Uncertainties and the precautionary principle in cost–benefit environmental policies

Journal of Policy Modeling 30 (2008) 1–17

Available online at www.sciencedirect.com

Uncertainties and the precautionary principle incost–benefit environmental policies

Michael Getzner ∗Department of Economics, University of Klagenfurt, Universitaetsstrasse 65-67, A-9020 Klagenfurt, Austria

Received 1 January 2007; received in revised form 27 April 2007; accepted 1 September 2007Available online 21 September 2007

Abstract

The new European Union-wide regulation of chemicals, the REACH system, assesses, evaluates andauthorizes potentially hazardous chemicals and therefore provides crucial information about chemicals todecision-makers, producers and consumers. While some chemical regulations have already been standard-ized at European level (such as the labelling of chemicals), procedures for assessing the characteristics ofchemical substances, for instance, are regulated by national law. The REACH system builds up a standardizedframework for assessing and authorizing chemicals and shifts the burden-of-proof from government author-ities to producers and importers of chemicals who now have to verify the safety of chemicals. Implementingthe REACH regulations in Europe may lead to substantial assessment and adaptation costs particularly in thechemical industries. However, the benefits of REACH, such as improvements in the work place, public healthand safety, environmental health, and innovation effects, may significantly outweigh the costs. The currentstudy presents the results of a cost–benefit analysis (CBA) of this environmental policy program taking theAustrian economy as a case study. Particular emphasis is laid on discussing the fundamental uncertaintiesand lack of knowledge (ignorance) for quantifying and monetizing (valuing) costs and benefits. It turns outthat even in the case of such fundamental uncertainties, CBA results – complemented with the qualificationof results and sensitivity analyses also in the sense of a ‘post-normal science’ – suggest that the REACHsystem leads to net benefits for the Austrian economy, and that policy-makers are advised to decide on abroader approach including key principles of environmental policy such as the precautionary principle towhich European Union policy-makers have committed themselves.© 2007 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.

JEL classification: H55; D7

Keywords: Cost–benefit analysis; Uncertainties; Chemical policy; REACH; Human health; Precautionary principle

∗ Tel.: +43 463 2700 4124; fax: +43 463 2700 4191.E-mail address: [email protected].

0161-8938/$ – see front matter © 2007 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.doi:10.1016/j.jpolmod.2007.09.003

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dx.doi.org/10.1016/j.jpolmod.2007.09.003

2 M. Getzner / Journal of Policy Modeling 30 (2008) 1–17

1. Introduction

A major environmental policy effort at European Union (EU) level has been the implemen-tation of new regulations on the registration, evaluation, assessment and restriction of chemicals(REACH). The REACH regulation provides a joint coherent and comprehensive framework forchemical policies in the member states of the EU (European Parliament and EU Council, 2006a,2006b, based on earlier EU regulations). With the REACH regulation, the European Union is pur-suing its strategy for a future chemicals policy (Commission of the European Communities, 2001),taking account of the precautionary principle in policy-making adopted in 2000 (Commission ofthe European Communities, 2000)—following international initiatives such as the Rio Declaration(1992).1

In the EU, about 100,000 substances (chemicals) are currently registered and on the EU market;additionally, a large number of preparations based on registered substances are used. The EUchemical industry is the world’s largest with a share of 31% of world production and salesof about EUR 385 billion per year (1998). Direct employment adds up to about 1.7 millionjobs with about 3 million jobs in indirect employment (full-time equivalents). The chemicalindustry is thus the third largest manufacturing industry in the European Union (Commission ofthe European Communities, 2001). While providing many benefits to producers and consumers,chemical substances have also been recognized for their potentially significant impact on humanand environmental health, for instance, allergies, work place safety, and cancer.

Until December 2006, Austria, like all member states of the European Union, had its ownchemical safety laws and its legal regulation on chemicals (Chemical Safety Act, Chemikalienge-setz, 1997/2006) and other legal frameworks referred to a number of international standards (e.g.,the European Inventory of Existing Commercial Substances, EINECS). However, these laws willneed to be changed significantly due to the new regulation of chemicals within the REACH system.For Austria, a number of new aspects of chemical policy will be adopted based on REACH. Forinstance, REACH provides for the registration of chemicals instead of merely notifying authoritiesabout newly developed substances, as well as for the authorization and restriction of chemicals.The REACH system will therefore deliver new information on potentially harmful substancesto stakeholders (such as producers, consumers, employees, and policy-makers) on the basis of astandardized assessment methodology. The consequences might well be restrictions in the use ofsome chemicals or the banning of harmful substances.

