Publication - Research and analysis

Overview of costs and benefits associated with regulation in Scottish agriculture

Published: 20 February 2009
Directorate: Agriculture and Rural Economy Directorate
Topic: Farming and rural
ISBN: 9780755919222

Research providing an overview of the regulations in Scottish agriculture and exploring 12 case studies in further detail.

Supporting documents

5. SSI 2000 No. 323 The Pollution Prevention and Control (Scotland) Regulations 2000

Abstract

The Pollution Prevention and Control (Scotland) Regulations 2000 established a new pollution control regime based on the application of Best Available Technology. They apply to what are considered to be the industries posing the greatest risk of pollution, including intensive pig and poultry installations above a certain size threshold. Robust valuation of the costs and benefits of the regulations is beyond the scope of the case study, instead the possibility of using existing Standard Cost Model ( SCM) derived data to assess the admin costs of the PPC regulation in Scotland is explored. The conclusion is that for a regulation such as PPC, which covers a diverse range of industries, the standard cost is likely to lead to significant under or overestimates for some industries. Specifically, it is likely that estimation of the admin costs of the PPC regulations based on unadjusted standard costs from the ABME will lead to significant overestimates for intensive agriculture in Scotland. In order to use the SCM approach, the way in which the standard costs may vary between sectors should be identified and the standard costs adjusted to account for:

Differences between the agricultural sector being analysed and the overall mix of industries and businesses used to generate the standard cost
Differences between the same agricultural sectors in Scotland and the rest of the UK

Introduction

SSI 2000 No. 323 The Pollution Prevention and Control (Scotland) Regulations 2000 (hereafter referred to as PPC) transpose EC Directive 96/61/ EC on Integrated Pollution Prevention and Control ( IPPC) into Scottish legislation. The regulations establish a new pollution prevention and control regime for the following sectors: fuel production and combustion; metal production and processing; mineral industries; the chemical industry; waste management installations; pulp and paper manufacturing; textile dyeing; tanning plants; slaughterhouses; food and drink processing plants; animal waste disposal/recycling plants; intensive pig and poultry installations. Only pig and poultry units above the following thresholds are covered by the regulations:

>40,000 places for poultry
>2000 places for production pigs (over 30kgs)
>750 places for sows

Webb et al (2006) reported that approximately 40% of the UK pig herd and 70% of the UK poultry herd are covered by the PPC. There are currently (August 2008) 62 poultry units and 23 pig units above the threshold in Scotland.

PPC seeks to prevent and control pollution "by the application of BAT (Best Available Technology). (European) Guidance on what constitutes BAT is provided by a " BAT" Reference Document (known as a BREF)" Beaton et al (2007, p450). The application procedure for intensive agriculture is no different to any other PPC site as the procedure for processing an application is set down in the Regulations. However SEPA did put together an agriculture specific application form with the intention of reducing (as far as possible within the law) the amount of information required as part of the application and reducing the administrative burden on the industry. The Standard Farming Installation Rules represent SEPA's view of BAT for the sector and have been arrived at after extensive consultation with the industry. If a business expresses an intention to comply with the standards in the rules filling in the application form becomes much easier.

No specific Regulatory Impact Assessment ( RIA) was carried out for the Scottish regulations; however the fourth consultation paper on the IPPC Directive had a Regulatory and Environmental Impact Assessment in Annex 2 ( DETR 1999). The assessment is brief and does not provide any specific analysis of the intensive agriculture sector. The costs and benefits across all industry, as outlined in the assessment, are given in table 1.

Measure	Benefit	Cost	Effect on Charges?
Table 1. Costs of and benefits of PPC for ALL industry (from DETR 1999)
Summary Table of Costs, Benefits and Effects on Charges
Public consultation limited to changes which harm environment plus contentious cases	Decision time for other changes reduced from 4 months to 3	Nil	No
Scope for less frequent permit reviews	More stable planning horizon for industry	Cost savings	Scope for reduced subsistence charges
Standard application forms/permit conditions	Reduction in regulatee and regulator staff input needed to secure a permit	Cost savings	Scope for reduced application charges
Site condition report on application and surrender	Removes need to extend financial security to all installations	£1-200 to £several tens of thousands of pounds per installation	Need to consider site remediation at application stage will add to charges
Energy efficiency measures	3 million tonnes carbon savings. Annual cost savings £650m	£2 billion capital costs	Extra factor in environmental appraisal at application stage will add to charges
Inclusion of remaining 440 IPC installations in IPCC regime	Reduction in number of regulatory systems	Site report and energy efficiency costs as above	Scope for reduction in charges due to lower regulator costs

Identifying the main costs and benefits of PPC in intensive agriculture

Tables 2 and 3 outline the main costs and benefits arising from the implementation of the PPC regulations in intensive agriculture.

