SIC 3585
REFRIGERATION AND HEATING EQUIPMENT



This category includes establishments primarily engaged in the manufacture of commercial or industrial refrigeration equipment or domestic, commercial, or industrial air-conditioning units. Other equipment manufactured under this classification includes warm air furnaces, humidifiers and dehumidifiers, soda fountains, and beer dispensing machines. Similar equipment not covered by this category includes household refrigerators and freezers, and electric space heaters and portable humidifiers and dehumidifiers.

NAICS Code(s)

336391 (Motor Vehicle Air Conditioning)

333415 (Air Conditioning and Warm Air Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing)

Industry Snapshot

A trip to the local supermarket provides graphic evidence of the importance of the heating, refrigeration, and air-conditioning industry (HVAC) to modern American society. Many of the products found in the airconditioned aisles, like fresh fruits or live fish, could never have been transported without cooling technology. The Air Conditioning and Refrigeration Institute (ARI) estimates that more than three-fourths of all foods consumed by Americans have been produced, packaged, shipped, stored, or preserved by refrigeration. Temperature control systems have also become common in shopping malls, commercial office buildings, and hospitals. The total value of HVAC industry shipments in 2001 was $25 billion.

The demand for air-conditioning systems and room air conditioners is often dependent on the state of the nation's economy and the vagaries of the weather. New building construction is the most important market sector for the HVAC industry, and as goes construction, so goes the HVAC industry. During the early 2000s the HVAC industry continued to be productive within the new housing market, but weak economic conditions led to the stagnation of the commercial and industrial sectors. Despite the poor health of the overall economy, shipments of central air-conditioners and heat pumps hit record levels in both 2001 and 2002, spurred by strong growth in the new housing market.

Background and Development

Until the industrial revolution, refrigeration depended on the natural mediums of ice, snow, and water. The early Chinese harvested winter ice and packed it in dried straw for use in the summer. The Egyptians used porous earthenware jugs placed on their rooftops at night to cool their liquid contents by the natural process of evaporation. Since changing a liquid to a gas requires a considerable amount of heat energy, the liquid remaining in the containers became much cooler by morning. During colonial times, the ice hut was a familiar part of the landscape. It used the Chinese concept of harvesting ice to preserve food during the summer. Well into the 1800s, Americans sold ice to foreign countries as a natural refrigerant. The periodic home deliveries of ice were a commonplace experience for most Americans during the early part of the twentieth century.

The first attempts to find an industrial method to duplicate and improve on nature came in 1748 from Dr. William Cullen of Scotland. In 1851, Dr. John Gorrie, director of the U.S. Marine Hospital at Apalachicola, Florida, built the first commercial machine, receiving U.S. Patent 8080 for it. By 1880, the fledgling industry had developed reciprocating compressors which made possible such things as commercial ice making, brewing, meatpacking and fish processing. In 1904, 70 of the industry pioneers formed the American Society of Refrigeration Engineers, officially creating a new profession.

In 1911, Willis H. Carrier presented the mathematical bases for the now-standard psychometric charts, which define the theoretical properties of heat transfer through air. His work earned Carrier the title of "the father of air-conditioning." In 1922, he invented the centrifugal refrigeration compressor. During World War II, he contributed to the building of a 10 million cubic foot wind tunnel that could be cooled to–67 degrees Fahrenheit. The most notable use of the new airconditioning technology was in the motion picture theaters of the 1920s. New York City theaters, including the Rivoli, Paramount, Roxy, and Lowe's in Times Square, lead the innovation. By the end of the decade hundreds of theaters across the country offered a controlled climate along with their feature film.

The heating industry refined the early concept of the open fire by enclosing the fire with brick or stone structures equipped with chimneys. These dirty and inefficient first efforts generally heated only the room they occupied, but could also be used for cooking and provided a central focus to the household. Throughout the nineteenth century, developments in metallurgy and forging promoted the use of remote water boilers attached to radiators by metal piping. These sturdy contrivances often used layers of asbestos to retain the heat in the water.