One of the most important innovations of the REACH system is the revision of the burden ofproof. Up to now, the authorities had to collect scientific information on chemicals and to argue forthe restriction of chemicals should they prove to be harmful. With the new system, producers orimporters of chemicals have to prove the safety of chemicals. The procedures for this assessmentare EU-wide standardized assessment procedures (e.g., Chemical Safety Assessment, ExpositionClasses, Chemical Safety Report) that can be directly compared between countries. Furthermore,the REACH system provides joint frameworks for harmful substances such as carcinogenic,mutagenic or toxic to reproduction (CMRs), persistent, bio-accumulative and toxic (PBTs), verypersistent and very bio-accumulative (vPvBs) and endocrine substances (harmful to the hormonebalance). These huge amounts of new data will be processed and stored by the newly founded

1 “In order to protect the environment, the precautionary approach shall be widely applied by States according to theircapabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used asa reason for postponing cost-effective measures to prevent environmental degradation” (Rio Declaration, 1992, Principle15).

M. Getzner / Journal of Policy Modeling 30 (2008) 1–17 3

European Chemicals Agency. Within a certain time span (by 2017) all substances, not only newlydeveloped chemicals, have to undergo the assessment and authorization procedures.2 The REACHsystem will enter into force on 1 June 2007.

The REACH regulation has been hotly debated in terms of the costs and benefits due to changesin the regulatory frameworks. In particular, the costs to be borne by the chemical industries, suchas assessment and implementation costs, have been significant arguments in the debate. Alongsidethe costs of assessment and implementation, the indirect costs of market distortions, such as delaysin product development and market introduction, have not been well studied so far.

However, the efficiency of regulations cannot only be discussed by exploring the costs of anew regulation, particularly if they are restricted to one particular industry, but has to take theeconomic benefits into account. In terms of REACH, benefits accrue in the fields of the workplace and public health – e.g., reduced work place risks, decreased propensity to allergies – andin the environmental impacts of chemicals, such as less damage to ecosystems.

The knowledge base on which such a cost–benefit analysis of chemical policy can rest is wide,ranging from industry studies to epidemiology and an economic valuation of human health andnon-market environmental goods. While uncertainties and lack of information in other fields ofenvironmental policy might be important to consider, such informational problems are prevalentin chemical policies.

Exploring the costs and benefits of REACH has been done in a broad variety of studies, bothat individual country level as well as with a larger European view. Comparability of studiesis not always given as they differ in focus, database and methodology, and the results mirrorthese differences as well. As one of the few national governments in Europe, the Austrian FederalMinistries for Environment and for Economy and Labor – together with interest groups such as theTrade Union Federation and the Chamber of Commerce – commissioned a country-specific studyto explore the costs and benefits of the REACH regulation for Austria. The results of this studyare reported in the current paper, with the aim of presenting a quick sketch, and with an emphasison discussing the problems associated with uncertainties. Fundamentally, many uncertaintiescannot be resolved; either because there is lack of information on scientific (medical) connectionsbetween chemicals and human health, or because probabilities for certain events, such as reducingcancer, cannot be derived. Based on the discussion of CBA results and the uncertainties involved,the paper explores whether the decision to implement the REACH system is scientifically justifiedand whether common policy standards in the EU such as the precautionary principle have beenfollowed.3

While this paper deals with uncertainties and policy-makers’ answers to these, the decisionprocess that finally led to the implementation of the REACH system has, of course, many furtherpolitical aspects. One line of argument in the debate covers the general approach of REACH. Forinstance, Hey, Jacob, and Volkery (2007) argue that REACH lies somewhere between a system of“outdated” command-and-control and one bearing some new governance elements of participationand consensus combined with the voluntary actions of stakeholders. Another argument often heardin the debate on REACH is the public choice dimension, i.e., whether the economic interests of thechemical industries have influenced the REACH regulations to the detriment of environmentaland health interests. Jacob and Volkery (2005) discuss the policy decision process of REACHand conclude that the chemical industries not only managed to influence EU decision-makers by

2 Over the next few years, substances with an annual production of more than 10 tonnes will be tested.3 For a general overview of the precautionary principle in environmental policies cf. O’Riordan and Jordan (1995).


lobbying at EU headquarters, but that interest groups also influenced national governments andministries to come up with industry-friendly regulations. Closely connected with these questionsis the role of the decision-making institutions, such as that of the European Parliament (Tsebelis& Kalandrakis, 1999). These policy elements are certainly very interesting although not the focusof the current paper.

The paper is structured as follows: Section 2 presents a brief discussion of central issuesrelated to the costs and benefits of chemical regulations and of REACH in particular. Section 3then discusses the results of the Austrian cost–benefit analysis of REACH. Section 4 summarizesand discusses the results, and draws policy-relevant conclusions with special emphasis on theissue of fundamental uncertainties, and how to deal with them in concrete policy-making, e.g., bybasing policies on the precautionary principle. Special emphasis will also be laid on discussingwhether the current CBA may fit into a new paradigm of ‘post-normal science’ (Funtowicz &Ravetz, 1994).

