OECD Regulatory Policy Outlook 2025

The world is facing a triple planetary crisis of climate change, biodiversity loss and pollution, each escalating at alarming rates. Historically, the environment has tended to be undervalued economically, causing environmental protection goals to be deprioritised. This neglect has resulted in severe consequences for the environment, including significant habitat loss, species extinction and air pollution, the latter claiming an estimated 7 million lives globally each year, according to the World Health Organization (WHO, 2024[1]). The OECD’s forthcoming Environmental Outlook explores global threats and policy opportunities to address the triple planetary crisis.

Without government intervention, the planet will continue to suffer increased biodiversity loss, the worsening impacts of climate change and continued environmental degradation. As the United Nations (UN) reports, the “world is not on track to meet the long-term goals of the Paris Agreement” to limit global warming to 1.5°C (UNFCCC, 2023[2]). Regulation, including prescriptive “command and control” regulation and performance standards, can play a central role in overcoming the challenges of the triple planetary crisis and enabling countries to achieve the green transition. Environmental rules, combined with a “green lens” applied to broader policymaking, can drive behaviours that support sustainability. Despite an increased focus on climate and environmental protection efforts around the globe, the current political ambitions for the green transition, such as those enshrined in the Paris Agreement (UNFCCC, 2024[3]), will remain aspirational if environmental considerations are not better embedded in rule-making.

Regulatory design and implementation matter for the planet. Getting the right rules in place across all sectors, including high-impact ones such as energy and transport, is critical for the green transition. When well-designed and implemented, government regulation can promote environmental goals while encouraging technological innovation and economic growth. Well-designed rules can, for instance, facilitate deep emissions reductions (IPCC, 2023[4]), thereby helping to mitigate climate change.

Governments continue to face various challenges in implementing good regulatory practices, which particularly impacts environmental policy. Unduly shortening, complicating or completely avoiding rule-making processes have led to governments failing to achieve their stated environmental ambitions. Existing environmental and other rules can lack regular review, pose unnecessary burdens and stifle innovation, which is crucial for the green transition. Relevant stakeholders, such as those particularly vulnerable to environmental threats, are not sufficiently engaged in rule-making. Regulators can lack the competences and guidance needed to effectively consider environmental and economic policy trade-offs and contribute to policy coherence for achieving environmental goals.

Current public perceptions are ambiguous about whether governments will meet the objectives set out in these global policies. The 2024 edition of the OECD Trust Survey found that an average of four in ten individuals are confident that their country will succeed in reducing greenhouse gas (GHG) emissions in the next ten years (OECD, 2024[9]). Furthermore, evidence suggests that while most households in a number of OECD Members are willing to make sacrifices for the environment, they are not willing to spend more to do so, challenging policy approaches to encouraging more sustainable behaviours (OECD, 2023[10]). Governments need to strengthen trust by implementing more effective and equitable policies that align environmental objectives with economic realities while ensuring transparent communication and public engagement to promote greater confidence in environmental efforts.

This chapter explores why well-designed and delivered rules are critical to achieving the green transition. It reviews the challenges governments are facing and suggests good practices in three main areas:

• overcoming gaps in and regulatory barriers to rules

• deepening existing rule-making techniques

• improving domestic and international engagement.

Current rule-making approaches have led to gaps in some areas and overregulation in others – both of which are hindering the green transition. Without adequate rules, environmentally harmful activities may continue unchecked and investments and innovation in sustainability can be deterred. At the same time, overregulation can lead to a regulatory jungle of complex rules that undermines efficiency, innovation and economic growth. Disregarding or inadequately considering the impact of overregulation can lead to stakeholder frustration and undermine the achievement of regulatory objectives. Poor institutional frameworks and a siloed approach to rule-making further inhibit the green transition. Rules developed in isolation and in an uncoordinated manner may not coherently and consistently pursue environmental goals, nor effectively balance competing economic, social and environmental objectives (OECD, 2023[11]).

Gaps in regulation are an important barrier to achieving the green transition. A complete absence of rules may undermine the attainment of a government’s goals, environmental and otherwise. Without regulation, fewer incentives may exist to change harmful environmental behaviours, thereby undermining efforts to address the triple planetary crisis.

Governments are under increasing pressure to identify regulatory gaps and close them. While gaps are often created by rapidly changing technological advancements, e.g. in the case of renewable energy or transportation, they can also occur as result of broader changing political and economic developments. Regulatory gaps can also emerge due to the absence of adjustment arrangements, which are particularly pertinent in achieving green transition ambitions where significant and urgent structural change is needed.

Some unavoidable regulatory gaps exist. For instance, new species of animals and plants are still being discovered, and knowledge is improving about how the natural environment works and how the built environment interacts with it. These gaps are accompanied by the reality of the policy landscape – that an absence of scientific certainty warrants a degree of caution in decision making (OECD, 2023[12]). Uncertainty with respect to both environmental quality and policy impacts on environmental outcomes places increased emphasis on monitoring and evaluation to ensure that rules continually support the green transition as new information emerges.

Technological change further exposes regulatory gaps. For instance, hydrogen infrastructure for refuelling vehicles in some OECD Members has faced regulatory barriers, including outdated risk assessments, unsuitable site approval processes, and regulatory uncertainty. This has stifled the potential for broader adoption of hydrogen technology (OECD, 2023[13]) (Box 3.2). Regulatory frameworks can fail to account for new applications of technologies, creating challenges for industries as they navigate unclear or conflicting requirements, which hampers innovation and progress towards environmental goals.