The warm-air furnace reduced the cost of heating, making the concept of central heating more available. Early systems were usually coal-fired, cast-iron machines that filled whole basements. They distributed the heat by means of "gravity" through large metal ducts attached to ornate grills in floors and walls. Like any other material when heated, air becomes lighter and tends to be pushed upwards by the cooler air surrounding it. The gravity is actually "working" on the cooler air, pushing it down to displace the lighter warm air. Later, electric fans attached to the heaters created the first forced-air systems. Castiron heaters have been replaced by compact sheet-metal cabinets, which contain burner, blower, and filter.

Burning Alternatives. A more integral change occurred in the fuel being burned. The early machines used coal or even wood or charcoal. Such material required large storage areas and considerable labor in feeding the furnace and cleaning out the burnt residue of cinders and ash. The fire produced great amounts of air pollution in the form of sooty smoke and smog. London's famous pea-soup fogs of Victorian days disappeared when the British parliament banned the burning of coal within the city limits.

The first technological revolution in modern heating fuel technology came with the use of fuel oil as a replacement for coal. The Gilbert and Barker company claims to have produced the first industrial oil burner in North America in 1889, but patents for several burners were not issued until 1892. These early machines were often called range burners because they were primarily used for the kitchen stove. New heat resistant metals made the use of fuel oil as a furnace fuel both practical and desirable by the late 1920s. That began a shift in consumer fuel preference which virtually eliminated coal as a domestic fuel by the late 1950s. A second fuel revolution came with the OPEC oil embargoes of the 1970s. Once cheap and plentiful, fuel oil quickly rose in price and scientists began predicting a world-wide oil shortage and depletion of reserves by the year 2000. To compensate, the industry shifted to domestically-available natural gas and, to some extent, electricity. By 1992, with the cost of generating electricity escalating, natural gas became the clear preference of most American consumers, reaching a market penetration of 65 percent, according to the Detroit Free Press.

Modern refrigeration and air-conditioning work on essentially the same principle. Both collect heat from one area and transfer it to another where it dissipates into some medium. The basic system consists of a compressor driven by an electric motor and two coils. In the first coil, called the condenser, the refrigerant gas is compressed into a liquid, discharging heat as it changes state. In the second coil, called the evaporator, the refrigerant becomes a gas again, absorbing heat from outside the coil. The essential ingredient is the refrigerant gas. Early refrigerant materials included air, water, butane, propane, ether, ammonia, sulfur dioxide, and methyl chloride. Some, like ammonia, continue to be used in large commercial applications like skating rinks and ice factories. Many of these materials were highly toxic, corrosive, and flammable.

In 1930, Thomas Midgely of the DuPont Company developed the first fluorocarbon refrigerant and demonstrated his faith in its safety at a company press conference by inhaling a stream of the gas and blowing out a candle with it. In 1956, the industry adopted DuPont's numbering system for all fluorocarbon refrigerants. The most common used in the 1990s were the chlorofluorocarbons R-12 for automotive and appliance applications and R-502 for commercial and industrial applications. A second generation of refrigerant compound displaced CFCs in many applications. The hydrochlorofluorocarbon (HCFC) R-22 dominated the domestic central airconditioning market and was gaining popularity for some commercial applications.

Until 1953, water remained the most common cooling medium for air conditioning and refrigeration. Systems of that day used municipal water supplies or cooling towers, making the technology difficult for most domestic applications. The introduction of air-cooled systems in 1953, followed by the now-familiar split-system, launched the concept of controlled cooling into national acceptance. By 1973, 75 percent of industry sales were residential units. The development of electrically activated refrigerant reversing valves allowed cooling systems to be used for heating as well. The heat pump concept pioneered in the 1960s exchanged the functions of the two coils, as the evaporator became the condenser and the condenser acted as an evaporator. The systems scavenged usable heat out of the fall and winter air and pumped it into the building. Early models operated inefficiently in unsuitable climates, earning the technology a bad reputation with consumers. In 1960, only 28 percent of new homes were installed with central airconditioning, but by 1992, the technology was included in 77 percent of new homes.

