The Role of Economic Regulators in the Green Transition

Reader’s guide

Background

It has not always been possible to establish, especially at an aggregate level, how far economic regulators are responding to growing demands for action on environmental issues and how far they are contributing to green transition within the sectors they oversee. This publication leverages new data on the “green governance” of economic regulators (the “green governance survey”), collected as part of the 2023 edition of the Governance of Sector Regulators (GSR) indicators survey,1 to address this knowledge gap and shed light on the state of play across 42 countries and for five network sectors: energy, water, e-communications, rail and air transport. Quantitative survey data was collected and validated during 2023 and 2024, with preliminary results presented at the 21st session of the OECD Network of Economic Regulators (NER) in December 2023. Survey questions related to various aspects of governance, such as regulators’ objectives, powers, and processes of co-ordination, impact assessment and capability-building.

This publication considers the green governance survey data alongside OECD normative guidance and earlier work on “governing green” conducted by the NER, including case studies and outputs developed since 2022, to develop a valuable evidence base and unique perspective on the governance challenges surrounding environmental sustainability and the regulation of network sectors. As such, the publication complements OECD work analysing the public sector transformations required to deliver on climate and environmental goals (OECD, 2022[1]), including the Policy Paper on “Better Regulation for the Green Transition” (OECD, 2023[2]). This new evidence base will be especially valuable to economic regulators, governments and legislators with responsibilities for designing regulatory frameworks, deciding the mandate of national regulators, or co-ordinating public institutions’ actions toward the green transition and improving environmental sustainability.

The publication organises the quantitative and qualitative evidence into three substantive chapters. Chapter 1 outlines the changing context and roles for economic regulators and explores how economic regulators are already responding to emerging risks, responsibilities, and expectations. Chapter 2 highlights the numerous ways in which economic regulators may contribute to environmental goals by providing an overview of the tools that connect regulators’ functions to environmental outcomes. Chapter 3 connects economic regulators’ contribution to green transition to governance arrangements, discussing the importance of issues such as role clarity, adapting regulatory tools and processes, and capacity and resources.

Whilst the publication focuses on data provided by economic regulators of network sectors,2 the scope of regulatory tools discussed may extend to regulatory functions beyond those associated with issues of economic regulation (e.g., the regulation of natural monopolies). To align with the full and expanded mandates of the institutions surveyed, relevant regulatory tools may therefore include, for example, environmental and consumer protection regulation.

Data coverage

The green governance survey noted above is a key source of data analysed in this publication. The full survey questionnaire is provided in Annex B and the full list of respondents is provided in Annex C, by country and sector. Responses were collected for 42 countries and a total of 184 sector/country combinations, noting that data on additional countries and regulators may be added to the 2023 survey database in the future. Table 1 shows the number of responses registered for each sector.

Annex C also includes an overview of the regulatory authorities included in surveying, by country and sector. The total sample size is 184, reflecting all regulatory authority responses for all sector/country combinations. However, due to the fact that in some jurisdictions the same institution is responsible for regulating multiple sectors, so called “multi-sector” regulators, the number of unique institutions is lower (151). Amongst respondents there were 24 multi-sector regulators and 127 single-sector regulators.

The data analysis also differentiates between independent bodies with adjudicatory, rule-making or enforcement powers (“independent regulators”) and ministerial bodies (“ministerial regulators”). Of the 184 regulatory authorities, 140 are categorised as independent regulators, and 44 as ministerial regulators. The database primarily reflects arrangements in place for regulators operating at the national level in their jurisdiction, although in a few cases sub-national regulators are included in absence of a national regulator.

Table 1. Survey responses, by sector

Sector	No. of regulatory authorities
Energy	43
Water	27
E-Communications	41
Air Transport	37
Rail Transport	36
TOTAL	184

Methodology

The green governance survey was issued as part of the 2023 edition of the Governance of Sector Regulators (GSR) indicators survey. The GSR indicators survey in turn was distributed along with the PMR survey, usually to contacts within the economic or finance ministries participating countries. At the time of distribution, the OECD Secretariat informed NER delegates of the respective contact points in their central government administration and invited delegates to co-ordinate with these contact points to support the quality of the survey response.

