The Contribution of Policy Effectiveness Evaluation to Better Regulation

Copenhagen, 7 October 2005

The Contribution of Policy Effectiveness Evaluation to Better Regulation

Professor Jacqueline McGlade
Executive Director, European Environment Agency

At the Launch of Two EEA Studies on Policy Effectiveness

Commissioner Dimas, Minister Hedegaard, Ladies and Gentlemen,

It gives me great pleasure to welcome you here to the European Environment Agency and the launch of our two pilot studies on policy effectiveness evaluation.

We believe that the launch of these studies is very timely. In just over one week's time, the European Union's 25 Environment Ministers and Commissioner Dimas will meet in Brussels to debate better regulation in the area of environmental policy.

As the paper to be presented by the Commissioner at the debate on 17 October confirms, the European Commission has been engaged for a number of years to ensure that legislative proposals are "of high quality, simple, relevant and effective".

This is not an area where environmental policy makers need to be on the back foot. On the contrary, environmental policy has been in the vanguard of better regulation initiatives in relation to the innovative use of market-based instruments, impact assessment, simplification, framework approaches and stakeholder consultation.
Policy effectiveness and evaluation play an important role in this context. We have to ask difficult questions such as - Are environmental policies actually working? Are they cost-effective? If not, how can they be improved? These are exactly the questions the EEA has addressed in the two pilot studies and summarised in the brochure also being launched today.

THE LISBON STRATEGY AND THE PERCEIVED COSTS OF ENVIRONMENTAL LEGISLATION

The political backdrop against which we are launching these analyses is one of increased attention on growth and jobs in Europe - the Lisbon Strategy. In a moment Commissioner Dimas will address the linkage between jobs, growth and the environment, but let me at this point make a couple of points about the perceived costs of environmental protection.

We should not accept the fuzzy logic that better regulation equates with less regulation which then leads to lower costs, more competitiveness and hence more jobs. On the contrary, good regulation can now be shown to reduce costs for industry and business, create new markets and drive innovation. I will come back to this in my closing remarks.

It has often been the case that industry exaggerates the costs of complying with new environmental regulations. This happened most recently concerning the proposed new legislation for registering, evaluating and authorising chemicals (REACH) but over the years there have been many examples where actual compliance costs for new rules have turned out to be considerably lower than that predicted by industry:

• the control of ozone depleting substances;
• air pollution from large combustion plants;
• the introduction of catalytic converters in passenger cars in the 1980s; and,
• the phasing-in of low sulphur fuels.

These are just four such examples.

There are a number of reasons why the costs of compliance may be over-emphasised or over-estimated from the outset:

• the initial costs borne are too narrowly focussed on one sector or part of society;
• the solution found for meeting the new standard might be a different, cheaper one than the solution envisaged by industry, as a result of technical innovation; or,
• costs may be reduced through economies of scale.

Exaggerated cost claims may not be made out of "bad will", but from a lack of knowledge or overly pessimistic assumptions.

This is why policy effectiveness studies are so important. Not only do they bring to light issues of policy design, implementation and costs, but they also foster shared learning among public actors and stakeholders, including industry.

THE EEA AND POLICY EFFECTIVENESS EVALUATION

So let me turn to the role of the European Environment Agency in policy effectiveness.

We have 30 years of experience of environmental policy legislation at EU level, during which time well over 200 legal acts have been put in place. Over the last ten years, since its creation, the EEA has evolved from an organisation providing environmental information and data on the state of the environment to one which is increasingly being asked by the European Parliament, the European Commission and our member countries to report on the effectiveness of existing environmental polices and their implementation.

THE TWO PILOT STUDIES

The two pilot studies we are launching today address rather different EU environmental directives.

The Urban Waste Water Treatment Directive is one of the cornerstones of EU pollution control. Provision of treatment for urban and industrial waste water has required the extensive construction of sewage plants over recent decades. In fact, such investments have accounted for 50-60% of the total investment for environmental protection in industrialised countries since 1970. As was confirmed in the accession negotiations which brought the ten most recent member states in to the European Union in May 2004, the Urban Waste Water Treatment Directive is the most capital intensive directive public authorities have to meet in implementing the 200 or so European legal acts on the environment I mentioned earlier.

The six countries covered by our wastewater treatment study are Denmark, Estonia, France, the Netherlands, Poland and Spain.

The Packaging and Packaging Waste Directive has also required investments in waste collection and recycling infrastructure since its adoption around a decade ago. It is a directive which was warmly welcomed at the time by industry - for example by the drinks industry which was calling for a level playing field across the EU in terms of recycling requirements. And although they might not know it formally as the Packaging Directive, consumers are also directly affected by its provisions. It is as a result of the directive that doorstep collection and recycling schemes have been introduced across several member states.

The countries covered by the packaging waste study were Austria, Denmark, Ireland, Italy and the UK.

How did we choose the countries?

For both studies, the criteria for selecting countries were:

• to ensure variety in the measures and institutional structures examined;
• geographic balance across Europe;
• inclusion of some systems that had been developed quite recently in response to the directives, and others that pre-date the directives;
• balance of small and large states; and,
• representation of new member states (but this only applied to the wastewater study as data for packaging waste was restricted to the EU15).

