To be published as HC 932-ii

House of COMMONS





Monday 4 March 2013


Evidence heard in Public Questions 95 - 134



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Oral Evidence

Taken before the Science and Technology Committee

on Monday 4 March 2013

Members present:

Andrew Miller (Chair)

Jim Dowd

Stephen Metcalfe

Stephen Mosley

Pamela Nash

Sarah Newton

Roger Williams


Examination of Witnesses

Witnesses: Ian Barker, Head of Water, Land and Biodiversity, Environment Agency, Nick Cartwright, Environment and Business Manager, Environment Agency, and Regina Finn, Chief Executive, Ofwat, gave evidence.

Q95 Chair: Can I welcome our witnesses this afternoon? Unusually, we are running a few minutes ahead of schedule; this is a rarity. Can I start off by asking you to introduce yourselves for the record?

Nick Cartwright: My name is Nick Cartwright. I work for the Environment Agency. I lead on chemicals with respect to the Water Framework Directive.

Ian Barker: Good afternoon. My name is Ian Barker from the Environment Agency. I am responsible for water, land and biodiversity.

Regina Finn: I am Regina Finn, chief executive of Ofwat, the economic regulator for the water and sewerage sectors in England and Wales.

Q96 Chair: My first question is for Mr Barker and Mr Cartwright. Simply, how would you describe the current ecological and chemical status of our surface water? Is it meeting the current requirements of the Water Framework Directive?

Ian Barker: When we first started to implement the Water Framework Directive, it became very clear that severe pressures on the water environment from a whole range of sources meant that in many cases it was degraded. In bald numeric terms, across England and Wales only 27% of rivers meet the so-called good status-in other words, the sort of state that one would expect to support fish, bugs and plants that one would expect to see in that sort of river. Of the remaining 73%-the failures-6% of those are down to chemicals. The remainder are due to a whole range of other factors, such as changes to the ways in which rivers have been altered over time and due to a whole range of other chemicals.

Chair: Do you have anything to add, Mr Cartwright?

Nick Cartwright: No, nothing specific.

Q97 Chair: In that respect, what are the main reasons why water fails the chemical standards? One hears lots of generalisations in the media. Certainly where I live in the north-west, one sees massive improvements in, for example, quality in the Mersey. The days when the chemical industry just tipped their effluents into the river are long since gone, thank goodness. One sees, particularly in the fish life, huge improvements. What are the main reasons for failure today?

Ian Barker: You are quite right, Chair, in that rivers like the Mersey are much cleaner than they were two or three decades ago. That is down very largely to the way in which point-source pollution, sewage effluent and industrial discharges have been hugely improved over the last 20 to 25 years or so. Much of that improvement has stemmed from investment made by the water companies, funded by their customers, but also by other forms of industry.

We are now seeing what was previously hidden, which is a whole range of pressures that are causing degradation of the water environment, which previously were hidden by the gross and acute pollution from those point sources. We are now establishing, as I said earlier, that the shape of many rivers has been changed by the way in which we have wanted to use them over time by virtue of navigation or flood defence, but we are also seeing sources of pollution that were previously hidden. Much of that comes from agricultural run-off-phosphates and nitrates-but we are also seeing a whole range of other pollution, for example, diffuse pollution, run-off from urban areas, roads and so on, bringing oils, greases and other chemicals into the water environment.

We are also seeing in parts of the country the impact of historic metal mining. Up in the north-west, the north-east, Wales and the south-west, for example, that legacy of metal mining dating back to Roman times has left many heavy metals within sediments in the rivers, and also as natural background. We are starting to pick up all of those background impacts and starting now to have a better sense of what needs to be done to address some of those pressures.

It is important to recognise, in terms of that level of understanding, that we think about what is the impact on the ecology and biology. For example, a water course might be failing for some particular chemical, but the important thing is what that actually means for the biology. Perhaps I could ask my colleague to explain, with metals in particular, the way in which that understanding has helped us to better target some of our actions.

Nick Cartwright: Yes. One of the positive things at EU level is a recognition in terms of metal toxicity that some of the new standards they are proposing, which we very much support, are moved to bioavailable standards, which are much more ecologically relevant because that is the fraction of metal that is toxic to organisms. That is particularly important for the UK because we have naturally elevated background levels of metals in various areas and because of the mining activity. Looking forward, that will make quite a significant difference in terms of the amount of failures that we see, due, for example, to abandoned mines, and it will enable us to target areas that are meaningful in terms of ecological quality.

Q98 Chair: Regarding some of the things that you have touched on- dealing with my example of the Mersey or the industrial pollution, for example, or some of the pollution that has come from man-made sources in things we use on an everyday basis, such as tributyltin-we have seen massive improvements in those areas. They started to happen before the Water Framework Directive emerged. What has the Water Framework Directive done in a positive sense?

Ian Barker: You mean the urban waste water treatment within the Water Framework Directive?

Chair: Yes. One of the points I am trying to make is that Britain started a programme of improvement to water quality before the framework directive. So what has the framework directive itself achieved beyond that which we were already doing?

Ian Barker: Thank you for your explanation, Chair. To take a step back, if I may, the Water Framework Directive is based upon the eminently sound principle that, since rivers operate within a catchment, that is the most sensible basis on which to manage the water environment. It requires us and other member states to think about the way in which landscape and human intervention interacts with the water environment. That means looking at land use as well as at point sources of pollution.

