Regulation in an age of austerity

15th April 2011

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Paul Suff reports on the environmentalist/WSP roundtable event where the participants discussed the future of environmental regulation.

All governments promise to reduce regulatory “burdens” on business, and the coalition is no different, although, given the need to cut costs, it might be under greater pressure to succeed than previous administrations.

Shortly after taking office, business secretary Vince Cable outlined an action plan to reduce regulation. The plan included introducing a “one-in, one-out” approach to regulation, so that new regulatory “burdens” on business are only brought in when reductions are made to existing regulation.

“We need to reduce regulation and at the same time meet our social and environmental ambitions. This demands a radical change in culture away from the tick-box approach to regulation,” said Cable.

Last month the environmentalist reported on how Defra is currently engaged in a rolling review of its entire regulatory stock as part of its response to the “one in, one out” rule, and its work with the Department for Business, Innovation & Skills (BIS) on a range of proposals to streamline waste regulation, including the potential for standards and certification to play a larger role in regulation and enforcement.

These reviews are taking place against a backdrop of cuts to regulatory budgets, which could see the Environment Agency (EA) facing a potential reduction of more than 16% from its 2010/11 allocation for permitting, water and partnership work.

In March, the environmentalist and WSP jointly hosted a roundtable event to discuss how environmental regulation might change in response to the challenge posed by the government’s better regulation drive and declining resources.

The existing hierarchy Martin Bigg, professor of environmental technology innovation at UWE and former head of industry and waste regulation at the EA, kicked off the discussion by outlining a model of the existing regulatory system.

“In delivering a risk-based, outcome-focused approach to regulation there is essentially a hierarchy,” he explained.

At the “top”, Bigg says, are the industry leaders: the big players, such as oil and energy companies, which are high profile and generate high shareholder value. Whatever they do has to be right for the business in terms of being economically viable and protecting their reputation. They need the occasional steer.

Below them are slightly smaller businesses, say parts of the chemicals industry. They know they have to get regulation right, and may need advice to do so.

Next are diverse sectors such as the waste industry, consisting of five or six very large players, and lots of very small companies. They need guidance and support. At the bottom of the hierarchy are what Bigg describes as “illegals”, those organisations that do not aspire to adhere to environmental regulation.

“There are relatively few companies in the ‘top’ group, but, generally, they go beyond compliance because they have a vested interest in doing so. But at the bottom, you have firms that will try to cut any corner they can. So that at the top the regulatory effort is all about getting the permit right. It’s about outcomes.

“Let’s face it, the regulation of the power station should be a ‘doddle’; we just have to agree the technologies, time scales and emission limits and they get on with it. At the other end of the spectrum it’s all about compliance and enforcement. Many industries don’t need regular inspection, but the public expects someone or some body to be watching its back.”

The model of regulation outlined by Bigg is familiar to the other participants, but several question the fairness of the existing process.

“The model that Martin has set out is instantly recognisable,” comments Mitchell Leimon, head of environmental and product regulation at BIS. “It makes sense, but implementation has to be consistent. Regulation is supposed to establish a level playing field for businesses to operate [in] but we hear a lot of complaints.”

George Davies, head of environmental compliance at Heathrow Airport, part of BAA, and Miles Watkins, director of sustainable construction at Aggregate Industries, both agree that fairness in how regulators deal with different organisations is an issue, believing that regulators tend to focus more on larger than smaller businesses because they’re often easier to target.

“We could have a problem with a water discharge at Heathrow and the regulator will always come to us, but the source might be one of the many other businesses that operate at the airport,” comments Davies.

“One of the main problems we face is the unevenness of the regulatory playing field. It is quite interesting; in the past we’ve grown by acquisition, so we’d buy some of the companies at the bottom of Martin Bigg’s hierarchy, the so-called ‘illegals’ and seek to move them up by making them compliant,” explains Watkins.

“And, once it’s no longer an SME the regulatory authorities, particularly councils, are all over it. We always get the feeling that they think that now a bigger company ownsit we have a better chance of getting them to upgrade to the appropriate standard, but they would not bother when it was just an SME.

“As soon as you transition from the bottom to the middle point on the ‘hierarchy’, you attract lots and lots of regulatory activity. You think, hang on a minute: we’re a fairly large company, but we’re competing locally, in a 20–30 mile radius from the site, with family-owned businesses and there is no level playing field.

