Towards trust in regulation - moving to a public value regulation

The UK Government has committed itself to reducing its carbon dioxide emissions. The challenge of successfully achieving a transition to a sustainable energy system, in the context of the UK's largely privately owned energy industry, rests on the ability of policy makers to encourage and enable the necessary changes or innovation at all levels of the energy system. This paper argues that the UK's current, dominant political paradigm or framework (the regulatory state paradigm (RSP)) and within it, the role of the economic regulator, Ofgem acts as a fundamental block to this challenge.

The current economic regulatory system is based on trust in the market, or on predicted (albeit theoretical) known outcomes. To expand our regulatory system to one which can deliver a sustainable energy system requires innovation in a certain direction (as opposed to any innovation). That is theantithesis of the current process of regulation. Trust is required that Ofgem, the economic regulator, will develop rules and incentives which deliver an agreed sustainable energy goal, which is trusted to be the right goal. This requires Ofgem moving away fromex-anteregulation to a type of regulation where all costs, benefits and outcomes cannot be known beforehand and where they cannot necessarily be quantifiable. This has, very provisionally, been called Public Value Regulation (PVR).