To address these gaps, governments can adopt more agile regulatory approaches, such as horizon scanning, which allows policymakers to anticipate and prepare for future environmental challenges and technological advancements (OECD, 2021[14]). By scanning the horizon for emerging risks and opportunities, governments can proactively update existing rules and design more flexible regulatory frameworks that evolve with scientific evidence and technological progress. In addition, technological change has provided regulators with opportunities to better monitor and intervene earlier, enhancing governments’ abilities to achieve the green transition. Evaluation efforts help assess if environmental goals are being met, emerging technologies are effectively regulated and rules contribute to the transition to a sustainable economy. Governments need to scan existing rules and update them accordingly to reduce regulatory gaps.

The growing stock of rules can impose excessive burdens and complexity on citizens, businesses and civil society organisations (OECD, 2022[16]). Overly complicated or unnecessarily complex rules can lead to unnecessary compliance costs and compared to other regulatory environments, cause competitive disadvantages that are frustrating for people and businesses to deal with (see Chapter 2) (OECD, 2018[17]). Overly complicated rules can undermine efficiency, innovation and economic growth, which puts achieving sustainable development at risk (Box 3.3).

The triple planetary crisis has spurred an accumulation of rules due to the increased awareness of environmental degradation and the growing need to protect ecosystems. While many of the existing rules help generate important benefits, their effectiveness varies and due to their complexity, the associated costs can be important, in particular to businesses.

Regulatory obligations can also carry costs for the environment. For instance, unnecessary paperwork requirements are not only in and of themselves costly for all concerned, they also have environmental costs simply as pieces of paper or energy demand for electronic obligations. Likewise, storage requirements for future audits, be they on paper or in electronic form, impose environmental costs. The costs are equally relevant to bespoke environmental rules (e.g. waste disposal requirements) as they are to rules more generally (e.g. record keeping requirements for smallgoods stores).

Accelerating the energy transition requires faster deployment of renewable energy infrastructure and the rollout of new technologies. At the same time, regulatory frameworks need to balance risk, reconcile existing concerns and harness innovation. This is especially true in light of the uncertainty about the safety of emerging technologies that can help reduce carbon emissions and environmental degradation (OECD, 2023[12]). While governments should apply risk-based approaches to regulatory policy in general, the urgency of the climate crisis and increasingly severe threat of irreparable environmental damage have heightened their importance.

Licencing and permitting systems cover a wide range of economic activities, from driving a vehicle to exporting food. Well-designed licensing and permitting systems ensure compliance with regulations, safeguard public health and safety, protect the environment, preserve culture and heritage, and facilitate responsible economic development. At the same time, governments must balance these objectives and reduce regulatory complexity by minimising the use of L&P to what is strictly necessary to achieve environmental goals and manage risks (OECD, 2023[13]). Additionally, governments can enhance certainty for the private sector by mapping areas less sensitive to development, which are more likely to receive approvals for renewable energy projects.

Licensing and permitting should be meaningful, effective and designed with the goal of mitigating an actual environmental hazard that has been identified through an evidence-based process. To that aim, the use of permitting and related requirements needs to be based on risk assessment and proportionality, burden reduction, and consideration of alternatives to regulation and existing trade-offs (for a more detailed discussion of methods and tools that can be used during the design stage, see Chapter 5). It also needs to be delivered in close relation with the regulatory inspections and enforcement system – through, for example, the collection of information for risk analysis, identification of emerging risks, barriers to compliance, etc. – to ensure appropriate, proportionate and effective regulatory delivery (OECD, 2014[22]).

The granting of permits for deploying and using low-carbon and renewable energy infrastructure requires a careful consideration of public risks. This includes the technical reliability of the infrastructure, environmental impacts, national security concerns, and occupational health and safety. Regulators have found it challenging to balance safety risks associated with the deployment of renewable energy technologies with the slow permitting processes resulting from technological uncertainty. Cost-benefit analysis can provide a clear picture of the risks, advantages and disadvantages of a range of policy options to support decision makers in this regard.

For situations where a risk is known to exist, but its probability and magnitude of harm are uncertain or unknown, the application of the precautionary principle is one way to approach risk assessments (OECD, 2023[13]). While risk and uncertainty are factored into traditional cost-benefit analysis, the precautionary principle can provide further safeguards to prevent potentially harmful activities altogether (Driesen, 2013[23]). For instance, the use of hydrogen for heating or as fuel still involves some imperfectly known safety risks, even though hydrogen has been used industrially for several decades. Applying the precautionary principle to reduce harm can help regulators balance safety concerns with the need to harness innovation (OECD, 2023[13]).

However, an “over-application” of the precautionary principle can undermine the development and use of green innovations and new technologies. Policymakers and regulators often adopt a cautious approach to permitting new technologies due to uncertainties surrounding safety. For example, in Poland, before the Law on Wind Energy was amended and the minimum distance was set to 700 metres in 2023, the rule required onshore wind farms to maintain a distance from settlements equalling ten times the height of the wind turbines used, equivalent to around 2 kilometres, which limited the maximum onshore capacity to approximately 10 gigawatts. The reform of the distance will positively impact wind development due to the increase of surface area available for wind energy (European Commission, 2023[24]).

