• Regulatory environment

If regulators want to achieve robust legislation, they must be more pragmatic

Citing the complex trade-off nature of banning and incentivizing, Dr. Lorenzo Allio calls for environmental policymakers to think as much about the questions of 'how' as the questions of 'what' to prepare all stakeholders for a more environmentally-friendly future.

“At the European Regulation and Innovation Forum (ERIF), we don’t take a sectoral or product-specific perspective,” says Dr. Lorenzo Allio, Senior Policy Analyst. “We look at decision-making at the EU level. Whenever we issue a new piece of research, it’s not with a specific industrial sector in mind, but rather to ensure that good regulatory principles and practices are systematically applied.”

As the only think tank in Brussels exclusively dedicated to improving the regulatory framework of the European Union’s institutions, the ERIF values initiatives to bring together stakeholders from across the global value chain to better understand the challenges and opportunities that come with sustainable innovation.

One of the ERIF’s goals is to put better regulation at the core of EU decision-making. It recognizes an increasing need to preserve the credibility and consent of decisions through robust evidence and good communication with the public, especially when designing and implementing the European Green Deal.

“The Green Deal is laying the groundwork for a radical change in the way we produce and consume,” says Dr. Allio. “But in order to do that, we need to win the support of stakeholders. That means the various industries, NGOs and the consumers themselves. There is great value in explaining why decisions are taken the way they are.”

Scientific expertise used in regulation must be both ‘excellent’ and ‘impartial’

One way to do so is to bring more clarity to the role of evidence and to differentiate it from other factors, such as values or beliefs. Values or beliefs are legitimate and even necessary in a pluralistic, democratic society, according to the ERIF, but decision-makers have to make the case for any decision they take.

“It’s not that we advocate a technocratic approach per se, but an approach in which you can understand why and when decisions are taken,” he says. “And when it comes to science, regulators must ensure that the scientific expertise they use is both ‘excellent’ and ‘impartial’. This is a key area where the EU Better Regulation agenda can improve.”

Principles underlie good regulation

Increasingly, especially in areas of risk regulation, the implementation of regulation does not come from member states but gets referred to centralized EU agencies. The EU’s Better Regulation agenda does not necessarily cover these segments of the policy cycle as well as the legislative process.

According to the ERIF, good regulation is based on principles, such as proportionality and outcome-driven and technology neutral regulation. Good administration should ensure formalized and enforced standards in decision-making.

“Regulation should be able to be proved necessary, proportionate and cost-effective. In a complex world where problems are interconnected, you have to target individual applications of new technologies and not the technologies on their own.”

"Having ambitious targets is not a problem. The problem comes when those targets trigger reasoning that isn’t questioned or lacks robust evidence. You have to take into account what the best way is to achieve a target."

Under this thinking, there must also be EU-wide law on administrative procedure, similar to the Administrative Procedures Act in the United States and equivalent ones in many EU member states.

“It is basically a law that sets out procedures, principles and standards on how to do laws. That’s important for openness, transparency, the right to participate and ensuring access to redress mechanisms and appeals,” continues Dr. Allio.

The ideal approach for regulation is ultimately based on risk

There have been several strategies formulated to help the European economy become carbon-neutral by 2050, such as Farm to Fork. These strategies involve setting targets, but achieving those targets isn’t always simple. The ERIF argues that when thinking about how to create better regulation for the European Green Deal, regulators should be thinking as much about the “how” questions as the “what” questions.

“Having ambitious targets is not a problem,” says Dr. Allio. “The problem comes when those targets trigger reasoning that isn’t questioned or lacks robust evidence. You have to take into account what the best way is to achieve a target. This means looking at synergies and trade-offs across policy areas and holistically throughout value chains. It also means understanding the incentives for investors, because you need technology, innovation and the support of stakeholders.”

One of the ERIF’s focus areas is innovation, which leads it to believe that the ideal approach for regulation is ultimately one based on risk.

“You cannot simply say that banning is wrong per se. It’s on a case-by-case basis and it may well prove necessary. You also cannot say that the precautionary principle always hinders or supports innovation. What counts is fully understanding the actual levels of exposure to harm, discussing ways to mitigate such exposure and taking into account the indirect consequences of risk management decisions. Trade-offs must be acknowledged.”

Banning without forethought can hinder innovation downstream

On the grounds of innovation, it is important to understand what incentives there are for investors to allocate capital, and how decision-makers shape those incentives is often related to capitalized development costs and time-to-market.

Ultimately, Dr. Allio believes that banning without adequate forethought can stifle innovation.

“If we decide to not permit something, it won’t be developed anymore, which might limit important advances downstream in value chains. The same technology or product might simply be developed in other places around the world. We would then have to import, which costs innovation potential, jobs and opportunities in Europe with unclear overall health or environmental benefits.”

This article is part of a series where different stakeholders discuss the opportunities offered by digital innovation for the manufacturing sector, ahead of our virtual roundtable ‘How can digitalization deliver circular and sustainable manufacturing?’.

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