Regulatory impact assessment is a key element of the regulatory governance cycle, as it ensures the quality of new regulation by assessing its potential impact. This chapter presents the context of the regulatory governance cycle and how RIA fits within the lifecycle of regulation. The chapter also outlines the OECD best practice principles on RIA and presents the status of ex ante assessment in OECD countries.
Implementing Regulatory Impact Assessment at Peru’s National Superintendence of Sanitation Services
Abstract
Regulation generally aims to solve public policy problems that can be economic, social, environmental, inclusion and others. For regulation to be effective in solving these problems, it must have a good design and a clear and solid strategy for its implementation and supervision. For that purpose, governments around the world should be concerned not only with thinking about what is the best possible regulation, but also with the ways in which such regulations can be designed and implemented better. To contextualise the abovementioned, the OECD frequently uses the regulatory governance cycle, included Figure 1.1 (OECD, 2011[1]). This cycle allows addressing regulation from a comprehensive point of view. In other words, from the onset of the designing process to the moment that the regulation solves the public policy problem. The regulatory governance cycle has four main stages: development of a public policy and choice of instruments; design of the new regulation (or review of an existing regulation); enforcement of the regulation; and monitoring and evaluation of its effects. However, the prelude of this analysis is the identification of the policy problem.
Source: (OECD, 2011[1]), Regulatory Policy and Governance: Supporting Economic Growth and Serving the Public Interest, Paris, https://doi.org/10.1787/9789264116573-en.
Figure 1.1 describes the process of how a regulation must be created, but also states how a regulation must have a cycle of continuous analysis. After evaluating the performance of the regulation, it must be assessed if it is still valid or must be removed or amended.
To begin the regulatory design process, the OECD considers it important to adopt a regulatory impact assessment method that incorporates proportionality and cost-benefit criteria. Therefore, the Regulatory Impact Assessment (RIA) is a key element for the adequate management of the regulatory governance cycle. The RIA is an element that allows measuring the relevance of regulations against public policy objectives. Therefore, the RIA should help to carry out the definition of the public policy problem and to assess the best way to implement and enforce the regulation. The RIA is involved in the identification of the problem, through preliminary consultation with stakeholders or potential stakeholders, in order to develop a description of the problem, make adjustments, or refine the problem identified by public officials. With this information it is possible to develop a public policy approach and choose the instruments of intervention.
Subsequently, RIA helps select the best option for government intervention, whether with regulatory or other mechanisms, using cost-benefit analysis, among other cost analysis tools. The final design of the regulation is part of the RIA process, which includes an additional consultation process that should be more open and with the aim of making adjustments to the regulatory instruments used. This consultation process is very important to make the regulation as appropriate as possible, since it allows the identification of omissions, biases, and unidentified effects (OECD, 2019[2]). Furthermore, the RIA helps to improve the decision-making process which defines the regulation. The RIA promotes a systematic process, with a comparative approach to policy decisions and makes the issuer aware of the regulations on the precise identification of the problem to be addressed, as well as the different alternatives to achieve it. In addition, the RIA weighs the economic viability of implementing a regulation or, in other words, that its costs are less than the benefits.
Another advantage of RIA is that it provides an evidence-based analytical method and empirical information comparing several proposals or alternatives; it promotes the identification of (direct or indirect) benefits and costs derived from the regulation; it establishes a rational system for decision-making and makes a cross-wised evaluation of the regulation.
The OECD Regulatory Policy Review 2018 compiled the OECD practices of its member countries, and notes that virtually all carry out the practice of the RIA (OECD, 2018[3]). Despite this, there is a great difference in the scope and quality of RIA practices in each country. The OECD conducts a survey every two years to measure RIA practices for both primary legislation and subordinate regulations. Figure 1.2 shows the results of the latest survey conducted in 2017. The measurement indicator is constructed with four categories: methodology, transparency, systematic adoption, and monitoring and quality control. The United Kingdom, Mexico, the European Union, and South Korea are the top-ranked countries. It can also be seen that the indicators with the greatest variability are monitoring and quality control and transparency.
Note: The indicator reflects the practices of the Executive Branch and excludes United States since all its laws are prepared by the Congress.
Source: Indicators of Regulatory Policy and Governance, Survey 2017, http://oe.cd/ireg.