Countries face the challenge of updating their permitting systems to meet transformational goals. Technical regulations, lengthy permitting procedures and broad environmental impact assessments are time- and resource-consuming. In the worst case, these rules can place significant financial and administrative burdens on businesses, reduce investment in low-carbon technologies and energy efficiency, and stifle innovation. Long and complex regulatory processes can also raise entry barriers for new players, thereby concentrating the market.

Slow permitting for low-carbon and renewable energy projects remains one of the biggest challenges for the green transition (IEA, 2023[25]). A proliferation of intricate regulations can add complexity to wind turbine projects, and combined with slow and bureaucratic processes to issue construction and operation permits can increase costs and delay project implementation. Lengthy approval time frames for assessing new projects under environmental laws can create bottlenecks for the construction of wind farms and slow the pace of the green transition. Over the last five years, for example, the approval time for large-scale renewable energy projects in New South Wales, Australia was, on average, 746 days, with 3 488 days (equalling 9.5 years) for wind projects (Norman, 2024[26]).

Licensing and permitting for renewable energy face many of the well-documented challenges seen in other industries, along with ineffective co-ordination within government:

• Inefficient and lengthy regulatory processes can create bottlenecks and place burdens on citizens and businesses. Introducing simplified licensing or permitting systems can help promote the green transition while optimising resource use and reducing burdens on government and businesses. To further improve the efficiency and effectiveness of permitting procedures, the application for and granting of permits could be digitalised. In Portugal, the Single Environmental Permit is an online platform that streamlines the administrative procedure for 12 different environmental permits through a single tool (Green Policy Platform, 2024[27]).

• Governments also face the challenge of managing low-carbon energy permitting within the broader context of climate policy. In this case, permitting should be co-ordinated across government, rather than allowing individual ministries to manage their permits in isolation. For example, in Lithuania, limited co-ordination between different authorities leads to considerable permitting delays for the development of green infrastructure.

The OECD recommends government authorities examine risks or public concerns and how they interact with climate risks in a joint effort rather than in isolation (OECD, 2023[12]). The need for co-ordination and holistic risk assessments is also one of the six lessons learnt from hydrogen deployment in the Netherlands identified by the OECD (Box 3.4).

Once rules and permits are in place, they must evolve to keep pace with changing circumstances and technological advancements. Continuously minimising pollution and striving for net zero emissions also necessitate periodic reviews of existing permits. Periodic revisions ensure that requirements, for instance related to emissions reduction, align with up-to-date best available techniques. Governments can also consult with stakeholders in permit reviews.

Environmental issues often span multiple sectors, requiring co-operation across diverse policy areas to find effective solutions. Limited co-ordination can undermine governments’ efforts to achieve their goals through environmental and other rules (OECD, 2023[11]). Moreover, regulations developed in isolation may also lead to unintended consequences, such as regulatory gaps in, or overlap with, other sectors.

Successful rule-making for the environment needs support from an appropriate institutional framework that promotes inter-ministerial co-ordination. The scope of the green transition extends beyond the Ministry of Environment to rules in other policy areas, such as transport and industry. The Intergovernmental Panel on Climate Change finds that “effective climate action requires […] well-aligned institutional frameworks, laws, policies, and strategies. It needs […] co-ordination across multiple policy domains, and inclusive governance processes” (IPCC, 2023[4]).

Achieving co-ordinated environmental policies requires appropriate holistic supervision. The OECD Recommendation of the Council on Regulatory Policy and Governance highlights the importance of “a standing body charged with regulatory oversight […] established close to the centre of government, to ensure that regulation serves whole-of-government policy” (OECD, 2012[28]). Regulatory oversight can be defined as the variety of functions and tasks carried out by entities in the executive, or at arm’s-length from the government, to promote high-quality, evidence-based regulatory policy (OECD, 2018[17]). OECD data show that most countries have designated high-level responsibility for regulatory policy from a whole-of-government perspective (OECD, 2018[17]). Governments should focus on ensuring these bodies have appropriate functions, powers and capacity to effectively deliver on their oversight and co‑ordination roles.

Some OECD Members have made compliance with the Sustainable Development Goals (SDGs) mandatory. For instance, in Germany, all new legislation must undergo an electronic sustainability impact assessment. Before a legislative draft can be presented to the parliament in Luxembourg, it passes a sustainability check (Box 3.5).

Effective implementation of rules has a significant bearing on achieving regulatory objectives (see Chapter 5). Regulators need to be conscious of the burdens imposed, and regulated entities need to play their part in undertaking compliance activities. Compliance and enforcement shortcomings of existing rules can undermine the green transition (OECD, 2023[11]).

The implementation and enforcement of environmental laws and regulations falls far short of what is required to address environmental challenges (UNEP, 2019[34]). Appropriate regulatory delivery, which includes licensing and permitting, regulatory enforcement, and inspections, is essential to manage environmental hazards effectively and efficiently and close the compliance gap on environmental regulation.

Environmental regulations are not always complied with due to insufficient buy-in and understanding from stakeholders. Additional government support is needed to close the compliance gap. Ensuring that industry operators understand how to comply with rules is the first step to reducing potential environmental hazards. Environmental regulations cut across industries and impose different obligations depending on the location of the facility, its size, the type of activity, etc. Industry needs to keep up-to-date with regulatory changes and to understand how some of the technical regulations translate into practical requirements. In this context, small and medium-sized enterprises are disproportionately affected by compliance obligations, which can be burdensome for smaller players, which represent over 90% of businesses across the OECD, with 50% of all businesses being sole-person entities (OECD, 2023[35]). Achieving enhanced industry compliance is possible through the use of behavioural insights (Box 3.6).

