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Finance for Chemicals Governance

Safely managing chemicals requires many functions that require substantial resources and funding. An independent evaluation of the Strategic Approach to International Chemicals Management (SAICM) found that a lack of funding was critically preventing countries from fulfilling the objectives of that agreement and the corresponding Sustainable Development Goals. Given that many countries have identified inadequate funding as THE[/A] major barrier to managing chemicals more safely and that more people will get sick and die from toxic chemicals without effective chemical management, it is essential to determine funding streams that address the challenge. 

The challenge: finding funding for chemicals governance 

Finding funding for any policy measure is always a challenge. However, there are some unique features of chemicals, the harms they cause, and the industry that creates them, which both provide specific obstacles and indicate the possibility of sector-specific solutions. Before those solutions can be discussed, it is critical to understand the two features that make finding responsible actors and determining financial accountability difficult. 

  1. Rate of impact: The environmental and health harms from chemicals are not always immediate. They can take decades, or sometimes even longer, to appear. The delayed effects can pose challenges in identifying specific harms without medical, public health, and other scientific research and make it more challenging to make a case to policymakers for funding. 
  2. Global, transnational industry: The chemicals industry has a complex supply chain that can cross borders, and its products can travel enormous distances to meet their final destination. As a result, harms might be experienced at every point in the supply chain, and the chemicals may be produced, used, and/or released in entirely different locations. 

To address these three challenges, it becomes paramount to examine possibilities through international frameworks such as chemicals and waste treaties, intergovernmental approaches such as cost recovery systems, and new potential revenue streams.  

International frameworks and the integrated approach to financing

Chemicals and waste treaties

All five major binding chemicals and waste treaties — the Montreal Protocol (control of ozone-depleting substances), the Basel Convention (control of hazardous waste and other waste requiring special care), Rotterdam Convention (control of certain hazardous substances), Stockholm Convention (control of a certain class of largely dangerous chemicals known as “Persistent Organic Pollutants” or POPs), and Minamata Conventions (control of mercury) — contain financing mechanisms to help Parties, especially developing country Parties, implement them. However, only the Montreal Protocol mechanism has been funded at the level required to ensure implementation, for reasons we won’t go into here. 

Policy frameworks

The Strategic Approach to International Chemicals Management (SAICM) is a policy framework to promote chemical safety worldwide. The objective was to achieve “the sound management of chemicals throughout their life cycle so that by the year 2020, chemicals are produced and used in ways that minimize significant adverse impacts on the environment and human health.” However, the framework remains ongoing past 2020. As a policy framework, SAICM does not have its own funding mechanism, but there are programs under SAICM that provide funding.

For its first ten years, SAICM’s Quick Start Programme was dedicated to helping countries build their capacity for sound management of chemicals. Despite its success, the funding was insufficient ($41 million over ten years), and the program has been discontinued. It has been partially replaced by the Special Programme on Institutional Strengthening for the Chemical Cluster, which covers both SAICM and the binding chemicals and waste treaties mentioned above. While the Special Program provides limited options, its terms of reference and the ability to access funds are quite different from what was available under the Quick Start Programme. As a result, it is regularly criticized by countries that receive funds and members of civil society. 

In 2012, a new conceptual framework, the Integrated Approach, was developed through a consultative process. It was designed in response to the increased need for sustainable, predictable, adequate, and accessible financing for the chemicals and waste agenda and the heightened need to politically prioritize the sound management of chemicals and waste. In broad terms, the Integrated Approach introduces a commitment to pursuing three simultaneous methods of funding chemicals management: 

  1. Fold into existing budgets and development plans. 
  2. Involve the industry: Costs for complying with chemicals regulations, managing chemicals, and their products will now be borne by the industry rather than governments. (See Financing chemicals governance through industry below.)   
  3. Develop external financing: Funding pools provided by donor countries can go a long way to helping bridge the gap between what a government can do through their own budgets and involving the industry. SAICM presents two options: the Special Programme (as discussed above) and the Global Environment Facility (GEF). While the Special Programme is the main source of external funding, the GEF is a much larger fund.

Financing chemicals governance through industry 

Governments have the option of recovering costs related to chemicals governance from the industry itself. The practice, known as “cost recovery” is outlined in the Integrated Approach. Governments that have chosen to pursue this route have used three principal types of instruments: 

  1. Fees for service: The government charges chemical companies for steps during the compliance and governance process. These can include registering a chemical with a national database, granting a license to import chemicals, or inspecting a production facility. Unfortunately, not all chemicals management activities can be characterized as discrete services.
  2. Flat fees: The government charges all chemicals and/or waste companies a fee, typically once a year. Though called “flat” these fees can vary based on the company’s size or the volume of chemicals it produces or imports. 
  3. Pollution taxes: The government charges companies if pollutants are released into the environment. Pollution taxes are different from fines because these releases occur under a determined threshold, whereas fines would be incurred if releases occurred in excess. Fines, of course, are another option for discouraging pollution, but they are calibrated based on different criteria. 

The United Nations Environment Programme (UNEP) has developed guidance on how to create cost recovery measures through its LIRA Guidance and follow-up documents. 

Challenges of current models for cost recovery systems

Cost recovery systems can be difficult to set up properly, and they can be limited in their effectiveness. To be successful, any cost recovery program would need to rely on data regarding the establishment of chemicals and their production, and there may be concerns about how competitive the domestic industry is compared to foreign markets. But there can also be significant barriers to their effectiveness: Not every country has a large chemical manufacturing or importing sector from which to recover costs, yet they may see substantial chemicals management problems related to the importation of waste, chemicals that are in use, or chemical migration. 

Examining cost-recovery systems in practice shines further light on the challenges. 

A small number of developing countries or economies in transition have created flat fees or fees for service (e.g., Costa Rica and Zambia have implemented them, while Kenya has authorized legislation) or pollution taxes (e.g., China and Vietnam). However, there is no evidence of widespread adoption or data around whether the programs have covered the cost of chemicals governance in their respective governments. 

However, the European Union has implemented cost recovery to the greatest extent possible. Yet, such measures have never fully covered the cost of the agency implementing the chemicals registry — say nothing of other costs associated with chemicals management — and the amount of revenue collected has declined over time. 

New models for financing chemicals governance

While the above examples show the potential opportunities and shortcomings of cost-recovery when countries try to do it on their own, there is a potential for countries to develop a coordinated approach. In recent months, two proposals have come forward. 

In 2020, the Center for International Environmental Law and the International Pollutants Elimination Network (IPEN) proposed a coordinated approach to cost recovery. In this proposal, they recommended that governments worldwide coordinate and act together to recover the costs associated with managing chemicals. Recognizing that the chemicals industry is global, they suggested the development of a minimum fee imposed at the point of chemicals production, with the resulting revenues shared across multiple jurisdictions. 

During joint negotiations on the successor to SAICM, South Africa presented a very similar proposal on behalf of the African region. 

The fate of these proposals is still uncertain. But it is clear that until there is a significant increase in the resources devoted to chemicals management, the goals of SAICM and chemicals and waste treaties will never be reached. 

https://www.ciel.org/wp-content/uploads/2021/12/Financing-the-Sound-Management-of-Chemicals-and-Waste-FINAL.mp4

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