Top Industry Issues Affecting Australia’s HVAC+R Sector

Peter Weston M.AIRAH

The Heating, Ventilation, Air Conditioning, and Refrigeration (HVAC+R) industry in Australia is navigating a range of challenges and trends. These include evolving regulations, environmental mandates, workforce dynamics, technological shifts, supply chain pressures, and ambitious energy efficiency goals. Below is an analysis of the top issues affecting the sector, with insights into recent developments and long-term challenges.

Regulatory Challenges

New Policies and Standards: The HVAC+R sector faces an active regulatory landscape. One major change is the phased reduction of high-GWP (global warming potential) refrigerants under Australia’s HFC phase-down program. Legislation passed in 2017 began cutting HFC imports in 2018, targeting an 85% reduction by 2036.

In line with this, from 1 July 2024 Australia will ban the import and manufacture of small air conditioners that use refrigerants with GWP over 750.

This effectively prohibits many older refrigerants (like R-410A with GWP ≈2088) in small AC units, compelling manufacturers and installers to adopt lower-GWP alternatives. Compliance with these refrigerant rules is a significant regulatory challenge, requiring industry training (e.g. safe handling of new mildly flammable refrigerants) and updating product lines.

Building Codes and Standards: Building regulations are also becoming more stringent. The National Construction Code (NCC) 2022 raised energy performance requirements (see Energy Efficiency section), and some jurisdictions are adding specific HVAC mandates. For example, South Australia now requires new air conditioners (up to 19 kW) installed from July 2023 to have demand-response capability – enabling units to participate in smart grid programs.

This kind of requirement means HVAC equipment must meet new technical standards (AS/NZS compliance for demand-response readiness). Additionally, there’s a push for higher professional standards: states like Victoria and Queensland have introduced registration regimes for engineers and contractors in building services to ensure accountability and safety in HVAC system design and installation (a response to broader building safety concerns). Adapting to these evolving codes, standards, and licensing requirements poses ongoing compliance challenges for HVAC+R businesses.

Long-Term Outlook: In the long run, the regulatory trend is toward tighter environmental controls and safety. Australia’s HFC phase-down will continue with stepped reductions every two years, providing a “predictable phase down” that gives industry some certainty.

However, further measures are on the horizon – the government has indicated it may consider future bans on high-emission equipment once alternatives are available

This means HVAC+R firms must stay agile, ready to comply with new refrigerant standards, potential extended producer responsibility rules (for end-of-life equipment), and updated Australian Standards (for example, ventilation standards like AS 1668 are being revised to improve indoor air quality). Keeping up with regulatory changes and investing in compliance (through training and product development) remains a top industry concern.

Environmental Concerns (Refrigerants and Sustainability)

Refrigerant Phase-Down and Phase-Out: Environmental regulations are driving significant change in HVAC+R. Synthetic refrigerants with high global warming potential are being aggressively phased down under the Montreal Protocol’s Kigali Amendment. Australia’s policy limits HFC imports to just 1.6 Mt CO₂-e annually from 2036 onward (only 15% of the historical baseline).

This has already led to the transition away from refrigerants like R-404A and R-507 in commercial refrigeration and R-410A in air conditioning. Many new systems now use lower-GWP substitutes such as R-32 (GWP ~675) or natural refrigerants (CO₂, ammonia, hydrocarbons) to meet these requirements. Key refrigerants have seen sharp price increases as a result of the phase-down – for instance, the wholesale price of HFC-404A rose over 50% from 2016–2022, and R-410A by ~25%

– which further incentivises the switch to climate-friendlier alternatives.

Sustainability and Refrigerant Management: Beyond choosing new refrigerants, the industry faces pressure to manage existing gases responsibly. There is currently no national legislative framework for end-of-life recovery and recycling of HVAC&R equipment and refrigerants

This gap means many old air conditioners and refrigerators could leak potent greenhouse gases if not properly disposed of. Environmental advocates and industry bodies are calling for improved refrigerant reclamation programs and product stewardship schemes to prevent emissions when systems are decommissioned. In the interim, HVAC contractors bear the onus of voluntary best practices for refrigerant recovery. Sustainability concerns also extend to waste reduction and materials: more clients are seeking eco-friendly HVAC solutions (e.g. recycled or recyclable materials, lower embodied carbon in equipment). Meeting these expectations is part of the industry’s environmental challenge.