With that in mind, when the Water Framework Directive came in-you will be aware that it operates to three cycles of river basin plans, and we produced the first set of plans in 2009-in the preparation of that first set of plans we bagged the historic improvements that we had seen over the previous 20 years and said, "What state now is the water environment in?" The monitoring and assessment that we did on the state of the water environment then showed that there was still quite severe degradation from a range of sources that had not previously been considered because their impact had been masked. We were not clear, necessarily, about where those impacts were coming from and what needed to be done to address them. Although we have one of the densest monitoring networks in Europe, it was looking at a limited range of pressures; so we needed to expand the range of pressures that the Framework Directive required us to look at to understand what the various impacts were.

We have carried out in the past couple of years about 13,000 separate investigations, so that we now have a much better understanding of the state of the environment than we ever had before-and, where that is a degraded state, what the pressures are on it and where those pressures have come from. We now have a very strong weight of evidence as to where the problems are and, consequently, what needs to be done to address them. That is what we will work through to the second cycle of plans.

In that second cycle we expect to see a much broader range of interventions, not just by the water companies-although there is a lot more to do in terms of cleaning up sewage effluent because we are now starting to understand that domestic influences in sewage are having a big impact-but also further work to address pressures from other industrial discharges and land use from which many chemicals also reach the water environment.

I have talked about the interaction between land and water. To give you some sense of what that then translates into, we have been working closely with the agricultural community with the catchment sensitive farming initiative, which is now starting to show some real results in terms of improving water quality as a result of farming that is much more allied to the impact on water. This involves better targeting by farmers on the application of pesticides and fertilisers to ensure that they do the job that they are there to do and that they are not over-applied or applied in the wrong conditions and end up in the water course, where they are wasting farmers’ money and damaging the environment.

Q99 Chair: Can I just test you on that a little bit further? We have only one fertiliser manufacturer left in the UK; an awful lot is imported. The UK-based company has a policy at the sales end of working with farmers and testing soils before sales are made, to get away from the old idea that, if 1 tonne per hectare is good, then 2 tonnes is twice as good, which was a good marketing ploy but not very good environmentally. Are you suggesting that there are other companies importing that are not doing that yet?

Ian Barker: I can’t speak for other companies, but I do know that most agronomists will want to work with farmers in exactly that way, to help them understand their soil chemistry and the need for nutrients on a very targeted basis, often using GIS for pinpoint precision.

Q100 Roger Williams: The European Commission is recommending or proposing that another 15 additional substances be added to the priority list. Is that a good idea, and if not, why not?

Nick Cartwright: We agree that most of the substances included in the updated list are probably warranted on balance. The EC has a prioritisation process in place, which is fairly robust and follows well-established routes in terms of evaluating hazard and exposure, to identify substances that pose the biggest risk across the whole of Europe. Part of that process includes a formal process that looks at monitoring results and modelling results to evaluate exposure. Substances can be deselected at that stage if the exposure is not considered wide enough, but we have concerns about some pharmaceuticals that were proposed. Seven pharmaceuticals were proposed, which entered the process at a later stage than that and went through to detailed evaluation. Most of those were screened out at that stage, but ethinyloestradiol and oestradiol proceeded through to proposals for standards. In that case, environmental exposure was concerned through data from research studies and extrapolated from product use across the EC to assume a certain level of exposure.

I guess we would say that, given this approach is, perhaps, less rigorous and the consequences are really quite significant, we would not think that inclusion at this point would be appropriate. For that reason as well, we would welcome the inclusion of a watch list whereby substances are monitored more uniformly across the EC as an improved approach to getting monitoring data around the substances in question and getting a better representation across the whole of the EC of monitoring data.

Q101 Roger Williams: You would say that the Commission’s recommendations are not based on sound science, then.

Nick Cartwright: I would say, by and large, that they are soundly based. These substances entered through a slightly different route, and the evaluation of exposure was, perhaps, less rigorous. That is not to say that there are not some concerns about pharmaceuticals. We know that we have detected low levels of pharmaceuticals both in sewage effluent and in rivers, but, by and large, there is not a lot of data available in pharmaceuticals in evaluating the risk to the environment.

Perhaps the exception is ethinyl oestradiol, which has been extensively studied. We did identify impacts on individual fish within the environment in terms of feminisation of those fish that were linked to sewage effluent and to substances like ethinyl oestradiol. In that respect, the main concern is about fish populations and the impact on fish populations. There is no evidence that those are in immediate danger of collapse. Given that the standards being proposed would lead to a quite widespread failure of those standards, we would see those as over-precautionary compared with the environmental evidence that we are seeing at the moment.

Regina Finn: I would like to build on my colleague’s response. I do not pretend to have the sort of scientific knowledge of my colleagues in the EA, but I would like to come at this from a slightly different angle as the economic regulator. We regulate water and sewerage bills to end customers. One thing we have learned over the last 25 years is that the ability of customers and the willingness of customers to pay those bills have delivered massive environmental improvements over that time. It really has changed the environmental landscape along the lines that Ian and Nick have been talking about.

To ensure that we get that continued environment sustainability, we have to ensure that our sector in the UK, which is quite unique, is socially sustainable. That means that customers are willing and able to afford and pay their bills, because in the UK, uniquely in Europe, that is where the money comes from to pay for what the water sector does to play its part in these particular improvements. From our point of view, we have a clear duty to protect the interests of our customers in the long term, so it is important to us that we have environmental sustainability. From that point of view, the concerns expressed by my colleagues on the evidence are something that I would share very strongly.

