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Use number: 1 CRAN – Finnish hard chrome authorization consortium 1 ANALYSIS OF ALTERNATIVES and SOCIO-ECONOMIC ANALYSIS Legal name of applicant(s): Cr-Te Plating Oy, Kova-Kromi Oy, Oy Kromatek Ab, Pirkan Kovakromaus Oy, Saizeri Plating Oy, Turun Kovakromi Oy, Veljekset Wallenius Oy Submitted by: Oy Kromatek Ab Substance: Chromium trioxide, EC 215-607-8, CAS 1333-82-0 Use title: Use of chromium trioxide in Cr(VI) based functional plating. Use number: 1

ANALYSIS OF ALTERNATIVES and SOCIO-ECONOMIC ANALYSIS

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Use number: 1 CRAN – Finnish hard chrome authorization consortium

1

ANALYSIS OF ALTERNATIVES

and

SOCIO-ECONOMIC ANALYSIS

Legal name of applicant(s): Cr-Te Plating Oy, Kova-Kromi Oy, Oy Kromatek Ab, Pirkan Kovakromaus Oy, Saizeri Plating Oy, Turun Kovakromi Oy, Veljekset Wallenius Oy

Submitted by: Oy Kromatek Ab

Substance: Chromium trioxide, EC 215-607-8, CAS 1333-82-0

Use title: Use of chromium trioxide in Cr(VI) based functional plating.

Use number: 1

ANALYSIS OF ALTERNATIVES and SOCIO-ECONOMIC ANALYSIS

Use number: 1 CRAN – Finnish hard chrome authorisation consortium

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CONTENTS

LIST OF ABBREVIATIONS ............................................................................................................................. 6

DECLARATION .................................................................................................................................................. 7

1. SUMMARY .................................................................................................................................................. 8

2. AIMS AND SCOPE OF THE ANALYSIS ............................................................................................. 9

2.1. Aims of the analysis ............................................................................................................................. 9

2.2. The applicants ....................................................................................................................................... 9

2.2.1. Background ............................................................................................................................. 9

2.2.2. Finnish hard chrome authorisation consortium .................................................................. 9

2.3. Scope of the analysis .......................................................................................................................... 10

2.3.1. Supply chain and geographical scope of SEA ................................................................. 10

2.3.2 Temporal scope ..................................................................................................................... 13

3. APPLIED FOR “USE” SCENARIO ....................................................................................................... 13

3.1 Cr(VI) based functional plating ......................................................................................................... 13

3.1.1 Cr(VI) based functional plating process ............................................................................ 14

3.1.2. Chemical reactions ............................................................................................................... 14

3.2. Analysis of substance function ......................................................................................................... 15

3.3. Market and business trends including the use of the substance ................................................... 15

3.3.1. Annual tonnage ..................................................................................................................... 16

3.4. Remaining risk of the “applied for use” scenario .......................................................................... 16

3.5. Human health and environmental impacts of the applied for use scenario ................................ 17

3.5.1. Number of people exposed ................................................................................................. 17

3.5.2. Monetised damage of human health and environmental impacts ................................. 18

4. SELECTION OF THE “NON-USE” SCENARIO ............................................................................... 20

4.1. Effort made to identify alternatives .................................................................................................. 20

4.1.1. Research and development ................................................................................................. 20

4.1.2. Data searches ........................................................................................................................ 20

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4.2. Identification of known alternatives ................................................................................................ 21

4.3. Assessment of shortlisted alternatives ............................................................................................. 21

4.3.1. Cr(III) based functional plating .......................................................................................... 21

4.3.1.1. Substance ID, properties, and availability ........................................................... 21

4.3.1.2. Technical feasibility of Cr(III) based functional plating ................................... 21

4.3.1.3. Economic feasibility and economic impacts of Cr(III) based functional plating ...................................................................................................................................... 22

4.3.1.4. Availability of Cr(III) based functional plating .................................................. 23

4.3.1.5. Hazard and risk of Cr(III) based functional plating............................................ 23

4.3.1.6. Conclusions on Cr(III) based functional plating ................................................. 23

4.3.2. Thermal sprays ..................................................................................................................... 23

4.3.2.1. Technical feasibility of thermal sprays ................................................................ 23

4.3.2.2. Economic feasibility and economic impacts of thermal sprays ........................ 24

4.3.2.3. Availability of thermal sprays ............................................................................... 24

4.3.2.4. Hazard and risk of thermal sprays ......................................................................... 24

4.3.2.5. Conclusions on thermal sprays .............................................................................. 24

4.3.3. Electroless plating ................................................................................................................ 24

4.3.3.1. Technical feasibility of electroless plating .......................................................... 24

4.3.3.2. Economic feasibility and economic impacts of electroless plating .................. 25

4.3.3.3. Availability of electroless plating ......................................................................... 25

4.3.3.4. Hazard and risk of electroless plating ................................................................... 25

4.3.3.5. Conclusions on electroless plating ........................................................................ 25

4.3.4. Vapour deposition methods ................................................................................................ 26

4.3.4.1. Technical feasibility of vapour deposition methods ........................................... 26

4.3.4.2. Economic feasibility and economic impacts of vapour deposition methods .. 26

4.3.4.3. Availability of vapour deposition methods .......................................................... 27

4.3.4.4. Hazard and risk of vapour deposition methods ................................................... 27

4.3.4.5. Conclusions on vapour deposition methods ........................................................ 27

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4.3.5. Conclusion on shortlisted alternatives............................................................................... 27

4.4. The most likely non-use scenario ..................................................................................................... 30

4.4.1. The economic environment of the applicants and the non-use scenario in practice ... 31

5. IMPACTS OF GRANTING AUTHORISATION ................................................................................ 34

5.1. Socio-Economic impacts ................................................................................................................... 34

5.1.1. Input-output model methodology ...................................................................................... 35

5.1.2. Multipliers used in the input-output analysis ................................................................... 37

5.1.3. Job loss estimation ............................................................................................................... 39

5.1.4. Economic impacts of the granting of the authorisation .................................................. 40

5.2. Human Health or Environmental Impact ........................................................................................ 42

5.3. Social impacts ..................................................................................................................................... 42

5.4. Wider economic impacts ................................................................................................................... 43

5.5. Distributional impacts ........................................................................................................................ 44

5.6. Uncertainty analysis ........................................................................................................................... 44

5.6.1. Monte Carlo simulation ....................................................................................................... 45

5.6.2 Scenario analysis ................................................................................................................... 47

6. CONCLUSIONS ........................................................................................................................................ 50

6.1. Comparison of the benefits and risk ................................................................................................ 50

6.2. Information for the length of the review period ............................................................................. 52

6.3. Substitution effort taken by the applicant if an authorisation is granted .................................... 52

7. REFERENCES ........................................................................................................................................... 53

Annex – Justifications for Confidentiality Claims ......................................................................................... 55

APPENDIXES .................................................................................................................................................... 57

Appendix 1 Input-output model ............................................................................................................... 57

Appendix 2 Monte Carlo simulation excel-example ............................................................................. 61

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TABLES

Table 1. Background information about the applicants................................................................................ 10

Table 2. Annual tonnages ................................................................................................................................. 16

Table 3. Summary of excess risk levels and corresponding duration of exposure ................................... 17

Table 4. Number of workers ............................................................................................................................ 17

Table 5. Population density of the regions where the applicants locate. ................................................... 18

Table 6. Estimated Concentration of Ground-Level Cr(VI) ng/m3 ............................................................ 18

Table 7. Monetised excess cancer impact ...................................................................................................... 18

Table 8. Monetary values for fatal cancer cases, based on the ECHA Guidance ..................................... 19

Table 9. Health impacts based on estimated excess fatal cancer incidences ............................................. 19

Table 10. Properties of alternative technologies compared to Cr(VI) based functional plating. ........... 29

Table 11. I-O entries .......................................................................................................................................... 38

Table 12. Economic impacts ............................................................................................................................ 41

Table 13. Economic impacts in 2014 price level .......................................................................................... 41

Table 14. Distributional analysis ..................................................................................................................... 44

Table 15. Inputs of Monte Carlo simulation for value added ...................................................................... 45

Table 16. Results of value added Monte Carlo simulation .......................................................................... 46

Table 17. Overview of Monte Carlo simulated value added impacts ........................................................ 47

Table 18. Value added loss in Scenario 1 in 2014 price level ..................................................................... 48

Table 19. Gradual recovery in Scenario 2 in 2014 price level .................................................................... 48

Table 20. Conclusion of scenario analysis ..................................................................................................... 49

Table 21. Comparison of benefits and risk .................................................................................................... 51

Table 22. An overview of an input-output table............................................................................................ 57

Table 23. Gross domestic product calculation: production and income approaches ............................... 60

FIGURES

Figure 1. Map of applicants’ location ............................................................................................................. 11

Figure 2. The applicants’ chromium trioxide sourcing arrangements ....................................................... 11

Figure 3. Downstream supply chain................................................................................................................ 12

Figure 4. The circular flow of income and expenditure ............................................................................... 35

Figure 5. Derivation of the IO multipliers ...................................................................................................... 39

Figure 6. Distribution of projected value added ............................................................................................ 46

Figure 7. Conclusion of scenario analysis ...................................................................................................... 49

Figure 8. Example of Monte Carlo simulation .............................................................................................. 62

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LIST OF ABBREVIATIONS

CIS Commonwealth of Independent States

Cr(III) Trivalent chromium

Cr(VI) Hexavalent chromium

CRAN Finnish hard chrome authorization consortium

CrO3 Chromium trioxide

CSR Chemical safety report

CVD Chemical vapour deposition

DC Direct current

EC European commission

EEA European Economic Area

EPA US Environmental Protection Agency

EU European Union

EUR Euro

GDP Gross Domestic Product

H2SO4 Sulphuric acid

HCl Hydrochloric acid

HV Vickers hardness

HVOF High velocity oxy-fuel

I-O Input-output

LBE Local Business Environment

MNC Multinational Manufacturing Company

NSS Neutral salt spray test

OEM Original equipment manufacturer

PDF Probability density functions

PVD Physical vapour deposition

R&D Research and development

SEA Socio-economic analysis

SVHC Substances of very high concern

US United States (of America)

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1. SUMMARY The applicants use chromium trioxide (CrO3) in the Cr(VI) based functional plating technology, meaning that a layer of chromium metal is applied onto articles produced by other companies. Cr(VI) based functional plating is used because of the many beneficial properties it confers to the products. These properties include but not limited to hardness, wear resistance, corrosion resistance and dimensional accuracy. Cr(VI) based functional plating can also be used to repair worn parts by adding a new layer of coating on them.

