allowing the company to retain its leadership position in European HFC production for refrigeration and air-conditioning. Additionally, in 2006, Atofina is planning to open a large-scale HFC-32 production facility in Calvert City, Kentucky, USA, to support the future development of the U.S. market (USGS, 2002; CW, 2002). Further investments are expected to meet HFC-32 demand. In Japan Daikin is currently the major producer and is also planning to expand (OORG, 2002). Asahi Glass has indicated that it is considering expanding HFC-32 capacity (CW, 2002). Producers report that they are producing at or near capacity in most cases. HFC-125 is a key ingredient in the majority of refrigerant blends that have been developed to replace HCFCs. Honeywell is the only significant producer of HFC-125. In mid-2002, the company expanded HFC-125 production at its Geismar, Louisiana plant (USA), doubling its annual capacity to 20,000 MT. A 67 joint venture by Diakin/Asahi/INEOS Fluorstarted producing HFC-125 in 2001. Ausimont has capacity in its Italian swing plant to produce HFC-125, but has patented a new, cheaper route, and is now choosing to produce mainly HFC-134a (CW, 2001 a; OORG, 2002). DuPont sells blends that combine HFC-32 and HFC-1 25. DuPont produces its fluorocarbons at Corpus Cristi (Texas), Louisville (Kentucky) and Deepwater (New Jersey) in the United States, as well as at Dordrecht (The Netherlands), and Shimizu and Chiba (Japan). The company has not made any announcements to expand production (CW, 2001a). HFC-143a is the primary component in the refrigeration blends R-404A, R-507, and R-408A. Atofina's Zaramillo facility (Spain) operates the world's largest capacity for HFC-143a and will continue to supply a major portion of the global demand for this fluorochemical (USGS, 2002). The future for the two main liquid HFCs, HFC-245fa and HFC-365mfc (used to replace HCFCs in foam blowing), appears more certain in the wake of several announcements about investments in significant capacity. HFC-245fa also replaces CFC-113 and HCFC-141 b in aerosol solvents. Honeywell announced new HFC-245fa production capacity at its Geismar, Louisiana plant, with which it is anticipating to handle the global needs for HFC-245fa (CW, 2001a). To meet customer demand, Honeywell is considering further manufacturing investments, including a plant in Asia or Europe (BPR, 2000). Vulcan Chemicals (U.S.A.) started production of HCC-240fa-the feedstock for the production of HFC- 245fa-in Geismar, Louisiana, but the capacity of this unit was not disclosed (CW, 2001 b). Additionally, Central Glass (Tokyo, Japan) is reportedly planning to produce HFC-245fa (CW, 2001a). However, there is still user concem about high price indications for HFC-245fa (OORG, 2000). The hydrofluoralkane, HFC-227ea, is mainly used in fire extinguishing and medical applications. Great Lakes Chemical, the main producer, in a joint venture with ICI Klea/lneos Fluor, will produce and market pharmaceutical grade product for MDls (complementary to HFC-134a - a special formulation made by Ineos for use in medical inhalers). DuPont and Solvay are also producing HFC-227ea (CW, 2001a; OORG, 2002). Solvay is building an industrial-scale unit at Tavaux (France) to produce HFC-365mfc (Solkane-365mfc). This unit, with annual capacity of 15,000 tons, is scheduled for start up at the end of 2002 (Solvay Annual Report, 2001). Global efforts are underway to reduce or limit emissions of HFCs. For instance, there are new govemment actions on HFCs taking place. Austria, Denmark, and Switzerland have already proposed HFC phase-out regulations. The European Commission is drafting a directive on fluorocarbons to address containment and monitoring issues. Japan and the United States are pursuing voluntary approaches to limiting HFC emissions through containment and recovery/recycling programs. 6.1.2. The Latin American Market Exhibit 6-3 provides an overview of HCFC and HFC consumption in Latin America in 2000. The subsequent subsections describe the Latin American market for HCFCs and HFCs, including the production, import, and prices of these chemicals. 68 Exhibit 6-3. Consumption of Selected CFC Substitutes in 2000 (MT) HFC-134a HCFC-22 HCFC-141b Brazil 1,814 9,498 3,351 Mexico 3,700 2,700 14,150 Argentina 450 1,646 148 Colombia 174 580 460 Venezuela 200 1,597 88 Chile 101 691 188 Other Latin America 258 836 184 Subtotal Latin America 6,697 17,548 18,569 ROW 128,303 237,351 119,080 Total 135,000 254,899 137,649 Source: Obethur (2001); Data collected from imports and distributors, 2001. Note: HCFC-123 consumption totaled 32 MT for Latin America (see Exhibit 5-4) Data on blends for refrigeration were not available but are expected to be very small. 6.1.2. 1. Production Currently, no HFCs are produced in Latin America. Of the HCFCs, only HCFC-22 is produced in the region. The producers are: • Quimobasicos, Mexico * Produven, Venezuela * FIASA, Argentina Based on information obtained from interviews with HCFCs producers, total annual production in Latin America was estimated to be more than 9,800 MT in 2000. The leading producer was Mexico, with total HCFC-22 production totaling 8,500 MT in 2000. Argentina produced only 800 MT, and Venezuela 569 MT. 6.1.2.2. Imports All Latin American import data was developed through interviews with large importers in the major Latin American countries. Records were verified through inquiries with govemment officials. The trade flows for HCFC-22, HCFC-141b, and HFC-134a in 2000 are illustrated in Annex 3. HCFCs HCFC-22 is widely used in all Latin American countries, primarily in commercial refrigeration and air- conditioning. Consumption of HCFC-22 will continue to grow as CFCs are phased out. Latin American producers of HCFC-22 supply at least 60 percent of the Latin American demand for this gas. Mexico alone exports approximately 5,000 MT annually. The United States and Europe export an additional 10,000 MT into the region. HCFC-141b imports exceed 18,000 MT annually, which supply the region's entire market. Based on a review of import data provided by major importers, imports of HCFCs originate from North America (85-90 percent), Europe (5-10 percent), and Asia (<1 percent). 69 HFCs Latin America imported more than 6,000 MT of HFC-134a in 2000. Imports originated from North America (>90 percent) and Europe (<10 percent). Small quantities were also imported from Asia (<50 MT). 6.1.2.3. Prices Exhibit 6-4 provides information on prices of HCFC-22, HCFC-141 b, and HFC-134a. Exhibit 6-5 presents import tariffs in the major Latin American countries. Based on information provided by large importers and distributors, between 1995 and 2002, HFC and HCFC prices have declined significantly. HCFC-141b price declines have been most significant, ranging from 30 to 70 percent since 1995. In the same period, HFC-134a prices have declined by approximately 15 to 25 percent, and HCFC-22 prices have dropped by 5 to 25 percent (OORG, 2000). Exhibit 6-4. Prices of HFCs and HCFCs ($/kg) COUNTRY HFC-134a HCFC-22 HCFC-141b Mexico 5.70 - 6.85 2.60 - 3.10 2.60 - 3.10 Brazil 5.10 - 5.65 3.30 - 3.65 2.70 - 3.30 Argentina 5.80 - 8.00 3.10 - 3.90 2.70 - 3.30 Chile 5.90 - 6.70 2.90 - 3.00 2.60 - 2.80 Colombia 7.20 - 9.00 3.10 - 4.10 2.70 - 3.50 Venezuela 7.00 - 9.50 3.25 - 4.10 3.10 - 3.70 Other 6.11 - 7.61 3.04 - 3.64 2.73 - 3.28 Source: Contact with importers and distributors, 2001. Exhibit 6-5. Non-CFC Import Tariffs (%) Country Non-CFC Import Import Tariff Applicability Tariff (%) Mexico 2 NAFTA Countries 10 European Union Brazil 4.5 HFC-134a 4.5 HCFC-141b 12.5 HCFC-22 Argentina 5 HFC-134a 5 HCFC-141b 13 HCFC-22 17 R-404A 10.4 MexicoNenezuela Chile 8 General Imports 0 Mexico 1.76 Argentina Colombia 0 Venezuela 2 Mexico 5 All Other Countries Venezuela 5 HFCs 5 HCFC-22 from Mexico 10 General Imports Source: Contact with importers, 2001. 70 6.1.2.4. Factors Affecting SuppIv Several key factors will affect the supply of HCFCs and HFCs in future. These factors include the following: Rising prices of CFCs. Higher CFC prices will trigger investment in CFC substitutes. Although prices have increased recently, the general trend has been stable HFC pricing, resulting in limited investment in new capacity for alternatives (Ouellette, 2000; Milmo, 1999a,b). VOC and other regulations in the United States. Restrictions on VOC emissions and restrictions on flammable materials in the United States have contributed to increasing demand for HFCs, especially HFC-134a, as opposed to hydrocarbons (see Section 6.2.1.1. for more on hydrocarbon usage). Potential restrictions on HFC use in Europe. Producers anticipate potential restrictions on HFC use in Europe, which would result in limited new investment in production but would also contribute to lower demand (Milmo, 1999a,b). Globalization/centralization/new investnients. The trend in the production of HFCs worldwide is toward centralized supply, with most new capacity growth now occurring in North America and Asia (Boswell, 1999; Boswell, 2001; Lemer, 2001). 6.2. Other CFC Substitutes: Hydrocarbons, Ammonia, Carbon Dioxide As discussed in Section 5, hydrocarbons, ammonia, C02, and methylene chloride are also used to replace CFCs in refrigeration, solvents, aerosols, and foams segments, although they have not penetrated the CFC substitutes market to the same extent as HCFCs and HFCs. 6.21. Supply Basic supply of hydrocarbons, ammonia, C02, and methylene chloride is sufficient to meet current demand for all potential uses in Latin America. In some cases, distribution, repackaging, and purification requirements must be addressed to facilitate adoption. The following subsections characterize the general supply of each of these alternatives globally, and in Latin America in particular. 6.2.1. 