REACH caught up in EU's competitiveness agenda

Major changes to the EU's new controls on chemicals were made by the European Commission when it finally published them as formal proposals on 29 October. The Commission claims that it has knocked no less than 80% off the direct costs to the chemical industry compared with its earlier plans. But the early signs are that Member States will be seeking further concessions.

The so-called REACH regime for chemicals has attracted more hostility from industry than any item of EU environmental legislation in 30 years. After the Commission published a consultation draft in May (ENDS Report 340, pp 30-33 ) the chorus of criticism from chemical manufacturers swelled to a high pitch (ENDS Report 344, pp 21-24 ) - and by September the industry had got the issue taken up by the EU's political leaders.

In a joint letter to the Commission, Tony Blair, Gerhard Schröder and Jacques Chirac warned that the May proposals gave them "cause for concern" and were "still a long way from being the fast, simple and cost-effective procedure that was promised." They also called for a "full evaluation" of the proposals on the EU's economy.

The new high-level preoccupation is with the EU's competitiveness, and the result is that REACH is no longer in the hands of Environment Ministers. Instead, under a new procedure agreed this year for proposals with major competitiveness implications, the lead role in negotiating the legislation has been assigned to the Competitiveness Council, where it is bound to receive rougher treatment.

In its first debate on REACH on 10 November, the Council broadly welcomed the revisions to the May proposals - but most Ministers signalled that they will be looking for more. Costs to the chemical industry and regulators, the need for clearer prioritisation of chemicals for evaluation and greater powers to the proposed new European Chemicals Agency were among the points flagged up by Ministers.

Ireland's Industry Minister, Mary Harney, touched on a sensitive issue in arguing that the Commission's claim that its revisions had reduced costs to the chemical industry by 80% was "very unsubstantiated".

The basis of that claim is partly set out in an impact assessment published by the Commission together with the legislative proposal, but this needs to be seen alongside an updated impact assessment carried out by British consultancy Risk & Policy Analysts (RPA). Together, these documents show that the Commission has been engaging in a sleight of hand.

When the consultative document was published in May, the Commission claimed that direct costs to the chemical industry would amount to some €4 billion. It did so on the basis of RPA's earlier work - but the consultancy's updated study shows that this excluded major costs generated by several proposals which had not been on the table at the time of that earlier study.

When RPA's updated study was eventually published in November, it showed that those extra proposals increased the cost of the May package to €12.8 billion, on the assumption that 70,000 polymers would require registration - and to €26.6 billion in a "high polymer" scenario in which 400,000 would require registration, in line with some industry claims.

It was the "low polymer" scenario which the Commission then used on 29 October as the baseline for its 80% claim. With major cost savings produced by scrapping the requirement for registration of polymers, greatly diluting the earlier proposals for chemical safety reports and other changes, it now puts the direct cost at just €2.3 billion, spread over a minimum of 11 years (Table 1).

The remaining direct cost is disaggregated in Table 2, and shows a lesser burden of registration and testing costs in the lower tonnage classes compared with the May proposals.

In addition, micro-economic modelling work has been carried out by the Commission's Enterprise Directorate to assess the impact of REACH on downstream industries.

This employed two scenarios - one in which the downstream impact results solely from testing and registration costs being passed through to customers and some withdrawal of substances from the market, and a second "higher substitution cost" scenario with additional withdrawal of substances.

The modelling concluded that REACH would cause the withdrawal of only 1-2% of substances from the market - much less than the figures of up to 40% which have been put forward by some in the chemical industry.

The economic impact in the two scenarios is shown at the bottom of Table 1, indicating costs of €2.8-3.6 billion and €4.0-5.2 billion in the two scenarios. The ranges reflect two periods of 11 and 15 years for the full impact of REACH to be felt. The figures include the "majority" of the testing and registration costs incurred by chemical manufacturers and so should not be added to the direct cost of €2.3 billion.

If these costs were all, their impact, when spread over so many years, would be pretty small beer when set alongside the turnover of the chemical industry and its customers.

However, the industry's European federation, CEFIC, maintains that the Commission's impact assessments remain far from complete.

One major drawback, it says, is that they treat the EU as a closed economy, taking no account of the inability of European producers to pass on the costs of REACH to external customers - or indeed of the likelihood that downstream users of speciality chemicals in products sold to third country markets will relocate outside Europe to minimise costs and restrictions on innovation.

CEFIC argues that macro-scale evaluations of REACH fail to take into account the vulnerability of specific segments of the industry which will bear a disproportionate share of the costs.

It also contests the Commission's conclusion that only 1-2% of substances will be withdrawn from the market. The chemical industry, it says, is "overall extremely fragile", and "only an analysis of their product portfolio can demonstrate which part will remain and which part will be withdrawn."

The Commission's own impact assessment disputes most of these assertions or says they were taken on board in the revisions to the May proposals, but in reality the evidence base either way remains thin.

Another contribution to the debate on the impacts of REACH has come from a WWF-sponsored report by Sussex University's Science Policy Research Unit.

In a more sophisticated discussion of the relationship between regulation and innovation than has generally been produced elsewhere, it offers a forceful critique of the influential German and French industry-sponsored studies on the effects of REACH, and puts forward the UK and US pharmaceutical industries as examples of the beneficial impacts of stringent regulation on innovation.

