Agency turns spotlight on risk-based regulation

The Environment Agency launched its latest Spotlight report on business performance with the claim that "risk-based regulation is paying off for the environment". Many indicators of environmental performance - such as the number of pollution incidents and data on emissions levels - show a positive downward trend. But there are strong grounds for thinking that the Agency is premature in singing the praises of risk-based regulation - not least because it has yet to make an impact on the allocation of front-line resources.

The Spotlight report began life in 1999 as an exercise in naming and shaming companies with the worst prosecution records. It has since developed into a more rounded assessment of business performance, gathering information on prosecutions, pollution incidents and waste recovery, together with an assessment of companies' environmental management under the operator pollution and risk appraisal (OPRA) scoring system.

Many of the headline findings make encouraging reading:

  • Overall, there were 1,250 serious pollution incidents in 2003 - 15% less than in 2002 and a third down on 2001. The number of incidents has now returned to broadly the level recorded in 2000.

  • Industry caused 613 serious incidents - down 12% on 2002 and 43% over the last two years.

  • Big improvements were made by some sectors - notably farming and waste management which both cut the number of pollution incidents by a quarter.

  • The Agency says that environmental management at sites assessed under its OPRA scheme is improving (see figure).

  • Industry recovered 51% of its waste in 2003, up from 46% the year before, with the minerals and food and drink sectors recovering the highest proportion. However, a recent report for the Agency suggested that the regulator could do more to encourage waste reduction (ENDS Report 354, p 45 ).

    The Agency made its now ritual complaint over the low level of environmental fines, which fell slightly in 2003. Chief executive Baroness Young said the regulator is "taking a careful look" at options such as "black-listing of companies with poor environmental records when procuring services; imposing suspended penalties which double or treble if the fault is not corrected and the making of restoration orders to put right environmental damage at the expense of the offender."

    Regulator under pressure
    Overall, however, Baroness Young said: "These are encouraging results which show that modern regulatory techniques are bearing fruit. Our risk-based approach - paying more time and attention to high-risk poor performers and taking a lighter regulatory touch with those who demonstrate responsible environmental management - is paying off for both business and the environment."

    The Agency's effort to spin the benefits of risk-based regulation reflect growing pressure on the regulator to justify its activities.

    As the UK's biggest quango, the Agency has been seen as a ripe target for budgetary squeezes in recent years. Its other main income stream, cost-recovery charges paid by industry, has been broadly pegged at the level of inflation. At the same time, the regulator faces a growing workload from the steady flow of new environmental legislation.

    The recent comprehensive spending review expects the Agency to find a further £75 million in efficiency savings (ENDS Report 354, p 10 ) - while the Conservative Party is calling for swingeing job cuts (see p 6 ).

    The Agency's sensitivity was heightened in July, when a report from the Confederation of British Industry accused it of "being insufficiently sensitive to the competitive environment in which business operates." The CBI claimed that "enforcement is still inconsistent and not targeted on areas where there is most environmental risk". It complained that UK companies "face a high number of inspections compared with countries such as the United States, France and Italy", together with "a growing trend for the Agency to charge firms enforcement fees."

    The Agency was furious - and at the launch of Spotlight, Baroness Young said she was "disgusted" by the CBI's "crap" report. Even the Chemical Industries Association chipped in with a statement supporting the regulator's existing efforts to "modernise and streamline" its processes.

    Recovery in inspection rates?
    Few people would dispute the basic principle of risk-based regulation - focusing resources were they are most needed. The concern is that the concept could be used as a smokescreen to hide a reduction in regulatory effort.

    Recent years have seen a steady decline in inspections carried out by the Agency. Inspections of sites under integrated pollution control (IPC) have nearly halved since 1997/98, while visits to waste management sites have dropped by a third over the same period (ENDS Report 346, pp 9-10 ).

    The Agency has suggested that recent restructuring, combined with the pressure of implementing IPPC, has been a drain on its front-line resources. But its board has expressed considerable discomfort over the falling rate of inspections (ENDS Report 335, pp 4-5 ).

    The latest data, for 2003/04, suggest that the decline has stabilised for the time being (see table). Until recently, data on inspection rates was reported routinely - but it is now only available on request because of the Agency's decision to focus on output-related indicators.

