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REGULATORY IMPACT ASSESSMENT

1. Introduction

1.1 The Water Framework Directive (Directive 2000/60/ EC) came into force in 2000. It was transposed into Scots Law by the Water Environment and Water Services (Scotland) ( WEWS) Act (2003). Among other things, the Directive requires that Scotland has a system of regulatory controls for the following activities:

• Point source discharges and diffuse sources liable to cause pollution;
• The abstraction of water from the water environment;
• The impoundment of surface water;
• Alterations to the structure and condition of surface water habitats; and
• Artificial recharge or augmentation of groundwater

1.2 Although we already have a control system for point source discharges, we do not have comprehensive systems of control for the other activities. Section 20 of the WEWS Act gave Scottish Ministers powers to make Regulations to introduce such controls. The Controlled Activities Regulations ('the Regulations' or ' CAR') are being introduced by the Scottish Executive to provide the required controls, except for controls over diffuse pollution which are being considered separately.

1.3 The Directive's overall objectives are to prevent deterioration of the status of the water environment and to aim to restore waters to good status by 2015. This will be achieved through the river basin management planning process. A draft plan must be prepared by 2008, with the full plan in place by 2009. This plan must set a programme of measures to meet the Directive's good status objectives.

1.4 The introduction of the Regulations at this time is necessary for three reasons:

• to prevent deterioration in status;
• to ensure that the regulatory process of identifying and agreeing the control measures and the environmental improvements they will deliver can be completed by the Directive's deadline in 2009; and
• to provide stakeholders with sufficient certainty for investment planning purposes and a longer lead-in time for delivering the necessary improvements.

2. Scope of this Regulatory Impact Assessment

2.1 A Regulatory Impact Assessment ( RIA) for the WEWS Act was presented to the Scottish Parliament in 2003. This RIA for the Controlled Activities Regulations does not consider those costs that would arise irrespective of their introduction. Such costs include those resulting from the WEWS Act requirements for river basin management planning and environmental monitoring.

2.2 As noted above, the overall objectives of the Directive are to prevent deterioration of the status of the water environment and to aim to restore waters to good status by 2015. In transferring existing authorisations into the new CAR regime SEPA will set conditions which reflect existing conditions or practice. SEPA's review of licences, planned from 2006 onwards, will focus on water bodies at risk of not meeting the Directive's environmental objectives. As part of that review SEPA will identify and agree with businesses the measures required to meet those objectives. That discussion process will help to inform the river basin management planning process. The Regulations will enable specific conditions to be placed on the operation of controlled activities. Water users must take the measures necessary to comply with the agreed conditions by 22 December 2012, in order to meet the Directive's objectives by 2015.

2.3 However during the process of designing improvement programmes alternative objectives can be identified. For example, if the measures needed to achieve good status by 2015 would be disproportionately expensive, the timetable for achieving good status can be extended or a less stringent objective than good status can be set.

2.4 The process of developing a first programme of measures and setting environmental objectives has to be completed as part of the development of the draft river basin management plans, due to be published at the end of 2008 and setting out the proposed objectives. The full compliance costs of delivering those objectives cannot be properly estimated until then.

2.5 In summary, whilst these Regulations will be the key tool for delivering our environmental objectives, it is the river basin planning process which will drive compliance costs, not the Regulations themselves. This RIA's main focus is therefore on the costs and benefits of the proposed regulatory regimes themselves rather than the costs and benefits of the longer term compliance measures that may be required of water users. Further information on the costs and benefits of the measures required will be provided when the draft plan is produced in 2008.

2.6 The costs incurred by SEPA in operating the regulatory regimes will be recovered through charging to operators. These costs may be offset by grant-in-aid allocated by Scottish Ministers under the spending review process. The Scottish Executive has worked closely with SEPA to ensure that both the structure of the regulatory regimes and the way in which they will be implemented by SEPA strike the right balance between costs and effectiveness.

3. Purpose of Controlled Activities Regulations

3.1 The proposed Regulations will establish a framework allowing SEPA to control certain activities that could have, or are having, an adverse impact on the water environment.

