International Product Support Company Senior VP Pleads Guilty to the Illegal Purchase and Sale of Smuggled R-22

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Maureen O’Mara, Special Agent in Charge, U.S. Environmental Protection Agency (EPA), Criminal Investigation Division, Atlanta Area Office, and Alysa D. Erichs, Special Agent in Charge, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI), announce that defendant Carlos A. Garcia, 52, pled guilty today in connection with the illegal receipt, purchase, and sale of ozone-depleting refrigerant gas that had been smuggled into the United States contrary to the Clean Air Act, in violation of Title 18, United States Code, Section 545.Sentencing has been scheduled before U.S. District Judge Cecilia Altonaga for June 26, 2012. Garcia faces a statutory maximum sentence of twenty years in prison.

Garcia pled guilty to Count 4 of the Superseding Indictment, which charged him with knowingly receiving, buying, selling and facilitating the transportation, concealment, and sale of approximately 13,600 kilograms of the ozone-depleting substance hydrochlorofluorocarbon-22 (HCFC-22). HCFC-22 is a widely used refrigerant for residential heat pump and air-conditioning systems. Garcia’s employer, Mar-Cone Appliance Parts Co. (Marcone), was previously convicted and sentenced for related conduct and ordered to pay a $500,000 criminal fine, a $400,000 community service payment, and was ordered to forfeit to the United States $190,534.70 in illegal proceeds.

Federal law prohibits dealing in merchandise that is imported contrary to law. The Federal Clean Air Act regulates air pollutants including ozone depleting substances such as HCFC-22. The Clean Air Act and its implementing regulations established a schedule to phase out the production and importation of ozone-depleting substances beginning in 2002, with a complete ban starting in 2030. To meet its obligations under an international treaty to reduce its consumption of ozone-depleting substances, the United States issued baseline allowances for the production and importation of HCFC-22 to individuals and companies. In order to legally import HCFC-22, one must hold an unexpended consumption allowance.
United States Attorney Wifredo A. Ferrer stated, “Our commitment to help protect the ozone layer from harmful chemicals is a long-term effort that requires the cooperation of businesses and individuals around the world. At home, we will continue to aggressively enforce federal laws that seek to protect our environment.”

EPA SAC Maureen O’Mara said, “It is undisputed that HCFC’s deplete the stratospheric ozone layer, which is critical to life on earth and protecting people from the harmful effects of ultraviolet radiation, including cancer. EPA is committed to working with ICE and other agencies to combat such criminal conduct, preventing these dangerous smuggling and distribution operations. Operation Catch-22 continues to be a great example of EPA’s successful efforts to investigate and pursue the just prosecution of blatant illegal conduct that jeopardizes public safety.”

“The smuggling of goods contrary to law poses a significant threat to national security and public safety. And in this particular case, the illegal importation posed a global hazard to our environment,” said Alysa Erichs, Special Agent in Charge of HSI in Miami. “This case is another example of HSI’s commitment to combating illicit trade along with our federal partners”

According to court records and proceedings, Garcia was the Senior Vice-President of Marcone’s Heating and Cooling Division responsible for executing legal purchases and sales of refrigerant gas. Instead Garcia engaged in a pattern of conduct to purchase and sell black market HCFC-22. The investigation revealed that the defendant would routinely seek out and arrange the purchase of HCFC-22 from various importers who did not hold the required unexpended consumption allowances, totaling approximately 55,488 kilograms of restricted HCFC-22, with a fair market value of approximately $639,458. The refrigerant gas was distributed by Marcone throughout the United States.

This matter and others involving the smuggling and distribution of ozone-depleting substances are being investigated through a multi-agency initiative known as Operation Catch-22. Operation Catch-22 has, to date, included the successful conviction of nearly a dozen individuals and corporations at every level of the refrigerant gas smuggling and distribution chain. Mr. Ferrer commended the investigative efforts of the EPA, ICE-HSI, the Florida Department of Environmental Protection, Criminal Investigation Bureau, and the Miami-Dade Police Department. The case was prosecuted by Assistant U.S. Attorney Thomas A. Watts-FitzGerald and Special Assistant U.S. Attorney Jodi A. Mazer.