The hazardous nature of Cr(VI) is well known to the plating industry and there has been a lot of effort to look for alternatives or alternative technologies for the Cr(VI) based functional plating. Many alternatives have been suggested, but none of them are able to cover all end customers’ applications. The applicants have been proactive in finding a replacement, for example, they have been liaising with a Finnish company which is developing a novel plating method based on the Cr(III) functional plating. In addition, some of the applicants have taken part in EU funded research projects with the aim of finding a replacement for the Cr(VI) based functional plating. In this report, four alternative technologies were analysed in more detail: Cr(III) based functional plating, thermal spray technologies, electroless nickel plating and vapour deposition methods. It is concluded that none of these alternatives are technically feasible to replace Cr(VI) based functional plating in a way that the applicants could continue their current business model. The possibility to replace the Cr(VI) based functional plating with a combination of the above mentioned alternatives is not considered to be economically feasible.

If the applicants could no longer use CrO3, they would close down their whole business. This would result in lost jobs and value added in the European society. The total monetised socio-economic impact is a cost of EUR 7.881 million during the applied for review period. The wider economic impacts such as the erosion of competitiveness and Finland’s attractiveness as an investment target, as well as the decreased economic and social development in the local communities have not been monetised but should also be considered as risks to the society.

The main benefit of the non-use scenario is the reduced exposure to a carcinogenic substance. The health impacts on workers and the general population related to the carcinogenicity due to the use of chromium trioxide by the applicants ranged from EUR 627,420 to 1,346,686 during the applied for review period. By comparing the human health impacts with the socio-economic impacts, the net benefit of the applicants’ continued use of chromium trioxide is between EUR 6.534314 to 7.253580 million. This conclusion is further supported by a comprehensive uncertainty analysis.

The report concludes that the benefits of the applicants’ continued use of chromium trioxide are substantial and considerably outweigh the associated risks. Based on the best available current and the applicants’ knowledge, it is highly unlike that any new alternatives could be found and industrialised during the applied for review period.

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2. AIMS AND SCOPE OF THE ANALYSIS

2.1. Aims of the analysis The applicants are using chromium trioxide (EC 215-607-8; CAS 1333-82-0) in the Cr(VI) based functional plating technology. Chromium trioxide (CrO3) is classified as carcinogenic (category 1A) and mutagenic (category 1B). It is not considered a threshold substance and, therefore, the adequate control of risks arising from the applied for use of the substance cannot be demonstrated in accordance with Annex I, section 6.4 of Regulation (EC) No 1907/2006.

In the analysis of alternatives part the aim is to demonstrate that none of the alternative technologies are ready to replace the Cr(VI) based functional plating in order to cover all end customers’ applications in a technically and/or economically feasible way. The aim of the socio-economic analysis part is to assess whether the socio-economic benefits of the continued applied for use of CrO3 outweigh the risks to human health and the environment.

2.2. The applicants

2.2.1. Background The work to establish a Nordic consortium of CrO3 users and importers started already in early 2013. After mapping the interested users and importers, a scoping study was conducted with all relevant parties. The aim of the scoping study was to characterize and possibly group end users and importers by the definition of their uses of the substance, the conditions of uses, the alternative landscapes and the potential non-use scenarios. As a result the Finnish hard chrome authorisation consortium (CRAN) was formed, based on the similarity of the above mentioned aspects so that this application will be as representative as possible for the whole group of applicants. All the companies are small or micro-sized companies, providing the Cr(VI) based functional plating technology as a service to their clients in Finland. A more detailed description of the applicants is found below.

2.2.2. Finnish hard chrome authorisation consortium The applicants applying for the continued use of the substance are all companies providing the Cr(VI) based functional plating technology as a service in Finland. With the technology a layer of chromium metal is applied onto articles produced by other companies. The applicants do not produce any components themselves; instead, they provide plating services as subcontractors to manufacturers from a wide range of industries.

The main purpose of the Cr(VI) based functional plating is to achieve a layer of protection, which increases corrosion resistance, reduces friction between mechanical parts, provides dimensional accuracy and makes the material more durable. Sometimes the existing chromium coating is damaged and its beneficial properties are lost. In that case, Cr(VI) based functional plating can be applied to repair the damaged surface and restore the beneficial properties.

ANALYSIS OF ALTERNATIVES and SOCIO

Use number: 1 CRAN

Figure 3. Downstream supply chain

The first layer consists of component manufacturers, the applicants, grinding, hardening and other metal workshops. Except the component manufacturers, tare micro- and small enterprises. These companies are specialized in onprocess of providing the end-other words, the operators live in symbioses, whachieve the quality requirements of the original equi

The second layer consists of the soOEMs assemble intermediate products made by the first layer companies to a finished endproduct. The OEMs are divided into two types depenon-use scenario. Type 1 companies are usually local manufacturers and/or assemblers of components produced by the have optimized their supply chain in Fintheir products functionally plated, maintenance/correction plating.alternative sourcing arrangementmanufacturing facilities outside of EU. If this is not possible, the whole company will be at jeopardy. Type 2 OEM companies are large multinational enterprises with global manufacturing network. It would be relatively easy for them to move their existing non-EU locations in the nonimpact is likely to be small, but the manufacturing (assembly) facility inside EU will likely to be closed and there will be socio 4 There are a vast amount of industries and companies using chr

production process. So the demand of maintenance plating is expected to stay stable in future regardless of the authorisation

Maintenance plating is introduced more widely in the section 5.4.

ANALYSIS OF ALTERNATIVES and SOCIO-ECONOMIC ANALYSIS

Use number: 1 CRAN – Finnish hard chrome authorisation consortium

Downstream supply chain

The first layer consists of component manufacturers, the applicants, grinding, hardening and Except the component manufacturers, the operators of the first layer

and small enterprises. These companies are specialized in one phase of the overall -products with the Cr(VI) based functionally plated surface. In

other words, the operators live in symbioses, who are heavily linked with each other to achieve the quality requirements of the original equipment manufacturers (layer 2).

The second layer consists of the so-called original equipment manufacturers (OEMs). The OEMs assemble intermediate products made by the first layer companies to a finished endproduct. The OEMs are divided into two types depending on their ability to cope under the

use scenario. Type 1 companies are usually local manufacturers and/or assemblers of local supply chain. They are medium sized enterprises which

have optimized their supply chain in Finland. They rely on the applicants’ service to have their products functionally plated, and a part of them also use the applicants’ services for maintenance/correction plating.4 In the non-use scenario type 1 OEMs would have to find

angements from non-EU countries, or consider moving their manufacturing facilities outside of EU. If this is not possible, the whole company will be at

companies are large multinational enterprises with global would be relatively easy for them to move their

EU locations in the non-use scenario. In other words, at the company level the impact is likely to be small, but the manufacturing (assembly) facility inside EU will likely to

losed and there will be socio-economic impacts to the local community.

tries and companies using chromium plated items, which need maintenance, in their

production process. So the demand of maintenance plating is expected to stay stable in future regardless of the authorisation

Maintenance plating is introduced more widely in the section 5.4.

ECONOMIC ANALYSIS

ation consortium

12

The first layer consists of component manufacturers, the applicants, grinding, hardening and he operators of the first layer

e phase of the overall Cr(VI) based functionally plated surface. In

are heavily linked with each other to pment manufacturers (layer 2).

called original equipment manufacturers (OEMs). The OEMs assemble intermediate products made by the first layer companies to a finished end-

nding on their ability to cope under the use scenario. Type 1 companies are usually local manufacturers and/or assemblers of

local supply chain. They are medium sized enterprises which land. They rely on the applicants’ service to have

use the applicants’ services for use scenario type 1 OEMs would have to find

EU countries, or consider moving their manufacturing facilities outside of EU. If this is not possible, the whole company will be at

companies are large multinational enterprises with global would be relatively easy for them to move their production to

use scenario. In other words, at the company level the impact is likely to be small, but the manufacturing (assembly) facility inside EU will likely to

economic impacts to the local community.

items, which need maintenance, in their

production process. So the demand of maintenance plating is expected to stay stable in future regardless of the authorisation.

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The third layer consists of end-users of the machineries. The end-users are industrial manufacturers operating in paper, forest, marine, process and infrastructure industries etc. In the non-use scenario end-users would find alternative sourcing arrangements, but may suffer temporary financial losses due to interruptions in their operations.

As hitherto mentioned the business environment of the applicants’ is complex and the socio-economic impacts are felt not only by the applicants, but also by a large number of other industrial players linked to and dependent on each other. Practical examples are given in section 4.4.1 in the form of case studies.

2.3.2 Temporal scope The temporal scope is set as the length of the review period asked for. The applicants’ factories and machinery are suitable for years to come. They do not need to do major new investment at least in 12 years. As described in the later sections, the applicants are service providers. They are not in a position to decide on the alternatives or alternative technologies. Only when an alternative substance or technology has gained acceptance by the majority of the end user industries, it makes sense for the applicants to make the replacement. The possibility of substitution will still be subject to the financial capability of the applicants.

From an exposure point of view, it is important to keep in mind that the human health and environmental impacts may materialise long after the use of the substance has ceased. However, the majority of the Cr(VI) is converted to Cr(III) once in the environment. Furthermore, Cr(III) is not considered a carcinogenic and mutagenic toxic oxidation stated of Cr metal. Therefore it can be assumed that the health and environment impacts will last till the use of CrO3 ceases.

The duration of economic impacts is considered shorter than the review period asked for, as will be explained later.

3. APPLIED FOR “USE” SCENARIO

3.1 Cr(VI) based functional plating As mentioned before, the applicants do not have any own production of components or machinery parts. Instead they provide a Cr(VI) based functional plating service to manufacturers from many different industries (for example paper, process, textile, lumber and marine industry). Thus, they work as subcontractors for their clients. The applicants apply the chromium coating to products that can vary in size from less than half a meter across to eight meters long and in weight from <500 kg to 4 tonnes. As the applicants work as subcontractors for their clients, they are not in the position to influence the material or coating technique that is applied to the product, as the specifics are set by the customers. The customers come to the applicants for the Cr(VI) based functional plating technology. The products that are coated with chromium are usually essential for the function of the end products (e.g. valves for district cooling systems or riddle drums used in pulp separation). The chrome coating gives the products many beneficial properties, including, but not limited

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to, corrosion protection, hardness, wear resistance, dimensional accuracy and small friction coefficient. Not all the properties are essential for all products, but Cr(VI) based functional plating is the only technique that is applicable for all relevant industry sectors.

