88. Well-designed, smart regulation acts as a guide and enabler of growth. To be environmentally and economically effective, regulations must be pitched at the right geographic scale, be coherent with other existing policies, set a clear direction that increases in stringency over time, and implemented in such a way that works with business timescales.112 Well-designed environmental regulations and standards are also crucial for delivering the Government's industrial and environmental policy objectives.
89. Given the recent and current global pressures, many businesses are operating under significant uncertainty. UK business requires the stability that a long-term, well-designed, and well-implemented policy framework can provide.
90. A recent paper by Dr Jeff Hardy and Laura Sandys makes the case for a more anticipatory approach to energy regulation.113 Anticipatory regulation provides a set of behaviours and tools to help policymakers identify, build and test solutions to emerging challenges. The anticipatory approach is outcome-focused and encourages collaboration between diverse stakeholders, including regulators. Under this approach, the regulator allows businesses more freedom to innovate, in return for being part of the process and having access to data to understand emerging consumer issues.
91. Strong regulatory signals have been given by Government in the past to drive economic growth and decarbonisation - for example through the 2030 ban on the sale of new petrol and diesel cars and vans. Business has responded and sought to capitalise on the opportunities generated from these interventions:
• Signals to new market. We have seen from the regulatory ban on new petrol and diesel car and van sales that strong regulatory signals lead to strong market reaction.
• Revenue stability. Contracts for difference have given greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.
• Support for enterprise and innovation. The UK enjoys a strong performance for attracting Venture Capital investment and has provided highly competitive regulatory environment to support the sector. Venture capital can provide an outsized role in economic growth, through backing early-stage transformative ideas.
• Price reviews. Ofwat holds a price review every five years to set up-to-date limits on what water suppliers can charge their customers. Ofgem has recently brought forward their price cap reviews to every three months, given the current crisis, but previously updated every six months.
92. These interventions clearly demonstrate the powerful role that the right regulation - green tape rather than red tape - can play in driving growth and delivering net zero. We recommend:
| Government to establish a new forum to coordinate across all regulators on the signals they are sending to businesses and investors across sectors about the net zero transition - including Ofwat, Ofgem, HSE, Environment Agency, Competition and Markets Authority, FCA, and the North Sea Transition Authority Government should conduct and publish, before Autumn 2023, a review of how we should change regulation for emerging net zero technologies to enable their rapid and safe introduction, to support the net zero transition and boost growth |
93. These actions should also consider the regulatory recommendations made in Pillar 6 and will require collaborating on work being progressed from the recent announcement in the Budget that Sir Patrick Vallance (as Government Chief Scientific Advisor) will "lead new work on how we should change regulation to better support safe and fast introduction of new emerging technologies."