EREP RCM 16 August - epa.vic.gov.au/media/Files... ·...

!!!Regulatory!Change!Measurement!!

Cessation!of!Environment!and!Resource!Efficiency!Plans!(EREP)!program!!!!!!!!!!!!!!!!!!August!2013!!!

Prepared!for!the!!Department!of!Environment!and!Primary!Industries!!

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Table!of!contents!!

Executive!Summary! ! ! ! ! ! ! ! !!3!

1.!The!regulatory!change! ! ! ! ! ! ! !!5!

2.!Mapping!the!regulatory!change! ! ! ! ! ! !!6!

3.!Data!strategy!and!data!sources! ! ! ! ! ! !!8!

4.!Results! ! ! ! ! ! ! ! ! 11!

APPENDIX!1:!RCM!calculations! ! ! ! ! ! 12!

APPENDIX!2:!Definitions!of!regulatory!costs!! ! ! ! 14!

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Regulatory!Change!Measurement:!! !Cessation!of!Environment!and!Resource!Efficiency!Plans!(EREP)!program! 3!

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Executive!Summary!EPA’s!Environment!and!Resource!Efficiency!Plans!(EREP)!program!helps!Victorian!businesses!meet!resource!scarcity!challenges.!Through!the!EREP!program,!industry!can!realise!the!business!opportunities!presented!by!resource!efficiency!by!implementing!actions!that!achieve!environmental!benefits!and!direct!cost!savings!in!a!short!time!frame.!!

The!EREP!program!is!a!regulatory!requirement!for!large!energy!and!water!using!sites!operating!in!Victoria!–!those!using!more!than!100!TJ!of!energy!and/or!120!ML!of!water!per!annum.!Sites!need!to!register!in!the!program!by!September!after!the!first!financial!year!that!their!usage!exceeds!the!energy!or!water!use!thresholds.!

Late!last!year!the!Council!of!Australian!Governments!(COAG)!agreed!that!States!and!Territories!would!review!programs!that!had!possible!duplication!with!any!federal!and!carbon!price!incentives.!The!EREP!program!was!part!of!this!review.!

The!review!found!that!EREP!could!place!unnecessary!compliance!burden!on!businesses!due!to!duplication!with!current!Commonwealth!programs,!including!the!Energy!Efficiency!Opportunities!program!and!the!carbon!price.!It!was!therefore!decided!to!cease!the!EREP!program!from!February!2013!as!a!means!of!reducing!regulatory!burdens.!

The!Victorian!Government!has!a!policy!commitment!to!cut!red!tape!by!25!per!cent.!The!Victorian!Regulatory!Change!Measurement!(RCM)!methodology!is!used!to!measure!any!change!in!regulatory!burden.!The!use!of!the!RCM!methodology!is!consistent!with!accepted!current!Victorian!Government!practices!in!regard!to!measuring!changes!in!regulatory!burden.!

Under!the!RCM!methodology,!reductions!in!the!administrative,!substantive!compliance!and!delay!costs!of!regulation!imposed!on!business,!the!not\for\profit!sector,!the!operation!of!government!services!and!some!costs!incurred!by!private!individuals!are!counted!towards!the!target.!!

Cessation!of!the!EREP!program!removes!a!number!of!obligations!on!businesses!by!removing!the!following!processes!that!were!in!place!under!the!Environment!Protection!(Environment!and!Resource!Efficiency!Plans)!Regulations!2007!(the!Regulations),!which!are!statutory!rules!made!under!the!Environment!Protection!Act!1970:!

• Registration!of!relevant!activities!–!and!administrative!costs!with!also!potential!delay!costs!

• Preparation!of!an!EREP!–!and!administrative!cost!

• Submission!of!the!EREP!to!EPA!for!approval!–!an!administrative!cost!

• Implementation!of!the!EREP!–!a!substantial!compliance!cost!

• Submission!of!performance!reports!to!the!EPA!–!an!administrative!cost!

The!Regulations!were!due!to!expire!on!31!December!2014.!Therefore,!the!regulatory!costs!avoided!by!cessation!of!the!EREP!program!reflect!avoided!costs!over!a!period!of!22!months!from!February!2013!to!December!2014.!These!avoided!costs,!for!the!stated!period,!are!in!the!range!of!$3.5!to!$4.7!million.!In!annualised!terms,!the!results!are!set!out!in!the!table!below.!

