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The Cooling Imperative

The Cooling Imperative

Policymakers will play a critical role in enabling the transition to the efficient, climate-friendly model of cooling.

Some innovations stand as symbols of modernity and economic transformation, from the shipping container and the internal combustion engine, to the computer and the barcode. Cooling technologies – specifically, air conditioning (AC) and refrigeration – surely stand among them.

Demand for cooling is on a rapid growth curve. In part, this is a by-product of economic development. As households reach a certain income threshold, they seek out modern conveniences like refrigeration and AC. Urbanization also drives demand for cooling. Rising temperatures caused by climate change are further stoking demand.

Meeting current and future cooling demand sustainably will require innovative approaches – and fast. Affordable cooling is critical to societal well-being, but the direct and indirect emissions from current devices are a substantial and growing contributor to climate change. Without radical improvement to product design, behavior change, policymaking, and greater engagement from industries, increased cooling demand will exacerbate climate change even as it tries to mitigate its effects.

Global demand in 2030

Owing to the pervasive importance of cooling, the industry that produces and maintains cooling equipment is already a sizeable global sector. In 2018, its market value was estimated at USD 135 billion. The cooling market is set to grow dramatically in the next 10–15 years. The annual global unit sales will grow from 336 million in 2018 to 460 million by 2030. As a guiding estimate, this could mean that the annual market value reaches almost USD 170 billion.

Climate change – Adapting to a warmer world

Signatories to the Paris Agreement aim to limit global warming to well below 2°C above pre-industrial levels, and ideally to no more than 1.5°C. However, a lack of ambitious policies to curb emissions among large emitters means that the world is on track for temperature increases of more than 3°C by 2100, and up to 4.8°C under the worst-case scenarios. Against this backdrop, the number of hot days is projected to increase in most regions, with demand for cooling rising accordingly. The Intergovernmental Panel on Climate Change (IPCC) predicts that global energy demand from residential air conditioning will grow 33-fold between 2000 and 2100, mostly from developing countries. A quarter of this growth will be driven by the effects of climate change. Populous cities in already hot regions could see temperature shifts of multiple degrees. Under best-case scenario, Ahmedabad in India is expected to see an increase of 1.6°C, to 30.4°C. Under worst-case scenario, Ahmedabad’s average July temperatures would rise by 4.5°C, to 33.3°C.

Urbanization – The growth of heat islands

A second core driver of global cooling demand is urbanization. More than half the global population now lives in urban areas and this will rise to almost 70 percent by 2050, adding another 2.5 billion urban dwellers to the global total. Three countries – India, China, and Nigeria – will account for 35 percent of urban population growth out to 2050. The urbanization rate will continue to increase across the six countries – US, China, India, Japan, Indonesia, and Mexico. However, while the overall urban population will continue to grow, year-on-year growth in the urban population will begin to decelerate in the coming decade.

Income growth – Escaping poverty, buying refrigerators

Rising incomes will be the third core driver of global cooling demand. Nihar Shah, Co-Leader of Emerging Economies Research Program at the Lawrence Berkeley National Laboratory (LBNL), believes that income thresholds are a better indicator for forecasting future cooling demand than GDP per capita, because at certain income points consumers shift their buying from daily needs to durable goods and convenience. Refrigerators are the first of the two cooling technologies that consumers typically look to purchase, followed by AC. While the middle class will continue to expand, income growth will decelerate in some markets over the coming decade, which could restrain some new cooling purchases.

4.8 billion cooling units to be sold between 2019 and 2030

Globally, by 2030, 460 million new units of cooling equipment will be sold every year, compared with just 260 million unit sales in 2010 and 336 million in 2018. China, US, and India are by far the three largest markets – expected to account for 49 percent of total sales in 2030. In 2024, India will overtake US as a source of cooling demand, with 38.8 million unit sales. Across the six markets, India and Indonesia are growing the fastest, albeit from lower bases than US and China. Domestic refrigeration, residential AC, and mobile AC will make up over 90 percent of unit sales in India and Indonesia in 2030. The three sub-sectors – domestic refrigeration, residential AC, and mobile AC – will remain dominant in 2030, accounting for 91 percent of the total demand. However, the industrial and transport refrigeration sectors will grow the fastest out to 2030. This means that businesses will play an increasing role in driving demand for cooling sales out to 2030, in addition to the important role they already play in the residential and mobile AC sectors. This highlights the imperative of business shifting to more efficient, climate-friendly cooling models. Offices and buildings were the largest users of commercial AC across all six countries in 2018. However, by 2030 the hospitality sector will be the largest user in the US, China, Japan, and Mexico.