3.2 The controlled activities are:

• activities liable to cause pollution of the water environment
• abstraction of water from the water environment
• the construction, alteration or operation of impounding works in surface waters or wetlands
• carrying out building, engineering, or other works
• in inland water other than groundwater, or wetlands, or
• in the vicinity of inland water or wetlands, and likely to have a significant adverse effect on the water environment
• artificial recharge or augmentation of groundwater.

3.3 In its recently completed pressures and impacts analysis, SEPA estimated the extent of rivers and lochs likely to be adversely affected by these activities. The results are summarised in Table 1.

Table 1: Waters identified by SEPA's pressures and impacts analysis as being at risk of failing to achieve good status

3.4 There are currently disparate and, in many instances, only partial controls on the abstraction of water, the impoundment of surface water and on engineering works affecting the water environment. The introduction of comprehensive control regimes for these activities is expected to be the most significant effect of the Controlled Activities Regulations.

3.5 At present, point source discharges are controlled through the Control of Pollution Act ( CoPA) 1974. The Regulations will not significantly affect the overall costs of regulating point source discharges in the period to 2009. However, the new regulatory structure will reduce the cost of regulating low risk discharges. This will enable SEPA to concentrate more regulatory effort on tackling those discharges that are presenting a significant risk to the water environment.

3.6 Some of the measures included in CAR, especially the general binding rules, can be expected to have an effect on diffuse pollution, and their costs and benefits are thus estimated in this RIA. However, further controls will be needed to tackle diffuse pollution both in rural and in urban settings. This will be the subject of separate consideration by the Scottish Executive.

3.7 At present, artificial recharge or augmentation of groundwater is not a common practice in Scotland.

3.8 The Directive does not require environmental improvement measures to be in place until the end of 2012. However, the process of identifying and agreeing the objectives and the measures needed to achieve them has to be completed by the end of 2009. As outlined above, the Scottish Executive is introducing the Regulations at this time to:

• Enable deterioration of the status of the water environment to be prevented. Among other things, this will protect the water environment from damage that, if it occurred, might subsequently need to be remedied using costly restoration measures;
• Minimise the period in which there is uncertainty for businesses over the measures that will be required of them from 2012 to achieve the objectives of the Directive; and
• Provide sufficient time for the development of a programme of measures before the first river basin management plans must be finalised in 2009.

Reducing the regulatory burden

In line with the aims of the Hampton Report, the Scottish Executive's intent in introducing the Controlled Activities Regulations is to provide for selective, proportionate and streamlined control regimes. To achieve this, the Regulations will establish:

• A new comprehensive control regime for each controlled activity. This will facilitate consistent and readily understood regulation
• A simple and flexible system of regulatory control options, including general binding rules, registration and licensing. This will enable regulatory effort to be focused on those activities posing the greatest risks to the water environment
• A common structure and operating procedure for all the control regimes. This will enable streamlined approaches, such as the use of a single licence to authorise several different controlled activities being conducted by a water user
• A single regulatory authority, SEPA. This will provide for cost-efficiencies in the management of the control regimes

4. Estimates of impacts and environmental benefits

4.1 The recent pressures and impacts analysis provides information on the pressures on the water environment by sector. From this, it is possible to predict where the majority of the impacts of the Regulations are likely to fall:

ii) Abstractions: The biggest impact is likely to be on the public water supply sector, the hydropower sector, the drinks manufacturing sector and the agriculture sector. There may be moderate impacts on other sectors, such as mining.

iii) Impoundments/flow regulation: The largest impact is likely to be on the hydropower sector and the water supply sector. There may be moderate impacts on some other sectors.

iv) Engineering work: A modest impact is likely on local authorities, the construction sector and the agriculture sector. There may be limited impacts on other sectors.

4.2 SEPA has made a first tentative estimate of the scale of environmental improvements that are likely to be delivered through the Controlled Activities Regulations.

