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The AC Industry’s Conundrum

Cooling is warming the planet, but market failures are preventing the AC industry from innovating

The demand for air conditioning is expected to increase fourfold by 2050. Without more innovation in the market, the trend threatens to increase global temperatures. (Photo: zeevveez / CC / Flickr)

This summer a new record was set in Quriyat, Oman for hottest overnight low temperature ever recorded: 42.6ºC (108.7ºF). With global temperatures projected to rise 2 to 5ºC by the end of the century, and urban areas experiencing temperatures 1 to 3ºC warmer than their surroundings, parts of the world will be unendurable during the summer months.

Already a staggering 2.2 billion people, 30% of the world’s population, are at risk of potentially deadly heat exposure for more than 20 days per year; and by 2100, up to three-quarters could experience this risk. Comfort cooling, such as air conditioning, is no longer a luxury, but increasingly a necessity for health, productivity, and at the extreme, survival.

In developing countries, these rising temperatures are compounded by population growth, urbanization, and income growth to drive up demand for comfort cooling. These factors will cause the total number of residential air conditioners in the world to increase from 900 million today to around 3.7 billion by 2050, an astounding fourfold increase. Emerging economies in the tropics and the subtropics, such as India, China, Brazil, and Indonesia, are expected to see a fivefold increase in demand for cooling in the next three decades.

How cooling is warming the planet

If these demand projections hold true and AC energy efficiency continues to improve at its 50-year historical rate, residential air conditioning alone could lead to a 1.5ºC increase in global temperature by 2100, completely derailing our Paris goals to stay below a 2ºC global increase.

Air conditioners impact the climate in two main ways: direct emissions from refrigerants and indirect emissions from electricity use. Refrigerants leak into the atmosphere throughout the lifespan of the air conditioner and are thousands of times more potent than carbon dioxide. However, refrigerants account for only 20 to 30% of air conditioners’ climate impact. The other 70 to 80% is due to electricity use from the grid. If nothing is done, by 2050 residential ACs globally could use more than all the electricity that the United States and Germany use today combined.

Total number of operating residential AC units, in billions. (Source: RMI graph based on data from IEA)

In addition to contributing to global warming, the increased demand for air conditioners will cost governments and consumers hundreds of billions of dollars. For governments, the increased burden on the electricity grids translates to costly infrastructure projects. For example, if India sees their fourfold increase in air conditioners by 2030 as expected, they will need to invest at least $120 billion in new power plants, plus more to upgrade their transmission and distribution system.

For consumers, air conditioning can represent a significant portion of their income. For example, in India consumers spend 8% of median household income just to operate their ACs. In Indonesia it’s 14%.

What the international community is doing

The international community is working to phase out the refrigerants that are the most harmful to our planet. On World Ozone Day, September 16, we commemorated the signing of the Montreal Protocol 31 years ago.

The Montreal Protocol (1987) successfully phased out 99% of ozone-depleting refrigerants and now the Kigali Amendment (2016) targets hydrofluorocarbons (HFCs) — greenhouse gases with high global warming potential (GWP). Under this amendment, 197 countries have committed to phasing down HFC use by more than 80% in the next 30 years. The United Nations Environment Program has called it the world’s “single largest real contribution” to meet the Paris goals.

Improving energy efficiency in ACs has traditionally been driven by policymakers through minimum energy performance standards (MEPS). Each year, national governments incrementally raise the minimum allowed energy efficiency, effectively pushing up the floor. This has resulted in a 1.7% average increase in efficiency per year globally since 1990.

However, while this represents positive progress, it is not enough to offset the massive increase in demand. At this rate, air conditioners will only increase in efficiency by 70% between now and 2050 — a paltry increase compared to the projected 300 to 400% increase in demand. 

Why the industry isn’t innovating

There are four reason why the industry isn’t doing more to improve the efficiency of AC equipment:

Government policies eliminate the least efficient ACs, but do little to encourage advancing the most efficient ones

Policymakers employ MEPS to raise the lower level of acceptable efficiencies and use labels and standards, like Energy Star in the United States, to incentivize consumers to purchase the most energy efficient options available. While MEPS have been relatively successful, in many regions the most stringent labels and standards lag far behind the best-in-class AC units in the market. In these cases, manufacturers have little to gain from making their products more efficient.

Energy efficiency of most stringent label and best-in-class AC over the MEPS. Chart Adapted From: Park, W.Y., Shah, N., and Gerke, B.F., 2017, Assessment of commercially available energy-efficient room air conditioners including models with low global warming potential (GWP) refrigerants, Report 2001047, Lawrence Berkeley National Laboratory, Berkeley, CA.

