The global solution to CFC refrigerators has been simple: replace them with even more CFC-free refrigerators. International agreements and aid have spurred along this process of environmentally friendly change, with state regulators and corporate codes of conduct helping to ensure compliance and consistency. But, as this chapter will show, the main force of change has been the global market for CFC-free refrigerators, which has afforded firms opportunities to invest, trade, and profit from growing sales of these refrigerators—and thus recoup any revenue lost from phasing out CFC refrigerators.
The phaseout of CFC refrigerators in the First World started shortly after the Montreal Protocol went into force in 1989, accelerating quickly in the first half of the 1990s after chemical companies like DuPont began marketing effective and affordable CFC substitutes and appliance firms began to concentrate on capturing markets for CFC-free refrigerators. Although this process involved some exporting of environmental costs to the developing world (such as dealers shipping used CFC refrigerators to Africa), this was nothing compared to the wholesale exporting of costs in the case of leaded gasoline. Why the difference?
The international commitment to eliminate CFCs explains some of the difference. And the scope of the consequences explains some of it as well: lead poisoning from leaded gasoline affected primarily local populations in developing countries, whereas rising skin cancer rates from depletion of the ozone layer affected people worldwide. But, as this chapter argues, much of the difference is simple economics: in the case of leaded gasoline, it made financial sense to expand sales in developing countries, whereas, in the case of CFC refrigerators, it did not. Instead, it was more logical for appliance companies to trade with—and invest in—these countries to capture emerging CFC-free markets. It was more logical, too, for local producers in developing countries to pursue joint ventures, export markets, and international environmental financing for CFC-free refrigerators, as exemplified by the expansion of China’s refrigerator industry since the early 1990s.
Worldwide, by 2000, CFC-free refrigerants had replaced CFCs in 95 percent of the world’s refrigerators. Almost all of this change occurred during the 1990s. Not having cost-effective substitutes readily at hand, companies like DuPont and Whirlpool strongly resisted change in the 1970s and 1980s. This explains in large part why, without an international agreement, the initial response to the emerging scientific consensus on the risks of CFCs failed to make much headway—rising sales of items that didn’t have low-cost substitutes for CFCs (refrigerators, air conditioners, foams, and cleaning solutions for electronics) all but offset sales of items that did (hairsprays and deodorants).
Aerosol propellants accounted for about 60 percent of the worldwide use of the two primary chlorofluorocarbons—CFC-11 and CFC-12—in the mid-1970s. Various governments took unilateral steps in the 1970s and early 1980s to phase these out. Some, like Norway, the United States and Sweden, banned the use of CFCs as propellants except for essential uses. Others, like Canada, imposed bans on aerosol sprays for cosmetic, drug, and hygienic products. Still others, such as countries within the European Community, called for a voluntary reduction of 30 percent in the use of CFC-11 and CFC-12 in aerosols.
Governments took such steps to slow the growing production of CFCs—and thus gain time to gather data on the consequences for the ozone layer. These efforts were moderately successful. The amount of CFCs in aerosols fell steadily in the second half of the 1970s and early 1980s. The total amount of CFC production and sales went down over this time as well, although only slightly as sales of CFCs for other uses climbed. The total began to rise again during the 1980s, however, with the decline in aerosols leveling off and with the use in other sectors continuing to rise. By 1987, the total amount of global sales of CFC-11 and CFC-12 was not much different than in 1974. But, by then, production of the third most significant chlorofluorocarbon (CFC-113) was far higher, exceeding 200,000 metric tons per year for the first time.1 Still, without the efforts to reduce the use of CFCs in aerosols, the situation by the time of the Vienna Convention and Montreal Protocol would have been worse. Although aerosol sprays still accounted for 300,000 metrictons of CFCs in 1986, that amount represented only a little more than one-quarter of “controlled use” worldwide.2
In contrast to reducing CFCs in aerosols, little effort was made between the mid-1970s and mid-1980s to reduce the use of CFCs in refrigerators, freezers, or air conditioners. Refrigeration and air-conditioning accounted for between 25 and 30 percent of global CFC use by the mid-1980s.3Here opposition from industry was a core reason for the failure to regulate CFCs. This resistance began to wane by the mid-1980s, when many U.S. firms, including DuPont, changed tack, supporting the Montreal Protocol and sincerely pursuing CFC substitutes.