1. Hydrocarbons Hydrocarbons are produced globally, several of which have applications as refrigerants, aerosol propellants, or as blowing agents for foam production (IPCC/TEAP, 1999; World Bank, 1996). Hydrocarbons are currently being used in about 50 percent of the refrigerators manufactured in Europe, as well as in some manufactured in Asia and Latin America. Use of hydrocarbons in these products and in other refrigeration and air-conditioning systems could increase in future (IPCC, 2001). Using HCs in systems with large charges can present a safety concern, and globally standardized mechanical and electrical safety standards are being established. The important hydrocarbons are: * Isobutane (used as a refrigerant) * Cyclopentane (used as a foam-blowing agent) * Others: propane, butane, isopentane, isqbutane mixtures (used in refrigeration, foaming, and aerosol applications) 71 Isobutane (R600a) occurs naturally and is an intermediate product in the manufacture of motor gasoline. The oil refinery product has many impurities and, therefore, refrigerant grade isobutane is usually purified from commercial butane from natural sources. Refrigerant grade isobutane need only be 90 percent pure if the impurities are saturated hydrocarbons and the vapor pressure is controlled. Refrigerant grade isobutane is produced in Australia, China, Europe, and North America (MacLaine, 2001). The primary hydrocarbon used as refrigerant however is propane (R290). A mixture of 60 percent propane and 40 percent isobutane by mass has the potential to replace R-1 34a or R-1 2 as refrigerant in car air-conditioners. Cyclopentane is increasingly used as a foam-blowing agent. According to UNEP (2000) in the past two years cyclopentane has emerged as the most promising zero ODP alternative to CFC-1 1 as a blowing agent for rigid insulation foam." Worldwide, cyclopentane is commonly produced as part of refinery operations and is readily available. Purity ranges from 70 to 95 percent, all of which appear to be acceptable in terms of foam quality. By 2000, cyclopentane technology represented about 15 percent of the current foam blowing technology used in the region (TEAP, 2000). Cyclopentane supply is expected to be adequate to meet the needs of Latin American countries. Hydrocarbons are highly flammable and are subject to many restrictions on transport. However, their flammability can be easily mitigated through adequate safety measures in production and product design. Small quantities are very expensive to transport, but large quantities are very cost effective. Local manufacture based on local hydrocarbon sources is necessary. Additionally, to minimize capital and operating cost, manufacturing plants need to be integrated into the local petroleum industry, and large enough to supply more than half of local refrigerant demand. Specifically, plants should be sized to supply at least 1,000 metric tons/year, and should supply products for all refrigerant markets. To succeed, plants should also have the enthusiastic support of government and the local refrigeration industry (MacLaine, 2001). There are virtually unlimited supplies of hydrocarbons for use in CFC-substitute applications. Suppliers must address packaging and purification issues specific to particular markets for hydrocarbons to enjoy more favorable market entry (e.g., packaging for refrigeration, purity for aerosols). There are more than a dozen suppliers worldwide including: Exxon Mobil, Phillips, Elgas Limited, Duracool, Ecozone, and CARE Refrigeration (World Bank, 1996). Possible sources of hydrocarbons in Latin American countries are presented in Exhibit 6-6: Exhibit 6-6. Possible Sources of Hydrocarbons in Latin America Countrv SuPDlier Argentina Esso SAPA, Yacimientos Petroliferos, Isaura SA, Shell Mexico Petroleos Mexicanos Venezuela Corpoven, Lagoven, Maravan Brazil Petroleo Basileiro SA, Cubataso Chile Petrox SA, Refineria de Concon Ecuador Petroecuador Source: OORG (1995). 6.2.1.2. Ammonia Historically, ammonia has been widely used as a refrigerant in large industrial cold storage applications (IIAR, 2001). There are two quality specifications, anhydrous grade for refrigeration (water 4 ppm; purity 99.96 percent) and industrial grade (purity 96 percent). Generally, ammonia competes directly with HCFC-22, and its relative market share has not changed considerably as a result of the Montreal Protocol. To a lesser extent, ammonia also represents a likely altemative to HFC refrigerants. No 72 ammonia vapor compression units have capacity less than 50 kW. Since ammonia is flammable and toxic, its acceptance will depend on cultural norms and specific regulation in each country (IPCC, 2001). Based on a limited survey of producers in the region, conducted as part of this study, it was found that most of the ammonia produced in Latin America is used as raw material for fertilizer (60 percent), other chemical uses (e.g., nitric acid) (<20 percent), and in refrigeration (<20 percent). As an example of market size, detailed data collected for the Argentina market indicate that total sales of ammonia for refrigeration are approximately 2,800 MT, 90 percent of which is used to replace leaks in existing systems. All experts consulted indicated that the majority of the ammonia refrigeration facilities are old, with high leakage rates. Assuming an annual leakage rate of 20 percent, total installed charge in Argentina is estimated to be 12,500 MT. 6.2.1.3. Carbon Dioxide and Methylene Chloride Based on expert opinion and interviews with chemical distributors, by 2000, CO2 had increasingly replaced CFC-1 1 in flexible foams, and the trend has been growing. VVhile methyl chloride remains the major CFC phase-out technology, liquid CO2 (LCD)-based technologies continue to grow in this sector- at the expense of methylene chloride. For box-fbam production, CFC-1 1 is being replaced largely by methylene chloride. Both CO2 and methylene chloride are readily available in the Latin American region, but specific data were not available. Blowing technology with C02/organic blends (e.g., CO2/ethanol) is growing in significance, especially in Europe. More specifically, Germany has steadily improved this technology over the last four years. This study did not detect usage of C02/ ethanol blends in the Latin American region. 6.2.2. Prices This subsection presents cost information, as available, on hydrocarbons, ammonia, and carbon dioxide. 6.2.2.1. Hydrocarbons In Latin America, hydrocarbons are used mainly in Argentina, Brazil, and Mexico, though relative market penetration in each of these countries may be relatively small. Hydrocarbon prices in these countries, which have remained stable from 1996 through 2000, are as follows: * Argentina. Cyclopentane costs $2.60-$2.80/kg for large importers. Wholesale prices range from $3.60-$3.70/kg. * Brazil. OEMs can purchase cyclopentane from large distributors for $1.32 to $1.44/kg. * Mexico. The price range for hydrocarbon aerosol propellants is $5.40-$7.00/kg. Data on hydrocarbon prices in Chile, Colombia, and Venezuela were not available. In general, the availability of data on hydrocarbon prices is sparse, and appears to vary by application. The values presented here should be considered as informative only. No trends or pattems should be inferred from them. 73 6.2.2.2. Ammonia * Ammonia prices for large importers or distributors range from $400-$450/MT. Prices for end users range from $0.65-$0.75/kg in bulk, to $0.75-$1.00/kg in cylinders. Prices have been stable between 1996 and 2000. 6.2.2.3 Carbon Dioxide * Liquid carbon dioxide is inexpensive, currently estimated to cost OEMs approximately $0.65/kg in the Argentina foams market. Prices have been stable between 1996 and 2000. 74 7. Projections This section first presents the results of analyses on projected demand and supply. Specifically, Section 7.1 presents the projections of future CFC demand and supply, as well as the impacts on CFC prices. Section 7.2 presents the projections of future demand and supply of CFC substitutes and the impacts on CFC substitute prices. 7.1. Projections of Future CFC Demand and Supply The CFC supply and demand from 2001 through 2010 will depend on several factors (UNEP DTIE, 2001; IPCC/TEAP, 1999; MLF, 2002): * The speed at which equipment is retired or retrofitted, which in turn will be influenced by age of equipment, energy efficiency gains from new equipment, and price and availability of CFCs. * Producer decisions to alter production levels in response to changing demand or prices. * Completed and new production and consumption sector Multilateral Fund project initiatives. * The extent to which countries increase the practice of installing modern leak reduction and recovery and reuse, to maintain existing refrigerant stocks. * The extent to which customs agencies can monitor and control CFC trade. If all Article 5(1) countries utilize all of their allowable consumption (without an accelerated phase-out) and major producers maintain production at or near current levels, global CFC markets may face supply shortfalls in the next couple of years. This situation is not expected to occur because: (a) consumption- sector phase-out projects will reduce demand, ahd (b) consumption levels for most countries are already significantly below allowable levels. Moreover, Latin American producers may have sufficient flexibility and capacity to meet demand in the near-term, regardless of fluctuations in intemational markets. As described in Section 2.1., projected demand In major Latin American countries was determined based on (a) the latest consumption figures for each country (presented in Exhibit 3-1), and (b) quantitative and qualitative information from producers, importers, distributors, major OEMs and manufacturer associations, and selected major end-users (see Exhibit 2-1 for demand projections by major Latin American country). The allowable CFC consumFtion for each major Latin American country is based on individual country baselines (as defined under the Montreal Protocol) and national policies enacted to achieve CFC phase-out in 2010. National policiep considered in determining allowable CFC consumption figures for major Latin American countries are as follows: * Venezuela, Chile and Argentina are assumed to comply with the Montreal Protocol. As such, they are assumed to consume their CFC baseline amount until 2004, then 50 percent of the baseline amount in 2005 and 2006, and then 15 percent of the baseline amount in 2007 until 2009. In 2010, consumption is to be zero. * Brazil is permitted to consume 65 percent of its baseline amount in 2002, 45 percent in 2003, 25 percent in 2004, 15 percent in 2005, andl 10 percent in 2006. In 2007, consumption is to be zero. * Colombia is permitted to consume 75 percent of its baseline amount in 2002, 65 percent in 2003, 60 percent in 2004, 50 percent in 2005, 40 percent in 2006, 15 percent in 2007, and 5 percent in 2008 and 2009. In 2010, consumption is ito be zero. 7.1.1. Results This section presents the results on projected demnand and supply of CFCs in Latin America and the world. General findings of the analysis are as follows: 75 Global Supply. Supply from developed countries has declined significantly. Production from facilities in most major developed countries closed prior to 1996; additional plant closures in Europe are possible in the short-term. In addition, production in China and India will decline steadily through 2010. Supply in Latin America. Importers and distributors generally report sufficient supplies and low, stable prices in Latin America. However, CFC supply depends largely on the schedule of CFC closures in Mexico and Venezuela. In