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Controlled Activities Regulations

ANNEX B: INTERIM REGULATORY IMPACT ASSESSMENT

EXECUTIVE SUMMARY

Following the invitation to tender from the Scottish Executive, Atkins were awarded the contract to undertake a Regulatory Impact Assessment (RIA) of The Water Environment (Controlled Activities) Scotland Regulations 2004, following the publication of the Water Environment and Water Services (Scotland) (WEWS) Act 2003.

The study was undertaken between 26/02/04 and 5/03/04 in support of The Water Environment (Controlled Activities) Scotland Regulations 2004 consultation process led by the Scottish Executive and in accordance with the Executive's reporting requirements. Atkins would like to thank those who have contributed to the study, namely members of SEPA, SNH, and FSB.

The Scottish Executive recognised the development of a full RIA may prove difficult at this stage of the regulatory process, due to unavailability of information and time constraints, and sought an interim statement to accompany its consultation paper.

The costs and benefits attributable to the Draft regulations can be divided into 4 categories relating to:

1. SEPA in the costs of undertaking the administrative, planning and monitoring functions.

2. Business in the costs of compliance where businesses are not already regulated for all parts of their activities (e.g. abstraction licences); and the costs of ensuring the long-term objective of 'no deterioration of ecological quality' as a result of those activities already regulated.

3. SEPA/Scotland in the benefits of the introduction of the new regulatory regime in terms of enabling data collection to contribute to an evidence database that will be used to assess the most cost-effective methods of achieving the desired water quality objectives.

4. Other Groups/Sectors in any significant benefits accrued to any other groups of the Scottish economy as a result of these regulations, as identified in the course of completing the work.

At this stage, only preliminary costs and benefits to SEPA could be identified (subject to final confirmation). Further analysis and consultation will be required to undertake a full RIA.

1. INTRODUCTION

1.1 Introduction to the Study

Directive 2000/60/EC of the European Parliament and of the Council establishing a framework for the Community action in the field of water policy was adopted in October 2000 and came into force in December of that year. The Water Framework Directive (WFD) (or herein 'Directive') applies to all water in the natural environment, that is all rivers, lochs, estuaries, coastal waters and groundwaters.

The Directive has now been transposed into Scots Law through the Water Environment and Water Services (Scotland) Act 2003 (WEWS). The Act is enabling legislation which begins the process of establishing the arrangements and mechanisms for implementation of the Directive within Scotland. Section 20 of the WEWS Act gives Scottish Ministers powers to make regulations to control activities for the purposes of protecting the water environment, with the Scottish Environment Protection Agency (SEPA) designated as the leading authority, responsible for establishing and operating a regulatory regime for controlled activities. Such regulation is based upon the underlying principle that no controlled activity should take place without prior authorisation. The proposed regulatory controls are designed to be selective, and to be applied only where there is a risk to the water environment. This will minimise the regulatory burden to water users and allow the application of regulatory tools proportionate to the degree of environmental risk. The proposed control regime includes:

• Abstraction and impoundments;
• Point source pollution; and
• Engineering and building works in, and in the vicinity of, the water environment

A separate mechanism will be developed to control diffuse pollution following further consideration in 2005. Accordingly, diffuse pollution is not included within this assessment.

The draft regulations introduce a single cohesive framework which lays the foundations for the new regimes. This framework is based on 3 tiers of control:

• Registration,
• Registration under general binding rules (GBR), and
• Licences (although notably the term licence will apply to aspects more than just 'usage')

Such a process will provide SEPA with a full picture of all activities affecting the water environment and will enable them to judge the impact of the cumulative effect of those activities.

The WFD requires that the Programmes of Measures, of which the regulatory regimes are part, must be operational by 2012. Scottish Ministers propose to introduce the new regulatory from April 2005. This early phased introduction will provide the regulated businesses with an extended period to prepare and plan to meet required WFD standards.

1.2 Objectives of Study

The objectives of the study are to undertake an Interim Regulatory Impact Assessment by identifying the costs and benefits attributable to the process of complying with and operating the new regulatory regime in accordance with the WEWS Act. The study will consider costs and benefits up to 2009, as this is the date when the first River Basin Management Plan (RBMP) will be published within Scotland. Accordingly, many of the costs and benefits due to full implementation of the WFD will not be clear until this date.

The costs and benefits considered as part of this study include those which apply under the new regime to SEPA and businesses. Principally, the costs are as follows:

To SEPA

• Costs of undertaking the administrative, regulatory, planning and monitoring functions.