4.3 These estimates are based on:

• The results of the analysis of the pressures and impacts on the water environment, which has recently been completed by SEPA;
• An assessment of the potential measures that would be required to address the impacts indicated by the pressures and impacts analysis; and
• The results of the Quality and Standards III planning process, which has recently been undertaken by the Scottish Executive to determine the level of investment to be made in environmental improvements by Scottish Water.

Table 2: First estimate of the improvements in water quality to which the Regulations are expected to contribute by 2015

Table 3: First estimate of the improvements in river flows and loch water levels expected to be delivered by the Regulations by 2015

4.4 The Regulations do not provide for the restoration of damage to the physical habitats of surface waters resulting from past engineering works. Consequently, the Regulations' effectiveness in remedying existing physical damage will be limited to securing improved practices in relation to on-going maintenance works, such as river channel dredging. It has not been possible at this stage to estimate the scale of improvements that controls on such on-going works may be able to deliver.

5. Risk Assessment and Directive compliance

5.1 The UK is under an obligation to comply with EU Directives. Failure to do so may result in proceedings in the EU Court of Justice.

5.2 Article 11(3)(e) of the Directive requires Member States to establish controls over the abstraction of fresh surface water and groundwater, and impoundment of fresh surface water.

5.3 Article 11(3)(f) of the Directive requires Member States to establish controls on artificial recharge or augmentation of groundwater bodies.

5.4 Article 11(3)(g) requires Member States to establish controls on point source discharges liable to cause pollution.

5.5 Article 11(3)(h) requires Member States to establish controls on diffuse sources liable to cause pollution.

5.6 Article 11(3)(i) requires Member States to establish controls on other activities liable to adversely affect the water environment, such as engineering works on rivers and lochs.

5.7 Article 11(3)(j) requires Member States to establish a general prohibition on direct discharges to groundwater.

5.8 Article 11(7) requires that Member States establish a programme of measures by 22 December 2009, at the latest.

5.9 Article 11(7) requires that the programme of measures be fully operational by 22 December, 2012, at the latest.

6. Implementation options considered by the RIA

6.1 The Controlled Activities Regulations will establish a requirement for prior authorisation of controlled activities. Authorisation will take one of three forms:

• General Binding Rules( GBRs): The Regulations will provide authorisation for specific activities undertaken in accordance with the relevant rules. Many low risk and small scale activities, such as abstractions of less than 10 m3 per day, would be authorised directly by the Regulations;
• Registration: A range of other small scale activities, such as septic tank discharges, would be authorised by registration with SEPA. This will provide SEPA with the information needed to manage the risk of cumulative impacts; and
• Licensing: Large scale and higher risk activities would be authorised under the conditions of a licence issued by SEPA.

6.2 For the purpose of assessing the regulatory impact of the proposed regulatory framework, a number of options have been considered. These are:

• Option A: Point source pollution would continue to be controlled by SEPA under CoPA. Controls on other activities would not be introduced until 2009;
• Option B: The proposed Regulations, as produced following our consultations in April 2004 and March 2005;
• Option C: All controlled activities would as a minimum have to be registered with SEPA. Medium risk activities would have to be registered and comply with general binding rules. Large scale and high risk activities would require authorisation under the conditions of a licence issued by SEPA; and
• Option D: All activities falling under the scope of the Regulations would need to be licensed by SEPA.

6.3 Table 4 summarises the approximate number of activities SEPA estimates would be authorised by the different mechanisms provided for in option B, C and D. Option A would move to one of these three options from 2009 when river basin management plans and programmes of measures must be finalised.

Table 4: SEPA forecasts for the total number of activities authorised by the different mechanisms provided for in the options considered by this RIA

6.4 Approximately 100,000 of the activities included under each option in Table 4 are point source discharges covered by the provisions of the existing CoPA regime. The additional 45,000 activities are mainly abstractions, with some impoundments and engineering works.

7. Analysis of the costs and benefits of the implementation options

7.1 Table 8 at the end of this report provides a detailed summary analysis of the costs and benefits of the four regulatory options considered by this RIA.