SOURCE: The United States Attorney's Office Southern District of Florida, Press Release, 11 April 2012,

R-22 Update

There has been much recent discussion regarding the market for HCFC-22 in 2012, as the EPA works to finalize its allocation and production rights for 2012-2014. Here are some basic facts HARDI wanted to communicate to our membership.

1.) There is an ongoing EPA rulemaking concerning the allocation of refrigerants, including R-22 for 2012-2014. The EPA has suggested a reduction of allocation rights of R-22 between 11% and 47% in each year (2012-2014). EPA’s proposed reduction was not unexpected.

2.) While the rulemaking process is underway, it is illegal for a company to produce or import refrigerant into the United States. The EPA therefore must send out a “non-enforcement” letter, which allows companies to legally produce or import refrigerant. This letter was expected by many companies to arrive the first week of January; however it was delayed until Friday, January 20. Thereby 15 work days had passed where no refrigeration production or importation occurred.

3.) The EPA's "non-enforcement" letter called for a 17% reduction from the original R-22 baseline, or a 45% reduction off of the 2011 allocation. In 2011 the total R-22 allocation was approximately 100 million pounds. Currently manufacturers and producers are operating under guidance that only 55 million pounds will be approved in 2012. If the finalized rule calls for less than a 45% reduction, a manufacturer/producer could produce and import up to their allocated amount.

4.) From 2005-2010 (2011 data is not yet available), only 77% of Consumption Allowances for HCFC-22 were used. These figures along with comment from stakeholders to the EPA, regarding the oversupply of R-22 in the marketplace, have led EPA to consider a more aggressive phasedown.

5.) In 2011, EPA sought comment from the Alliance for Responsible Atmospheric Policy, of which HARDI and all major refrigerant producers are members, regarding a suggestion for a more aggressive reduction in R-22. The Alliance formally submitted a suggestion for a 20% reduction in Consumption Allowances.

HCFC Smuggling: Miami Man Sentenced to 18 Months in Prison

Today, U.S. District Court Judge Adalberto Jordan sentenced Brendan Clery, 34, to 18 months in prison and ordered him to pay a $10,000 criminal fine and forfeit illegal proceeds in the amount of $935,240. Clery pleaded guilty in April 2011 to knowingly importing approximately 278,256 kilograms of illegal hydrochlorofluorocarbon - 22 (HCFC-22, also known as R-22) into the United States.

"EPA takes seriously the smuggling of illegal substances that can harm the ozone layer, which protects us from harmful UVB radiation that can cause skin cancer and cataracts,” said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. “Today’s sentencing is an example of EPA’s commitment to aggressively enforce U.S. laws and meet our international obligations."

This case was part of a larger criminal investigation known as Operation Catch-22. It was investigated by the Environmental Protection Agency, U.S. Immigration and Customs Enforcement, and the Florida Department of Environmental Protection, Criminal Investigation Bureau, and prosecuted by special assistant U. S. Attorney Jodi A. Mazer.

More information on EPA’s criminal enforcement program: http://www.epa.gov/compliance/criminal/index.html

Carrier Petition to EPA to Stop "Dry-Shipped" Stirring the Pot

The NEWS' story this week announcing Carrier Corps petition filed with the EPA to reclassify condensing units as "subsystems" and therefore make the manufacturer of "dry-shipped" R-22 condensing units illegal has really fired up some in the industry. Check out the comments posted in response to The NEWS article. Anyone who still thinks these "dry-shipped" units are going to be an insignificant percentage of total shipments is either selling R-410a or in the window-banger business. By the way, HARDI had been asked to provide comment for the article but we do not have a formal position yet on Carrier's petition.

House Committee Approves Bill to Repeal EPA Authority

On Tuesday March 15th, the House Energy and Commerce Committee approved a measure that would repeal EPA authority to regulate Greenhouse gases. The measure is expected to receive approval from the larger House.

On the Senate side, Mitch McConnell (R-KY) attached a similar amendment to a pending small business bill. Competing legislation has also been introduced by Senator Jay Rockefeller (D-WV). 60 votes would be needed to advance the legislation on the Senate side and it is now entirely possible that those votes could be had.

The Obama Administration has signaled it would veto any stand-alone bill which would repeal EPA authority.

