This is the third and final segment in a series about the commercial impact of EPA’s program for reviewing and approving new chemicals.
Why Are SNURs a Big Deal?
A frequent retort to a submitter’s objection to a significant new use rule (SNUR) is, “Why is a SNUR a big deal?” Returning to the previous example, if gloves are routinely worn, why would a submitter object to a SNUR (consent orders under the Toxic Substances Control Act have the same effects) requiring glove use? The fact is that SNURs trigger several new recordkeeping requirements. Even if a SNUR duplicates otherwise applicable Occupational Safety and Health Administration requirements, SNURs impose additional supply chain communication, in addition to standard Safety Data Sheet requirements, and additional explanation to downstream customers, especially when those customers are unfamiliar with TSCA requirements.
Both SNUR and TSCA consent orders also trigger other TSCA obligations, such as a lower reporting threshold for Chemical Data Reporting (CDR) and Section 12(b) export notifications. These obligations may not sound like a big deal, but this example illustrates that they are not inconsequential. Assume you are shopping for a car and looking for a “greener” model. You are deciding between two models: One is a traditional car that gets 35 mpg (combined) and is made from 75 percent recycled material. Cost: $28,000. The other is an innovative new model that gets 45 mpg (combined) and is made from greater than 90 percent recycled or renewable materials. Based on the fuel efficiency, you expect to save $4,000 over the life of the car. Cost $30,000. In addition, the purchase contract requires that you keep records of how many miles you drive each month, to document that you have a procedure to ensure that you and every passenger wears a seatbelt, and to notify EPA within 30 days of the first time you drive the car out of state. If you fail to keep these records, or fail to notify EPA that you drove out of state, and EPA audits you, you could be subject to thousands of dollars in fines, more than wiping out any potential cost savings.
Under these circumstances, the choice between cars seems self-evident. You may already track your mileage and your state already has a seat belt law, but would you take the risk of an audit and potential fine if you cannot produce the records to EPA’s satisfaction? You might accept the regulatory risk if the car were twice as efficient, but for only a marginal improvement, many customers will simply opt for the old, reliable, unregulated standard and forgo the benefits of the new and improved, regulated model.
Consent orders also add additional complications in that such orders permit only one level of distribution, that is, the manufacturer may only distribute to its customer, the customer is prohibited from further distributing the substance unless the substance has somehow been incorporated into something else (embedded in a plastic resin, reacted to form something else, or converted into an article). Some supply chains are that simple: A manufacturer provides a substance to a customer, but in many cases, the customer processes the substance without converting it and sells the processed substance to another customer.
This prohibition on further distribution expires 75 days after the EPA promulgates a SNUR derivative of the consent order, but that is a substantial delay on top of the delay in EPA promulgating the SNUR (no less than 30 days), and the delay associated with EPA proposing SNURs derivative of consent orders. Even at EPA’s best, SNURs were proposed many months after the consent order was signed; now EPA is taking more than a year to even propose SNURs. These substantial delays may mean that even with a consent order, a new product may not be able to enter the supply chain until many months (or years) have passed after the manufacturer signs the consent order. A large company with other products on the market may be able to endure (albeit reluctantly) such a delay, but small companies, especially pre-commercial companies, may go out of business as a result of such delays.
NOCs for New TSCA PMNs Have Shrunk
What does this mean for innovation? We reviewed NOCs received by EPA for the approximately two years before and after new TSCA’s entry into force in June 2016.
(Note that the PMN submission year is based on EPA’s fiscal year (October-September), while the NOC year is based on the calendar year reported by the submitter for the date of commencement. Because of the 90-day review period, it is very unlikely that the PMN could be commenced before the new calendar year: a PMN submitted on Oct. 1 (the beginning of the fiscal year) could not be commenced until Dec. 30 at the earliest.) As shown in Figures 1 and 2, about 350 PMNs from each of Fiscal Year (FY; Oct. 1 through Sept. 31) 2014 and FY2015 were commenced at some point in the past four year (this represents about 47 percent (359/764) and 50 percent (336/669) of all PMNs submitted during FY2014 and 2015, respectively).
The analysis covers February 2014 through May 2018. Most NOCs are filed within two years of the PMN decision date. Of the 1,414 NOCs submitted in this time frame, 1,173 (83 percent) were for cases submitted in the two years after the corresponding PMN was submitted. For 2016 PMNs, there was a marked drop-off in the number that commenced manufacture to a total of 201. Note that this set includes PMNs submitted under old TSCA that had completed the review process prior to June 22, 2016 (“pre” Lautenberg cases), PMNs that had their “applicable review period” reset after enactment (“reset” cases), and PMNs submitted after June 22, 2016 (“post” Lautenberg cases).
