Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

The listing, however, does triggers immediate obligations. For example, suppliers of articles in the EU that contain substances on the Candidate List in a concentration above 0.1% have to provide sufficient information to allow safe use of the article to their customers or upon request, to a consumer within 45 days of the receipt of the request. Suppliers of substances on the Candidate List also have to provide their customers with a safety data sheet. Additional obligations, including future requirements, can be found here.

The 14 substances added to the Candidate List are five variations of anthracene oil and paste, a form of coal tar used in manufacturing electrodes, aluminosilicate refractory ceramic fibers, zirconia aluminosilicate, 2,4-dinitrotoluene, diisobutyl phthalate, lead chromate, tris(2-chloroethyl)phosphate, and two lead-based pigments.

• The rules requiring full compliance apply to companies doing business in the UK which alone or as a group together meet the qualifying criterion (essentially by buying at least 6,000 MWh of electricity from any of the electricity supply companies and which is supplied through half-hourly meters or remotely read supply) and which have at least one settled half hourly electricity meter across the group.
• Reporting obligations will apply to those who bought 3,000 to 6,000 MWh of electricity in 2008.
• For the initial phase of the CRC scheme, the relevant group structure will be that which existed at 31 December 2008.
• The parent entity in a UK group will be the “qualifying undertaking” and together with its UK subsidiaries will be a “combined participant”.   If the qualifying UK group is foreign-owned, the terms of the Order clearly state that the ultimate overseas parent will be the “qualifying undertaking”.
•  As lawyers we get excited where legislation makes a company responsible for the actions of other members of its group and that is what the CRC does. Each of the companies within the combined participant is responsible, and jointly and severably liable, for the combined participant’s duties under the CRC laws, including the purchase of allowances and the range of potential financial penalties for non-compliance. The penalties have the potential to be costly and will be the subject of a separate posting.
• From the current draft of the CRC Regulations, we think groups of companies held for investment purposes, like majority holdings by private equity houses, could be caught by the need to comply as well as trading groups. The parent entity in a private equity structure could therefore be responsible for assessing, monitoring and reporting compliance, and buying allowances, across its subsidiaries on an aggregated basis.
• Each combined participant will need to have a “primary member” which will be the UK parent. If the parent is outside the UK and does not itself carry on business in the UK, a UK operating subsidiary may be nominated by the group. The primary member will be the first point of contact for the UK authorities in relation to the CRC.
• A 50/50 owned joint venture which does not qualify as a subsidiary of a company under the UK Companies Act may have to participate as a qualifying undertaking in its own right, rather than be combined in a group with any of its shareholders.

Complicated rules will apply to the implications for members of combined participants of M&A transactions including “takeovers”, “mergers” and “demergers” as defined in the Order. We will cover this topic in a future update on the CRC. 

Franchisors will have compliance responsibility for emissions by their “associated persons” meaning franchisees under arrangements requiring internal appearance of their premises to be similar to those of other franchisees or the franchisor. This will include vertical distribution chains like those of motor manufacturers who impose detailed premises standards on their dealers. Hotel franchise agreements may be caught as well. 

If the franchisor is an overseas company and does not itself operate, or have any operating subsidiary, in the UK, it will be subject to the CRC requirements but will need to appoint a UK representative as the primary member for compliance. 

Franchise compliance may be complicated where franschisees are themselves tenants and pay fuel costs through their service charge rather than direct.

Partnerships and other unincorporated associations will have to comply if they meet the qualifying criteria.

Note:

The CRC legislation is currently the subject of final consultation and it is possible its final form and the explanation above may change as a result of the final Order. 

A short posting cannot discuss all of the issues in depth so what follows is an overview of key REACH considerations and requirements. Please feel free to contact the authors of this posting for more details. 

The initial task of the group of Pre-Registrants is to agree that they intend to register the same substance, based on chemical identity and the substance sameness assessment. The exchange of this information within the group of Pre-Registrants and the decision to form a SIEF will be led by a SIEF facilitator (if available). In addition to substance and company information on the pre-SIEF page found in the REACH-IT portal, the European Chemicals Agency published a list of Pre-Registered substances on Dec. 19, 2008 (http://apps.echa.europa.eu/preregistered/pre-registered-sub.aspx). 