The countries studies were themselves actively involved in the work. Thorough consultation is the cornerstone of the EEA's approach to effectiveness studies. In many respects the process of engagement can be as important as the outcome.

THE MAIN RESULTS OF THE STUDIES

So what did we learn?

The overall conclusion from the two studies is that governance is the key to delivering the right outcome - it can make or break the success of a policy. The institutional setup can be as important as the design of the policy itself. Decisions taken down the line with regard to implementation, who is involved, who is responsible, the resources at their disposal and the tools to be used … all of these shape and re-shape the policy outcomes.

In the case of wastewater treatment, the use of economic instruments was shown to make the implementation of policy more cost-effective and eco-efficient. This is particularly important as it is extremely expensive to build treatment plants. Getting society to produce less wastewater (by giving them incentives to introduce ways of minimising water wastage, to re-use water used for cooling, etc), can save a lot of money and resources in the end.

Our study shows that combining wastewater treatment with user fees and levies to prevent wastewater generation at the outset is both an eco-efficient and a cost-effective way of reducing water pollution. Due to a focus on the polluter pays principle and the early use of market-based instruments, wastewater policies in the Netherlands proved to be more policy- and cost-effective than those in the other countries studied. One conclusion is that the key to a more timely and cost-effective implementation of the Urban Waste Water Treatment Directive is greater emphasis on eco-efficiency and economic incentives to promote wastewater reduction at source.

The ten new EU Member States are currently facing the challenge of how best to reduce wastewater pollution. It is expected that EU cohesion policy will continue to support sewage treatment plants in the future. We hope that not only cost-effectiveness but also the polluter pays principle will be important goals in the Commission's proposed 336 billion Euros spending under the cohesion policy over the next 7 years.

Turning to the packaging and packaging waste directive, this is clearly a case of 'What gets measured, gets done'.

Quantitative targets are better at changing the trend than more loosely-worded objectives, even when they're in a binding Directive. So, when we ask the question 'Have the goals been met?', we also need to ask "what kind of goal?".

The Packaging Directive has a set of quantitative targets on recovery and recycling, towards which countries are moving. But the Directive also has an aspirational objective of reducing the amount of waste generated, towards which there has been almost no progress.

The Agency's study highlights the importance of this distinction between targets and objectives.

Full compliance with the targets is not the same as achieving the policy's wider objective of reducing waste volumes, as most measures relate to recycling and recovery. Of the five countries examined, those with initially high levels of recycling have maintained these while the others are steadily increasing it.

So let me re-cap:

• what gets measured gets done;
• economic instruments work as part of the policy mix; and,
• governance matters.

CONCLUDING REMARKS - THE CONTRIBUTION OF GOOD ENVIRONMENTAL REGULATION TO COMPETITIVENESS

I began by suggesting that the two reports are timely given the current debate on better regulation in environmental policy. I am convinced that the environmental policy community is at the vanguard in evaluating the effectiveness of its policies, and in searching for ever more cost-effective ways to achieve society's goals.

Before handing over to Commissioner Dimas and Minister Hedegaard to expand on these matters, I would like to inform you in closing about the work of the informal network of Environment Protection Agencies in this regard.

The Heads of the European EPAs met in Prague last week to discuss the contribution of good environmental regulation to competitiveness. Their deliberations will be published in a few weeks time, but let me reveal now a few of their conclusions in the Prague Statement.

They speak about "modern regulation" and argue that:

• Modern regulation can reduce costs for industry and business: research in the UK suggests that waste minimisation could yield almost 4.4 billion Euros saving in manufacturers' annual operating costs; industry could save 2.7 billion Euros through energy efficiency; and, the agriculture sector could save some 1.3 billion Euros through improved environmental management practices.
• Modern regulation can help create markets for good and services: the world market for environmental goods and services is estimated to be worth 425 billion Euros and is likely to grow to 565 billion Euros over the next five years, a figure comparable with the aerospace and pharmaceutical industries.
• Modern regulation drives innovation for example in the area of environmental technology.
• Modern regulation reduces business risk and increases the confidence of the investment markets and insurers: for example, recent figures show that the difference in financial performance between the best and worst environmental performers in the oil and gas sector was nearly 12% over three years.
• Modern regulation helps create and sustain jobs: the OECD's review of environmental performance in Sweden in 2004 confirms that the environmental industry there has contributed significantly to the low unemployment rate.
• Modern regulation improves the health of the workforce and the wider public: the Commissioner will address the costs of inaction in a moment, but let me just cite the Commission's own figures that the occupational health benefits of the proposed new chemicals legislation could amount to 54 billion Euros over 30 years.

The Prague Statement will be a powerful vindication of the positive contribution of environmental regulation to growth and jobs. Seen in this light, policy effectiveness evaluation should not just be about - how much does a piece of legislation cost to implement and is it cost-effective?

Policy effectiveness should also be about making sure we obtain the maximum benefits from environmental legislation. Are we reaping all the financial and economic benefits that modern regulation can offer? This is a question that we cannot afford to ignore.

It is a question that the European Environment Agency wants to help address. We are developing our own capacity through the studies we are launching today and it is important work that we will continue in the future.

Thank you for your attention.