Opportunities remain for OECD Members to provide enhanced guidance to regulated entities. Advice and guidance can include initiatives such as capacity-building workshops, FAQs on enforcement agency websites, opinions on how certain actions will generally be treated, and so on. For instance, the Korean Ministry of Environment established an online contact point where questions on environmental rules must be answered within five working days (OECD, 2017[37]). Regulators also transcribe environmental regulations directly into checklists. Checklists and a toolkit comprised of non-conformity simulations, self-evaluation tools, and relevant guidelines and manuals of good practices have been developed in the Italian region of Friuli Venezia Giulia (Box 3.7).

Industry co-operation and compliance are integral to realising the green transition. As reform efforts to promote electromobility demonstrate, industry support plays an important role in a regulation’s success. Investing in widespread electric vehicle infrastructure underscores the challenge of regulatory delivery and implementation in the transition to sustainable transportation. Investing in charging infrastructure can be financially fraught at a nascent stage of industry development (Naor et al., 2015[38]). Moreover, uncertainty surrounding regulations and incentives further complicate decision-making processes for industry stakeholders and can risk discouraging timely and comprehensive investment in electric vehicle infrastructure (Hoffmann, Trautmann and Hamprecht, 2009[39]). Governments play a key role in closing related regulatory gaps, for instance by setting pollution limits and fuel efficiency standards, which, combined, can help overcome uncertainty for investment and innovation.

Governments can take several additional measures to improve regulatory enforcement and inspections to achieve environmental goals (OECD, 2023[11]) (see Chapter 5). The OECD Regulatory Enforcement and Inspections Toolkit provides government officials, regulators and stakeholders with a simple tool to assess the inspection and enforcement system in a given jurisdiction (OECD, 2018[40]). It recommends integrating risk considerations into environmental inspections, beginning with the development of inspection plans based on risk criteria to prioritise addressing the most urgent hazards. Regulators’ limited inspection capacity requires targeting sectors and businesses with a combined increased probability and severity of causing environmental damage. Information collected during environmental inspections should be fed into databases to inform future decisions (OECD, 2023[11]). A common issue with inspection information is that agencies often operate individual databases that are not linked to those of other regulators. This practice hinders necessary co-operation, as the enforcement of environmental rules may at the same time involve several regulators and different levels of government. A joint database of environmental regulatory delivery agencies responsible for permitting and inspections can facilitate information sharing and enable sector-wide risk analysis (see OECD (2023[11]) and Box 3.8).

Problems in monitoring regulated entities’ compliance has reduced trust and worsened environmental outcomes. For instance, the regulatory failure in the case of the 2015 Volkswagen diesel emissions scandal illustrates consequences for both consumers and the environment that may occur if the responsible regulator does not carry out enforcement controls of NO_x emissions frequently or thoroughly enough (Eger and Schaefer, 2018[42]). It is thus important that governments dedicate resources for inspections, sanctions procedures and other enforcement activities to ensure compliance.

Private sector greenwashing presents a significant challenge to the effectiveness of regulatory policy in facilitating the green transition. Greenwashing occurs when businesses engage in deceptive practices to portray themselves as more environmentally friendly or sustainable than they actually are. Greenwashing slows down progress of the green transition by increasing misinformation, eroding trust and diverting customers away from more sustainably operating businesses. Greenwashing becomes relevant for regulators when it concerns false claims involving adherence to rules. Recent greenwashing cases in Australia were brought against companies for making misleading statements to the public about the sustainability of their investments, net zero targets or green energy claims (Longo, 2024[43]). Yet only a “few OECD countries have made consistent efforts to improve the way regulatory enforcement and inspections are organised and delivered in the environmental policy area” (OECD, 2023[11]). While limited enforcement and inspections may be the result of deliberate inaction, they can also be caused by a lack of regulatory capacity or an absence of clear guidance on what to enforce.

Economic regulators’ engagement is crucial in the transformation to net zero. They play an important role in implementing and enforcing rules due to their role and mandate supporting the efficient delivery of essential services and networks such as energy, transport, water and e-communications.

Several functions that economic regulators routinely carry out can have important impacts on environmental outcomes. These may be direct outcomes (e.g. monitoring regulated entities’ compliance with environmental standards) or more indirect ones, for example by shaping investment conditions in ways that incentivise investment in green technologies (OECD, 2023[11]).

In general, economic regulators face competing objectives, most commonly around price and the quality of service trade-offs. Adding environmental goals requires further considerations by economic regulators, who may encounter trade-offs between environmental goals and other policy objectives. At a minimum, there is a question about the relative prioritisation of the objectives these institutions seek to achieve.

Providing clearer government guidance and assistance to network regulators on goal setting, managing trade-offs, data gathering and capacity building will assist them in shaping the trajectory of the transition and prioritising specific competing objectives. Setting economic regulators’ objectives to align with overarching environmental goals provides regulators with a clear mandate to act and empowers them to adopt a green lens and deliver on their objectives, with new powers provided as appropriate.