To Business

• Costs of compliance where businesses are not already regulated for all parts of their activities (e.g. abstraction licences);
• Costs of ensuring the long-term objective of 'no deterioration of ecological quality' as a result of those activities already regulated; and

Whilst the benefits are identified:

To SEPA/Scotland

• Benefits of the introduction of the new regulatory regime in terms of enabling data collection to contribute to an evidence database that will be used to assess the most cost-effective methods of achieving the desired water quality objectives.

To Other Groups/Sectors

• Significant benefits accrued to any other groups of the Scottish economy as a result of these regulations, as identified in the course of completing the work.

The study should not be considered an update of the previous study to assess the costs of benefits of implementing the WFD in Scotland. That study, completed by WRc in conjunction with Glasgow and Dundee Universities in 2002 (WRc, 2002), had a far broader remit, in assessing the costs and benefits of implementing the WFD in Scotland. In contrast, it should be noted that this study is restricted to a consideration of the new regulatory regime under WEWS Act, which implements the requirements of the WFD only in part.

1.3 Study Data Considerations

It was recognised that there would be limitations to carrying out such a study at this point in the development of the Regulations, as businesses have not yet had the opportunity to consider fully the implications of the proposals. However it was considered important to produce an interim statement on costs and benefits for the purpose of The Water Environment (Controlled Activities) Scotland Regulations 2004 consultation. Therefore, this interim report details the data provided and notes where further research or data will be required to complete a full RIA.

1.4 Format of Report

The report is divided into three main sections:

• Section 2: Status Gap - identifies the current regulations and Business As Usual Case (BAU) for SEPA and by sector
• Section 3: Cost Analysis - identification of costs to SEPA and by sector
• Section 3: Benefit Analysis - identification of benefits attributable to the new regime
• Section 4: Recommendations

As previously noted in Section 1.3, many of the costs and benefits (section 3) remain unavailable at the present time, for the reasons stipulated. Whilst many of the benefits are more generalised and difficult to quantify given present state of knowledge and previous studies, data for costs should be available over the coming months. It is expected that further information on costs and the business as usual (BAU) scenario will become available following the Stakeholder Consultation on controlled activities scheduled to take place later in March 2004. These will be used to inform the recommendations.

2. STATUS GAP

2.1 The Current Regulations and Business As Usual Case (BAU)

The Business As Usual (BAU) case describes a hypothetical the situation that is assumed to develop in the absence of the WEWS Act.

There are a number of different legislative provisions affecting water abstractions, impoundments and engineering structures and works affecting inland water bodies. These provisions are abundant and complex, and have a number of interactions. Each new case of impoundment, abstraction or engineering works is regulated by one or more statutory bodies depending on the purpose of the activity and sector involved. Many of the existing water abstractions in Scotland are not regulated by statute. Abstractors are able to protect their ability to abstract through the common law.

Similarly with impoundments, many more minor impoundments are not regulated. The same is true for certain engineering works, and others may be exempt under the conditions of specific acts.

A summary list of the main legislative provisions relevant to abstraction and impoundment controls are given in Appendix 2. While the list may not be exhaustive, it is intended to identify the most important statutes. They are discussed briefly in section 2.3 in relation to each of the regimes.

2.1.1 SEPA

As the leading authority under the WEWS regime, SEPA will be responsible for controlling all four activities (abstractions, impoundments, engineering and COPA regulated point sources). At present, only COPA activities are currently regulated by SEPA. Therefore, under BAU for SEPA only the costs of operating COPA would continue until 2009. There are currently 100,000 discharges under COPA, of which 8,600 are chargeable to SEPA through consents. SEPA currently devotes 75 full time staff equivalents to operating the regulatory aspects of COPA. Under a Business As Usual scenario these costs would continue each year. The costs under the new regime are discussed in Section 3.

Under the COPA scheme SEPA currently recovers £11M in charging. This covers regulation, environmental monitoring and support costs.

2.2 Future Regulations from 2005

The underlying principle of the WEWS Act regime is that no controlled activity should take place without prior authorisation. The proposed regulatory controls are designed to be selective, proportionate and streamlined, and to be applied only where there is a risk to the water environment.

The draft Regulations will apply to abstractions and impoundments; point source pollution; and engineering and building works in, and in the vicinity of, the water environment within a single cohesive framework. This framework is based on 3 tiers of control -

• Registration (for low risk activities),
• Registration under general binding rules (GBRs) (for medium risk activities), and
• Licences (for high risk activities).