Beyond the difference in the quality of RIA practices, there are different considerations in the practical elements of implementation. This includes the exceptions to RIA, and the elements that are required in the assessment process. Despite the fact that RIA is a practice that has been in place for decades, countries have continued to reform their systems. Some relevant examples of the last years include Italy, which expanded its category of impacts for including social and environmental costs. South Korea implemented a digital platform in order that its officers perform more efficaciously the cost-benefit analysis (OECD, 2018[3]). This reveals that while all countries are implementing RIA, governments must continue to constantly reform their practices.
OECD Principles: RIA Best Practices
RIAs must be set as a tool for improving decision-making, and not as an additional administrative burden for decision makers. Therefore, for having a correct implementation of the RIA, it is important to consider the following elements (OECD, 2020[4]):
Always start in the baseline stage of the regulation process;
Clearly identify the problem and the objectives expected from the proposal;
Identify and assess all the potential alternate solutions (including non-regulatory);
Try to assess always all the potential costs and benefits, both direct and indirect;
Rely on all the scientific evidence and knowledge available;
Have a more transparent relationship with stakeholders and clearly communicate the outcomes.
The OECD developed principles from the international best practices, with the elements to be considered in the RIA available in (OECD, 2020[4]). These principles provide an extension and preparation of the precepts contained in the 2012 Recommendation of the Council on Regulatory Policy and Governance, in addition that it considers the experience gathered by the member countries since its publication.
The principles are intended to be relevant and useful for all member countries and for countries wishing to implement RIA within their regulatory governance framework. Therefore, they offer a more general overview, instead of providing a detailed prescription. However, by intending to be the ideal scenario for the implementation of the RIA, the principles are intentionally ambitious. Notwithstanding, by being based on the real-life experience of several countries, they must adapt to the local reality.
Principles are based on five fundamental elements for preparing and implementing RIA. These elements are listed in Box 1.1.
1. Commitment and buy-in for RIA
Governments should:
Spell out what governments consider as “good regulations”.
Introduce RIA as part of a comprehensive long-term plan to boost quality of regulation.
Create an oversight unit for RIA with sufficient competences.
Create credible “internal and external constraints”, which guarantee that RIA will effectively be implemented.
Secure political backing of RIA.
Securing stakeholder support is essential.
Governments have to ensure transparency of decision making to enable public control of the RIA process.
2. Governance of RIA– Having the right set up or system design
RIA should be fully integrated with other regulatory management tools and should be implemented in the context of the Regulatory Governance Cycle.
RIA and its implementation should be adjusted to the legal and administrative system and culture of the country.
Governments need to decide whether to implement RIA at once or gradually.
Responsibilities for RIA programme elements have to be allocated carefully.
Efficient regulatory oversight is a crucial precondition for a successful RIA.
RIA should be proportional to the significance of the regulation. .
Parliaments should be encouraged to set up their own procedures to guarantee the quality of legislation, including the quality of RIA.
3. Embedding RIA through strengthening capacity and accountability of the administration.
Adequate training must be provided to civil servants.
Governments should publish detailed guidance material.
There should be only limited exceptions to the general rule that RIA is required.
Accountability- and performance-oriented arrangements should be implemented.
4. Targeted and appropriate RIA methodology
The RIA methodology should be as simple and flexible as possible, while ensuring certain key features are covered.
RIA should not always be interpreted as requiring a full-fledged, quantitative cost-benefit analysis of legislation.
Sound data governance strategies can help produce, collect, process, access and share data in the context of RIA.
RIA has to follow all stages of the regulation-making process and has to start at the inception stage in order to inform policy development.
No RIA can be successful without defining the policy context and objectives, in particular the systematic identification of the problem.
All plausible alternatives, including non-regulatory solutions must be taken into account.
It is essential to always identify all relevant direct and important indirect costs as well as benefits.
Stakeholder engagement must be incorporated systematically in the RIA process.
Insights from behavioural science and economics should be considered, as appropriate.
The development of enforcement and compliance strategies should be part of every RIA.
RIA should be perceived as an iterative process.
Results of RIA should be well communicated.
5. Continuous monitoring, evaluation and improvement of RIA
It is important to validate the real impacts of adopted regulations after their implementation.
RIA systems should also have an in-built monitoring, evaluation and refinement mechanism in place. This includes early plans for data collection or access to data.
