CoverResearch IntelligenceSpecialty chemicals:Opportunities,challenges,and their role as drivers of sustainabilityAugust 2024Krungsri ResearchContentsIntroduction3The specialty chemical value chain4Recent developments,the current situation and the outlook6Opportunities and market drivers 9Challenges facing the industry10Specialty chemicals as drivers of sustainability15New opportunities and challenges for Thai manufacturers of specialty chemicals16Krungsri Research view17References18Subscribe UsContentsDisclaimerUnless explicitly stated otherwise,this publication and all material therein is under the copyright of Krungsri Research.As such,the reuse,reproduction,or alteration of this text or any part thereof is absolutely prohibited without prior written consent.This report draws on a wide range of well-established and trustworthy sources,but Krungsri Research can make no guarantee of the absolute veracity of the material cited.Moreover,Krungsri Research will not be held responsible for any losses that may occur either directly or indirectly from any use to which this report or the data contained therein may be put.The information,opinions,and judgements expressed in this report are those of Krungsri Research,but this publication does not necessarily reflect the opinions of Bank of Ayudhya Public Company Limited or of any other companies within the same commercial group.This report is an accurate reflection of the thinking and opinions of Krungsri Research as of the day of publication,but we reserve the right to change those opinions without prior notice.For research subscription,IntroductionThian ThiumsakSenior A 662 296 47423What are specialty chemicals?Specialty chemicals are chemical products designed to meet the specific needs of targeted downstream users,typically to enhance their industrial processes or products.In contrast,commodity chemicals are standardized products produced in large quantities to meet a more generalized demand.The market for specialty chemicals can be categorized by the types of products available and their applications in downstream industries.1)Specialty polymers:These include high-performance thermoplastics,specialty films,engineering thermoplastics,and water-soluble polymers.These materials are used in end-user industries such as construction,cosmetics,auto assembly,medical devices,and electronics to enhance product quality and performance.2)Electronics chemicals:These are used in the production of parts and products in the electronics industry,including printed circuit boards,semiconductors,and display devices.3)Construction chemicals:This category includes concrete admixtures,waterproofing chemicals,protective coatings,asphalt additives,adhesives,and sealants.Specialty ChemicalsOverview of the industry value chain The production of specialty chemicals is primarily driven by a focus on customer needs,requiring players across the value chain to demonstrate creativity and innovation in responding to rapidly evolving demand.Globally,the specialty chemical value chain consists of:(i)feedstock suppliers;(ii)specialty chemical manufacturers;(iii)direct customers;and(iv)end-users.Manufacturers of specialty chemicals utilize a wide range of feedstocks derived from crude oil,metals and minerals,natural gas,and biomass.Major suppliers of these feedstocks to global markets include Saudi Aramco,Royal Dutch Shell,China National Petroleum Corporation,BP,and Exxon Mobil(Figure 1).The industry transforms these inputs into specialty chemical products such as construction chemicals,agrochemicals,food additives,and cosmetics products.Companies such as Solvay,Evonik Industries AG,and Clariant then sell these products through suppliers and distributors to their customers.These customers include oil companies and refiners that use enhanced oil recovery chemicals to improve extraction rates.At the end of the specialty chemical value chain are the globally significant end-users in Asia,Europe,and North America.Among them is the Saudi Arabian chemicals manufacturer SABIC,which uses specialty chemicals to produce high-performance thermoplastic polyetherimide(PEI).PEI is notable for its strength and rigidity at high temperatures and its rapid heat dissipation,which enhances energy efficiency.These advantages have led to PEIs widespread application in diverse areas such as electronics,automotive engineering,and medical devices.The specialty chemical value chain4Specialty ChemicalsFigure 1Specialty Chemicals Value ChainSource:Grand View Research,Clariant Integrated Report 2019,Krungsri ResearchFeedstockCrude oilNatural gasMetal&MineralsBiomassBasic ChemicalsOlefins(Ethylene,Propylene)Aromatics(Benzene,Xylenes)MethanolOthers(Ammonia,Phosphorous)Specialty ChemicalsSpecialty PolymersElectronicsChemicalsConstructionChemicalsPlasticsAdditivesDistributors/SuppliersDirect CustomersOil&MiningCustomersOil&RefiningManufacturersBasic ChemicalManufacturersEnd UsersAutomotiveConstructionElectronicsPharmaceuticalFeedstock trendsManufacturers of specialty chemicals,similar to their counterparts in the commodity chemicals market,are increasingly exposed to risk due to feedstock price volatility.These prices are influenced by fluctuations in the global price of crude oil,the primary input in chemical supply chains.Additionally,the supply of feedstocks has been disrupted by periodic production facility shutdowns.During the COVID-19 pandemic,sluggish demand from downstream consumers,including the construction and auto assembly industries,negatively impacted demand for products such as specialty polymers and construction chemicals.However,if these manufacturers can expand their customer base,they may mitigate risks and offset the effects of weak demand from end-users.Investing in large-scale facilities can generate additional economies of scale,and strategically locating these facilities near raw materials can reduce transportation costs and enhance the producers competitive advantage.In recent years,specialty chemicals manufacturers operating in global markets have increased their competitiveness by scaling up investments,with a notable focus on the Middle East.For instance,in Saudi Arabia,the chemicals industry represents 35%of all national investments.Similarly,Chinas Sinopec Corp has been investing in refineries and petrochemical production facilities abroad,using these investments to both expand internationally and secure access to feedstocks and other inputs.Additionally,companies are enhancing their competitive edge by securing supplies through long-term procurement contracts or by pursuing backward integration to extend their operations upstream.Trends in the manufacturing of specialty chemicalsTo better meet customer demand for products with specific characteristics,specialty chemicals are typically produced using batch processing.Unlike the mass production of commodity-grade chemicals,this method requires more frequent changes to feedstocks,equipment,and operating conditions.However,batch processing is less capital-intensive,consumes less energy,and results in lower CO2 emissions.The business environment has significantly evolved in recent years as major commodity-grade manufacturers have sought to mitigate risk by diversifying into the specialty chemicals market.For example,Thai IRPC PCL has set a target to increase the share of income from specialty chemicals from 33%of its polymer sales in 2023 to 38%in 2024 and 50%in 2025.Additionally,many companies are actively pursuing mergers and acquisitions to establish new entities focused solely on the specialty chemicals market,aiming to better meet consumer demand.5Specialty ChemicalsOverall market growthPrior to the COVID-19 pandemic,the global market for specialty chemicals experienced strong demand from downstream industries,including automotive,electronics,construction,pharmaceuticals,food additives,and oil refining.As a result,global sales increased by 4.6%in 2019,even as the petrochemicals sector faced a-9.8%contraction.The onset of the pandemic in 2020 led to a global economic recession.While petrochemical sales fell by-10.3%worldwide,the specialty chemicals market contracted by only -3.3%.Sales then rebounded in 2022,growing by 3.5%as infection rates eased and downstream demand resumed.The market for specialty chemicals is projected to grow at a compound annual rate of 5.1%from 2022 to 2030,which is more favorable compared to the 4.0%annual average growth forecast for the petrochemicals industry(Figure 2).Recent developments,the current situationand the outlook6Specialty ChemicalsFigure 2Annual Growth in the Petrochemicals and Specialty Chemicals Markets,2018-2030(%)Market segment analysisA comparison of the various specialty chemicals segments shows that the market for electronics chemicals is expected to experience the strongest growth between 2022 and 2030,at a rate of 5.5%per year.Global demand for electronics goods is projected to rise steadily(Figure 3).Cisco estimates that in 2020,127 Internet of Things(IoT)devices were brought online every second,and the number of IoT devices is expected to reach approximately 75 billion by 2025.Consequently,demand for smartphones and integrated circuits will continue to accelerate,boosting the production of the specialty chemicals required by the electronics industry.40.6-22.05.1 4.0-15.0-10.0-5.0-5.0 10.0 15.02018201920202021202220232022-2030Specialty chemicalsPetrochemicalsCumulative annual growth rate(CAGR):2.23%Source:Bloomberg,Grand View Research,Fortune Business Insights,Krungsri ResearchStrong growth in the electronics and automotive industries will also boost demand for other specialty products.These chemicals can be used to produce lighter,more wear-resistant parts,benefiting manufacturers of specialty polymers,coatings,adhesives,sealants,elastomers(CASE products),and plastic additives.Annual sales for these products are expected to rise by 4.7%,4.7%,and 5.3%,respectively.7Figure 3Forecast Annual Growth in Sales of Specialty Chemicals,by Product Group(2022-2030)(%)Regional and country analysisGlobally,the Asia-Pacific region has the highest concentration of specialty chemicals manufacturing capacity.As of 2022,the region accounted for 48%of the global output of these products by value.Following the Asia-Pacific region,North America and Europe contributed 23%and 21%of industry income,respectively.This disparity is expected to widen further,with the Asia-Pacific region projected to enjoy annual growth of 6.9%from 2022 to 2030,compared to just 2.9%and 2.7%for North America and Europe.By 2030,these three regions are anticipated to control 56%,19%,and 18%of the market,respectively(Figure 4).This strong divergence in outcomes and the greater relative strength of specialty chemicals production in the Asia-Pacific region can be attributed to the rapid pace of industrialization there.The IMF forecasts annual GDP growth of 3.9%,6.5%,and 5.0%for China,India,and Indonesia,respectively,over 2024-2028,compared to an average growth rate of just 1.3%for the G7 economies(the Group of Seven,an association of seven highly developed economies).This significant difference in economic growth will support much stronger demand for specialty chemicals in the Asia-Pacific region than in the West.5.55.10123456Source:Grand View Research,Krungsri ResearchSpecialty ChemicalsExamining individual countries within the Asia-Pacific region reveals that the market is dominated by China and India,which are expected to experience annual growth rates of 7.4%and 6.8%,respectively,from 2022 to 2030.By 2030,these two countries alone will account for two-thirds of the total value of the Asia-Pacific market.China and India,with their long-standing expertise in using medicines and food to treat illness,are poised to become market leaders in the production of pharmaceutical and nutraceutical additives.The market for these additives in China and India is forecast to grow by 8.0%and 7.4%,respectively,over the period 2022-2030.Additionally,Chinese production of electronics chemicals is projected to expand by 6.7%annually,driven by strength in the semiconductor market,which Marketlinepredicts will grow by 6.7%per year from 2024 to 2028.This growth rate is significantly higher than the forecast growth of 5%and 3%in India and Singapore,respectively.In India,ongoing economic expansion and substantial government spending on infrastructure will boost demand from downstream industries such as construction,automotive engineering,and manufacturing in general.This increased demand will lead to stronger sales of construction chemicals,plastic additives,electronics chemicals,and rubber processing products.8Figure 4Regional Share of the Market for Specialty Chemicals,2022 and 2030(%)20222030Asia Pacific 56%North America 19%Europe 18%Middle East&Africa 3%Latin America 4%Asia Pacific 48%North America 23%Europe 21%Middle East&Africa 4%Latin America 4%Source:Grand View Research,Krungsri ResearchSpecialty ChemicalsThe market for specialty chemicals will be boosted by tailwinds on both the demand and supply sides.On the demand side,growth in downstream industries will naturally support increased demand for specialty chemicals.On the supply side,increased spending on research and development will help manufacturers better meet the ever-changing needs of their buyers.Demand:Growth will be driven by downstream industriesIncreased demand for specialty adhesives and sealants:Downstream manufacturers are transitioning from traditional materials like steel and other metals to a greater reliance on plastics.This shift is driving a move from mechanical fasteners to adhesives and sealants.For instance,in automotive and aeronautical engineering,the increasing use of plastics,composites,and non-ferrous materials is naturally boosting the demand for adhesives and sealants.These products offer additional advantages over traditional materials,including reduced vibration and lower weight.Consequently,this segment is experiencing significant growth,and producers are benefiting from the ability to charge a premium for specialty adhesives and sealants compared to standard products,further enhancing their revenue.Rising demand for water-soluble polymers:The market for water and wastewater treatment is strengthening due to the expanding global population,which drives demand for water-soluble polymers.This trend is expected to continue in the near term,particularly in developing and newly industrialized countries such as India and China.Governments in these regions are increasingly focused on environmental issues and wastewater management.For instance,the Chinese government plans to invest USD 50 billion in 2025 to manage wastewater from heavily polluting industries,including textiles,printing,iron and steel processing,oil and natural gas extraction,coal mining,and pharmaceuticals.Supply:Investment in R&D will be the main driver of expansionManufacturers of specialty chemicals are addressing the demand for safe and sustainable products from electronics and consumer goods producers by increasing their investment in R&D and product innovation.A notable example is Apple,which has implemented strict requirements for the components used in its products.As a result,specialty chemical manufacturers are developing higher-performing products that are both cost-effective and safe.Market changes are also influenced by external factors,such as rising oil prices,increased demand for environmentally friendly products,the tightening supply of non-renewable resources,and the growing global population.These factors collectively drive the need for specialty chemicals and polymers derived from biomass.In response,industry players are boosting their R&D expenditures.Opportunities and market drivers 9Specialty Chemicals The commoditization of the specialty chemicals marketThe commoditization process occurs when products that are initially highly differentiated and command a premium price become low-cost goods with minimal or no differentiation.This shift has been observed in the specialty chemicals industry;for example,polyethylene terephthalate(PET)transitioned from a specialty to a commodity chemical due to the rapid dissemination of production technologies.As a result,PET production capacity expanded quickly,leading to market saturation and oversupply.In response,manufacturers have had to revise their business strategies,shifting from a focus on adding value for customers to competing on price.This price competition has led to squeezed profit margins(Figure 5).Similar patterns of commoditization have affected other chemical products in the industry,resulting in price declines(Figure 6).Challenges facing the industry10Specialty ChemicalsFigure 5The Impacts of Rapid Commoditization on PET Spreads,1994-2002 02004006008001000120014001600199419951996199719981999200020012002PET-TaiwanPET-USSource:Bloomberg,Krungsri Research11Figure 6The Spread of Commoditization from Upstream to Downstream ProductionCommodity marketFragmented marketSignificant volatility(price and demand)Cost-curve-based pricingFeedstockNatural gasLPGNaphthaGasoilNGLPetrochemicalsMethanolEthylenePropyleneC4 BTXSpecialty ChemicalsETPThermosetresinsAdditivesCoatingsPigmentsIntermediates/plasticsEO,EPFunctionalchemicalsPolyolefinsPVC,PSMonomersSolventsPET,PMMAABS,PCCommodity frontier moving to the rightIncreasing complexityMore concentrated marketsLow volatilityValue-based pricingPremiummaterialsTechnical polymersSeedsCrop protectionCatalystBatterymaterialsCommodityFew remaining nichesOnset commoditizationRapid commoditizationSpecialtySource:McKinsey analysis,Krungsri ResearchFor players in the specialty chemicals market,a significant concern is the increasing entry of new companies,particularly in China,India,and the Middle East.This influx is accelerating the commoditization process and the rate at which capacity is being added to the supply side of the market.To maintain their position as market leaders,specialty chemical manufacturers will need to intensify their efforts to create value for their customers.This will require a strong focus on investing in R&D and technical innovation.Over the past two to three decades,the pace of technical innovation in the specialty chemicals sector has slowed.This has made it more challenging to introduce new products that are significantly differentiated from existing ones and that provide customers with a clear way to enhance their own outputs.Established products have already achieved widespread commercial use in downstream industries,and the increased knowledge of industrial buyers and users of specialty chemicals has strengthened their bargaining power.As a result,new products find it harder to penetrate these markets.Nevertheless,manufacturers are now beginning to leverage advances in artificial intelligence(AI)to enhance their manufacturing processes.AI is being used to support R&D,accelerating progress and improving the standards of new product development.Unlike in the past,companies are increasingly collaborating with customers,academia,and startups on R&D projects.This approach allows them to extend their knowledge and expertise beyond their internal capabilities and incorporate external sources of innovation.This trend is most notable in the agrochemicals and fertilizer segments,where over 20%of R&D spending is directed towards external collaborations(Table 1).By embracing and expanding these practices,specialty chemicals manufacturers can revitalize the industrys research and innovation efforts.Specialty ChemicalsVolatility in raw material costs and the overall industry price structureCrude oil is a vital input for producing specialty chemicals.However,before it can be used as a feedstock,crude oil must first be processed into various hydrocarbon products.Given the central role of oil products in specialty chemicals manufacturing,fluctuations in global crude oil prices inevitably affect profitability across the industry.The price structures for specialty and commodity chemicals differ significantly,leading to varying impacts of production cost changes on profits.Typically,commodity products use a cost-based pricing model,meaning price increases are driven by changes in production costs.In contrast,specialty products are priced based on the value they provide to downstream consumers,following a value-based pricing model.As a result,manufacturers ability to raise prices for specialty chemicals depends on the additional value their products deliver,rather than changes in crude oil or other input costs.This means that,compared to companies in the commodity market,specialty chemicals manufacturers have less flexibility in adjusting to fluctuations in production costs.The Russian invasion of Ukraine in February 2022 underscored the differing impacts of cost-based and value-based pricing models.The war and the resulting spike in prices of most chemical feedstocks in Q1 of 2022 negatively affected manufacturers profits.However,with rising oil prices,the macroeconomic environment favored players using cost-based pricing.Consequently,gross profits for commodity chemical manufacturers increased by 170%and 10%for the top and bottom quartiles,respectively,compared to Q4 of 2021.In contrast,specialty chemical manufacturers saw a 130%increase in profits for the top quartile but a-10%contraction for the bottom quartile(Figure 7).Going forward,ongoing geopolitical tensions and other shocks are likely to persist,keeping crude markets both volatile and bullish.As a result,players in the specialty chemicals market can expect their profits to remain under pressure.12Table 1Spending on External R&D by Manufacturers of Specialty Chemicals SegmentR&D spending asa share of revenue(%)Total R&D spending(billion USD)Share of R&D spendingon external resources(approximate%)Agrochemical and fertilizer5.95.720-25Multispecialty2.811.910-15Focused specialties2.47.25-10Base chemicals and basic plastics1.74.90-5Industrial gases1.20.40-5Source:BCG analysis,Krungsri ResearchSpecialty ChemicalsMore stringent environmental regulationsConsumers are increasingly concerned about the environmental impacts of the chemicals industry.In response,companies are improving their manufacturing processes and minimizing the release and impact of by-products resulting from chemical production and consumption.Pressure from governments is also impacting the industry,as both domestic and international state-backed environmental agencies tighten regulations.These include the US Environmental Protection Agency(EPA)and the EUs Registration,Evaluation,Authorization and Restriction of Chemicals(REACH)regulations,which aim to protect humans and the environment from the side effects of chemical manufacture and use.Specifically,the inclusion of volatile organic compounds(VOCs)in specialty chemicals is strictly regulated,particularly in specialty paints,coatings,adhesives,and sealants.These regulations aim to reduce the health and environmental impacts caused by the evaporation of VOCs and the resulting air and water pollution.On the positive side,these regulations will create new opportunities for the manufacture of sustainable chemicals.However,adapting to the new regulatory environment without passing on the additional costs to consumers through higher prices could be problematic.To complicate matters further,companies must also navigate the challenges posed by intensifying competition and the volatile and escalating cost of feedstocks.13Figure 7Gross Profits of Manufacturers of Commodity and Specialty Chemicals,Q4 2021 and Q1 2022(%)Source:Kearney analysis,Krungsri ResearchNote:Changes in gross profits are normalized to Q1 2020,just prior to the impact on prices of the closure of the Suez Canal and the outbreak of the Russia-Ukraine war.These changes are expressed as a percentage relative to their level in 1Q20.Specialty Chemicals17013010-10Commodity chemicalsSpecialty chemicalsCommodity chemicalsSpecialty chemicalsTop quartileBottom quartileTop quartileBottom quartileThe challenges faced by players can best be understood through Porters 5-force framework.14Table 2Specialty chemical market:Porters 5-forces frameworkCompetitive rivalry:ModerateCompetitive rivalry within the market will be moderately intense.The increase in production capacity,especially in China,India,and the Middle East,will impact prices and profitability within the specialty chemicals industry.However,this will be at least partially offset by rapid market growth as companies strive to better meet demand from downstream industries.Additionally,players will likely increase their spending on R&D.Bargaining power of suppliers:ModerateThe bargaining power of suppliers will also tend to remain moderately intense since oil and natural gas are still the most commonly usedfeedstocks in the production of specialty chemicals,and substitutes for these are difficult to find.Major players like BASF SE and Solvay operate their own facilities for producing feedstocks,while smaller companies must source inputs on the open market.Consequently,major players face fewer problems accessing raw materials and can do so at a lower cost than their smaller rivals.Bargaining power of buyers:Low to moderateBuyers bargaining power will be at a low to moderate level.Downstream industrial consumers of specialty chemicals face difficulties substituting these for alternatives,putting them in a weaker negotiating position.In the coming period,this disadvantage will be further exacerbated by increased demand for specialty products from various industries,including auto assembly,electronics,and medical device production.Threat of substitutes:Low to moderateThe threat of substitutes will be at a low to moderate level.Downstream manufacturers typically have very specific needs for inputs used in particular production processes,and these generally have no direct substitutes.However,the development of new inputs based on materials such as aluminum and titanium is allowing these to replace polymers and composites in the manufacture of autos,aircraft,and electronics goods.Players will also need to closely monitor changes in environmental regulations and develop products that comply with these standards.Threat of new entrants:LowThe threat posed by new entrants to the market will be low.This is due to the capital-intensive nature of specialty chemicals production and the need for significant expertise and know-how.These products are also highly differentiated,and manufacturers have typically been active in the market for a long time,making it challenging for new players to gain market share.However,new entrants may still appear,particularly in niche areas,where SMEs can compete with large corporations by focusing on a limited range of products and building expertise and competitiveness within these specific areas.Source:Harvard Business School:Institute for Strategy and Competitiveness,Krungsri ResearchSpecialty ChemicalsSemiconductor chemicalsThe growing awareness of climate change dangers is driving countries worldwide to decarbonize their economies and aim for net zero emissions.One key technology in this effort is the increasing use of power semiconductors,which manage energy consumption across various applications,including electronics,electrical appliances,AI systems,data centers,and even national grids.Advances in power semiconductor technology now allow for the replacement of traditional silicon with silicon carbide(SiC)and gallium nitride(GaN),enhancing efficiency and reducing overall energy consumption.For instance,semiconductor manufacturer Infineon estimates that data centers using GaN-based power supply units achieve 10%energy savings compared to those relying on older silicon-based chips.However,switching between different types of power semiconductors is not straightforward,as producing the newer chips involves distinct manufacturing processes.Specialty chemicals are a crucial input for these processes,and advancements are needed in adapting and developing the products required for the new generation of chips.Companies that can successfully innovate in this area will not only enhance their profitability and reduce the risk of commoditization but also contribute to the sustainability of downstream industrial consumers.Agricultural specialty chemicalsThe growing global population combined with decreasing access to fertile arable land is significantly affecting food production.Over the past two decades,the amount of arable land per capita has declined by-18.2%,from 0.22 hectares per person in 2001 to 0.18 hectares in 2021.As the worlds population continues to rise,finding ways to improve agricultural yields has become crucial.In response,many companies in the specialty chemicals market are developing new agrochemicals designed to enhance yields,including fertilizers and pesticides.These innovations aim to increase agricultural output,meet growing demand,and address food security challenges.However,excessive use of agricultural chemicals can cause long-term environmental damage,an issue that is increasingly concerning consumers.In response,companies are also focusing on developing sustainable agrochemical solutions.For instance,in 2022,the European manufacturer BASF launched its new insecticide,Exponus,in India.This product aims to provide more effective pest control while minimizing environmental impacts.Specialty chemicals as drivers of sustainability15Specialty ChemicalsAccording to 6Wresearch,Thailands specialty chemicals market was valued at approximately USD 545 million(THB 17 billion)in 2020.Growth in this sector is projected to exceed the overall GDP expansion over the next 3-5 years.Domestic players are thus presented with a significant opportunity to boost sales,especially those producing goods that support high-growth downstream industries such as automotive engineering,packaging,and construction.Notable product categories poised for strong performance include industrial coatings resins and additives,engineering plastics,and hydrogenated styrenic block co-polymers.These products have yet to be heavily commoditized,unlike acrylonitrile-butadiene-styrene(ABS)and polyvinyl chloride(PVC),whose production has become widespread.Additionally,Grand View Research forecasts that the specialty chemicals market in the Asia-Pacific region will grow at an annual rate of 6.9%from 2022 to 2030,with Chinas market expanding at an even faster rate of 7.4%per year.By 2030,China is expected to account for over half of all specialty chemical sales in the Asia-Pacific region,presenting a substantial growth opportunity for Thai manufacturers.However,China is among several countries pursuing self-sufficiency in various sectors,including chemicals production.The goal is to reduce imports and become a net exporter in these areas.To achieve this,the Chinese Ministry of Industry and Information Technology is implementing policies designed to enhance the countrys competitiveness in specialty chemicals and establish China as a leading global supplier.Despite this,China currently faces a deficit in specialty chemicals and,as of 2018,had to import over half of its supply.However,increased emphasis on self-sufficiency is expected to expand Chinese production capacity,which could lead to a global supply glut and heighten the risk of commoditization for products produced by Thai manufacturers.New opportunities and challenges for Thai manufacturers of specialty chemicals16Specialty ChemicalsThe specialty chemicals market is poised to experience significant growth over the next 5-10 years,driven by increasing demand from downstream industries,particularly automotive,electronics,and construction.Companies active in these areas will tend to increase their consumption of inputs that require the use of specialty chemicals,further bolstering market growth.Additionally,the growing emphasis on sustainability will provide further impetus for the market.However,players will face several challenges,including the anticipated acceleration in the commoditization of chemical products,volatile and rising prices for crude and other inputs,and increasingly stringent regulations.These factors are likely to exert downward pressure on profits in the future.Faced with the evolving business environment,Thai companies in the specialty chemicals market should consider increasing investments in high-growth potential areas,such as agricultural chemicals and advanced semiconductor materials,as described above.By focusing on these growth-oriented product lines,companies can rebalance their portfolios and enhance opportunities for profit expansion.At the same time,investing in downstream industriessuch as customer support services and formulation customizationwill help align products more closely with consumer needs.These strategies leverage specialized expertise and strengthen client relationships,which can raise barriers to entry and mitigate the risk of further commoditization.Krungsri Research view17Specialty Chemicals18ReferencesReferences6Wresearch(2022)Thailand Specialty Chemicals Market(2024-2030)Outlook.Retrieved June 14,2024 from https:/ State of Change in Chemical Innovation.Retrieved June 25,2024 from https:/ chemicals industry trends in 2024.Retrieved June 22,2024 from https:/ development council(2023)The Future Of Renewable Energy Is Built On Semiconductors.Retrieved June 2,2024 from https:/ View Research(2022)Specialty chemicals:Market estimates and trend analysis.Retrieved May 15,2024from EMIS Next Market Intelligence&Strategic PlanningInternational Monetary Fund:IMF(2024)World economic outlook databases.Retrieved July 15,2024 from https:/www.imf.org/en/Publications/SPROLLS/world-economic-outlook-databases#sort=imfdate descendingInternational Trade Administration,Department of Commerce,United States of America(2023)China country commercial guide:Environmental technology.Retrieved July 10,2024 from https:/www.trade.gov/country-commercial-guides/china-environmental-technologyKearney(2022)How inflation is reshaping margins for commodity and specialty chemicals.Retrieved June 24,2024 from https:/ semiconductors market overview.Retrieved July 12,2024 from EMIS Next Market Intelligence&Strategic PlanningMckinsey&Company(2016)Commoditization in chemicals:Time for a marketing and sales response.Retrieved June 10,2024 from https:/ specialty chemicals market 2023-2027.Retrieved May 20,2024 from EMIS Next Market Intelligence&Strategic Planning(Energy news center)IRPC 50%68.Retrieved May 30,24 from https:/ ChemicalsKRUNGSRI RESEARCHMacroeconomic TeamSujit ChaivichayachatHead of Macroeconomic ResearchChurailuk PholsriSenior Economist(Forecasting)Analytics&Intelligence TeamPimnara Hirankasi,Ph.D.Acting Head of Analytics and Intelligence Research DepartmentThamon SernsuksakulAdministratorChirdsak SrichaitonMIS OfficerWongsagon KeawuttungMIS OfficerMIS and Reporting TeamNathanon RatanathamwatSenior AnalystParinya MingsakulAnalystThansin KlinthanomEconomistWanicha DirekudomsakSenior EconomistPimnara Hirankasi,Ph.D.Head of Research Division and Chief EconomistIndustry TeamPimnara Hirankasi,Ph.D.Acting Head of Industry ResearchTaned MahattanalaiSenior Analyst(Digital)Piyanuch SathapongpakdeeSenior Analyst(Transport&Logistics)Narin TunpaiboonSenior Analyst(Power Generation,Modern Trade,Chemicals,Medical Devices)Puttachard LunkamSenior Analyst(Construction Contractors,Construction Materials,Hotels,Industrial Estate)Patchara KlinchuanchunSenior Analyst(Real Estate)Prapan LeenoiAnalyst(ESG)Chaiwat SowcharoensukSenior Analyst(Agriculture)Poonsuk NinkitsaranontSenior Analyst(Healthcare,Mobile Operators)Thian ThiumsakSenior Analyst(Energy,Petrochemicals)Supawat ChoksawatpaisanAnalyst(Automobile,Electronics&Electrical Appliances)Narichaya SatafangAnalystKrittabhorn SirichaichingkunEconomistChanatta ThararosAnalystSupasyn ItthiphatwongEconomistOur Team
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2566THAILAND INDUSTRY OUTLOOK 2024-26Krungsri ResearchDecember 2023Subscribe UsAuthorThian ThiumsakSenior AnalystT 662 296 4742 All material presented in this report,unless specifically indicated otherwise,is under copyright to Krungsri Research.None of the material,nor its content,nor any copy of it,may be altered in anyway,or copied to any other party,without the prior express written permission of Krungsri Research.This document is based on public information believed to be reliable.Nevertheless,Krungsri Research would not affirm the accuracy and completeness of this information.We accept no liability whatsoever for any direct or consequential loss arising from any use of this document or its content.Information,opinions and estimates contained in this report are our own,which are not necessarily the opinions of Bank of Ayudhya Public Company Limited and its affiliates.It reflects a judgment at its original date of publication by Krungsri Research and are subject to change without notice.DisclaimerFor research subscription,EXECUTIVE SUMMARYRefineries can look forward to an improving business environment over 2024 to 2026.Domestic demand for refinery products will be boosted by an uptick in economic activity,particularly in e-commerce sales and the tourism sector.The industry will also benefit from increasing connectivity in trade and investment across the ASEAN region that will then lift demand from the transport sector and related parts of the economy.On the supply side,major producers will likely restrict expansion in output to keep in check with growth in demand,and so global crude prices will remain elevated.As such,gross refinery margins will run in the range of USD 6.0-7.0/bbl,up slightly from 2023s average of USD 6.3/bbl.However,ongoing geopolitical tensions and possible cuts to production quotas will stoke periodic volatility in global crude markets,and this will then expose refineries to the risk of stock losses.Krungsri Research view:An improving economic outlook will feed a sustained rise in domestic demand for refinery products,while OPEC restricting supply will keep oil prices elevated.Refineries and associated businesses can therefore look forward to growth in turnover from 2024 to 2026.Refineries:Expansion of overall demand for refinery products from ongoing economic expansion,high level of capacity utilization and wide GRMs will help refineries to look forward to steady profit growth in the coming period.Additionally,corporations will step up their investments,especially in clean energy projects that will allow them to produce a greater range of high-value products and so to expand their revenue base over the long term.Nevertheless,volatile crude markets will expose companies to an increased risk of having to shoulder stock losses.Wholesalers of refinery products and liquid fuels:Players in this group will benefit from increasing domestic demand for refinery products.Most of these companies are also members of commercial groups that include refineries and so these face relatively low levels of commercial risk.Petrol stations/service stations:Steadily increasing domestic demand for refined oil products will support a positive outlook for petrol stations.Moreover,to increase competitiveness and build income,players are also increasingly expanding their investments in green fuels and in business activities that are not connected directly to the sale of oil products,such as the rental of retail space in forecourts and the installation of EV charging stations.Krungsri Research viewKrungsri Research3Overview4Krungsri ResearchOil refining is a large-scale,technology-dependent and capital-intensive industry within which corporations leverage their significant investments to generate economies of scale.Given this,returns on investment are typically made over only an extended period,and this constitutes a significant barrier to entry.The refining process involves the fractionation or transformation of crude oil into a variety of petroleum products(Figure 1),including liquified petroleum gas(LPG),naphtha,gasoline,kerosene,diesel,bunker oil,and asphalt.These are used in different applications according to their qualities and properties,though the exact proportions of these different products in refinery output is dependent on the source and profile of the crude oil used as an input.Refineries can be divided into the two broad categories of simple refineries,which distill crude oil to separate this out into its components,though these will vary according to the properties of the crude that is refined,and complex refineries,which add so-called cracking units to the process.Complex refineries are more expensive to build and to operate,but in addition to simply distilling crude,these are able to transform heavy,low-value oil products into light,higher-value ones.The extent to which complex refineries are able to transform oil products varies and is measured by the Nelson Complexity Index(NCI).A high NCI indicates that a refinery is able to convert a wider range of products into high-value outputs and so has a greater level of flexibility with regard to the sources of crude that can be used as inputs.Refineries with a high NCI are therefore able to process crude from suppliers in different regions and that thus have different properties1/(Figure 3).Figure 1:Refinery ProcessSource:Eastern Refinery Limited14.013.810.29.88.66.86.66.54.6RPLJXPTTGCTOPIRPCSPRCESSOSinopec SK CorpFigure 3:Nelson Complexity Index(2017)Source:ThaiOil,KSS0 0kken WTITapisBrentMarsDubaiUralsLSFOHSFODieselKeroseneGasolineNaphthaLPGSource:Compiled by Krungsri ResearchNote:demand data as of 201741.039.644.038.033.531.031.0APIGravityLightHeavyOECDNonOECD00 %Figure 2:Crude Oil Yields and DemandThai refinery1/The major components of crude oil are alkane and cycloalkane hydrocarbons,but crude oil usually also contains small quantities of sulfur,nitrogen,and a variety of metals.Crude from different formations typically has its own profile so crude from the Bakken reserves in North Dakota is morethan 60%light oil,whereas that from the Urals in Russia is just 30%light oil.This difference is significant since light oil is less dense than heavy oil.This is due to the lower number of carbon atoms that light oil contains,which makes it more combustible and thus more energetic than heavy oil.5Krungsri ResearchAlthough refining is a highly capital-intensive industry,refineries themselves have a fairly long lifespan of 30-50 years and so fixed costs per unit are relatively low.Instead,around 95%of costs are variable,and of this,75-80%is attributable to inputs of crude oil.A further 10%of costs is attributable to the energy used in the refining process,and the remaining 10-15%goes to other areas,such as depreciation(Figure 4).In addition to the cost of crude,the price of petroleum products is also determined by the interaction of supply and demand,and the latter in turn depends on the level of economic activity since some 70%of all petroleum products are used as transport fuels.The difference between the price of petroleum products and the cost of crude(which is also called the spread)is used to measure the profitability or margin of each refined product.The ability of a refinery to turn a profit can be assessed from an examination of its gross refinery margins(GRMs),which are calculated per barrel by subtracting the total refining costs from the combined value of the petroleum products produced from the refining process.In detail,the following factors determine the GRM of a refinery:(i)The cost of crude oil.Changes in the cost of crude will increase the GRM in two situations.These are if increasing demand for petroleum products pushes up the price of crude but refined products increase in price by a greater degree than does crude,or if the supply of crude oil expands and this helps to depress prices for crude and the effect of this is greater on crude than on refined products;(ii)the price of petroleum products;(iii)capacity utilization.If capacity utilization is high,the GRM will likewise be high,and generally,efficiently run refineries will operate with a capacity utilization over 80%2/;(iv)the extent to which a refinery is able to convert inputs into higher-value outputs.An examination of the NCIs of Thai refineries indicates that these are fairly high;and(v)the ability to control costs and to source more desirable crude.Refineries which process heavier crude will usually have a lower GRM than those that are able to use lighter crude;around 62%of the crude processed by Thai refineries is heavy Middle Eastern crude and this means that output tends to be of heavier products,such as diesel and fuel oil(Figure 5).In addition,the profitability of individual refineries also depends on:(i)the extent to which business operations are vertically integrated through to downstream activities and on to related areas,since this will help to reduce costs and improve production planning;and(ii)the physical location of the refinery since there will be consequent cuts to transportation costs and improvements to profitability if resources and/or markets are easily accessible.2/Usually,refineries run non-stop since stopping and starting operations incurs heavy costs.Refineries will,however,periodically cease operations for annual planned maintenance.This will normally be for a period of 1-2 months.Figure 4:Variable Cost StructureCrude Oil77%Utilities9%Labour4%Purchase of Goods and Services5%Other5%Middle East62r East13%Other25%Figure 5:Import of Crude Oil by Source(2022)Source:Compiled by Krungsri ResearchNote:Other includes depreciationSource:EPPO6Krungsri ResearchWith a refining capacity of 1.243 million barrels per day,the Thai refining sector is second only to Singapore in size within the ASEAN region.Seven operators are active in the sector,and all production from these comes from complex refineries.These seven players are:PTT Global Chemical(PTTGC),ThaiOil(TOP),IRPC Public Company Limited(IRPC),ESSO3/,Star Petroleum Refining Public Company(SPRC),Bangchak Petroleum(BCP),and FANG.PTT is the largest of these since it is a major shareholder in PTTGC,TOP and IRPC(Figure 6).As their reference price,Thai ex-refinery prices use those quoted on the Singapore exchange(SIMEX),specifically the Mean of Platts Singapore(MOPS)while the import price parity principle,which is calculated from Singapore prices FOB combined with transportation costs,is used to specify the Thai price ceiling.Singaporean GRMs therefore clearly have a heavy influence on those of Thai refineries(Figure 7).Figure 6:Thai Refinery Capacity(2023)PTTGC23%TOP22%IRPC17%ESSO14%SPRC14P10NG0%Source:EPPO50556065ThailandSingaporeCost of transportation from Singapore to ThailandRefinery marginsCost of refiningCost of crudeImport Parity PriceSource:Krungsri ResearchTHB/litreFigure 7:Import Price Parity(2017)3/In 2023,Bangchak bought a 65.99%share of Esso from ExxonMobil and announcedits intention to buy the remaining shares.This purchase should be completed in 2024.7Krungsri ResearchThe retail price of Thai oil products is not determined simply by market forces,which in this case would be a combination of the refining costs,the GRM,the distributors marketing margins,and the cost of the crude itself.Rather,the Thai government plays a significant role in determining the movement of prices through the collection of excise duties on refined products and contributions from distributors of oil products to the Oil Fund(Figure 8).The Oil Fund exists to smooth out variability in domestic prices for refined oil products when prices on world oil markets are high or particularly volatile.Subsidies from the Oil Fund are also used by the government to promote consumption of particular fuels,such as E20 and B7.About 86%of the refined products output by Thai refineries is consumed on the domestic market.Of this,79%is used as transportation fuel(i.e.,gasoline,kerosene,and diesel),11%is used as industrial fuels or in the production of electricity(i.e.,diesel and bunker fuel),6%is used by the petrochemical industry(i.e.,LPG and naphtha),and 3%(asphalt)is used in road construction.The 14%that is exported goes largely to the ASEAN zone,which takes approximately 75%of this,and East Asia(Figure 9).Figure 8:Thailands Price Structure-20-1001020304050ULGGASOHOL91E85DIESELLPG(THB/Kg)Ex-refineryTax VATOil fund consv fundMarketing marginsRetail priceSource:EPPO,Krungsri Research(as of Nov 30,2023)THB/litreFigure 9:Thailand Petroleum Market(2022)Source:EPPOTransport,79Lubricants,1Heating,11Petrochemicals,6Roads,3Petroleum DemandDomestic Demand by SectorDomestic86%Exports14%Situation8Krungsri ResearchThe outlook for oil refiners improved markedly in 2022 with the successful global rollout of vaccines and the effective ending of the Covid-19 pandemic,allowing countries to relax restrictions on international travel and opening the way for economic activity to return to normal.Given this,consumption of goods and services rebounded,lifting demand for transport fuels,especially for aviation fuel as demand for travel and tourism that had been bottled up through the pandemic was released.The effects on oil markets of these shifts in demand were then amplified by Russias invasion of Ukraine,and against this backdrop,at an average of USD 97.4/bbl,2022 Dubai crude prices were up 40.5%from their 2021 level and almost 75.0%from their 2015-2019 average of USD 55.8/bbl.However,elevated prices undercut demand,especially in the latter half of the year,though alongside this,average gross refinery margins expanded to a historic high of USD 20.7/bbl,a huge leap from the pre-Covid average of USD 3-5/bbl(Figure 10).Prices for Dubai crude retrenched through the first 10 months of 2023,dropping-17.9%YoY to an average of USD 82.2/bbl.Through the year,central banks responded to a rapid buildup in inflationary pressures by hiking rates aggressively,and this then weighed on global growth.In addition,Chinas emergence from the shadow cast by its zero-Covid policy was much weaker than expected,and as the recovery stumbled,global demand for oil softened.In response,producers trimmed output,and in particular,the OPEC group agreed to combined cuts in production quotas that have taken more than 2.5 million barrels per day offline since the start of the year.Supply to global oil markets was then further affected by the imposition of embargos on imports of Russian oil and refinery products to the western economies.Market sentiment was also undercut by the continuation of the war in Ukraine and the sudden outbreak of fighting between Israel and Hamas at the start of October.This added to volatility in global markets,and so although demand has weakened,crude prices have remained elevated.Softening demand for refinery products added to downward pressure on prices on the Singapore market,but declines were limited by the entry to the Asian market of buyers from the EU trying to replace lost imports from Russia,especially of diesel.Domestic demand in Asia also rallied as the tourism sector bounced back across the region,and with international travel surging,demand for transport fuels naturally tracked upwards.Over the first 10 months of 2023,Singapore diesel prices thus slid-20.8%YoY to an average of USD 105.8/bbl,while benzene prices dropped-19.4%YoY to USD 94.9/bbl.9M23 gross refinery margins also narrowed,closing to USD 7.2/bbl from the 2022 average of USD 12.2/bbl.Figure 10:Singapore Petroleum Prices,Dubai Prices,and Gross Refinery Margins204060801001201402014201520162017201820192020202120222023024681012141618Gross Refinery MarginsDubai Price(RHS)Gasoline Price(RHS)Diesel Price(RHS)Source:Bloomberg10M2023USD/barrelUSD/barrel9Krungsri ResearchThai refineries benefited from steady growth in the economy through 9M23,in particular from the rapid rebound in the tourism sector.This boosted income from wages,supported an improving outlook in related industries and added to demand for air travel,and thus overall consumption of refinery products(i.e.,benzene,diesel,aviation fuel,and bunker fuel)rose 2.4%YoY(Figure 11)while capacity utilization remained high(Figure 12).However,softening crude markets undercut prices,and thus average Thai gross refinery margins contracted-32.1%YoY to THB 8.2/liter.Having surged in 2022,2023 GRMs have returned to a more normal level of USD 6-10/bbl.This has been due to a rebalancing of supply and demand and the fall in the prices of many refinery products(Figure 13),which in turn has been driven by expanding supply.In detail,benzene prices have fallen on an increase in Chinese exports,prices for diesel and aviation fuel have dropped with growth in Russian supply,which has been diverted from Europe to Asia,and the opening of new refineries in Kuwait has increased global production of bunker oil,undercutting prices for the latter.Krungsri Research thus expects that for the year,the market for Thai refinery products will be as follows.Ex-refinery prices have steadily weakened,most notably for diesel(down-21%YoY),and although prices for Dubai crude have also softened,this has been less pronounced(down-15%YoY).The spread between the two has therefore narrowed from THB 9.5/liter in 2022 to THB 6/liter in 2023.Likewise,the spread between ex-refinery benzene prices and Dubai crude has contracted,though this has been at a much slower rate and between 2022 and 2023,the spread has tightened from THB 4.4/liter to THB 4.2/liter.Figure 11:Domestic SalesSource:EPPO-40-20020406080100201720182019202020212022 9M22 9M23DIESELGASOLINELPGJ.P.FUEL OILTotalFigure 12:Production and Utilization RateSource:EPPO707580859095010,00020,00030,00040,00050,00060,00070,0002016 2017 2018 2019 2020 2021 2022 9M229M23Petroleum productionCapital utilization(RHS)Litre,m%9M20239M20229M20239M2022%YoYFigure 13:Domestic Prices10203040506020162017201820192020202120222023ULG95H-DieselE20Source:EPPOTHB/Litre10Krungsri ResearchSoftening ex-refinery prices have pulled down pump prices through the year.The cost of diesel thus ticked down-2.3%YoY to an average of THB 32/liter across 2023,though this decline also reflects the impact of the governments decision to use money from the Oil Fund to subsidize price cuts.The authorities have now decided that between 20 September and 31 December,2023,these subsidies will continue and so pump prices will be kept below THB 30/liter.Average 2023 prices for benzene also inched down-0.3%YoY to THB 45/liter.Consumption of refinery products expanded 2.2%YoY on an overall increase in economic activity,though an uptick in the transport sector has naturally been most important in stimulating additional demand.(i)Weakness in the export sector undercut growth in demand from industry and so consumption of diesel and bunker fuel rose just 0.5%in the year.(ii)The return of social and economic life to normal has lifted overall levels of domestic travel and so demand for benzene is up 5.0%YoY.(iii)The number of flights has surged 36.8%from its level in 2022 and thus consumption of jet fuel has jumped 60%.(iv)Demand for LPG has risen 2.5%from a year earlier thanks to the higher cost of benzene,which has diverted demand to LPG instead.Exports inched up 1.5%YoY on a 30%YoY increase in overseas sales of diesel.However,this was largely offset by declines in exports of-6.0%YoY for benzene,-22%YoY for jet fuel,and-32%YoY for LPG,and so the overall increase was relatively minor.Production and capacity utilization have both risen in line with stronger demand.Overall output of refined products is up 1.0%YoY,split between increases of 2.7%YoY for benzene,47%YoY for jet fuel,and 0.5%YoY for diesel.Likewise,at 85%,capacity utilization has returned to close to its pre-pandemic level,and so for all of 2023,gross refinery margins are expected to average USD 6.25/bbl,down sharply from 2022s USD 11.3/bbl.Outlook11Krungsri ResearchPrices for Dubai crude are likely to remain in the range USD 80-85/bbl over 2024 to 2026,helped by slow growth in the world economy that will then support a gradual strengthening of demand.Alongside this,markets will be constrained by cuts to production quotas by the OPEC group(the organization controls around 40%of crude production capacity globally),which will try to keep prices in its target range by more closely matching supply and demand.Indeed,Russia and Saudi Arabia have announced voluntary production cuts that will take 1.66 million barrels per day off global markets between May 2023 and December 2024,and the Energy Information Agency(EIA)therefore expects that in 2024,demand will come to 102.4 million barrels per day,closely aligned with production of 102.6 million barrels per day.Krungsri Research expects that over 2024 and 2025,demand will rise with global economic growth,while easing geopolitical tensions will free up supply and with the latter expanding more rapidly than the former,prices for Dubai crude will slip from an expected USD 87/bbl in 2024 to USD 80/bbl and USD 76/bbl in each of 2024 and 2025.Refineries will therefore likely enjoy a rise in turnover through the coming period(Figure 14).The softening cost of Dubai crude will undercut Singapore prices for refined products.Prices will be further affected by an increase in regional production capacity,especially in China and India,and the expansion in supply that this will bring.However,this will be balanced by stronger demand that will be stoked by economic growth and acceleration in the tourism sector,particularly in Asia(the IMF sees emerging and developing Asian countries enjoying growth of 4.5-5.5%over 2024-2026).This will thus hold back declines in the prices of refined products,while the spread between prices for Dubai crude and refined products will pull back,falling to its pre-pandemic level.Singapore GRMs will therefore average USD 6.0-7.0/bbl over the next 3 years.Figure 14:Dubai Oil Price Forecast42.268.897.483.087.080.076.00.020.040.060.080.0100.085.090.095.0100.0105.02017201820192020202120222023E2024F2025F2026FSupplyDemandDubai(RHS)mbpdUSD/barrelSource:EIA,forecast by Krungsri Research12Krungsri ResearchDomestic prices for refined products will track those set on global markets,and so for benzene and diesel,these are forecast to average respectively THB 42.0-46.0/liter and THB 31.5-33.5/liter.The spread between ex-refinery prices and Dubai crude is also expected to average THB 3.5-4.5/liter(Figure 15).Domestic demand for refinery products will expand by 2.5-3.5%per year.(i)Recovery in the export sector and the ongoing rebound in tourist arrivals will support continuing growth in the domestic economy,and this will in turn drive greater demand for oil products from the industrial and transport sectors.(ii)The value of e-commerce sales is forecast to expand by some 15%per year,and this will translate into increased consumption of transport fuels.(iii)Greater integration of trade and investment across the ASEAN zone will boost use of diesel-powered commercial vehicles.Combined,these factors will help to lift demand for diesel by an average of 1.5-2.5%per year,while for benzene,demand will be up by 2.5-3.5%annually.Continuing growth in tourist arrivals,which is now forecast to hit 40 million annually by 2025,will also feed a 10.0-20.0%expansion in yearly consumption of jet fuel(Figure 16).Figure 15:Domestic Petroleum Price Forecast22.628.032.932.633.532.531.529.335.745.044.846.044.042.0010203040502017201820192020202120222023E2024F2025F2026FTHB/LitreSource:EPPO,forecast by Krungsri ResearchCrudeCostsH-DieselULG0204060201820192020202120222023E2024F2025F2026FDieselGasolineLPGJP&KeroseneFuel oilSource:EPPO,forecast by Krungsri ResearchLitre,m6.0-7.0%2.5-3.5%1.5-2.5%Figure 16:Domestic Petroleum Demand13Krungsri ResearchHeavier consumption of oil will naturally bring with it an expansion in output of refinery products,and the latter will therefore increase by 4.0-5.0%per year.At the same time,capacity utilization will edge up to 87-91%(Figure 17).With global crude prices likely remaining elevated,gross refinery margins will run in the range of USD 6.0-7.0/bbl,somewhat above the USD 5.0/bbl averaged over 2012 to 2019(Figure 18).To respond to future increases in demand and to open up new business opportunities,some refinery operators plan to expand their production capacity.This will allow players to adopt a more flexible approach to sourcing inputs and because this will help to generate additional economies of scale,marginal production costs will fall.Investments will also facilitate the move into clean energy projects,for example,converting low value products such as bunker fuel into higher value,more environmentally friendly goods such as diesel and low-sulfur jet fuel.Refineries may also increase output of sustainable aviation fuel(SAF)since the Oil Plan and the revised AEDP are expected to stipulate that by 2027,this should comprise at least 1%of all aviation fuel used.This would not only contribute towards implementing cuts to greenhouse gas emissions but would also match the actions of refineries worldwide.Figure 17:Production and Utilization RateFigure 18:Industry Refinery Margins83.181.478.482.085.087.089.091.060708090100020,00040,00060,00080,00020162017201820192020202120222023E 2024F 2025F 2026FProductionImportDomestic salesExportsCapital utilization(RHS)Source:EPPO,forecast by Krungsri Research%Source:EPPO,Biznews,forecast by Krungsri ResearchUSD/barrel0.02.04.06.08.010.012.0201820192020202120222023E2024F2025F2026FThai GRMSingapore GRMLitre,mKRUNGSRI RESEARCHMacroeconomic TeamSujit ChaivichayachatHead of Macroeconomic ResearchChurailuk PholsriSenior Economist(Forecasting)Analytics&Intelligence TeamPimnara Hirankasi,Ph.D.Acting Head of Analytics and Intelligence Research DepartmentThamon SernsuksakulAdministratorChirdsak SrichaitonMIS OfficerWongsagon KeawuttungMIS OfficerMIS and Reporting TeamNathanon RatanathamwatSenior AnalystParinya MingsakulAnalystThansin KlinthanomEconomistWanicha DirekudomsakSenior EconomistPimnara Hirankasi,Ph.D.Head of Research Division and Chief EconomistIndustry TeamPimnara Hirankasi,Ph.D.Acting Head of Industry ResearchTaned MahattanalaiSenior Analyst(Digital)Piyanuch SathapongpakdeeSenior Analyst(Transport&Logistics)Narin TunpaiboonSenior Analyst(Power Generation,Modern Trade,Chemicals,Medical Devices)Puttachard LunkamSenior Analyst(Construction Contractors,Construction Materials,Hotels,Industrial Estate)Patchara KlinchuanchunSenior Analyst(Real Estate)Prapan LeenoiAnalyst(ESG)Chaiwat SowcharoensukSenior Analyst(Agriculture)Poonsuk NinkitsaranontSenior Analyst(Healthcare,Mobile Operators)Thian ThiumsakSenior Analyst(Energy,Petrochemicals)Suppakorn KornboontritosAnalyst(Agriculture,Food&Beverages)Supawat ChoksawatpaisanAnalyst(Automobile,Electronics&Electrical Appliances)Narichaya SatafangAnalystKrittabhorn SirichaichingkunEconomistChanatta ThararosAnalyst
