Thursday, May 13, 2010

Will TSCA Chemical Reform Hinder - or Help - Development of New Chemicals?

As Congress and stakeholders debate whether the newly introduced Safe Chemicals Act of 2010 will get passed this year, the chemical industry is concerned that the more stringent standards "could actually hinder the development of new products that could be safer than existing ones now 'grandfathered'under the old law."

But is that true?

Let's be honest. The first reaction to any new regulations, no matter the topic, is always the same. It will "kill jobs" and "hinder innovation." It's a mantra that is mimed whenever a new regulation is proposed, and frankly, no longer has any credibility. On the other hand, some regulations could, in fact, inhibit innovation. So which is it?

In looking at the history of innovation you see a mixed bag. But the bottom line is that regulation actually enhances innovation more than not. Why? Simply put, why come up with a new chemical that would make your old chemical obsolete when the old chemical is making you lots of money? Basic chemicals that were developed years ago have the advantages of:

1) a robust and mature market, where the chemical has been found to be useful in a variety of different product types,

2) established comfort zones, where customers are comfortable using your chemical in their products because they know they work, already have supply chains set up, and have streamlined operations to minimize costs and maximize profit margins,

3) being inexpensive, that is, relative to more recently developed chemicals that are still paying for substantial R&D costs, marketing efforts to get into new products, and no track record.

So given that there are essentially no costs to continuing to sell the old chemical, why spend lots of money developing a chemical that does the same thing (though perhaps not as well) except require you to convince current customers to switch to something more expensive? It just doesn't make economic sense.

Unless there is a cost to the old chemical. Of course, there is a cost, but that cost is "hidden" in the sense that any health or environmental costs are spread around to society as a whole (unless there is a huge spill, such as the current Deepwater Horizon in the Gulf). And how does one capture the actual cost of proving safety of chemicals (i.e., rather than wait until after the fact)? By requiring testing up front. So the health and environmental costs, if there are any, will be included in the costs of the manufacturer. If those costs are excessive, for example if the chemical is a substance of very high concern, a PBT, a carcinogen, mutagen or reproductive toxicant, then the company now has incentive to develop newer, safer, more innovative chemicals.

It's just basic free market economics. And all one has to do is look at what happens after some egregious regulation is passed that will "kill jobs" and "inhibit innovation." The ingenuity of companies is released and new products come on the market, usually quite quickly. Jobs are always being created in emerging technology areas while more mature technologies have been giving up jobs to overseas sourcing for decades.

So it is likely that the Safe Chemicals Act will encourage the funding and development of new, safer chemicals. Emergent and innovative companies and chemicals that are currently unable to break into established markets will have a better chance of competing. Requiring safety data on all chemicals, both existing and new, will ensure that dangerous old chemicals are not replaced with dangerous new chemicals.

And the poor guy who has the "next best thing" but can't get his foot in the door because no one wants to lose their biggest suppliers will finally get a seat at the table.

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