addition, supply will be influenced by whether or not European producers continue to supply CFCs for the basic domestic needs of Article 5(1) countries, as well as on export availability from India. * Impact of RecoverylRecycling. It is projected that CFC supply from recycling will be insufficient to have any significant impact on overall supply. This projection is based on data collected from experts revealing that the recovery/recycling rate in Latin America is very low (approximately 2 percent), and that the infrastructure to perform recovery/recycling operations is largely not in place. * Demand for CFC-1 1 in Latin America. Consumption of CFC-1 1 in Latin America is expected to decline sharply in all foam applications, with phase-out occurring around 2005. Consumption of CFC-1 1 in refrigeration applications such as chillers will continue up to 2010, at which point CFC- 11-containing equipment are expected to be retired or converted. * Demand for CFC-12 in Latin America. Consumption of CFC-1 2 in Latin America is expected to decline steadily as a result of conversion of refrigeration equipment, but service needs will remain until 2010. Beyond 2010, CFC-12-containing equipment are expected to be fully retired or converted. Exhibits 7-1 through 7-2 compare allowable CFC consumption with projected CFC demand for all major Latin American countries, as well as for all other remaining Article 5(1) countries and the world. CFC demand projection estimates presented in Exhibits 7-la through 7-If are summarized in Exhibit 7-2, which presents projected CFC-1 1 and CFC-12 demand in major Latin American countries for each sector (based on data shown in Exhibit 2-1). For the Latin American region as a whole, both allowable consumption and projected demand are assumed to decrease linearly, as shown in Exhibit 7-1. Allowable consumption is expected to significantly exceed projected demand through 2006. Beginning in 2007, however, projected demand is expected to exceed allowable consumption (though a relative balance is projected for 2009). By 2010, when consumption is no longer permitted, demand is estimated to be approximately 1,130 MT. It is possible that this demand could be met by existing stockpiles and/or by increased practice of recovery/recycling. 76 I Exhibit 7-1. CFC Demand Projections for Latin America 30,000 25,000 PI- 20,00 * Allowable| 15,000 _ *Projected] E ( 10,000 _ - U- 5,000 _ _ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year In Brazil, both allowable consumption and projected demand are assumed to decrease linearly, with projected demand expected to outpace allowable consumption as early as 2003, as shown in Exhibit 7- l a. Demand is projected to remain greater than allowable consumption throughout the remainder of the decade. Indeed, at the time that consumption becomes prohibited by national regulations in 2007, projected demand is expected to remain at about 1,800 MT. Exhibit 7-1a. Brazil Projected CFC Demand 10,000 8,000 0 t 6,000 | Allowable E co 4,000-ec 0 o2,000- U. 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 77 In Mexico, demand is assumed to decrease linearly, and is projected to always remain below allowable levels, as presented in Exhibit 7-1 b. While allowable consumption levels significantly exceed projected consumption levels through 2006, supply and demand are projected to be relatively balanced in 2007 and, to a lesser extent, in 2008. By 2010, demand is expected to reach zero. Exhibit 7-1 b. Mexico Projected CFC Demand 5,000 p4,500 ~,4,000 o 3,500 o 3,000 - -m _ __ _ _ _ _ _Allowable L 2,000 m Projected E 1,000 - i U U 0 0 H E 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year As presented in Exhibit 7-1c, demand in Argentina is assumed to decrease linearly, and is projected to remain below allowable levels in all years except 2010. While allowable consumption levels significantly exceed projected consumption levels through 2006, supply and demand are projected to be relatively balanced from 2007 through 2009. By the 2010 phaseout date, demand is projected to be nearly 400 MT. Exhibit 7-1c. Argentina Projected CFC Demand 5,000 P 4,500 - 4,000 m __ _ 8 3,500 E 2,500 o~~~~~~~~~~~~~~ Alowable U Projected 2,000 o 1,500 o1,000 LI- 500 ; ; ; * ; 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 78 In Colombia, both allowable consumption and demand are projected to decrease linearly until 2010, as presented in Exhibit 7-1d. Projected demand is expected to remain comfortably below allowable consumption levels until 2007, at which time demand is projected to exceed allowable levels by about 150 MT. In the decade's later years, demand is projected to remain above allowable levels by just a few hundred tons. F Exhibit 7-1d. Colombia CFC Projected Demand 2,000 E 1,800 1,600 - -- -i 1,400 J---1 __ &1,200 mx Allowable " 800 - * _ ______________ _ *Projected 8600 0, 600_ * .)400 U ~200 Uiih 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year As presented in Exhibit 7-le, projected demand levels in Venezuela are expected to remain below allowable levels until 2007. From 2007 through 2010, projected consumption levels are expected to exceed allowable levels, with nearly 700 MT of demand expected to remain in 2010. However, it should be noted that, based on data collected from importers and distributors in Venezuela, national demand in 2000 was estimated to be approximately 45 perdent less than the consumption amount reported to the Ozone Secretariat, on which these projections have been based. Thus, if projections were developed based on information provided by local importers and distributors, projected demand would be approximately half of those presented here. Exhibit 7-le. Venezuiela Projected CFC Demand 3,500 3,000 ro 2,500 t 2,000 | Allowable| 1,500 * Projected 0 C.)1,000 Ii- 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 79 Projected demand levels in Chile, presented in Exhibit 7-1f, are expected to remain below allowable levels for all years, except for 2010, when demand is projected to be only about 65 MT. Exhibit 7-1f. Chile Projected CFC Demand 900 i800 c 500 * Allowable 4 400 - Projected 2000 _ * 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Exhibit 7-2 summarizes the demand for the major Latin American countries presented in Exhibits 7-la through 7-1f, and presents projected demand of CFC-1 1, CFC-12, and CFC-1 13 by sector. Exhibit 7-2. Projections of CFC Detand in major Latin Amerkan countris (MT) Proected CFC-12 Demand 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Refngeration 9,160 8,335 7,509 6,684 5,858 5,032 4,207 3,381 2,556 1,730 905 AirConcdtioning 1,520 1,391 1,261 1,131 1,002 872 742 613 483 353 224 Foams 466 378 290 201 130 59 0 0 0 0 0 Aerosols 548 449 350 250 151 75 0 0 0 0 0 Sterilization 110 99 88 77 66 55 44 33 22 11 0 Total CFC-12 11,805 10,651 9,497 8,344 7,207 6,093 4,993 4,027 3,061 2095 1,128 ProjectedCFC-1lDemand 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Refrigeration 239 215 191 167 143 119 95 72 48 24 0 AirCondtioring 181 159 136 114 91 69 54 40 25 13 0 Foams 4,862 3,954 3,047 2,140 1,233 326 0 0 0 0 0 Aerosols 292 241 190 139 89 38 0 0 0 0 0 Solvents (Cleaning) 362 289 215 142 68 0 0 0 0 0 0 Total CFC-11 5,935 4,858 3,780 2,702 1,625 552 150 111 73 37 0 Prqo d CFC-1130Demand 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Aerosols 190 171 152 133 114 95 76 57 38 19 0 Solvents (Caeaning) 9 8 7 6 5 5 4 3 2 1 0 Total CFC-113 199 179 159 139 119 99 80 60 40 20 0 Unspec d Demand' 1224 1101.6 979.2 856.8 734.4 612 489.6 367.2 244.8 122.4 0 Projected CFC Dend 19,163 16,789 14,416 12,042 9,685 7,356 5,712 4,565 3,418 2,273 1,128 T*ih reprer th. qobty of edd,rd erwmpticn for Venezuea that v rprted to the Ozone Seastiat b.A not accounted fcr in the bttom-Lup esbnates developd te this report 80 Exhibits 7-3 and 7-4 illustrate the assumptions used in this analysis to project CFC demand for the Remainder of Article 5(1) countries and the world. In projecting the allowable consumption of CFCs in other Article (5)1 countries, it was assumed that consumption in these countries declines linearly from reported 2000 levels'9 to reach Montreal Protocol targets (i.e., 50 percent reduction of baseline amounts in 2005-2006; 15 percent reduction of baseline amounts in 2007-2009; and 0 consumption in 2010). Exhibit 7-3. CFC Demand Projections for Remainder of Article 5(1) Countries 140,000 120,000 - _ _ ___ s 100,000 c 80,000 - -m * Allowable E 60,000_ Projected 40,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 L Year Adding on to the assumptions built in to Exhibits 7-1 and 7-3, Exhibit 7-4 includes assumptions on the projected demand in CEITs and developed countries, to show total global demand projections. This analysis assumed allowable and projected demand in CEITs to decline in the same fashion as in other Article 5(1) countries, described above. In estimating allowable CFC consumption for critical uses in developed countries, it was assumed that consumption will decrease linearly from 2000 levels to reach zero in 2006. Exhibit 7-4. CFC Global Demand Projections 200,000 180 000* *__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _160,000 - [- M 140,000 t _-E X 1200,000 m iAllowable (U100,0002 I E 80,000 - - - * Projected 60,000 O 40,000 E 20,000t 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 9 For countries without reported consumption for 2000, 1999 consumption levels were used. 81 Exhibits 7-5a and 7-Sb present two projection scenarios for CFC supply and demand. As mentioned in Section 2, the agreed upon production levels for Argentina, China, India, and North Korea are assumed to be followed in all scenarios. For South Korea, production is assumed to remain at zero-its latest reported production level. For all other producing countries (i.e., Mexico, Venezuela, European producers, and the United States), two production scenarios are explored. In Scenario 1, it is assumed that Mexico and Venezuela continue to produce at 2000 levels until final phase-out occurs in 2010, while production in the United States and European countries is assumed to remain constant at 2000 levels until 2005, when production is assumed to be shut down (Exhibits 7-4a and 7-6a). Under this scenario, demand is projected to exceed supply until 2008, with the greatest shortfall occurring in 2005. Beyond 2008, supply and demand are projected to be relatively balanced. Exhibit 7-5a. Projected Global CFC Demand and Supply (Scenario 1) 140,000 120,000 E100,000 80,0 o a Projected Supply a 60,000 40,000 20,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Exhibit 7-6a. Projection of CFC Supply and Demand (MT) (Scenario 1) j 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Supply _________________________________________ Major LatinAmerican Countries 12,847 12,847 12,847 12,847 11,474 11,474 10,513 10,513 10,513 0 Mexico 7.546 7,546 7,546 7,546 7,546 7,546 7,546 7,548 7,546 0 Venezuela 2,281 2,281 2,281 2,281 2,281 2,281 2,281 2,281 2,281 0 Argentna 3,020 3,020 3,020 3,020 1,647 1,647 686 686 686 0 Brazil 0 0 0 0 0 0 0 0 0 0 RemainderofArbide5(1) 69,744 49,782 44,973 38,411 29,889 20,467 11,749 8,889 3,830 0 OECD(exdudingMexico) 27,112 27,112 27,112 27,112 0 0 0 0 0 0 Total Global Supphl 109,703 89,741 84,932 78,370 41,363 31,941 22,262 19,402 14,343 0 Demand Major Latin American Countries 16,789 14,416 12,042 9,685 7,356 5,712 4,565 3,418 2,273 1,128 Mexico 2,665 2,271 1,876 1,481 1,086 731 548 365 183 0 Venezuela 2,487 2,236 1,984 1,733 1,481 1,258 1,116 975 833 691 Argentna 2,101 1,805 1,509 1,231 969 742 655 568 481 395 Brazil 8,030 6,786 5,541 4,297 3,056 2,397 1,798 1,199 599 0 Colombia 1,044 939 834 729 629 539 477 415 355 295 Chile 501 426 351 276 202 133 116 99 82 64 Remainder of Latin American Counties 1,679 1,593 1,507 1,422 1,336 868 401 267 134 0 RemainderofArtideS(1) 85,580 80,715 75,850 70,984 66,119 42,978 19,836 13,224 6,612 0 OECD (exduding Mexico) 2,400 2,193 1,987 1,781 1,574 0 0 0 0 0 CEIT 22,058 19,053 16,048 13,043 10,038 6,525 3,011 2,008 1,004 0 Total Gbal Demand 128,506 117,970 107,434 96,915 86,424 56,083 27,813 18,917 10,023 1,128 Potental Supply Shortfall | 18,802 28,229 22,502 18,545 45,061 24,142 5,551 (485) (4,320) 1,128 20 For China, only the agreed upon production levels beyond 2001are assumed to be followed. For 2001, China's production is assumed to be 51,000 MT, as estimated by China Environment News (2001); and its production for 2000 is assumed to be 47,870 MT, representing a linear increase from 1999 levels (44,739 MT) to 2001 levels. 82 In Scenario 2, it is assumed that Mexico and Venezuela continue to produce at 2000 levels until final phase-out in 2010, while the United States and European countries continue to produce at 2000 levels until 2005, and then decrease production by 50 percent, until final phase-out in 2010 (Exhibit 7-Sb). In this scenario, demand is projected to outpace supply only through 2006. Beyond 2007, supply is projected to exceed demand until 2010. Exhibit 7-5b. Projected Global CFC Demand and Supply (Scenario 2) 140,000 - 120,000- 100,000 U., 8 0 _ i Projected Supply 0 Exhibit 7-60,0 Projectin*of CFCSupply ad Dernan Projected Demand E 40,000- C) 20,000- 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Exhibit 7-6b. Projection of CFC Suppl and Demand (gMTL) (S nario 2) 1 2001 2002 2003 2004 2005 2006 2007 2008 2009 21 Supply Major Latin American Countries 12,847 12,847 12,847 12,847 11,474 11,474 10,513 10,513 10,513 0 Mexico 7,546 7,546 7,546 7,546 7,546 7,546 7,546 7,546 7,546 0 Venezuela 2,281 2,281 2,281 2,281 2,281 2,281 2,281 2,281 2,281 0 Argentina 3,020 3,020 3,020 3,020 1,647 1,647 686 686 686 0 Brazil 0 0 0 0 0 0 0 0 0 0 Remainder of Article 5(1) 69,744 49,782 44,973 38,411 29,889 20,467 11,749 8,889 3,830 0 OECD (excluding Mexico) 27,112 27,112 27,112 27,112 13,556 13,556 13,556 13,556 13,556 0 TotalGlobalSupply 109,703 89,741 84,932 78,370 54,919 45,497 35,818 32,958 27,899 0 Demand Major Latin American Countries 16,829 14,416 12,042 9,685 7,356 5,712 4,565 3,418 2,273 1,128 Mexico 2,665 2,271 1,876 1,481 1,086 731 548 365 183 0 Venezuela 2,487 2,236 1,984 1,733 1,481 1,258 1,116 975 833 691 Argentina 2,101 1,805 1,509 1,231 969 742 655 568 481 395 Brazil 8,030 6,786 5,541 4,297 3,056 2,397 1,798 1,199 599 0 Colombia 1,044 939 834 729 629 539 477 415 355 295 Chile 501 426 351 276 202 133 116 99 82 64 Remainder of Latin American Countries 1,679 1,593 1,507 1,422 1,336 868 401 267 134 0 RemainderofArticle5(1) 85,580 80,715 75,850 70,984 66,119 42,978 19,836 13,224 6,612 0 OECD (excluding Mexico) 2,400 2,193 1,987 1,781 1,574 0 0 0 0 0 CEIT 22,058 19,053 16,048 13,043 10,038 6,525 3,011 2,008 1,004 0 TotalGlobalDemand 128,506 117,970 107,434 96,915 86,424 56,083 27,813 18,917 10,023 1,128 Potential Supply Shortfall | 18,802 28,229 22,502 18,545 31,505 10,586 -8,005 -14,041 -17,876 1,128 83 Exhibits 7-6a and 7-5b suggest that at the global level, production from Mexico and Venezuela, as well as developed countries, is needed to avoid shortfalls in the early and middle years of this decade. However, knowing that no significant supply shortfall has occurred in 2001 or 2002, several important analytical and/or reporting limitations must be considered in light of these results. Specifically, over- reported demand, exaggerated projected demand, CFC stockpiling, illegal trade, and/or a more rapid transition to CFC substitutes would significantly alter these results. Despite the margin of error associated with these limitations, this analysis suggests that shortfalls are likely to result in 2005 and 2006, if supply from developed countries is discontinued after 2004. Beyond 2007, production from developed countries is not expected to be critical. Exhibit 7-5c presents the projected supply and demand balance for the major Latin American countries, which account for over 90 percent of demand in the region. This exhibit plots CFC demand in major Latin American countries against the projected supply from the region, assuming that Argentina abides by its production phaseout and Mexico and Venezuela hold production at 2000 levels until 2010. This scenario intentionally does not consider any imports into the Latin American region or exports from it, in order to assess whether Latin American countries have the capacity to satisfy their own CFC demands. Exhibit 7-5c. Projected CFC Supply and Demand in Major Latin American Countries (Assumes no imports or exports in the region) 18,000 - R 16,000 14,000 .2 12,000- - _ _ - c 10,000 - * I * * - *Projected Supply E 1,000 * * * ** n Projected Demand § 8,000 - m l_ 06,000 I IMlm _ 4,000 o 2,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year The supply 'shortfalls" shown in 2001 and 2002 in Exhibit 7-5c indicate the estimated CFC import levels needed to augment regional supply in order to satisfy regional demand-assuming that no Latin American CFC production is exported out of the region in those years. The graph suggests that beyond 2002, Latin America has the capability of satisfying its own CFC demands. Specifically, Mexican and Venezuelan producers should gradually decrease production levels (relative to 2000) beginning in 2004, by approximately 3,000 MT per year-if they are to meet but not exceed regional needs. Appropriate levels of CFC production in Latin America may be influenced by several factors. For example, supply could be increased further if consumption sector projects are expedited, or if increased recovery and recyding occurs in the region. In addition, rising prices caused by plant closure in Europe would tend 84 to encourage a more rapid transition to substitutes and, subsequently, a decrease in demand for CFCs. The major drivers of future demand are shown in Exhibit 7-7. Exhibit 7-7. Drivers of Future Demand Demand Increase Demand Reduction * Continuing construction of commercial * Conversion of major refrigeration, air- refrigeration units containing CFC-12; conditioning, and aerosol original * Continuing use of CFC-12 to service motor equipment manufacturers (OEMs) and vehicles and other equipment; foam, aerosol, and solvent users to * Continuing need for CFC-1 13 for specialty substitutes; industrial applications; * Continuing retirement of CFC-containing * Continuing demand for CFCs for metered refrigeration and air-conditioning fleets. dose inhalers. * Increased availability and declining prices for CFC substitutes. 7.1.2. Impacts on CFC Prices Exhibit 7-8 presents projections of the price of CFC-1 I and 12 through 2010. As described in Section 2.3.5., this analysis assumes that price varies linearly from current levels (starting in 2002) and up to 2/3 of the value of the UAC of the most expensive control implemented in the year in which the new CFC use must be phased out (for an explanation on why this assumption was used, please see Section 2.3.5.). The base CFC prices used in the analysis are the averaged prices for all major Latin American countries, not including Mexico. The projections developeq for ICF (1994) are provided for comparison. A sensitivity analysis is presented that projects prices based on relative chemical costs for key substitutes. It should be noted that the economic downtum in Argentina has likely produced a more conservative scenario. Exhibit 7-8. CFC Price Projections for Major Latin American Countries ($/kg) 2002 2003 2004 2005 2006 2007 2008 2009 2010 CFC-11 ICF (1994) 4.00 4.50 5.00 5.50 5.90 6.40 6.90 7.40 7.80 Low UAC 2.87 2.70 2.54 2.37 2.20 2.03 1.87 1.70 1.53 High UAC 3.56 4.07 4.59 5.11 5.63 6.14 6.66 7.18 7.70 141b proxy 2.93 2.83 2.72 2.61 2.50 2.40 2.29 2.18 2.08 CFC-12 ICF (1994) 4.50 5.00 5.60 6.10 6.60 7.10 7.60 8.10 8.60 Low UAC 5.04 5.48 5.92 6.37 6.81 7.25 7.69 8.13 8.57 High UAC 5.25 5.89 6.54 7.19 7.83 8.48 9.13 9.77 10.42 134a proxy 4.68 4.76 4.84 4.92 5.01 5.09 5.17 5.25 5.33 Note: See projection methodology discussion in Section 2. These results suggest that CFC-1 1 prices will tend to remain stable or will increase over time. Demand for CFC-1 1 will decline steadily as foam system suppliers begin to change their product lines, and large OEMs complete conversion projects. lnternational markets for HCFC-141b may be oversupplied in the near-term, causing prices to remain low. Products presently manufactured with CFC-12 sulbstitutes, including motor vehicles air-conditioners, domestic refrigerators, and consumer aerosols, will begin to displace the stock of older CFC-containing equipment. However, demand for CFC-12 for aflermarket servicing of refrigeration and air-conditioning equipment will remain strong between now and 2010, as a result of the large number of CFC-1 2- 85 containing equipment that remains in use. Recovery projects and retrofit assistance programs could assist countries to maintain use of existing refrigerant stocks. New CFC-1 2 will also be needed to supply remaining users. CFC equipment owners in a position to adopt a substitute (e.g., end of equipment life) will tend to substitute with the least expensive alternative. Generally, CFC prices are not expected to increase significantly until there are major supply shortfalls, a situation that may not arise until the mid or later part of this decade, when European and some Latin American producers begin to close production. CFC-12 prices could rise considerably if supply restrictions come into effect before remaining demand is addressed through investment projects. For example, CFC-12 prices in Mexico have increased to above $10/kg since the implementation of a voluntary imports quota system. Exhibit 7-8 suggests that average Latin American prices for CFC-12 may increase to levels ranging from $8 to $10/kg by 2010. 