Taking care of business? The Circular Economy package and “better regulation”

As readers may be aware, Jean Claude Juncker, the new President of the European Commission, has wasted no time in positioning himself as a new broom. His request that incoming Commissioner for Environment, Maritime Affairs and Fisheries, Karmenu Vella, take a fresh look at both the Commission’s circular economy (CE) and clean air (CA) packages seems likely to result in one or both of these important legislative proposals being swept aside in order to usher in a new focus on jobs and growth.

Juncker set out his stall in his Mission Letter to First Vice-President Frans Timmermans (in charge of, inter alia, Better Regulation):

“Respect for the principles of subsidiarity, proportionality and better regulation will be at the core of the work of the new Commission. We will concentrate our efforts on those areas where only joint action at European level can deliver the desired results. When we act, we will always look for the most efficient and least burdensome approach. Beyond these areas, we should leave action to the Member States….”

This may sound like a dramatic call for a less interventionist EC, but it’s nothing new: the previous Commission applied exactly the same principles, which were implicit in the impact assessment guidelines used to assess the two threatened packages.

Juncker mail

Juncker’s call for a new focus does, however, come through clearly:

“You will drive the Commission’s work on better regulation in order to maximise its contribution to our jobs and growth agenda….”

Of course, only if you have quite a narrow view of what constitutes ‘better’ regulation will you assume that it will always promote the ‘jobs and growth agenda’. If regulation properly weighs all costs and benefits to society, it won’t necessarily be aligned with promoting growth, or increasing jobs.

In fact, Juncker appears to be enjoining Timmermans to maximise the ‘contribution’ of ‘the Commission’s work on better regulation’ to growth and jobs. Properly considered, even that should not mean that legislative proposals must be dismissed if they have negative implications for growth, as conventionally measured, or even jobs. Rather, where such proposals are justified on other grounds, they should be designed so as to minimise the potential for negative impacts on (maximise the positive contribution to) growth and jobs.

Nevertheless, it seems that the CE and CA packages are considered to be incompatible with Juncker’s focus. Predictably enough, the environmental lobby has reacted strongly against the news coming out of Brussels. Less obviously, but equally predictably, business seems rather more divided. That should be enough to indicate that this isn’t a simple case of environment vs economy, but it’s well worth examining the arguments being advanced by sections of business against the EC’s pending environmental legislation.

Business Europe (BE), whose UK direct member is the Confederation of British Industry (CBI), describes itself in the following terms:

“A recognised social partner, we speak for all-sized enterprises in 33 European countries whose national business federations are our direct members”

BE recently set out its views on ‘Pending Legislation 2014’, expressing support for Juncker’s better regulation agenda:

“The EU must avoid legislative proposals with a disproportionate impact on competitiveness and that add no real value to the single market and growth.”

This is a lop-sided presentation of what better regulation would imply, and it is not what Juncker has said and, one hopes, not what he means. It is a distorted interpretation of his statement, and would be completely at odds with BE’s description of the approach to developing better regulation,

“which comprises the use of additional tools such as impact assessments, stakeholder consultation and evaluations to avoid disproportionate legislative proposals and remove unnecessary burdens.”

Interestingly, most of these ‘additional tools’ have already been applied to the CE and CA proposals. Nevertheless, BE rejects some of the CA proposals entirely, and calls for ‘substantial improvement’ of the CE package before it is taken forward.

Competitive advantage

BE goes on to say:

“The vice-president in charge of better regulation should be involved at an early stage to assess the need of initiatives in the light of their added value to growth, jobs and competitiveness on the basis of solid quantitative data.”

This seems to suggest that Impact Assessments should consider only ‘growth, jobs and competitiveness’: if that were the case, it would imply that the proposed policy was being considered in a limited manner, with no consideration of the impact on the wellbeing of citizens or the natural environment, for example.

Juncker by name…. Photo by Platforma Obywatelska RP, via Wikimedia Commons.

Furthermore, it is interesting to examine the appeal to ‘competitiveness’, a term with no easy definition, and none which is widely recognised. If we seek to understand it broadly as the ability of companies to compete internationally, then as regards the CE proposals, it is notable that:

1. the legislative changes in the package focus, where targets are concerned, on municipal waste and packaging;
2. municipal waste is only an issue in respect of competitiveness if there is reason to believe that the new targets will be more expensive than the existing ones, and that to fund them, taxes rise in ways which impact, at the margin, upon competitiveness. Yet the IA indicates that the higher targets will reduce financial costs. This is before we even consider the environmental benefits of the measure.
3. packaging waste would only raise issues in respect of competitiveness if EU companies’ packaged products were treated differently from packaged products coming from other countries. For blindingly obvious reasons, that isn’t an approach that many would favour.

Consequently, any argument against higher recycling targets on grounds of competitiveness seems, at best, completely spurious.

Rationale thinking

When it specifically addresses the CE package, however, BE puts forward a rather different case:

“Moving Europe towards a more circular economy model is important from an economic as well as environmental perspective. This is the reason why the six legislative proposals that are part of the circular economy package should be approached as an economic piece of legislation rather than from a purely environmental perspective. The proposal should be withdrawn and re-tabled as an economic piece of legislation. The circular economy dossier should take account of issues of wider economic interest (including manufacturing and product design, consumer affairs, research & innovation, security of supply and raw materials) as well as markets beside the environmental dimension which includes recycling, reuse or land-filling.”

The logic is difficult to grasp: indeed, for the many intelligent people who have argued for a non-separation of environment and economy, the line of argument is wholly wrong-headed and reveals a good deal about how much catching up organisations like BE still have to do.

The rationale for many environmental proposals from the Commission is predicated on the existence of market failures: in particular, the existence of so called externalities – costs or benefits visited by the actions of some actors (such as businesses) upon others that are not currently reflected in market transactions.

It used to be common for businesses, and the trade bodies representing them, to highlight only the negative trade off that was assumed to exist between increased environmental performance and corporate profitability / international competitiveness. But this characterisation is now widely challenged by business leaders themselves, who understand that underlying the notion of competitiveness is the drive for increased productivity.

In good company

Measures to improve resource and energy efficiency therefore contribute directly to competitiveness, and innovative companies are seeking to make good use of streams that were hitherto considered only as wastes. Indirectly, companies leading the way in the EU benefit from the opportunity to sell their products and expertise in overseas markets. Even august bodies such as the IMF point to the fact that post-crisis, we cannot simply return to business as usual:

“we need to get growth going again—but on a different track than before the crisis. We are all aware that economic growth can potentially harm the environment and that environmental degradation can in turn hurt economic performance.”

It can’t be easy for a trade body to represent the views of all its members, but BE’s opportunistic attempt to delay and derail the CE and CA packages shows an antediluvian attitude to legislation (not just in the environmental sphere) that reflects the laggards in industry and not the leaders. In the UK, it was encouraging that last week’s industry letter sent to Defra urging the Government to support the circular economy package was not signed only by the waste industry – which clearly has a dog in the fight.

It also included a major trade body representing UK manufacturers, the Engineering Employers’ Federation, which has set out its own vision for a circular economy, extending far beyond what the Commission’s package calls for. A further group of businesses, including Ikea, Kingfisher and Unilever have signed a letter to the Daily Telegraph expressing support for the CE. BE clearly does not represent the views of this branch of business.

If the CE and CA packages are to be saved, forward-looking businesses need to speak out against those that purport to represent their interests, and remind Junckers and Timmermans that better regulation does not always mean less regulation.