When 'better regulation' means less regulation

Better regulation is hard to argue against. Delivering more efficient and cost-effective laws is surely what every policy-maker should aspire to. But there is a thin line between better regulation and deregulation, and some observers are worried that the latest better regulation drive sweeping Europe has crossed that line. Keith Tyrell investigates

Environmental policy is under threat from the EU drive for better regulation. This is the conclusion of an unusually outspoken report from the Institute for European Environmental Policy, which argues that pressure to boost economic competitiveness has distorted the aims of the initiative and is undermining other priorities, including sustainable development.1Better regulation is "being used as a cloak for those seeking to roll back social and environmental measures," the IEEP says. It points to undue influence from corporate lobbyists.

The EU's better regulation programme was shaped by the Lisbon strategy, launched in 2000, which aims to turn Europe into the world's most competitive knowledge-based economy. The strategy promised cuts in red tape.

The programme initially focused on improving the efficiency, effectiveness and transparency of EU legislation. The Commission's first better regulation action plan, in 2002, proposed to tackle the implementation of EU legislation, improve consultation procedures, simplify existing laws and assess policy proposals more rigorously.

When the Lisbon strategy was relaunched this year, the agenda had been replaced by a narrower interpretation of better regulation which, according to the IEEP, equated to "less and cheaper regulation in order to cut business costs."

British disease
The UK - and in particular the Treasury - has been a key player in shaping the deregulation agenda.

Earlier this year, leaked documents exposed an attempt by the Treasury to downgrade environmental and social concerns in the EU sustainable development strategy under the pretext of meeting economic goals (ENDS Report 366, pp 3-4 ).

Chancellor Gordon Brown used his chairmanship of Ecofin, the finance ministers' council, to drive the agenda forward this year. Ministers agreed to set targets to reduce regulatory and administrative burdens, and to bring legislation into line with that of competitors

This month, Mr Brown brought the deregulation drive home with him when he scrapped requirements for listed companies to produce an operating and financial review (OFR) (see p 5).

Moreover, he announced plans for a new initiative to root out "gold-plating" of EU laws as implemented in the UK (see box ).

The UK has found a willing ally in the form of the new European Commission under President Jos‚ Manuel Barroso. Key commissioners including G?nter Verheugen (enterprise and industry), Charlie McCreevy (internal market) and Peter Mandelson (trade) have been at the forefront of attacks on environmental policy (ENDS Report 367, pp 43-44 ).

Concrete action"I don't think I have ever seen such a determined effort in the Commission to tackle better regulation," commented Bill Stow, director general for environmental protection at the Environment Department (DEFRA). "It's been talked about for 15 years or so, but this time it feels real."

In March, relaunching the Lisbon strategy, the Commission embarked on a three-year better regulation drive. "Less red tape means more growth," Mr Verheugen said at the time. "The Commission is ready to do its part to clamp down on overregulation and promote simplification."

The Commission kicked off by reviewing all legislative proposals tabled before January 2004 that remained in the system for their contribution to competitiveness. The exercise, completed in September, saw more than a third of proposals abandoned (ENDS Report 369, pp 45-46 ).

The next phase, revealed in October, is nothing less than a "continuous and systematic process" of reviewing and simplifying the entire 80,000 pages of Community law.

It began by identifying over 200 specific pieces of legislation for simplification in "the most heavily regulated sectors" - waste, automotive and construction (ENDS Report 370, p 46 ).

According to the Commission, these laws will be either repealed, codified - combining all their provisions and amendments in one text - or recast, which involves simultaneously codifying and amending law.

David Wilkinson, lead author of the IEEP report, acknowledged that in some cases European regulation has become unwieldy and inefficient, but he is alarmed at the suggestion that the substance of some laws will be amended.

"Of course there's always scope for better designed regulation," he said. "But better regulation so easily slips into deregulation."

He is worried by the suggestion that the Commission is planning to replace some Directives with Regulations to achieve more even implementation. Directives tend to set objectives and allow member states flexibility in meeting them while Regulations are prescriptive and directly applicable.

"The way to create ineffective regulation is to impose some sort of master plan that ignores national differences," he said.

A better approach would to improve the implementation of legislation in member states.

Shifting the emphasis
Mr Wilkinson is more worried about the implications of better regulation for the development of future legislation.

"I don't think that the changes to specific laws proposed so far are that significant," he said. "But it is a signal. The machinery is there and we will see the fruits of this in years to come."

