It’s getting hot in here – how the air-conditioning industry can meet increasing consumer demand while addressing climate change
The air conditioning and refrigeration industries have long been contributors to climate change, but companies like Daiken Industries are developing new technologies that address environmental and energy issues.
For decades, air conditioning and refrigeration manufacturers used chlorofluorocarbons in their products, contributing to the depletion of the ozone layer. Despite appeals from scientists, many companies resisted change until increased consumer concern translated into slumping sales (Tabuchi and Hakim). In 1987, the Montreal Protocol agreement was created to phase out these chemicals, and the result was a shift to hydrofluorocarbons. HFCs are greenhouse gases with 1,000 times the heat-trapping potency of carbon dioxide; one study estimated that the use of HFCs alone could warm the earth by half a degrees Celsius by the end of the century (Barry and Davenport). In October of this year, negotiators from more than 170 countries gathered in Kigali, Rwanda to amend the Montreal Protocol to limit the emission of HFCs used in the air conditioning and refrigeration industry. Experts anticipate that eliminating HFCs could prevent the release of 100 billion tonnes of CO2 by 2050 (King). This time around, the agreement was in part made possible by private sector companies developing more environmentally-friendly alternatives to HFCs and actively lobbying for regulation.
Daiken Industries is a Japanese air-conditioning and refrigerant manufacturing company. Daiken has differentiated itself by introducing state-of-the-art technologies to the market that address environmental and energy issues and by providing these products to emerging economies (Daiken Global). Following the Kigali talks, the Obama Administration recognized Daiken and several other private sector businesses for their continued commitment to reducing harmful emissions.
On the one hand, Daiken stands to benefit from the effects of climate change; the increase in global temperatures are expected to increase demand for air-conditioners, with the largest increases expected in emerging markets such as China, India and countries in Latin America (Isaac). If the IPCC’s most recent estimates hold true and no additional efforts are taken to reduce climate change, the planet could experience an increase in mean surface temperature of 3.7 to 7.8 degrees Celsius by 2100 (Henderson, Reinart, Dekhtyar, and Migdal). One study found that in South Asia, energy demand for residential air conditioning could increase by nearly 50% due to climate change alone (Isaac). In warmer tropical regions – where much of the world’s population will be concentrated – increased cooling demand would result in increased energy prices for consumers and higher levels of HFC released into the atmosphere.
Mitigating the effects of climate change is not just an environmental issue resulting from social and regulatory pressures, but a strategic issue driven by market pressures and technological innovation. Daiken is incentivized to continue to innovate on their products in order to increase efficiency and thus reduce energy costs for consumers so that their business remains competitive. The phase-out of HFCs will no doubt be beneficial to Daiken as well as American chemical companies like Dow and Honeywell, which have been researching and developing environmentally-friendly replacement chemicals (Tabuchi and Hakim).
Daiken is preparing to meet the increased demand for air-conditioners while taking several steps to innovate on their products in order to address the effects of climate change. Daiken already offers environmentally-friendly products like HFC-32 (with just one-third the global warming potential of conventional HFC refrigerant) and has developed a new heating system that reduces CO2 emissions to less than 50% of those from conventional combustion-type heating (Daiken Global). Daiken continues to conduct research aimed at achieving practical use of next-generation refrigerants that contribute less to global warming. Daiken is also designing and developing products that prevent leakage and make it easy to recover refrigerant, as well as new ways to collect refrigerant during the manufacturing stage and product repair so that the chemicals are not released into the atmosphere. Additionally, Daiken is planning to open a global R&D base for creating new social value in the fields of air environment and energy.
Daiken should provide local governments, air conditioner manufacturers, and dealer engineers in developing markets with the knowledge and techniques needed to adopt sustainable technologies. It is imperative that Daiken grows adoption of their eco-friendly products in emerging markets now before the demand for air-conditioners increases substantially as a result of rising temperatures. Otherwise, consumers in developing countries will purchase less sustainable air-conditioners as opposed to leapfrogging – the ideal scenario is for these consumers to not purchase products with conventional HFC refrigerants and instead, skip a step by purchasing the newer, eco-friendly alternatives. Consumers in these developing countries are typically very price-sensitive, so Daiken will need to make sure to keep the prices affordable for these consumers in order to drive large-scale adoption. Lastly, Daiken can reduce the effects of climate change by training more technicians in emerging markets to reduce refrigerant leaks during installation and repair, which helps limit emissions of greenhouse gases.