Consumers demand low up-front costs

Cost is an important factor for most consumers, and while lifecycle costs of more efficient units are usually lower, these costs are difficult to calculate. As a result, when consumers compare costs, they generally consider up-front cost alone. Even worse, in some cases, such as in apartment buildings, the AC purchaser does not even consider lifecycle cost because they are not the ones paying the electricity bills. This focus on up-front costs causes AC manufacturers to pursue high volumes of sales through low prices to consumers, at efficiencies that just meet the MEPS.

There is no other technology that ACs are “chasing” in terms of cost or efficiency

In extreme heat, conventional air conditioning is the only option to stay cool. So while air conditioner manufacturers are competing against one another in terms of cost and efficiency, they are not chasing another technology that also provides cool air. In contrast, technologies in adjacent industries have seen radical innovation in the past decade. For example, LED lighting has been chasing compact fluorescent and incandescent lighting. Similarly, solar PV has been chasing the costs and efficiencies of traditional grid power generation, such as coal and natural gas. LEDs have achieved 67 to 89% of their theoretical maximum efficiency, while PV has achieved 28 to 53%. Air conditioning lags far behind with the best-in-class units at 14% efficiency and most commonly sold units at only 6-8%.

The industry is consolidated with high barriers to entry

The AC industry is largely consolidated and much market share is controlled by just a handful of powerful corporations. There are fewer than 500 AC manufacturing companies worldwide, with two Chinese companies controlling over 35% of global room air conditioners production, according to K-CEP China. Very high barriers to entry in the industry, including heavy marketing and distribution costs and the importance of brand recognition to consumers, prevent start-ups and smaller companies from making headway.

What can disrupt the market?

We are faced with a looming climate crisis from the fivefold increase in demand for cooling in developing countries. To mitigate the negative impact from this adoption, the world needs a technology that is at least five times (5x) better for the climate. And we at RMI believe this is possible.

Current best-in-class ACs are already three times better for the climate than the average unit from a combination of doubling energy efficiency and employing refrigerants with low GWP. Manufacturers, university labs, and start-ups are developing technologies that are even more efficient. Combining two or more of these technologies could create an AC that is five times (5x) better for the climate when considering both grid energy use and refrigerant selection.

The markets won’t get there on their own. The international community needs to unite around this goal and support investment in research and development while priming the market for a solution to scale. Innovators around the world, take note and work to create cooling technologies that can provide cooling without warming the planet.


Elizabeth O’Grady is an associate at the Rocky Mountain Institute’s Building Practice. Saarthak Narsipur is a former intern at RMI. ©2018 Rocky Mountain Institute. Published with permission. Originally posted at RMI Outlet.



  1. Markiz_von_Schnitzel | | #1

    I don't understand this.
    Are there alternatives?
    People are also heating with heat pumps, so that should offset some, compared to gas, if electricity is clean?

  2. User avater GBA Editor
    Martin Holladay | | #2

    This article doesn't really discuss the question of "offsetting" the increase in electricity consumption associated with the growth of air conditioning with other measures (which might include efficiency of appliances other than air conditioners).

    The question of whether switching from natural gas space heating to electric space heating (heat pumps) is a net benefit to the planet is complicated. In areas where the carbon emissions associated with the electricity grid are low, switching from natural gas heating to electric heating will reduce carbon emissions. In other areas -- areas where the carbon emissions associated with the electricity grid are high -- switching from natural gas heating to electric heating may actually increase carbon emissions.

    1. User avater Expert Member
      Dana Dorsett | | #3

      >"....switching from natural gas heating to electric heating may actually increase carbon emissions."

      A couple of years ago I posted a blog here with a crude method of estimating that for locations within the US based on the prior administration's Clean Power Plan (CPP) baseline assumptions & projections. The current administration has pulled down the state by state data & projections from the web, so without digging up web archives of those pages it's not possible to follow the methology completely, but the gist is still clear:

      Since that time the transition to renewable energy had exceeded projections (by quite a bit in most US states), and is beginning to accelerate in others, even in some of the redder "red" states. Just last week Northern Indiana Public Service Company released some analysis showing their preferred plan's costs and risks against several others going forward. (see: )

      Their preferred plan isn't the lowest possible carbon, but it is projected to save ratepayers $4 billion over then next 11 years. Some key features are that the preferred plan reduces coal fired power from 65% their total output today, to 15% by 2023 (four years!), and zero by 2030. But that coal is being replaced by a combination of wind, solar storage, demand-response, and a small amount of purchased power import from the MISO (Midcontinent Independent System Operator- the transmission grid entity.) And this is at a net cost savings from business as usual, and cheaper than the projected cost of building combined cycle gas power plants.