2. The costs and benefits of REACH: a brief overview

During the last few years, many studies and papers have assessed the economic costs andbenefits of the REACH regulation and discussed its policy implications. Different methodologicalapproaches were chosen in order to explore the economic consequences of implementing theREACH system. Among others, these approaches include measures of efficiency, economic impactanalyses, and analyses of specific aspects such as the innovation incentives of REACH.

The variety of methods also mirrors the different viewpoints of stakeholder groups in the policy-making process. In general, policy-makers in central governments and bodies concentrated onefficiency aspects from the viewpoint of society as a whole, for instance, the Commission of theEuropean Communities (2003; see below for details) presents the costs and benefits at Europeanlevel. The study of Ostertag, Marscheider-Weidemann, Angerer, Ahrens, and Meyer (2004) –representing the German situation – was commissioned by the German Environmental ProtectionAgency, and the study on which this paper is founded – Getzner (2006) – was also contractedby several federal ministries of the Austrian government. Other levels of economic analysiswere commissioned by the chemical industries or lobby groups, for instance, ADL (2002). Earlynational applications considering the costs and benefits in chemical policies include Bonus andNiebaum (1991).

Ostertag et al. (2004) studied the costs and benefits of REACH in a large variety of contexts,dealing with health and environmental issues as well as with competitiveness and innovationincentives through the new system of REACH regulations. The authors first set up a number ofhypotheses regarding chemical safety, innovation incentives and adaptation processes, and thendescribe a selection of potentially important costs and benefits such as registration and evaluationcosts, as well as health and safety benefits.4 RPA (2003a) studies the costs of complying with theREACH system and concludes that the costs for European chemical industries might be as highas 26 billion EUR (present value), while RPA (2003b, ix) states that “there are clear benefits tosociety” without monetizing the benefits in order to facilitate a direct cost–benefit analysis (seealso RPA, 2003c). The impact assessment of the EU Commission (Commission of the EuropeanCommunities, 2003) also does not explicitly compare costs and benefits but presents some ordersof magnitude for potential net benefits.

4 Goel and Hsieh (2006) specifically point to the potentially positive effects of coordinating environmental and tech-nology policies in order to achieve a more efficient and effective innovations policy (see also Onishi, 2001).


The study of Ackerman and Massey (2004) shows that while the total costs of REACH (directand indirect) “are unlikely to harm European industry [. . .] several studies have suggested that thehealth and environmental benefits of REACH will be substantial” (Ackerman & Massey, 2004,p. 8). For Austria, Luptacik, Mahlberg, and Klemen (2005) have shown that the price effects (dueto higher assessment and administration costs) for the chemical industries might be very small.

A similar conclusion is made in the study of SRU (2003). While the costs are in an economicallyjustifiable range, the existing estimates of benefits suggest that they might be substantial andprobably much larger than overall costs (SRU, 2003, p. 25). This result is also corroborated byPearce and Koundouri (2003) regarding the social costs of chemicals. They argue that – based onexisting knowledge about chemicals and their impacts on the environment and human health –the probability of net benefits due to the REACH system is high.

This brief review of studies suggests once again that a chosen methodology might be politicallysignificant. A CBA concentrating on overall economic efficiency might be useful in decidingwhether a certain policy should be pursued. For instance, the policy process for drawing up acommon European chemicals policy already started in 1999 and the fundamentals of REACHsoon became quite clear. However, in 2005, a decision regarding the REACH framework wasadopted that lacked some important details. Environmental groups such as Greenpeace (2007) stillcriticize the REACH system for being too industry-friendly. Compromises regarding the concreteelements of the REACH system have been influenced by the potential distribution effects of thispolicy. Price effects or economic burdens on the chemical industries, fuelled by studies dealingwith the economic effects on branches, products, or single companies, certainly have had theirimpact on the decision-making process (cf. also Jacob & Volkery, 2005). For instance, potentiallyharmful substances have to be assessed only if their annual production volume exceeds 10 tonnesper year (instead of the original proposal of a limit of 1 tonne per year). Another example is thatstudies exploring the characteristics (e.g., toxicity) of a certain chemical can be held confidentialfor a rather long period (12 years), which might function as a barrier to market entry.

3. REACH: costs and benefits for Austria, and the significance of uncertainties

3.1. An overview of the potential costs and benefits of REACH in Austria

Exploring the costs and benefits of the new REACH regulation is based on the status quo ofexisting regulations (laws, directives, guidelines), not only in the field of using and producingchemicals, but also regarding work safety and important environmental regulations. The currentstudy therefore designed a status quo in order to attribute only those costs and benefits thatwould accrue to the implementation of REACH assuming that all respective regulations had beenimplemented effectively.