A regular, comprehensive evaluation of the impact of RIA on the (perceived) quality of regulatory decisions is essential.
It is important to evaluate the impacts in cases where the original RIA document does not coincide with the final text of the proposal
Systematic evaluation of the performance of the regulatory oversight bodies is important.
Source: (OECD, 2020[4]), Regulatory Impact Assessment, OECD Best Practice Principles for Regulatory Policy OECD Publishing, Paris, https://doi.org/10.1787/7a9638cb-en.
For more information on RIAs, readers may refer to the following sources:
(OECD, 2020[4]), Regulatory Impact Assessment, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://doi.org/10.1787/7a9638cb-en
(OECD, 2018[3]) “Chapter 2. Recent trends in regulatory management practices” in OECD Regulatory Policy Outlook 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264303072-en
(OECD, 2015[5])“Chapter 4. Evidence-based policy making through Regulatory Impact Assessment” in OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264238770-en
(OECD, 2015[6]) “Chapter 2. Regulatory Impact Assessment and regulatory policy” in Regulatory Policy in Perspective: A Reader’s Companion to the OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264241800-en
(OECD, 2009[7]), Regulatory Impact Analysis: A Tool for Policy Coherence, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264067110-en
(OECD, 2008[8]), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264050013-en .
(OECD, 2008[9]), Introductory Handbook for Undertaking Regulatory Impact Analysis (RIA), https://www.oecd.org/gov/regulatory-policy/44789472.pdf
For more information on RIAs in Peru, readers may refer to the following sources:
(OECD, 2020[10]), Indicators of Regulatory Policy and Governance, Latin America Peru, OECD, https://www.oecd.org/gov/regulatory-policy/Peru-country-profile-regulatory-policy-es.pdf.
(OECD, 2020[11]), “Chapter 7. Regulatory Governance”, in Government at a Glance: Latin America and the Caribbean 2020, OECD Publishing, Paris, https://doi.org/10.1787/1256b68d-es.
(OECD, 2019[2]) Implementing Regulatory Impact Analysis in the Central Government of Peru: Estudios de caso 2014-16, OECD Publishing, Paris, https://doi.org/10.1787/9789264305809-es.
(OCDE, 2016[12]), Regulatory Policy in Peru. Assembling the Framework for Regulatory Quality, Reviews of Regulatory Reform, Éditions OCDE, Paris. http://dx.doi.org/10.1787/9789264279001-es.
References
[12] OCDE (2016), Política Regulatoria en el Perú: Uniendo el Marco para la Calidad Regulatoria, Éditions OCDE, http://dx.doi.org/10.1787/9789264279001-es (accessed on 13 May 2020).
[10] OECD (2020), Indicadores de Política y Goberanza Regulatoria, América Latina 2019, Perú, OECD, https://www.oecd.org/gov/regulatory-policy/Peru-country-profile-regulatory-policy-es.pdf.
[11] OECD (2020), Panorama de las Administraciones Públicas América Latina y el Caribe 2020, OECD Publishing, https://doi.org/10.1787/1256b68d-es.
[4] OECD (2020), Regulatory Impact Assessment, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://dx.doi.org/10.1787/7a9638cb-en.
[2] OECD (2019), Implementación del Análisis de Impacto Regulatorio en el Gobierno Central del Perú: Estudios de Caso 2014-16, OECD Publishing, https://doi.org/10.1787/9789264305809-es.
[3] OECD (2018), OECD Regulatory Policy Outlook 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264303072-en.
[5] OECD (2015), OECD Regulatory Policy Outlook 2015, OECD Publishing, https://dx.doi.org/10.1787/9789264238770-en.
[6] OECD (2015), Regulatory Policy in Perspective: A Reader’s Companion to the OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264241800-en.
[1] OECD (2011), Regulatory Policy and Governance: Supporting Economic Growth and Serving the Public Interest, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264116573-en.
[7] OECD (2009), Regulatory Impact Analysis: A Tool for Policy Coherence, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264067110-en.
[8] OECD (2008), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers, OECD Publishing, https://dx.doi.org/10.1787/9789264050013-en.
[9] OECD (2008), Introductory Handbook for Undertaking Regulatory Impact Analysis (RIA),, OECD, https://www.oecd.org/gov/regulatory-policy/44789472.pdf.