The technology sparked development of the commercial rooftop combination heating and cooling unit. Placing the heating and cooling equipment in a single box on the roof freed up valuable commercial space and simplified servicing and installation. In addition, improvements in compressor design, particularly the hermetic or sealed compressor, allowed the size and capacity of industrial refrigeration machines to increase and spurred the advancement of the chiller systems that dominated the large building and industrial markets.

The 1990s marked a decade of revolutionary change for the HVAC industry. The Centers for Disease Control and Prevention reported 1,604 cases of Legionnaires' disease in the United States for 1994, but epidemiologists believed the total to range between 10,000 and 100,000 cases. Office building operators across the country were reporting cases of "sick-building syndrome," in which workers developed debilitating symptoms from a buildup of pollution levels in sealed, air-conditioned buildings. In 1993, Congress passed a new energy bill that mandated higher efficiency standards for heating and airconditioning appliances and promised to make the requirements stricter in 1998. But the most devastating event to the HVAC industry was the discovery of a 7 million square kilometer hole in the ozone layer above the South Pole, and the scientific evidence which linked that phenomenon to the release of chlorofluorocarbons (CFCs) into the atmosphere. That revelation threatened the basic component of the HVAC industry. Midgley's supposedly safe refrigerant, around which the industry was designed, had become an unacceptable pollutant.

Global Warming and Ozone Depletion. The first rumblings of environmental damage were initiated by the British scientist, James Lovelock. In 1973, Lovelock wrote that carbon dioxide and CFCs in the atmosphere created a "greenhouse" effect by trapping heat in the lower atmosphere. Although few scientists argued the physics, the expected warming did not materialize as predicted. Other factors intervened, making it clear that the atmosphere and its energy transmission characteristics were too complicated to be fully understood as of yet. In 1995, the Nobel Prize in Chemistry was awarded to Paul Crutzen, who identified the chemical reactions that destroy the ozone layer, and F. Sherwood Rowland and Mario Molina who determined that CFCs were responsible for triggering ozone depletion. The essential problem is the chlorine component of the CFC. The chlorine atom destroys ozone molecules in the high atmosphere through a complicated series of chemical reactions. Each chlorine atom destroys one ozone molecule every minute for about one year.

In 1973, the industrial world was dumping almost one megaton of CFCs into the atmosphere every year. CFC production was a $2 billion a year business. Its leaders resisted the scientific theories, calling for extensive studies and time to develop replacement materials. Eventually Sweden, Norway, and Canada banned CFCs used in aerosol cans, but nothing further happened until the British Antarctic Survey discovered a hole in the ozone layer half the size of Antarctica. In 1987, 24 industrialized countries signed the Montreal Protocol, calling for a 50-percent reduction in CFC production by the year 2000.

The Clean Air Act of 1990, which introduced extensive air-quality standards and the incremental reduction and eventual banning of CFCs by the year 2000, challenged the industry to improve its technology. This challenge caused uncertainty in the industry as new systems were developed, using chemicals which were not compatible with the old refrigerants. In the early 1990s, the fear of products becoming obsolete caused the industry to stagnate, while alternative refrigerants were researched.

In June 1990, the protocol timetable was amended. CFC production in developed nations was banned by the year 2000, but developing nations could continue to produce them until 2010. As a temporary replacement refrigerant, hydrochlorofluorocarbons (HCFC) were scheduled for phase-out in 2030. This answered a concern by developing nations that the ban would work to the advantage of European and American firms who had the money to invest in alternative refrigerant technology. Manufacturers in those two regions produced two-thirds of the world's CFCs at that time.

Also in 1990, the refrigeration industry petitioned the Environmental Protection Agency to develop and issue uniform national recycling standards and requirements in anticipation of the large quantities of old refrigerant which would need to be removed from refurbished machinery. In 1992, ARI estimated the existing stock of refrigeration and air-conditioning equipment in the United States exceeded $135 billion. In February 1992, President George Bush reset the Montreal Protocol timetable, moving its requirements ahead by four years and calling for other nations to follow suit. On January 1, 1996, the production of chlorofluorocarbons was banned in the United States and other developed countries. Hydrofluorocarbon blends were already being used as refrigerants since they were legal until 2010 and these could be used to service old HCFC equipment until 2020.