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1 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April International Council of Chemicals Associations(ICCA)Latin America Regulatory Cooperation Forum(LARCF)ROADMAP FOR THE SOUND MANAGEMENT OF INDUSTRIAL CHEMICALS 1 2 Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA)April,2021 4 3 2 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April This report was prepared by the Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA),an initiative of the Latin America Regulatory Cooperation Forum(LARCF)with the support of the International Council of Chemical Associations(ICCA).Its content is the result of a joint effort that involved government representatives,industry associations,industries and intergovernmental organizations.Views represented here should not be regarded as ICCAs official position.April 2021 How to cite this document:Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA).(2023).Roadmap for the sound management of industrial chemicals.3 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April CONTENT 1.EXECUTIVE SUMMARY 1 2.KEY TERMS 5 3.INTRODUCTION 5 4.DOCUMENT OBJECTIVES 7 5.ROADMAP FOR THE SMC 8 National plan for the SMC and stakeholder dialogue mechanisms 8 Hazard classification and identification 9 Chemicals information(inventories/registers)11 Prioritization,analysis,assessment and risk management 13 Work safety 16 Pollutant Release and Transfer Register(PRTR)17 Accident prevention,preparedness and response 18 Management of contaminated sites 20 Chemicals in products/articles 20 Illegal traffic 21 Environmental and epidemiological data monitoring,22 6.REGULATORY COOPERATION 22 7.ACRONYMS 25 8.ACKNOWLEDGEMENT 26 1 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April 1.1.EXECUTIVE SUMMARYEXECUTIVE SUMMARY The sound management of chemicals(SMC)should be considered as a key factor for the economic and sustainable growth of a country.For this purpose,countries should implement and ensure compliance with adequate regulatory frameworks,based on guiding principles such as the use of scientific evidence,that address chemicals and mixtures management throughout their life cycle.Established in the principles of prevention,comprehensiveness,progressiveness,cooperation,articulation,efficiency,effectiveness and transparency,this document is the result of the Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA)work.This group consists of regional governments,industrial associations and industries in the region and is coordinated by the International Council of Chemical Associations(ICCA).The roadmap has been prepared to promote a greater understanding of the sound management of industrial chemicals,and thus promote cooperation and convergence in the region for the development and implementation of effective regulations,aligned with global management initiatives.This document is intended for regulators,chemical company representatives and other stakeholders seeking to ensure SMC worldwide.In particular,it presents an overview of:What SMC means,with special focus on industrial chemicals.General description of methodologies,steps and best practices for the implementation of the SMC.Opportunities for Regulatory Cooperation.1 Access:https:/iomctoolbox.org/SMC can be considered as the adoption of all possible measures to guarantee that chemicals are handled in such a way that the environment and human health are protected against the harmful effects that may result from them,throughout their life cycle and value chain(production,trade,use,releases,and disposal).Some benefits associated with the SMC are:improvement in the protection of workers,general populations health and the environment;reduced“costs of inaction”;governmental and industrial reputation enhancement;increase in international productivity and competitiveness;progress on the availability of high-quality information and data at the regional level;industry gains in efficiency,resource savings and reduced compliance costs.Chemicals and waste are part of global development,and their sound management has been supported for decades in numerous international frameworks.These act as guiding principles for best practices and regulatory policies and promote platforms for the generation and exchange of information.Among the main global agreements and actions,we can mention the Organisation for Economic Co-operation and Development(OECD);the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals(SDGs);the Inter-organization Programme for the Sound Management of Chemicals(IOMC);the International Conference on Chemicals Management(ICCM)and the Strategic Approach to International Chemicals Management(SAICM),along with other multilateral environmental agreements(MEAs)and international instruments.This document provides an overview of the main SMC elements-building blocks-,based on the compilation of existing information from internationally recognized sources(including the IOMC Toolbox1 1 and OECD requirements).The analysis is based on the life cycle approach and is limited to brief descriptions of each SMC basic component.Waste management is not within the scope of this document.Aspects related to 2 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April technical and implementation issues will be developed in future specific guidance documents.The diagram in Figure 1 aims to present all the SMC elements from a life cycle perspective.MAINMAIN ELEELEMENTMENTS S OF THE SMC OF THE SMC 1.National PlanNational Plan.The roadmap proposes to begin with the development of a SMC National Plan and the establishment of dialogue mechanisms with stakeholders.It also highlights the importance of conducting cost-benefit and regulatory impact analysis and ensuring that regulatory policies are implemented gradually and can be well managed by authorities and industry.2.Hazard ClassificationHazard Classification and Identificationand Identification.The first key phase for the SMC is the implementation of the Globally Harmonized System of classification and labelling of chemicals(GHS),a system to identify and communicate essential information to workers and users,making processes and products improvements and preventing accidents.3.ChemicalsChemicals i information nformation(inventories/inventories/registersregisters).The purpose of the inventories and registers is to know the identity of the chemicals present in the country and the essential baseline information to proceed with the identification and management of associated risks.Most existing systems require basic data such as:identification of the substance,volume/quantity imported and/or produced,recommended,or identified uses,and hazards according to GHS.The various terminologies and approaches of these requirements are addressed in the relevant section.This information is essential for the decision-making process and facilitates the implementation of international conventions,such as the Rotterdam Convention.The document also addresses other important issues,such as the treatment of confidential information and acceptance of external data.Figure 1:SMC Elements.Source:VWG-SMC-LA.This figure is intended to briefly represent both the general chemicals management framework(full chart),and the specific elements closely related the industrial chemicals management(dotted line block).For each element,a direct relationship with the life cycle stages of chemical substances and mixtures-in its reduced version-has been established to facilitate understanding.All elements are explained throughout the document.NOTE:it should be noted that in the case of production/import several scenarios may occur import as a prior step to production;only import,or production without intermediate stages.4.Prioritization,Prioritization,risk risk analysis,assessment andanalysis,assessment and management.management.Inventoried/registered substances are prioritized according to their potential risk,based on the analysis of their intrinsic properties,recommended or identified uses and exposure scenarios.The prioritized substances are studied through a detailed scientific evaluation,where potential risks to human health and the environment are identified,3 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April based on their hazard and exposure derived from their manufacture,fractionation,handling,distribution,storage,use,transport and disposal.Following the OECD recommendations,it is suggested to use risk assessments made by other countries or international organizations and to maintain agreements with the relevant government areas,involving all relevant actors,in order to speed up the actions,reduce costs and generate harmonized requirements.Risk management is a subsequent process,where decisions are based on the results of the risk assessment,in order to develop,analyse and compare regulatory and non-regulatory measures for risk mitigation and control,to be implemented by the different actors,with the aim of reducing the impacts on health and the environment identified.5.Occupational safetyOccupational safety2.The implementation of a safety system for workers and establishments is the first step to help prevent or reduce the risks of occupational diseases,injuries and accidents during the manufacture,fractionation,handling,distribution,storage and transport of chemicals and prevent adverse effects on the environment.Elements of the security practices of the establishment and worker include:personnel training,process safety,facility design,occupational health and safety,pollution prevention,waste management and transportation safety.These approaches must be risk-based and flexible enough to enable the industry to grow and deliver good long-term performance.6.Pollutant release and transfer registry(PRTR).Pollutant release and transfer registry(PRTR).Its aim is to strengthen countries capacities to track the release and transfer of certain chemicals by industrial facilities and diffuse sources,which could pose a threat to human health and the environment.The document highlights the importance of promoting greater harmonization of PRTRs to achieve a global analysis of pollutants emissions and facilitate cross-2 In some countries,facility and occupational safety matters are treated by specific norms not related to the SMC.In some others,they are included under the element“Accident prevention,preparedness and response”.country comparisons and highlights the role of the Escaz Agreement in promoting registries in Latin America and the Caribbean.7.Accident prevention,preparedness and response.Accident prevention,preparedness and response.Regarding this element,the document indicates that information and training are critical components for the successful implementation of any accident program with chemicals in the workplace and,therefore,efforts should be made to guarantee that it is always available,accessible,and up to date.It also indicates that countries can design and implement their plans based on the information generated under the GHS and/or risk analysis,centrally in the country or region.The involvement of all stakeholders is essential at each stage related to accident preparedness and response,including the preparation and training of civil organizations and the population in evacuation and isolation from events that exceed the manufacturing area,when necessary.8.Remediation of contaminated sites.Remediation of contaminated sites.The document is based on the“Polluter Pays Principle”,adopted by the OECD Council in 1989.Furthermore,it indicates that based on the enormous variety of site characteristics and nature of chemicals,risks for human health and the environment also vary.In that respect,some countries and industries are implementing a risk-based corrective action(RBCA)approach,as a consistent decision-making process for the assessment and response to chemical contamination.9.ChemicalChemicals s in products/in products/articles.articles.Some chemicals classified as hazardous under the GHS are found in consumer products throughout the world.This results not only in the potential exposure of workers during manufacturing,but also of the general population during use,of the informal sectors involved in recycling and disposal and of the environment,through waste releases.It is emphasized that the exchange of information through the value chain is key to identify and address the 4 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April safe handling of hazardous chemicals according to the GHS in consumer products/goods.10.IllegalIllegal TradeTrade.This document highlights the importance of instruments such as SAICM,which establishes specific goals regarding illegal trade,including the strengthening of mechanisms for the implementation of existing multilateral agreements and the promotion of information exchange among countries,such as the Rotterdam and Basel Conventions.11.Environmental and epidemiological dataEnvironmental and epidemiological data monitorinmonitoring g.Monitoring data is valuable as confirmatory information for exposure assessment,effectiveness of management measures,determination of compliance with regulatory standards,identification of future problems,research and technological development.Finally,this document explains Regulatory Cooperation,its implications and benefits,as a measure that governments can use to make efficient use of resources.When establishing a new chemical regulation or updating existing regulations,countries can use and take notice of lessons learned from existing regulations in other countries and adapt them according to their local needs and circumstances.Although it is a highly beneficial approach,international Regulatory Cooperation remains largely undervalued by governments.In Latin America,an approach to these initiatives has been observed in recent years,as some economies work to comply with international commitments,are part of trade blocs where common regulations exist or are being worked on,or seek to join economic organizations(e.g.,OECD).This context represents a great opportunity to develop a regulatory framework jointly,on the basis of mutual recognition of approvals,databases and digitization.5 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April 2.2.KEY TERMSKEY TERMS ChemicalChemical product/chemicalproduct/chemical3:substance and/or mixture of substances with certain percentages or percentage ranges of the chemical.Note:The term product is sometimes used to refer to chemicals,mixtures and articles.HazardHazard4:Inherent property of a substance or mixture to cause adverse effects when an organism,system or(sub)population is exposed to that chemical.Industrial chemicalIndustrial chemicals s5:defined by default as any chemicals that are NOT managed through legislations dedicated to specific uses,such as pharmaceuticals,pesticides,biocides,etc.MixtureMixture6:Mixture or a solution composed of two or more chemicals/substances in which they do not react.The term preparation is synonymous to mixture.Sound management of chemicalsSound management of chemicals7 (SMC):(SMC):Adoption of all possible measures to ensure that chemicals are handled in such a way that the environment and human health are protected against the harmful effects that may result from them throughout their life cycle.S Substanceubstance 8:Chemical elements and their compounds in the natural state or obtained by any production process,including any additive necessary to preserve the stability of the product and any impurities deriving from the process used,but excluding any solvent which may be separated without affecting the stability of the substance or changing its composition.3 Source:IOMC Toolbox 4 Source:adapted from OECD 5 Source:OECD 6 Source:IOMC Toolbox 7 Source:adapted from Basel Convention.Note:Other possible terms for“sound”are“integrated”or“safe”.3.3.INTRODUCINTRODUCTIONTION Chemicals are fundamental components of the world we live in.They are essential for products manufactured every day.Intrinsic hazards and exposure derived from their different uses can generate risks that,if not properly managed,can negatively impact human health and the environment.SMC allows economies to reap the benefits that their use can offer.It can be considered as the adoption of all possible measures to ensure that chemicals are handled in such a way that the environment and human health are protected against the harmful effects that may result from their use,throughout their life cycle and value chain(production,trade,use,releases,and disposal)9.Chemicals and wastes are part of global development,and their sound management has been supported for decades in various international frameworks.These act as guiding principles for best practices and regulatory policies and are platforms for the generation and exchange of information.The main global agreements and actions include:The Organisation for Economic Co-operation and Development(OECD):Founded in 1960,it assists countries in the implementation of policies and instruments for the establishment of robust and efficient chemicals management systems,to protect human health and the environment.With a considerable number of legal instruments,OECD has a remarkable role as a promoter of SMC in the region,since there are numerous cases of countries that,based on their interest in joining as members,begin very serious processes 8 Source:GHS Substance definition 9 More information available in:APEC Committee on Trade and Investment(CTI)Chemical Dialogue(2020).Survey for Review of Chemical Management Regulatory Systems Worldwide.Available at:https:/www.apec.org/Publications/2020/04/Survey-for-Review-of-Chemical-Management-Regulatory-Systems-Worldwide 6 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April of institutional strengthening in this matter with the consequent adoption of the OECD Council Acts Related to Chemicals and Environmental Policies.The 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals(SDG),adopted by the United Nations General Assembly in 2015(sound management of chemicals and wastes is directly related to SDGs 3,6,7,11,12 and 14).Inter-institutional Programme for the Sound Management of Chemicals(IOMC),which has brought together nine intergovernmental organizations since 1995,intending to strengthen international cooperation and increase the effectiveness of international programs.The International Conference on Chemicals Management(ICCM)and the Strategic Approach to International Chemicals Management(SAICM),a policy framework for promoting chemical safety worldwide,organized by the United Nations Environment Program,which was born in support of the fulfilment of the 2020 goal agreed at the World Summit on Sustainable Development in Johannesburg in 2002.Other multilateral environmental agreements(MEAs)and international instruments 10.In 2006,ministers,heads of delegation and representatives of civil society and the private sector,met at the International Conference on Chemicals Management(ICCM)and declared in the Dubai Declaration on International Chemicals Management:10 Among others:The International Convention for the Prevention of Pollution from Ships(MARPOL);ILO Chemicals Convention No.170 which provides the basis for the sound management of all types of chemicals at the workplace;and Mo.174 on the prevention of major industrial accidents;the Vienna Convention for the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer;Basel Convention on the Control of Transboundary movements of Hazardous Wastes and their Disposal;Paris “The sound management of chemicals is essential if we are to achieve sustainable development,including the eradication of poverty and disease,the improvement of human health and the environment and the elevation and maintenance of the standard of living in countries at all levels of development.Other benefits of sound management of chemicals include:Improving Improving the protection the protection of the health of workers,general population and the environment.Reducing costs of inaction.Reducing costs of inaction.By taking preventive measures to minimize the adverse effects of chemicals on human health and the environment(and thus reduce,for example,the number of work-related accidents or unintentional poisonings),governments reduce costs related to healthcare and accident response.Improving Improving of governments and industry of governments and industry reputation whenreputation when management is effective and predictablemanagement is effective and predictable.The general public is increasingly concerned about the safe use of chemicals and,at the same time,acknowledges and expects action by governments in this regard.As governments and industries demonstrate that they are protecting public health and the environment by promoting SMC,the confidence of the general public increases.IncreasingIncreasing productivity and competitiveness.productivity and competitiveness.Information improves workers safety and therefore reduces the number of accidents and the occurrence of occupational diseases.As a result,a healthier population is more productive and generates wealth.Agreement-The Convention on the Prohibition of the Development,Production,Stockpiling and Use of Chemical Weapons and on their Destruction-;Globally Harmonized System of Classification and Labelling of Chemicals(GHS);Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade;Stockholm Convention on Persistent Organic Pollutants;Minamata Convention on mercury.7 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Increasing rIncreasing regional availability egional availability of high-quality data and information on chemicals and how to use them safely.IncreasingIncreasing industry profits in industry profits in terms of efficiencyterms of efficiency,resource resource savingsavings s,and,and reduced compliance costsreduced compliance costs.SMC enables the industry to:identify improvements in process safety;reduce insurance and maintenance costs;and prevent business risks related to liability claims.4.4.DOCUMENT DOCUMENT OBJEOBJECTIVECTIVES S This document is the result of the Virtual Working Group on the Sound Management of Chemicals in Latin America(VWG-SMC-LA)work.It consists of representatives from regional governments,industrial associations and industries and is coordinated by the International Council of Chemical Associations(ICCA).The roadmap aims to provide an overview of the main SMC elements,based on the collection of existing information from relevant and internationally recognized sources.Each chapter is limited to brief and general descriptions,while aspects related to technical and implementation issues will be developed in future specific guidance documents.The principles that guided the preparation of this document are the following:Prevention:Prevention:Identify and implement measures based on science and a risk-based approach to avoid,and-when it is not possible-to minimize,the negative effects that industrial chemicals and substances could cause on health or the environment.Comprehensiveness:Comprehensiveness:Management of industrial chemicals occurs in all life cycle stages.Progressivity:Progressivity:The objectives should be gradually design,with milestones and final goals,establishing periodic reviews based on experience to improve the system.Cooperation:Cooperation:Collaborate with others to promote the development and dissemination of best practices and innovations in regulatory policy and governance.Articulation:Articulation:Promote the development of regulations in coordination among the different government sectors,with the active participation of the private sector,academia and civil society organizations.Efficiency:Efficiency:Regulatory Cooperation as a mechanism to save resources,based on existing regulations of other countries and customizing them according to local needs and circumstances.Efficacy:Efficacy:Provide a regulatory framework that promotes an impact analysis on health,environment and socio-economic matters,to ensure the safe and sustainable use of chemicals and provide a business operating environment that stimulates investment,growth,innovation and trade without unjustified load.Transparency:Transparency:Open procedures and ensure participation in the decision-making process.8 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April 5.5.ROADMAP FOR THE SMCROADMAP FOR THE SMC In order to have a complete understanding of the SMC,it is relevant to understand the regulations,tools and methodologies that comprise it.To this end,based on the approach proposed by the IOMC Toolbox1111 and OECD requirements for chemicals management,among other documents,a breakdown of the SMC elements throughout in the life cycle is presented below.The life cycle approach covers the entire supply chain,from resource extraction,synthesis and processing of a chemical substance or mixture,to waste management.It also includes the manufacture,use and handling of the product at the end of its useful life(e.g.recycling).12 To limit the scope of this document,it should be specified that aspects related to waste management have not been included in this instance and will be developed in future specific guidance documents.Figure 1:Chemicals life cycle stages.Source:Environmental European Agency(2014)13,adapted by the VWG-SMC-LA 11Access:https:/iomctoolbox.org/12 MZ Hauschild,Assessing environmental impacts in a life-cycle perspective,Environ.Sci.Technol.,2005,39,81A 88A 13 Available in:https:/www.eea.europa.eu/soer/2010/synthesis/synthesis/chapter4.xhtml The scope of the following sections is limited to brief descriptions of each basic component of the SMC.Technical aspects and implementation approaches will be developed in specific guidance documents.The diagram in Figure 1 aims to show all the SMC elements from a life cycle perspective.National plan forNational plan for the the SMCSMC and stakeholder dialogue and stakeholder dialogue mechanismsmechanisms The first challenge for countries is to assess their current situation,identify priorities according to national needs and circumstances and implement actions in a coordinated and integrated manner with the participation of all stakeholders.14 Any regulatory policy should be designed with a gradual approach,increasing complexity over time,to develop capacity and knowledge in the regulated sector and regulators,and to ensure that regulations can be well managed.The development of a national plan should ensure a cost-benefit analysis process associated with the implementation of any regulation,allowing governments to explore options for regulatory approaches and promoting alignment and consistency among the systems already installed in the country.In recent years,conducting Regulatory Impact Assessment(also known as RIA)has become an essential element within good regulatory practices.The OECD places particular emphasis on this resource,including it in its Recommendations on Regulatory Policies and Governance(2012).15 The highest priority when designing a plan for the sound management of chemicals is to clearly define roles and responsibilities of stakeholders,both from industry and government,especially with regard to generation,14 The OECD Environmental Performance Reviews for countries that aim to join the organization are also helpful during this process.15 OECD(2020).Regulatory Impact Assessment,OECD Best Practice Principles for Regulatory Policy,OECD Publishing,Paris.Available at:https:/www.oecd-ilibrary.org/governance/regulatory-impact-assessment_663f08d9-en 9 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April dissemination and management of information.The government is responsible for developing laws and regulations and enforcing legal requirements.Manufacturers and importers must comply with regulations on chemicals prohibited,restricted or subject to authorization.Among others,they must classify and label all hazardous chemicals;maintain and share information(through notification in an inventory or registry)with the government as needed;and generate Safety Data Sheets(SDS)to distribute them later,as manufacturers and importers have the best knowledge of the products they produce or import.They also need to organize their data and provide safety instructions for employees,among other functions.Downstream users and retailers should follow regulations on prohibited and restricted chemicals;verify labelling;handle chemicals properly;properly package and store chemicals;and maintain and share records with the government as needed16.It is recommended that any framework for the management of industrial chemicals be subject to an open and transparent process of discussion with all stakeholders(government,industry,non-governmental organizations,academia and civil society organizations).Each stakeholder should contribute their specific expertise and interest in developing the plan.Hazard classification and identificationHazard classification and identification The first key phase for the sound management of chemicals is to identify and communicate essential information about the products to workers and users(e.g.identification,physicochemical properties and hazards).In order to harmonize existing hazard classification systems and converge into a single global one,experts from different countries,international organizations and stakeholders created the Globally Harmonized System 16More information available at:https:/wedocs.unep.org/bitstream/handle/20.500.11822/28403/ChemContAut.pdf?sequence=1&isAllowed=y y of Classification and Labelling of Chemicals(GHS)with the publication of the“Purple Book”in 2003.HAZARDHAZARD Hazard is the inherent property of a substance having the potential to cause adverse effects when an organism,system or(sub)population is exposed to that substance.17 This work,which took more than 10 years to complete,is based on extensive scientific knowledge and experience ranging from toxicology to fire protection fields and is subject to a continuous updating process,conducted by the United Nations Sub-committee of Experts on GHS(UN-SCEGHS)every 2 years.It was developed based on harmonization principles(see GHS 8th Rev.,page 4).The GHS provides:Harmonized criteria for classifying chemicals according to physical hazards,health hazards and environmental hazards;and Harmonized hazard communication elements,including labelling and SDS requirements.The 8th version of the GHS adopted in 2019 is available on the website of the United Nations Economic Commission for Europe(UNECE).Scope of the GHSScope of the GHS The UN-SCEGHS carefully agreed on three critical parameters to apply the GHS in a country or region:1.While the system covers all hazardous chemicals,how the hazard communication elements of the GHS are applied may vary depending on the product category or life cycle stage.The systems target https:/wedocs.unep.org/bitstream/handle/20.500.11822/28402/ChemContLeg.pdf?sequence=1&isAllowed=y 17 Source:OCDE 10 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April audiences include:consumers,workers,transportation workers and emergency personnel;2.The establishment of uniform test methods or the promotion of additional tests is not mandatory under the GHS;3.Human experience,epidemiological data and clinical tests also provide important information to be taken into account in the application of the GHS.It should be noted that the wide availability of existing-and validated-information on chemicals significantly facilitates the implementation of these systems in the countries,especially for governments and companies with limited resources.Among other available resources,the OECD has promoted the e-Chem Portal18,which is continuously updated and refined,taking information from databases,inventories and registers,from countries with long experience in chemicals regulation.The GHS covers four key sectors,namely:workplace,agriculture,transportation,and consumer products.Countries may decide to prioritize GHS implementation in some sectors,depending on their needs.Substances,their solutions and mixtures are part of the scope of GHS.Articles are beyond the scope of the system.19 GHS does not cover the harmonization of risk assessment or risk management procedures.These are more complex processes than hazard classification.18Access:https:/www.echemportal.org/y https:/www.icca-chem.org/chemical-industry-calls-for-global-data-sharing-on-chemicals-to-improve-chemical-safety-worldwide/19Under the standard 1910.1200 of the United States Occupational Safety and Health Standards(OSHA),“Article”means a manufactured item other than a fluid or particle:(i)which is formed to a specific shape or design during manufacture;(ii)which has end use function(s)dependent in whole or in part upon its shape or design during end use;and(iii)which under normal conditions of use does not release more than very small Building blockBuilding blocks approachs approach Hazards are classified into three types:physical hazards,health hazards,and environmental hazards.The GHS has developed clear and harmonized criteria for each class,which constitutes a system comprised of elements from which a normative approach can be formed,and can be seen as blocks.Under the GHS,governments are free to determine the blocks to apply,as long as they maintain the consistency of the system.Hazard classes can be considered blocks,as well as a category within a hazard class.For the latter,certain restrictions have been established to ensure system coherence(see GHS Rev.8,page 8).Since the building-block approach allows governments to customize GHS regulations to better suit each country,this can lead to significant discrepancies among countries and thus trade barriers.It is suggested that governments carefully consider how they implement this system through their national regulatory processes.The best approach would be an alignment with the systems of main trading partners,which would increase trade opportunities while protecting human health and the environment.Currently,many Latin American countries are implementing or considering the implementation of GHS.Although the system is restrictive in the definitions of the hazard classes,it is noted that modified local systems may lead to inconsistencies in the classifications of chemicals20.As international trade continues to increase,it becomes essential to minimize technical barriers.An aligned GHS approach across the region(building blocks adopted,scope of implementation)would not only ensure that workers and quantities,e.g.,minute or trace amounts of a hazardous chemical(as determined under paragraph(d)of this section),and does not pose a physical hazard or health risk to employees.20 It is worth to mention that even if they could be minimized,it is not possible to eliminate differences because the sources of data are not harmonized.11 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April citizens are protected and informed by regulations that have proven to be effective but would also facilitate the trade of chemicals.21 C Chemicalshemicals information information(inventories/registers)(inventories/registers)Driven by safety concerns,governments and other stakeholders endeavour to safely evaluate and manage chemicals in their life cycle.To achieve this goal,many countries have established their own regulatory frameworks for chemicals which,despite differences in purpose and scope,all establish an initial inventory or register22 of chemical substances manufactured,imported and/or used in the respective jurisdictions.The main objective of these instruments is to screen the substances present in the country and gather the necessary information to proceed with their risk identification and management.The diagram in Figure 3 summarizes the steps that are commonly taken during the development of inventory/register,risk analysis,assessment and management regulations,aspects that will be developed in greater detail in subsequent sections.Most countries request notification from producers or importers when their annual average import or production amount exceeds a certain value23.The notification includes:chemicals identification for which the CAS number(Chemical Abstracts Service)is usually used-,volume/quantity imported and/or produced-which can be notified in ranges or averages-,recommended or identified uses24 and hazards identified according to GHS.It should be clearly defined if additional information is required-this 21 An example to illustrate inconsistencies in the implementation of GHS is the Project ECONORMAS MERCOSUR(2009-2015),from which an exhaustive legal analysis led to the identification of differences among members legislation and GHS requirement.22 In this document,for the sake of simplicity,the terms“inventories”and“registers”are treated as equivalent.However,it is highlighted that they can be treated differently in some jurisdictions and documents,such as in the UNEP Guide on the development of legal and institutional infrastructures and measures to recover the costs of the national Administration in the rational management of chemicals Sections 4.4.1,4.4.4 and 4.4.1.Available at:https:/wedocs.unep.org/bitstream/handle/20.500.11822/12224/LIRA_Guidance Report_Spanish.pdf?sequence=3&isAllowed=y generally applies only to larger volumes or quantities and in relation to the risk profile of the substance-25.As inventory or registry information is completed,governments must verify that it corresponds to what was requested.Such a scheme should ensure that all submissions are safe and secure,not just those containing confidential information.Confidential business information should be available only to authorized persons.Government officials must have the legal authority to collect data and protect confidential business information.Government departments must have access to all stored information that is necessary for their work.All information should be collected in a centralized,electronic system for data and reports presentation.The stored information should be made available to interested parties so that they can fully participate in subsequent risk management steps.The public should have access to non-confidential information relevant to health and environmental safety.23 Some examples:100kg(Australia,Canada-new substances-,South Korea and Sweden,among others),1000kg(Canada pre-existing substances-,Japan,and the European Union through REACH,among others).24 The VWG-SMC-LA recognizes the existence of multiples options to refer to this requirement(among others:“intended uses”,“destined uses”).Under GHS,it is considered any use for which the chemical is intended or recommended.25 IOMC Toolbox provides some examples of additional information:notifier/registrant,production/import,foreseen uses,estimated and measured exposures for the stages of the life cycle,hazard information,risk assessments for the foreseen uses,risk management through labelling,and safety data sheets.12 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Developing new individual inventories may not always be the most appropriate scheme,particularly if major trading partners have already established inventories that contain a similar list of substances.As an alternative,countries can implement a“Mutual Acceptance”scheme26,by accepting the information provided in another countrys inventory,or a combination of these two approaches.On the other hand,the OECDs Mutual Data Acceptance System is a multilateral agreement that aims to avoid duplication of studies in a country through the validation of data already generated by external parties.OECD requires that tests be performed under protocols,ensuring quality and integrity.27 This type of scheme is essential in economies with limited resources,and for that reason,the region is urged to consider its implementation when designing national policies.It should be noted that inventories by themselves do not provide a mechanism to identify chemicals that may represent an unreasonable risk to citizens and the environment,but they are the first necessary step to implement a risk management scheme.Likewise,inventory information is essential for the implementation of the prior informed consent procedure of the Rotterdam Convention,which requires governments to be aware of the chemicals used in their country.Figure 3:Common steps for the development of inventories/registers,prioritization,risk analysis,assessment and management regulations.Source:VWG-SMC-LA 26 For example,Mutual Acceptance of Data of new substances between Australia and Canada.More information in:https:/www.ec.gc.ca/subsnouvelles-newsubs/default.asp?lang=En&n=7BB979DD-1 27 All OECD member countries,as well as non-member provisional and full adherents,participate in MAD but to different degrees.The determining factor is whether a governments national GLP compliance monitoring programme has undergone a successful OECD evaluation.More information in:https:/www.oecd.org/env/ehs/mutualacceptanceofdatamad.htm 13 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Special Considerations:New Substances,Articles and MixturesSpecial Considerations:New Substances,Articles and Mixtures When applying a phased approach,at least during the initial stages of the implementation,it is not recommended to include the notification or evaluation of mixtures,but rather to focus on individual substances and those present in mixtures.The large existing number of mixtures and articles makes their inclusion extremely complex and requires numerous resources from government and industry.It is important to distinguish between products and articles.Certain chemicals can be added to articles,others can be used to formulate products and others are used for both.For the purposes of exposure assessment,products and articles are treated differently.The formulations,conditions of use and available approaches to estimate exposure are different.With regard to the notification requirements for new substances,countries must differentiate between pre-existing substances,those that have been on the market before implementing the chemical inventory or registers,and new substances.For example,while the submission of a risk assessment may be a requirement for trade of new substances,for pre-existing ones it is not.The latter should be subject to a systematic review,and the submission of risk assessments must be based on a prioritization mechanism,as will be seen below.28 P Prioritization,analysis,rioritization,analysis,assessmentassessment and and risk risk managementmanagement PrioriPrioriti tizazatiotion n2929 To implement the SMC,a country may use criteria to identify those chemicals subject to priority risk management action.Priority setting should be based 28 ICCA Toolbox 29 ICCA Toolbox 30 Additional information is available in the American Chemistry Council(ACC)document“ACC Prioritization Screening Approach”:https:/ the potential risk to human health and the environment,and the opportunity to reduce it,focusing on the inherent properties of the substance,recommended or identified uses and associated exposure scenarios30.Government and industry resources should focus on prioritized chemicals and allow certain exclusions for risk management of non-prioritized,being able to establish two categories:low priority and high priority.Low-priority chemicals would require no further action or review,while high-priority chemicals would be subject to risk assessment.Priorities should be based on aspects such as health and environmental hazards,volume of the chemical in trade;recommended or identified uses(with special attention to certain circumstances,for example,products for children);detection in biomonitoring programs;persistent or bioaccumulative properties,among others.Criteria for the selection of chemicals to be prioritized for the development of risk assessments may include,among others:1.Persistence and toxicity to the environment.2.Bioaccumulation and toxicity for the environment.3.Persistence,bioaccumulation and toxicity for the environment.4.Carcinogenicity,mutagenicity or toxicity for reproduction.5.Characteristics of endocrine disruptors,based on scientific evidence.6.Relevant potential or evidence of human or environmental exposure.7.Be under international alert,or in any international agreement or convention of which the country is a signatory.Document/#:text=An initial screening approach for,elements that define risk potential.&text=For initial screening purposes, the,used to rank all substances 14 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April The definition of low concern substances could be based on considerations such as:low hazard,low volume,use in research and development(R&D),or particular cases such as polymers of low concern31.Since the same substance can involve different exposure scenarios with differentiated risks depending on its use,some approaches propose that prioritization also be carried out based on the high priority uses of a substance.The way in which different countries approached prioritization has been studied and compared over the years,serving as a source of consultation for those that have not yet established these mechanisms.To explore possible options,it is suggested to consult the recent OECD document Best International Practices for Identifying Priorities in Chemical Substances Management Systems32,which describes the prioritization schemes of Germany,Australia,Canada,the United States,Finland,Holland,Japan,New Zealand,and the European Union.Risk Risk analysis and analysis and assessmentassessment Once the highest priority chemicals are identified,they must undergo a risk assessment.Since there is often confusion regarding the terms risk analysis and risk assessment,this document follows the recommendation of the WHO guide33 which considers that risk analysis is a process that incorporates three elements:risk assessment,risk management and risk communication.Regarding the risk assessment of an industrial chemical substance,the following definition is taken:31 The OECD Working Group on Polymers(2009)established that“polymers of low concern are those deemed to have insignificant environmental and human health impacts.Therefore,these polymers should have reduced regulatory requirements.”However,no specific criteria were defined by OECD.More information available in:https:/ec.europa.eu/environment/chemicals/reach/pdf/FINAL REPORT POLYMER SI671025.pdf 32 OECD(2019)International Best Practices for Identification of Priorities within Chemicals Management Systems.Available at:.A risk assessment consists of scientific analyses,the results of which are quantitative or qualitative expressions of the likelihood of harm associated with exposure to a chemical substance Source:WHO,202134 These assessments are intended to identify and evaluate potential risks to health and the environment derived from the manufacture,fractionation,handling,distribution,storage,use,transport,and disposal of the chemical.Evaluations must use quality data and information-e.g.,validated internationally-,with objective and accepted protocols,and in a transparent manner(peer-reviewed).Business partners can join efforts and collaborate in the development of risk assessments.Risk characterization can be performed at an initial level with base information and deepened by going through a more detailed and/or complete level.Since the greater the progress at the level of risk characterization,the greater the resources required(more sophisticated data and evidence),such assessments are often considered for high priority chemicals.Given that resources are limited,the proposed implementation steps for this sub-element are:1.Make use of risk assessments done by other countries or international organizations;2.Agree on the risk assessment with the relevant government areas and with stakeholders involvement.This should include the consideration of whether the use conditions of the substance in the country are comparable to those that are being used as a reference.http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2019)34&doclanguage=en 33 World Health Organization(WHO).(2021).WHO human health risk assessment toolkit:chemical hazards,second edition.Geneva.IPCS harmonization project document,no.8.Licence:CC BY-NC-SA 3.0 IGO.https:/apps.who.int/iris/bitstream/handle/10665/350206/9789240035720-eng.pdf?sequence=1&isAllowed=y 34 Ut supra 15 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April RISK CHARACTERIZATIONRISK CHARACTERIZATION Risk characterization is a process aimed at calculating or estimating the risk to a given target organism,system or(sub)population,after exposure to a chemical and/or mixture,considering its inherent characteristics,as well as the characteristics of the specific target organism,system or population.The determination should be qualitative and,wherever possible,quantitative and include the likelihood of known and potential adverse effects of the chemical and/or mixture occurring under defined exposure conditions,and uncertainties.Risk characterization is part of the final stage in a risk assessment and is performed using the results of both the hazard assessment and the exposure assessment.Risk assessment and socio-economic analysis involve the establishment of a qualitative or quantitative relationship between the risks of exposure and the socio-economic benefits of the chemical.It implies a complex process of determining the impact of identified hazards,exposure scenarios and estimated risks for the system under evaluation,as well as the weight of the benefits associated with trade and use of the chemical and its mixtures.Risk managementRisk management Risk management is a decision-making process to develop,analyse and compare regulatory and non-regulatory control and mitigation options to be developed by different actors,and select and implement those that allow reducing the defined impact on health and the environment.It involves the consideration of relevant information,obtained from the risk assessment,related to the hazards and exposure to a chemical,and the socioeconomic aspects(political,social,economic and technical factors),which could include the benefits associated with the measures.35 More information available at:https:/www.unido.org/sites/default/files/2013-08/Chemical_Leasing_Spanish_0.pdf Chemicals that present an unacceptable risk to human health or the environment in certain uses or applications must be subject to risk management.The set of measures to prevent or manage risks can include:adopting safe handling practices;codes of conduct,training and education;special labelling requirements;restrictions on use,of manufacture or of quantity released into the environment;or,when there is an unreasonable risk that is not otherwise manageable,bans and phase-outs.Risk assessments are based on progressive analyses where the level of risk reduction or elimination is studied by taking a certain management measure.For that reason,prohibitions or restrictions should only be used as a last resource,when other means of risk control run out.Other options-voluntary or mandatory-to anticipate and prevent risks include,for example:additional tests to determine the hazard;monitoring(human health or environment);pollution prevention;reduction of hazardous waste and emissions;environmentally sound recovery and waste recycling;application of green chemistry principles for safer alternatives;informed substitution and cleaner production;Chemical Leasing35;job safety programs and public awareness campaigns.Regulatory Cooperation can also promote alignment among business partners on risk management measures,although regulatory decisions must remain sovereign for each state36.The resources required for risk management will depend on the number of chemicals included in the work plan and the elements of risk assessment required.36 ICCA Toolbox(modified)16 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Work safetyWork safety The implementation of a safety system for workers and the workplace is the first step to help prevent or reduce the risks of occupational diseases,injuries and accidents during the fractionation,handling,distribution,storage and transport of chemicals,and prevent adverse effects in the environment.Safety practices include:personnel training;process safety;facility design;occupational health and safety;pollution prevention;loss analysis;waste management and transport safety.These approaches must be risk-based and flexible enough to allow the industry to grow and deliver good long-term returns.37 RISKRISK-BASEDBASED Risk-based means based on the integration and evaluation of data and information on hazards and exposure to one or more substances,mixtures or chemical products,including the circumstances in which they are used.38 As indicated by the OECD39,there is a need to establish high standards of corporate governance and essentially ensure commitment from the industry to implement those standards.Effective control of chemical hazards in the workplace requires an efficient flow of information from manufacturers or importers to users on existing hazards and on safety precautions to be taken.This flow of information must be followed by daily actions taken by employers to ensure that the necessary measures are established to protect workers and,consequently,the public and the environment.40 Occupational and facility safety systems should aim to:37 ICCA Toolbox(modified)38 ICCA Toolbox 39 OECD(2012).Corporate Governance for Process Safety.Guidance for Senior Leaders in High Hazardous Industries.Available at:http:/www.oecd.org/chemicalsafety/chemical-accidents/corporate governance for process safety-colour cover.pdf Ensure that all chemicals are evaluated for their hazards;Provide employers with a mechanism to obtain information from suppliers on chemicals used in the workplace so that they can implement effective programs to protect workers from chemical hazards;Provide workers with information on chemicals in their workplace and facilitate them training on appropriate preventive measures to enable them to participate in protection programs;Establish principles for such programs to ensure chemicals are used safely.Key elementsKey elements4141 Identification of chemicals,classification system,labelling,and generation of SDS:Suppliers must ensure that updated SDS of hazardous chemicals are prepared and provided to employers.Workers and their representatives should have the right to access to them and to receive information in languages and formats that they can easily understand.Information and training:Employers must train workers on continuous basis on the practices and procedures to be followed for the safe use of chemicals at work including the hazards associated with exposure,how to obtain and use the information provided on labels and SDS,how to use the SDS of a chemical together with workplace-specific information.Storage and transport:The establishment of specific rules and conditions for safe storage and transport reduces the risks of 40 International Labour Organization(ILO).Safety in the use of chemicals at work.Available at:https:/www.ilo.org/wcmsp5/groups/public/-ed_protect/-protrav/-safework/documents/normativeinstrument/wcms_107823.pdf 41 IOMC Toolbox,https:/iomctoolbox.org/node/50035/steps 17 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April accidents and adverse events.Hazardous chemicals must be stored under conditions specific to their inherent properties to ensure safety and in accordance with established criteria.Disposal:Hazardous chemicals that are no longer needed and containers that have been emptied,but may contain residues of hazardous chemicals,should be handled or disposed of in a manner that eliminates or minimizes the risk to health and the environment,in accordance with national standards and best practices.Exposure:Reduce exposure to hazardous chemicals as much as possible,ensuring that workers are not exposed to an extent that exceeds exposure limits or other exposure criteria.Operational controls:Employers must conduct workplace hazard assessments in order to take control measures that reduce or eliminate worker exposure to hazardous chemicals.Biomonitoring and environmental monitoring:Periodic control of the parameters of interest in workers and the work environment to evaluate the effectiveness of prevention and control measures.Pollutant Release and Transfer Register(PRTR)Pollutant Release and Transfer Register(PRTR)A Pollutant Release and Transfer Register(PRTR)is a publicly accessible catalogue or database of releases and transfers of potentially harmful chemical substances that includes information on the nature and quantity of such releases and transfers.Data for PRTRs can be collected from point sources of pollution,such as factories,as well as non-point sources,such as 42 OECD,Implementing a National PRTR Design Project:A Guidance Document.Available in:http:/cwm.unitar.org/cwmplatformscms/site/assets/files/1219/unitar-_1997_implementing_a_natl_prtr_design_project.pdf 43 IOMC toolbox means of transportation.A PRTR generally covers emissions to air,water and soil,as well as wastes transported to treatment and disposal sites.42 Its objective is to strengthen the capacity of countries to track the amount of certain chemical substances released that may represent a threat to human health and the environment.The collection of this data helps to support decision-making processes and constitutes a means of information,linking industry,government,non-governmental organizations and the general public.43 PRTR SYSTEMS PRINCIPLESPRTR SYSTEMS PRINCIPLES When designing a PRTR,a country should consider the principles related to the establishment of PRTR systems outlined in the OECD Council Recommendation on the Implementation of Registers of Pollutants Releases and Transfers for the implementation of PRTRs.44 Goals and specific objectives Goals and specific objectives A PRTR shall be used to:Provide data to support identification and assessment of potential risks to human health and/or the environment by identifying sources and quantities of pollutant releases and transfers to all environmental matrices;Promote the prevention of contamination at the source,for example,by installing cleaner technologies or closed processes;Evaluate the progress of environmental policies and assess the extent to which environmental objectives are or may be achieved;44 OECD(2018).Recommendation of the Council on Establishing and Implementing Pollutant Release and Transfer Registers(PRTRs).Available at:https:/legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0440 18 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Promote corporate responsibility and compliance with environmental obligations;and Strengthen public access and participation in decision-making processes.Many of the currently existing PRTR systems were originally designed for a single country or region.As such,the data collected by each system has been shaped by specific factors related to them and is often not comparable with the data collected by other PRTR45.In its recommendations,the OECD proposes that national systems allow,as far as possible,comparison and cooperation with other global PRTR systems and possible harmonization with similar international databases.Further harmonization of PRTR data would provide greater opportunities for a global analysis of pollutant emissions and facilitate cross-country comparisons.This is particularly important for pollutants of global concern,such as greenhouse gases,persistent organic pollutants(POPs),and metals such as mercury,which are known for their long-distance transport through the environment to regions where they are not have been used or released.In line with the above,it should be noted that the Regional Agreement on Access to Information,Public Participation and Access to Justice in Environmental Matters(Escaz Agreement)in Latin America and the Caribbean contains specific provisions on PRTR.It establishes in its Article 6.4 that“Each Party shall take steps to establish a release and transfer register covering air,water,soil and subsoil pollutants,as well as materials and waste 45 OECD(2014).Guidance on Elements of a PRTR:Part I)Available at:http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2014)33&doclanguage=en OECD(2015):Guidance on Elements of a PRTR:Part II.Available at:http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2015)45&doclanguage=en in its jurisdiction.This register will be established progressively and regularly updated”.ChemicaChemical scopel scope The OECD PRTR Implementation Council recommends that countries consider that“PRTR systems should include coverage of an appropriate number of substances that are released or transferred and can be potentially harmful to humans and/or the environment”.To improve the consistency of chemical coverage across registers,the OECD compared five systems and the Kiev Protocol(OECD,2012).As a ,the Organization developed two lists of chemical substances:1.The“Long List of Chemicals”with 1,184 chemicals covered by the PRTRs studied;2.The Short List of Chemicals.It includes 126 chemical substances covered by MEAs such as the Stockholm Convention,the Kyoto Protocol and the Kiev Protocol,as well as others identified in 4 or more of the PRTRs under study.To ensure that the chemical coverage of a PRTR is comparable,a country could include in its system at least all chemicals from the OECD Short List.Accident prevention,preparedness and responseAccident prevention,preparedness and response Safe handling of chemicals and sustainable business success cannot be separated.Failures when controlling major hazards and poor process safety management lead to extremely costly consequences and deficient long-term OECD(2014):Global pollutant release and transfer register,proposal for a harmonised list of pollutants.Available at:http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2014)32&doclanguage=en 19 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April performance for industries.Serious accidents may not only affect their profitability but could even wipe it out completely.46 Emergency response systems address chemical accidents,especially those that occur in facilities and during transportation.To be effective,these systems require planning and careful preparation,rapid access to information,and cooperation among emergency response personnel and governmental and private sectors47.The SDS contain very relevant information for emergency response plans.However,promoting risk assessment in the industrial environment and risk management can reduce the need for emergency response actions or improve their efficiency.In the event of an emergency,as well as at each stage of preparedness,it is essential that all stakeholders involved,including chemical factories,transporters,storage facilities and emergency services,have access to reliable and updated information,thus ensuring the implementation of adequate measures.The mandatory provision of SDS to workers exposed to chemicals throughout the value chain should be part of such programs.Civil organizations and the general public must also be involved in the preparation and response in case evacuation or isolation is necessary due to events beyond the manufacturing area.The Responsible Care Program of the chemical industry prepared the document Community Awareness and Emergency Response Code that develops this topic in greater depth.48 46 OECD(2012).Corporate Governance for Process Safety.Guidance for Senior Leaders in High Hazardous Industries.Available at:http:/www.oecd.org/chemicalsafety/chemical-accidents/corporate governance for process safety-colour cover.pdf 47 ICCA toolbox 48 Available at:https:/gpca.org.ae/wp-content/uploads/2018/05/1-Community-Awareness.pdf 49 It includes,for example:a dictionary of local names for hazardous chemicals;information on the characteristics of hazardous chemicals;risk assessment methodologies;first aid measures;identification of Information and training are critical components for the successful implementation of any chemical accident program and,therefore,efforts should be made to ensure that the information is available,accessible,and regularly updated.49 Most countries do not have enough personnel or other resources to do everything that is intended in a chemical accident program.Therefore,realistic goals should be set,and measures taken to ensure that sufficient resources are available for meaningful implementation.In this sense,the benefits associated with collaboration between different organisms,such as non-governmental organizations,other countries and international organizations,should be recognized.The OECD has developed Guiding Principles for Chemical Accident Prevention,Preparedness and Response50 that are designed to be comprehensive,aiming at:Prevent the occurrence of incidents(accidents and near-accidents)involving hazardous chemicals(for example,loss of containment of chemicals,explosions,fires,etc.).Prepare for accidents and mitigate their adverse effects through emergency planning,land use planning and communication with the public.Respond to accidents to minimize adverse consequences for health,the environment and private property.Track accidents,including initial clean-up activities,accident reporting and investigation.dangerous facilities;accident reports.Much of the information is available from existing sources and therefore only needs to be collected and organized.Source:IOMC Toolbox 50 OECD.