|Exclusive: New Research Links Chemical Regulation with Market Innovation|
by Amy Westervelt, Forbes
February 13th, 2013
The common protest against increased or improved chemical regulation is that tighter regulations will restrict innovation and create an economic burden. Indeed, much has already been written about the resources required for U.S. companies to comply with the European Union's Registration, Evaluation and Authorization of Chemicals (REACH) regulation. However, new research out today from the Center for International Environmental Law (CIEL), a nonprofit environmental law organization based in DC and Geneva, indicates that chemical regulation may actually have an upside for businesses as well.
"It creates a market for green chemistry," says CIEL's Baskut Tuncak, who authored the study, entitled Driving Innovation: How stronger laws help bring safer chemicals to market. Tuncak cites the number of patents for alternative chemicals filed every time there's new chemical regulation as evidence of the innovation spurred by regulation. "And not just for small 'green chemistry' companies, either. The big guys, like Dow and Exxon Mobil, filed more patents for alternatives to phthalates, for example, than anyone."
Johnson & Johnson is also cited in the report as an example of a large company that is being spurred by both regulation and consumer demand to develop safer alternatives to various chemicals. The company has announced plans to remove phthalates, as well as parabens and triclosan and certain fragrance ingredients from its products by 2015. Johnson & Johnson's Susan Nettesheim, vice president of product stewardship and toxicology, is quoted in the CIEL report as saying, "there's a very lively public discussion going on about the safety of ingredients in personal care products…It was really important that we had a voice in that…We want people to have complete peace of mind when they use our products."
In fact, Tuncak points out, some big businesses are calling for improved U.S. regulation to help level the playing field between those who are leading in green chemistry innovation and those who are not, and between those who have been forced to switch to alternatives in order to do business in Europe and those who have not. During a recent U.S. Senate hearing on the need for stricter chemical regulation in the United States, a spokesperson for S.C. Johnson said: "We believe it is essential for the U.S. chemical management system to keep pace with global developments…and that our government be a global leader in chemical regulatory policy."
Some chemical manufacturers would like to see standard international regulations governing chemicals, as well. Ronald Drews, vice president for chemical regulations and trade control at German chemical giant BASF, recently said, "it would be very helpful if we could take our [chemical registration information required under EU regulations] and give it to Chinese authorities."
In the meantime, the venture capital community clearly views green chemistry as a good investment. Of the $4.9 billion in 2011 cleantech investments reported by Ernst & Young, petrochemical market research group ICIS tracked 30 green chemistry deals averaging $20 million each.
The regulation of phthalates is a central example of the relationship between regulation and innovation in the CIEL report. Phthalates are plasticizing chemicals and 90 percent of them are used in the production of PVC. They are also used as solvents in numerous personal care products. Certain phthalates are recognized by regulators all over the world as endocrine disrupting chemicals, and have been linked to everything from genital deformation to cancer, obesity and diabetes. Governments began regulating phthalates in 1998, with the EU countries, Canada, Japan, Iceland, Mexico, Norway, Argentina, Tunisia and the United States all passing legislation to limit or ban certain phthalates in consumer products.
Pointing to publicly available patent records, Tuncak highlights a noticeable increase in the number of patents filed for phthalate alternatives both in 1999, shortly after regulation began, and again in 2006, when four phthalates (BBP, DEHP, DBP, and DIBP) were added to the REACH Authorization list all, which means that except for specially authorized uses, these phthalates must be out of all products sold in the EU by February 21, 2015.
"Considering the varying degrees of research and development required before the filing of a patent, inventors likely foresaw the enactment of stricter regulation and began research necessary for the patent application beforehand, and filed when regulation appeared imminent to maximize their time period of exclusivity under the patent," Tuncak writes.
He points to generous compliance deadlines as an effective way to help businesses not only prepare for compliance, but develop potential alternatives. "For example, the EU's temporary directive in 1999 was proceeded by a Recommendation by the European Commission in July of 1998, which itself was preceded by an opinion of the European Commission's Scientific Committee on Toxicity, Ecotoxicity and the Environment in April of 1998," he writes, noting that the early heads-up gave businesses the lead-time needed to develop and possibly patent safer alternatives.
Tuncak spots the same innovation trend with other previously banned or heavily regulated chemicals, including mercury, lead, polychlorinated biphenyls (PCBs), and vinyl chloride, but notes that it wasn't until REACH came on the scene that the regulation-innovation trend really took off. Exxon Mobil and Dow did not begin to aggressively patent alternatives to phthalates until after REACH was adopted in 2006, for example. Exxon filed 15 patents for phthalate alternatives between 2006 and 2010 and Dow filed 13.
Regulation can not only spark innovation, it can also help to create a new market for existing alternative chemicals. Some of the alternatives that have been used for certain phthalates and CFCs existed well-before the prospect of stricter regulation was on the horizon, for example, and until the prospect of regulation loomed, these alternatives were sidelined.
While all that innovation is promising, there is a darker side to it, and one which regulators would do well to consider. The case of flame retardants is a prime example of what chemistry nerds call "regrettable substitution." Since the 1970s, one toxic flame retardant after another has been regulated only to be replaced by an equally or more toxic alternative.
"A chemical's form and function are closely linked," Tuncak explains. "The form of a molecule determines both its function in a polymer, as well as its function in biochemical pathways, which may lead to adverse effects. Although slight changes to a chemical's structure can make a difference in terms of its physical or biological functionality, there is a significant likelihood that the substitute chemical will not be entirely devoid of intrinsic hazardous properties. Slight structural modifications can enable the use of drop-in chemical substitutes with relatively less redesign of products and processes. However, that risks exploiting loopholes in chemical-by-chemical regulations to introduce substitutes that may not be entirely free of, or even reduce, the intrinsic hazard(s) present in the replaced chemical of concern."