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References:
Barry, Ellen, and Coral Davenport. “Emerging Climate Accord Could Push A/C Out of Sweltering India’s Reach.” New York Times. 12 Oct. 2016. http://www.nytimes.com/2016/10/13/world/asia/india-air-conditioning.html
King, Ed. “India hostility to HFC phase-out thaws, submits plans to UN” Climate Change News. 17 April, 2015. http://www.climatechangenews.com/2015/04/17/india-hostility-to-hfc-phase-out-thaws-submits-plans-to-un/
Morna, Isaac. “Modeling global residential sector energy demand for heating and air conditioning in the context of climate change.” Energy Policy, Volume 37, Issue 2. February 2009. http://www.sciencedirect.com/science/article/pii/S0301421508005168
Henderson, Rebecca M., Reinert, Sophus A., Dekhtyar, Polina, Migdal, Amram. “Climate Change in 2016: Implications for Business.” Harvard Business School. 14 Oct. 2016.
Schlossberg, Tatiana. “How Bad Is Your Air-Conditioner for the Planet?” New York Times. 9 Aug. 2016. http://www.nytimes.com/2016/08/10/science/air-conditioner-global-warming.html?_r=0
Tabuchi, Hiroko and Hakim, Danny. “How the Chemical Industry Joined the Fight Against Climate Change.” New York Times. 16 Oct. 2016. http://www.nytimes.com/2016/10/17/business/how-the-chemical-industry-joined-the-fight-against-climate-change.html
“Cool the World.” The Hindu. 17 Oct. 2016. http://www.thehindu.com/opinion/editorial/kigali-amendment-to-montreal-protocol-cool-the-world/article9226943.ece
“Daiken Sustainability Toward 2020.” Daiken Global. https://www.daikin.com/csr/report/2016/06_vision.pdf
Jodie, great article. Do you know how much re-engineering it requires to substitute the new environmentally friendly refrigerants in existing systems? The biggest obstacles I see to implementing these changes it the cost of acquiring new equipment in industrial refrigeration environments. For example, replacing the air conditioning plant on a submarine would require the hull be cut open if you can’t just change out the refrigerant.
Very interesting article, Jodie. While I agree with Alan that the re-engineering would be a significant amount of work, I wonder how to motivate real-estate owners to actually change the existing systems in the first place. The more environmentally products release less HFC/CO2 but do they require less energy? Only if there are significant cost advantages of using them I would assume an actual change.
Another direction to improve the carbon footprint of the industry is to target the users of the systems. With smart thermostats and remote control via smartphone they actual runtime of heating and cooling products can be optimized. The article by Peffer, et al. (http://eec.ucdavis.edu/files/How_people_use_thermostats_in_homes.pdf) highlights that there are still many issues with programmable thermostats and that they are not used to their full potential.
Jodie, thank you, very interesting article. I was wondering if they are also trying to develop products for the commercial refrigeration market? With increasing average temperatures the need for air conditioning in the food retail supply chain (food transportation to POS and at retailer) for example, will continue to grow, both in emerging and developed markets. Maybe they could even partner with large retailers (such as Walmart) or retail associations on trying to find new, more efficient cooling technologies and less dangerous cooling chemicals.
Another point that I was thinking about was whether there would be a way to reduce the demand for air conditioning through one of its roots causes: insufficiently insulated properties. European property developers nowadays put a huge focus on insulating properties so that heat doesn’t escape in the winter, and hot air doesn’t get in during the summer. Additionally, I have seen a variety of non-chemical cooling technologies, some relying on channeling water of a nearby rivers through the buildings walls and ceilings. While some of this might be too expensive for emerging markets, for me the question remains whether one would not be better of fighting the problem through its roots than its symptoms.
