EU chems regulatory costs at €9.5bn/year, firms welcome clarity

LONDON (ICIS)–EU chemical regulation costs firms across the 28-country bloc €9.5bn/year, according to the long-awaited cumulative cost assessment (CCA) published by the European Commission which was welcomed on Thursday by the EU chemical trade group Cefic.

The CCA by the Commission – the EU’s executive body – spanned the period 2004-2014 in which key EU chemical regulation Reach was implemented.

“When all legislation relevant to chemical companies is cumulated, the estimated average annual total direct cost borne by the subsectors covered by the study during the period 2004-2014 approaches €9.5 billion, representing around 2% of their turnover and 12% of the value added,” said the Commission’s report.  

“Gross operating surplus (GOS), which can be used as a proxy for profit, the cost represents as much as 30% of this value, indicating that legislation cost is among the important factors shaping the profitability of the EU chemical industry.”

The CCA belongs to the Better Regulation programme started up by the Commission in order to rationalise regulation and ease its cost, especially for small- and medium-size companies for whom high regulatory costs mean squeezing profit margins.

Cefic’s director general Marco Mensink – who had said on 29 April the CCA showed how the Commission, presided by Jean Claude Juncker, was more conscious of the chemical’s industry burdens compared to competitors in other jurisdictions – welcomed the survey’s findings.

”This report, which is part of the Better Regulation process of the Commission, shows facts not opinions. The picture is very clear. Europe needs to focus on its competitiveness, of which the regulatory burden is a big factor,” said Mensink on Thursday.

The chemical regulatory package came second in a list of costly legislation initiatives implemented by the EU. While the most costly package is that regarding industrial emissions, which generates 33% of the regulatory cost for the chemical industry (4% of the subsectors’ valued added), the Reach package was not far behind with 29% of regulatory cost (and 3.5% of value added).

In third place, the Commission identified regulations regarding workers’ safety representing a 24% of regulatory cost, or 2.9% of the chemical industry’s value added. In fourth place, energy regulations total costs for the chemical industry stood at around 9%, or 1.1% of value added.

“Energy legislation also contributed to the cost, especially after 2012. The chemical industry will face an increasing cost to comply with stricter emission limit values, with more ambitious CO2 emission reduction targets and energy efficiency objectives,” warned Cefic.

Evolution of regulatory costs for EU chemical industry
Period 2004-2014

Source: European Commission’s CCA 

The Commission spent months gathering information from chemical trade groups and the conclusion it reached is not far from estimates sources in the EU chemical industry had made at €10bn.

The Spanish chemical trade group FEIQUE said in April the regulation cost for the companies it represents stood at between €1.5bn and €1.8bn per annum.

The EU chemical industry is heavily concentrated in a few countries, the report added, with about 76% of EU chemicals located in seven countries: Italy (16%), Spain (12%), Germany (11%), France (10%), the UK (9%), Poland (7%) and the Czech Republic (6%).

Moreover, seven countries account for 85% of the €500bn turnover in the chemical industry: Germany (30%), France (14%), the Netherlands (10%), Italy (10%), Spain (7%), the UK (7%), and Belgium (7%).

“A similar pattern of concentration is visible by subsector, with 73% (2012) of EU chemicals turnover generated by six subsectors: organic basic chemicals, plastics in primary forms, paints and coatings, inorganic basic chemicals, perfumes and toilet preparations, and soaps and detergents,” said the report.

“The subsectors included in this cost assessment represent 79% of the turnover of the EU chemical industry, 73% of its value added and 70% of its employment.”

Cefic calculates the EU chemical industry creates 1.2m direct jobs.

“Although the report indicates that costs almost doubled between 2004 and 2014, no firm conclusions about its impact on global competitiveness can yet be drawn,” said the EU chemical trade group.

“In a second phase, the study will now compare these costs to other regions, shining a light on the impact of regulation on competitiveness on a broader scale.”

Cumulative cost per subsector and its
composition by legislation package
Annual share of value added 2004–2014

Source: European Commission

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