(2003).Guiding Principles for Chemical Accident Prevention,Preparedness and Response.Available at:https:/www.oecd-ilibrary.org/environment/oecd-guiding-principles-for-chemical-accident-prevention-preparedness-and-response_9789264101821-en 20 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April ManagementManagement of contaminated of contaminated sitessites5151 “Remediation is considered both the processes of providing a solution to an adverse impact,as well as the substantive actions that can counter or repair it.The type of remediation or combination of appropriate solutions will depend on the nature and extent of the adverse impact.The following may help determine the appropriate methods of remediation:Existing standards:In some cases,there are national and international standards or laws that determine what constitutes an appropriate method of remediation.Precedent:In the absence of national and international standards,it is suggested to study similar cases.Stakeholder preferences:The perspective of those affected by the impacts on health and the environment is important when analysing remediation options.Activities that are causing or contributing to adverse impacts must be discontinued by the organization,which shall address those impacts by providing or cooperating in their remediation.When it is not feasible to address all of them at once,the organization should prioritize the order in which it takes action,based on the severity and likelihood of the adverse impact,for example,analysing when a late response would make the impact irremediable.Once the most significant impacts are identified and addressed,efforts should be focused on addressing the less significant impacts.While the prioritization process is ongoing,in some cases,new adverse impacts may emerge that should be prioritized before moving to less significant impacts.51 OECD.Due Diligence Guidance for Responsible Business Conduct.Available at:https:/mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf 52OECD.Recommendation of the Council concerning the Application of the Polluter-Pays Principle to Accidental Pollution.Available at:https:/legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0251 POLLUTER PAYS PRINCIPLEPOLLUTER PAYS PRINCIPLE -ACCIDENTAL POLLUTIONACCIDENTAL POLLUTION5252 The Recommendation on the application of the“Pollutes Pays Principle”(PPP),associated with accidental pollution,was adopted by the OECD Council in 1989.The Recommendation encourages the application of the principle in the case of accidental contamination in“dangerous facilities”.RiskRisk-B Based Corrective Aased Corrective Actionction (RBCA)(RBCA)Some countries and industries implement Risk-Based Corrective Action(RBCA)at contaminated sites,based on protecting human health and the environment.The RBCA is a consistent decision-making process for assessing and responding to chemical releases53.ChemicalsChemicals in products/articles in products/articles 5454 Some hazardous chemicals classified under the GHS are found in consumer products/articles,resulting in potential workers exposure during manufacturing,from informal sectors involved in recycling and disposal of the general population during use-with an emphasis on women and children-and the environment,through waste releases.Measures to reduce adverse effects associated with hazardous chemicals under GHS contained in products must consider the entire value chain.Only a few are currently regulated or prohibited by international agreements such as the Stockholm and Minamata Conventions.53 More information:ASTM E2081-00(2015)Standard Guide for Risk-Based Corrective Action.Available at:https:/www.astm.org/Standards/E2081.htm 54 Available at:https:/chemicalswithoutconcern.org/program/chemicals-products 21 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Information exchange in the value chain is key to identifying and addressing any chemicals of interest in products.Downstream users in the value chain(e.g.retailers)often lack essential knowledge about the properties and hazards of chemicals used to manufacture products,or those that are direct ingredients.Therefore,they are often unaware of the hazards of the products they sell.Transparency of information on chemicals in global supply chains has been an emerging policy issue for SAICM since 2009,leading to programs such as the UNEP Chemicals in Products Program(CiP).This program specifically focuses on textiles,toys,electronics and construction materials.According to SAICM,if documentation of hazardous chemicals in products exists and is available,it must be available through supply chains and used to promote sound management.Il Ill legal egal traffictraffic International illegal traffic of hazardous chemicals is a pressing problem for many countries,especially developing countries and countries with economies in transition.Actions are needed at the national,regional and global levels to prevent and detect it,and to achieve a more effective implementation of the international agreements in the field of transboundary movements.In this regard,SAICMs objectives concerning international illegal trade are:Prevent illegal traffic of toxic,hazardous,prohibited and severely restricted chemicals,including products that incorporate these substances,mixtures,compounds and wastes;55 Official Rotterdam Convention Website:http:/www.pic.int/and Basel Convention:http:/www.basel.int/56 Each Party shall take appropriate legal,administrative and other measures to implement and enforce the provisions of this Convention,including measures to prevent and punish conduct in contravention of the Strengthen national and regional implementation mechanisms of existing multilateral agreements that contain provisions related to the prevention of international illegal traffic;Promote the exchange of information and strengthen the capacity of developing countries and countries with economies in transition at the national and regional levels for the prevention and control of international illegal traffic.The Rotterdam and Basel Conventions 55 play a key role in this matter.The first aims to promote shared responsibility and cooperative efforts on the international trade of certain hazardous chemicals in order to protect human health and the environment,and contribute to their environmentally sound use,facilitating the exchange of information on their characteristics,establishing a national decision-making process on their import and export,and disseminating these decisions to the Parties.The Basel Convention,for its part,focuses its goals on reducing the generation of hazardous wastes and promoting their environmentally sound management,the restriction of transboundary movements of certain wastes and the implementation of regulatory systems for cases where international movement is allowed.This Convention tries to prevent any illegal traffic of hazardous wastes.For example,its Article 4.3 stipulates that the Parties shall consider that illegal traffic in hazardous wastes or other wastes is criminal,and 4.4.determines that each Party shall take appropriate legal,administrative and other measures to implement and enforce the provisions of this Convention56.Convention.More information available at the Illegal Traffic Manual(Spanish version):http:/www.basel.int/Portals/4/Basel Convention/docs/legalmatters/illegtraffic/trman-s.pdf 22 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Environmental and epidemiologicEnvironmental and epidemiological dataal data monitoring monitoring 5757,5858 Monitoring data is valuable as confirmatory information for assessing exposure,evaluating the effectiveness of management measures,determining compliance with regulatory standards,identifying future problems and for investigation.When available,measured data is preferred over model estimations.Obtaining quality data that reflects actual concentrations can be very expensive,which means that the design of monitoring programs shall be effective and that existing national monitoring programs shall be evaluated to understand how to integrate current and future approaches.The following are some limitations and challenges of monitoring:The data is usually not relevant for new chemicals.Due to high costs,it is not possible to monitor a large number of existing chemicals.It may be necessary to perform a preliminary risk analysis using estimates before considering establishing a monitoring program.It is necessary to consider a continuous assessment strategy to guarantee temporal and spatial representativeness.Monitoring programs generate a wealth of data on actual environmental concentrations of hazardous chemicals,which can be very useful in risk assessment procedures.Existing programs can be modified in such a way that the resulting data is more suitable for these purposes and,for example,can be used to calibrate and validate models.However,many of the efforts to optimize monitoring programs focus primarily on evaluating generic 57 OECD.(2013).Guidance document for exposure assessment based on environmental monitoring.Available at:http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2013)7&doclanguage=en environmental policies and management at the national level,rather than describing the environmental fate of the chemicals of interest for the benefit of the risk assessment protocols.6.6.REGULATORY COOPERATIONREGULATORY COOPERATION When governments establish new chemical regulations or update them,resources can be saved if they build from existing regulations in other countries,taking note of their lessons learned,and adapting them to local circumstances as necessary.Laws and regulations are pervasive in all areas of business and citizen life and are an essential part of the formulation of policies at the national level.However,they are often national in scope,while many of todays most pressing political challenges transcend borders.This mismatch endangers the ability of governments to fully achieve their goals and ensure the well-being of their citizens.Greater harmonization and consistency in regulations can reduce regulatory requirement compliance time and costs.It is also likely to generate substantial benefits for regulators,who can pool knowledge and resources with other countries.However,International Regulatory Cooperation(IRC)remains largely dismissed by governments59.The OECD recommends that governments consider relevant international regulatory frameworks when formulating regulatory proposals to foster global coherence and cooperate with other countries to promote the 58 http:/www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2000)2&doclanguage=es 59OECD,Regulatory Cooperation Division(2018)International Regulatory Co-operation,“Adapting rulemaking for an interconnected world”.23 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April development and dissemination of good practices and innovations in regulatory policy and governance60.In Latin America,as some countries are working to achieve international commitments,join trade agreements or join economic organizations(for example,the OECD),they spearhead processes of specific regulation elaboration.For example,efforts related to compliance with the OECD council acts have led several countries in the region to initiate the development of standards for the management of industrial chemicals.61 Other countries and regions have demonstrated successful results from RC-related activities.A prominent example is the Regulatory Cooperation Project of the Association of Southeast Asian Nations(ASEAN)which establishes virtual working groups on specific technical issues related to the management of industrial chemicals between ASEAN government agencies and chemical industry associations.As a result of these activities,the following guidelines were developed,among other documents:ASEAN Guidance Document on GHS Implementation Alignment and ASEAN Guidance Document on Developing an Inventory of Chemicals.Another initiative worth mentioning is the Chemical Dialogue of the Asia-Pacific Economic Cooperation Forum(APEC),which developed the“Principles for Best Practice Chemical Regulation”62 and joined the OECD to develop the“APEC-OECD Integrated Checklist on Regulatory Reform”63.The following are the benefits that Regulatory Cooperation provides to each stakeholder64:GOGOVERNMENTVERNMENT Resource efficiency and knowledge sharing,leading to cost savings.60 OECD.(2012),Recommendation of the council on regulatory policy and governance.Available at:https:/www.oecd.org/governance/regulatory-policy/49990817.pdf 61 Among others,Argentina,Brazil,Chile,Colombia,Costa Rica,Mxico,Per.62 APEC.(2014).Principles for Best Practice Chemical Regulation.Available at:http:/mddb.apec.org/Documents/2014/CD/CD/14_cd_002.pdf Transparency within and among regulatory systems.Greater certainty for investors,resulting in the creation of new jobs,a decrease in unemployment and,therefore,economic growth.Increased economic growth,which leads directly to an increase in tax revenues.Strengthening of chemicals management programs by leveraging information.INDUSTRYINDUSTRY Easier access to other markets,especially for small and medium-sized enterprises(SMEs).Cost savings,allowing resources to be redirected to other areas,such as Research and Development(R&D).Increases in economic growth,resulting in higher net returns.Innovation promotion and time to market improved.More effective compliance.Level the playing field for foreign and national companies.SOCIETYSOCIETY Increased confidence in the regulatory system.Higher economic growth as a result of investments,job creation and better living standards.63 APEC-OECD.(2005).Integrated checklist on regulatory reform.Available in:http:/www.oecd.org/dataoecd/41/9/34989455.pdf 64 ICCA Toolbox(2018).Available at:https:/www.icca-chem.org/wp-content/uploads/2018/04/ICCA-Regulatory-Toolbox-Version-2-0-FINAL-03-27-2018.pdf 24 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April Increased access to innovative products and power of choice.Increased competition and opportunities in the domestic market.There is no single approach for chemicals legislation,specific needs and circumstances of each country need to be recognized.However,countries are encouraged not to reinvent the wheel,but to consider elements of the systems of major trading partners when defining their own framework.The RC is part of the Good Regulatory Practices(GRP).These are useful bases for laying the foundation for regulatory coherence and harmonization.As regulators assess the impacts of their rules,including on competition and trade,and their consistency with international instruments,they can avoid unnecessary deviations and promote convergence,even without being part of an international agreement.GRP also provides the confidence in the regulatory regime necessary for active cooperation with other jurisdictions.Some GRP presented by the OECD in its report International Regulatory Cooperation65 for the development of national standards are:Systematically consider accumulated experience and evidence in other jurisdictions on similar issues when developing or updating laws and regulations to ensure that they are kept up-to-date,cost-justified,cost-effective and consistent,and meet intended policy objectives.Facilitate inclusive consultation with interested parties(including foreign ones),to gather information on the implications of domestic regulation,and ensure that findings are incorporated into the regulatory process.This includes providing opportunities(e.g.,65OECD,Regulatory Cooperation Division(2018),International Regulatory Co-operation,“Adapting rulemaking for an interconnected world”.online)for the public to contribute to the regulatory proposal preparation process and the quality of the analysis.When analysing the results and impacts of a standard already implemented(ex-post evaluation),include the link with international standards and the regulatory frameworks of other jurisdictions in the country.Establish a government mechanism to coordinate Regulatory Cooperation actions,centralize relevant information on RC practices and activities,and build consensus and common language.Integrate Regulatory Impact Assessment(RIA)in the early stages when formulating regulatory proposals.Clearly identify policy objectives,assess whether regulation is needed,and how it can be more effective and efficient to achieve those objectives.Consider other strategies besides regulation and identify the benefits of different approaches analysed to identify the best one.66 66 OECD.(2012),Recommendation of the council on regulatory policy and governance.Available at:https:/www.oecd.org/governance/regulatory-policy/49990817.pdf 25 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April 7.7.ACRONYMSACRONYMS APECAPEC Asia-Pacific Economic Cooperation Forum ASEANASEAN Association of Southeast Asian Nations CASCAS“Chemical Abstracts Service”of the American Chemical Society CiPCiP Chemical in Products GHSGHS Global Harmonized System GRPGRP Good Regulatory Practices ICCAICCA International Council of Chemical Associations ICCMICCM International Conference on Chemicals Management IOMCIOMC Inter-Organization Programme for the Sound Management of Chemicals MEAsMEAs Multilateral Environmental Agreements O OE ECDCD Organisation for Economic Co-operation and Development POPsPOPs Persistent Organic Pollutants PPPPPP Polluter Pays Principle RBCARBCA Risk-Based Corrective Action PRTRPRTR Pollutant and Release Transfer Register R DR D Research and Development RIARIA Regulatory Impact Assessment SAICMSAICM Strategic Approach to International Chemicals Management SDGSDG Sustainable Development Goals SDSSDS Safety Data Sheet SMCSMC Sound Management of Chemicals SMESME Small and Medium Enterprises UNUN-SCEGHSSCEGHS United Nations Subcommittee of Experts on GHS VWGVWG-SMCSMC-LALA Virtual Working Group on the Sound Management of Chemicals in Latin America 26 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April This document was made possible by the participation of the following VWG-SMC-LA members and observers:ARGENTINA:Adriana Rosso,Andrea Ratto,Daniel Rios,Fernando Tome,Jorgelina Pela,Judith Bensignor,Leila Devia,Rolando Garca Valverde.BOLIVIA:Aldo Cesar Soto Fernandez,Maritza Galvis Romero,Miroslava Vierka Castellon Geier.BRASIL:Camila Hubner Barcellos Devincentis,Elaine Faquim,Fernando Zanatta,Giancarlo Fanucchi Montagnani,Jeane-Jaqueline-Franoise de Almeida Fonseca,Lidiane Moraes,Thais Araujo Cavendish.CHILE:Cristian Brito Martnez,Juan Carlos Carrasco,Mara Beatriz Ceardi Jacob,Pablo Olivares.COLOMBIA:Carolina Vargas Rodriguez,Claudia Vergara,Diego Escobar Ocampo,Juan Carlos Sanchez Contreras,Juliana Bejarano Garca,Nelson Andres Rivera Rodriguez,Rodolfo Alarcn Mora,Andrea Patricia Soler Galindo,David Daza,Lady Jhoana Dominguez Majin,Monica Marina Aceros Gutirrez,Natalia Jarava.COSTA RICA:Xiomara Jimnez Soto.ECUADOR:Juan Carlos Lliqun Criollo,Tatiana Pilar Salazar Soto.EL SALVADOR:Italo Andrs Flamenco Crdova,Oscar Orlando Orellana Osorto,Pablo Arturo Garca Reyna.MXICO:Juan Octavio Valdivia Garcia,Rubn Muoz Garcia.PANAM:Luis Mayorga.PER:Vilma Morales.REGIONAL:Alejandra Acosta,Brenda Camacho,Cristina Arregui,Eduardo Valle,Jordi Pon,Mauricio Rodriguez,Pablo Rodrguez.We also grateful to everyone who has participated in the VWG-SMC-LA meetings and contributed greatly to the discussions that led to the development of this document.8.ACKNOWLEDGEMENT8.ACKNOWLEDGEMENT 27 Roadmap for the sound management of industrial chemicals VWG-SCM-LA April
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2 2 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA RISK APPROACH IN THE INDUSTRIAL CHEMICALS MANAGEMENT SCHEME PRIORIZATION November,2022 Latin American Regulatory Cooperation Forum(LARCF)International Council of Chemical Associations(ICCA)Virtual Working Group for the Sound Management of Chemicals in Latin America(VWG-SMC-LA)2 2 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA This report was prepared by the Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA),an initiative of the Latin America Regulatory Cooperation Forum(LARCF)with the support of the International Council of Chemical Associations(ICCA).Its content is the result of a joint effort that involved government representatives,industry associations,industries and intergovernmental organizations.Views represented here should not be regarded as ICCAs official position.November 2022 How to cite this document:Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA).(2023).Risk approach in the industrial chemicals management scheme.Phase 2:Prioritization.Disclaimer:The original document was prepared in Spanish.This is not an official translation.2 2 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA CONTENTS 1.INTRODUCTION 1 2.FUNDAMENTALS OF PRIORITIZATION 2 3.DESCRIPTION OF THE PRIORITIZATION PROCESS 3 3.1 Phased approach 3 3.2 Prioritization criteria 1 3.3 Other possible strategies:prioritization by groups 10 3.4 Prioritization as a continuous process 10 3.5 Work team and relevant stakeholders 10 BIBLIOGRAPHY 12 ANNEX 1.CASE STUDIES 14 1.1 OECD 14 1.2 United States 15 1.3 Southeast Asia(from ACC-ASEAN guidance)17 1.4 Canada 19 1.5 Australian 20 1.6 China(Peoples Republic of)21 1.7 European Union 23 ANNEX 2.DETAILED FLOW CHART FOR THE PRIORITIZATION STAGES 26 ANNEX 3.EXTERNAL SOURCES OF INFORMATION:INTERNATIONAL LISTS AND OTHER DATABASES 27 ANNEX 4.TABLES OF ASSESSMENT OF HAZARDS,USES AND VOLUMES BASED ON CASE STUDIES 28 ACRONYMS 33 ACKNOWLEDGMENTS Error!Bookmark not defined.Error!Bookmark not defined.1 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA 1.1.INTRODUCTIONINTRODUCTION Founded on the principles of prevention,comprehensiveness,progressivity,cooperation,articulation,efficiency,efficacy and transparency,this document is part of a series of reports from the Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America(VWG-SMC-LA),conformed by government representatives,industry associations,industries and intergovernmental organizations,coordinated by the Latin American Regulatory Cooperation Forum(LARCF),and supported by the International Council of Chemical Associations(ICCA).The first piece of the series was published in 2021.The Roadmap for the Sound Management of Industrial Chemicals1 is a guide with general descriptions on the methodologies,steps and best practices for the implementation of the Sound Management of Industrial Chemicals(SMC).In 2022,the document Risk approach in the industrial chemicals management schemes:inventories2 was launched,aimed at capturing the key elements for the implementation of inventories of industrial chemicals.In line with the steps recommended in both documents(Figure 1),this third report aims to describe a prioritization methodology developed by the VWG-SMC-LA.Likewise,it identifies possible criteria to be used and other aspects for developing regulation and its implementation.In absence of examples of prioritization schemes in Latin America and the Caribbean,this document is based on international best practices.For this purpose,models from Australia,Southeast Asia,Canada,China,the United States,and the European Union have been studied(see Annex 1,Case studies).Likewise,1Access:https:/icca-chem.org/wp-content/uploads/2021/06/210419-Roadmap-para-el-SMC-ES_final.pdf 2Access:https:/icca-chem.org/wp-content/uploads/2022/04/VWG-SMC-LA_Inventarios.pdf 3ENV/JM/MONO(2019)34:“International Best Practices for Identification of Priorities within Chemicals Management Systems”4The information was collected through a survey of OECD working groups.Were received twenty-five responses of nine countries/regions.Germany:Germany:Manual Screening for Regulatory Action,Prioritization for different REACH processes,assessments and regulatory measures,Human medicinal products(HMP),Veterinary medicinal products(VMP),POPs-related prioritization projects,Consumer exposure considerations for screening activities in different REACH processes.Australia:Australia:Inventory Multi-tiered Assessment and Prioritization(IMAP).Canada:Canada:Priority Substances List Organization,Categorization of the the existing bibliography has been consulted,among others,the document of the Organization for Economic Cooperation and Development,OECD ENV/JM/MONO(2019)343,which provides an analysis of the approaches used in countries with experience in risk management of industrial and consumer chemicals4,and suggests guiding principles and best practices to be considered in the development of these schemes.VWG-SMC-LA guidance documents seek to promote debate among representatives of Latin American governments and industries on the set of principles and technical concepts related to the development and implementation of regulations and should not be interpreted as mandatory regulatory requirements.Likewise,it is recalled that this resource seeks to provide a simple roadmap on the fundamental elements to understand prioritization methodologies.To explore more exhaustive technical analysis,it is suggested to consult the sources referenced in footnotes and in the Bibliography section.The document begins with a brief introduction to the concept of prioritization,highlighting key principles that serve to contextualize the technical content that is presented below.The phased methodology proposed by the VWG-SCM-LA is described below,where essential elements of the process are detailed,such as prioritization criteria,data processing and cross-sectorial interaction.Finally,case studies that were part of the analysis for the development of the methodology are presented.Canadian Domestic Substances List,Ecological Risk Classification Approach for Organic Substances,Ecological Risk Classification of Inorganic Substances,Approach for the Identification of Risk Assessment Priorities,Scoping and Prioritization for the Indoor Air Contaminants Assessment Section,Prioritization of the Revised in Commerce List,Organization,Prioritization of Nanoscale Forms of Substances,Proposed Regulatory Amendments for Environmental Risk Assessment of Medicinal Ingredients in Drugs,Drinking Water Chemicals Prioritization Process.United States:United States:TSCA Chemical Prioritization Process.Finland:Finland:Matrix for risk-based prioritization.Japan:Japan:Priority Assessment Chemical Substances.The Netherlands:Prioritization tool for chemical substances in consumer products.New Zealand:New Zealand:Flexible Reassessment Categorization Screening Tool”(FRCaST).European Union:European Union:Trade Union Priority List for REACH,Screening as part of the integrated regulatory strategy,NORMAN Prioritization framework.2 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA F FIGURE IGURE 1 1.S SUGGESTED STAGES FOR THE UGGESTED STAGES FOR THE S SOUNDOUND MMANAGEMENT OF ANAGEMENT OF I INDUSTRIAL NDUSTRIAL C CHEMICALHEMICALS S.S SOURCEOURCE:VWGVWG-SMCSMC-LALA Most existing prioritization schemes are based on available data,so it is rare to generate data on hazards and exposure properties to solely inform the prioritization process5.Since prioritization is part of the SMC,the general approach focuses on using the information provided in the inventories as the primary source of local data.2.2.FUNDAMENTALS OF FUNDAMENTALS OF PRIORITIZATIONPRIORITIZATION The prioritization of inventoried or registered substances is intended to identify those that preliminarily represent a higher level of risk(for health and/or the environment),on which further detailed information will be obtained at a later stage to enable an exhaustive risk assessment and determine its safe conditions of use.This selection is generally based on hazard and exposure data on which comparisons are made and relative weights are assigned based on their relevance.Considering that there are between 40,000 and 60,000 industrial substances in use in the global market6,the implementation of a prioritization process becomes necessary due to the limited financial,5According to OECD document ENV/JM/MONO(2019)34,only a minority of schemes(6/25)reported generating some required data.For example,in Canada,toxicity studies are requested in order to generate de Novo specific information essential for the process.technological,and personnel resources of the countries,required to perform or evaluate risk assessments.To date,Latin American countries are still in very early stages of the process since many are working on the development of broad encompassing regulations.Based on these observations and the analysed bibliography,a series of principles recommended by the VWG-SCM-LA are listed below in order to guide the design of prioritization schemes and regulations in the region:1.Environmental and health risk basis:The scheme should be based on the concept of risk,which involves consideration of both environmental and health hazards,and real or estimated exposure.All industrial chemicals should be subject to a review process,and,if appropriate,prioritized for further evaluation.2.Objectivity and support in science:The scheme should be based on criteria chosen from a scientifically based analysis.To ensure practicality,the criteria must be possible to meet,taking into account current technical conditions.6 Estimated total considering only chemical substances for industrial use.Source:UNEP&ICCA.(2020).Knowledge Management and Information Sharing for the Sound Management of Industrial Chemicals Access:https:/icca-chem.org/wp-content/uploads/2020/05/Knowledge_Information_Sharing_Study_UNEP_ICCA.pdf This principle is supported by the working group that developed OECD document ENV/JM/MONO(2019)34.It recommends that prioritization be based primarily on risk(sometimes referred to as potential*in this document),assigning higher priority to substances for which there is information suggesting a potential concern,due to both exposure and hazard.*Explanation:In this instance of the process,the risk of the substance is still unknown.Risk approach refers to an assessment to obtain a probable risk profile of the substance from the hazard and exposure data available at this instance.As a result,it will be possible to determine the priority with which the substance should be subsequently evaluated in order to know its risk.3 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA 3.Possibility of change:Given the frequent changes in the production and use of chemicals,the availability and level of understanding of relevant data,such as hazard characteristics and other properties,and the continuous development of technology(e.g.,monitoring),the methodologies and results of the prioritization of chemicals may need to be frequently adjusted.Therefore,the process should consider technological and scientific advances,so that criteria can be incorporated or modified to improve the accuracy of the identification of priority substances.4.Transparency and clarity:Adopting a national policy that clearly indicates the criteria and types of substances to be prioritized for risk assessment and management contributes to transparency,clarity,and certainty vis-vis the regulated entities and helps to anticipate measures that may have a significant socioeconomic impact.5.The lack or variability of information should not be sufficient reason for not prioritizing a substance.In these cases,principles such as weight of evidence could be applied7 or more conservative approaches could be used,such as applying worst exposure and hazard scenarios8.3.3.DESCRIPTION OF THE DESCRIPTION OF THE PRIORITIZATION PROCESSPRIORITIZATION PROCESS 3.1 Phased approach Although a mechanism could be thought where the information from the inventories is taken and weighed directly-without a prior instance of review-,the prioritization is normally a gradual procedure,occurring in more than one stage.Figure 2 simply illustrates the general steps recommended by the VWG-SCM-LA and Annex 2 provides a more detailed flowchart.Initially,the aim is to select a small number of inventoried/registered substances from the available information,using clearly defined selection rules.The global prioritization process is based on the potential risk of the substances and the way in which the selection criteria are applied varies according to the stage of the process,taking into account the progressive refinement of data.That is,it begins with hazard and exposure criteria in a disaggregated manner,which in the last stage are combined and weighted to obtain a final potential risk score.In the first instance,the aim is to reduce the number of substances according to their hazards and/or associated exposure,while in the final instance,the scheme seeks to sort the substances according to the combination of these data.An intermediate instance aims to review the information,allowing evaluators the possibility to fill gaps and ensure the quality of the data during the process.7Weight of evidence(WoE)method is the process of weighing different sources of evidence based on the combination of their impact and relevance.This is a common practice that evaluators use to analyze all the data collectively and make a decision using best professional judgment.More information in the OECD guide:“Guiding Principles and Key Elements for Establishing a Weight of Evidence for Chemical Assessment Series on Testing and Assessment No.311”.Available at:https:/www.oecd.org/chemicalsafety/risk-assessment/guiding-principles-and-key-elements-for-establishing-a-weight-of-evidence-for-chemical-assessment.pdf 8To advance preliminary assessments,these schemes are applied in the cases of Canada and the European Union.1 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA F FIGURE IGURE 2 2.G GENERAL STAGES OF THE PRIORITIZATION OF SUBSTANCESENERAL STAGES OF THE PRIORITIZATION OF SUBSTANCESIt is worth noting that the approach presented is not the only one possible,since,for example,there are other ways of assessing dangerousness,as exemplified in the Case Study section.Likewise,the list of criteria and the weighting methods that are illustrated in the document should not be considered as an explicit recommendation of the VWG-SCM-LA,but as a knowledge guide so that each country can make its own decisions.3.2 Prioritization criteria Choosing the criteria to apply to decide which substance is most relevant is not a simple task,since there are a large number of characteristics and properties of substances in relation to their mobility,behaviour and effects on health and the environment.Many schemes consider properties such as persistence,bioaccumulation,specific hazards(generally classified under the Globally Harmonized System of Classification and Labelling of Chemicals,GHS)and data representing exposure scenarios.In addition to these data,other existing approaches have complementary prioritization criteria,such as third-party risk assessments(national or international)9,9For example,the New Zealand Environmental Protection Agency reviews actions taken internationally to test for prioritized chemicals in the country.Likewise,Canadas IRAP(Identification of Risk Assessment Priorities)scheme takes into account the classification decisions and risk assessments of other countries.Source:OECD ENV/JM/MONO(2019)34 10For example,Canadas prioritization process for chemicals in drinking water.Source:OECD ENV/JM/MONO(2019)34 emerging concerns from other jurisdictions and agencies10,and particular listings by authorities11.Although there is the case of China,where the government offers a public consultation period to identify substances to be prioritized for environmental risk assessment,or Germany,where third parties are requested annually to nominate substances,according to the OECD report it is not a common practice for the public or other interested parties to propose substances to be prioritized.In countries where this possibility exists,nominations are made through public consultation and scrutinized by several government organizations12.In addition,this step usually requires the submission of certain information to start the process.11For example,in the United States,Congress has the power to amend the Toxic Substances Control Act(TSCA)to include or exclude certain chemical substances.Source:OECD ENV/JM/MONO(2019)34 12In Canada public nominations are not formally requested,but are allowed under CEPA.On the other hand,the US allows manufacturers to request that the EPA conduct a risk assessment.The New Zealand EPA allows external parties to request a review of approvals for a particular substance.Source:OECD ENV/JM/MONO(2019)34 5 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Stage 1:Selection filter based on hazard and exposure criteria In the first place,it is desirable that the substances can be prioritized based on the information provided in inventories.13Considering the use,volume and the GHS hazard classification commonly requested in inventories,this stage consists of choosing selection criteria to reduce considerably the number of substances to advance to the next stage of the process:risk assessment.This is the instance that deals with the largest number of substances and,as far as possible,it is essential that it is done in such a way that the need for human resources and manual tasks is minimized.For example,one option is to opt for IT tools with algorithms that allow the selection of substances that comply or not with a condition.Below are examples of some options for selection criteria to be used at this stage of the process.Selection by hazard(based on the GHS)An option to implement in the first instance is to select all those substances that present certain priority hazard classification/s.14 Considering that the GHS currently includes a total of 29 classes of hazards,some are considered more relevant than others,since they imply severe and irreversible effects and its safe handling cannot be assumed by all users to 13For more details on the design and implementation of inventories,consult the document“Risk approach in the management of industrial chemicals:inventories”.Access:https:/icca-chem.org/wp-content/uploads/2022/04/VWG-SMC-LA_Inventarios.pdf 14In principle,the proposal aims for this selection to be made regardless of the category.15 Swedish Chemicals Agency(KEMI).(2018).Guidance on national chemicals control.Risk reduction of chemicals.Article number:511 293.ensure personal and third parties protection.15 As it can be seen in the Case Studies,these is a criteria commonly used by other models.The following are examples of GHS hazard classes that are typically used as selection criteria at this stage:Carcinogenicity(C)Mutagenicity(M)Reproductive toxicity(R)Specific Target Organ Toxicity(STOT)single or repeated Exposure Toxicity to the aquatic environment(T)chronic or acute Persistent,bioaccumulative and Toxic(PBT)and very persistent and very bioaccumulative(vPvB)substances are also the focus of analysis in prioritization processes since,no matter how small their emissions are,being resistant to degradation,their concentrations in the biota may increase over time and also their long-term effects are rarely predictable.16 However,only toxicity to the aquatic environment(T)is reported as a hazard class under the GHS17,and therefore if P&B is not reported in inventories,its inclusion as a selection criteria would make the prioritization process more complex.Alternatively,countries may opt for indicative criteria,such as chronic toxicity to the aquatic environment,which,as indicated by the GHS(GHS 9th revision,p.254),is related to the degradability of the substance or its persistence in the environment and its bioaccumulation potential.For organic substances,the octanol-water partition coefficient(Kow)can also be an indicator of bioaccumulation potential,always considering the factors that can affect this relationship(ibid.,p.503-504).On the other hand,chronic toxicity is generally also associated with organic substances that do not present easy biodegradation,since they have a 16More information on the official ECHA site:https:/echa.europa.eu/pbt-expert-group 17Although persistence,degradability and potential bioaccumulation are part of the criteria for classifying substances as hazardous to the aquatic environment under GHS,these properties are not considered hazard classifications per se and for that reason in some jurisdictions they are often included in the list of minimum requirements,because they are usually a prioritization criterion in later steps.These data must be provided in the Safety Data Sheet(point 12:ecotoxicological information).6 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA prolonged exposure potential(ibid.,p.508).In conclusion,countries could conduct their prioritization process based on the toxicity for the aquatic environment and,in future stages,request the missing data for this specific group of substances.Similarly,hazards such as reproductive toxicity could be indicators of endocrine disrupting potential.However,this effect is in the very early stages of identification18.Some data may be difficult to obtain in practice.However,anticipating future technological and scientific advances,regulations could be designed to allow for the possibility of modifying the selection criteria when the data becomes available.19 In any case,it should be clarified that,for a substance not to be prioritized,its use and volume still remains to be evaluated.Each Country must ensure that the decision of the hazard classes to use as selection criteria responds to national interests,the availability of data and existing resources.Selection by exposure data:use In a risk-based prioritization scheme,not only are hazard classes considered as a selection criterion,but also exposure to substances is indicative of their relevance.Among the local data that can be utilized,use 18For more information,see:https:/echa.europa.eu/es/hot-topics/endocrine-disruptors,https:/www.efsa.europa.eu/es/topics/topic/endocrine-active-substances,and https:/www.unep.org/explore-topics/chemicals-waste/what-we-do/emerging-issues/endocrine-disrupting-chemicals 19If it is of interest to a country to learn more about the treatment of PBT characteristics,there are currently 11 different global criteria identified that can be consulted:UNECE,POP Protocol,UN POP Convention,and volume are common basic indicators of the magnitude and nature of the exposure.Depending on the level of detail with which the uses are described in the inventories,substances with a higher or lower level of rigor may be selected.Each use is associated with different exposure scenarios.Considering the diversity of uses that can be associated with substances on the market,it is recommended that governments carry out a grouping and categorization of uses for the purposes of the prioritization process.It is for this reason that the definition of categories of uses in the instance of inventory development is essential for the prioritization process.An example of simple categories of uses is shown below.Consumer use:use of a substance,as such or in a mixture,by consumers/general public.Commercial/professional use:use of a substance,as such or in a mixture,in a commercial context for the delivery or generation of goods and/or services.Industrial use:use of the substance,as such or in a mixture,in industrial facilities(small or large),for,among others,the manufacture of other substances,the formulation of preparations or aiding the process.Categories of uses are ordered in descending order in terms of the degree of exposure(and,therefore,also of risk)since,on the one hand,it is considered that in industrial facilities the conditions of use are more controlled,whereas it is not possible to ensure the same regarding the conditions of use by consumers.Likewise,in general,consumer use involves exposure of a greater number of people and areas.In any case,it is reminded that the most common exposure scenarios focus on both the environment and the human population in general.Ospar,REACH,TSCA,California Green Chemistry,Canada,K-Reach,China-Reach,Japan and Australia.More information at:Matthies M.et al.(2016).The origin and evolution of assessment criteria for persistent,bioaccumulative and toxic(PBT)chemicals and persistent organic pollutants(POPs).Environ.Sci.:Processes Impacts,2016,18,1114.Frequently prioritized substances OECD(2019)identified that most of the schemes prioritize substances considered carcinogenic,sensitizing,endocrine disrupting,persistent,bioaccumulative and toxic(PBT),and neurotoxic(p.14).NOTE:Also supported by UNITAR(2020)in its report“Chemicals of Global Concern.A strategy and criteria for their identification”.Access here 7 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Countries can decide whether to proceed with a subcategorization of uses for prioritization,always remembering that this could imply greater complexity in the process.For example,there are schemes that have chosen to select substances with use directly related to vulnerable groups(for example,boys and girls20)-see Case Studies-.Selection by exposure data:volume Just as the categories of uses are indicative of possible exposure scenarios,so is the volume of production/import of the substance.Broadly speaking,a higher volume in the market is associated with a greater magnitude of exposure and,consequently,with a higher risk.However,it should be remembered that a substance,even in small volumes,due to its toxicity or behaviour in the environment(bioaccumulation,biomagnification)may represent a high risk.This is not a minor aspect that countries should consider if they decide to include volume as a prioritization criterion.The volume could be used in the final stage as a“weighting”criterion.On the other hand,the choice of a volume threshold as a criterion for the prioritization process-as a volume threshold is used for the purposes of notification in inventories-should be based on the local context.In order to define a threshold,the value must be representative in terms of exposure(considering the distribution of the substance in the environment,and its potential to reach people)and also consistent with the prioritization process(a threshold too low would not have much influence on the filter process).The inventory is a source of relevant information that would make it possible to make an evaluation at the national level and define a threshold that is representative.In the absence of national data,examples can be found in the Case Studies 21.20According to OECD ENV/JM/MONO(2019)34,more specific subpopulations are considered less frequently.The category of“vulnerable subpopulation”has different definitions by country and even by organizations within the same country.In general,babies,children,pregnant women and the elderly are considered within It is also important that the legislation is flexible enough to allow the update of the volume thresholds used to assess exposure.If more refined data exists,it should be added or used.Selection by monitoring results Available widespread and/or known exposure data from,for example,monitoring studies or epidemiological surveillance programs that give rise to a cause for concern,could be evaluated at this stage of prioritization to justify the selection of a substance.So far,the criteria described apply both to substances on the market before the creation of the national inventory(pre-existing)and to substances to be marketed after the creation of the inventory(new),while the monitoring data can only be indicative of the behaviour and the effects of pre-existing substances.To decide on the inclusion of this criterion,it is recommended that the countries review whether the existing databases are reliable and if their information can be exploited and systematized.Stage 2:Refinement based on unifying and contrasting information At some point in the prioritization process,since the information comes from the inventories,it will be necessary to evaluate the data with which the selection/weighting is made to ensure its reliability and validity.this subgroup,and may also include,for example,people with genetic polymorphisms,people with pre-existing diseases,those who are very close to a source or activity,workers and passers-by.21For example,in the European Union system(REACH)detailed chemical safety information(risk analysis)is requested for substances that exceed a threshold of 10 tons.8 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA For example,the notification of hazard classes by several companies can lead to inconsistencies,although to advance in the prioritization process it is necessary that a substance has a single classification,otherwise,the same substance could be counted more than once.In addition,-as described in the second technical report of the VWG-SMC-LA-22 there are technical challenges related to the use of numerical identifiers for substances,such as the CAS number.On occasions,there may be substances without an assigned CAS number or there may be the same CAS assigned for a group of different substances.The prioritization must be done by substance and not by notifier.Therefore,this stage involves a process of evaluation of the quality of the information,and of validation and unification,where it is verified that the hazards and the characteristics of the substances that have been notified are coherent with the available information.It is recommended that countries address these cases early in the process.Here are some suggested strategies to address these difficulties:Same substance,multiple notifications with different hazards or uses:the most severe hazard class or the category of use with the greatest dispersion can be opted(more conservative approach).It is suggested that this process be carried out through IT systems,in order to reduce manual tasks.As an alternative source of information for choosing a single hazard classification,a comparison with international listings could also be made.Substance not included due to subclassification:To avoid subclassification resulting in not considering a substance in the following prioritization stages,one option is to review the lists of internationally prioritized substances(see Annex 3)and compare them with the first draft list of prioritized substances at the national level.In this way,countries can ensure that substances of global concern follow the prioritization process in their countries.22“Risk approach in the management of industrial chemicals:inventories”.Access:https:/icca-chem.org/wp-content/uploads/2022/04/VWG-SMC-LA_Inventarios.pdf 23Framework regulations that set industrial chemicals management schemes-including the prioritization process-already define exclusions,which implies a preliminary filter.A few schemes do not explicitly exclude Substances without CAS,or groups of substances with a single CAS:The treatment of these situations is complex,and in general is carried out on a case-by-case basis,making it difficult to automate the work.One option is to assign national identifiers to these substances and make the choice of properties based on that identifier,instead of the CAS.Another option,in the case of multiple substances grouped with a single CAS,is to assign the most stringent hazard classification and,in a subsequent public consultation process,to access more detailed information that determines which substance(s)would apply such dangerousness,before finalizing the prioritization process.At this stage,substances that are already strictly regulated in current regulations can also be discarded.The rationale is that if a substance has its conditions of use strictly controlled,considering its risk to the environment and health,then no additional steps would be required.At most,it could be assessed whether the risk management measures adopted are adequate.23 In cases where the current regulations control a single risk aspect(for example,the risk to health-without considering the risk to the environment-),it is recommended to evaluate the substances within the framework of the prioritization process,considering the unregulated aspects.It is suggested that this stage be designed in such a way as to make the most of computing resources.In this sense,it is essential that the verification and unification mechanisms are foreseen from the beginning,in order to be able to make the respective adaptations to the computer system,avoiding the need to make future modifications that may imply a greater workload.Stage 3:Public Consultation substances and instead choose to assign them very low priority.Further information on this latter point can be found in the document OECD ENV/JM/MONO(2019)34.9 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA After the refinement stage,it is suggested that the first refined list be placed under public consultation,allowing sufficient time to receive comments on the chemical identities,hazard classes,and use categories that have been assigned by the authorities(some examples of deadlines can be found in the Case Studies section).Foreseeing instances of consultation with producers,importers and subjects responsible for notification during the prioritization stage is a good strategy to make the process more efficient.Additional information on the identity of the substances and their composition(in the case of multi-constituent substances)may be obtained which may explain why different manufacturers have different classifications for the same reported CAS number.Consultations can also be made to databases and relevant stakeholders-including notifying parties-in the event of a lack of consensus or the need for more information(see section 2 of the principle the lack or variability of information should not be a sufficient reason not to prioritizing a substance”).Based on the comments obtained from the public consultation,and once the classifications and properties/exposure criteria of the substances have been reviewed,the authorities will be in a position to publish a first list of refined and validated prioritized substances.Stage 4:Scoring obtained from an evaluation matrix Almost half of the prioritization schemes reported to the OECD that they use a quantitative scoring system to identify substances to prioritize,i.e.,one score is assigned for the properties of the substance and another for its exposure scenarios,which are then combined,in general,through a summation(Figure 3a).The final score is obtained by combining these values using an evaluation matrix to determine the priority of the substance(Figure 3b).This stage is based on the fact that chemical substances with high danger and high exposure potential must be evaluated first.This mechanism not only facilitates decision making,but also helps to improve the transparency and reproducibility of the results.As for stage 1,countries should define the assigned value for each criterion,which implies carrying out a thorough analysis of which hazard classifications,uses and volumes are most relevant,among themselves and within their own category,and,therefore,they should be assigned a higher score.There are several examples identified in the literature and in international schemes(see Case Studies).It is suggested that countries explore all options,keeping in mind that the system should be simple and require as little manual work as possible.As an example of how different properties can be valued,Annex 4 presents priority levels proposed by different prioritization schemes.Among the technical difficulties related to this stage,there may be cases of substances with more than one use or hazard classification.Some models address this situation through the combination and subsequent normalization of the scores obtained(see Case Studies:United States and ASEAN),others choose to choose the highest score assigned to any of the uses of the substance,and others simply they perform a summation for each characteristic within the same group(see Case studies:European Union).10 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA F FIGURES IGURES 3 3A AND A AND 3 3B B.C CONCEPTUAL EXAMPLES OF SUMMATION AND WEIGHTING MATRIX FOR THE SUBSTANCE ONCEPTUAL EXAMPLES OF SUMMATION AND WEIGHTING MATRIX FOR THE SUBSTANCE PRIORITIZATION PROCESSPRIORITIZATION PROCESS.Countries should note that,in addition to establishing numerical values for each prioritization criteria,they can establish their relative weights in a prioritization equation.They could,for example,assign a higher coefficient to the hazard class“germ cell mutagenicity/carcinogenicity”than for the hazard class“skin corrosion/irritation”,or assign a higher coefficient to hazards compared to volume.3.3 Other possible strategies:prioritization by groups For certain groups of substances,there is also the possibility of designing an individual scheme.Some schemes provide for prioritization processes that separate substances into groups according to their hazard and/or similarity of structural characteristics in order to develop a risk prioritization mechanism within each group.For example,Canada has a specific process to analyse the ecological risk of inorganic substances,leaving all organic substances excluded from this approach.Other schemes also work by groups,but do not explicitly exclude substances,but classify them as lower priority or in categories that require specific actions.24 24For additional information consult the Case Study of the European Union(Annex 1),and the site https:/echa.europa.eu/es/working-with-groups 3.4 Prioritization as a continuous process Although the frequency with which the prioritization process is carried out varies greatly between different countries,in most schemes,the process is carried out more than once.Possible approaches-with their advantages and disadvantages-are continuous prioritization,prioritization at a set interval,or on demand.On the one hand,continuous prioritization allows new information to be examined as it becomes available,and appropriate action to be taken in a timely manner.For its part,through the prioritization process with an established term(annual,biannual,every four years),new information can be incorporated in a formal and structured manner.3.5 Work team and relevant actors When designing and implementing the prioritization methodology,governments usually rely on a specific group or committee of experts dedicated to both the prioritization and risk assessment processes.For example,the European Union has a Prioritization Unit,responsible for,among other activities,coordinating the identification and prioritizing groups of substances subject to regulatory action25.In any case,it is advisable that the working group should be guided by clear directives,defined by regulation,and at the same time have the knowledge and scientific rigor necessary to resolve situations that have not been previously clarified.Collaboration between regulatory agencies(national and international)can contribute to improve criteria,incorporate new methodologies,identify gaps and quickly recognize emerging problems.It is also suggested that industries and civil organizations be involved in the processes,through meetings,work groups,and/or public consultations.For the development and implementation of the prioritization scheme,a good practice is to generate consultation instances between government agencies,and local scientific and academic 25Description of ECHA units on its official website:https:/echa.europa.eu/en/about-us/who-we-are/directorates-and-units/directorate-b 11 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA institutions(in particular,with experience in public health,environmental health,toxicology,epidemiology,ecotoxicology,ecology and environmental sciences,environmental chemistry).For example,Canadas prioritization process for chemicals in drinking-water gathers input from different local agencies.Germanys regulatory actions assessment scheme draws on occupational safety experts,toxicologists,exposure and legal experts.