Economic regulators with defined objectives relating to environmental sustainability and the legal powers to consider them in decision making are more likely to pursue actions which directly or indirectly impact the environmental sustainability of the sector(s) they oversee (OECD, forthcoming[44]). Providing economic regulators with a clear mandate, objectives and relevant powers is the first task and a primary enabling factor to spur action. However, results from a recent OECD survey indicate a significant proportion of economic regulators (58%) do not yet have objectives relating to environmental sustainability defined in legislation (OECD, forthcoming[44]). Similarly, a significant proportion of economic regulators (42%) lack the legal powers to consider environmental sustainability in decision making, regardless of whether they have defined objectives (OECD, forthcoming[44]).

Setting overarching goals for government, or sector targets, may not be sufficient for economic regulators to take environmental objectives into consideration in their decision making. An example is when regulatory requirements mandate regulators to prioritise other potentially conflicting policy objectives, such as in relation to price or quality of service. Data from an OECD survey of economic regulators conducted in 2023 indicates that, while almost one-third (30%) take quantitative targets relating to environmental sustainability defined for the sector into account in their decision making, one-quarter (25%) do not consider such targets, even though such targets have been defined (OECD, forthcoming[44]). Most economic regulators surveyed report that no quantitative targets have been defined – an area which governments could address in the near term, though, as noted, economic regulators might benefit more from decisive actions to clarify mandates and powers.

A significant proportion of economic regulators in the energy, communications, rail and air transport, and water sectors lack the legal authority to gather data on environmental sustainability. This can potentially impede their effectiveness in fulfilling environmental objectives. Data can be a powerful tool to support evidence-based policies and regulations and a vital ingredient in accurate impact assessments and continued regulatory development. Early work on environmental sustainability by economic regulators has often concentrated on data and measurement issues with the aim to understand the environmental impact of the sectors they oversee. However, OECD surveying of economic regulators indicates that less than half (45%) have the legal powers to collect relevant data on environmental sustainability in the sector they oversee (OECD, forthcoming[44]). Importantly, nearly one-quarter of economic regulators who have environmental objectives lack data collection powers, which could hamper their ability to deliver. Furthermore, economic regulators with the power to collect relevant data could be encouraged to do so more systematically – only half (48%) of regulators with the power to collect relevant data report doing so on a regular basis. A Finnish regulator’s recent pilot study on the environmental impact of the information and communications technology sector shows the importance of data collection (Box 3.9).

Economic regulators need to build sufficient capacity and capabilities to deliver on new or expanded mandates for environmental sustainability. For instance, regulation related to decarbonisation involves considering the entire life cycle of substances and products, promoting low-carbon and circular technologies, which necessitates a whole range of different expert skills and knowledge. Close attention will also be needed around regulators’ staffing and funding arrangements – such as their ability to hire new staff, allow existing staff to build new capacities, reorganise itself internally and manage resources autonomously – as these can have an important bearing on their agility to respond to new roles and expectations. In this area, OECD surveying of economic regulators shows 40% have built internal capacity in environmental sustainability expertise or plan to bring in capacity in the future (OECD, forthcoming[44]). However, a sizeable share (47%) of economic regulators have not built capacity in this area (Figure 3.1), (OECD, forthcoming[44]).

Economic regulators’ capacity and funding is also important beyond the area of sustainability. Even though economic regulators in many OECD Members enjoy a degree of independence, restrictions on how they receive or manage resources can limit their autonomy. Regulatory independence can help build greater confidence that decisions are impartial and contribute to regulatory certainty and stability (OECD, 2022[46]). Moreover, mandating an independent body to regulate can demonstrate a commitment to long-term policy objectives.

Reconciling competing economic, social and environmental objectives often entails managing trade-offs for economic regulators. While policy objectives may sometimes align, achieving environmental objectives may at times run counter to other policy objectives, such as promoting competition, improving cost effectiveness, or protecting consumer welfare and social inclusion. According to OECD data, 43% of economic regulators with the legal power to consider environmental sustainability in their decision making have either encountered or anticipate trade-offs between “green” and other policy objectives (OECD, forthcoming[44]). Economic regulators require greater support in the form of appropriate powers, knowledge, capacity and guidance to manage trade-offs that arise in decision making between environmental policy goals and other policy objectives. Clear guidance on balancing objectives can support regulators in situations where there is wide scope for discretion. OECD guidance recommends that where trade-offs between objectives are likely to be necessary, there should be a means for the responsible minister to provide an overall direction on priorities, or that legislation should include clear guidance as to how the regulator should resolve trade-offs between objectives (OECD, 2014[47]).

Regulatory impact assessment and ex post evaluation of regulations are essential tools for promoting the green transition because they provide a systematic framework for embedding environmental considerations in rule-making. Integrating these tools into the regulatory process enables governments to adopt a “green lens” to rule-making to ensure that both environmental and other rules contribute to achieving environmental goals, ultimately driving meaningful progress in achieving the green transition.

The OECD Better Regulation for the Green Transition Stress-testing Toolkit (OECD, forthcoming[48]) helps policymakers assess the readiness of their regulatory policy frameworks for the green transition. It provides self-assessment criteria to evaluate practices for designing, implementing and evaluating primary laws and subordinate regulations with a green lens across all policy areas.

Embedding environmental considerations when designing new rules is critical to achieving the green transition. Around the world, policymakers are recognising that doing nothing to reverse the environmental crisis will eventually cause irreparable damage (Alberini et al., 2016[49]; OECD, 2015[50]). Further forestalling will make the necessary adjustments more severe, particularly for people with more limited ability to mitigate impacts (OECD, 2021[51]).