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Table:!Change!in!regulatory!burden!from!cessation!of!EREP!program!(annualised)!

Sector/!Cost!categories!

Business! NFP! Government!services!

Economic!activities!of!individuals!

Total!by!cost!categories!

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Administrative!costs!

\$1.3m!to!\$1.5m!

\! \! \! \$1.3m!to!!!\$1.5m!

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Substantive!Compliance!costs!

\$0.6m!to!\$1.1m!

\! \! \! \$0.6m!to!!!\$1.1m!

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Delay!costs! \! \! \! \! \! !Total!by!sector!

\$1.9m!to!\$2.6m!

\! \! \! \$1.9m!to!!!\$2.6m!

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The!midpoint!of!this!annualised!saving!is!therefore!$2.25!million!per!year.!

These!results!are!based!on!a!number!of!assumptions!and!projections,!and!therefore!produces!an!indicative!estimate!of!the!impact!of!the!regulatory!change.!

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1.!The!regulatory!change!The!Environment!and!Resource!Efficiency!Plans!(EREP)!program!is!an!initiative!of!the!previous!Victorian!Government.!The!EREP!program!mandated!a!resource!efficiency!assessment!and!implementation!of!cost!effective!resource!saving!actions!(less!than!3!years!payback)!for!around!250!Victorian!sites!that!triggered!participation!thresholds!of!energy!or!water!use.!!

EREP!has!operated!since!1!January!2008!under!the!Environment!Protection!(Environment!and!Resource!Efficiency!Plans)!Regulations!2007!(the!Regulations),!which!are!statutory!rules!made!under!the!Environment!Protection!Act!1970!(the!Act).!

The!requirement!to!register!activities!and!prepare!and!implement!EREPs!is!established!under!the!Act!(Part!III!–!Div!4A),!however!the!Regulations!give!operational!effect!to!these!requirements!by!setting!out!relevant!criteria,!thresholds!and!time!requirements.!That!is,!in!the!absence!of!the!Regulations,!the!following!key!regulatory!processes!set!out!in!the!Act!would!not!occur:!

• Registration!of!relevant!activities!

• Preparation!of!an!EREP!

• Submission!of!the!EREP!to!EPA!for!approval!

• Implementation!of!the!EREP!

• Submission!of!performance!reports!to!the!EPA!

The!Regulations!were!planned!to!expire!on!31!December!2014.!The!Victorian!Government!decided!that!it!would!cease!the!EREP!program!from!15!February!2013.!!

The!relevant!regulatory!change!is!therefore!the!decision!for!affected!businesses!to!no!longer!need!to!comply!with!EREP!obligations!and!processes!for!the!period!15!February!2013!to!31!December!2014!(i.e.,!22½!months).!

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2.!Mapping!the!regulatory!change!This!section!sets!out!the!nature!of!the!obligations!that!are!part!of!the!base!case,!which!have!been!removed!by!the!decision!to!cease!the!EREP!program.!Figure!1!shows!the!key!steps!during!the!EREP!program!where!businesses!undertake!activities!or!incur!expenditure.!

Figure!1:!Key!stages!of!the!EREP!process!

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All!compliance!costs!(including!administrative!and!substantive!compliance!costs)!and!costs!of!delays!are!within!scope!of!this!RCM.!Compliance!costs!have!been!identified!as:!

• Administrative!costs—costs!incurred!by!regulated!entities!primarily!to!demonstrate!compliance!with!a!regulation!or!to!allow!the!government!to!administer!the!regulation.!These!are!primarily!requirements!to!provide!information!to!government,!including!costs!of!preparation!and!delivery.!

• Substantive!compliance!costs—costs!that!directly!lead!to!the!regulated!outcomes!being!sought.!These!are!often!capital!and!production!costs.!!

• Delay!costs—expenses!and!loss!of!income!incurred!by!a!regulated!entity!through!an!application!delay!and/or!an!approval!delay.!!

Financial!costs!(such!as!payment!of!fees!or!levies)!and!consequential!costs!are!not!included.!Further!explanation!of!these!compliance!cost!definitions!in!included!in!Appendix!2.!

