The declared purpose of the White Paper is to enhance the protection of human health and the environment and to make the current chemicals legislation simpler and more uniform: A very noble aim.
Present laws are very complex and bureaucratic and in need of an overhaul but new regulations will have far-reaching repercussions on the whole of the European chemicals industry and could still fail to improve the current legislative situation.
While there is widespread agreement that there should be strict regulation and a harmonisation of assessment procedures for existing and new substances, there is also grave concern that the high cost of the registration system proposed will greatly reduce innovation, make low-volume specialist products unviable and obstruct competitiveness.
The EU Commission is expected to submit drafts of future legislation in the first quarter of 2003. And it will not just affect Europe. The EU is not merely the largest supplier of chemicals but is also the world’s largest consumer of chemicals. Thus, all chemicals consumed by the industry, whether imported or not, will be bound by the same regulations.
The German chemicals industry will be affected more than most because around one quarter of sales by the European chemicals industry are generated in Germany. Moreover, global companies such as BASF compete directly with other important industrial regions: north America and Asia.
Applying the principles of the White Paper, identical products could be produced in other regions without preliminary substances being subjected to rigid European legislation. The industry will also be burdened with an estimated €8 billion in direct costs without taking into account effects on the labour market and competiveness.
The cost implications are enormous. Since each chemical product will need to be registered, it is widely believed that many low volume products will cease to be viable and specialist products will be withdrawn from the market. The high cost of registration could also have a devastating effect on small and medium sized companies, but the entire European industry cannot help but be affected.
Under the REACH system proposed, a uniform registration and authorisation procedure will assess some 30,000 substances and pass them through a Registration, Evaluation and Authorisation for CHemicals process. However, the planned system only assesses substances according to their intrinsic properties. No account is taken of their benefits or of measures ensuring their safe handling.
Substances with hazardous properties used in consumer products will be banned by 2012 and will be fully banned by 2020 regardless of their use or application. The elimination of these products, by bans and substitutions, will result in economically important substances no longer being available.
Risk assessment
In the US, a risk dependent procedure is applied. The results of simple preliminary studies are used to decide on further test requirements. Only if the preliminary studies do not yield a clear picture does the submitting company have to obtain additional information. In this way, the need for expensive and time-consuming studies can be reduced for lower risk chemicals.
The approach in the US and also in Japan is risk-orientated and proven in practice. The EU regulations do not provide for risk assessment. Testing is rigidly governed by the production volume of the substance. This leads to an enormous amount of data and will incur considerably higher costs and put European enterprises at a disadvantage in relation to international competitors. The White Paper assumes that the overall cost of compliance will amount to €2.1 billion over the period to 2012. However, according to John Morris, head of KPMG’s European chemicals practice, this has been seriously underestimated. He believes the figure is more likely to be in the region of €8 billion.
BASF alone expect to incur costs of around half a billion e over the next ten years. This can only make a large number of products unprofitable. New launches are bound to be affected since only guaranteed high volume products will appear worthwhile. The innovative performance of the industry will be seriously compromised as a result.
Furthermore, the authorisation procedure requires a time limit and this will lead to delays since the chemicals industry will need planning reliability for capital-intensive investments.
Emissions trading
In order to counteract climate changes, the emission of greenhouse gases, particularly carbon dioxide (CO2), is to be significantly reduced. Under the first international agreement, the 1997 Kyoto Protocol, emission targets for the Treaty States were laid down and mechanisms put in place to permit flexible implementation of the reduction targets. Industrialised countries have a target of a 5.2% reduction.
The six most important greenhouse gases are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. Carbon dioxide represents the largest proportion and in the EU accounted for around 80% of the total emissions of greenhouse gases in 2000.
Since the 1992 Climate Framework Convention of Rio, the German chemical industry has worked for effective climate protection using voluntary mechanisms. One result of this initiative has been a voluntary agreement to reduce its specific energy consumption and energy-induced CO2 emissions by 30% from 1990 to 2005.
By the modification of production processes and the intensive use of combined heat and power systems, this reduction target was achieved as early as 1999. The German chemicals industry has also promised to reduce the relevant greenhouse gases by 45-50% by 2012 and the specific energy consumption by 35-40% below the values of 1990.
The EU position
In order to implement the Protocol, the European Commission made a Proposal for an EU Directive for the introduction of CO2 certificates to cover European-wide trading. The costs of acquiring these certificates was determined to be between €20-33 per metric tonne of CO2.
If only European companies are burdened with the costs of emissions trading, products manufactured outside Europe will be cheaper. This is one more example of the high cost of complying with environmental regulations, making European companies less competitive.
No-one is suggesting that companies should not take responsibility for their own pollution, but since the issue is one of such magnitude, that all companies, everywhere, should be bound by the same, strict, regulations.
The Proposal for an EU Directive does not fulfil the often voiced claim that it will improve the world climate. It is true that the emissions of CO2 would decline in Europe if the Directive comes into force, because operators of energy-intensive plants would move into less regulated regions.
The same quantity of CO2 would still be generated but in different locations. And this would have the same effect on the world’s climate as if it had been emitted in the EU. There is already a relatively high technological standard in the EU which makes further reductions expensive. In contrast, there are regions all over the world in which standards are not so high and greenhouse gases could be reduced with far fewer financial resources.
For this reason, an effective trading system should not be restricted to the EU, but should include as many regions as possible.
In order to steer a way through the minefield of proposed and potential legislation covering chemicals production and use as well as environmental protection, BASF have produced two excellent reports intended to answer a number of pertinent questions and explain current thinking. One is called European Chemicals Policy and the other Emissions Trade.
Editor’s note: I have drawn heavily on their material and graphics
