Royal Commission on Environmental Pollution

1.       Environmental sustainability

(b)      Can environmental objectives always be balanced against other issues or are there environmental imperatives? If so, how are they (or how should they be) determined?
Sustainability is the ultimate imperative but it is difficult to identify cases where this might be the case because what is needed is an integrated holistic approach and this does exist at present. There are many examples where apparent improvements to the environment should be weighed against the disbenefits of their execution. These disbenefits could be environmental themselves or social in effect, but this is for government to prioritise. In general in the water industry the complete range of effects of improvements are often not fully considered.

For instance, it is possible that the quality of river or bathing water may be improved by increased levels of treatment at waste water treatment works. But the environmental costs associated with this improvement in terms of emissions released through the construction and operation of such treatment plant may not always be taken into account. These processes consume additional energy which contribute to carbon emissions and global warming as well as causing emissions of sulphur which are a contributory factor in acidification.

Another example is provided by improvements to comply with the European Community, Urban Waste Water Treatment Directive, and concerns the cessation of disposal of sewage sludge at sea in 1998. Sewage sludge presents problems and opportunities in its disposal. Agriculture may benefit from spreading sewage sludge to land through the reduction in the use of fertilisers and associated agricultural runoff. On the other hand, where this is not always economically feasible then incineration or landfill may be required. Whilst disposing of sludge at sea was perceived by the public to be undesirable there are now warnings that in ending it there may even be some negative environmental impacts affecting marine life. This is because the sludge provided nutrients to invertebrates, fish and vegetation which sustained sea bird and other marine populations.

There is much work that needs to be done on methodologies and techniques to weigh up the implications of environmental costs and benefits. But, this is only one part of the process; coherent policy-making that weighs up the complete effects of changes in legislation should also be present. Until such a holistic approach is sufficiently developed such decisions on environmental imperatives can only be determined by government.

(c)      What regulatory approaches are likely to be the most effective and practicable to protect the environment, in both measurable terms, e.g. water, soil and air quality, and less tangible aspects, e.g. landscape and amenity?
The environment can be protected in many instances, in addition to the setting of environmental standards, with pollution abatement taxes. These correct the negative effect experienced such that, those who experience a loss from the pollution are compensated so that 'the polluter pays'. This will produce, in those cases where the environment is assumed to have some assimilative capacity, a socially optimal level of pollution.

Ofwat is concerned that the national approach to pollution control is not always consistent with the polluter pays principle. Traditionally, the pollution abatement effort has focussed on setting standards and controlling the sources easiest to control. In the water sector this has generally meant point sources of pollution affecting controlled waters, most notably water company discharges.

For example, this policy has resulted in expensive denitrification plant to remove nitrates at sewage treatment works when studies have shown that sewage treatment works may contribute only one-twentieth of the nitrate load to rivers. The cost of such works has been borne by the water customer. Ofwat believes it may well be the most practicable and cheapest option to remove nitrates at sewage treatment works. However, if this is the case there should be a sharing of costs by others responsible for sources of nitrates (agriculture and industry) on a pro rata basis, so that the financial burden is more properly shared between the sectors in rough proportion to their relative impacts.

Another example is that of pesticides released into the environment from agriculture. The cost to water company customers of removing these chemicals is about £5 per kg of applied pesticide. To reduce this pollution the government was proposing to introduce a pesticides tax to 'bring about improvements in water quality, biodiversity and reduced impacts on wildlife' (DETR press release, March 24 1999). There was widespread opposition to the tax, especially from agriculture at a time when farming incomes are under pressure. The government is now examining the option of a partnership approach with the agrochemical industry.

Polluters need not be worse of due to changes in their practises. For instance, a cleanup of the Aire and Calder River meant that local companies which produced trade effluent, treated this on site to a greater degree and pursued waste minimisation schemes, rather than piping to their local treatment works at Esholt. As well as cleaning up the discharges companies actually saved money through this approach. It might also be the case that a pesticides tax could have provided incentives which would encourage manufacturers to produce safer alternatives. It might also have encouraged farmers to introduce better management practises leading to reductions in use, and consequently, financial savings to themselves.