Table 1 presents an overview and brief description of the costs and benefits taken into accountin the cost–benefit analysis of REACH for Austria, while Fig. 1 shows the range of cost estimatesfor implementing the REACH system in Austria.5 Both for the public and the private sector, the

5 All costs and benefits are calculated on the basis of a 30-year period starting in 2007 (the year in which REACH willbe fully implemented) and a discount rate of 3.5%. Money values for costs and benefits are calculated in 2005 prices byaccounting for inflation and purchasing power. As this paper deals with the policy implications of uncertainties, and dueto space restrictions, this paper only summarizes the main results of the Austrian case study, stressing the uncertainties.The main data sources are Windsperger and Windsperger (2005), Schon, Plas, and Mosler (2005), Luptacik et al. (2005),and Getzner (2006). All data and calculations are available upon request.


Table 1Overview of the potential costs and benefits of the REACH regulatory system

Economic costs Description

Public sector implementationcosts

The public sector (authorities, institutions) and research institutes bear the costsfor developing, assessing, implementing and monitoring REACH policies

Implementation costs of theprivate sector (direct costs,assessment costs)

The private sector, in particular companies, bear the costs for implementing theREACH system, e.g., for registering and admitting newly developed chemicals

Implementation costs of theprivate sector (indirect costs)

Companies may bear costs in terms of competitive disadvantages and delayedmarket access for newly developed chemicals/products

Net costs of product and processchanges

Companies might have to substitute chemicals, change their products or processes;furthermore, work safety measures might have to be implemented; however suchcosts might also lead to benefits (e.g., synergies between environmentalmanagement, work safety and quality management)

Economic benefits Description

Health impacts thanks toincreased work place safetyand health

An improvement in work place health brings about reductions in the risk ofdiseases caused by emissions at the work place, as well as of cancer and other fataldiseases

Public health effects A reduction in the toxicity of chemicals in nutrition, clothing and other productshouseholds commonly come into contact with lowers the risk of diseases (e.g.,allergies, resilience in the case of diseases), particularly for children, elder personsand those already weakened

Ecological benefits throughreduced emissions

A reduction in emissions to the environment (water, air, soil, land fills) may lead toeconomic benefits due to improved environmental quality (e.g., increased utility ofprivate households, improved production conditions of companies)

Innovation and productivityeffects, impacts onqualification and information

Implementing the new REACH system may lead to synergies by linking the use ofnew technologies and processes, improvements in procedures and managementpractices, and the increase of innovation in companies. The improvement ininformation flows, vocational training and employee participation might lead tocompetitive advantages for which additional efforts would otherwise have to bemade

Reduction in waste treatmentcosts

The reduction in hazardous chemicals may lead to a decrease in treatment costs forsuch chemicals (e.g., reduced resource inputs for control technologies, land fills)

costs of implementing the REACH regulation can be estimated. Data for the public sector is basedon a survey of the main public stakeholders (such as the Federal Ministry for the Environmentand the Austrian Chamber of Commerce), while the private sector costs are much more difficultto calculate. Windsperger and Windsperger (2005) estimated these implementation costs (relatingmainly to the costs of assessing and authorizing chemicals) based on the production and exportstatistics of chemicals. They came up with a range of costs totaling 260–658 m EUR (dependingon the assumptions about the quantities of chemicals and the necessities to assess and authorizechemicals) with a most probable value of around 425 m EUR. These costs would be largely borneby the chemical industry over the next 10 years.

The so-called “indirect” costs of REACH are twofold. (1) The first kind of potential “indirectcosts” of the private sector is associated with the delay in introducing chemicals (or other products)to markets due to costly assessment and authorization procedures. The range of estimates for such“indirect costs” is wide. Ackerman and Massey (2004) argue that the welfare loss due to increasedprices is very small since price effects are treated as distribution effects in CBA (and thus are notaccounted for because efficiency measured by CBA is not changed). However, their maximum


Fig. 1. Costs of implementing the REACH system in Austria (2005 prices). *From the point of view of economic efficiency,indirect costs might only reflect distribution effects and might therefore not be included at all in a cost–benefit analysisexploring the efficiency of the new REACH regulation.

estimate of “indirect costs” for the chemical industry adds up to 2.3 times the direct costs ofREACH. As the latter figure also accounts for distribution effects, the costs relevant for CBA aresignificantly smaller. As shown in Fig. 1, “indirect costs” can amount from anywhere between 0and 12 m EUR and up to 1.5 bn EUR, with a high probability for a value near the lower boundary.This large range points to one of the major uncertainties on the cost side of this CBA.