Table 2. The main costs of PPC in intensive agriculture (sources: DETR 1999;https://www.abcalculator.berr.gov.uk/)
	Action
Admin	Applying for a permit
	Keeping records and co-operating with inspections
	Various minor information obligations
Policy	Upgrading facilities to prevent or minimise polluting emissions

Table 3. The main benefits of PPC in intensive agriculture (sources: DETR 1999)
Private	Dependent on which baseline the benefits are measured relative to: small relative to the situation prior to the implementation of PPC as intensive units did not have to apply for a permit, however, relative to other industries, intensive agriculture has benefitted in terms of reduced labour as a result of standard application forms and conditions.
	Decision time reduced
	Less confusion
Social	Prevention of pollution incidents and reduced impact on water environment
	Reduced NH₃ emissions
	Reduced noise, odour and dust

Intensive agriculture units were required to apply for a permit by the end of January 2007. SEPA subsequently undertook inspections of these sites and:

"found pollution occurring at 25% of the sites. This pollution was associated with inadequate slurry storage, run-off from contaminated yards, the discharge of wash water from cleaning and disinfection operations, leaking oil storage facilities and feed spillages. Six sites had odour issues and between 20-25% have failed the initial screening for ammonia impact". (Virtue and Morris 2008)

The inspection results show that there is considerable potential for improvements in environmental performance through the PPC regime; prior to the PPC inspections these sites had not been visited by SEPA staff.

Quantifying the main costs and benefits

Robust valuation of the costs and benefits of the PPC regulations would require significant data gathering (e.g. a survey of the PPC-related admin and policy costs in Scottish pig and poultry units; estimation of the reductions in NH₃ emissions, noise and odour and water pollution incidents attributable to the regulations; construction of a counterfactual so that the additional costs and benefits of the regulations could be identified etc.). Analysis of this kind is beyond the scope of this short case study. Instead, the case study explores how existing Standard Cost Model data from UK central government sources could be used to estimate the admin costs of the PPC regulations in Scotland, and to highlight any limitations of this approach.

Defra (2006, p43) found PPC in England across all industries to be (in terms of its admin costs):

"the most costly regulation within the Environment reporting unit. Its total estimated cost is £45.9m and two IO/ DRs (Information Obligations/Data Requirements) account for over 95% of the total estimated cost. For both obligations, the quantities are comparatively low (less than 2,000 permits) and the key cost drivers are significant internal and external costs. This is particularly the case for the IO/ DR concerning applying for a permit, where the results indicate the more highly regulated industrial sectors draw significantly on external consultancy services to provide the information required to support the application process."

Admin Costs

The admin costs of PPC across all industries were measured using the SCM during Defra's ABME (see table 4). Descriptions of these Data Requirement IDs ( DRIDs) are given in Annex A.

Table 4. Admin costs of the PPC Regulations 2000 in England applied across all industries

(from: https://www.abcalculator.berr.gov.uk/) (£2006)

DRID	Admin Burden	DRID	Admin Burden
9230	£24,611,808	9680	£35,230
43906	£13,703,768	9452	£26,833
40151	£401,548	9514	£24,957
9318	£43,742	9347	£18,475
9681	£43,059	40183	£7,335
40181	£39,822	9773	£4,906

The admin costs are dominated by two data requirements, DRID 9230 and DRID 43906. The costs of the activities required for each of these data requirements have been analysed using the SCM, and are summarised in table 5. See Annex B and Annex C for full breakdown of the activities.

Table 5. Annual costs of the most expensive data requirements, applied across all industrial sectors

DRID	Short description	Annual Unit Cost (£2006)
9230	Applying to the regulator for a permit to operate an installation.	£16,564
43906	Keeping records, providing information on request, and co-operating with inspections.	£12,402

The standard costs used in the SCM approach are based on surveys of costs over small samples of businesses in each of the industries, and are therefore not statistically robust (see chapter 2 for further discussion of the SCM). Due to the data intensive nature of the SCM approach, it is often not possible to develop standard costs for individual industries. So, while it may be possible to use these standard costs to estimate the admin costs of PPC across all industries in Scotland, the standard cost should be adjusted to take into account differences in the industrial mix.