As part of its commitment to sustainable development the government should integrate the correct economic incentives through economic instruments designed to produce socially optimal results.

2.      Boundaries

(e)      Does the lack of control over certain activities, such as forestry and agriculture, prejudice the achievement of environmental goals? If so, what would be the effect of introducing such controls?
There does appear to be a disparity between the controls applicable to different types of discharges, for instance, between the controls applied to point source and diffuse polluters such as agriculture and forestry that could prejudice the achievement of environmental goals. There is a general perception that discharges from water and sewerage companies are the only polluters of the river and coastal waters. In actuality, the number of trade discharges is greater than that of sewage treatment works operated by water companies.

An illustration of this is the water industry in England and Wales which is highly controlled, for many years it was a major polluter of bathing waters but has substantially improved discharges to coastal waters, largely in response to the requirements of the EC Bathing Water and Urban Waste Water Treatment Directives. Further improvements planned for implementation by 2005 should ensure that mandatory European bacteriological standards are met consistently by at least 97% of designated bathing waters. The EA also estimates that more than 50% of designated waters will comply with the tougher guide standards by 2005 as a result of the schemes included in water companies' investment programmes. However, in Achieving the quality the EA states that "further progress is likely to require more action on sources of pollution not operated by the water companies". However, as with river water quality, the impact of diffuse sources of pollution such as agricultural run-off is not so easily identified or controlled. An example of this occurs on the Fylde coast where there have been improvements in water company discharges, but the bathing waters (such as Blackpool and St. Annes), continue to fail mandatory standards. The water company improvements have unmasked the impact of other sources of pollution. Water company customers who paid for the improvements should have a right to expect that there should be equal treatment in terms of liability for the costs of cleaning up discharges.

There does appear to be an imbalance in controls on different spheres of activity, an example of this is river water quality. In Raising the quality (DETR, September 1998, p.28, para. 96) Ministers set out their goal that by 2005 at least half the current shortfall in compliance with river quality objectives should have been eradicated. In Achieving the quality (June 2000, p.14) the Environment Agency states that only a quarter of the 18% of rivers that are non-compliant are wholly or partly caused by the discharges made by water companies. Whilst this element of non-compliance will be addressed through the delivery of the AMP3 quality programme, the achievement of the Government's objective does depend on a commensurate effort being directed to combat the effects of diffuse sources of pollution such as run-off from agricultural land and forestry. Plans to deal with these sources of pollution appear to be very much less well-developed and alongside of this is a corresponding lack of control over the activities concerned.

Another example of insufficiently controlled emissions is the use of pesticides and nitrates in agriculture, which enter the aquatic environment and may be present in the source of water used for water supply which then imposes a cost on water customers for their removal.

Agricultural runoff contributes to nutrient levels leading to eutrophication. Whilst discharges from sewage treatment works operated by the water companies are subjected to discharge consents which are strictly enforced, no parallel control exists for the agricultural sector.

The effect of introducing controls on these areas, such as charging farmers for the effect of their discharges would be to provide the correct incentives to control pollution. The government considered a pesticides tax but this did not proceed, the polluter does not pay in this instance, the water customer pays to have pesticide removed from drinking water. Existing regulation at present is voluntary and depends on Codes of Practise, for instance, Severn-Trent Water's 'Spray-safe' campaign to protect water catchments. Designation of Nitrate Vulnerable Zones and the control of the use of fertilisers, manure and sewage sludge to control nitrate level is administratively difficult and unpopular in many areas.

3.      Integration or co-ordination?

(g)      To what extent could economic instruments, non-statutory procedures, or informal arrangements complement environmental planning regulation, and how effective would they be at providing environmentally sustainable solutions? Would there be implications for openness, transparency and accountability?
There are many examples where users of environmental resources do not bear the full environmental costs of their activities. This has implications for incentives and resource allocation and generally these resources are under-priced. In the water industry, economic instruments could be valuable tools for achieving sustainable water management through the use of price signals to improve resource allocation. The economic instruments that are being examined or implemented in the UK water industry are abstraction licence trading and cost-reflective abstraction charges. The introduction of competition itself will also lead to improved technical and allocative efficiency. All of these measures would be expected to increase openness, transparency and accountability.

