EU Regulatory Costs Double in Ten Years

18.07.2016 -

A study just released by the European Commission, the Cumulative Cost Assessment (CCA) for the EU Chemical Industry shows that the annual cost for chemical companies to comply with key regulations doubled between 2004 and 2014 to nearly €9.5 billion.

When all relevant legislation is cumulated, the study found that the estimated average annual total direct cost borne by six subsectors – inorganic chemicals, plastics, agrochemicals, soaps, detergents and cleaning products, along with specialty chemicals –  is equivalent to around 2% of their turnover and 12% of the value added.

The Commission said the cost of compliance represents as much as 30% of the Gross Operating Surplus (GOS), which can be used as a proxy for profit, indicating that legislation is among the important factors shaping the profitability of the EU chemical industry.

The study included only the most important EU legislation and at the same time excluded national legislation affecting chemicals. The highest cost was shown to be associated with emissions and industrial process legislation, which represents approximately 33% of regulatory expenses, with chemicals legislation next at 29%, followed by workers’ safety at 24%.

EU legislative packages carrying the highest regulatory cost were identified as REACh, Plant Protection Products (PPP) and Biocides. Key cost milestones were seen from the introduction of REACh and Classification, Labelling and Packaging (CLP) legislation in 2007 and 2008 respectively, as well as investment in anticipation of Seveso III in 2012 and phase 3 of the Emissions Trading System (ETS) in 2013.

Costs for CLP and REACh will decrease after 2017 and 2018, respectively, the Commission noted; however, the cost of compliance with Biocides and PPPs will continue to grow. Altogether, the chemical industry will also face an increasing cost to comply with stricter emission limits as a result of more ambitious CO2 reduction targets and energy efficiency objectives.

While the study’s findings indicate that costs nearly doubled over the ten-year period, the EU executive said no firm conclusions can be drawn about the impact of regulation on global competitiveness. In a second phase, these costs will be compared with costs in other geographical regions to analyze competitiveness on a broader scale.

Marco Mensink, new director general of the European Chemical Industry Council, CEFIC, said Europe needs to focus on its competitiveness, of which the regulatory burden is a big factor.

CEFIC said it will continue to discuss with EU institutions how the legislative framework can be made more cost-effective and fit for purpose while maintaining high levels of safety, health and environmental protection.