3.1.1 Cr(VI) based functional plating process The Cr(VI) based functional plating process is essentially an electrolytic process. The process that the applicants utilise is divided into two sections: pre-process treatment and the main process. The detailed description of the applicants’ processes can be found in the CSR.

3.1.2. Chemical reactions Chromium trioxide forms chromic acid in aqueous solution (1) which in turn protonates producing chromate (2)5.

CrO3 + H2O ⇌ H2CrO4 (1)

H2CrO4 → 2H+ + CrO42- (2)

Chromate transforms spontaneously into dichromate as the two exist in equilibrium in aqueous solution (3)5.

2CrO42- + 2H+ ⇌ Cr2O7

2- + H2O (3)

Once the electric current is turned on, the plating process starts. However, the mechanism of how chromium is deposited on the surface of plated object is still under debate. It is known that at the beginning of the process the so-called “cathode film” forms and it is essential for the electro-deposition of the chromium6. The formation of the cathode film is made possible by the catalyst bisulphate ion. The bisulphate ion also has important role in the actual chromium deposition reaction. According to the prevalent theory, in the acidic conditions of the plating bath other polychromates also exists, namely tri- and tetrachromate. The chromium deposition reaction starts from the decomposition of trichromate to chromium (II) hydroxide. The chromium (II) hydroxide then forms a dipole complex with the bisulphate ion, which can be absorbed on the cathode. Once near the cathode, two electrons are transferred to Cr(II) and metallic chromium is deposited on the cathode surface. Subsequently bisulphate ion is regenerated in the reaction6. In addition, other reactions also occur on the cathode. Dichromate reacts to form Cr(III) (4), which is considered as a contaminant. Hydrogen gas is also released from the cathode (5). Hydrogen evolution is inhibited by the cathode film, but not entirely.

Cr2O72- + 6e- + 14H+ → 2Cr3+ + 7H2O (4)

2H+ + 2e- → H2(g) (5)

Over at the anode, water is oxidized to release the oxygen gas (6). Simultaneously Cr(III) is oxidised back to dichromate (7)5.

2H2O → O2(g) + 4H+ + 4e- (6)

5 Svenson 1980, 2006 6 Mandich and Snyder, 2010

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2Cr3+ + 7H2O → Cr2O72- + 6e- + 14H+ (7)

3.2. Analysis of substance function The function of the Cr(VI) based functional plating using CrO3 include but is not limited to increasing corrosion resistance, reducing friction between mechanical parts (0.12 sliding coefficient6), providing dimensional accuracy and making the material more durable (e.g. hardness in between 900-1000 HV7). Different customers of the applicants will have different reasons/functional requirements for using the Cr(VI) based functional plating, because they produce various products that have different requirements for the chromium coating.

Hardness, corrosion protection, wear resistance properties, small friction coefficient and dimensional accuracy are all important qualities for industrial valves used in different applications in process industry, which are manufactured by yet another applicants’ customer. The customer utilizes standards that specify the requirements for the properties of the coating, for example minimum for hardness, thickness and corrosion protection

These properties are tested by the client with standard tests, e.g.

In conclusion, the chromium coating confers many beneficial properties to the products. What the applicants get as product specifications are often just the thickness of the deposited chromium layer, as their clients will do their own functional testing to ensure the coating has the qualities specified by their own industry standards.

3.3. Market and business trends including the use of the substance Chromium trioxide, or more specifically the Cr(VI) based functional plating, is applied mainly for technical but also economic reasons. The regulatory environment of Cr(VI) substances has been tightening for many years, together with pressure created by the increasing awareness of the general public, the industry has tried to move away from Cr(VI) substances wherever suitable alternative is available.

It is expected that alternative technologies will develop continuously, so the use of CrO3 is expected to decline in long-term future. On the other hand, because of the economic growth,

7 Kova-Kromi products brochure

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4. SELECTION OF THE “NON-USE” SCENARIO

4.1. Effort made to identify alternatives

4.1.1. Research and development The applicants are small- and micro size companies which do not have the ability to finance or have the know-how to conduct their own research, nor do they have the facility to conduct such research. Because of the business model, the applicants cannot start experimenting new plating technologies by themselves. New technologies are suggested by their customers who have first tested the technologies in their products and verified the functionality of the new technology. Despite of the applicants limited resources, few of the applicants have taken part in various research programs in search of alternatives to the Cr(VI) based functional plating technology. These programs include 3 EU-funded research projects ECOCHROM9, RecyChrom10 and Development of a workplace friendly and environmentally acceptable hard chromium plating process (CRAFT project number BRST-CT96-0224). The aims of the projects was to find a suitable alternative for the Cr(VI) based functional plating technology or reduce the exposure of workers. The conclusions of these projects are that there is no individual technology that would be able to replace the Cr(VI) based functional plating.

In addition, some of the applicants have been liaising with a Finnish company that has been developing a new, state of the art Cr(III) based coating method. To date, they have been mainly developing the method in laboratory conditions and not at industrial scale. The method was said to be suitable for many applications (e.g. hydraulic cylinders, valves and shock absorbers) through the customization of the mechanical properties of the coating. Thus it offers the possibility to develop the system specifically for each customer.

The applicants have expressed their interest to work in cooperation with the Finnish company to develop this method at industrial scale. The novel Cr(III) plating method has already been tested by some clients of the applicants with a few test pieces, which manifests once again the fact that the alternative technology development is driven by the applicants’ customers. The applicants have offered to purchase a license for the Cr(III) plating technology from the afore mentioned Finnish company. So far the company has not been able to provide such license due to the fact that the method is not mature for use at industrial scale. In conclusion, the technology is deemed technically unfeasible and commercially unavailable at the moment.

4.1.2. Data searches For this report, the following databases were searched:

• Google Scholar

• Google Books • Google

• FreeFullPDF

9 http://ipm2.eu/projects/ecochrom/ 10 http://cordis.europa.eu/project/rcn/51957_en.html

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Search terms used included, but were not limited to: chrome, chromium, trivalent, plating, alternative coating methods, vapour deposition methods, HVOF, electroless plating.

In addition, interviews with various experts have been conducted. They include but are not limited to experts from VTT (Finnish National Research Institute), Helsinki Metropolia University of Applied Sciences, Suomen galvanotekninen yhdistys Ry (Finnish electroplating technology association) and formulator/technology supplier Candor Sweden AB.

4.2. Identification of known alternatives If it is not possible to use Cr(VI) based coating anymore, one option is to change the product material to something which does not need additional coatings to function. Depending on the end-user’s industry, alternative material could include different grades of stainless steel or titanium. Naturally, it is up to the OEMs to evaluate what is the best material for their product. The applicants cannot make the decision for the end users and therefore this scenario is not considered feasible in the context of this application.

In addition to the Cr(VI) based functional plating, there are a number of different coating technologies currently in use for different end-user products. Alternative technologies which were considered most relevant for the applicants (Cr(III) based functional plating, thermal spray -methods, namely HVOF, electroless plating and vapour deposition methods) are discussed below in more detail.

4.3. Assessment of shortlisted alternatives

4.3.1. Cr(III) based functional plating

4.3.1.1. Substance ID, properties, and availability The solutions used in Cr(III) plating are more complex than the ones used for Cr(VI) plating. Cr(III) is typically added to the bath either as chromium chloride or chromium sulphate. Other ingredients include various additives acting as complexants (for example formates) and wetting agents.

4.3.1.2. Technical feasibility of Cr(III) based functional plating Currently Cr(III) plating has been used mainly for decorative purposes, but there are increasing efforts to develop the Cr(III) based plating also for functional purposes. The equipment used for Cr(III) plating are essentially the same as the ones used for Cr(VI) based functional plating. As Cr(III) based plating is very similar technology as Cr(VI) based functional plating, it is considered by some as a potential drop-in replacement11. However there are some fundamental differences concerning the power supply. In the Cr(VI) plating direct current flows uniformly from cathode to anode. Cr(III) plating utilises different power source with so called pulse/pulse reverse waveform. The pulse/pulse reverse waveform consists of a forward pulse (cathodic pulse), followed by a reverse pulse (anodic pulse) and a relaxation period, when no current is conducted. Chromium is deposited to the cathode

11 Kagajwala et al., 2012

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surface during the forward pulse and respectively dissolved during the reverse pulse11. Other differences include the composition of anodes. In Cr(III) plating anodes are not necessarily composed of lead: there are also composite anodes. If lead anodes are used, they are usually shielded by boxes filled with sulphuric acid thus preventing oxidation of the anode.12

Cr(III) plating is able to produce comparable physical properties to Cr(VI) based functional plating. Cr(III) plating is reported to have higher current efficiency (35% vs. 15% of traditional Cr(VI) plating) and better throwing power (plates the object in uniform thickness). However, Cr(III) based electroplating process is more difficult to control and so far there has not been commercially available Cr(III) plating technology that would be able to produce thick and hard deposits. According to the applicants’ experience, the coating tends to crack when large areas are plated with Cr(III) plating method. Cr(III) plating process is more sensitive to metallic impurities, which is why the bath chemistry and conditions require more precise control.

There are several Cr(III) plating technologies commercially available13. However, there is very little information on how these technologies have been implemented at industrial scale. There is information of only one case publicly available where Cr(VI) based plating has been changed to Cr(III) based plating process14.

The research and development of a Cr(III) plating technology that could replace functional Cr(VI) plating has been ongoing for at least 20 years. However, a technically feasible alternative that would be applicable for the majority of industrial applications has not been developed yet. The experts interviewed are of the opinion that the development of Cr(III) based functional plating to replace the Cr(VI) based functional plating could take another 20 years, if not more.

4.3.1.3. Economic feasibility and economic impacts of Cr(III) based functional plating Cr(III) plating chemicals are more expensive than Cr(VI) plating chemicals, but on the other hand the process will be more efficient. It is to be noted that if the Cr(VI) based technology is not available, the market has to accept a changed operational cost any way. What is important for decision making will be the comparison of operational cost of the alternative technologies, not how they are compared to the Cr(VI) based functional technology.

The applicants would have to invest mainly in the new energy source and possibly buy additional plating tanks, depending on the Cr(III) plating process utilised. In addition, an investment to a system maintaining the optimal operating conditions has to be made. It is estimated that the investment cost for the applicants to change to the Cr(III) plating technology would be in the range of EUR 100,000.

12 NEWMOA, 2003

13 Legg, 2003

14 TURI, 2012

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4.3.1.4. Availability of Cr(III) based functional plating As the technology is not technically feasible, it is not available for the applicants by the sunset date.