Figure!2:!Regulatory!costs!within!scope!of!RCM!(within!the!red!box)!

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The!current!regulatory!burdens!of!the!EREP!program!fall!on!businesses!that!trigger!the!relevant!thresholds!of!water!and!energy!use.!Cessation!of!the!program!removes!these!obligations.!These!obligations!are!set!out!in!Figure!3!below.!

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Regulatory Costs

Financial

Costs

Substantive compliance

costs

Compliance

costs

Other Costs(e.g. market/competition)

Delay costsImpacts of being prevented by administrative process

from conducting operations

Administrative costs

Register!for!EREP!

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Prepare!Plan! Implement!Plan!

Provide!reports!on!progress!

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Figure!3:!Mapping!of!regulatory!burdens!under!the!EREP!program!

Environment!Protection!(Environment!and!Resource!Efficiency!Plans)!Regulations!2007!giving!operational!effect!to!obligations!under!the!Environment!Protection!Act!

1970!

Obligation! Potential!Regulatory!Costs!

Registration!with!EPA!

Act!–!section!26F;!Regulation!5!and!6!

Administrative!cost:!time!and!costs!of!preparing!an!application—providing!business!details,!aggregating!water!and!energy!data,!internal!approvals,!costs!of!submission.!

Preparation!and!Submission!of!EREP!

Act!–!section!26H!and!26J;!Regulation!5,!6,!11,!12!

Administrative!cost:!time!and!cost!of!establishing!water!use!profiles!including!collecting!data!and!indicators,!identifying!resource!efficiency!actions,!preparation!of!Plan.!Time!and!cost!of!submitting!Plans!to!EPA.!

Implementation!of!EREP!

Act!–!section!26M;!Regulation!5!and!6!

Substantial!compliance!cost:!costs!of!actions!taken!as!required!under!the!EREP.!The!compliance!costs!included!are!only!those!that!are!incremental!to!costs!that!would!have!been!included!in!the!absence!of!the!EREP!program.!

Performance!Reporting!

Act!–!section!26O;!Regulation!16!

Administrative!cost:!time!and!cost!of!maintaining!records,!preparation!of!reports,!and!submission!of!reports!to!EPA.!

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Delay&costs&

There!were!no!delay!costs!introduced!as!part!of!the!EREP!program.!EREP!is!not!a!pre\condition!to!commencing!business!activities.!The!program!allowed!significant!time!between!trigger!and!registration,!and!then!time!to!prepare!plans.!Business!activities!can!continue!during!all!these!relevant!periods.!Even!new!businesses!are!able!to!commence!business!operations!while!the!registration!and!EREP!preparation!occurs.!Therefore,!delay!costs!would!be!zero.!Further,!non\compliance!is!generally!managed!by!use!of!penalties!and/or!assisting!businesses!to!become!compliant.!EPA!confirmed!that!there!have!been!no!cases!where!the!EREP!process!has!led!to!businesses!suspending!or!postposing!its!business!activities.!Consultation!with!a!sample!of!businesses!also!did!not!identify!any!cases!of!delay!costs!associated!with!the!EREP!program.!

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3.!Data!strategy!and!data!sources!This!RCM!measures!the!impact!of!removing!existing!regulatory!obligations.!However,!the!impact!of!removing!the!obligations!is!not!necessarily!the!same!as!the!costs!of!imposing!the!obligations!from!a!‘no!regulation’!starting!point.!This!is!because!the!operation!of!the!EREP!program!since!2008!may!have!changed!the!voluntary!actions!that!may!be!taken!under!a!‘business!as!usual’!approach.!

In!particular,!some!businesses!that!have!prepared!EREPs!may!continue!to!implement!those!actions!after!the!EREP!program!has!ceased,!which!may!not!have!done!so!if!the!EREP!program!had!never!existed.!Careful!attention!is!therefore!needed!to!estimating!the!impacts!of!the!regulatory!change.!

Assumptions!regarding!business!as!usual!costs!can!have!a!significant!impact!on!cost!estimates.!However,!it!is!often!difficult!to!assess!business!as!usual!costs.!It!is!therefore!necessary!to!keep!in!mind!that!an!RCM!produces!an!indicative!estimate!of!the!regulatory!change.!

