Study reveals costs and benefits of environmental regulations

24th February 2015

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Allan Lowe

Every £1 spent by businesses to comply with environmental regulations generates a benefit of £3 to society, according to a report from the environment department (Defra).

The department has analysed the costs and benefits for the 428 regulations it is responsible for using data from impact assessments produced alongside them. The study covers the period 2012 to 2021 and updates a similar analysis in 2011, which looked ahead to 2020.

The latest study estimates the direct compliance costs at £6 billion a year, with direct benefits of around £2 billion. Wider benefits to society, including financial savings to the government, and benefits to the environment and health are around £10 billion, Defra finds.

Costs from EU-derived regulation are estimated to have increased by £73 million since the 2011 review was produced, despite the number of EU regulations falling by six after five EU Directives on sustainable products were revoked.

Net costs to the business community increased by £40 million a year between 2011 and 2012. The government’s “one in one out” (OIOO) policy, under which every regulation implemented by a department needs to be matched by equivalent savings to business, achieved a fall in costs to business of £3 million a year, Defra says.

However, regulations outside the scope of the OIOO policy increased costs to business by around £43 million, of which £42 million came from EU-derived regulations.

The water industry incurred the highest direct cost in 2012, at £2,004 million, Defra finds. Manufacturing followed, spending £1,207 million, and businesses in the agriculture, fish and forestry sector, which spent £1,073 million.

There are currently significant gaps in the estimates for environmental and social benefits of regulations, which mean that the benefits are likely to be underestimated, Defra admits.

The department is considering how to fill these gaps and how to use the evidence base in the report alongside the national ecosystem assessment (NEA), which allows users to identify environmental impacts that may otherwise be missed. Use of the NEA has not yet been adopted for all impact assessments, Defra notes.

Peter Young, chair of the Aldersgate Group, said that Defra’s analysis misses many direct business benefits such as increased property prices from quality landscapes.

However, he believes that legislation could be better balanced to eliminate claims from the anti-regulation business lobby that the benefit they receive from environmental legislation is not proportionate to the cost.

“Maybe others could pay some of the costs, for example the NHS could shift some of its budget for respiratory disease from treatment to prevention,” he said.

But this would be difficult politically as the benefits might not be seen for 10-20 years, he said.

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