Regulatory complexity increasing for companies handling chemicals

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Courtesy of 3E Company

The initiatives highlighted in this article as of particular interest to oil and gas companies affect one of the most heavily regulated industries in the world. Staying in compliance with international, federal, and regional regulatory obligations is a complex undertaking. The depth and breadth of knowledge required should not be underestimated.

GHS in the US

An initiative with strong implications for the oil and gas industry is the Occupational Safety and Health Administration's intent to align its Hazard Communication Standard with provisions of the United Nations Globally Harmonized System of Classification and Labeling of Chemicals (GHS). This proposed alignment has already heralded significant changes to the HazComm Standard in 2010 and 2011, with proposed revisions including both philosophical and tactical changes to hazard communications.

It is anticipated, however, that these changes are the tip of the iceberg. When the final rule is promulgated (most likely in early 2012), the revisions will have far-reaching implications for Material Safety Data Sheet (MSDS) and label authoring, publishing, distribution, and management. The proposal also includes revised criteria for the classification of hazardous chemicals, as well as changes to definitions and terms used in the standards, and new training requirements for employees. As a result of the alignment, companies will face many challenges, including reevaluating how their substances and mixtures are classified, reissuing MSDSs and labels, and training staff as appropriate.

Companies will be prohibited from implementing this regulation until the final rule is promulgated. Companies will have 3 years to come into compliance with the final rule and 2 years to implement training requirements on the final regulation. There are 26 states and territories with their own OSHA-approved plans. These states and territories will have 6 months to adopt comparable provisions of the final standard. In the meantime, individual state plans will remain in effect until required revisions have been adopted.

Challenging implementation

GHS is difficult to implement, especially in countries such as the US, Japan, and South Korea, where multiple regulatory authorities govern different aspects of the hazard communication requirements. In the US, OSHA, the Environmental Protection Agency (EPA), the Consumer Products Safety Commission, and the Department of Transportation are working to implement GHS. Each agency has the right to adopt GHS in a way that best suits its purpose with no consideration given to a unified approach or time line.

Achieving compliance with the new HazComm Standard will challenge many companies, especially since GHS requirements for the US are still evolving. The risk of errors or misinterpretations can persist, which demands access to regulatory expertise.

One of the most significant shifts will be for companies accustomed to complying with OSHA's regulation in the US. Those companies will need to shift from a risk-based classification approach to a hazard-based classification approach. Instead of considering the likelihood or probability of an event occurring, classification will be absolute under GHS. The introduction of symbols is also a relatively new concept in the US.

Global GHS

Many Asian countries—including Japan, Taiwan, China, South Korea, New Zealand, Indonesia, and Russia—as well as Europe have implemented GHS, but not always in its entirety. Inconsistent implementation results in differences in how the classification results are presented on the MSDS and on the labels. In Europe, companies will be required to follow a harmonized (mandatory) classification of certain substances for certain end points. South Korea and Japan also have official lists of recommended GHS classifications for substances.

As much as GHS is meant to drive global harmonization, individual countries are allowed to select the physical hazards, the health and environment classes, and the associated categories within each class that they wish to adopt. Most countries that have implemented GHS have chosen to keep some of their existing hazard classification and communication that is not yet part of the GHS. As a result, there will be far less harmonization between countries and regulatory authorities within each country than originally anticipated.

The Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) Regulation went into effect on June 1, 2007, simplifying but also complicating the compliance work for companies manufacturing or trading in Europe. As a result of the legislation, all companies manufacturing, importing, distributing, or using chemical substances (on their own, in mixtures, or in articles) in Europe are required to closely examine their chemical inventory for substances within the scope of the regulation to ensure compliance.

Key components of REACH mandate:

  • Registration of manufactured/imported chemical substances.
  • Increased information and communication throughout the supply chain.
  • Evaluation of some registered substances.
  • Authorization for use of substances of very high concern.
  • Restriction of the use of certain substances for specific applications.

The European Chemicals Agency (ECHA) has been established to manage the system.

