Costs and impact of REACH

The existing system did not give sufficient information about the effects of chemical substances on health and the environment. With REACH the European Commission wants to do something about this. Sustainable development is the aim here, where economic aspects (international competitive power) must be reconciled with social aspects (employment) and environmental and health aspects (protection of public health and the environment). It are particularly the positive and negative impacts of REACH on the different aspects of a company that are described in this part.

It is feared that because of the costs associated with the implementation of REACH, companies in the EU will suffer a competitive disadvantage compared to competitors outside the EU. All expectations are that the impact will not be limited to the chemical industry, but that sectors downstream in the supply chain will also be unfavourably affected. The consequences of REACH will indeed be perceptible throughout the whole product chain, both among the first downstream users (the formulators or manufacturers of preparations) and at the end of the product chain (the producers of consumer articles such as furniture or toys).

After the publication of the REACH proposal, but also already before its publication, more than 30 studies were conducted to analyse the impact of the new proposed legislation on chemical substances. As for Belgium, with its very important chemical industry, this was done by IDEA Consult in co-operation with Prof. Leo Sleuwaegen and Prof. Dr. Bruno Van Pottelsberghe.

There exists, according to the EU2004REACH study that has compared all the studies, a clearer picture of the direct cost than the indirect costs for industry as a result of the implementation of REACH. The direct impact usually consists of the drawing up of registration files, the conducting of tests and additional administration costs. These costs amount to 4 billion euros for the industry in the European Union. The indirect impact takes place at the level of the downstream users in all sectors of the industry. The different studies give different estimates of these indirect costs.

A number of important conclusions that resulted from the studies are:

Advantages for society:
Significantly less research has taken place into the advantages of REACH as regards public health and the environment than the impact of REACH on industry. One reason for this is that it is much more difficult to determine the advantages for health and the environment because REACH is being introduced exactly because of the lack of knowledge of the dangers and risks chemical substances entail. It is not yet known how many substances are dangerous, which substances will disappear from the market, and which risks will be able to be reduced. Neither is the extent of the effect of chemical substances on health and the environment exactly known.

The studies all show that REACH has the potential to reduce the exposure of employees, society and the environment to dangerous chemical substances. This will give advantages of which the extent can at present not possibly be exactly estimated. The estimates in the studies show that the advantages for health will probably rise to account for many billions of euros in the coming decades.

Costs for society:
The costs for society will particularly consist of an increase in product prices. This is because industry will try to pass the costs on to the consumer. Given the large number of consumers in Europe and the fact that everyone buys products in which chemical substances are used, the costs will be shared by all consumers in the EU.

The residents of the Member States in Europe will also probably have to pay extra taxes for the increased workload at health and environmental institutions in the Member States and for the European Chemicals Agency (partly paid for by the allowances for industry).

Advantages for industry as regards occupational health:
Directives have been implemented in the EU to protect employees against diseases caused by exposure to chemical substances. It is unclear how much REACH will add to the existing policy.

REACH will presumably result in the better health of employees. There is uncertainty about the extent of the advantages, also because it is not known how many hazardous substances will be discovered by REACH. Some estimates mention a difference of billions of euros due to improved health. Fewer ill employees mean lower costs for industry because fewer employees will be absent due to illness. Particularly the reduction in the number of fatalities will result in advantages concerning production output and the maintenance of investments such as training among employees. The studies show that the prevention of cancer among employees is the most important advantage concerning the improvement of the health of employees. The benefits probably amount to between 18 and 54 billion euros spread over 30 years.

Advantages for industry in the field of innovation:
The impact of REACH on innovation varies greatly according to different studies . Some studies describe the result of REACH as very negative, while other studies mention positive elements where it must also be mentioned that REACH is only one of many factors determining the direction and scope of innovation in the EU. From the research it appears that Europe is lagging behind the US and Japan as regards innovation and the registration of new substances. In the EU chemical innovations remain mainly limited to the use of existing substances for new applications.