You asked, Chair, if I can paraphrase you, what the Water Framework Directive has ever done for us. The one thing that it has done is to bring in a concept of disproportionate costs and it being important that measures we impose do not result in disproportionate costs. That is a really important recognition for the UK. If customers stop being able to afford their bills, not only will we lose the environmental improvements of the future but we will go backwards. There is a balancing act to be had here. I would certainly support my colleagues in the EA in their call for greater evidence and a very evidence-based approach to whatever obligations we impose here, because at the end of the day customers are not having an easy time of it right now and the bills are painful for some of them.

Q102 Roger Williams: Thank you for that. We will be coming on to the question of costs in a minute. Mr Cartwright, is not the feminisation of fish only a concern if you are a fish? It is not a matter of concern for the environment, biodiversity or, indeed, a read-across for something that could be affecting the human population?

Nick Cartwright: It is not to say that we are not concerned about that. The understanding of fish population dynamics is quite a complex area and it is not fully understood yet. We continue to support research to better understand the potential long-term impacts on fish populations. Fish status is a component of the ecological status and is a cause of failure in a number of areas, but, by and large, those failures have been down to obstacles such as the passage of fish, habitat, and impact of sedimentation-all of those things that can impact on fish populations-and are probably more urgent problems to sort out in terms of the health and sustainability of fish populations. These longer-term, more subtle effects may be relevant in the future in identifying waters that are most at risk in terms of endocrine-disrupting chemicals. The proposal at the moment would bring in a large proportion of waters, which we think is maybe not proportionate to the risks that we are seeing at the moment.

Q103 Roger Williams: You both spoke highly of the watch list. Can you explain how that works and why you believe it is a good thing?

Nick Cartwright: I will have a go at answering that. The idea of a watch list is to establish a limited list of substances on which the EC wants better information across the whole of Europe. Each member state would have a designated number of sites that they would monitor for a range of substances that have been identified at EC level for potential prioritisation. That would then mean that there is a more systematic way of monitoring information around a range of chemicals, which is great in theory, although there are some practical issues with it, which are around ensuring that monitoring data is collected at environmentally relevant levels. There may be timing issues in the amount of time that is needed to develop appropriate analytical techniques and the consistency of that across the whole of Europe to get good information and data. But the concept would be welcome in terms of getting a better understanding about which substances truly are the highest priority across Europe.

Q104 Roger Williams: Do you want to add anything, Mr Barker?

Ian Barker: I would like to reinforce the point that we are certainly not complacent about the issue of feminisation of fish. Across the UK we need to ensure that we and others continue to monitor the situation in terms of fish populations, to better understand the way in which this situation might be changing, and assess the risk in terms of levels of concentration of these substances and their impact on fish. We must then be prepared to act as necessary. At the moment, the proposed levels appear to be very precautionary and not based upon sound evidence.

Q105 Stephen Mosley: We have seen the evidence from the Environment Agency suggesting that it might cost £27 billion to remove these oestrogen products from waste water. We have also seen evidence from NERC disputing that figure, saying that it could be done at an awful lot less cost. You are from the Environment Agency. Could you justify that £27 billion figure, please?

Nick Cartwright: We were asked to provide advice to DEFRA during the preparations for the directive. Towards the end of 2011, we did some modelling exercises to identify the extent of the potential failure against a range of different standards that might come through. Against the proposed EC standard, we estimated that about 11,000 km could potentially fail, and up to about 1,300 sewage treatment works could be contributing to that level of failure. There was a UK endocrine-disrupting demonstration programme previously as part of our national environment programme, where the water industry looked at treatment options and the cost of different treatment options for endocrine-disrupting chemicals. We drew on that costing information to provide some initial costings about the potential size of the challenge for the water industry.

The endocrine-disrupting demonstration programme included various pilots and some full-scale demonstrations of some more advanced technologies, which included advanced oxidation treatment and granular activated carbon. Both of those required fairly clean effluent to be effective, and that was the scenario that was tested at that point in time. Our assumptions included an assumption that you would need to clean up effluent before the final stage of treatment was applied. That was a significant proportion of the overall costs that we estimated.

As time has gone on, there is currently a chemicals investigation programme being undertaken by the water industry. It is a very substantial programme of about £25 million, which looks at a whole range of chemicals. It looks at about 70 different substances at over 150 sites and three quarters of a million actual chemical analyses, and it looks at a range of different treatment plants, including pilot technologies, some of which look at piloting some of that treatment without the need to clean it up further before you apply the final stage. Some of those look promising. If that could be more generally applied, that could reduce the costs. But, at the end of the day, that is at a pilot stage; it has not been demonstrated at full scale. Those would, therefore, be indications coming out of that programme at this point in time.

As our knowledge improves, we would expect our cost estimates to change to some extent. Also, from these sorts of programmes, you find that when you go out and apply things in reality, actual treatment technologies that can be applied on the ground will depend a lot on site-specific circumstances. They will depend on the range of chemicals that they have to deal with. Other factors such as space will come in. You will end up with a range of different technologies that have to be applied at site-specific places. So you have to build up a more detailed understanding of costs as you go through this process.

Q106 Chair: I know that £27 billion sounds like a very precise figure, but I am slightly baffled in your answer to Mr Mosley’s question as to where you got that figure from. You said it was modelled. Was that model subject to external peer review or was it a back-of-a-cigarette-packet calculation? What was the calculation that resulted in £27 billion?