7.2 Option A does not provide any of the above benefits. It provides a benefit to water users by delaying the levying of charges to recover SEPA's costs by three years until after 2009. However, as outlined in paragraph 8.15 below, this benefit may be counteracted by increased costs after 2009.

Environmental benefits

7.3 After 2009, all four options would provide an effective means of delivering progressive improvements in the status of the water environment. The extent of these improvements would depend on what could be achieved without incurring disproportionate expense.

7.4 Options B, C and D may also deliver environmental benefits prior to 2009 as a result of SEPA's plan to specify the conditions required of water users from 2012 when carrying out licence reviews. There are clear informational benefits to business from this as it will allow business greater time to plan the necessary investment needed to comply with the authorisation conditions. In some cases, businesses may decide to implement compliance measures prior to 2012. This will result in the early achievement of environmental improvements.

Informational benefits

7.5 The information collected through the Regulations on the scale and location of pressures (e.g. from applications for authorisation) is necessary to inform the river basin planning process and in particular the processes of developing a programme of measures and designing environmental monitoring programmes.

7.6 Under Option A, no new information would be obtained through a regulatory process prior to 2009. This would pose serious problems for the river basin planning process. It is likely that SEPA would be unable to develop a coherent programme of measures for addressing abstraction and impoundment pressures in time for the first River Basin Management Plan. This would also expose Scotland to a serious risk of infraction proceedings.

7.7 Options C and D could provide SEPA with information on the location of all activities, including small scale and low risk activities. The availability of such information would help SEPA identify and address those circumstances in which small scale activities contribute, in combination with other activities, to a cumulative impact on the water environment. It would also provide SEPA with a means of taking into account the needs of small scale activities when taking other regulatory decisions, such as authorising a large abstraction that might affect the resource available to a small scale abstraction.

7.8 Under Option B, SEPA would be able to obtain, through the Regulations, the information needed to manage the risks to the achievement of good status identified in the pressures and impacts analysis. SEPA would have to use alternative sources of information for identifying circumstances in which small scale activities not registered with SEPA might be contributing to a cumulative impact. Such alternatives could include environmental monitoring, one-off surveys and the use of information available from other public bodies. For minor abstractions SEPA will be able to utilise data gathered under the proposed Private Water Supply Regulations

Costs

7.9 The main costs common to all the Options, although incurred later under Option A, are:

• costs incurred by SEPA - regulation, administration and enforcement costs which will be recovered from water users; and
• costs incurred by businesses - administrative costs of obtaining authorisation and the costs of compliance measures.

Regulatory costs

7.10 Table 5 provides estimates of the costs of regulation, administration and enforcement incurred by SEPA under the different options in the period 2005/6 to 2009/10.

Table 5: Estimated costs incurred by SEPA in implementing the different options

7.11 The costs shown in Table 5 are the costs incurred by SEPA that are directly attributable to the introduction of the regulatory regimes for abstraction; impoundment and engineering. They do not include the costs of:

• Implementing WEWS Act's requirements, such as river basin management planning and environmental monitoring; nor the capital costs of the monitoring network. These costs will be incurred irrespective of whether the Regulations are introduced;
• Regulating point source discharges. The costs of such regulation are not significantly different to the overall costs of regulating point source discharges under CoPA.

7.12 The costs presented above will be recovered from operators through SEPA's charging scheme. SEPA's charging scheme will also recover the costs associated with those WEWS Act requirements for environmental monitoring.

7.13 SEPA are in the process of developing a charging scheme with stakeholders and there will be a full consultation before the Regulations come into force. In addition, SEPA have already provided stakeholders with briefing on issues such as indicative application costs.

Costs to businesses

7.14 The Regulations provide for the authorisation of several different activities (e.g. a discharge and an abstraction) in one licence. The ability to licence discharges and other activities using the same regulatory framework is expected to reduce administrative costs to businesses compared to the introduction of additional disparate control regimes.

