This is an excerpt from an interview by the European Chemicals Agency that was originally published in the ECHA Newsletter.
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.
“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.