Paying for the Regulator

1Why cost-recovery fees matter

A cost-recovery fee charges an operator what it costs the regulator to process, decide and supervise that operator’s licence, and no more. Public revenue law in many countries defines a fee as a compulsory payment for a public service of private benefit; that is what separates it from a tax. Licensing fits the definition: the regulator provides a service to an identifiable operator, and the fee is required to cover its cost. Standard setting, policy making and action against unlicensed operators serve the public at large and should therefore be funded from the public budget.

The pressure to get this right is growing. New waste laws make licensing compulsory for every operator, from a three-truck collector to a hazardous waste incinerator. Central revenue bodies increasingly require every fee to be justified through a standard dossier. In the jurisdiction behind this paper, a national fees framework set 20 requirements, ranging from a clear definition of the service and activity-based costing to a five-year financial model, international benchmarks and economic impact tests. In addition, digital licensing platforms make every fee, invoice and delay visible.

Getting it wrong has costs on both sides:

• Under-recovery: the regulator stays dependent on budget transfers. Inspection is usually the first budget line to be cut, which weakens the compliance that the licence was meant to secure.
• Over-recovery: the fee effectively becomes a tax without the legal basis that a tax requires, and small collectors and recyclers are pushed into operating without a licence.
• Unexplained fees: they invite challenge. When a reviewer cannot trace a fee to a cost, the whole schedule is reopened, often years after the work began.

The fee schedule is therefore not an administrative annex. It decides how much of the law the regulator can afford to enforce.

For investors the same schedule is a leading indicator. In several markets the law already requires producer responsibility schemes, source separation or licensed disposal, yet few of these requirements are applied in practice. The gap rarely lies in the law; it lies in an inspectorate that is not funded. As a result, licensed facilities compete on price with unlicensed ones. A fee schedule that funds licensing and inspection, and whose income is retained in the sector, is what turns a legal mandate into a functioning market.

This paper draws on a licensing and permit fee study that DAIS prepared for a national waste regulator in an emerging market. It covered 19 licence and permit types across collection and transport, sorting and recycling, storage, treatment, final disposal, landfill technologies, asbestos removal, and import, export and transit of waste. Figures are shown as percentages, ratios and counts. The method is not specific to waste or to one country. Any regulator that licenses identifiable operators, whether in water, energy, health, transport or the environment, can apply the same steps. Section 7 sets out what to adapt for different countries and sectors.

2The method: activity-based costing in seven steps

Activity-based costing builds the fee from the bottom up: the steps a licence requires, the time and resources each step uses, and the number of licences expected.

Cost pools are spread over six process steps, each step is weighted by the effort a licence type needs, and the baseline cost is scaled for operator size. Revenue and cost are then reconciled over the cycle.

1. Map the process: the licensing cycle consists of six steps, namely receiving the application and fee; reviewing the file for completeness; inspecting the site where needed; auditing and analysing the file, including calculating the fee; deciding on and issuing the licence; and supporting applicants and staff through guidance, training and administration. Regulators elsewhere follow the same sequence. England’s Environment Agency, Ontario’s environment ministry and Ireland’s EPA all move from intake and a completeness check, through technical assessment, to a decision, and offer advice before an application is made. Where public consultation is required by law, it falls within the analysis and decision steps. Workshops with licensing staff and a time-and-motion review broke each step down into tasks and assigned each task a share of time. A site inspection, for example, is split into 10% planning, 70% site visit and 20% reporting. Administrative support is costed at 15% of specialist time.
2. Cost the resources: four pools carry the cost. Staff are costed fully loaded, with salaries rising 3% a year and specialist numbers growing with applications. Field visit costs cover travel and allowances and are nil for shipment-based licences. The development cost of the digital platform is spread over three years, after which operation and maintenance costs rise by 5% a year. Indirect costs are a share of existing building rent and upkeep, allocated in proportion to the licensing team’s share of the organisation’s total staff. These are allocations of costs that already exist, not new spending.
3. Score the effort: each licence type is scored 0, 0.5, 1 or 2 at each step on five to seven criteria: the number and variety of documents, the need for engineering review, environmental and health sensitivity, the complexity of the infrastructure and the number of other agencies involved. Multiplying the unit cost of each step by the score, and summing the results over the six steps, gives the baseline cost per licence type. The simplest licence (a waste transit permit) costs about a tenth of the most complex (hazardous waste treatment).
4. Forecast volumes per licence type: a flat growth rate overstates later years. The study started from each licence type’s recent growth rate and allowed it to decay towards a saturation level, from about 30% in the first forecast year to zero by the fifth.
5. Design the fee structure: multiply the baseline by a cost factor of 0.8, 1.0 or 1.3 for small, medium and large operators, with size measured by the variable that drives effort: vehicles, daily or annual capacity, technical complexity or capital invested. Use one flat fee where effort does not vary, as for import, export and transit. Charge an application fee on submission, which is credited against the licence fee if the licence is issued and retained if the file is incomplete. Priced at the cost of processing a file up to the point at which incomplete files are stopped, the application fee came to between about 15% and 30% of the baseline fee.
6. Reconcile revenue with cost over the cycle: add up revenue and cost over the five years the sector takes to reach maturity, and apply one reconciliation factor in the same proportion to all tiers of an activity, so that the difference between tiers is preserved. Revenue exceeds cost in the early years, while the backlog of unlicensed operators enters the system, and falls below cost in later years as costs grow. Cost recovery should therefore be judged over the whole horizon, not in any single year.
7. Test before approval: check the results against peers, the operator’s total burden and the profitability of small operators, and show how each fee would change if volumes fall 20% below forecast. Section 4 sets out the tests.

