A Sustainable Water Industry

CIWEM new publication, Regulation for a Sustainable Water Industry, calls for a wide-reaching review of the governance of the water industry to ensure that our use of water is sustainable in the long term and respects environmental limits. The structure, regulation and management of the water sector needs to be considered afresh if the challenges of the future, from population growth, climate change and environmental management are to be met.

Incentives in the water industry actively reward behaviour and outcomes that are inconsistent with a sustainable water sector. Financial regulation features an incentive framework that encourages capital expenditure rather than operational-based solutions and promotes a repeating "boom and bust" business and asset management cycle. The regulatory mechanisms now in place tend to promote end-of-pipe solutions rather than fundamental design solutions that would promote long term sustainability. The current incentives to build more infrastructure and sell more water are dipolar to the very outcomes we need.

As heating water contributes to 89 percent of energy use in the home, emission reduction targets can be met cost-effectively through water and energy efficiency measures working in tandem, through the use of flow restrictors for example. Under the current framework of the Carbon Emissions Reduction Target (CERT) and the Water Efficiency Targets (WET) set by OFWAT, water and energy companies cannot claim the credits for the energy savings from the same device. This regulatory mechanism was designed to stop double-counting carbon savings but actually works to preclude a joined-up approach. If the barriers were removed, water companies could claim energy reduction credits which would incentivise demand management. CIWEM has been lobbying the relevant ministers alongside Waterwise, Water UK and the Energy Retail Association to try and remove these barriers within the framework of CERT and WET and any successor.

CIWEM Executive Director Nick Reeves says:

"It is essential that barriers to joint working between energy and water companies are removed to incentivise demand management and joint working. If the goal from here onwards is the efficient and effective delivery of integrated water, sewerage and environmental services — as CIWEM believes it needs to be — then the rules of the game and the behaviour of the players needs to change, now — both within and beyond the water sector."

Fortunately the highly regulated sector provides a strong foundation for incentive realignment. CIWEM's new publication, Regulation for a Sustainable Water Industry, calls for the water industry to broaden its scope in how it is managed and regulated with water companies being increasingly recognised as water service providers. This would see the supply of sustainable water services at the centre of companies' delivery and incentive structure. Water companies would be allowed to work with customers to help save and reuse water, so as to reduce their bills, use resources more efficiently and reduce the impact on the environment.

SOURCE: CIWEM