1. Estimated Production Costs of HFO-1234yf: Preliminary Analysis David Sherry and Maria Nolan (NSA), Steve Seidel (C2ES), and Stephen O. Andersen (IGSD) Kigali, Rwanda October 10, 2016 Preliminary Analysis: Do Not Quote or Cite1

2. Goal of Analysis Future cost of HFO-1234yf is an important factor in considering HFC phase down Limited information on current bulk and service prices of HFO-1234yf; no information on likely longer-term prices Experience suggests that prices of new substitutes could fall significantly over time with economy of scale and competition after patents expire This analysis seeks to provide insights into the magnitude of that possible price reduction Focuses on the underlying production cost of making HFO-1234yf Preliminary Analysis: Do Not Quote or Cite2

3. Why HFO-1234yf Costs to Consumers are Important Regulations and incentives in EU, US, Japan and Canada driving auto sector to shift to HFO-1234yf (GWP<1) 10 million cars using HFO-1234yf now on the road Limited interest in other alternatives (carbon dioxide by 2 German automakers and testing of secondary loop options in India) Recent studies on the costs of an HFC phasedown assume HFO- 1234yf price at roughly current levels ($75-80/kg) Preliminary Analysis: Do Not Quote or Cite3

4. Why Costs to Consumer Will Decline Over time Current Market ConditionsLonger-term Market Conditions Few producers Small-scale production facilities Protected by production process and application patents Supply and prices determined by patent holders Expiry of patents beginning in 2023 Competition from multiple producers Larger-scale production facilities Efficiency gains from learning by doing Preliminary Analysis: Do Not Quote or Cite4

5. History of HFC-134a Production and Costs Production process patents controlled by a few transnational chemical companies; no application patents Initial production in developed countries As patents expired, production expanded in China and India; they now produce more than 50 percent of total Prices estimated initially to be 6-8 times that of CFC-12 With increased production prices dropped to double that of CFC-12 (in real terms) Preliminary Analysis: Do Not Quote or Cite5

6. Methodology: Estimating Production Costs Focused on two different production processes – One being used for smaller-scale production in China and Japan One being used for larger-scale production nearing completion in the United States Information publically available from corporate announcements, permits, market prices of key feedstocks, etc. Looked at most significant cost factors for these processes/facilities Capital costs of facilities (announced by producers) Maintenance costs of facilities Prices of raw materials and feedstocks Conversion rates, yields, and by-products Analysis does not include other cost factors including: plant overhead, labor, taxes (VAT and tariffs), duties, insurance, sales, G&A, and profits. Preliminary Analysis: Do Not Quote or Cite6

7. 1. Chloroform/HCFC-22 Process Route Used for initial smaller-scale (1-7 ktpa) plants in China and Japan Builds on existing facilities that produce HCFC-22 and TFE (to make PTFE) Multi-step process involves: HCFC-22>TFE>additional steps >HFO-1234yf Examined costs associated with two plants in China – one producing now, and one built, but not yet producing – and one in Japan. Preliminary Analysis: Do Not Quote or Cite7

8. 2. Continuous Process Using Chlorocarbons More capital intensive and cost-effective, larger-scale facilities Facility due on stream in late 2016 in US with capacity estimated at 10-11 (potential of 15) ktpa. Two phases in production process: Chlorine producer manufactures and delivers key chlorocarbon feedstock (F1230xa) Fluorocarbon producer takes F1230xa>additional steps >HFO-1234yf Second larger-scale facility using a different process under construction also in the US (late-2018) Preliminary Analysis: Do Not Quote or Cite8

9. Estimated Production Costs Production costs for key cost factors for these processes (per ton) Analysis does not include other cost factors including: plant overhead, labor, taxes (VAT and tariffs), duties, insurance, sales, G&A – adding roughly 20-60 percent above estimated costs, plus profits. Preliminary Analysis: Do Not Quote or Cite Process routeVariable Costs (raw materials and feedstocks) Capital cost recovery (also includes 3.2% maintenance) Total Costs of Key Elements Chloroform/HCFC- 22 route $9,250$2,200 (10 year cost recovery) $11,450 Chlorocarbon route (via F1230xa) $3,250$3,350 (8 year cost recovery) $6,600 9

10. Key Takeaways Examined underlying production costs of HFO-1234yf to provide insights into possible long-term prices when patents have expired and greater market competition drives prices Current price of HFO-1234yf about $80/kg ($80,000/t) Estimated current production costs based on key factors range from $6.60/kg to $11.45/kg ($6,600-11,450/t) Cost estimates do not include plant overhead, sales, taxes (VAT and tariffs) and insurance – these vary but a rough estimate is that they could increase costs by an additional 20-60 percent depending on country. (Profits are also not included in this analysis.) There appears to be room for substantial price declines over time as patents expire, more producers enter the market and competition drives prices lower Over time process enhancements (e.g., improved yields, markets for by-products) could further reduce production costs. Preliminary Analysis: Do Not Quote or Cite10

11. Next Steps Will undertake additional peer review of underlying analysis All comments are welcome Input particularly welcome from chemical producers and automobile manufacturers Final paper will be available on IGSD, C2ES, and NSA websites. Preliminary Analysis: Do Not Quote or Cite11