Carrier Context:
Environmental Leaders

Speech - John R. Lord
International CFC and Halon Alernatives Conference
Washington, DC - October 1995

I want to thank the Alliance for Responsible Atmospheric Policy, the U.S. Environmental Protection Agency, Environment Canada and the United Nations Environment Programme for sponsoring this conference. It is the largest and best forum for industry and government to work together on ozone protection issues.

This is the sixth year this group has convened to discuss the pending elimination of chlorofluorocarbon (CFC) production and related issues. The work and information shared at this conference has been of enormous value.

It seems hard to believe we are speeding toward the end of 1995, which marks the end of CFC production in developed countries.

It is even more incredible that industry, facing that elimination, is succeeding with a smooth transition. What a difference half a decade makes!

In 1989, I was heading strategic planning at Carrier Corporation. We were looking down the barrel of what we thought was a gun called the Montreal Protocol, and regulations that would become the U.S. Clean Air Act. We were worried about how to cope without CFCs. I am sure many of you felt the same way.

For those unfamiliar with my company, our founder, Dr. Willis Carrier, developed the centrifugal compressor earlier this century that led to large-scale commercial air conditioning. He was among the industry pioneers who moved away from what were considered relatively unsafe and toxic refrigerants, to a safer, stable, promising new alternatives called CFCs.

Those chemicals helped industry grow. In fact, CFC technologies helped countries to grow by allowing commercial and industrial development in hotter climates.

Fast forward to the late 1980s. While we were worrying about what we would use if CFCs were eliminated, we believed any phase-out would be gradual. In fact, international negotiators and the U.S. Congress originally set a timetable of the year 2000 to end production of CFCs.

As you know, that timetable changed in 1992. The phase-out was accelerated, and the final date was set for the end of 1995.

Despite our fears...despite problems nearly everyone was projecting...we have made the transition four years ahead of the original schedule.

Scientific studies last winter told us that our efforts to reduce atmospheric chlorine-loading are succeeding. Those reports said the chlorine concentrations in the atmosphere will peak at the end of this decade, and decrease thereafter. As the amount of chlorine lessens, the atmosphere is expected to repair itself.

We can conclude that on the issue of ozone depletion, governments around the world set agreements to protect the atmosphere - and industry responded. We should feel gratified for our part in that process.

So, when I was asked this summer to speak at this conference, I quickly agreed. My first thought was to come here and praise the partnership between government and industry that brought us this result. I felt it was time for industry to take credit for implementing what has been a sea change in the way it operates.

Businesses have invested billions in new products, new plants and improved manufacturing processes to protect the ozone layer. We did so because science determined the changes were needed.

As CFCs fade from production, I know many of us would like to acknowledge our accomplishments...recognize new products... and note the new working standards we now follow to protect the environment.

After doing that, we might all like to go back to running our businesses with the general feeling that we succeeded in protecting our franchises...while protecting the environment.

That should be cause for celebration!

Wouldn't we all like to do that?

I don't hear an overwhelming acclamation of agreement. I guess I'm not surprised.

That is because we understand there will be no celebrating. We will not be able to return to business as usual, because challenges and complex issues remain directly in front of us.

During 1995 we have been bracketed by continuing disagreement and criticism.

We regularly read news stories representing two tremendously conflicting viewpoints concerning our efforts. The first story line goes something like this:

There is a small but vocal group of scientists and economists who believe many of the changes required by the Montreal Protocol have been unnecessary. One headline on this point of view sticks out for me. It was entitled "The Billion Dollar Rip-off." The implication was that the CFC phase-out is unnecessary.

As head of a company that has spent more than US$100 million to make the change-over from CFCs, I have to say that article was not among the highlights of my year.

The phase-out critics say scientific research has not proven the need to eliminate CFCs. They say the economy and consumers are being forced to bear unnecessary costs.

