1. Government Abstraction Reform and Water ‘Rights’
Henry Leveson-Gower
19 March 2013

2. Contents - Context: Water White Paper and Bill Abstraction Reform
Why we are reforming
Emerging reform options
Implications for ‘rights’
Research and engagement process
Questions
Introduce self!

3. Water White Paper and Bill

4. The vision from the Water White Paper
A resilient water sector, more efficient and customer focused companies, and water valued as the precious resource it is.
Water resources managed in a way that supports growth and needs of society
A reformed water industry
A reformed water abstraction regulation system
Balance between supply and demand
An interconnected water supply system which can move water around easily
A catchment-based approach to water management
Sustainable abstraction levels within all catchments
An affordable water supply for all
Water efficient behaviour by businesses and consumers

5. Why reform is necessary
Current regime
not adaptive
Not responsive in protecting the environment
Not flexible in sharing water to get most value
Long-term risks
Climate Change
Demand & increasing populations
Water scarcity
Too much water is being abstracted from some catchments. More than one in ten of our rivers are abstracted to an extent that may be damaging water ecosystems. While ecosystems can cope with low flows for a time, regular and sustained lower flows can have significant impacts.
Abstraction licences do not take into account the amount of water flowing in a river at a particular time. While some licences include conditions which require abstractors to reduce the amount of water they take from rivers when flows are lowest, most do not. Some abstractors can continue to pump water out of aquifers and rivers even if it reduces water levels, damages ecosystems and stops local communities from enjoying their river.
Abstraction charges do not send the right price signals. The cost of an abstraction licence does not reflect the relative scarcity or abundance of water, nor do charges vary to reflect competing demands for water. This means that abstractors and water users have little incentive to change their behaviour in response to the availability of the resource.
The current process to change licences that allow damage to the environment will become increasingly untenable as the climate changes. Where abstraction is damaging the environment there is a mechanism for the Environment Agency to investigate the cause and to vary licences, paying compensation to abstractors where necessary. It would be impractical to use this system to vary licences as water availability changes in the future. The system would become mired in bureaucracy at a high cost to charge payers, as we estimate between 50 and 70 per cent of licences would need to be investigated by 2050.
The system fails to incentivise abstractors to manage risks from climate change at least cost. Under the current system abstractors pay into a fund used to compensate licence holders if they suffer a loss when changes are made to their licences to tackle over abstraction. This approach may be able to deal slowly with the legacy of unsustainable abstraction, but it incentivises licence holders to wait and seek the maximum compensation payment rather than adapt quickly to climate change risks at least cost.
The system creates barriers to efficient sharing of water. Where abstractors no longer need licences, or where they use water in different patterns (for example, only at particular times of the year) abstraction licences could be traded so that we get more value from water. For instance, farmers could sell their abstraction licences when they are not growing a crop that needs irrigating. The ability to trade water rights will grow in importance as water becomes scarcer. However, there have been very few trades of abstraction licences and we have found evidence of barriers to trading in our regulatory system.
Assessment of regulatory barriers and constraints to effective interconnectivity of water supplies Defra (2010)
Risks of excessive costs, environmental damage & system collapse

6. What do we want to achieve?
To give clear signals and regulatory certainty on the availability of water, to drive efficient investment to adapt to climate change and meet water needs;
To better reflect the value of water to customers, its relative scarcity, and the value of ecosystems services to ensure our rivers, lakes and aquifers are protected;
To reflect the benefit of discharges to river systems;
To drive efficiency in water use, using market forces and smart regulation to lower costs and reduce burdens;
To be fair to all abstractors, taking into account current licences;
To be flexible and responsive to changes in supply and demand, including providing greater access to water when more is available; and
To meet our water needs for people and the environment at least cost to water bill payers, and the consumers of other products and services which depend on water.