7.15 Under Option A, the administrative and compliance costs to businesses in the period to 2009/10 would be zero. However, it is anticipated that beyond 2009/10 the costs to businesses would be higher than under Option B. This is because businesses would have less time to plan and implement measures and therefore could have fewer choices on how to meet the conditions of their authorisation. SEPA would also be unable to prevent deterioration of status before 2009. This could add to the costs to businesses by increasing the extent of improvement required after 2009.

7.16 Under Option B, many small scale and low risk activities, such as abstractions of less than 10 m3 a day, would not normally incur any administrative costs. Under Options C and D, businesses operating these activities would incur the administrative costs associated with registration and licensing requirements, respectively.

7.17 The administrative costs incurred by businesses in applying for authorisation by registration or licence will vary. For registration, the administration costs to businesses are expected to be very low. Businesses would simply be required to inform SEPA about the details of the controlled activity, including its location. SEPA is developing a simple web-based registration facility to help minimise the administrative costs of applying for registration.

7.18 For licence applications, the administrative costs to businesses will depend on the scale, complexity and risks posed by the activity. For relatively small scale and medium risk activities, the administrative costs to businesses of making an application for a licence would be expected to be only slightly higher than those for registering an activity with SEPA. For higher risk activities, SEPA may require detailed information to support a licence application, including an environmental report. In the most complex cases, applicants may need to employ consultancy advice and commission environmental surveys in compiling such reports. However it is also expected that activities providing an environmental benefit will not incur charges.

7.19 The main difference in administrative costs between the options is in relation to small scale and low risk activities. Table 6 provides a comparison of the relative administrative costs associated with applications for authorisation.

Table 6: Relative administrative costs to businesses associated with applications for authorisation

7.20 The compliance costs to businesses would not be expected to differ between the options. Under all options, including Option A, conditions requiring any significant changes to existing operational practice would not come into effect until 2012. Under all the options, a licence would include only those conditions necessary to manage the risk posed by the activity to the water environment. The cost to businesses of complying with any particular risk-based condition is likely to vary depending on local circumstances.

7.21 For example, to manage the risk to the water environment from an abstraction, SEPA will require information on the magnitude of the abstraction. This is likely to be one of the few new conditions that would apply before 2012. The accuracy required of such information will be proportionate to the risk posed by the abstraction, with greater accuracy generally being required where the risk is high. For low risk abstractions, including those covered by GBR or registration under Options B and C, a simple estimate of the volume to be abstracted and some means of demonstrating that the volume will not exceed the authorised limit is all that is likely to be needed. For high risk activities, more accurate information on the abstraction will need to be collected and maintained. Water users may have a number of options for providing such information depending on the accuracy required and the means by which they abstract. For example, some water users will already be metering their abstraction for their own purposes. Others may be able to calculate the rate of abstraction based on the characteristics of the pump they use for the abstraction or on other physical limits or constraints on the abstraction rate within their abstraction works. Where an abstractor needs to install a meter for the purposes of providing SEPA with the information it requires, the costs are likely to range from £200 to £300 for a medium sized abstraction (100 m ³/day) up to around £3,000 to £5,000 for a very large abstraction (100,000 m ³/day). On occasions there may be additional costs of installation or access to consider on top of the set up estimates.

Costs to the Scottish Executive

7.22 Under Option A, the costs of the WEWS Act requirements for environmental monitoring other than for water quality in the period 2006/07 - 2008/09 would have to be funded entirely from the public purse. Under Option B, C and D, the costs of environmental monitoring directly attributable to abstraction, impoundment and engineering works would be recovered from those responsible for the pressures on the water environment.

7.23 Costs to the Scottish Executive are likely to be incurred if the requirements of the Water Framework Directive are not met. Compliance with the Directive is a legal obligation and failure to do so may result in legal proceedings. Table 7 summarises the compliance assessment for each of the options considered by this RIA.

7.24 Adopting Option A would place SEPA in a position of being unable to develop a programme of measures by the Directive's 2009 deadline for doing so and unlikely to be able to make a programme of measures fully operational by 2012. A failure to do either would mean non-compliance with the Directive's requirements.