The problem for the industry revolved around finding a suitable replacement refrigerant which could be produced quickly enough to meet the phase-out schedule. To make the ban effective, that technology would have to be shared with developing nations in order to persuade them not to continue building their own CFC industry. Refrigerant engineers looked for chemical combinations that were not flammable, corrosive, or toxic, and which would operate reasonably well in existing equipment. The lubricants in the old systems had to be compatible with the new gases, and in some cases new lubricants had to be found. In addition, the new designs had to meet the higher energy efficiency standards of 1993. Most of the new chemicals worked reasonably well, but not as efficiently as CFCs. Therefore, equipment redesigns were necessary to meet the efficiency ratings. The research and new technology added to the cost of the machinery at a time when sales of refrigeration equipment were stagnant at best. Another round of higher energy requirements was slated to go into effect in 1998, but the industry could not build toward that higher target because the standard was still being developed.

The process of replacing CFCs required a shift to HCFC-22, which was the only proven substitute for CFC refrigerants in 1993. In 1996, Allied Signal Inc. introduced Genetron AZ-20 (R-410a) as a new alternate refrigerant. This non-ozone depleting replacement for HCFC-22 was quickly adopted by Carrier Corporation for use in their air conditioning units. Genetron AZ-20 is a patented azetropic blend of HFC-125 and HFC-32 and demonstrated a 7.5 percent higher energy efficiency rating (EER) over HCFC-22. At the same time, equipment manufacturers were redesigning compressors to match the characteristics of the new gases.

In the 1990s, modern HVAC systems were designed to isolate the indoor environment from an increasingly polluted urban world. With the rising cost of energy after the OPEC oil shocks, consumers sought to minimize consumption through energy conservation. The first and most obvious method was to tighten homes and buildings to prevent heat loss through the use of insulation and thermal window glass. In some cases, overzealous efforts had deadly consequences when the structures became too tight and the heating equipment burned up all the available oxygen. Instead of air, the occupants found they were breathing high concentrations of carbon dioxide or, even more deadly, carbon monoxide. In 1986, the Consumer Products Safety Commission reported that more than 200 Americans died each year from carbon monoxide poisoning in their homes. To combat this problem the industry promoted sealed combustion appliances, high-efficiency, chimney-less furnaces and outside-air-intake devices called make-up-air units.

In large buildings the problem surfaced as the "sick-building syndrome," first noted in the 1970s. Workers complained of fatigue, headaches, eye and respiratorytract irritations, excessive colds, and dry, itchy skin. Investigators discovered air-borne asbestos particles, bacteria, chemicals, and carcinogenic tobacco residues in the forced air systems. The EPA reported the presence of asbestos in 733,000 public and commercial buildings in 1988. Legionnaires' disease developed from bacteria carried by aerosols in ventilation systems. As with the atmospheric environment, the building micro-environment was a complicated system requiring careful scientific evaluation and monitoring to keep it safe for human occupation.

Unlike the rather steady market for room air conditioners throughout the 1990s, demand for unitary systems dropped after 1989, which saw shipments of 3.5 million units, but began rising in 1994 with nearly 3.9 million units. The years between 1995 and 1998 were good for this market sector with 4.0 million, 4.5 million, 4.3 million, and 4.9 million units shipped, respectively. Unitary systems are matched cooling components in factory fabricated assemblies, of which there are three basic types: single package systems which are usually rooftop horizontal units applicable to single story buildings such as motels and bowling alleys; split systems which consist of interconnected indoor and outdoor sections and are used in small retail and office buildings and restaurants; and packaged terminal air conditioners which are designed for through-the-wall single room or zone applications and are often used in office buildings, condominiums, and metered multi-story buildings. The Air Conditioning and Refrigeration Institute, as reported in HPAC Heating/Piping/Air Conditioning in 1999, released the following decade-long rising figures representing the dollar total of installed non-residential air-conditioning units: 1995—$19,900,000; 1996—$22,600,000; 1997—$23,320,000; 1998—$24,600,000; 1999—$25,584,000 (1998 and 1999 figures are HPAC estimates.) These figures include both unitary and field engineered units.

The 1990s were never able to match industry shipments of over 5.0 million room air conditioners in 1989. Through 1998 the highest number of unit shipments was recorded in 1996 with just over 4.8 million. The lowest number of unit shipments was in 1991 with just over 2.8 million. In 1998, there were just over 4.4 million room air conditioners shipped. According to an Appliance article on air quality, the HVAC industry shipped more than 6.0 million heat pumps and air conditioners in 1998, a 16 percent increase over 1997.

Contractor predicted that 6.2 million unitary airconditioning units were shipped in 1998. They also predicted that 1998 would be a record year and produce unit shipments that won't be seen for years—or at least through 2004. Contractor's predictions for shipments of unitary air-conditioning units through 2004 are: 1999—5.8 million; 2000—5.6 million; 2001 5.6 million; 2002—5.1 million; 2003 5.7 million; and 2004—5.7 million.

Contractor also quotes the Gas Appliance Manufacturers Association as expecting a slowdown in gas furnace shipments in 1999. Shipments of gas furnaces were predicted to be around 2.9 million units, or a drop of 50,000 units from 1998.

What is driving the HVAC industry is a nearly recession proof replacement market. "We're becoming more and more replacement, repair, and maintenance oriented," GroupMac vice president Russel Bay told Contractor in a 1999 interview. Trane Co. vice president Tom Mikulina concurs. "Equipment reaches the end of its useful life and it's scheduled for replacement or it's a reactive investment the building owner makes to keep tenants. You put all of these issues together and it isn't susceptible to recession like the new construction market," he says. Replacement air-conditioning and gas furnace units can account for up to 55 percent of the annual market.

The 1990s showed mixed demand for furnaces. For the popular warm air gas furnaces the decade high (through 1998) was nearly 3.0 million units shipped in 1998. The decade low was 1990 when 1.9 million units were shipped. This figure generally remained high for the years 1993 through 1997 with shipments of 2.5 million, 2.7 million, 2.6 million, 2.8 million, and 2.7 million units, respectively.

HPAC estimates that 82 percent of the new homes built between January and May 1998 had central airconditioning units. Homeowners also had enough discretionary income to either add air-conditioning to existing homes or buy new replacement units. Quoting figures generated by the American Refrigeration Institute HPAC maintains that the strong 1998 U.S. economy and early summer heat waves were responsible for the shipment of 837,682 central air conditioners and air-source heat pumps for the month of June. This figure easily eclipsed the previous record of 730,692 units shipped in June of 1996. According to HPAC manufacturers shipped 3.4 million units during the first six months of 1998, up 11 percent over the same period for 1997. Shipments of central air-conditioning units have, except for a slight dip in 1997, risen consistently each year since 1992 when shipments stood at 3.7 million units. 5.7 million units were shipped in 1996, 5.4 million in 1997, and it is estimated that 6.2 million units were shipped in 1998.

The HVAC industry is a large consumer of various metal products and assembled pieces of machinery. Dollar values of material consumed by kind in 1997 (except for miscellaneous materials and supplies) were: steel sheet and strip—$724.6 million; copper and copper based alloy pipes and tubes—$535.1 million; refrigerator compressors, compressor units, condensing units, and other heat transfer equipment—$1.7 billion; steel bars, bar shapes, and plates—$288.9 million; automatic temperature controls—$362.0 million; and integral horse power electric motors and generators (more than 1 horse) at $792.0 million.

Industry and Primary Class Specialization statistics for the 1997 HVAC industry are: heat transfer equipment, mechanically refrigerated and self-contained—$5.4 billion; commercial refrigeration related equipment—$3.1 billion; refrigeration condensing units (all refrigerants except ammonia)—$135.0 million; room air-conditioning units and dehumidifiers (except portable dehumidifiers)—$1.0 billion; refrigeration and air-conditioning equipment—$772.2 million; compressors and compressing units (except automotive)—$3.3 billion; warm air furnaces including duct furnaces, humidifiers, and electric comfort heating equipment—$1.7 billion; parts and accessories for air-conditioning and heat transfer equipment—$979.6 million; unitary air conditioners except air source heat pumps—$6.0 billion; air source heat pumps except room air conditioners—$36.3 million; and ground and ground water source heat pumps—$67.4 million.

