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Giving companies economic incentives for moving away from hazardous chemicals can unlock a multi-billion market for safer alternatives

Chemical Industry

Giving companies economic incentives for moving away from hazardous chemicals can unlock a multi-billion market for safer alternatives

Published on 20 Jan 2022

PRESS RELEASE: By implementing economic incentives in EU chemicals legislation that would support companies who are moving away from hazardous chemicals, EU policy makers could stimulate the transition of the market towards sustainability more efficiently, a new ChemSec report shows.

In the Chemicals Strategy for Sustainability, the European Commission highlights that substitution of the most harmful substances has not occurred at the expected pace and that companies that are leading the way still encounter major economic and technical barriers. ChemSec’s report shows that this is because the current legislative system has disfavoured the market for alternatives.

“The report is highly relevant as the European Commission is soon to publish a public consultation on the revision of REACH that proposes legislative changes to the authorisation process. By grasping this opportunity to support alternative providers, and deliver on the promises made in the Chemicals Strategy, there’s a chance to unlock the European market for safe and sustainable chemicals”, says ChemSec’s Deputy Director Frida Hök.

The current REACH Authorisation Process – a key measure within EU chemicals legislation – has frequently been financially detrimental to the progressive market players that are already using safer alternatives.

“The economic loss for alternative providers amounts to between €200 million and €4.4 billion”

“Companies are obviously driven by financial targets. If they cannot get a return on investments in sustainable chemicals, it will ultimately result in companies trying to avoid substitution for as long as possible. It is therefore imperative that the Commission make it a top priority that REACH should promote the frontrunners – not the laggards”, says Frida Hök.

By analyzing an authorisation case in which the European Court of Justice (ECJ) concluded that lead chromates were wrongfully authorised for commercial use, the report finds that the economic loss for alternative providers amounts to between €200 million and €4.4 billion over the review period granted.

But this loss also represents great potential. If policy makers could put economic incentives in place to support alternative providers the very same loss could instead be turned into profit.

“What we have here is an untapped market potential with great promise. The data shows that safer alternatives could be a European multi-billion industry, if we would just allow it”, Ms Hök concludes.

If the ruling of the ECJ had come earlier, it is highly likely that several of the previous 213 applications would not have been granted authorisation on the grounds of there being alternatives available. In a very a conservative scenario where 5 percent of the total volume applied for has wrongfully received authorisation, a loss on the order of magnitude of €1 billion to €10 billion per year could have occurred. Based on our long-term experience and dialogue with alternative providers we believe the real number is significantly higher.

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ChemSec advises EU policy makers to implement the following into chemicals legislation:

1. Apply the Polluter pays principle in full

Companies need to be accountable for the impacts on society. Today, the use of hazardous chemicals does not directly affect costs nor revenue, and the true costs of their products is not reflected in the price. The use of hazardous substances may induce adverse health effects such as cancers, autoimmune disorders and infertility as well as a having a negative impact on the environment. The companies that use hazardous chemicals should bear the costs for these effects.

2. Use economic incentives to drive the transition

Ensure that policy measures proposed in the REACH Review incorporate economic incentives that make it an enticing prospect to phase out hazardous chemicals, rather than working against this transition.

An example of an economic incentive is to introduce a fee for using SVHCs that are on the Candidate List in order to drive substitution. More than a third of the companies start their substitution process at the Candidate List stage or before. If the benefits of phasing out early were to be associated with lower cost, more companies would start their substitution process earlier. The income from fees could be used to support the development of alternatives.

3. Support the frontrunners

Companies that do more than required by regulation, for example by developing and using less hazardous chemicals, use significant resources to achieve their goals. They incur the majority of the costs. If companies see limited opportunities for a return on their investments (i.e. they would incur the cost of substitution without increasing their market share or their income in some other way), they are less likely to invest. Being a frontrunner must pay off in financial terms and regulation must ensure this.

4. Lack of action should never pay off

Equally as important as strengthening the economic incentives for doing more, is to ensure that unintended ‘perverse’ incentives are avoided, i.e. where companies might be financially better off by not searching for alternatives and just continuing with business as usual. Unfortunately, this has often been the effect of the current system, albeit unintentional.