4.3.1.5. Hazard and risk of Cr(III) based functional plating Trivalent chromium ions are not strong oxidizers and they are not suspected carcinogenic agents. Therefore, Cr(III) process offers risk reduction and is a safer alternative.

4.3.1.6. Conclusions on Cr(III) based functional plating Although Cr(III) plating is able to produce a chromium layer on metal articles, it is not universally accepted as a functional plating method. This is because it is hard to produce thick and hard coatings with Cr(III) based technology, the colour of the deposited plating is different and the process is difficult to control. Also, Cr(III) coatings tend to crack when large surface are plated. Therefore, it is concluded that Cr(III) plating is not technically feasible at the moment. It is estimated that the technical feasibility wouldn’t be achieved in 20 years.

4.3.2. Thermal sprays

4.3.2.1. Technical feasibility of thermal sprays Thermal spraying alternatives for Cr(VI) based functional plating have been extensively researched by commercial and military aircraft sectors. Thermal spraying includes several technologies. Materials suggested for the thermal spray technologies include WC-Co, WC-CoCr, Cr3C2-NiCr, Ni5Al and TiN. Thermal spray technologies require expertise to master. If done well, higher quality coating with long service life will be achieved. Thermal spraying is currently applied mainly on rotating cylinder surfaces or coatings of small parts of an object.

One of the more used spray-technologies is the High Velocity Oxy-Fuel (HVOF) spray coating. The principle of the HVOF coating technology is to use a supersonic flame, which accelerates particles of the coating material to high velocity. When the coating material hits the substrate, these high-velocity particles form a very coherent, low porosity coating. Hardness of the coating is in the range of 1100-1400 HV. Its wear resistance and corrosion protection properties are also better than Cr(VI) based functional coatings. The coating process usually results in rough surfaces, which is why the coating may require some post-deposition machining.

A major disadvantage of HVOF for the applicants is that it is a line-of-sight application. Therefore coating of inner surface with small diameter (like the insides of riddle drums for pulp separation) is very difficult, if not impossible. In addition, temperature of the coated surface will increase to the range of 150-400°C during the coating process, which can distort and damage the substrate material being coated. Therefore the technology is only applicable on substrate material that can withstand the high process temperatures.13,15,16

15 TURI, 2006

16 Legg, Choosing a Hard Chrome Alternative

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4.3.2.2. Economic feasibility and economic impacts of thermal sprays The investment costs to thermal spray equipment are estimated to be around EUR 500,000. In addition, applicants would be required to pay for installation and possible changes in infrastructure. Operational costs are estimated to be 5-10 times more expensive per unit produced than the Cr(VI) based functional plating. Production costs are dependent on the fuel used and how the quality of plating is analysed after the plating.

4.3.2.3. Availability of thermal sprays Thermal spraying equipment and chemicals are commercially available by various retailers.

4.3.2.4. Hazard and risk of thermal sprays The hazard profile of thermal spraying depends on the coating material used. There are hazardous and less hazardous coating materials.

4.3.2.5. Conclusions on thermal sprays Thermal spraying alternatives include many technologies, e.g. HVOF. High hardness and good wear and corrosion resistance properties can be achieved with the HVOF coating. Coating of inner surfaces is very hard with HVOF because it is a line-of-sight technology. In addition, the processing temperatures are high (150-400°C), which is why only limited substrate materials can be used. In other words, the technology is suitable for only a small portion of the applicants’ client applications. In addition, the investment costs for HVOF equipment, installation and infrastructure can increase over EUR 500,000.

In conclusion, thermal spray methods are considered to be technically and economically unfeasible alternative for the applicants.

4.3.3. Electroless plating

4.3.3.1. Technical feasibility of electroless plating The mostly used material for electroless plating is nickel. The coating is deposited by controlled chemical oxidation of e.g. sodiumhypophosphite and reduction of nickel ions onto a catalytic surface. The process functions without the use of electric current. There are various Ni composites available commercially for electroless plating, of which the most commonly used are Ni-P and Ni-B.

A major advantage of the electroless Ni plating is the uniform thickness of the deposit, independent of the substrate geometry. Thus, electroless nickel is particularly applicable for plating inside holes with small internal diameter and complex parts. Hardness of deposited electroless Ni-P plating is in the range of 500-700 HV, which can be increased up to 1100 HV with heat treatment. Respective numbers for Ni-B coatings are 650-750 HV and up to 1200 HV. The process temperature is slightly higher than in Cr(VI) plating, 90-95°C. The temperature required for the heat treatment is usually around 300-400°C. Corrosion resistance properties of electroless Ni platings are good, but the heat treatment needed for higher hardness will reduce the corrosion resistance of the plating.

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Maintaining the correct bath chemistry is difficult and frequent bath disposal as toxic waste is required. As deposited hardness of electroless Ni is too low for the applicants’ customers, the use of heat treatment is needed to increase hardness, which would limit the selection of substrate material.13,16

4.3.3.2. Economic feasibility and economic impacts of electroless plating Electroless plating can also be considered as a potential drop-in alternative, as same pre-treatment tanks can be utilised but main process tanks (where plating occurs) have to be bought anew. The investment cost for new plating tanks are estimated to be in the range of EUR 100,000 to 200,000. The production costs are at least 2-3 times higher than the Cr(VI) based functional plating, because the plating time is long and more energy is required to maintain the bath at the operating temperature. For making thicker deposits, products need to stay in the plating bath several hours longer than with chromium plating. This means that the productivity of the applicants will drop significantly, making the business unprofitable and therefore unsustainable. For these reasons electroless Ni plating is considered to be expensive technology and economically unfeasible.

4.3.3.3. Availability of electroless plating There are several suppliers of electroless plating technology and chemicals used in the plating.

4.3.3.4. Hazard and risk of electroless plating A major disadvantage of electroless Ni plating is that nickel is already placed in the EPA-17 toxic substances list and it is currently under consideration to be added to the ECHA’s Candidate List of SVHC for Authorisation. In addition, nickel ions that can be released from the coating are known to cause nickel-dermatitis (nickel allergy). Therefore, nickel based alternatives can only be considered at the best as a temporary solution before a more permanent alternative is developed.

4.3.3.5. Conclusions on electroless plating One of the advantages of electroless plating is its ability to produce coatings with uniform thickness. However, as deposited hardness is low (500-700 HV) which can only be increased with a heat treatment that renders many substrate materials unavailable for the use of this technology. It must be noted that nickel, as chromium, is toxic and is already placed on the EPA-17 toxic substances list. It also readily induces allergic reactions when in direct contact with skin. Therefore it must be questioned if there is any advantage in changing from Cr(VI) based functional plating into an alternative that is also based on toxic substance. In addition, long plating time and high production costs make electroless plating an economically unfeasible alternative.

In conclusion, the technology is not considered to be a suitable alternative.

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4.3.4. Vapour deposition methods

4.3.4.1. Technical feasibility of vapour deposition methods There are two vapour deposition plating methods: physical vapour deposition (PVD) and chemical vapour deposition (CVD). In PVD the coating material is in solid state in the beginning. It is then evaporated with either an electric arc, electron beam or sputtered to go through plasma and landed on the component surface, forming a very hard but thin layer. In CVD the coating material is in gas or vapour phase, and reacts with the hot surface of the object being plated to form a coating via chemical reaction. The technologies have a lot in common, for example the cost of the technology and size of items that can be coated. In both technologies, the item being coated is placed in a reaction chamber, which limits the size of products that can be coated. In addition, the same coating materials, such as hard nitride, TiN, CrN and diamond-like coating, are used in CVD and PVD.

PVD coatings are essentially inert and therefore do not corrode. PVD coatings are usually only a few microns thick (3 µm). If the coating is any thicker than 3-5 µm, internal stress tend to increase and it may cause some problem for adhesion. The coatings are extremely hard, up to 2000-3000 HV. Unfortunately, PVD methods are also line-of-sight technologies. Thus they are ill suited for plating inner surface with small internal diameter. However, some methods have been developed to coat insides of tubes, pipes and gun barrels. PVD methods are highly sensitive to contaminants. In addition, PVD process temperatures can reach 250°C.

Unlike PVD, CVD can be used to coat complex objects or inner surfaces because the coating material is in gas form. CVD deposition rate is high and it is possible to deposit thicker coatings, although usually the coatings are only a few µm thick. One major problem with CVD is the high process temperature. The chemical reaction needs activation energy which is most commonly produced by thermal activation. Thus, the process temperature is as high as 1000°C. The high processing temperature can be reduced by using plasma down to 500°C, which is still above the tempering temperature of many substrate materials.15,16

4.3.4.2. Economic feasibility and economic impacts of vapour deposition methods The main drawback of vapour deposition methods is its high cost compared to the output. Other limitations are the size of vacuum chamber, which determines the production capacity and versatility (flexibility to coat different sizes). The cost of coating the product with a vapour deposition method is over 5 times more expensive than the Cr(VI) based functional plating.

The cost for the applicants in investing on the PVD technology equipment is estimated to be between EUR 500,000 and 3,000,000 and the price of CVD is even higher.

In conclusion, PVD and CVD methods are considered economically unfeasible.

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4.3.4.3. Availability of vapour deposition methods PVD and CVD equipment and chemicals are commercially available by various retailers.

4.3.4.4. Hazard and risk of vapour deposition methods PVD is environmentally benign method. The gases involved are either argon or nitrogen and the deposited metals are in solid form. However, after deposition, the reaction chamber has to be cleaned, and care must be taken to avoid worker exposure to fine metal dust.

In CVD the coating materials are usually hazardous: poisonous, pyrophoric, explosive or when combined with water vapour in the air they can create hazardous fumes, such as HCl.

In conclusion, the hazardous properties of PVD or CVD method are dependent on the coating material and method used.

4.3.4.5. Conclusions on vapour deposition methods Both PVD and CVD are able to produce hard coating with good corrosion protection properties. However, the main disadvantage of these methods is the fact that the coating takes place in a reaction chamber, which will limit the size of objects that can be coated. In addition, the process temperature is high, especially in CVD, which in turn limits the use of certain substrate materials. PVD is a line-of-sight technology which poses its own problems. In addition, either method cannot be used for repairing of worn parts. CVD plating materials are also usually hazardous. Furthermore, plating with these methods is more than 5 times more expensive than with Cr(VI) based functional plating, and investment costs to vapour plating equipment can be very expensive. In conclusion, vapour deposition methods are considered to be technically and economically unfeasible.

