New European Chemical Regulations Mean Many Changes for Business

September 2007

In June 2007, new European legislation regulating 30,000 toxic substances went into effect.

The legislation, called REACH, is the world's most stringent, aimed at protecting people and the environment from thousands of toxic chemicals — legislation that will have a far-reaching effect on industries and products worldwide.

The European Union had already banned many chemicals that remain legal in the United States, including phthalates in toys and cosmetics, high formaldehyde levels in wood and lead in electronics. The new law, which is far more restrictive and comprehensive than current U.S. regulations, bans some compounds used in electronics, furniture, toys, cosmetics and other everyday items.

As experience with other EU regulations has shown, many countries and markets tend to follow the EU approach. What will be the impact of this legislation, and how can companies prepare for it?

REACH = Registration, Evaluation and Authorization of Chemicals

Under REACH, companies that manufacture or import to the European Union substances or products containing chemicals over 1 ton/year will be required to register these chemicals and provide health and safety data. This shifting the burden of proof from government to business comes as a result of growing awareness that government has limited resources and cannot adequately protect people and the environment. Companies are now required to take greater responsibility and prove that their products are safe for use, which may involve risk assessments, animal or other studies.

REACH involves the following main steps:

• Registration: Each producer or importer of chemicals in volumes of 1 ton or more per year will have to register them with a newly created European Union Chemicals Agency, and submit information about chemicals properties, use and safe handling (European Commission, http://europa.eu.int/). This can be existing data or shared data and they have to be provided to the "downstream users" – makers of consumer products who use the chemicals, for example. It is expected that about 30,000 chemicals will be covered by the law. 
  
• Evaluation: Public authorities review the submitted information and request additional information, if necessary. The goal is to identify substances of concern for authorization and potential phase-out.
  
• Authorization: Expected to be the most costly step, authorization involves granting the right to use chemicals of high concern in particular applications. It is expected that around 1,400 chemicals will be affected. For very high risk chemicals substitution with safer alternatives will be required.
  
• Restrictions: Based on the findings from the submitted information, the EU will be able to identify the most dangerous chemicals and restrict their use more quickly than under the current system. Approximately 140 chemicals are expected to be affected.

Why was REACH enacted?

As stated by the European Commission, the two main goals of the regulation are "to improve protection of human health and the environment from the risks of chemicals while enhancing the competitiveness of the EU chemicals industry" (REACH in brief, February 2007).

Similar to the U.S. system, chemicals in the EU are divided into "existing" and "new." New chemicals are those which were introduced on the market after the adoption of chemicals regulations (the 1976 Toxics Substances Control Act in the U.S. and the 1981 chemicals regulations in the EU). All new chemicals have to go through rigorous testing before they are placed on the market. Existing chemicals, however, are not required to pass such testing and no sufficient information is available for their properties and effect on human health and the environment. More than 100,000 such existing substances are currently used in the EU and "for 99% of them we don’t have enough information about effects, uses and how they need to be handled to be safe." (European Commission, Environment Fact Sheet: REACH, February 2006).

With increasing capabilities to test for chemicals in humans (so called body burden), concerns are growing that chemicals used in common consumer products can pose serious adverse health effects. EU environmental health experts believe that the increasing incidence of cancer and leukemia could be linked to chemicals. Exposure can happen during manufacturing, product use or end-of-life disposal (e.g., incineration or landfill).

Implications for Companies Worldwide

The scope of REACH is wide – it will affect all companies that make or export chemicals or products containing chemicals to the 480 million-person EU market as well as their suppliers, regardless of where they are based. Thus small and medium size companies will also be affected. The sooner businesses begin to prepare, the lower the costs of compliance.

Implementing REACH can be a very costly undertaking. The regulation is highly complex and as experience with other EU regulations has demonstrated, companies often need to hire people to focus on compliance. In addition, each of the REACH phases, authorization in particular, will require significant paperwork, developing a database for tracking chemicals use and possibly conducting expensive risk assessments, animal and other studies.

Cost estimates for industry under REACH vary significantly. The EU Commission estimates the total cost to industry, including downstream users and the cost of substitutions, to be between EUR 2.8 billion and EUR 5.2 billion. Industry groups believe this is an underestimate.

In today's crowded market where companies struggle to maintain or increase market share, REACH provides a unique opportunity. Companies that first identify safer alternatives and bring them to market will be able to diversify their products from competitors, increase market position in the EU and other markets with similar regulations, and improve their brand reputation. Eliminating dangerous chemicals also reduces risks to workers and the cost of disposal, thus reducing liability, insurance and compliance costs. There are many examples of success stories with well-documented bottom line benefits - Kaiser Permanente, Dell, Avalon, H&M and Interface, to name a few (Clean Production Action, Healthy Business Strategies for Transforming the Toxic Chemicals Economy, June 2006).