Current Conditions

Central air-conditioners and heat pumps shipped in 2002 totaled more than 6.7 million, an increase of 7 percent from the previous year. Heat pump shipments totaled a record 1.5 million, a 4 percent increase from 2001. Strong sales were primarily the result of the new housing industry, which remained robust due to low interest rates. In 2000 there were 1.2 million new housing starts. A boom in the housing industry pushed new housing starts up in 2003 to an estimated 1.6 million.

Although new housing is important, replacement business has also been strong. There are 60 to 70 million central air conditioning systems in U.S. homes. A significant number of these are reaching the age of 25 to 30 years old and will require replacement. Because air conditioning and heat are generally considered necessities, consumers will make purchases of systems that are aged or in ill-repair despite weak consumer confidence. With the economy slowly recovering, unit sales could break the 6.8 million mark by the end of 2003. When commercial and industrial activity increases, pent up demand is expected to further drive the HVAC industry.

Industry Leaders

At the close of World War II, America's clear leader in the HVAC industry was the Carrier Corp. of Farmington, Connecticut. At that time Carrier controlled about 90 percent of the American market. By the 1990s Carrier had become a subsidiary of the giant United Technologies Corporation but nonetheless it lost its hold on a stable industry lead. In 1991, as a result of poor quality control, under-investment in research and development, inconsistent dealer relations, and poor marketing decisions, Carrier's market share had dropped to 37 percent. In 1992, however, the company began replacing its product line with high-tech innovations, spending tens of millions of dollars in research and development, and selling off business ventures unrelated to HVAC.

In 1996 Carrier had sales of $5.9 billion which represented about 25 percent of the total sales of United Technologies. In 1998 carrier had sales of $7.0 billion, up from $6.0 billion in 1997. In 1998, 52 percent of Carrier's revenues came from U.S. exports and international operations. In early 1999 Carrier announced a restructuring that would eliminate 400 salaried workers or about 6 percent of its U.S. salaried workforce. In 1999 Carrier also acquired the refrigeration business of Electrolux for $145 million. The company reported revenues of $8.8 billion in 2002 and employed 45,000.

American Standard of Piscataway, New Jersey manufactures air-conditioning products and home comfort systems under a variety of names with American Standard and Trane being the most well known. In 2002 American Standard had total sales revenues of $7.8 billion and employed 60,000.

York International of York, Pennsylvania is the third largest manufacturer (after Carrier and American Standard) of heating, ventilation, air-conditioning, and refrigeration equipment. In 2002 York had $3.8 billion in revenues from manufacturing operations in 15 countries and employed 22,800. York was also the supplier of snowmaking equipment for the 2002 Winter Olympics to be held in Salt Lake City. The company also supplied icemaking equipment and heating, ventilation, and cooling equipment for indoor venues. York manufactures heating and cooling equipment for a wide variety of commercial and industrial applications, as well as hermetic compressors and split-unit central air-conditioning and heating systems for residential applications.

To the man on the street, Lennox is perhaps one of the most recognizable names in the HVAC industry. The company traces its roots to 1895 and a riveted steel furnace built by Dave Lennox in Marshalltown, Iowa. In 1904 Lennox sold his company to a group of investors led by D.W. Norris, a Marshalltown businessman. In 1978 the company moved to Dallas. By the end of the 1990s, the company had three manufacturing sites in North America and was marketing its products through 6,000 independent dealers. Lennox has four operating companies: Lennox Industries, Inc., Armstrong Air Conditioning, Inc., Heatcraft, Inc., and Lennox Global Ltd. In 2002 Lennox reported a net loss of $190.4 million on $3 billion in sales with about 18,000 employees. Lennox was a privately held company until 1999 when it launched a $141.4 million initial public offering. The Norris family, however, retains ownership of 70 percent of the company's stock.

Workforce

Traditionally, the heating, refrigeration and airconditioning manufacturing industry has been highly labor intensive. In 2001 the industry employed 118,876. Of that total, 88,978 were production workers, who were paid an average hourly rate of $13.42.