4.3.5. Conclusion on shortlisted alternatives Because of the hazardous properties of CrO3, industries have been looking for alternatives for the Cr(VI) based functional plating for a long time. A number of alternative coating technologies are available at the moment, for example vapour deposition methods (PVD and CVD), thermal sprays (e.g. high velocity oxy-fuel method), and other electroless or electroplated coatings. These alternative technologies have both advantages and disadvantages compared to chromium plating. None of them are versatile and robust enough to enable the applicants to continue its current business model. Therefore, the applicants would have to set up separate production lines for different technologies in order to serve all their customers. As presented in Table 1 in section 2.2.2 the turnovers of the applicants vary between approx. EUR 250,000 and 1,600,000. Taking that aspect into consideration even purchasing cost of only one alternative technology is challenging for the applicants. Another concern is that financing for the necessary investment will be unavailable to the applicants, as the sector is not considered attractive.

The process conditions in some alternative technologies are also prohibitive e.g. high temperatures during deposition. Some alternatives are only applicable to small items, for example the vapour deposition methods, because the plating takes place in a reaction chamber. In addition, line-of-sight technologies are not considered feasible alternatives as it

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is very difficult to coat the inner surfaces of objects with small internal diameter with these technologies (e.g. riddle drums for pulp separation). The process robustness of the alternative technologies is usually inferior compared with the Cr(VI) based functional plating. They are usually not applicable for maintenance and repair of worn parts. The technical and economic feasibility of the analysed alternative technologies are compared to Cr(VI) based functional plating in Table 10 below.

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It has to be stressed here again that the applicants do not have the possibility to decide the changes themselves. The decision for the change of technologies comes from the clients who know what type of plating suits best for their products. Ideally, the applicants would need a drop-in alternative that fulfills all the technical requirement, could be operated with the equipment already in place in the current facilities, or with minimum investment and easy to operate. In addition, the alternative should be accepted by the majority of the end users in order for it to be worth the replacement.

In conclusion, there is no suitable alternative for the applicants by the sunset date and the asked for review period.

4.4. The most likely non-use scenario If the applicants could no longer use CrO3 in Cr(VI) based functional plating, their ability to create value disappears. Their infrastructure and knowhow do not allow easy change of business/service areas. The sale of their business and current facility will practically be worth nothing. From Table 1 one can see that the applicants do not have the financial capability to invest extensively in R&D, build new factories, relocate or invest extensively in order to implement multiple alternative technologies. This would result in the closing down of their operations and consequently the loss of jobs, production and value added.

The other specialized metal workshops in the first layer of the supply chain that live in symbiosis with the applicants might also need to close their business, or at least suffer severe decreases in their order backlog for the near future until new partnership and new customers sectors can be found. Consequently they may have to lay off workforce.

In the non-use scenario type 1 OEMs would have to find alternative sourcing arrangement from non-EU countries, or consider moving their manufacturing facilities outside of EU. If this is not possible, the whole company will be in jeopardy. Either way there will be negative socio-economic impacts to the local community, and the company will need to invest extensively for the alternative set-ups. Type 2 OEMs are large multinational enterprises with global manufacture network. It would be relatively easy for them to import or move their production to existing non-EU locations in the non-use scenario. In other words, at the company level the impact is likely to be small for the type 2 OEMs, but the manufacturing (assembly) facility inside EU will likely to be closed and there will be socio-economic impacts to the local community.

In the non-use scenario end-users would find alternative sourcing arrangement from non-EU countries, but may suffer temporary financial losses due to interruptions in their operations.

The dynamics of the applicants’ business environment in the non-use scenario is illustrated in the following section by three concrete case studies.

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4.4.1. The economic environment of the applicants and the non-use scenario in practice Next cases are presented to describe the business environment where the applicants are operating, the supply chain and the impacts of the non-use scenario.

Case 1 – Finnish-based manufacturer of high quality valves

This case demonstrates a situation where a local OEM (Type 1), Customer A, utilizes subcontracted Cr(VI) based functional plating as a phase of its own manufacturing process. If Cr(VI) based functional plating would not be available in the local business environment, Customer A would have to transfer its products to non-EU locations for plating.

With the most comprehensive range, Customer A is the world’s leading manufacturer of high quality valves specifically developed for the most demanding District Heating and District Cooling applications. Customer A also has an extensive range of valves developed for Oil & Gas applications as well as heating and cooling systems.17

Customer A is a Finland-based family-owned business delivering products and services that save energy and improve the environment. The company’s headquarter and two factories are based in the southern part of Finland. Its production takes place only in Finland. Customer A delivers its products and services to customers worldwide. Customer A is known for high quality, fast delivery and superior customer service as well as its specialized expertise in energy and the environment, especially for the district heating and cooling.17

Customer A uses Cr(VI) based functional plating to enhance the valves’ durability, corrosion resistance and reliability in critical applications and challenging environments, such as district cooling systems. Customer A manufactures its own components and assembles them after the plating and related activities. For plating, Customer A utilizes specialized Cr(VI) based functional plating company; one of the applicants. Customer A’s Cr(VI) related supply chain is as follows:

→ Component manufacturing by Customer A

→ Cr(VI) based functional plating by one of the applicants

→ Other players of layer one for further surface treatment

→ Assembly by Customer A

→ Utilisation by the end-user

In the non-use scenario Customer A would probably ship its products to non-EU locations for plating. Shipping products back and forth is expensive and sometimes there is technical restrains for that, so Customer A could also decide to relocate their product line to non-EU locations. Every part of the supply chain would suffer in the non-use scenario. The impacts are:

17 Customer A’s website

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• One of the applicants would lose contracts, jobs and they would have to shut down

• Other members of the first layer of the supply chain would lose contracts, jobs and eventually they may have to shut down

• Customer A

→ Would have increased production cost due to additional transportation cost

→ If customer A decides to relocate, there will be significant one-time cost and job loss in Finland

→ In either case there will be quality instability in Company A’s products

• End-user may suffer from unstable quality and delayed delivery

Case 2 – Finnish-based manufacturer of equipment and vehicles for underground mining

and tunnel construction

This case demonstrates a situation where a local OEM (Type 2), Customer B, utilizes subcontractors for component manufacturing. Subcontractors manufacture parts for the end-product which Customer B assemblies. Each subcontractor usually produces only one phase of Customer B’s total manufacture process. Cr(VI) based functional plating is one phase of this subcontractor manufacturing chain. If Cr(VI) based functional plating would not be available in this local business environment, Customer B would probably transfer its entire production to non-EU locations and integrate into a new local business environment there.

Customer B provides advanced solutions for selected customer processes by manufacturing equipment and vehicles for underground mining and tunnel construction. Customer B’s head office is located in Central Finland, and manufacturing facilities in Finland, Chile and Sweden. Customer B has established a distribution and service network with headquarter in Switzerland, and sales and support facilities in 37 locations in 24 countries around the globe. Customer B employs close to one thousand business professionals. Customer B Group's turnover in 2012 totaled over EUR 230 million.18

Customer B uses Cr(VI) based functional plating to enhance its products’ durability, corrosion resistance and reliability in critical applications and challenging environments, such as concrete spraying in tunnels. The supply chain of Customer B’s products is as follows:

→ Component manufacturing and hardening by specialised metal workshop

→ Cr(VI) based functional plating by one of the applicants

→ Grinding and finishing of the components by a specific metal workshop

→ Assembly of the components by Customer B

18 Customer B’s website

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→ Utilised by the end-user

In the non-use scenario Customer B would probably relocate its European production to the factory in Chile. Every part of the supply chain would suffer in the non-use scenario. The impacts:

• One of the applicants would lose income, jobs and they would have to shut down

• Also the other Customer B’s suppliers in supply chain layer 1 would be in trouble, like the applicants, depending on the size and diversification of their work pool. Income and jobs would be lost.

• Customer B

→ would suffer from one-time cost of relocation and (probably) decreased quality

→ The relocation means job loss in Finland

• End-user may suffer from unstable quality and delayed delivery

Case 3 – Global Power Systems company

This case demonstrates a situation where a global OEM (Type 2), Customer C, utilizes subcontractors for component manufacturing in local business environment. Subcontractors manufacture parts for the end-product which Customer C assemblies. Cr(VI) based functional plating is one phase of this subcontractor manufacturing chain. If Cr(VI) based functional plating would not be available in this local business environment, Customer C would probably transfer its entire production to non-EU locations to one of its existing factories.

Customer C is a Power Systems company which has been providing power for aircraft, ships and land applications for more than a hundred years. It has a world leading range of products in the marine segment, encompassing vessel design, the integration of complex systems and the supply and support of power and propulsion equipment. Customer C is a leader in mission-critical systems for offshore oil and gas rigs, offshore, merchant and naval vessels. Today the Customer C marine product range is one of the broadest in the world. Seventy of the world’s maritime forces and over 30,000 commercial vessels use its equipment. Customer C’s global support network underpins all activities and continues to expand with 50 centres in 28 countries.19

Customer C uses Cr(VI) based functional plating to enhance its products’ durability, corrosion resistance and reliability in critical applications and challenging environments, such as rescue jet-skis and other critical watercrafts applications. In the case of Cr(VI) based functionally plated products, Customer C is an Original Equipment Manager. Customer C uses specialized workshops to conduct different phases of the production process. In other 19 Customer C’s website

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words Customer C buys finished parts and assembles them into the final product. The supply chain of Customer C’s products is as follows:

→ Component manufacturing and grinding by various metal workshops

→ Cr(VI) based functional plating by one of the applicants

→ Grinding and assembling by various metal workshops

→ Final assembling by Customer C

→ Utilisation by the end-user

In the non-use scenario Customer C would probably stop producing in Finland (EU) and shift the production to one of its factories outside of EU. Impacts of the non-use scenario vary a lot between the different supply chain players. The impacts are:

• One of the applicants would lose income, jobs and they would have to shut down

• Also the other Customer C’s suppliers in supply chain layer 1 would be in trouble, like the applicants, depending on the size and diversification of their work pool. Income and jobs would be lost in any case.

• Customer C

→ would suffer from one-time cost of relocation

→ The relocation means job loss in Finland

• End-user may suffer from unstable quality and delayed delivery

Conclusion

As the above mentioned cases demonstrate, the socio-economic impacts will be much far reaching than the applicants themselves and it would significantly underestimate the real situation, if estimating impacts solely on the applicants. The socio-economic impacts are estimated in the next chapter.

5. IMPACTS OF GRANTING AUTHORISATION

5.1. Socio-Economic impacts The main social and economic impacts of the non-use scenario are discussed and analysed below. The costs presented in the analysis are the differences in costs and benefits when comparing the non-use scenario to current operations. Monetised values are provided when available but when it is not possible to quantify the impacts, they have been described qualitatively instead. The economic impacts are analyzed using the so-called input-output model. The methodology is described below.