REACH conformance

Non-European Union oil and gas companies should establish and maintain a good and reliable inventory of substances in all chemicals (substances, mixtures, and chemicals in articles) that are exported to the EU. Each substance must be identified by Chemical Abstracts Service number, European Inventory of Existing Chemical Substances number, etc., and the amounts exported to the EU must be known. All test data owned by the company must be identified as the information will most likely need to be shared with other companies in the Substance Information Exchange Forum.

If the non-EU company uses mixtures for producing the products exported to EU members, the chemical composition of these mixtures must be known, as well as the producer of the substances. Eventually, the non-EU user who exports a product to the EU, and the producers of the constituent substances will need to have agreement regarding which company will have responsibility for eventually late preregistration and for the registration under REACH.

The company should consider if it can handle the registration and the other requirements under REACH by itself as this requires that the company have an EU subsidiary that can do the work. Possible alternatives are to have the company's EU customers register the substance(s) or appoint an 'only representative' (a person or company legally established in Europe who takes over the responsibilities for the substance under REACH). Outsourcing is also an option. In any case, the non-EU company has to play an active role during the registration of the substance(s). Depending on which solution the company chooses, the company must request information related to the completed preregistration and prepare for registration from the EU customers.

Useful guidance documents and other information can be downloaded from the ECHA web site (http://echa.europa.eu).

TSCA reform imminent

Momentum is also building for significant reform of the Toxic Substances Control Act (TSCA). On Dec. 30, 2009, EPA Administrator Lisa P. Jackson announced an initiative with a comprehensive approach to enhance the agency's current chemicals management program within the limits of existing authorities. This effort includes:

  • New regulatory risk management actions.
  • Development of chemical action plans, which will target the agency's risk management efforts on chemicals of concern.
  • Requiring information needed to understand chemical risks.
  • Increasing public access to information about chemicals.

Many companies will be affected by these changes as almost every business involved in the chemical industry is impacted by TSCA in some way (with some exceptions among food, drug, cosmetic, nuclear, and pesticides companies). In addition, raw materials, intermediates, and finished goods are regulated by TSCA. Full-lifecycle, or cradle-to-grave, compliance is an essential component of TSCA. The act regulates most manufacturing or importing, processing, and disposal activities.

Companies not complying with TSCA could face severe legal repercussions, including criminal and civil penalties, damage to brand or reputation, and diminished ability to do business. Workers who demonstrate willful and knowing noncompliance may be imprisoned.

The risk of financial damage is also high. Noncompliant companies may receive fines and penalties and experience a loss of revenue if production is stopped.

The penalties for noncompliance are severe: up to $37,500/day and imprisonment for up to 1 year. There is also a 5 year statute of limitations, and criminal penalties for 'knowing' or 'willful' violations can be in lieu of or in addition to civil penalties.

To ensure compliance with TSCA, experts recommend developing and maintaining a comprehensive and detailed plan, which should include:

  • TSCA inventory—checking the TSCA inventory for substances imported or manufactured, including the ingredients of finished products.
  • TSCA research and development exemption—reviewing R&D exemption requirements and setting up procedures to govern related activities.
  • Import certification—obtaining import certification once the status of the substance or product to be imported has been checked against the TSCA inventory.
  • Export notification—establishing processes for tracking exports designated under TSCA Section 12(b) and assisting with export notification.
  • Adverse effects—establishing processes for compliance with adverse effects reporting and recordkeeping.
  • Regulatory tracking—monitoring and tracking regulatory changes likely to impact business.
  • Recordkeeping—maintaining required records and auditing against various recordkeeping requirements.

TSCA reporting changes

On Aug. 2, 2011, the EPA issued a final Chemical Data Reporting (CDR) Rule under TSCA, which was proposed as the Inventory Update Reporting (IUR) Modifications Rule. The final rule, effective on Sept. 15, 2011, was published on Sept. 6, 2011.

The new rule heralds many changes for oil and gas companies. For example, the reporting frequency has changed from 5 years to 4 years. This year the rule requires 2011 manufacturing, processing, and use data and 2010 production volume information to be reported. And the industry now also will have a 5 month window for reporting data.