Regulatory impact assessment can help identify likely environmental impacts, feasible alternatives and various trade-offs by providing information on the costs and benefits of different policy options (Box 3.10). Results from the OECD iREG Survey indicate that 28 Members systematically require an assessment of environmental impacts as part of regulatory design, up from 25 a decade ago.

More systematic and granular assessments are needed in practice to fully realise complete environmental impact assessments. Evidence indicates that while a majority of OECD Members systematically conduct environmental impact assessments for new laws and regulations, only half extend these reviews to cover specific issues such as carbon emissions, biodiversity and natural resource use – factors critical for a comprehensive understanding of environmental impacts.

Moreover, practices for assessing environmental impacts are uneven within governments. Ministries without primary responsibility for the environment tend to have less experience with assessing impacts on the environment and do so less systematically (OECD, 2023[11]). This may affect environmental outcomes, as the framework conditions for preserving the environment are not only provided by environmental policies; all policy domains should allow for the integration of environmental protection and the transformation towards a low-carbon society. Targeted guidance and training can foster co-ordination and capacity building for a more balanced use of assessments across ministries to improve impact evaluation. The OECD Recommendation of the Council on Policy Coherence for Sustainable Development provides guidance to governments on promoting horizontal co-ordination and reconciling objectives for sustainable development (OECD, 2019[52]).

Weighing environmental costs and benefits, including for the environment, and the selection of a discount rate are key to accurate impact estimations. The discount rate is the rate at which society is willing to trade-off present for future benefits. Some policy measures with environmental impacts can provide short-term benefits but may come at a long-term cost (e.g. deforestation), or at short-term cost with long-term benefits (e.g. wetland protection). To correctly determine the net present value of such policies, governments have to choose a discount rate based on several factors, including the uncertainty of future benefits, opportunity costs (e.g. related to increasing adjustment costs in the future) and inflation rates (see Chapter 2 for a further discussion) (OECD, 2018[53]).

Rules affect a range of issues, such as climate change and human and animal health, in a way that is difficult to monetise as part of cost-benefit analysis and appropriate baselines are difficult to establish (for more information, see OECD (2018[53])). The global nature of environmental damages and the uncertainty around climate trajectories make the calculation of those impacts even more complex (OECD, 2023[11]).

Nevertheless, policymakers can make use of common valuation methods (see OECD (2018[53]) for an overview of various methods of environmental valuation). For instance, integrated assessment models of climate and economy allow governments to consider damages caused by climate change in policy design. These models allow estimating the value of biodiversity and ecosystems through the "services" they offer (e.g. protection against floods or consumptive and productive use), which translate into both direct and indirect economic benefits (OECD, 2023[11]).

Some governments try to quantify the regulatory impacts on human health and well-being (Box 3.11), despite inherently subjective methodologies. As part of cost-benefit analysis, policymakers need to decide whether to recognise and how to account for the “inherent” value of the environment, which should be protected not only for economic, social and health reasons, but also for ethical and moral ones (Ehrlich and Ehrlich, 1997[54]; Stone, 2010[55]). In this context, qualitative descriptions of impacts that complement quantitative assessments can be valuable (OECD, 2023[11]).

Finally, regardless of the methodology used to calculate environmental impacts, governments must complement such quantitative assessments with a proportionate qualitative evaluation of all relevant risks, costs and benefits to take informed decisions. Quantitative data alone cannot capture the full complexity and context of environmental issues, and a comprehensive understanding is essential for sound policymaking.

Much like gardens, rules need ongoing care and attention. Governments need to update existing rules to ensure that changing conditions do not lead to regulatory gaps and regulations remain effective and efficient (OECD, 2020[58]) (see Chapter 5). The OECD Recommendation of the Council on Regulatory Policy and Governance states that governments should “conduct systematic reviews […] to ensure that regulations remain […] cost effective and consistent, and deliver the intended policy objectives” (OECD, 2012[28]). OECD Environmental Performance Reviews provide a bespoke assessment of countries’ progress towards their environmental policy objectives and are an important part of learning for the gradual improvement of existing rules.

The pace of rapidly progressing climate change and advancing climate-relevant technologies pose significant challenges to governments in this regard. Due to the urgency of environmental threats, it is of utmost priority to adopt measures that ensure that regulations, once in place, stay fit-for-purpose, encourage investment in innovation and continue to support environmental goals. For example, in Germany, the rapid development of offshore wind energy has exposed gaps in the regulatory framework, particularly regarding grid connections and environmental impact assessments. This has led to delays in project approvals, emphasising the need for more flexible and responsive regulatory systems that can accommodate evolving renewable energy technologies while ensuring environmental protection (Bundesregierung, 2023[59]; Bundesamt für Seeschifffahrt und Hydrographie, 2024[60]).

Nevertheless, only a minority of OECD Members have adopted systematic approaches to reviewing the existing stock of rules from an environmental perspective. Of 13 countries that systematically evaluate the efficiency and effectiveness of existing regulations, only 4 systematically do so with a green lens that includes environmental and sustainability considerations (e.g. within the framework of international agreements such as the Paris Agreement or the United Nations’ Agenda 2030 and the SDGs). Principle-based reviews of regulations in a certain sector or policy area can help ensure that synergies and trade-offs as well as the cumulative effect of these regulations on the environment are captured. Only nine members conduct environmental sustainability-based evaluations.

