Regulators urged to embrace systems thinking to deliver on net zero

WELL-DESIGNED green regulation can help the UK deliver on its net zero commitments, while also driving growth and innovation, according to a new report from environmental policy solutions provider Aldersgate Group.

UK regulator the Office of Environmental Protection (OEP) has warned that the government is not doing enough to improve the natural environment, stating that established policies must be implemented faster to meet urgent needs.

However, the Aldersgate Group’s report, which was prepared by economics consultancy, Frontier Economics, says that environment isn’t the only loser when it comes to poor regulatory practices, with industry also suffering.

Drawing on environmental principles set by the Environment Act 2021 and using case studies on the water and transport industries, the report proposes regulators use systems thinking when developing and implementing policy.

Systems thinking – a business strategy that involves looking at a whole system and its interconnected parts – has been introduced by regulators in the water and energy industries to solves issues like wastewater treatment and switching domestic heating from gas to electricity.

Rachel Solomon Williams, executive director of Aldersgate Group, said: “Through our engagement with businesses across a range of sectors we’ve found that well-designed regulation can drive economic growth and encourage innovation, while also improving climate and environmental outcomes.”

She added: “Good environmental regulation helps firms to identify the most efficient solution, therefore keeping the cost of implementing and complying with the regulation to a minimum.”

Main principles and recommendations

The report focused on four principles and builds heavily on systems thinking, with the first urging regulators to consider all aspects of the environment and the impact to other services. An example is the arrival of diesel cars in the late 1990s. Their introduction reduced CO2 emissions, but increased levels of nitrous oxide.

An emission standard which focused on carbon dioxide equivalents (CO2e) rather than just CO2 may have reduced carbon without introducing other harmful gases to the atmosphere.

In tandem with this principle, the report critiques the use of a cost-benefit analysis approach to decision-making and suggests a multidisciplinary approach is needed that includes qualitative assessments made from the chemistry, biology, ecology, health and social sciences, and engineering sectors.

This approach has been helpful for Wessex Water, who are using data modelling to reduce the amount of phosphorus loadings in the Cam and Wellow sub-catchment. Currently, regulation for water companies follow a point-source approach, where only a single identifiable localised source of pollution like wastewater treatment works, are considered.

Wessex Water, meanwhile, is working with the Environment Agency, Natural England, biologists, and ecologists to understand how its approach to managing storm overflows and drainage systems affects biodiversity in rivers and fellow water industry companies.

Increased cross-sector collaboration is also recommended, with the report pointing to fragmented regulation that needs to be matched by greater oversight. The final principle involves fairness, which the report states is to “make sure that location, ability to pay and intergenerational fairness are considered when determining where the burden of improving the environment should fall.”