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Principles and tools of chemical
regulation: a comment on ‘the
substitution principle in chemical
regulation: a constructive critique’
a
Adam D.K. Abelkop & John D. Graham
a
a
School of Public and Environmental Affairs, Indiana University,
Bloomington IN, USA
Published online: 15 Oct 2013.
To cite this article: Adam D.K. Abelkop & John D. Graham , Journal of Risk Research (2013):
Principles and tools of chemical regulation: a comment on ‘the substitution principle in chemical
regulation: a constructive critique’, Journal of Risk Research, DOI: 10.1080/13669877.2013.841742
To link to this article: http://dx.doi.org/10.1080/13669877.2013.841742
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Journal of Risk Research, 2013
http://dx.doi.org/10.1080/13669877.2013.841742
COMMENT
Principles and tools of chemical regulation: a comment on 'the
substitution principle in chemical regulation: a constructive
critique'
Adam D.K. Abelkop* and John D. Graham
School of Public and Environmental Affairs, Indiana University, Bloomington IN, USA
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(Received 4 August 2013; final version received 7 August 2013)
In this short comment, we make three points. First, replacing one chemical with
another should be seen as only one of a portfolio of tools to manage the risks of
existing chemicals. Substitution is preferable when it offers attractive benefits
(relative to costs and risks) compared to the next-best alternative measure.
Depending on the nature of the market failure and the cost-effectiveness of
alternative measures, chemical replacement may or may not be the preferred
remedy. Second, the principle of substitution, like its close cousin precaution, is
a guideline for consideration by decision-makers rather than a policy tool.
Confusion can arise when the principle of substitution is treated as if it is an
operational tool. Finally, the most difficult challenge in chemicals risk management is how to create proper incentives for continuous safety improvements
through a variety of risk management measures, including substitution.
Chemicals already on the market have a commercial advantage over chemical
innovations that may be safer, greener and otherwise preferable. We offer some
general comments about how the incentives faced by industry can be modified
to accelerate risk management, including advances in green chemistry.
Keywords: risk; chemicals; regulation; substitution; REACH
Globally, chemicals regulation is in a period of reform. In 2006, the EU’s
Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH)
regulation entered into force, and Canada launched its new Chemicals Management
Plan (CMP). Japan enacted an update of its Chemicals Substances Control Law in
2009 while China, in 2013, announced that it will update its national chemicals
regulations. The US Congress is currently holding hearings on reform of its Toxic
Substances Control Act, and several states (e.g. California) have enacted new
programes aimed at preventing risks from toxic chemical exposures.
A key issue that chemicals reform must address is proper application of the
substitution principle: when should regulators encourage the substitution of an
existing chemical, and how should regulators ensure that the substitute chemical is,
all things considered, superior? Professor Lofstedt’s case studies and analysis make
an important contribution by exposing the difficulty of this challenge.
In this short comment, we make three points. First, replacing one chemical with
another should be seen as only one of a portfolio of tools to manage the risks of
*Corresponding author. Email: abelkop@indiana.edu
© 2013 Taylor & Francis
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A.D.K. Abelkop and J.D. Graham
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existing chemicals. Substitution is preferable when it offers attractive benefits
(relative to costs and risks) compared to the next-best alternative measure.
Depending on the nature of the market failure and the cost-effectiveness of
alternative measures, chemical replacement may or may not be the preferred remedy.
Second, the principle of substitution, like its close cousin precaution, is a guideline
for consideration by decision-makers rather than a policy tool. Confusion can arise
when the principle of substitution is treated as if it is an operational tool. Finally, the
most difficult challenge in chemicals risk management is how to create proper incentives for continuous safety improvements through a variety of risk management
measures, including substitution. Chemicals already on the market have a commercial advantage over chemical innovations that may be safer, greener and otherwise
preferable. We offer some general comments about how the incentives faced by
industry can be modified to accelerate risk management, including advances in green
chemistry.