That message is disturbing by itself, but there is also the second conflicting story line, which goes like this:

Industry and government are not changing fast enough, and the technologies we are investing in may not be benefiting the environment. Unspoken, but omni-present in this viewpoint, is that not only will we be without CFCs, but the new alternative refrigerants should not be used.

Carrier is a US$5 billion business. It is a division of a larger corporation, United Technologies. As a business leader I am charged with running our business responsibly, but also in a way that protects our shareowners - our public.

I ask you--rhetorically, but in all sincerity - how would you feel investing billions on future plans and programs in an atmosphere as clouded as this one?

So even though industry has made incredible changes over the past five years, we must address these conflicting themes.

It is my view that industry is implementing the phase-out because it is the right thing to do for future generations.

Companies designed new products, opened new plants and launched massive re-tooling efforts because we were convinced by sound science that we had to change the way we do business.

Many of us, including Carrier, are changing the processes and materials used to manufacture products. We are eliminating hazardous waste and toxic air emissions. Those changes are being made at great cost, but we are doing it willingly.

We are changing the way we develop new products. We now look for ways to reduce and save on material use. We are striving to eliminate potential pollution at its source - not after the fact. We are striving to use recyclable materials where we can.

These changes in manufacturing and design have fostered an environment of continuous improvement, which has been good for our company and for consumers. And, we have considered new and old technologies, looking for better answers.

My particular industry - the HVAC (heating, ventilating and air conditioning) industry - has made incredible strides to improve product efficiency, even while changing to meet the different performance requirements of the new refrigerants.

We are making large commercial chillers that are up to 40 percent more energy efficient than the systems being replaced. Residential air conditioning and heating products now require half the energy to run than previous models. We have developed systems that are 100 percent more efficient than our older products.

Customers, I am sure, applaud our efforts to protect the environment.

However, building owners have not rushed to change out their CFC systems. Home owners will not automatically replace less efficient systems with more efficient models simply because they are good for the environment. Consumers make those decisions based on economics and payback analysis. We can educate them as to why they should consider these changes, but in the end our customers will determine if the changes are right for them.

There have been other benefits brought to us by the CFC regulations. They people who install and service our products are now trained to work differently. Refrigerants are recaptured and recycled. Lubricants are treated more carefully. Materials are recycled.

Dealers in the U.S. face criminal prosecution if they don't do what is right for the environment.

If we need any further reminder about industry working with government, look to the prosecutions of those who illegally import CFCs into this country. We are now talking about CFCs in the same breath as criminal activity. This is the same product that many in the late 1980s felt was irreplaceable! That is incredible.

Yet I have come to realize that 1996 is not an end or an event to be celebrated. It represents a milestone, but only a first step. What is next?

There are ongoing debates about accelerating the HCFC phase-out. Industry views HCFCs as an important interim answer to phasing out CFCs. They are a bridge to get us to new products, since their environmental impact is significantly less than their fully halogenated cousins.

To date, international negotiators have agreed. They have given industry well into the next century to use these refrigerants.

I want to compliment the U.S. administration for its position at the Montreal Protocol negotiations not to rush headlong into the accelerated phase out of HCFCs. We believe that is the right position.

The CFC phase-out acceleration was supported by scientific evidence and implemented by political pressure. The discussion behind an HCFC phase-out acceleration - to date - appears to be more political than based on environmental science.

Speaking on behalf of an industry that believes it has been and is doing the right thing to protect the environment, I would ask that future changes like this be based on sound science.

If science tells us again that we must change direction, we will move quickly. We have proven we can move quickly, and we are better prepared for change now than in the past.

To add to the uncertainty, discussion has shifted from ozone depletion to global warming. Global warming is a particularly difficult issue for business because of the lack of agreement on both cause and effect.

While recent articles have indicated atmospherical models have improved significantly, there is still considerable controversy over the amount of warming that may occur, and what role human activity plays in the cause. In addition, there is disagreement over the impacts of any warming that might occur.

