Is it time for a comprehensive review of the financial regulation of water?

Posted: Monday 22nd February 2010

CIWEM believes that the water industry needs to undergo a fundamental change in regulation and broaden its scope to move towards sustainability.

The UK water industry has benefitted in recent years from high levels of investment leading to significant improvements in water quality. However, there has been little groundbreaking technology in water treatment and supply, or in demand management.

At a recent CIWEM conference, 87 percent of delegates supported a comprehensive review of the financial regulation of water to encourage innovation, to incentivise water conservation, to integrate water management with environmental policy and legislation, and to address future challenges. Nearly all agreed that innovation is not supported effectively. The take-up of innovation by the industry is a matter of particular concern.

In some industries, competition can encourage innovation. However, the nature of water regulation, inertia within those in the industry and the industry’s structure makes this unlikely as it is difficult for new processes to be approved and implemented. Furthermore, CIWEM believes that increased competition will only add to the current problems of companies not charging customers for the true value of water.

CIWEM urges government to encourage greater innovation by increasing the incentives for outperformance and addressing the potential bias to capital expenditure. Companies who over-perform against their environmental targets should not be penalised for failing to meet their economic targets. CIWEM would also like to see Ofwat given responsibilities for promoting the delivery of integrated water, wastewater and environmental services, not just water and wastewater services.

Other necessary changes include the development of a research and development body to ensure an innovative, integrated approach to water management; improved co-ordination across regulators; and investigation into more flexible approaches to regulation by looking to examples of good practice in other places (e.g. Australia) and in other sectors.

CIWEM’s Director of Policy, Justin Taberham, says:

“It is clear that current financial regulation models for the water industry are ill equipped to deal with issues that have come to the fore, including sustainability, climate change, carbon accounting and resource efficiency. Current regulatory models are not seen as fit for purpose and have significant flaws including inflexibility and a ‘boom and bust’ business and asset management cycle. They do not encourage engagement with the public, stall innovation and are price rather than sustainability driven.”

CIWEM aims to offer solutions to these challenges by undertaking a work stream on Regulation for a Sustainable Water Industry. If you are interested in being updated as these work streams develop or in being involved in the working groups, please email Justin Taberham, CIWEM’s Director of Policy,

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