Green and Prosperous Land. Dieter Helm

to be harvested as a renewable that nature will keep giving them for free from rivers (and groundwater sources). The companies want ‘clean’ water and hence want to limit pollution from others. Cleanness in drinking water is a chemical concept: it does not necessary mean that it is biodiversity-rich, and indeed there are many organisms that water companies would rather not have in their water supplies. We want to drink clean water, pure H2O, not a host of other things that live in the river environments. Solving jointly for clean water and for biodiversity is not the same thing as just wanting the former.

      In providing us with clean drinking water, water companies abstract water, which reduces flows, and they discharge our sewage and the waterborne waste of industry, suitably treated. The management of river flows and the consequences for river biodiversity is a complex business, further complicated by the building of dams and other water-storage facilities. Reservoirs on the middle rivers (and sometimes the upper rivers too) have economic and environmental costs and benefits, all dependent on the catchment system as a whole. Water abstraction is rarely marginal: it has a system impact.

      The abstraction problem arises partly because there is no price for water.⁷ Once water becomes a valuable resource, it pays to address the 30 per cent leakage rates from water company pipes, and the companies have a stronger incentive to encourage water efficiency. Universal metering plus abstraction charges transform the incentives. Water may be freely provided by nature, but it has alternative uses. It should be priced at both the abstraction and the consumption points, and in the process capture the leakage costs in between. Otherwise it will be inefficiently used. Indeed, it is.

      Water pipes leak treated water. With a marginal cost of water of mostly zero, it does not make economic sense to have a zero leakage policy. Yet the incentives to fix the leaks are distorted by the low cost of abstraction. Because there is no price, the choice between fixing the leaks on the one hand, and taking more water from rivers, groundwater and lakes on the other, is skewed towards the latter, and as a result in times of shortage, it is the rivers that suffer because of the leakage levels. It is not the water companies’ fault: it is the incentives they face. The water regulator can tell the companies to cut leaks, but this is a crude approximation of what is needed, which is a proper balance, reflecting all the environmental costs, of the alternatives, and the locations too.

      This feeds through into the storage question and the crazy idea that we need high-quality water fit for drinking for use in watering the garden, cleaning the car, and a host of other non-consumption activities. So-called grey water is not only perfectly adequate for these other purposes, it is also of much lower cost. In some cases, such as using rainwater from water butts in the garden, it is better for the plants. The more expensive the purified water, the greater the incentive to do the right thing and store water.

      What is missing is a grey water system and comprehensive metering. The former is probably not economic, except at the household level, although there is potential. Hence it is all about decentralising water, as part of a decentralised utility system. Future houses should be able to generate their own electricity, provide a place for work instead of commuting, and store quite a lot of water. They can have smart energy and smart water.

      Sewerage is where the historical damage from water companies’ activities has been most apparent. In the past, rivers were sewage-disposal systems, and most of it was simply dumped in the rivers and out to sea. Over time this has been somewhat refined, but it is still the case that the capacity of sewerage networks cannot always cope in the event of storms. When it rains a lot, the sewerage systems overflow into the river. The argument is that it will consequently be very diluted (because of the storm flows). Yet this is far from convincing, and little consolation for those whose houses are flooded with it.

      Fixing the sewage problem is not only about having big enough sewerage works. It is also about how the effluent is treated, and what happens to the resulting sludge. As with the deployment of natural capital approaches to the supply of water through the management of uplands, so sewage lends itself to natural methods too. It is just a form of muck and, like muck, it can be broken down and taken up by plants. It can be an asset. Reed beds are one method of doing this, once natural processes have begun degrading it. The methane, a by-product of decomposition, can be used for energy supplies. The insect life is a bonus, especially for birds.

      As with abstraction, this is a problem of incentives. Water companies are not charged for disposals, and they have skewed incentives to prefer hard concrete infrastructure solutions rather than natural approaches. This is because of the way the economic regulation of their physical asset base works. It is much easier to solve once a whole-catchment approach is taken, but much harder when the water companies are regulated in a silo and neither benefit from the impacts on biodiversity of natural capital approaches, nor face the costs of their activities on the catchment as a whole. In order to get a better environmental and economic system, the water companies need to be brought directly into the catchment system economics. Below I explain how this can be done.⁸

       Towns, housing, roads and sustainable drainage systems

      Housing, concreted urban centres and roads bring further pollution and flooding problems to rivers, and they are as much a part of the catchment and its management as the farmers and the water companies. Run-off from roads is often nasty and fast, and housing and factories displace water that would otherwise have soaked into the ground, to be gradually absorbed. Towns and villages were traditionally built to have access to water, and they are often built right up to the riverbanks, which are in turn concreted over and reinforced. The houses and infrastructure reduce the ability of their land areas to absorb rainfall, and increase the speed and rate of run-off.

      The solution here is better planning, regulation and pricing. Planning needs to steer development away from floodplains and to require porous roads and driveways to reduce run-off. Better still, unpaved and unconcreted driveways can be planted to encourage biodiversity. Plants absorb water too. The costs of the run-off need to be incorporated into the economics of new developments, thereby creating an incentive to build houses in the right places, and with the right porous green footprints.

      Like the mining and the abstraction along rivers, the economic incentives on house-building produce perverse environmental outcomes. Flood insurance should reflect the risk of flooding, but it doesn’t. Instead the flood risk is socialised, so that house prices do not fully capitalise this risk. If others pay some of the costs for locating near a river that floods, more houses will be built in the wrong places. Even worse, the Environment Agency prioritises reducing the risk of flooding to those most at risk. You buy a house in the wrong place, you get your flood risk insurance subsidised (through schemes like Flood Re), and then public money is spent on protecting you.⁹

      Town populations have other great economic interests in the state of the rivers. Rivers are an immediate source of leisure for them, and they need access to the clean water. Green banks and riversides bring wider physical and mental benefits too. Many benefit from the tourism that rivers bring. Towns like Ross-on-Wye, Hay-on-Wye, Lechlade, Eynsham and Carlisle all have significant leisure industries and the associated services. The tourism is often more economically important than agriculture, and hence the economics points to an enhanced river environment.