Abstraction Licence trading.
The UK government is proposing for England and Wales (Taking Water Responsibly, DETR, March 1999), that the trading of abstraction licences should be possible and that this would more accurately reflect the value of water to other abstractors and the environment. Ofwat is supportive of this view and believes that the tradability of licences would enhance the opportunity for those who value abstraction most highly, to win licences, providing a more efficient allocation of resources.

Cost-reflective water abstraction charges
Water abstraction charges are not related to the true (environmental) cost or the quantities used and are not the same for all users. Agriculture generally pays very little for the water used in irrigation. It may be possible that cost-reflective abstraction charges would send out accurate price signals that would encourage conservation and efficient use.

At present abstraction charges are not volumetric, though there is some abatement for agricultural users, and are pitched to enable 'cost-recovery'. That is the level at which the Environment Agency can recover all of the costs of its water resource management functions (about £100m a year). The UK government after undertaking research has concluded that a charging scheme set above cost-recovery levels with the intention of reducing abstractions would be "unwieldy in operation and imprecise in effect" (Economic instruments in relation to water abstraction, DETR, April 2000). Two major concerns are that water industry abstraction charges will be passed on directly to water customers, and that, other abstractors will go out of business. Ofwat is not convinced by these arguments. If economic instruments designed to reveal the valuation placed on scarce resources resulted in some abstractors giving up licences then this is a more environmentally efficient outcome. We are also unconvinced that raising charges moderately above cost recovery would have no impact on demand.

It may well be the case that re-balancing charges within water stressed areas will encourage some abstractors to give up licences so that water is abstracted by those who value it most.

In the domestic sphere, though the evidence has been widely debated, it is generally accepted that volumetric water charging results in a small decrease in demand. Likewise, industry generally uses water more efficiently when water is metered.

Agriculture and environmental taxes.
Another area where economic instruments would be valuable and in line with the 'polluter pays' principle is making agriculture more responsible for the substances it introduces into the environment, such as pesticides and nitrates. It might be possible that controls on nutrient substances would encourage more environmentally sensitive use and any charges or taxes could be used to recompense water customers via water companies for the costs of water treatment.

4.      Subsidiarity and democracy

(b)      How do we ensure that all levels of decision-making processes are sufficiently open, transparent and accountable to gain public acceptance? What are the best ways to reflect the range of public opinion whilst maintaining an appropriate procedural timetable? When should local public opinion be overridden in the interest of a broader common goal?
Decision-making in the context of environmental planning is complex given the diversity of opinion that exists on the necessity for environmental improvements and their implementation. In the water industry there may be tensions between local and national opinion on the importance of specific improvement schemes or between environmentalists and low-income water customers who pay for improvements through their bills. Whilst it is not within Ofwat's remit to decide these issues, but that of Ministers, it is desirable that consultation should take place at all levels. This should involve stakeholders such as environmental groups, water companies and customers (directly through independent public opinion surveys and indirectly through customer representatives) but also representatives of groups on low incomes such as households relying on income support.

There are instances when local public opinion may need to be subsumed in the interest of a broader common goal. Meeting Government targets and the requirements of EC Directives relies on the timely delivery of environmental improvement schemes. Although price limits set by Ofwat take into account the due delivery dates of schemes set down by legislation or Ministers, the timely delivery of these schemes is not always within the power of the companies. There have been and continue to be cases of schemes, whose completion is needed to meet the UK's obligations, experiencing lengthy and sometimes very expensive delays in securing planning permission. Planning authorities often appear to give undue preference to allaying concerns of the local community over the need for the United Kingdom as a Member State to comply with the requirements of Council Directives. At a recent hearing of the Environmental Audit Committee, the EA cited one case where a local authority had rejected no fewer than 30 separate sites proposed by a company for a new sewage treatment works. The EA suggested that Government should issue new guidance to local authorities on this issue. Ofwat would support any such initiative.

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