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Outcome Based Collaborative Regulation

Purpose

Agency board report number: SEPA 24-25/008 - 10 May 2024

In 2023 the UK Government awarded SEPA a grant of £990k via the Regulators’ Pioneer Fund (RPF) to pilot an outcome based collaborative approach to regulation of industrial activities in the Grangemouth area. This project, which commenced in September 2023 and runs until March 2025, has a focus on supporting innovation and the just transition to net-zero greenhouse gas emissions in partnership with the Health and Safety Executive (HSE) and Falkirk Council.

Outcome Based Collaborative Regulation (OBCR) is an emerging model of regulation based on clear evidence from behavioural science that collaborative, outcome-focused approaches result in stronger, more favourable behaviours than those resulting from prescriptive methods.

Elements of OBCR have been implemented in different regulatory regimes globally and have shown that improved engagement between stakeholders in regulatory systems resulted in increased regulatory efficiency and promoted innovation.

The aim of this project is to test the potential for OBCR on its practical implementation and benefits deliver in our regulatory landscape. The purpose of the paper is to inform the board about OBCR and SEPA’s project.

Introduction

Outcome Based Collaborative Regulation (OBCR) is an emerging evidence-based model for regulation, in which stakeholders work together, on the basis of trust and respect, to achieve shared aims and outcomes.

SEPA was awarded £990k from the Regulators Pioneer Fund (RPF) to trial an OBCR approach in partnership with Falkirk Council and the HSE to support the just transition to net-zero GHG emissions in Grangemouth. The project runs from September 2023 to March 2025.

Overview

Outcome Based Collaborative Regulation (OBCR) originated from research at Oxford University into human behaviour and business management. This research shows:

• Individuals or groups that are intrinsically motivated to do the right thing achieve more success than those subject to external attempts at control.
• Organisations that have cultures that are open, ethical and psychologically safe tend to be more successful.
• Humans achieve more by collaborating in contrast to destructive competition.

Applied to regulatory systems these findings explain that, where the regulated community is already motivated to be responsible, prescriptive regulatory controls do not improve compliance. Consequently, OBCR proposes a framework which challenges businesses and regulators to collaboratively develop common purposes and outcomes.

An OBCR system would include the following elements:

• Evidenced trust between stakeholders - A mechanism of evidence and evaluation ensures all stakeholders are fulfilling their roles.
• Continuous improvement - Stakeholders can raise issues, to deliver improvements without risk of action and undue enforcement.
• Cooperative dispute resolution - A process to resolve disputes.

Evidence shows that for operators who are not motivated to act responsibly a prescriptive approach is most effective. In all cases there is a different regulatory pathway available 

for operators for whom OBCR is not appropriate, or where trust is lost. It is important to note that OBCR sits alongside and does not exclude the application of traditional regulatory approaches. Indeed, the OBCR approach could compliment our Approach to Regulation as set out last July and presents the potential for another tool to use in developing regulatory relationships.

This project aims to test if OBCR could improve regulatory delivery and support the delivery of the just transition to net zero for Grangemouth. A just transition, to the Scottish Government and its agencies, refers both to the outcome of this change – defined as a ‘fairer, greener future for all’ – and, importantly, a process undertaken in partnership with those impacted; be that individuals, communities, regions, or businesses. The Climate Change Act (Scotland) 2019 defines and embeds the principles of a just transition.

A series of workshops to collect feedback and build engagement with the regulated and local community have been held. This has helped to develop understanding of OBCR and how it might be practically applied through two or three OBCR pilots across a range of regulatory scenarios in the Grangemouth industrial cluster. The project team has developed an implementation plan for OBCRs pilots, these will be launched in May and run for eight months until December 2024.

There are limitations to and strains on the current model of environmental regulation in Scotland at a time where we need to adapt to innovative technologies and rapid rates of change. OBCR may provide a framework for regulation to do so. This project aims to test OBCR in order to understand the potential risks and benefits and learn how OBCR can be used in practise.

These projects are not just intended to test the principles of OBCR in the context of Grangemouth but also to test whether this is an approach that will offer wider benefits in terms of how SEPA approaches its regulatory duties with responsible operators.

The time to run pilots is eight months and therefore the project will take a very targeted approach with each pilot. The potential to generate useful learnings via this project is constrained by the timescale. Should the learnings confirm that OBCR has potential as a valuable regulatory tool this work can be expanded elsewhere in the organisation, for example through a larger scale and/or longer-term trial.

Recommendations

The Board is asked to discuss and agree the approach of the project as presented here and its potential to useful deliver learnings for SEPA.

The Board is asked to discuss and agree the potential benefits and risks of SEPA using elements of OBCR to improve regulatory delivery.