Nick Cartwright: We have been developing models for some years around these different chemicals, which have also been refined through the latest information coming out from the water industry. Some models were developed by CEH around the potential emissions from sewage treatment works. That was on the back of an endocrine-disrupting demonstration programme, which was a substantial programme by the water industry to understand levels that were reaching the environment and treatment options. From those models, we could estimate the extent of failure. We used the best information at the time to look at those models and evaluate treatment plants and the degree of treatment improvement that they would need to estimate the costs. Those costs were based on the information that was available at the time.

Q107 Chair: So where is the gap between you and NERC?

Nick Cartwright: I have not seen the NERC evidence. As I said, new information is coming out of the current chemicals investigation programme that the water industry is undertaking. As part of that investigation, they are looking at pilot plants that use higher doses of, for example, advanced oxidation techniques-this is going beyond the current experience-which, if successful in terms of removing these substances, means that you can miss out a stage of the treatment process. If you can miss out that stage of the treatment process, it would cut out a proportion of the costs.

Q108 Stephen Mosley: Another way it has been suggested that costs could be reduced is if there is better control of the substances at source. Would that reduce the costs from the waste water perspective, because I guess that, if you are providing a waste water plant, you have got to cover these chemicals in case one puts them in rather than assume that there are none coming in? Does control at source reduce costs?

Nick Cartwright: It would depend on the chemical in question. Are you focusing specifically on pharmaceuticals? There is a range of chemicals, some of which are already controlled at source. In terms of a broader picture for the water industry, one of the things that have been established through this chemicals investigation programme is that household use of chemicals is quite a significant source of chemicals looking forward and, therefore, through sewage treatment works. Source control may provide an option for some of those different chemicals. It depends on the type of use that you are talking about. In terms of the treatment options, again, those vary depending on the types of substances in question. You would, quite often, need a fairly substantial reduction in source before that would allow you to adopt different treatment options if you want to get the same quality.

Q109 Stephen Mosley: You say that some substances are currently controlled at source. Do you see those substances coming through into the waste water?

Nick Cartwright: Yes. Those are some of the significant challenges coming forward. There are some substances that have been banned for some years now that we still see coming through sewage treatment works. Some of the proposals for more stringent standards for those would be quite challenging as a result.

Q110 Stephen Mosley: Ms Finn, we talked about the cost and the impact on the consumers. Is there any action that Ofwat can take to help reduce the costs that are passed on to consumers?

Regina Finn: Yes. A number of things are happening here. The first thing is that we want to get the best evidence base we possibly can, as my colleagues have talked about, to decide on what the best environmental priorities are and where we need to target our resources.

The next thing is that we need to get the best possible solutions to that, which may include, where appropriate, source control, as you have suggested yourself, and we need to ensure that innovation, new technologies and new ways of doing this at a lower cost can all be deployed.

At the end of the day, though, whether it is £10 billion, £20 billion, £30 billion or whatever it is, it is a very big number. Over the last 25 years, this sector has invested £108 billion in delivering a clean environment and safe water to all our homes. Of that figure, £23 billion is driven directly by environmental improvements. It is a regular investment programme of about £20 billion to £22 billion every five years, so another £20 billion on top of that is a big number. Whatever the number is, it looks like a big number. Those steps of ensuring that we get the best possible evidence base, prioritising and deciding what are the most important things, and then trying to encourage and incentivise innovation for the best lowest-cost delivery, all need to be part of the programme.

As far as we are concerned, our job is to protect customers now and in the long term. So we set price limits on what the companies can charge their customers. When we come to do that, we do it having regard to the statutory obligations that the companies have to deliver-that is one thing-but also the ability of customers to pay and the ability of companies to finance that investment over time.

We will challenge companies very hard on how they go about delivering solutions. We work with the Environment Agency in the lead-up to that process, where we are challenging companies to ensure that we have a good understanding on those first points- the evidence base and the priorities-so that we are not putting customers’ bills up for something that is not really well evidence-based and is going to deliver in the long term. So there is something that we can do. We need to work with colleagues and experts who know more about the science of this, but at the end of the day our job is to ensure that we have a sustainable water sector-and that means sustainable bills as well as a sustainable environment.

Q111 Chair: Before we move on, Mr Cartwright, you referred to controlled substances that are still coming through into the system. Can you give some examples as to where such events are occurring and in what sort of concentrations?

Nick Cartwright: Okay. The most problematic substances are the brominated flame retardants. These were banned back in 2006. The chemical investigation shows that they are still coming through. That is likely to increase the level of failure we see against current standards, but, more importantly, with some of these substances, what we are seeing in the current proposals are examples of the types of substances persistent in the environment and that potentially accumulate in biota and in the food chain. For a lot of those substances, the EC is trying to set standards in biota. That means that those standards are really quite challenging. Also, at the current point in time there is no agreed approach to interpret and implement those at European level, although it is sensible in concept in trying to set things in biota that better reflect the potential for accumulation.

The consequence is when we try and estimate the risk from those substances. We currently use an equivalent level in water that is very low. Although we can detect substances at relevant levels in sewage effluent, we would not be able to detect them after they have been diluted down in the receiving water, although we can model that. Based on that, we have seen quite an extensive failure of the standards, but we would not currently be able to confirm those levels in the receiving water. We would want that sort of certainty before we went forward with any expensive measures.

Q112 Chair: Are there any areas of the country that are particularly bad?