A portfolio of risk management strategies
For purposes of discussion, we assume that a regulator has identified a suite of
chemicals (or chemical uses) that are known to cause significant risk or can be reasonably anticipated to create risk, given the available science and a wise application
of precautionary reasoning. Typically, those chemicals are highly toxic, carcinogens,
mutagens, reproductive toxins, or chemicals that are persistent, bioaccumulative, and
exhibit toxicity in standard tests (i.e. PBTs). The potential risks of concern, while
not typically demonstrable with 100% certainty, may be incurred by workers,
consumers, the general public, and/or by ecosystems.
If risks to workers are the primary concern, the suite of risk management
measures includes provision of risk information to workers (which can induce
employers to pay wage premiums or curtail risk to workers), adoption of standard
industrial hygiene practices (safe handling, use of personal equipment, medical
monitoring, and so forth), and institution of engineering controls at the plant (such
as process changes that curtail emissions or advanced ventilation to curtail
concentrated exposures). In some cases, replacing one chemical with another may
be the optimal remedy for worker protection, but that is not typically the case.
If the concern is that a final consumer of a product will be exposed to a risky
chemical, the suite of risk management measures is somewhat different. The informational strategy is to ensure that an appropriate warning (or some indication of
risk) moves down the supply chain so that the final consumer – or even a retailer
with the consumer’s interest in mind – can make an informed decision about what
should be done. Unless the potential risk is disclosed throughout the supply chain,
the phenomenon of asymmetric information can cause the final consumer to face
higher prices and/or lower safety than he or she would otherwise experience. Once
retailers are alerted to the potential risk, they can negotiate with chemical manufacturers for replacement with a safer chemical, safer formulations, packaging with less
risk of migration or simply diminished prices in exchange for the risk.
When actors in the supply chain emit chemicals into the environment, harm can
occur to the general public and/or ecosystems. Fortunately, laws governing air
quality, water quality, safe transport, and waste management generally govern such
emissions. However, media-specific controls do not necessarily eliminate risks, and
Journal of Risk Research
3
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there may be cases where it is worthwhile to consider further risk management
measures, including replacement of one chemical with another. REACH, for
example, is encouraging more focus on alternatives to chemicals that persist and
bioaccumulate in the environment.
Policy principles vs. tools
Our experience in chemicals policy is that there is confusion about policy principles
and policy tools. Precaution and substitution are principles that offer some insight
for regulators (just as cost-benefit and risk-risk comparison can offer insight); but
they are not operational policy tools that regulators can deploy.1
Policy tools – sometimes called instruments – are the operational devices that
regulators use to achieve a protection goal. They vary from programe to programe
but include taxes, subsidies, marketable allowances, quotas, technology and performance standards, deposit-refund programes, registration and licensing schemes, data
submission requirements, listing, labeling, insurance mandates, prohibitions, and the
assignment of property and liability rights.2 The choice of the right mix of policy
tools is one of the most challenging aspects of chemicals policy reform.
Europe and the USA differ in the mix of policy tools that are deployed. The
USA relies more than Europe on the common law liability system to deter poor risk
management of chemicals. Chemical producers, processors, and retailers in the US
face potential liability under common law for selling a chemical or product that that
leads to releases, exposures, and harms. Those firms may be found liable for
damages that result from their corporate decisions, including possible punitive
damages in cases of egregious corporate behavior. European firms face much more
limited liability, which may help explain why Europe has a more expansive and
strict regulatory system for industrial chemicals.
In our recent study of REACH, we found that the programe contains a variety of
tools to facilitate or encourage substitution of worrisome chemicals.3 A registration
process is employed to encourage replacement of worrisome chemicals, since a
registrant may determine that it is not worthwhile to invest the resources to defend a
suspect chemical in a registration process. REACH charges industry substantial
registration fees, including higher fees for chemicals that will require more in-depth
review by government. REACH also imposes minimum data requirements for existing chemicals. If producers lack such data, they may find it more cost-effective to
register a substitute chemical that already has a complete data set and good safety
characteristics. Thus, the REACH registration system creates financial incentives for
firms to replace hazardous chemicals with safer chemicals that can be registered at
low cost. One of the weaknesses we found in REACH’s registration system, though,
is a degree of complexity and burden that was not necessary to achieve the law’s
precautionary and protective goals.4
REACH also establishes categories and/or lists of chemicals – such as
‘substances of very high concern’ (SVHC) – that serve as a tool of stigmatization
that may stimulate market actors to replace a SVHC with another chemical. Wholesalers or retailers, for example, may inform chemical producers that they do not
want to market any products that contain chemicals that are categorized as a SVHC.