Cost factors and service times

The cost factor uses one variable per licence type. The thresholds were set with the regulator’s experts, based on estimates of facility sizes in the market, and are to be reviewed as market data improves. Each licence card also states a published service time, which gives operators a service commitment in return for the fee and gives the regulator an efficiency target.

3Benchmarks: a range check, not a price list

Benchmarks serve one purpose: to check whether a cost-based fee falls within a plausible range and, if it does not, whether the difference can be explained. They are a poor basis for setting a fee, because each comparator charges for something different. A benchmark shows whether a fee is plausible, never whether it is right.

The study screened peers against five criteria: the maturity of waste regulation and operations, economic proximity, transparent published fees, an independent waste regulator and the scale of planned infrastructure investment. Six were retained: Canada, Germany, Ireland, the United Arab Emirates, the United Kingdom and the United States.

Sources: Nevada Division of Environmental Protection, RCRA permit fee summary; NYC Business Integrity Commission, trade waste fees; Environment Agency, environmental permitting charges guidance and waste shipment charges (2024); Health and Safety Executive, asbestos licence fees; North Rhine-Westphalia permit notice applying cost tariff 15a; EPA Ireland, Licensing and Enforcement Charging Policy; Ontario, Minister’s requirement on fees for environmental compliance approvals; Dubai Executive Council Resolution No. 58 of 2017.

Four rules for using benchmarks

1. Normalise before comparing: convert every comparator to an annual equivalent per unit (per licence, per vehicle, per tonne), and state the exchange rate and its date. When comparing countries at very different income levels, also compare the fee with operators’ margins, since a market exchange rate alone does not show how heavily a fee weighs on a small firm in a poorer economy.
2. Compare like with like: separate application, licence, variable and supervision charges. A one-off fee for a three-year licence is not comparable with an annual fee, and a disposal tariff is not a licence fee.
3. Explain the outliers: in the study, cost-based fees for complex activities such as treatment and disposal were below those of most G20 peers, while fees for simple activities, such as non-hazardous collection, were close to or above them.
4. Benchmark the total burden, not one fee: in the study, an operator dealt with up to seven other agencies, several of which charge their own permit fees, such as for commercial registration, an environmental permit and a civil defence certificate. A fee that looks modest on its own can still tip the total burden.

The benchmarking led to three conclusions: no single approach can be generalised, fee bases differ fundamentally between countries, and most peers revise their fees every three to five years.

4The tests a fee must pass before approval

A central revenue body asks two questions of a fee study: does the fee recover cost, and what does it do to the sector? The study addressed five tests. The tests that decide approval rarely concern the formula; they concern who pays, how much is paid in total, and the effect on the smallest operators.