The pace of the rapidly evolving planetary crises requires more frequent evaluations. Despite tracking whether countries are on course to meet their climate and environmental goals, there remains a significant gap in translating these data into effective policy action in some contexts (OECD, 2023[11]). A sound data governance strategy can help produce, collect, process, access and share data (OECD, 2019[61]) to ascertain whether rules are working as intended. Complementing compliance information with self-reported data can further improve evaluations and help inspectors, if adequate monitoring is in place to detect fraudulent reporting (Box 3.12). Enabling data exchange and co-ordination means inspectors can consult data from other inspectorates, avoid duplication of activities, ensure data are up-to-date and implement a whole-of-government approach (OECD, 2021[41]).

Cumulative impacts – be it on the environment or elsewhere – are often ignored. Evaluations often focus on marginal impacts and neglect indirect and second-round effects (OECD, 2023[11]). While marginal impacts are important, they are not the only impacts that rules cause. An example is the use of stock-flow linkage rules such as “one-in one-out”. While the policy has some merits in placing an increased focus on reducing unnecessary costs (Trnka and Thuerer, 2019[63]), these relate to administrative burdens on businesses and not to broader impacts on citizens nor social or environmental impacts. Such instruments incentivise policymakers to introduce regulations that pose minimal costs to society in an effort to reduce regulatory compliance costs for businesses. This can come at the expense of costly regulations that are beneficial to the environment. Introducing flexibility mechanisms to the stock-flow linkage rule can allow for exemptions in cases where social and environmental issues are affected.

Regulating with people is fundamental to regulating for them (see Chapter 2) by, for example, protecting the environment and avoiding species loss. The same principles of sound engagement that policymakers follow in all areas of rule-making also apply in the environmental context. In some respects, principles on engagement are heightened since everyone is impacted by environmental policy decisions and disadvantaged groups are often most affected by the outcomes of the climate crisis (see, for example, OECD (2021[51])).

Engagement in rule-making matters for trust in government (Smid, 2023[64]) and may increase acceptance and compliance. The results of the 2024 OECD Survey on Drivers of Trust in Public Institutions show that people who feel they have a say in what government does are, on average, more than three times as likely to report that they trust their government than people who feel they do not have a say (OECD, 2024[9]). This finding highlights the need to further promote meaningful engagement. On the flipside, inadequate consultation practices have resulted in rules not being accepted by the community, leading to demonstrations and legal disputes in some cases (see Box 3.3). The disputes cause both uncertainty and delay for project proponents, and increase people’s resistance to change.

Many environmental issues such as climate change do not know borders. Engaging all affected parties means considering stakeholders abroad in rule-making. It also necessitates collective rule-making given the inherent spillovers associated with rules affecting the environment.

The importance of having a conversation should not be understated. People are grateful simply for the opportunity to take part in rule-making, and instances have indicated that the vast majority would be willing to do so again (OECD, 2023[65]). While the substance matter of environmental systems, their linkages and relationships are complex, consultation should not be disregarded. Engaging with people can have an educative role, particularly in the environmental policy space where heightened scepticism around evidence and information persists. For instance, pockets of fundamental scepticism still exist over climate change (Gounaridis and Newell, 2024[66]). Likewise, governments have a strong role to play in ensuring that factually incorrect material is refuted (OECD, 2024[67]) while recognising that there are multiple plausible explanations, and that this is where reasoned debate ought to take place to improve our collective understanding of the environment.

In fact, improved engagement is required to achieve the green transition. A recent Australian community engagement review into renewable energy infrastructure found that landholders and community members were generally dissatisfied with the engagement that they received from project developers (Figure 3.2). The concerns raised are long-standing issues recognised by the OECD that the quality of engagement needs to improve (see, for example, OECD (2012[28]; 2015[68]; 2018[17])). The review highlighted that the general dissatisfaction with the level of engagement has “led to a material distrust of project developers” (Andrew Dyer, Australian Energy Infrastructure Commissioner, 2024[69]). A lack of engagement in rule-making is consistent with adverse findings on trust in government action more generally (Smid, 2023[64]).

Distrust stemming from a lack of engagement may lead to an overall or “not in my backyard” resistance from those affected. OECD work shows that providing information that addresses people’s concerns regarding the effectiveness of policies to reduce emissions, inequality, and their own household’s gains and losses can increase support for climate policies (Dechezleprêtre et al., 2022[70]). The distrust, along with additional costs, delays and uncertainty for all involved, can be avoided with improved upfront and ongoing engagement. Recent research found that community willingness to accept onshore wind farms “is associated with early, in-person engagement with a community liaison officer during siting and citizen participation in the governance and distribution of financial benefits during operation” (le Maitre et al., 2023[71]). The importance of public engagement also applies to offshore wind farms (Haggett, 2011[72]). Separate research highlighted that poor engagement can have longer term consequences. It identified that wind farms that faced initial opposition tended to face higher levels of opposition for their repowering or life extension compared to those where opposition levels were initially less (Windemer, 2023[73]).

