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Industry predicted the costs of REACH – they were wrong

Chemical Industry

Industry predicted the costs of REACH – they were wrong

Published on 18 Jan 2019

Last year we saw the finalisation of the phase in registration process in REACH. In May, the last registration deadlines expired, officially ending the phase-in period.

Over the years, 90.637 registrations for 21.601 substances have been made, most of them from Germany followed by the United Kingdom, France and the Netherlands.

In all cases of new, emerging legislation there are always studies that tries to predict what kind of consequences it will have on society and business. Of course, REACH registrations were not any different, and in this particular case several stakeholders presented their prediction of what this new process would cost.

CEFIC initially estimated that the total costs of REACH for industry would be between €20 and €30 billion. Among the REACH processes, registration is the main cost driver for the European chemicals industry. The costs are linked to the fees and the preparation of the registration dossiers, which can vary according to complexity, the level of data sharing between registrants and the availability of information on the substance in question.

“Several stakeholders presented their prediction of what this new process would cost”

The German Industry Confederation (BDI) paid the consultancy firm Arthur D. Little to produce an economic analysis of the effects that REACH would have. In its worst-case scenario, the report estimated that the new chemicals policy would mean the loss of 2.35 million jobs in Germany, a production loss of over 20%, and a reduction of the German gross added value of 6,4%.

The Extended Impact Assessment carried out by the European Commission in 2003 came to a more moderate conclusion, estimating that direct costs of REACH for the European chemicals industry would amount to a total of €2.3 billion over a period of 11 years, representing 0.04% of the chemical industry’s annual sales. The Commission also calculated that health benefits would be as high as €50 billion over 30 years.

So, now that the registration process is over – what has REACH actually cost?

The total costs for registration under REACH – which as mentioned above is the main cost driver for industry – during these 11 years are summed up to €3 billion. Higher than the predictions made by the European Commission in 2003, but not nearly as high as the Cefic study from the same time period.

Furthermore, if we look at the EU chemical industry sales during these same eleven years (2006-2017), they total at €6.234 billion (= €6.2 trillion). Comparing this figure with the actual costs of REACH (€3 billion), we can see that it equals to 0.048 % of the total sales – more or less exactly like predicted by the Commission.

Today there are reports stating that the European chemicals industry is in better health than ever, with individual company results and industry statistics showing that the sector is performing strongly. Europe’s leading chemical companies increased their revenues by around 10% in 2017 and raised their average tax-adjusted profits by 27%. As a whole, the European chemical sector actually grew at double the rate of its American counterpart, according to Handelsblatt Today.

Even though there might not be a direct connection between the implementation of REACH and the fact that the European chemicals industry is performing well, it is clear that the predicted doomsday scenario did not happen.

What has happened though, is that instead of directing its efforts towards presenting financial arguments as to why REACH is a bad idea, the European chemicals industry now urges the Commission to “communicate more strongly about the benefits and the good functioning of REACH”.

This shift in communication is a welcome change indeed.

Sonja Haider

Senior Business and Investor Advisor

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