Speech by Ian Pearson for the Institute of Economic Affairs Annual Water Conference, 25 June 2007
I am told that if you look up Ian Pearson on Google – not that I ever have of course – I appear as the first on the list. But Number 2 is that of Ian Pearson - Futurologist.
The other Ian Pearson works for BT, and he says his job involves tracking developments across society and technology, and figuring out where it is all going next, and how it will affect our everyday lives. Today I want to do a job-share with my alter ego.
I want to outline some of the trends which are changing the way we see water, our water companies, and the water environment. And then I’m going to indulge in a little futurology, and outline what I think things will look like in twenty years time. And finally, I will explain how the Government’s Water Strategy will help take us there.
Some of what I say today won’t be totally new to you. It is based on themes that I have been developing over the past year as Minister for Climate Change, and particularly since I announced a national strategy for water last autumn.
Trends
Climate Change - Mitigation
First, it is very clear to me that every sector will need to take bold and urgent action to decarbonise the economy. Direct emissions from the water sector are responsible for roughly 4.1MtC02, that’s the equivalent of around 1.5 million cars.
The water sector’s energy use has increased by 50% since 1990. And there is a real risk that increased water quality standards will continue to push this trend upwards.
One thing is very clear, the cost of carbon is only going to go up, and so we will need to be smarter, and look to less carbon and energy intensive solutions.
The Government is providing the statutory framework to manage this transition. I expect the draft Climate Change Bill to become law next spring. It will provide UK-wide targets for reducing carbon dioxide emissions and will establish an innovative system of ‘carbon budgeting’ across the economy.
Tomorrow I will be publishing the Government’s consultation on the Carbon Reduction Commitment, announced last month in the Energy White Paper. All the water companies will qualify to be included in this policy instrument aimed at securing cost-effective carbon reductions. I would encourage all of you to respond to the consultation, to make sure we get the scheme right.
And there are opportunities out there. The carbon footprint of the water industry is some 10% lower than it would be under business as usual due to the increased use of renewable energy. Water UK estimate that almost fifteen percent of the industry’s total energy use is from renewable sources, with at least half of that produced onsite. The Government’s proposals to band the renewables obligation will provide further support for new technologies such as anaerobic digestion. Currently sludge disposal to land from the wastewater treatment process produces between 1 and 2 MtCO2e, and I know that many companies such as Yorkshire and Anglian are already capturing this waste to generate renewables.
Others, such as United Utilities, have committed to ambitious targets to reduce their overall carbon footprint, and I am sure Philip will talk about this in more detail later. And Wessex along with other companies have pledged a long-term ambition to be carbon neutral.
I am pleased that Water UK have been proactive on this issue. I have challenged the industry to continue to rise to this challenge with commitments that go further and faster than business as usual. And I look forward to continuing this discussion.
And mitigation must go beyond the direct emissions from the water sector. Domestic hot water use – from baths, showers, taps and white goods – is responsible for some 30 million tonnes of carbon dioxide per year. And that is not including central heating. Through greater water efficiency, such as a reduction of hot water use by just 10%, would save almost the equivalent emissions of a city the size of Manchester or Edinburgh.
Climate change adaptation
But mitigation is only half the picture. When I started this job last May, we were in the middle of one of the worst droughts in living memory.
This year the situation looks very different and I see no cause for concern in the short term. But this is no excuse for complacency. Our climate is going to change and we have got to be ready for it.
Even if we were to stop all greenhouse gas emissions tomorrow, changes will still be felt for decades to come. I want to see a water industry and a regulatory framework that adapts well to climate change.
The UK Climate Impacts Programme, funded by Defra, provides detailed future scenarios for the UK, with a range of likely climatic and environmental outcomes up to the end of this century.
In its starkest terms, the impacts of climate change mean that the UK will face hotter, drier summers, more intense rainfall and far greater climate variability. That means that as the same time as seeing more floods, we will also experience more droughts.
The water sector really is on the frontline of climate change adaptation. No other area is so affected. By 2080 summer scientists are saying rainfall in the South East could be reduced by 50%. But it is not just a problem for the future. By 2020 we will probably see a reduction of at least 10%. This is at the same time as temperatures are rising and people demand more water to help stay cool.
Demographic trends
As well as changes in our climate, we are seeing significant demographic shifts. More people are living in more water stressed areas. This is not something we can stop, nor should we.
We are building 150,000 new homes each year, rising to 200,000 by 2016. New housing is absolutely necessary, and is being developed at much higher density but it brings new potential pressures on water resources.
And all this will need to be factored in to the resource management plans that water companies are now preparing. From this year, these are statutory and will be subject to public consultation and a far higher level of scrutiny than before.
In the approach to the next price review, I particularly welcome the fact that Ofwat are actively encouraging the companies to take a longer-term view, which provides further scope to prepare for these changes.