(2) The (net) costs of implementing organizational and technical measures and policies to useand account for the new information produced by the REACH system, 6 e.g., measures for workplace safety and health, cannot be easily calculated since many measures of work place safetyare closely connected to environmental management and/or quality management systems. Suchmeasures are commonly associated not only with costs, but can also lead to significant benefitsfor companies, even resulting in competitive advantages due to process and/or product innova-tion (for environmental management systems and environmental innovations see, for instance,Getzner & Ritt, 2004; Petit, 1995; Pfeiffer & Rennings, 1999). Generally, many cost estimates inenvironmental policies are overstated since more stringent policies may also involve significantincentives for exploring innovations and cost-saving measures in companies.7

On the benefit side, the uncertainties are even more significant and fundamental. Fig. 2 presentsan overview of the potential benefits of the REACH system. The first variable comprises healthbenefits in the form of increased work safety and health leading to a reduction in skin and res-piratory diseases with a potentially wide range from around 0.05 to 1.1 m EUR. The underlyingvaluation of diseases is based (among others) on Burtraw and Krupnick (1999), RPA (2003a,

6 The REACH system does not prescribe certain organizational or technical measures in order to deal with hazardouschemicals but offers procedures in order to assess the (eco-) toxicology of chemicals with the aim of producing newinformation about chemicals that may lead to more cautious handling or, alternatively, a ban on certain substances.

7 This line of argumentation is the core of the so-called Porter Hypothesis (Porter, 1990; Porter & van der Linde, 1995;see also OMB, 2005).


Fig. 2. Benefits of implementing the REACH system in Austria (2005 prices).

2003b, 2003c) and Viscusi and Aldy (2003). These studies base their calculations on 120 EURfor a skin disease without the necessity of seeing a doctor, 1300 EUR for skin diseases with seriousillness and work days lost, and up to 9000 EUR for respiratory diseases involving hospitalization(see Getzner, 2006, for more details on data and assumptions).The reduction in cancer and risk-of-death (the latter measured by the VSL: Value of Statistical Life) is the most important quantifiablebenefit of the REACH regulation. Valuing cancer at 0.54 m EUR, and the VSL at 3.72 m EUR,results in discounted benefits ranging from 567 m EUR to 4.4 bn EUR. The values for a case ofcancer and the VSL are taken from ExternE (1999). It is basically assumed that by the end ofthe planning period, on average, 44 statistical cases of death due to chemicals can be avoidedin Austria by implementing the REACH system (see Schon et al., 2005, based on RPA, 2003b).While it is widely known that chemicals can produce health problems, an overview study thatcan be readily utilized to value the health benefits of stricter chemical regulations is currently notavailable for Austria nor for Europe. The problem is even more severe when assessing the healthbenefits of REACH for public health issues. Work place safety and health cases are recordedby the Austrian Social Insurance for Occupational Risks (AUVA) which links work place risksto accidents and occupationally caused diseases. For public health issues like allergies, manymore scientific studies have to be commissioned before the link between environmental policies,e.g., chemical policies, and (positive) public health benefits is proven in a quantitative way within-depth coverage of all aspects leading to results sufficient for utilization in CBA.8

For valuing human health as well as (statistical) casualties, the reliable studies currently exhibita range of at least 1–10. However, the Value of Statistical Life (VSL) does not only depend onincome, job opportunities, and the perception of risks, but also on other individual characteristicssuch as age, gender, number of children. Furthermore, the existing valuation studies are usually

8 A similar problem can be found when science addresses the carbon cycle and where scientific knowledge is often notusable for policy making due to different objectives and production frameworks (Dilling, 2006).


based on behavior on the labor market, valuing health risks with the risk premium of high-riskjobs. Therefore, the values of individuals who are not part of the labor market, e.g., children, arenot accounted for, even if they may be substantial.

An additional major uncertainty of the CBA in the context of REACH is that the environmentalimpacts of chemicals are not investigated in a coherent method linking chemicals policies toimpacts in a straightforward way. In particular, chemicals may exhibit significant impacts withinthe following environmental dimensions:

• accumulation and synergy effects in the ecosphere;• persistent emissions and impacts on species and ecosystems;• negative impacts on reproduction;• soil contamination and chemicals in ground water and surface water.

In the context of REACH, few studies have examined the links between chemicals and envi-ronmental impacts. While Ostertag et al. (2004) and the EU (2003) only provide descriptiveinformation, RPA (2003a, 2003b, 2003c) only quantifies Europe-wide damage costs associatedwith the restoration of ground water quality, taking only a few different chemicals and designingcase studies in order to show the potential environmental benefits associated with the imple-mentation of REACH. Jarvinen and Salonen (2004) present the costs of treating and restoringcontaminated soil by means of actual transactions, while Bahr and Janson (2004) concentrate on(hypothetical) treatment costs in the case of PCB (polychlorinated biphenyls, highly toxic andendocrine-disrupting substances). All studies so far point to the existence of substantial environ-mental benefits to regulating chemicals but are not sufficiently detailed for inclusion in a CBA ofthe REACH system in Austria.

