Submission to the Department of Environment Regulation s Draft Guidance Statement on Regulatory Principles December 2014

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1 Submission to the Department of Environment Regulation s Draft Guidance Statement on Regulatory Principles December 2014 Chamber of Commerce and Industry of Western Australia (Inc)

2 About CCI The Chamber of Commerce and Industry of Western Australia (CCI) is the peak organisation representing business in Western Australia. It is the second largest organisation of its kind in Australia, with a membership of over 9,000 businesses across all sectors of the economy. CCI aims to build a competitive and productive business environment in Western Australia by promoting free enterprise through advocacy and essential services that make it easier to do business. CCI s vision is for Western Australia to be a world leading place to live and do business. Introduction Environmental regulation serves an important purpose, however it can add significantly to business costs. CCI welcomes consultation on the proposed regulatory principles set out in the Department of Environment Regulation s (DER) Draft Guidance Statement Regulatory Principles. CCI s members have expressed a strong desire for reform of environmental regulation in Western Australia, and the consultation is timely given the foreshadowed review of the REFIRE template. There is merit in the development of a set of best practice regulatory principles to guide the development and implementation of the DER s regulatory policies and procedures. CCI s members have expressed concern that regulation by the DER can be overly prescriptive and costly, subject to significant delay, non-transparent, and inconsistent. This can have a significant impact on business, through: increased administrative and capital costs, and lost business due to protracted licensing and approvals processes; and increased capital and operational costs as a result of the requirement to maintain excessive pollution control equipment and processes. The costs of inefficient environmental regulation are ultimately borne by the community through higher priced goods and services, lower incomes and fewer job opportunities. The consultation process should be extended As a guide for the development and implementation of the DER s regulatory policies and procedures, the proposed regulatory principles are important and should be subject to a comprehensive consultation process. The proposed regulatory principles introduce important terminology and concepts that are not defined in the legislation and CCI is seeking further information on the meaning, intent and application of the regulatory principles. In order for industry to be able to make fully informed comments on the proposed regulatory principles, CCI requests that DER undertake an additional round of consultation on a revised draft guidance statement. This would accord with a best practice consultation process involving an initial round of submissions on an issues paper, the preparation and release of a draft policy, and a further round of submissions before the policy is finalised. CCI would be happy to facilitate an opportunity for the DER to engage with the business community on the revised draft guidance statement as part of this process. 2

3 A number of important concepts and terms should be defined A number of important concepts in the proposed regulatory principles are not defined, such as acceptable/unacceptable, proportionate and unnecessary/necessary. Without further definition, these terms are open to subjective interpretation. For example, the determination of risk is subjective and variable and clarity should be provided under the risk-based regulation principle about what unacceptable risk of harm to public health and the environment (Draft Guidance Statement, p. 1) means and how this will be determined. The DER s role in protecting against harm to public health needs to be justified Under a number of the proposed principles, the DER has identified a role for it to protect against harm to public health, in addition to the environment. For example, the draft guidance statement states that DER carries a responsibility to ensure the activities do not pose unacceptable risks to public health or the environment (Draft Guidance Statement, p. 2). Although the state of the environment may impact on public health, harm to public health is not mentioned in the objects of the Environmental Protection Act 1983 which identify the object of the Act as simply to protect the environment of the State (s. 4A(1)). The inclusion of the term public health may imply overlaps with other regulatory agencies, such as the Department of Health and the Department of Water s regulatory functions in the area of drinking water source protection. A broader remit for the DER that overlaps with the roles of other state and local government agencies could result in regulatory duplication or confusion about regulatory responsibility. The DER should remove or justify the references to public health in the proposed regulatory principles. The definition of environmental conservation should be clarified Biological diversity and ecological integrity are reasonable considerations for the DER, but more detailed explanation is sought of how biological diversity and ecological integrity will be defined. Application of Environmental Standards The development and application of environmental standards is appropriate. However, further detail should be provided on how the DER intends to set environmental standards and how they will be applied in practice. Clarity should also be provided on the non-regulatory means DER proposes to use to encourage environmental performance beyond Environmental Standards. Proposed additions and refinements to the regulatory principles The principles developed by the DER do not adequately capture some important principles of best practice regulation, and some proposed principles require further refinement. 3