Administrative&costs&

The!administrative!costs!of!the!identified!obligations!has!already!been!estimated!as!part!of!the!Regulatory!Impact!Statement!(RIS)!prepared!in!2007!prior!to!the!commencement!of!the!Regulations.!As!part!of!an!activity!to!measure!progress!against!the!government’s!red!tape!reduction!targets,!the!administrative!costs!of!the!obligations!was!measured!again!in!2008,!making!use!of!interviews!with!affected!businesses!that!had!undergone!the!relevant!obligations.!Cost!data!was!verified!through!further!consultation!with!environmental!and!energy!consultants.!Results!of!the!empirical!data!collection!were!averaged!to!provide!a!single!estimate!for!a!normally!efficient!business.!These!estimated!were!prepared!under!the!previous!Standard!Cost!Model!(SCM)!used!by!the!Victorian!Government.!

For!this!RCM,!the!administrative!costs!estimated!in!the!2008!SCM!were!used.!The!composition!of!these!costs!is!almost!all!labour!costs.!Therefore!the!cost!estimates,!which!were!expressed!in!2007\08,!have!been!indexed!by!22.1!per!cent!per!annum!to!translate!the!estimates!to!be!2012\13!dollars.!This!rate!of!indexation!is!based!on!the!change!in!Full\time!Average!Weekly!Ordinary!Time!Earnings!(Trend)!in!Victoria!between!November!2007!to!November!2012!as!published!by!the!Australian!Bureau!of!Statistics!(publication!6302.0).!

While!consultation!is!not!required!for!a!RCM,!the!estimates!for!the!administrative!costs!has!been!tested!through!consultation!with!12!affected!businesses.!Of!these!businesses,!there!was!an!even!balance!between!responses!that!these!estimates!were!either!‘about!right’,!‘slightly!less’!and!‘slightly!more’.!Therefore,!the!2008!estimates!adjusted!for!labour!costs!have!been!used!in!this!RCM.!

Substantive&compliance&costs&

EPA!is!able!to!determine!the!estimated!costs!of!taking!the!actions!as!set!out!in!the!approved!EREPs!as!these!are!documented!in!the!plans!and!have!been!subject!to!assessment.!

As!at!March!2013,!there!were!around!$1,540,800!of!actions!yet!to!commence!under!the!existing!EREPs!that!will!no!longer!be!required!to!be!implemented.!Hence,!the!legal!impact!of!the!cessation!of!the!EREP!program!is!to!remove!the!obligation!to!undertake!this!value!of!actions.!However,!Victorian!EREP!businesses!can!still!

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continue!to!implement!their!EREP!and!proceed!voluntarily!with!identifying!and!implementing!efficiency!improvements!in!their!energy!or!water!use,!for!example.!

Just!as!the!regulatory!costs!of!new!regulations!does!not!include!actions!that!would!have!been!undertaken!in!the!absence!of!regulations,!the!regulatory!impact!of!the!cessation!of!the!EREP!program!does!not!include!the!amount!of!the!EREP!actions!that!will!in!any!case!continue!to!be!implemented!despite!no!longer!being!obligated!to.!

A!sample!of!12!businesses!were!interviewed.!These!business!indicated!discrete!EREP!actions!that!were!already!commenced!were!likely!to!continue!to!be!implemented!despite!the!EREP!program!ending,!however!projects!not!yet!commenced!were!less!likely!to!be!implemented,!or!at!least!would!be!deferred!as!they!were!not!a!priority!in!the!short!term.!Seven!businesses!remained!committed!to!implementing!the!actions!as!planned!in!their!EREPs.!

Given!the!reliability!of!the!small!sample!of!businesses,!it!is!estimated!that!between!50!per!cent!and!65!per!cent!of!remaining!EREP!actions!will!still!be!undertaken.!This!would!mean!35!to!50!per!cent!of!EREP!actions!will!no!longer!be!undertaken,!resulting!in!avoided!substantive!costs!flowing!from!the!cessation!of!the!EREP!program!of!between!$500,000!and!$800,000.!!