One further important variable is the reduction in waste treatment costs which is based on theassumption that a reduction in the use of hazardous chemicals may lead to a reduction in treatmentcosts for municipalities and industries alike (STAT, 2005). If the REACH system manages toreduce the use of hazardous chemicals or encourage the use of chemicals in closed-cycle systems,treatment efforts might be decreased substantially. On the other hand, if the REACH systemleads to new information about existing and newly developed chemicals, some may turn out tobe hazardous (e.g., carcinogenic). Such chemicals might therefore be classified as hazardous,necessitating special treatment with high costs. Currently, practically no information is availableon the potential impact of the REACH system on the necessity for treatment.

3.2. Results and the treatment of uncertainties: CBA as an element in a ‘post-normalscience’ approach

Based on a calculation of quantified and monetized costs and benefits, the REACH ventureturns out to be highly efficient for the Austrian economy. Taking the mean values (or thosewith the highest probability) of known costs and benefits, the present value of implementing theREACH system in Austria amounts to 1.4 bn EUR, and a (real) internal interest rate of over 20%.However, these figures only reflect the information on effects that can be quantified and monetized.A significant portion of potential costs and benefits were not included in the calculations. In orderto be able to draw policy-relevant conclusions, the following procedure was adopted (see Fig. 3):

• The CBA results were taken as the starting point for discussing the range of potential costs andbenefits, and for sensitivity analyses varying the costs and benefits over a wide range.


Fig. 3. Accounting for uncertainties in assessing the new EU chemical policy (REACH).

• The results of the different ranges were then taken along with the sensitivity analyses to discussthe implications of these variations on economic efficiency, against the background of theprobability of each variation and including additional information.

• The results then led to a concluding statement of the probability that the REACH system mightor might not exhibit a positive contribution to economic efficiency in Austria. This statementwas finally corroborated by the conclusions of other studies on REACH.

• Policy conclusions and prescriptions are then twofold: first, a general conclusion is drawn asto the efficiency of the REACH system for Austria, i.e., whether or not a REACH-type systemshould be implemented. Second, based on the analysis of existing uncertainties by means ofscenarios and sensitivity analyses, policy strategies are derived leading to the prescription ofprecautionary policies, especially when it comes to chemical safety.

Fig. 4 shows the range of costs and benefits taking into account the money values for effectsthat could be quantified and monetized. The figure suggests that the probability of the REACHsystem leading to overall net benefits for the Austrian economy is larger than the probability ofthe costs being higher than the benefits. The most probable values of quantifiable (discounted)total costs are 0.5 bn EUR, with (discounted) total benefits of 1.9 bn EUR.

Taking these values as a starting point, numerous sensitivity analyses tested their robustness.It turned out that the Value of Statistical Life (VSL) was one of the main determinants of netbenefits. Fig. 5 presents the sensitivity analysis of varying VSL, starting with the lower limit inRPA (2003a, 2003b, 2003c) of about 1.5 m EUR up to the US EPA’s estimate of about 6.7 m EUR.This wide range shows that even for large variations in the VSL, the result that the implementationof REACH in Austria leads to net benefits is robust. Other scenarios revealed that, for instance,variations in the assessment and authorization costs of chemicals (or other important costs andbenefits) do not alter the results significantly, and that only improbably high costs would changethe picture.


Fig. 4. Total costs and benefits of implementing the REACH system in Austria (2005 prices). *Values of costs and benefitsexpected to be the most probable ones. **The upper limit of quantifiable costs includes unrealistically high assumptionsabout “indirect costs”.

If we consider the large number of uncertainties in the current study, it is questionable whetherwe can derive defendable results from the CBA. Taking into account the sensitivity analysesand the qualification of “switching values” of crucial determinants (such as the VSL), we cannevertheless argue on rather firm grounds that the implementation of REACH might lead to an

Fig. 5. Sensitivity of the present value of net benefits to changes in the Value of Statistical Life (VSL) (2005 prices). *SeeGetzner (2006) for details.


increase in economic efficiency, particularly because the CBA had to leave out the environmentalbenefits of REACH for which no adequate data is readily available.

These results and the methodological approach to account for uncertainties and ignorance inthe current CBA, however, also question the relevance of conducting a CBA for chemical policiesat all. CBA is considered by some authors (recently Aslaksen & Myhr, 2007) as belonging tothe realm of ‘normal science’ in the sense of Kuhn’s (1962) paradigm. ‘Normal science’ is anapproach to scientific problems that is optimistic in the sense that uncertainties can be dealt withby more rigorous studies, and that probabilities for future events can be calculated. The com-mensurability of effects (ecological, economic, social) and the measurement with a common unitmakes CBA an important decision-support instrument of ‘normal science’. Funtowicz and Ravetz(1994) as well as other authors (e.g., Aslaksen & Myhr, 2007; Giampetro, Mayumi, & Munda,2006) have discussed the notion of ‘post-normal science’ that basically accepts that uncertaintiesand ignorance are prevalent and cannot be solved by a purely ‘scientific’ approach, particu-larly when it comes to environmental problems. Uncertainty not only is significant in ecologicalsystems and dynamics but also regarding values and ethics of all stakeholders. ‘Post-normalscience’ therefore promotes procedural rationality, involving stakeholders and a precautionaryapproach to policy-making, instead of the outcome-oriented rationality of which CBA is a goodexample.