Nick Cartwright: Generally, we would expect the south-east, the midlands and areas where you have a reasonable amount of sewage effluent going into rivers in lower dilutions. Generally, the lower-land rivers would be under more risk than some of the other areas.

Q113 Stephen Metcalfe: Good afternoon. With regard to pharmaceutical pollution, going back to the point that Stephen Mosley raised, where do you think the balance lies between source control and end-of-pipe treatment?

Ian Barker: This is starting to get into an area that is really about Government policy. There is a balance of risk, clearly, between public health, on the one hand, and environmental risk and impact on the other. Our role is to advise Government to the best of our ability on environmental risk, but it would not be a matter for us to determine the way in which pharmaceuticals should be managed.

Q114 Stephen Metcalfe: Does anyone want to comment further?

Regina Finn: From our point of view, again coming from the perspective of the economic regulator, it is very important that all of these avenues are explored, because the end-of-pipe solution essentially loads all of the costs on to the water customer, even where the water customer is not the one responsible for putting whatever it is that needs to be cleaned up into the environment. That is not necessarily fair. So you would expect an economic regulator to say that we would like to see fairness that does reflect the "polluter pays" principle. At the same time, we think that there is a role for the water industry that we regulate to work sometimes in partnership to help with that source control.

It is particularly tricky in terms of pharmaceuticals; I understand that. But, for example, in the current five-year period, about £60 million is being spent by the water companies on catchment management schemes, which involves working with farmers to prevent pollution getting into water streams in the first place. The reason for doing that is that it is a bit innovative and risk-based. We need to see if it will work. If it does work, it reduces the cost to water customers because it reduces the end-of-pipe solution. If it does not work, then, obviously, customers end up paying twice. They end up paying end of pipe and at source. So there is a bit of experimentation here, but it is important for companies to innovate and to play their part in source control. We would be keen to see that happen across the economy and not just with the water sector.

Q115 Stephen Metcalfe: You said that that project has been in place for five years.

Regina Finn: Water companies invest in five-year periods. We set prices for five-year periods. In the current five-year period, which is 2010-2015, when you put together the business plans of all the companies, 108 catchment management schemes were being developed and the total cost of that is around £60 million. Water customers are paying that cost, and we allow that cost to be passed through because we expect that innovation to deliver benefits, both from the point of view of giving evidence of doing more in the future to reduce costs at the end-of-pipe solution and also some will be winners and will deliver those benefits now in this five-year period. That is the water industry taking a more innovative approach to thinking about how it delivers for the environment and its customers at the lowest cost overall.

Q116 Stephen Metcalfe: But we won’t know the results of that until 2015 at the earliest.

Regina Finn: Some of them have been going on longer than that. Some of them started in the previous five-year period. Wessex Water, for example, published a report on one of their catchment management schemes, which was very positive from a cost-benefit point of view for customers. A lot of these are experimental, yes, and if you experiment you should expect some to fail, some to succeed and for us all to be able to learn lessons from those. So we have some schemes where the evidence coming out is positive, but a lot of these are quite innovative and they will take a number of years to deliver evidence.

Stephen Metcalfe: Mr Barker, you look like you want to add something.

Ian Barker: Thank you. I would just like to build on what Regina has said, which we certainly endorse very strongly because we recognise that the catchment-based approach has the potential by working with farmers and land managers to reduce pollution inputs into the river in a way that may be more cost-effective than conventional solutions. In parallel with that, we are working with the water industry to explore how our regulatory regime can reduce regulatory burden and create space for them in which to innovate. In other words, we would conventionally permit every discharge that a water company makes, with very specific parameters for each discharge.

By taking a step back and taking a catchment-based approach, we are saying to companies, "If you think about all your various discharges in the catchment, the outcome you want to achieve in this catchment is this", whatever that might be for a particular chemical, and then the company can flex its various waste water treatment works and work with land managers in whatever it believes to be the most cost-effective solution to deliver the outcomes that we are looking for on behalf of Government and that give the best value to their customers.

It is important to stress that here in the UK, and certainly in England, we face particular challenges that do not manifest in quite the same way across the rest of Europe. The challenges we face are that we have a high density of population, relatively small rivers with relatively low dilution factors, and when one gets a number of towns or cities along a river one gets a cumulative impact of many of these persistent substances that bioaccumulate.

In addition-you may have seen reference in the media today to our work on climate change-we have suggested that, by the 2050s, average summer flows in many of our rivers will reduce by between 50% to 80%. In other words, dilution in the future will be very substantially reduced compared with where it is today. That, then, suggests that the water industry needs to take a strategic view in terms of the management of its waste water networks and its waste water treatment and consider how it will operate, potentially, with an increased population and a greater load on its works and reduce dilution capacity. There is a real challenge for the future. It is important that we use the best possible evidence base in which to drive the standards that will be needed not just today but in the future.

Q117 Stephen Metcalfe: Some of the innovation that is going on is a positive step, you would think.

Ian Barker: Very much.

Stephen Metcalfe: So there is a balance to be struck.

Ian Barker: Professor Martin Cave, in his review on behalf of DEFRA on competition and innovation in the water sector, identified that much of the innovation within the water sector has been driven by higher water and environmental quality standards. Very often, the innovation resulted in capital-intensive solutions. The way in which Regina has described the catchment-based approach would suggest that non-capital-intensive and non-revenue-based solutions may well have more of a part to play in the future, but I think it will need to be a mix of solutions. It is very important that we see more applied research to try and tackle some of these problems, which we can see coming not very far away.