There!would!also!have!been!actions!included!in!EREPs!prepared!between!March!2013!and!December!2014!that!are!now!unlikely!to!occur.!The!exact!amount!of!substantive!costs!avoided!is!difficult!to!estimate,!and!cannot!be!determined!on!a!per!business!basis.!Based!on!the!average!value!of!actions!under!existing!EREPs!of!around!$433,000!per!EREP,!which!is!typically!spread!over!7!years,!it!is!estimated!new!EREPs!actions!between!March!2013!and!December!2014!would!have!resulted!in!total!of!around!$650,000!to!$1.2!million!that!will!now!not!be!required.!1!

Therefore,!the!total!value!of!avoided!substantive!costs!associated!with!the!cessation!of!the!EREP!program!has!been!taken!as!between!$1.15!and!$2.0!million!between!March!2013!and!December!2014.!

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1!These!avoided!future!EREP!actions!arise!from!the!9!businesses!that!registered!just!prior!to!the!cessation!of!the!program!and!the!estimated!10\20!businesses!that!would!have!likely!registered!after!March!2013.!There!is!typically!a!lag!of!up!to!6!to!12!months!from!registration!before!actions!commence,!which!includes!time!to!prepare!the!EREP.!The!lower!estimate!of!avoided!costs!assumes!the!nine!newly!registered!businesses!would!have!commenced!EREP!spending!in!January!2014!with!three!further!businesses!commencing!actions!in!July!2014.!The!higher!estimate!assumes!the!nine!recently!registered!businesses!plus!two!others!would!have!commenced!EREP!spending!in!September!2013!with!a!further!eight!commencing!in!July!2014.!

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Number&of&businesses&affected&by&the&regulatory&change&

The!implications!for!business!from!ceasing!the!program!early!are!that:!!

• 252!reporting!businesses!will!no!longer!have!compliance!obligations!under!EREP!

• the!remaining!estimated!$1.6!million!out!of!$97!million!that!businesses!are!required!to!invest!under!their!EREP!will!become!voluntary,!allowing!around!60!participants!with!outstanding!actions!to!proceed!with!investments!voluntarily!

• the!nine!recently!registered!businesses!are!no!longer!be!required!to!complete!the!mandated!audits!or!plans!that!they!were!currently!working!on!

• the!10\20!new!businesses!predicted!to!register!for!EREP!prior!to!the!expiry!date!will!no!longer!be!required!to!register!or!conduct!an!audit.!

These!numbers!are!based!on!EPA!analysis!of!businesses!already!participating!in!the!EREP!program.!As!the!number!of!existing!participants!is!known,!no!further!data!verification!has!been!required.!The!number!of!businesses!that!may!have!registered!for!the!program!prior!to!the!original!expiry!date,!and!their!likely!EREP!actions,!will!be!included!as!a!range.!

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4.!Results!From!the!announced!cessation!of!the!EREP!program!in!February!2013!through!to!the!original!end!date!of!December!2014,!affected!businesses!would!have!incurred!a!total!of!$3.5!to!$4.7!million!in!regulatory!costs.!These!involved!administrative!costs!of!$2.4!to!$2.7!million!and!substantive!compliance!costs!of!$1.1!to!$2.0!million.!

The!following!table!reports!the!main!quantitative!results!in!annualised!amounts!(see!Appendix!1!for!derivations!and!underlying!modelling!assumptions).!

Table!1:!Regulatory!Change!Measurement!Certificate!

Sector/!Cost!categories!

Business! NFP! Government!services!

Economic!activities!of!individuals!

Total!by!cost!categories!

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Administrative!costs!

\$1.3m!to!\$1.5m!

\! \! \! \$1.3m!to!!!\$1.5m!

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Substantive!Compliance!costs!

\$0.6m!to!\$1.1m!

\! \! \! \$0.6m!to!!!\$1.1m!

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Delay!costs! \! \! \! \! \! !Total!by!sector! \$1.9m!to!

\$2.6m!\! \! \! \$1.9m!to!!!

\$2.6m!!