Home Performance w/ ENERGY STAR Moving to DOE

The Home Performance with ENERGY STAR program for energy efficient whole-home residential retrofits that has resided at U.S. EPA since its inception is moving to U.S. DOE. As EPA funding come increasingly under attack by Congress, it is believed the move is being made so more resources will be available to the growing program. Home Performance with ENERGY STAR is hosting a stakeholder meeting on April 13 in Washington, DC to review the move and transition in more detail with stakeholders. For the formal release about the transition, click here.

HARDI Expresses Concerns Over New Energy Star Furnace Specs

Just posted to HARDI's website, HARDI filed comments with U.S. Environmental Protection Agency (EPA) ENERGY STAR program on the latest draft of proposed specifications for the next generation of residential furnace's labeling program. Think regionalization and take a guess at the majority of our concerns.

Missing the Forest Through the "Dry-Shipped" Trees

Yesterday HARDI filed comments with the U.S. Dept. of Energy (DOE) on their proposed guidance for certifying newly-produced R-22 residential condensing units. DOE proposed two paths that would essentially pave the way for the installation of mis-matched condensing units, and it was this apparent reversal in decades of precedent that is the point; a point that I fear most in our industry may be missing. While the recent reintroduction of "dry-shipped" R-22 condensing units (due to the way EPA's 2010 HCFC Phaseout Regulations were written which I still consider a loophole) is the talk of the HVAC community right now, DOE's proposed certification procedures for these units is the real story. If unchanged, DOE's guidance is essentially signaling knowing consent that these condensing units will be installed with unmatched indoor coils. This is drastically different than DOE's matched system certifications for any other newly-produced split system based on the assumption that both the indoor and outdoor equipment will be installed at the same time. Instead DOE is proposing a blatant gaming of the test procedure system far detached from reality.

While our industry has invested resources to promote, support, and advocate the value of properly matched system installations, this one DOE ruling could undermine all of it with one bureacratic swoop. Either our industry is based on matched, split-system cooling or it isn't. Either our industry delivers the performance listed on hang tags or it doesn't. This isn't a refrigerant issue, this is a glimpse into our future. Either we support and defend our current matched system certification process or we abandon it because there is no way we can have it both ways for long. R-22, R-410a, or whatever the next refrigerant coursing through our split systems is isn't the point. Ensuring those split systems are properly matched and running as advertised is, which is why HARDI cannot support DOE's proposed endorsement of improper installations.

Perhaps the Least-Known, but Most Important Election Result

California's statewide ballot initiative Proposition 23 to delay and curb implementation of the 2006-passed AB 32, California carbon emission cap-and-trade mandate failed last night by nearly a 2-1 margin. Early polling had many believing the prop had a chance to pass driving over $30 mil in environmentalist funds for ads and an opposition campaign into the state. Prop 23's failure greenlights the continued advancement of the California Air Resources Board's implementation of the state's cap-and-trade system and early action measures such as the recently completed Refrigerant Management Regulations, and the pursuit of California-specific commercial refrigeration standards.

It remains to be seen how this will play out, but California- with its ailing economy- may become the country's petri dish to definitively determine the economic impact of economy-wide caps on carbon emissions.

The Mess That Is (or Will Be) "Dry-Shipped" R-22 Units

Despite HARDI's best efforts to convince them otherwise, the U.S. EPA insisted on allowing a significant loophole to remain in their most recent HCFC phaseout regulations. This loophole allows the continued production and importation of R-22 residential condensing units so long as they're not pre-charged with virgin R-22. While at the time HARDI's primary concern was foreign importers since the domestic manufacturers all insisted having no interest in such a practice, both seem to be happening now and with it will come a host of serious consequences for the HVAC supply chain and the effective transition away from ozone-depleting refrigerants. HARDI distributors have already started calling with compliance and other questions so look soon for more on this topic from HARDI.

Is There a Climate Change Policy Backlash?

This Politico piece outlines a potential rift within the environmental community of what to do next now that any serious climate change legislation appears to be a non-started for the foreseeable future. The story ends with this quote, “At this point, there’s going to be a rebellion,” said Sen. Dick Lugar (R-Ind.). “EPA is likely to see its powers substantially curtailed.”

EPA Authority to Regulate GHGs Remains Under Attack

Despite initial defeat in the Senate earlier this year to pass a resolution prohibiting the EPA from regulating greenhouse gases, opposition to EPA's perceived authority to regulate these gases after the 2009 Supreme Court decision declaring greenhouse gases as pollutants is mounting. Success of this opposition would prevent the EPA from writing new regulations intended to curb greenhouse gas emissions, potentially including the use of hydro carbon refrigerants.

GM First to Announce HFO-1234yf Plans

Thanks to member CD Jones for forwarding: GM vehicles will use low-GWP alternative refrigerant, HFO-1234yf in most US vehicles starting in 2013. Here's the full release.

AHRI Publishes New Guidelines for Refrigerant Cylinder Handling

Per AHRI's website:
"The Chemical and Refrigerant Reclaimers Section has approved for publication AHRI Guideline Q-2010, Content Recovery & Proper Recycling of Refrigerant Cylinders. This document, which is available for free download at http://www.ahrinet.org/Content/FindaGuideline_240.aspx?Listing_PK=1186, is a guideline for content recovery and recycling of cylinders at the end of their useful service life. This document is not intended to be an exhaustive listing of all good practices or requirements. The guideline applies to all U.S Department of Transportation (DOT) non-refillable and refillable fluorocarbon refrigerant cylinders, as defined in Section 3 of AHRI Guideline Q-2010, having water capacity greater than two pounds used to transport refrigerants sold in the United States. Details: AHRI Manager, Public Affairs Courtney Nogas."

Opposition to Climate Change Legislation is Apparently All Semantics

“Cap and trade has certainly been demonized,” said Sen. Ben Cardin (D-Md.). “I think that’s unfortunate. ... So we’ll just call it something different.”

This Politico piece describes the belief by many climate change legislation proponents that today's strong opposition to the concept of economy-wide emission controls is based largely on misunderstanding and mischaracterizations of the Lieberman-Warner, Waxman-Markey, Kerry-Lieberman -like "cap-and-trade" proposals.

Votes Appearing Hard to Come By for Climate Legislation

Moderate Democrats (even those not facing elections this year) seem reluctant at best to swallow yet another monster bill, this time intended to cap carbon emissions. Regardless of these political headwinds, the debates will still take place this year, but might be most likely to lead to a splintering into several smaller bills, all or some with a climate provision. Of most importance to our industry will be the fate of an HFC phasedown (yes, those same refrigerants we haven't even transitioned to yet). If such a phasedown is to be discussed it better 1) provide flexibility in case alternatives aren't readily available 2) apply only to producers and importers of refrigerants and 3) not have a price-inflating auction as part of it.

Rhetoric Will Not Pass a Climate/Energy Bill This Year

Despite tough talk from the Administration and Senator Reid about a commitment to passing "comprehensive climate legislation" after the July 4 recess, political realities are fighting back hard as outlined in this Politico piece. While a lean, energy-only bill could almost certainly pass when the Senate reconvenes, it seems inevitable that leadership will be unable to keep themselves from loading it down with controversial oil-related or carbon policies which seem highly likely to submarine any bill regardless of what it's attached to.

Ballot Initiative to Suspend CA's Global Warming Law Added

A measure that would suspend AB 32, California’s landmark 2006 climate law, has qualified for the November ballot. The “California Jobs Initiative” secured more than 800,000 signatures, nearly twice as many needed to bring the measure before voters. If passed, it would halt enforcement of AB 32 until unemployment in the state, now over 12%, drops to 5.5% for at least a year. Under AB 32, California is setting limits on greenhouse gas emissions from automobiles, oil refineries and other industries, and will probably require that a third of the state’s electricity come from renewable sources by 2020. Supporters say it has spurred a large market for solar, wind and other clean energy sources. But backers of the ballot measure, whose six-month, $3 million campaign was largely funded by Texas oil giants Valero Energy Inc. and Tesoro Corp., who both operate refineries in California, describe the climate law as an “energy tax” that slows job growth and burdens consumers.

ACCA: Delays and Changes in EPA Lead Paint Regs Enforcement

Courtesy of ACCA's Hot Air Blog, here's a great summary of several important changes announced today by the EPA regarding the enfocement of the new lead paint regulations that went into effect on April 22.

Senate Fails to Pass Limits on EPA Emissions Authority

Sen. Lisa Murkowski's "Resolution of Disapproval" intended to strip the US EPA's authority to regulate carbon emissions failed this afternoon by a 53-47 vote. This article from earlier today outlined the potential implications of today's vote, and even the significant effects of just getting close to the 51 votes needed to pass.