For the FY14 and FY15 “pre” Lautenberg cases, approximately half were commenced by May 2018, following the trend over the last decade that about half of PMNs were commenced. Compare that rate with the percentage of FY14 and FY15 cases that were “reset.” Only 33 percent and 21 percent of the reset cases from those years were commenced. Among the FY2016 cases that were completed prior to June 22, 2016, the long-term trend held and about half were commenced, while only 22 percent of the “reset” cases and 22 percent of cases submitted after June 22, 2016, were commenced. The decline in commenced cases continued in FY 2017. Only 21 percent of cases submitted in FY2017 were commenced by May 2018. The very low number of commenced cases in FY2018 reflects the relatively short time period for cases to be submitted, reviewed, and commenced, but even so, we would have expected more to be commenced. Among the FY 2015 cases, 24 were commenced before May 1, 2015, compared to five cases submitted in FY 2018 that were commenced before May 1, 2018.
The significant drop in the rate of commenced cases, from roughly 50 percent under old TSCA, to around 20 percent under new TSCA is evidence that the current new chemicals process is having a decided adverse effect on the commercialization of new chemicals. While it is possible that a large percentage of the cases submitted after June 22, 2016, are, on balance, more “toxic” than the cases submitted in the preceding decades necessitating a greater level of regulatory oversight by EPA, but we find that speculation unlikely and not representative of many cases familiar to the authors. For example, 58 PMNs submitted in FY2012 were commenced in this time period.
For example, 47 percent of PMNs submitted in FY2014 that were completed prior to June 22, 2016 were commenced by May 2018, while only 33 percent of cases submitted in FY 2014 that had the reviews “reset” were commenced by May 2018.
These graphs exclude 112 cases that are or are likely to be derivative to enforcement actions or self-audits; in our view, the timing of PMN submissions and NOCs for such cases is not indicative of innovation or planned business activity. An additional 84 cases submitted between 1998 and 2012 were also commenced in this timeframe, but were excluded to simplify the graphs.
Summary and Conclusions
New chemicals tend to be niche products intended to achieve a particular, and often, discrete, market need. Many new products are not entirely novel and are intended to improve the functionality and performance of existing chemicals to make them more efficient, with better processing options, less toxic, and more environmentally sustainable. Their commercial life is often relatively short as they are replaced by “newer and improved” new chemicals. New chemicals thus frequently represent incremental and short term “continuous improvement” enhancements against their existing chemical competitors.
This combination of continuous improvement and “creative destruction” when combined with greater product efficiency, less release to the environment, and better and safer processing options produces a strong innovation impact over time. Other commercial, legal, and public drivers, such as tort and product liability, increasingly stringent stewardship standards and private codes of conduct, greater public accountability due to social media pressures and public sustainability commitments, and the relentless pressure on corporate entities to diminish their environmental footprint, also contribute to a new chemical development and innovation process that is very different from what it was four decades ago.
Stakeholders recognize that new chemical innovation is essential to achieving sustainable prosperity and to enabling technologies that can help to meet the challenges of the 21st century. For reasons such as these, TSCA stakeholders should be concerned by the precipitous decline in the number of new chemicals that have been introduced into commerce post Lautenberg. EPA’s recent efforts to right this situation should be applauded, and concerned groups should urge EPA to expeditiously make similar corrections to support the chemical innovation process.
Lynn L. Bergeson is the Managing Partner of Bergeson & Campbell, P.C. (B&C®), a Washington, D.C. law firm focusing on conventional, nano, and biobased chemical, pesticide, and other specialty chemical product approval and regulation, environmental, health, and safety law, chemical product litigation, and associated business issues. Charles M. Auer is a Senior Regulatory and Policy Advisor with B&C, and former Director of EPA’s Office of Pollution Prevention and Toxics. Richard E. Engler, Ph.D., is the Directory of Chemistry with B&C and a 17-year veteran of EPA. Kathleen M. Roberts is Vice President of B&C Consortia Management, L.L.C. (BCCM), and Manager of the TSCA New Chemicals Coalition.
The opinions expressed here do not represent those of Bloomberg Environment, which welcomes other points of view.
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