Greener pastures: environmental law

For companies, a doctrine of environmental protection represents arguably one of the most important and contentious geo-political agendas of the 21st century. TM associate editor Edward Machin investigates the torrent of ‘green’ legislation which, with no sign of abating, is redesigning the landscape of British manufacturing.

Unsurprisingly, the international community continues to dedicate itself to establishing long-standing commitments to the conservation of the environment. In December 2009, for example, the United Nations Climate Change Conference will meet in Copenhagen to ensure that, per UN Secretary- General Ban Ki-moon: “Tomorrow’s generations can look back and say: Our leaders rose to the challenge. They did what was right”.

While manufacturers may question whether such booming rhetoric applies to their day-to-day operations, they would be foolish to ignore the evermore forceful push towards a ‘greening’ of the sector.

Indeed, a vast body of environmental regulation — at both European Union and UK level — has been passed since the beginning of 2008, with the scope of legislation now expanding into hitherto unregulated areas. As manufacturers respond to these regulatory and market forces the availability, cost, and viability of the parts and materials purchased for use in products will continue to be heavily affected.

Michael Barlow, a partner at Burges Salmon LLP, says: “There is a considerable body of empirical evidence to suggest that the strength of an organisation’s green credentials often represent the distinguishing factor for both customers and employees when choosing a company.” While undoubtedly correct, the reality of contemporary manufacturing dictates that many companies are compelled to place an ethos of environmental compliance at the heart of their organisational strategy.

This article explores those legislative instruments which have, and will continue to, steer the manufacturing sector towards ever greener pastures.

WEEE Directive
The Waste Electrical and Electronic Equipment Directive (WEEE) is an EU initiative which aims to minimise the impact of electrical and electronic goods on the environment by increasing re-use/recycling and reducing the amount of WEEE going to landfill. The UK Regulations implementing the WEEE Directive were laid before parliament in 2006, entering into law on January 2, 2007.

The Regulations state that producers, manufacturers, and retailers of electrical and electronic products will be responsible for ensuring any equipment sold or replaced on a like-for-like basis is reused or recycled at the end of life. Accordingly, if you are a manufacturer of electrical and/or electronic equipment (EEE) — or your product uses electricity for its main purpose — you will have obligations to discharge under WEEE.

Closely linked to WEEE is the Restriction of Hazardous Substances Directive (RoSH, see below) which bans the market of electrical and electronic equipment containing more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl, and polybrominated diphenyl ether flame retardants. The regulations do not have retrospective element, however, and are not applicable to spare parts for electronic equipment placed on the market before the coming into force date of July 1, 2006.

As with all environmentally-themed legislation, willful evasion of compliance is simply not an option for the law abiding manufacturer. These directives provide for a fine up to 50,000 for regulatory offences such as marketing non-compliant equipment, shirking or failing to report on recovery efforts, and failing to register with a competent authority before placing products on the market. Moreover, the Department for Environment, Food and Rural Affairs has begun its consultation on improving environmental enforcement in England and Wales. Its proposed civil sanctions will require polluters to restore any harm done to the environment, where possible, as well as including a monetary penalty and/ or criminal sanctions.

Upcoming legislation

Environmental Sanctions Order 2010
While currently in the proposal stage, when implemented the scheme will cover a wide range of existing environmental regulation in England and Wales, including waste, water, nature conservation, and related activities regulated under environmental permits.

The timetable for consultation closes on October 14 2009, the intention being to lay the Order and Regulations before parliament in January 2010 – with a view to their coming into force by April 2010.

Waste Batteries and Accumulators Regulations 2009

Stricter rules on manufacturing and recycling batteries and accumulators — rechargeable batteries — for UK businesses have been introduced through the implementation of the European Batteries Directive. These rules came into force on May 5, 2009, and producers will have to pay for the collection, treatment, and recycling of batteries from January 1, 2010, says Gordon McCreath, a partner in the Planning and Environment team at law firm Pinsent Masons LLP.

CLP: Regulation on classification, labelling and packaging
Linked to REACH, the CLP is an EU regulation which sets the rules for classification and labelling of chemicals. It aims to determine whether a substance or mixture displays properties that lead to a classification as hazardous. The date from which substance classification and labelling must be consistent with the community-wide regulations is December 1, 2010 and June 1, 2015 for mixtures.

Companies bear the cost
Manufacturers wishing to avoid such penalties therefore have two choices for legislative compliance, according to Geoffrey Bock, an engineer at the industrial machinery division of TUV Rheinland, a leading global provider of technical services. “One is for the organisation to develop its own processes and self-declare compliance. The other is to work with third parties to handle the recycling efforts. Either way, the cost of compliance must be borne by the manufacturer, as the directives forbid charging end users for recovery and recycling,” he says.

Given that manufacturers are individually responsible for the collection and recycling of their products, concerns have been raised within the sector as to how these obligations will work in practice. For example, the British manufacturing industry cannot afford to absorb the cost of such directives — expected to be between ₤170m and ₤200m per annum — say trade bodies including the Association of Manufacturers of Domestic Appliances (AMEDA), the Intellect CE Council, the Radio, Electrical, and Television Retailers Association, and the Small Electrical Appliance Marketing Association.

The solution, they claim, is to follow the model adopted in Ireland, the Netherlands, and other European states by introducing an environmental recycling charge (ERC). Without this charge, it is argued, manufacturers will be forced to increase the price of goods, resulting in a mark-up of product costs as those transporting the goods, retailers , and Her Majesty’s Revenue & Customs seek to collect their overheads. Says Uwe Halleck, chairman of AMDEA: “We believe an ERC is the only way that the cost of historic waste can be shared among those who have benefited from its sale. Importantly, this view is supported by the overwhelming majority of manufacturers.”