Regina Finn: Just to build on what Ian said, the issue of innovation and finding smarter ways certainly to manage our waste water, but, also, frankly, to manage our whole water resources in a sustainable way, is very much at the heart of the work that Ofwat is trying to do on changing how we regulate. It is at the heart of the Government’s Water White Paper. It is certainly at the heart of the draft Water Bill. It is across the entire spectrum of usage of water and the treatment of waste water that we need more creativity in innovation. I can assure you that it is certainly very much on our agenda.

Q118 Stephen Metcalfe: Thank you for that assurance. There are those who are concerned that adding pharmaceuticals to the priority list will damage our innovation in a whole different area, so we will have clean water but we will not necessarily get the new stream of drugs that we need. Is that something that you are taking into account, or is it something that you do not feel is part of your remit but is just a question of dealing with Government policy and a cleaner environment?

Ian Barker: Our role is very much as an adviser to Government and what you describe is a matter of Government policy, I would suggest.

Q119 Stephen Metcalfe: I suspect that you will give the same answer to my next question, which is about labelling pharmaceuticals better so that we know what is in them and whether that would drive out some of the chemical pollutants. Again, you would say that it is Government policy to look at the labelling issue.

Ian Barker: I would-not specifically about pharmaceuticals but generally about everything that we use and consume. There is a case for some whole-life impacts to be considered, whether it is domestic cleaning products or whatever. As I outlined a moment ago, we face a great deal of pressures on the water environment on a very crowded island. Constantly reverting to the challenge we place on the water industry at wider expense may not be the most cost-effective or sustainable way to go in the future.

Nick Cartwright: In relation to other substances, we have looked at enforcement on source control restrictions. We do have a role on some of those. In fact, we helped lead an NEC-wide study of PAHs, which is one of the substances in question, in tyres. We involved other member states in that to see how effectively that could be enforced. Most recently, we worked on another of the substances of interest-nonylphenol. One of the areas that we identified there was an understanding of global supply chains for some of these substances, because some of the issues we were finding were associated with the use of chemicals in imported goods and how well some of the companies understood their supply chains. That is one of the difficult areas in terms of source control that is, perhaps, relevant, whereas when we looked, for example, at UK manufacturing they were pretty compliant with what was going on.

Q120 Chair: Just before we move on, it would be reasonable to expect pharmaceutical companies to proactively encourage people to dispose of pharmaceuticals in a safe manner, not just simply by flushing them down the loo. Similarly, it would be perfectly reasonable for people like you to be praising companies, for example, like Unilever phasing out microplastics. Should there not be a proactive approach on your part to encourage companies to engage in environmentally better practices?

Nick Cartwright: Yes. We do engage in some of the green chemistry forums. We would actively seek to encourage developments in less harmful substances and for companies to take the initiative in moving that forward. So, yes, we would like to encourage that.

Q121 Sarah Newton: Why do you think England faces more of a challenge in meeting these potential obligations compared with our European neighbours?

Ian Barker: Very much for the reasons that I outlined in terms of density of population, the fact that we have relatively small rivers with lower dilution, and we have cumulative pressures going down a river. There is a slight Catch-22 here in that we are, probably, in many ways more aware of the pressures than in other parts of Europe. From our perspective as a regulator and delivery body, we are very well placed in Europe to be able to join up all the dots, essentially, to help ensure that we have a better understanding of the scale of the problems and the challenges, and to advise DEFRA accordingly.

Also, we have a close working relationship with the water industry that allowed us to jointly develop the chemicals investigation programme. As Nick said earlier, we have had three quarters of a million results from that, which then helps us to understand which parts of the country are most at risk from various chemicals, and we can better target, through our understanding, where those risks are coming from. Then we can go through, as we discussed earlier, options for the treatment of pilots and so on.

By putting all that lot together, with our basic geography and as our role as a regulator and our relationship with the water industry, we face great challenges, on the one hand, but, on the other hand, we are able to ensure that we are as well placed as we can be to face those challenges.

Q122 Sarah Newton: Thank you. You have touched on my next question because you started to talk about the different regions within England. What are the particular challenges facing particular regions in being able to meet the new standards?

Ian Barker: Different parts of the country face very different pressures in terms of the impact of a wide range of chemicals on the natural environment. Agricultural chemicals, pesticides and so on are very clearly across East Anglia and the south-east. Those parts of the country typically have alkaline rivers, which are more at risk from phosphate pollution. Consequently, we struggle more with that. More generally, we are increasingly seeing chemicals derived from domestic use as the biggest challenge wherever there are major conurbations, such as the midlands and the south-east, and metals pollution in the south-west, Wales and the north of England.

Q123 Sarah Newton: That is very good for understanding the different impacts around the country. How are you going to enable-maybe this is a question more for the regulator as well-the different regions to overcome those issues in meeting their obligations?

Regina Finn: Working backwards, the water industry in England and Wales is regional in that companies are regionally based so they do face different circumstances, and we are very experienced in dealing with that. When I talked about £23 billion being invested and driven directly by environmental improvements over the last 24 years, that is differentiated depending on the challenge in the particular company’s area. It is very different. With the work that Ian talked about, in terms of weather volatility, changing population patterns and usage patterns, that differentiation may become even more so in the future. So we are ensuring that our regulation is enabling companies to meet the challenges facing their customers and their regions, which could be very different in different parts of the country.

Q124 Sarah Newton: The different types of chemicals cause different issues in different places; so you would look on a regional basis to see what those challenges were. This is definitely not a one-suit-fits-all situation.