Once a substance is categorized as a SVHC, REACH also compels a phase out of
the chemical unless the industry can make a compelling safety or socio-economic
case for continuation of specific uses. Even if some uses of a SVHC are permitted
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A.D.K. Abelkop and J.D. Graham
for a period of time, the industry is required under REACH to undertake R&D to
find a suitable, safer chemical. Unfortunately, the SVHC list is a rather blunt instrument because it stigmatizes all uses of the listed chemical, not simply those that are
linked to potential releases, exposures, and risks.5
Professor Lofstedt’s work is commendable because it uncovers inefficiencies in
the way that the substitution principle is influencing policy-makers to reform chemicals policy. A branch of welfare economics prescribes a specific set of policy tools
depending on the nature of market failure. This branch of theory has not had a large
effect on regulatory policy, though, because in many instances the theories are too
simplistic to reflect the complexities of the market, and the informational requirements necessary to tailor the policy responses to particular sets of market failures
may be prohibitively high. Nonetheless, insights from welfare economics are useful
in the present case to explain and support Professor Lofstedt’s findings and
recommendations.
Market failures in the context of chemicals regulation may include (but are not
limited to) harm to humans and the environment from a chemical, which is an externality if it is not reflected in the prices of chemicals; lack of hazard information; lack
of exposure information; lack of information on a chemical’s socioeconomic
benefits; and many types of information asymmetries between various manufacturers, manufacturers and downstream users, industry and the government, industry
and consumers, the government and consumers, and even between different governments. Each of these failures may require a different policy tool, or even the same
tool applied at different points in the market.
Prohibiting a SVHC does not necessarily eradicate an externality or even
accomplish what the substitution principle recommends: replacement of the SVHC
with a safer chemical that has at least equivalent utility and cost. Unless the replacement chemical is less toxic or reduces the opportunity for releases and exposure, it
simply replaces one externality with another.
If the market failure is an information gap due to lack of toxicity data, replacing
one chemical with another addresses the failure only if there is better toxicity
information about the substitute than the original. Replacement itself does not
actually generate any new information.
Risk-risk analysis can, however, generate new information by comparing the
risks of one chemical (or chemical use) to another chemical (in the same use). In
order for analysts to perform a robust risk-risk analysis, information about both
chemicals must be made available to them.
Applying the substitution principle without the appropriate risk-risk analysis may
result in the premature replacement of existing chemicals with those that may be just
as hazardous or may be less toxic but carry a greater potential for release and
exposure.6 Or, as Professor Lofstedt finds in the case of phasing out lead solders in
electronics, the substitutes may not serve the same economic utility as the original
chemical, thereby generating other types of risks to human health and the
environment (e.g. closure of a nuclear power station in the UK and higher energy
consumption in the soldering process).
A special complexity arises in chemicals governance when there are multiple
market failures all at once: simultaneous gaps in information, information asymmetries at different levels, and suspected externalities in the form of uncompensated
damages to human health and the environment. Professor Lofstedt’s recommendations address how policy–makers should make use of the substitution principle to
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Journal of Risk Research
5
better address these multiple market failures. His second and third recommendations
encourage greater use of risk–risk comparisons of existing chemicals and potential
alternatives. Such analyses require phases of information gathering and evaluation
prior to the application of risk management.
As the potential for release, exposure and toxicity is addressed in a risk–risk
comparison, it is natural for the analyst to focus on specific uses rather than the
substance in general. When the potential for release and exposure is the same for the
existing chemical and the substitute, then the risk-risk comparison is simplified: it
boils down to a comparative toxicity assessment. Whether regulators choose to
target uses or substances, any effort to facilitate substitution without consideration of
the risks of potential replacements is likely to lead to inefficiencies.
On the other hand, risk–risk comparisons, while relevant and informative, can be
time consuming and expensive. A key question, then, is who should conduct the
risk–risk comparison and pay for the analysis.