REACH
REACH (Registration, Evaluation, Authorisation, and restriction of CHemicals) is a European Community Regulation on chemicals and their safe use, dealing with the registration, evaluation, authorisation, and restriction of chemical substances. Enforced by law on June 1, 2007, the0placed to ensure that the chemicals it manufactures do not adversely affect human health or the environment. Consequently, manufacturers and importers which produce more than one tonne per calendar year are required to gather information on the properties of their chemical substances — ensuring their safe handling — and register the information in a central database run by the European Chemicals Agency in Helsinki.

Central to the framework is the requirement for producers and importers of chemicals to prove that their substances are safe before their entry into the marketplace. REACH therefore puts an increased onus on manufacturers to produce safe substances, in that under previous legislation it fell upon the authorities to prove that a substance posed a threat before it could be withdrawn. The fact that the burden of proof has been reversed “marks clear progress towards increased community-wide consumer protection,” says Joel Decaillon of the European Trade Union Confederation, Nonetheless, the most controversial aspect of the regulation’s passage through the European Parliament — the authorisation phase — remains a point of consternation for many manufacturers. Indeed, European Chemicals Industry Council Director-General Alain Perroy regretted that: “The unnecessary requirements added to the authorisation element of REACH” relating to the substitution of dangerous substances. “It will clearly add to costs,” said Perroy, denouncing the illusion that substitution could be governed by a command and control approach. “The end result will be legal uncertainty for business and, consequently, reduced investments and innovation.” Equally worrying, a survey of electronics companies by the IPC, a trade association whose 2,700 member companies represent virtually all facets of the electronics industry, found that more than 40% of manufacturing and purchasing personnel have no understanding as to how REACH affects their companies. While this is indeed a damning reflection of the difficulty faced by manufacturers in adapting to the burdens of legislative compliance, there are nonetheless a range of solutions intended to ease such logistical difficulties.

Used by companies including Beckman Coulter, Cisco Systems, GE, IBM, Motorola, Sony Ericsson, Visteon, and Xerox, among others, software company PTC’s Insight Environmental Compliance is designed to track and improve the environmental performance of manufacturers’ products, parts, materials, and suppliers. As the sector has become well aware, product environmental requirements are subject to seemingly ad hoc changes, as new restricted substances are identified and existing exemptions expire.

For example, it is predicted that hundreds of REACH SVHC (Substances of Very High Concern) will disappear from the supply chain before official candidate substances are announced, due to a global blacklist effect. InSight Environmental Compliance is thus designed to manage and mitigate these supply chain risks, providing both an early-warning system and data to support effective decision making in design and production for regulatory standards including REACH, EU RoHS, ELV, WEEE, RoHS, PoHS, Halogen-Free, The Joint Industry Guide, and Global Automotive Declarable Substance List.

Similarly, Siemens PLM Software Teamcenter for Compliance Management includes Teamcenter for Environmental Compliance solution powered by EMARS (Synapsis Technology), which helps companies meet environmental compliance requirements such as RoHS, WEEE, ELV, and REACH.

Carbon Reduction Commitment
Carbon law, generally defined as the regulation of greenhouse gases, represents the most widely accepted international mandate in preventing environmental destruction. Accordingly, in 2008 Parliament passed the Climate Change Act, establishing a legally binding obligation on the Secretary of State to ensure that the net UK carbon account for the year 2050 is at least 80% lower than the carbon emissions level in 1990.

As the first step in achieving such a target, the government launched the Carbon Reduction Commitment (CRC), a mandatory emissions trading scheme targeting emissions by companies currently not included in the EU Emissions Trading System or Climate Change Agreements. The CRC covers all organisations — manufacturers included — whose electricity consumption through half hourly meters is greater than 6,000MWh/yr, equivalent to an annual electricity bill of £500,000 or more. All energy other than transport fuels will be covered, such as electricity, gas, fuel and oil.

Company performance, based primarily on absolute carbon reductions since the start of the scheme, will be summarised in annual league tables – outlining the best and worst performers in terms of carbon emissions reduction. In order to avoid creating an additional financial burden, the auction revenues generated through the initial sale of credits will be recycled back to participants, with companies receiving payments back from government in proportion to their first year emissions, plus or minus a bonus or penalty, depending on their position in the league table.

Given that consumers are increasingly demanding strong environmental credentials of the companies they support, says Burges Salmon’s Barlow: “It remains particularly important over the coming months for manufacturers to understand fully the potential implications of the CRC, to budget and make preparations for it, and to ensure that the necessary systems and processes have been put into place to collate the information required for compliance.” That said, recent legal developments have, while not as yet derailed the scheme, certainly raised troubling questions as to its future application., The European Court of First Instance in September overturned the decision of the European Commission, in calling for tighter limits on the amount of greenhouse gas emissions Poland and Estonia are permitted to emit for the period 2008 to 2012. Says Dr Anna Willetts, a solicitor at Greenwoods LLP: “The court’s ruling amazed carbon traders in Europe, as it went in complete opposition to the aims of reducing the European Community’s carbon emissions.” Whether the ruling bleeds down to UK manufacturing’s operations remains to be seen.

Patently, however, it highlights the ever-shifting, seemingly contradictory nature of environmental jurispdrudence – developments central to both the legal and manufacturing communities throughout the European Union. Helen Loose, a consultant solicitor at Keystone Law, surmises: “It remains particularly challenging for manufacturers to keep abreast of the legislative and regulatory requirements which appear on an almost weekly basis. However, those businesses which accept this inevitability — and turn it their advantage — will ultimately be best placed to meet the challenges inherent in the greening of our regulatory world.”