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E - SUMMARY OF REGULATORY IMPACT ASSESSMENT ( RIA)

It is important that the economic implications of implementing these standards are assessed as far as possible at this stage. However, until specific objectives have been set for each water body, it is not possible to accurately assess the true costs and benefits associated with implementing the WFD. The key economic assessment will therefore be the one which will accompany the draft River Basin Management Plan in 2008.

Environmental standards for the WFD are being developed and introduced on a UK-wide basis, and this consultation exercise will be mirrored in the other UK regions. An initial assessment of the potential costs and benefits associated with implementing these first standards - a Regulatory Impact Assessment ( RIA) - has therefore been carried out for the UK as a whole. The assessment was carried out by independent consultants Risk and Policy Analysts ( RPA), who were jointly commissioned by the administrations in England, Northern Ireland, Scotland and Wales.

RPA submitted their draft report to the UK Governments in September. This draft is being considered by the UK Governments and we expect it to be published once it has been through the due approval process. In the meantime, this paper includes here a summary of the RIA and the consultants' estimates of the costs associated with the introduction of the proposed standards, to inform your consideration of our proposals.

1. Approach used in the RIA

Assessment of the costs associated with implementation relies on the specific objectives that are set for each water body. At this stage in the implementation of the WFD, this process has not yet been carried out, and so the RIA has tried to estimate ranges of potential costs and benefits that might be associated with implementing these standards, to allow for some of the flexibility available in setting objectives.

The RIA report aims to assess the additional costs associated with implementing the proposed standards relative to those incurred through continuing existing practices. It compares two options:

The RIA has sought to identify the degree of improvement that would need to be made to achieve each standard for 'good' status. The report is based on the 'Article 5' estimates of risks to water bodies that were drawn up in 2004 ⁵; existing monitoring data, and other information such as water industry investment plans.

However, the Article 5 characterisation reports represent only a snapshot in time and as those assessments were contemporary best estimates, based on available data, they are likely to overestimate the number of water bodies at risk.

It is clear that achieving 'good' status in all water bodies by 2015 will not be possible, and that alternative objectives or extended deadlines will be used in some of our water bodies. Therefore, the RIA attempts to quantify the impact of the range of potential objectives and measures that could be put in place through River Basin Management Planning. This has been done by considering three scenarios:

While scenarios 1 and 3 are unlikely to be realistic options, they have been used within the RIA to illustrate the maximum potential range of impacts on regulators and operators.

Due to the difficulties of assessing costs at this stage, the RIA assumes that scenario 2 incurs half the costs and benefits of scenario 3. In practice, costs and benefits are not directly proportional to the number of water bodies that are set the target of 'good' status. The true costs and benefits of meeting 'good' status will depend on how far each water body is from meeting the standard, and the choice of measures that are available in each case. Once the specific objectives and programmes of measures have been set out in the basin planning process, it will be possible to assess the actual costs and benefits far more accurately.

2. RIA Discussion

Assumptions and uncertainties

As explained above, the consultants have calculated costs and benefits in the report by estimating the 'gap' between existing conditions and the standards for 'good' status in each water body.

RPA acknowledge a number of assumptions and uncertainties associated with the calculations in the report. Key examples are:

• The 'gap' is assessed using the 'Article 5' characterisation reports, which need to be refined in the light of more recent data, as discussed above. It is therefore probably overestimated.
• All costs and benefits are calculated on the basis of a 'standard' water body and catchment, rather than using specific data on the actual rivers or lochs that are at risk. This is a useful starting point, but natural variation in the characteristics, such as size, catchment use, remoteness or type, of the actual water bodies affected in each case could have significant impacts on the estimated costs and benefits.
• The RIA only considers the risk of not achieving 'good' status and therefore the costs and benefits associated with measures to achieve 'good' status. The RIA does not consider costs or benefits from measures undertaken to prevent deterioration in status.
• Compliance costs are based on published sources, and not derived from discussion with the affected sectors. The consultants made assumptions about which measures might be used to deliver improvements and the costs of carrying them out.
• A linear relationship has been assumed between the amount of change needed to meet a standard and the costs of making this change. In many cases, this will result in an overestimate of costs.
• The compliance costs associated with implementing riverine phosphorus standards rely on data about phosphorus concentrations in rivers, rather than more exact data on the levels of reduction required in individual rivers to meet the proposed standards. They are therefore likely to be overestimates.

Benefits

The report concludes that the introduction of standards is likely to result in direct benefits including:

• reduced treatment needs (and therefore costs) of drinking water;
• greater availability of water as a resource;
• protection of economically significant species;
• protection and enhancement of aquatic wildlife;
• recreational use of waters;
• protection of surface waters and dependent terrestrial ecosystems, including improved amenity value;
• better targeting of measures to areas where there are clear environmental benefits;
• greater coherence of water legislation;
• greater clarity and transparency leading to greater accountability; and
• greater information from increased monitoring.