Phasing Out CFC Refrigerators in Developed Countries
The Montreal Protocol was a turning point for the refrigeration industry. The world’s top three manufacturers of refrigerators and freezers—the Swedish firm Electrolux, the U.S. firm Whirlpool, and the German firm Bosch und Siemens Hausgeräte (BSH)—all took steps in the late 1980s and first half of the 1990s to retool plants to handle CFC substitutes, recycle or retrofit old refrigerators, and train workers to avoid venting CFCs during servicing. Electrolux replaced ozone-depleting and climate-changing substances in the early to mid-1990s in Europe and North America. BSH halved its use of CFCs in 1988, and ended its use of them and of hydrofluorocarbon (HFC) greenhouse gases in its European plants in 1993 (replacing these with the hydrocarbons isobutane and cyclopeantane).4 The refrigeration industry was not exceptional here. By the start of 1996, no developed country was producing the main CFCs (11, 12, and 113), except for a small amount set aside for essential uses. World production of the five main CFCs (11, 12, 113, 114, and 115) was less than 80,000 metric tons in 1996. Although a small quantity of CFCs was smuggled into these countries (or, sometimes, illegally traded within), in the end, jurisdictions like the United States and the European Union “overcomplied” with the rules of the Montreal Protocol.5
The successful phaseout of CFC refrigerators involved some transfers of harm into the developing world. Some European dealers, for example, were shipping used CFC refrigerators to Africa in the second half of the 1990s. Some consumers refused to buy these imports, even though they were much cheaper than CFC-free refrigerators (costing half as much in Zambia, for example). But others, as you’d expect anywhere, saw a bargain and didn’t seem to worry much about the consequences for the global environment. “Whatever this CFC means,” explained one Zambian fishmonger in 1999, “all I know is that the deep freezer has been a big asset for me.” “This is just one small fridge,” rationalized a Zambian civil servant in the process of buying a CFC refrigerator in 1999, “surely it can’t be compared to those big factories which smoke heavily. I doubt if it can really have much impact at all.”6
The dumping of used CFC refrigerators in the 1990s certainly made it harder for some developing countries to meet their international commitments. Poor maintenance, servicing, and recycling of refrigerators in these countries also meant CFCs were commonly going directly into the atmosphere. At the same time, however, the changes in CFC use within the developed world were altering global markets, technological capacity, and multinational incentives in ways conducive to phasing out CFC refrigerators in the developing world. A consensus, moreover, was emerging among First World states over the need to provide the Third World with financial support for these phaseouts.
The phaseout of CFC refrigerators took on a more global character after developing countries in the Montreal Protocol agreed in 1990 to a target of 2010 for a phaseout of the two most common ozone-depleting sub-stances: CFCs and halons. The following year, the Multilateral Fund for the Implementation of the Montreal Protocol was established to assist developing party states with meeting their commitments. Financed by developed states and economies in transition, the fund had an initial budget from 1991 to 1993 of $240 million. Since then, it has been replenished five more times with sums of between $400 and $475 million; its 2006-2008 budget was $470 million.
Only countries whose annual consumption and production of ozone-depleting substances was below 0.3 kilograms per capita (30 metric tons per 100,000 people) qualify for assistance. There were 145 eligible countries (of the 191 Parties to the Montreal Protocol) as of November 2007. By then, the fund had approved over $2 billion through four implementing agencies: the United Nations Environment Programme (UNEP), the United Nations Development Programme (UNDP), the United Nations Industrial Development Organization (UNIDO), and the World Bank. The fund estimated that its financial support has been essential for phasing out 190,000 metric tons of consumption and 116,000 metric tons of production of ozone-depleting substances by the beginning of 2006.
Thus financing from this fund has been instrumental in reducing CFC use in the refrigeration sector in countries like China and India. The Indian government ratified the Montreal Protocol in 1992. To meet its protocol commitments by 2010, it’s working to phase out refrigerators using CFC-12 gas. According to the Indian Department of the Environment, fewer than 30,000 such refrigerators were still in use by 2005. With financing from the Multilateral Fund, the Indian government has been purchasing kits to convert these to cooling systems using liquid petroleum gas (LPG), which does not release any of the chlorine—or bromine—responsible for ozone depletion.7
China ratified the Montreal Protocol in 1991, a year before India, when CFC-11, CFC-12, and halon-1211, used in aerosols, foams, air conditioners, solvents, fire extinguishers, freezers, and refrigerators, accounted for over 90 percent of China’s total production and consumption of ozone-depleting substances. By the mid-1990s, as a result of declines across the developed world, China was the world’s largest producer and consumer of these substances, accounting for about one-third of the global total.