May CBA also play a role in ‘post-normal science’? While in the ‘normal science’ approach,CBA results may be taken as the main basis for a policy decision, ‘post-normal science’ usesCBA results as a – more or less – important information base from the viewpoint of economicefficiency that stands alongside with multi-criteria decision tools, stakeholder involvement andthe public discourse.9

4. Discussion and conclusions: policy implications and strategies with fundamentaluncertainties

The implementation of the new REACH system involves substantial economic costs and ben-efits. However, assessing the economic consequences of this system also has to take into accountfundamental uncertainties and lack of information (ignorance) concerning key issues. The currentstudy presents the results of a cost–benefit analysis (CBA) of the implementation of the REACHsystem in Austria, based on the best available knowledge about the system and its consequences.The question then arises as to what kind of policy advice can be given if uncertainties and/or lackof relevant information are significant.

In every CBA, a sensitivity analysis has to deal with uncertainties and lack of knowledge. Suchuncertainties and lack of information very often accrue around the following issues:

• lack of scientific information;• lack of economic information and price signals;• lack of information regarding future developments, particularly the preferences of future gen-

erations.

9 Particularly in studies on industrial hazards such as chemicals, de Souza Porto and de Freitas stress the importance of‘post-normal science’: “[Post-normal science] has been developed as a problem-solving strategy applies when facts areuncertain, values in dispute, stakes high and decisions urgent, in a context of a need for effective quality assurance” (deSouza Porto & de Freitas, 2003, p. 719).


Such deficiencies in CBA are somehow “natural” to any valuation and assessment method inenvironmental policy. CBA treats public projects (such as infrastructure projects) or policies (suchas specific aspects of environmental policy) that are inherently linked to fundamental uncertainties.In the current context, such fundamental uncertainties and lack of information start with the notionthat most of the connections between the exposure to chemicals and work place health and securityare not well founded, particularly due to missing epidemiological studies dealing with the issuein a way that can be used in (or adapted to) cost–benefit analyses. There are certainly manymedical studies dealing with the effects of a certain chemical on a certain organ in the humanbody. In contrast, there are only very few studies that explore the connections between low-doseexposure to chemicals and allergies, especially in children. Particularly the latter are not wellcovered in the medical literature, and even less so in the economic literature on the valuation ofhealth states.

The REACH system can alter the information base significantly by prescribing standardizedassessment and testing procedures. From this viewpoint, implementing REACH would also facili-tate a more informed chemicals policy in the future. If policy-makers made their decisions only onthe basis of existing and scientifically proven information, it is questionable whether it would havebeen necessary to implement the REACH system. However, the European Union policy-makerscommitted themselves to pursuing a precautionary principle in policy fields with potentially sig-nificant negative impacts. Therefore, they also follow a ‘post-normal science’ paradigm proposedby Funtowicz and Ravetz (1994) with the emphasis on dealing with uncertainties and ignorance,and the prescription of precautionary policies. In Commission of the European Communities(2000, 2f), the precautionary principle is explicitly related to the environment, human, animal andplant health, and to scientific uncertainties and the risk of future damage: “[The precautionaryprinciple should be used . . .] where preliminary objective scientific evaluation indicates that thereare reasonable grounds for concern that the potentially dangerous effects on the environment,human, animal or plant health may be inconsistent with the high level of protection chosen forthe Community”. The decision to act (or not act) on the grounds of the precautionary principleshould be proportionate, non-discriminatory, transparent and coherent. Deciding upon REACHis fundamentally bound to the use of the precautionary principle. Since the REACH system maydiscover dangerous toxic chemicals earlier than another system would, and based on the results ofeconomic analyses revealing a high probability of net benefits, implementing the REACH systemwould certainly be covered by the precautionary principle, and would probably be the essence ofthis environmental policy principle.10

The Wingspread Statement on the Precautionary Principle signed by 32 prominent scholarsrefers to chemical substances and declares (Wingspread Statement, 1998):

“The release and use of toxic substances [. . .] have had substantial unintended consequenceson human health and the environment. [. . .] We believe existing environmental regulationsand other decisions, particularly those based on risk assessment, have failed to adequatelyprotect human health and the environment [. . .] Therefore it is necessary to implementthe Precautionary Principle: Where an activity raises threats of harm to the environmentor human health, precautionary measures should be taken even if some cause and effectrelationships are not fully established scientifically. In this context the proponent of anactivity, rather than the public bears the burden of proof.”