Upon receiving the completed survey, the OECD Secretariat validated the responses by assessing the respondents' understanding of the questions, adherence to drop-down menu categories for closed-ended questions, accuracy of answers, and completeness of responses. Where possible, the OECD Secretariat used public sources such as legislation, websites and annual reports to validate survey responses. Where these were not available, the validation focused on assessing the plausibility and coherence of responses.

Following the initial validation of the survey response, the OECD Secretariat sent follow-up questions to respondents to clarify any outstanding matters. This includes cases where the OECD Secretariat required additional evidence to verify the survey response, questions may have been misunderstood, or the response appeared to be incoherent with other questions or regulators in the same country. Upon finalisation of the survey file for a specific regulator, the Secretariat informed respondents of any changes made to the survey response.

A first round of survey distribution was conducted in December 2022, with a request to provide survey responses by March 2023. A second round of the survey was conducted in early 2024 for a select group of additional countries. This group included several OECD accession countries, non-OECD EU countries and certain OECD Members that had not nominated a contact point for the first round of survey distribution. The publication includes those survey responses for which the data validation was concluded by the end of April 2024.

Survey responses3 reflect the situation as of 1 January 2023.4 Survey responses refer only to laws, policies and regulations that are in force as of this date and do not consider any enacted or envisaged policy reforms or laws and regulations that came into force after this date.5

Key terms

This publication, with its focus on economic regulators and the widely discussed issues of “environmental sustainability” and “green transition”, involves certain terminology and data which, if not commonly defined and interpreted, may prompt different conclusions in the context of analysis. Definitions of key terms, appropriate to their use in this publication, are therefore provided in Table 2.

