Mind the gap! Comparingex anteandex postassessments of the costs of complying with environmental regulation

Abstract

This paper considers the question of how ex ante predictions of the costs of complying with environmental regulations compare with ex post evaluations of actual compliance costs. This is an important issue given the emergence of requirements for regulatory impact assessment (RIA) in many policy arenas (see OECD, 1997) and the conclusion of previous research that the predicted costs of compliance with environmental regulations often exceed actual costs (see Haq et al., 2001). Based upon a review of the different stages of the regulatory decision-making process, this paper suggests that the reasons for these differences relate to strategic behaviour by affected parties in the policy formulation stage, problems in anticipating the

Implications of REACH for developing countries

“…Ex ante estimates of the costs of regulatory compliance, often based on estimates by the regulated industry itself, routinely turn out to be higher than actual, ex post costs. This has been confi rmed in research in Europe (Bailey et al, 2002;Sherrington and Moran, 2007) and in America (Goodstein, 1999;Harrington et al, 2000;Ackerman, 2006). In this instance, the industries that are affected by REACH, in Europe and in South Africa, expressed grave concern in advance, suggesting that costs might be enormous.…”

Linkages between Environmental Policy and Competitiveness

“…In addition, there can be uncounted costs: for example, Joshi et al (2001) examined 55 steel mills and found that a $1 increase in the visible cost of environmental regulation was associated with an increase of $9-$10 in hidden costs. There can also be additional savings that result from innovation offsets, unanticipated technological development, unanticipated market reaction, or unmeasured complementarities between environmental activities and the non-environmental production (Bailey et al, 2002;Morgenstern et al, 2001;Sherrington & Moran, 2007). Finally, early estimates of abatement costs may represent overestimates simply because over the negotiation process of the regulation, requirements are often modified to reduce competitiveness concerns (Ackerman et al, 2008).…”

The Tolerable Cost of European Union Regulation: Leaving the EU and the Market for Politically Convenient Facts

“…The reasons underlying this phenomenon are likely to vary according to policy area and design (Harrington et al, 2000), and jurisdiction (McGarity and Ruttenberg, 2002). Evaluations of impact assessments of environmental policy, where the phenomenon has been studied in greatest depth, highlight a number of recurring causes such as the failure to anticipate incomplete implementation and compliance (Bailey et al, 2002;IVM and Ecologic, 2005;MacLeod et al, 2006) and differences in (and potentially politically convenient facts about eu regulation 729 erroneous) assumptions between ex post and ex ante assessments (IVM and Ecologic, 2005;MacLeod et al, 2006). Interestingly, they also neglect or understate the potential for business to innovate, learn and adapt in response to regulation (Hammitt, 2000;Harrington et al, 2000;Heinzerling and Ackerman, 2002;IVM and Ecologic, 2005;MacLeod et al, 2006), despite this being a fairly well-established phenomenon in the economics literature (Ambec et al, 2013;Brännlund and Lundgren, 2009).…”