A huge economic boom is coming, in an industry you probably haven’t heard of: cooling.
The cooling industry provides air conditioning for houses and commercial buildings, refrigerators in homes and grocery stores, and a “cold chain” to transport and deliver everything from food to vaccines around the world.
As more people move to cities and incomes rise in tropical regions around the world, researchers estimate the amount of electricity needed to meet their rising demand for cooling could be ten times higher by 2050 than today. Cooling will be a major growth opportunity for companies that can simultaneously replace the polluting chemicals used in cooling today and produce more efficient, affordable cooling equipment.
Three Reasons For Global Cooling’s Economic Boom
Three trends are heating up the economics of global cooling, with big implications for the international energy and climate agenda, and many manufacturers and national policy-makers are taking note.
First, policymakers in tropical regions around the globe are starting to plan for the cooling boom by finding ways to keep total energy used for cooling to a minimum, and then planning to ensure sufficient energy resources are available to meet the staggering (potential) growth. It’s hard to understate the importance of this planning: simply improving the efficiency of room air conditioners 30% by 2030 could reduce peak electricity demand by the same amount of electricity produced by more than 1,500 power plants, saving consumers hundreds of billions of dollars and improving public health by reducing pollution.
Second, the most successful global environmental treaty in history—the Montreal Protocol, which eliminated the chemicals that made the ozone hole—will be used to replace climate-warming chemicals used in cooling equipment. More than 20 countries ratified the Kigali Amendment to the Montreal Protocol, ensuring it will enter into force at the beginning of 2019. This international agreement will spur a complete re-make of the global cooling industry as manufacturers re-tool their lines to produce cooling equipment that does not use hydrofluorocarbons (HFCs).
These chemicals will need to be replaced with alternatives that protect the ozone layer while minimizing their impact on the climate, and smart manufacturers of cooling equipment are already planning to use this moment to drastically increase the energy efficiency of their products.
Closing ceremony and adoption of the Kigali Amendment via Rwanda Environment Management Authority
Third, cooling equipment investors and manufacturers are looking for opportunities to gain a competitive advantage ahead of the boom in cooling demand. As the cooling sector’s importance grows, smart companies are coming to the table with policymakers to help them understand the market and plan for growth.
China Dominates Today’s Global Market, But Opportunities Abound For Strong Companies
The vast majority of the world’s air conditioners (and their internal components) are manufactured in China, with Gree, Haier, and Midea dominating the Chinese market. 70% of all room air conditioners and 85% of all units that combine heating, air conditioning and fans come from China. China is huge exporter of these products, but also uses 40% of the world’s air conditioners right at home to serve the domestic market. Still, China’s domestic share of global air conditioning demand will likely decrease as income continues rising in tropical regions around the world. The companies that get ahead on alternative refrigerants and efficiency will win a greater share of the domestic and export markets.
Air conditioners on a residential building via Wikimedia Commons
Although China has the lion’s share of global manufacturing today, U.S. companies (like Honeywell and Chemours, which are leading the push for U.S. ratification of the Kigali Amendment) dominate the market for next-generation coolants that would replace HFCs. Carrier, another American manufacturer, introduced the most efficient air conditioner on the market last month. This means that a rapid transition away from HFCs under the Kigali Amendment is good for U.S. jobs, businesses, and exports.
Tepid U.S. Action On Clean Cooling Risks Ceding Global Economic Growth
Despite potential economic benefits to America and widespread support from U.S. companies, the Trump administration has been somewhat tepid on the Kigali Amendment and cooling efficiency. If the U.S. took a more proactive role in supporting the Kigali Amendment and more efficient cooling, it would reduce the risk of America ceding this economic opportunity to international competitors. While it is unclear whether Chinese or American companies will win the race to produce efficient cooling equipment that uses no HFCs—strong competitors also exist in Japan and Korea – it is clear a huge boom in demand for cooling is coming around the world.
This boom will create vast opportunities for manufacturers from many different countries with a big advantage for early movers. Strong national efficiency standards for cooling equipment would benefit both American and Chinese manufacturers, as strong companies benefit from strong standards—and American and Chinese companies are some of the strongest in this industry. The next few years are critical for setting the DNA of global cooling ahead of the coming explosive growth. Manufacturers that can replace HFCs at the same time as they make cooling more efficient will be the ones to win the market share.
By Sonia Aggarwal, Energy Innovation’s Vice President and Director of America’s Power Plan.