He pointed to a new requirement for all future policy proposals to contribute to competitiveness as a particular cause for concern. If this approach is followed, it will restrict environmental policy to win-win areas like energy efficiency.

"There are some environmental policies whose objectives are not economic," he said and pointed out that the Commission has a duty to put in place policies which contribute to all EU objectives, not just those included in the Lisbon strategy.

He also identified changes to the Commission's impact assessment system as an obstacle to the development of balanced policies.

Since 2002, all policy proposals have been assessed for their social, environmental and economic impacts. The results of this initiative have been mixed. While it has required the consideration of environmental and social issues in policy development, many directorates have failed to conduct adequate assessments, and routinely place more emphasis on economic impacts than environmental and social ones.

What is more, the costs of legislation tend to be assessed more than the benefits and short-term issues are given more weight than long-term ones.

The Commission revised the guidelines on impact assessment in the summer to give yet more weight to economic concerns. The new system includes extra questions on competitiveness and administrative burdens on business.

Balance of power
Another factor which is likely to influence the ambition of future environmental policy is an erosion of the Environment Directorate's power.

In the past, the development of environmental policy was largely left to this directorate. More recently, other directorates - notably enterprise - have had more of a say.

This is in part down to efforts to integrate environmental concerns into other policy areas. The seven thematic strategies, prepared by the Environment Directorate to shape EU policy for the next twenty years, themselves adopt a cross-cutting approach and rely on action in other policy areas.

"In a way, the chickens are coming home to roost from the moves towards environmental integration of the 1990s," said Mr Wilkinson. "The obverse is that other directorates can dictate environmental policy. It was assumed in the 1990s that DG Environment would be in the driving seat."

The Environment Directorate's influence is being further curtailed by the establishment of high-level groups or informal groups of commissioners to oversee its work and provide advice on cross-cutting issues. A group chaired by Mr Verheugen, for example, is charged with assessing all policy proposals for their impact on competitiveness.

A high-level group on energy, competitiveness and the environment was set up in the autumn and is co-chaired by the commissioners for energy, environment and enterprise. Other high-level groups will give a steer on issues ranging from vehicle fuel quality to the marine environment. Which were previously the sole responsibility of DG Environment.

The better regulation drive has also seen a rise in the influence of corporate lobbyists, says Mr Wilkinson. Not only are these bodies better resourced and organised than environmental NGOs, but the high-level groups tend to be weighted in their favour with more industry representatives.

He points to industry's domination of the debate on REACH. In this instance, the Commission was swamped by technical and economic analysis from business groups which were ultimately successful in seeing the regulation watered down.

The balance is likely to shift further in favour of these groups. At their last meeting, finance ministers agreed to increase "business engagement in Europe's regulatory reform."

Defending regulation
The response of environmental policy-makers has been to make the economic case for regulation and to highlight the long-term benefits. Faced with a campaign against his Directorate's thematic strategies, Environment Commissioner Stavros Dimas has been highlighting their contribution to competitiveness (ENDS Reports 369, pp 45-46 ).

The Environment Directorate has also invested more effort and resources in impact assessment than most other parts of the Commission. Each thematic strategy has been subjected to detailed economic analysis to identify the most cost-effective policy option and include estimates of the costs of inaction (ENDS Report 365, pp 22-25 ).

In November, European environmental protection agencies joined the fray by releasing a statement identifying the advantages of environmental regulation.2

In it they argue that effective regulation not only protects the environment, but delivers benefits to business such as encouraging innovation and cutting costs.

Barbara Young, chief executive of the Environment Agency, which was instrumental in drawing up the statement, said: "Regulation and high standards are good for business, good for competitiveness, good for innovation, good for costs and good at creating markets for environmental goods and services."

Is this enough?
It remains to be seen whether this defensive approach will be sufficient to fend off further moves towards deregulation. Experience so far suggests that making a good economic case for policy proposals will not be enough.

The air quality thematic strategy is a case in point. In-depth analysis demonstrated that the economic benefits of the strategy would be many times more than its costs, but President Barroso accepted industry arguments and weakened the final version (ENDS Report 369, pp 44-45 ).

"Short-term costs to industry will always be better lobbied over than the benefits to society which tend to be diffuse and long term," said David Wilkinson. He wants environmental policy-makers to be more assertive about their right to regulate.

Economic well-being is only one pillar of sustainable development. Environmental and social issues are central to the European project and article 6 of the EU treaty requires environmental protection to be part of EU policies. It is up to environmental policy-makers to fight their corner.

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