It should be stressed that the standard costs given in table 5 are based on the average cost for an activity across all industrial sectors, not just agriculture. This approach means that the validity of calculations based on the standard cost depends on how much the administrative actions required to fulfil the regulation in one industry are typical of the average costs over all industries. With a regulation like PPC, which covers a diverse range of industries, the standard cost is likely to lead to significant under or overestimates for some industries. Specifically, it is likely that estimation of the admin costs of the PPC regulations based on unadjusted standard costs from the ABME will lead to significant overestimates for intensive agriculture in Scotland, for the following reasons:

the PPC regulations include industries with large facilities (such as power stations or chemical plants) where the data requirements (and therefore admin costs) will be much greater than in intensive agriculture - this will lead to significant overestimates of the costs of admin activities such as keeping records;
the cost of applying for a permit was significantly lower for intensive agriculture in Scotland, due to the development of a sector specific application form.
No intensive agricultural unit was subject to all the data requirements set out in the SCM analysis of PPC;
The annual admin charge would not include the cost of applying for a permit. This only needs to be done once.

Conclusions

Using unadjusted SCM data from the analysis of the PPC regulations in the UKABME is likely to significantly overestimate the admin costs for intensive agriculture in Scotland. This raises a fundamental question: how appropriate is a standard cost when applied across different industries, or even sub-sectors within one industry? This is particularly relevant to regulations such as PPC, which apply to a diverse range of industries and businesses. In order to use the SCM approach, the way in which the standard costs may vary between sectors should identified and the standard costs adjusted to account for: (a) differences between the agricultural sector being analysed and the overall mix of industries and businesses used to generate the standard cost: and (b) differences between the same agricultural sectors in Scotland and the rest of the UK

References

Beaton, C. Catto, J. and Kerr, G. (eds) (2007) The Farm Management Handbook 2007/08 Edinburgh: SAC

Defra (2006) Administrative Burdens Measurement Exercise Final Report: July 2006 London: Defra

DETR (1999) Fourth Consultation Paper on the Implementation of the IPPC Directive London: DETR

Virtue, A. and Morris, R. (2008) Report on the findings from initial inspections of intensive agriculture sites subject to regulation by Pollution Prevention and Control in Scotland Stirling: SEPA

Webb, J., Ryan, M., Anthony, S.G., Brewer, A., Laws, J., Aller, M.F. and T.H. Misselbrook (2006) Cost-effective means of reducing ammonia emissions from UK agriculture using the NARSES model Atmospheric Environment 40 7222-7233

Annex A Description of the data requirements for PPC across all industries

(from:https://www.abcalculator.berr.gov.uk/)