Under the final rule, manufacturers (including importers) are required this year to:

  • Report if the production volume of a chemical substance meets or exceeds the 25,000 lb threshold during the principal reporting year (i.e., calendar year 2011).
  • Provide upfront substantiation for each processing and use data element claimed as confidential business information. Submitters cannot claim those data elements as confidential when they are identified as 'not known to or reasonably ascertainable by.'
  • To use e-CDRweb, EPA's electronic reporting tool, to submit all CDR information through the internet.

Exemptions from these requirements are available. Certain chemicals—naturally occurring substances, microorganisms, polymers, certain forms of natural gas, and water—are fully exempt unless they are subject to another TSCA rule. In addition, certain chemicals are partially exempt, manufacturers of which are required only to report identification and manufacturing information. The partially exempt chemicals are listed in the CDR regulations at 40 CFR 711.6(b). Partially exempt chemical substances termed 'petroleum process streams' for purposes of IUR under 40 CFR 711.6(b)(1) should be of interest to the oil and gas industry.

Substances subject to an enforceable consent agreement are no longer exempt from reporting.

SEMS oversight

Offshore operators are subject to oversight by the Bureau of Safety and Environmental Enforcement, which has assumed the enforcement of Interior Department regulations for oil and gas leases on the Outer Continental Shelf. New regulations required operators to develop and implement Safety and Environmental Management Systems (SEMS) plans by November 15, 2011. The agency kicked off audits of operator SEMS plans in the first quarter of 2012. As a part of their SEMS plans, operators must evaluate the safe work practices and training for all of their contractors.

The SEMS rules specifically refer to the use of chemicals on offshore facilities. Under the operating procedures section of the regulations, the SEMS plan must address:

  • Control of hazardous chemical inventory.
  • Properties of, and hazards presented by, the chemicals used in operations.
  • Precautions operators will take to prevent the exposure of chemicals used in operations to personnel and the environment, including control technology, personal protective equipment, and measures to be taken if physical contact or airborne exposure occurs.
  • Raw materials used in the operations and the quality-control procedures used in purchasing them.

The regulations also require that a change in chemicals used in offshore exploration or production processes (other than what might be called 'in-kind' changes) involve a management-of-change process to consider the impact this may have on the environment and safety.

The SEMS rules also require that the operator undergo thorough audits of their SEMS plans routinely and make audits available to government officials for review. All of this means that MSDSs on the facilities must be current and accurate and that there will be auditors checking to ensure conformance.

Facilitating compliance

Achieving environmental regulatory compliance can be a daunting task, especially with the regulatory landscape constantly shifting and changing. Strong processes, applications, and systems are necessary to support the various aspects of compliance management for GHS, REACH, and TSCA. The following tasks can help facilitate compliance:

  • Conduct a detailed portfolio analysis and establish an inventory with role (manufacturers/importers or downstream users), tonnage, classification (current and EU/GHS) and registration requirements.
  • Obtain raw material MSDSs and of full composition of mixtures.
  • Identify possible registration, authorization, and restriction requirements.
  • Update or rewrite documents and labels according to GHS and REACH.
  • Develop a full understanding of the REACH registration process.

Training can also help with identifying responsibilities and establishing an action plan for REACH, GHS, and TSCA.

The authors

James C. Lee, JD, is a regulatory research analyst-North America, with 3E Company, a provider of environmental health and safety compliance and information management services. In this role, Lee is responsible for conducting research, including tracking and analyzing updates of various statutes and regulations of the US (federal and state level) and Canada, which pertain to regulation of chemical substances. His major areas of regulatory research include legal topics in chemical classification, environmental compliance, hazard communication, safety data sheet requirements, chemical products, food additives, food contacts, and pharmaceuticals.

Ken Wells is director of special projects for PEC Premier, an offshore energy safety training and contractor safety assurance company. He wrote and helped develop the most widely used SEMS awareness training for offshore workers and conducts workshops for contractors needing to understand SEMS.

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