(OECD,2019).12 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA BIBLIOGRAPHYBIBLIOGRAPHY American Chemistry Council(ACC).(2019).ASEAN Prioritization Tool.Regulatory and Advocacy Information Network CHECK.(2019).Mapping the chemical universe to address substances of concern.Integrated Regulatory Strategy Annual Report.Access:https:/echa.europa.eu/documents/10162/27467748/irs_annual_report_2018_en.pdf/69988046-25cc-b39e-9d43-6bbd4c164425 CHECK.(2020).Prioritization of substances of very high concern(SVHCs)for inclusion in the Authorization List(Annex XIV).PRIORITIZATION APPROACH.Publisher update.Government of Canada.(2014).Approach for identification of chemicals and polymers as risk assessment priorities under Part 5 of the Canadian Environmental Protection Act,1999(CEPA 1999).Access:https:/www.ec.gc.ca/ese-ees/default.asp?lang=En&n=A10191AD-1 Government of Canada.(2022).Identification of chemicals and polymers as risk assessment priorities.Access:https:/www.canada.ca/en/health-canada/services/chemical-substances/chemicals-management-plan/initiatives/identification-chemicals-polymers-risk-assessment-priorities.html ICCA.(2011).Global Product Strategy.ICCA Guidance on Chemical Risk Assessment.Product Stewardship in action:Sound chemicals management is a global responsibility.2nd Edition.Matthies M.et al.(2016).The origin and evolution of assessment criteria for persistent,bioaccumulative and toxic(PBT)chemicals and persistent organic pollutants(POPs).Environ.Sci.:Processes Impacts,2016,18,1114.OECD.(1987).Decision-Recommendation of the Council on the Systematic Investigation of Existing Chemicals,OECD/LEGAL/0232 OECD.(2019).Guiding Principles and Key Elements for Establishing a Weight of Evidence for Chemical Assessment Series on Testing and Assessment.ENV/JM/MONO(2019)31.Access:https:/www.oecd.org/chemicalsafety/risk-assessment/guiding-principles-and-key-elements-for-establishing-a-weight-of-evidence-for-chemical-assessment.pdf OECD(2019).International Best Practices for Identification of Priorities within Chemicals Management Systems.ENV/JM/MONO(2019)34.OECD Series on Testing and Assessment.Environment,Health and Safety,Environment Directorate.OECD(2020).Overview of Concepts and Available Guidance related to Integrated Approaches to Testing and Assessment(IATA),OECD Series on Testing and Assessment,No.329,Environment,Health and Safety,Environment Directorate.Saemi Shin et al.(2014).A Chemical Risk Ranking and Scoring Method for the Selection of Harmful Substances to be Specially Controlled in Occupational Environments.Int.J.Environ.Res.Public Health 2014,11,12001-12014.doi:10.3390/ijerph111112001 Swedish Chemicals Agency(KEMI).(2018).Guidance on national chemicals control.Risk reduction of chemicals.Article number:511 293.UNEP&ICCA.(2020).Knowledge Management and Information Sharing for the Sound Management of Industrial Chemicals.Access:https:/icca-chem.org/wp-content/uploads/2020/05/Knowledge_Information_Sharing_Study_UNEP_ICCA.pdf 13 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA UNIT.(2020).Chemicals of Global Concern.A strategy and criteria for their identification.Access:unitar.org/sites/default/files/media/file/Final Report v2 for UNITAR.pdf US Environmental Protection Agency(EPA).(2012).TSCA Work Plan Chemicals:Methods Document.Office of Pollution Prevention and Toxics VWG-SMC-LA,LARCF/ICCA.(2021).Roadmap for the sound management of industrial chemicals.Access:https:/icca-chem.org/wp-content/uploads/2021/06/210419-Roadmap-para-el-SMC-ES_final.pdf VWG-SMC-LA,LARCF/ICCA.(2022).Risk approach in the management of industrial chemicals:inventories.Access:https:/icca-chem.org/wp-content/uploads/2022/04/VWG-SMC-LA_Inventarios.pdf Winnebeck K.et al.(2012).Chemical Product Risk Prioritization Framework.New York State Pollution Prevention Institute.Rochester,New York.YES Group.inc.14 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA ANNEX 1.CASE STUDIESANNEX 1.CASE STUDIES2626 1.1 OECD Broadly speaking,the document OECD ENV/JM/MONO(2019)34 highlights the following findings:It is recommended that the prioritization criteria and the relevant mechanisms are public and regulated through legislation.It is also important that,in their legislation,countries provide mechanisms to systematically incorporate new scientific knowledge into their prioritization schemes.Most commonly initiate prioritization from substances listed in their inventories.Simplicity,efficiency,flexibility and transparency in prioritization schemes are recommended.Emphasis is placed on simplicity,since in general the deadlines for the process are limited and,likewise,the information must be easily transmitted to the interested parties.The most common problem during the prioritization process is the lack of availability and variability of exposure or hazard data.Existing schemes address data scarcity in a variety of ways:some apply worst-case assumptions,while others rely on best-case ones.Other schemes choose to suspend the prioritization process when there is a lack of sufficient quality exposure or hazard data.On this last point,the OECD suggests as a best practice that prioritization decisions be based on risk,and that lack of data should not be a sufficient reason not to prioritize a substance.There is a need to explore similarities and differences in national substance inventories,particularly for substances with inconsistent names(e.g.,the same substance with different identifiers),as this impacts consistency of processes prioritization and subsequent risk management measures.This effort would also help facilitate the 26 This Annex has not yet gone through a formal translation process,so it could present errors and inconsistencies.grouping of similar substances to help fill data gaps and increase the efficiency of the prioritization process.In addition to the aforementioned report,through which multiple approaches used in its member countries are illustrated,the OECD legal instruments are useful tools to consult when defining how to design the schemes.For example,Figures A1a and A1b below list the health and environmental effects,and characteristics related to exposure that could be considered as possible prioritization criteria.They are found in Decision-Recommendation 0232 on Systematic Review of Pre-existing Substances.F FIGURES IGURES A1A1A AND A AND A1A1B B.E EFFECTS AND FFECTS AND EXPOSURE DATA THAT CAN BE CONSIDERED AS PRIORITIZATION EXPOSURE DATA THAT CAN BE CONSIDERED AS PRIORITIZATION CRITERIA ACCORDING TO CRITERIA ACCORDING TO OECDOECD R RECOMMENDATION ECOMMENDATION 02320232 15 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA 1.2 United States In the United States,the prioritization of chemicals has been carried out in different instances and for different purposes.The most current processes(2012 onwards)are reflected in the scheme of Figure A2 and are described below.More detailed information is available in United States Environmental Protection Agency(US EPA or EPA)documents in the Bibliography section.F FIGURE IGURE A2.A2.G GENENERAL PRIORITIZATION PROCESS CARRIED OUT BY THE ERAL PRIORITIZATION PROCESS CARRIED OUT BY THE EPA,EPA,U UNITED NITED S STATESTATES.S SOURCEOURCE:SELFSELF-MADEMADE.TSCA(Toxic Substances Control Act)Work Plan with information from the inventory(Chemical Data Reporting Rule or“CDR”)and data reported in the Toxic Release Inventory(TRI).Substances that met any of the following selection criteria were selected:Carcinogenicity:Taking as sources the Integrated Risk Information System(IRIS):1986 Class A,B1;1996 Known or Probable;1999 or 2005 Carcinogen,Carcinogens according to the International Agency for Research on Cancer(IARC)-Group 1,2nd-,Known carcinogens from the National Institute for Occupational Safety and Hygiene(NIOSH)Technical Notes on Prevention(NTP)of the United States Joined;Persistence,Bioaccumulation and Toxicity:According to the Toxic Release Inventory(TRI),the Great Lakes Binational Agreement,the Abbreviated Long-Range Transboundary Air Pollution Convention(LRTAT),and the Stockholm Convention;Childs Health:According to IRIS,the National Toxicology Program(NTP),Centre for the Evaluation of Risks to Human Reproduction(NTP CERHR):Infants Any Effect or Pregnant Women Any Effect,California Proposition 65:Reproductive;Neurotoxicity:According to the IRIS;Use of childrens products:Reported as products intended for use by children in 2006 in the Inventory Update Rule(IUR),Washington State Childrens List;Biomonitoring(both human and environmental indicative of potential human exposure):according to the National Report on Human Exposure to Environmental Chemicals(NHANES),Contaminants in Drinking Water,Fish Tissue Studies.In this way,a total of 1,235 substances was reached,from which certain substances were excluded due to duplication,for being outside the scope of TSCA,or for being under a specific management measure.Likewise,metals and their compounds were grouped together.Through this process,a total of 345 substances were reached,which underwent a second process illustrated in Figure A3,in terms of their hazard,exposure,and potential for persistence and bioaccumulation.For the calculation of the score of the chemical substance,the highest value of the hazard ranking was taken,and the normalized value of exposure and properties of persistence and bioaccumulation that are added to obtain a total evaluation of the substance.16 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Figure A3.Second prioritization process carried out by the EPA,United States.Source:Own elaboration based on US EPA(2012).hazard assessment For the EPA,the hazard score included both human health and environmental toxicity concerns.Specific hazard classification criteria are based on EPA criteria,developed from recognized sources,including the GHS.To arrive at a harmonized classification,data was obtained not only from the inventory,but from other easily accessible sources such as IARC,the eChem Portal,and other national and international resources.The danger score was determined based on 3 danger levels,and each danger level had a corresponding danger range(High-3,Moderate-2,and Low-1).The concentration ranges or characteristics that correspond to each level of danger are listed in Annex 4,which includes a comparison table with the criteria of the other case studies.Exposure valuation The exposure score was based on a combination of chemical use,general population and environmental exposures,and emissions and release data.The type of use score included:consumer product applications,industrial uses,and commercial uses that could result in widespread exposures.The general population and environmental exposure score included measured data on the presence of a chemical in biota and environmental matrices.The emissions and releases score was based on TRI data.For those not in TRI,the release score was calculated using inventory data(volume of production,number of exposure points,and type of use).All exposure category scores(type of use,population and environment exposure,emissions and releases)were summed and then normalized to an overall high-moderate-low scale.Assessment of the potential for persistence and bioaccumulation Chemicals were given a separate score to classify their potential for persistence and/or bioaccumulation.EPA New Chemicals program criteria were used.Separate persistence and bioaccumulation scores were then summed to produce a total score,which was normalized as high-moderate-low.Final prioritization process,high and low priority substances In 2016,the TSCA instrument was modified by the Lautenberg amendment of 2016.This modification determined that the EPA should designate,within a period of 9 to 12 months,high-priority chemical substances subject to subsequent risk assessment(20 in total),and of low priority for which,in principle,a risk assessment would not be guaranteed 17 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA (20 in total)27.The amendment designated the agency to have at least 20 high-priority substances in the risk assessment process by December 2019.For the prioritization process,EPA was required to have 50%of all high-priority substances removed of the 2014 work plan,giving preference to the following characteristics:Persistence and bioaccumulation(with a score of 3);Carcinogenic substances known;either,High acute or chronic toxicity.For this process,in addition to legal requirements,EPA was given discretion to determine which chemicals to prioritize,so details as exhaustive as in previous processes have not been identified.In its communications,EPA describes that,to support a high or low priority designation,it evaluates the chemical under its conditions of use 28against certain criteria specified in section 6(b)(1)(A)of the TSCA through the review of reasonably available information regarding:The hazard and exposure potential of the chemical;Persistence and bioaccumulation;Potentially exposed or susceptible subpopulations;Storage near significant sources of potable water;The conditions of use or significant changes in the conditions of use of the chemical substance;Y The volume or significant changes in the volume of the chemical manufactured or processed.27 A chemical designated as low priority indicates that a risk assessment is not warranted at this time,but this does not imply low or no risk.TSCA defines a high priority chemical as“a chemical that the Administrator concludes,without regard to cost or other non-hazardous factors,may present an unreasonable risk of harm to health or the environment due to a potential hazard and a potential route of exposure under the conditions of use,including an unreasonable risk to potentially exposed or susceptible subpopulations identified as relevant by the Administrator”.On the other hand,a low priority substance is one that if the Administrator concludes,based on information sufficient to establish,without taking into account costs or other factors that are not risk,that said substance does not meet the standard of High priority.1.3 Southeast Asia(from ACC-ASEAN guidance)With the support of the American Chemistry Council(ACC),the ASEAN countries are in the process of evaluating prioritization mechanisms based on their latest advances in data collection through their inventories.In 2019 they prepared a document that explains the proposed process(ACC,2019),which is briefly described below.hazard assessment In the same way as in the case of the United States,each of the GHS hazard classifications for the environment and human health is assigned a numerical value(score),with 1 being the lowest value and 4 being the highest.The overall score is ultimately determined by the highest score.In the case of missing data that cannot be filled,this approach suggests that the chemical be ranked“medium high”.By way of illustration,Table A1 shows the suggested criteria for scoring according to hazards.Table A1.Hazard score according toTable A1.Hazard score according to ACCACC-ASEAN proposal.ASEAN proposal.Hazard score Human health Environment 1 1 Acute toxicity 3,4,5 Corrosive/Skin Irritation Serious eye damage/irritation Target Organ Toxicity Aspiration hazard No CMR,non-toxic for target organs Not qualified twotwo Acute toxicity 2 No CMR Target organ toxicant 2 Acute toxicity 3 Chronic toxicity 3 or 4 No data on aquatic or chronic toxicity 3 3 Acute toxicity 1 Respiratory or skin sensitizer 1 Acute toxicity 2 Chronic toxicity 2 28“Conditions of Use”is a term in TSCA that means“the circumstances,as determined by the Administrator,under which a chemical is intended,known or reasonably expected to be manufactured,processed,distributed in commerce,used or delete”.For prioritization purposes,the Administrator may determine that certain activities fall outside the definition of terms of use.18 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA CMR 2/Effects due to lactation serious eye year/irritation Target Organ Toxicity 1 Insufficient information to classify Insufficient information to classify 4 4 WRC 1A,1B Acute toxicity 1,chronic toxicity 1 Exposure assessment To assess the exposure,three elements are proposed:the uses and patterns of use of the chemical(intermediate products,industrial use,commercial use,consumer use),the volume(of production or import)as a first step indicator of the relative potential emission/release characteristics,and persistence and bioaccumulation characteristics of the chemical.The use patterns were adopted from TSCA and are also consistent with REACH exposure scenarios.It should be noted that,under this approach,specific products for children do not differ from products for general consumption.By way of illustration,tables A2,A3 and A4 show the suggested criteria for obtaining the score according to exposure.Table A2.Score of usage patterns according to the ACCTable A2.Score of usage patterns according to the ACC-ASEAN pASEAN proposal.roposal.Use Classification Punctuation Consumer High 4 Commercial medium-high 3 Industrial Medium two intermediaries Low 1 Table A3.Score of production/import volumes according to the ACCTable A3.Score of production/import volumes according to the ACC-ASEAN proposal.ASEAN proposal.Production/import volume Classification Punctuation Greater than or equal to 1000 t/year High 4 From 100 to 1000 t/year medium-high 3 From 10(inclusive)to 100 t/year Medium two Less than 10 t/year Low 1 Table A3.Persistence and bioaccumulation potential score according to the ACCTable A3.Persistence and bioaccumulation potential score according to the ACC-ASEAN ASEAN proposal.proposal.Persistence and bioaccumulation Classification Punctuation Persistent and bioaccumulative High 5 Persistent or bioaccumulative Medium 3 Not persistent and not bioaccumulative Low 1 Under this approach,persistence and bioaccumulation are considered indicators of exposure.The document acknowledges that persistence and bioaccumulation(BP)criteria are not globally harmonized and recommends values directed in particular at organic chemicals,suggesting different criteria for inorganic substances or metals.Finally,the scores for each element(use pattern,production volume,and CP)are added to arrive at a total score that corresponds to a low to high exposure range(standardization process same as EPAs),see Table A4.Table A4.Total exposure score according to the ACCTable A4.Total exposure score according to the ACC-ASEAN proposal.ASEAN proposal.Total score(use pattern,volume and BP)Exposure ranking exposure score 11-13 High 5 9-10 Medium-High 4 7-8 Medium 3 5-6 Medium-Low two 3-4 Low 1 Total Substance Score The final score is obtained by adding the Hazard Score and the Exposure Classification Score,and finally the substances are grouped according to the matrix in Table A5.The document highlights that the priority groups(high,medium or low)must be defined by each jurisdiction according to the available resources,such as funds,time,experience,employees.As a suggestion,the document recommends as a first step,designating 5-10%of the substances as high priority.19 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Table A5.Total exposure score according to the ACCTable A5.Total exposure score according to the ACC-ASEAN proposal.Unofficial translation.ASEAN proposal.Unofficial translation.Exposure score Total score Human health score environmental score 1 combination of scores 3-4 2 combination of scores 5-6 3 combination of scores 7-8 4 combination of scores 9-10 5 combination of scores 11-13 1 1 2 3 4 5 6 2 2 3 4 5 6 7 3 3 4 5 6 7 8 4 4 5 6 7 8 9 Figure A4 shows an illustrative case of prioritization(high)carried out by Thailand for 5-10%of the substances,considering a total of 1000 evaluated substances 29.F FIGURE IGURE A4.A4.E EXAMPLE OF PRIORITIZATIONXAMPLE OF PRIORITIZATION,CARRIED OUT BY CARRIED OUT BY T THAILAND HAILAND(2019(2019-2020)2020)BASED ON THE BASED ON THE ACCACC T TOOLKIT FOR OOLKIT FOR ASEANASEAN (2019).(2019).29 This process had the collaboration of 7 members of companies with a presence in the ASEAN States.The process culminated in a total of 66 chemicals(over 2 rounds)from 3 groups:Basic Chemicals,Specialty Chemicals,and Consumer Chemicals.The process was carried out concealing the identity of the substance.The data used were:the GHS classification,the European Union harmonized CLP classification,company data on other hazards,acute environmental toxicity,P&B,and patterns and ranges of use at the national level.Low priority Medium priority High priority Prioritiy group Number of substances Percentaje Nmero de sustancias 19 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Second prioritization period The document indicates that for some substances more data may be needed in order to be prioritized within the same group with similar characteristics.For this second process,it is recommended to use data from:biomonitoring and environmental monitoring,emissions and releases,risk management at the international level.1.4 Canada Since 2006,priorities for risk assessment of chemicals under the Canadian Environmental Protection Act(CEPA,1999)have been based on the results of categorization from the Domestic Substances List(DSL)and New Substances Notifications.The first prioritization process in 2006,called Categorization,consisted of the review of approximately 23,000 substances from the DSL(Figure A5).The health authority committed to categorizing substances with the highest potential for exposure of the general population(exposure of workers or vulnerable subpopulations was not considered),and persistent or bioaccumulative substances considered inherently toxic to humans.The environment portfolio identified substances that are persistent or bioaccumulative and intrinsically toxic to non-human organisms.Categorization decisions were made by substance,and some decisions were made based on substance class,and included commercial chemicals manufactured or imported into Canada of more than 100 kg/yr.The exposure potential criterion was based on reported volumes and uses of substances in commerce in Canada between 1984 and 1986.Hazard and exposure information was compiled from a combination of publicly available literature searches and international assessments.Stakeholders were also encouraged to submit data,and when necessary,the Government of Canada generated new data.Substances associated with significant information gaps(e.g.,no use or volume reporting,or uncertain PBT 30More information:https:/www.ec.gc.ca/ese-ees/default.asp?lang=En&n=A10191AD-1 estimates)were not prioritized for evaluation.The final results on the 4,300 prioritized substances were posted online for public comment.F FIGURE IGURE A5.A5.S SUBSTANCE PRIORITIZATION PROCESS IN UBSTANCE PRIORITIZATION PROCESS IN DLS,DLS,C CANADAANADA.S SOURCEOURCE:OECDOECD (2019)(2019)A New Prioritization Approach:Identification of Risk Assessment Priorities(IRAP)The approach to prioritization has been modified since 2014 in Canada,where an Identification of Risk Assessment Priorities(IRAP)process is now performed.30.The process is different from categorization,where each substance on the DSL is classified based on prescribed criteria.The objective is to selectively identify substances for which there are indications that suggest that the substance should be considered as a new priority for evaluation or future work.With the IRAP process,new information from a Domestic substances list Health Canada Increased potential for human exposure Environment Canada Persistent oror bioaccumulative according to legislation Health Canada Environment Canada Persistent oror bioaccumulative and inherently toxic to humans Persistent oror bioaccumulative and inherently toxic for non-human organisms Increased attention 20 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA large number of sources is evaluated to determine the appropriate action for the substances involved.There are 3 steps involved in identifying risk assessment priorities:Acquisition:active and passive collection of information relevant to the potential health and ecological risks of substances.The acquisition of new information occurs continuously,while the other two steps are usually performed at regular intervals.Evaluation:exclusion/inclusion of substances for which new information has been received.This evaluation requires expert judgment and consideration of the different types of information that may be available for any given substance.Action:type of activity that will be carried out on the substances identified as candidates for further work.These actions could include assessment,risk management,data collection,research and monitoring,generation of new data,etc.After reviewing the relevant information sources for in-scope substances,the following categories of substances are determined for which:It is unlikely that further action is required at this time based on the available information(15,629 substances after evaluation in 2019),Additional data collection is likely to be required(443 substances after evaluation in 2019),Further scoping/issue formulation is likely to be required(85 substances after assessment in 2019 31),31It was proposed that of the 85 substances recommended for further analysis,21 individual substances and 4 groups of substances should be considered.Monitoring of ongoing international activity(101 substances after evaluation in 2019)is likely to be required.F FIGURE IGURE A6.A6.C CANADAANADAS S N NEW EW P PRIORITIZATION RIORITIZATION P PROCESS ROCESS(IRAP).(IRAP).S SOURCEOURCE:HTTPSHTTPS:/:/WWWWWW.CANADACANADA.CACA/ENEN/HEALTHHEALTH-CANADACANADA/SERVICESSERVICES/CHEMCHEMICALICAL-SUBSTANCESSUBSTANCES/FACTFACT-SHEETSSHEETS/IDENTIFICATIONIDENTIFICATION-RISKRISK-ASSESSMENTASSESSMENT-PRIORITIESPRIORITIES.HTMLHTML 1.5 Australia s National Industrial Chemicals Assessment and Notification Scheme(NICNAS)established a prioritization process for substances in its national inventory with different tiers(IMAP).The scheme focuses on the identification of high and low priorities for risk assessment and management and takes into account the general population,consumers,workers and the environment.Prioritization applies to all chemicals for industrial use in the inventory that meet the selection criteria(including commercial chemicals,polymers,UVCBs,substances with endocrine disrupting potential,and chemical groups that group substances with structural or hazardous similarities or a similar use).During the first stage,3,000 chemical products were selected for evaluation and prioritization over a period of 4 years,a process that was repeated again.The fundamental criteria are three:1)chemicals for which 21 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA NICNAS has exposure data,2)chemicals identified as a concern for which action has been taken abroad,and 3)chemicals detected in international studies that analyse present presence in the umbilical cords of babies.Then,the 3,000 identified chemicals were compared with criteria for hazards to human health,the environment,and exposure.This comparison determined three categories of substances,Tier I(those not expected to present an unreasonable risk,Tier II(those requiring regulatory controls for safe use),and Tier III(and those requiring evaluation).additional).In 2021 the Australian government announced a series of national reforms for the use,management and disposal of industrial chemicals that will help provide more consistent regulation 32.The new legislation establishes the Industrial Chemical Environmental Management Standard(IChEMS).Substances will be listed in IChEMS according to their level of concern for the environment,and risk management measures will also be prescribed.This scheme is based on the work carried out by AICIS,using a risk-based approach.By the end of 2022,it is expected to have the Principles of Environmental Management of Industrial Chemicals,which will establish the technical prioritization criteria.According to the official website of the Australian government 33,the programming could consider:substances proposed for inclusion in international conventions;controlled substances in countries with comparable safety standards;substances of interest to support a safe circular economy;alternatives for the substances of interest;opportunities to classify broad groups of chemicals;Group chemicals based on their use.1.6 China(Peoples Republic of)The HJ 1229-2021 standard specifies the principles,procedures and technical requirements for the detection of chemical substances for priority evaluation and applies to the screening of chemical substances for environmental risk evaluation.The process is described in Figure A7.32Source:https:/www.industrialchemicals.gov.au/news-and-notices/new-national-chemicals-management-standard 33Source:https:/www.dcceew.gov.au/environment/protection/chemicals-management/national-standard#our-scheduling-strategy 22 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA F FIGURE IGURE A7.A7.S SELECTION PROCESS OF CHEMICAL SUBSTANCES FOR PRIORITY EVALUATION IN ELECTION PROCESS OF CHEMICAL SUBSTANCES FOR PRIORITY EVALUATION IN C CHINAHINA.S SOURCEOURCE:S STANDARD TANDARD HJHJ 12291229-20212021 U UNOFFICIAL TRANSLATIONNOFFICIAL TRANSLATION.1.In the first stage of screening,a prioritization plan is formulated,determining the objectives and requirements;2.During the data collection and evaluation stage,data on chemical hazards and exposures should be comprehensively collected and their validity assessed;3.At the stage of determining chemical substances for priority evaluation,the chemical substances will be examined according to the selection conditions,and the evaluation priority will be comprehensively considered to determine the chemical substances.According to the standard,the scheme must give priority to the following chemicals:a)According to GB/T 24782,those persistent,bioaccumulative and toxic substances(PBT)or substances of high persistence and high bioaccumulation)or substances of high persistence and high bioaccumulative(vPvB);b)Chemicals with carcinogenicity,mutagenicity or reproductive toxicity,focusing on GB 30000.23,GB 30000.22,GB 30000.24 standards,substances classified as Class 1A or 1B carcinogenic,mutagenic or toxic for reproduction,substances that are near carcinogenic,mutagenic or toxic for reproduction;c)Chemicals with persistence and toxicity or bioaccumulation and toxicity,whose toxicity approach is based on GB 30000.23,GB 30000.22,GB 30000.24,GB 30000.26,GB 30000.28 or classified as carcinogenic,mutagenic,toxic for reproduction,or under the category of repeated exposure to specific target organs or long-term aquatic hazards with a standard classification of more than 2 classes;d)Other Highly Hazardous Chemicals for Priority Attention:Endocrine disruptors,highly suspected PBT or vPvB substances,reproductive toxicants,long-term aquatic hazards or repeated exposure to specific target organs;e)Chemicals for which there is evidence showing that there has been environmental exposure,such as detection of environmental media,or in vivo detection of chemicals that have evidence of environmental exposure;f)Chemicals with potential environmental exposure that should be given priority attention,such as chemicals with high production or annual use,widely dispersed use,widely dispersed use in many branches,or in many scattered places,or in daily public life.23 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA 1.7 European Union34 By 2019,the“chemical universe”under REACH comprised approximately 19,000 substances.On the basis of available knowledge,each of these substances was assigned to one of the following groups:High priority for regulatory risk management;High priority for data generation and evaluation;Low priority for the adoption of new regulatory measures.Substances that have not yet been examined and for which very little information is available are currently in an uncertain zone.Until now,the authorities have focused their activities on substances registered above 100 tons per year.34 Main source for this section:ECHA(2019).Mapping the chemical universe to address substances of concern.Integrated Regulatory Strategy Annual Report.Access:https:/echa.europa.eu/documents/10162/27467748/irs_annual_report_2018_en.pdf/69988046-25cc-b39e-9d43-6bbd4c164425 F FIGURE IGURE A8.A8.N NEW INTEGRATED METHODOLOGY FOR THE ANALYSIS OF THE EW INTEGRATED METHODOLOGY FOR THE ANALYSIS OF THE EUEU CHEMICAL CHEMICAL UNIVERSEUNIVERSE.S SOURCEOURCE:HTTPSHTTPS:/:/ECHAECHA.EUROPAEUROPA.EUEU/ESES/IRSIRS-INFOGRAPHICINFOGRAPHIC Group work35 According to ECHA,working with groups helps determine what data needs to be generated or further evaluated for a given substance.For several years,authorities have attempted to address groups of structurally similar 35More information on the ECHA website:https:/echa.europa.eu/en/support/qas-support/browse/-/qa/70Qx/view/scope/REACH/Assessment of regulatory needs 24 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA substances rather than individual substances.This approach has been progressively introduced through the Common Assessment and,since 2017,groups of substances of potential concern have been the main starting point for work.Clustering is mainly done through computer algorithms.Substance groups are formed mainly on the basis of:(i)structural similarity,using substance identity information in registration dossiers and CLP notifications,and(ii)read-across and categories,using information received in industry registration dossiers and external sources.Substances of Very High Concern(SVHC)ECHA prioritizes substances on the Candidate List to determine the order in which substances should be included in the authorization list contained in Annex XIV of the REACH Regulation.Substances that meet the SVHC criteria are included on the candidate list for eventual inclusion on the authorization list.They are:Substances that meet the criteria to be classified as carcinogenic,mutagenic or toxic for reproduction,category 1A or 1B,according to CLP.Persistent,bioaccumulative and toxic(PBT)or very persistent and very bioaccumulative(vPvB)substances according to REACH annex XIII.Substances,on a case-by-case basis,that produce an equivalent level of concern as CMR or PBT/vPvB substances.Substances that have the highest priority are recommended for inclusion first.All substances not recommended,as well as substances recently added to the Candidate List,will be considered in future rounds.Priority is normally given to substances with PBT or vPvB properties,wide dispersive use or high volumes.Prioritization is carried out mainly on the basis of information from registration dossiers.However,information from the public consultation on the identification of SVHC is also considered,as well as other information from REACH/CLP.F FIGURE IGURE A9.A9.A ASSIGNMENT OF SCORES FOR THE PRIORITIZATION OF SSIGNMENT OF SCORES FOR THE PRIORITIZATION OF SVHCSVHC SUBSTANCESSUBSTANCES.S SOURCEOURCE:ECHAECHA (2020)(2020)Since 2008,197 substances have been identified as SVHC and placed on the Candidate List.F FIGURE IGURE A10.A10.S SUBSTANCES ON THE UBSTANCES ON THE C CANDIDATE ANDIDATE L LIST BASED ON THEIR PROPERTIIST BASED ON THEIR PROPERTIESES.S SOURCEOURCE:ECHAECHA (2019).(2019).26 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA ANNEX 2.DETAILED FLOW CHART FOR THE PRIORITIZATION STAGESANNEX 2.DETAILED FLOW CHART FOR THE PRIORITIZATION STAGES3636 36 This Annex has not yet gone through a formal translation process,so it could present errors and inconsistencies.27 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA ANNEX 3.EXTERNAL SOURCES ANNEX 3.EXTERNAL SOURCES OF INFORMATION:OF INFORMATION:INTERNATIONAL LISTS AND INTERNATIONAL LISTS AND OTHER DATABASESOTHER DATABASES3737 List of substances under EU regulatory needs assessment.LINK List of substances under EU dossier review.LINK List of substances in the CoRAP(Community Action Plan)of the EU.LINK EU list of substances under review for PBT properties.LINK EU list of substances under review for endocrine disruption.LINK List of substances with evaluations in progress or under public consultation in Australia.LINK List of prioritized substances in the Canadian Chemicals Management Plan.LINK List of substances subject to risk assessment of the United States.LINK Data for prioritization can also be collected from a variety of different sources,generally publicly available,such as peer-reviewed scientific literature,grey literature.For example,multiple agencies have reported to the OECD on the use of IUCLID to collect hazard data or extract data from dossiers prepared for REACH.Another relevant source for obtaining data on substances regulated in other countries is the Rotterdam Convention,which informs countries about substances and formulations,including pesticides and industrial chemicals,that are prohibited or severely restricted by their 37 This Annex has not yet gone through a formal translation process,so it could present errors and inconsistencies.38Official website of the Convention:http:/pic.int.Information on the CIA Tool:http:/www.pic.int/Implementation/FinalRegulatoryActions/FRAEvaluationToolkit/CIATool/tabid/4991/language/en-US/Default.aspx 39More information is available in the document“Overview of Concepts and Available Guidance related to Integrated Approaches to Testing and Assessment(IATA).”OECD Series on Testing and Assessment,No.329,Environment,Health and Safety,Environment Directorate,OECD(2020).States Parties.Additionally,this instrument has a tool called CIA(Chemical Information Assessment)that allows extracting physicochemical and toxicological data from the notifications of final regulatory measures that have been presented in the Convention and that supported the prohibition in the countries 38.On the other hand,approximately half of the schemes studied by the OECD use New Approach Methodologies(NAM)to generate new information.Interestingly,there is no consensus on the definition of the term NAM(OECD,2020),but for the purposes of this document,it is understood as all the technologies,methods,information resources and strategies that serve to minimize the study in animals for the purposes of to obtain information on chemical hazards and risks 39.Software such as(Q)SAR 40,ToxCast results 41,or extrapolation between analogous substances are generally used when there are inconsistencies in the experimental data.The use of databases or specialized data extraction software does not seem to be a trend.To collect and process data,most of the agencies consulted by the OECD manually extract information from the literature and databases,and use tools such as spreadsheets for data compilation.A minority have specialized tools for data extraction and/or processing.Some examples are RISCTOX,ChemBioOffice,Risk21,and Cognos Analytics 42.40The OECD QSAR Toolkit is free software designed to support hazard assessment of chemicals,increasing knowledge about chemicals in a cost-effective manner.It is intended for use by governments,the chemical industry,and other interested parties.More information at:https:/qsartoolbox.org/about/41 toxicity Forecaster(ToxCast)is a set of data and models of thousands of chemical substances from the United States Environmental Agency(EPA),which through analysis methods and computational toxicology allows prioritizing chemical substances.More information at:https:/www.epa.gov/chemical-research/toxicity-forecasting 42 https:/iuclid6.echa.europa.eu/,https:/ 28 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA ANNEX 4.TABLES OF ANNEX 4.TABLES OF ASSESSMENT OF ASSESSMENT OF HAZARDSHAZARDS,USES AND VOLUMES BASED USES AND VOLUMES BASED ON CASE STUDIESON CASE STUDIES4343 Table A6.Hazard assessment comparison table according to ICCA,EPA and ASEAN modelsTable A6.Hazard assessment comparison table according to ICCA,EPA and ASEAN models hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 Human health Human health hazardshazards Acute toxicity Acute toxicity(dermal,(dermal,ingestion,or ingestion,or inhalation)inhalation)ASEANASEAN -Category 1 GHS Category 2 GHS Categories 3,4 and 5 SGA US EPA US EPA(2012 and(2012 and 2014 2014 method)method)Oral LD50 50-300 Dermal LD50 200-1000 inhalation(gas)LC50 2-10 Inhalation(dust)LC50 0.5 1.0 Oral LD50 300 2000 Dermal LD501000-2000 Inhalation(gas)LC50 10-20 Inhalation(Dust)LC50 1.0-5 Oral LD502000 Dermal LD502000 Inhalation(gas)LC50 20 Inhalation(dust)LC50 5-ICCA ICCA Guide Guide(2011)(2011)Category 1 GHS Categories 2 and 3 SGA Category 4 GHS Category 5 GHS Skin Skin corrosion/irritatcorrosion/irritationion ASEANASEAN -corrosive substance irritant substance US EPA US EPA(2012 and(2012 and-43 This Annex has not yet gone through a formal translation process,so it could present errors and inconsistencies.hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 2014 2014 method)method)ICCA ICCA Guide Guide(2011)(2011)Category 1 A/B/C GHS Category 2 GHS Category 3 GHS Not classified Serious eye Serious eye damage/eye damage/eye irritationirritation ASEANASEAN -serious eye injury irritant substance US EPA US EPA(2012 and(2012 and 2014 2014 method)method)-ICCA ICCA Guide Guide(2011)(2011)Category 1 GHS Category 2A GHS Category 2B GHS Not classified SensitizationSensitization (respiratory/(respiratory/cutaneous)cutaneous)ASEANASEAN -Category 1A/1B(respiratory and skin)GHS-US EPA US EPA(2012 and(2012 and 2014 2014 method)method)Category 1A/1B-No evidence to prove-ICCA ICCA Guide Guide(2011)(2011)Category 1A/1B(respiratory)GHS Category 1A/B(cutaneous)GHS Not classified Not classified Germ cell Germ cell mutagenicity/mutagenicity/CarcinogenicityCarcinogenicity ASEANASEAN Category 1 A/B GHS Category 2 GHS Not classified Not classified US EPA US EPA(2012 and(2012 and 2014 2014 method)method)Category 1 A/B and Category 2 GHS Limited to animals(carcinogenicity)Negative-29 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 Positive in vivo or in vitro(mutagenicity)ICCA ICCA Guide Guide(2011)(2011)Category 1 A/B GHS Category 2 GHS Not classified Not classified Specific target Specific target organ toxicity organ toxicity-repeated repeated exposures exposures(dermal route,(dermal route,ingestion,ingestion,inhalation)inhalation)ASEANASEAN -Category 1 GHS Category 2 GHS no effects found US EPA US EPA(2012 and(2012 and 2014 2014 method)method)NeurotoxicNeurotoxicity ity(mg/kg/da(mg/kg/day)y)Orally 13 weeks Oral 40-50 days Orally 4 weeks Dermal 13 weeks Dermal 40-50 days Dermal 4 weeks 10 20 30 20 40 100 200 300 200 400 600-ICCA ICCA Guide Guide(2011)(2011)Category 1 GHS Category 2 GHS 300 NOEL 1000 mg/kg/d(not SGA,but ICCA No effects found with the highest test hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 guide criteria)dose(1000 mg/kg/d)(not SGA,but ICCA guideline criteria)Reproductive Reproductive and and developmental developmental toxicity(dermal toxicity(dermal route,route,ingestion,ingestion,inhalation)inhalation)ASEANASEAN Category 1 A/B GHS Category 2 GHS Not classified Not classified US EPA US EPA(2012 and(2012 and 2014 2014 method)method)Oral(mg/kg/day)50 Skin(mg/kg/day)100 Inhalation(gas/vapour)1(mg/L/day)Inhalation(mist/dust)(mg/L/day)0.1 Oral(mg/kg/day)50-250 Skin(mg/kg/day)100-500 Inhalation(gas/vapour)1(mg/L/day)Inhalation(mist/dust)(mg/L/day)250 Skin(mg/kg/day)500 Inhalation(gas/vapour)2.5(mg/L/day)Inhalation(mist/dust)(mg/L/day)0.5-30 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 ICCA ICCA Guide Guide(2011)(2011)Category 1 A/B GHS Category 2 GHS 100 NOEL 1000 mg/kg/d(not SGA,but ICCA guide criteria)No effects found with the highest test dose(not SGA,but ICCA guideline criteria)Environmental HazardsEnvironmental Hazards ShortShort-term term(acute)hazard(acute)hazard to the aquatic to the aquatic environmentenvironment ASEANASEAN Acute 1 SGA Acute 2 SGA Acute 3 GHS,acute non-toxic Not classified US EPA US EPA(2012 and(2012 and 2014 2014 method)method)(LC50 or EC50)(mg/L)10-100(LC50 or EC50)(mg/L)100-ICCA ICCA Guide Guide(2011)(2011)Acute 1 SGA Acute 2 SGA Acute 3 SGA Not classified LongLong-term term(chronic)(chronic)hazard to the hazard to the aquatic aquatic environmentenvironment ASEANASEAN Chronic 1 SGA Chronic 2 SGA or insufficient information to classify Chronic 3 SGA,Chronic 4 SGA or no data Not classified US EPA US EPA(2012 and(2012 and 2014 2014 method)method)(NOEC or LOEC)(mg/L)1-10(NOEC or LOEC)(mg/L)10-ICCA ICCA Guide Guide(2011)(2011)Chronic 1 SGA Chronic 2 SGA Chronic 3 SGA Chronic 4 SGA Physical hazards(not GHS classifications,but criteria)Physical hazards(not GHS classifications,but criteria)hazard class Numerical assignment to hazard level 4(tall)*For US EPA it is 3*For ICCA it is 1 3(Medium-high)*For US EPA it is 2*For ICCA it is 2 2(Medium low)*For US EPA it is 1*For ICCA it is 3 1(bass)*For US EPA does not count*For ICCA it is 4 Flammability Flammability(gases and(gases and liquids)liquids)ICCA ICCA Guide Guide(2011)(2011)Flash Point 23C and initial boiling point 35C Flash Point 23C and initial boiling point 35C 23C Flash Point 60C 60C 20%in 28 days)via abiotic degradation,such as 31 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Property Numerical Assignment to Property 4(tall)*For US EPA it is 3 3 (Medium-high)*For US EPA it is 2 2(Medium low)*For US EPA it is 1 1(bass)*For US EPA does not count photolysis(OECD 316)or hydrolysis(OECD 111)5)Simulated in soil,water,sediment(e.g.OECD 308/309)with a half-life 1000Pa)are latile organic substances(Pvap 1000Pa)are not persistent if:not persistent if:half-life 6 months Half-life 2 months Half-life 60 days median pathway in sediments 180 days half-life in seawater 60 days,Half-life in fresh water 40 d Half-life in sea sediment 180 d,Half-life in soils 120 d Does not apply Not considered a persistent substance BioaccumulatiBioaccumulative potentialve potential ASEANASEAN Organic substances are considered Organic substances are considered bioaccumulative if:bioaccumulative if:-Trophic magnification factor(TMF)in field 1-Laboratory biomagnification factor(BMF)1-Bioconcentration factor(BCF)in fish,laboratory study 5000 Property Numerical Assignment to Property 4(tall)*For US EPA it is 3 3 (Medium-high)*For US EPA it is 2 2(Medium low)*For US EPA it is 1 1(bass)*For US EPA does not count-Estimated BCF 5000 BCF or BAF 1000 5000 L/kg BCF 2000 L/kg Does not apply It is not considered a bioaccumulative substance Table A8.Use valuation Table A8.Use valuation comparison table according to ICCA and EPA modelscomparison table according to ICCA and EPA models Numerical Assignment to Exposure Level 4(high)for ICCA*For US EPA it is 3 3(Medium-high)for ICCA*For US EPA it is 2 2(Medium low)for ICCA*For US EPA it is 1 1(low)for ICCA*For US EPA does not count Exposure Exposure scenarios for scenarios for workers and workers and consumersconsumers Use for Use for general general consumptionconsumption Control measure:Product design,instructions for use Professional use Professional use(for example,(for example,craftsmen)craftsmen)Control measures:Personal protection elements,organizational management measures Industrial useIndustrial use Control measures:specialized equipment,technologies,personal protection elements,organizational management measures Closed Closed(isolated)(isolated)systemssystems Exposure Exposure scenarios for scenarios for the the environmentenvironment Professional Professional use and for use and for general general consumptionconsumption Professional use Professional use and for general and for general consumptionconsumption Emission of substances:industrial operindustrial operations.ations.Emission control:end-of-process technologies,organizational industrial industrial operationsoperations Emission control:closed or 32 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA Emission of substances:intentional.E.g.,personal care products,cleaning,agricultural use,etc.unintentional.For example,adhesives and paints.management measures strictly controlled systems.Other examples from the scientific literature on exposure criteria are described in Shin S.et al.(2014)and Winnebeck K.et al(2012).The former,based on a prioritization analysis for the occupational sector,assigned higher relative weights to the characteristics of carcinogenicity,mutagenicity and toxicity(Table A9).The latter propose a series of volume thresholds within the framework of a system designed for the United States industry.Table A9.Assignment of relative scores for the different hazard classifications in occupational Table A9.Assignment of relative scores for the different hazard classifications in occupational safety contexts.Source:Shin S.et safety contexts.Source:Shin S.et al.(2014)al.(2014)danger feature class 1 class 2 class 3 class 4 No data Unrated Does not apply Acute toxicity(oral,dermal)6 4 two 1 6 0 0 Acute(respiratory)toxicity 5 3 two 1 5 0 0 Irritation(dermal,eye)6 4-6 0 0 Sensitization(dermal,eye)9-9 0 0 Inhalation hazard 5 3-5 0 0 mutagenicity twenty 16 12-twenty 0 0 reproductive toxicity twenty 16 12-twenty 0 0 carcinogenicity twenty 16 12-twenty 0 0 Target Organ Toxicity 9 7-9 0 0 Table A10.Priorities Table A10.Priorities according to the range of volume produced/imported.Source:Winnebeck according to the range of volume produced/imported.Source:Winnebeck K.et al(2012).K.et al(2012).Produced/imported volume range Priority Punctuation Greater than or equal to 100,000,000 pounds(50,000 tons)high 4 Between 1,000,000 and 100,000,000 pounds(500 and 50,000 tons)High average 3 Between 25,000 and 1,000,000 pounds(12.5 and 500 tons)Half two Less than 25,000 pounds(12.5 tons)Short 1 33 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA ACRONYMSACRONYMS ACC ACC American Chemistry Council ASEAN ASEAN Association of Southeast Asian Nations CEPA CEPA Canadian Environmental Protection Act CMR CMR Carcinogenic,mutagenic and toxic for reproduction CAS CAS Chemical Abstract Services DSL DSL Canada Domestic Substances List EPA EPA United States Environmental Protection Agency(US EPA)SMCSMC Sound Management of Industrial Chemicals ICCA ICCA International Council of Chemical Associations LARCF LARCF Latin American Regulatory Cooperation Forum vPvB vPvB Very persistent and very bioaccumulative NICNAS Australian NICNAS Australian National Industrial Chemicals Assessment and Reporting Scheme NDSLNDSL Canada Non-Domestic Substances List OECD OECD Organization for Economic Cooperation and Development WTO WTO World Trade Organization PBT PBT Persistent,bioaccumulative and toxic to the aquatic environment(T)chronic or acute UNEPUNEP United Nations Environment Program REACHREACH Registration,evaluation,authorization and restriction of chemical substances of the European Union GHS GHS Globally Harmonized System of Classification and Labelling of Chemicals STOT STOT Specific Target Organ Toxicity,Single Exposure or Repeated Exposure SVHC SVHC Substances of Very High Concern TSCA TSCA United States Toxic Substances Control Act UVCBUVCB Substances with unknown or variable composition,complex reaction products,and biological materials VWGVWG-SMCSMC-LALA Virtual Working Group for the Sound Management of Industrial Chemicals in Latin America 34 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA This document was made possible thanks to the participation of members and observers of the VWG-SMC-LA.We also thank all those who have participated in the VWG-SMC-LA meetings as observers and have greatly contributed to the discussions that led to the development of this document.Finally,we thank the Latin American Regulatory Cooperation Forum(LARCF)and the support of the International Council of Chemical Associations(ICCA).ACKNOWLEDGMENTACKNOWLEDGMENT 35 Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin Enfoque de riesgo en la gestin de sustancias y productos qumicos industriales:Priorizacin VWGVWG-SCMSCM-LALA
