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The proposed new chemicals policy of the European Community, REACH, is an important new development in environmental protection. Rather than waiting for government or independent researchers to determine that chemicals are hazardous, it will make manufacturers, importers, and professional users of chemicals responsible for the safe use. There is little doubt that REACH will give health and environmental benefits, but there has been little agreement about the resulting costs: -Will European manufacturers be crushed by the economic burden of chemicals regulation, as some industry sources have suggested? -Or, as projected in some public sector studies, will there be a minor cost impact, well within the ability of industry and worth the price? This report offers a new look at these costs. Frank Ackerman and Rachel Massey compare the current EC legislation on chemicals, the European Commission's proposal and an alternative proposal addressing previous versions of REACH. The authors make a bottom-up calculation of the expected registration and testing costs under REACH and provide a new analysis of the indirect economic impacts. Ultimately they evaluate some prominent arguments about the costs of REACH and discuss the expected benefits. In the appendices there is the derivation of their economic impacts analysis and a critique of the best-known industry-oriented study.

Chemical industry --- Government policy.

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Therapeutics --- Government policy

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Human engineering --- Government policy

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Wetlands --- Government policy

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Many private infrastructure projects mix regulation that subjects the private company to considerable risk, a government or regulator that is reluctant to see the company go bankrupt, and high leverage on the part of the company. If all goes well, equityholders make a profit, debtholders are repaid, customers pay no more than they expected, and the government is not called on to bail the company out. If all goes badly enough, however, the prospect of bankruptcy will loom. Unwilling to see the company go bankrupt, however, the regulator will have to permit an unscheduled price increase, or the government will have to inject taxpayers' money into the firm. In other words, the combination means customers and taxpayers bear more risk than would appear from the regulations governing the private infrastructure project.Ehrhardt and Irwin examine how these problems have played out in five cases. Then they describe how governments and regulators can quantify the extent of the problems and, using option-pricing techniques, value the customer and taxpayer guarantees involved. Finally, the authors analyze three options for mitigating the problem: making bankruptcy a more credible threat, limiting the private operator's leverage, and reducing the private operator's exposure to risk.The authors conclude that appropriate policy depends on the tax system, the feasibility of enforcing bankruptcy, and the benefits of risk transfer from taxpayer to the private sector.This paper - a product of Infrastructure Economics and Finance - is part of a larger effort in the Bank to improve government policy toward private infrastructure providers.

Bailouts (Government policy)