Indirect benefits are also anticipated, for instance those related to reductions in eutrophication as nutrient levels drop.

The consultants attempted to quantify some of these benefits for water quality. For water resources, they felt there was not currently enough data available to assess the environmental benefits of the proposed water resource standards. Since the morphology standards will only be used to assess new applications, RPA felt that the direct environmental benefits are hard to predict.

Costs

Three different types of costs have been estimated in the report:

• Administration costs (incurred by regulators) - these include the costs of site investigations and reviewing authorisations. The costs are related to the standards that are introduced, but not linearly. This is particularly true for diffuse pollution, which is likely to be addressed largely through national measures, rather than by measures in individual water bodies. Costs are not dependent on the objectives that are set, as the same amount of work will be done to assess options and set objectives, whatever decision is made. The report assumes costs are incurred from 2006 to 2009.
• Operational monitoring costs (incurred by regulators) - these are costs for monitoring of sites at risk. In most cases, little change in the operational monitoring costs is expected between option 1 (existing practices) and option 2 (introducing the proposed standards), as the Directive allows grouping of water bodies for monitoring, and the use of modelling. The consultants also assumed that the costs would be identical for all options and scenarios until the basin plan is in place, and so only included annual costs from 2012 onwards. It is not certain how the true costs will compare with this last assumption.
• Compliance costs (incurred by operators) - these are the costs of implementing measures to meet the standards. In the report, costs are assumed to be proportional to the amount of change needed to meet the standard. In practice, costs will depend on the specific objectives set, and so can only be assessed accurately after the objective-setting process. The report assumes costs are incurred from 2009 or 2012, depending on the measures.

The following table compares the costs calculated by the consultants for option 1 (continuing existing practices) and option 2 (introducing the proposed standards).

The consultants assumed that no administration or compliance costs were associated with scenario 1 (alternative objectives set for all water bodies). The table therefore includes only two columns for each option in the table below, demonstrating how the consultants' cost estimates vary with the number of water bodies required to meet 'good' status for all standards.

The costs in the table are not annual values - the estimated costs are totals, incurred over 30 years from 2006 (presented in 2006 prices).

Summary of cost implications:

Water quality

• In most cases for water quality standards, there is no significant difference between the costs calculated by the consultants for the two options. This reflects the fact that a high proportion of Scotland's water bodies are not at risk, and also that in most cases, the proposed water quality standards are similar to those used in SEPA's existing classification scheme.
• The consultants did not calculate compliance costs for the proposed dissolved oxygen standards for lochs. This is because achievement of the standard is so closely linked to eutrophication pressures from high nutrient levels. Scotland also has no existing standard for comparison.
• The RIA highlights that the issues of most significance in Scotland are likely to be tackling riverine phosphorus and ammonia levels (see table above and Annex A). High levels of either of these pollutants are harmful to aquatic life. High phosphorus levels can contribute to many problems through eutrophication (see earlier table). Tackling phosphorus levels would help the many plants and animals that rely upon good water quality to thrive. As well as contributing to a healthier aquatic environment, actions like these that improve our water environment can help to encourage greater use of water bodies for recreational and commercial activities. RPA estimated an increase in costs for ammonia because the proposed standard in upland, low alkalinity rivers is more stringent than the existing threshold, although in other rivers, no change is proposed. For phosphorus, the proposed standards would result in better targeting of resources and a net reduction in compliance costs. The consultants concluded that improvements are most likely to be delivered by two sectors: agriculture and Scottish Water.
• Agriculture: the issues of nutrient enrichment will largely be tackled through a national diffuse pollution strategy, which is currently in development. The costs of implementation will depend on the objectives set during basin planning.
• Scottish Water: compliance with the WFD was considered as part of the Quality and Standards 3 process ⁶ and requirements to address this issue were incorporated into the objectives that Ministers set Scottish Water for the period 2006-2014 ⁷.
• The consultants' estimated compliance costs for riverine phosphorus are the highest in the report. RPA concluded that the proposals would not increase overall compliance costs: higher costs are predicted for achieving existing standards. The proposals will allow better targeting of resources to those water bodies where ecology is judged to be most at risk from raised nutrient levels.
• RPA estimated that no costs would be associated with introducing the proposed loch salinity standard, as no lochs in Scotland are expected to be at risk of failing it.

Water resources and morphology

• There are no existing regulatory comparisons for either the proposed water resource standards or morphology framework. No compliance costs have been estimated for the water resource standards, due to the lack of available data. Similarly, the morphology framework is entirely new, and will only be used to assess new applications. RPA therefore felt that it was not possible to assess the associated compliance costs. However, since no regulatory standards are currently in place, continuing existing practices for water resources and morphology would risk infraction by the European Commission. The costs of infraction are not quantified in the RIA.
• The RIA does not quantify the costs of developing tools to apply the morphology framework.

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