REACH, a lever for a sustainable chemical industry: conditions and modalities

1. REACH, a lever for a sustainable chemical industry: conditions and modalities Conference of 11 and 12 March 2005 Brussels

2. The CES study: content and rationale • The study seeks to … • Extend existing thinking • On issues concerning the impact and implementation of REACH • On the identification of areas subject to further investigation • Shift the perception • Propose new insight on the REACH project in the light of current debates • And open up perspectives • … thanks to a content centred around three questions • REACH’s compatibility with sustainable development • The dynamic of innovation • Dealing with the challenges of competition, particularly for SMEs

3. REACH as a lever for a sustainable chemical industry c

4. 1/3. A project in tune with sustainable development (SD) … • The characteristics of SD • Integration of various dimensions (economic, environmental and social ), … • … of the various stakeholders • … and managing tensions • From this point of view, REACH offers a number of guarantees • A dedicated agency: independence, expertise, transparency • The determination to preserve the balance inherent in SD, through a wide-ranging and prolonged consultation

5. … and with the development of CSR • CSR (corporate social responsibility) • The contribution of businesses to sustainable development • From this point of view, it is logical that the burden of proof should be upon the businesses • REACH represents an opportunity for a visible implementation of the “Responsible Care Agreement” adopted by the chemical industry

6. 2/3. The dynamic of REACH and the new competitive framework • REACH : an already rich dynamic … • Long-term process of dialogue among the stakeholders • Significant adaptations that take into account a number of challenges (innovation, SMEs) • … that is being deployed in a societal context that is becoming increasingly sensitive to health and safety issues … • An increase in strategic risks • Accidents (AZF,…), multiplication of “scandals”: food pharmaceuticals, … • The development of multiple factor diseases • Uncertainties as to the long-term impact of chemical products on health

7. 2/3. The dynamic of REACH and the new competitive framework • … marked by the inexorable increase in the pressures applied to the European chemical industry … • Downstream (consumers, retail distribution, producers of consumer products with high market value) • The countries with high environmental standards • The non-European competitors who sooner or later will also be applying the new standard • The emergence of a new competitive framework … • A chemical industry placed “in the dock” by consumers and citizens (cf. the very recent challenge to cosmetics in France)

8. 2/3. The dynamic of REACH and the new competitive framework • Emergence of new behaviour patterns among the players • After an initial phase of frontal opposition … • … the players are beginning to position themselves in relation the their special interests … • … in the face of a social (and therefore commercial) demand that is going through a major upheaval • In such a context, REACH can make it possible to gain a competitive advantage • By an effort of transparency that is appreciated by the market • By giving new impetus to quality innovation having an HSE orientation

9. 3/3. The key question: how is this to be implemented? • The uncertainties surrounding the effects of REACH … • Players’ strategies, the dynamics of competition, challenges from outside the EU, complementarity with other European policies, … • … forces us to look for the conditions of effectiveness of the regulatory approach which will be best suited to: • Create an overall dynamic of the chemical industry • Develop balances that are compatible with a policy of sustainable development • Hence the necessity to focus the debate on the rules and conditions of implementation

10. REACH and innovation, a core issue c

11. 1/3 R&D in the chemical industry, an essential but complex vector • An essential vector for success • The Lisbon strategy • Improving the environment and competitiveness at the same time • Finding substitutes for and improving existing products • A complex chemical context • Favourable factors • A sector historically rooted in innovation • Expertise in innovation under environmental constraints • Differentiated problem areas • By sector of activity • By geographical zone • By company size

12. 2/3 An R&D that is not spontaneously in tune with REACH • Points requiring attention • A weakening of Europe’s relative performance • A tendency to segment R&D • Trends in the R&D effort that are at odds with REACH’s goal • The “financial/marketing” driver: concentration on the most profitable product lines; an orientation that is more downstream than upstream. Existence of investment cycles that need to be harmonised with the REACH timeline

13. 3/3 The challenge: creating a dynamic of innovation in HSE • Through REACH … • Favourable provisions … • 5-year substance exemption in R&D • Application to existing substances • Withdrawal of hazardous substances = an incentive for innovation • Raising the exemption threshold (from 10 kg to 1 T) • A long lead-time and significant breakthroughs that are an incentive for innovation • … and special attention given to the diversity of situations • Through the R&D policies of the EU

14. The vital issue of the uncertainties of the economic effects of REACH c

15. 1/3. Differences … • Small causes, big effects? • Low overall direct costs, from 0.05% to 0.2% per year over 10 years • Yet certain macro-economic effects that could be potentially devastating • Discriminating parameters on global costs • The number of products stopped (for HSE or economic reasons) • The real scope of cascading effects on the business lines, in particular for employment • Two underlying models • Two concepts of competitiveness • Two concepts of implementation

16. 2/3 … that reflect a confrontation between models … Top-down 2 to 3% of products recalled Very limited indirect costs «  pro-REACH » Competitiveness Differentiation Transparency: high social value HSE innovation Appreciated by the market Competitiveness Costs The additional costs of de REACH are going to penalise the industry Bottom-up 30% of products recalled Cascade effects « anti-REACH »

17. 3/3. … with particularly critical issues for SMEs • Significant potential impact • Cost of recording data: • Double disadvantage: many substances, in small quantities • Larger number of tests and greater difficulty to absorb the costs, because of low volumes • Indirect impact because of input disparities for the users of chemical substances • A problem of implementation, more than of regulation • REACH includes provisions for adapting the regulation… • Reduced recording costs • Test mutualisation (consortia) • Authorisation provisions that include economic elements • … but they may be insufficient

18. Conclusions : uncertainties and support provisions c

19. 1/3 The stakes of the implementation process • Guarantee a fair balance between the economic, social and environmental components • Ensure there is a representation of the various stakeholders: • To be able to appraise situations of uncertainty • To articulate the public and private dimensions of R&D • Set up provisions and procedures providing support in the face of an uncertain dynamic

20. 2/3 An implementation that has yet to be coordinated with politics • R&D: what place for REACH in the 7th PCR? • The 7th framework programme cadre chemical technology platform: the challenge to make a place for REACH • The major challenges (REACH is a revealer) • Decompartmentalize economic and social/societal innovations • SMEs: a transverse issue for European industrial policy • Participation of SMEs in the framework programme for research (15% of the budget) • Cooperation programmes among SMEs • But a compartmentalisation of policies leading to a splintering of actions

21. 3/3 Two implementation issues that still need to be considered: regulating intra-sector disparities … • What level of adjustment? • Limited informal adjustment, left up to the initiative of the players : the current status of REACH • A comprehensive and centralised adjustment of the recording costs • economically possible (0.07% of turnover) • but could damage the principle of the burden of proof • An intermediate adjustment: • tax on chemical products, supplying a fund destined to facilitate the financing of of the recording studies of low volume/low value products (to be explored)

22. … et building on the potential of the REACH effort • An pro-active SD policy: a label REACH? • Interest • Transform the recording and authorisation obligation … into an opportunity for differentiating and leveraging the products on the worldwide market • Impose the European reference system as a standard • Reinforce innovation policies and in fine competitiveness • Compatibility of the current provisions of the project • The agency as a certification body: expertise • Independence and neutrality of the certifying body • Transparency • Institutional and practical uncertainties remain to be lifted in order to guarantee the effectiveness of the certification / labelling process