According to U.S. based-research group Innovest, REACH will have much greater indirect impacts on variety of companies and sectors as a result of publishing the list of chemicals for authorization, or the so called "blacklist." Innovest anticipates that packaging, automotive, agriculture, furniture, electronics and durables, will be the most affected sectors in the U.S. (Cross Cutting Effects of Chemical Liability from Products, January 2007).

Many retailers or product manufacturers will demand that their suppliers provide products or parts that do not contain any of the listed chemicals. This can have a huge impact on the entire global supply chain. Just imagine Wal-Mart stepping up and demanding products free of all "blacklisted" chemicals! And Wal-Mart has already made a commitment to these issues by launching its ambitious safer chemicals policy in December 2006.

Pressures from consumers, NGOs and shareholders will also increase as more information becomes available. As a result, both the risks and the opportunities will continue to grow.

Preparing for REACH

Companies can do much to prepare for REACH and similar regulations in the future. Many of these were outlined by Andrew Fasey, EU expert on REACH, in a presentation at the Lowell Center for Sustainable Production in April 2007.

• Familiarize yourself with the issue. Many U.S. companies, particularly small and medium size, are still unaware of REACH implications for their business. Becoming more informed can help you better understand the potential risks and opportunities for your company.
  
  
• Map your supply chain. Many companies don't know all the chemicals and ingredients in their products or where they come from. The recent scandals with contaminated food, toys, and personal care products made in China illustrate this growing challenge for companies operating in the global economy. Identifying all substances that may require pre-registration should be the first step in preparing for REACH and any other forthcoming requirements.
  
  
• Identify vulnerable products. The next step involves identifying all products that may face the threat of withdrawal due to use of hazardous chemicals or ingredients. Although the "black list" has not yet been published, the characteristics of the high risk chemicals are well known – carcinogens, mutagens, reproductive toxins, PBTs and vPvB substances. Endocrine disruptors are not currently included under REACH but will be considered for inclusion in 2013.
  
  
• Identify alternative substances, suppliers and processes. Once you are aware what chemicals and products might be facing restriction, work with suppliers, industry peers, or university research centers, to identify safer alternatives. You may also want to identify suppliers who can provide you with such alternatives.
  
  
• Substances inventory. Create a list of all chemicals used in your products by requesting information from suppliers and by testing products. Having an up-to-date list of all substances used in your products by type of product and amount used will help you with pre-registration and authorization as well as efforts to identify safer alternatives.
  
  
• Identification of future activities. Adopt a safer chemicals policy and a system for tracking and prioritizing chemicals, so you are better prepared for any forthcoming regulations. S.C. Johnson, for example, developed the Greenlist™ process in 2001 to help its scientists "make choices that protect the planet and its people while maintaining the high performance of company products." The company has been able to eliminate numerous dangerous ingredients even before government regulations were in place, and is well positioned today to sell to the EU and any other market that may impose such restrictions in the future.

According to recent studies, 40% of companies who manufacture or import to the EU have not started to prepare for REACH. And the costs of such delay could be significant.

Two exceptions are DuPont and Dell. Both companies have been working for some time to prepare for REACH. DuPont has identified 3,000 chemicals that will require registration and about 400-500 that will need authorization. The company has committed to invest in a system for REACH compliance, both in terms of chemicals database and personnel (Kathleen Shelton, Global Stewardship Manager, DuPont, Green Chemistry Workshop, Lowell Center for Sustainable Production, April 2007). Compliance with the EU's RoHS Directive has helped Dell tremendously to develop the capacity and capabilities needed for REACH. Setting up a system for tracking chemicals was the most challenging part of the compliance. Today Dell has a list of highly dangerous substances that suppliers are required to report on and feels much better prepared for REACH than many other companies (Mark Newton, Dell, Green Chemistry Meeting April 2007). 

Increasing Regulation Will Continue

Much remains to be seen as to how the EU REACH regulation will be implemented in practice. One thing, however, is clear:  such regulations have increased in recent years and the trend will continue. The EU End of Life Directive (ELV), EU and China's Restrictions of Hazardous Substances Directive (RoHS), EU Cosmetics Directive, California's Safe Cosmetics Law and the new Biomonitoring Law, Canadian Bans on Lawn Pesticides, and the Kid-Safe Chemicals Act in the U.S., are only a few of the recent initiatives targeting dangerous chemicals. REACH also brings a new paradigm for regulating chemicals that can soon be replicated in other markets. For companies that choose to act today, potential benefits can be significant in terms of reduced risks of market exclusion and liability, increased market share and improved brand reputation.

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