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5.1.1. Input-output model methodologyAn economic impact is not just a onethe economy affecting many other operators than the one initially impacted. Inputanalysis is a well-known quantitative method to study wide range of applications. It quantifies the effects that different sectoras a whole, for a particular region. Inputaffects others. It illustrates that the output of one sector can in turn become an input for another sector. By understanding these linkages it is possible to predict how a change in one sector will affect the other sectors.contemporary economics, the circular nature of the economy, known as the circular flow of income. It’s a concept for better understanding of the economy as a whole. In its most basic form it considers a simple economy consisting solely of businesses and indiviIndividuals provide the labour that enables businesses to produce goods and services. The transactions can also be thought in terms of the monetary flows that occur. Businesses provide individuals with income in exchange for their labour. That incomon the goods and services businesses produce.

Figure 4. The circular flow of income and expenditure

Therefore, impact analysis with economy and therefore is a more realistic reflection of what might happen in the society at large. The traditional cost-benefit analysis based on the applicant’s data

20 State of Hawaii 2013, p.2-3.

21 Doms, Moyer & Pritzker 2014

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methodology An economic impact is not just a one-time cost. It starts a chain reaction which flows through the economy affecting many other operators than the one initially impacted. Input

known quantitative method to study economic impacts and it is used for a wide range of applications. It quantifies the effects that different sectors have on the economy as a whole, for a particular region. Input-output analysis explains how one industry sector

s that the output of one sector can in turn become an input for another sector. By understanding these linkages it is possible to predict how a change in one sector will affect the other sectors.20 In addition, it captures one of the basic paradigms of

emporary economics, the circular nature of the economy, known as the circular flow of income. It’s a concept for better understanding of the economy as a whole. In its most basic form it considers a simple economy consisting solely of businesses and indiviIndividuals provide the labour that enables businesses to produce goods and services. The transactions can also be thought in terms of the monetary flows that occur. Businesses provide individuals with income in exchange for their labour. That incomon the goods and services businesses produce.21

The circular flow of income and expenditure21

with the input-output model can truly capture the dynamics of the economy and therefore is a more realistic reflection of what might happen in the society at

benefit analysis based on the applicant’s data only will be

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time cost. It starts a chain reaction which flows through the economy affecting many other operators than the one initially impacted. Input-output

economic impacts and it is used for a have on the economy

output analysis explains how one industry sector s that the output of one sector can in turn become an input for

another sector. By understanding these linkages it is possible to predict how a change in one t captures one of the basic paradigms of

emporary economics, the circular nature of the economy, known as the circular flow of income. It’s a concept for better understanding of the economy as a whole. In its most basic form it considers a simple economy consisting solely of businesses and individuals. Individuals provide the labour that enables businesses to produce goods and services. The transactions can also be thought in terms of the monetary flows that occur. Businesses provide individuals with income in exchange for their labour. That income is, in turn, spent

model can truly capture the dynamics of the economy and therefore is a more realistic reflection of what might happen in the society at

only will be biased to

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underestimate the impacts. In theory cost-benefit analysis could be done for all relevant parties, but it is challenging in practice. Data collection for cost-benefit analysis on the second- and third layer operators is not only laborious, but also unlikely to be successful, taking negotiation power of the applicants into consideration. In other words the gathering, handling and sharing of confidential business information of customers and other stakeholders of the applicants is going to be highly challenging, and the resulting data set quality will be too poor to be representative.

Input-output analysis does not require a large amount of time-series data, which is usually hard to get and inconsistent. Input-output analysis is a detailed snapshot of the input-output linkages that occur in the regional/local economy. This can then be used to predict the consequences of a change in the regional/local output. The approach is based on the simple but fundamental notion that the production of output requires inputs. It works on the principle of double-entry book keeping whereby there is equality between the gross inputs and gross outputs of a sector. The total output of a sector must be accounted for by the inputs used in the production, any excess of the value of gross output over payment made for inputs is profit (or loss) and is shown in the payments sector.22

Clark (2010) and Charney & Vest (2003) have studied assumptions, advantages and disadvantages of input-output model which are listed below. There are a number of assumptions underlying the input-output technique that should be noted:

1. It is assumed that production technology is one of fixed proportions. Thus inputs would have to double if output doubled. This relationship is assumed to be constant over the period for which forecasts are to be made.

2. It is assumed to be no constraints on productive capacity, in other words the supply of factor inputs is perfectly elastic.22

The main advantages of input-output technique are:

• IO models are very useful for impact analysis. They are designed to estimate the economy-wide impacts of a change in final demand in any given sector or group of sectors. It is very good at showing the supply chain linkages

• It is transparent and can produce results sector by sector. • Allows scenarios to be modelled • Input-output models are often quite detailed, containing 500 or more sectors, or

categories, of economic activity. • Input-output models provide a complete accounting of all monetary flows into, out of,

and throughout an economy. It captures full system effects including the induced effect if the household sector is made endogenous. Some I-O models include a complete accounting of payments to regional household income, by income group, thus enabling an examination of distribution issues.

22 Clark 2010

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• They are tools that enable the user to quickly conduct certain types of impact analysis. They are particularly useful for assessing the economic impacts of changes in final demands.22, 23

The main disadvantages are: • The data is cross-section in nature, so it represents a snapshot in time and is not useful

for forecasting. • IO models are designed to assess the economy-wide effects of a change in final

demand. Only changes in final demand can be entered into the model, thus for many impact studies, considerable work must be completed prior to using the model.

• Input-output models assume perfectly elastic factors of production. This means that there are no supply constraints. If, for example, a model user wanted to assess the impact of a huge manufacturer moving its facilities to a region, the user could input the new number of employees (or output) into the I-O model and it would provide an estimate of the “impact.” The problem is that there may not be enough skilled (or unskilled) workers in a region to accommodate another large manufacturer. If additional factors of production are needed, the I-O model assumes they will be available. Not only will factors always be available, there will be no change in the prices of those factors, either.

• Input-output models assume fixed-prices, so price effects must be analyzed outside the model, prior to inputting data into the I-O framework. Thus, tax rate changes that affect prices (e.g., property, sales, gasoline and luxury taxes) cannot be assessed directly with the model. Rather, the tax would have to be converted into a change in final demand prior to inputting into the model. Similarly, if energy prices were to soar, the changes in both consumer demand and producer demand for energy would have to be determined outside the model framework. Once the price effects of demand for energy were determined for consumers and for each industry, then those changes in demand would be input into the IO framework for determination of the economic impact.23

More information on the input-ouput model can be found in Appendix 1.

5.1.2. Multipliers used in the input-output analysis

23 Charney & Vest 2003

24 Statistics Finland (http://193.166.171.75/Database/StatFin/kan/pt/pt fi.asp)

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An important assumption for the calculation of job loss is that workers that lose their job due to closure remain unemployed for the average duration of unemployment in corresponding region and social group. In Finland average duration of unemployment for men is 11.2 months (2005-2014)26. Since manufacture of metal products is very male-dominant industry, men are selected as representative social group.

5.1.4. Economic impacts of the granting of the authorisation Employment impacts can be monetised with output-to-total jobs, value added-to-total jobs and earnings-to-total jobs ratios. In this case employment impacts are monetised by multiplying them with industry’s value added-to-total jobs ratio, in other words added value created by one person in one year:

Industry value added (million) / Industry employment = ratio

2629 / 46,700 ≈ 0.0563

Finland value added (million) / Finland employment = ratio

172,417 / 2,537,600 ≈ 0.0679

Thus:

• Lost value added in CRAN: 46 * 0.0563 ≈ EUR 2.590 M

• Lost value added in LBE: 82 * 0,0679 ≈ EUR 5.568 M • Lost value added in Finland’s economy in TOTAL: EUR 8.158 M

For clarification purposes, the computational overall economic impact in Finland is lost value added of 8.158 million euros per year. This figure includes the direct impact on CRAN: 2.590 million euros of lost value added and the indirect impact on the LBE: 5.568 million euros of lost value added.

In this case it is more realistic to use average duration of unemployment (11.2 months), when measuring the impacts. It assumes that after that all workers unemployed due to shutdown are expected to find a new job. Alternative scenarios for the period of value added loss are studied in the uncertainty analysis (section 5.6). 11.2 months is selected as a main scenario because it is the most conservative.

The third column entries of Table 12 below are multiplied with 11.2/12 to change them to correspond to the average duration of unemployment:

26 OECD (http://stats.oecd.org/ )

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Other economic impacts

So far in this SEA the costs of business closures are monetised and quantified by value added loss calculated via unemployment. There are also additional costs for the applicants in the non-use scenario which are not quantified. For example business closure costs for the applicants and relocation costs for the relevant OEMs. Business closure costs could be quite high. Usually it includes site cleaning and dismantles of the factories. The applicant’s factories and machineries are custom made and rarely exploitable in other uses. Thus the applicants are not likely to get any income from selling their factories. Relocation costs for the OEMs could be very substantial taking into consideration transfer of the whole production lines to possibly another continent. In addition to production line transfers, the OEMs suffer from costs of establishing new local supply chains in the new business environment. The end users will suffer unstable quality and delayed delivery, which may result in productivity loss.

5.2. Human Health or Environmental Impact Human health and environmental impacts are analyzed in section 3.5, the results are as follows. The temporal scope of the current use for the non-use scenario is only 12 years, so an exposure time based correction shall be applied (12/40 for workers and 12/70 for the general population). The corrected value of the worst case health impacts of the continued use will be EUR 627,420 to 1,346,686.

5.3. Social impacts Unemployment has severe consequences to well-being. All of the applicants are SMEs and if they have to close down, it casts a shadow over entrepreneurship in Finland. Authorities in Finland have encouraged people towards entrepreneurship in recent years but if people cannot trust the business environment, it would probably decrease the number of SMEs in Finland in the long-term.

It has been demonstrated that while many former plant workers find new employment within a few months, the new job is often lower paid and more likely to be within the service sector.27 The Finnish Labour Institute for Economic Research has shown that former factory workers that find new employment often only get part-time or fixed-term contracts at levels below their skill sets28. Lower-educated staff suffers usually the largest and most long-lasting unemployment and wage loss consequences. In metal workshops like the applicants, the lion’s share of workers is usually lower-educated.