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Lean and Green Research 2024SHAPING THE FUTURE OF SUSTAINABLE STEELLessons from Europes steel industryCONTENTSClick on the section you want to exploreLowering emissions in steel production 11 -Banking on emissions -Beyond the gate Verifying carbon-accounted steel 15 -Carbon accounting -Measuring environmental impact -Digitalizing carbon-accounted steel Conclusion Acknowledgments Introduction Core findings About the research The rising global demand for low emission steel and credible carbon accounting -Commercial advantage -The State of Green Steel 3 4 5 6 8 19ACKNOWLEDGMENTSWe extend our thanks to the following interviewees for sharing their time and insights with us:Hugo Campos Commercial Sustainability Manager at ArcelorMittal Nick Coleman Principal Sustainability Specialist at Tata Steel UK Oliver Grewatsch Head of Governance at ThyssenKrupp Materials Services Serge Timmermans Chief Commercial Officer at MCB Group(ND)3DNV Shaping the Future of Sustainable SteelAs the shift towards a low-carbon future gains momentum,the need for accountability in emission reductions is growing.This accountability extends beyond company-level reporting to include precise,product-specific claims and disclosures.As a result,the demand for low-carbon steel products is rising rapidly.Steel is a fundamental material in construction,manufacturing,and numerous other sectors,making it indispensable to modern society.However,its traditional production processes are highly energy-intensive and heavily dependent on coal and other fossil fuels,leading to substantial environmental impacts.To tackle these challenges,companies are measured on their ability to reduce emissions and account for these emission reductions,as well as being able to offer products to the market that have a lower environmental and carbon footprint than the norm.The concepts of carbon accounted steel and a carbon intensity spectrum from near zero steel to various grades of low carbon steel has emerged,centred on innovative technologies and practices that aim to significantly reduce carbon emissions throughout the steel production lifecycle.As global demand for low-carbon products continues to rise,this report brings together research and expert insights to support the steel industrys commitment to sustainability.In the following pages we delve into the technological advancements,market dynamics,and policy frameworks that are critical for achieving a sustainable and low-carbon steel industry.The report also examines the economic implications of shifting to green steel,including the potential for new market opportunities and the financial benefits of adopting more sustainable practices.Moreover,it discusses the importance of regulatory measures and supportive policies in facilitating this transition and highlights the key challenges faced by stakeholders across the steel value chain.A fundamental factor in enabling this systemic change is the role of trust.Establishing trust is crucial for ensuring that claims regarding reduced carbon emissions in steel production are credible and verifiable.Through robust assurance mechanisms,stakeholders can substantiate these claims.By building trust in sustainable steel claims,we can create a virtuous cycle:as confidence in the sustainability of steel products grows,it drives further investment in decarbonization efforts,accelerating the industrys transition towards a more sustainable future.INTRODUCTION 4DNV Shaping the Future of Sustainable SteelIn the face of climate change,there is mounting pressure on hard-to-abate sectors to take a leading role in decarbonization and mitigation efforts.The steel industry,with its substantial carbon footprintresponsible for roughly 7%of global CO2 emissionsstands at the forefront of this challenge.Steel producers are under pressure from all angles to decarbonize their products.There is broad support for reducing the carbon footprint of steel,with pressure from regulators,customers,investors,and employees.Producing high-grade,low-emission steel requires an unprecedented technology transformation.Building the capacity to produce low-emissions steel will take billions of Euros in capital expenditure and many years of work.In the meantime,producers use carbon banking to fund more immediate process improvements.Drawing on precedents in the renewable energy sector,green steel products sold today command a premium,with the proceeds used to fund longer-term transformation.As scrutiny over green claims intensifies,independent verification will be essential to any carbon-accounted steel strategy to avoid greenwashing.A third party must assure any carbon reduction claim.Regulators will crack down on those with unverified claims,and buyers are increasingly sophisticated in how they evaluate the sustainability profile of steel products.Digitalization will be a catalyst to verify carbon-accounted steel.Carbon emissions data is still mostly handled in spreadsheets.Producers who can use and share this data digitally will be better equipped to reassure their buyers of the provenance of their steel.CORE FINDINGSDNV Shaping the Future of Sustainable SteelABOUT THE RESEARCH1METALS AND MINING RESPONDENTS ARE BASED IN:METALS AND MINING RESPONDENTS HAVE AT LEAST$250 MILLION IN ANNUAL TURNOVER:METALS AND MINING RESPONDENTS WORK IN THE FOLLOWING FUNCTIONS:METALS AND MINING RESPONDENTS HAVE THE FOLLOWING JOB TITLES:10#%7%6%1%4%3%Supply Chain DirectorChief Procurement Officer/DirectorProcurement ManagerChief Operating OfficerHead of ESG/SustainabilitySenior Manager,Regulatory AffairsVP of SustainabilityDirector of Regulatory AffairsChief Sustainability OfficerVP of Regulatory Affairs32%Procurement6%Supply chain22%ESG/Sustainability29%Operations11%Regulatory/compliance250m-500m500m-1bn1bn-5bn5bn 7B33%Spain31%Nordics(SWE,NOR,FIN,DEN)12%Germany8%Italy7%France6%UK3nelux(BEL,NED,LUX)7DNV Shaping the Future of Sustainable SteelWe surveyed 525 business leaders and management personnel in companies with more than$250 million in annual global turnover,and with a physical supply chain.Of the total respondents,19%were from the metals and mining sector.Respondents are either directly responsible or involved in decision making for their organizations supply chain,procurement,compliance,digital transformation,or sustainability.ABOUT THE RESEARCHTHE RISING GLOBAL DEMAND FOR LOW EMISSION STEEL AND CREDIBLE CARBON ACCOUNTING2Steel producers feel this pressure from multiple directions.In Europe,they are subject to the Emissions Trading Scheme(ETS),which caps total emissions from carbon-intense sectors to an amount that decreases every year.Companies must pay for any emissions beyond this allowance,giving an economic incentive to decarbonize.In parallel,the UK introduced its own ETS in January 2021,after leaving the EU.The EUs ETS is also the basis of the Carbon Border Adjustment Mechanism(CBAM),which will impose a price on the emissions embedded in products imported to the bloc.CBAM will require steel importers to document and verify their emissions to access the European market.In addition,tightening regulation drives steel buyers to scrutinize the industrys emissions.For example,the EUs proposed Corporate Sustainability Due Diligence Directive(CSDDD)will require all companies above a certain size to make sure their business practices and those of their suppliers and other partners are consistent with the Paris Agreement,a pledge to limit global warming to 1.5C over pre-industrial levels.Steels carbon intensity means buyers such as manufacturers,the construction industry,and shipbuilders in the maritime sector will pay ever-closer attention to the life cycle impact of products.Carbon-accounted steel would be an obvious lever for reducing Scope 3 emissions(those produced by suppliers or customers).This focus on embedded carbon will intensify as the use-phase emissions of steel-based products decline,explains Hugo Campos,Commercial Sustainability Manager at global steel producer ArcelorMittal:“As we move to electric vehicles,and energy-efficient buildings and appliances,those use-phase emissions diminish.And then what are you left with?Its largely your upstream,Scope 3 emissions.”Global alarm over climate change has placed the steel industry under intense pressure to decarbonize.According to the International Energy Agency,the steel industry consumes 8%of the worlds energy supply and accounts for 7%of energy-related carbon emissions.1 FIGURE 1:METALS AND MINING COMPANIES SAY THEY ARE NOT READY TO FACE A WAVE OF REGULATION IN EUROPE.How would you rate your current level of maturity for the following regulations/standards?(%of metals and mining respondents who identify as either beyond compliant or leader or compliant)ISO 20400 guidelinesEU Green Claims DirectiveEuropean Green DealEnvironmental Product DeclarationProduct Environmental Footprint(PEF)Energy Efficiency DirectiveEcodesign for Sustainable Products RegulationCarbon Border Adjustment Mechanism(CBAM)Corporate Sustainability Reporting Directive(CSRD)Digital Product PassportCorporate Sustainability Due Diligence Directive56E94530($%1 https:/www.iea.org/reports/iron-and-steel-technology-roadmap 9DNV Shaping the Future of Sustainable SteelIt is not just regulation that drives the decarbonization of steel.Both producers and their customers see commercial opportunities.“Our customers see that having green products helps them differentiate themselves and could give them access to a competitive advantage,”says Campos.Investors,too,drive both buyers and sellers to cut emissions from steel.“Our investors expect us to have CO2 targets,”says Campos.“And our customers too are obliged by investors to set science-based targets,which include Scope 3 emissions.”Employee pressure further drives the decarbonization of steel,says Nick Coleman,Principal Sustainability Specialist at Tata Steel UK,a division of the global producer.“People want to work for companies that are doing the right thing in terms of climate change,”he says.Despite this system-wide pressure for carbon reduction,the market for green steel a catch-all term that encompasses a range of products and practices is nascent.“Demand for green steel is limited,”explains Serge Timmermans,Chief Commercial Officer at European metals distributor MCB Group.“We have so far had three or four projects where we have delivered green steel specifically for customers.”Supply is also constrained,he adds.“Even as a distributor,its not easy for us to get the green steel we want.There is not enough capacity at the moment.”But due to mounting regulatory and investor pressure,and growing demand from customers,the direction of travel is clear.MCB is actively building its expertise and relationships with green steel producers,so it is well-placed for the future.“Because the supply of green steel is limited,if you are not in front with the suppliers,you will not get the material,”explains Timmermans.“We want to have a relationship and sell the material although demand is still limited,so we emerge as a preferred customer of these European suppliers.”Steel producer Thyssenkrupp has seen an increase in queries for low carbon and sustainable steel,according to Oliver Grewatsch,Head of Governance at Thyssenkrupp Materials Services.The firm has set up various initiatives to help customers manage their carbon footprint,including a Carbon Credit desk to help customers offset their footprints and,“emissions calculators which provide transparent insight into the total emissions associated with a product,revealing potential savings”,he says.COMMERCIAL ADVANTAGETHE STATE OF GREEN STEELOur investors expect us to have CO2 targets.And our customers too are obliged by investors to set science-based targets,which include Scope 3 emissions.Hugo Campos Commercial Sustainability Manager at ArcelorMittal 10DNV Shaping the Future of Sustainable SteelLOWERING EMISSIONS IN STEEL PRODUCTION3Today,steel is produced in one of two ways.High-grade steel is typically produced in a blast furnace.“Modern furnaces are very efficient and represent a highly optimized industrial process,”says Campos.Unfortunately,it also involves burning solid fuel,usually coal.The second process uses an electric-arc furnace(EAF),which can be powered by renewable energy.EAFs are typically used to create new products from scrap metal,however,global steel production cannot satisfy the demand for steel with scrap supply alone.Producing low-emission,high-grade steel requires a hybrid of these two approaches,by replacing solid fuel with hydrogen.The technology has been proven but putting it into production requires unprecedented investment by the industry over many years.“Hydrogen-based steel production is highly capital intensive,”explains Campos.“Its viability is contingent on a multitude of factors,most notably a supportive policy environment and access to significant volumes of clean electricity.”And it is not just the steel producers that need to invest.This transformation requires a substantial increase in the supply of hydrogen and renewable energy,calling for government support and coordination.DNV Shaping the Future of Sustainable SteelThere is a cost to decarbonizing our operations and processes,and that is something that we wish to pass on through Tata Steels green steel product Carbon Lite.Steel producers are already investing in the processes needed to produce low-emission steel,but it will be many years before significant capacity is attained.In the meantime,the industry pursues alternative approaches to decarbonizing production.This reflects a reality of climate change.“In terms of preventing global warming,a tonne of CO2 saved today is far more valuable than a tonne of CO2 saved in ten years,”explains Campos.“The industry should not be sitting on our hands and waiting for something to happen.”Tapping into todays demand for lower-emission products can help pay for the production capacity of tomorrow.Many steel producers are investing in reducing the emissions for their current processes and,crucially,associating those reductions with green steel product ranges.This approach,pioneered by ArcelorMittal with the support of DNV,is the basis for all green steel products on the market today.“The analogy we use is with the renewable energy market,”explains Campos.“If you buy renewable energy,you are not getting green electrons from the plug.”Instead,under Europes Guarantee of Origin scheme,the customers funds are directed to a renewable energy producer,providing an incentive for building renewable capacity.As with renewable energy,carbon-accounted steel commands a premium.“There is a cost to decarbonizing our operations and processes,”explains Coleman.“And that is something that we wish to pass on through Tata Steels green steel product Carbon Lite.”Producers use the proceeds of this premium to fund emissions reductions in their processes.Tata Steel,for example,has built a new power plant at its Port Talbot facility in Wales,which has“massively improved”energy efficiency,Coleman explains.At ArcelorMittal,innovations include replacing coal in blast furnaces with biomass and converting emissions into bioethanol.The CO2 reductions from these improvements are then allocated to green steel products using carbon banking,also known as mass balancing.Reductions are accumulated into an account,then allocated to individual products using a verifiable and auditable process.Producers are not the only ones creating carbon banks.MCB,the distributor,is also considering one so that it can serve demand for green steel when supply is constrained.BANKING ON EMISSIONS Nick Coleman Principal Sustainability Specialist at Tata Steel UK 13DNV Shaping the Future of Sustainable SteelA third way to make steel greener is to consider how it is used and,hopefully,reused.Tata Steel works with customers to develop new types of steel that help them reduce the emissions from their products use phase.For example,working with carmakers to develop steel that makes electric motors more energy efficient.Circularity is also a means of reducing emissions by moving up the waste hierarchy,optimizing recycling,and taking full advantage of the durability and reusability of steel.Tata Steels construction division works on modular products for buildings to be built more efficiently,then dismantled and their parts reused at their end of life.MCB,meanwhile,is upgrading its logistics so that it can pick up the scrap material its customers do not use and return it to producers,who smelt scrap material into new products.“On average,customers use 70%of the material we ship and 30%is scrap,”explains Timmermans.“Meanwhile,manufacturers are desperately looking for scrap material.So,we are looking into our whole supply chain to find ways to do this.”BEYOND THE GATEOn average,customers use 70%of the material we ship and 30%is scrap.Meanwhile,manufacturers are desperately looking for scrap material.So,we are looking into our whole supply chain to find ways to do this.Serge Timmermans Chief Commercial Officer at MCB Group 14DNV Shaping the Future of Sustainable SteelVERIFYING CARBON-ACCOUNTED STEEL4The EUs proposed Green Claims Directive requires companies to substantiate any claims that their products are sustainable.It mirrors a pioneering French law requiring any company claim about carbon emissions to give concrete evidence.The pressure on steel producers to verify their green claims will be compounded as customers make their own claims,based on the sustainability attributes of the steel they use.Any business hoping to tap into the demand for carbon-accounted steel,therefore,must be able to verify what it says about carbon emissions.“We really want to avoid greenwashing,”says MCBs Timmermans.“Wed rather be transparent,and the customers can then decide what they want to do.”Thyssenkrupp carefully collects sustainability information from its suppliers to give accurate measures for Product Carbon Footprint(PCF).“The overview lists climate-friendly products and measures of our suppliers,so we can see immediately what the respective supplier can offer in sustainability,”says Grewatsch.“On this basis,we can advise our customers so that,for example,products from other manufacturing processes with lower CO2 values can be used in the future.In this way we make an important contribution to the climate neutrality of our customers products,”he says.Reputationally,it is far worse for a company to make a bogus sustainability claim than no claims at all,adds Tim Bankroff,Senior Sustainability Consultant at DNV.“Claims of products with reduced emissions intensity must be backed by scientific methods and effective governance,”he says.“Sustainability claims are highly scrutinized,and theres nowhere to hide in this increasingly competitive and regulated business landscape.”Even as regulators encourage businesses to improve their environmental sustainability,they are cracking down on greenwashing.Despite its precedent in the renewable energy market,the use of carbon banking to allocate reductions to carbon-accounted steel products is often misunderstood.It is therefore especially important to ensure that the practice is independently verified.“Customers want to see third-party oversight of that process,to make sure that any systems we may have in place are being used in a consistent manner and that where we do have savings,they are not being oversold,”explains Tata Steel UKs Nick Coleman.In particular,customers buying carbon-accounted steel want reassurance that their premium is funding carbon reductions beyond business-as-usual improvements that would have happened anyway.DNV helps green steel producers offer this reassurance by auditing the application of their carbon accounting methodology.CARBON ACCOUNTING“Customers want to see third-party oversight of that process,to make sure that any systems we may have in place are being used in a consistent manner and that where we do have savings,they are not being oversold.”Nick Coleman Principal Sustainability Specialist at Tata Steel UKDNV Shaping the Future of Sustainable SteelMeanwhile,steel buyers demand more information about the environmental impact of the products they buy,from materials extraction,through manufacture and use to reuse or disposal.This information comes from using a life cycle assessment(LCA)methodology and is recorded in documentation such as product carbon or environmental footprints(PCF/PEFs)and environmental product declarations(EPDs).“Life cycle assessment is an important tool that many organizations consider to be a fundamental way to understand product impacts,”explains Bankroff.“Without an LCA,you simply do not understand the whole picture.”Buyers used to be content with industry averages for the carbon performance of steel.Now,though,they demand primary data from their suppliers,so they know exactly what is included in their Scope 3 emissions.This is good news for producers investing in decarbonization,says Campos.“We want carbon reductions to be recognized in the data our customers use,”he explains.But it is not easy,he adds.“LCA is such a skill.There arent that many people in the world who are qualified to do it.”As buyers demand more information about the life cycle emissions of its products,Campos explains,ArcelorMittal trains its customer-facing engineers to be able to talk them through their LCAs.MEASURING ENVIRONMENTAL IMPACTFIGURE 2:LIFE CYCLE ASSESSMENT IS OF PARTICULAR CONCERN TO THOSE WORKING IN THIS SECTOR.What are the biggest barriers to implementing supply chain sustainability?(%of metals and mining respondents)Lack of understanding of life cycle assessmentSoaring costsInadequate digital recordsInability to adapt existing tools to new challengesScaled-back budgetsLack of understanding of incoming regulationRegulation has become a lesser concernLack of urgencyOutsourcing to countries that are more difficult to monitor adequatelyLack of understanding of European Green DealSiloed procurement21%7%4%8%4%8%7%9%7%Life cycle assessment is an important tool that many organizations consider to be a fundamental way to understand product impacts.Without an LCA,you simply do not understand the whole picture.Tim Bankroff Senior Sustainability Consultant at DNV 17DNV Shaping the Future of Sustainable SteelAmid this growing sophistication of buyers,independently verifying LCAs and other environmental performance data is essential.So too is digitalization.“The more mature a steel producers digital transformation is,the better able they are to share their progress with their customers,”explains Bankroff.Coleman at Tata Steel sees digitalization as a key component of its assurance process.The company has built MoniCA,an energy and emissions data collection initiative that spans its entire production capacity.“Assurance is about having access to data for our operations and plants,”he explains.“MoniCA provides a means of CO2 emissions reporting for all energy and carbon-containing flows,”he explains.Not every producer is as advanced.“We are still exploring the opportunities that digitalization can bring for CO2 accounting,”explains Campos.“This is an emerging area and one that could potentially bring significant benefits.“Industry initiatives such as the World Business Council for Sustainable Developments Partnership for Carbon Transparency2 hope to address this deficiency.Producers hoping to tap into the green steel opportunity would do well to get their data into shape.DIGITALIZING CARBON-ACCOUNTED STEELFIGURE 3:METALS AND MINING COMPANIES SEE DIGITAL TRANSFORMATION AS THEIR TOP SUPPLY CHAIN PRIORITY BOTH TODAY AND IN THE NEAR FUTURE.(%of respondents)Highest priorities nowHighest priorities in 18 monthsDigital transformationCost efficiencySustainabilityRegulatory complianceResilience24!&%2https:/www.wbcsd.org/Programs/Climate-and-Energy/Climate/SOS-1.5/News/PACT-updated-tech-specifications-emissions-data 18DNV Shaping the Future of Sustainable SteelThe shift towards greener steel is not only a critical response to increasing environmental sustainability demands but also presents a unique opportunity for the steel industry to drive innovation and lead the global fight against climate change.As explored in this report,decarbonizing steel production requires a comprehensive strategy,including the adoption of cutting-edge technologies,forming strategic alliances,and implementing rigorous verification methods to maintain transparency and trust.Building trust is essential to this transition.By establishing strong assurance processes to validate claims of reduced carbon emissions,the steel industry can foster confidence in a new category of carbon-accounted steel.This not only meets the rising demand for sustainable products but also encourages a positive cycle of investment,as greater trust in green steel attracts more capital and accelerates efforts to reduce emissions across the sector.Economic,regulatory,and social pressures to lower carbon emissions are transforming market conditions,prompting steel producers to explore and invest in innovative production techniques.Despite challenges such as high costs,supply limitations,and the readiness of new technologies,the rewards of embracing green steel initiatives early are clear.Companies that overcome these obstacles and successfully bring certified green steel products to market will not only secure a competitive edge but also play a key role in advancing global carbon reduction targets.The path forward requires continued collaboration among industry players,government bodies and other stakeholders.This collaboration should focus on crafting supportive policies,sharing successful strategies,and investing in sustainable technological advancements.By prioritizing these collective actions,along with a commitment to transparency and credible assurance,the steel industry can significantly contribute to a low-carbon future,ensuring that a material central to modern infrastructure supports the development of a more sustainable and resilient world for future generations.The market for carbon-accounted steel is nascent but becoming crowded and competitive.Producers are lining up to commercialize carbon reductions so they can finance the gargantuan technology transformation that lies ahead.19CONCLUSION5ABOUT DNVDNV is an independent assurance and risk management provider,operating in more than 100 countries,with the purpose of safeguarding life,property,and the environment.As a trusted voice for many of the worlds most successful organizations,we help seize opportunities and tackle the risks arising from global transformations.We use our broad experience and deep expertise to advance safety and sustainable performance,set industry standards,and inspire and invent solutions.Headquarters:DNV,Hvik,Norway For 160 years,we have safeguarded life,property,and the environment.Learn how
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INDUSTRIAL&INFRASTRUCTURE SERVICESREPORT1H 2024Explore M&A Activity,Capital Market Conditions and Current Trends for the Business Services Industry720.221.9220|SDRVENTURES.COMInvestment Banking&Securities Offered Through SDR Capital Markets,LLC,Member FINRA&SIPC.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT1H 2024 1H 2024|VOL 1|ISSUE 1Ben LuchowBen LuchowVice PresidentI&I Services TINDUSTRIAL&INFRASTRUCTURE SERVICES 1H24:WHAT TO KNOW WereWere addingadding a a newnew entryentry toto ourour reportsreports atat SDR,SDR,focusingfocusing onon thosethose hardhard hathat andand steelsteel toedtoed bootsboots jobsjobs thatthat plugplug alongalong throughthrough thickthick andand thin,thin,IndustrialIndustrial andand InfrastructureInfrastructure servicesservices.TheseThese includeinclude thethe jobsjobs thatthat mustmust getget donedone andand cantcant bebe putput offoff.Roofing,Roofing,plumbing,plumbing,infrastructure,infrastructure,HVAC,HVAC,andand moremore.WhileWhile M&AM&A activityactivity hashas beenbeen facingfacing headwindsheadwinds ofof late,late,duedue in in partpart toto higherhigher interestinterest rates,rates,werewere bracingbracing forfor a a slewslew ofof newnew dealsdeals asas onceonce-reluctantreluctant sellerssellers thawthaw andand buyersbuyers appearappear toto bebe aboutabout toto getget a a breakbreak inin ratesrates.A A NewNew TakeTake FromFrom SDRSDR:TheThe ServicesServices EverybodyEverybody NeedsNeeds This is a new take for us,a deep dive into those behind-the-scenes service providers every business and consumer leans on at times.Industrial and infrastructure services might seem“boring”at first.There arent any drones or electric airplanes involved.No next generation of efficient container ships.No quantum cloud computing.But its hard to think of a business,or a person,that isnt affected by this sector.Were talking hands on services such as plumbing and HVAC.Think janitorial and building maintenance.Electrical contracting.Restoration and cleanup after a severe storm.Lawn care,environmental mediation,traffic control,and road and parking lot construction and repair.Most of us may never see the inside of a semiconductor plant or cloud computing server installation.But we see these services every day commuting to work.Maybe its the landscaper cutting the grass at the local bank,or the excavator hauling a Bobcat to dig up a busted pipe under your neighbors yard.But heres the thing,this sector is so important and packed with opportunities for both providers and buyers.This isnt the kind of stuff consumers can put off.The toilet stops working,homeowners cant wait until interest rates come down or for household finances to improve before fixing it.When the air conditioner goes down at a Phoenix call center during a heatwave,business owners cant let their workers swelter.And a city cant delay fixing a malfunctioning traffic signal at a busy intersection.Were looking at recession-proof,repeatable business models.Yes,AI and the next generation of robotics is shaking up everything from warehouse fulfillment models to accounting and logistics management.But weve yet to see a robot drive itself to an apartment complex and put on a new roof after a hailstorm or uncover the mold inside an old building,clean up the mess,and rebuild a wall.The global HVAC maintenance and services2Established in 2002,SDR Ventures has developed deep M&A and capital transaction knowledge and expertise.SDR offers transaction advisory,private capital formation and business consulting services across a wide range of industries.We serve business owners and operators of privately held companies and provide them with a professional-class experience.ABOUT SDRTransaction ActivityActive BuyersPublic BasketM&A Market ActivityAbout SDR VenturesINDUSTRIAL&INFRASTRUCTURE SERVICES CONTACTSCONTENTSThe information contained herein is based on sources we believe reliable but is not guaranteed by us and is not to be considered all-inclusive.It is not to be construed as an offer or consultation of an offer to sell or buy any securities.Scott MitchellScott MitchellManaging DirectorI&I Services TDrew ChamberlainDrew ChamberlainAnalyst III&I Services T720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT1H 2024 1H 2024|VOL 1|ISSUE 13market is expected to grow from$78 billion last year to$110 billion by the end of the decade,a 5.8%compound annual growth rate(CAGR).The biggest players(Johnson Controls,Systemair)are actively looking to expand through mergers.Government programs such as the Inflation Reduction Act and the American Innovation and Manufacturing Act are providing incentives for homes and businesses to convert to more eco-friendly equipment,providing opportunities for service providers and installers.1,2 Meanwhile,profits in plumbing are averaging 35%of sales.The U.S.alone is home to more than 113,000 plumbing businesses.The Bureau of Labor Statistics reports in 2023 the industry employed 482,700 plumbers,pipefitters,and steam fitters.And the global plumbing market valued at$57 billion is expected to experience a CAGR of more than 5%.As the global population continues to grow,theres a demand for residential and commercial plumbing,whether thats getting clean water to a source or getting rid of wastewater.3,4,5 EverybodyEverybody TalksTalks AboutAbout TheThe Weather,Weather,ButBut NobodyNobody DoesDoes AnythingAnything AboutAbout It It (Except(Except Us)Us)Wild weather has dominated recent news cycles.When Hurricane Ian ripped through southwest Florida in 2022,everyone with a roof,from homeowners to businesses,flooded roofing contractors with calls for help.Tropical cyclones,severe storms,wildfires,freezes,floods,and drought are multi-billion-dollar events.These events benefit a large swath of industries such as restoration and remediation or plumbing and roofing.6,7,8 Its not just storms that are boosting demand for the deceptively low-visibility restoration and remediation industry.In low-lying states like Florida,coastal areas are sinking,leading to events called“sunny day flooding.”In Miami its a race to see who will move in faster,new residents or the Atlantic Ocean as the city literally sinks.Buildings and infrastructure are at risk.9,10,11 Truly,nobody is immune to the forces that are fueling demand for these essential services.Something called“The Surfside Effect”is challenging condominium owners.After the tragic 2021 collapse of South Floridas Surfside Condo building due to a lack of maintenance,big,government-backed lenders changed the rules for loans on condo properties,mandating a review of a propertys repair and maintenance history before releasing loans.Under new laws in Florida,condo owners are finding themselves shelling out big money for now-mandated repairs and maintenance on their buildings.Roofs that have been pushed past their 20-year lifespan need replacing and concrete footings need inspections.Not“when you get the money”but“now.”In California,and in other parts of the country,insurers are using drones,airplanes,and computer analysis to spot yard debris,poorly trimmed trees,damaged roofing shingles and even roofs that appear to have outlived their life expectancy.Homeowners either hire someone to mitigate the damage and do repairs or lose their insurance.In Texas,homeowners are taking advantage of federal subsidies for more efficient homes,creating demand for better insulation,new,more efficient cooling systems,and rooftop solar panels and batteries.12,13,14,15 Were watching closely a recent push to harden and enhance the U.S.electrical grid,now more than 100 years old and suffering from soaring demand and aging components.Who will do the desperately needed work and how government money will flow into these projects remains a question,but judging from a$3.5 billion program for grid enhancement projects the Energy Department announced in the fourth quarter of 2023,there should be lots to go around.16Wild weather is driving business directly to the industries that do things like repairing underground infrastructure,replacing roofs,and keeping things shipshape.These arent tasks that can be kicked down the road,and an army of businesses stands ready to do the work.Investors have taken note.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT1H 2024 1H 2024|VOL 1|ISSUE 14InterestInterest RatesRates AndAnd InterestInterest InIn M&AM&AWere watching a couple of interesting forces at play in the sector that could be about to affect merger and acquisition activity.For one,interest rates have been relatively high for those looking to finance an acquisition.But that may be about to change,making deals easier for buyers.At the same time,thanks to a slowdown within the last couple of years in the sector,there are plenty of private equity owners of portfolio companies in these industries that have been waiting for the right time to exit.As interest rates go down,we expect to see more secondary activity in the sector.17,18,19 We believe theres room to run in Industrial and Infrastructure Services.Immediately pre-pandemic and in 2021 and 2022,SDR saw the frothiest market of all time for businesses in many sectors.Valuations for subscale assets were reaching astronomical levels in roll-up industries such as plumbing or HVAC.Higher interest rates have held markets back of late.Large platforms,worth 20 x EBITDA at lower interest rates,could afford to buy add-ons at high multiples.This has resulted in two things.First,multiples have come down somewhat.However,more notably,transaction volume declined significantly in 2023 with respect to historical periods.However,in a parallel to the residential real estate market,weve seen EBITDA multiples remain relatively robust due to lack of supply.In SDRs processes in and around industrial services,we continue to see strong interest and attractive valuations and deal structures,even if multiples arent quite as frothy as 2021 and early 2022.20,21GettingGetting TheThe JobJob DoneDone:MergersMergers&AcquisitionsAcquisitions In March,global investment firm Davidson Kempner Capital Management and private equity firm Broadwing Capital Management took a stake in regional family-owned mechanical,electrical,and plumbing service provider Upchurch Companies.The investment is expected to drive Upchurch,founded in 1970,forward with capital for future rollups as the Mississippi-based company looks to broaden its footprint.Upchurch has consistently grown its holdings since the 1990s and services a large part of the Southeast.22 Texas-based Service Experts in April acquired 19 local HVAC and plumbing service centers from HomeServe USA.Service Experts reports the purchase places it among the largest players in the“home comfort”industry,providing HVAC,plumbing,solar panel installation,and other services through 98 service centers in 31 states.23 Franchise brands platform EverSmith Brands,a portfolio company of The Riverside Company,in February announced it had acquired U.S.Lawns,a franchised provider of commercial landscaping and snow removal services for U.S.commercial properties.U.S.Lawns was previously held by BrightView Holdings.The landscaping company was founded in 1986 and has grown to more than 200 locations in 35 states.The deal was reportedly valued at$51.6 million.24,25 BackBack ToTo WorkWork.A A LookLook AheadAheadAs noted,were watching an interesting dynamic between owners and potential buyers.We believe the time may be right for the ice to thaw as we look ahead to interest rates easing and pressure mounting on investors to get their money out and move on.The Industrial and Infrastructure Services sector is vast and largely fragmented,creating M&A opportunities as companies either look to cash out or scale up.We certainly dont see demand for services lagging,no matter what the economy does.When needs arise,when toilets clog,they are usually needs that cant be deferred.Weather happens.Stuff gets old and breaks.Nothing lasts forever.These are the services that are standing by.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT5TRANSACTIONS BY SEGMENTTRANSACTIONS BY TYPETRANSACTIONS BY LOCATIONTRANSACTION ACTIVITY21 or more transactions11-20 transactions1-10 transactions0 transactionsSource:PitchBook Financial Data and AnalyticsNote:This data represents recorded transactions only and is not all-inclusive.Nevertheless,they are typically representative of the industry.GeoNames,Microsoft,TomTomPowered by BingStrategic49%Financial512 165 76 82 176 -50 100 150 200Facility&BuildingServicesResidentialServicesInfrastructureServicesEnvironmentalServicesConstruction&EngineeringIf You Are a Business Owner Looking for Additional Transaction Activity If You Are a Business Owner Looking for Additional Transaction Activity Within Your Industry,Please Call Our Offices at 720.221.9220.Within Your Industry,Please Call Our Offices at 720.221.9220.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORTFIRMRECENT SUBSIDIARY ACQUISITIONS6ACTIVE BUYERSSource:PitchBook Financial Data and AnalyticsNote:This data represents recorded transactions only and is not all-inclusive.Nevertheless,they are typically representative of the industry.FIRMRECENT SUBSIDIARY ACQUISITIONSMOST ACTIVE STRATEGIC BUYERSSELECT SPONSORS WITH ACTIVE PORTFOLIO HOLDINGS720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORTPUBLIC BASKET7FACILITY AND BUILDING SERVICESINDUSTRIAL&INFRASTRUCTURE SERVICES SEGMENTS VS.S&P 500Segment Market Cap Performance Trailing 12 MonthsSource:PitchBook Financial Data and AnalyticsRESIDENTIAL SERVICES-30%-20%-10%0 0%Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24Facility and Building ServicesResidential ServicesInfrastructure ServicesConstruction and EngineeringEnvironmental ServicesS&P 500720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT8PUBLIC BASKET(CONTINUED)INFRASTRUCTURE SERVICESSource:PitchBook Financial Data and AnalyticsENVIRONMENTAL SERVICESCONSTRUCTION&ENGINEERING720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT9U.S.M&A ACTIVITY SNAPSHOTSource:GF DataSource:GF DataOVERALL U.S.M&A ACTIVITYNote:The most current source of GF Data is as of May 2024.LOWER MIDDLE MARKET PRIVATE EQUITY TRANSACTION MULTIPLESEBITDA Multiples By Transaction SizeCAPITAL BREAKDOWN LOWER MIDDLE MARKET PRIVATE EQUITY TRANSACTIONSSource:PitchBook Financial Data and Analytics$0.0M$100.0B$200.0B$300.0B$400.0B$500.0B$600.0B1,3002,3003,3004,3002023 Q22023 Q32023 Q42024 Q12024 Q2Deals ClosedDeals ClosedCapital Invested5.9x6.1x6.8x6.1x6.8x7.0 x7.3x7.5x8.0 x8.3x8.8x8.6x9.0 x9.4x10.0 x8.5x0.0 x2.0 x4.0 x6.0 x8.0 x10.0 x12.0 x202120222023YTD 2024$10-25mm$25-50mm$50-100mm$100-250mm54B)B6GIEBB)0%9%8GIb67)%9%5UXab962#%7%6%6TUcq%0 0%$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mmSenior DebtSub DebtEquity202120232022YTD 2024720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORT10SDR SERVICE OFFERINGSPRIVATE CAPITAL FORMATIONSELL-SIDE ADVISORYBUY-SIDE ADVISORYEXIT PREPARATIONCOMPREHENSIVE INDUSTRIAL&INFRASTRUCTURE SERVICES EXPERTISEOur robust experience in the Industrial&Infrastructure Services Industry makes us an ideal fit to help identify and execute the right M&A options for your business.Through buy-side analysis,sell-side execution,or private capital formation,we can help you maximize the potential of your company and take advantage of the many opportunities that this industry has to offer.Our Industrial&Infrastructure Services investment banking expertise includes the following segments:SELECT TRANSACTION EXPERIENCESDR has completed numerous transactions types throughout the Business Services Industry,including:CONTACT USFacility&Building ServicesResidential ServicesPublic Infrastructure ServicesEnvironmental ServicesArchitectural&EngineeringBen LuchowBen LuchowVice PresidentI&I Services TScott MitchellScott MitchellManaging DirectorI&I Services T720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORTADDITIONAL REFERENCES111.“Global HVAC Maintenance And Services Market Outlook&Forecast 2024-2029:Demand For Low GWP Refrigerant Solutions In Heating Equipment,”GlobeNewswire,via ResearchAndMarkets,Feb.16,2024 https:/ 2.“HVAC Industry Gears Up For Challenges In 2024,”Air Condition,Heating,Refrigeration News,Joanna R.Turpin,accessed Jul.21,2024 https:/ 3.“Statistics To Know That Show Plumbing Industry Market Growth,”Rival Digital,Jun.1,2024 https:/ Outlook Handbook,Plumbers,Pipefitters,And Steamfitters,”U.S.Bureau of Labor Statistics,2024 https:/www.bls.gov/ooh/construction-and-extraction/plumbers-pipefitters-and-steamfitters.htm 5.“Plumbing Market Size,Plumbing Market Analysis,Trends,Growth Opportunities,And Forecast,2023-2030|Latest Market Study By Rationalstat,”GlobeNewsWire via RationalStat,Oct.10,2023 https:/ 6.“Climate Change Indicators:Weather And Climate,”U.S.Environmental Protection Agency,accessed Jul.21,2024 https:/www.epa.gov/climate-indicators/weather-climate 7.“Shocked By Your Last Roofing Quote?Check Again Says SWFL Roofing Expert,”The News-Press,Rast Bryant,Jan.27,2024 https:/www.news- Historic Year Of U.S.Billion-Dollar Weather And Climate Disasters,”Climate.gov,Adam B.Smith,Jan.8,2024 https:/www.climate.gov/news-features/blogs/beyond-data/2023-historic-year-us-billion-dollar-weather-and-climate-disasters#:text=1980-2023 costs and fatalities by disaster type&text=Severe storms ($455.2 billion,list of billion-dollar events.9.“High Tide Flooding,”NOAA,accessed Jul.21,2024 https:/coast.noaa.gov/states/fast-facts/recurrent-tidal-flooding.html#:text=High tide flooding, sometimes referred,increasingly disrupting coastal community life.10.“Miami Is Ground Zero For Climate Risk.People Are Moving To The Area And Building There Anyway,”CNBC,Greg Iacurci,Apr.26,2024 https:/ 11.“Coastal Flooding Ranking Of Cities,”OECD,R.J.Nicholls et.al,accessed Jul.21,2024 https:/climate-adapt.eea.europa.eu/en/metadata/publications/ranking-of-the-worlds-cities-to-coastal-flooding/11240357 12.“The Surfside Effect:Adjusting To New Regulations In The Aftermath Of The Surfside Collapse,”National Mortgage Professional,Erica Drzewiecki,Feb.21,2024 https:/ 13.“A Perfect Storm Is Coming To South Florida As Maintenance Fees Threaten Condo Owners,”Palm Beach Post,Joseph Hernandez,Mar.28,2024 https:/ Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.1H 2024 1H 2024|VOL 1|ISSUE 1INDUSTRIAL&INFRASTRUCTURE SERVICES REPORTADDITIONAL REFERENCES(CONTINUED)1214.“Insurers Are Spying On Your Home From The Sky,”Wall Street Journal,Jean Eaglesham,Apr.6,2024 https:/ To Make Your Texas Home More Energy Efficient And Get Money From The Government,”The Texas Tribune,Emily Foxhall,Jul.9,2024 https:/www.texastribune.org/2024/07/09/texas-energy-efficiency-guide-federal-tax-rebates/16.“The Aging U.S.Power Grid Is About To Get A Jolt,”Wall Street Journal,Scott Patterson,Jun.6,2024 https:/ 17.“M&A:Showing Signs Of Resurgence,”Wall Street Journal via Deloitte,2024 https:/ 18.“Top Fed Officials Say They Are Closer To Cutting Interest Rates,”Reuters,Howard Schneider and Michael S.Derby,Jul.17,2024 https:/ Private Equity(PE),”Investopedia,Troy Segal,Feb.9,2024 https:/ Back At M&A In 2023:Who Wins In A Down Year?”Bain&Company,David Harding et.al.,Jan.30,2024 https:/ 21.“The Housing Market Is Stuck Until At Least 2026,Bank Of America Warns,”CNN,Matt Egan,Jun.27,2024 https:/ 22.“Upchurch Companies Sells Stake To Davidson Kempner And Broadwing Capital,”Yahoo Finance via Business Wire,Mar.27,2024 https:/ 23.“Service Experts Grows To Become One Of The Largest US Residential Home Comfort Business,”Plumbing&Mechanical,Apr.8,2024 https:/ 24.“EverSmith Brands Acquires U.S.Lawns,Expanding Its Landscaping Portfolio,”PR Newswire,Feb.1,2024 https:/ Holdings Inc(BV)Reports Mixed Q1 Fiscal 2024 Results Amid Strategic Divestiture,”Yahoo Finance via GuruFocus Research,Feb.1,2024 https:/
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Must-Have Features for Your Next Manufacturing ERP SystemIntroduction.3AI Considerations Before Buying.6Key Requirements for Manufacturing ERP.8Vendor Qualification Requirements.33How to Choose a Manufacturing ERP.35Why SelectHub?.37SelectHub Services.382Table of ContentsThe needs of manufacturers are as diverse as the tools supported by manufacturing ERP systems from shop floor control and resource allocation to financial management supply chain operations.To run at peak efficiency,you need a solution that molds to the shape and requirements of your business.SelectHubs research team has assessed the market,analyzed standard manufacturing ERP functions and compiled a checklist of key requirements.This guide acts as a template for deciding what your business needs from its manufacturing system.Top 10 Manufacturing ERP Comparison ReportSELECTHUB SOFTWARE EVALUATIONS|Free Analyst ReportManufacturing ERPRequirements TemplateSelect Your New Manufacturing ERP Like an Expert1.Select your free analyst sourced requirements template.2.Use our requirements tool to prioritize and manage your requirements.3.Export your requirements to any system or file format.Access Free TemplateMust-Have Features for Your Next Manufacturing ERP SystemAI and robotics adoption is skyrocketing.The State of Generative AI&Market Intelligence Report from AlphaSense reveals that 80%of respondents anticipate ramping up their AI reliance within the next 12 months.Manufacturers,and by extension,consumers,have much to anticipate.Heres why:Smart Design for Streamlined ProductionGenerative AI is emerging as a powerful design partner.AI algorithms analyze vast datasets to suggest innovative product tweaks or entirely new concepts.Product design is leading the charge.In 2022 alone,it seized a commanding 27.4%market share.AI is changing the landscape by enabling swift design generation,slashing time-to-market,and fostering heightened product innovation.AI Considerations Before BuyingQuality on AutopilotMachine learning is taking quality control to new heights.By continuously analyzing data from machine sensors,these algorithms can predict potential equipment failures before they occur.The result?Less downtime,fewer defects,and ultimately,a more consistent and reliable product for your customers.Efficiency ManagementAI benefits extend beyond design and maintenance.Generative AI is poised to become the ultimate efficiency expert.By analyzing vast data on production lines,material usage,and energy consumption,it pinpoints areas ripe for enhancements.These improvements mean smoother workflows,reduced waste and an uptick in productivity.All of which can lead to lower costs and a broader array of offerings for your customers.6Must-Have Features for Your Next Manufacturing ERP SystemDespite the hype surrounding AI,the impact in the manufacturing space is still being realized.That said,the future is promising.Vendors are making AI advancements and these tools are becoming more sophisticated.Several folks within the industry shared thoughts on how AI is shaping the present and the future,and what buyers should look for.EXPERT INSIGHT“AI is unlikely to be fully present at this time,but selecting a company with a great product from the beginning will ensure that when AI is more readily available for MRP applications the software vendor will likely add this.”Alex SennFounder of SKUSavvy WMS“There are many opportunities to implement AI technology into the manufacturing process.I am excited to see how the integration of AI into manufacturing systems propels the industry into the future.”Chad MeeksFounder of Vizma ProAI Considerations Before Buying“In my field,more often than not,CAE software is used to perform FEA analysis.As such,the capability to easily fixture a part and create forces in the desired planes is critical,as well as easy-to-understand results.AI-generated modeling is a valuable feature that takes into account the FEA results to generate bodies which will handle the desired loads,while still using the least possible amount of material.”Patrick FaulknerLead Engineer at Accu“A feature buyers should focus on when browsing CAM software is AI integration.AI can determine the optimal CNC coding by analyzing millions of data points at a speed much faster than any human can.”Mike CiaccioGeneral Manager at Polymershapes7Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP81.Manufacturing ProcessesThis module is a given.It covers basic manufacturing practices like job and work order management,plant management and work order material availability.These tools help you set and meet your company objectives and create high-quality products reasonably.For example,if you own a piano manufacturing company and patrons send in their specific piano orders,you instantly obtain work orders.Orders go down the funnel to your production and shop floors,where designers and engineers create the piano or parts.The pieces go to the appropriate facilities for additional components until they complete the final project.Lastly,the employees package and deliver the piano to the client.Job and work order management tools monitor every aspect of an order;plant management enables you to monitor your products location in the manufacturing stage;labor management permits you to gauge your employees productivity.An example of a solution performing manufacturing processes.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP92.Sales Order ManagementThis module guarantees you get products to customers on time with minimal errors.It provides tools that track when an order enters your system to final product delivery times.Many programs automate this process to reduce human error wherever possible.Job and Work Order ManagementLabor ManagementMaster Data ManagementPlant ManagementProduction CalendarProduction Process DesignWork Order Material AvailabilityA preview of a sales order management module.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP10Automation also streamlines your order fulfillment,reducing the labor necessary to get a product to the customer.Additionally,this software type tracks customer orders and quotes easily.Users can see invoices sent out to customers and billing information already received.Tracking orders gives users a better understanding of the delivery timeline and the issues that may occur and cause delays.In todays online world,customer satisfaction must be a top priority.Order Fulfillment ExecutionOrder OrchestrationTransaction Audit Trail3.Quality ManagementCrafting high-quality products should be a top priority when choosing manufacturing features.Well-manufactured goods keep your customers happy,causing them to buy more from you in the future and telling others to purchase your items.You can invest in a quality management add-on or standalone enterprise quality management software(EQMS).These systems contain multiple tools to maintain your products quality,such as corrective and preventive action(CAPA).Training management monitors employee training on critical processes and maintains a non-hostile work environment.Lastly,supplier management allows you to review and rate supplier performance accurately.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP114.Inventory ManagementInventory management provides real-time snapshots of your available materials and alerts you when ingredients run low to avoid shortages.You also gain several benefits,such as reduced costs,improved customer service and enhanced accuracy.Lets say,for example,that your piano company stores all the wood,strings,metals and other materials.This module can help you detect suitable material types and quantities needed to create the final product.If youre running low on metals,you can swiftly replenish them,making inventory management one of the best manufacturing features.An example of a quality management accessory.Advanced Product Quality PlanningFailure Mode&Effects Analysis Inspection Plan ManagementProduction Part Approval(PPAP)ManagementQuality Action ManagementSupplier Quality ManagementMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP125.CAD/CAM ManagementComputer-aided design(CAD)systems offer design tools to create realistic models and perform simulated tests.This accessory saves money because youre not creating physical prototypes.Instead,theyre digital models you can test in a virtual atmosphere to help you better understand what works.An example of an inventory management interface.Inventory ValuationMulti-Location InventoryPackagingPhysical InventoryRadio Frequency Identification(RFID)Reorder PointsSafety StockSerial Numbers and Lot Numbers TrackingSub-Items and Matrix ItemsMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP13An example of a CAD interface.3D Design&ModelingAdditive ManufacturingData TranslatorsDesign LibrariesMachine Learning and AIProgrammingResponsive DesignSimulationIn contrast,computer-aided manufacturing(CAM)systems permit you to build your designs by activating particular processes through your computer(i.e.,turning,machining,milling,threading,drilling and more).Managing CAD,CAM or CAD-CAM systems streamline your practices with automation and digital tools to ensure high-quality merchandise.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP14A preview of a BOM management tool.Advanced BOMFlexible Copy BOMMass ChangesMultiple SitesProduction StepsReference DesignatorsRevision Control6.Bill of Material(BOM)ManagementBOMs are thorough lists that display the ingredients,resources,assemblies,subassemblies and other required factors to build your products.This accessory lets you quickly allocate your BOMs across your manufacturing facility(ies)and offers the proper steps in completing production.For example,your BOMs may differ depending on the type of piano people want.Keyboard BOM may require fewer metals and assemblies than a grand piano because its smaller.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP15An example of a planning and scheduling tool.Batch SchedulingCalendar ViewDrag and Drop SchedulingMachine SchedulingManufacturing WorkbenchReal-Time UpdatesRough-Cut Capacity Planning(RCCP)Work Center Capacity PlanningWork Center Dispatch List7.Planning and SchedulingThis module merges production scheduling and production planning module qualities into one system.Essentially,these systems share similarities but have fundamental differences.Production scheduling establishes individual finished goods or stock-keeping units(SKUs).You may also set priorities and swift resource handling times.Production planning gathers BOM data to deliver materials and subassemblies.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP16A preview of manufacturing ERP on mobile devices.Android AppE-SignatureFingerPrintiOS AppResponsive DesignSearch FeatureUploading Pictures and Attachments from Mobile Devices8.Mobile DevicesMobile devices and access are steadily spreading to other industries,including manufacturing.Employees use tablets and phones to operate machinery,manage routes and govern multiple facilities.You may also leverage mobile devices to perform e-signatures,attach and upload photos and files,and gain real-time alerts on downtime,production changes,weather warnings,recalls and more.Mobility is part of smart manufacturing,one of many prominent manufacturing trends.Must-Have Features for Your Next Manufacturing ERP System9.Product Lifecycle Management(PLM)Standalone PLM software supervises your products lifecycle from early blueprinting and testing to shipping,making it one of many ideal manufacturing features.Top features include superintending BOMs,offering various reports,containing numerous product regulations and governances,and providing CAD tools to expedite product development.This module keeps everyone involved with a products lifecycle up to speed for regulatory changes,recalls and more.Key Requirements for Manufacturing ERP17An example of a PLM solution.Change Order Process AutomationProcess and Task AutomationTechnical Document ManagementTracing Product GenealogyMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP18A preview of an MRP module.ForecastingMulti-Site PlanningRecommendationsRegenerationRequirementsResource Allocation10.Material Requirements Planning(MRP)MRP tools or or separate platforms permit you to manage your resources and inventory in real time.Some of its perks include:Saving time.Providing real-time inventory accuracy.Enhancing data management.Improving customer service.Manufacturing features like this module can relay the materials and machinery needed to create pianos and schedule assemblies.You can even perform assembly planning for several other worksites.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP19An example of a risk and compliance dashboard.Global Trade ComplianceRisk ManagementSecurity Management11.Governance,Risk and ComplianceUpkeeping compliance is just as,or even more,important than maintaining productivity and supervising the quality of your manufactured goods.Various codes apply to all manufacturers or those in specific industries.These compliances include:The Food and Drug Administration(FDA)Code of Federal Regulations(CFR)International Organization for Standardization(ISO)A governance,risk and compliance management solution helps you dodge lawsuits,immediate closure of your facilities and other consequences if you violate or fall short of these rules.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP20An example of an SCM application.Demand ManagementPurchase ManagementSupplier Connect PortalSupplier Relationship Management12.Supply Chain Management(SCM)Supply chain management software facilitates communication and streamlines efforts among manufacturers,suppliers and customers.Self-service portals let users securely manage quotes,purchase orders(POs)and inventory levels.You may also forecast demand and estimate production volumes,permitting clients to customize products online.Other SCM modules include special freight handling,bid and spend tools,logistics,warehouse management and order processing.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP21A preview of engineering change tools.Approval ProcessEngineering Change OrdersEngineering Change RequestsSecurity/Audit Log13.Engineering Change Control(ECC)Manufacturing features like ECC establish automatic ECR(engineering change request)and ECO(engineering change order)routing workflows for internal validations.Determine ECO approvers to establish approval levels,pinpoint review statuses,obtain email notifications and more.Access ECC for BOMs and route changes.Implement audit logs to gain change histories with usernames,dates and timestamps.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP22An example of an EHS interface.Emission ManagementEmployee Health ManagementRisk Mitigation and Process ManagementSustainability KPI Management and ReportingTracking,Reporting and Compliance14.Environment,Health and Safety(EHS)Gather and cipher emissions data,tracking and reporting for multiple waste management and disposal stages.You can also access refrigerant leak rate calculations and alerts for management,auditing and reporting purposes.Assess risks and priorities for risk mitigation and process management tasks.Chronicle job types and behaviors.Upkeep process-hazard analysis documentation for real-time data on outcomes and corrective actions.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP23Time tracking view in a manufacturing ERP.Absence ManagementEmployee RecordsPayroll Management15.HR ManagementLet workers see how many PTO days they have and deliver time-off requests.Access reports that display the cost of employees days off and other relevant information.Supervise employee data,hours,pay groups,deductions and more.Access time cards and edit and validate payroll information before printing checks or posting information.This tool can also simplify tax processes.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP24Example of data collected in manufacturing software.16.Manufacturing Data CollectionPerform automated data capturing transcriptions for default order type scans,required material quantity move transactions from production BOMs,location selections for material transactions and more.Permit supervisors to review scanned transactions for data corrections before posting to the centralized database.Utilize clock-in and clock-out tools to track employee time,and use entry screens to pull up employee IDs,production numbers,order types and more.Clock-In/Clock-OutDefault SettingsMaterial MovementSupervisor ReviewMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP25An example of an MES system.17.Manufacturing Execution System(MES)Manufacturing features such as MES initiate electronic signatures for paperless signing processes and to capture consent for dispensing,business process control,reverse dispensing,specific quality outcomes and other events.Manage navigation flows to complete signatures and support custom approvers and signature rules.Specify users,tasks,signer numbers and hierarchies.Print and scan barcodes for stock items,gauge controls,time,attendance,locations and more.Apply barcode labels to packages and master units with automatic label data creations for products,customers and destinations.Alerts and NotificationElectronic SignaturesEnergy MonitoringLabel PrintingMaintenance ManagementNon-Conformance TrackingOperator WorkbenchOverall Equipment Efficiency(OEE)Process MonitoringMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP2618.Platform CapabilitiesCraft customer fields for numerous manufacturing modules.Activate internationalization and localization customizations,including languages,fonts,symbols,number formatting,date and time formatting,and more.Search all application databases with one search to detect all records.Custom FieldsGlobalization SupportGlobal SearchNotifications19.ProcurementProcurement tools bring numerous options to streamline supplier selection,distribution and more for simpler product deliveries.Use item tracking to supervise separate inventory IDs for supplier and company databases.Allocate serial and lot numbers when businesses receive purchase orders.Access blanket purchase orders for items,prices,quantities,terms,billing information and more.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP27Audit TrailAutomatic Drop Shipments CreationBlanket Purchase OrdersCustom WorkflowsItem TrackingLanded CostsPartial and Consolidated ReceiptsPaymentsQuotationsRequisitionsThree-way MatchVendor Bill/Invoice ManagementVendor SelectionWorkflow ApprovalsProcurement dashboard in a manufacturing ERP.