In the short term negative results will probably dominate. It is mainly the administrative burden caused by REACH that will temporarily reduce the R&D capacity. REACH requires such a large use of resources that there will be no room left to also put resources into research and development. In the first years after the introduction of REACH all attention will be devoted to the testing and registering of chemical substances, looking for substitutes and extra administration. In the long term there will be opportunities for companies to make new products. The result of this will be an increase in new substances on the European market. There are also opportunities for SMEs here because they can flexibly and competently find niches in the market.

Renewal is very important for industry. This means sufficient product development is required. Should REACH result in a reduction of the capacity to develop products, the logical reaction of companies must be to invest more in research and development. Furthermore, chemical substances used for process-oriented research and development are exempt from registration for 5 years (with a 5 year extension possible). This creates extra space for companies to develop new processes. However, uncertainty about the commercial success of a product, in combination with high registration, testing and administrative costs, may be a hindrance to research and development in new products.

Direct costs for industry:
The most quickly noticeable consequences of the introduction of REACH are the testing and registration costs that manufacturers and importers of chemical substances in the EU must pay. The scale of the costs can differ greatly between companies. A first important variable is the annually produced (or imported) volume. Stringent or less stringent test requirements are imposed depending on the tonnage category.

Various studies suggest estimates for the testing costs. The cost per file for the different tonnage categories was estimated as follows by RPA by order of the European Commission:

Bron: RPA (2003), Revised Business Impact Assessment for the Consultation Document, Prepared for European Commission Enterprise Directorate-General, p.105 (table 8.1)

For larger volumes (> 100 tons) there is already much information available, so not all tests will have to be conducted for registration. This is why two figures are given in the table. The first amount is the testing cost for companies who will have to generate the complete data set. The second column shows the costs which according to RPA are expected for substances where information already exists. This limited testing cost is calculated based on the remaining tests and their respective cost. According to RPA, 2% of the files in the 100 to 1,000 ton tonnage category, and 15% of the registration files for substances of 1,000 tons or more would have a limited registration cost. With a total of approximately 800 million euros the registration costs will have a large impact on the industry.

Besides registration, preregistration will also entail its own costs. According to estimates these will vary between 50 and 100 million euros. The advantages of preregistration are mainly in the area of possible cooperation or the formation of consortia. Discussion is still ongoing about the amount of the costs that the drawing up of the chemical safety assessments will entail. The total costs are estimated at approximately 190 million euros. The advantages of carrying out a CSA lie further on in the supply chain. Companies can take risk-reducing measures, so for instance damage to employee health will be reduced. The information from a CSA will be included in the safety data sheets.

The drawing up of safety data sheets represents a significant cost, but not a new cost. The additional cost regarding SDSs is estimated at 250 million euros.

Hazardous substances must not only be registered, they are also subject to authorisation. The total number of substances subject to authorisation is estimated at 1,400 CMRs, 2,000 PBT/vPvBs and 560 hormone disrupting substances. The cost of authorisation is estimated by the RPA at 171 million euros for the EU, or approximately 15 million euros for Belgium.

Many studies have made an estimate of the total direct costs that the implementation of REACH will entail. The last impact study by RPA assumes a direct cost of 2.3 billion euros for the chemical industry in the EU, and this over 11 years.

Idea Consult has summarised the potential direct costs for Belgium. These may run up to:

• 140 to 185 million euros as total costs;
• 15 million euros authorisation costs;
• 1.5 million euros restriction costs;
• Or a rounded off total cost that varies between 155 and 200 million euros.

This corresponds to 0.4 to 0.5% of the turnover of the whole chemical industry, and 0.7 to 0.9% of the turnover of the basic chemicals sector (pharmaceutical, synthetics and rubber sector not included).

Indirect costs for industry:
The total number of substances that will disappear from the market varies between 1% and 30% according to a number of studies. This will lead to real costs for downstream users to reformulate their products or find a new supplier.

The impact of REACH on manufacturers/importers of chemical substances goes further than the direct testing and registration costs or authorisation requirements. In the longer term manufacturers may also feel the consequences of production adaptations among clients. Accordingly, a manufacturer who is himself not planning to rationalise his product portfolio may still see his deliveries decrease because some of his clients may be ceasing their activities.

The total number of substances that will disappear from the market for health and environmental reasons is assumed to be small (1-2%). This largely depends on the authorisation process.