7.2. Projections of CFC Substitutes Demand and Supply This section presents the results of an analysis projecting the supply and demand of CFC substitutes in Latin America. As discussed in Section 2.3.4, supply projections for select CFC substitutes were focused on determining the amount of additional production capacity (based on the information presented in Exhibit 6-1) that will be needed to satisfy future demand. It should be recognized that, while this analysis assumes that production of CFC substitutes will equal projected demand (as market forces act to achieve a balance between the two), spot shortfalls in supply may occur. Generally, the supply and demand of major CFC substitutes from 2001 through 2010 will be driven by several key factors: * Increasing use of HFCs as replacements to CFCs in refrigeration, air-conditioning, foams, aerosols, and solvents applications. * Sustained use of HCFC-22 for refrigeration and air-conditioning applications through 2010 in Latin America. * Transition of use of HCFC-141 b for foams from developed countries to Latin America and other developing regions. To project demand for HCFC-141b and HFC-134a in major Latin American countries through 2010, market forecasts obtained from local importers and industry experts were used. Exhibit 7-9 presents this information, showing the projected size and year of maximum market penetration for HCFC-141 b and HFC-134a in major Latin American countries through 2010. For projecting future demand for HCFC-141 b and HFC-134a in all other countries, as well as future demand for HCFC-22 in Latin America and the rest of the world, future growth rates were projected based on information reported in Boswell (1999), Ouellette (2000), CMR (2000), and U.S. EPA (2002). These demand projections are shown in Exhibit 7-10. It should be noted that these projected demand figures are estimates only, subject to uncertainty. Future demand rates are highly speculative, and will be directly influenced by the rates of economic growth and CFC phaseout in individual countries. 86 I Exhibit 7-9. Estimated Maximum Market Sizes for HCFC-141b and HFC-134a in Latin America through 2010 HFC-134a HCFC-141b Country Max. Year of Max. Year of Market Maximum Market Maximum Size Market Size Market Penetration Penetration Mexico 11,100 2010 15,623a 2005 Brazil 4,500 2010 6,000 2005 Argentina 1,500 2010 1,300 2010 Colombia 1,000 2010 1,200 2010 Venezuela 900 2010 600 2010 Chile 300 2010 500 2010 Others 1,000 2010 500 2010 This is based on an annual growth rate of 2 percent. Because market trends beyond 2005 are highly uncertain, this analysis conservatively assumes that demand will be held constant from 2005 through 2010. Source: Expert opinion; Contact with importers, 2001; White, 2000. Exhibit 7-10. Estimated Annual Growth in Demand for Select CFC-Substitutesa 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 HFC-134a Latin America L All increase linearly to reach maximum market penetration, see Exhibit 7-9. ROW | 10% 10% 10% 10% 10% 5% 5% 5% 5% 5% HCFC-22 Latin America, 2% Other Developing ROVbJ -5% -6% -7% -8% -10% -12% -15% -19% -24% -10% HCFC-141 b Mexico 2% growth until 2005, then constant through 2010. Brazil Linear increase to reach peak in 2005, then constant through 2010. Rest of Latin All increase linearly to reach maximum market penetration, see Exhibit 7-9. America US, Japan, Europec All decline to zero in 2003. ROW All follow, overall growth rate for Latin America. a Annual growth rates indicate changes in demand relative to the previous year. b HCFC-22 declines for ROW are based on the estimated demand reduction percentages for HCFC-22 in the US. cThis analysis assumed that HCFC-141b regulations ih developed countries will reduce demand for HCFC-141b after 2002-2003. Source: Boswell, 1999; Ouellette, 2000; CMR, 2000; U.S. EPA, 2002. 7.2.1. Results Results of projected demand for HFC-134a, HCFC-22, and HCFC-141b are presented in Exhibits 7-11 to 7-13. These exhibits also indicate the level of additional production capacity-relative to 2000 levels, reported in Exhibit 6-1-that will be required to rheet future demand. As shown in Exhibit 7-11, demand for HFC-1 34a will increase as aftermarket service requirements reach market potential. Existing production capacity for HFC-1 34a is projected to be adequate to meet demand until about 2003. By 2010, additional capacity-on the order of 110,000 MT-is expected to be needed to satisfy global demand. Investments in increased capacity may occur in North America, Europe, and Asia, but will likely depend on price trends. No data were identified suggesting current plans to invest in 87 regional production of HFC-134a in Latin America. However, as demand increases over time, global producers are expected to respond to this new economic opportunity. Exhibit 7-11. ProjectIon of HFC-134a Supply and Demand IMT) Pijer.te HFC-134a _____________________________________ Supply 2000 2001 2002 2C03 2004 2005 2006 2007 2008 2009 2010 Estimated Glbal Capacity >175,000 AdditonalCapacity (MT) Needed to Meet Demand 0 0 0 6,549 24,987 45,132 56,824 69,033 81,784 95,105 109,023 Demnand Brazil 1,814 2,083 2,351 2,620 2,888 3,157 3,426 3,694 3,963 4,231 4,500 Mexico 3.700 4,440 5,180 5.920 6,660 7,400 8.140 8,880 9,620 10,360 11,100 Argentina 450 555 660 765 870 975 1,080 1,185 1,290 1,395 1,5C0 Colombia 174 257 339 422 504 587 670 752 835 917 1.000 Venezuela 200 270 340 410 480 550 620 690 760 830 900 Chile 101 121 141 161 181 201 220 240 260 280 300 Other Latin America 258 332 406 480 555 629 703 777 852 926 1,000 Subtotal Latin Anenca 6,697 8,057 9,417 10,778 12138 13498 14,859 16,219 17,579 18,940 20,300 ROW 128,303 141,134 155,247 170772 18749 206634 216966 227814 239,205 251, 165 263,723 Tota/HFC-134a 135,000 149,191 164,664 181,549 199,987 220,132 231,824 244,033 256,784 270,105 284,023 As shown in Exhibit 7-12, existing production capacity is projected to be adequate to satisfy future demand for HCFC-22, assuming a 2 percent growth rate in developing countries. Latin American producers are expected to use some existing CFC/HCFC-22 capacity to supply local/regional HCFC-22 demand. While actual future demand may vary from the estimated growth rates used in this analysis, significant surplus production capacity for HCFC-22 exists. Moreover, qualitative estimates suggest that producers are currently only running at 40 to 60 percent of total capacity. Exhibit 7-12 Projection of HCFC-22 Supply and Demand (MT) ProJlected HWC-C22 SuPOPy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Estimated Global Capacity >500,000 Additional CaPacitv (MT) Needed to Meet Demand 0 0 0 0 0 0 0 0 0 0 0 Demand Brazil 9,498 9,688 9,882 10,079 10,281 10,487 10,696 10,910 11,126 11,351 11,578 Mexico 2,700 2,754 2,809 2,865 2,923 2,981 3,041 3,101 3,163 3,227 3,291 Argenfina 1.646 1,679 1,712 1,747 1,782 1,817 1,854 1,891 1,929 1,967 2,006 Colombia 580 592 603 616 628 640 653 666 680 693 707 Venezuela 1,597 1,629 1,662 1,695 1,729 1,763 1,798 1,834 1,871 1,909 1,947 Chile 691 705 719 733 748 763 778 794 810 826 842 Other Labn America 836 852 869 887 904 923 941 960 979 999 1,019 Subtotal Latin Amenca 17,548 17,899 18,257 18,622 18,994 19,374 19,761 20,157 20,560 20,971 21,390 Developed Countries 186,497 177,361 166,797 154,533 141,976 127,674 112,642 95,979 78,120 59,172 53,435 Other Developing Countries 50,854 51,871 52,909 53,967 55,046 56,147 57,270 58,415 59,584 60,775 61,991 SubtotalROW 237,351 225,724 21Z280 196,671 180,690 162,489 143,358 122,151 99,422 75,307 68,005 Total HCFC-22 254,899 243,622 230,536 215,292 199,684 181,863 163,119 14a308 119,982 96,278 89,396 Demand for HCFC-141 b will increase as foam users adopt this chemical as a CFC-1 1 replacement. As shown in Exhibit 7-13, HCFC-141 b markets in Mexico and Brazil are expected to reach maturity within the next few years, with longer-term demand in Mexico being highly uncertainty (as it will be heavily influenced by future U.S. decisions to accept or ban the import of HCFC-141b systems). Existing production capacity is projected to be adequate to satisfy future demand for HCFC-141 b. While actual future demand in the region may vary from the estimated growth rates used in this analysis, surplus capacity exists to accommodate an increase in projected demand. Exhibit 7-13. FPojection o1 HCFC-141b Supply an Demand (MT) Projected hC.141b Supply 2000 2001 2002 2003 2004 2005 2006 2007 2006 2009 2010 Estimated Global Capacity' >138,0C0 Additional Capacitv (MT) Needed to Meet Demand 0 0 0 0 0 0 0 0 0 0 0 Dernand Brazil 3,351 3,881 4,411 4,940 5,470 6,000 6,000 6,000 6,000 6,000 6,000 Mexico 14,150 14,433 14,722 15,016 15,316 15,623 15,623 15,623 15,623 15,623 15,623 Argentna 148 263 378 494 609 724 839 954 1,070 1,185 1,3D0 Colombia 460 534 608 682 756 830 9S4 978 1,052 1,126 1,2D0 Venezuela 88 139 190 242 293 344 395 446 498 549 600 Chile 188 219 250 282 313 344 375 406 438 469 500 Other Labn America 184 215 247 279 310 342 374 405 437 468 500 Subtotaf Latin Anerica 18,569 19,685 20,807 21,934 23,067 24,207 24,510 24,813 25,116 25,420 25,723 USA 55,458 46,390 24,400 0 0 0 0 0 0 0 0 Europe 32,526 27,208 14,311 0 0 0 0 0 0 0 0 Japan 13,639 11,409 6.001 0 0 0 0 0 0 0 0 Other 17,458 18,807 19,561 20,621 21,687 22,758 23,043 23,328 23,613 23,898 24,183 Subtotal ROW 119,080 103,513 64,273 20,621 21,687 2Z758 23,043 23,328 23,613 23,898 24,183 TotalHCFC-141b 137,649 123,198 85,079 42555 44,754 46,965 47,553 48,141 48,730 49,318 49,906 *Au .tei HcFC-141b fi ab.A 77 p-,ofith,. oomlbld gIWi pofd-of HCFC-141b/.142b, t. ma,h d.aId fr 201)0 (o rled . lki -rpy shrtfl inta Pwar). 88 Through 2010, hydrocarbons will become more important as substitutes for CFCs, as some use of CFC- 11 as a blowing agent will be replaced with cyclopentane. Demand for ammonia is expected to be unrelated to CFC markets. In general, it is not likely that relative price levels of CFC substitutes will be significant driving forces in meeting the declining targets for CFC consumptions. The main factors will be increasing use of quota systems, availability of financial assistance, and command and control measures. 