Can Regulators Ensure Environmental Sustainability?

Sustainability is an urgent concern that grows in importance as the earth’s fragility becomes increasingly apparent. Regulating in order to promote sustainability, however, brings a number of challenges. The first section of this chapter discusses those general challenges and the second section deals with a specific issue of central importance to sustainability—the control of carbon emissions. Central questions explored include: Is the idea of sustainability too elusive to allow its protection through regulation? How can regulators address the special challenges presented by future and contested harms? What strategies are available to rise to the challenges of regulating so as to foster sustainability? The discussion of responses to carbon and other greenhouse gases deals with the scale of the problems and the regulatory tools available to achieve the decarbonization targets now adopted by governments, including carbon taxes, tradable emissions permits, electric vehicles, and the replacement of gas in home heating.

Impacts on the Ground

Regulators have to ensure their activities will actually influence behaviour on the ground. This chapter looks at the possible enforcement methods and the impacts these tend to have on interested parties. It outlines how to choose the least intrusive intervention styles that are acceptable. Positive regulatory enforcement demands attention to the stage at which interventions are made and to opportunities to encourage firms’ capacities to comply voluntarily with regulations. Enforcement actions revolve around two key issues—who to go after and what to do to change behaviour. Risk-based regulation offers a way of prioritizing targets for attention but is infused with qualitative judgements and does not assist greatly on choices of intervention strategy. Collectively, ‘compliance’, ‘deterrence’, and ‘responsive’ approaches do not go so far as the GRID approach in combining attention to two needs: matching intervention tools to firm-types and taking on board both the levels of risks and their volatility.

Positive Regulation and Success

What is regulatory success and how is it to be achieved across the core tasks of regulation? There are familiar examples of regulatory systems that seem to have failed—the financial crash of 2009 offers an instance of a hugely costly failure of regulation and government. What, though, does successful regulation look like? This chapter looks at the challenges involved in producing regulatory systems that achieve success for affected parties. It outlines the jobs that regulators have to do and the difference made by doing these well or badly. It examines why regulation can fail and describes the qualities associated with the excellent regulators. It sets down how businesses can respond to regulatory systems in an effective manner and looks at the conditions under which ‘win-win’ outcomes are possible for firms and regulators.

Regulating for Future Needs

This chapter summarizes the book’s argument for taking a positive approach to regulation and for seeing regulation as part of the core process for furthering both business success and social welfare. If regulation is to develop in a way that meets future needs, as well as current ones, it will be necessary to develop the key attributes of positive regulation. This involves a predisposition to maximize the degree to which objectives (substantive and procedural) can be achieved by harnessing corporate capacities to behave well. Such a minimalist approach to ‘taming the corporation’ implies that enabling and flexible modes of influence should be the first choices of regulators, rather than restrictive control mechanisms. Realism, however, demands that regulators take on board the inclinations and capacities of regulated firms to behave well and that they act firmly with corporations and individuals who are not likely to deliver desired outcomes without strong forms of external stimulation.

Strategies for Success

Governments can set up a host of regulatory frameworks. They can pass laws, name and shame, impose taxes, create civil law rights, and so on. They can hand over regulation to independent agencies, and even allow firms to regulate themselves and monitor performance. This chapter looks at strategic choices and the conditions for using different devices successfully. It also reviews the potential of new-style and ‘non-regulatory’ controls such as ‘nudges’. The chapter emphasizes that positive regulation is predisposed to operate by harnessing self-regulatory capacities. Controls within firms, meta-regulatory systems, and schemes of industry self-regulation all provide means of passing the task of front-line control to firms or their associations. These approaches, like collaborative processes, bring a variety of advantages, but there are challenges in deploying such arrangements so as to produce desired results at lowest cost and in a manner that sustains public confidence.

Regulating Digital Platforms

One of the most pressing regulatory challenges of recent years has been what to do about the hugely successful digital platform and related companies which now bestride the world. Their emergence provides a brutal and urgent test for positive regulation: Can legislators and regulators maintain the benefits generated by such influential new actors, but also control the adverse effects? This chapter focuses on the challenges posed by the platforms’ abuses of their market power. It starts with an exposition of the special features of two-sided platforms which may create a heightened or special need for regulation. It then considers how these features might play out, and focuses on the risk of markets ‘tipping’ into monopolies. It then discusses how general competition law might be strengthened to keep up with the new dynamics of digital platforms and how competition law can be supplemented by additional regulatory interventions. The concluding section discusses prospects for positive regulation meeting these new challenges.

Can National Regulators Solve Problems?

In a host of areas national regulators play only a limited role in dealing with issues, risks, and problems. Issues have to be dealt with in complex networks comprising not only regulators at different levels of government but also non-state bodies. When regulation is conducted by means of such complex networks, special challenges arise in discharging the key tasks of setting objectives, delivering outcomes, and satisfying representative values. This chapter focuses on transnational regimes, which tend to involve more complex networks than domestic systems. However, even when risks and problems are more distinctly located within national boundaries, many of the challenges are echoed when national regulators operate within control regimes that are polycentric and involve networks of bodies that are located at different levels of government (local, regional, national, and supra-national), that have different characteristics (public, private, state, non-state) and exert different kinds of influence (binding, non-binding). The challenges and advantages of ‘networked’ regulation are discussed.

How to Prevent Regulatory Disasters

This chapter suggests that regulators suffer from systematic failures through a lack of awareness, intelligence, and dynamism, as well as an inability to deliver on the key tasks of regulation. A central way for a positive regulator to reduce failures is to examine its organizational culture in the face of changing circumstances, to avoid capture, and to address cognitive failures by engaging in counter-measures that are designed to improve the intelligence system that underpins action, and to ensure that regulatory decisions are made on the basis of the soundest available evidence. When regulators develop their awareness and intelligence systems, this increases their self-reflection and consciousness of their own fallibility, which can reduce the likelihood that mistakes will be made or repeated. Similarly, an emphasis on dynamism fosters the more agile regulatory systems that are especially needed in sectors marked by rapid technological and other changes.

Controlling Traditional Network Monopolies

This chapter focuses on the century-old regulatory challenge that is posed by a key feature of traditional utility sectors such as energy, fixed telephony, and water: their reliance on a physical (not a digital) local distribution network for delivering the relevant service to millions of dwellings and business premises, and the incorporation of bottlenecks within such networks. Key issues explored include the scope of regulation within a network utility, how network prices are regulated, minimizing network costs and regulating outputs more broadly, how to set the rate of return on capital allowed to the network, and the future of network regulation.

Positive Regulation in a Changing World

All regulators deal with issues that are constantly changing. Economic circumstances and technologies develop, and market structures alter as new products are launched, providers come and go, consumer preferences shift and so on. Positive regulators will be aware of such changes (anticipating them when feasible), will have information on the nature of such changes, and will respond dynamically to any such shifts. This chapter focuses on three central strategic issues in doing so: how best to respond to those new activities, technologies, and operators that do not sit easily within current regulatory frameworks; how to encourage healthy innovations by businesses; and how regulatory regimes can be adjusted in ways that impose least costs on firms, consumers, and others. Special attention is paid to the challenges that arise when regulation operates in a fragmented manner and across different levels of government.