Much of the assembly work was done by hand fitting many small parts and cutting metal shapes with the use of templates. By the mid-1980s, the industry was shifting toward more automated production with the use of numerical control machining tools and welding robots. Eventually computerized control led to automated plants.

Employment of heating, air-conditioning, and refrigeration technicians and mechanics is expected to grow about as fast as the average for all U.S. workers through 2006. Employment for those involved in the maintenance and repair of heating and cooling units is expected to generally remain stable. Installers of new equipment, however, may experience cyclic employment as a result of ups and downs relating to the level of new construction. Future employment for these job classifications will be affected by regulations prohibiting the discharge of CFC and HCFC refrigerants, as well as a market emphasis on better energy management, indoor air quality, and a rising demand for frozen or refrigerated convenience foods.

America and the World

Like the American HVAC market, the global HVAC market is driven by new building construction and weather conditions. Mild weather generally contributes to a reduced demand for air conditioners and air-source heat pumps. Unseasonably mild weather in 1997, for instance, contributed to a global slowdown for unitary equipment (factory assembled units) resulting in a fall in demand for the first time since 1994 and a 6 percent drop from 1996 when a record 5.7 million units were shipped. Canada, however, remains a strong market accounting for 29 percent of U.S. industry exports in 1997. The Asian economic crisis of 1997 and 1998 affected the U.S. HVAC industry and caused U.S. exports to fall 27 percent in 1997 compared to 1996. In 1997 Asia accounted for 24 percent of U.S. industry exports. Early 1998 figures showed the decline continuing. Total exports for 1997 increased, however, largely due to a 34 percent increase in exports to Latin America worth $540 million. The top five countries for U.S. industry exports in 1997 were: Canada—$1.5 billion; Mexico—$551 million; South Korea—$249 million; Saudi Arabia—$247 million; and Hong Kong—$193 million. The largest region for U.S. exports in 1997 were the NAFTA trading partners at over $2 billion. The top five countries for U.S. imports in 1997 were: Mexico—$711 million; Japan—$539 million; Canada—$307 million; Brazil—$199 million; and Singapore—$134 million. The largest region for U.S. imports in 1997 was likewise the NAFTA trading partners at just over $1 billion.

1998 was predicted to be a down year for the HVAC industry by the U.S. Department of Commerce and 1999 was predicted to be only slightly better. These predictions were based on anticipated slowdowns in new housing and weather. The effects of the El Nino weather pattern caused a 15 percent drop in shipments of heat pumps in the first quarter of 1998, compared to the first quarter of 1997.

Demographic shifts in the U.S. population, however, are having a positive effect on the HVAC industry. In 1991, 75 percent of new houses were built with central airconditioning. By 1996, this figure had increased to 81 percent of new homes. Much of this increase is attributable to population growth in southern states where 98 percent of new homes are built with central air-conditioning.

Research and Technology

There are many global issues facing the American HVAC industry as it enters the new century. Topping the list would be energy efficiency, quality indoor air, and the concurrent issues of global warming and ozone depletion. Chillers, for instance, are mechanical devices used in commercial cooling applications and are major energy consumers. Newer chillers that use HFC-134a and HCFC-123 as alternative refrigerants are able to increase efficiency by more than 44 percent when compared to the CFC chillers that were used in the 1970s. According to Robert Ratcliffe of the American Refrigeration Institute, however, conversion to the new refrigerants has been slower than expected and needs to be speeded up. "It will take until the year 2000 for 44 percent of the CFC chillers to be replaced or converted to non-CFC refrigerants," Ratcliffe told HPAC . Ratcliffe went on to say that chillers that have been converted or replaced are conserving 7 billion kilowatt hours of electricity annually at a savings of $480 million. However, 64 percent of the 80,000 CFC chillers that were in service in 1992 were still expected to be in service in 1999.

The HVAC industry is also looking toward advanced software in pursuit of energy efficiency. The so-called "intelligent buildings" of the twenty-first century will employ "neural networks" and "fuzzy logic" and other "… software intensive, artificial intelligence-based technologies," according to a 1999 HPAC roundtable. Sensors and actuators will be integrated so as to monitor and control the formation of regional and even national "central stations." All of these innovations will save operator time while increasing system performance, reducing costs and eliminating system redundancies.