In short, global warming has become a contentious issue, lacking the consensus achieved on ozone depletion.

That lack of consensus may be compounded by the current need to cut government research budgets. Few question the need to rein in government spending. Many in the private sector have made those same decisions.

I hope the cuts are made with precision and intelligence. We need appropriate research so that we have solid science on global warming.

But enough about the uncertainties. They only thing I am sure about is that they will continue.

On a more positive note, our work of the past five years has brought us major areas of agreement. Everyone agrees that improving our manufacturing performance and product efficiencies are a good thing. Our improved work standards to prevent refrigerant emissions are also a benefit.

In more mature markets - that is the U.S. and parts of Europe - the reality is that we are replacing older and less environmentally friendly products with highly efficient systems.

But around the globe, the governmental and socio-economic pressures are different.

Older CFC technologies allowed standards of living in developed countries to increase dramatically by improving health and safety, providing fresh food to the markets, creating jobs and improving personal comfort.

Developing countries believe they deserve the same benefit. They are seeking to raise their living standards and who would question that?

I have been in Asia three times this year. I just returned from a trip where I reviewed our company's seven joint manufacturing ventures in China.

Permit me to give you a firsthand view of the development explosion now under way in China. As I rode across the Nan Pu bridge in Shanghai, I was able to count 82 high-rise construction cranes looming above the city. Those cranes each represent a new high-rise building under construction in that city of 14 million people.

In discussions with Shanghai's vice mayor, he told me there are some 6,000 building projects under way.

Think about it! That level of building activity may be unprecedented anywhere, anytime in the world's history.

On that same trip, the vice chairman of Szechuan Province, which has a population of 110 million, questioned me extensively about our environmental policies. He made it clear to me that his government is concerned about the environmental impacts of the development under way. But they are pragmatic, and he made it clear that cost is important also. It is a difficult issue for them, too.

Carrier will sell its new technology in developing nations, even though we could sell older, less expensive equipment. We are doing so because we believe the environment has no geographic boundaries.

But others can choose to sell less environmentally friendly products that use CFCs through the next decade. They may succeed because first cost is very important, and we are naive if we ignore that fact. We should be concerned, because what is installed today will be in place for decades.

Even as leaders ponder future regulations to restrict emissions and to supplement our clean air activities into the next century, dynamic global expansion is occurring.

You can extrapolate the anecdotal growth I have outlined, along with the population demographics which already exist.

Our research tells us that by the year 2000 there will be 22 megacities, that is cities of more than 10 million people. The data say that 19 of those cities will be between the 35 degree latitudes--the world's hottest climates roughly between Jacksonville, Florida, and Sao Paulo, Brazil, or Shanghai and Melbourne, Australia.

China projects a need to double its energy capacity as it expands into the next century. Other regions will have similar - if not quite as staggering - growth patterns.

The progress this conference recognizes annually needs to become global. The dramatic economic growth makes this an issue that needs attention.

But there will be no easy solutions.

I call on the regulators and policy makers to work with business to help ensure your programs are consistent, stable and predictable. We need that to plan our futures.

I ask that the partnership that has developed between government and business continue. We must be included as part of the process. We should not step back to the time when we were adversaries, spending more time and effort disagreeing over changes than on finding the best ways to progress into the next century.

As we move forward business needs stability and certainty...we will look for good science and research.

Understand that all these issues have a fundamental impact on industry and economies.

The stakes are high and there are risks. Reconciling the conflicting interests will not be easy. But we can take pride in the progress we have made.

We have succeeded because we have developed a strong understanding of needs and differences of both government and industry.

In conclusion, I want to emphasize that we have come a long way...we will reach a milestone this year when the CFC phase out is completed. But our next steps are as significant and as important as those of the past five years.

Let's agree today to continue working together so that when we look back on our efforts in the year 2020, we will be able to say we did the right thing around the world.

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