7.2.2. Impacts on CFC Substitutes Prices Prices for CFC substitutes have declined since 1995. Exhibit 7-14 presents estimates of the rate of decline in prices for the major Latin American countries for select CFC substitutes from 1995 to 2000. As shown, in most cases prices in 2000 have declined 10 to 30 percent from 1995 levels. Exhibit 7-14. Price Trends for Select CFC Substitutes (% reductibn from 1995 to 2000) Country HCFC-22 HFC-134a HCFC-141b Mexico - 3 -20 -25 Brazil a - 7 -15 - 69 Argentina - 25 - 25 - 30 Chile - 15 - 25 - 30 Colombia - 20 - 25 - 30 Venezuela - 25 - 25 - 30 a Rate of decline for Brazil cdvers time period 1997 - 2000. Source: Contact with Importers, 2001; Boswell, 2001; Milmo, 1999a,b. Many experts contacted for this study believe that, although prices may continue to decline for CFC substitutes, they probably will not decline at the rates shown in Exhibit 7-14. Preliminary estimates based on expert opinion are that the following price reductions are possible by 2010: * HFC-1 34a prices may decline to 85 percent of 2000 prices; * HCFC-22 prices may decline to 90 percent of 2000 prices; and * HCFC-1 41 b prices may decline to 85 percent of 2000 prices. 89 8. National Regulations on Consumption, Imports, and Exports This section presents national regulations that impact CFC markets in Latin America. Specifically, the restriction on consumption and imports/exports are discussed for each of the major Latin American countries. A brief discussion of the regulations in all other Latin American countries is also provided. Where not referenced, the National Ozone Units for the specific Latin American country provided the information. 8.1. Mexico Restrictions on Consumption Mexican environmental authorities are committed to complying with the schedule outlined in the Montreal Protocol. Presently, the regulation finalizing the phase-out of ODS is being prepared in consultation with ODS producers, and importers. The regulation will only apply to domestic consumption. Exports to Article 5(1) countries continue to be permitted. In 1989, Mexican authorities created a policy to encourage private sectors (industry and associations) to sign a voluntary agreement as part of an Accelerated Phase-out Program. While no official regulations were promulgated for implementing the accelerated phase-out, a yearly quota was assigned to ODS producers and importers on an ODP basis, based on historical market shares. Every year, the supply of CFCs and halons has been reduced, which has caused an increase in ODS prices. Between 1993 and 1996, Mexico reduced CFC consumption by 20 percent per year. From 1996 tol 999, Mexico reduced consumption by an additional 10 percent per year. Today, CFC uses in Mexico are for MDls, aerosols (for virtually all uses), and continued uses in domestic, commercial, and industrial refrigeration units. Restrictions on Imports/Exports Mexico has not yet placed regulatory restrictions on imports or exports of CFCs. 8.2. Brazil Restrictions on Consumption The use of CFCs as propellant in the manufacturing and trade of aerosols (e.g., commercial products like hygienic products, perfumes, and insecticides) was banned by Brazilian legislation in 1988 ('MS-NR 534/88"). Brazil passed this regulation prior to the ratification of the Montreal Protocol and the Vienna Convention in 1990. In 1991, preparation of investment projects began. On October 1, 1992, Brazil ratified the London Amendment. In July 1994, the Brazilian Country Programme was approved. On December 13, 1995, the National Council for the Environment (CONAMA) published Resolution No. 13 ("CONAMA 13/95") implementing the Brazilian Country Programme, which established phase-out deadlines for eleven sectors by January 1, 2001. Only the services sector was excluded from this legislation. On May 30, 1996, Brazil ratified the Copenhagen Amendment. Regarding the schedule for ODS phase-out, Brazil intends to move the deadline forward from 2010 (as established in the Protocol) to 2007 for Annex A and B substances. Phase-out deadlines for Annex C and E substances will follow the previously established schedule. Enterprises that use more than one ton of Annex A, B, or C substances must register with the Brazilian environmental agency, IBAMA ('IBAMA 29/95 Art 1 p.1"). 90 Restrictions on Imports/Exports Brazil has an import licensing system to control the consumption of Annex A, B, and C ODS. Annex E ODS (i.e., methyl bromide) is not included in the system. Import of recycled Annex A and B chemicals is prohibited (CONAMA 13/95, Art. 6). On September 14, 2000, due to the lack of compliance with CONAMA Resolution 13, Resolution 267 was published, further restricting the import and export of ODS (EPC, 2001). According to Resolution 267, the maximum permissible amount of CFC-12 imported will be reduced by weight allowances per importing and/or producing company, in accordance with the schedule presented in Exhibit 8-1. Exhibit 8-1. Permissible Amounts of CFCM12 Imports in Brazil Year 2001 2002 2003 2004 2005 2006 2007 Percent reduction off baseline 15 35 50 75 80 90 100 Source: National Ozone Unit of Brazil, 2001. Since December 31, 1995, import from or export to non-Article 5(1) parties of substances controlled under Annex A and B of the Montreal Protocol has been prohibited ("CONAMA 13/95, Art.5"). The use of disposable cylinders to store, sell, or transport CFC-1 1 and CFC-12 is prohibited (CONAMA 13/95, Art.7). New legislation on an environment tax placed on polluting activities was adopted on December 27, 2000 (EPC, 2001). Brazil has not established governmnental guidelines for the selection of acceptable altematives to ODS. Brazil has entered into voluntary agreements with industry associations to phase-out ODS. The Interministerial Executive Committee (PROZON) has an established co-operation with several trade associations to promote the use and emission reductions of ODS refrigerants. These Associations are: Brazilian Association of Aerosol Industries (ABA) Brazilian Association of Machine and Compressor Industries (ABIMAQ) Electrical and Electronic Industry Association (ABINEE) Brazilian Association of Chemical Industries (ABIQUIM) Brazilian Association of Fire Extinguishing Equipment and High Pressure Cylinders Industries (ABIEX) Plastic Industry Association (ABIPLAST) Brazilian Association of Gas Industries (ABRAPAR). Refrigeration, Air-conditioning and Heating Association (ABRAVA) Brazilian Association of Cool Transportations (ABTF) Automotive Manufacturers Association (AN FAVEA) Brazilian Institute of Cold Technology (IBF) National Plastic Institute (INP) * Agricultural Chemicals Industries Trade Union (SINDAG) All of the organizations are involved in activities tb reduce the use and emissions of ODS. They are all members of the European Council to Implement the Montreal protocol in Brazil (CCSEE). A RMP had been planned in Brazil but was canceled and replaced by a National Phase-out Plan, with a focus on CFC recycling. 8.3. Argentina Restrictions on Consumption During the development and implementation of the Country Program, the govemment of Argentina established a program to phase-out ODS. The most important regulatory actions included the ratification 91 of the London, Copenhagen, and Montreal Amendments. The goals of the program will be achieved through collaboration with industry, promulgation of appropriate and timely regulations, and facilitation of equipment replacement and process change. Since 1990, the use of CFCs as aerosols has been banned, with the exception of MDls and some industrial uses. The Country Program intended to advance the phase-out to 2006, but this was not possible. In 2000, new regulations were approved. Additional requirements for the management and disposal of regulated waste were adopted in Buenos Aires (EPC, 2001). Restrictions on Imports/Exports In 1997, Argentina passed Law 24040 to ban the importation of halons and the use of CFC as a propellant in consumer aerosols. According to Law 24051, emissions of ODS are classified as hazardous waste. An import/export licensing system is currently being proposed to phase-out consumption by 2010, following Montreal Protocol controls. 8.4. Chile Restrictions on Consumption Chile ratified the Montreal Protocol on March 26, 1990; the London Amendment on April 9, 1992; the Copenhagen Amendment on January 14, 1994; the Montreal Amendment on June 17, 1998; and the Beijing Amendment on May 3, 2000. Chile is planning to implement a new phase-out schedule with more stringent guidelines than the Montreal Protocol. Presently there are no regulations or guidelines controlling ODS in Chile. On September 3, 1999, the Council of Ministers approved a policy strategy for the application of the Montreal Protocol in Chile. The policy includes a decision to implement legal control over the commerce and use of ODS in Chile. In 2002, a legal proposal is expected to be sent to the House of Representatives and Senate for discussion and approval. From the moment it becomes effective, the law will immediately phase-out CFC-1 1 while CFC-12 will be phased out by 2007. Restrictions on Imports/Exports Currently, there are no restrictions existing to regulate the import and export of CFCs in Chile. However, Unidad Tecnica Ozono (UTO), the office for ozone issues under the National Commission on the Environment (CONAMA), has proposed import/export regulations for subsequent approval by Congress, as part of a Refrigeration Management Plan (RMP). The plan establishes regulations and an import licensing system to control the use of ODS in Chile (OzonAction, 2001). Specifically, the proposed regulations will: * Restrict trade of CFCs to countries that are non-signatories to the Montreal Protocol; * Avoid importation of equipment and technologies that require the use of ODS; and * Require the acquisition of a license to import and use ODS in accordance with the Montreal Protocol. The Council of Ministers approved a policy suggesting the introduction of a quota system for controlling ODS import. The import restrictions for bulk substances are presented below in Exhibit 8-2. 92 - - - - - - - ---|| Exhibit 8-2. Import Quota (MT/year) for ODS Substances in Chile Substance Import Quota Date of Entry Into Force CFC-11, -114 0 July 1, 2002 CFC-12 250 January 1, 2005 CFC-113 10 July 1, 2002 CFC-1 15 (+ mixtures) 35 July 1, 2002 "other" CFCs 0 July 1, 2002 HCFC Quota set at the average of January 1, 2010 imported HCFCs in the years 2007-2009 Carbon tetrachloride 0 January 1, 2003 Halon 0 July 1, 2002 1,1,1 -TCE 67 July 1, 2002 HBCF 0 July 1, 2002 Source: www. uneptie. orglozonactionrlibraryipolicy/regsI The RMP will outline requirements for the education and certification of refrigeration technicians, and for the maintenance, recovery, and recycling of equipment. 