News
Business And The Green Economy: The Role Of Regulation
18th January 2012
In a recent article submitted to MP Barry Gardiner, Managing Director of Clarehill Plastics, Brian McCann put forward an argument surrounding the role of regulations within business and the green economy.
The article in its entirety is as follows:
Business and the Green Economy - The Role of Regulation
The CBI has acknowledged that, contrary to its primary instincts, environmental regulations are the most effective mechanism for introducing environmental improvement/transformations. Without carefully chosen environmental regulations, necessary changes would not be implemented with the speed and decisiveness required to properly address the specific environmental challenges.
The question over what types of regulations work best has been addressed in the Hampton Principles, which underpin the Better Regulations initiative rolled out by the last government. These principles define the series of requirements for better regulations, the key ones being:-
- The application of a risk assessment to ensure resources concentrate on the areas that need them most
- Regulations should recognise that the activity being regulated should allow and indeed encourage economic progress.
The Hampton Principles were a major departure from the rigidity of prescriptive regulations which had been the norm up to that point. There are currently 278 regulations on the statute books covering environmental matters, the majority of which are still primarily prescriptive rather than risk based regulations. What should be the guidelines for prioritising which prescriptive environmental regulation needs to be replaced by Hampton compliant regulations? In developing a response to this question, there is a very close similarity between the above Hampton Principles and the overall commercial objective of most businesses which strive to position the business in areas where the best risk/reward relationship resides. This entails compromises between risk minimisation and reward maximisation. It follows that any external factor which can reduce the risk, provides more potential for the reward or profit to be improved. It is much more likely that transforming regulations from being prescriptive in nature to being based on risk minimisation should create the best conditions for business initiatives to prosper. The benefits of regulation changes which would increase economic growth could in the round stretch to other sections of the economy through increased profit generation and environmental gain.
In illustrating this point, the example of the oil tank manufacturing industry can be looked at. One of the biggest environmental concerns currently is the existence of an inventory of circa 1.5 million oil tanks, of which the majority are single skin tanks with over 20 years service in largely rural locations which are reaching the end of their usable life. For these single skin tanks, a tank failure risks a potentially catastrophic pollution incident, which would be avoided if a bunded tank (double skin) tank were used. There are no easy means by which high risk single skin tanks will present signs of potential failure. In most cases an environmental spill is the first indication of a failure of the single skin tank – by which stage the damage has already been done.
The plethora of regulations which cover the rules for choosing and installing oil tanks in the UK have been drafted in the days when prescriptive regulations were the norm. The many regulations relating to the type of oil tank which must be installed differ widely between England and each of the devolved administrations. Each regulation differs in the distances to various building and land features beyond which single skin tanks are allowed. They also differ in respect of the different tank capacity thresholds and the applicability of market type applications (domestic, agricultural and commercial) each having different regulatory consequences.
This level of complexity means that there is a major impediment to any decisive or constructive action being taken on the replacement of aging single skin oil tanks. Many installers believe it to be quite acceptable to replace one high risk single skin oil tank with another, rather than replacing it with an environmentally preferred bunded tank.
If regulations were changed so that all single skin tanks were to be banned then all tanks, without exception, would be required to be bunded tanks. In such circumstances there would be a robust platform for introducing a Tank Scrappage Scheme. Without an accelerated replacement (scrappage) programme for the large inventory of aging single skin tanks, a creeping chronic environmental problem is more likely.
If these regulations were to be changed, this would not only introduce a requirement that single skin tanks be outlawed and replaced, within say 5 years, but because of higher demand would secure a very solid base for leveraging the cost savings from the economies of scale of the replacement and Scrappage Scheme market.
From a tank manufacturer perspective, support for such a scrappage scheme would be founded on the certainty of demand being an order of magnitude higher than has been the case in the current market. The certainty of being able to upscale tank production plants will mean that lower prices can be guaranteed and this lower cost base can translate into lower prices to customers, replacing tanks within the single skin oil tank inventory. Prices to the oil tank user would probably be halved if government were to contribute to an end user grant of typically 20% to the cost of replacing an ageing single skin tank with a much more secure bunded tank. This example illustrates the power of properly constructed regulations, which allow industry to benefit from and adapt to a shift in demand for products which meet regulatory requirements. In fact, every player within the affected supply chain benefits from the opportunities afforded by the much clearer cut regulations – be that a consumer, industry, services or even government levels.
Furthermore, additional opportunities for environmental benefits in this instance can be introduced through the provision of state of the art fuel monitoring equipment on the replacement tanks, which may be specified in the environmental regulations. This could conservatively provide 10% fuel savings for the customer and could be an alternative option to payment of the winter fuel supplement by government.
Putting some additional metrics on the above scheme, one and a half million oil tanks being replaced at a rate of 150,000 per annum, generates a quadrupling of the market to £100 million per annum. The net benefit to the consumer is circa £40 million per annum via scrappage scheme discounts and grants. Benefits from the avoidance of estimated 5000 pollution incidents per annum, with a cleanup cost of £50 million per annum, are welcome savings. Fuel monitoring devices have the capability of saving 10% per annum of oil consumption, which is a considerable added bonus to the consumer and will generate fuel savings of £150 million per annum if applied to the entire oil tank inventory.
In using the oil tank industry as a case study for regulatory reform, I have quantified the benefits, cost and opportunities for the main constituencies. These savings could be used to prioritise the legislative timetable for repealing the prescriptive legislation and enacting the Hampton based regulations. I make no apology if it is seen as self serving, since the intention is to provide benefits to all the constituencies. The example does demonstrate the magnitude of the benefits that can be accrued from careful alignment of environmental and business objectives.
At a time when industry needs every ounce of government support, a change in the approach to regulations within the UK will not only serve to better regulate industry and achieve social objectives, but will act as a platform for economic growth and regeneration.
This article can also be viewed on MP Barry Gardiner's website at: http://www.ipoak.org/business-green-economy/
