New Commission study shows high regulatory costs for EU chemical industry

19 July 2016

A new Commission study shows that the cost of implementing major regulations for the European chemical industry doubled between 2004 and 2014. Europe’s regulatory framework for chemicals, along with industry’s own efforts, plays an essential role in ensuring the protection of human health and the environment. In response, European chemical industry group Cefic called for a greater focus on competitiveness.

However, Europe’s complex regulatory framework also poses a significant burden on EU chemical companies, amounting to about €10 billion per year over the period studied.

The newly-launched Cumulative Cost Assessment (CCA) shows that the total cost as a result of EU legislation borne by chemical companies from six sub-sectors between 2004 – 2014, amounts to 12% of the value added of the EU chemical industry, with variations between subsectors ranging from nearly 3% for plastics to 23% for crop protection products. Compared to Gross Operating Surplus, the additional cost reaches 30% – indicating that the cost of regulation is a significant factor shaping the profitability of the chemical industry.

“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 Marco Mensink, Director General of Cefic.

Among the legislation packages, the three main drivers of regulatory cost are regulations on industrial emissions, generating 33% of the cost, chemicals, with 29% and worker safety, with 24%. Energy legislation also contributes 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.

It should be kept in mind, however, that identified costs are by far not the total cost of regulation. They are only the part that is particularly European legislation. All other horizontal legislation that also impacts the chemical industry is not included. Moreover, the regulatory costs in energy prices are not accounted for in quantitative terms, and pending future regulation is not yet considered.

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. 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.

Cefic said it would continue to explore with the EU institutions how the regulatory framework can be made more cost-effective and fit for purpose while upholding the same high level of safety, health and environmental protection.