Broad engagement helps improve acceptance of and compliance with rules (see Chapter 2) but is essential in the environmental context given the breadth and depth of impacts on people. OECD work highlights that certain impacts of environmental degradation can be concentrated among vulnerable groups and households and that a majority of households support policies to address distributional issues, e.g. via targeted subsidies to support renewable energy use (OECD, 2021[51]; OECD, 2023[10]). Drawing on diverse knowledge and partnerships, including with women, youth, indigenous peoples, local communities and ethnic minorities, can facilitate climate-resilient development and has allowed locally appropriate and socially acceptable solutions (IPCC, 2023[4]). To improve engagement inclusivity and advance environmental justice, some countries have introduced innovative forms of public participation, such as deliberative processes, for example citizens’ assemblies and panels (see Chapter 2) to bring together broadly representative groups of society to tackle challenging policy issues such as the climate transition (Box 3.13). Many countries are also aiming to reduce barriers to participation in environmental decision making through targeted and tailored engagement practices. For instance, representatives of communities act as “cultural mediators” to guide consultations with indigenous communities in Costa Rica and the government of Chile organises workshops with children to gain a clearer understanding and meet their specific needs (OECD, 2024[74]).

Governments need to specifically consider how they will engage with underrepresented groups – particularly today’s youth and future generations – given some of the inherent longevity in the materialisation of various environmental impacts. The OECD recommends that Members “create or strengthen youth advisory bodies and opportunities for stakeholder participation” (OECD, 2022[78]). Results from the globally unique iREG Survey indicate that 24 OECD Members have requirements in place to consider youth and intergenerational impacts in rule-making. Several countries have implemented policies in response, for example in Germany via the innovation fund “Climate protection as a youth policy”, and in Portugal through investing in environmental literacy (OECD, 2020[79]).

Economic regulators in areas such as energy, transport, water and e-communications need to appropriately engage to maintain trust in these critically important sectors. Some network regulators oversee areas that are significant contributors to a country’s carbon emissions and therefore will be profoundly affected by the green transition. Where regulators have requirements to undertake stakeholder engagement as part of their role, they may need to consult with more diverse groups to better consider environmental goals in rule-making. Even when this is not a requirement, the knowledge of regulated entities, businesses, citizens and other stakeholders impacted by environmental issues and the regulatory regime assist the regulator to take efficient and effective decisions. OECD data indicate nearly one-quarter (22%) of regulators send a specific request to environmental civil society organisations (CSOs) to invite them to participate in their consultation processes. For most regulators, environmental CSOs do not receive a specific request to participate but are nevertheless able to respond as part of an open call for comments – more than half of regulators (57%) do not make a specific request but launch an open call for comments to all stakeholders, to which environmental CSOs can respond. However, there are cases where environmental CSOs do not have any avenue through which to provide input into the regulatory decision-making process.

Global problems require global solutions. Issues such as air pollution, climate change, biodiversity loss, ocean acidification and plastic waste pose major threats to the planet. International action has taken place to start addressing many of them. For example, the UNFCCC, with the Kyoto Protocol and the Paris Agreement, creates legally binding commitments to reduce GHG emissions, leaving flexibility on implementation. Successfully implementing these frameworks requires rallying many actors around the same goal and target. The UNFCCC supports the implementation while other international organisations, often jointly, collect data and evidence, like the Intergovernmental Panel on Climate Change hosted jointly by the World Meteorological Organisation and the United Nations Environment Programme. Similarly, the OECD draws on its multidisciplinary expertise to gather evidence with its Net Zero+ initiative and the Inclusive Forum on Carbon Mitigation Approaches.

Climate change, biodiversity loss and environmental pollution do not recognise national boundaries. As such, impacts of activities (or non-action) in one country can be felt abroad. Results from the iREG Survey indicate that progressively more OECD Members have required domestic policymakers to consider impacts on foreign jurisdictions in rule-making. Currently 21 Members have requirements in place, up from 18 a decade ago. Some governments assist policymakers in the types of impacts that should be assessed (Box 3.14).

Climate change and related environmental challenges call for interconnected policy responses and new governance and regulatory approaches. Effective global responses start with sound domestic governance. The OECD’s 2022 Recommendation of the Council on International Regulatory Co-operation to Tackle Global Challenges prescribes a whole-of-government approach to international regulatory co-operation to convey political leadership, build a holistic vision, and give sufficient incentives for regulators and policymakers to co-operate (OECD, 2022[80]).

Sound governance requires clear roles and responsibilities to ensure international co-operation efforts by different public authorities all contribute to common strategic objectives. OECD Members are increasingly sharing IRC responsibilities across several central government bodies. A whole-of-government approach can help build a common understanding of IRC and its impacts across government; capitalise on different institutions’ relevant information, practices and activities, and raise awareness of the benefits of IRC (OECD, 2022[80]). Two-thirds of OECD Members now have an explicit whole-of-government IRC policy in place. In the United Kingdom, for instance, IRC is highlighted as a key tool to achieve environmental objectives, in particular in relation to the drive towards fusion and hydrogen energies as part of its net zero ambitions (UK Department for Business & Trade, 2022[81]).

Regulation is a crucial enabling factor to combat today’s environmental challenges. The traditional hallmarks of sound rule-making – stakeholder engagement (both domestically and abroad), impact analysis and review, and regulatory delivery – are ever more important in the face of irreversible environmental impacts. Governments need to use these tools to close existing regulatory gaps while at the same time avoid creating overlap and unnecessary regulatory burdens on citizens and businesses. Governments need to better harness the full potential of these tools to ensure that all impacts are identified and assessed, that community knowledge and concerns help to shape resulting rules, and that a continual learning process is embedded to ensure that generations to come can still benefit from the world’s riches.

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