We have already started thinking differently about what new housing stock we should have. The development of eco-towns, the Code for Sustainable Homes and our ambitious target of zero carbon homes by 2016 is setting the pace for new build. Homes built to the highest standard of 80 lpd already benefit from zero rate stamp duty. In parallel, through the Water Saving Group which I chair and other initiatives we are starting to think more ambitiously about the much bigger challenge of water efficiency in the existing stock.
But these trends are not just issues for water resources. We are seeing urban creep which is paving over gardens and our other natural sponges. In London alone, the GLA estimate that an area of front garden 22 times the size of Hyde Park is paved over. Yet our sewerage network is aging, network replacement rates are low and not keeping up with these escalating trends.
Our drainage system risks struggling to cope with this increased pressure. Environmental infrastructure may be out of sight, but it cannot be out of mind.
Water quality
Much of our water environment has suffered from decades of over-abstraction. Pressures from farming and over-use have had a severe impact. But the past decade has seen substantial investments in sewage treatment works and a major clean-up of discharges from industry to tackle this. As a result, the biological and chemical quality of our rivers have improved.
But this is only part of the picture. We are beginning to take a more holistic approach to our lakes, rivers, groundwaters, estuaries and coasts looking at all the pressures that impact our water environment. And we are also beginning to focus more on the outcomes we want to achieve, not just on policing and preventing end-of-pipe outputs.
We have to take a more determined approach to some of the harder problems facing our water environment such as diffuse water pollution and physical changes to our water bodies.
The Water Framework Directive provides a vehicle for enabling this. And it will require the concerted action by all of us over the coming months and years to achieve good ecological status.
The final trend on is that we as customers are becoming ever more sophisticated. In telecoms, the internet and retail space, we are demanding a wider range of goods and services tailored to our needs. We are becoming empowered, from generating our own electricity to designing our own websites. And more of us want to live greener, more sustainable, lives for the future.
These trends have been confirmed by research commissioned by CC Water for the Water Saving Group. This indicated that people are increasingly aware of water as a resource, and that they are prepared to do their bit to save water. However, they need to be confident that appliance manufacturers, house builders, Government and – most importantly – water companies are also stepping up to the mark as well.
We need to capitalise on these trends to enable customers to develop a better understanding of their water use to help their behaviour to evolve.
Futurology…
So recognising these drivers: climate change, demographic change, changing consumer behaviour and the changes needed for improving the water environment, I’m going to indulge in a little futurology about where I think we want to be in 2030.
I’ve said before that predict and provide will not be enough. That the old preconceptions of a wet Britain need to change. That a drier Britain will require a smarter approach to dealing with water.
And to put things into perspective, our future is not as serious as for many people: it is estimated that worldwide, by 2080, up to 1.6billion people could be at risk of serious water shortage, mostly in the developing world.
But London, is already a ‘dry’ city – with water availability per head around the same as that in Israel. And climate change is only going to add to that stress.
Metering
It is clear to me that in 2030 we will put a greater value on water. Increased
scarcity due to climate change and an end to unsustainable abstraction means
that we will need to deliver clear incentives to use it wisely.
Rateable values from the 1970s will not be a sensible basis for charging customers
in 2030. Metering is in my view the fairest way to charge for water. It
has been steadily increasing, and now stands at 33%. By 2020 it will
be the norm.
So too will social tariffs. The Energy White Paper indicated that the Government wants to see social tariffs for gas and electricity . With greater water metering, I would expect this to be routine across all three utilities.
We recently consulted on a proposal to allow companies to consider compulsory water metering where cost-effective and in areas of water stress. We will be publishing our response very shortly and as policy moves forward we will continue to be mindful of impacts on affordability, and the need to support vulnerable groups.
Homes & new developments
But putting a truer value on water will only be part of the broader transformation in the way our homes and communities of the future will use water.
My Department is working with CLG and the Environment Agency to explore the feasibility of moving towards ‘water neutrality’ in the Thames Gateway. By 2030 I would like to see all new homes being water neutral and for existing stock to be retrofitted to be highly water efficient.
Inside our homes and offices there will be smarter, more water efficient appliances. Already the Bathroom Manufacturer’s Association’s new labelling scheme will differentiate these newer, more efficient products, and over time I believe this will lead to a much broader and deeper transformation of the market.
And there will be clear carbon benefits to this too. Water efficiency is a clear win-win and our water strategy will be looking to develop the tools to enable this to happen further.
We need to be realistic. Although there is a lot more we can do on water efficiency, and indeed leakage, we may also need to put in place additional reservoir capacity over the next twenty years. It would be foolish not to look hard at the case for harvesting more of the rainfall from the wetter winters that scientists are predicting.
And underground we will need to ensure our sewerage network is resilient to the increasing pressures anticipated. In some cases this means taking the necessary big decisions for new investment, as I did with the Thames Tideway Tunnel.
