Waterwise response to the
All Party Parliamentary Water Group’s Inquiry into
The Future of the UK Water Sector
January 2008
Waterwise is an independent, not-for-profit, nongovernmental organisation that promotes water efficiency and conservation in the UK. Our primary aim is to develop a framework for sustained water efficiency for all mains use of water, and to reverse the upward trend in household consumption by 2010. To achieve our aims, we are building an economic, social and environmental evidence base for water efficiency, and we also promote water efficiency though co-ordination of existing initiatives and through the development of collaborative projects. We work in partnership with water companies, regulators, governments, retailers, manufacturers, other NGOs, the public, the media and with other stakeholders. Waterwise’s work has been welcomed by the UK governments, the water industry, and the water regulators. In England, Waterwise is the only NGO to sit on the Environment Minister’s Water Saving Group, alongside the water industry and its regulators: Waterwise leads one of the six Water Saving Group workstreams. Waterwise also convenes the Saving Water in Scotland Network.
Summary and introduction
Climate change will have – indeed, is already having – significant direct and indirect impacts in the UK. Many of these changes are already being experienced through the hydrological cycle, as the incidences of floods and droughts increase and as, more generally, winters become wetter and summers drier: the last two years have seen widespread drought and devastating floods in the UK, and both of these have led to water shortages in homes. These changes are impacting our relationship with water at the institutional, infrastructural and cultural levels, and they pose a significant challenge to the water sector: changing the way in which water is managed at local, regional and national levels as well as within the home. The view of water as an infinite resource is also evolving in this context.
Waterwise’s Memorandum will discuss how water efficiency is crucial to addressing the impacts of climate change, and to adapting to it: and how demographic, behavioural and climactic trends can be addressed and steered, through the UK water sector, to this end.
Water efficiency comes into its own if treated on a level playing field with large supply-side measures: on economic, social and environmental grounds.
On economic grounds, water efficiency is a more flexible measure than many supply –side measures, and less vulnerable: compare, for example, making an entire housing estate water efficient, which, although susceptible to changes in the behaviour of its residents, would not be vulnerable to the same pressures as a new reservoir, which would take many years to approve and build, by which time the supply-demand picture may have changed (as has happened in the North West of England), might be susceptible to contamination through natural processes such as algae bloom, or more sinister ones, and, crucially, relies on there being enough rain to fill it. As demand increases, and more homes are built in water-stressed areas, water efficiency also becomes an economic option for water companies as the cost of meeting their statutory duty to supply increases.
Water efficiency is a lower carbon option than many supply-side measures: carbon impacts are reduced both in terms of heating less water within the home (which currently accounts for around a quarter of energy use in existing homes: up to 60% in small flats) and in the reduction of treatment and pumping of water to homes and businesses by the water companies. Water efficiency also leads to less abstraction from the natural environment.
On social grounds, water efficiency addresses increasing concerns about the wasting of water (hosepipe bans during the drought of 2006 led to a 10% drop in consumption even in areas where they were not in place, due to media coverage) and, as metering increases, leads to bill reductions, promoting affordability.
Waterwise very much welcomes the APPWG Inquiry, which comes at a crucial time in the run-up to the 2009 Price Review, as the process of statutory Water Resource Management Plans progresses, and in the context of Defra’s eagerly-awaited water strategy.
Key questions
1. Has the sector been constrained by the legislation and framework which governs it? How successful has this been in the past, are further changes or reforms needed?
The sector has been constrained in part by the legislation and framework which governs it: although this is changing, and in the response to Question 2 further changes we think should be made. Broadly speaking, there has traditionally been a focus on the costs and benefits of particular measures to the water industry, rather than to the UK as a whole.
This is starting to be addressed: for example, Ofwat has been consistently saying in the last year or so that it expects rigorous attention to be paid to the carbon costs of all proposed measures in PR09; is actively participating in the Water Saving Group to reduce water consumption in households, and in Waterwise’s own Evidence Base work to build the economic case for large-scale water efficiency in advance of PR09; and has committed to mandatory water efficiency targets for PR09. Ofwat will also require all cost benefit analyses submitted by companies for PR09 to require the inclusion of the “shadow price of carbon” – a welcome development from PR04.
We welcome the statutory duty on public authorities to take account of the desireability of water conservation, since the 2003 Water Act, the requirement Ofwat now places on companies for a 25 year strategic direction statement, and the fact that companies 25 year Water Resource Management Plans will now be subject to statutory consultation.
However, there is much more that can and should be done to ensure that supply-demand balances are addressed in the context of climate change, and an economy - and water supply - which is dependent on so many other issues than price alone.
2. What changes, if any, can Government make to the current legislative framework which governs the sector to ensure it works effectively?
