Does chemical regulation boost innovation?

What effect does tougher chemical regulation have on innovation? Conventional wisdom says that the added costs drive companies to throttle back R&D, which in turn hampers new ideas.

But according to a report from the Center for International Environmental Law (CIEL), a US environmental group, this picture is out of date.

The report says that tougher chemical regulation has sparked the continuous invention of safer chemicals, increased their rate of development and pulled them into the market.

‘Well designed laws spark the invention of alternatives and further help level the playing field to enable safer chemicals to overcome barriers to entry, such as economies of scale enjoyed by chemicals already on the market and the externalised costs of hazardous chemicals on human health,’ says Baskut Tuncak, staff attorney at the CIEL.

The report looked at phthalates, industrial chemicals that can interfere with hormones, and found that patents covering alternative compounds spiked in the wake of new laws limiting their use – indicating a growth in innovation in this area: ‘As the stringency of measures increased, so too did the number of inventions disclosed in patent filings by the chemical industry.’ It found a similar trend in the case of ozone-depleting chemicals.

The findings contrast with those of a report from the Centre for Strategy and Evaluation Services (CSES), a consultancy firm, published in June 2012, which found a more nuanced situation in response to the EU’s Reach (registration, evaluation, authorisation and restriction of chemicals). The CSES report, commissioned by the European Commission, concluded that current trends indicate an innovation boost in the long term, but that so far the negative effects of regulation associated with compliance costs have dominated.