SPRU concludes that many of the industry predictions of dire effects on competitiveness and jobs "appear to substantially overstate the sensitivity and understate the adaptive capacity of industry."

The key changes to the May proposals are:

  • Chemical safety assessments and reports: The May proposals would have required these to be prepared by manufacturers, importers and downstream users of any substance. Now, the duty will generally apply only to "identified uses" of substances produced or imported in quantities of more than 10 tonnes per year per company. Downstream users will be exempt, unless they opt to prepare their own CSA/R because, for example, they wish to maintain the confidentiality of a particular use.

    Another proposal for preliminary CSRs to be prepared within one year of the legislation's entry into force has been scrapped. Together, these changes take a major cost driver out of the regime, and avert a blizzard of paperwork. However, the draft provides for the CSA/R exemption below the 10 tonnes per year threshold to be reviewed after 12 years.

    The revised proposal is also softer in allowing CSAs of substances in preparations to be carried out only when they reach specific concentration limits laid down in the Directive on dangerous preparations. Alternatively, CSRs may be carried out on the preparation as a whole instead of its constituent substances.

  • Polymers: These were another major cost driver, but have now been excluded from registration and evaluation.

    However, the exclusion may be ended "as soon as a practicable and cost-efficient way of selecting polymers for registration on the basis of sound technical and valid scientific criteria can be established", and after the Commission has published a report on the risks posed by polymers and any need to register "certain types of polymer, taking account of competitiveness and innovation on the one hand and the protection of health and the environment on the other."

    The draft also provides for specific polymers to be subject to REACH's authorisation and restrictions procedures where risk management measures are needed.

  • Low-tonnage substances: Testing requirements for substances in the 1-10 tonnes per year per company range have been further reduced, so that only in vitro tests will normally be needed. This will benefit some 20,000 of the 30,000 existing substances going forward to registration, as well as new substances, for which notification and initial testing currently begins at 10 kilograms per year.

  • R&D: There is currently a one-year exemption from notification, extendable by one year, for new substances placed with a limited number of customers for "process-orientated research and development".

    Again, the Commission has sought to meet demands for less restriction on innovation by waiving registration for five years, extendable for another five - or 10 years for substances used in medicinal products - for chemicals used in product- as well as process-oriented R&D.

  • Intermediates: In the May proposal, limited registration requirements applied to "isolated" intermediates - those removed from a process for synthesis reactions elsewhere - as long as they were not transported to more than two other sites. The two-site restriction, which would have affected many smaller producers disproportionately, has now been dropped.

  • Duty of care: The May draft contained a general duty on chemical manufacturers, importers and downstream users to ensure that their products would not cause adverse effects in humans or the environment under reasonably foreseeable conditions of use.

    In the light of objections from industry, this has now been replaced with a general principle that it is "up to" companies to do this.

  • Authorisation: This remains one of the most contentious aspects of REACH. Under the May draft, authorisation for specific uses of a substance would have been granted automatically where the risks were "adequately controlled" or, where this did not apply, may have been granted where the socio-economic benefits outweighed the risks.

    The draft added that decisions in the latter case would be informed by the availability of alternative substances or technologies, but the "mere existence of alternatives is in itself insufficient grounds to refuse an authorisation."

    Environmental groups objected strongly both to the latter clause and the idea of automatic authorisation for "adequately controlled" substances.

    The "adequately controlled" clause has been retained. However, where it does not apply, authorisations may be granted where the socio-economic benefits justify the risks and if there are no suitable alternative substances or technologies - with no rider about their mere existence being insufficient grounds for refusal. However, the proposal is now explicit that consideration must be given to any risks posed by alternatives.

    The Commission has also proposed a new prioritisation clause intended to focus the authorisation process initially on substances with the "highest expected regulatory outcomes".

  • Products: The legislation's provisions for dealing with hazards from chemicals in imported products will be of considerable significance both for EU chemical manufacturers seeking a level playing-field and for the EU's trading relationships with third countries. They will pose acute difficulties in enforcement, despite the changes made since May.

    Under the current draft, substances in articles will have to be registered if they are classified as "dangerous", are present in an article "type" in quantities of more than one tonne per year per company, and are intended to be released under normal and foreseeable conditions of use.

    Alternatively, substances will have to be notified if they meet the first two conditions above and the substances concerned are not intended to be released as an "intended function" of the article, but the release may "adversely affect human health or the environment." The European Chemicals Agency will decide whether to require registration in such cases.

  • Information: The revised draft imposes new restrictions on disclosure of certain information. In particular, it provides that the identity of registrants may be kept confidential, while the precise uses and tonnages of chemicals, the "full" composition of preparations, and links between manufacturers and downstream users will always be confidential other than in "exceptional cases" such as health or environmental emergencies.

  • Sanctions: The May draft included provision for fines for non-compliance with REACH to range up to 10% of an offender's global turnover. There is now no specific figure.

    The May draft has been overhauled in numerous other areas, including provisions on data sharing, the evaluation process and burden sharing between Member States, and the responsibilities of the European Chemicals Agency.

    In the UK, the Government has promised a consultation and regulatory impact assessment on the proposals early next year. The House of Commons Science and Technology Committee will also conduct an inquiry into REACH early next year.

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