Table 2. Key terms

Term	Definition
Consumer standards	Consumer standards can include standards for consumer services (e.g. network coverage and quality of service standards). This can also include processes aimed at facilitating switching from one operator to another.
Co-ordination mechanisms	For the purposes of this publication and the green governance survey, formalised co-ordination mechanisms refer to any formal document specifying certain aspects of co-ordination or co-operation, such as a Memorandum of Understanding or a co-operation agreement, or an institutionalised meeting or co-ordination mechanism.
Data collection powers	the legal power to collect data refers to the ability of the regulator to make a mandatory request to entities in the sector to submit such data.
Environmental CSOs	Environmental Civil Society Organisations (CSOs) includes non-governmental organisations, foundations or other collectives that are focused specifically on the promotion of environmental considerations.
Environmental sustainability of the sector	The environmental sustainability of the sector refers to the impact of the sector on outcomes relating to environmental sustainability. For the purposes of this publication, environmental sustainability is defined broadly, to include decarbonisation and greenhouse gas reduction, circular economy, sustainable resource management, biodiversity preservation or rehabilitation, reducing water and air pollution, or improving waste management. These aspects align with options available to respondents to the ‘green governance’ survey (see Annex B). These areas reflect common actions and challenges within network sectors, though survey respondents were able to specify further aspects if applicable.
Ex post evaluation	Refers to the process of assessing the effectiveness of policies and regulations once they are in force. It can be the final stage when new policies or regulations have been introduced and it is intended to know the extent of which they met the goals they served for. It can also be the initial point to understand a particular situation as a result of a policy or regulation in place, providing elements to discuss the shortcomings and advantages of its existence. Evaluations may be conducted by regulators, central government or specialist bodies.
External professionals	External professionals are professionals that are employed by a company or body outside the organisation and that are contracted to provide services for the organisation. External professionals can include, among others, consultants, and external IT and administrative support.
Green transition	For the purposes of this publication, ‘green transition’ refers to the transition within network sectors (water, energy, air and land transportation, e-communications) to a more environmentally sustainable state.
Industry standards	Industry standards refer to technical requirements to be followed by industry participants. They can include, for example, grid codes or safety requirements.
Network sectors	For the purposes of this publication, refers to those sectors related to mandates of participant members of the OECD Network of Economic Regulators, namely energy, telecommunications, transportation (air and land), and water.
Price regulation	A price is regulated when its level (exact number, maximum or minimum cap) is set or constrained by a government agency, a ministry or a regulatory authority.
Regulation	Is the diverse set of instruments by which governments set requirements on enterprises and citizens. Regulation includes all laws, formal and informal orders, subordinate rules, administrative formalities and rules issued by non-governmental or self-regulatory bodies to whom governments have delegated regulatory powers. Examples of environmental regulation are compulsory environmental quality standards; limits on total emissions of various pollutants during a given time period; and limits on the concentration of various pollutants in emissions to air or water. For the purposes of this publication, regulatory tools are identified based on a broad definition of regulation, to encompass all activities pursued by economic regulators in line with the above, regardless of whether activities are focused purely on “economic regulation”.
Regulatory delivery	Refers to the implementation phase of the regulatory governance cycle. Delivery includes licensing and permitting, regulatory enforcement and inspections aim to ensure effective compliance with and implementation of rules and regulations. Regulatory delivery also represents an important opportunity to reduce the overall level of regulatory burdens imposed on businesses and citizens while saving public resources and protecting health and security of citizens as well as the environment.
Regulatory impact assessment (RIA)	Is the systematic process of identification and quantification of benefits and costs likely to flow from regulatory or non-regulatory options for a policy under consideration. A RIA may be based on benefit-cost analysis, cost-effectiveness analysis, business impact analysis etc. Regulatory impact assessment is also routinely referred to as regulatory impact analysis, sometimes interchangeably.
Regulatory management tools	Comprise different tools available to implement regulatory policy and foster regulatory quality. In particular, the 2017 Indicators of Regulatory Policy and Governance survey focuses on quality control of three regulatory management tools in particular: Regulatory Impact Assessment (RIA), stakeholder engagement, and ex post evaluation.
Regulatory objectives and mandates	Regulatory objectives are statutory objectives for the regulator either defined in establishing legislation or another piece of legislation. A regulators mandate, or obligation to act, may derive from such statutory objectives, but may also originate from an understanding of wider legislation addressing the sector, or a regulator’s interpretation of another directive, such as principles enshrined in the constitution of a country or its regulatory framework.
Regulatory policy	Is the set of rules, procedures and institutions introduced by government for the express purpose of developing, administering, and reviewing regulation. Regulatory quality is about enhancing the performance, cost effectiveness, and legal quality of regulation and administrative formalities. The notion of regulatory quality covers process, i.e. the way regulations are developed and enforced. The notion of regulatory quality also covers outcomes, i.e. regulations that are effective at achieving their objectives, efficient, coherent and simple
Regulatory powers	Refer to powers defined in law that allow the regulator to perform a given act.
Sector targets	Refer to quantitative targets for the sector, which could for example include emission caps, emission reduction targets or renewable resource targets.
Stakeholder engagement	Refers to the process by which economic regulators inform all interested parties of proposed changes in regulation and receives feedback. For this publication, particular attention is paid to regulators’ engagement with environmental civil society organisations (CSOs).

References

[2] OECD (2023), “Better regulation for the green transition”, OECD Public Governance Policy Papers, No. 40, OECD Publishing, Paris, https://doi.org/10.1787/c91a04bc-en.

[1] OECD (2022), Building Trust and Reinforcing Democracy: Preparing the Ground for Government Action, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/76972a4a-en.

Notes

← 1.  A separate OECD publication addressing the related Governance of Sector Regulators indicators data is forthcoming, expected to be available in Q4 2024.

← 2.  Please refer to Table 2 for further definitions.

← 3.  Specifically for Bulgaria, Cyprus, Malta and Peru, survey responses reflect the situation as of 1 January 2024, due to a later survey distribution date for these countries.

← 4.  Note by Türkiye.

The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus” issue.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 5.  Please note, whilst every effort has been made to provide guidance and ensure a common understanding during surveying, and subsequently to validate results, the survey results should be understood to reflect respondent’s interpretations of the questionnaire.