Indoor air quality is another issue demanding technological innovations by the HVAC industry. Due to shifting attitudes toward indoor air quality, especially in the workplace, the 1990s saw many litigious claims from workers claiming that workplace air had made them "sick" and they were thus due compensation for their illness. Subsequently there has been increasing pressure on building designers and owners to assure clean air in the workplace. "More and more, indoor air quality is becoming the driving issue in our industry, especially as we learn more about the impact comfort has on employee productivity [and] the dramatic increase in health problems that are possibly due to indoor air quality," according to George Jerkins, president of the American Society of Heating, Refrigeration, and Air Conditioning Engineers in a 1999 Appliance article. "Experts estimate that one million buildings in the U.S. have poor indoor air quality, with an annual cost to U.S. business of $60 billion, mostly in lost productivity," Jerkins says.

Smoking in public places is another major issue related to air quality. The hospitality industry, which includes bars, restaurants, and other similar businesses, serves many patrons who feel they have a right to smoke when patronizing these establishments. As a result the hospitality industry has been particularly susceptible to issues of air quality and many have striven via air filtering systems to accommodate the needs and desires of all patrons—those who smoke and those who need or prefer a smoke-free environment. A 1999 HPAC roundtable on smoking and the hospitality industry quoted a 1995 study which showed smokers spending an estimated $50 billion annually in restaurants alone. Another study quoted by the roundtable claims that if smoking were banned in all U.S. restaurants, the hospitality industry would have lost $18.2 billion in 1994 or about 6 percent of sales. In response to the hospitality industry's concerns about accommodating both smokers and non-smokers, the American Society of Heating, Refrigeration, and Air Conditioning Engineers first published its "Ventilation for Acceptable Indoor Air Quality" in 1989. The society has updated the publication periodically in response to evolving technology. The HVAC industry is addressing indoor air quality issues with more efficient and more effective air filtering and air control systems that make use of existing technology.

In the 1970s the so-called "oil crisis" or "energy crisis" was a major factor in motivating the HVAC industry to produce more efficient products. The major industry issue of the 1990s has been ozone depletion caused by chlorofluorocarbon (CFC) refrigerants being released into the atmosphere. Early air-conditioning systems relied exclusively on CFC refrigerants. This global problem resulted in the U.S. Clean Air Act amendments of 1990, numerous Environmental Protection Agency regulations, and the development of alternate refrigerants such as HFC-134a, HFC-410A, HCFC-123, and HCFC-22. With these new refrigerants available the HVAC industry has worked to set up compliance and training programs which necessitate sizable capital investments. Service technicians, for instance, must have the tools and know-how to recover CFC refrigerants since they can no longer be vented into the atmosphere. "Only EPA-certified technicians can open and service equipment using CFCs and HCFCs, and they must follow scrupulous rules or face potential fines," according to Clifford Rees, Jr., president of the Air-Conditioning and Refrigeration Institute. These fines may reach $27,500 per day for violations.

Concurrent with the concern over ozone depletion is concern over global warming, which has generally been attributed to carbon dioxide emissions but also to emissions of certain refrigerants and methane. A U.S. global action plan was written in relation to Title XVI of the Energy Policy Act of 1992. The plan calls for a switch from high carbon fuels, such as coal and oil, to low carbon fuels such as natural gas. The plans also call for more fuel-efficient energy using equipment. A potential global agreement tentatively called the Kyoto Protocol has set a goal of reducing emissions by 7 percent from 1990 levels between 2008 and 2012. It has been determined that to meet this goal, a 33 percent reduction in energy consumption will be necessary.

Further Reading

Air Conditioning and Refrigeration Institute. ARI Cool Net: Air-Conditioning and Refrigeration Institute. Arlington, VA: Air-Conditioning and Refrigeration Institute, 1999. Available from: http://www.ari.org .

American Society of Heating, Refrigeration, and Air-Conditioning Engineers. Welcome to ASHRAE Online. Atlanta: American Society of Heating, Refrigeration, and Air Conditioning Engineers, 1999. Available from http://www.ashrae.org .

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