By then, firms within China were producing some 12 million refrigerators and freezers a year, accounting for around half of all of the refrigerators made in developing countries belonging to the Montreal Protocol. Of these, about 3 million units were being built with technologies using less ozone-depleting substances (some units were even CFC free). The manufacturing lines of another 5 million refrigerators were already in the process of retooling to reduce the reliance on ozone-depleting sub-stances. In China, as in India, the Multilateral Fund has supported efforts to shift to CFC-free cooling systems over the last decade and a half, having disbursed over $75 million to 49 projects in the household refrigeration sector by the middle of 1998. A total of some 2,500 metric tons of ozone-depleting substances had been phased out using these funds by the beginning of 1998.8
Yet, as was true elsewhere in the developing world, international financing by the Multilateral Fund was just one of many factors motivating the decrease in CFC use in China. China’s decision to ratify and later comply with the Montreal Protocol to gain international legitimacy was a factor, as was maneuvering by China’s main implementing agency to expand its influence.9 But market demand, including access to overseas markets and technologies, has been a particularly strong factor—with some, like environmental researchers Jimin Zhao and Leonard Ortolano, finding it to be the “most significant” motivating factor for household refrigerator and freezer producers within China. “If we could obtain a good market share [for CFC-free refrigerators],” one manager explained, “we could conduct ODS [ozone-depleting substances] reduction even if there were no financial support [from the Multilateral Fund]. But if we could not obtain a good market share, we would not carry out ODS reduction even if financial support were available.”10
With old markets closing and new ones in sight, a few local refrigerator firms in China were voluntarily adopting more expensive CFC-free cooling systems even before China ratified the Montreal Protocol in 1991. China’s total refrigerator exports fell 58 percent from 1988 to 1991, partly because, after so many European governments signed the protocol in 1987, more and more consumers in Europe were turning to CFC-free refrigerators. By 1991, China was managing to export only 230,000 refrigerators a year—just 4 percent of its total production. Because the protocol only allowed trade among parties, ratification by China would open up new overseas markets for CFC-free refrigerators (which explains why many firms in China urged the government to ratify).
Efforts by China’s 40 refrigerator manufacturers to replace ozone-depleting substances gained momentum after 1991. Through the 1990s, some began using technologies requiring smaller amounts of CFCs (generally about half as much). Others began to use transitional substitutes—such as hydrochlorofluorocarbons (HCFCs)—with smaller ozone-depleting impacts than CFCs (although with significant global warming effects). And a few manufacturers switched to CFC-free systems. By the beginning of 1998, projects funded fully by industry had phased out just 200 metric tons less ozone-depleting substances than the reductions arising from Multilateral Fund projects.
Hoping at first this would get them back into the European market, some Chinese refrigerator firms urged their government to adopt environmental labeling to assure consumers that a refrigerator was either CFC free or 50 percent CFC reduced. These labels first appeared in 1993. Before long, however, refrigerator firms within China were employing environmental labels to gain a marketing edge over competitors. By 1996, many of the leading firms were advertising the value of “world-class” CFC-free refrigerators. Some were even misleading consumers, implying a CFC refrigerator in a home could directly harm a person’s health. The early results of the marketing campaign were promising: more than enough consumers were willing to pay from 10 to 15 percent ($25 to $45) more for a CFC-free refrigerator. Just two years later, 27 of China’s 40 refrigerator manufacturers were using these labels.11
Multinational appliance firms also contributed to some of the decreases of CFCs in China. Appliance firms from countries like Sweden, the United States, Germany, Japan, and Italy also began to invest more in the Chinese production of CFC-free refrigerators after 1995. Some domestic manufacturers imported technologies to manufacture CFC-free refrigerators from overseas firms; others entered into joint ventures with them. Indeed, by the late 1990s, nearly a third of China’s refrigerator manufacturers had entered joint ventures to produce CFC-free refrigerators.
In recent years, many multinational companies have publicized these joint ventures as evidence of their corporate social responsibility. Thus the German appliance maker BSH, in its 2004 annual review of its sustainability practices, made much of its initiative to manufacture only CFC- and HFC-free refrigerators at its joint-venture Chuzhou plant (opened in 1996) from 1999 on.12 These joint ventures have helped to spread information and technologies for reducing CFCs among domestic Chinese refrigerator makers. They have added as well to market pressures to switch to CFC-free technologies. Some Chinese firms—in particular, state- and collectively owned ones—had neither the technical nor the financial capacity to compete with these more modern refrigerator plants and went out of business within a few years.