Decarbonisation and Electrification: A major environmental trend overlapping with regulation and energy goals is the shift toward electrification of heating. Replacing fossil-fuel heating (like gas boilers and furnaces) with electric heat pump technology reduces direct emissions and is aligned with Australia’s climate targets. For example, Victoria has announced a ban on new residential gas connections from 2024, as gas use accounts for ~17% of that state’s emissions; new homes will be “all-electric,” relying on efficient heat pump HVAC and hot water systems to help meet Victoria’s ambitious goal of 75–80% emissions reduction by 2035 and net zero by 2045

This electrification trend, driven by environmental policy, is already causing a surge in heat pump demand nationwide. Heat pumps are being installed not only for space heating but also in domestic hot water systems, boosted by government incentives. In fact, annual sales of hot water heat pumps in Australia grew from about 100,000 units in 2021 to 117,000 in 2022 – a more than fourfold increase from lows earlier in the decade – and are projected to continue climbing steadily

In summary, climate change concerns are reshaping HVAC+R through stricter refrigerant regulations, expectations for sustainable practices, and a broad push to decarbonise building comfort systems.

Labor Shortages and Workforce Challenges

Skills Shortfall: The HVAC+R industry in Australia has been grappling with a persistent skills shortage that’s been exacerbated in recent years. Demand for qualified refrigeration and air conditioning mechanics and technicians far outstrips supply, and many employers report difficulty filling roles. Despite the serious shortfall in the RAC job market coupled with an ageing workforce, immigration settings have been slow to catch up – at one point in 2024, RAC mechanics were mistakenly flagged for removal from the federal “Core Skilled Occupation List,” prompting industry backlash about the clear ongoing need.

The workforce is indeed aging: the average age of a licensed HVAC&R technician is now 41, up from 40 in 2017, and only about 9.4% of technicians are under 25 years old

This age profile signals a looming wave of retirements in the coming decade, which could deepen the skills gap if not addressed.

Addressing the Gap: To tackle these shortages, multiple strategies are in play. 

Training and apprenticeships have expanded significantly – the number of trainee refrigeration/AC licenses grew from 1,961 in 2018 to 5,880 in 2023, indicating a concerted effort to bring new entrants into the trade. Programs are being developed to attract young people, including collaborations with TAFEs and private training organizations to highlight HVAC as a stable, well-paying career (especially as construction booms and demand for climate control increases). The Australian government is also encouraging skilled migration for HVAC professionals; refrigeration and AC trades remain on the priority skilled occupation lists to allow recruitment from overseas, and a new Skills in Demand visa is slated to streamline this process. Additionally, there’s a push to increase diversity in the HVAC workforce. While women are still a small minority of technicians, their numbers are rising (female refrigerant-handling license holders grew from 168 in 2020 to 291 in 2023). Industry associations like AIRAH and AMCA have initiatives to promote HVAC careers to underrepresented groups and improve training facilities.

Productivity and Expertise Challenges: Labor shortages aren’t just about headcount – they also stress the capacity of the existing workforce. With a limited pool of seasoned technicians and engineers, companies face scheduling pressures, higher labor costs, and sometimes quality concerns if underqualified workers are rushed onto jobs. This has driven up wages (average HVAC&R wages rose ~22% from 2016–2022) and overall service costs, which can strain contractors and clients alike. In the long term, the industry may lean on technological solutions (like automation and smarter diagnostics – see next section) to help fewer technicians do more. But fundamentally, building a larger, highly skilled workforce is crucial for the HVAC+R sector’s sustainability. Ongoing collaboration between government, industry, and education providers will be needed to ensure a pipeline of talent (through apprenticeships, upskilling programs, and perhaps micro-credentials in new technologies). The labor challenge remains a top priority as the sector grows.

