The Integrated Pollution Control Directive is here. What will it cost you?

by Jim Kenny

A cautious welcome for IPPC

The Confederation of European Paper Industries (CEPI) has just sponsored and organized a seminar on the European Commission's (EC) Integrated Pollution Prevention and Control Directive (IPPC). At a press briefing before the seminar got underway, CEPI offered a cautious welcome to the environmental proposals outlined in the directive, but it is clear that there are still some fundamental issues to be ironed out.

Although CEPI clearly does not want to appear negative to what is, after all, a major piece of EU environmental legislation, there is a definite note of concern coming from the organization's Brussels office. First of all, CEPI says that it is worried that other EU directives in areas such as water usage will ultimately clash with the provisions of the IPPC scheme, presenting producers with conflicting compliance requirements. Secondly, the confederation also says that it is concerned over the potential cost implications of the IPPC Directive.

Although this is the way the arguments were presented, it's difficult to avoid the impression that CEPI takes the latter point rather more seriously than the first. And so it should. Indeed, CEPI has even commissioned a study to analyze the implications of the new regulations on the competitiveness of European mills. The numbers are not particularly reassuring.

Adding up

Working on the premise that the IPPC regulations should be assessed in terms of their impact on the global competitiveness of European mills, CEPI commissioned an independent financial comparison between the average, anticipated cost of implementing IPPC and what would be the comparable cost of complying with the relevant environmental regulations in the USA under the Cluster Rules. The study showed that for a typical 250,000 ton/yr bleached kraft pulp mill in Europe, the IPPC regulations would be $4 million per year more expensive to comply with than the US regulations.

For the typical 250,000 ton/yr pulp mill example used in the study, that means that IPPC compliance is likely to represent some 3.3% of turnover. Given today's margins, that implies that a big bite will be taken out of the profit stream.

Working on the basis that this particular business sector, particularly pulp, is a global business, then the IPPC Directive could potentially harm the competitiveness of European mills. In turn, this could hit jobs in the sector.

So far, the EC's reaction on this issue has been to state that when a mill institutes environmental improvements, cost savings often follow as the process - whatever it may be - is re-engineered and optimized.

In many cases, this is a valid point. Equally, if a supplier is trying to sell your mill a new widget, the sales person will often emphasize that the payback time is just a few months as the extra efficiency will eventually lead to cost savings. This is also a valid point. The only problem with this scenario is that if you buy too many new gadgets to boost returns in the future, your company never actually turns a profit and you go out of business.

Coming back

Obviously, the directive has implications for the ability of European mills to compete with products sourced from areas with less stringent environmental regulations. But producers face a second potential problem with the directive within Europe as well.

Like the waste packaging directive, IPPC falls under the infamous subsidiarity clause within EU governance. In simple terms, this means that it is up to each EU country to interpret the rules as they see fit. Again, like the waste packaging directive, this leaves the door open for uneven implementation of the regulations between member states. So not only does IPPC lay open the possibility of an uneven commercial playing field externally, it could also promote divisions along national boundaries within Europe.

A side issue here is that IPPC works on the implicit understanding that the "local authorities" (in effect, regional government inspectors) understand the issues involved in deciding what is Best Available Practice (BAT) and the issues involved in determining acceptable discharge levels. Even with the additional funds that the EU hopes to divert into providing the necessary information here, it is unlikely that every mill will be judged on the same basis.

Added to that, there is also the issue of working out what BAT means in practical terms for mills based in different parts of Europe, utilizing a range of processes and using diverse raw materials.

Sound start

For now, producers have plenty of breathing space to digest the information as the regulations do not come into force until 2007. The exception is for greenfield projects, where the IPPC Directive will be applicable from November this year.

So far, it certainly seems that CEPI is taking the right approach. The confederation has actively sought to be involved in IPPC from the start - to such an extent in fact, that pulp and paper will be one of the first industries to feel the effects of the new legislation. Not only does this present the sector in a proactive and positive light, it should help put the industry in a position to influence the direction of the legislation as far as future implementation is concerned.

The trick now will be to make sure that IPPC does not place an excessive burden on pulp and paper mills in Europe, with the consequences for profitability and job losses that this could have in the future. A cautious welcome to IPPC is the right approach. In principle, it is a sensible piece of legislation, but only provided that it is applied sensibly as well.