      The drivers for this move are system reliability and cost.

      This wasn't anywhere near what was projected in the CPP- solar, wind & storage is turning out to be much cheaper, and easier to integrate into the grid than was projected 2-3 years ago. So yes, indeed...

      "The question of whether switching from natural gas space heating to electric space heating (heat pumps) is a net benefit to the planet is complicated."

      ...especially over the 15-25 year service life of the heating equipment. But it's trending strongly toward heat pumps in most of the US.

  3. User avater
    Jon R | | #4

    Forcing someone to buy AC with an assumed lower life-cycle $ cost is one thing. But to go beyond that and force the purchase of one with less environmental cost should require showing that there aren't more efficient means of doing that.

    All of this of complicated by different use scenarios. For example, I have a friend who lives on the coast and AC units rust out long before normal end-of-life. So the expensive, efficient AC units never make it to payback.

    Nat gas vs heat pump also depends on current weather. Mild weather favors the HP.

    IMO, thermal storage should be part of the solution. For example, with PV solar, it could enable nearly carbon free AC at tolerable cost.

  4. James Howison | | #5

    Another factor is the availability of "green power" or "clean power" purchase options. Is it reasonable to assume that using those options obviates the calculations to know whether using natural gas heating vs minisplit heating is better?

  5. User avater GBA Editor
    Martin Holladay | | #6

    Q. "Is it reasonable to assume that using a 'green power' purchase option obviates the calculations to know whether using natural gas heating vs minisplit heating is better?"

    A. Good question -- and the answer is, not really. Let's say your local utility offers you a "100% solar electricity" option. You sign up. The utility engages in some accounting -- that is, makes sure that the utility purchases enough PV power (on an annual basis) to balance your usage -- and the deal is done.

    But on a cold winter night, when your house is using lots of power, that power isn't coming from PV. It may be coming from a coal plant. The accounting balances -- but the power your house needs can't really be 100% solar.

    1. User avater Expert Member
      Dana Dorsett | | #7

      >"But on a cold winter night, when your house is using lots of power, that power isn't coming from PV. It may be coming from a coal plant."

      The power you're drawing from the grid at any minute (day or night) may be coming from a coal plant, or it may be coming from wind, or nuclear, or hydro, or combined cycle gas, any number of possibilities. The minute to minute hour to hour grid mix is constantly evolving. But purchasing green power is (in most cases) offsetting some amount of carbon combustion sourced power at some time and date, if not the precise second and location you're using it.

      With natural gas you know with a high degree of certainty what the fuel was, and when it was burned. The mix of "renewable gas" on the US gas grids is tiny less than 0.01%

      In New England most of the grid load tracking is done by combined cycle gas plants at about 50% efficiency. Even if all of the marginal power is coming from that type of plant, at 0F most cold-climate mini-splits are running a COP of 2, so the net efficiency from gas-main to hot air coming out of your mini-split is about ~2 x 50% =~100%, or about the same as condensing gas. When it's +25F out and the mini-split is running a COP of about 3, the gas-to-hot-air efficiency is ~3 x 50% = ~150%, considerably lower-carb than condensing gas.

      In most of the US (including the midwest) the all-in unsubsidized lifecycle cost of wind power is now cheaper than just the operating cost of existing coal plants. Without subsidy those fossil burners will all go out of business within a decade or so, something the current Secretary of Energy, Rick Perry, is trying desperately to prevent (for seemingly political purposes), but hasn't managed to push through the Federal Energy Regulatory Commission which is data-driven and non-partisan, less subject to the political mode du jour.

      The NIPCO case in Indiana mentioned in response #3 is a case in point- the cheapest way forward is to retire those coal plants sooner than later. This is a utility that is currently 65% coal fired, planning on saving the ratepayers money by reducing that to 15% coal fired over the next 4 years, and 0% over the next 12. Installing a mini-split in their service area today would seem like a carbon disaster- 65% coal at a thermal efficeincy of 30-35% comes with a huge carbon footprint. But over the lifecycle of the mini-split that will clearly not be the case- the grid mix for them is being radically transformed to low-carb sources, primarily for the cost savings.

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