7. What will the new system deal with?
Water abstraction in England and Wales
Helping to ensure the environment doesn’t deteriorate
Helping to build resilience to climate change
But:
Not Current Environmental Damage
Not drought

8. Reform Options
We propose 2/3 new options for the future of water abstraction, plus business as usual
Working names:
1. Current system
2. Current system plus
3. Water shares
[4. Pay as you go]
Basic design challenge: to minimise impacts of water scarcity while avoiding deterioration of the environment with smarter regulation

9. Option 1: Current System
Some time limited licences
Fixed charge per unit of water licensed
Abstractor 3
Abstractor 2
Abstractor 1
Abstractor 4
Trading is rare. Transaction costs are high
When flows are low the environment can lose out
RSA process used where environment needs more water
Environmental Water

10. Option 2: Current system plus
‘smarter’ HoFs
Abstractor 3
Abstractor 4
Abstractor 2
Reviews to ensure environment is protected to required level
Abstractor 1
Environmental Water
Shorter term trading easier

11. Option 3: Water Shares 2 1 4 3 Available water divided into shares.
As water availability changes abstractors with less reliable shares receive reduced allocations 2 1 4 3
As water availability changes, the size of the pie is adjusted. This defines ‘allocation’
Shares available at different levels of reliability

12. Option 3: Water Shares In this case to adapt to low flow
Abstractors can trade allocations
Abstractor 3
Abstractor 4
Abstractor 4
Abstractor 2
Abstractor 1
Wide range of trading is easy e.g. Up stream
Environmental Water

13. Emerging cross-cutting themes
Proportionate implementation
Driven by environmental risks and net trading benefits
Adaptive systems
Potential to evolve if water becomes scarcer
‘Unbundling’ to reduce transaction costs
System more flexible and easier to trade
Discharges integrated into the system
Control based on consumption
Recognises water re-used downstream
Catchment management and reviews
Triggers and hands off periods

14. Key Transition principles
Quasi-grandfathering
Taking into account use and licensed volumes
Taking into account current HoFs or lack of
Not used to address unsustainable abstraction
WFD, Habitat Directive etc will drive environment protection levels under current system rules
No compensation for any loses
The volume, price and reliability of water allocated to abstractors in a new regime will take account of current licences and the actual volumes used. However, we envisage that any new licences will be designed to vary the volume available for abstraction according to overall water availability.
We do not intend to fund compensation for any losses individual abstractors incur in the change to a new system. This would be administratively impractical and not legally justified as the change will be designed to better protect the environment in the future.
We will not use the transition to change licensed volumes to address current unsustainable abstraction. We will strengthen our approach to using mechanisms in the current regime to tackle this historic legacy in advance of, and alongside, reform. We do though intend a new system to provide stronger protection for the environment when water is scarce.
We want to ensure that the move to a new regime does not create barriers to investment. The Environment Agency will assist abstractors by advising new investors on the risks that climate change may pose for projects that are likely to involve substantial water use at low flows.

15. So what might this mean for water ‘rights’?
Across the board
‘Rights’ being more within a collective catchment socio-economic and environmental stewardship
While grandfathering relative security and quantity
Introducing a duty to discharge
Abstractors facing future water scarcity risks
Water Shares
Creating potentially a more secure ‘right’ in the form of a share, not an absolute right
And allowing much easier trading, particularly to promote investment in increased collective water security

16. How are we assessing the options?
Research project assessing the impacts that different abstraction reform options might have on people and organisations.
Catchment case studies to explore how water is managed
within different catchments;
under different climate scenarios
to assess the potential benefits, costs and risks
Assessment of overall costs and benefits across England and Wales
There are seven
selected catchments:
Stour
Cam & Ely Ouse
Dee
Tees
Trent & Derwent
Usk
Hampshire Avon

17. What next? Digital engagement.
Consultation and Impact Assessment later this year
Bill early next Parliament completed ~2017
Implementation to follow asap
More information

18. Questions? Henry.leveson-gower@defra.gsi.gov