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Project to Assess the Impact of the New EU Chemicals Strategy (REACH) and to Develop a Model

 

Client:               Department of Environment, Food and Rural Affairs (Defra) and

                          Department of Trade and Industry (DTI)

Date:                 2005

Partners:           London Economics

In October 2003, the European Commission adopted a proposal for a revised system for the regulation of new and existing substances within the EU, which was referred to as ‘REACH’ (the Registration, Evaluation, Authorisation of Chemicals).  A partial Regulatory Impact Assessment (RIA) for this proposal was carried out for the UK, and included some case studies on the impact of REACH for selected downstream users of substances.

Scope of the Study

RPA and partners, London Economics, were commissioned by Defra and the DTI to undertake a further, more detailed study to:

  • identify the costs and benefits of REACH along the supply chains of particular products;
  • devise an economic model to show the impact of REACH on downstream users; and
  • estimate the range of the indirect costs of REACH.

Note that this study examined the impacts of the October 2003 proposals for REACH.  These have been superseded by the Common Position published in June 2006.

Approach to the Study

The study was approached as four tasks:

  • Possible case studies were identified and a detailed understanding of the structure of their supply chains was developed (thereby establishing a baseline for the study).  Three case studies were agreed with the Steering Group: the manufacture of silicon wafers for use in semiconductors; the manufacture of coated cans for food packaging; and the manufacture of fragrances used in cosmetics and household products.
  • Detailed data were collected on the impacts of REACH on companies in the case study supply chains.  This included the development of a questionnaire for participating companies, subsequent more detailed discussions about their activities and product prices, and a detailed literature review.
  • Two types of economic model were created to provide the basis for the case study analysis.  The first was a spreadsheet model to estimate the compliance costs associated with the  testing and registration of the  substances used by the downstream user companies. The second was a microeconomic model to predict the economic impacts of REACH on suppliers, taking into account the price sensitivity of final demand, market characteristics and the potential for  substitution at each stage of the supply chain.
  • The wider economic effects were predicted at the sectoral level.  This identified the relative magnitude of compliance costs in relation to different sized companies.  The microeconomic model was applied only to the food can coatings case study because the spreadsheet model concluded that REACH would not have a significant impact on the costs faced by downstream users in the other case studies.

Summary of Key Findings

The Costs & Other Impacts of REACH

  • The costs of REACH are limited where: a) there is a large volume of information already available for a significant number of bulk chemicals, b) prior testing and risk assessments are undertaken under other regulatory regimes and c) substances are used across a large number of different sectors.
  • The impacts of authorisation on the case-study sectors are limited where use of substances and/or their emissions are controlled under other regulatory regimes. 
  • A key factor determining the impact of REACH on downstream users will be the extent of substance withdrawal and the resulting requirement for reformulation; although this is predicted as being less likely than feared by the downstream users.
  • A characteristic common to all case studies was the existence of constraints on substitution while also meeting the safety, performance, quality and environmental requirements of downstream uses. 
  • The fragrances sector may face the most significant levels of product withdrawal in the need to substitute unsupported substances.
  • Vertical ties within all of the supply chains mean that larger companies with lower cost structures and greater market power will be in a better position to absorb and pass on the additional costs of REACH than SME suppliers and manufacturers. 
  • The fragrances study highlighted the implications of REACH for traders in chemicals.  SMEs in particular tend to work on short-term contracts or ‘spot’ markets.  The requirements of REACH would reduce their flexibility in relation to imports.
  • Any industry-wide costs imposed by REACH would, in theory, have an impact on the competitiveness of EU producers versus non-EU producers, and may lead to the loss of some firms in the UK. 

 

Overall, UK industry is likely to be able to absorb the majority of the costs of REACH.  However, in the case of substance withdrawal, significant industry barriers associated with ‘qualification’ and pre-approvals may result in unexpected impacts (even where substitutes already exist).

The Potential Benefits of REACH

  • Some formulators support REACH in providing a sounder basis for assessing the risks of different substances than downstream users’ and retailers’ response to consumer and NGO pressure to impose restrictions.
  • Downstream users believe that the long-term benefits of REACH would be improved access to information about chemicals, and the reduced potential liability associated with chemicals in their end products.  Better enforcement may lead to better quality data safety sheets (transparency) and better traceability.
  • The retail sector believes that REACH could have significant benefits in addressing concerns about chemical ingredients expressed by customers and NGOs.  However, the public availability of data may give NGOs greater scope for campaigning and pressuring Competent Authorities to prioritise substances they think are significant.  The Chemicals Agency would have an important role here.

Further Developments

In June 2006, the Commission published the Council Common Position, which provides the agreed REACH proposal stemming from the UK Presidency.  The Common Position was then referred to the European Parliament Environment Committee, whose Rapporteur produced a Recommendation for Second Reading (with the final published on the 13 October, 2006).  This Recommendation has gone through the Second Reading in Parliament and Council and a compromise was reached on the 30th November.  The Final Vote on the compromise draft regulation will be on the 13th December in Parliament and the 18th December in Council.  Expected entry into force is April 2007.

Links

 

Click here to read more of the report.

To view the current UK status regarding REACH, visit Defra's website and for an overview at the EU level, visit Euractiv's website.