Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Memorandum submitted by the Department for Environment, Food and Rural Affairs (J23)

EXECUTIVE SUMMARY

  1.  This memorandum covers the Government's approach to transposition and implementation of this major Directive. On existing assessments, implementation will deliver substantial environmental benefits and also entail substantial costs. Both Government cost and benefit assessments of the Directive will be revised. Integrating water quality planning with other key policy areas, based on river basins, is an explicit requirement of the Directive. The Environment Agency will play a central role in implementation. Co-operative work at Community level is helping develop guidance to assist this process. The Government intends to publish a second consultation paper soon.

INTRODUCTION

  2.  This Directive is the most substantial piece of EC water legislation to date. It requires all inland surface and coastal waters and groundwaters to reach "good status" by 2015. Water quality in England has been improving steadily and this Directive will set demanding environmental objectives, including ecological targets, to be met by 2015. The Directive therefore sets a framework which should provide substantial benefits for the long term sustainable management of water.

  3.  The Government published the first of three consultation papers in March 2001 on implementation of the Directive and copies are included with this Memorandum. It is also available on the DEFRA website at www.defra.gov.uk/environment/consult/waterframe/index.htm

  4.  A second consultation is planned for publication soon which will explain the Government's proposed approach to transposition of the Directive into national legislation. A third consultation paper is planned for 2003 which will contain draft transposing regulations.

  5.  This memorandum includes consideration of the main stakeholder interests. Member States, including the UK, candidate countries, stakeholders and the Commission are involved in a collaborative process (Common Implementation Strategy (CIS)) to develop guidance on implementation of the Directive.

DEVOLUTION

  6.  The Scottish Executive and the Department of the Environment for Northern Ireland are consulting separately on transposition and implementation of the Directive in Scotland and Northern Ireland respectively. DEFRA and the Welsh Assembly Government are working jointly on transposition in England and Wales, though in practice implementation is devolved in Wales for most purposes.

  7.  This memorandum therefore refers to DEFRA's responsibility to carry forward implementation of the Directive in England. The Directive requires water to be managed on a river basin basis, so this will require some aspects of transposition and implementation in England to be carried out jointly with the National Assembly and the Scottish Executive where rivers cross the borders with Scotland and Wales.

INTEGRATION ACROSS POLICY AREAS

  8.  The Directive requires river basin plans to integrate the management of water quality and water resources and surface and groundwater management in order to meet environmental objectives. It also integrates water quality requirements of "protected areas" such as Natura 2000 sites and requires consideration to be given to the water needs of wetlands. In addition, the Directive includes important provisions which will contribute to achieving the objectives of international agreements which aim to prevent or eliminate pollution of the marine environment such as OSPAR. Encouraging the active involvement of all interested parties in the implementation of the Directive is another key aspect.

  9.  Preparing for implementation of the Directive provides a good opportunity to ensure that management of water quality is carried out in a well thought out strategic policy framework. Links with marine and coastal issues were included in "Safeguarding Our Seas" published earlier this year. We will be publishing in the Autumn a policy document setting out our strategic priorities for water over the longer term and links with other policy areas, including flood protection. In addition, we will also be publishing in the Autumn a strategy for sustainable food and farming which will include consideration of water quality issues. Finally, the England Biodiversity Strategy, which we will publish in the Autumn, will consider how action to improve water quality and management can provide benefits for biodiversity.

  10.  This memorandum has been prepared in consultation with the Welsh Assembly Government, Scottish Executive, the Environment Agency and English Nature and Ofwat.

I.  BY WHAT MEANS, AND OVER WHAT TIMETABLE, THE GOVERNMENT INTENDS TO IMPLEMENT THE DIRECTIVE IN THE UNITED KINGDOM

Means

Legal instruments for transposition

  11.  The Water Framework Directive has to be transposed into national law by December 2003, although different parts of the Directive, once transposed, are to be given practical effect to a variety of other timetables. The working assumption is that transposition will be achieved through secondary legislation, under existing regulation-making powers. This is likely to involve a mix of enabling powers, largely drawing on the powers in section 2(2) of the European Communities Act 1972, and other more specific powers in other primary legislation. Directions, particularly to the Environment Agency under section 40 of the Environment Act 1995, may also be needed. Current plans are also to provide for some transposition elements in the Water Bill.

  12.  For those river basin districts (districts are referred to in section IV of this memorandum) which cross the England/Wales border, it is expected that the National Assembly and the Secretary of State will act jointly in transposing the Directive's requirements in relation to designation and river basin management. DEFRA and the Scottish Executive are considering options for the legal process for designating cross border river basin districts and related requirements of the Directive.

Measures

  13.  Article 11 requires a series of measures to be in place to meet the environmental objectives in article 4. Generally we already have many of the statutory measures in place that are necessary to deliver what the Directive requires. This includes the current discharge consent system. The more demanding and wide-ranging water quality objectives in the Directive mean, however, that many existing consents will need to be reviewed. Some changes will be needed to the current arrangements for licensing abstraction of water, in addition to proposed measures contained in the Water Bill.

  14.  As part of implementation, the Government also proposes to introduce a new power to control sources of diffuse pollution, to the extent that controls are needed to meet the river basin water quality objectives of the Directive. The proposed enabling power would provide a mechanism for implementing the relevant provisions of the Directive without determining in advance what policy measures to apply in particular circumstances. Final decisions about the likely use of the power would not need to be taken until River Basin Management Plans are prepared (these must be published in draft by the end of 2008).

Domestic consultation with stakeholders on transposition

  15.  The Government's three consultation papers will lay the groundwork for formulating transposition measures. The Environment Agency is separately consulting with a wide range of stakeholders on technical aspects of annexes II and V of the Directive. These annexes set out how the condition of the water environment will be assessed, monitored and classified.

Co-operation within Europe

  16.  Guidance to help implement the Directive is also being developed at Community level. The UK plays an active role in the Community Implementation Strategy on the Water Framework Directive. The Strategy has two main aims:

    —  to ensure that Member States all have a common understanding of the Directive;

    —  to share the wealth of experience and expertise that Member States have at their disposal so that the Directive can be implemented in the way best suited to the huge variety of local circumstances in Member States.

  17.  Under the Strategy, a number of working groups are developing informal and non legally binding guidance on how to action the technical parts of the Directive. These groups are largely led by one or more Member States, with most other Member States participating together with stakeholders and (more recently) candidate countries. The Commission is co-ordinating the overall work programme. The working groups cover issues such as developing common understanding on significant human pressures and guidance on economic aspects of the Directive. Work has also begun recently on a wetlands paper. The UK is leading, or co-leading three projects.

Timetable for implementation

  18.  The Directive has a series of implementation deadlines (summarised in the attached annex) which stretch to 2015 (the date by which environmental objectives must be met). The Government will want to ensure that it meets the deadlines for phasing in the obligations, but it has no plans to phase them in earlier than is required by the Directive. Implementation tasks which specifically fall to the Government to carry out are explained below.

Transposition

  19.  The first objective, clearly, is to transpose the Directive into national legislation in England by the end of 2003. The third consultation paper, planned for 2003, will contain draft transposing regulations.

Identifying a competent authority and river basin districts

  20.  Member States must identify a competent authority (or authorities) by December 2003. The Government proposes to identify the Environment Agency as competent authority because of its existing functions and key environmental regulatory role.

  21.  Identification of river basin districts is discussed further in section IV. Provision will also need to be made for cross-border basins with Scotland and Wales.

Preparation of river basin plans and programmes of measures

  22.  This is a key implementation area which the Government will consider carefully in its second consultation paper. This will also cover the role of the Secretary of State and the potential need in some cases for binding guidance to accompany implementing regulations, including arrangements for bodies other than the Agency to be involved, such as English Nature and OFWAT. The general approach to delegation of implementation work to the Environment Agency is discussed in section III.

Negotiating future directives

  23.  New directives on priority substances and on groundwater (article 16 and 17) will follow from the Water Framework Directive. These are not yet proposed by the Commission and will not form part of implementation of this Directive, other than the default requirements in articles 16 and 17 if new Directives are not agreed. As such they have not been dealt with in this memorandum.

II.  WHAT WILL BE THE COSTS OF IMPLEMENTING THE DIRECTIVE, HOW THE COSTS WILL BE MET, HOW THEY WILL BE APPORTIONED, AND THE IMPLICATIONS FOR WATER PRICING POLICY.

The costs

  24.  The Government's first consultation paper included a partial Regulatory Impact Assessment (RIA). The total additional costs of complying with the Directive in England (and Wales) were estimated to be in the range £2.0 billion to £9.2 billion.

  25.  These costs were taken from a cost and benefits study carried out by consultants between late 1997 and early 1999 whilst the Directive was still being negotiated.

  26.  Comments received on the first consultation paper included concerns that the RIA overestimated costs and underestimated benefits and that it was misleading to assume that the Directive generated more costs than benefits. Work planned to revise the RIA is described later on in this part of the memorandum. Assessment of benefits is considered later as well.

Apportionment of costs

  27.  The estimated overall costs in the RIA were dominated by the cost of making improvements to water status (£1.9-9.0 billion), which were broken down into: improvements to point source discharges by sewerage undertakers (£0.9-4.2 billion); improvements to point source discharges by industry (£0.3-1.2 billion); reductions in pollution from diffuse sources, particularly agriculture (£0.6-2.9 billion); improvements to river habitats (£90-440 million); and, alleviation of low flows (up to £240 million).

  28.  The administrative, planning and monitoring costs were assumed to fall principally on central government, the devolved administrations and Government agencies, with small administration costs falling on local authorities and the water companies. The estimated costs of administrative arrangements were £3 million, for the river basin management planning process £13-20 million, and for additional monitoring and assessment approximately £94 million. (It is Government policy to encourage the Agency to recover such costs and expenses that it incurs in carrying out its functions from those it regulates, for example discharge consent and abstraction licence holders, to the extent that costs can be attributed to particular groups.)

  29.  Inevitably, there was (and still is) a high degree of uncertainty about these cost estimates because of some of the assumptions on which they were based and the extent to which Directive related investment would be needed in addition to investment or measures already planned (including the water and sewerage industry's environmental investment programme for the period 2000-2005). In addition, the RIA could not take account of recent decisions about the designation of additional eutrophic sensitive areas under the Urban Waste Water Treatment Directive (91/271/EEC), and additional Nitrate Vulnerable Zones under the Nitrates Directive (91/676/EEC).

  30.  Some decisions will need to be taken in the next periodic review on the new capital investment or preparatory work that will be needed in the latter part of the next quinquennium (2005-10). Completed works must be operational by 2012 (the deadline specified by the Directive for making programmes of measures operational) in order that the environmental objectives set for specific water bodies can be achieved by 2015. The current expectation therefore is that water industry related costs will need to be planned for and built into the next two review periods. The capital costs for other sectors affected can also be expected to be largely incurred in the years preceding 2012.

Revising the RIA

  31.  DEFRA intends to provide revised cost estimates in the RIA for its planned third consultation paper on implementation of the Directive, due in 2003. This will be based on research to be carried out this year.

  32.  An unavoidable difficulty in refining cost estimates of the Directive now is that the actual water industry investment and other measures necessary to meet environmental objectives do not have to be firmly identified until 2009. Therefore, as with the previous costing study, it will be important to make explicit the assumptions on which the revised costings are based. This is particularly relevant in relation to the use of proposed powers to control diffuse pollution in order to meet environmental objectives.

  33.  This power will need to be created by December 2003 as that is the transposition deadline. However, it will not be until later that we will be in a position to identify how widely we will need to use this power in practice, and what the specific regulatory impact will be and the consequent costs.

  34.  These will depend on two main factors—firstly the technical implications of the good status requirement in the Directive and what action is required to improve the quality of waters as a result; and secondly, how far improvements are achieved through alternatives to regulation, or through other regulation. For example, DEFRA's current review of diffuse pollution of water by agriculture is considering a range of options for preventing and controlling such pollution, including economic instruments and voluntary measures, as well as regulation.

Implications for water pricing policy

  35.  In accordance with the polluter pays principle, the components of the estimated overall costs in the RIA would be met by different parties by different routes. For point sources, water and sewerage undertakers would be directly responsible for meeting the costs of improvements to their point source discharges (£0.9-4.2 billion) and would also be likely to contribute a large share of the measures to improve river habitats (£90-440 million) and to alleviate low flows (up to £240 million). The costs of improving other point source discharges would be the responsibility of the industries concerned; but they might meet some of this cost by paying increased trade effluent charges to undertakers (where discharges were to the public sewer and thence treated by the undertaker) and some by arranging and paying for the treatment of the discharge themselves. For diffuse sources, including agriculture, further consideration will be necessary on how the costs of measures to reduce diffuse pollution should be met.

  36.  The costs falling on water and sewerage undertakers are, therefore, an as yet unsettled portion of the total ranges estimated in the RIA, but, using the same figures, would be not less than £0.9 billion and not more than £4.9 billion. These costs would be met by the undertakers, whose revenue comes from charges to their customers. However, there is uncertainty about their effects on customer charges. Additional costs, both capital and revenue, would fall on companies at the same time as other new obligations and other changes in their cost and revenue bases. Undertakers' average charges are within the price limits set by Ofwat at periodic reviews. The price limits are the outcome of calculations that take into account not only capital and operating expenditure, but also many other variables, for example how each company might best finance its functions, what will be its cost of capital and assumed efficiencies. The information needed for these calculations will only be known as further periodic reviews become due.

  37.  It may be helpful nevertheless to register that, in the 1999 price review, Ofwat delivered a 12% reduction in average household water and sewerage bills, followed by four years of broadly stable price limits in real terms. The price limits set allowed water and sewerage undertakers to finance capital expenditure of £7.380 billion and average annual operating expenditure of £189 million for the five year period 2000-05 (May 1999 prices) to deliver enhancements to improve drinking water quality and the environment. This contributed £29 to the average household bill. This scale of expenditure may be compared with the RIA estimated costs of £0.9 to £4.9 billion for improving point source discharges and a proportion of the costs of improving river habitats and alleviating low flows. These costs would be incurred over two periodic review periods.

III.  THE ROLE THAT THE ENVIRONMENT AGENCY WILL TAKE IN IMPLEMENTING THE DIRECTIVE

  38.  The memorandum to be submitted by the Environment Agency will include information on the corporate and project planning being carried out to prepare for implementation. DEFRA and the Agency are currently discussing the additional resources required to ensure implementation deadlines are met.

  39.  We are already well placed in England to implement the Directive. The Environment Agency's existing powers to regulate discharges to water and abstractions, the production of non-statutory Local Environment Agency Plans (LEAPS), estuarial management plans and the development of Catchment Abstraction Management Strategies (CAMS) will provide a solid foundation of techniques and experience for delivery of much of the action required by the Directive.

  40.  Most of the tasks which will contribute to full implementation will be carried out by the Environment Agency through a series of duties and powers which the Government proposes to place on the Agency as competent authority. They will relate to key implementation duties such as:

    —  identification of river basins and assigning them to districts (the Agency has already completed the task of identifying river basin district boundaries);

    —  characterisation of surface water (ie identification of water bodies and defining them into "types") and groundwaters (eg location, boundaries, pressures and catchment strata), assisting with economic analysis;

    —  review of human activity on water bodies and assessing the impacts of those pressures;

    —  production of River Basin Management Plans;

    —  production of basin plans;

    —  maintaining the register of protected areas;

    —  co-ordination of the programme of measures, including consultation on possible measures;

    —  establishment and maintenance of monitoring programmes.

  41.  Agency staff are also involved with the projects in the Directive Common Implementation Strategy described in the introductory section to this memorandum.

IV.  WHETHER THE DEFINITIONS OF, FOR EXAMPLE, WHAT CONSTITUTES A RIVER BASIN AND SIGNIFICANT HUMAN ACTIVITY HAVE BEEN CLARIFIED SUFFICIENTLY TO ALLOW MANAGEMENT PLANS TO BE FORMED?

River basins

  42.  The Directive (article 2(13)) provides a definition of "river basin" which is

    ". . . the area of land from which all surface run-off flows through a series of streams, rivers and, possibly, lakes into the sea at a single river mouth, estuary or delta."

  43.  This definition is the equivalent of what is sometimes called a "catchment". The Directive requires river basin plans to be drawn up for river basin districts. These districts can comprise one of more basins.

  44.  The definition of "basin" is clearcut and the Government consulted in its first consultation paper on a proposed river basin district structure based on a basin (eg the Thames) or aggregations of basins (eg smaller river basins in the south east). The Government therefore believes that the basin structure identified provides a good basis to underpin the development of river basin management plans.

  45.  One issue which the Government will wish to seek views in its second consultation paper relates to the seaward limit of river basin districts. Article 2.7 of the Directive defines coastal waters as extending for a nautical mile from the territorial baseline. In responses to the first consultation, it was suggested that the definition of the seaward limit of coastal waters might be extended to three nautical miles from the territorial baseline. The Scottish Executive has already decided to make provision for this in its draft Bill which is intended to transpose the Directive. In the second consultation paper, the Government will want to seek the views of those who might be affected by such an extension of the seaward limit in England as well as the views of all consultees on costs and benefits. This will enable DEFRA to develop a partial Regulatory Impact Assessment in order to take this issue further.

Plan preparation/significant human activity

  46.  The Directive requires a review of the environmental impact of human activity on the status of surface and groundwater to be completed for each river basin district by December 2004. The review must be carried out in accordance with the technical specification set out in annex II of the Directive.

  47.  For both surface and groundwaters, although the requirements are phrased slightly differently, the approach is essentially the same. That is, to gather available information about pressures on water bodies and to assess the impact of those pressures on water bodies and the risk of them failing to meet the environmental status objectives set for those bodies.

  48.  Annex II of the Directive is detailed in content and prescriptive about the types of anthropogenic pressures/human activity that must be considered. This will require consideration of pressures on water quality from both point and diffuse sources. However, before this part of annex II is implemented, further technical consideration of its requirements is needed, particularly in respect of the need (in section 1.5 of annex II) to assess the susceptibility of water bodies to be at risk of failing to meet environmental objectives.

  49.  In order to develop technical guidance to support this work, the UK is jointly managing with Germany the EU WFD Common Implementation Strategy working group which will provide "guidance on the analysis of pressures and impacts" (IMPRESS) by the end of 2002. This non legally binding guidance will set out the general approach in performing this analysis, including a suggested checklist of pressures to be considered, and advice on information requirements and tools needed to do so.

  50.  This guidance will therefore be available in time to assist the formal analysis required by the Directive on impacts of human activity which has to be completed by December 2004. This completed analysis will then feed into the preparation of river basin management plans, which have to be published in draft form by 2008.

V.  WHAT THE TANGIBLE BENEFITS OF THE DIRECTIVE ARE LIKELY TO BE AND WHETHER ITS OBJECTIVES CAN BE ACHIEVED IN A COST EFFECTIVE WAY.

Tangible benefits

  51.  The Directive should have substantial benefits both in terms of improved and protected water ecology and sustainable management of water. The Government set out what it considered to be the principal benefits in its first consultation paper, which are as follows:

    —  An improvement in the quality of raw water, and greater availability of water as a resource.

    —  Protection and enhancement of aquatic wildlife. The Directive aims to ensure that native aquatic life such as plants and fish can survive and reproduce. This in turn will support animals and birds higher up the food chain. Physical improvements in certain water habitats may also be required where this is necessary for the native biology to survive and reproduce. Giving effect to these requirements will in some cases assist current action to implement the Government's conservation objectives stemming from international, Community and national commitments, including national and local biodiversity action plans, as well as increasing the amenity value of watercourses.

    —  It introduces a new definition of water status which is concerned with the ecological health of water bodies as well as chemical standards, and reflects the interactions between groundwater and surface water and the relationship between physical elements such as the structure and flows in the watercourse and the chemical and biological quality.

    —  More coherent Community water legislation gathering together all of the measures that are necessary to manage river catchments and groundwaters and removing unnecessary and outdated requirements.

    —  More coherent management of river basins, enabling more cost effective strategies to be developed. The Directive requires Member States for the first time to put in place a system of river basin management, with co-ordinated river basin management plans, recognising the links between all waters in a river basin, including groundwaters.

    —  Better targeting of water protection measures. The analyses of each river basin will provide better information, allowing better planning and targeting of measures to areas where there are clear environmental benefits.

    —  Transparency and accountability. The Directive will require transparency in the river basin management planning process. This will benefit water users as well as government and competent authorities. Moreover, this greater degree of transparency has allowed accountability at member state level to take the place of prescription at EC level.

    —  Detailed objective-setting and monitoring strategies can therefore be decided at Member State level, enabling a more targeted use of resources and allowing measures to be set at a level appropriate to the circumstances at national and local level.

  52.  The study referred to in section II on costs attempted to make an assessment of the value of some of the tangible benefits the Directive will bring in informal recreation, angling, general amenity, non use values and low flow alleviation. On this basis, the overall findings of the benefits evaluation for England (and Wales) were in the range £1.6-£6.2 billion.

  53.  The first consultation paper explained that the attempt to quantify the Directive's benefits was both sophisticated and ambitious, employing as far as possible the methodology for valuing environmental benefits set out in the Foundation for Water Research's Assessing the Benefits of Surface Water Quality Improvements: Manual (1996). It did however require the consultants to make a number of fairly heroic assumptions and to use the manual, designed for local project appraisal with local level data, to perform a top-down assessment using aggregate data. Unavoidably, this had the potential for wide margins of error.

  54.  Some benefits which are theoretically tangible but for which we do not have sufficient information were identified in the study. For example, the consultants could not quantify benefits associated with cleaner groundwater, although they recognised that for groundwaters used for abstraction there would be direct economic benefits from increases in quality, through reduced treatment costs or possible increased agricultural yield.

  55.  Other tangible benefits that could not be valued include those deriving from better planning and management including greater consultation, which should allow better targeting of measures and therefore avoid unnecessary costs. Less tangible benefits, which clearly cannot be valued at present, include those that stem from having a sustainable water policy framework.

Updating the benefits assessment

  56.  DEFRA intends to undertake research on economic valuation of the environmental and other benefits of WFD. The aim of the research will be to update estimates of benefits and if possible to reflect better the "non-use" benefits of enhancements to ecological status. Pilot research has already been completed. This tested out the use of the choice experiments technique of economic valuation to assess peoples' willingness to pay (WTP) for improvements in the ecological status of water bodies. The next step is to commission a project to produce such estimates and revise the benefits assessment in the original costing study.

Whether benefits can be achieved in a cost-effective way

  57.  The Directive includes express provisions to ensure that cost-effectiveness issues are considered. The Directive builds in a requirement (article 5 and annex III(b)) to ensure that information is collected in order to make judgements about the most cost-effective combination of measures to be included in programmes of measures based on estimates of the potential costs of such measures. The arrangements for collecting this information is one of the issues on which the Government will wish to consult in its second consultation paper.

  58.  The context of this requirement is that the central obligation of the Directive (article 4) is to make operational programmes of measures with the aim of achieving good status for water bodies.

  59.  Article 11 requires measures listed in it to be used to ensure that environmental objectives are met. This might involve the application of one measure, such as a tightened discharge consent, or a combination of more than one, such as additional restrictions on abstraction. The programmes of measures (one for each river basin district) have to be published in draft form by 2008.

  60.  The information collection requirement for annex III(b) has to be completed by December 2004 and will therefore inform the preparation of programmes of measures and decisions about actual selection of measures in each programme of measures. This is therefore a crucial piece of analysis which will influence the development of all programmes of measures and therefore the costs that stakeholders will incur, while ensuring that resources are allocated in the most cost-effective way.

  61.  There may be cases where the benefits of a water body reaching good status are not justified by the costs or where it would be disproportionately expensive to meet objectives by 2015. To the extent that it could be shown that the benefits of achieving objectives could not be justified against the costs involved then article 4 allows less stringent environmental objectives with lower associated costs to be set, or for the good status objective to be met on a longer timescale. The use of derogations in this way would be subject to conditions set out in the Directive (article 4(4) and (5)). It is however far too soon to say whether and to what extent derogations will be required in practice.

DEFRA

24 September 2002


 
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