DRID	Admin Burden	Obligation description
9230	£24,611,808	View \| Calc applying to the regulator for a permit to operate an installation or mobile plant and accompanying the application with the prescribed fee and including - details of the applicant - the address of the site of the installation - the name of the local authority in whose area the applicant has his principal place of business - a site report containing a description of the site of the installation - a description of the installation or mobile plant - details of the raw and auxiliary materials and other substances and the energy to be used in or generated by the carrying out of the activities - details of the nature, quantities and sources of foreseeable emissions - the proposed technology and other techniques for preventing or, where that is not practicable, reducing emissions from the installation or mobile plant - the measures proposed to be taken to monitor emissions - an assessment of the effects on the environment - details of additional measures for prevention and recovery of waste - information on the applicants suitability - providing additional information for the regulator - an outline of the main alternatives, if any - providing a non-technical summary of the information provided - landfill permit related info - waste incineration installation info - SED installation info - burning of waste oil related info - dry-cleaning related info
43906	£13,703,768	View \| Calc Keeping records, providing information on request, and co-operating with inspections to enable the Environment Agency to assess
40151	£401,548	View \| Calc supplying the regulator regularly with the monitoring of emission results and informing them of any incident or accident which is causing or may cause significant pollution.
9318	£43,742	View \| Calc notifying the regulator of proposals to make a change in the operation of an installation at least 14 days before making the change - in writing, including a description of the proposed change in the operation of the installation
9681	£43,059	View \| Calc advertising the application for a permit to operate a Part A installation or Part A mobile plant, in the London Gazette
40181	£39,822	View \| Calc providing any further information required to help the regulator determine the application.
9680	£35,230	View \| Calc advertising an application in the case of an application for a permit to operate an installation or Part A mobile plant, in one or more newspapers circulating in the locality in which the installation or mobile plant covered by the application will be operated including - including within an advertisement the name of the applicant and other related activities - an explanation of the contents of the applications
9452	£26,833	View \| Calc applying to surrender a permit as an operator of a Part A installation/plant - including with the application to surrender the operator's telephone number and address and, if different, any address to which correspondence relating to the application should be sent, a site report describing the condition of the site, or the identified part of the site, as the case may be ("the report site"), identifying, in particular, any changes in the condition of the site as described in the site report contained in the application for the permit; and a description of any steps that have been taken to avoid any pollution risk on the report site resulting from the operation of the installation or mobile plant or to return it to a satisfactory state
9514	£24,957	View \| Calc requesting that where information is furnished to a regulator for the purpose of these regulations it is excluded from the register on the ground that it is commercially confidential - applying for exemption and requesting that information is excluded from the register on the ground that it is commercially confidential
9347	£18,475	View \| Calc applying to the regulator for a variation to the conditions of the permit to operate an installation or mobile plant including - details of the operator - the address of the site of the installation - description of the proposed change in the operation of the installation or mobile plant - details of the effect on the environment - including within an application for a variation in respect of a waste incineration installation any changes in information previously supplied which would result if the proposed change in the operation of the installation or mobile plant requiring the variation were made - an indication of the variations to the conditions of the permit which the operator wishes the regulator to make - any additional information which the operator wishes the regulator to take into account in considering his application - providing further information as required by the regulator to determine the application
40183	£7,335	View \| Calc Appearing before and being heard by a person appointed by the Secretary of State where the application for a permit is referred to a regulator because it belongs to a particular application or class of applications for a permit which require determination by the regulator pending further direction.
9773	£4,906	View \| Calc advertising the application when you are notified by the regulator of a variation to it in one or more local newspapers or in the London Gazette as appropriate including: - stating in the advertisement the name of the operator, the address of the site (in the case of a variation affecting the operation of an installation or Part A mobile plant) and a brief description of the activities carried out in the installation - including within an advertisement various information including an explanation that people may make representations in writing to the regulator
9395	£0	View \| Calc applying to transfer a permit for an installation or mobile plant to another person including - the operators and transferees details - any information which you wish the regulator to take into account - providing the identity of the installation or mobile plant to which the transfer applies in the case of transfer where the operator wishes to retain part of his permit - providing a map or plan identifying the part of the site used for the operation of an installation - providing such further information as the regulator specifies
9455	£0	View \| Calc applying to surrender part of a permit for a Part A installation/plant - including within the application the operator's telephone number and address and, if different, any address to which correspondence relating to the application should be sent a description of the surrender unit and a map or plan identifying the part of the site used for the operation of the surrender unit (the "identified part of the site"), a site report describing the condition of the site, or the identified part of the site, as the case may be ("the report site"), identifying, in particular, any changes in the condition of the site as described in the site report contained in the application for the permit; and a description of any steps that have been taken to avoid any pollution risk on the report site resulting from the operation of the installation or mobile plant or to return it to a satisfactory state
9503	£0	View \| Calc notification of the surrender of a permit for a Part B installation or a Part B mobile plant if you have ceased or intended to cease operating all of the installations and mobile plant covered by the permit, notify the regulator of the surrender of the whole permit - including within the notification the operator's telephone number and address and, if different, any address to which correspondence relating to the notification should be sent; in the case of a partial surrender of a permit applying to Part B mobile plant, a list of the mobile plant to which it applies; the date on which the surrender is to take effect, which shall be at least 28 days after the date on which the notice is served on the regulator
9506	£0	View \| Calc notifying the regulator of the surrender of the permit in so far as it authorises the operation of the installation or mobile plant which he has ceased or intends to cease operating - including within the notification detail identifying the part of the site used for the operation of the surrender unit (the "identified part of the site"); in the case of a partial surrender of a permit applying to Part B mobile plant, a list of the mobile plant to which it applies; the date on which the surrender is to take effect, which shall be at least 28 days after the date on which the notice is served on the regulator
9544	£0	View \| Calc making an application in writing to the regulator to determine a relevant period for the installation of plant identifying the installation concerned, listing the activities carried out by the installation and identifying the primary activities of the installation
9697	£0	View \| Calc making an application for compensation from the operator of a SED (Solvent Emissions Directive) installation; - providing a copy of the grant of rights in respect of which the grantor's entitlement arises, and of any plans attached to that grant, a description of the exact nature of any interest in land in respect of which compensation is applied for, a statement of the amount of compensation applied for, distinguishing the amounts applied for under each of sub-paragraphs (a) to (e) of paragraph 3, and showing how the amount applied for under each subparagraph has been calculated, and where the date on which the entitlement to compensation arises is ascertained in accordance with paragraph 4(2), a copy of the notice of the final determination of the appeal.
40173	£0	View \| Calc applying for a permit to operate a Part B installation or Part B mobile plant

Annex BSCM activity breakdown for DRID 9230 (Applying to the regulator for a permit to operate an installation.) Across all industries: (from: https://www.abcalculator.berr.gov.uk/)

Activities calculator screen

Annex CSCM activity breakdown for DRID 43906 (Keeping records, providing information on request, and co-operating with inspections.) For all industries:

(from:https://www.abcalculator.berr.gov.uk/)

Activities calculator screen

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