Technological Advancements and Adoption of New Solutions

The HVAC+R industry is experiencing rapid technological evolution, which brings both opportunities and challenges in adoption:

• Smart and Connected Systems: The rise of IoT (Internet of Things) is transforming HVAC systems into smart, connected networks. Modern HVAC units often come with sensors and internet-linked controllers, enabling real-time monitoring and remote management of climate conditions. Building owners are increasingly adopting Building Management Systems (BMS) and smart thermostats that can optimize HVAC operation based on occupancy, weather forecasts, and energy price signals. This technology can significantly improve efficiency and reduce downtime via predictive maintenance – detecting performance issues before they cause failures. For example, connected refrigerant gauges and smart diagnostics tools now allow technicians to get data on system performance remotely and pinpoint faults faster. The trend toward digitization is clear, though integrating these advanced systems in older buildings (retrofits) and ensuring cybersecurity of IoT devices are ongoing concerns.

• Energy-Efficient Equipment & Innovation: Technological innovation has led to major improvements in HVAC efficiency and design. In cooling, we see wider use of variable-speed compressors and fans, VRF (Variable Refrigerant Flow) systems, and improved heat exchanger designs, all of which modulate output to save energy. New heat pump technologies are enabling efficient heating even in colder climates, making them viable replacements for traditional boilers. There’s also interest in geothermal heat pumps and thermal storage systems to level out energy demand. On the refrigeration side, we have more adoption of advanced systems like CO₂ transcritical refrigeration in supermarkets and cold storage – an innovation that eliminates HFCs and performs well even in warmer climates due to recent engineering improvements. These cutting-edge solutions help end-users meet sustainability targets but often come with higher upfront costs or require specialized knowledge to install and maintain, affecting the pace of adoption.

• Refrigerants and System Upgrades: A significant technical shift is the transition to new refrigerant classes (A2L and A3). Many next-generation refrigerants (such as R-32, HFO blends, and hydrocarbons like R-290 propane) are either mildly or highly flammable, unlike the older non-flammable HFCs. The industry has had to develop new safety protocols, standards, and training for handling these refrigerants. For example, training materials are now freely available to help technicians safely work with A2L refrigerants

• Digital Tools and Automation: The way HVAC professionals work is also changing with technology. Software for load calculation, system design, and energy modeling has become more sophisticated, enabling engineers to optimize systems in the design phase for better performance. Some companies are using building energy modeling and even digital twins to predict how HVAC modifications will impact energy use and comfort. In the field, technicians increasingly use mobile apps and cloud platforms to log maintenance data, control systems, and even get remote expert support. Looking forward, artificial intelligence (AI) and machine learning are poised to play a larger role – for instance, AI algorithms can analyze HVAC sensor data to automatically fine-tune operations for efficiency or to detect anomalies. Automation is also emerging in the form of smart home integration (HVAC systems linking with other home devices and voice assistants) and even robotics for tasks like duct cleaning or maintenance in hazardous locations.

Adoption Challenges: Despite the benefits, not all firms or clients adopt new tech at the same pace. Barriers include the cost of new systems, the need for training personnel on unfamiliar technologies, and sometimes a conservative market mindset favoring proven traditional solutions. Smaller contractors might lack resources to invest in expensive tools or certifications for new systems. Nevertheless, as costs come down and the advantages become clear (energy savings, regulatory compliance, better data), the sector is steadily embracing these innovations. The Australian market, with its mix of high-end new developments and a large stock of older buildings, will likely see a gradual but inexorable uptake of smart, efficient HVAC&R technologies as we approach the 2030s.

