A regulation over a particular industry has different social and economic impacts both on the industries as well as the consumers dependent on these industrial sectors. The environment also faces a significant level of impact as a result of regulatory decisions. The hazardous chemical industry comprises of three particular areas. These are the pharmaceuticals, the agrochemicals and the industrial chemicals. Therefore, regulation of dangerous chemical substances is a mandatory requirement because of its toxic nature. The chemical industry has been growing ever since its inception. However, various incidents that have been occurring over the years have justified the need for regulation in the concerned sector to promote efficient public health and safety along with environment protection. Several events such as the “Thalidomide disaster” during the 1950s, the bioaccumulation of DDT in animals in the 1980s and the Bhopal Gas Tragedy in 2004 are examples of harmful effects of dangerous chemicals due to a lack of stringent regulation.
The assessment of the economic impacts of regulation plays a vital role in directing the regulatory processes designed by the federal government, primarily to protect against unnecessary regulatory burdens as well as prevention of regulatory red-tape. The primary factor in these assessments consists of the baseline study. The baseline situation is determined and characterized in such a way that it becomes the source for comparison for all other aspects of economic analysis. The key to producing a useful baseline includes variables. Variables constitute an essential part of the baseline study as they justify some unique characteristics of the situation under investigation. The values of a variable can differ frequently based on the subject. Determining the scope in a baseline study allows the researchers to understand the level of practicality for the review and viability of regulatory options that might undergo implementation.
An example to justify the utilization of a baseline study is addressing the lack of use of personal protective equipment in a chemical industry within a particular region. The baseline study shall provide all the details that will pinpoint the reasons for such a loophole in the system. In this way, the government in that area will be able to come up with a regulation that makes the use of Personal Protective equipment mandatory for every employee working in the chemical sector.
The baseline study also accompanies in the process of determining the cost of action and inaction and inferring the future risk scenario. The future risk scenario is a crucial part of the baseline study as it explains the consequences in quantitative terms for a situation in case of inaction against the existing problem. An overall cost-effectiveness analysis helps in making a viable regulation without any unnecessary economic burden. The study also helps in determining the intended, unintended, and direct and indirect costs and benefits associated with the regulation.
In the above example that explains the use of Personal Protective Equipment (PPE), determining the costs of inaction is essential to understand the consequences if employees don’t use PPE. If the problem remains unaddressed, the number of accidents among employees will increase that will lead to an increment in the health expenditures for these individuals. Also, an employee meeting an accident in the workplace is burdensome as it calls for multiple investigatory situations where the industry might be held responsible for the problem. It might also compel the industry to pay hefty amounts of compensation. Therefore, the costs of inaction are more than the price of action, i.e. associated with implementing the use of PPE in the industry.
In the field of socio-economics of regulation, identification of stakeholders is an important task. The economic aspect in this regard includes the cost-effectiveness analysis in terms of monetization of costs of action or the quantification of benefits. The social issue involves the determination of the number of people positively affected. The research methods used for identifying these aspects of economic analysis include quantitative and qualitative research methods or mixed methods that include both. The source for obtaining these data should consist of excellent and reliable organizations that contain official statistics in central repositories such as that of Statistics Canada.
The precautionary principle is one of the most widely followed concepts that help in understanding and explaining situations where precaution is the basis for taking steps. For example, In the pharmaceutical industry, in case of adverse effects of a drug despite the conduction of successful clinical trials, the drug is recalled from the market even if clinical trial documents prove otherwise. In this way, the prevention of economic burden comes into play. If the drug were allowed to prevail in the market, then, a lot of people would have faced severe side-effects that would add to extra costs for the treatment of the affected people. Moreover, the pharmaceutical company would face serious charges for the number of lives affected.
The use of variables, cost-effectiveness analysis, precautionary principle, etc. constitute the essential tools that meet the sign-off requirements for implementing a regulation. Guidance documents for Federal government facilitate different studies conducted at an economic level to ensure both social and economic benefits. Some examples include New Substances Guidance Documents: chemicals, polymers, biochemicals and biopolymers concerning New Substances Notification Regulations (NSNR) under the Canadian Environmental Protection Act (CEPA, 1990) (Environment and Climate Change Canada, 2015). Socio-economic analysis for implementing regulations in the concerned sector has given rise to acts and regulations such as Hazardous Product Act and Hazardous Products Regulations that regulate the industry by the use of product labels and Safety Data Sheets (SDS) to maintain transparency throughout the industry (Health Canada, 2017). Based on the various socio-economic analysis, Health Canada has come up with the Chemicals Management Plan to ensure public safety and environmental protection (Health Canada, 2019).
Therefore, dynamic socio-economic analysis helps the federal government in shaping regulations which are both viable for the chemical industry as well as for the safety of the public by preventing unnecessary economic burdens for both the entities involved.
- Canada, H. (2017). Frequently Asked Questions - Hazardous Products Regulations. Retrieved from https://www.canada.ca/en/health-canada/corporate/about-health-canada/legislation-guidelines/acts-regulations/frequently-asked-questions-hazardous-products-regulations.html
- Climate Change Canada. (2015). New substances guidance documents: Chemicals, polymers, biochemicals and biopolymers. Retrieved from https://www.canada.ca/en/environment-climate-change/services/managing-pollution/evaluating-new-substances/chemicals-polymers/guidance-documents.html
- Canada, H. (2019, April 03). Chemical Substances. Retrieved from https://www.canada.ca/en/health-canada/services/chemical-substances.html