The Minister for Climate Change and the Environment (Ian Pearson): It is a pleasure to serve under your chairmanship, Mrs. Anderson.

I welcome the debate, which gives me the opportunity to update the Committee on recent developments in negotiations. The background to the proposal was set out in my explanatory memorandum in October last year. It is important to remember that the ground rules for the proposal were agreed in the water framework directive in 2000. The proposal makes those objectives operational and we need to ensure that it is consistent with the WFD.

I should like to deal with two points in the Scrutiny Committee’s report. It is in the nature of any negotiation that important issues may not be settled until late in the day, so to have supplied an unpublished text when I gave notice last month of my expectations of the Environment Council, when negotiations had not been concluded, could have been misleading. Of course, I would have had no such intention. I can confirm, however, that the Council text will be the subject of a further explanatory memorandum. I am sure that the Committee will appreciate that.

The same applies to updating the impact assessment. That task is impracticable with a moving target—before we are certain of what the text will contain—and needs time to be completed. The European Parliament’s input will also have to be assessed in due course. However, impacts, costs, benefits and cost-effectiveness have not been neglected. The value of a draft impact assessment is to benchmark negotiations and enable us to evaluate costs and benefits in the course of drafting. I am pleased to say that, by and large, that approach has had positive results.

Consultation on the impact assessment revealed general agreement with the aims of the proposal, but reservations about over-precautionary environmental quality standards; the monitoring regime, including for biota and sediment; the influence of naturally occurring substances and historical pollution; and costs of compliance. The proposal for transitional areas of exceedance was welcomed. Overall, consultation showed that the Government’s negotiating priorities reflected stakeholders’ concerns.

My explanatory memorandum noted our concerns about nine of the values proposed for EQSs. Those concerns remain, but we received no support from other member states on that issue. However, we did achieve changes before publication, when the standards for nickel and lead were relaxed pending adequate data to finalise standards. That resulted in a major reduction in costs already reflected in the impact assessment. It was therefore doubly important to secure application of the WFD article 4 provisions for setting less stringent objectives or extended deadlines on grounds of disproportionate costs or technical infeasibility.

As a result of the negotiations, the original proposal’s open-ended requirement to comply with the EQSs is now qualified by reference to the WFD. There are provisions for setting a less stringent objective than good chemical status in bodies of surface water if the measures needed to achieve that objective would be technically infeasible or disproportionately costly. It has also been established that the WFD article 4 provisions apply to the obligation to cease or phase out emissions, discharges and losses of priority hazardous substances. That very positive outcome should do much to reduce costs.

The proposal has been amended in other important respects. For example, member states have the option of monitoring prescribed biota standards for three substances, and others at their discretion, failing which they can use their own equivalent water standards. That will enable a more risk-based, cost-effective approach.

On maximum allowable concentrations, assessment by a percentile approach will avoid distortion due to rogue samples. On areas of transitional exceedance—now called mixing zones—member states will save administrative resources by simply reporting the method of calculating mixing zones proportionate to relevant discharges, rather than providing data on each zone. Reporting requirements now align with WFD arrangements, avoiding duplication.

Those major improvements represent a very good outcome for the UK. We continue to investigate costs and benefits and to improve our assessments of the proposal’s implications. We will consider the figures about to be produced as a result of the WFD preliminary cost-effectiveness analysis, and we will assess the changes to costs and benefits that result from the flexibilities achieved in negotiations. We should focus on the success of achieving the application of the WFD article 4 alternative objective provisions to the proposal.

On First Reading, the European Parliament proposed 70 amendments, so this is not the end of the issue. However, they came too late for the Environment Council text. There will also be a European Parliament Second Reading. Although some amendments share the Council objectives, others are inconsistent with the water framework directive. We would like the main elements of the Council text to be sustained on Second Reading at the European Parliament.

Overall, the failure to achieve further review of the EQSs is outweighed, in our judgment, by amendments to ensure that they are used consistently within water framework directive objectives. The changes agreed in negotiations to date have resulted in a proposal that combines a high level of protection for the environment with a risk-based and cost-effective approach.

The Chairman: We have until half past five for questions to the Minister. I remind hon. Members that questions should be brief and asked one at a time. There is likely to be ample opportunity for all Members to ask several questions.

Mr. James Paice (South-East Cambridgeshire) (Con): I endorse the Minister’s comments about enjoying serving under your chairmanship, Mrs. Anderson, and I am grateful to him for his introductory remarks.

My question is technical and refers to the Minister’s opening comments that he proposes to produce a further explanatory memorandum and regulatory impact assessment, which I understand is on the agenda for the Council meeting this week. Is that the end of the matter as far as the Council is concerned? There will obviously be grave concern that we on this Committee are to make a decision today without the benefit of those two documents—the explanatory memorandum and, more importantly, an updated RIA based on the changes to which he has referred. I would be concerned if the final decision were to be taken without adequate information.

Ian Pearson: My understanding is that it is not uncommon practice for decisions to be taken when impact assessments have yet to be fully and finally prepared. The nature of negotiations means that agreement is often reached quite late in the day, and it takes considerable time to produce impact assessments, particularly on such a technical subject. We intend to have an explanatory memorandum on the agreed text, to which we hope the Council will agree. We will also produce a final impact assessment in which we expect the costs to be substantially less than those in the draft impact assessment. I am happy to answer more questions on that in due course and to give as much information as I can.

