DG Enterprise and Industry
Directors and Experts of Better Regulation Meeting
Vilnius, 5-7th June 2013
Ex-ante Assessment of Cumulative Costs
Konstantin Pashev
DG ENTR Unit A5 'Economic Analysis
and Impact Assessment'
DG Enterprise and Industry
Outline
1. Concept of cumulative cost and its assessment
2. Why care for cumulative rather than additional
cost
3. Cumulative cost and the integrated approach to
IA
4. State of play and the way ahead
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DG Enterprise and Industry
Cumulative cost assessment
Taking into account all costs borne by the affected
sector when:
 evaluating the actual impacts of EU legislation (expost evaluation);
 assessing the expected impact of new initiatives (exante impact assessment).
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DG Enterprise and Industry
Costs can build up in many ways

New costs add up to existing ones in the same regulatory area (e.g. new
information obligations added to existing ones)

One sector affected by regulations in various areas (e.g. safety-at-work costs
on top of product information obligations);

costs may build up at each level of government (EU, national and subnational), sometimes aggravated by 'gold plating';

implementing legislation may add new cost to primary legislation,

administrative and enforcement practices may add additional compliance
costs due to administrative discretion

In a package of measures impact-assessed separately

Economic costs of regulations add up to compliance costs
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DG Enterprise and Industry
Accumulation of costs is usually
neglected
1.
IA is focused on net benefits for society and chooses
the option which maximizes them
2.
It looks at additional (flows of) costs and benefits
looking at the marginal impact of the new legislation
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DG Enterprise and Industry
Why this is a problem?
1.
Cost of compliance with existing legislation is not a sunk cost,
large part of it is recurrent cost
2.
In contrast to costs and benefits in investment projects (where
this is borrowed from) in legislation costs and benefit may
accrue to different stakeholders. Net benefits for society may
look positive but there is the risk of irreversible damage to
those that pay the cost (hysteresis effect)
3.
Most of the costs come in the short to medium term, while
benefits come in the medium to long term. The longer the
period the more acceptable the initiative in terms of net benefits
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DG Enterprise and Industry
Cumulative cost assessment in
the integrated approach to IA
Is the balance tipped in favour of costs?

Benefits of legislation cannot be ignored

But excessive regulatory costs entail significant risks for the
economy and for compliance, and hence for delivering the
economic, social and environmental benefits of the
regulation.
Cumulative benefits vs. cumulative costs?

while societal gains may only increase if benefits
accumulate, if costs accumulate, benefits may never realize
(again because of the inter-temporal problem)
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DG Enterprise and Industry
State of play
1.
The issue raised by many stakeholders in recent years
2.
Considering cumulative cost in ex-post evaluation:
Fitness checks
3.
New focus on cost of legislation in the REFIT
Communication
4.
Discussion about integrating the requirement to
consider cumulative costs in the context of the
upcoming revision of the IA Guidelines
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DG Enterprise and Industry
Questions for discussion
1.
What are the benefits and costs of accounting for cumulative
effects for better regulation. Would that be an improved CBA or
better risk (of hysteresis effect) assessment?
2.
What are according to you the challenges related to integrating
CCA in the IA
3.
How to integrate cumulative cost without departing from the
principle of proportionate analysis and from the integrated
approach to IA
4.
Could there be a reliable metrics of the critical mass of
compliance costs that would lead to hysteresis effect?
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