Supply Chain Disruptions and Material Cost Fluctuations

Recent Supply Chain Pressures: Like many sectors, HVAC+R has been hit by supply chain disruptions in recent years. The COVID-19 pandemic (2020–2022) caused global manufacturing slowdowns and shipping bottlenecks that affected the supply of HVAC components and equipment into Australia. Import delays for everything from microchips (used in HVAC control boards) to raw materials and finished AC units were common. Contractors often faced long lead times for parts like compressors or for new unit deliveries, complicating project schedules. Additionally, international freight costs spiked during the pandemic, and volatility in exchange rates has at times driven up the price of imported HVAC equipment. Even as the immediate pandemic effects have eased, geopolitical factors (such as trade tensions or material shortages) continue to pose a risk for HVACR supply chains, given that many products or components are sourced from overseas (e.g. a large share of air conditioners are imported from Asia).

Rising Costs of Materials and Equipment: A notable trend has been the increase in the cost of HVAC equipment and materials, partly due to those supply disruptions and partly due to general inflation. Between 2016 and 2022, prices climbed significantly: the installed cost of a typical wall-hung split system air conditioner rose by about 15%, and the average selling price of commercial refrigeration systems increased by 20–50%. Key raw materials for HVAC equipment – copper (for coils and piping), steel (for unit frames and ducts), and aluminum – have seen price volatility, affecting manufacturing costs. For instance, copper prices hit record highs in 2021, and while they have fluctuated since, they remain a cost concern. As mentioned earlier, refrigerant costs also surged due to tighter supply (R-404A up >50%, R-410A up ~25% over a recent six-year period). HVAC contractors have also faced higher operational costs: service firms saw about a 30% rise in technician-related expenses (vehicles, tools, insurance) from 2016–2022, including wage growth of ~22% for skilled techs.

Impact and Responses: These cost fluctuations squeeze profit margins for installers and make budgeting difficult for projects. End customers – whether homeowners or large construction projects – are paying more for HVAC installations and maintenance than a few years ago. In response, industry players are adapting by bulk-ordering critical components when possible, diversifying their supplier base, and in some cases passing costs on to consumers through escalator clauses in contracts. Some larger HVAC companies have explored local assembly or stockpiling of parts to reduce dependence on long international supply lines. There’s also an increased focus on supply chain resilience: distributors are keeping more inventory onshore as a buffer, and manufacturers are evaluating alternative sources for parts to avoid single-supplier risk. Still, supply chain risk management is now a part of doing business in HVAC+R – whether it’s dealing with a sudden shortage of a particular compressor model or the effect of commodity price swings on equipment quotes. The industry is hopeful that as global supply chains stabilize, these costs will moderate, but ongoing vigilance is needed. In the long term, trends like global demand for electrification (heat pumps, etc.) could keep certain equipment in high demand, so supply chain agility will remain important for Australian HVAC companies.

Energy Efficiency and Carbon Reduction Targets

Energy efficiency has moved from a design consideration to a core industry priority, largely because of Australia’s climate change commitments. The federal government has legislated a 43% reduction in greenhouse gas emissions (from 2005 levels) by 2030 and net zero by 2050. Hitting these targets will require major improvements in building energy performance, and HVAC systems – as heavy energy users – are central to the solution.

HVAC’s Energy Impact: HVAC+R systems account for a substantial share of Australia’s energy usage. It’s estimated that approximately 22% of all electricity consumed in Australia is used by HVAC&R, and HVAC can comprise around 50% of peak electricity demand on hot summer days. Because electricity generation in Australia still involves fossil fuels, HVAC energy use has a large carbon footprint. Therefore, improving the efficiency of heating and cooling systems can yield big emissions cuts. The industry recognizes this and has been working on multiple fronts to reduce energy consumption: from more efficient chillers and furnaces to better system design and controls that avoid wastage.

Building Code Uplifts: Government policy has translated into stricter energy standards for buildings. In residential construction, the NCC 2022 significantly raised the minimum thermal performance standard from 6 to 7 stars NatHERS, which roughly equates to homes using 25% less energy for heating and cooling compared to the previous standard. This change, rolling out across states between 2023–2024, means new homes must be designed with better insulation, glazing, and often include more efficient HVAC (or no air conditioning at all if passive design suffices). For commercial buildings, energy efficiency provisions (Section J of the Building Code) have also been tightened – requiring things like higher minimum HVAC equipment efficiencies (under the national GEMS program for appliance standards) and better controls. New large buildings often need to incorporate energy recovery systems, high-performance chillers, or smart HVAC controls to meet these codes. These rising standards push designers and manufacturers toward high-efficiency solutions and may increase upfront costs, but they lock in energy (and cost) savings for decades to come.

