ECHA

Socio-economic analysis (SEA) weighs up the pros and cons of an action, for example, how society would be affected by the continued use of a chemical. As part of socio-economic analysis, cost-benefit analysis is used to quantify the benefits of chemicals management in social and monetary terms so that they can be directly compared to the costs.

The practice was discussed at an OECD workshop hosted by ECHA during the summer. We talked to Alan Krupnick and Michael Donohue, two experts in the field.

Avoiding negative impacts for human health and the environment

Risk assessors and economists need to work together to make an economic valuation that helps governments and institutions regulate chemicals in the best possible way. This cooperation makes sure that the wants of the public and the risks of hazardous chemicals are identified properly and that all the nuances are taken into account.

Alan Krupnick. Image: Resources for the Future.

“Economists use real-world behaviour to figure out these values. Consumer preferences for avoiding the negative impacts of chemicals are used to turn the health and environmental impacts into monetary values. The values are not just plucked from thin air; they are grounded in consumer behaviour and thinking,” explains Alan Krupnick, Co-Director of the Center for Energy and Climate Economics at the US-based thinktank Resources for the Future.

“If the cost-benefit analysis results in the reduced use of toxic chemicals, either through restriction or substitution, then public health and the environment will be affected positively. However, the cost-benefit analysis should be the force driving the decision making. What shouldn’t happen is for the cost-benefit analysis to be done just to justify a decision that has already been made,” Mr Krupnick points out.

How do we know what the public wants?

There are two ways we can try to understand what the public wants. We can ask them directly or we can observe them. To come up with a useful economic assessment of different options, however, it is important not only to know if the public is positive or negative about certain chemicals, but how much so.

“The first group that needs to understand consumer behaviour are the economists. They are the ones who will be conducting the surveys and the statistical analyses,” says Mr Krupnick and continues, “once the peer-reviewed information is published, this is when regulatory agencies have a duty to keep up with the most relevant data and most recent literature to really understand the desires of the public before taking any decisions.”

Michael Donohue, Manager of the Economic Health and Analysis Division of Health Canada, points out that we also need to know how the public values their own use of substances. “Say, for example, that you have an itchy skin rash and your doctor prescribes you some lotion that has a possible side-effect of causing an upset stomach. Would you use the lotion knowing that it would upset your stomach?”

How the public answers a series of these kinds of question gives an indication of how they prioritise their use of substances. “The difficulty with this approach is that the consumers don’t always know what chemicals are in the products they use, so although you can see what they are doing, the observation doesn’t help you fully understand why they make the choices they do. To understand this, you need huge amounts of statistical data from a large sample of people to isolate the key variables that appear to drive people’s decisions,” Mr Donohue explains.

Chemicals can be tricky

Socio-economic analysis is never easy, but with chemicals, things get very difficult to assess. For example, there are chemicals like biocides, which need to destroy some forms of life, so they need to have a certain level of toxicity for them to work.

“There are risk-risk trade-offs for chemicals, that you wouldn’t find in other areas where socio-economic analysis is used, like air quality for example. Air quality has the goal of making the air clean, but the picture is not so straightforward for chemicals. Once chemicals are part of a product, then you also have to think about how well the product works and how removing the chemical would affect this, which is much more challenging to assess,” Mr Krupnick explains.

The analysis should go beyond just looking at the chemical in question and also look at possible substitutes. This wider scope makes the socio-economic analysis of chemicals more complicated.

“Ideally, you would also think about the availability of the substitute in the analysis, but we don’t fully know about the availability of substitutes, let alone their potential toxicity. Since agencies do not have the authority to force industry to choose particular substitutes, there remains a lot of uncertainty in terms of the substitutes chosen by industry and whether they are, in fact, any safer,” he remarks.

Learning from each other

Michael Donohue. Image: Michael Donohue.

Chemicals management differs throughout the world, but there are lots of opportunities to learn from each other.

“If a chemical issue is important to Canadians, then I believe there is a pretty good chance that it will be important for Europeans too. Studies conducted to find economic valuations can often be very big, very costly and can also take a long time to conduct, so it would be beneficial for Europe and the rest of the world to learn from each other’s results to save costs and resources,” Mr Donohue says and continues, “but the lessons to learn are not just about the results of studies. We should also learn about the techniques used”.

On 22 June 2016, United States’ President Obama signed the Frank R. Lautenberg Chemical Safety for the 21st Century Act, which updates the Toxic Substances Control Act (TSCA). According to Mr Krupnick, the update will make TSCA similar to REACH, giving the US Environmental Protection Agency much more authority to get data from industry.

“There is a very lively research environment on chemicals in Europe, which helps make it easier to estimate the benefits of using less toxic chemicals. There are a lot of studies on benefit valuation whereas in the US, these have become less common. In the US, we have much more to learn from European studies, although we hope to see an increased focus on research with the updated TSCA,” Mr Krupnick tells.

“Once the research picks up and the body of literature begins to build, regulatory agencies will need to do more to check what other agencies throughout the world are doing to protect their own consumers from the particular health effects of certain chemicals and learn from each other,” he concludes.

Socio-economic analysis and REACH

Under REACH and other chemicals regulations, socio-economic analysis plays an important role, for example, in restricting the use of a substance or in requiring authorisation before a dangerous substance can be used. Proposals to restrict a substance need to describe the risks posed by the substance as well as the costs for industry. They also need to consider the benefits that the restriction would bring for human health and the environment. Companies applying for authorisation to continue using a dangerous substance may also include socio-economic analysis as part of their applications.

Did you know?   Socio-economic analysis Socio-economic analysis assesses the impact of a regulatory action compared to what would happen if no action was taken or compared to an alternative course of action. For chemicals, this could mean assessing whether to continue using a substance or phasing it out. Cost-benefit analysis   Cost-benefit analysis is one method that can be used under socio-economic analysis. It converts all of the impacts into monetary units so that the costs and benefits can be directly compared. The conversion is based on valuation techniques that estimate how willing consumers are to pay to avoid a certain risk to health or damage to the environment. The goal is to assess the overall impact that a proposed management action will have on the public, in terms of their quality of life. It is, therefore, critical when monetising costs or benefits for the monetary units to be chosen in a way that accurately reflects the true social impacts, or quality of life impacts, of different outcomes.

Health Canada & Resources for the Future   Health Canada is the Federal department responsible for helping Canadians to maintain and improve their health. It is committed to improving the lives of all of Canada's people and to making Canada’s population among the healthiest in the world as measured by longevity, lifestyle and effective use of the public healthcare system. http://www.hc-sc.gc.ca/ Resources for the Future (RFF) is an independent, non-partisan organisation, conducting rigorous economic research and analysis to help leaders make better decisions and craft smarter policies about natural resources and the environment. RFF was the first thinktank devoted exclusively to natural resource and environmental issues and helped create the field of environmental and natural resource economics. http://www.rff.org/ Sources: Health Canada and Resources for the Future.

Further information:

Socio-economic analysis under REACH

Willingness to pay to avoid selected human health outcomes due to exposure to chemicals

Health utility metrics in chemicals impact assessment

The Frank R. Lautenberg Chemical Safety for the 21st Century Act

The US Code version of TSCA as recently amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act

Cost and benefit assessments in the REACH restriction dossiers

Interview by Paul Trouth
Top image: Fotolia

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