The True Costs of REACH

image of The True Costs of REACH

The proposed new chemicals policy of the European Community, REACH, is an important new development in environmental protection. Rather than waiting for government or independent researchers to determine that chemicals are hazardous, it will make manufacturers, importers, and professional users of chemicals responsible for the safe use. There is little doubt that REACH will give health and environmental benefits, but there has been little agreement about the resulting costs: -Will European manufacturers be crushed by the economic burden of chemicals regulation, as some industry sources have suggested? -Or, as projected in some public sector studies, will there be a minor cost impact, well within the ability of industry and worth the price? This report offers a new look at these costs. Frank Ackerman and Rachel Massey compare the current EC legislation on chemicals, the European Commission’s proposal and an alternative proposal addressing previous versions of REACH. The authors make a bottom-up calculation of the expected registration and testing costs under REACH and provide a new analysis of the indirect economic impacts. Ultimately they evaluate some prominent arguments about the costs of REACH and discuss the expected benefits. In the appendices there is the derivation of their economic impacts analysis and a critique of the best-known industry-oriented study.



Formal Analysis of Single-Market Model

This model, as discussed in Section 4 of the text, assumes that the chemical industry represents a single market; we analyze the response of that market to a cost increase that shifts the supply curve upward, following standard microeconomic theory. As shown in Figure 4.1 in the text, the equilibrium price and quantity before the cost increase are P0 and Q0 respectively, while the new equilibrium price and quantity after the increase are P1 and Q1. The industry’s total sales revenue is P0Q0 before the increase, and P1Q1 after the cost increase is in effect.


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