Further supplementary written evidence
submitted by OFWAT
THE WATER
FRAMEWORK DIRECTIVE:
ECONOMIC REGULATION
PERSPECTIVE
Objectives
— Ensuring water customers pay a fair share,
but no more, of the costs of implementing the WFD over the three
river basin planning cycles to 2027.
— That European Legislation, including
the WFD is sustainable. This means it being implemented in a way
that reflects the costs and benefits to the environment and to
society as a whole.
A balanced approach
As the economic regulator for water and sewerage
services in England and Wales we are working closely with the
Environment Agency and other stakeholders including Defra, water
and sewerage companies and CCWater to achieve desirable environmental
outcomes for customers at the best price.
In regulating the sector we have a duty to balance
EU environmental legislation and objectives with what is economically
acceptable to customers. It is our duty to ensure that the water
and sewerage sectors have enough funding to meet all EU Environmental
quality standards.
At the 2009 price review we allowed over £130
million towards meeting the WFD between 2010 and 2015.
Despite this level of investment, the UK is
only likely to see 26% of rivers achieving Good Ecological status
by the WFD target date of 2015.
The Environment Agency has suggested that current
WFD costs up to 2027 could be between £30-£100 billion,
depending on what approach is taken to achieving the Directive's
outcomes. We believe that it would be socially and economically
unacceptable to domestic water customers if they are required
to meet the majority of these costs. Without this investment however
we are unlikely to reach a fully compliant status of 100% by 2027.
Going forward
We support the fairer allocation of costs towards
the WFD between sectors following the polluter pays principle
which is written into the Directive. By apportioning the costs
of pollution to sectors other than the water and sewerage companies
this principle is supported and costs for customers are kept down.
Currently 82% of the cost of the Directive will
be met by water customers. The agricultural community is contributing
0.8% of the cost of the Directive even though, as the Environment
Agency reports, agricultural diffuse pollution was responsible
for 32% of WFD "failures". Our concern is that water
customers will continue to be levied with increased costs because
of actions outside their control.
All organisations should be encouraged not to
pollute, thus remove pollution at source and develop mechanisms
for recovering costs. This would incentivise responsible behaviour
and remove perverse incentives. Traditional end-of-pipe solutions
are expensive and carbon intensive and control at source is usually
the most cost effective solution.
Specifically, we support:
— allowing the development of proportionate
and flexible catchment-scale approaches;
— taking climate change fully into account,
while accepting that some change is inevitable;
— taking full advantage of the possibility
of allowing exemptions on grounds of disproportionate cost;
— extending the disproportionate cost provision
to other EU environmental legislation; and
— removing inconsistencies and barriers
to optimum outcomes and efficient implementation, such as the
"one-out all-out" rule[3]
in defining good ecological status.
We would also like UK government support for
a change in the EU Good Ecological Status (GES) system to make
WFD targets achievable at an acceptable economic cost. The system
should address the distorting effect of the "one out all
out" rule which gives the UK a low score on the GES system
despite huge investment.
November 2010
3 WFD monitoring, known as classification, is risk-based
and focuses where there is likely to be a problem. It uses a principle
of "one out, all out" which means that the poorest individual
result drives the overall. Back
| 