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APPENDIX(1:((RCM(Calculations((regulatory(costs(that(are(avoided(due(to(cessation(of(EREP(program)((

Regulatory(cost(being(removed( Note(Unit(cost(

2012G13(Range(

No.(of(business(affected( Total(cost(avoided(Annualised2(

FebGJune(2013(

Jul(2013GJune(2014(

Jul(2014GDec(2014(

FebGJune(2013(

Jul(2013GJune(2014(

Jul(2014GDec(2014(

Registration#with#EPA#–#administrative#costs# 1# $1,138# low# 0# 5# 5# $0# $5,689# $5,689#

$1,138# high# 0# 10# 10# $0# $11,378# $11,378#

Preparation#and#submission#of#EREP#–#administrative#costs# 2# $67,587# low# 0# 9# 5# $0# $608,280# $337,934#

$67,587# high# 0# 9# 10# $0# $608,280# $675,867#

Implementation#of#EREP#–#substantial#compliance#costs# 3#

## low# ## ## ## $250,000# $500,000# $400,000### high# ## ## ## $500,000# $1,000,000# $500,000#

Performance#Reporting#–#administrative#cost#(record#keeping)# 4# $1,517# low# 252# 261# 257# $126,188# $396,046# $194,988#

$1,517# high# 252# 261# 262# $126,188# $396,046# $198,782#Performance#Reporting#–#administrative#cost#(reporting)# 5#

$1,373# ## 61# 252# 200# $83,775# $346,088# $274,673#

# # # # # # # # # # #TOTAL(COSTS(AVOIDED(# #

Low## # #

$459,964( $1,856,103( $1,213,284( $1,925,451(

## #

High## # #

$709,964( $2,361,792( $1,660,700( $2,581,809(

# # # # # # # # # # #ADMINISTRATIVE!BURDEN!# #

Low## # #

$209,964! $1,356,103! $813,284! $1,298,064!

! # #High#

# # #$209,964! $1,361,792! $1,160,700! $1,490,701!

SUBSTANTIVE!COMPLIANCE!COSTS!# #

Low## # #

$250,000! $500,000! $400,000! $627,387!

# # #High#

# # #$500,000! $1,000,000! $500,000! $1,091,107!

#############################################################2#The#annualised#amount#is#the#total#cost#avoided#over#the#remaining#22#months#of#the#program#divided#by#(22/12).#

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Notes:#

1##Unit#cost#is#taken#from#2008#SCM,#indexed#to#2012X13#dollars.#EPA#estimates#10X20#businesses#would#have#been#required#to#register#under#the#program#up#to#31#December#2014.#As#registration#is#required#prior#to#September#each#year,#these#new#registrations#would#occur#in#September#2013#and#September#2014.#

2##Unit#cost#is#taken#from#2008#SCM#indexed#to#2012X13#dollars.#The#2008#SCM#used#a#range#of#estimates#based#on#the#specific#types#of#EREPs#to#be#completed#(e.g.,#based#on#number#of#sites);#for#future#EREPs#of#unknown#complexity,#this#RCM#has#used#a#blended#estimate#weighted#by#the#number#of#existing#EREPs#in#each#category.#There#are#nine#businesses#that#had#recently#registered#prior#to#announcement#of#the#cessation#of#the#program#which#would#have#been#required#to#prepare#an#EREP#had#the#program#continued.#EPA#estimates#10X20#businesses#would#have#been#required#to#register#under#the#program#up#to#31#December#2014,#each#requiring#preparation#of#an#EREP,#which#is#normally#completed#in#the#year#following#registration.##

3##This#is#difficult#to#determine#on#a#per#business#basis.#EPA#estimates#that#the#avoided#EREP#expenditure#from#March#2013#to#December#2014#is#around#$1.6#million.#For#analysis,#a#range#has#been#used,#with#an#assumed#profile.#

4##Cost#refers#to#annual#cost#of#obtaining#and#recording#data.#This#amount#has#been#proXrated#for#part#years.#Record#keeping#costs#only#being#after#first#year#of#registration/EREP.#

5##Number#of#businesses#based#on#known#existing#EREP#reports#due.#Business#that#registered/submitted#EREPs#during#the#period#prior#to#December#2014#would#not#have#been#required#to#commence#reporting#within#that#period.#

#

!


#

APPENDIX(2:(Definitions(of(regulatory(costs(Regulatory#costs#can#be#classified#primarily#as#financial,#compliance,#or#others.#Businesses#generally#view#compliance#costs#as#the#costs#imposed#by#processes#over#which#they#exercise#some#level#of#control#(such#as#completing#a#form,#training#someone,#or#purchasing#something).#They#also#incur#costs#during#the#process#of#regulatory#compliance#from#delays#on#account#of#government#administrative#approvals.#Such#costs#over#which#businesses#exercise#no#control,#are#excluded#from#the#definition#of#compliance#costs#and#treated#separately#as#delay#costs.#Figure#A.1#provides#a#structure#of#these#costs.#

Figure(A.1:(Types(of(costs(imposed(by(regulation(

#Source:!DTF!