Retrofits and Performance Upgrades: Alongside new builds, there’s growing emphasis on upgrading existing building stock for efficiency. Programs like NABERS (National Australian Built Environment Rating System) and Green Star certification incentivize commercial building owners to improve their HVAC systems. Many office towers and shopping centers are retrofitting older HVAC plants with modern, energy-efficient equipment and better automation to achieve higher NABERS energy ratings – crucial for attracting tenants and meeting corporate sustainability goals. According to a 2024 Green Building Council report, adopting HVAC systems with advanced energy management capabilities is essentialfor buildings aiming to hit sustainability benchmarks. Indeed, government and corporate tenants increasingly demand high-performing buildings (e.g. 5-star or 6-star NABERS ratings), effectively pressuring the HVAC industry to deliver low-energy systems and ongoing tuning/commissioning services to maintain efficiency.

Carbon Reduction Initiatives: The HVAC+R sector is also directly involved in specific carbon-cutting initiatives. For example, the government’s Safeguard Mechanism now requires large industrial facilities (including some big cold storage warehouses or manufacturing sites with significant HVAC/R usage) to cap and reduce their emissions over time. This encourages investment in ultra-efficient refrigeration systems and alternative refrigerants with low climate impact. On the consumer side, incentive programs exist to promote efficient HVAC – rebates for upgrading to high-efficiency air conditioners or for installing smart controls and demand response devices (especially in peak load reduction schemes run by utilities). There’s also a notable move toward “net zero energy” buildings: new developments that integrate on-site renewable energy (like solar PV) with efficient HVAC and storage to offset most of their energy use. HVAC equipment is being designed to interface with such renewable systems – e.g. “solar-ready” air conditioners that can run during the day on direct DC power from solar panels.

Electrification and the Grid: As mentioned earlier, shifting heating from gas to electric is key for long-term carbon goals. Efficient electric HVAC, coupled with an increasingly renewable-powered grid, means emissions per unit of heating/cooling will drop over time. This also creates an opportunity for HVAC to help balance the grid. Through demand response (as in the SA example) or thermal storage (pre-cooling buildings when renewable power is abundant), HVAC systems can support grid stability and make fuller use of clean energy. In coming years, we may see more integration of HVAC with smart grids – buildings allowing utilities to throttle or schedule HVAC usage to shave peaks and reduce reliance on backup fossil fuel plants, all while keeping occupants comfortable. Such schemes can earn building owners incentives and further cut overall emissions.

In summary, energy efficiency and decarbonization targets are reshaping HVAC+R from equipment selection to system operation. The combination of tighter building regulations, market demand for green buildings, and national climate commitments ensures that efficiency is not just a buzzword but a core deliverable for the industry. While meeting these targets is challenging, Australia’s HVAC+R sector is making progress through innovation and continuous improvement of energy performance.

Other Emerging Trends Affecting the Sector

Beyond the major themes above, several other trends are influencing Australia’s HVAC+R industry:

• Indoor Air Quality (IAQ) and Health: In the wake of the COVID-19 pandemic, there is heightened awareness that ventilation and air filtration are critical for healthy indoor environments. This has put a spotlight on HVAC’s role in providing clean air. Property owners are investing in improved filtration systems, higher ventilation rates, and technologies like UV-C light disinfection in ducts to enhance IAQ. Industry experts have dubbed this an “indoor air quality revolution,” noting that recent global guidelines (e.g. updated ventilation standards from CDC/ASHRAE in 2023) underscore the importance of ventilation in controlling respiratory diseases

