Sluggish Brexit prolongs uncertainty over UK fluorochemical phase out

By Paul Rackstraw
Published: Monday, 02 October 2017

F-gas producers remain mired in confusion; UK government still committed to steep cuts; Slow progress on legislative negotiations

Rose Pengelly

Global chemicals companies with operations in the UK are stepping up pressure on politicians to clarify regulations covering the use of mineral-based chemicals in the country, once it leaves the European Union (EU).

As Brexit negotiations resume in earnest following the summer recess in Brussels, firms including Mexico-based fluorochemicals manufacturer Mexichem SA are understood to be seeking to lobby the governments in the UK and Brussels for clear guidance on how British legislation will look after the UK’s existing relationship with the EU changes.

Currently, the use of fluorinated gases (F-gases), including hydrofluorocarbons (HFCs) which are mainly used in refrigerants and aerosols, is tightly controlled in the UK by EU legislation (see box).

In a paper published in July 2016, Refcom, the UK body that registers F-gases, suggested that the UK’s decision to leave the EU could force a rethink of the timeline for phasing out HFC refrigerants. At present, the UK is tied into a scheme aimed at reducing HFC usage to just 63% of 2014 levels by the end of this year.

However, Refcom’s comments were based on the assumption that the UK’s disengagement from the EU would be well advanced by late 2017, when in fact progress on negotiations has so far been limited. 

Signals from the UK’s Department for Environment, Food and Rural Affairs (Defra) indicate that amending legislation covering the use of chemicals in the UK is not a priority.

In a statement on HFCs delivered in October 2016, UK Conservative MP Therese Coffey, who was appointed Parliamentary Under Secretary of State at Defra the previous July, implied that the UK remains committed to complying with global agreements on phasing out F-gases.

"[At] the recent United Nations Montreal Protocol negotiations in Rwanda (…) I am very pleased to report that a deal was agreed amongst the 197 Parties to the Protocol to phase down hydrofluorocarbon greenhouse gases," she said.

"The Montreal Protocol, agreed in 1987, is already seen as one of the most successful environmental treaties ever agreed, having phased out 98% of the ozone depleting substances, (…) including chlorofluorocarbons (CFCs) and hydrochloro-fluorocarbons (HCFCs)."

Coffey added that HFC alternatives are becoming increasingly available and that the UK had already committed to cutting its use of the chemicals by 80% by 2030, one of the most ambitious phase-out programmes in the world.

Fazed by phase out

The UK’s so-called 'Great Repeal Bill’, recently rebranded as 'The EU Withdrawal Bill’, has been touted as the government mechanism for rewriting thousands of European laws into British statute books.

But legal commentators, including independent think tank The Institute for Government, have warned that the UK is facing a "legal black hole" as there is not enough time to redraft all the laws before the Brexit deadline of March 2019 and suggestions of a period of continuity under EU legislation have met with fierce resistance.

EU regulations on F-gas aim to phase the chemicals out through quotas limiting the amount of HFCs that can be sold in EU member states. Once the UK relinquishes membership of the union, it will no longer be subject to these quotas.

The UK’s exit from this process will also potentially affect other EU member states as the bloc may retain its overall quota but with a smaller number of countries, meaning that the amount of HFCs permitted to be sold would be proportionately larger for each remaining member. This would, in theory, allow EU members to extend the phase-out process.

Companies like Mexichem want to know whether the UK will implement its own quota system and whether it will still be allowed to trade quota allocations with other European countries, as is currently permissible under EU law. It is also unclear how companies’ ability to place HFCs manufactured in the UK on other EU markets will be affected post-Brexit.
Most F-gas manufacturers have expressed a preference for the continuation of pan-European fluorochemcial trade and quota swaps, which will presumably require free trade agreements (FTAs) or quota recognition deals to be put in place.

Early indications from Brussels, however, are that FTA negotiations cannot even begin until after the UK has left the EU, dashing hopes of a smooth transition. Defra officials are understood to be working on the assumption that the UK will have a UK-specific HFC quota system in place.

Mexichem, which is one of the most significant suppliers of F-gases globally and has eight production sites and two R&D centres in the UK, said in its second-quarter earnings, that it was evaluating the situation but did not expect Brexit to have a significant impact on its business.

However, Mexichem’s subsequent requests for lobbying assistance suggest that the company may have some specific concerns about the post-Brexit situation for its business. Mexichem did not respond to a request for comment by IM.

Existing regulatory regime covering EU fluorochemicals trade

EU legislation controls the use of F-gas in member states via two legislative acts:
  • The MAC Directive on air-conditioning systems in small motor vehicles
    - Prohibits use of F-gases with global-warming potential more than 150 times greater than CO2 in all new cars and vans produced from 2017

  • F-gas Regulation
    - Sets quotas designed to phase down the volume of HFCs placed on the EU market from 2015, with the aim of limiting the amount of HFCs sold in the block to one fifth of 2014 sales by 2030.
    - Quotas are allocated annually for the import and production of bulk HFCs and are based on a declaration of additional anticipated needs.
    - Since 1 January 2015, a quota has been required for producers and importers placing at least 100 tonnes of CO2-equivalent of HFCs on the market in a calendar year. 
    - The European Commission allocates quotas in accordance with Article 16, as well as Annexes V and VI of the Regulation.