Towards a more accountable Environment Agency

The first stage of the quinquennial review of the Environment Agency suggests that Whitehall intends to take a tighter grip on its activities and demand greater accountability for its performance. The pressures will come at a time when the Agency fears a financial squeeze, even as many new duties continue to be heaped upon it. Shoring up its defences by explaining what it is achieving with its resources is something the Agency will need to do better than in its latest annual report.

The Agency passed its fifth birthday last April. It had not been an altogether happy five years. After a quiet beginning, the Agency suffered disharmony within and criticism from without - most painfully from the House of Commons Environment Committee last year (ENDS Report 304, pp 32-34 ).

With a new chairman and chief executive in place, there is always hope of a recovery. Nonetheless, the disquiet has lingered on. Whether its political masters share that concern will soon be known, as the quinquennial financial, management and policy review (FMPR) draws to a close.

The FMPR process is in two stages. A report on the first phase was published on 30 August.1 The second is due this autumn.

Some of the report's key passages appear ominous for the Agency. But they are mostly couched in general terms, and specifics will not be available for a while yet.

Better prioritisation
The key issues raised by the review are the need for improved prioritisation of what the Agency does, coupled with effective management of, and proper accountability for, its performance. There are also sensitive issues about the Agency's funding, charges and structure.

Prioritisation became a central theme because of the feeling in some quarters of Whitehall and among many regulated businesses that the Agency has strayed excessively beyond its statutory functions. At the same time, its sponsoring Departments have not done their job well in this area either.

According to the report, what the Agency needs is clarity about the Government's long-term environmental priorities; its own role and objectives in pursuing those priorities; and how it should describe its plans for delivering on those objectives.

"Such clarity does not exist at present," the report says. "Agreement on long-term priorities has not been well co-ordinated between the Government and the Agency. And the Agency and its sponsors do not have a sufficiently shared understanding of respective roles and objectives."

A key step, the report recommends, should be a revision of the statutory guidance issued to the Agency in 1996. This should clarify the principles which the Agency must follow, and set measurable five-year objectives for it to pursue.

Focus on statutory functions
Here the report strikes a note which, repeated several times in a few paragraphs, sounds very much like a warning bell. The Agency's role, it says, "must?be aligned to its statutory powers and duties," and the guidance should restate its principal purpose as being "to protect and enhance the environment through the discharge of its statutory functions." Likewise, it should be "clarified" that the Agency's contribution to sustainable development is "predominantly one which is delivered through the successful discharge of its functions, and the provision of environmental advice."

Those passages may prove critical in shaping the Agency's future. The Agency takes a different view, seeing them, according to a spokeswoman, as not requiring a retreat from any of its current activities.

All should soon be revealed because the guidance will need to be published soon if the next step in the process - a five-year strategy agreed with the Agency's sponsors - is to be ready as recommended by next April.

The strategy will inform the organisation's annual corporate plans. These are prepared in consultation with its sponsors, but the review found room for improvement in this area too.

The Agency's dealings with its sponsors were complicated until this summer by the fact that it had two main ones - the former DETR and MAFF - as well as the Welsh Assembly. Matters will be simpler under the Department for Environment, Food and Rural Affairs (DEFRA), and the review recommends that it should have a single Agency sponsorship division.

It also advocates a shift in the way the Agency has been overseen - away from funding of individual projects and inputs, and towards scrutiny of outputs on a programme basis. Importantly, this would pave the way "over time" to a single block grant for the Agency in England, enabling sponsors to "take a step back from existing micro-management of 'ring-fenced' penny packet funding streams."

The Agency will like this. However, the report makes it clear that a "critical precursor" to such a move must be improvements in objective-setting, performance management based on outputs, and accountability.

Demands on Agency board
This will entail big changes in the way the Agency and its sponsors do business. Until now, the report notes, the Agency's targets and priorities have been determined largely on a function-by-function basis by individual Departmental policy divisions, and with those decisions "somewhat divorced" from those on funding. To overcome these weaknesses, it advocates the establishment of a high-level group chaired by DEFRA's sponsorship division to co-ordinate policy divisions' work in relation to the Agency.