Regina Finn: Yes. The enforcement approach that the Environment Agency is moving to is incredibly helpful with that in allowing companies to take whole-catchment quality into account rather than the rigid end-of-pipe standards. That aligns very much with our regulatory approach of removing capex bias and giving companies more choice over the solutions that they actually deliver in order to get to the right outcome.

Q125 Sarah Newton: If the catchment was in one water authority’s area but the outflow and the treatment was in another water company’s area, how would you cope with that?

Regina Finn: Company regions are, generally, historically based around environmental boundaries, so that is a reasonably good starting point. It does not mean that companies do not need to deal with each other-that is true-both in terms of waste water treatment but also in terms of water usage, where the water source might be in one company’s area and the need is in another company’s area. Again, that is not a new thing. However, co-operation across borders from a water point of view-interconnection from a waste water and discharge point of view-is something that we would encourage where the right way of dealing with it is to have a collaborative solution or for one company to service another. It is not brand new, but it might be a little bit uncomfortable for regional companies that are used to dealing with their own region. In so far as that needs to be part of the solution, we would want to make sure that our regulation allows and encourages that innovation. I would say that the starting point-Ian can talk more about this-is that the boundaries generally did come originally from the environmental regions.

Ian Barker: The 10 major water and sewage companies evolved from the regional water authorities’ privatisation in 1989, and their boundaries follow river catchments. That makes the job of joining up that Regina described that much easier.

Q126 Chair: It does not quite work out, does it? In my own constituency, I have United Utilities, the Dee Valley Water Company, which is also in Stephen’s patch, and some of my constituents dispose of their sewage to Wales. That is very confusing for the customer.

Regina Finn: We have 10 water and sewerage companies, as Ian said, but we have 20-plus water companies, so there are some companies that are water-only companies that sit within a water and sewerage company’s area; their customers get their water bill from one company and their sewerage bill from another company. In many cases the companies collaborate and the customers get a combined bill. You are absolutely right that geography and, particularly, national boundaries do not necessarily always match up.

Q127 Jim Dowd: Can I look at innovation and investment in technology? I think this question was aimed originally at the Environment Agency representatives-I don’t know who wants to take it-but do water companies spend as much as they should on research into innovation, and if not, why not?

Ian Barker: When Professor Martin Cave looked at the water companies, he found a significant variation in the amount of spend individually that they put into research and development. He also concluded that many companies appeared to act as recipients of other’s research, so they would be willing to implement rather than lead from the front. It does vary very much from one company to another. My sense is that, looking at the future challenges from climate change, population growth and an increasing concern about chemicals, the water industry will need to work hard, either directly or through research institutes, to ensure that it is well placed for some of those future challenges. I would not like to comment on whether it is spending enough, but I would throw down the gauntlet in that it needs to ensure that it is able to respond to future uncertainty and future challenges.

Q128 Jim Dowd: The Council for Science and Technology recently stated that "the water industry’s performance in terms of investment in technology and application of innovative solutions is highly variable between companies in both clean water delivery and in wastewater and sewerage treatment". Has much changed in the industry since that report appeared, for good or ill?

Regina Finn: When you say "since that report appeared"-

Jim Dowd: I am sorry. I meant since the Council for Science and Technology reported on that.

Regina Finn: I am not sure when that report was; so I am not sure what time period we are talking about. Let us be very clear. This is not necessarily the economic regulator saying this, but there have been a number of studies into the water sector, and Ian mentioned Martin Cave’s report, which had questioned whether this is an innovative type of industry. Those questions have certainly been put forward.

Let us also be clear that what the sector has delivered over 20-odd years has been quite impressive in terms of the outcomes. But-and this is echoing what Ian said-the challenges of the future are quite different from the challenges of the past, and a steady-state delivery may not necessarily be what this sector needs. I would say that there is a need for this sector to become more innovative, and that means throughout the entire value chain-the supply chain in particular, which Ian mentioned. Innovation often comes from the supply chain-the people who supply the technology, who do the construction work-and then the water industry may adopt that. Encouraging innovation in the supply chain and in the companies themselves is something that we do need to focus on. From our point of view, we are changing the way we regulate in order to deliver greater incentives for companies.

I mentioned the issue of catchment management and getting companies to innovate. When you innovate, that means you try something, which means that sometimes it works and sometimes it does not. We are regulating differently in the future to take away the bias that companies have towards capital expenditure, for example, which allows them the freedom to innovate in revenue-based expenditure. That, along with the Environment Agency’s more risk-based approach to enforcement, gives the companies a stronger incentive to innovate and to rise to these challenges in the future.

Q129 Jim Dowd: Do you think that that approach will deal with the problem that Mr Barker outlined, namely, that some companies are prepared just to hang back and benefit from the efforts of others and there is not much benefit to those who are pioneers in this field?

Regina Finn: When I mentioned that we want to change the way we regulate to a degree, we are in consultation with the industry about the number of changes that we are making because we have heard that the companies are biased towards traditional capex solutions so we are changing those incentives on the companies. We are allowing companies greater freedom in how they do something so that what they deliver is important for their customers. They will have a contract with a customer; a customer pays its bill and the company delivers certain things, such as safe, clean drinking water, a clean environment and possibly other things like protection against sewer flooding. There is a list of things that they deliver. But we are allowing the companies more freedom in how they do that, and the incentive is there for them to find smarter and cheaper ways to do that because then that company performs better. So there are incentives there. The well-performing companies should do well out of that regime, and poorer-performing companies will be incentivised to catch up. We have a number of companies-that is a benefit-which means that companies can differentiate themselves. They can perform better than others and they get an actual advantage out of that. If they were all homogenous in one bunch, then you do not get anyone outperforming. We want to encourage that outperformance.