“The cost and operating perspective is very important. So, I’d say that in many respects, I don’t really have a beef about the content of what is being regulated but about the how. From my experience, companies like mine get ‘picked on’,” Watkins continues.

He also believes that companies that have made significant environmental commitments become targets for regulators.

“Because we decided to make a lot of environmental commitments, we’ve made a rod for our own back: the regulator knows that when it sends us a list of things to do, we have to make it right or we get poor publicity,” states Watkins.

A perceived lack of fairness is partly the result of businesses having to deal with more than one regulator.

“It’s a myth that big businesses don’t complain about regulation and enforcement. And for smaller businesses, regional variations and officials’ personal interpretations can make investment decisions very tricky,” says Leimon.

He illustrates this with an example from Scotland: “I recall an oil company being told to meet ‘aspirational’ emissions targets, regardless of what the legal limits were. And the company had its post-doctoral chemists working to get it to a compliant position, but unfortunately there was no one in the local council with relevant skills to talk to.”

Davies and Watkins also picked up on the lack of consistency among regulators. “BAA has got sixairports across the UK. In my experience, consistency is lacking,” says Davies.

“We get regulated less by the EA and more by local authorities, such as for planning permission etc. It can be a real mixed bag,” Watkins states. “We need clarity about what is regulated at the centre and what is regulated locally.”

Another bone of contention with the existing regime is the overlap between different regulations. “There is too much regulation and too much overlap. Regulation should be narrow and be there to help businesses,” said Watkins.

Bigg accepts this. “I think our waste regulation appears a confusing mess. It overlaps with planning, and has made difficult all the things we are trying to do in terms of reusing valuable materials.”

The discussion then turned to creating a new regulatory regime, and focused on improving both relationships between regulators and the regulated, the skills of environmentalists in regulatory bodies and companies; developing local or corporate-wide approaches; and piloting new ways of regulating.

Terry A’Hearn, recently appointed director of regulatory innovation at WSP Environment & Energy, provided insight from his previous role as deputy and acting chief executive at the Environment Protection Authority (EPA) in Victoria, Australia. “We had objectives of cutting ‘red tape’ by 90%, and cutting development approval times from four months to one month,” he says.

A’Hearn explains that giving companies the opportunity to develop their own regulatory framework can work. He uses the example of a dairy in Victoria to illustrate how this might operate: “We [EPA] held a workshop with the senior management team. We’d taken along paper copies of the regulations covering the site.

“I picked these up and dropped them out of an open window and said to them let’s start again from scratch now we’ve put these rules outside and develop an approach that both reduces the burden on you and delivers good environmental performance for us.”

The outcome was that 26 licences with 228 pages of prescriptive obligations were replaced with a single licence with three pages of outcome-focused conditions. “But that can only work if there is trust between the parties,” says A’Hearn.

Other speakers developed the issue of trust. Leimon, for example, also believes trust will be important in modernising the regulatory regime.

“Regulators have to trust reputable business people to do the right thing, and encourage businesses to use standards and accreditation rather than constant engagement with public bodies. High levels of contact,even with friendly enforcement officers, local and national, can be a major frictional cost for business,” he says.

“The quid pro quo can be tougher sanctions when ‘good’ businesses do get it wrong, but I haven’t met a businessman who disagrees with that, in theory. They want to see effort redirected towards the real high-risk areas featuring crime and environmental risk.”

Bigg agrees: “We need regulation that is built more on trust than enforcement. We don’t need a model similar to the US that is centred on litigation.”

David Symons, director at WSP, also says that more, and better, dialogue is required between industry and regulators to improve trust: “There are so many exciting ways that businesses are using environmental issues to innovate, grow revenue and increase resilience. These need to be taken into the regulatory arena.”

Symons believes that regulators need to focus more on outcomes rather than processes and provide assistance to ensure organisations attain the desired performance.

“Regulators need to see where the biggest environmental impacts arise, and then help reduce these. For many businesses these impacts are in the products, not the processes.”

“My aspiration,” says Bigg, “is that regulation is not just seen as a ‘back-stop’ to achieve and maintain environmental standards, but that it is also regarded by industry as a ‘signpost’ to developing approaches that provide long-term benefit for both the business and the environment.