Over the 1990s, China made significant per unit progress in reducing ozone-depleting substances in refrigerators and freezers. By 1997, its total consumption of these substances had risen only moderately (some 1100 metric tons) even though refrigerator production had more than doubled (from 5.5 to 13 million units).13 Although financing by the Multilateral Fund has accelerated the rate of environmentally friendly change, as this section shows, market demand and, to a lesser extent, multinational investments have been more significant. Such change has been harder to achieve in the foam and solvent sectors, which, unlike the refrigeration sector, do not have the advantage of a small number of firms with the capacity to import new technologies and to meet the basic criteria for financing by the Multilateral Fund.14
Still, across all sectors, the statistical story for the Multilateral Fund in China is one of progress over the last decade and a half. By mid-2003, the Multilateral Fund had given China $470 million for 403 projects, supporting a phaseout of 53,900 metric tons of production and 87,600 metric tons of consumption of ozone-depleting substances across all sectors. This represents about half of all decreases in ozone-depleting substances during the previous dozen years. The fund has now approved over $700 million to assist China, which is now “on track” to meet its commitment for a full phaseout of CFCs and halons by 2010.15
Keeping major Third World producers and consumers like India and China on track to meet the 2010 targets—though critical to protecting the ozone layer—is only part of the solution. The smaller countries in the developing world must also phase out ozone-depleting substances. To help them do so, the Multilateral Fund is distributing its financing widely. So far, it has approved funding for over $2 billion for some 5,500 projects in 144 countries, involving activities such as industrial conversion, capacity building, technical assistance, and training. Having raised “the phase-out of CFCs in the refrigeration servicing sector in smaller countries” as an area needing special support at its April 2006 meeting, the fund’s executive committee allocated $63 million to 47 developing countries to that end and urged implementing agencies to accelerate progress in this sector.16
Overall, then, the combined impact of new policies, targeted financing, and corporate positioning—first in developed countries, then in developing countries—has significantly decreased the volume of CFCs flowing from refrigerators and freezers over the last two decades. The progress in the 1990s, beginning in the wealthy world and then moving to all corners of the globe, was especially impressive, with firms and governments replacing CFCs in 95 percent of the world’s refrigerating systems.17But this process has had its downside. Replacing CFCs with HCFCs and HFCs was, in the words of Greenpeace, “switching from disastrous to very bad” because both substitutes significantly contribute to climate change.18 But, here as well, advances are now occurring worldwide in substituting more benign refrigerants (such as pure hydrocarbons).19New refrigerators and freezers, especially solar-powered ones, using these more benign chemicals are certainly better for the environment. Yet, although these appliances, like their CFC predecessors, help save lives and safeguard health by preserving necessities such as food and vaccines, because the total number of them continues to rise, their eco-logical shadow continues to extend across the planet.
Phasing out CFCs under the Montreal Protocol was good for refrigerator sales. Advertising campaigns stressed the environmental value of upgrading to new, CFC-free models, which manufacturers began to market with many other enticing features (including, as chapter 13 documents, much higher energy efficiency). Some governments even compensated consumers for replacing old refrigerators with new ones.20 Such changes and programs contributed to climbing worldwide sales of electrical appliances over the last decade. The number of units being sold annually went from 1.01 billion in 1998 to 1.26 billion in 2003. Of these, large kitchen appliances—such as refrigerators, freezers, stoves, washers, dryers, and microwaves—accounted for 252 million in 1998 and 319 million in 2003. Future sales are expected to be even higher. Indeed, sales of electrical appliances are projected to reach some 1.6 billion units in 2008— with large kitchen appliances accounting for more than 400 million of these.
Many other factors are stimulating appliance sales as well. Trading agreements such as the North American Free Trade Agreement (NAFTA) and the Southern Common Market (Mercosur) have helped to open markets for kitchen appliances. Barriers to trade remain in a few transitional economies and developing countries, but, even here, the trend is toward fewer taxes, duties, and restrictions on large foreign appliances. A program of liberalization in India, for example, now allows foreign firms to invest, market, and import large kitchen appliances. The Indian government removed quantitative limits on imports in 2000 and lowered custom duties in 2001 (from 40 to 35 percent). There are many other examples of this trend, such as Russia’s decision in 2001 to lower customs duties on large kitchen appliances from 20-30 percent to 15-20 percent.
Higher per capita incomes, rising populations, and expanding electricity infrastructures have stimulated a steady growth in global sales for refrigerators and freezers: there were 82 million sold in 2002—up 9 million from 1998. Over two-thirds of these sales in 2002 were in the Asia-Pacific (28.8 percent), western Europe (23.7 percent), and North America (18.4 percent), with Latin America (10.9 percent), Africa, the Middle East (10.2 percent), and eastern Europe (7.1 percent) accounting for the rest.21 Worldwide growth has been slowed somewhat by inadequate and unreliable power grids, which still limit consumption in emerging markets like China, India, Southeast Asia, and Latin America.