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP28A list of products with different configurations.20.Product ConfiguratorPerform dimensional calculations and formulas to determine specific component material requirements.Gain verifications for formula calculations according to minimum and maximum attribute values or quantities for chosen features and options.Review a customers previous configuration to create the order or adjust the prior arrangement.Configure to OrderDimensional CapabilityFormula ValidationMulti-Level ConfigurationOrder History and Look-up21.Project ManufacturingWork with project requisitions,purchase orders,blanket releases,RFQs and more in one centralized system.Implement project tracking to manage all project materials,including standard,project-specifics,manufacturing labor,overhead and more.Track production costs according to a specific project or group of assignments.Must-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP29Project BudgetingProject InventoryProject Manufacturing CostingProject Manufacturing PlanningProject ProcurementProject Quality ManagementProject TrackingProject Work Breakdown Structure DefinitionAn example of project manufacturing tools.22.Reports and DashboardsGain pre-set,user-specific dashboards to monitor late customer orders,manufacturing orders,items below reorder points,in-progress manufacturing orders and more.Export reports and dashboards as PDFs,CSVs,XLSXs and other files.Use role-based dashboards to monitor all workflows.You can track leads,opportunities,inventory utilization,service issues,expenses and other data trends.Monitor all KPIs and catch bottlenecks before they escalate into major problems.Must-Have Features for Your Next Manufacturing ERP System23.Smart ManufacturingSmart manufacturing is the implementation of technical manufacturing trends to automate and simplify your production floor and processes.Leverage artificial intelligence(AI)to perform numerous tasks,from predictive maintenance and automatic supply chain management to quality control and human-robot collaboration.Utilize chatbots for self-service requests that merge with ERP systems.This integration simplifies operations across your manufacturing facilities.Key Requirements for Manufacturing ERP30Customizable DashboardsCustomizable ReportsDocument ManagementExporting Reports and DashboardsPre-Defined DashboardsPre-Defined ReportsRole-Based DashboardsAn example of a manufacturing dashboard.Must-Have Features for Your Next Manufacturing ERP SystemEXPERT INSIGHT“Smart factories are not necessarily meant to replace human workers.Smart means rather than having mechanical machines,you are going to have computerized machines,which can be controlled,regulated,and operated through command centers.The role of human is still important with smart factories in debugging,optimizing throughput,and monitoring etc.The machines cant be fully autonomous.They will always require human inputs to some degree even if it is only for debugging.”Sam GuptaPrincipal Consultant at ElevatIQ24.Warehouse Management System(WMS)WMS tools organize warehouse spaces,supervise stock materials and improve warehouse performance.Picking allows you to pick products,perform inventory movement tracking,conduct rules-based picking and more.You can also carry out real-time scheduling,barcoding and picking tactics.Key Requirements for Manufacturing ERP31Artificial Intelligence(AI)Big DataChat BotsIndustrial Internet of Things(IIoT)SCADA IntelligenceMust-Have Features for Your Next Manufacturing ERP SystemKey Requirements for Manufacturing ERP32Example of warehouse management tools in a manufacturing ERP.PackPickShipMust-Have Features for Your Next Manufacturing ERP SystemVendor Qualification RequirementsChoosing your ideal manufacturing requirements is only half the battle.There are also vendor requirements to review,such as manufacturing environments,training and user support.Manufacturing EnvironmentsMost think manufacturing involves putting things together and sending products to clients or vendors.While this notion is true,different companies leverage different manufacturing practices and environments,such as discrete,job shop,process,engineer to order and more.Assemble to OrderBatchConfigure to OrderDiscreteEngineer to OrderJob ShopMake to OrderMake to StockMixed ModeProcessRepetitive33Professional Services and MaintenanceAsk if the vendor offers implementation services,like software evaluation and installation.Are there maintenance contracts for updates,upgrades and other services?Implementation ServicesMaintenance ContractsOn-premise MaintenanceTrainingDo you have access to in-product help and suggestions to get started with the system?Are there training materials,such as forums,self-help articles or more,to understand the numerous manufacturing features and modules?In-product Help and SuggestionsTraining MaterialUser SupportHow can you contact the vendors support team if you encounter problems during or after the onboarding process?Must-Have Features for Your Next Manufacturing ERP SystemVendor Qualification RequirementsCan you receive 24/7 tech support,chat and instant messaging,email or phone support?Does the vendor offer different levels of support with specific parameters?24/7 Technical SupportChat and Instant MessageEmail SupportFAQsForums and Community SupportPenaltiesPhone SupportService-Level Agreement(SLA)Vendor InformationAsk vendors about the size of their customer base.Do they have financial stability evidenced in Dun&Bradstreet or similar reports?Does the vendor have reliable customer references or testimonials?Customer BaseFinancial StabilityReferencesUser RatingsBonus:Questions To AskWhile not a vendor requirement,the right questions can go a long way in helping you find the best fit.34EXPERT INSIGHTWe asked IT and ERP expert Laurie McCabe,Co-founder&Partner at SMB Group,Inc.,which questions are vital to get answers for when evaluating vendors.Here are a few of her suggestions:How easily can the ERP scale as my company grows?How well does the ERP integrate with other key company systems and data?How long does it typically take companies similar to mine to get up,running,and productive on the ERP?What level of support and training does the vendor/partner provide during and after implementation?How does the vendor handle software updates and upgrades,and what costs are associated with them?What type of SLAs does a cloud ERP vendor provide?What are the considerations and costs to migrate data from existing systems to a new ERP?Can it be configured/customized to meet your companys specific business needs?How To Choose aManufacturing ERPPicking the appropriate solution for your company is not a walk in the park.With over 220 vendors in the market,knowing where to begin and which solutions to shortlist can be an overwhelming task.Following SelectHubs nine-step Lean Selection approach provides a framework to make decisions with confidence and reliably select a solution thats a good match for your needs.Below,we share key points from each of the nine steps.Must-Have Features for Your Next Manufacturing ERP System1.Establish:Understand why you need a new solution and identify the errors in your current practices.2.Collaborate:Set up a selection committee with a project manager,internal and external stakeholders,department heads and more to get a clearer picture of what youre looking for in a new solution.3.Define:Set your programs requirements and features with insights from your selection team during the previous step.4.Distribute:Review how potential vendors align with your requirements.5.Justify:Consider whether you need a new solution or add-ons.You can also choose to stick with your current solution/protocols.6.Prove:Ask vendors to show you how they perform your requirements with demos,proofs-of-concept(POCs)or use cases if you invest in a new platform or buy add-on accessories to your current system.7.Rank:Rate potential vendors according to their demos,requirement scores and total cost of ownership(TCO).How To Choose a Manufacturing ERP368.Negotiate:Sit down with your top vendor to mediate terms.If you require a legal perspective,review the contract with a lawyer.If youre satisfied with the vendor,sign the contract.Repeat this step with the other vendors from step seven if things dont work out with your initial vendor.9.Sign:Proceed with signing the terms and conditions and set up a solid implementation plan.EXPERT INSIGHT“Collaboration and internal buy-in during the selection process will set the stage for successful implementation.It is a mistake to believe that a small group of executives or managers can go through the process on their own.“I recommend that after searching for potential ERP vendors that the selection team prepares and sends an RFP to a long list of three to six candidates that meet roughly 80%of the requirements.The RFP should thereby focus on the last 20%,the differentiators that address the companys special requirements.”Chuck LangenhopSenior Director at CFO Advisory Services,LPSelectHubs bite-sized approach is easy to follow and provides the best results.Regardless of whether an organization is making a small or a large IT purchase,our Technology Selection Management(TSM)platform enables relevant stakeholders to come together and follow bite-sized process steps to achieve an objective,informed and consensus-driven purchasing decision.The specific process steps can be based on criteria such as project budget size,scope and sponsorship or even broader aspects such as organizational policies and compliance needs.Choosing enterprise software is a major business decisionwhy risk it?Find out MoreSave time and get expert results at any stage of your IT or software selection project.Let a trained SelectHub specialist guide you to success.Ask about our guided requirements gathering,standardized requirements lists,and end-to-end software selection packages.Learn More About SelectHub ServicesFree AssistanceBased on Data-Driven AnalysisFind out MoreSave time and get the best results at any stage of your selection project.Free software selection assistance:Call 855-850-3850Find the Best Manufacturing ERP for Your BusinessSELECTHUB REPORTS|
2024-09-25
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MANUFACTURINGREPORTExplore M&A Activity,Capital Market Conditions and Current Trends for the Manufacturing Industry720.221.9220|SDRVENTURES.COMInvestment Banking&Securities Offered Through SDR Capital Markets,LLC,Member FINRA&SIPC.1H 2024720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 1MANUFACTURING 1H24:WHAT TO KNOW“Smart“Smart factories”factories”areare drivingdriving manufacturingmanufacturing forward,forward,offeringoffering newnew efficiencies,efficiencies,improvingimproving reliability,reliability,andand fillingfilling laborlabor gapsgaps.IgnoreIgnore tomorrowstomorrows techtech atat youryour perilperil.WhereWhere wewe makemake thingsthings maymay change,change,butbut thethe locationslocations ofof tomorrowstomorrows factoryfactory hubshubs areare stillstill unclearunclear.WillWill ChinaChina remainremain a a globalglobal hub?hub?CanCan it it withstandwithstand itsits demographicdemographic issues?issues?CanCan otherother countries,countries,includingincluding thethe U U.S S.,matchmatch ChinasChinas mixmix ofof lowlow-costcost labor,labor,unifiedunified centralcentral policy,policy,andand willing,willing,innovativeinnovative producers?producers?AmericanAmerican workforceworkforce willwill needneed toto adaptadapt throughthrough better,better,andand advanced,advanced,trainingtraining toto runrun thethe highhigh-tech,tech,roboticrobotic factoriesfactories ofof thethe futurefuture.A A combinationcombination ofof governmentgovernment incentivesincentives andand a a nationalnational focusfocus onon STEMSTEM andand vocationalvocational trainingtraining willwill havehave toto comecome togethertogether inin justjust thethe rightright mixmix.MakingMaking A A BetterBetter Manufacturer,Manufacturer,A A “Smarter”“Smarter”ProcessProcessAutomation and smart manufacturing are driving the manufacturing sector worldwide as the sector struggles not only with,supply chain issues,evolving demands and global conditions,but also a global skilled workforce shortage,especially in China where a demographic time bomb sparked by the one-child policies of old are coming home to roost.Smarter tools incorporating machine learning,remote sensing,and artificial intelligence are in a race to make workers and factories more efficient and create better products on-demand.1,2,3,4 In some sectors,there is booming demand.Products for home construction both multi-and single-family are critical in a world expected to see some 3 billion people living without adequate shelter by the end of the decade.Geopolitical instability,including active wars,is creating demand for aerospace and defense products,both in traditional spaces and evolving technologies,such as surveillance and air and sea drones.Earlier this year,the Chinese military showed off a gun-toting mechanical“dog,”a highly mobile battlefield robot.A real-life Terminator?Even if all war stopped today,the level of cost,materials,and energy to rebuild ravaged areas is hard to fathom.5,6,7,8,9 In the tech sector,U.S.national security interest(and billions in government and corporate dollars)has created a boom in computer chip manufacturing.But first,a boom in factory building.Phoenix is one massive hub seeing not only an explosion of factory development,but also a new industry in training the 70,000 highly skilled workers these new factories will inhale once complete.10,11,122Established in 2002,SDR Ventures has developed deep M&A and capital transaction knowledge and expertise.SDR offers transaction advisory,private capital formation and business consulting services across a wide range of industries.We serve business owners and operators of privately held companies and provide them with a professional-class experience.ABOUT SDRTransaction ActivityActive BuyersPublic BasketM&A Market ActivityAbout SDR VenturesMANUFACTURING CONTACTSCONTENTSThe information contained herein is based on sources we believe reliable but is not guaranteed by us and is not to be considered all-inclusive.It is not to be construed as an offer or consultation of an offer to sell or buy any securities.Logan BohlenderLogan BohlenderVice PresidentManufacturing TScott MitchellScott MitchellManaging DirectorManufacturing TMatthew RusakevichMatthew RusakevichSenior AnalystManufacturing T720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 13WelcomeWelcome RobotRobot OverlordsOverlordsThe“smart manufacturing”market including AI,IoT(Internet of Things,connected and monitored machines),and robotic automation,is exploding.By one account,the smart manufacturing market is on pace to grow from$109 billion last year to$241 billion in the next four years,a 17%compound annual growth rate(CAGR).Smart facilities create efficiencies,limit machine downtime due to maintenance,replace workers in mundane,repetitive,or dangerous tasks,and help manufacturers pursue the dream of“zero defect”manufacturing.Nothing shines a spotlight on the need for“zero defect”manufacturing like a door panel blowing off a passenger jet midair.13,14,15 The labor shortage is real.Its estimated the U.S.manufacturing sector will see more than 2 million jobs going unfilled by 2030.The workplace digital transformation will be vital to keeping American products rolling off assembly lines.And when they do have workers,manufacturers may not want to deal with humans,who can be demanding and unpredictable.Following last years United Auto Workers strike,workers won 25%wage increases.Which means 25%less for manufacturers(or in the case of Ford,$900 more cost for consumers for each car).16,17 The auto industry is already a leading consumer of robots,installing a record of nearly 15,000 new industrial robots in 2023,according to the International Federation of Robots.But its not just car makers looking to create smarter,more efficient facilities.Last year,the American electrical and electronics industry installed nearly 40%more robotics than in the previous year,fueled by a rush to bring supply chains closer to home and produce products where they would be less affected by overseas turbulence an shipping route upheaval,whether thats through a Panama Canal drought or terror attacks on shipping through the Red Sea.Metal and machinery makers,plastics producers,and chemical product makers are diving into robotic production models.Abroad,two of Americas biggest trading partners are ramping up their automation and robotic manufacturing.Behind the scenes,AI is helping companies not only run smoother,but also design and improve products,boost cybersecurity,and improve safety while reducing carbon emissions.18,19,20Of course,the manufacturing giant that is China isnt sitting by.The country is actively nurturing its smart manufacturing field and is setting aggressive goals across the field,incorporating the latest machine intelligence into its plants while developing its own new smart technologies.21 If If YouYou BuildBuild It It Where?Where?Where all this smart manufacturing takes place also matters.After COVID and its accompanying supply chain snarls,we saw a push to untangle dependence on manufacturers concentrated in far off places.The U.S.started pumping trillions of dollars into American manufacturing,witness the computer chip revolution in Phoenix fed in part by the federal CHIPS Act.But nothing is as easy as it seems,and big global players arent going to let the U.S.,or anyone else,call the shots.Chinas production capacity is mighty,and we may be seeing signs of intentional,subsidized overproduction everything from steel to electric vehicles to computer chips to solar panels to be unleashed on the world,disrupting onshoring or near-shoring initiatives with a flood of cheaper goods.Sure,weve seen some tariffs aimed at protecting U.S.manufacturers from imported,government-subsidized goods.But there are always other countries looking for a bargain,potentially undercutting sales of U.S.goods abroad.22,23,24 As for diversification not just products produced,but where things are made not everything is as easy as it looks on paper.India has been in the news as an alternative for firms keeping all its eggs in one Chinese basket.But every potential solution has its own challenges.India is a big country with a big economy and a big group of young,willing workers.But cultural and political challenges abound.Culturally,its still not commonly accepted for a young worker to leave his rural home to work in an urban factory.And in some areas many women,even young women,do not work outside the home,withholding a substantial population from the available labor force.And say what you will about the Chinese power structure,a centralized,lock-step leadership structure does streamline trade and manufacturing policy.India is a democracy,and democracies are messy.Indias traditional opposition to free trade has been hard to overcome.Furthermore,Indian transportation infrastructure is weak,and trade barriers,tariffs,and bottlenecks are problems to overcome.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 14Mexico,too,seems attractive at first glance.Many U.S.manufacturers already do business south of the border.But there is no such thing as a sure thing.Mexican labor,while cheaper than U.S.labor,is more costly than the Asian workforce,and it comes with hidden costs including workers vacation pay and social security payments.Labor unions there are strong.Industrial space,with infrastructure,is scarce and pricey.Resources such as water for semi-conductor processing are scarce.And there isnt a culture of manufacturing innovation other big players have developed.Not to mention,U.S.manufacturers arent alone in their interest in Mexico.Chinese manufacturers,eyeing a route around tariffs,are in the hunt as well.In short,theres no easy answer.We will see where manufacturers invest and how willing they are to stick with the devil they know rather than developing the devil they dont.25,26,27 PuttingPutting It It TogetherTogether:MergersMergers&AcquisitionsAcquisitions As the world struggles to overcome a global housing shortfall with as many as 3 billion people lacking adequate housing by 2030,the massive building and construction materials maker Owens Corning acquired Masonite International Corporation,a worldwide producer and provider of interior and exterior doors,in a deal worth just shy of$4 billion.Masonite,founded nearly 100 years ago,serves new construction,remodel,and repair customers with 64 manufacturing sites and 10,000 employees.5,28 The Denver area continues to build its“High Tech Highway”reputation as a hotspot for tech,satellite,military industrial,and aerospace development.Aerospace investment alone in the 30-mile stretch of U.S.36 between Denver and the city of Boulder has nearly doubled over the past decade,now home to some 29,000 jobs.In April,Denver-based SDR Ventures served as the sell-side advisor to Denver-area precision aerospace and defense contract manufacturer Cablenet as the family-held company was acquired by California-based Interconnect Solutions Company(ISC),itself a portfolio company of Tide Rock.Terms of the deal were not disclosed.29,30 As 1H24 came to a close in June,TransDigm Group,a global designer,producer,and supplier of highly engineered aircraft components acquired the Electron Device Business division of TJC portfolio companys Communications&Power Industries(CPI)in a$1.4 billion cash deal.TransDigm Group,through its portfolio companies,produces components for nearly all commercial and military aircraft currently in service,including controls,ignition systems,and engine technologies.CPI manufactures electronic components for the aerospace and defense market with 900 employees and facilities in England,California,and Massachusetts.31 MakingMaking It It WorkWork:A A LookLook AheadAheadManufacturing is a broad and global field.Where and how manufacturers will go creates a fascinating puzzle.But we are watching for changes at every turn.Better,smarter tools.More efficient factories,built closer to consumers,and global competition create as many questions as they do opportunities.Borrowing costs remain high,labor costs are up,elections in 2024 are shaking things up in Europe and the U.S.,and global tensions continue to disrupt supply chains.Overall,we believe a new reliance on technical innovation will continue to push the sector forward and create opportunities.Digital designing(digital twinning),labor force training,cloud computing,predictive modeling,and real-time data processing wait for no one.Just think,only a couple years ago,“generative AI”seemed more like science fiction than a key to manufacturing and design.Yogi Berra was right,“The future aint what it used to be.”1,32,33,34 720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 15Source:Pitchbook Financial Data and AnalyticsNote:This data represents recorded transactions only and is not all-inclusive.Nevertheless,they are typically representative of the industry.TRANSACTIONS BY SEGMENTTRANSACTIONS BY TYPETRANSACTIONS BY LOCATIONTRANSACTION ACTIVITY21 or more transactions11-20 transactions1-10 transactions0 transactions GeoNames,Microsoft,TomTomPowered by BingStrategic55%Financial45Y581674846220100200BuildingProductsElectricalEquipmentIndustrialSupplies andPartsMachinery(B2B)BusinessEquipmentand SuppliesHome GoodsIf You Are a Business Owner Looking for Additional Transaction Activity If You Are a Business Owner Looking for Additional Transaction Activity Within Your Industry,Please Call Our Offices at 720.221.9220.Within Your Industry,Please Call Our Offices at 720.221.9220.720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 1FIRMRECENT SUBSIDIARY ACQUISITIONSFIRMRECENT SUBSIDIARY ACQUISITIONS6ACTIVE BUYERSSource:Pitchbook Financial Data and AnalyticsNote:This data represents recorded transactions only and is not all-inclusive.Nevertheless,they are typically representative of the industry.MOST ACTIVE STRATEGIC BUYERSSELECT SPONSORS WITH ACTIVE PORTFOLIO HOLDINGS720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 17BUILDING PRODUCTSMANUFACTURING SEGMENTS VS.S&P 500Segment Market Cap Performance Running 12 MonthsPUBLIC BASKETSource:Pitchbook Financial Data and Analytics-55%-35%-15%5%E%Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24Building ProductsElectrical EquipmentIndustrial Supplies and PartsBusiness Equipment and SuppliesMachinery(B2B)Home GoodsS&P 500720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 18PUBLIC BASKET(CONTINUED)ELECTRICAL EQUIPMENTINDUSTRIAL SUPPLIES AND PARTSMACHINERY(B2B)Source:Pitchbook Financial Data and Analytics720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 1BUSINESS EQUIPMENT AND SUPPLIES9PUBLIC BASKET(CONTINUED)HOME GOODSSource:Pitchbook Financial Data and Analytics720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 110U.S.M&A ACTIVITY SNAPSHOTSource:GF DataSource:GF DataOVERALL U.S.M&A ACTIVITYNote:The most current source of GF Data is as of May 2024.LOWER MIDDLE MARKET PRIVATE EQUITY TRANSACTION MULTIPLESEBITDA Multiples By Transaction SizeCAPITAL BREAKDOWN LOWER MIDDLE MARKET PRIVATE EQUITY TRANSACTIONSSource:PitchBook Financial Data and Analytics202120232022YTD 2024$0.0M$100.0B$200.0B$300.0B$400.0B$500.0B$600.0B1,3002,3003,3004,3002023 Q22023 Q32023 Q42024 Q12024 Q2Deals ClosedDeals ClosedCapital Invested5.9x6.1x6.8x6.1x6.8x7.0 x7.3x7.5x8.0 x8.3x8.8x8.6x9.0 x9.4x10.0 x8.5x0.0 x2.0 x4.0 x6.0 x8.0 x10.0 x12.0 x202120222023YTD 2024$10-25mm$25-50mm$50-100mm$100-250mm54B)B6GIEBB)0%9%8GIb67)%9%5UXab962#%7%6%6TUcq%0 0%$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mm$10-25mm$25-50mm$50-100mm$100-250mmSenior DebtSub DebtEquity720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 1CONTACT US11SDR SERVICE OFFERINGSPRIVATE CAPITAL FORMATIONSELL-SIDE ADVISORYBUY-SIDE ADVISORYEXIT PREPARATIONCOMPREHENSIVE MANUFACTURING EXPERTISEFrom injection molding to microchips,we have been providing M&A services to the Manufacturing Industry since our inception in 2002.Since then,we have helped complete multiple transactions ranging from industrial mergers and acquisitions to private capital sourcing for growing industrial businesses.We serve all types of companies across the Manufacturing Industry,but have particular expertise in:Building ProductsElectrical EquipmentIndustrial Supplies and PartsSELECT TRANSACTION EXPERIENCESDR has completed numerous transactions types throughout the Manufacturing Industry,including:Logan BohlenderLogan BohlenderVice PresidentManufacturing TScott MitchellScott MitchellManaging DirectorManufacturing TMachinery(B2B)Business Equipment and SuppliesHome Goods720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 1121.“2024 State Of Manufacturing Report,”Fictiv engineering,survey,accessed Jul.7,2024 https:/ 2.“Workplace Flexibility And Clear Career Progression Paths Can Boost Recruitment,”RSM consulting,Dec.14,2022 https:/ 3.“What Was Chinas One-Child Policy?Its Implications And Importance,”Investopedia,Adam Hayes,Dec.12,2023 https:/ 4.“Manufacturing Industry Outlook,”RSM consulting,May 31,2024 https:/ 5.“4 Practical Solutions To The Worlds Spiraling Housing Crisis,”World Economic Forum,Michael Purton,Jun.10,2024 https:/www.weforum.org/agenda/2024/06/global-housing-crisis-practical-solutions/6.“The Pentagon Wants Industry To Transform Again To Meet Demand.Can It?”DefenseNews,Noah Robertson,Feb.20,2024 https:/ Drone Warfare Has Arrived.The U.S.Is Floundering,”Reuters,Joe Brock and Mike Stone,May 6,2024 https:/ Military Shows Off Rifle-Toting Robot Dogs,”CNN,Brad Lendon and Nectar Gan,May 28,2024 https:/ Needs$486 Bln.To Recover,Rebuild After Nearly Two Years Of War World Bank,”Reuters,Andrea Shalal,Feb.15,2024 https:/ CHIPS Act:What It Means For The Semiconductor Ecosystem,”PwC Research and Insights,accessed Jul.7,2024 https:/ 11.“When Will It Open?How Can You Find Jobs?5 Things To Know About Phoenixs TSMC Semiconductor Plant,”Arizona Republic,Russ Wiles,Dec.9,2022 https:/ For A Fresh Start Amid Phoenixs Semiconductor Boom,”Marketplace.org,Kai Ryssdal,Heather Long,and Maria Hollenhorst,May 2,2024 https:/www.marketplace.org/2024/05/02/phoenix-semiconductor-jobs-hiring-federal-investment/13.“2024 Manufacturing Industry Outlook,”Deloitte Research Center For Energy&Industrials,Oct.30,2023 https:/ Manufacturing Market Size,Share,Statistics,And Industry Growth Analysis Report 2028,”Yahoo Finance via Globe Newswire,May 24,2024 https:/ 15.“American Manufacturers Seek Perfection As Quality Issues Mount,”Wall Street Journal,John Kellman,Mar.18,2024 https:/ REFERENCES720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 11316.“Creating Pathways For Tomorrows Workforce Today,”Deloitte Insights,Paul Wellener et.al.,May 4,2021 https:/ 17.“Robots Are Looking Better To Detroit As Labor Costs Rise,”Wall Street Journal,Nora Eckert,Jan.15,2024 https:/ 18.“U.S.Companies Invest Heavily In Robots,IFR Preliminary Results,”International Federation of Robotics,accessed Jul.7,2024 https:/ifr.org/ifr-press-releases/news/u.s-companies-invest-heavily-in-robots 19.“Panama Canal Drought Causes Global Disruptions,”PBS Newshour,Stephanie Sy and Karina Cuevas,Jan.31,2024 https:/www.pbs.org/newshour/show/panama-canal-drought-causes-global-disruptions 20.“How Attacks On Ships In The Red Sea By Yemens Houthi Rebels Are Crimping Global Trade,Associated Press,Tim Bonnell and David Mchugh,Jan.23,2024 https:/ 21.“Chinas Challenges In The Global Manufacturing Industry,”EqualOcean Industrials,Boying Ji,Sep.7,2023 https:/ With Investment,New U.S.Factories Face A Familiar Challenge,”New York Times,Ana Swanson and Jim Tankersley,”Jan.15,2024 https:/ 23.“What Is The CHIPS Act?”Council on Foreign Relations,Michelle Kurilla,Apr.29,2024 https:/www.cfr.org/in-brief/what-chips-act 24.“How China Pulled So Far Ahead On Industrial Policy,”New York Times,Patricia Cohen et.al.,May 27,2024 https:/ 25.“Why India Isnt The New China,”Wall Street Journal,Megha Mandavia and Nathaniel Taplin,Jan.19,2024 https:/ In Mexico Is Having Its Moment.The US Is Buying In And So Is China,”CNN,John Towfighi,Apr.28,2024 https:/ 27.“Commercial,Professional Perspective-Nearshoring T Mexico:Opportunities&Challenges,”Bloomberg Law,Robert M.Kossick,Aug.2023 https:/ 28.“Owens Corning Completes Acquisition Of Masonite,Strengthening Leadership In Building And Construction Materials,”Owens Corning,news release,May 15,2024 https:/ Ventures Advises Cablenet Aerospace On Acquisition By Interconnect Solutions Company,”PR Newswire,Apr.25,2024 https:/ 30.“Denver-Boulder Area Stakes A Claim In Space With A Burgeoning Aerospace Industry,”CNBC,Morgan Brennan and Jessica Joseph,Apr.12,2024 https:/ REFERENCES(CONTINUED)720.221.9220|SDRVENTURES.COMInvestment Banking and Securities Offered Through SDR Capital Markets,LLC,Member FINRA and SIPC.MANUFACTURING REPORT1H 2024 1H 2024|VOL 13|ISSUE 11431.“TransDigm Completes Acquisition Of The Electron Device Business Of Communications&Power Industries(CPI),”PR Newswire,Jun.6,2024 https:/ How The Feds High Interest Rates Have Affected Manufacturing,”Investopedia,Terry Lane,Jul.1,2024 https:/ 33.“How An Election-Packed 2024 Is Shaping Up For World Markets,”Reuters,Apr.9,2024 https:/ Quotes,accessed Jul.7,2024 https:/ REFERENCES(CONTINUED)
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HANNOVER MESSE 2024 KEY TAKEAWAYSHANNOVER MESSE 2024:KEY TAKEAWAYSStuart Carlaw Chief Research Offic.
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PwC|Industrial InsightsTable of contentsTable of contents21.Strategy for business3The new era of net.
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Insights from the ExpertsTaking the Next Leap in Manufacturing B2B Commerce:Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreAs we enter a new wave of commerce acceleration in manufacturing,enterprises face growing pressure to invest in digital initiatives to establish a long-term competitive advantage.We talked to four industry experts to understand how theyre tackling these challenges today.Table ofContentsValtech|SitecoreThe year of the leap in manufacturing commerceIntroductionNavigating from crisis to opportunityMeeting evolving customer expectationsAddressing talent gaps and skill shortagesConquering legacy systems and technical debtWhy the timeto act is nowChapter 1:Building cross-functional teamsTackling data quality challengesIntegrating and managing technologyCrafting seamless omnichannel experiencesUnlocking the power of AI and predictive analyticsStrategies forrapid modernizationChapter 2:Defining success with KPIs and metricsFostering a culture of innovationSustaining yourcompetitive edgeChapter 3:Taking the next stepTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreManufacturing is experiencing a resurgence.Reindustrialization is now underway across Europe as the sector navigates continuing geopolitical instability and a relentless push to reduce costs while meeting sustainability goals and evolving customer demands.For manufacturers,now is the moment to take a leap forward so your company stays relevant and drives growth amid this constant disruption.Digital transformation has become a strategic imperative for manufacturers,who face a critical need to innovate and adapt.Thats particularly the case with commerce,where the focus has shifted beyond just selling the product to opportunities spanning the entire B2B customer lifecycle.This has resulted in many manufacturers expanding their revenue horizons to areas such as ecommerce and aftermarket sales and support.Its representative of a broader shift in business in general,where the service-based economy is now in full swing.To establish a lasting competitive advantage,other manufacturers must start doing the same.The year of the leap in manufacturing commerceFor the most part,its customers themselves who are the driving forces behind digitization and service delivery.Now that theyre accustomed to using online retail channels and self-service portals,their expectations are far greater and more multifaceted than they used to be.These come on top of internal forces at play,such as macroeconomic challenges and evolving regulatory demands prompting manufacturers to focus on continuous value creation and operational efficiency.Valtechs 2024 Voice of Digital Leaders report found that many manufacturers regret not moving faster,allowing competitors to gain an advantage of them.Being able to speak with these brands has helped uncover valuable lessons to help others move on and leap ahead of their competitors.To better understand how leading manufacturers are tackling these changes,taking a leap ahead of the competitors and to gain insight into the challenges they face we spoke to four experts.In this report,well share their insights and explore the enormous potential for revenue growth that comes with manufacturing commerce acceleration.Stephanie ChurchIT Manager at D&W DieselGertjan KleinhoutClient Support Manager at Rijk ZwaanVincent van HellemondtClient Director at ValtechCamilla TravisVP of Marketing at Hempel A/SJacques WichertHead of IT Strategy at HSR GmbHMichael MaxwellStrategy Partner at ValtechValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreWhy the time to act is nowChapter 1:Many manufacturers are still operating in crisis mode.With little respite following the pandemic,the sector continues to experience supply chain disruptions in the wake of geopolitical uncertainty.Scaling back on innovative projects and cutting costs are natural responses to such events.But these challenges are here to stay.Its time for manufacturers to arrive at a place of acceptance and seize the opportunities that come with digital transformation.Traditionally,the core expertise of manufacturers lies in designing,manufacturing and selling their products and solutions,typically through wholesale distribution channels.However,amid economic uncertainty,many manufacturers are now looking to expand their revenue opportunities.These include embracing ecommerce initiatives and other value-added services,like documentation,support and training.Valtech|SitecoreNavigating from crisis to opportunityTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreOne area of focus is using self-service portals and ecommerce to absorb freight costs and meet the growing customer demand for free or transparent shipping.Hempel A/S,a world-leading supplier of coatings and paints hosted in Denmark,is looking at how to leverage self-service customer portals to meet demands for transparent shipping fees.“Freight is handled very differently in different countrys tax systems,so there are many things to take into consideration.Now our goal is to standardize it,as our customers expect clear pricing,similar to their B2C experience,”says Camilla Travis,VP of Marketing at Hempel A/S.eLearning is another opportunity.In providing online training resources to customers,manufacturers can help people get more out of their products,thus increasing satisfaction and retention.Rijk Zwaan,a vegetable-breeding company headquartered in Netherlands,deployed an online learning platform to help professionals enhance their knowledge of vegetable cultivation.“We try to help our customers get the most out of our seeds through eLearning programs tailored to the specific needs of the markets we serve,”says Gertjan Kleinhout,Client Support Manager at Rijk Zwaan.“For example,in developing markets,we provide resources to help customers with the cultivation of their seeds.But in high-tech markets,where things are often connected to computers and AI models,were developing applications that help them manage heat,water,and solar energy.”To succeed in these areas,among others,manufacturers must rethink how they approach commerce and self-service.The ad hoc solutions implemented over the last few years are no longer sufficient.Brands need to create connected experiences that can scale globally and adapt to constant shifts in demand.Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|Sitecore37%of manufacturers cite geopolitical instability as a major external threat to their organizations success.-The Voice of Digital Leaders in Manufacturing 2024-ValtechTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreMeeting evolving customer expectationsEcommerce has already radically changed manufacturing.“Peoples expectations are set by what they can do in B2C,so they dont really distinguish between B2C and B2B in terms of purchase processes,”Maxwell says.Evidently,B2B customers increasingly expect the same degree of convenience and self-service that theyre used to in B2C.D&W Diesel,a major supplier of motor vehicle parts headquartered in Auburn,NY,built an online store where customers can search through over 60,000 SKUs,offering a similar experience to the online B2C shopping one.37%of manufacturers consider rising customer expectations and shifting behaviors to be a significant challenge.-The Voice of Digital Leaders in Manufacturing 2024-Valtech“We absolutely need to be watching and learning,because the days of customers being compelled to buy from you are gone,”says Stephanie Church,IT Manager at D&W Diesel.“Those who provide a better experience are the ones who will get the buyers.”To establish a competitive edge,manufacturers must build connected digital experiences that incorporate everything it takes to reduce friction for customers and provide data-driven insights to inform decision making.Its no longer enough to sell a great product at a market-driven price.Manufacturers also need to sell the experience.“Our goal is to create a competitive advantage by offering a frictionless journey,and we need digitization for that,”Kleinhout says.“For us,its about growing faster than competitors by offering a better customer experience.”A major challenge for manufacturers many of which have traditionally been slow to transform when it comes to commerce initiatives is being able to accommodate the expanding range of customer touchpoints.“Its rare that people make purchases randomly,especially in B2B,”Travis says.“Not everyone searches Google every time they want to buy something.They have their own preferences,but the easier we make it for them to use our platform,the better the chances of securing their business.”HSR GmbH,a global provider of hydraulics services headquartered in Germany,started working with predictive analytics to proactively gauge customer needs and meet changing expectations.“We now have a way to calculate when our customers need us most,so we can approach them in advance,instead of their having to wait for us,”says Jacques Wichert,Head of IT Strategy at HSR GmbH.Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreAddressing talent gaps and skill shortagesThere remains a widespread adversity to change across the manufacturing sector.This is partly due to a lack of specialized expertise,resulting in significant talent gaps and skills shortages.Many enterprises struggle to find and retain the skilled workforce needed to drive digital transformation.They also lack the resources needed to train their teams effectively.This is especially the case in constantly evolving areas such as ecommerce,data analytics and AI,where demand for talent far outstrips supply.“In general,I think technology is moving so fast that educational institutions cant keep up,so theres not enough skilled talent for what we need,”Travis says.“What happens is we end up competing for the same resources.And,of course,salary levels are difficult for smaller businesses to accommodate.There are also differing perceptions of where companies are in terms of their digital maturity,and that results in some candidates being disappointed when they find they dont have the tools they need to be data-driven.”The disparity can make it difficult for manufacturers to attract top talent,which is often more likely to gravitate toward the typically more advanced B2C sector.Bridging these gaps requires manufacturers to prioritize investing in their existing workforces given theyre already familiar with the brand and the product to foster a culture of continuous learning and development.Valtech|SitecoreOn top of that comes the growing demand for continuous efforts to protect sensitive data from rising information security risks.Manufacturers must also adapt to new regulations concerning data privacy,especially in the EU all while managing the slew of additional complexities in the global markets they serve.A lot of this comes down to training and skills development,as well as technology.But its also vital to maintain clear communication and collaboration channels to keep everyone informed.“IT security is part of all services and customer solutions,”Wichert says,“so we need to have a clear view of every project and whos involved in it.We believe in good organization and using software to stay on track with all developments.”Outsourcing is another approach manufacturers are increasingly adopting to address skills gaps.“If we dont have our own employees,we partner with companies for implementation,”Wichert says.“HSR has a very modern architecture,thanks in part to working with integration partners,like Valtech.”Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|Sitecore35%of manufacturers areprimarily concerned about the impact of workforce shortages on their organizations success.-The Voice of Digital Leaders in Manufacturing 2024-ValtechTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreValtech|SitecoreTraditionally,manufacturers have been laser-focused on their production lines and supply chains.Sales has often relied heavily on wholesale distribution channels,but now theyre looking to deliver modern customer experiences,typically through self-service online portals and ecommerce venues.However,the legacy systems still widely used in the industry hinder integration and scalability,since they werent designed with these services and experiences in mind.Digital maturity is often far behind where it needs to be.“Technology itself presents a challenge for manufacturers in that ecommerce solutions change rapidly,”Church says.“By the time youve finished with a project,its almost time to start over.Particularly for companies with small teams,thats a real challenge.Often,ecommerce is just one of many focus areas,and IT has to manage it alongside all the other IT aspects of the company.”As a result,enterprises find themselves grappling with growing technical debt and legacy systems that cant keep up with the expectations of customers.The lack of integrability is a barrier to building digital services that require seamless data flow between different platforms,such as those used on the shop floor and those in the back office.“Id say rolling out technical solutions into the fields where people are going to be working with them is the biggest challenge,”Wichert says.“When youve got lots of different communications channels,you have to define the rules for working with each of them,and youve got to have the technical experience in using them.”Technology sprawl is clearly a challenge for many enterprises that find themselves having to govern the use of hundreds,if not thousands,of different software tools and processes.As complexity increases,it becomes exponentially harder to innovate efficiently.Working with an experienced partner can be an efficient way to approach this challenge.Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsConquering disparate systems and technical debt49%of manufacturers cite a reluctance to embrace digital tools as the primary reason for their struggling to adopt digital services and initiatives.-The Voice of Digital Leaders in Manufacturing 2024-ValtechTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreValtech|SitecoreModernization for its own sake is doomed to failure.All too often,enterprises embark on new digital projects without a sufficiently clear picture of what they want to achieve.Thats why its essential to secure stakeholder buy-in and ensure that all relevant parties not just IT are involved from the outset.A key priority for manufacturers is integrating teams to enhance collaboration.After all,everyones involved either directly or indirectly in digital initiatives,and they all have an impact on the customer experience.“To deliver more connected experiences,you need connected teams sales,marketing,tech,product,operations all working together,all aligned to an overarching vision,”Maxwell says.Building cross-functional teamsStrategies for rapid modernizationChapter 2:Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTeams and individuals may be resistant to change for several reasons.Common concerns include fear of job losses or steep learning curves.Others may take a more defensive stance,perceiving their work as their own domain and wary of interference from new initiatives.Thats why its vital that everyone understands the benefits of digital initiatives.When it comes to accelerating digital commerce in manufacturing,it means getting the sales team onboard.After all,theyre the ones who will be using your new digital tools and processes.“The biggest part is involving the sales team as early as possible,so they dont see digital initiatives as a threat,”Kleinhout says.“For example,the adoption of your main customer group depends heavily on involving sales teams from the start and positioning it as a tool that will help them improve their service to the customer.”D&W Diesel also believes in the central role in ensuring sales teams have an input in building digital commerce initiatives.“They will submit ideas or share feedback and pain points from the field,”Church says.“Thats factored in when were selecting which enhancements were going to implement in the next round of change.Were working with them to understand what their needs are.Were building it in a way that makes sense for them.”“Dont forget to involve the customers that you are serving with these digital initiatives as well.Create mechanisms that allow for feedback collection from your customers in an early stage.They will not only give you very valuable and sometimes unexpected feedback;they also feel appreciated,”says Vincent van Hellemondt,Valtech.To achieve peak performance,teams need the right data.However,all too often does that data exists in silos,where manual data management makes it difficult to ensure relevance,timeliness,and quality.For instance,implicit knowledge lives in peoples minds,but its often not recorded,resulting in missing or mislabeled data.When employees cant easily share data without resorting to manual processes first,information silos form,and the risk of errors increases.Many manufacturers still struggle with newer commerce models and have yet to achieve a high level of digital maturity when it comes to customer-facing operations.At HSR,Wichert emphasizes the importance of customer relationship management(CRM)systems in providing clarity and enabling data-driven decision-making.“Our employees are the main reason we want to implement a CRM system,”he says.“Its mostly front-end,but it gives people clarity into what they need to do for the day as soon as they come to work.”At Hempel,Travis is heavily focused on data governance as a way to address data visibility issues and maintain control and ownership of said data.“We have established what we call a data governance board that runs in parallel with the business projects were running,”she says.“The goal is to ensure were on top of the data and that we have ownership of it.”D&W Diesel has built a connected data environment to deliver personalized customer experiences.“We built out the data infrastructure to support filtering on the site,”Church says.“The previous version of the online shop only had about 5,000 part numbers on it,which is a small subset of what we now have,which is over 70,000.”As product inventories expand,getting a handle on product metadata and understanding what customers want only becomes more important.Tackling data quality challengesTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreIntegrating and managing technologyManufacturers are eager to build the same highly responsive and customer-centric experiences online as their sales representatives offer through traditional channels.The challenge lies in addressing the inflexible,monolithic technology environments of old systems that impede the development of new features.The result is longer lead times for adapting to ever-changing customer needs.When accelerating ecommerce in manufacturing,application programming interfaces(APIs)have a fundamental role to play by integrating both back-end and front-end systems and providing a cohesive customer experience.With everything connected,including shop floor and customer-facing operations,manufacturers can implement smarter production processes,reduce waste and cut costs.These composable architectures are also highly adaptable and able to incorporate different channels across various business units.“The more lean the backend,the easier things are for employees and customers,and the more choices and opportunities we have,”Travis says.“Creating a lean backend is the hardest part,especially since we also want to connect it to our front-end platforms to eliminate the need for manual intervention in order handling processes.”Van Hellemondt emphasizes the importance of having a flexible mindset towards the complex challenges that B2B organizations face.“The technology chosen needs to fit the purpose.This depends on many things.First,we look to see if the business challenges and technology can be componentized.This,however,depends on both the architectural and organizational situation.Its about taking what I call a best of breed approach to the problem you want to solve,and that means you want to select the right tool for the specific business function.This approach makes you less dependent on a single vendor and allows for a faster time-to-market.”To accommodate these goals,enterprises should consider adopting MACH principles.The acronym stands for microservices,API first,cloud native,and headless.MACH architectures give enterprises the freedom they need to choose and integrate the best tools on the market in such a way that its easy to replace,add or remove components in the future.Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreIts often said that“But weve always done it this way”are the most expensive words in business.After all,customer expectations are constantly changing,and complexity grows as customer journeys evolve.Thats why manufacturers are gradually pivoting toward omnichannel experiences that can accommodate growing demands for personalization.For HSR,the integration of self-service portals is a priority.“We have different digital services that our customers can choose from,but theyre always developed with the customer in mind,”Wichert says.“We ask ourselves what do they need?What can we bring in?And what are the problems they want to solve,and can we solve them?”At Rijk Zwaan,Kleinhout is focused on reducing complexity by harmonizing operations and providing accurate,real-time information to customers.“Managing commercial operations has been challenging,”he says.“For example,different customers have different discounts,depending on the size of their orders and the agreements they have with us.Now,in every country where we provide an online storefront,were working on harmonizing those discounts to streamline our operations and bring greater value to our customers.”Van Hellemondt believes that bringing everything together as part of a unified customer experience is a top priority for the industry.“You see a lot of ecommerce platforms that dont fulfil the demand for a seamless customer experience across different tools and channels,and thats something we need to change.”For manufacturers,that means thinking about the entire customer journey,from awareness,to the initial sale of a product and all the way through its operational lifecycle.Having accurate and consistent data is vital,but thats just the first part of the equation.Manufacturers also need to combine their data sources into a single source of truth,before they can use it for predictive analytics.Once they achieve a suitable level of data management,they can apply predictive analytics in areas such as demand forecasting,workforce management and for accelerating commerce initiatives.Wichert gives us an example:“Predictive analytics helps us analyze the growth potential of a particular customer.For example,lets say one customer has a growth potential of 50,000,while another has already reached their growth potential.Predictive analytics can inform you which customers you need to concentrate more on.”AI-based solutions have also proven their potential in boosting productivity timeand again.“We use Copilot whenever we have a virtual meeting,since it allows us to instantly summarize the meeting in bullet points,so we dont have to keep taking notes during a discussion,”Wichert says.By improving productivity across all business units and operations,manufacturers can reinvest thetime and money saved into crafting better customer experiences.AI can also directly enhance customer-facing operations such as routine sales and service requests,thereby enhancing responsiveness and freeing up time for employees to focus on higher-value tasks.“One thing were doing at Hempel is gearing up to integrate AI into our customer care systems,which will be closely linked to our eBusiness platform,”Travis says.“Were planning to implement a chatbot with built-in customer service functions,so that AI can process orders received via email to streamline the management process and enhance our customers experience.”Crafting seamlessomnichannel experiencesUnlocking the power of AIand predictive analyticsTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreWith any new initiative,its important to manufacturers to establish clear key performance indicators(KPIs)from the outset.This requires translating business use cases into actionable KPIs that guide and measure the performance of their commerce acceleration projects.“Theres a lot more to measuring success than just tracking numbers that look positive,”van Hellemondt reminds us.“You need to relate those KPIs to the specific business case and the value they bring.”Defining success with KPIs and metricsValtech|SitecoreSustaining your competitive edgeChapter 3:Taking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreKPIs must be specific,measurable and relevant.Manufacturers must be wary of focusing on metrics that are too broad or simply look good.“Lets say you have some experience-related goals and other more business-orientated ones,”van Hellemondt says.“In either case,the primary KPI we see is operational efficiency,but its also rather vague.Thats when we go into conversations about different customer profiles and how you serve them differently.Different experiences come with different experience-related KPIs,so you need to focus on the ones that have the most impact on those specific experiences.”Wichert gives us an example:“In terms of ecommerce,you can easily take KPIs and say,well,its about the selling and which channel were going to sell through.But what if youre talking about a system thats not directly connected to sales,such as a system used to monitor and control manufacturing processes?Are they using it properly?Are they using it well?And what sort of impact do these factors have on commerce?”Rijk Zwaan centers its KPIs on offering a frictionless customer journey.“Our main KPI is the percentage of orders online in the places where we have a web shop,”Kleinhout says.“In other places,its about the eLearning part.Our mission is to professionalize growers in these countries,and then we create a market.By helping a grower to professionalize,they will then develop a need for professional seeds so,if you offer online learning,then we create loyalty.”At Hempel A/S,the focus is on efficiency gains.“We have a business case,and that rests on two pillars,”Travis says.“One is efficiency gained due to automation,and the other one is incremental revenue obtained by the improved customer experiences.”Our main KPI is the percentage of orders online in the places where we have a web shop.-Gertjan Kleinhout,Client Support Manager at Rijk ZwaanValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreFostering a culture of continuous learning and development is fundamental to success and,for that,employees must be engaged and feel supported.“Were seeing a big cultural shift,both internally in B2B manufacturing and in terms of customer behaviors and expectations,”Maxwell reminds us.“Just like in other sectors,you need a communications strategy thats able to drive more relevancy and emotional connection.Only that way,can you drive adoption and innovation.”Building the necessary digital skills and capabilities also plays a crucial role in driving cultural change.“We share our knowledge with each other,”Wichert says.“We have a group of people responsible for IT strategy and coordination who are part of our broader VIRT(valuable information at the right time)group.”Travis also prioritizes the concept of continuous improvement and innovation.“Instead of trying to automate 100%of our orders right from the start,we aim to automate around 60 to 70%.Then,if we run into a challenge,we can bring it to the board.I like to call it the snowplow methodology,where we implement new processes iteratively,cleaning up the data and optimizing operations along the way.”As we enter the fifth industrial revolution,where smart machines work together with people to create leaner and greener production lines,manufacturers are highly focused on optimizing and modernizing their production processes.In any forward-thinking enterprise,theres already a great deal happening in terms of innovation.However,its also important to remember that this industrial revolution is a people-centric one,which underscores the need to accelerate ecommerce and customer experience initiatives in parallel to production and supply chain processes.To stay relevant and profitable in an increasingly unpredictable future,manufacturers must encourage experimentation and drive collaborative innovation.“Its very important to bring in customers insights into the development of your products and services,”says Wichert.“You need someone from the sales team whos transmitting the information between customers and the digitization department.Youve got to bring in these outside perspectives into the development.”Fostering a culture of innovationTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreTaking the Next Leap in Manufacturing B2B Commerce:Insights from the ExpertsValtech|SitecoreIts both an exciting and challenging time for manufacturing.On one hand,the industry faces severe supply chain disruptions,growing geopolitical instability and ever-evolving customer demands driven in part by technological advancement.On the other hand,there are many promising opportunities in unlocking the value created by the investments in the first wave of commerce initiatives.Manufacturers can no longer afford to talk themselves into conservatism,nor can they afford to view modernization entirely through the lens of cutting costs.Instead,its time for enterprises to lift themselves out of crisis mode and focus on growth by accelerating commerce initiatives.Doing so may not only reduce operational expenses.These new technologies and smarter integrations can drive value through superlative customer experiences,ultimately establishing and fortifying your competitive edge.Taking the next step Copyright 2024-Sitecore and Valtech Limited.All rights reserved.Commercial in confidence.