There are important changes government and regulators can make to ensure the sector works effectively, and efficiently. We do not favour new primary legislation, given that the Water Act is only 5 years old. However, there are other measures we believe government should take forward, including greater and more imaginative/flexible enforcement of existing requirements:
· There is a clear need for government to take a strategic, directional role in calculating and driving the economic savings resulting from the multiple benefits of measures such as large-scale water efficiency (or catchment-based approaches to diffuse pollution). For example, there is no current mechanism to measure – and therefore drive, or even require, the savings from a scheme which involves retrofitting the bathrooms in 5,000 homes to make them water efficient. Such a scheme would lead to carbon savings in treating and pumping; domestic water and energy bill savings; domestic carbon savings from heating less hot water; the ability for water companies to supply more homes in the same area with the existing supply; and biodiversity benefits from lower abstraction. The economic savings resulting from these multiple benefits are cross-sectoral, so are for government, not Ofwat. Such a strategic government role in assessing multiple benefits would support innovative schemes such as a water company funding a £10 water efficiency device saving 10% of domestic water, which could be fitted as part of a social housing visit run by government (such as Warm Front) or by a housing association itself: saving on the visit costs (which are the primary cost), and adding to the benefits and savings of that visit, across the economy. Such a strategic approach to economic savings would also ensure that for example the water supply needs for housing across a region can be met, and would enable the sharing of reservoirs between companies
· Building on the point made above, there is a government role, not currently being taken forward, in ensuring the timings of regulatory structures reflect broader strategic (and infrastructural) goals. For example, a water efficiency programme bid for and funded in one price review could cover a 30 or 40 year period, meaning that it would not need to be reapplied for every 5 years, but could be kept under review
· Waterwise welcomes the government’s announcement of measures, agreed through the Water Saving Group, to increase metering in water-stressed areas. However, we believe there is a clear role for government in stating that they wish to see full metering, across England and Wales, by 2020 – supported by tariffs to protect low-income and other vulnerable customers. We agree with statements by successive Environment Ministers that metering is the only sustainable way to pay for water (rather than the decades-old rateable value of a home). Metering also saves water, addressing the points made in the introduction. Ofwat and the companies will (be required to) implement this if the government sets the policy framework. Innovative measurers could be attached, such as requiring companies to input a certain level of retrofitting for water efficiency in homes which are unable to be metered
· We welcome the government’s inclusion of the water industry in the Carbon Reduction Commitment. Building on this, we welcome Ofwat’s stated intention to require water companies to use government guidance and figures for the shadow price of carbon in their PR09 applications (and Water UK Sustainability Indicator figures for carbon calculations). We believe that AISC (average incremental social cost) calculations should be used in company plans for PR09, rather than Long Run Marginal Costs, as this would enable the inclusion of all costs and benefits, including carbon
· We applaud the government for driving the Water Framework Directive in Europe, and signing up to it. However, we now urge the government to implement it in spirit as well as latter – the NGOs’ Blueprint for Water sets out how this could be done in a way which meets economic, social and environmental challenges. [www.blueprintforwater.org.uk]
3. What emphasis should be placed on the regulators to change the way in which they translate their remits into aims and objectives?
Ofwat should develop a clearer, measurable framework in support of their sustainability duty. This should include a set of key indicators, similar to Water UK’s sustainability indicators, so that Ofwat can concretely and annually track their progress toward sustainable development. Indicators would increase transparency and enable stakeholders and the public to better understand this progress. (As outlined in the response to Question 1, Ofwat has made positive strides in this direction – but they need to be tracked and measured.)
One way of measuring Ofwat’s move toward sustainability would be to assess, post PR09, whether company applications for funding for large-scale water efficiency projects have been treated on a level playing field with applications for large-scale supply-side measures – emphasis on water efficiency, and demand management more generally, is absolutely essential in order to assure the sustainability of the sector.
Ofwat should also be encouraged to more fully develop their reporting on sustainability in their Annual Report.
4. What are the powers that the regulators need to be effective and make a difference to the areas they represent? What needs to change to ensure they have these powers?
The existing powers are efficient and effective, but we would like to see some of them exercised more flexibly. For example:
· Revenue ceilings and safety nets to remove the incentive to supply more water would lead to a more efficient use of the resource – and a pricing, and company organisational, structure, more suited to a post-climate change UK where demand is increasing and supply set to diminish. Ofwat is looking at this for PR09
· The benefits resulting from the flexibility of water efficiency measures (for example that they can be scaled down or up as required, whereas a new reservoir built on the basis of forecasting will be in place even if the supply/demand context changes) should be included in company plans for PR09, within the context of the Economics of Balancing Supply and Demand
· Energy suppliers are obliged, under the new CERT (Carbon Emissions Reduction Target), which recently replaced the Energy Efficiency Commitment, to deliver carbon savings through action in homes (between 2008 and 2011). CERT contains a role for “demonstration activity” – namely, energy suppliers are allowed to count towards their obligation innovative measures to which accurate carbon savings cannot yet be attributed. The underlying aim is to support innovative approaches to carbon abatement. The permitted demonstration activity to meet targets is limited, due to the uncertainties. The demonstration activity and its validity is adjudicated by Ofgem. Waterwise would like to see a similar commitment to “demonstration” activity from Ofwat in its developing work on mandatory water efficiency targets for PR09, and the economic level of water efficiency – thereby encouraging innovative ways of delivering water efficiency through which guaranteed water savings have not yet been proven. [See http://www.defra.gov.uk/corporate/consult/cert2008-11/consultation.pdf, sections 2.32 to 2.37, for an explanation of the demonstration activity aim and criteria]