Smugglers reap large profits from banned ozone-destroying coolant

By ELISABETH ROSENTHAL and ANDREW W. LEHREN
7 September 2012 MIAMI – The chief executive of the century-old company from America’s heartland shifted nervously on the witness stand here as he tried to explain how a trusted senior vice president had been caught on a wiretap buying half a million dollars in smuggled merchandise, much of it from China. But the contraband purchased by Marcone, a St. Louis-based company that claims to be the nation’s largest authorized source for appliance parts, was not counterfeit handbags or fake medicines. It was a colorless gas that provides the chill for air-conditioners from Miami to Mumbai, from Bogotá to Beijing. Under an international treaty, the gas, HCFC-22, has been phased out of new equipment in the industrialized world because it damages the earth’s ozone layer and contributes to global warming. There are strict limits on how much can be imported or sold in the United States by American manufacturers. But the gas is still produced in enormous volumes and sold cheaply in China, India, and Mexico, among other places in the developing world, making it a profitable if unlikely commodity for international smugglers. So in 2009, Carlos Garcia, the Marcone vice president, generated big business for his company’s growing air-conditioning operation by selling smuggled foreign gas to repairmen at rock bottom prices in a promotion called Freaky Freon Fridays, drawing on a brand name that many use as a synonym for coolants. Although it has been illegal to sell new air-conditioners containing HCFC-22 in the United States since 2010, vast quantities of the gas are still needed to service old machines. Importing HCFC-22 without the needed approvals, as Marcone did, violates international treaties and United States law and regulations. Yet for a long time, “Mr. Garcia was a hero to his company” for the profits his Freaky Freon Friday campaign generated, an assistant United States attorney, Thomas A. Watts-FitzGerald, told a rapt federal courtroom here in April. On June 26, Mr. Garcia was sentenced to 13 months in federal prison. International efforts to curb the use of HCFC-22 are faltering for dozens of reasons, from loopholes in environmental treaties to the reluctance of manufacturers to step up development of more environmentally friendly machines. But the underlying problem is that even as international treaties and United States law demand that companies renounce the use of the coolant, economics propels them to use ever more — sometimes even if it means breaking the law. Although the Marcone case is the largest smuggling prosecution anywhere so far, investigators believe that smuggled gas is used by other companies in the United States, and European customs officials have intercepted shipments of contraband gas arriving in Finland, Slovenia and Poland in the last two years, said Halvart Koeppen, a United Nations official who tracks illegal trade of the gas. This is “the tip of the iceberg,” he said. Much of the global air-conditioning industry relies on the gas the way the auto industry does on gasoline. But while oil is getting harder to find and more expensive, HCFC-22 is becoming more abundant and remaining cheap on the global market. “There is no question that this is inhibiting phaseout,” said Rajendra Shende, a former head of the United Nations Ozone Action Program who runs the Terre Policy Center, an environmental research institute in Pune, India. In the meantime, the price of legitimately obtained gas has been rising in the United States and throughout Europe. That is because governments of industrialized nations, to comply with the ozone treaty known as the Montreal Protocol, restrict the use of the environmentally damaging gas in various ways. In the United States, the Environmental Protection Agency requires that companies obtain a license to make, sell or buy specific amounts of HCFC-22, with such “allowances” decreasing year by year. The dwindling supply has led to pronounced spikes in price. What once cost retailers like Marcone $55 a canister was by 2009 going for $140 in the United States. By reducing the supply of the coolant and encouraging prices to rise, the United States government hoped to force manufacturers and consumers to scrap old machines and invest in more environmentally friendly, if more expensive, alternatives. But it has not worked out that way, especially in recessionary times when people hang on to old appliances and search for cheap shortcuts. Many air-conditioning manufacturers have even figured out how to sidestep the 2010 ban on selling new machines containing HCFC-22, by offering unfilled air-conditioning compressors that service workers swap into existing units and then fill with the gas, creating refurbished machines that are as good as new. The chemical giant DuPont has estimated that the service demand for HCFC-22 could exceed the supply by 27.5 million pounds annually in the United States for the next three years. A big chunk of that shortfall will be made up through smuggling, experts say. And smuggled gas is cheaper, going for $130 a canister in the Marcone case. […]

As Coolant Is Phased Out, Smugglers Reap Large Profits