Companies need to know what abstraction reforms will mean in reality

Abstraction reform is on its way at last, but lack of clarity on what the future holds is dampening enthusiasm for Defra’s initiative, says Ian Barker.

It was a memorable year, 1963. The Beatles had their first hit single, the first episode of Doctor Who was screened, and the Profumo affair made the headlines.

Yet the fiftieth anniversary events in 2013 that marked these milestones omitted one which was arguably much more significant: the Water Resources Act 1963. This slim, carefully-worded piece of legislation was, for its time, innovative and far-reaching. It set out a comprehensive and systematic approach to water resource assessment, management, regulation and planning that remains the basis for water management across England and Wales.

So, if this was such a good piece of legislation why has the Department for Environment, Food and Rural Affairs (Defra) just consulted on proposals for fundamentally reforming it?

The answer is that water resources across England and Wales are subject to much greater pressures than 50 years ago, and climate change and population growth will compound those pressures. The Water Resources Act is simply too inflexible to allow abstractors to adapt to an uncertain future.

The government set out its intention to reform the abstraction licensing system in its 2011 water white paper Water for Life. At the end of 2013, the government consulted on its two options for reform: an enhancement of the current system to retain the proven positives but with changes to address its inflexibility, and a more radical option based on the Australian system of water shares.

Both options would fundamentally affect the resources available to abstractors, and would require potentially major changes to how they operate their sources and ensure security of supply – whether for farming, energy generation or water supply.

When the Water Resources Act 1963 passed into law, it recognised that the transition to grant (almost) every abstractor a licence would be eased if they were provided with an allocation based upon the volumes they said they needed – even if they were not using it.

At the time, this was an expedient solution because there was plenty of water to go around. However, the legacy of this decision was to prevent others accessing resources in many areas, and to permit damaging abstractions that dried up rivers and wetlands.

Defra’s recent consultation proposed that under a reformed system, water users would not necessarily retain the full amount they currently have on their licence. How much they will get has yet to be decided.

One aim for the reformed system is to create more opportunity for trading in water. The water shares option in Defra’s consultation is based on that used in Australia, where a more dynamic allocation process has exposed the dangers of trading when resources are over-allocated: both the environment and businesses suffer.

Defra is clear that a new system here must be founded on a sustainable baseline of abstraction. However, it is not clear just what allocation abstractors will be able to transition across, nor with what constraints.

Under both options licences would be able to be amended to reflect changing water availability or environmental needs. This is unquestionably good in terms of securing protection for the environment, and ensuring that water allocation varies according to water availability. However, it will require all abstractors to take responsibility for reconciling their water needs to their ability to access the resources they require.

The water industry is already used to doing just this, in the context of a 25-year planning horizon to ensure secure supplies. But companies may find the reliability of their sources will look very different under a reformed abstraction system (and due to climate change) and they will need to review their operations and distribution net works – and investment – accordingly.

Other sectors will find it even more challenging. Most other industries rely on a single source and have limited ability to operate dynamically. They may therefore look to trade with others.

In almost every catchment water supply is the dominant abstraction and the role of companies as potential service providers to other sectors may present innovative opportunities for more flexible and integrated resource management.

In addition, one issue on which Defra has sought views is whether there should be closer regulatory links between abstractions and discharges. Given that effluent is an important component of flow in many rivers it will have an increasing value as natural flows become more variable.

A move to constrain discharges in terms of when, where and how much is returned would bring benefits to resource management, but would need to be balanced against costs to water companies and other major dischargers including energy.

The responses to Defra’s consultation suggest the case for reform is understood, and agreed. What it should look like is more problematic.

Almost every sector is suggesting that it should be a special case – which would undermine an equitable basis for resource allocation – and there are concerns about how the transition would work and the new rules apply.

The water sector, with its planning frameworks and investment cycles, is well placed to deal with these uncertainties. But it will need a much closer and more strategic engagement to help shape the reformed system, since the next set of water resource management plans, drought plans and business plans will reflect that resources will be managed very differently in the future.

Defra’s consultation explicitly does not address the links with upstream reform, but it is difficult to see how it could sensibly be delivered under the current system, through the transition, and into a reformed abstraction licensing model.

Ian Barker, managing director, Water Policy International