But we cannot continue to treat above ground and below ground as different
problems. I anticipate in the future what I call ‘green
drains’ to be widespread throughout our communities. Grassy areas
and ponds, permeable paving and green roofs and a return of the village green
will be essential parts of our drainage and flood prevention infrastructure. The
added biodiversity and wellbeing benefits will contribute towards truly sustainable
infrastructure.
And rather than building expensive concrete barriers to insulate ourselves
from flood risks, we will see the development of ‘turquoise belts’,
strips of green space next to rivers.
Climate change
By 2030 tackling climate change will be mainstreamed into our everyday way of life. Through the Climate Change Act we will be well over half way towards at least 60% reductions by 2050.
The water sector and the Regulator, will have been mindful of that trajectory and enable investments consistent with it, routinely building in a carbon price into calculations.
Energy efficiency and carbon abatement will be foremost for every stage of the water cycle. Sewage sludge widely used to generate renewable energy to power this process.
And we will be thinking beyond company boundaries to enable this. Working with farmers, with households, and with businesses will ensure that the problem will have been tackled where most sensible, not where most convenient.
Water environment
My 2030 vision for our water environment is simple. Wherever possible our water bodies will have achieved good ecological status. We will have achieved this in the most cost-effective manner, engaging all the relevant participants in effective partnerships.
And to get there, we will have developed the right systems and incentives structures to set us on a measured and practical path.
We will have made good progress on tackling the issues of diffuse pollution. But this shift cannot and should not happen overnight. As a transition we must support and develop innovative practices such as Catchment Sensitive Farming and engage a broad coalition of interests at local level to make it work: And we will have a water environment fit for our flora, our fauna and most importantly for us. However, in my view it is hugely unlikely that we will have the same water environment in 2030 as we do now. The impacts of climate change leave us in no doubt that certain parts of our natural environment cannot be protected in the long term and will have to adapt.
We will see a drier, hotter countries. Our water quality challenges will grow as increased temperatures impact on the chemical composition of the water. We’re likely to see more algae blooms, with the consequent impacts on freshwater ecology. Intense rainfall events could lead to overloading of the sewage system and more foul flooding events.
And we will have to look at how we ‘share’ our water – addressing the competing demands from agriculture, from industry, from consumers and from biodiversity.
Water companies
And what of water companies? We have a diverse structure and ownership. We have already gone from 39 companies at privatisation to 10 water and sewerage companies, plus a new one on its way (Scottish & Southern), and 14 water-only companies. One size fits all has always been a false assumption for the water sector. It will only be more so in the future.
Comparative regulation has served us well. And no doubt will continue to do so. But we must ensure we maximise full competitive pressures to deliver more efficient and effective water services.
It is clear to me today that competition for commercial premises using large quantities of water is not working. Since the regime was introduced well over a year ago, not one customer has switched. Through the Consumer Council for Water, I have met with businesses who want competition. And I share their frustration.
The Government is committed to reviewing the threshold limit by next year. I am today announcing that the Government will bring forward that review.
In the context of the Water Strategy I want us to develop a competition regime that actually does what it says on the tin. I look forward to receiving the results of Ofwat’s current review of competition, and, then in consultation with Welsh Ministers, will take a view on the scope of the wider review that the Government needs to set in train.
But what I can say is that it is my full intention to ensure the outcome will be greater competition. And to that end, I am willing to review all the elements to ensure the regime delivers.
On a final note, I believe that the transformation can go deeper than this. There is no reason to think that the water industry will remain ossified in its current structure.
The regulatory regime already allows significant scope for flexibility in business models. Almost all the commercial operations by Welsh Water are contracted out, so it is almost a virtual company Where as others retain most of their operations in-house.
And there is evidence from other utilities that there are benefits in voluntarily separating the retail arm of companies from the production and transport arms; as is happening in Scotland. In some cases it has been required by regulator, but others, notably BT the split was made voluntarily.
I see changes in structure, ownership, and business model as a sign of vibrancy and dynamism. My only objective is to work with Ofwat to ensure that it is the customer who benefits. This is what I mean by the development of water service companies, delivering the needs of their customers in the most effective way.
Conclusion
So having jumped forward in time, I’m going to jump back. When I first started this job, I felt that our existing water policy ‘Directing the Flow’ looked tired and outdated. It was not fit for the challenges ahead. I am very clear about what those challenges are where we need to be. I am determined that our new water strategy will take us there. To do so will require us to think differently about each stage of the water cycle. It will require imagination and creativity to develop new approaches and resolve to deliver and implement them. The regulators, the water companies, environmental groups and consumer groups all have a key role to play, But it is governments role - my role – to provide the leadership and direction needed. Only then can we deliver long term and sustainable solutions for the water industry, water environment, and most importantly for ourcustomers. And the National Strategy for water will help us do just that.
Thank you.
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modified: 25 June 2007
Page published:
25 June 2007