Agreement on substance identity may in some cases require the exchange of detailed technical information on the composition of the substance, the raw materials used, the substance impurities, and possibly on the manufacturing process. Given that agreeing on substance sameness may in some cases involve the disclosure of confidential data, companies may want to preserve confidentiality in a secure exchange.

Moving to the next stage, a SIEF is formed from a pre-SIEF after the potential registrants have agreed they intend to register the same substance. As a potential registrant, obligatory participation in the SIEF following Pre-Registration is a means to (1) facilitate the exchange of information between potential registrants, thereby avoiding the duplication of studies, and (2) agree on classification and labeling. REACH provides for potential registrants to share information and work together to prepare a joint registration submission.

Participants in a SIEF are free to organize themselves in consortia or other forms of agreements as they see fit to carry out their obligations under REACH. Consortia are intended to provide a legal framework to deal with cooperation among SIEF participants and may include elements such as:

• Adopting competition law compliance rules
• Preserving the confidentiality of business information and data
• Defining classification and labeling
• Facilitating data-sharing and coordination

The activities of consortia may potentially give rise to EC competition law issues. Article 81 of the European Community Treaty prohibits any agreements or concerted practices that may result in the prevention, restriction or distortion of competition within the common market. In complying with data sharing and registration obligations, potential registrants should limit exposure to anti-competitive behavior by avoiding or carefully managing the exchange of commercially sensitive information and discrimination regarding consortium entry or sharing of costs. Adherence to a strict antitrust policy, including a well-thought out and transparent approach to dealings with competitors, is advisable.

Moreover, Article 82 of the EC Treaty prohibits the abuse of a dominant position, which can include a collectively dominant position, as may be held by a consortium. Article 82 EC is therefore aimed at preventing any undertaking, which holds a dominant position in a market, from abusing that position, by, for instance, directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions or limiting production, markets or technical development to the prejudice of consumers. The exclusion of a competitor from a consortium without objectively justified reasons may potentially be problematic under both Articles 81 and 82 EC, and so it is recommended that the admission of undertakings to any consortia be carefully managed in a way that avoids such risks.

Reed Smith's experience in this area suggests that information exchange, particularly in relation to future volumes, is regarded by the European Commission as being particularly sensitive – the Commission’s Directorate General for Competition has previously referred specifically to REACH as an area of interest to it and is currently consulting on the issue of information exchange.

Citing concerns about scientific uncertainty as to the health and environmental consequences of deca-BDE use, the European Parliament and Denmark challenged the exemption on procedural grounds, and claimed that the European Commission failed to follow the specific RoHS exemption approach. The ECJ agreed. On April 1, 2008, the court determined that the European Commission, by adopting the exemption under the Existing Substances Regulation used a risk assessment criteria and procedure that was inconsistent with the RoHS Directive. Because the assessment did not address the conditions for an exemption required by the RoHS Directive, the court ruled that the deca-BDE exemption was annulled. The court then allowed a 3-month transition period before prohibiting deca-BDE.

The ECJ's level of judicial application of the RoHS Directive may have implications for other environmental laws in the EU, including REACH, the new chemicals regime. In the deca-BDE case, the court found the risk assessment approach used, even though technically relevant, was flawed because it was not fully consistent with specific criteria provided in the relevant legislation. As a result, the court is requiring the European Commission to adhere to environmental requirements specifically set out in the overarching EU legislation. This requirement may prove quite onerous, especially in complex and evolving laws such as the REACH, and may provide a legal basis to challenge environmental measures of the European Commission.

In addition to examining the criteria and objectives of the RoHS Directive, the ECJ also justified its strict interpretation of the deca-BDE exemption under the public health and environmental provisions of the European Community Treaty.   This may indicate that, in the future, requirements under other environmental legislation may need to satisfy the Treaty’s provisions ensuring a high level of human health protection, the use of the precautionary principle, and that preventive action should be taken.

As for the future of deca-BDE, regulation of the chemical is increasing while it appears the chemical’s use is decreasing. Along with the prohibition in the EU, several states have enacted legislation limiting the use of deca-BDE. Moreover, a number of large, global companies have already replaced deca-BDE with alternative flame retardants. As a result, these companies are better prepared to comply with the current restriction of deca-BDE, especially in the EU, and may gain a competitive advantage against competitors that continue to depend on the chemical.