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STATE OF ITSM IN MANUFACTURINGINFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURING1|2|3|4|5|6|7|8|9Executive SummaryAs the manufacturing industry accelerates out of post-pandemic doldrums and works to build more resilient supply chains,digital transformation and IT modernization stand at the forefront of their strategic action in the coming year.Manufacturers must understand that as they add these new technologies theyll also need to update their IT Service Management(ITSM)function to maintain high service levels supporting their ever-growing bench of mission-critical IT systems and users.Data from InformationWeeks State of ITSM in Manufacturing Report shows that while manufacturers are making great progress on maturing their ITSM systems and processes,theyll soon face headwinds if they dont digitally transform ITSM the way they are on their factory floors.The survey shows that manufacturers run lean ITSM teams,and handle increasing numbers of IT tickets by the day,but still process much of their work manually.INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURINGSome highlights from the study:Unique pressures and challenges facing manufacturing ITSM More than half have fewer than 10 systems administrators to support all of their IT systems and applications 44%of manufacturers say lack of resources/high ticket volumes are their top ITSM challenge 44%also cite excessive manual processing/insufficient automation as their top challengeMounting ticket volumes and manual work plague manufacturing 1 in 3 manufacturers handle more than 1,000 IT tickets per month 44%say they do many of the most common ITSM tasks completely manually 24%of manufacturers do not have an end-user self-service portal Of those that do have self-service,only a third say their portal is effective Opportunities for ITSM modernization abound 84%of manufacturers say they do not have very high maturity in ITSM with best-in-class service delivery 51%say the last tech refresh they did in ITSM was five or more years ago 59%of manufacturers say they lack the ability to manage all of their ITSM and project management work in one place 56%of manufacturers dont have Project Portfolio Management in placeEnterprise Service Management(ESM)and emerging tech like artificial intelligence(AI)dominate future ITSM focus 56%of organizations say that digital transformation of ITSMincluding integration of data and workflow is critical in the next 12 to 24 months Only 8%of manufacturing organizations have conversational AI as part of their self-service offerings Another 36%use basic chat tied to a knowledge base 23%say they plan to expand their conversational AI capabilities 65%of manufacturers do not have an ESM program in place 41%say ESM is a top trend in the coming two years1|2|3|4|5|6|7|8|9Excessive manual processing is a top challenge for 44%Nearly one-quarter do not have an end-user self-service portal84%do not have fully optimized best-in-class service deliveryINFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURINGUnique Challenges Facing Manufacturing ITAccording to the National Association of Manufacturers,the use of advanced and emerging technology like artificial intelligence,automation,and analytics driven by IoT sensors and data lakes is the top trend for manufacturers today.The rapid proliferation of mission-critical IoT systems on the factory floor and across the supply chainalong with increasing convergence of IT and operational technology(OT)networksstand at the backbone of manufacturers plans to deploy transformative emerging technology.The increased use of these technologies in manufacturing facilities makes it possible for factories to become more efficient and cost-effective,while also generating revenue growth through new products and business models.However,these trends also put increasing pressure on the shoulders of IT staff to properly service equipment and troubleshoot problems.They also raise the stakes on speedy ITSM delivery,as IT systems become more intricately tied up in manufacturers core mission of keeping factory processes continuously running.According to the InformationWeek survey,ITSM teams at manufacturing firms run relatively lean.More than half of manufacturers have fewer than 10 systems admins to support all of their IT systems/applications.Given the team sizes,the movement toward Industry 4.0 through digital expansion and growing IT/OT convergence is naturally increasing the workload on this limited pool of ITSM staffers.Its also raising operational and cybersecurity risks across the board for manufacturers.These pressures are reflected in the top IT issues named by survey respondents.Figure 2Time Spent on Repetitive Tasks How much time does your IT team spend on repetitive requests(e.g.,onboarding/offboarding,name change updates)?Figure 1IT Service Management Top Challenges When it comes to IT Service Management,what are your top challenges?1|2|3|4|5|6|7|8|9Note:Maximum of three responses allowed Data:InformationWeek survey of 70 manufacturing respondents,January 2023Lack of resources/high ticket volumesExcessive manual processing/insufficient automationPoor visibility to key metricsDifficulty driving self-service adoptionHeavy reliance on IT to administer the systemShowing value to the organizationIntegration and workflow4476D6*%7%4ta:InformationWeek survey of 70 manufacturing respondents,January 2023 Fewer than 2 hours per week 2 to 5 hours per week 5 to 10 hours per week 10 to 20 hours per week More than 20 hours per week INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURINGIn the face of growing ransomware attacks against manufacturers and risks to operational equipment through IT breaches,its no surprise that security and compliance are the top concerns keeping manufacturing IT leaders up at night.However,these pressures are also mounting in tandem with logistical issues that include budget pressures,resource constraints,and project backlog.When you combine those with other concerns like the need to have data integrity,modernization,and digital transformation,a lot of those issues can be tied to inefficiencies in the ITSM function.These inefficiencies are caused by some of the biggest ITSM challenges faced by survey respondents today.Their response for the No.1 challenge in ITSM came up as a tie.“Lack of resources/high ticket volumes”was in a dead heat with“excessive manual processing/insufficient automation”(Figure 1).In both instances,44%of respondents said this was one of their top challenges.Ticket Volumes Mount and Are Handled ManuallyEven as they contend with minimal staffing resources,manufacturers must manage an avalanche of applications and ever-mounting ticket volumes.More than half of ITSM teams manage more than 50 applications.And that may not even reflect the full scope of their workload.With a growing backdrop of IoT sensors,connections to OT networks,and other systems in the manufacturers digital ecosystems that arent necessarily“applications,”theres a growing list of places from which tickets can emanate.Survey responses show that a third of organizations contend with over 1,000 tickets per month,while more than half handle up to 1,000.A large number of those tickets are wrapped up in extremely repetitive tasks.Thirty-two percent of survey respondents say they and their teammates spend between 5 to 10 hours of their week on repetitive tasks or requests(Figure 2).Whats worse is many of them are completed manually.Forty-four percent of organizations say they do tasks like user management,onboarding/offboarding,name change updates,and more without the use of automation.Another 44%have some 1|2|3|4|5|6|7|8|9Figure 312DDta:InformationWeek survey of 70 manufacturing respondents,January 2023 We do these tasks manuall We have written some scripts and created APIs We are leveraging an integration and workflow (iPaaS)platformTask Automation Does your organization automate requests for user management,onboarding/offboarding,name change updates,etc.?INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURINGautomation but must spend the time writing their own scripts and APIs to establish itcreating yet another internal product they must support and troubleshoot(Figure 3).The worst tasks that create job dissatisfaction within manufacturing ITSM teams and wreak havoc on their service levels are manual password resets,credential management,and onboarding/offboarding(Figure 4).Fortunately,most manufacturers(69%)have an end-user portal for self-service to help deal with some of that ticket volume(Figure 5).However,only one-third of them would say that the portal is effectivedefined as both highly adopted and something that answers user questions well enough to limit IT help desk intervention(Figure 6).Uptime is critical in the manufacturing industry.Given this core business imperative for manufacturers and the growing ticket volumes illustrated above,its only natural that the top ITSM objectives named by manufacturing IT leaders are centered squarely around productivity and resource capacity planning.These objectives are also connected to and partially drive the other two big objectives:data management and integrity,and automation of tasks.1|2|3|4|5|6|7|8|9 Figure 4Tasks That Contribute to Job Dissatisfaction What are the most common daily tasks that contribute to job dissatisfaction for you or your teammates?Note:Maximum of three responses allowed Data:InformationWeek survey of 70 manufacturing respondents,January 2023Password resets Managing credentials Onboarding/offboarding employees User/group management or active directory updates IT ticket cleanup Software provisioning Migration of data for new system implementation Ad hoc automation between various applicationsCleaning up data/data transformation Data cleansing/transformation Name change updates Point-to-point integration work Building or managing APIs Script writing for automations Virtual machine management API creation 341$%82$%8#%7%5%7%5%INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURINGData management and data integrity are key when thinking about the role of IoT sensors in automating factory systems and in making business,operational,and maintenance decisions.If IT cannot support the integrity of systems through rock-solid change management,that can have a huge cascading impact on data management.Meantime,automation of manual tasks is crucial to dealing with the top challenges in ITSM outlined here.Unfortunately,as well explain in the following section,if organizations want to automate more ITSM work and if they want to do resource capacity planning,theyre going to need a platform to support that.Big Opportunities for ITSM ModernizationThe good news is that the vast majority of manufacturers have at least some level of ITSM systems and processes in place.Only a very slim margin of them(3%)say theyre at low maturity with nothing in place.However,theres also definitely room for growth.Just 16%say they have very high maturity with best-in-class service delivery for their IT functions(Figure 7).Manufacturers say they have the highest maturity in IT service desk organizational structure and change management.The areas that need the most improvement include enterprise data integration and project intake.The former is especially an opportunity for growth as the lines between IT and other departmentslike operations and even financeare blurred through IT/OT convergence and digital transformation.This is pointing to a very real need for manufacturers to start modernizing their ITSM systems,as many challenges are exacerbated by frustrations caused by legacy systems.Our study shows that a majority(51%)of manufacturers say the last tech 1|2|3|4|5|6|7|8|9Figure 5Figure 6Figure 77i$%3B7%3Dta:InformationWeek survey of 70 manufacturing respondents,January 2023Data:InformationWeek survey of 70 manufacturing respondents,January 2023Data:InformationWeek survey of 70 manufacturing respondents,January 2023 Yes No Dont Know Our portal is highly adopted for self-service and answers many user questions Our portal has been somewhat adopted Our portal is not being used effectively Very high maturity (fully optimized,best-in-class service delivery)High maturity (very automated,best practices in place)Moderately low(some processes and automation,but not much)Low maturity(very immature,nothing in place)Self-Service End-User Portal Do you have an end-user portal for self-service?Portal Effectiveness How would you rate the effectiveness of the portal?ITSM Maturity How confident are you in your overall IT Service Management(ITSM)maturity?INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURING1|2|3|4|5|6|7|8|9 Figure 8Best Practices Which of the following project management best practices and processes does your organization have in place today?Data:InformationWeek survey of 70 manufacturing respondents,January 2023We have a formal project intake,prioritization,and review process in place We engage in resource capacity planning/workload balancing Project Portfolio Management We can monitor project risk and set alerts We can manage all work in one platform 44TdAA%Figure 935eta:InformationWeek survey of 70 manufacturing respondents,January 2023 Yes NoESM Program Do you have a broader Enterprise Service Management(ESM)program in place to leverage ITSM principles outside of IT?refresh they did in ITSM was five or more years ago.As a result,manual processes have calcified around the limitations of old systems and IT staffers are further burdened with the maintenance necessary just to keep their platform creaking along.For example,when IT workers want to respond to changed technology or processes through automation and formalized systems theyll need to add a form or a field to change a workflow in their ITSM platforms.In many instances,these older systems require deep technical resources to do something like that.The ITSM and project management team needs to program a form or a field into the process,requiring coding and scripting capabilities and time to get them done.This kind of intensive work calls for a no-code or low-code platform that cuts through that skills barrier so anyone in the IT department can easily create a form,drag a new field,or otherwise upgrade the workflow based on changing business needs.While most manufacturers today have project intake,prioritization,and review processes in place within their existing ITSM strategy,this is another area ripe for improvement through modernization.Even though this is the most-cited best practice already in place,36%of organizations still dont have it.Thats probably because some 59%of manufacturers say they lack the ability to manage all the workITSM and project managementon one platform.The same percentage say they dont have a place to monitor project risks,and approximately 56%dont have Project Portfolio Management(PPM)in place.When projects are bouncing back and forth between two different systems,it becomes a struggle to do resource capacity planning since no one can see all the work allocated to a group or individual.By modernizing their ITSM tools and going to a uniform platform,manufacturers will see these issues start to dissipate and facilitate the service management functions to mature their underlying process(Figure 8).Its a good example of how maturity issues can stem from limitations in legacy ITSM systems.Future Forward:AI and ESMLooking into the coming year and beyond,the biggest ITSM trends that manufacturing IT leaders say will be critical for them are digital INFORMATIONWEEK|TEAMDYNAMIX|STATE OF ITSM IN MANUFACTURING1|2|3|4|5|6|7|8|9transformation,leveraging predictive AI for proactive resolution,and expanding ITSM to other departments through ESM.On the AI front,one way manufacturers could begin to utilize these kinds of emerging technologies is by bolstering their self-service functionality.As noted above,manufacturers rate their self-service effectiveness fairly low.Currently,only 8%of organizations have conversational AI as part of their self-service portal.But another 36%do use basic chat tied to a knowledge base,and 23%say they plan to expand that in the next 18 months.This is an area ripe for improvement that could reap outsize benefits in reducing ticket volume pressure and improving user satisfaction.Meantime,ESM is still just an aspiration for the majority of manufacturers.Just 35%of manufacturers have an ESM program in place(Figure 9).However,many have targeted this as a place for growth.More than half of manufacturers say they use their ITSM solution in departments outside of IT,offering an indication of the opportunities for expansion with the right set of tooling(Figure 10).Well be exploring this topic in a future survey,so stay tuned for further insights.Survey Methodology InformationWeek conducted an online survey in January 2023 to explore trends in ITSM and ESM maturity within the manufacturing industry.The final data set is made up of 70 respondents who are involved in managing,staffing,or purchasing technologies for their organizations help desk,IT Service Management(ITSM),or Enterprise Service Management(ESM)at primarily North American manufacturing organizations.Titles of respondents include IT managers,IT group leaders,CIOs/CTOs,VPs of IT,help desk/ITSM heads or managers,and managers or group leaders of ESM.Forty-six percent of respondents were from large companies with 1,000 or more employees,15%from companies with 100 to 999 employees,and 38%from companies with fewer than 100 employees.All work in the manufacturing industry.The survey was conducted online.Respondents were recruited via email invitations to Informa Techs qualified database containing an embedded link to the survey.Informa Tech is a division of Informa,the parent company of InformationWeek,and Informa Tech research was responsible for all aspects of survey design,administration,data collection,and data analysis.These procedures were carried out in strict accordance with standard market research practices and existing U.S.privacy laws.Figure 1017%8F)ta:InformationWeek survey of 70 manufacturing respondents,January 2023 We only use our ITSM platform in IT We do,but only one other department is using our ticketing platform We deployed with ESM in 2 to 4 other departments We are embracing ESM in 5 or more departments Utilizing ITSM Outside of IT Does your organization utilize an ITSM solution in any departments outside of IT(e.g.,HR,marketing,facilities)to support ESM?
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Demand Charge Mitigation Strategies for Public EV ChargersWeighing the costs and benefits to utilities,charging station site hosts,and EV driversMARCH 2024Prepared for:The Electric Vehicle Council of the Transportation Energy InstitutePrepared by:E SourceOriginally founded as part of the Rocky Mountain Institute(RMI),E Source has been supporting the electric,gas,and water utility industries with research,advising,consulting,and data-science services for nearly 40 years.E Source helps more than 600 utilities-that in turn serve more than 90%of the populations in the U.S.and Canada-to deliver best-in-class decarbonization and resource-efficiency programs,grid-modernization projects,and asset-management and operations optimization.Report authors:Bryan Jungers Jesse Hitchcock Ben Campbell Kyle Rodriguez 2024 Transportation Energy Institute Disclaimer:The opinions and views expressed herein do not necessarily state or reflect those of the individuals on the Transportation Energy Institute Board of Directors and the Transportation Energy Institute Board of Advisors or any contributing organization to the Transportation Energy Institute.Transportation Energy Institute makes no warranty,express or implied,nor does it assume any legal liability or responsibility for the use of the report or any product or process described in these materials.3Electric utility demand charges can have significant impacts on the business model of electric vehicle(EV)charging stations.Demand charges are fees levied by utilities on commercial and industrial(C&I)customers based on their highest level of electricity demand during a specified billing period,usually one month.They are designed to recover the cost of delivering power at times of peak-power demand on the electric grid to existing electric utility customers (e.g.,commercial buildings,manufacturing facilities).For example,an electric utility customer that installs four 150kW EV chargers would require an additional 600kW of service to deliver peak-power demand to the facility.The demand charges for this facility would be calculated based upon a demand charge rate(expressed in terms of$/kW)multiplied by the highest level of demand recorded over a period of time,often over a period of 15 minutes in a given month.Demand charges can represent a significant portion of a business customers electricity bill,depending on how and when they use energy.(For more details about utility terms,concepts,rates and demand charges,see Appendix A beginning on page 51.)For EV fast-charging stationswhich primarily employ direct-current fast charger(DCFC)technologydemand charges can be particularly EXECUTIVE SUMMARYDemand Charge Mitigation Strategies for Public EV ChargersTRANSPORTATION ENERGY INSTITUTE|EVC4TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSchallenging,as these stations often have a high peak demand relative to their total energy consumption.The operating characteristics of public-access DCFCshaving variable and uncertain utilization characteristicscan lead to high operating costs relative to revenues,making it difficult for charging station site hosts to recover costs or operate profitably.For the purposes of this study,we are focused solely on operating costs for public-access DCFC stations used by light-duty consumer EVs.To address these financial challenges,utilities,solution providers,and charging station hosts are all exploring different mitigation strategies to help lower operating costs.These include a variety of approaches for controlling and managing electricity demand,managing demand charges,experimenting with new utility rate structures,identifying new revenue streams and business models,and generally seeking alternatives for the profitable operation of EV charging stations.For example,DCFC station hosts may choose to offer pricing discounts during off-peak demand periods or to use a battery energy storage system(BESS)to store electricity for use during peak-demand periods.Where such options exist,they may also be able enroll in demand response(DR)or other utility programs to help manage peak demand,deliver grid services,reduce energy expenses,and lower total station operating costs.The Transportation Energy Institutes Electric Vehicle Council commissioned this study to evaluate the potential effects of different demand charge mitigation strategies on various stakeholders.The intended audiences for this study are stakeholders operating in the electric vehicle market,including electric utilities,EV charging station site hosts and EV drivers.The intended outcome is to articulate how various demand-charge mitigation strategies are expected to impact costs and benefits to key stakeholder groups as EV markets evolve.As will be demonstrated,different strategies affect stakeholders differently;consequently,this report is not intended to identify a preferred strategy.Though myriad possible strategies exist,below are summaries of the most-common types of mitigation strategies we identified through our research.As shown in Table ES-1,each strategy carries with it a mixture of positive,neutral,or negative implications for the affected stakeholder groups:1.Reduce or eliminate demand charges for DCFCs.This mitigation strategy involves creating special rate tariffs or“holiday”periods for DCFCs that reduce or remove demand charges in the rate structure.This can be an effective strategy for mitigating the negative financial impacts of demand charges to DCFC station hosts in the near term.Utilities.This is how some rate tariffs for utility owned DCFCs are currently structured,leading to an uneven playing field for third-party TABLE ES-1:QUALITATIVE SUMMARY OF NET COST OR BENEFIT OF EACH MITIGATION STRATEGY BY STAKEHOLDER GROUPFor each of the four demand charge mitigation strategies evaluated in this study,we summarize here the anticipated net impact to each stakeholder group.A“ ”sign represents a net increase in benefits and/or decrease in costs,relative to baseline conditions(i.e.,no mitigation).A“-“sign represents a net decrease in benefits and/or increase in costs,and a“o”sign represents no impact or costs and benefits that are more-or-less balanced.For example,for managed charging we can see that the utility benefits overall(lowered grid impacts/cost to serve),the station host experiences balanced cost-benefit outcomes(lower energy costs but also potential customer satisfaction concerns),and the EV driver generally experiences a decrease in benefits(longer wait times or reduced battery charge per session).Source:E SourceSTRATEGYELECTRIC UTILITIESSTATION OPERATORSEV DRIVERSEliminate demand charges- Cap energy costs- oCo-locate BESSoo Manage charging o-5TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSstations hosts and operators.Utilities may lose revenue if this strategy is broadly applied to all DCFCs.However,they may also attract more station development,projects,and load to their service territory when engaged in active rate reform,with growth in revenues over time.This option may place additional financial burden on utility customers in the near term,if the realized costs associated with serving DCFC stations are passed along to the ratepayers.Utilities should also consider testimonials and hearings which call into question coincident-peak impacts of DCFC station operation and the actual costs incurred on the grid.Station hosts.In most cases,eliminating demand charges would reduce energy costs for EV charging station site hosts immediately,lowering the cost to operate these stations,improving their margins,and eliminating the need to implement other demand-charge mitigation strategies.Under ideal conditions,this may encourage broader investments in infrastructure from the private sector.EV drivers.To the extent that lowering or eliminating demand charges encourages greater investments in EV charging infrastructure,EV drivers will benefit from such investments.In the future,lower energy costs to site hosts could also theoretically be passed along to EV drivers in the form of competitive pricing.In the near term these same drivers may experience increased energy costs overall,where utility operating costs are passed along to the rate base,since all EV drivers are also electric utility customers and therefore rate payers.This approach may also limit the need for alternative strategies such as charge management/demand controls that impede the rate of EV charging,thereby improving EV drivers experience.2.Cap the total per-kWh monthly energy costs for low-use stations.This mitigation strategy involves setting a maximum monthly energy cost for DCFC hosts,typically based on how much energy is consumed in total per month(i.e.,maximum$/kWh).It eliminates the possibility of massive monthly bills,helping to make energy costs for DCFC station site hosts more predictable and stable.Utilities.This strategy limits revenue loss for utilities,relative to eliminated demand charges.However,some of the cost burden associated with serving DCFCs may still reside with utilities and/or be passed along as rate increases to all utility customers.Implicit in this strategy is an assumption that as utilization rates increase,demand-based pricing will be reintroduced,and caps may be scaled relative to utilization or removed altogether.Station hosts.This strategy helps to de-risk DCFC investments in the near term by lowering monthly energy costs and making them more predictable and stable.This will help to improve the margins associated with DCFC station operation.EV drivers.With improved economics for site hosts,EV drivers may experience ancillary benefits,such as more installed DCFC infrastructure,better network coverage,and improved reliability.6TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS3.Install co-located batteries to help manage peak demand.This mitigation strategy involves installing an on-site BESS at DCFC stations.Predictive analytics and controls are also needed to manage peak station demand and power flow mix from distributed energy resources(DERs).Continued use of BESS as a DCM strategy over time,however,will likely necessitate continuous upgrades and scaling to keep pace with increasing DCFC charge rates,utilization rates,and other technological advancements.Utilities.DERs such as batteries can reduce the need for distribution system capacity upgrades and line extensions in some cases,depending on site characteristics.Batteries may also be used to help manage peak monthly demand,and to ensure agreeable power quality characteristics during DCFC operation.Utilities may lose revenues associated with monthly demand charges,but their cost to serve DCFC loads will be lowered as well.Station hosts.Can save money via demand-charge management,depending on local utility rates.Where batteries are used to avoid grid service upgrades,project timelines can be accelerated.DERs may help improve station reliability,lower carbon intensity(depending on local grid mix),and improve the site hosts ROI if and where excess power can be sold as export back to the grid.Grid interconnection requirements for DERs may also delay project timelines in some cases(e.g.,when exporting power back to the grid).These systems also become less effective at managing demand as station utilization increases over time.EV drivers.Where utility grid services are limited,an EV may still be able to receive a fast charge where co-located batteries are used,even during times of localized grid constraints,disturbances,or outages.This strategy may also deliver lower-carbon electricity for EV charging,depending on the local utility grid mix(e.g.,when paired with renewable generation).However,during periods of high station utilization,the battery can be drained and the EV driver will experience a slower charge if the site has insufficient grid capacity.7TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS4.Manage EV charging during peak periods.This mitigation strategy involves limiting or reducing the power draw for one or more vehicles charging at a DCFC station.Charging can be controlled by the utility,station host,or a third party,relative to station demand(e.g.,number of vehicles charging simultaneously),grid demand,or both.Utilities.The ability to make DCFCs a controllable load helps utilities to better plan for and manage the grid.Actual impacts of controllability will vary depending on how,when,where,and how quickly DCFCs can be controlled.Most of the prior studies we reviewed suggest that utilities desire controllable DCFCs.Station hosts.By managing peak demand,station hosts may be able to lower their monthly bills(e.g.,demand charges)and could potentially be paid to participate in EV managed charging or demand response(DR)programs and events,though these remain relatively rare so far.The practice of limiting total station power during times of peak utilization is already common among station hosts.EV drivers.Drivers will most likely experience charging delays and reduced level of service when EV charging is managed.However,drivers may also be compensated for this inconvenience with discounts,payments,or other perks.To ensure the long-term financial viability of DCFC stations,it is important that station hosts site and size charging equipment and stations with the intention of maximizing utilization.Utilities will always attempt to recover costs on both the energy delivered(consumption)and maximum power available(capacity).Building larger stations enables more throughput,but also requires higher utilization to cover demand charges.For stations with limited utilization such as those located far from urban areas or major corridors a rate tariff with a reduced demand charge,eliminated demand charge,or one with capped maximum monthly energy costs will tend to offer better financial returns than standard C&I customer rates that include demand charges.Where demand charges remain high and monthly energy costs are not capped,a co-located BESS could provide more-favorable operating costs relative to baseline conditions(i.e.,unfavorable utility rate options).8TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSEXECUTIVE SUMMARY.3LIST OF ACRONYMS.10INTRODUCTION.11SITING AND OPERATING FAST CHARGING STATIONS.12 Siting new DCFC stations.12 Grid capacity and station utilization considerations.14 Customer experience,expectations,and charging behavior.16TYPES OF UTILITIES,THEIR SIMILARITIES,AND DIFFERENCES.17 Investor-owned utility(IOU).17 Public-power utility(PPU.19 Electric membership cooperative(EMC).20RATE TARIFFS,DEMAND CHARGES,AND MITIGATION STRATEGIES.21 Review of utility demand charges across the US.23 Experimental rates,pilot tariffs,and recommended schedules for DCFCs.24 Influence of on-site storage,generation,and load-control.25ENERGY AND ECONOMIC MODELING RESULTS.28 Modeling approach.30 Comparing common mitigation strategies.30 Comparing common DCFC station venues.34ADDITIONAL CONCERNS AND CONSIDERATIONS.39 Battery life and degradation.39 Equity and access.40 Battery swapping.40 Second-life battery applications.40 Solid-state power electronics.41 Demand response.41 Communications networks.41CONCLUSIONS AND RECOMMENDATIONS.42 Relative effectiveness of common mitigation strategies.42 Observed differences by utility type and US region.44 Relative costs and benefits to stakeholders.45 Recommendations and suggestions for stakeholders.45Contents9TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSBIBLIOGRAPHY.49APPENDIX A Background information.51APPENDIX B Prior research.58 Utility rate tariff analyses.58 Cost-mitigation strategies.60 DCFC-specific rate designs.61 DCFC reliability,utilization,and grid impacts.62APPENDIX C Rate analysis.64APPENDIX D Observations on international developments.71 Norway.71 China.71 Germany.72 Japan.73 United Kingdom.73TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS10AFC alternative fuels corridor;designation by the US Federal Highway Administration(FHWA)BESS battery energy storage system;any battery-based energy storage technologyDCFC direct-current fast charger;high-power chargers used for faster charging of EVs and/or for charging large vehiclesDCM demand-charge management;actively limiting the monthly utility demand chargeDER distributed energy resource;a grid-connected device that can be called upon as a grid resource to produce,store,or modulate the use of electricityDR demand response;reducing electricity demand during critical grid eventsEMC electric membership cooperative;a member-owned,non-profit enterprise acting as an electric utilityEV electric vehicle;refers generally to any vehicle that can plug in and draw electrical power from a gridEVSE electric vehicle supply equipment;a general term for EV-charging equipmentEVSP electric vehicle service provider;a vendor offering EV-charging servicesIOU investor-owned utility;a privately owned enterprise acting as a public utilitykW kilowatt;1,000 watts(unit of power)LF load factor;ratio of energy delivered to total potential energy deliveryMW megawatt;1 million watts,or 1,000 kWPPU public-power utility;a non-profit enterprise acting as a public utilityPUC public utilities commission;quasi-governmental bodies regulating public utilitiesRDR reverse demand response;increasing electricity demand during times of excess renewable energy generationRTP real-time pricing;time-varying pricing that more-or-less reflects real energy costsTE transactive energy;a system for the direct buying and selling of electricity between end users on a spot market,including real-time price signalsTOU time-of-use;in reference to time-varying energy pricingUF utilization factor;ratio of time electrical equipment is used versus not usedList of AcronymsTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS11INTRODUCTIONThe cost of electricity reflects the price of generation and delivery to end-use customers,but the exact relationship between cost and energy pricing is complicated.Unlike other commodity markets including liquid petroleum fuels the price paid for electricity at any given moment in time does not accurately reflect the actual cost of delivering it to market.Various“real time pricing”(RTP)and transactive energy(TE)solutions have been postulated,proposed,and even piloted by electric utilities and research organizations,but so far,such approaches are not widely adopted.To compensate for the mismatch in spot-market energy costs and prices and to comply with state and local regulations and market requirements utilities have tended to design ever-more diverse and complex rate tariffs over time.This serves the purpose of spreading the cost of operating and maintaining the electric grid evenly over time and the entire“rate base”(utility customers),and also comply with their obligation to serve all customers.In 2022,electric vehicle(EV)new car sales surpassed 5%of market share in the US for the first time,and this trend in transportation electrification is only expected to accelerate in the coming years.It is particularly important for stakeholders in the US to develop a shared understanding of related needs and issues as the federal government implements its National Blueprint for Transportation Decarbonization and allocates large sums of money to both public and private efforts to electrify transportation systems.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS12While federal and state governments have been partnering with and funding EVSPs to deploy DCFCs across the US for more than 10 years already,there continues to be a lot of variability when it comes to station siting,sizing,cost,design,layout,access,uptime,and level of service across different networks.Teslas Supercharger network stands out as the clear market leader in terms of size,level of service,and cost to deploy,according to financial reports and public records(e.g.,Plug in America,2022).Roughly 60%of all fast chargers in the US are owned and operated by Tesla,and Tesla drivers report higher uptimes and lower incidence of“major difficulties”when attempting to charge(e.g.,4%for Tesla vs.25%for non-Tesla charging stations in California).Tesla has also started to open up its charger network to non-Tesla vehicles through its Non-Tesla Supercharger Pilot in countries outside of the US,and has reported it plans to also open up access to 7,500 Superchargers in the US by the end of 2024.As a result,more than half a dozen automotive manufacturers and several charging station operators and manufactures have announced they will now comply with the Tesla charging specification,commonly referred to now as the North American Charging Standard(NACS;see North American Charging Standard).In discussions on federal funding to expand DCFC networks along US Alternative Fuels Corridors(AFCs),the issue of what constitutes an appropriate“minimum distance”between charging stations has been discussed at length.Of course,it is difficult to plan for an optimal spacing of stations when charger reliability remains low for some locations,but the current goal set by the Biden Administration is a minimum spacing of 50 miles between charging stations.For DCFC projects to be eligible for federal funding as part of NEVI in support of the AFC program,they must meet higher minimum nameplate and operational power output requirements.Whereas many early-generation DCFCs operated at 50 kW maximum power output,the new minimum threshold has been set at 150 kW or more per DCFC unit and 600kW or above per DCFC charging station site to receive funding through NEVI in support of the AFC program(see National Electric Vehicle Infrastructure Standards and Requirements).SITING NEW DCFC STATIONSThrough our conversations with EVSPs and other DCFC station hosts,weve learned that the siting criteria used for DCFC deployment are similar across organizations.These companies seek high traffic volumes along major routes,often within or connecting urban centers.This can lead to multiple SITING AND OPERATING FAST CHARGING STATIONSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS13EVSPs competing for space and grid capacity at the same locations,in what some of these companies have self-described as a“land grab.”From a utility perspective this is not ideal,since the optimal location for siting a DCFC for drivers is not always co-located with available grid capacity or ease of service upgrades.Usually,EVSPs are forced to queue in a first-come,first-served fashion,just as any other utility customer must typically do when requesting a new,upgraded,or extended service.Some utilities like Pacific Gas and Electric(PG&E)offer decision support tools for station operators and site hosts and provide information resources on their websites(e.g.,Site information for electric vehicle Direct Current Fast Chargers).Important siting criteria include the proximity and location of utility high-voltage service(e.g.,400-or 480-volt),the configuration of the lot or rest area,existing distribution grid capacity constraints,and trenching distances.These site-specific factors can drive up project costs and extend development timelines significantly,making it difficult to estimate average costs for DCFC installation across multiple locations without a site visit and capacity assessment.And while the chargers themselves are the piece of equipment that is seen and used,additional make-ready infrastructure is needed to deliver power safely from the utility service drop point to the vehicles(Figure 1).FIGURE 1:A DCFC STATION REQUIRES HIGH-POWER,MAKE-READY EQUIPMENT TO OPERATE*Meter may be located on the other side of the transformer Source:Francfort,J.,Shawn Salisbury,John Smart,Thomas Garetson,and Donald Karner(2017,May).Considerations for Corridor and Community DC Fast Charging Complex System Design.Retrieved from:https:/avt.inl.gov/sites/default/files/pdf/reports/DCFCChargingComplexSystemDesign.pdfIts important to remember that additional space and cost are needed to accommodate the enabling power electronics and other hardware at a DCFC station.In many cases,this“make-ready”equipment(designated by black-dashed box)can cost more and require longer lead times to procure than the charging equipment itself.Establishing easement agreements can also require a lot of time and effort,sometimes delaying project completion.Co-located storage and/or generation may also deployed(designated by green-dotted box),but these equipment are not necessarily required for station operation.(adapted from Francfort et al.,2017)TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS14Even the most helpful and cooperative utilities may struggle to adequately support planning and meet anticipated timelines on DCFC projects.GRID CAPACITY AND STATION UTILIZATION CONSIDERATIONSUnfortunately,there is usually no single or perfect source of information about the state of the grid in many utility service territories,especially for large systems.Even the most helpful and cooperative utilities may struggle to adequately support planning and meet anticipated timelines on DCFC projects.For example,we mentioned earlier that PG&E is a leader among utilities when it comes to supporting DCFC deployments.At the same time,it is one of the largest electric utilities serving a sprawling service territory of 5.5 million electric customers.Even in Northern California,it can take 3 years(or longer)from the point of project initiation to completion and commissioning of a DCFC station.Some of the best-available public guidance PG&E offers its business customers comes from a study conducted in 2015 and 2016 and a corresponding micro-siting tool developed as part of that effort(Direct Current Fast Charging Mapping).While many of the findings and recommendations from this large joint study are still valid and its forecasts extend out to 2025,information about the state of PG&Es grid and locational capacity constraints probably arent very useful at this point.In some instances,utilities may maintain so-called“hosting capacity”maps online to illustrate approximate localized grid capacity availability in their service territories.You can think of it as the utilitys way of communicating how able their distribution grid is to“host”new power demand or supply locally.Similar maps were first generated in response to the needs of distributed solar installers and customers installing on-site solar power,and more recently were seeing maps made available to support building and transportation electrification objectives(e.g.,for siting EV charging stations).Unfortunately,most utilities do not publish hosting capacity maps online,but increasingly we see the need for more transparency when it comes to comparing current and forecasted demand for EV charging with locational grid-capacity information.As just one example,regulated utilities operating in the state of New Jersey are required to publish capacity maps and you can find some of them online(e.g.,see PSE&Gs EV Hosting Capacity Map).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS15In addition to considering site-specific factors,actual station utilization can vary to a large extent based on charging station brand and the specific end-use customer populations being served.For example,weve observed two DCFC stations located along the same major corridor in a relatively remote and rural area,operated just a few miles apart from each other,with drastically different utilization rates.Part of this might be explained by site characteristics,but much of it likely has to do with which drivers are using these stations.In Figure 2 you can see weekly load profiles for these two public-access DCFC stations.The load profile on the left is for a 50kW,non-Tesla legacy station,which serves mostly non-Tesla vehicles.The load profile on the right is for a Supercharger station with multiple DCFCs that each can deliver up to 150kW(though combined maximum power is limited),used only by Tesla EV drivers.Due to their larger batteries and longer driving ranges,Tesla vehicles are more likely to make longer road trips,even to relatively remote parts of the country.Meanwhile,the non-Tesla station is likely mostly used by local EV drivers,and obviously infrequently.While the utilization rate of the non-Tesla station is around 1%,the utilization rate for the Supercharger station is closer to 30%.Because of this,a standard rate with a demand charge may be perfectly reasonable for the Tesla station,but for the non-Tesla station is could be prohibitive.vs national averageMILES TRAVELED INDEXPUBLIC/SEMI-PUBLIC EVSE DEMAND FORECAST 2030HOUSING MIX INDEX118%EVSE LEVEL 240,696AC chargingEVSE LEVEL 32,161Fast charging110%vs South Gulf averagefor urban roads$52,654AC VS DC PUBLIC AND SEMI-PUBLIC CHARGING STATION GROWTH(2020-30)15-Minute Metering IntervalsEV Charging Demand(KW)6050403020100010020030040050060070015-Minute Metering IntervalsEV Charging Demand(KW)2502001501005000100200300400500600700FIGURE 2:UTILIZATION RATES CAN VARY SIGNIFICANTLY AMONG DCFCS,EVEN AT NEIGHBORING STATIONSSource:Confidential;utility customer AMI meter data from anonymous utility and customersTwo DCFC stations located along the same major corridor in a relatively remote area,operated just a few miles apart from each other,with drastically different utilization rates(e.g.,30%).Part of this might be explained by site-specific characteristics,but much of the difference has to do with station performance and which EV drivers have access to these stations.$52,65439%of people feel charging infrastructure is suficientTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS16CUSTOMER EXPERIENCE,EXPECTATIONS,AND CHARGING BEHAVIORDating back to the EV commercialization efforts of the 1990s,public EV charging station reliability has been a weak link in the effort to electrify transportation.More recently,independent studies of DCFC up-time and operability indicate that on the order of 1 in 4 existing DCFC stations are not available for use by EV drivers at any given time(see the DCFC reliability,utilization,and grid impacts section of this report for more details).Much like utilization rates,it has also been observed that Tesla Superchargers have significantly higher reported levels of both uptime and customer satisfaction(Plug in America,2022).In general,customers find EV public charging rates to be confusing and inconsistent.EV drivers rarely understand why differentials exist in pricing for DCFCs in different locations or used at different times.When pricing is confusing to customers,it can be very challenging to send an effective price signal to influence their charging behavior or purchase decisions.Customers are also accustomed to gas prices that fluctuate daily or weekly,whereas the marginal cost to deliver electrical power fluctuates hourly.When customers are charged more without explanation for what they view to be the same level of service,customer satisfaction and brand loyalty will tend to suffer.This same observation that individual customers dont like to be charged more when they dont feel like they are receiving more value can just as easily apply to station site hosts,as customers of electric utilities.Due to the confusing nature of utility rate tariffs,station hosts may not understand why they are being charged more or how to effectively make operational adjustments that will save them money,assuming such options exist.Evidence from early EV adopters suggest that acceptable EV recharge times are entirely dependent on where the vehicle is located and what the driver is doing while the vehicle charges.For example,if the driver is waiting in a hot dusty parking lot with nowhere else to go and nothing else to do,recharge times should be as fast as possible.But if the vehicle will be parked for long periods anyway,or drivers have desirable ways to spend their waiting time,then the speed of the charging session may become less important(e.g.,see the Forbes article series on Its Not Where You Charge An EV,Its What You Do While Charging).16TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS17When engaging with a new utility and especially when attempting to interface with multiple utilities at once to negotiate tariff agreements it is helpful to understand each individual utilitys structure and function.Knowing at least a little about how utilities operate can make it easier to understand how their businesses operate to get a better view of the role they play in local markets and communities.In many states,there have been debates over whether it should or should not be legal for non-utilities to resale electricity to customers while not being regulated as an electric utility themselves.The consensus is that EV charging shall be exempted from broader utility regulation,with only a hand full of state exemptions(i.e.,Montana,Nebraska,Tennessee,and Wisconsin do not allow non-utilities to sell electricity directly to consumers).INVESTOR-OWNED UTILITY(IOU)As for-profit businesses,the IOUs are similar in some ways to other for-profit businesses.However,as“regulated monopolies”these utilities are subject to stringent state and federal regulations.While IOUs may offer various utility services be they electricity,natural gas,water,wastewater,or solid waste most IOU business is related to energy(e.g.,electricity and natural gas).If a utility has a parent or holding company,it is probably an IOU.These utilities come in many flavors and sizes and can be quite complex in construction.An IOU could be anything from a small local legacy“electric and light”company owned by a larger holding company,all the way up to a massive multi-national conglomerate,composed of multiple holding companies serving different states and regions.The very largest utilities in the US are IOUs,and even though they make up the smallest fraction in total numbers,IOUs serve the majority of the US population(e.g.,about 2/3 of all electric customers are served by IOUs).Since they are heavily regulated by state and federal governments,IOUs are held accountable for their spending and have rigorous reporting requirements.In this way,IOUs may sometimes act as if they are an extension of state and federal government,even though they are private enterprises.They also may view the regulator with disdain,as changes in state policy and decisions made by the utility commissions can cost them very large sums of money and complicate their business models in new and painful ways.But this is all part of the process.For regulated utilities,cost-recovery and cost-causation are viewed as vital to IOUs and their investment and business decisions.Or at TYPES OF UTILITIES,THEIR SIMILARITIES,AND DIFFERENCESTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS18owners,though this certainly varies from one jurisdiction to the next.Deregulated utilities and the deregulated divisions of regulated IOUs tend to be more aggressive when it comes to profitability goals,business growth,and seeking opportunities to enter new markets.This may be helpful to keep in mind when considering exactly what role a given utility plays in the local markets,and potentially what role it may seek to play in the future.Its also important to keep in mind that utility regulations are not all fixed in stone,and that over time some utility activities that were forbidden may eventually be allowed or even encouraged by their regulators(or vice versa).A classic example can be seen in California where the public utilities commission(PUC)forbid utilities from owning and operating EV charging equipment for some time,to prevent the IOUs from establishing a market monopoly over electric fueling.However,the PUC later determined that the EVSE market was stagnating and that the IOUs there could fill an important market gap,eventually allowing the IOUs to recover the costs from investing in EV chargers from their respective rate bases(customers).By comparison,Illinois and other states are currently in the same position that California was in 10 years ago,and the regulators in these states are concerned about unduly burdening rate payers with the cost of deploying EV charging infrastructure.Because of their larger size and the fact that they may have expanded over time to include/absorb multiple legacy utilities,some IOUs continue to maintain old and aging grid assets,serve very diverse populations,and generally have a more-difficult time expanding and upgrading their grid and services.IOUs are more likely to have complicated rate tariffs and a wider selection of different rate tariffs from which to choose(for better or worse).Also due to their larger size,IOUs may be better at serving large utility customers(i.e.,key accounts)but have relatively little engagement with,or detailed knowledge of,their smaller customers.least,that is the intention behind their“regulated monopoly”business model;in practice,the degree to which IOUs are effectively held accountable for their spending is regularly called into question.Some states have enacted varying degrees of utility“deregulation,”meaning that some or all IOU activities dont require as much rigorous oversight and scrutiny.All IOUs are driven by profitability and shareholder returns,with varying degrees of success(e.g.,electric utility stocks are sometimes considered longer but safer investments).Private ownership is sometimes touted as a benefit that enables the IOU to focus more on innovation and progressive business investments rather than solely offering egalitarian service to the community or member-TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS19PUBLIC-POWER UTILITY(PPU)Also sometimes referred to as“municipal utilities,”PPUs are commonly associated with a city,town,village,borough,or other local governmental body.A PPU is a non-profit enterprise,owned by the community they serve.PPUs emphasize their community focus and localized benefits,and in this vein have some of the strongest marketing and branding of any utility type(and some PPUs also maintain very high customer-satisfaction rates,to match their marketing).Though not universally true,if the utilitys name includes the name of a city or town,theres a good chance that its a municipal utility.The largest PPU in the US is Los Angeles Department of Water and Power(LADWP),serving 1.4 million electric customers and 4 million water customers.PPUs are typically governed by a utility board that oversees and directs their actions,but ultimately these utilities answer to the populace of the municipality they serve.Generally speaking,PPUs and their actions can be viewed as existing in something of a“middle ground”between entirely for-profit utilities and non-profit cooperatives;PPUs tend to be more careful and conservative in some ways than IOUs but more growth-oriented than cooperatives.All utility types have strengths and weaknesses and have proven their abilities at innovating on specific issues and technologies.But thanks to their close alignment with local government,PPUs have the potential to scale innovative changes across their service territories relatively rapidly.Like any other local government agency,PPUs run into the same issues and face the same challenges that any city government might face.Since the city government and the electric utility are essentially the same entity,it may be easier to engage with PPUs on projects or agreements requiring alignment of both stakeholders.At the same time,PPUs tend to be more political and bureaucratic by their very nature,which can lead to“siloing”of business functions,difficulty coordinating across various business units,and extra processes or red tape that some business customers may view as unnecessary or inefficient.At the same time,PPUs are often great partners on new projects and some of the most innovative and progressive utilities in the US are municipalities.While most utilities typically have a working understanding of and degree of influence over local building codes and standards(C&S),some PPUs coordinate closely with other local government departments on C&S issues.This can be helpful when seeking utility input or related technical services on a new project,e.g.,establishing realistic expectations of project scope,cost,and timeline.