Why the world must close the cooling gap

The growing demand for cooling must be met – and quickly. The uptick in cooling demand will come on top of an already substantial cooling gap. Precise estimates of the number of people and organizations that require cooling, yet lack affordable and reliable access to it, are unavailable. An estimated 630 million people in hot, poor urban slums have little or no access to cooling owing to inadequate power supplies. Unless more reliable and cost-efficient cooling is made available, along with supporting (low-emission) power supplies, the effects will be detrimental.

Moving to efficient, climate-friendly cooling

To close the cooling gap and meet future demand without dramatically increasing emissions, a multipronged strategy is required that combines efficient technologies, energy stewardship, a shift to lower-impact gases, and smarter use of design, architecture, and urban planning. This strategy can be divided into four components – reduce, shift, improve, and protect.

First, reduce the need for cooling – building design, urban planning, and behavior change. Populations in countries with hot climates have long constructed buildings with an eye on managing temperatures. This is in sharp contrast to many modern building trends, such as using glass in skyscrapers which traps heat by inviting sunlight in. Buildings can also reduce wasteful cooling by using sensors and smart systems for temperature control, when and where it is needed. Some air-conditioner manufacturers have developed products that provide customized heating unit, analyzing room temperature to detect hot and cold spots. It then calculates how many people are present in order to target cooling and heating more precisely.

Second, shift to low-emissions cooling – replacing the worst-offending HFCs with lower-impact options like HFC blends, and next-generation options such as hydrofluoroolefins (HFOs), could dramatically reduce the emissions damage of cooling. Perhaps surprisingly, the transition could even involve greater use of hydrocarbons and CO2, which are far less harmful to the atmosphere than HFCs. Equipment providers can also use naturally occurring refrigerants like ammonia and propane. Some proposed alternatives to HFCs are flammable and bring safety concerns that require additional measures and improved training for servicing technicians.

However, there are energy-efficient, lower-GWP alternatives that are mature and commercialized and are taking an increasing market share in many cooling sectors. For example, about 65 percent of the 100 million domestic refrigerators produced globally in 2018 used hydrocarbons. Lower-GWP alternatives and hydrocarbons have also become a safe alternative refrigerant in room ACs in India and China.

Another way to reduce cooling emissions is to shift to more innovative approaches. District cooling involves the centralized production and delivery of cooling. The approach is increasingly in trend in China, India, and the Middle East, and is supported by initiatives like UNEP’s District Cooling in Cities project.

Third, improving efficiencies of technologies – the efficiency of cooling devices is improving. For example, variable-speed drives enable appliances to maintain a steadier room temperature, resulting in more efficient and quieter operation. Innovation over the past 30 years has provided a steady flow of improvements to compressor, fan, motor, and heat-exchanger designs, increasing efficiency and lowering costs. Such efficiencies can lead to dramatic reductions in the energy needed to power cooling. Shifting the forecasted 2030 global stock of room ACs toward more efficient models, using cleaner gases, would be equivalent to 1000 fewer peak power plants at 500 MW each.

More innovative devices will continue to emerge. Teams of researchers at the University of California and SRI International are working on a cooling device that uses polymer material. In an experiment to assess the cooling of a battery, the team found that after five seconds of running the cooling device, the battery’s temperature fell by 8°C, compared with just 3°C in 50 seconds when using more traditional air cooling. The technology has a low GWP as it does not use damaging coolants or refrigerants. The device is slim and flexible, with the potential to be integrated into smartphones and tablets, as well as personalized wearable cooling devices.

Fourth, protect the most vulnerable – Targeted support, localized solutions and affordable access – a lack of cooling disproportionately affects the vulnerable, such as those on low incomes, the elderly, and those in social isolation. Policymakers and businesses will need to work alongside leading NGOs. For instance, in Ahmedabad, India, the government reduced employees’ working hours during the hottest parts of the day and introduced heat-alert systems to better communicate information about upcoming extreme-heat days to the public. Finally, cooling – and the power on which it runs – must be made more affordable and reliable. Bulk procurement by governments, or by buyers’ clubs of private companies or citizens, can help lower AC installation and distribution costs.