It wouldn’t be surprise if the workers that lose their jobs in the non-use scenario face long-term unemployment due to current economic environment and trend in demand of metal workers. Being out of work for six months or more is associated with lower well-being among the long-term unemployed, their families, and their communities. Each week out of work means more lost income. The long-term unemployed also tend to earn less once they

27 Rephann, Mäkilä & Holm, 2005

28 Huttunen, 2008

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find new jobs. They tend to be in poorer health and have children with worse academic performance than similar workers who have avoided unemployment. Communities with a higher share of long-term unemployed workers also tend to have higher rates of crime and violence. The extensive evidence on far-reaching negative consequences of job loss is clear: loss of a job can lead to losses of income in the short run, permanently lower wages, and result in worse mental and physical health and higher mortality rates. Further, parental job loss hampers children’s educational progress and lowers their future earnings.29

5.4. Wider economic impacts Historically large amount of metal products that are still in service have been plated with Cr(VI) based functionally plating technique. Such products need maintenance plating for e.g. restoring the right measurements or extending their lifetime. For example parts of large industrial presses need to be maintenance plated from time to time. It is convenient to have maintenance plating available in close vicinity, otherwise the end users would have to store spare parts or withstand temporary shutdowns of production or purchase new machines. It is not only an economic loss of the individual companies, but also a waste issue to the society, meaning the resource has not been used efficiently. It is estimated that the demand of maintenance plating is expected to stay stable in future. Approximately 15% of the applicants’ turnover comes from maintenance plating.

Finland’s attractiveness as an investment location for large multinational manufacture companies (MNCs) is based on its connections to Russia and other CIS countries, qualities (workforce, equipment and services), well-oiled and least corrupted government. Those properties have been main components in Finland’s competitiveness. In recent years, the competitiveness of Finland has decreased dramatically, when the labor cost rose while the productivity crushed. Since Finland is in the Euro zone, its possibility to cope global competition with monetary policies is also very limited. Under such circumstances, Finnish industries need all means to maintain its competitiveness. Event like this where MNCs need to relocate its established facilities in Finland will not be seen as a good examples, and will further decrease the interest of foreign investment.

There are also some wider economic impacts on the municipalities where the applicants are located. In the analysis of economic impacts, lost value added and increased unemployment have already been treated as cost items. In addition they both have wider economic implications from the loss of salaries earned by local employees and the tax received by the municipality. The loss of tax income results in reduced investment in infrastructure, healthcare, education and other public services. This will diminish well-being of local inhabitants and weaken regional development in the long run.

29 Nichols, Mitchell & Lindner, 2013

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undertake an uncertainty analysis. For socio-economic impacts a scenario analysis together with Monte Carlo simulation is executed. The Monte Carlo simulation is applied to the annualised cost and its results are analysed in two scenarios. This scenario analysis is applied to the duration of the impact.

5.6.1. Monte Carlo simulation In this Monte Carlo analysis the inputs, industry employment, industry value added, industry output and initial job loss, were simulated with normally distributed random numbers. Standard deviations of the inputs were set to 10% of their initial values. The standard deviation therefore is a scaling variable that adjusts how broad the curve will be. 10 % is sufficient and robust enough to cover all realistic variation. Monte Carlo simulation for industry value added was executed with the following statistics presented in Table 15:

Table 15. Inputs of Monte Carlo simulation for value added

Industry employment 46,700 Standard deviation 4,670 Industry value added (EUR) 2,629 million Standard deviation 262.9 million Industry output (EUR) 7,135 million Standard deviation 713.5 million Expected coefficient 0.0563 Finland employment 2,537,600 Standard deviation 253,760 Finland value added (EUR) 172,417 Standard deviation 17,241.7 Expected Coefficient 2 0.0679 Final demand employment multiplier 18.25875924 Initial lost jobs 46 Standard deviation 4.6 Expected monetary impact (annual, EUR) 8.183 million30

30 This figure varies from the one in chapter 5.1.4 (8.158 million), because it is calculated with rounded numbers, and this is

calculated with initial inputs and formulas in excel.

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6. CONCLUSIONS

This report has analysed the potential alternatives and whether the socio-economic benefits of the continued use of chromium trioxide at the applicants’ factories outweigh the risks to human health and the environment.

Four different alternative technologies were analysed in detail as they were compared to Cr(VI) based functional plating. These technologies were Cr(III) based functional plating, thermal spray technologies, electroless plating and vapour deposition methods. It is concluded that none of the alternative technologies is technically feasible to replace Cr(VI) based functional plating in a way that the applicants could continue their current business model. The possibility to replace Cr(VI) based functional plating with multiple alternative technologies is not considered economically feasible as the investment costs would be too high for the applicants.

If the applicants could no longer use chromium trioxide for Cr(VI) based functional plating, they would close down their business entirely. When comparing the human health risks of the applicants’ continued use of chromium trioxide with the associated socio-economic benefits, it is clear that the benefits outweigh the risks considerably. By subtracting the monetised health risk from the monetised socio-economic benefits, the monetised net benefit of the applicants’ continued use of chromium trioxide is 6.534314 to 7.253580 million euros.

A comprehensive uncertainty analysis has been undertaken to evaluate how sensitive the above conclusions are to uncertainties. The negative socio-economic impacts of the non-use scenario derived by examining the different uncertainties were 3.698314 million euros at the lower limit and 25.754580 million euros at the upper limit. The negative socio-economic impacts are between these boundaries with 95 % probability.

To compare the costs and benefits of the continued use of chromium trioxide the total benefit/risk ratio is calculated. The total benefit/risk ratio for the applicants is 4.85 to 11.56. At the lower limit it is 2.75 and 41.05 at the upper limit. This shows the robustness of the analysis and it can be concluded that the benefit if the continued use of chromium trioxide by the applicants outweighs the risk.

6.1. Comparison of the benefits and risk In Table 21 below the qualitative and quantitative impacts of the in-use and non-use scenarios are compared. The impacts are monetised whenever possible; the table also lists the qualitative impacts as losses or benefits.

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6.2. Information for the length of the review period The analysis in this report has shown that the benefits of the applicants’ continued use of chromium trioxide clearly outweigh the risks to human health and the environment. The analysis of alternatives has outlined the effort that the industry has gone through in search for alternatives, but no suitable alternative is available before the sunset date. Based on the failed experience in searching for a replacement of the Cr(VI) based functional plating in the last 30 years, it is unlikely that any breakthrough is going to be mature in 12 years.

It is possible that the ban on Cr(VI) based technology is going to accelerate the replacement activity and progress. However, applicants as service providers can only change the main technology/service provided, when the alternative is accepted by the majority of the market. So for the applicants, an extended review period (as compared to industry average) is justified.

The applicants are micro- and small enterprises. A long review period will reduce the financial burden to the applicants that is associated with repeated application of authorisation, when it’s known that there will unlikely be suitable alternatives for the applicants in the normal review period. It is to be born in mind that the applicants have spent in average more than 1/3 of their annual profit in preparing for this application.

To conclude, a long review period of 12 years is both appropriate and justifiable for the applicants.

6.3. Substitution effort taken by the applicant if an authorisation is granted The applicants are willing to participate in future research projects where an alternative for Cr(VI) based functional plating is searched, assuming participation will not require considerable economical efforts. Furthermore, the applicants will continue following the technical development of the alternatives discussed in the AoA, especially Cr(III) based functional plating, through their contacts with their clients.

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7. REFERENCES

Charney, A.H. & Vest, M.J. (2003): Modeling Practices and Their Ability to Assess Tax/Expenditure Economic Impacts. Economic and Business Research, Eller College of Business and Public Administration, The University of Arizona. Available online: https://ebr.eller.arizona.edu/research/taxmodelingpractices.pdf Accessed 1.9.2015.

Clark, D. (2010): Regional and Local Economics (RELOCE) Lecture notes – Lecture 2b. Centre for Local and Regional Economic Analysis. University of Portsmouth. Available online: https://www.economicsnetwork.ac.uk/sites/default/files/Dave%20Clark/1002b.pdf Accessed 25.8.2015.

Doms, M., Moyer, B.C., Pritzker, P. (2014): Measuring the Economy: A Primer on GDP and the National Income and Products Accounts. Bureau of Economic Analysis, U.S. Department of Commerce. Available online: http://www.bea.gov/national/pdf/nipa_primer.pdf Accessed 14.8.2015.

ECHA (2011): Guidance on the preparation of socio-economic analysis as part of an application for authorization. Available online: http://echa.europa.eu/documents/10162/13637/sea_authorisation_en.pdf Accessed 26.6.2015.

Eurostat database. Available online: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=une rt a&lang=en, Accessed 26.6.2015.

Eurostat database: HICP tables. http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do Accessed 7.9.2015

Eurostat Methodology and Working papers: Eurostat Manual of Supply, Use and Input-Output Tables (2008).

Huttunen, K. (2008), ”Tehtaan sulkemisen inhimilliset seuraukset”, Palkansaajien tutkimuslaitos, published 30.05.2008. Available online: http://www.labour.fi/ptkol.asp?KolumniID=111 Accessed 7.8.2015.

Kagajwala, B., Hall, T., Inman, M., Taylor, E., Griffin, B., Cushnie, G., Taylor, R., Jaworowski, M., Bonivel, J. (2012): Functional Trivalent Chromium Electroplating of Internal Diameters, NASF SUR/FIN

Kova-Kromi Oy, products brochure. Available online: https://www.dropbox.com/s/zqzxsc99vuaw0oy/Esite%20%20A4.pdf?dl=0 Accessed 10.8.2015

Legg, K. (2003): Chrome Replacements for Internals and Small Parts, final report. Available online: http://www.asetsdefense.org/documents/DoD-Reports/CrPlating Alts/Cr Rplcmnt-IDs&Sm_Parts.PDF Accessed 24.6.2015.

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Legg, K. Choosing a Hard Chrome Alternative, Rowan Technology Group brochure. Available online: http://www.rowantechnology.com/wp-content/uploads/2012/06/Hard-Chrome-Plating-Alternatives.pdf. Accessed 21.8.2015.

Linden, M. (2001): Trendikasvu ja suhdannesyklit Suomessa ja Ruotsissa 1950-2000. Kansantaloudellinen aikakauskirja. 97 (2), 249-263. Available online: http://www.taloustieteellinenyhdistys.fi/images/stories/kak/kak22001/kak22001linden.pdf Accessed 21.8.2015.