    Inspection rates for discharge consents and waste licensing increased significantly last year. The total number of inspections under IPC and IPPC also showed a modest 6% increase, with a growing share under IPPC as the new regime is implemented. By August, the Agency had issued almost 600 IPPC permits, with some 370 applications - mostly landfills - awaiting determination.

    What happens on the ground?
    However, the degree to which the Agency has put in place effective systems to deliver risk-based regulation on the ground remains debatable.

    For a start, the Agency regulates only a limited proportion of industrial sites in each sector. The Agency says it directly regulates less than one-third of the 3,800 enterprises in the UK chemical industry and less than 1% of the 31,200 firms with metals processes. Moreover, the Agency does not regulate the majority of small and medium enterprises - which are responsible for 80% of pollution incidents.

    Moreover, relatively few sites are subject to formal risk-based regulation. Only some 1,650 sites - those under IPC and IPPC - are subject to OPRA, although a further 7,500 waste management sites are covered by the related waste OPRA scheme.

    Some inspectors are sceptical over the degree to which risk-based regulation is actually being used on the ground, even at sites covered by OPRA. Graham Macro, branch president of the inspectors' union Prospect, said that "the real driver of regulatory effort is pressure on team leaders to meet targets, set centrally, to inspect sites."

    Last year, IPC sites were supposed to be inspected twice per year, and IPPC sites four times. This year, operators under IPPC can expect two full inspections and one "review" each year, while sites still under IPC can expect one inspection and one review.

    However, Mr Macro says that pressure to concentrate on certain sites is often driven by political pressure rather than any objective assessment of risk. For example, inspectors are expected to visit incinerators every month.

    Mr Macro also claims that the level of charges raised through OPRA had little to do with the actual risk of the site, but the Agency's need to ensure a steady income stream. He describes the score awarded to reflect a site's complexity as the "ultimate fudge" - and said that the scheme was about to be revised again, in part to ensure that it generates sufficient income.

    Overall, Mr Macro expressed concern that the level of bureaucracy from management systems such as OPRA - which are intended to make the Agency more efficient - is in fact reducing the amount of time inspectors spent out on site.

    Martin Bigg, head of process industries regulation, pointed out that the Government requires the Agency to recover the costs of IPPC from companies under the regime. In any new scheme, he said, changes would be necessary to get it right.

    Dr Bigg accepted that risk-based regulation is not yet fully implemented on the ground, but insisted "it is important to recognise just how far the Agency has come in moving away from prescriptive inspection targets, such as at waste sites, towards risk-based regulation."

    Indeed, the Agency intends to go further. Chris Howes, Agency compliance assessment and enforcement policy manager, added: "Risk-based regulation recently took a big step forward with the introduction of the charges linked to EP OPRA scores. The next step will be to link EP OPRA directly to compliance effort."

    Mr Howes said the Agency is developing "compliance assessment plans" for each site under IPPC, in which EP OPRA scores will be used to specify the number of inspections and other types of regulatory oversight. The Agency will begin to introduce the plans next year.

    To help make EP OPRA a more robust indicator of compliance, the Agency plans to link it to a new non-compliance classification scheme, which aims to establish an objective way of measuring breaches of IPPC permit conditions (ENDS Report 351, p 45 ).

    Caution on OPRA
    The OPRA data are set to take on an increasingly important role in determining both regulatory effort and fees paid by industry. The scoring system is also an important new indicator of corporate environmental performance.

    For the moment, however, some caution is required in interpreting the data. The Agency has been phasing in its new version of the scheme - "environmental protection" or EP OPRA - as sites are steadily brought under the IPPC regime (ENDS Report 327, p 47 ).

    The Agency has now decided to phase out the old IPC OPRA scheme early (see box ). All sites still under IPC will be given an EP OPRA score for 2004. Sites under the waste OPRA scheme will convert to EP OPRA in 2005, although initially the scores will not be linked to charges.

    The Agency has now reported on EP OPRA for the first time, although it has only given information on the "operator performance appraisal" element and the not the site "pollution hazard appraisal" score. The complete database is due to be published later this year - but a clear picture of performance will only become available when all sites are scored under the same system.

    The different scoring systems for IPC and EP OPRA mean that the two systems are not directly comparable. It is clear, however, that EP OPRA tends to recognise many more sites as being "well managed". Sceptics might suggest that this may have something to do with the fact that the score, which is based on self-reporting by companies, also has a direct influence on the level of regulatory fees.