Competing to Expand Consumption
Markets for refrigerators are now, in the language of financial analysts, relatively “mature.” Competition is stiff, mergers and acquisitions are common, and many small manufacturers and retailers are being forced out of business by increasingly large and complex multinational enterprises, which are relying more and more on the power of brand names and lower prices to fight for international market shares.
A few firms from developing countries, such as the Chinese refrigerator manufacturer Haier, are expanding abroad, moving into established markets like Japan and the United States. The competition is fierce here, especially from established brands like Electrolux, Whirlpool, and Hitachi. Still, Haier has managed to enter the U.S. market with a fast-selling line of small and cheap refrigerators through the Wal-Mart chain.22
In the aftermath of the government mandating CFC-free manufacturing of refrigerators by 2005, other Chinese refrigerator firms have joined Haier in seeking entry into global markets. Of the 30 million household refrigerators made in China in 2004, some 12 million, worth $777 million, were exported, primarily to the European Union, the United States, Asia, and the Middle East. This represented a 40 percent increase over 2003 exports, which were nearly 36 percent higher than exports the year before. Such rapid growth is creating pressures on Chinese refrigerator producers to merge or go under. Already, the number of locally owned refrigerator and freezer firms has fallen from about 100 to less than 40, and the sector is expected to consolidate at a half dozen or so firms.
Unlike the 1980s and early 1990s, when the main restructuring in China’s refrigeration sector involved multinational corporations taking over or forming joint ventures with local firms, since then, the trend toward larger and fewer refrigerator firms has involved local firms acquiring or investing in other local firms. By 2004, China already accounted for about 30 percent of global output of household refrigerators; its output is expected to grow much larger as Chinese refrigerator firms work hard to expand sales at home and abroad.23
Major players like Electrolux, BSH, and Whirlpool are not sitting idly by. A key focus of these multinationals is on expanding markets in developing countries. Thus, in 2002, Whirlpool bought out its joint venture partner in China—Whirlpool Narcissus Shanghai—to expand its cheap manufacturing base for exports to the Asia-Pacific region. That same year, it established Whirlpool Mexico, providing direct access to the Mexican market as well as further export opportunities into the Caribbean and Central and South America, and, to expand sales in Central Europe, it secured a cheap manufacturing base there by acquiring Polar S.A. from ElcoBrandt, the leading appliance brand in Poland.24
Building new markets in the developing world is just one of many corporate strategies to expand consumption. These firms are also encouraging consumers to upgrade to new models (often larger or with more features) or to purchase a second or third appliance for the convenience of extra storage or more options.25 Many factors influence such purchases. In some countries, demand for bigger refrigerators and freezers is rising as consumers switch from daily shopping to bulk and weekly shopping. Habits are changing for many reasons. More stores are offering deals in bulk, “Buy one, get one free,” being just one of countless marketing schemes. Demand for more efficient ways to manage food shopping is increasing with longer working hours and more women working outside the home. The trend toward bulk buying is especially strong in countries like the United States, where homes are large and where microwavable and frozen foods are popular.26 It’s less so in countries like France, Italy, and Spain, where cultural traditions of meals made at home with fresh ingredients are stronger, or in countries like Japan or Taiwan, where homes are smaller and storage space limited.
The United States was by far the single largest national market for refrigerators and freezers for the period 1998-2002. Sales rose from 11.6 million units in 1998 to 14.1 million in 2002—a “healthy growth” of nearly 22 percent in volume. Growth of all “big-ticket” consumer items was helped along by low interest rates, long-term credit agreements, and rising personal disposable income (which grew nearly 24 percent, from $6.3 trillion in 1998 to $7.8 trillion in 2002). The world’s second largest national market for refrigerators and freezers was China, with sales of 8.1 million units in 2002—down from a peak of 9.6 million in 1999 (insufficient electric power is hampering sales in rural areas).27
Governments applaud these burgeoning refrigerator sales as a sign of prosperity and a source of overall economic growth. But many now also recognize the pressures such rapidly rising consumption puts on ecosystems, as do increasing numbers of corporations. The global effort to replace CFC refrigerators is just one of many initiatives to decrease the environmental impact of the production, use, and disposal of refrigerators. Chapter 13 will analyze some of the other initiatives—with a focus on corporate efforts to market “superior” refrigerators.