• Climate Resilience: As Australia faces more extreme weather and climate change impacts, HVAC+R systems need to be resilient. Heatwaves are becoming more frequent and intense, especially in parts of Australia that historically had milder summers. This is driving demand for air conditioning in regions and building types that previously might have gone without. It also means HVAC equipment must be designed for higher peak temperatures – for example, ensuring condensers can operate on 45°C days, or that cold storage facilities can handle heatwave conditions without failure. Additionally, events like bushfires (and the resulting smoke) have taught lessons about filtration and the ability of HVAC systems to maintain indoor air quality under outdoor pollution events. Another aspect is building resilience to power outages – there’s interest in backup power for critical cooling systems (including battery storage) and in passive design elements that reduce reliance on active cooling. The industry is gradually incorporating resilience thinking, advising clients on measures like thermal energy storage or redundancy in critical cooling equipment. Insurers and regulators may start pushing for more resilient HVAC designs as these climate risks grow.

• Integration with Renewable Energy: Coupling HVAC systems with onsite renewable energy is an emerging practice. With the cost of solar PV continuing to fall, many commercial and residential buildings have solar installations. Daytime air conditioning load can often be met directly by solar generation. We’re seeing solar-assisted HVAC solutions – for instance, thermal solar collectors pre-heating water for absorption chillers, or simple controls that run AC extra hard during the day to “store” cooling in the building mass for the evening. Some innovative projects use batteries or thermal storage (like ice storage or phase-change materials) alongside HVAC to shift energy use. As Australia’s grid moves towards more renewables, these integrations will likely become more common, effectively turning buildings into flexible energy resources. It’s a trend that requires HVAC professionals to collaborate with energy specialists and potentially adopt new hybrid technologies.

• Industry Collaboration and Standardization: Facing so many changes, the HVAC+R sector has seen a rise in industry collaboration. Organizations such as AIRAH (Australian Institute of Refrigeration, Air Conditioning and Heating), AMCA (Air Conditioning & Mechanical Contractors Association), and the Australian Refrigeration Council are actively engaging with government on policies and providing guidance to members. For example, AIRAH’s advocacy has focused on the transition to net-zero buildings and the need for upskilling in new refrigerants

• Economic and Market Dynamics: Finally, general market conditions remain an underlying factor. The construction cycle in Australia (particularly the volume of new building projects) directly affects HVAC demand. After a pandemic dip, construction activity has picked up, including a boom in infrastructure and a rebound in commercial projects, which bodes well for HVAC orders. However, interest rate rises and economic uncertainty could slow parts of the market (e.g. some developers might delay projects). The HVAC service sector – maintenance and retrofits – tends to be steadier and even sees upticks as building owners focus on efficiency upgrades rather than new builds during slower periods. Another trend is customers’ expectations for service: in an age of instant information, clients want faster response times and more transparency. HVAC companies are increasingly using customer relationship software, online portals, and even apps to schedule maintenance and report performance to building owners in real time. Those who adapt to these service expectations can gain a competitive edge.

In conclusion, Australia’s HVAC+R industry is in a state of dynamic change. It must continuously adapt to new regulations, environmental imperatives, shifting workforce realities, and technological innovations, all while managing practical issues like supply chains and cost pressures. The sector contributes about 2.6% of Australia’s total employment and over 2% of GDP through its services, underscoring its importance to the economy and society. Meeting the challenges outlined above will require coordination between industry players, government, and educational institutions. The outlook is one of transformation: HVAC+R in Australia is steadily moving toward greener, smarter, and more resilient practices. By addressing these top issues head-on, the industry aims to continue providing the comfort, safety, and productivity that Australians rely on, long into the future.

Sources:

• Climate Control News (2023-2024) – Various articles on industry trends, e.g., refrigerant phase-down, heat pump growth, workforce stats

• Department of Climate Change, Energy, Environment & Water – Refrigeration and air conditioning regulatory information

• AIRAH and Government Reports – Policy positions and data (e.g. HFC phase-down FAQs, NCC 2022 updates, AOFM Climate Act summary)

• Industry Statistics – Cold Hard Facts report snippets via CCN (employment, licences, equipment cost trends)

• State Government Releases – Example of Victoria’s gas phase-out policy for new homes

• Expert commentary – HVAC trade publications and manufacturer insights on technology and IAQ