7.25 Options B, C or D would be expected to enable compliance with the Directive's requirements.

Table 7: Summary of compliance assessment

8. Small Firms Impact Assessment

8.1 In drawing up these proposals for regulation specific consideration was given to the potential impact of controls on small businesses, such as rural hotels and agricultural activities. For many small hotels there will be a limited impact by the new proposals. In many cases it will be their use of a septic tank which bring them within the scope of the Regulations. For agricultural operators it is more likely to be small abstractions or minor engineering activities such as dredging ditches which brings them into the regime.

8.2 Those using septic tanks should already be licensed through the existing CoPA scheme. The proposals would be beneficial to these operators, as the introduction of registration under CAR would replace the CoPA licence. This would be a lower regulatory control for these businesses.

8.3 Under Option A in the short term there would be an advantage to small businesses in that they would not incur additional costs until 2009, although for those operating septic tanks the existing costs under the CoPA regime would roll forward. Under Option B there would be some relatively low costs for those businesses carrying out small scale and low risk activities, and for businesses discharging from septic tanks there would be a lower regulatory burden. This option also provides the fairest approach as there is equity of treatment for all operators by ensuring the proposals are proportionate to risk. Under Options C and D the costs to small businesses would be disproportionately high.

9. Competition Assessment

9.1 Under Option A and in the short term, Scottish firms would retain any existing competitive advantage in relation to firms in England and Wales, where controls on abstraction and impoundment have been in place since the 1960s. Any such advantage is expected to disappear in 2012, by which time measures must be fully operational across Europe. The postponement of the introduction of Regulations until after 2009 would leave little time for Scottish firms to properly plan the implementation of the measures required of them. As a consequence, firms in England and Wales could gain some competitive advantage. The introduction of the regulations from 2005 would reduce the period of uncertainty for Scottish firms and provide them with a longer period in which to plan the implementation of the required measures.

9.2 Under Option B, Scottish firms operating small scale and low risk activities would not incur additional administrative costs. Under Options C or D, such firms would incur small administrative costs. The scale of these costs would not normally be expected to affect a firm's comparative advantage.

9.3 Scotland, as a relatively sparsely populated and water rich country, is unlikely to suffer a competitive disadvantage from the introduction of a common standard of environmental protection across Europe. The widely recognised high quality of Scotland's water environment overall compared to that of many other Member States, and indeed to that of England & Wales, could act as a source of comparative advantage.

10. Enforcement and sanctions

10.1 SEPA, as the regulatory body will be responsible for enforcement. The provisions to enable SEPA to take appropriate action will consist of notices, powers of entry, and enforcement through the courts when necessary.

11. Monitoring and Review

11.1 The Executive intend to review the Regulations within 4 years of implementation.

12. Summary and Recommendation

12.1 The recommendation is to take forward Option B, the Regulations as proposed. This option is considered to offer the appropriate balance between the administrative costs incurred by water users and the provision of effective controls for the protection and improvement of the water environment.

12.2 Option A of postponing the introduction of Regulations until after 2009 is not considered to be a viable option. Scotland's ability to complete the river basin management planning process by 2009 would be significantly compromised. Businesses would remain in a position of uncertainty until after 2009 about the measures they will be required to take from 2012. It would also result in non-compliance with the Water Framework Directive and a serious risk of legal proceedings by the European Court of Justice.

12.3 Options C and D would both produce greater informational benefits than the recommended option. This could lead to more informed programmes of measures in the future. However, in both options it is considered that the potential additional benefits are outweighed by the additional administrative costs to SEPA and water users.

13. Summary analysis of options

Table 8: Analysis of the costs and benefits of different regulatory options

Declaration

'I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs'.

Signed:

Deputy Minister for Environment and Rural Development

Date

Contact Point:
Tom Harvie-Clark

Tel: 0131 244 0887
Fax: 0131 244 0446
Email: tom.harvie-clark@scotland.gsi.gov.uk

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