Study: An assessment of the cumulative cost impact of specified EU legislation and policies on the EU forest-based industries

This study consists of a cumulative cost assessment of the cost impacts of the most relevant EU legislation and policies for the EU forest-based industries (woodworking and pulp and paper) between 2005 and 2014.

The EU legislation analysed was prioritised from over 100 acts and grouped in 8 policy areas or 'legislative packages'. These included: competition, climate & energy, environment, forest-related, employment, product-related, transport, trade. (NB competition policy had no or negligible costs and trade policy was not very relevant for the woodworking sub-sector).

In addition, an analysis of the industries’ cost structures was made in relation to key international competitors (Brazil, China, USA).

Qualitative results

Regulatory costs differ considerably within and across Forest-Based Industries sub-sectors (see quantitative data below):

The variability of costs across the different forest-based industries' sub-sectors is significant and reflects differences in product groups and their production chains. The highest cost as a percentage of added value is observed in wooden containers and packaging, amounting to 16.4% (average annual figure over 2005-2014), and the lowest in builders’ carpentry and joinery, at 1.3%. The cost for wood-based panels represents 10.8% of the sub-sector’s added value, for pulp 5%, for paper and paperboard 4.2% and for sawmilling 2.6%.

Woodworking sub-sector

When all legislation relevant to woodworking companies is cumulated, the estimated average annual total direct cost borne by its sub-sectors covered during the period 2005-2014 is around 4.7% of added value, representing almost 1.3% of their turnover and 13.7% of their gross operating surplus.

2 legislative packages clearly stand out as the main causes of the EU legislative burden, namely the environmental and the climate and energy packages, generating respectively 42% and 36% of direct regulatory costs for the overall woodworking sub-sector.

Major milestones of the evolution of costs have been the establishment of EU climate and energy targets, known as “20-20-20” targets for a low-carbon economy, the revision of the Renewable Energy Directive in 2009, the adoption of the Integrated Pollution Prevention and Control (IPPC) in 2008 and the transposition of the Industrial Emissions Directive in 2013. Other legislative acts such as the Waste Framework Directive and the EU Eco-Label Directive also contribute to regulatory costs in the sector.

Overall, costs generated by the EU legislation related to the manufacture of woodworking are operating costs and monetary obligations, both amounting to 1.7% of added value (each about one-third of the total regulatory costs for the woodworking sector).

Pulp, paper & paperboard sub-sector

When legislative costs borne by the pulp, paper and paperboard companies is cumulated, the estimated average annual total direct costs on these subsectors during the period 2005-2014 approaches 4.3% of added value, representing around 0.9% of their turnover, 10.8% of the gross operating surplus, 7.6% of earnings before interest, taxes, depreciation, and amortization (EBITDA) and 21.9% of earnings before interest and taxes (EBIT).

The same 2 legislative packages as for woodworking clearly stand out as the main cause of legislative burden, namely the climate and energy package and the environmental package, generating respectively 41.5% and 32% of direct regulatory costs for pulp, paper and paperboard sectors.

Major milestones of the evolution of costs are the establishment of the EU Emissions Trading System (EU ETS), covering pulp, paper and paperboard since its start in 2005. The second increase in 2012-2013 may also be linked to the ETS’s second phase, e.g. from 2013 the ETS requires a reduction of 21% of carbon emissions compared with 2005. The Energy Efficiency Directive was also implemented during this period and it would also have been preceded by investments to meet new legal requirements.

Regulatory costs for the manufacture of pulp, paper and paperboard are monetary obligations, amounting to 1.5% of added value (about one-third of the total regulatory costs for the sector), and capital expenditures, reaching 1.4% of added value (33% of the total regulatory costs), closely followed by operating expenditures, representing 1.1% of added value (a quarter of the total regulatory costs).

Costs depend on the company profile: Within the two main sub-sectors woodworking and pulp, paper & paperboard, variability reflects the size of companies and their organisational structure, efficiency, level of integration and product portfolio. For instance, regulatory costs represent a larger burden for SMEs (i.e. a larger share of their turnover or profitability) than for large firms because the costs to comply with legislation are not linear and cannot be amortised by SMEs on a large volume of products.

The composition of the total regulatory costs was:

The % breakdown by policy area of total regulatory costs was as follows:

The composition of the total direct regulatory costs was:

The % breakdown by policy area of total direct regulatory costs was as follows: