4 Environmental improvements
21. The Environment Agency, English Nature and the
Countryside Council for Wales have set out a programme of environmental
improvements that will require more than 5000 'actions' at about
4000 sites. Examples of such 'actions' include alterations to
the amount of water abstracted from a water body in order to protect
an important wetland, more stringent treatment of waste water
to meet the terms of the Urban Waste Water Treatment Directive
and schemes to enable companies to identify and prevent illegal
discharges of dangerous substances to their sewerage networks.[21]
The Environment Agency says all actions have been assessed to
confirm that they are necessary and to help seek the most cost-effective
option for companies to cost. It says the benefits of this programme
are equivalent to a monetary benefit in the range from £5
to £8 billion.[22]
The final version of this advice was given to Ministers in November
2003.
22. The extent of the environment programme has been
the subject of much debate. The Environment Agency told us that
it was satisfied that the requirements it would like to see placed
on water companies represented good value for money and would
benefit customers.[23]
English Nature said that schemes in the programme were essential
for the protection of statutory nature conservation sites,[24]
and the Wildlife Trusts told us that
the recent history of investment in protecting
and improving the water environment has been good for wildlife,
the economy and society as well as representing good value for
customers
and that they would like to this level of investment
continue.[25]
23. However, Wessex Water told us that it was not
yet convinced that all the obligations could be justified on cost
benefit grounds and that some could be deferred until after 2010.[26]
Water Voice told us that it supported further environmental improvements
that give value for money, but in view of what has been achieved
already, it questioned whether the continuation of the present
rate of expenditure was justifiable.[27]
Dr Noel Olsen said
while no doubt desirable in absolute terms, some
of the wish list from the water quality regulators (Environment
Agency, Drinking Water Inspectorate and English Nature) will,
in my view, add an unjustifiable cost burden to vulnerable people
and thereby create public health problems not alleviate them
and expressed concern that the cost of removing nitrates
would fall on water customers and not on agriculture. [28]
24. The Environment Agency said that it only included
environmental programmes "where the primary cause [of the
problem] is coming from the water companies".[29]
It said that other drivers, such as measures under a reformed
Common Agricultural Policy, were necessary to reduce water pollution
from other sources. A major source of water pollution that does
not derive from water company activities is diffuse pollution,
i.e. pollution that derives from the way land is used, for example
nitrates and phosphates from fertiliser applied to agricultural
land may pollute nearby water courses.[30]
25. Defra agreed that there was a need to identify
the combination of action required by farmers and by water companies
in order to tackle nutrient pollution of water bodies. The Department
is in the process of reviewing the way in which diffuse pollution
from agriculture is addressed
to identify the most cost-effective approaches
to securing the reductions in diffuse pollution that will be needed,
alongside action by water companies and others, to achieve compliance
with the Water Framework Directive.[31]
26. We
encourage Defra to come to an early conclusion about the best
ways of reducing diffuse pollution to water bodies and how the
costs of doing so will be met.
27. In its advice to Ministers, the Environment Agency
contends that a number of companies have over-stated the costs
of some environmental schemes, by, for example, costing full improvement
schemes for sites where an investigation only is required or using
unit costs that are significantly above industry standards.[32]
Ofwat should pay particular
attention to the methods and assumptions that companies have used
when calculating the costs of environmental and other improvements
to ensure that only fair and reasonable charges are included.
28. The Environment Agency told us that more than
two-thirds of the schemes that it had proposed stemmed directly
from statutory requirements of European Directives and others
stemmed from national targets set by Government, but a certain
amount of flexibility remained in the choice of schemes.[33]
29. The environmental improvement programmes carried
out by water companies have achieved a great deal since privatisation.
A further large improvement programme is proposed for the period
to which this price review applies - 2005 to 2010. Looking further
ahead still, the Water Framework Directive will affect many activities
in the aquatic environment.[34]
While this may ease the burden on water companies in some respects,
in that it is hoped that the Directive will tackle diffuse forms
of pollution, it is certain that companies will have to undertake
some new projects in order to comply with the Directive. All of
these programmes will tend to increase the price of water and
sewerage services in the short-to-medium-term at least.
30. Whatever the final Ministerial guidance it seems
clear that the price of water and sewerage services will rise
and that those rises are not solely attributable to environmental
improvements. If the Environment Agency and the other quality
regulators have been responsible in setting out their programme,
it should not be regarded as an optional extra. The National Consumer
Council told us that
too often the need to invest in the water environment
and developing sustainable water resources is portrayed as conflicting
with the consumer interest in low water prices. It is, however,
in the interest of current and future generations of consumers
that water resources are developed and managed so as to be as
sustainable as possible.[35]
31. We
agree that sustainable management of water resources is in the
interests of water consumers and we endorse the application of
the 'polluter pays' principle in the provision of water and sewerage
services: to the extent that water and sewerage companies cause
environmental problems they - and by extension their customers
-should pay for the solutions to those problems.
32. We add two caveats to this conclusion.
First, where a particular problem has several causes and action
by the water company alone would not be enough to significantly
improve the situation, there is a case for delaying the requirement
on the water company to act until the other causes are also addressed.
Second, while the requirements for environmental improvements
are likely to keep increasing, customers' willingness and ability
to pay ever larger bills are not. Ofwat, the water companies,
the regulators and Government must begin to seek other ways of
addressing some environmental problems.
21 Environmental Priorities for the Water Industry,
Environment Agency, November 2003 Back
22
Ev 36, para 16 Back
23
Qq 87 and 89 Back
24
Ev 91, summary Back
25
Ev 90, para 14 Back
26
Ev 11, para A.7 Back
27
Ev 65 para 14 Back
28
Ev 104 Back
29
Q 147 Back
30
Qq 124,147 Back
31
Ev 115, para 30 Back
32
Ev 119, para 11 Back
33
Q 85 Back
34
Environment, Food and Rural Affairs Committee, Fourth Report Session
2002-03, The Water Framework Directive, HC 130-I Back
35
Ev 75, para 6 Back
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