As for the Agency's board, the report notes that its focus over the past five years has been on setting the environmental agenda. It has not reviewed the Agency's performance routinely, nor has the information submitted to it "assisted such a discussion." It now needs to devote "equal emphasis" to performance management, discussing progress against financial and performance targets once a quarter.

Completing these arrangements, the report recommends that DEFRA should meet the Agency every quarter to review progress against its targets.

The potential significance of this new chain of accountability and emphasis on performance should not be underestimated. Whether it makes a difference will ultimately depend on DEFRA's taste for engaging with the detail of the Agency's work.

Several other important issues are addressed in the review:

  • Structure: Some of the unease about the Agency relates to the way it was organised after 1996 - especially its single large operations directorate, its matrix management arrangements, and the efficiency of its national/regional/area structure.

    Five years on, the FMPR report says, "there is merit in testing the validity of these original organisational assumptions." It urges the Agency to conduct a "thorough, radical and objective assessment of structural options" - and in doing so to "recognise that the level of concern by those who collectively fund its business, who sponsor it and are regulated by it, must give cause for serious consideration."

  • Regulation and charging: Changes in environmental regulation are in the offing. Plans for a shift to two-tier licensing were revealed last autumn (ENDS Report 309, pp 34-35 ). They reflect other moves towards risk-based regulation and a desire to free up Agency resources for other work.

    The review builds on the theme. While the "presumption" is that regulation will remain the Agency's principal means of pollution control, "consideration also needs to be given," it says, "as to whether and to what extent pure regulation should be supplemented by wider activities." Waste generation and diffuse pollution are identified as two issues where regulation has little purchase.

    The report recommends that statutory barriers to a wider range of tools for tackling such issues should be identified, along with constraints imposed by the Agency's funding mechanisms.

    The report also concludes that "consideration needs to be given as to the balance of funding for wider non-regulatory work, as between chargepayers and society as a whole." The Agency's dependence on charges and levies has risen from 70% to 75% of its total income since 1996. But any changes in the balance of funding, the report notes, "need to be assessed as part of a general agreement as to how best to structure charges to the new style of better regulation which is evolving."

    The Agency's cost-recovery charges on regulated businesses have been controversial, with big annual hikes in charge rates in its early years provoking demands for greater transparency.

    The report urges the Agency to provide more information about the basis of its charges. But it also makes a more radical recommendation about charging.

    Proposing a shift to settlements spanning two or more years from 2002/03, the review notes that stability in charges under "other regulatory regimes" is reflected in their "RPI-x pricing formulae." These have been used to drive down prices charged by privatised utilities, with prices being limited to projected inflation in retail prices minus a variable "x" factor.

    The suggestion that this formula might be used to determine the Agency's charge rates is believed to have come from the Department of Trade and Industry. It has caused concern within the Agency, which feels itself to be under a financial squeeze and fears worse to come if Treasury resources are hit by a recession.

    The Agency's chief executive, Baroness Young, pointed out at its AGM in September that its funding has not increased in real terms since 1996. In the meantime, it has been handed some 50 new duties, with 60 more in prospect over the next five years.

  • Nuclear regulation: Three Agency functions were reviewed in detail during phase one. On a possible transfer of industries regulated by local authorities under integrated pollution prevention and control (IPPC) to the Agency, the review recommends no change. Arguments over the second, navigation, which British Waterways wants to grab, remain to be settled.

    The third was regulation of nuclear industry sites. Here, BNFL is believed to have complained that dual regulation by the Agency and Health and Safety Executive causes conflicting requirements and higher costs, and should be replaced by a single regulator.

    The tensions between environmental and safety requirements were manifested again in September in the Agency's proposals for reducing technetium-99 discharges from BNFL's Sellafield works (see p 7 ). But conflicts like this, the report notes, "are as much a fundamental result of having both environmental and safety objectives as they are of having two regulators."

    The review team concluded that the arguments for a single regulator are not "sufficiently overwhelming" to justify radical change. But the question is not yet dead, with conclusions due in stage two of the FMPR.

    A thinner account
    The Agency is now waiting to see how radical will be the changes demanded of it. Meanwhile, in September it published its latest annual report, providing a test of whether it saw any greater need than before to use it to explain how it is deploying its staff and resources and what it is achieving with them.