8.5. Venezuela Restrictions on Consumption Venezuela will follow the phase-out schedule set forth by the Montreal Protocol. Restrictions on Imports/Expofts In 1999, the Govemment of Venezuela issued Decree No. 3220 to control ODS substances starting in January 2000. The decree imposes strict restrictions on ODS imports, including prohibition of the importation of disposable containers. There are only 5 companies authorized to import CFC-1 1 and CFC-1 2. The authorized importers are: Refriquim (41%), Interfrigo (41%), Refrielectric (8%), Corporacion Saira (6%) and Holanda- Venezuela (4%). The total annual volume authorized for import from January 2000 to December 2004 is 135 MT (16 MT of CFC-1 1 and 119 MT of CFC-12). However, in 2000, over 1,300 MT of CFCs were imported by Venezuela. Data provided by large distributors suggests that imports surpass the approved amounts due to unauthorized imports of CFCs. There is a licensing system in place that controls the use of ODS in Venezuela (OzonAction, 2001). The Foundation of Industrial and Technological Reconversion (FONDOIN) is reviewing Decree 3220 to recommend actions for strengthening the control [measures, including the promulgation of new requisites for importing CFCs and recovering refrigerants. 8.6. Colombia Restrictions on Consumption Resolution 528/1997 prohibits the production and[ importation of domestic refrigerators with CFCs in Colombia. On December 1, 2000, Colombia adopted new requirements for the management and disposal of medical and other hazardous waste (EPC, 2001). The country will follow the phase-out 93 schedule established in the Montreal Protocol. In addition, the Colombian government is attempting to introduce a new structure for the Ministry of the Environment. Restrictions on Imports/Exports In Colombia, Rule 0304 restricts the importation of CFCs according to the phase-out schedule of the Montreal Protocol. Exhibit 8-3 presents the CFC import restrictions under Rule 0304. Exhibit 8-3. Restrictions on CFCs Imports in Colombia Base 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Allowable 1,800 1,620 1,530 1,350 1,170 1,080 900 720 270 90 90 0 Volume (MT) Percent Reduction 0 10 15 25 35 40 50 60 85 95 95 100 off base (%. Source: National Ozone Unit of Colombia, 2001. A licensing system is being developed to control the use of ODS in Colombia (OzonAction, 2001). 8.7. Other Latin American Countries Exhibit 8-4 provides a brief update on the status of legislation in additional Latin American countries. Information has been compiled through the Institutional Strengthening (IS) progress reports provided by the countries as well as reports from regional network meetings. Exhibit 8-4. Status of Legislation in Other Latin American Countries Countrv Leaislative Framework Belize New IS project Bolivia Ban on imports of domestic, commercial and industrial refrigeration. Legislation enforced in January 1999 Costa Rica Licensing system in place Ecuador Licensing system in process El Salvador Basic principles on the protection of ozone and climate change, approved in 1998. Awaiting approval of a draft ODS control and monitoring legislation (Ministerial and Presidential levels) Guatemala Law prohibiting and regulating imports and use of CFCs enforced in 1998. Licensing system in place Guyana Regulations for restricting/prohibiting ODS awaiting approval Honduras Ratification of London and Copenhagen amendments awaiting approval. Licensing system in place Nicaragua Legislation for control of ODS finalized and awaiting approval. Licensing system in process of formation Panama Legislation in place but licensing system not yet enforced Paraguay Agreement to control ODS imports awaiting govemment approval Peru Legislation on the monitoring of imports and exports, enforced since 1999 Uruguay Licensing system in place Source: www.uneptie.org/ozonaction/nou/status. html 94 9. Conclusions and Recommendations This section presents the final conclusions and recommendations of this study. 9.1 Conclusions All Article 5(1) countries are now faced with restrictions outlined by the Montreal Protocol to reduce the consumption and production of CFCs. Specifically, national production and consumption of CFCs are required to meet the following target levels by the following dates: . 2005: 50% reduction from base level . 2007: 85% reduction from base level . 2010: 100% reduction from base level This study assessed Latin American market sectors engaged in the supply and consumption of CFCs. Based on the results, several major conclusions can be drawn: . Overall, there has been substantial progress within Latin America in meeting the phase-out schedule set forth by the Montreal Protocol. CFC aggregate consumption is currently at or below the 1999 freeze level for all major countries. Each country will need to adapt its policies, strategies, and action plans to continue to meet the targets. Since the refrigeration and air- conditioning, and the foam sectors account for the largest consumption, those two sectors should receive the highest priority for reduction options. The forecast indicates that CFC use in the foam sector will be significantly reduced by 2005. The entire region is likely to meet 2005 and 2010 target set by the Montreal Protocol, but the demand forecast shows that the region will have difficulty meeting targets in 2007 and 2008. Moreover, these conclusions, assume that phase-out programs continue to be aggressively pursued and up-graded at the national level for all countries. (Note that Montreal Protocol targets are national not regional.) . For the refrigeration and air-conditioning sector, with CFC use continuing beyond 2005 at significant levels in most countries, sector and policy-based projects could be considered rather than individual projects. Examples from other countries that may be appropriate would be National Phase-out Management Programs such as those implemented in Thailand and Malaysia, and sector-based CFC phase-out operations such as those in China. In smaller countries, such as the Bahamas, Refrigerant Management Plans or simplified National Phase-out Management Programs have been approved, focusing on practical, performance-based approaches to CFC phase-out. * Additional attention will need to be given to the phase-out of non-essential specialty applications in aerosol and cleaning operations that remain in several countries. In the near term, NOUs should monitor technical development in non-CFC MDls as well as any guidance provided by the Executive Committee on this issue. Additionally, NOUs should review their own regulatory systems to determine what local actions will be required to approve the use of non-CFC MDls for local use, once they become commercially available. . Recycling programs, based on practical designs (e.g., banks of CFCs), may be appropriate for most countries and should focus on the refrigeration and air-conditioning service sector, particularly on MAC and commercial systems. . HCFCs will continue to be key replacement chemicals, particularly HCFC-22 and HCFC-141b. . Plans for phasing out regional CFC production are underway in the producing countries. The major concem is the need to design the projects with consideration of regional CFC (and HCFC- 95 22) supply requirements, while still meeting the national Montreal Protocol targets for the phase- out of production. There is additional uncertainty involved when considering how the supply from Mexico and Venezuela producers will change in the coming years. However, CFC supplies are expected to remain adequate to meet the diminishing CFC consumption forecast for the Latin American region. V Wth both low and high UAC values, CFC-12 price is projected to be higher than those for substitutes, which may help balance the market. * CFC prices are expected to increase slightly over the next few years, assuming that CFCs will be managed in a way that maintains balance of supply and demand on a regional basis. However, given the uncertainty in supply, it is difficult to forecast prices. Thus, individual country NOUs should carefully assess national conditions before enacting national phase-out programs. * Supply of the popular CFC substitutes-HFC-1 34a, HCFC-22, HCFC-1 41 b, cyclopentane, and methylene chloride-will likely be adequate for the region's CFC conversion programs. Global prices for these chemicals are expected to be stable over the phase-out period, but may decline slightly in the region. • A high price of HFC-134a compared to CFC-12 is one general problem that is presently facing the MAC sector. This price differential could cause problems in the service sector with 'back- filling' of CFC-12 into HFC-134a systems. * Some countries have used quotaAicensing systems to control supply of CFCs, notably Mexico and Brazil. Brazil also curtailed supply with the early closure of its CFC production facility. Quota systems are key components of the sector-based operations in countries such as China and Thailand. Quota systems, tailored to each country's specific conditions, could be an essential tool to implement sector-based phase-out operations and/or for stabilizing potential market imbalances. 9.2 Recommendations Several important recommendations for future activities can be drawn from this analysis to ensure that appropriate strategies are implemented to support individual country level actions to reach Montreal Protocol phase-out obligations. The following recommendations generally apply to most of the countries in Latin America: * Appropriate reduction of CFC production in Latin America is critical to foster the transition to CFC alternatives and prevent back conversions as CFC prices may equal the prices of substitutes as a result of potential scarcity. This is especially important for producers in Mexico and Venezuela, where production sector phase-out schedules have not yet been negotiated. * Across all countries, phasing out ODS in the service sector in refrigeration and air-conditioning is a high priority. Activities will need to target existing old refrigerators, MACs, chillers, commercial refrigeration systems, and similar CFC-containing equipment. Action programs need to be developed, in many cases, with the assistance of the MLF. National Phase-out Management Plans or Refrigerant Management Plans are recommended for most countries. * Recycle and retrofit efforts should be expanded where appropriate, typically as a component of the overall phase-out plans. * Substantial opportunities to reduce CFC-1 1 use by small to medium rigid foam producers still remains, particularly in the polyurethane sector. Activities to expedite conversion to CFC altematives, such as HCFCs, HFCs, and carbon dioxide/water should be pursued. 