1. Cost recovery over the cycle: cumulative revenue against cumulative cost over the five years to maturity, with one reconciliation factor per activity to close the gap (section 2, step 6).
2. The total burden: the regulator’s fee plus other agencies’ charges for the same operator (section 3, rule 4).
3. Compliance costs: what operators spend to meet licence conditions, such as emergency plans, laboratory tests, weighbridges and staff training. These ranged from nothing for some import, export and trading licences to the cost of a technical study and specialist plans for treatment and recycling facilities.
4. Profitability of small operators: fees and compliance costs together as a share of the operating surplus of small, medium and micro firms in waste collection, treatment and recovery (Exhibit 2).
5. The wider economy: employment, foreign investment, inflation, household income and GDP.

Under 1% in year 1; 5.2% in year 2, when the number of licensed operators more than doubled and the sector’s surplus dipped; between 3.2% and 3.8% in every forecast year (years 3 to 8) at the proposed fees.

Margins differ along the value chain: about 5–10% in collection and transport, 10–15% in sorting, and 30–40% in treatment and recycling and in trading sorted materials. The same fee therefore weighs most heavily on collectors. In the study’s market these were mostly larger firms able to absorb it; where collection is dominated by small or informal operators, the test becomes more important. Three safeguards protect the smallest operators: the low cost factor, a grace period for existing operators to regularise their status, and the option of a temporary exemption.

Based on the study’s input-output multipliers, fees and compliance costs would cost the sector a few dozen jobs a year, a small figure compared with the growth expected from foreign investment. The effect on inflation was below one thousandth of a percentage point, fee revenue was less than one part in 100,000 of GDP, and the effect on household income was negligible. Most OECD countries require a regulatory impact assessment of this kind for proposed new fees.

5Governance: who approves, who keeps the money, when to review

A regulator that sets its own fees invites two concerns: that it will overcharge, and that those who pay will come to influence its decisions. Both concerns are addressed through governance, not through the formula.

• Approval in two keys: the regulator proposes the fees and a separate body approves them. In the study’s jurisdiction, the regulator drafts the fees, its board approves them, and the finance ministry and a central revenue body review and approve them before they take effect.
• Keep the money in the sector: if the regulator cannot retain the income, cost recovery generates revenue for the treasury, not funding for the regulator. In the study, fee income goes to a dedicated fund that finances the sector. Where public finance law requires all fees to be paid into a single treasury account, a matching budget allocation agreed in advance can serve the same purpose. Ireland’s EPA uses ring-fencing: enforcement income pays only for enforcement, and any over- or under-spend is carried into the next year’s charges.
• Publish the costing: Australia requires a cost recovery statement to be published for every cost-recovered activity before charging begins. The statement is approved by the minister, updated with financial and performance data, and records the views of those who pay.
• Review on a timetable: the UK National Audit Office found in 2025 that changing a government fee took 63 weeks on average, and that only one of seven fee-funded services had cut its fees through efficiency savings in a decade. Re-baseline after the first full year of actual data, index fees yearly to staff costs, and review the whole schedule every three to five years, with an efficiency target each time.

Once licences are renewed every year, a natural next step is to link part of the renewal fee to the operator’s compliance record. Ireland’s EPA moves each site up or down a risk sub-category based on its enforcement history over the previous 12 months, and England’s Environment Agency adjusts annual charges by compliance band. Pricing the risk that an operator creates allows the operator to reduce its own fees through compliance.

6Ten mistakes that undermine a fee study

Most fee studies fail on definitions, volumes and late changes, not on the costing formula. Each mistake below either occurred in, or was avoided by design in, the fee studies and practices on which this paper draws.

A fee schedule can be correctly costed and still appear wrong for years if it is judged one year at a time.

7Adapting the method to other countries and sectors

The study priced waste licences in one country, but most of the method travels. What changes is the legal framework around the fee and the variables that describe effort and size; what remains the same is the costing logic and the tests.

What travels and what does not

Different starting points

The variable behind the cost factor, by sector

The cost factor needs one variable that rises with the regulator’s effort and is easy to verify. Examples outside waste:

• Water and wastewater: volume abstracted or discharged, or population served.
• Energy: installed capacity, or the voltage level of the network licensed.
• Health facilities: beds, or annual patient throughput.
• Transport operators: fleet size, or routes operated.
• Industrial environmental permits: emissions class or risk category, as Ireland’s EPA uses for its enforcement charges.

Whatever the sector, avoid variables that track the operator’s wealth rather than the regulator’s work, such as turnover or capital, unless effort genuinely rises with them.

8What to do: a checklist for regulators

Settle these twelve points before a fee schedule goes to approval. They are listed in the order in which a study is carried out.