10 Cf. UNESCO (2005).


With reference to its future chemicals policy, the European Union stated in its White Book onthe subject (Commission of the European Communities, 2001, p. 5):

“EU chemicals policy must ensure a high level of protection of human health and theenvironment [. . .] Fundamental to achieving these objectives is the Precautionary Principle.Whenever reliable scientific evidence is available that a substance may have an adverseimpact on human health and the environment but there is still scientific uncertainty aboutthe precise nature or the magnitude of the potential damage, decision-making must be basedon precaution in order to prevent damage to human health and the environment.”

Lacking scientific foundations, evaluating the REACH system becomes even more complicatedwhen reliable economic information is missing. For instance, the range of economic values forair pollutants is rather large, depending on the methods applied and the concrete context in whichvaluation studies take place. For CBA, such ranges pose fundamental problems since it is the aimof any CBA to include all relevant costs and benefits in an appropriate format, i.e., money units.In the case of uncertainties with a lack of precise information on the probabilities of crucial eventsor circumstances, and without proper price information, CBA easily runs aground, particularly ifa slight change in input data may alter the ranking of policy alternatives.

It is, however, in the nature of any valuation method dealing with public policies, espe-cially in environmental policy, that such uncertainties have to be dealt with. The wide rangeof tools for informing decision-makers, such as multi-criteria (qualitative, non-monetary valua-tion) approaches, can highlight certain aspects—but in all cases, the result is only as good as theunderlying database.

This pessimistic-sounding description does not lead to outright dismissal of valuation anddecision-support tools, particularly in the fields of environmental policies. The current CBA of acentral element in environmental issues – chemicals potentially harming work place health andpublic safety – shows the limits but also the merits of such an analysis for exploring and presentingthe central decisive determinants of the economic success or failure of such policies. Takingseriously one of the central policy prescriptions of the concept of sustainable development, theprecautionary principle, the current CBA can provide much crucial information for the decision-making process (Commission of the European Communities, 2000; see also Roger, 2003).11

The CBA of the REACH system for Austria shows that uncertainties and lack of informationcan lead to a broad range of results. For instance, taking the middle ranges of values of known costsand benefits, varying the Value of Statistical Life (VSL) leads to a range of net benefits of roughly1–20. Such a range certainly cannot be taken as a firm foundation for stating that the net benefitsamount to a concrete sum. However, and this is the most interesting argument from a policyperspective, we may discuss under which conditions and assumptions the result might be alteredso as to ascertain the “switching value” when a certain project no longer exhibits net benefits.In this sense, CBA may function as an important instrument for policy-makers to broaden theinformational base for decisions and also discuss the implications of varying assumptions aboutcosts and benefits, and the uncertainties involved.

In the current case, even for the wide range of input data leading to even wider ranges ofresults, the CBA facilitated a discussion of the crucial determinants and variables of the eco-

11 Very recently, Bockermann, Meyer, Omann, and Spangenberg (2005) have presented macroeconomic simulationresults of the economic effects of sustainability strategies and conclude – in a similar vein to the current paper – thatsustainability strategies might be efficient in terms of high benefits to society (such as improved employment, reducedpollution).


nomic success of the REACH system in Austria. Only in the (rather unlikely) case of combining“extremely pessimistic” assumptions about costs and benefits (such as higher implementationcosts, lower health benefits) would the net benefit of REACH be negative. In all other scenarios,sensitivity analyses have shown that the result of an overall positive net benefit is robust even inthe light of significant changes to crucial assumptions. We cannot, however, calculate how largethe net benefits really will be. In the context of environmental policies, we are therefore not ableto compare different environmental or health policies with the impact of the REACH system,something which would be necessary to draw a more complete picture of environmental policyoptions. The crux of the matter is therefore that there is currently no thorough investigation of thecosts and benefits of such options. Devoting private and public funds to environmental policiesbears costs in the form of foregone benefits for alternatives in other policy fields such as social oreconomic policy. From a scientific viewpoint, this dilemma cannot be solved, but is an inherentlypolitical question. Analyses like the one reported in this paper can therefore provide – sometimescrucial – information to decision-makers who have to make up their own mind. From the view-point of committing policies to sustainable development, a higher degree of future developmentoptions as well as the precautionary principle may always serve as a good foundation for pol-icy decisions, particularly in the case of such significant uncertainties about potentially harmfulchemicals.

Acknowledgements

The author would like to thank the research team, A. Predota, C. Plas, B. Mahlberg, M.Luptacik, B. and A. Windsperger, for working on different economic aspects of implementingthe REACH system in Austria, of which the current CBA was a part. Furthermore, anonymousreferees provided crucial comments for improving the paper. Thanks are also due to the consortiumthat commissioned our joint project. The author is, of course, responsible for all remaining errors.

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