Financial'Costs'

Financial#costs#arise#from#an#obligation#to#transfer#a#sum#of#money#to#the#Government#or#the#competent#authority#.#Examples#include:#

i. administrative#charges;#ii. fees#for#applying#for#a#permit;#iii. taxes;#iv. premiums#payable#for#mandatory#insurance;#and#v. levies.#

Financial#costs#are#not#within#the#scope#of#the#Regulatory#Change#Measurement.#'

Administrative'costs''

Administrative#costs,#often#referred#to#as#red#tape,#are#costs#incurred#by#regulated#entities#primarily#to#demonstrate#compliance#with#the#regulation#or#to#allow#government#to#administer#the#regulation.#During#the#government#approval#process#for#an#application#required#under#a#regulation,#a#business#may#be#required#to#make#a#number#of#phone#calls#or#attend#meetings.#Such#costs#that#are#directly#associated#with#preparing#and#processing#the#application#are#to#be#treated#as#administrative#costs,#not#delay#costs.#'

Substantive'compliance'costs'

Costs#that#directly#lead#to#the#regulated#outcomes#being#sought#are#called#substantive#compliance#costs.#Some#implications:#

Regulatory Costs

Financial

Costs

Substantive compliance

costs

Compliance

costs

Other Costs(e.g. market/competition)

Delay costsImpacts of being prevented by administrative process

from conducting operations

Administrative costs

!


#

• Substantive#compliance#costs#are#often#capital#and#production#costs#such#as#the#purchase#of#new#equipment,#maintenance#of#equipment,#or#the#undertaking#of#specified#training.##

• If#a#regulation#requires#information#to#be#developed#and#provided#to#third#parties,#such#as#potential#customers,#the#resulting#costs#are#a#form#of#substantive#compliance#(i.e.#not#administrative)#cost.#

• Where#Governments#provide#subsidies#to#regulated#entities#to#assist#in#achieving#compliance,#such#subsidies#(e.g.#reimbursements#or#allowances)#must#be#deducted#from#the#relevant#substantive#compliance#costs.##

#

Delay'costs'

Delays#are#generally#associated#with#information#obligations#imposed#on#a#regulated#entity#at#the#point#of#startPup#or#a#new#business#project.#Delay#costs#are#the#expenses#and#loss#of#income#incurred#by#a#regulated#entity#through#(a)#an#application#delay#and/or#(b)#an#approval#delay.#

An#application(delay#refers#to#the#time#taken#by#a#regulated#entity#to#complete#an#administrative#application#requirement#(such#as#an#application#for#a#licence,#registration,#certification,#or#permit)#that#prevents#it#from#commencing#its#intended#operations.##

An#approval(delay#refers#to#the#average#time#taken#by#a#regulator#to#communicate#a#final#decision#regarding#the#administrative#application#(such#as#notification,#agreement#or#licence)#that#prevents#the#regulated#entity#from#commencing#its#intended#operations.#This#includes#the#time#taken#by#the#regulated#entity#for#rePwork#of#the#application.#

Delays#generally#impose#costs#through#changes#in#consumption#or#production#patterns#of#resources#(e.g.#capital,#human#resources)#of#the#regulated#entity#and#through#its#lost#business#opportunities.#Examples#of#delay#costs#including#holding#costs#of#land,#standby#costs#of#capital,#labour#downtime,#and#lost#business#opportunities.##

Other'costs'

Other#costs#include#those#that#arise#indirectly#from#the#impacts#of#a#regulation#or#from#the#way#it#is#administered.#Unlike#compliance#costs,#such#costs#are#not#incurred#during#processes#that#directly#achieve#a#regulated#outcome.#These#other#costs#include:#

• negative#externalities#

• impacts#on#competition#or#market#structure#

• impacts#on#innovation#

• impacts#on#consumption#patterns#or#resource#allocation#(those#impacts#not#included#in#delay#costs).##

#

Date post:	18-Aug-2018
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