96 Use of import licensing/quota systems should be expanded to all countries as an effective tool in managing phase-out action plans. These systems, in all cases, need to be closely monitored and enforced. * Projects may incorporate a component focused on equipment distribution, especially through compressor manufacturers and distributors. By discontinuing the trade of CFC equipment, future demand for CFCs in aftermarket servicing will not be perpetuated. * All producing countries should focus on finalizing the production sector phase-out projects following the design recommendations proposed herein. * Smaller CFC uses such as industrial electronics and refrigeration cleaning should be targeted for elimination as early as possible, since such uses are considered non-essential. * Technical support should be provided for the transition to substitutes in all sectors, including training of technicians for certification; projects for training customs officers (e.g., customs officers must be able to distinguish between CFC-using and alternative refrigeration equipment); and voluntary partnership programs. Countries need to maintain and strengthen institutions and procedures for collecting and reporting CFCs and CFC-substitutes supply and demand data, both on national and regional levels. 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Allowance for production to meet the basic domestic needs of Article 5 parties: 10 percent of base level production 75 Percent Reduction January 1, 1994. Allowance for production to meet the basic domestic needs of Article 5 parties: 10 percent of base level production. 85 Percent Reduction January 1, 2007. Allowance for production to meet the basic domestic needs of Article 5 parties: 10 percent of base level production. 100 Percent Reduction January 1, 1996 (with possible January 1, 2010 (with essential use exemptions). possible essential use exemptions). Allowance for production to meet the basic domestic needs of Article 5 parties: 15 percent of base level production. Allowance for production to meet the basic dpmestic needs of Article 5 Parties: Annual average of its production for meeting the !basic domestic needs of Article 5 parties for the period 1995 to 1997 inclusive till the end of 2002. January 1, 2003: 80 percent of annual average of its production for basic domestic needs for the period 1995 to 1997 inclusive. January 1, 2005: 50 percent of annual average of its production for basic domestic needs for the period 1995 to 1997 inclusive. January 1, 2007: 15 percent of annual average of its production for basic domestic needs for the period 1995 to 1997 inclusive. January 1, 2010: zero. 103 Annex 2. HCFC Phase-out Requirements HCFC Non-Article 5(1) Parties Consumption Production Base Level 1989 HCFC consumption + 2.8 1989 HCFC production + 2.8 percent of 1989 CFC percent of 1989 CFC production. consumption. Freeze Level 1996 January 1, 2004, at the level of the average of its base levels of production and consumption. Allowance for production to meet the basic domestic needs of Article 5 parties: 15 percent of base level production. 35 Percent Reduction January 1, 2004 65 Percent Reduction January 1, 2010 90 Percent Reduction January 1, 2015 99.5 Percent January 1, 2020, and Reduction thereafter, consumption restricted to the servicing of refrigeration and air- conditioning equipment existing at that date 100 Percent January 1, 2030 Reduction I HCFC Article 5(l) Parties Consumption Production Base Level 2015 2015 Freeze January 1, 2016 January 1, 2016, at the level of the average of its base level of production and consumption. Allowance for production to meet the basic domestic needs of Article 5 Parties: 15 percent of base level production. 100 Percent January 1, 2040 Reduction 104 Annex 3. Trade Flow Maps CFC Trade Patterns for Major Latin American Countries (MT) ,r e n a n d C a rn a da | Olher - I.226 e - 767 4307 - 1 70~~~~~~~~~~~~~~~~~~~~~~~~~~~~~8 _13 Xu q u Ia \544 105 HCFC-22 Trade Patterns for Major Latin American Countries (MT) 'G r e e n I a n d o ra d a IJ1 no |a 1 06te d S tate s 1 4 0 3 OtX 1500 \ t \1 500 SA 9(uh\ <~~~~~~~~ C r u B r a i hl I o~~~~~~ 106 HCFC-141b Trade Patterns for Major Latin American Countries (MT) ,r e e n a n d a r a c a LI n it ed S t t e 5 t Asia Other -ca1 r U i 75 107 HFC-134a Trade Patterns for Major Latin American Countries (MT) G r P e. n I n d C a ,, ,i H n i t d S t E t e s E c ti d o r l~~~~~~~~~~~~~~~~~~~~~~~~~ / r'nzul | z2 i Other LatinI -250-Blva f ara gu ary A r e oti n 108 Annex 4. List of Contacts - Participants in the Study CHILE (e-mail message received on 07/27/01) * CONAMA (Comision Nacional del Medio Ambiente) - the National Environmental office responsible for the activities related to the Montreal Protocol * UTO ( Unidad Tecnica Ozono ) - the CONAMA office responsible for ozone issues, managed by technical advisors, Carlos Canales and Jorge Leiva . CAMARA CHILENA DE REFRIGERACION Y CLIMATIZACION AG- Klaus Peter Schmid, President of the chamber . Comments from Quimobasicos according to Oxiquim, Engel (DuPont), Emgland (ICI), Dist.Portland (Atofina) ARGENTINA (e-mail messages 08/08/01; 08/1 1/01) . OPROZ - National Environmental Office Mr. Jose Berlinger, Independent Consultant e-mail: remy_berlinger@hotmail.com Mr. Antonio Crstodero, Independent Consultant Las Casas St., No. 11, 1706, Haedo, Buencs Aires, Argentina Phone: 54-11-4659-7849; e-mail: ACristode o aol.com * Companies: Fiasa, DuPont, Giacomino, Te¢union, Ato-Carrier, Alkanos, York, Cedecor, Dow COLOMBIA 'e-mail messages 08/11/01; 08/15/01) * MINISTERIO DEL MEDIO AMBIENTE- Unidad Tecnica Ozono (UTO) Leonardo Munioz, General Coordinador; Carlos Andres Hemandez; Antonio Orozco. Address: Calle 37 NO 8-40, Bogota, Colombia; phone # 57.1 3323400 e-mail: cahernandezAminambiente.aov.co . CABARRIA Negocios Industriales Mr. Ruben Arevalo S., Sales Representative Address: Carrera 14 NO 77-59, Bogota, Colombia; phone # 57.1 3190100 e-mail: ruarevaloDcabarria.com INCOPAR- CARMELO MINERVINE y Cia. L4tda. Mr. Ivan Karaman, Manager; Ms. Ingrid Farhil Address: Calle 19 NO 15-09, Bogota, Colombia; phone # 57.1 2839020 e-mail: incoDarDyahoo.com . DISTRIBUIDORA REFRIMAYOR LTDA Mr. Fabio Gomez, Manager Address: Calle 70 NO 58-09, Bogota, Colombia; phone # 57.1 5405500 e-mail: refrimavy(andinet.com . ATOFINA COLOMBIA SA Mr. Hugo Garzon, Manager phone # 57.1 8526795 e-mail: huqo.qarzon(Datofina.com . BAYER DE COLOMBIA Mr. Armando Velandia, PU Sales Manager, phone # 57.14244164 Mr. Giovanni Ratalino, Supply Manager, phore # 57.1 4142277 . ESPUMLATEX Ltda Mr. Carlos H. Satizabal A. ,Director 109 Address: Carrera 93 NO 27-36, Bogota, Colombia; phone # 57.1 4150700 C.l. QUIMICA COMERCIAL ANDINA SA (Ex QUIANEX) Mr. Jorge Omar Bohorquez S., Sales Eng. Address: Calle 12 A, No. 68B-81, phone # 57.1 4178800, e-mail: wcaa-unete.com VENEZUELA (e-mail message 08/14/01) * FONDOIN (Fondo Venezolano de Reconversion Industrial y Tecnologica) Mr. Manuel Valencia Astudillo, President; Ms. Carmelina Flores, Coordinator Address: Av. Libertador ,Centro Comercial Los Cedros, piso 5, La Florida, Caracas Phone # 58.212.7313932 e-mail fondoin(ccantv.net • MINISTERIO DEL AMBIENTE DIRECCION GENERAL DE CALIDAD DEL AIRE Mr. Enrique Botino, Director; Mr. Antonio Chacin, Eng.; Mr. Ubaldo Guillermo, Coordinator Address: Centro Simon Bolivar, Torre Sur piso 28, Plaza Caracas, Caracas Phone #58. 212. 4081137 * DUPONT DE VENEZUELA Ing. Ernesto Prince, Comercialization Fluoroproducts Address: Zona Industrial Castillito, Calle 97 C.C.C.V. II Local 19 Valencia, Carabobo Phone # 58.241.8716466 e-mail ernesto.Prince(Aven.dupont.com * VENACOR (Camara Venezolana de la Ventilacion, Aire Acondicionado y Refrigeracion) Mr. Jesus Rafael Hemandez, President Address: No Pastor a Puente Victoria, Centro parque Carabobo, piso 22, Caracas Phone # 58.212.5773874 e-mail venacor(email.com INDUSTRIAS FRIOVEN HL, CA. Mr. J. R. Hernandez, Director Address: Calle El Empalme, Quinta Coquito, El Bosque, Caracas phone 58.212.7310864 e-mail frioven(Dcantv.net * SPRAY QUIMICA C.A. Ing. Jose I. Pons, President Address: Urbanizacion Industrial Soco- Calle Sur, La Victoria. Estado de Aragua Phone # 58.244.3223297 * REFRIQUIM - Distributor of Refrigerantes Quimicos.C.A. Mng. Samuel M. Flasz, Vicepresidente Address: Torre Capriles piso 4, of. 401, Plaza Venezuela, Caracas Phone # 58.212.7938848 * PINOVA SA. Mr. Rafael Rau, Director Address: Carretera Panamericana Km 14, San Antonio de los Altos. Estado Miranda Phone # 58.212.3728011 e-mail neverama0piamnef.com * SISTHESIS C.A. Mr. Antonio Subirals, Plant Manager Address: Urbanizacion Industrial El Recreo, Valencia Phone # 58.241.8783882 I POLYRESIN C.A. Ms. Beatriz Exposito de Rizzo, Eng. Address: Calle 1, La Yaguara, Carmelitas, Caracas Phone # 58.212.4710070 110 MEXICO . Mr. Jorge Corona, Independent Consultant e-mail: jcoronav@adetel.net.mx BRAZIL . Mr. Evandro Soares, Independent Consultant e-mail: ersoares(Dhotmail.com 111 LCR Sustainable Development Working Papers For back issues please contact Peter Brandriss at the World Bank (pbrandriss@worldbank.org) No. Title Date Author 13 World Bank Approaches to the Brazilian Amazon: November 2002 John Redwood IlIl The Bumpy Road toward Sustainable Development 12 Microfinance Prospects in Brazil September 2001 Steven N. Schonberger 11 Local Govemments and Sustainable Rural Development: December 2000 Maurizio Guadagni The Rural Municipalities Project (Protierra) in Nicaragua Gabriela Boyer Adien Gulliver Paola Perez-Aleman Dagoberto Rivera 10 Strengthening Indigenous Organizations: The World Bank's December 2000 Jorge E. Uquillas Indigenous Capacity-Building Program in Latin America Teresa Aparico Gabara 9 La raza y la pobreza: Consulta interagencias sobre November 2000 Proceedings of June 19, afrolatinoamericanos (available in English) 2000 roundtable in Washington 8 Incorporacion de aspectos de genero y desarrollo April 2000 (original Caroline Moser en las operaciones del Banco Mundial: Avances published Annika Tornqvist y recomendaciones December 1998, Bemice van Bronkhorst in English) 7 Perceptions of Urban Violence: February 2000 Caroline Moser Participatory Appraisal Techniques Cathy Mcllwaine (available in Spanish) 6 Defining Ethnodevelopment in Operational Terms: January 2000 Martien van Nieuwkoop Lessons from the Ecuador Indigenous and Jorge E. Uquillas Afro-Ecuadoran Peoples Development Project 5 Violence and Social Capital: Proceedings of the LCSES August 1999 Caroline Moser Seminar Series, 1997-98 Sarah Lister 4 Youth Gangs and Violence in Latin America August 1999 Dennis Rodgers and the Caribbean: A Literature Survey 3 Youth Violence in Latin America and the Caribbean: August 1999 Caroline Moser Costs, Causes, and Interventions Bemice van Bronkhorst 2 A Conceptual Framework for Violence Reduction August 1999 Caroline Moser (available in Spanish) Elizabeth Shrader I Environmental Guidelines for Social Funds December 1998 Douglas J. Graham (available in Spanish) Kenneth M. Green Karla McEvoy 112 I l4 > The World Bank I.a^tn 1818 H Street, N.W. u ~F t 2 Washington, D.C. 20433 www.worldbank.org/montrealprotocol