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Cap and trade our way out of red-tape pollution

Published in The Australian (Sydney), 19 May 2010

WHAT do carbon emissions and red tape have in common? They are both unwanted by-products. Carbon emissions result from the use of energy, whereas red tape is caused by regulation. Since both of them are a kind of pollution, there is no reason we should treat them differently.

For both energy consumption and regulation, politicians agree it would be better to achieve more with less wasteful by-products. We would still like to use energy but with reduced carbon emissions. And although some regulation may be necessary, we would prefer to keep the form-filling to a bare minimum.

At least until Kevin Rudd had taken temporary leave from the “greatest moral challenge of our time”, cutting carbon emissions through an emissions trading scheme had been his preferred policy for addressing climate change.

Many economists have questioned whether this was the most appropriate way of tackling the problem as the government planned to compensate all the big emitters. However, the general principle behind cap and trade still has great economic appeal.

Put simply, an ETS makes it possible to cut emissions where this can be achieved in the most cost-efficient way. While the total amount of emissions is capped, polluters can trade emissions certificates among themselves, thus deciding where precisely to make the cuts.

Could we apply the same logic to cutting red tape? How about not an ETS but an RTTS, a red tape trading scheme?

With red tape it’s just like with carbon emissions. Almost everybody agrees it needs to be cut, yet no one seems to have any idea how this could be achieved.

This is not just an Australian phenomenon, of course. Across the globe politicians have been trying to cope with excessive form-filling, overzealous bureaucracies and regulations that, once put in place, develop lives of their own. The number of international “better regulation” commissions, proposals, strategies and initiatives is countless. Some governments have experimented with sunset clauses that make new laws expire automatically on a certain day in the hope that unnecessary regulations will simply disappear if nobody proposes to renew them. The reality, however, is that you have only to pass a blanket, routine renewal act to circumvent this sunset clause.

Another idea is to assess the regulatory effect of new laws before they become laws. In theory, this should stop legislators from imposing high burdens on households and businesses. In practice, this has never stopped a government from legislating what it thought necessary. It’s a sad irony that the British government once issued guidelines on filling in these regulatory impact assessments, which ran to 65 densely written pages. Deregulation had become the new regulation.

It is clear, then, that new ideas are needed to deal with excessive bureaucracy and this is where the RTTS comes in. There are two advantages to an RTTS. First, it can cut red tape in the most efficient way. Second, the public servants sitting idle in the climate change department could be given a proper task to do. They’d need only to change the signs on the doors, putting them in charge of the RTTS instead of the ETS.

Sound like a good idea? This is how it could work. First, the government would need to do a stock-taking of all present bureaucracy costs. This is not as complicated as it sounds. The Dutch government has developed a standard cost model, which makes measuring regulatory burdens a straightforward task. The time needed to fill in forms is multiplied by the hourly costs of employing the form fillers. Multiply this by the number of these forms filled in across the whole economy in a year and you get the red tape cost of this one form. Do this with all forms and you know what red tape costs us in total. This may seem a little difficult but the Dutch have completed the measuring exercise for their economy within two years.

After this audit has been completed, red tape certificates could be issued to polluters — say, the Australian Taxation Office or the health department. But there’s a catch. Like an ETS, certificates would be capped at, say, 95 per cent their present bureaucracy levels. Government departments and agencies would have to cut the red tape by 5 per cent or trade with other departments that have excelled at cutting their regulatory emissions. As a result of the RTTS, red tape would be cut by the amount specified by the cap.

It would be left to the creativity of government officials to identify the best ways to tackle bureaucracy. They would also have strong incentives to meet their targets. To most politicians, this proposal may sound crazy at first. But it only applies the logic of an ETS to red tape reduction. Maybe it is not such a barmy idea after all?

Oliver Marc Hartwich is a research fellow at the Centre for Independent Studies. His report, Towards a Red Tape Trading Scheme: Treating Excessive Bureaucracy as Just Another Kind of Pollution, was released today.

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