It is difficult for us to envision a viable marketplace approach. For example, in
the REACH authorization process, once an applicant is granted a temporary authorization for a particular use of its SVHC, which it must ultimately phase out, the
applicant will not necessarily have access to information on all possible replacements. If such information exists, it might be held by commercial competitors who
would be reluctant to share it. Without access to such information, the applicant
would have to initiate a research and development programe on its own. Risk–risk
comparisons may be a part of the R&D process – but not necessarily: the applicant
may simply switch to a different chemical, not yet classified as a SVHC, but which
might nonetheless carry the potential for harm based on exposure, hazard, or other
types of risks (e.g. from inferior utility). It remains to be seen whether the authorization process under REACH will stimulate thoughtful risk–risk comparisons.
A tiered risk assessment approach like that of the CMP may be a feasible middle
ground. Because conducting full risk assessments on all chemicals in commerce is
not feasible in light of limited organizational resources, Environment and Health
Canada under the CMP have conducted tiered screening assessments (which incorporate exposure and hazard information) of chemicals that present the greatest risks.7
To complete the screening assessments, the government requires industry to submit
the available data. As in Europe, this approach allows the Canadian government to
overcome information asymmetries between the government and industry. Additionally, government-generated assessments overcome information asymmetries between
chemical manufacturers. Even as the burden of proving safety is shifted to industry,
governmental risk–risk comparisons in Canada may be necessary to ensure that the
substitution principle is applied in a wise manner.
Continuous incentives for greater safety
Perhaps the hardest question in chemicals policy reform, one that Professor Lofstedt
does not take on adequately, is how to put in place incentives for industry to seek
continuous improvements in safety, including advances in green chemistry. One of
the weaknesses in most current environmental regulatory regimes is that, once industry compliance is established, the industry has little or no incentive to make further
investments in safety innovation (above and beyond what is motivated by common
law liability concerns). This weakness is particularly acute in Europe, where the
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A.D.K. Abelkop and J.D. Graham
threat of damages under common law faced by industry is far smaller than it is in
the USA.
How to address this concern is not entirely clear, but we believe that part of the
answer can be found in two basic strategies. First, the process of proving safety (or
acceptable risk) in chemicals policy should continue to shift from government to
industry. As this shift occurs, industry will always have at least some incentive to
find chemical innovations that are easier to defend in terms of safety. REACH
moves in this direction to some extent but arguably in an overly burdensome way.
Canada’s CMP does shift some burden to industry but maybe not with sufficient
vigor. Second, if existing chemicals (or preferably uses of chemicals) are divided
simply into two categories, those of higher concern with respect to safety and those
of lower concern with respect to safety, an annual fee should be charged on the sale
of chemicals of higher concern. Green chemistry then becomes an industrial strategy
to avoid those fees while the government can use the fees it collects to pay for the
administration of regulatory programes as well as basic research to advance the tools
of green chemistry.
Notes
1. John D. Graham & Jonathan B. Wiener, Risk vs. Risk: Tradeoffs in Protecting Health
and the Environment (1997) (explaining the concept of risk-risk comparison).
2. Kenneth R. Richards, Framing Environmental Policy Instrument Choice, 10 Duke Envtl.
L. & Pol’y F. 221, 222 (2000); Office of Technology Assessment, Environmental Policy
Tools: A User’s Guide, OTA-ENV-634 1–3 (Sept. 1995), available at http://www.princeton.edu/~ota/disk1/1995/9517/9517.PDF.
3. Adam Abelkop, Ágnes Botos, Lois R. Wise & John D. Graham, Regulating Industrial
Chemicals: Lessons for US Lawmakers from the European Union’s REACH Program, 42
Environmental Law Reporter 11042 (2012).
4. Id. at 11062–65.
5. Id. at 11058–61.
6. Graham & Wiener, supra note 1, (highlighting the potential for risk-risk tradeoffs in a
variety of contexts).
7. Government of Canada, Risk Assessment Strategies and Emerging Issues for CMP2,
Industry Coordinating Group CEPA Update Conference, 6 June 2013.