“We want business people to come to regulators and ask ‘can you help me?’ And as regulators we have to be able to say yes, we can.”

Davies, however, is doubtful that a high degree of trust can be generated while a regulator such as the EA continues to prosecute businesses.

“Most businesses will be reluctant to talk to the regulator if they have a problem through fear of being prosecuted,” he warns. “We’d like to go to the regulator and say ‘this process isn’t working, can you help us?’ But that hasn’t been the reality.”

Watkins is also sceptical. “Too often the regulator spends more time worrying about the process rather than building relationships,” he says.

“That has to change,” says Bigg.

Watkins advocates the introduction of an account management system by regulators, so a business always works with the same person at, say, the EA.

“An account manager at the regulator would act as the interface between the company and the agency, and that would build a relationship and foster trust. That would be a big improvement,” he advises.

Several participants also believe that improving environmental competence at both site level and among regulators could help improve working relationships as well as enable businesses to do more for themselves as regulators’ resources diminish.

“As you step away from regulation you need to improve the ability of organisations to improve their environmental outcomes,” says Martin Baxter, director of policy at IEMA.

“That’s about improving the skills in both the business community and regulators, and developing the structures to deliver good environmental performance. But you need to go further. Managers need to see how they can both reduce environmental impacts and deliver value: the two are not mutually exclusive. It’s about building products that have fewer environmental impacts.”

Bigg agrees. He points out that health and safety professionals are covered by one IOSH standard and asks why the environmental sector can’t develop a similar standard for environmentalists, both for those working in industry and regulators.

“Any change in regulation will ultimately depend on the competency of the people involved,” says Bigg.

In addition to improving competence among environmentalists, Baxter also says the focus of regulatory change should be local.

“We need to think in a local context about the value an organisation creates. That includes shareholders, the environment and social elements, like jobs and amenities. We need to put it all together to ensure everybody gets something out of it.”

Leimon says it is the coalition government’s emphasis on localism that could see it succeed in fundamentally altering businesses’ experience of the regulatory system.

“The need for environmental-impact businesses to engage with local opinion is greater than ever,” he says.

Watkins demonstrates how localism could work in practice and prevent any problems escalating by highlighting the example of quarrying at Little Paxton in Cambridgeshire.

Measures adopted by Aggregate Industries, which runs the site, include: involving local experts and enthusiasts where possible rather than bringing in people from outside the area; developing good and timely communications between staff and volunteers monitoring the wildlife, which prevents mistakes in routine operations and can lead to biodiversity being maximised; and writing management plans with specifi c objectives that are achievable with the resources available.

Baxter advocates the extension of primary authority partnership agreements that currently apply mainly for health and safety and involve a company working with one local regulator on regulation. Asda, for example, has such an agreement with Wakefi eld Council.

“Dealing with just one regulator would simplify the regulatory process significantly,” he says. This led to a discussion about whether corporatewide permits could be a way of reducing the regulatory burden.

A’Hearn outlined how the EPA’s regulatory reform work with Australian water authorities consisted of corporate licensing, streamlined annual reporting and trade waste partnerships. It is not clear how this would work in practice though. “It would be complicated because businesses are all different,” says Watkins.

“Management of our airports is largely decentralised, so I’m not sure how a corporate licence to operate would work in such situations,” comments Davies.

“I can see corporate permits or licences working for big players,” adds Baxter. “But that raises the question of how you deliver it at local level.”

A’Hearn suggests that a good way of developing things such as corporate permits is to pilot them in selected sectors. “I’d run four or five ‘innovation’ trials in composting and aggregates, for example. Get the industries and regulators together and see if there is a better way of regulating. It is not nearly as difficult to run pilot schemes as it is to change the whole system, and you can learn lessons and modify,” he advises.

Baxter agrees that piloting new regulatory approaches could be a good way of moving forward. Finally, Bigg challenges those around the table to demonstrate to government and regulators that the introduction of a more fl exible, transparent and light-touch regulatory regime would lead to better environmental outcomes.

“If regulators threw the rule book out the window, can you live up to it?” he asks. “Yes, we can,” claims Watkins, “because risk and opportunity is how we manage our business.”

the environmentalist and WSP roundtable took place on 10 March at WSP House in London. WSP and the environmentalist would like to thank all those who took part.


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