4 Regulatory principles which should be added Objectives of environmental regulation The regulatory principles would benefit from the inclusion of an outline of the objectives of environmental regulation. The inclusion of an overarching objective, as in legislation, could assist in the interpretation of the other regulatory principles. An appropriate overarching objective may be effective and efficient regulation. Although this phrase is in the title of the draft guidance statement, it is worth noting that the word efficient is not used in the document at all, and effective is used only once in the context of monitoring conditions. Sustainable development The proposed principles in the draft guidance statement should include the principle of sustainable development. The community values both a clean environment and a strong economy that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. Benefit-cost analysis All regulation entails a trade-off between benefits and costs. Regulation should only be contemplated where the benefits clearly outweigh the costs. It will rarely be the case that zero risk is practically achievable or even desirable due to the high costs of achieving this level of certainty. The DER s regulatory principles would benefit from the inclusion of a principle that acknowledges that efficient environmental regulation requires a trade-off to reconcile benefits and costs. Timeliness The DER s regulatory principles should include a commitment to perform regulatory functions in a timely manner consistent with targeted decision making timeframes. Approvals and licensing often touch on multiple areas of government agency responsibility. The DER should undertake to lead the assessment of environmental impacts from a licensing and approvals standpoint and manage timeframes when dealing with other decision making bodies. Regulatory principles which require refinement Risk-based regulation The principle that licensing and approval decisions, including any conditions imposed on any approval, will be proportionate to the level of risk is encouraging. Detail or guidance on the risk-based approach to licensing may be helpful to standardise the process, including the application by the DER. Polluter pays Polluter pays should not be extended to become an alternative source of funding for the DER (that is insulated from the budget process). Many aspects of the Department s activities are public goods, or are carried out in the public interest and should therefore be funded from public finances. Expenditures on management overheads, media and communications, policy 4

5 development, legislation and legal advice, HR and finance functions should not be factored into the concept of polluter pays. Evidence based decision-making Regulatory decision-making requires information. However, the evidence-based decision making principle as presently drafted could be applied in a way that contradicts the risk-based regulation principle. Evidence should be required where it can be reasonably shown that it relates to a known or reasonably predicted activity of significant risk, and should be proportionate to the risk in order to minimise the burden on business. To illustrate, the following relevant indicators of good regulator practice were proposed by the Productivity Commission in its 2014 Regulator Audit Framework 1, and should also apply in the context of environmental regulation. Only information required for the purpose of licensing and approval is collected from businesses. The regulator does not collect the same information more than once. The regulator informs businesses of the purpose(s) for which they collect data. Regulator requests for information are clear and targeted. The regulator shares data with other regulators, and has processes in place to establish whether data are held elsewhere. A risk-assessment is used to determine the level of information required. The process for design of information and data collection used by the regulator is based on cost benefit analysis, internal challenge (for example, a gatekeeper) and consultation with businesses. The evidence based decision-making principle could be improved by explicitly recognising the cost of collecting information both for the regulator and regulated entities and the need to balance the value of the information for regulatory processes with the cost of collection. Of particular importance is for a risk assessment to be used to determine the level of information required. Application of Environmental Standards The application of environmental standards principles should be amended to include an undertaking to consult with industry on both the environmental standards to be adopted, and the scope of environmental factors which the standards will cover. The principles should specify that environmental standards should be outcome-based and not technology based. The principles should also make a distinction between acceptable standards and best practice. It is not clear how environmental standards will be applied to existing industrial facilities which comply with acceptable standards but do not reflect best practice due to advances in technology that have taken place since their construction. 1 Productivity Commission 2014, Regulator Audit Framework, Canberra, p

6 Appropriate conditions The reference in the draft guidance statement to the application of process and management-based conditions is concerning. CCI s members report that the DER does not have the knowledge in some industries to competently apply process and management-based conditions. The principles should be amended to state that the DER will only contemplate process and management-based conditions around standard activities and standard contexts. The principles should commit the DER to full consultation with industry on standard activities and contexts where process and management-based conditions may apply. Consultation and transparency The consultation and transparency principle should be amended to specify that consultation period for proposed DER regulatory policies, guidelines and Environmental Standards should be reasonable for industry response. The consultation process should accord with best practice, and include an initial round of consultation, a second round of consultation on a draft proposal, and publicly released documentation of response to issues raised in submissions. Alternative regulatory options should be considered While best practice regulation is an important objective, it is recognised that this can require considerable resources to administer. In addition to a focus on risk based regulation and outcome-based conditions as outlined in the proposed regulatory principles, the Government should consider alternative regulatory options that transfer more responsibility for environmental regulation to industry. In particular, industry is supportive of the use of third party certification. In a 2013 research report on regulator engagement with small business, the Productivity Commission found that: there is likely to be substantial scope to reduce business compliance costs, while maintaining (and even enhancing) regulatory outcomes, with the wider adoption of appropriate recognition of industry and other third party certification processes and outsourcing of inspections where the benefits are likely to outweigh the costs. 2 Within a framework with appropriate oversight, the use of third parties to administer and monitor compliance with regulatory outcomes has the potential to improve the efficiency of environmental regulation. Such an approach would harness the private sector s broader technical expertise, enable competition in service delivery and enable the DER to focus on its core role in enforcing regulation. Third party certification is already used in quality assurance of environmental management systems (for example, ISO 14001, although the costs of certification under this scheme are high), and in other industries with a strong public health focus, such as for building inspections. 2 Productivity Commission 2013, Regulator Engagement with Small Business, Research Report, Canberra, p

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