Environmental regulation is yet another cost in time and money for SMEs struggling to cope – and the latest EU diktat may be the final straw for some
COMPLIANCE IS PART and parcel of being in business and most companies don’t object to regulation. What frustrates them is the volume of legislation and when there is inconsistent enforcement.
Regulation is a cost for business, both in terms of time and money, and small and medium enterprises (SMEs) have long argued that the regulatory burden on their sector is disproportionate.
As regulation goes, complying with company and employment law, VAT administration and health and safety currently puts more pressure on SMEs than meeting environmental obligations. But environmental management is rapidly moving up the agenda with companies facing increases in waste disposal, water and energy charges on the one hand and new legislation on the other. The SME sector might argue that complying with environmental regulation is more of an issue for big business but an October 2010 report from the EU points out that 64 per cent of industrial pollution in Europe is produced by SMEs.
The companies most likely to bear the brunt of tightening environmental legislation are those operating in sectors with a particular environmental sensitivity. For example, manufacturing industry. But on global issues, such as tackling climate change, the ripples will be felt across the entire business community.
One area of rapid change is carbon footprint. Initially this was used by companies as a tool to help them minimise their impact on the environment. Increasingly, it is being used as a measure by external sources such as customers and other stakeholders.
As those preparing tender documents are rapidly finding out, especially when it comes to public sector procurement, organisations faced with meeting carbon targets themselves are demanding credible, detailed answers – with audited numbers – on all aspects of environmental policy from potential suppliers. A few years ago a general overview would have sufficed. Now, companies are being asked to actively participate in carbon disclosure.
“Specific environmental regulation is likely to have minimal cost implications for most small firms in Ireland,” says Alan W Gray, managing partner, Indecon International economic consultants. “However for those generating specialist waste or in particular sectors where environmental regulations are more intense, the costs can be significant.
“The key policy challenge is to ensure that environmental regulations are effective and that they are designed to ensure the minimum cost to achieve the objective. Properly designed environmental regulations can protect the Irish environment and our international green image.”
Dr Eugene Bolton is an environmental consultant who also mentors companies for Enterprise Ireland. “Meeting environmental regulations can put small companies under a lot of pressure, especially start-ups which face significant capital costs upfront,” he says. “For example, a business which has to install a waste water treatment plant could be looking at a bill of €1 million. In fairness, I find the regulators are trying to be as helpful as possible, but regulations have tightened, particularly in relation to waste water, and the cost of compliance has risen accordingly.”
A great deal of Irish environmental legislation has its origins in Europe and, while some pieces require transposition into Irish law in order to take effect, not all do.
“We have regular contact with colleagues in Europe and also meet MEPs to get an idea of how they are thinking in the environmental area,” says Neil Walker, head of health and safety and environmental policy at employers’ representative body, Ibec. “Environmental legislation is like a waterfall and you need to get a mile upriver to see what’s coming. Of particular relevance to Irish business for the future will be climate targets and the ongoing problem of dealing responsibly with waste streams. There has been chronic underinvestment further up the waste hierarchy in Ireland and we have to play catch-up.”
Mark Fielding of Isme (the Irish Small and Medium Enterprises Association) says that, while environmental management costs have grown dramatically in recent years as a direct result of more stringent legislation, there can be an upside to certain aspects of compliance. “Managing waste correctly can mean cost savings in terms of business assets, including time, energy and materials lost in the production of waste,” he says.
However Isme is viewing the proposed climate change regulations with some alarm. “The Climates Bill is the main area of concern with regard to future environmental obligations,” Fielding says. “National legislation should provide a transparent framework for effective action on climate change with goals that are achievable, efficient and fair. However, there are major concerns about the provisions of this Bill, which have the potential to inflict serious damage on our economy without actually achieving the intended reductions in greenhouse gas emissions. In particular, the proposed targets from 2020 onwards are so stringent that they imply a far higher compliance cost in Ireland than any other EU member state. Ireland already has a carbon emission reduction obligation for 2020 that is double the EU average The danger is that the legislation, as proposed, will cost jobs, raise energy prices and undermine economic recovery.”
Avine McNally, acting director of the Small Firms Association says there are actions that can be taken to reduce the burden of legislation on SMEs. “Regulatory impact assessments should be introduced for all pieces of legislation to assess whether regulations are needed at all,” she says. “When implementing regulations, Government bodies should also adopt a risk-based approach. This approach would ensure that the obligations placed on small firms are proportionate to the risks arising from non-compliance.
“It is also essential that new legislation is not unnecessarily complex. Legislation should be user-friendly, easy to understand and be based on the commercial reality facing small businesses today. A specific budget should be set aside for educational initiatives to inform businesses of new regulatory obligations.”
Compliance costs putting brakes on motor industry
Manufacturers and distributors are stymied by what they see as an excess of regulations relating to everything from emissions to scrappage
THE RETAIL MOTOR industry in Ireland has to comply with 14 main pieces of environmental legislation. Much of this relates to waste management (of tyres, packaging, batteries, waste oil) but there are also rules on the disposal of water from car washes, and on emissions from air conditioning units and from volatile organic compounds such as the solvents found in paints. Anyone removing waste from a garage must have a permit or licence to do so and local authorities can ask to see the garage’s records for waste management dating back three years.
On the wholesale side of the industry, all vehicle manufacturers/distributors operating in Ireland must comply with legislation covering vehicles that have come to the end of their useful lives. End-of-life legislation was introduced in 2007 and it requires manufacturers and distributors to accept end-of-life vehicles of their own brand from customers free of charge. These vehicles must then be dealt with by an Authorised Treatment Facility (ATF) where the vehicle is stripped of all volatile materials and prepared for scrappage.
Under Irish law, motor distributors are required to have an ATF in every local authority area and an extra one for each additional 150,000 people. The cost to Ford Ireland of complying with this requirement is over €200,000 a year.
“This legislation was a blunt instrument and something of a one-way street,” says Eddie Murphy, the company’s managing director. “It’s a significant cost and we get absolutely no return or value from it. In our view there are more ATFs than this country requires, especially if you look at the distribution of the national car population. As a manufacturer we accept the responsibility that goes with the end of a vehicle’s life but we are now producing vehicles with recyclable content of 85-90 per cent, which is not taken into account.
“With the way car sales have fallen, it has become an undue cost burden as volumes are nowhere near the level they were when the legislation was enacted. With all businesses needing to look closely at every cost, it seems like the right time to revisit some of these regulations.
“Are they really necessary or are we just feeding some invisible monster?”
Unearthing the facts
Main areas of environmental regulation
* Climate change
* Environmental management
* Energy
* Water and waste water
* Waste management
* Noise
* Chemicals
Information sources
* Dept of Enterprise, Jobs and Innovation
* Dept of Environment, Community and Local Government
* The Environmental Protection Agency
* Ibec, which provides a legislation update service covering Irish and EU environmental legislation
* The European Commission, ec.europa.eu
