Water Regulation (Also) Affects Pharmaceutical Companies

The new EU Urban Wastewater Directive targets the pharmaceutical industry

On October 26, 2022, the European Commission presented a proposal for a new EU Directive on urban wastewater. The directive aims to protect the environment from the harmful effects of wastewater discharges from certain industrial sectors. The proposed directive will revise the existing EC Directive 91/271/EEC on urban wastewater treatment. The legislative process is still ongoing, but its completion and entry into force are imminent.

As a result of the new regulations, significant additional costs and organizational efforts are foreseeable for the affected pharmaceutical companies. According to an April 2024 press release by BAH, BPI, ProGenerika, and VFA, the additional costs for pharmaceutical companies in Germany alone are estimated to exceed 36 billion euros over the next 30 years.

A key component of the new EU Urban Wastewater Directive is stricter requirements for wastewater treatment in municipal sewage treatment plants, particularly stricter limits for micropollutants. These stricter limits for micropollutants are to be met through additional cleaning processes in wastewater treatment (the so-called 4th cleaning stage). This ties into another essential component of the amendment: the new "Extended Producer Responsibility." This means a (mandatory) cost-sharing by (particularly) pharmaceutical manufacturers for the expansion of the 4th cleaning stage.

In light of the planned amendment to the Urban Wastewater Directive, our regulatory expert, Dr. Andrea Sautter, and our environmental and specifically water law expert, Kris Breudel, LL.M. (Aberdeen), have answered some questions about the Commission's proposal with a focus on the significantly affected companies in the pharmaceutical industry:

Why is the new EU Wastewater Directive relevant to pharmaceutical companies?

The EU Commission estimates that over 90% of the micropollutants found in wastewater are caused by pharmaceuticals and cosmetics. To remove these micropollutants, the Commission plans to require member states to upgrade sewage treatment plants to subject wastewater to a 4th cleaning stage. The costs for achieving the 4th cleaning stage are also to be borne by the manufacturers of pharmaceuticals and cosmetics. The amount of cost participation will be determined by the quantity and toxicity of the products placed on the market.

Which companies are affected?

In principle, all manufacturers of human pharmaceuticals or cosmetics are to be required to participate in the costs. The scope of the directive's proposal is particularly broad:

A "manufacturer" is initially defined as any producer, importer, or distributor who commercially places products on the market in a member state. "Placing on the market" means the first provision on the Union market. What is meant by the "first provision" is not defined by the Urban Wastewater Directive itself. Looking at other EU regulations, "provision" often means a (non-)remunerative delivery of a product for distribution, consumption, or use on the Union market in the course of a business activity.

Therefore, in practice, wholesalers who obtain the pharmaceutical from the marketing authorization holder within the European Union are unlikely to be regarded as the "placer on the market" responsible under wastewater law, but only the marketing authorization holder who initially provides the pharmaceutical on the Union market (to a distributor).

The definition of human pharmaceuticals corresponds to the definition in the Human Medicines Code, provided they are either commercially prepared or an industrial process is applied in their preparation. Excluded are only manufacturers where the number of "substances" in the products they place on the market is less than one ton per year or manufacturers who can prove that the products they place on the market leave no micropollutants in the wastewater at the end of their life cycle.

What costs are covered?

Under the Extended Producer Responsibility, the affected manufacturers are to bear 80% of the "total costs" for the expansion and operation of sewage treatment plants, for planned wastewater monitoring measures, and for the collection and verification of data on marketed pharmaceuticals. Additionally, "other costs" incurred in the context of fulfilling the Extended Producer Responsibility are to be covered. What is meant by "other costs" is left open in the directive proposal.

How is the Extended Producer Responsibility to be implemented and what does this mean for the affected companies?

The draft EU Urban Wastewater Directive provides that manufacturers must first join an "organization for producer responsibility" established specifically for the Extended Producer Responsibility. Manufacturers are to be required to inform this organization annually about:

• How many pharmaceuticals they have placed on the market.
• What risk these pharmaceuticals pose to wastewater at the end of their life cycle.
• Which of the pharmaceuticals marketed by this manufacturer are exempt from the Extended Producer Responsibility.

The directive proposal also envisages that the organization will publish information: It is to make public which manufacturers have joined the organization and what financial contributions the affected manufacturers make to the organization.

Each such organization for producer responsibility must have a clearly defined geographical area of responsibility and the necessary financial and organizational resources to meet the obligations of manufacturers under the Extended Producer Responsibility. There can also be multiple organizations for producer responsibility in a member state.

In which member state must an affected company pay the cost share?

An affected manufacturer must fulfill the Extended Producer Responsibility in every EU member state where it places products on the market. Depending on the geographical scope of an organization for producer responsibility, a manufacturer may have to join several such organizations. The threshold of one ton of substances in marketed products applies to the entire Union market.

When do the obligations for affected pharmaceutical companies take effect?

Since the Commission's proposal involves the amendment of a directive, the new regulations are not directly binding for pharmaceutical companies at the European level even after the Urban Wastewater Directive comes into force. For the new regulations, such as the Extended Producer Responsibility, to become legally binding, national legislators must first act. It is therefore currently unclear when exactly companies will be required to comply with the new regulations.

After the directive comes into force, the German legislator generally has two years to implement it into German law. The Extended Producer Responsibility is to become effective three years after the directive comes into force. However, the Commission's remaining schedule is ambitious and could exert (further) pressure on the German legislator:

According to the directive proposal, 50% of sewage treatment plants in municipalities with at least 100,000 inhabitants are to be upgraded to the 4th cleaning stage by 31 December 2030.

By 31 December 2035, all sewage treatment plants in municipalities with at least 100,000 inhabitants should have achieved the 4th cleaning stage and

50% of sewage treatment plants in municipalities with 10,000 to 100,000 inhabitants should be upgraded to the 4th cleaning stage, provided that the municipal wastewater is discharged into areas where the concentration or accumulation of micropollutants poses a risk to human health or the environment.

Can companies legally challenge the EU Urban Wastewater Directive?

EU directives are only binding for the member states, not for companies based in a member state such as Germany, see the notes above in section V. Therefore, companies cannot challenge the amended EU Urban Wastewater Directive itself. Once the German legislator acts, affected companies can participate in the legislative process at the political level or later defend themselves through constitutional complaints or legal action against implementation measures.

The planned special levy for pharmaceutical manufacturers to finance a fourth cleaning stage in sewage treatment plants is already being questioned as unconstitutional. Should the planned special levy prove incompatible with the German Basic Law, it is unclear how it would affect the affected companies, as the relationship between European law and the Basic Law is still considered unresolved. Although EU law generally takes precedence over national law (including national constitutional law), it does not "stand above" the Basic Law. There is no hierarchical relationship between the constitutional order of the Federal Republic of Germany and the legal order of the European Community. The fundamental compatibility of EU law with the Basic Law is enshrined in Article 23 of the Basic Law (the so-called "Europe Article").

Do you have questions about Extended Producer Responsibility, water law compliance, and/or the environmental and other challenges for your company? We look forward to hearing from you.