That is also, frankly, a key factor in the Government’s Water White Paper and the draft Bill, because we know that innovation comes where companies have the opportunity, incentive and drive to innovate. In Scotland, for example, business customers are able to choose their water supplier. What we have seen is that, since then, the Scottish regulator has estimated that by 2021 customers will have saved £55 million in terms of water efficiency because companies are innovating and delivering better services to their customers. Behind a lot of the changes in regulation, the Water White Paper and the Bill is the drive to give companies both an incentive and ability to innovate, and I think that is very important.

Q130 Jim Dowd: It is overwhelmingly carrot rather than stick, then.

Regina Finn: Yes. If you look at where we have been, 25 years ago we had a reputation as the dirty man of Europe. Basically, you need a big stick to get to minimum standards. Although there are still issues, we have made quite a pretty impressive improvement, and what we need is the carrot for greater performance to go further than the basic standards.

Q131 Jim Dowd: Could the projected costs of controlling priority substances be reduced by innovation in water treatment technology?

Regina Finn: From our point of view, we would absolutely hope so. This is the province of the water industry itself to find more innovative ways of delivering at the best possible cost. I mentioned earlier that there are a number of things we need to do. We need to get the best possible evidence base, prioritise the things we want for the environment and customers and get the best solutions, which includes innovation by the water sector. We hope that our regulatory regime in incentivising them to do that will help reduce costs. At this stage, that is work that the industry still needs to do.

Q132 Jim Dowd: The Commission’s proposal for the extra 15 priority substances could be a driver of that innovation.

Regina Finn: In the first instance, having the right evidence base to ensure that we prioritise the right things for the companies to innovate on is very important. I would echo what my colleagues have said about us being in a very good position in the UK to help inform that evidence base. We should try and get that as good as we can so that, indeed, standards could help drive innovation, but we want to make sure that they are the right standards on the right substances.

Jim Dowd: Let me point out that the Council for Science and Technology report that I referred to was March 2009, but, as you have clearly not noticed any considerable change in the recent past, I assume that it has had no impact on the water companies at all. I leave that just as an idea for you.

Q133 Stephen Mosley: In Ofwat’s written evidence, you say that the Government should "consider all of its options to mitigate the impact of these proposals". What are its options?

Regina Finn: The Committee has helpfully asked some questions around what those options are, which include the options around source control, for example, and the options around things being on the watch list first so that the evidence base is improved and we get a better understanding of the choices that need to be made. Then we can consider prioritisation, and then we can consider cost. It is that range of issues. The reason why, in our evidence, we said that that is particularly important is because we are quite unique in the EU in that, at the end of the day, if we ask our water sector to deliver some environmental improvement, it is customers’ bills that will pay for that. It is not smeared across taxpayers. It is paid for by customers’ bills. I suppose the reason why we said in our evidence that we wish to explore all the options to mitigate costs is because, right now, customers’ incomes are going down and bills going up makes life very tough, and it is important that those bills keep being paid. That is the revenue stream that is going to keep paying for the environmental improvements over the long term for today’s customers, their children and their grandchildren.

Q134 Stephen Mosley: It is being discussed in May, isn’t it, in the European Parliament? This question is to all of you. How well do you think that the Government have engaged with the EU in the drawing up of these proposals?

Ian Barker: It is fair to say that the Government have probably led the way in terms of mounting an evidence-based challenge against some of these proposals. They have always pressed for an evidence-based approach within Europe. My sense is that they have worked with other member states to help them understand the evidence base and the consequences of a particular course of action. I am sure that colleagues from DEFRA will be able to expand on that, but we have worked very closely with DEFRA to support them in terms of providing them with an evidence base to help them in those discussions. As I say, this goes back to the broader perspective that we have, which I hope they have found helpful.

I know that, Nick, you have been involved in some of the working groups. Do you have anything to add?

Nick Cartwright: Yes. As well as supporting DEFRA with evidence in the direct discussions around these proposals, one of the other things we do is work on a number of the key working groups in Europe on chemicals. One of the things we bring to those discussions is a broader perspective as a regulator because, in terms of the standards being proposed, we also end up having to implement them. We have that broader perspective as well. Again, we are very robust about ensuring the scrutiny of the widest possible evidence for any proposals that are coming through. We have been quite influential, for example, in showing that there is consideration of field-based data during the standards derivation process potentially to reduce the degree of safety margin that is built into standards. I mentioned earlier about moving towards bioavailable metal standards, which are more ecologically relevant.

Influencing at that stage and being involved in the technical debate at that stage is also very valuable as well as influencing the direct negotiations. A lot of the work that we have done with the water industry around the chemicals investigation programme has put us in a very good position to understand what is coming out of waste water treatment works. In parallel with that, we have had this major exercise in terms of developing and bringing that into environmental models. As a consequence of that, we have been able to present what the risks look like for different substances and what the potential scale of those is in a way that other member states have not been able to at this stage. That has assisted DEFRA in terms of them pushing forward their evidence-based approach.

Chair: Can I thank you very much for your time this afternoon? It has been very interesting.

Prepared 11th March 2013