    Three years ago, we compared the Agency's annual reports unfavourably with those of its predecessors (ENDS Report 284, pp 22-28 ). The Agency's, we felt, were "largely devoid of substance, and lacking a professional overview of the regulatory agenda and environmental management practices in business. They also do not provide anything like an adequate basis of facts and commentary for holding the Agency to account."

    This year's report is, if anything, even thinner. And its statistical annex has been relegated to the Agency's website, with one or two improvements but also some time series broken.

    What those statistics show is:

  • Inspections: Total inspections remained steady in 2000/01, though they were 20% below the peak level in 1997/98. However, there were substantial changes within the total, with inspections under integrated pollution control (IPC) declining by 28%, premises under radioactive substances legislation by 33%, and waste carriers by 22% (Table 1).

  • Pollution incidents: The long decline in water pollution incidents has been broken, with substantiated incidents increasing slightly from 14,374 in 1999/2000 to 14,662 last year. However, there was a further drop in "category one" incidents from 90 to 77.

    The Agency has prepared new statistics on the same basis for incidents affecting land and air (Table 2). More will be revealed in a report this autumn.

  • Prosecutions: The Agency brought 669 successful prosecutions last year, an increase of 68. A 27% jump in prosecutions for waste offences more than offset reductions elsewhere (Table 3).

    Baroness Young commented at the AGM that the Agency had been "slightly more successful in achieving higher fines", though she complained that they remain at a "piffling" level, with some firms regarding them as "just another business expense."

    In fact, the average fine both per charge and per prosecution dropped last year - the former by 18% (Table 4).

    The average fine per successful prosecution fell from £2,534 to £2,418 for waste offences, and from £6,219 to £5,092 for water pollution offences.

    There are some output measures in the report itself. For instance, provisional figures indicate a 41% net upgrading in river quality since 1990, the best yet. The Agency claims a "significant contribution" to the remediation of 98 contaminated sites last year, beating its target of 80. And dioxin emissions from municipal waste incinerators dropped by 38%.

    These are, though, isolated examples. In general, it remains difficult to discern what contribution the Agency is making to changes in environmental quality - and even to find an explanation of changes in its activity levels or their implications.

    Take the level of inspections last year. The annual report says nothing about this, despite the significant reduction in policing under several regulatory regimes.

    There is, though, a passing comment in the Agency's latest half-yearly performance report that inspection levels were below those planned under its OPRA methodology for rating operators. The report attributes this in part to the foot and mouth crisis, but also to pressures on resources. Not trivial stuff, this merits a wider airing.

    Questions about IPC
    Deeper questions can be asked at the level of individual regimes. Taking IPC as an example, it might be asked why there was a 28% drop in inspections last year. An Agency spokeswoman attributed it partly to the use of OPRA ratings to plan inspections, but partly to demands under other regimes - notably the habitats Directive, the COMAH system for regulating hazardous installations, and preparations for IPPC.

    None of these factors will be transient - so what are the implications, given that there has now been a 40% drop in inspections since pre-Agency days? Has this affected operators' compliance with permits, or resulted in more pollution incidents or public complaints - or is the present level of inspection perfectly adequate? Answers are nowhere to be found.

    There are similar issues about the statutory four-yearly reviews of IPC authorisations, which consume a fair amount of inspectors' time. The latest performance report reveals that the backlog of reviews was cut from 350 in 1998/99 to just 19 by the end of 2000/01.

    What, though, has the programme achieved, and did it provide value for money? Judging by the number of substantial variations to IPC authorisations - which dropped to 68 last year, when 181 reviews were conducted, compared with 100 and 180 the previous year - the Agency's demands on operators for improvements have tailed off. Data in its pollution inventory are no substitute for a considered analysis, since releases to the environment can rise or fall for reasons other than the Agency's efforts - such as output changes or fuel switching.

    As for enforcement, does the reduction in prosecutions last year mean that there were fewer breaches of authorisations, or was it due to pressure on legal resources? And what of enforcement notices, on which no data were provided this year?

    These and many other questions can be posed about the growing number of regulatory regimes operated by the Agency. Its top management has shown itself disinclined to reply - but its approach will surely have to change in the less hospitable climate ahead.

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