A leader, but at what cost?

An early assessment of the costs, and benefits, of REACH, the most complex bill in EU history.

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Yesterday (1 December) was the first phase-in deadline of what has been described as the most complex bill in EU history. The REACH (Registration, Evaluation, Authorisation and restriction of CHemical substances) regulation took seven full years to develop and resulted in the creation of a brand-new EU agency – the European CHemicals Agency (ECHA) – and a 1,000-page document dictating the safe use of chemical substances. 

As a consultant working on a REACH project for the past year, I have been on the frontline and have seen that it is not easy for companies to become REACH-compliant. Under the ‘no data, no market’ principle, every manufacturer or importer of chemical substances in the EU must produce and submit a REACH dossier, or be denied access to the EU market. Submitting these dossiers entails registration fees of up to €31,000 per substance. The actual costs, however, are much larger.

First of all, companies must have in-house or external experts to guide them through the labyrinth of the REACH regulation. Expertise is not only needed to understand the 1,000-page document, but also to use the IT tools developed by the ECHA to facilitate the registration process.

Secondly, laboratory testing is needed. The costs are difficult to estimate. ECHA originally estimated that the costs of full implementation would amount to about nine million laboratory animals and €1.3 billion; however, another study by the Johns Hopkins University in 2009 suggested that the real numbers would be closer to 54 million animals and €9.5bn. Given that registrations are much higher than ECHA projected, the costs too may prove greater than forecast.

To minimise these costs, the EU obliged companies to set up Substance Information Exchange Fora (SIEFs) to facilitate data-sharing and allow companies to submit a substance jointly. This avoids the duplication of data collection and, consequently, unnecessary deaths of laboratory animals.

This exercise has, however, proved to be very costly. The effort expended in communication between SIEF officials, laboratories and industry competitors is appalling. As no unique platform for communication or data template was available, each SIEF has its own method of communication. The individual agreements reached by companies have caused considerable confusion and delays in work to prepare dossiers.

Still, REACH is expected to generate considerable benefits. It replaces about 40 pieces of legislation and streamlines EU legislation considerably. The better knowledge, follow-up and possible restriction of chemical substances should also result in lower healthcare costs. The European Commission has suggested the regulation will reduce the overall burden of disease in the EU by 0.1%.

REACH also means that companies know their own products and business operations better. In effect, the collation of data and discovery of unknown data should, in the long run, stimulate innovation and improve companies’ strategic decision-making.

With these benefits in mind, others are following the EU’s example. Turkey and China, for example, have already adopted – in 2008 and 2010 respectively – regulations partially modelled on REACH.

So, just as it did in the carbon market with its emissions-trading scheme, the EU has taken a leadership role. But this comparison also shows how results do not always reflect the money and effort expended on a far-reaching regulation. The US, for instance, has developed one of the largest green industries in the world without introducing national legislation as stringent as that in the EU.

Europe’s businesses will be busy until 2018 registering dossiers and adjusting their business processes. They have two hopes: that the costs will not put European business at a competitive disadvantage, and that REACH’s potential will be turned into benefits. Those are uncertainties that dog REACH now, and will dog it for years.

Eduard Eykelberg is a consultant at Accenture.