Mandich, N., Snyder, D. (2010): Modern Electroplating, fifth edition, p. 205-248. Nichols, A., Mitchell, J., Lindner, S. (2013): Consequences of Long-Term Unemployment. Urban Institute. Washington, D.C. Available online: http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412887-Consequences-of-Long-Term-Unemployment.PDF Accessed 21.8.2015. Northeast Waste Management Officials' Association (2003): Pollution Prevention Technology Profile, Trivalent Chromium Replacements for Hexavalent Chromium Plating. Available online: http://www.newmoa.org/prevention/p2tech/TriChromeFinal.pdf Accessed 24.6.2015.

OECD (http://stats.oecd.org/ ), Accessed 26.6.2015.

Rephann, T., Mäkilä, K., Holm, E. (2005): Microsimulation for local impact analysis: an application to plant shutdown, Journal of Regional Science, Volume 45, Issue 1, pages 183-222.

Statistics Finland: (http://193.166.171.75/Database/StatFin/kan/pt/pt fi.asp) Accessed 5.3.2015.

Svenson, E. (1980, 2006): DuraChrome Hard Chromium Plating. Available online: http://www.plating.com/Book.pdf Accessed 24.6.2015.

The Massachusetts Toxics Use Reduction Institute (TURI) University of Massachusetts Lowell (2006): Five Chemicals Alternatives Assessment Study. Available online: http://www.turi.org/TURI Publications/TURI Methods Policy Reports/Five Chemicals Alternatives Assessment Study. 2006/Full Report Accessed 24.6.2015.

The Massachusetts Toxics Use Reduction Institute (TURI) University of Massachusetts (2012): Independent Plating Case Study: Converting to Trivalent Chromium. Available online: http://www.turi.org/TURI_Publications/Case_Studies/Metal_Finishing_and_Plating/Independent_Plating_-_Trivalent_Chromium_Plating_Conversion._2012 Accessed 13.8.2015

Research and Economic Analysis Division Department of Business, Economic Development, and Tourism STATE OF HAWAII (2013). The Hawaii State Input-Output Study: 2007 Benchmark Report

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http://www.savroc.com/ Accessed 22.6.2015.

http://ipm2.eu/projects/ecochrom/ Accessed 14.8.2015.

http://cordis.europa.eu/project/rcn/51957_en.html. Accessed 13.8.2015

Annex – Justifications for Confidentiality Claims34

Page number

Justification for confidentiality

p. 15 Demonstration of Commercial Interest The detailed information regarding standardised testing of products manufactured by third party companies are trade secrets of the third party companies and therefore the applicants are not in the position to disclose that information. In addition, the information should be kept confidential due to competition issues.

Demonstration of Potential Harm The release of information regarding standardised testing of products manufactured by third party companies would be beneficial for their competitors. The competitors would be able to replicate the physical properties of the products in their own production. This could ultimately cause harm to the third party companies’ competitive position.

Limitation of Validity of Claim The claim for confidentiality on information regarding standardised testing of products manufactured by third party companies will remain valid indefinitely.

p. 10, Table 1

Demonstration of Commercial Interest The information regarding the economic figures are trade secrets of the applicants and should therefore be kept confidential due to competition issues.

Demonstration of Potential Harm The release of the applicants individual cost items would give competitors (each other) an unfair advantage in the market. The release of such information could thereby cause harm to the applicants’ competitive position.

Limitation of Validity of Claim The claim for confidentiality on the applicants’ socio-economic figures will remain valid indefinitely.

p. 37-39

p. 62

Demonstration of Commercial Interest The information regarding to the details of the methodologies are according to the contract between the applicants and their consultant an intellectual property

34 This annex will not be made publicly available as part of the broad information on uses package

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and copyright of the consultant, which the applicants have no right to publish.

Demonstration of Potential Harm It will be considered as a breach of the contract that will have financial consequences to the applicants.

On the contrary, in accordance to Article 64.2 (of Regulation EC 1907/2006) the information regarding the details of the methodologies of SEA are not relevant for the purpose of collecting information on alternative substances or technologies by interested third parties.

Limitation of Validity of Claim The claim for confidentiality on information regarding the details of the methodologies will remain valid indefinitely.

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The inter-industry transactions section of the table, accounts for intermediate sales and purchases of goods and services among the producing industries in the economy. Reading across a row of the transactions table shows the inter-industry sales by the row sector to the various column sectors. Similarly, reading down a column shows the inter-industry purchases by the column sector from the various row sectors. Final demand section shows the sales of commodities and services by each row industry to final users, namely households, federal, state and local government units, visitors, investors, and exports. The elements in final demand sector are final demands of goods and services produced within the economy. Primary payments show primary payments to the owners of factors production. These include payments to the primary factors of production, business tax payments to government, interest payments for business loans, and payments for imported goods and services for intermediate use.20

I-O tables consist of transactions table, direct requirements table and total requirements table. Transactions table shows the sales and purchases between the industries in millions of current currency. Reading across a row of the table shows sales by the row sector to the various column sectors in the economy. Reading down a column shows the purchases by the column sector from the various row sectors.35

Direct requirements table presents the interdependence among the producing sectors of the economy. A direct requirements table, also known as the technology matrix, is derived from the transactions table. Elements in each column of the direct requirements table are acquired by expressing each column entry of the transactions table as a proportion (coefficient) of the corresponding column total. The coefficients of the direct requirements table show the amounts of inputs (purchases) required by a column sector from each of the row sectors in order to produce 1 euro of output from that column sector. Each column of the direct requirements table represents a production function for the corresponding producing sector. Because the technical coefficients are fixed, this production function is characterized by constant returns to scale. Each industry’s production process is described in terms of the average technology being used by that particular industry.35

Total requirements can be estimated easily using matrix algebra. The direct requirements table is subtracted from an “identity” matrix and then inverted. The resultant matrix is called the “total requirements table” or the Leontief inverse matrix, which gives the direct and indirect effects of 1 euro change in final demand. In the total requirements table each column of the total requirements table indicates the direct and indirect impacts on producing sectors of a 1 euro change in the column sector’s final demand. The column totals of the total requirements table are final-demand output multipliers for the corresponding column sector.35

35 State of Hawaii 2013, p.3,9-13.

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Multipliers

One of the most important functions of I-O analysis is to assess the effects of an exogenous change on an economy. Under I-O framework, sectorial outputs are demand-determined. Various multipliers can be derived from the I-O table to estimate the various types of economic impacts of a change in an industry’s final demand. Three of the most commonly used I-O multipliers are output, earnings, and employment multipliers.25

Multipliers are derived based on direct and indirect effects arising from an exogenous change in an industry’s final demand. The direct effect measures the initial effect attributable to the exogenous change, while the indirect effect measures the subsequent intra- and inter-industry purchases of inputs as a result of the initial change in output of the directly affected industry. If earnings and personal consumption expenditures are also included in the model as an additional endogenous sector, the resultant multipliers can measure the effects of demand changes on household spending that result from changes in earnings through direct and indirect effects. These additional effects are known as the induced effects.25

As multipliers are the ratios of various total effects to various direct effects, one could derive many multipliers under each type. The two most popular multipliers are the final-demand and direct-effect multipliers. The final-demand multiplier for an industry measures the total change in a variable that results from a change in that industry’s final demand. An industry’s direct-effect multiplier measures the total change in a variable that results from an additional unit change in the same variable in that industry.25

If the question is to estimate the employment impacts of a change in an industry’s final demand, final-demand employment multipliers are the correct multipliers to use. On the other hand, if information is available about an employment change in an industry, direct-effect employment multipliers should be used to determine how the economy will be affected. In that case, initial employment change should be translated into output change by using the industry’s direct-employment coefficient. Then, the output change should be multiplied by the industry’s final-demand output multiplier.25

Value Added

In I-O tables value added is together with intermediate consumption parts of total output of an industry. Value added is the difference between output and intermediate consumption. It measures the contribution to GDP. Value added itself is composed of compensation of employees, other net taxes on production, consumption of fixed capital and net operating surplus.

Calculation of gross domestic products demonstrates well how value added is composed of. There are three approaches to calculation of GDP. In the production approach total output of industries is reported in the last rows of the supply and use tables. Value added at basic prices is calculated as a residual variable by deducting intermediate consumption at purchasers’ prices from output at basic prices. To arrive at GDP at market prices, taxes less subsidies on products as reported in the supply table have to be added to value added at basic prices. In the

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income approach value added at basic prices is estimated on the basis of its components. The information on compensation of employees, other net taxes on production, consumption of fixed capital and net operating surplus is extracted from the use table. As intermediates are reported at purchasers’ prices including net taxes on products, the information on taxes less subsidies on products has to be extracted from the supply table to calculate GDP. In the expenditure approach the required information on final demand is derived from the last row of the use table. Final demand in the use table is reflected by domestic and imported goods and services. To calculate GDP according to the expenditure approach total final demand has to be reduced by total imports as reported in the supply table. Compositions of the production and income approaches are listed down in Table 23.36

Table 23. Gross domestic product calculation: production and income approaches Production approach Income approach Total output at basic prices Compensation of employees - Intermediate consumption + Other net taxes on production + Capital consumption + Net operating surplus

= Value added at basic prices = Value added at basic prices + Taxes less subsidies on products + Taxes less subsidies on products = Gross domestic product = Gross domestic product

In this SEA, value added as an economic measure is used because it measures the contribution to GDP made by an individual producer, industry or sector (the factors of production: capital and labour); gross value added is the source from which the primary incomes of the national accounts are generated and is therefore carried forward into the primary distribution of income account. The contribution to GDP embodies benefits/losses to the European society the most conservatively and correctly.

36 Eurostat 2008, p. 62

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Appendix 2 Monte Carlo simulation excel-example In the next figure, there is an example on how Monte Carlo simulation is constructed with excel. The construction is explained with four boxes one can find in the figure.

Box 1 Box 1 includes the input variables used in the simulation and three expected values: Coefficient (value added-to-employment) 1 & 2 and Monetary impact. Coefficient 1 is for industry and coefficient 2 is for Finland in total. Expected monetary impact is the computational value.

Box 2 Box 2 includes the results of the simulation after 20,000 rounds. Note that these numbers vary a little each time the simulation is done, since the simulation re-calculates cells every time it’s done.

Box 3 Box 3 includes the random variable formula used for the monetary impact calculation in the simulation, and the respective formula for expected (computational) value.

Box 4 Box 4 includes the actual simulation. In the actual excel sheet there are 20,000 rows in this part but in this example they are diminished to 15 rows (scenarios) due to lack of space. In cells in columns C to H, a random number from a normal distribution of numbers with an input variable as a mean and standard deviation of 10% of the input variable is generated. These generated random input variables are used in the monetary impact (column I) formula expressed in Box 3.

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Use number: 1 CRAN – Finnish hard chrome authorization consortium

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