The role of policy – Phase-outs, agreements, codes, and incentives

Policymakers will play a critical role in enabling the transition to the efficient, climate-friendly model of cooling. At the national level, some countries are looking to add impetus for action by putting in place ambitious plans and targets. The India Cooling Action Plan (ICAP), finalized in 2019, is an early example. Bringing together multiple diverse stakeholders, ICAP is targeting reductions of 20–25 percent in overall cooling demand, 25–40 percent in cooling-energy requirements, and 25–30 percent in refrigerant demand by 2037-38. It also aims to train and certify 100,000 technicians and boost cooling research.

When it comes to meeting such targets, policymakers have a number of options. They have phased out harmful gases in the past, as evidenced by the Montreal Protocol’s successful efforts to phase out the production of ozone-depleting substances – the most successful multilateral climate agreement to date. Efforts are under way to achieve similar success with HFCs. The 2016 Kigali Amendment marks the next phase in the Montreal agenda, calling for a reduction in the production and consumption of HFCs with high GWP by more than 80 percent over the next 30 years.

As large markets in Europe and Asia make the transition to energy-efficient and climate-friendly cooling products, they will drive investment, and increase the availability of these globally traded products. While the agreement of major economies is critical, international agreements need not always include all countries. If a set of nations work together, they can provide an international pull-through effect – with other countries emulating them, or companies that comply with regulations in one market, expanding their efficient products into other
markets.

In addition to phase-outs, mandatory and voluntary green building codes and energy-efficiency standards and labels can coordinate market development, drive up technology standards, and boost the energy efficiency of cooling. While green building codes may increase construction costs, these costs can be outweighed in the long term by the operational savings from the improved energy efficiency of the building. Driving up efficiency standards of appliances, however, can also be achieved even without significant increases in appliance costs as manufacturers optimize their production efficiency over time. This was seen in the US in recent decades, when the price of refrigerators decreased despite the introduction of appliance-efficiency standards.

Alongside hard phase-outs and standards and codes, policy makers must ensure that they are incentivizing a shift to climate-friendly cooling, and not merely incentivizing the status quo. Fossil fuel subsidies are a glaring example of poor incentives. Estimating the total scale of these subsidies is notoriously difficult given their opaque nature and the lack of agreement over what exactly constitutes a subsidy. Governments can also incentivize a shift toward more efficient cooling equipment through financial incentives, such as tax breaks. Green procurement is another opportunity. Supporters of green procurement argue that when selecting cooling suppliers, governments should incorporate environment-friendly criteria into their traditional cost-benefit analysis. Governments can also act as a lead buyer for innovative products that are not yet commercially viable.

Which corporates should take action and how

Policymakers, NGOs, and citizens will all play critical roles in the transition to efficient, climate-friendly cooling. However, businesses will play an increasingly important role. Commercial and industrial AC and refrigeration, along with transport refrigeration, will grow the fastest out to 2030. As both producers and consumers of cooling, businesses must urgently shift to more efficient equipment, and use this equipment more judiciously.

Residential – The push for green homes

In 2018, 26 percent of total global cooling demand came from the residential AC sector. As a result, property developers are under pressure to shift to more innovative approaches, such as passive cooling, which involve optimizing building design in order to capture natural wind flows, accelerate the movement of air through spaces, and make use of building orientation and exterior shading.

Seizing the opportunity – Tackling misperceptions

In the past, private sector fears that phase-outs of inefficient technologies will hit their bottom line have often proved overblown. Refrigerant transitions, for instance, have not been onerously expensive as innovation and scale economies have brought down costs. The cost of refrigerants is also low when considered against the lifetime cost of equipment – typically, less than 0.75 percent of the total cost of ownership for a residential unit and less than 0.5 percent for a commercial unit.

Given the long life cycle of cooling products, commercial buyers must be careful not to lock themselves into inefficient technologies that vendors are moving away from. The cooling transition provides new commercial horizons, rather than simply closing off existing technology pathways. For example, if US is slow to ratify the Kigali Amendment, the market for next-generation cooling products will simply move elsewhere. China, once a laggard in terms of frontier innovation, is a global leader and top investor in green-energy technology. Globally, various companies are deploying innovative and best-practice solutions across different industry sectors. Based on The Cooling Imperative – Forecasting the size and source of future cooling demand, a report by The Economist Intelligence Unit.

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