Effect of changing water company discharges on third party abstractors

Vivid Economics undertook an economic analysis of four different abstraction reform policy options for Defra. This study investigates the potential future changes to waste water effluent discharges (‘discharge transfer schemes’) and the potential impacts on other parties. This study also estimates the potential national economic impacts of four policy options developed to address impacts on third party abstractors.

The four policy options analysed are:
– Option 1: water company discharges can be changed with notice to abstractors reliant on them and with agreement from regulator taking into account impact on environment;
– Option 2: water companies undertake a cost benefit analysis of the change which can only go ahead if the benefits to the water companies outweigh the costs to abstractors;
– Option 3: water companies perform a narrow cost benefit assessment and change discharges only if abstractors are compensated for any losses incurred due to any reduced water availability;
– Option 4: in a two-step approach, water companies assess the impact of the change on river flows and water availability for abstractors and the environment. The second step, only if any impact occurs is to agree a way of mitigating it.

The analysis indicates that the only option generating net economic benefits is Option 4. It is the preferred option because the step based approach facilitates an approach which flexibly manages the effects on abstractors, and this keeps administrative costs to manageable levels.

The Report is available for download here.

Date: October 2015






Market Design & Economic Regulation