Great piece, Jodie. Daiken is in an interesting position such that it wins, whether it focuses on sustainability or not. If other refrigerant manufacturers kept producing toxic HFCs, the earth warms up and the overall refrigerant market, in which Daiken is a part of, expands. On the other hand, Daiken wins if it is able to get its product out there. I think there’s a strong case here to be made to regulatory bodies about traditional HFCs. Just as authorities were able to force out CFCs, a compelling case could persuade law makers to phase out existing HFCs since we know that this refrigerant is still a major environmental menace.
Coming from Seoul, the 4th largest city in the world, I have personally seen the snowballing effects of warming caused by increasing air conditioners per capita. Over the last decade, air conditioners use skyrocketed and city centers got even more developed. Now when I get to work in the center of Gangnam, where each block has about 30 high risers with 40-50 air conditioners hanging on their balconies, it is usually at least 3 degrees celsius warmer at any given point than the suburbs just a couple miles away. Other cities in South East Asia may experience this problem in even greater scale since urban development happened even more quickly and since air conditioners may be more economic models with less emphasis on sustainability.
Similar to Alan’s point, in context of Asian cities where many machines will be outdated and HFC32 equipped model will be less attractive due to price, I wonder who will take on the cost of retrofitting existing sustainability. Since Daiken’s primary incentive is to sell more of their newer models, they probably won’t offer services to make existing models more sustainable. But more economic options to make existing air conditioners is what we really need in developing markets.
Jodie, it seems to me that Daiken is in serious danger of being on the wrong side of economic and regulatory pressure. Contrary to Anto’s comment, I think that they are in a long term losing situation. If we take it as a given that HCF’s will be outlawed in the near term by international regulatory bodies, and we further assume that growth in emerging markets will be key to their mid-term strategy, then it will be imperative that they not only develop more sustainable air-conditioners, but also that they do so in a way that minimizes the cost to emerging market customers. These customers are extremely price sensitive and are only becoming consumers of the units because the price has fallen relative to their buying power. I would be interested in seeing some price/cost data behind more sustainable technologies to understand if it is possible for them to meet both the demands of regulators as well as the demands of these price-sensitive customers.
Thanks, Jodie. You should check out “Losing our Cool” by Stan Cox. In the book, Cox argues that modern air conditioning has had a significant negative impact on the environment. Beyond the huge energy usage – the US consumes as much energy on AC as the African continent consumes in total, despite Africa having 3x the people – AC has also encouraged large amounts of people to move to fragile habitats that are not suited for large populations, such as the Arizona dessert and Florida swampland regions.
While companies should of course strive to make their air conditioning units more energy efficient, these companies should also do more, as ABCDEF mentioned, to promote non-chemical cooling and to encourage people to keep their thermostats at higher temperatures (i.e. using less air conditioning). As Brittany noted, air conditioning is quite a cultural issue in many developing countries. If you can afford air conditioning, you keep it on all day. I can’t count the number of times I had to wear my jacket inside an air-conditioned office in Lagos even though the temperature outside was over 90 degrees F.
While its great to see an air conditioning maker improve the inputs to its product, air conditioning itself is inherently bad for the environment. It has altered the development of the world into geographies where most people just do not actually want to live. For example, in the American Southwest where temperatures reach 120 degrees Fahrenheit, most people just travel from their air conditioned house, to their air conditioned car, to the next air conditioned building. Daiken will always have this inherent conflict where they want to sell and encourage more use, but any use is unnatural and arguably not necessary. On the flip side, warming is a necessity but also arguably causes development in areas that are too cold. Changing the temperature of a small box of air within a huge environment is inherently inefficient and creates entropy that cannot be regained.
I would also love to see them better inform the users of their products not just of the energy costs, but of ways to cool and heat that are significantly less energy intensive. For example, keeping ones home at a few degrees warmer in the summer can have a massive reduction in both cost and carbon footprint. The same is true in the winter. Basically, narrowing the gap between the indoor climate and the outdoor slows the heat transfer and requires less intervention by Daiken’s devices. I don’t think the average consumer understands that concept.
That being said, its great to see that Daiken is working to make its products greener and eliminate the worst of its ingredients. Staying ahead of these findings or leading can be a source of competitive advantage for Daiken, as you noted.