    However, EP OPRA also seems to highlight a greater number of sites as "poorly managed". In 2003, 26 sites were given the lowest, band E, rating (see list) - even though no E ratings were given under IPC OPRA in either 2002 or 2003. Several of the lowest-scoring sites are in the food and drink and textile sectors which are new to IPPC, suggesting that several operators do not yet have systems in place to manage their environmental impacts.

    Spotlight on business performance
    Despite these caveats, the Spotlight report signals a steady improvement in business performance, with fewer pollution incidents and a fall in overall emissions from industry, consistent with the Agency ratcheting up the requirements on regulated industry.

  • Chemicals: In 2003, the chemicals sector achieved its best ever performance, having halved the number of serious pollution incidents to 11.

    In contrast, six chemicals firms were fined more than £10,000, an increase from just one in 2002. Henkel netted the biggest fine of £98,000 for a chemical spill into a watercourse at its Belvedere site (ENDS Report 339, p 57 ).

    The Agency singles out one firm, Polymerlatex, for achieving significant emissions reductions. The company cut emissions of 1,3-butadiene by 97% and sulphur dioxide by almost 100% after fitting a waste gas incinerator at its Bromsgrove site.

  • Metals: The Agency says that the sector has made "substantial improvements" in site management. Over two-thirds of sites are "well managed, although the extent to which this is a result of the switch to EP OPRA rather than a real improvement is unclear. The number of serious pollution incidents in the sector increased from three to 13 in 2003.

  • Waste: The Agency points to good news in the waste industry. Of 121 sites assessed under IPC or EP OPRA, 112 are ranked as "well managed". Overall waste OPRA scores have improved by an average of 15% - though 57% of facilities do not comply with their licence conditions.

    In 2003, the waste industry caused 161 serious pollution incidents, an improvement on 212 the year before. The Agency attributes 55 incidents to unlicensed operators.

    The waste industry received the highest number of large fines including a £250,000 fine for Cleansing Service Group (ENDS Report 347, pp 59-60 ) and a £100,000 fine for Eurocare Environmental Services (ENDS Report 337, pp 19-24 ).

  • Water: Serious pollution incidents caused by water service companies increased by 23% in 2003, making it the poorest performing sector. Southern Water Services had the worst performance with 10 pollution incidents leading to prosecution, netting total fines of £73,000.

    The finding is an embarrassment to the industry which generally saw significant improvements in performance in the late 1990s. Since 2000, however, the trend appears to have been reversed.

    Even so, the Agency points out that water company compliance with discharge consents has been running at some 99% for several years, while discharges of key pollutants from sewage treatment works are on a long-term downward trend.

    Water UK "regrets" the pollution incidents caused by its members, but maintained that the industry is relatively exposed to pollution risks because of the extent of its operations.

  • Pollution inventory: Another useful indicator of the effectiveness of regulation is the Agency's pollution inventory. All companies regulated under IPC and IPPC must submit data on releases of 114 substances.

    Overall, the inventory confirms significant reductions in emissions from industry. A recent analysis by the Agency looked at 30 key substances released to air listed on the inventory from 1998-2001 - and found all but four had fallen since 1998.

    For example:

  • Sulphur dioxide emissions have fallen by 36% and nitrogen oxides by 10%.

  • Emissions of volatile organic compounds have fallen by 24%.

  • Particulate matter has fallen by 34%.

  • Dioxin emissions have dropped by 38%.

  • Emissions of the carcinogen 1,3-butadiene have increased by 86%, and of the potent greenhouse gas sulphur hexafluoride by 65%.

  • In 2003, emissions of greenhouse gases increased by 5% and levels of NOx and SOx also increased, mainly as a result of increased output from coal-fired power stations.

    The Agency says that reductions often reflect changes at regulated sites, such as improved abatement equipment - although industrial restructuring also plays a part. An apparently large decrease in emissions between 1998 and 1999 may reflect "inaccuracies and overestimates" in emissions reported in 1998, the first year of the inventory, the Agency says.

    Overall, the growing number of indicators being developed by the Agency tell an encouraging story of improving environmental performance by industry. The Agency is entitled to claim that much of the improvement is down to its general regulatory oversight - but the attempt to use the data to support its move to risk-based systems is, at best, premature.

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