Chris Huhne (Eastleigh) (LD): I add that it is a pleasure to serve under your chairmanship, Mrs. Anderson.

In the light of the points that the hon. Member for South-East Cambridgeshire made about the revised cost-benefit analysis and regulatory impact assessment, it is clearly unsatisfactory to be asked to form a view before seeing what changes have been made. It is good news that substantial changes have been made to reduce what would have been considerable costs—around £1 billion to the water industry and around £3.7 million a year to other industries, I believe. Can the Minister give us some guidance at this stage—even informally by using the good offices of, for example, UK permanent representation in Brussels or other official channels—on what will be the likely result of the revised regulatory impact assessment?

Ian Pearson: In an ideal world I would always have a full impact assessment available for scrutiny before decisions are finally taken. However, in this case we are dealing with complexity and uncertainty. Discussions must still be had about how the water framework directive will be applied. There are questions about how environmental quality standards can be measured that make it difficult to produce an impact assessment that we would regard as reliable.

I shall give the Committee information that has been supplied to me on the matter. Whereas the original forecast for the water industry was about £1 billion, the latest, very preliminary assessment is that the figure will be in the region of tens to hundreds of millions of pounds. I stress that great caution should be applied to that, and we need to ensure that we do not over-implement any of the directive’s provisions.

Let me give an example. One school of thought is that we should apply granular activated carbon tertiary treatment, which is carbon-intensive and expensive. If that were required of sewage treatment works, costs would soon rise to something like £1 billion. To my assessment, that is disproportionate. Now that we have the article 4 provisions, that technology is not necessary and the costs will come down dramatically. As the Committee will know, the Commission estimates minimal implementation costs.

Mr. Paice: May I pursue the point a little further? I understand what the Minister is saying, but I am concerned about not just this Committee but whoever represents the UK at the Council on Thursday having the information. I shall not speculate as to whom that might be but, on the assumption that it is the present Minister, he should have the latest information—as he has said, he has a bit more than us—and an up-to-date impact assessment, because he is going to be asked to agree to something. I am concerned about that.

On the issue of cost, the directive is about surface water. We will come to end-of-pipe later, but presumably, if the maximum allowable concentration in surface water is reduced as a result of the directive, there will be a significant saving to water companies that are currently required to remove pollutants under the drinking water directive before water comes out of our conventional taps. Am I right about that, and has the Minister quantified the savings that will offset the cost in terms of surface water?

Ian Pearson: On the first point, my judgment is that it is possible to come to a conclusion on the directive without a full, detailed impact assessment. Preliminary work has been done and we have the original draft impact assessment, which has been a useful benchmark. We have made significant improvements to the original text placed in front of us, and I would particularly highlight the application of article 4 of the water framework directive, which will enable us to make decisions on cost-effectiveness grounds, which is appropriate.

On the hon. Gentleman’s question whether there will be compensatory savings because of the application of the maximum allowable concentrations, I do not think that it will work like that. The debate is on whether more needs to be done, principally through sewage treatment works, to ensure that the maximum allowable concentrations do not occur. There are other issues on diffuse pollution to be addressed as part of a wider policy and the water framework directive, but there will not be compensatory savings along the lines that he suggests. If I am wrong—I look at my officials—I shall correct myself later in the debate.

Chris Huhne: May I seek the Minister’s assurance that the UK delegation at the Council will not agree the final compromise until the cost-benefit figures are clearly set out in the regulatory impact assessment? Given that the water industry is a regulated industry with a natural monopoly, will he tell us in layman’s terms what it would mean for average water rates if, as I would expect, Ofwat allowed the industry to pass on to consumers the up to £1 billion a year in costs that it will face?

Ian Pearson: It would help the Committee if I confirmed the process that still needs to be gone through. The directive needs to be agreed through the process of co-decision. There has been a First Reading in the European Parliament, but there will have to be a Second Reading and there might well have to be a conciliation process too. At the moment, we are talking about a Council decision in respect of the policy agreed by member states.

I in no way accept the £1 billion estimate of the water industry’s costs. That figure will decrease hugely as a result of the changes that we hope will be agreed, particularly under the article 4 provisions of the water framework directive. As I said, I cannot give the hon. Gentleman an exact figure for the likely cost, but my comment that granular activated carbon tertiary treatment would not be appropriate should lead the water industry to conclude that the costs will be, if not insignificant, then at least a lot smaller than it perhaps originally feared.

Angela Eagle (Wallasey) (Lab): One good thing about the water framework directive when it was first introduced was that it took an holistic approach to the whole watercourse and river, which was far more sensible than the pinpoint measurements taken under previous EU approaches to water pollution. I have taken a quick look at the documents before us, which seem to represent a continuation and deepening of that process. Am I right to conclude that the proportionality agreement and clauses in the directive mean that once the framework and the pollutants in it are agreed, there will almost be a cap on costs and that the costs are likely to go down rather than up? It is therefore safe to assume that we will be able to reach agreement on the provisions, and that we will not suddenly turn up next week to find that the EU has quadrupled costs such that they are out of all proportion to the work that needs to be done to lessen pollution. Costs are, in fact, likely to go down rather than up.