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS20ELECTRIC MEMBERSHIP COOPERATIVE(EMC)The last of the three most-common utility types is the cooperative,sometimes referred to as an EMC,power association,electric co-op,and/or member corporation.Co-ops are also sometimes associated with the local counties they serve(e.g.,the name of the county is in the name of the co-op).Cooperatives tend to be small but they are mighty in number;they have by far the largest total number of individual utilities operating in the US and also serve the largest total land mass,of the three major utility types.While cooperatives can theoretically be located anywhere,they tend to serve smaller and more-rural communities.There may be the presumption that cooperatives are only located in the Midwest and there certainly are many that operate there the reality is that cooperatives are abundant in the rural parts of all states,including California and New York.The one major exception is Hawaii,which only has one electric cooperative operating on the small island of Kauai.Pedernales Electric Cooperative in Central Texas is the largest utility of its type in the US,serving 345,000 customers.Since cooperatives are non-governmental,non-profit,and member-owned organizations,their actions are obviously dictated to a large degree by member needs and priorities.In structure and function,this is perhaps the furthest model from a growth-oriented,profit-driven company,though the cooperative model is long-tested and continues to thrive after all these years.As you might imagine,cooperatives and their members tend to be both culturally and fiscally conservative and cost-conscious.Projects and investments that serve broad member needs and interests and help to place downward pressure on member rates will tend to be favored over those that do not.Due to their rural,stable,and conservative nature and model,cooperatives may be more difficult to engage than other utility types when it comes to deploying a large EV-charging infrastructure project.This is of course not universally true,and some cooperatives may be“long on generation”and in search of new and viable load-growth revenue opportunities.Some cooperatives are also quite innovative;they were among the first utilities to offer direct rebates for EVs to their customers,and in some cases are the first to embrace and deploy new and emerging technologies.In any case,most cooperatives dont have much prior experience with large EV grid-integration projects,so they may require more time,patience,and close coordination to help them understand the nature of a project,the business opportunity it presents for them,and how to adjust their overall resource and capacity planning accordingly.Most cooperatives dont have much prior experience with large EV grid-integration project,so they may require more time,patience and close coordination.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS21While utility rate structures may seem straightforward for energy industry professionals accustomed to work with them,for non-utilities they can be quite confusing.A rate tariff is an electricity pricing agreement made between a utility and its customers;for regulated utilities,these tariffs are reviewed and approved by state regulators.All details of how the customer will be charged by the utility for energy services including who qualifies for the rate,service capacity ranges,energy blocks or pricing tiers,usage or timing variations,and other variables impacting energy costs are included in the tariff.A typical tariff is between 2 and 10 pages long,though some may be even longer,and they often contain specialized industry language.A demand charge is the part of the rate tariff that compensates utilities for maintaining and reserving sufficient grid capacity to serve the customer(and all customers).While demand charges and other capacity-based rate elements can take many forms,the simplest and most-common approach is to charge the customer a set dollar amount per unit of power demand(kW),based on the maximum power draw for the month.For example,if the demand charge for a given rate tariff is$10/kW and the customers peak demand is 600kW,the demand charge for that customer for that month will be$6,000.The rate tariff including the demand charge is typically set when the customer establishes service with the utility,and in some cases the customer may have the option to select a different rate schedule(for more details on how utility rates are structured and how customers are billed,see Appendix A Background information).RATE TARIFFS,DEMAND CHARGES,AND MITIGATION STRATEGIESTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS22$52,65439%of people feel charging infrastructure is suficientIt can also be tempting to treat utilities as a monolith assuming that they are all alike and come to expect the same things when interacting with each utility.In operation,however,utilities can be quite unique from one region,state,or service territory to the next.Generalizing even within groups of utilities(e.g.,all IOUs,co-ops,or munis)or by region can be potentially misleading.For example,our rate analysis for utilities operating in the Midwest shows that they have some of the lowest demand charges on average,as some might tend to expect.However,they also have rate schedules that include some of the highest demand charges overall(see Figure 3).In Appendix A,we also describe some of the attributes of the three major utility types and how they are similar and different in certain ways.The purpose of doing this was to explain the conditions and constraints under which these organizations and their employees operate,in order to help the reader better understand and communicate with them.When it comes to rates and especially demand charges we found that utility type is not necessarily a good indicator of rate structure or energy costs,in and of itself(for more details and results of our rate analysis,see Appendix C Rate analysis).We reviewed nearly 7,500 C&I customer rate tariffs from 329 different utilities,using data sourced from the Utility Rate Database(URD)of the Open Energy Information(OpenEI)wiki,hosted by NREL.While this database is not as up-to-date as some paid Demand charge($/kW)ELECTRIC UTILITY RATE TARIFFS2001400120010008006004002010200920112014201320152012201620172018 Efficient ICE vehicleDiesel ICEDiesel hybrid(4.8 kWh)Diesel PHEV(38 kWh)BEV(345 kWh)Diesel ICEDiesel PHEV(38 kWh)BEV(Optare)(92 kWh)BEV(Wrightbus)(150 kWh)BEV(BYD)(324 kWh)26.629.232.835.839.441.439.941.241.31102030405060FIGURE 3:DISTRIBUTION OF MIDWEST UTILITY DEMAND CHARGES FOR BUSINESS CUSTOMER TARIFFSSource:E Source;data from National Renewable Energy Lab NREL(2023,February).Utility Rate Database,OpenEI.Retrieved from:https:/openei.org/wiki/Utility_Rate_Database If we consider only the average cases,our observations may match stereotypes and expectations about relative electric rates by utility type or region(e.g.,California=expensive,public power=affordable).But when we look across the entire US and a large sample of utility business customer rates for all regions and utility types,we see that stereotypes do not always hold true.In the example pictured above,we compared all tariffs for utilities operating in the Midwest,and found examples of some of the highest demand charges in the country(e.g.,up to$53/kW).On average though,this region has among the lowest demand charges(e.g.,$7/kW).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS23services like those made available by Arcadia Power and GridX it is sufficiently large and publicly accessible,making it a useful resource that can be cross-referenced and compared across multiple studies.This is helpful in understanding general market and utility trends and validating findings.For anyone intending to make large investments in DCFC and particularly for those who expect to install and operate hundreds or even thousands of chargers we would recommend considering a paid data service for comparing and tracking the latest updates to electric utility rates.We did not review every utility in the US,nor did we include every rate tariff listed in OpenEI.Our sampling is generally representative of non-residential utility rate options and includes utilities operating in all 50 states.We had no similar dataset for utility rates in Canada,and so our analysis is confined only to the US.Were also aware of those utilities experimenting with new rate designs that are not reflected in the UDR dataset,some of which have few or no customers enrolled so far(e.g.,capacity-only rates,export rates).We will address these rate tariffs in the following sections.Consider also that most utilities are conservative by nature and do not make changes quickly nor hastily,and that the rate-making process tends to be long and arduous.With this in mind,we think the observations made here are likely still representative of most US utilities,C&I rate tariffs,and demand charges.We are aware that utility rates in many parts of the US have risen in recent years,and that the corresponding rise in end-user energy costs is not necessarily reflected in the data weve pulled from the URD.To better account for inflation,economic downturn,and utilities passing on the increases in marginal cost to deliver electricity to the end consumer,we have spot-checked several utility rate schedules with an emphasis on experimental,pilot,and other DCFC-specific rates.REVIEW OF UTILITY DEMAND CHARGES ACROSS THE USBelow are some general findings from our independent rate analysis(additional details and statistics can also be found in Appendix C).Note that tariffs with no demand charges(listed or otherwise)were not included in our statistical comparisons:IOUs typically have the largest number of C&I rate tariffs.This means there are more options to choose from,but not all tariffs are open to all customers,and they can also be more complex than those of other utility types.For example,the largest IOUs can have hundreds of business customer rates,each of which includes numerous rate-design features and agreement clauses that are updated and changed periodically.The highest demand charges we found were around$50 per kW.Regardless of utility type or region of the US where they operate,the maximum demand charges we found across all utilities and rates were around$50/kW,and only a small hand full of tariffs(utility rate schedules)included demand charges this high.Rate tariffs with higher demand charges are also more likely to include tiers.While this is far from a universal rule,we found that tariffs with higher demand charges often tier them either increasing or decreasing the charge according to certain qualifiers whereas tariffs with low demand charges are less likely to include tiers.However,we also identified quite a few rate tariffs that have$0/kW initial demand charge but apply a demand charge if the customer meets specific load factor(LF)or consumption threshold criteria(for a more-detailed definition and examples of LF,refer to Appendix A).More than 40%of the non-residential rate tariffs we reviewed have no demand charges.While it is possible that this is an artifact of the dataset we retrieved from the URD,we found that around 43%of all the non-residential rate tariffs we TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS24reviewed had no demand charge listed or the value was listed as$0/kW.This is consistent with reports on NREL rate modeling and analysis(e.g.,Muratori et al.,2019b).Relatively few rates include demand-charge TOU elements or tiering.While some C&I customer rate tariffs have complicated structures,including multiple tiers of demand charges that can vary by capacity,consumption,time-of-day,seasonally,or other factors,most rates are less complicated.IOUs had the lowest average and maximum demand charges in our review.The cooperative utilities we surveyed had the highest average demand charge at$9.60/kW,and the highest overall demand charge we found was for an industrial rate tariff offered by a public-power utility,at$53/kW.IOUs had the lowest average and maximum demand charges for those tariffs we reviewed in our analysis.Utilities operating in the Northeast had the highest average demand charge.Average demand charges were lowest and almost identical in the South and Midwest($7.25/kW).Average demand charges in the West were higher($9.40/kW),but they were highest among the Northeast utilities we reviewed,at$10.67/kW.EXPERIMENTAL RATES,PILOT TARIFFS,AND RECOMMENDED SCHEDULES FOR DCFCSAs we mentioned previously,it is within the electric utilitys best interest to balance cost recovery with the business viability of DCFC operations.To that end,they are exploring new rate designs that are more appropriate for DCFCs in different applications.In the near term when station utilization is low and so are customer load factors,were observing different strategies to essentially do the same thing;lower or cap monthly energy costs to make them more manageable and predictable for DCFC hosts.Below are some of the ways weve observed utilities making adjustments to demand-based charges:No demand charges.The rate tariff simply does not include demand charges(e.g.,utility-owned DCFCs have been placed on special rate tariffs without demand charges)TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS25 Eliminated demand charges.The rate tariff normally does include a demand charge,but the demand charge has been removed(for either an explicit or indefinite period)Reduced demand charges.Lowered per-kW demand charge for EV-specific rates Offer demand-charge holidays.Removing demand charges at specified dates or times Offer demand-charge grace periods.Allow customers to operate without incurring demand charges for a limited initial period Phase in demand charges.Low-to-no demand charges initially,with demand charges increasing over time(e.g.,with a corresponding decrease in volumetric charges)Cap demand charges.Setting a maximum per-kWh cost cap Load-factor based adjustments.A cap on monthly costs for low-LF customers TOU demand charges.Lowering demand charges at off-peak times Seasonal demand charges.Lowering and raising demand charges seasonallyIt is so far not necessarily clear which,if any,of these rate-reform strategies best reflect actual cost causation and cost-to-serve for DCFC loads from the utility perspective.Some of these strategies are likely to be more feasible in the near term(e.g.,reduce or eliminate demand charges),while others could deliver more long-term benefits(e.g.,load-factor based adjustments).Most of these approaches are generally often viewed as short-term solutions to the problem of high DCFC operating costs.For a list of utility experimental,pilot,and suggested rate schedules for DCFC customers,refer to Appendix C(Table C-1).INFLUENCE OF ON-SITE STORAGE,GENERATION,AND LOAD-CONTROLGenerally speaking,there are three fundamental approaches taken to reduce or manage energy costs associated with DCFC operation:1.Select the best utility rate relative to your unique energy-use characteristics;2.Apply load-management control technologies and techniques;and,3.Offset or supplement grid demand using power from on-site sources.While its certainly possible to apply all three approaches to help lower the operating costs of DCFC stations,these are listed in order of lowest-to-highest complexity.The low-lift option is to simply dial in the best-possible rate for your station,then“set it and forget it”(i.e.,dont manage or supplement grid power demand).In general,this is the easiest approach and preferred by station hosts.While option#1 may be perfectly acceptable for some DCFC station hosts,others may wish to employ more-sophisticated techniques and capture greater cost savings or other benefits.In general,approaches#2 and#3 tend to be synergistic,i.e.,implementing controls on-site electricity storage,generation,or both can deliver greater and more-diverse benefits than applying either in isolation.While its sometimes helpful to talk about on-site storage and generation collectively as DERs(distributed energy resources),for the sake of this discussion it is more valuable to consider them as distinct and separate technologies.There are different types of generation and storage technologies,each with their own unique operational,cost,and benefit characteristics.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS26DERS THAT SUPPORT DEMAND MANAGEMENT Battery energy storage system(BESS).A BESS tends to be a desirable form of energy storage because it is a flexible DER that can be charged and discharged rapidly and frequently as needed.As such,it is currently the only in-market,viable DER solution for managing DCFC station demand.BESS technology also operates in relative silence(though cooling fans can be heard on larger systems),and it can be deployed in a wide range of operating conditions and applications.BESS technology can be used to effectively manage demand and demand charges,though this requires precise controls,predictive analytics,and sizing.Charging and discharging batteries introduces energy losses,especially at high power rates,and this should be considered during system design.However,for larger DCFC stations and stations that are more-highly utilized,it is more difficult to make the case for using BESS as a reliable DCM strategy.OTHER DERS Solar photovoltaics(PV).Solar PV tends to be a desirable generation option because it is relatively low cost,silent in operation,easily co-located with buildings(e.g.,rooftop installations),and requires relatively little maintenance.PV is effective at helping to lower energy-related charges by reducing grid power consumption and in some cases,exporting power back onto the grid with reimbursement from the grid operator(e.g.,through a feed-in tariff).PV alone is not effective at managing peak demand or demand-related charges,since solar availability is intermittent and solar arrays would need to be very large to power a typical DCFC station.However,when paired with BESS,they may offer some desirable benefits for station hosts and EV drivers(e.g.,energy decarbonization,lower monthly energy bills).The low-lift option is to simply dial in the best-possible rate for your station,then“set it and forget it”.26TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS27 Wind generators.Similar to solar,wind generation tends to be desirable because it produces no emissions while operating and can be quite cost-effective relative to other energy resources.However,wind power is very site-dependent and not every location will have adequate wind resource.The best-quality wind resource also tends to be relatively high off the ground and away from buildings,making it even more difficult to site and co-locate with existing buildings.While its certainly possible to install on-site wind in support of DCFC operations,it is usually not the most-practical option.Wind generation alone not paired with energy storage is also not effective for managing peak demand.Fossil-fueled generators.The most well-established DER technology is the fossil-fueled generator.Often powered by natural gas,diesel,or propane fuels,generators are common,easily procured,and relatively low cost.More so than the other DER technologies mentioned so far,generators have well-established distribution channels,parts suppliers,and technicians familiar with their repair and maintenance.For emergency backup power,generators remain the go-to option for most applications.However,generators also have the worst emissions profile and carbon footprint of the technologies in this list,which is a big reason the other alternatives are being developed and promoted much more aggressively in recent years.They are not an appropriate option for daily use where environ-mental,health,or carbon restrictions apply.Fuel cells.Fuel cells are like a mix between a battery and a generator.As their name implies,some form of fuel is fed into the unit and used to generate electricity.The most common fuel types include methane(natural gas),hydrogen,and air.Fuel cells have an advantage similar to that of fossil-fueled generators,that they can operate grid independently as long as there is stored fuel available and are not subject to the same recharge limitations or state-of-charge(SOC)restrictions experienced by batteries.However,similar to batteries and in some cases more significantly,energy losses and costs are associated with producing,transporting,compressing,storing,and using the fuel.Microgrids.A grid is any conductive network connecting an electric source with one or more loads.The prefixes“micro”and“nano”can be confusing but are simply intended to denote an electric grid that can operate independently,in electrical isolation from the larger utility grid.What distinguishes a backup generator or stationary battery powering an emergency circuit from a full microgrid usually comes down to level of performance.A microgrid is often designed for resilience,with the intention of riding through multi-hour or even multi-day power outages on the utility grid.This added performance adds cost and complexity and is typically only worth the cost where site-specific factors dictate the need(e.g.,operating mission-critical equipment,offering community resiliency services).Of all the DERs,batteries are the technology class with the greatest demonstrated technical and economic performance and near-term potential for pairing with DCFCs to lower operating costs and improve performance(e.g.,power quality).Adding BESS to a project can add cost,complexity,and time(e.g.,for grid interconnection agreements),though in some circumstances it may help to reduce project timelines(e.g.,with DCFC-integrated batteries,where utility grid service is currently insufficient to meet station kW demand).A few studies have been conducted to assess the viability of installing batteries to specifically improve DCFC performance and lower costs.Like other studies on the benefits and opportunities associated with grid-tied BESS,they generally point to the conclusions:that distributed batteries are a low-cost option when compared to increasing grid capacity at the grid edge where there is no three-phase power available(e.g.,CEO,2021).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS28ENERGY AND ECONOMIC MODELING RESULTSTo better understand the financial implications of the most-popular demand mitigation strategies for utilities,site hosts,and EV drivers,we combined real-world DCFC session data and simulated energy systems to benchmark relative financial performance.Our primary focus is to model the five main mitigation strategies outlined in the executive summary:(1)remove demand charge;(2)cap max energy costs;(3)co-locate battery storage;(4)manage EV charging;and,(5)increase utilization and move to a capacity-based rate.As inputs for our modeling,we utilized loading and utilization data from EV WATTS,as well as anonymous data provided directly from electric utilities.These data represent the operation of more than 4,900 DCFC station connectors,as well as charging session data spanning more than three years(2019 2022).Station-and session-level data was made publicly available by Energetics for“corridor”and“undesignated”charging applications,while data for specific site types like retail and fleets are also provided but only in the aggregate(e.g.,average over large regions).Figure 4 depicts average daily DCFC utilization rates by location type(left)and overall(right)from the EV WATTS dataset.Average DCFC port utilization was found to be around 7ross all venue types,while LF values as of fall 2022 were around 2%on average for monitored station sites located all across the US(Figure 5).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS29FIGURE 4:DCFC UTILIZATION RATES REMAIN LOW FOR MOST APPLICATIONS EXCEPT FOR FLEETSFIGURE 5:APPROXIMATE LOCATIONS OF EV CHARGING STATIONS PARTICIPATING IN THE EV WATTS PROJECTSource:Energetics(2022,June).EV WATTS.Retrieved from:https:/ WATTS.Retrieved from:https:/ the nearly 5,000 DCFC ports tracked as part of the EV WATTS project,most show a similar load pattern with lower utilization at night and peak utilization in the afternoon.This corresponds well to solar generation availability and supports the case for increased priority of solar-sourced charging for DCFCs.The one exception is fleet charging,which on the whole demonstrates higher utilization rates at night while vehicles are presumably parked charging at a centralized fleet depot and relatively lower utilization rates in the middle of the day.Note also that these port utilization rates are time-based rather than energy-based,reflecting the amount of time vehicles spend plugged in vs.how much energy each EV received.While the EV WATTS data does not represent EV charging in every state,it provides better coverage and representation of real-world station operation than any other public dataset available in the US so far.You can see by the relative size of the blue bubbles in this map that sampling is concentrated in the Northeast,with additional pockets in Oregon,Colorado,Texas,and Michigan and more-scattered sampling elsewhere.About 13%of the total number of ports tracked were at DCFC stations,while the remaining are Level 2 chargers(note:for this study,we only considered the DCFC stations,ports,and sessions in our analysis).$52,65439%of people feel charging infrastructure is suficientTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS30MODELING APPROACHTo evaluate DCFC economic viability in the absence of data provided directly by EVSPs,we built a dynamic systems model using a combination of real-world public data,proprietary algorithms,and industry expert survey feedback(Figure 6).We ran simulations using NRELs REOpt to produce accurate BESS load profiles,and paired these with the outputs from our own proprietary DCFC demand-charge management and mitigation model.We did not consider potential resiliency benefits in this analysis,nor possible revenue streams from delivering other grid services.This is mostly because these value streams are difficult to quantify and/or are not available in all markets;market access for small DERs and energy consumers/producers(or so-called prosumers)remains quite limited so far.COMPARING COMMON MITIGATION STRATEGIESThrough our modeling,we investigated the relative impacts of common demand-charge mitigation strategies on utilities,DCFC station hosts,and EV drivers.We found that these mitigation strategies have the largest impacts on relative revenues realized by either utilities or station hosts in inverse amounts,while EV drivers tend to be less directly affected.In general,impacts to EV drivers are more-or-less at the discretion of utilities or station operators,to the extent that they choose to pass on costs or savings,manage charging,or install on-site DERs to supplement power and/or improve overall station performance.FIGURE 6:DYNAMIC SYSTEMS MODEL OF ENERGY AND MONETARY FLOWS FOR DCFC WITH SOLAR STORAGESource:E Source E Source built a custom model for this study,to simulate power and dollar flows between customers,DCFC station hosts,and electric utilities.Through station simulation,we tested different sizing and pricing scenarios to assess relative viability under varying site-specific conditions and utilization rates.While it was neither practical nor useful to attempt to model all potential system configurations and operating conditions,we selected likely scenarios based on real-world data in order to compare common demand-charge mitigation strategies.$52,65439%of people feel charging infrastructure is suficientTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS31REDUCE OR ELIMINATE DEMAND CHARGESWe found that lowering or removing demand charges can be an effective way to improve DCFC station financial viability for station site hosts.This is already a strategy used by some utilities and may be referred to as a“demand charge holiday”where the site hosts tariff temporarily has the demand charges lowered or removed(e.g.,when station utilization is low).We found that operating costs are more likely to be lower than the station revenues when the utility rate tariff includes no demand charge(e.g.,assuming charging session pricing is based on price parity with average per-mile gasoline prices).However,if the utility significantly increases volumetric charges in order to compensate for revenue loss associated with removing demand charges this may negate the benefits,depending on the local pricing for DCFC station charging sessions.This strategy represents a viable near-term solution,as evidenced by utility-only rates that do not include demand charges.However,in the mid-to-long term,reducing the utility revenues associated with demand charges could lead to a transfer of financial obligation to other stakeholders(e.g.,through alternate cost-recovery mechanisms,such as higher general customer rates).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS32CAP MAXIMUM ENERGY COSTSWe found that the most-common,rate-based mitigation approach taken by utilities thus far involves some form of cap placed on the maximum monthly energy costs a DCFC station host will incur.For low-utilization stations,this often takes the form of a two-part tariff:(1)either the station host pays the EV-specific rate,having both a demand and energy component;or,(2)the station host pays a set per-kWh amount for all energy consumed,whichever is lower.This approach serves as a useful near-to-mid term strategy for limiting the operating costs for DCFC station hosts and also helping to make energy costs more predictable from month to month.Consider a hypothetical example of a utility rate tariff having the following two-part structure:1.Station site host pays an energy charge of$0.08/kWh plus a demand charge of$5/kW;or,2.Station site hosts pays an energy charge of$0.25/kWh and no demand charge.The site host will pay the same fixed charges,including delivery fees,fines,etc.We assume here that the DCFC charging station has the same peak monthly demand of 600kW but different utilization rates in each scenario:2%utilization vs.10%utilization(Figure 7).Another way to think about this type of two-part tariff is in terms of load factor(LF).The LF is a measure of how much energy an electrical device consumes relative to how much energy it would consume if it were operated continuously,24/7.So for a DCFC unit,the LF is the ratio of energy dispensed to EVs over the total amount of energy the DCFC could have dispensed if it were operated around the clock.The LF reflects the reserved capacity needed to serve an end-use customers electrical loads from the grid operators perspective,relative to how much revenue they bring in from actually delivering electricity to that load.Below you can see a graphic of cost-per-unit of energy delivered to the customer versus LF.When LF is low,the customer pays more per unit of energy consumed.2%utilization10%utilization26.629.232.835.839.441.439.941.241.3$52,500$54,568$69,262$57,067$54,200$60,39032 samples 4,000Based on current adoption trend&states where BEVS are operated,it is expected that BEVS are less carbon intense than ICE vehicles after 19,000 miles of operationthat BEVS are less carbon intense than ICE vehicles afer 19,000 miles of operation228.1588.7%$3,690$2,160$6,456TWO-PART RATE COMPARISON$10,800More than 25 years21 to 25 years16 to 20 years11 to 15 years6 to 10 years0 to 5 years0 0%0 0%0$2,000$4,000$6,000$8,000$10,000$12,000FIGURE 7:RATES WITH CAPPED ENERGY COSTS CAN LOWER OPERATING COSTS FOR SITE HOSTSPart 1Part 2Source:E SourceFor this hypothetical two-part rate tariff,we can see that for 2%station utilization,the capped energy charge of$0.25/kWh represents the lower monthly cost and an energy cost savings of about$1,500 per month,relative to rate with demand charge.However,at 10%station utilization,the EV-specific rate with a lower energy charge demand charge represents a lower monthly energy cost and about$4,300 cost savings relative to the energy-only rate.Of course,if we change the relative magnitude of either the energy or demand charges,or assume differences in monthly peak demand,we will produce difference outcomes for these scenarios.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS33When the LF is higher,the customer pays less.By capping the per-unit energy costs for low-LF station operation,the utility limits the risk to the customer that would normally be present in a standard tariff with a demand charge(Figure 8).CO-LOCATE BATTERY STORAGEIt is tempting to assume that“batteries charging batteries”will alleviate all woes when it comes to grid upgrades and DCFC operational cost management.While this may someday be the case,batteries remain relatively expensive and in high demand due to limited manufacturing supply volumes and critical materials constraints.While this may eventually change at the federal level in the US as the domestic supply chain for batteries and EVs continues to mature battery cost and availability remains a limiting factor when implementing this strategy.For critical station locations where utilization is unlikely to grow in the near term including remote corridors,destination chargers,and sites with constrained utility serviced capacity the case for co-located batteries is strengthened.Demand-charge mitigation is currently the most universally viable value proposition for co-located(or internally integrated)batteries at DCFC stations.The cost-savings potential for demand-charge management is limited by the magnitude of the demand charge,which means this strategy cannot effectively be paired with the previous strategy(i.e.,lowering or eliminating demand charges).The monthly peak demand for a GASOLINE(CONVENTIONAL)$52,500$54,568$69,262228.1588.7%$0.00$0.50$1.00$1.50$2.00$2.50202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050661%6! 10200920112014201320152012201620172018$52,654Unit Energy Cost($/kWh)0 0%0 0%8%6%4%2%0%LOAD FACTOR-0 TO 25%FIGURE 8:A TWO-PART TARIFF,DEPICTED IN TERMS OF LOAD FACTOR(LF)VERSUS ENERGY COSTS$/kWhFlatSource:E Source;adapted from https:/media.ktoo.org/wp-content/uploads/2022/02/AELP-TA504-1-Experimental-High-Power-Electric-Vehicle-Charging-Final-1-24-22-w-Attachments.pdfWhile this rate structure can take many forms and include numerous variations in tariff detail,the intent and approach are generally the same:limit operating costs for low-use DCFC stations.Pictured here we have a special tariff designed for DCFC hosts,where below 10%utilization the per-unit costs are capped at$0.25/kWh and no demand charge is applied.At higher station utilization(10%),the rate reverts to a standard consumption demand tariff that demonstrates a lower monthly energy cost,relative to the flat per-kWh rate(as shown in Figure 7).The area between the rust-red and yellow lines represents potential cost savings to the site host for this two-part,LF-based rate,relative to the standard tariff.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS34DCFC will likely be similar from one month to the next,i.e.,the maximum rated output of the DCFC,the combined station power,or the utility service limit,based on available service capacity.For stations that have high demand charges and low utilization,a co-located battery could help to make station operation more economically feasible.But for stations with standard demand charges on the order of$5 to$15 per kW the upfront cost of the battery system will likely be prohibitive relative to the cost-savings potential of DCM,especially if station utilization increases rapidly.MANAGE EV CHARGINGThough EV managed charging is an increasingly popular topic within the energy industry,most EV charging remains unmanaged today.Controlling EV charging is theoretically a straightforward demand-mitigation strategy,but there are a number of complicating factors that prevent widespread adoption of this technique:Competing priorities.Where EVs and DCFCs are owned and operated by private individuals or organizations,managing these resources in response to real-time grid conditions is a challenge.Unless grid-responsiveness can somehow be made top priority,the ability to realize benefits from managed charging remains low.No mechanism.EV-specific rates dont require that EV charging is managed in order to enroll.And so far,utility managed-charging pilot programs have not settled on a preferred approach from signaling and controlling EV charging.Managing premise vs.system peaks.If utility customers are already engaged in demand-charge management to lower their own monthly energy costs,they are less likely to respond to signals related to their demand coincident the system grid peak(e.g.,demand response program notifications).Customers will optimize the use of a BESS to meet their own primary objectives and deliver the greatest benefit to themselves,as opposed to providing societal or system-wide benefits.We have observed this behavior in multiple BESS pilots and DR program evaluations.A major competing priority for public-access DCFCs is the need to meet customer expectations and maintain high customer satisfaction with timely charging.If site hosts attempt to slow or stop charging sessions in response to grid needs,they may lose customer loyalty and revenues.While it is theoretically possible to manage charging at any level,from zero to maximum rated power draw,weve seen no evidence so far that would indicate what an“acceptable”level of management looks like for public charging stations,and therefore this strategy remains difficult to evaluate realistically without more site-or customer-specific information.Also,there are now examples of state utility commissions expressly stating that EV managed charging and public DCFC stations for light-duty EVs are incompatible(e.g.,see New York State Department of Public Services CASE 22-E-0236 Proceeding to Establish Alternatives to Traditional Demand-Based Rate Structures for Commercial Electric Vehicle Charging).COMPARING COMMON DCFC STATION VENUESMost of the data that has been made publicly available for DCFC stations so far is for older/legacy stations with limited charging capacity(e.g.,50kW).The available evidence suggests that EV drivers prefer to charge at higher-power DCFC stations over lower-power stations and are more likely to use them wherever possible.As such,we would generally assume that utilization of newer and higher-power stations will tend to be higher than what we observed in the historical data,which was also impacted by COVID-19.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS35While DCFC sizes and configurations tend to be relatively similar and can be categorized based on a relatively small subset of equipment groupings,venues for DCFC stations can be quite different.For the EV WATTS project and publicly-reported analysis,public-access stations were grouped by venue into one of 8 categories:office,retail,municipal,medical/educational,parking lot/garage,leisure,transit,and hotel.Private fleet DCFC stations were also grouped separately.While some differences were observed between venue types in terms of daily load profiles and utilization rates,the biggest difference observed was between fleet and non-fleet stations(e.g.,see Figure 3).Here,we consider two DCFC station venue types and applications:gasoline refueling stations and corridor stations.GASOLINE REFUELING STATIONSSome fuel retailers are deploying DCFCs at existing refueling station locations.As just one example,announced mid-year 2022,GM is partnering with EVGo and Pilot/Flying J to deploy DCFCs at 500 travel centers across the US(see EVgo Announces EVgo eXtend Project to Deploy High Power Fast Charging Access to Drivers Across the US).Similar to this DCFC application,we considered the installation of two,350kW DCFCs at existing gas refueling stations with co-located BESS.In this scenario,a BESS can reduce demand under ideal system conditions and significantly reduce total grid energy consumption overall.However,this assumes optimal battery performance under ideal conditions,which is unlikely to materialize under real-world conditions.Assuming station utilization increases over time,a co-located BESS will tend to deliver more value in the early years of station operation and less value in the future,though this may be favorable from hosts perspective(e.g.,improving rate of return with early-year savings).A co-located solar PV system delivers relatively less benefit relative to project cost,and is therefore less likely to be worth installing at a DCFC station.CORRIDOR DCFC STATIONWith guidance from the US federal government,the new minimum standard DCFC power rating for corridor charging stations is 150 kW per unit,or about three times larger than the previous standard DCFC size(i.e.,50 kW).Installing four of these units at a single location is equivalent to an aggregate maximum station demand of around 600 kW.This is similar to the refueling station scenario in terms of total station power demand(i.e.,600 kW vs.700 kW),though with 4 chargers and up to 8 charge ports,low-to-moderate utilization stations will not reach peak demand as frequently as we see with the larger DCFC units.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS36While we have relatively little data on 150kW DCFC stations in operation so far,we do have data on stations with the equivalent power draw(e.g.,50 kW x 3 DCFCs).We analyzed real-world utilization data for one such station from the EV WATTS dataset for a corridor DCFC station in the Boulder,CO metro area.In spite of being in an EV early-adopter market and densely populated region,utilization over the three-year period of observation was relatively low(e.g.,1 to 5 daily charging sessions on average).Only rarely were two or more EVs plugged in at this station at the same time.Total energy dispensed per charging session on average was 18 kWh(Figure 9).At this rate of station utilization and energy sales,a 200 kWh battery could serve most daily energy needs at this station relatively effectively.However,the number of charging sessions occurring daily at this station is trending upward.This may simply be a rebound effective post-COVID,or it may be an indication that station utilization will continue to increase over time,in which case the relative value of a co-located battery system would tend to diminish over its useful life,without some“future-proofing”measures applied(e.g.,adding additional battery modules over time,creating new value streams).GASOLINE(CONVENTIONAL)$52,500$54,568$69,262228.1588.7020304050202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050660501001502002503503002010200920112014201320152012201620172018$52,654Energy dispensed(kWh)0 0%0 0%8%6%4%2%0%Session numberBOULDER METRO SATION-ENERGY PER SESSIONLorem ipsumFIGURE 9:ENERGY DISPENSED AT A DCFC CORRIDOR STATION IN THE BOULDER METRO AREASource:E Source;data from EV WATTS projectThis corridor DCFC station in the Boulder metro area has two DCFC units,each having two charge ports.Daily station utilization rates for this station over the three-year period of observation remained low,at around 2%.Energy dispensed per charging session at this station,as well as duration of charging sessions,remained relatively small over the period of observation.Station utilization rates are consistent with the average observed for all DCFCs participating in the EV WATTS study across the U.S.,even though we might expect it to be higher considering this is an urban station in an area we might expect to demonstrate higher level of EV ownership and station use.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS37FIGURE 10:ENERGY DISPENSED AT A CORRIDOR DCFC STATION IN THE DALLAS FORT WORTH METRO AREAWe also analyzed charging session data for a 50kW DCFC operating at a corridor location in the Dallas-Fort Worth metropolitan area over the same three-year period(2019 2022;Figure 10).Overall,utilization of this station was very low,logging only about 10%of the charging sessions observed at the Boulder station(i.e.,1%utilization).While we dont know the exact reason for this,a number of factors may be contributing,including lower levels of local EV adoption,inconvenient station siting,and lower desirability of the location and/or charger capability(e.g.,just one 50kW DCFC offering limited EV charging capability and performance).GASOLINE(CONVENTIONAL)$52,500$54,568$69,262228.1588.7020304050607080202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050660501001502002503503002010200920112014201320152012201620172018$52,654Energy dispensed(kWh)0 0%0 0%8%6%4%2%0%Session numberDALLAS METRO SATION-ENERGY PER SESSIONSource:E Source;data from EV WATTS projectThis public station has one DCFC unit with one charge port.We observe the trend that more energy is being dispensed per charging session over time.This is likely due to the wider availability of longer-range EVs with larger batteries in recent years.However,what we do not observe at this station is the trend toward increased number of charging sessions per day,as we saw at the Boulder location.In general,station utilization at this site remained very low for the entire three-year period.Assuming that station utilization does not increase over time,it will be difficult to operate this station profitably as a standalone business without a secondary motive(e.g.,as a loss-leader that attracts customers for some other business purpose,or to provide greater connectivity in a broader network consisting of other highly-utilized stations).However,for larger stations(e.g.,150kW DCFCs)and in post-COVID conditions,we expect to see more-favorable usage patterns in the futureTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS38IMPLICATIONS OF TARIFF DESIGNSome stakeholders in the EV industry are calling for utility rate reform to better support EV charging and DCFC station operation in particular and in response some utilities have been experimenting with a number of alternative rate designs.We discussed these general alternatives previously in this report(see Rate tariffs,demand charges,and mitigation strategies).We modeled a few of the actual utility rates for a 600kW DCFC station under varying station utilization rates.We demonstrate that some rates are more effective than others in terms of lowering site hosts monthly energy costs under low-utilization conditions(Figure 11).Monthly energy costs Monthly energy costs Monthly energy costs Monthly energy costs SUVPHEVBEVSedanTrucksConventionalElectricNew Car BuyersPositive/negative opinion about electric vehicles$15,000$10,000$5,0000$3,000$6,000$9,000$12,000$15,0000$1,000$2,000$3,000$4,000$5,000400021W %419%947 3%1.72MSchedule 24/26-LSchedule 45RateS-EV$1,175$4,388$9331%UTILIZATION0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000Schedule 24/26-LSchedule 45RateS-EV$5,946$6,243$4,5005%UTILIZATION0$2,000$4,000$6,000$8,000$10,000$12,000Schedule 24/26-LSchedule 45RateS-EV$10,896$8,563$8,95810%UTILIZATIONSchedule 24/26-LSchedule 45RateS-EV$12,242$10,882$13,41715%UTILIZATION$14,000$16,000$18,000$20,000$20,000$25,0002,6775,46110,56011,24229.232.835.839.441.439.941.241.32,677FIGURE 11:IMPACT OF RATE TARIFF AND UTILIZATION ON MONTHLY DCFC STATION ENERGY COSTSSource:E Source;data from utility rate tariffsHere we compare three rate tariffs that might apply to a 600kW DCFC station host:one with a demand charge of$6.35/kW(Schedule 45),one with no demand charge at low load factor(Schedule 26-L)or a demand charge of$13.85/kW at higher load factors(Schedule 24),and one with no demand charge but a consumption charge of$1.44/kWh during critical peak periods(Rate S-EV).The bars depict DCFC station host monthly energy costs(paid to the electric utility).If we assume peak season(summer)and peak-time consumption rates with most charging(90%)occurring outside of critical peak periods for Rate S-EV we observe that energy costs are below revenues(green dotted line)for most rates across the utilization scenarios.The one exception is observed at low station utilization(1%)for Schedule 45 where a demand charge is applied;energy costs in this case far exceed anticipated revenues,where we assume flat pricing of$0.40/kWh by the station host to the EV drivers for their charging sessions.We see that the cheapest rate for the site host at low utilization(Rate S-EV)is the most-expensive rate at the highest utilization level considered here.For more details on each of these tariffs,refer to Table C-1 in Appendix C Rate analysis.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS39Weve discussed the cost and grid-capacity concerns associated with DCFC operation at great length throughout this report,but those are not the only issues worthy of consideration.While DCFCs deliver concrete and indisputable value for EV drivers helping to assuage their range anxiety and enable long-distance travel there are also non-financial concerns that should be addressed or at the very least considered.We discuss some of them here and highlight opportunities to potentially address these concerns in the future.BATTERY LIFE AND DEGRADATIONMost EV charging events occur at Level 1 or Level 2 rates so far.This commonly occurs in the home,at the workplace,or in a fleet depot.The fundamental nature of most battery chemistries dictates that the faster you recharge them,the faster you will degrade those batteries and shorten their useful life,due to internal resistance and heating that tends to break down their materials.While EV battery technology continues to improve year over year,there remains the non-trivial issue of accelerated battery degradation due to frequent fast charging.While there has been much concern voiced over the impacts associated with vehicle-to-grid(V2G)functionality on EV battery life,EV drivers seem generally less concerned about fast charging.However,there is growing evidence to suggest that regular DCFC use will reduce the useful life of an EVs batteries(e.g.,see What 6,000 EV battery lives tell us about EV battery health).ADDITIONAL CONCERNS AND CONSIDERATIONSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERSTRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS40EQUITY AND ACCESSSome EV owners are unable to recharge their vehicles at home because they live in an apartment,dont have off-street parking,or otherwise dont have regular and reliable access to EV charging at home.For these drivers,workplace and public-access EV charging are critical.Its important that we help to maintain affordable refueling options for these individuals,even as levels of service and rate of recharge continue to go up in response to popular demand.For example,EV drivers in the San Francisco Bay Area who live in apartments and cannot charge at home have reported to us that they pay more to use public-access DCFCs in the city than they would be paying to refuel a conventional car with gasoline(even at relatively high Bay Area gas prices).This is at least in part due to the high energy costs paid by site hosts in that area,and these equity concerns have been reported on by station hosts as well(e.g.,see recent comments made in federal proceedings to the US Environmental Protection Agency).BATTERY SWAPPINGWhile battery swapping was a popular concept several years ago that seemed to have gone the way of the dodo bird when Better Place went out of business,it is currently experiencing a revival in interest.If EV battery swapping became popular,it could help to limit the need for DCFCs and corresponding grid strain.By swapping out a discharged battery with a recharged one,the discharged batteries can then be recharged more slowly before being swapped back into another vehicle.This in turn could impact future expectations for DCFC utilization and overall economic viability.It remains to be seen if battery swapping will succeed in the market,but from a grid operators perspective it may be a more desirable option relative to serving DCFC loads.SECOND-LIFE BATTERY APPLICATIONSThere is also significant interest in using aged EV batteries as stationary energy storage,including for DCFC applications.The irony here is that the more frequently an EV uses a DCFC during its useful life,the less likely its battery will be in sufficiently good condition at end of life to be used for a secondary application.New technologies are being advanced to help gauge the remaining useful life of used EV batteries and determine what second-life applications are likely to make the most sense for each pack(e.g.,Montes et al.,2022).TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS41SOLID-STATE POWER ELECTRONICSNew technologies are being commercialized today that have the potential to introduce real step-changes in electrification.Solid-state technologies are among the most promising.From solid-state transformers to circuit breakers and even battery storage,this is a rapidly-evolving area of development that will significantly impact EVs,EV charging,and grid operations.As one manufacturer recently reported to us“Weve literally run millions of cycles on our new solid-state units,and have observed no obvious signs of degradation.So far,we still have no idea how this equipment will degrade over time or what the failure modes will actually look like,or when those might occur.”These technologies generally help to reduce space needs,expand manufacturing capacities,increase power capacities,improve responsiveness,reduce latency times,and make power electronics far more controllable in general.While we think its still too early to promote any of the vendors in this space,we are actively tracking new developments and demonstrations.DEMAND RESPONSEWe read in multiple prior studies that utilities report a desire for demand response(DR)capabilities for DCFCs,but so far we have not observed much movement on this issue.DR involves reducing the power draw from electrical equipment(such as a DCFC unit)during a peak demand period on the electrical grid(e.g.,a hot summer day when air conditioning use is high).Most EVs enrolled in DR programs are light-duty vehicles charging at home using Level 2 equipment.It is not obvious to us that it even makes sense to enroll a public-access DCFC into a utility DR program,just as EV managed charging and DCFC stations may be incompatible.Only stations with co-located BESS may be able to participate in such programs without negatively affecting the customer experience.Technically speaking,it may not be difficult to control a DCFC to respond to a DR signal or event,but logistically this use case has not been proven out yet.COMMUNICATIONS NETWORKSAnother issue that does not get nearly enough attention is that of communicating with DCFC equipment and having adequate communications infrastructure in place to serve this equipment.For any project where the DCFC station and/or on-site DERs will be operated to deliver secondary benefits such as in the service of DR programs,managed-charging programs,frequency-regulation markets,emergency backup power,or other services low-latency communications are critical to effective resourcing.Some efforts are now under way to coordinate across industries to help lower costs and improve outcomes,e.g.,through so-called“dig once”initiatives to bury new power lines and fiber optics cables at the same time and place.But so far,communications needs tend to be underappreciated,undervalued,and deficiencies tend to be discovered too late to effectively address performance concerns.TRANSPORTATION ENERGY INSTITUTE|EVC|DEMAND CHARGE MITIGATION STRATEGIES FOR PUBLIC EV CHARGERS42CONCLUSIONS AND RECOMMENDATIONSInstalling a DCFC station is a larger undertaking than many people realize;its a civil engineering project with significant electrical requirements.These stations tend to be expensive to install and operate,so its important to carefully consider all aspects of station design,sizing,and utilization before making the investment.Choosing the right electric rate tariff is just one of many considerations,but it is an important one(for more details on choosing the right tariff,see Appendix A Background Information).Its also important to keep in mind that the best rate tariff for operating a DCFC station today is likely to change over time.Its important to consider the tradeoffs between faster charging and cost to serve EV loads.DCFC station utilization so far remains very low at most station locations and for most brands,and we have no certainty about exactly how utilization rates will grow over time and space.While some customers may be willing to pay more for faster charging in some cases,not all customers will be willing or able to pay for premium EV-charging services and experiences(e.g.,low-income customers).Many customers may also expect to pay less to charge their EV than what it costs to refill a gasoline vehicle(e.g.,$0.50 per kWh equivalent),so its important to consider the retail cost of gasoline and diesel fuel relative to electric fuel pricing.RELATIVE EFFECTIVENESS OF COMMON MITIGATION STRATEGIESThrough the course of this study,we identified several strategies that can be used to mitigate high demand charges from electric utilities for DCFC operation,with varying degrees of effectiveness:1)Eliminate demand charges.This is likely the simplest and most-effective way to make DCFC st
2024-09-12
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