By: Jonathan Brun (CEO at Nimonik)
I recently finished reading the fantastic book Next Generation Compliance by former EPA officer Cynthia Giles. While the book focuses on environmental regulations, most of its recommendations, ideas, and proposals are broadly applicable to any regulatory agency. Giles outlines how most regulations, particularly environmental ones, are written with minimal consideration for compliance or enforcement.
According to Giles, the EPA assumes very high levels of compliance and believes that select enforcement actions against a sample or a few bad actors will lead to widespread industry compliance. Through detailed footnotes, Giles convincingly demonstrates that this is not the case. She makes a compelling argument that compliance rates across industries are far lower than commonly assumed.
Why Are Compliance Rates So Low?
There are several reasons—complex regulations, an overabundance of rules—but most often, regulations fail because they are written with little regard for compliance. Giles argues that overly complex regulations, often featuring flexibility, exceptions, and underlying assumptions, may sound appealing to regulators and policymakers but quickly become unmanageable for both regulated parties and enforcement agencies.
While the book is primarily written for regulators, it offers valuable insights for companies, including organizations like Nimonik, which help businesses comply with regulations. Although its focus is on environmental laws, many of its lessons can be applied to other regulatory frameworks and even engineering standards. All technical documents aim to get people and organizations to do things they might not otherwise do. To affect behavior without incurring massive costs, rules must account for the resources and behaviors of the affected parties. Effective rules must be designed with enforcement actions and costs in mind, ultimately leading to smarter regulations.
Assumptions and Flaws in Regulatory Models
Giles highlights the risks of basing regulations on flawed assumptions in cost models (e.g., energy efficiency initiatives), regulatory approaches (e.g., assuming high compliance levels), or market mechanisms (e.g., clean energy credits). These assumptions often lead to rules being manipulated to reduce compliance burdens or increase profits. For instance, energy efficiency and biofuel regulations frequently rely on overly optimistic assumptions about carbon footprints or program effectiveness, leaving them open to manipulation and corruption.
The Importance of Monitoring
Giles emphasizes the importance of ongoing monitoring as a cornerstone of regulatory success. Without continuous oversight, non-compliance and manipulation are inevitable. Regulations should mandate conservative estimates when monitoring equipment fails, ensuring non-compliance costs incentivize companies to maintain functional monitoring systems.
Market-Based Regulations
While Giles acknowledges that market-based regulations can be useful, she argues that their success depends on reliable, verifiable data. Programs like the Acid Rain initiative succeeded because they relied on continuous emissions monitoring, high penalties for non-compliance, and a transparent exchange system. Markets can only function effectively when the underlying data is accurate and resistant to manipulation—an obvious yet often overlooked requirement.
Conclusion
I highly recommend Next Generation Compliance to anyone interested in the art of influencing behavior through regulation. Giles provides actionable insights and challenges the status quo, demonstrating how smarter, more effective regulations can benefit all stakeholders. The book’s key takeaway is that there are still many opportunities to make regulations more effective and practical.
Additional resources:
A Modern Classic on Regulatory Compliance – Book Review