For low risk activities it is envisaged that only a simple form of registration will be required. Such activities will include septic tank discharges and domestic drinking water abstractions. Such a process will provide SEPA with a full picture of all activities affecting the water environment and will enable them to judge the impact of the cumulative effect of those activities.

General binding rules will apply where environmental impacts are predictable and mitigation measures can be prescribed in a common form. It is expected that up to 80% of controlled activities will be covered by GBR or registration.

Licences remain the most comprehensive method of control. These will be tailored to the particular circumstances of the activity concerned. It is proposed that there will be sufficient information available to operators to enable them to decide which is the appropriate level of authorisation, and to apply accordingly. SEPA will also carry out a risk assessment before deciding to grant or refuse authorisation, and may require a higher level of authorisation to be applied for.

To minimise the regulatory burden on water-users and regulators, it is proposed that authorisations should be activity-specific. However for the higher levels of authorisation it has also been necessary to introduce the concept of a 'responsible person' to ensure enforcement action can be taken where appropriate.

2.2.1 Abstractions and Impoundments

The activities to be covered by abstraction and impoundment control regimes are the removal of water from the environment and the restriction and control of the natural flow of water. These control regimes will cover proposals for new activities as well as all existing abstractions and impoundments.

All new proposals will be required to seek authorisation after the regime comes into force and all existing activities will also need to apply for an authorisation.

The transitional arrangements The thresholds for abstraction and impoundment planned for the different tiers of regulation are:

Abstractions

Impoundments

The intention is that these thresholds may be varied in specific catchments. For example, where there are potential impacts from the cumulative effect of many small or modest sized abstractions or where there are particularly sensitive environmental sites that need to be protected (e.g. Natura 2000 sites under the Habitats Directive and Sites of Special Scientific Interest (SSSI)).

There are many existing abstractions and impoundments that will need to be brought into the new licensing system. This process will involve the water user registering their use and SEPA issuing an authorisation that allows the current practice to continue, or which duplicates the existing authorised limits.

How this process will operate depends on the type of authorisation that the activity currently has, if any, and there are a number of different types of authorisation in existence. These include Parliamentary Acts, Water Orders for pubic supply, Section 36 approvals under the Electricity Act for hydropower schemes, irrigation licences granted by SEPA in control order areas, or by planning condition.

These existing authorisations can be very variable in form and content. How the transitional arrangements work will depend on the compatibility of these authorisations with the new licensing system and on whether the water users current operations comply with any quantified limits or restrictions contained in the older authorisation. It is proposed that the conditions and limits transferred into the new authorisations would not then be modified until 2012 unless required by an existing legislative driver such as the EIA Directive or the Habitats Directive.

Effectively, transitional arrangements are assumed not to affect current practices. Licences and GBR are likely to require flow monitoring facilities in order to ensure that sufficient information is available to determine compliance with existing constraints and to provide data for subsequent reviews.

SEPA will be undertaking reviews of authorisations from October 2005 in order to set WFD compliant conditions for 2012.

2.2.2 Engineering Controls

The engineering regime seeks to control works which will affect the physical character of inland surface waters¹. This includes works which alter the natural channel of the river, reinforce its banks, canalise it, and, or disturb the sediment in a river. It also includes the erection of permanent structures in, around or above a water body, for example, roads, or bridges.

It will not apply to existing structures but will apply to new structures and any maintenance and repair works for all new and existing structures. This part of the regime is expected to enter into force on 1^st November 2005.

The intention is to avoid or minimise any overlap with Local Authorities' development control powers and duties and the Forestry Commission's functions in relation to forestry developments. There will inevitably be some overlap with land use planning and, where required, permissions under both the WEWS(S)A Regs and planning legislation may be necessary. Overlap may be minimised by carefully ensuring the:

1. Compatibility of application processes, sufficiency of information required under one regime to enable meaningful consultation response by other;

2. Demarcation of each regime's area of jurisdiction to avoid duplication or omissions;

3. Communication and consultation between SEPA and local authorities and consistency of conditions; or

4. Considering whether some activities currently controlled under planning should be made permitted development and controlled only under the WEWS(S)A regimes.

This work assumes that these processes are successfully implemented so that additional resource required by SEPA and by the business sector for repetitive bureaucratic processes may be minimised. The need for a licence may be avoided by many of the engineering activities, for example, alterations such as dredging and the construction of croys in rivers for reasons of fishery management, or the diversions and crossings on minor watercourses associated with roads. These, and other developments considered as having relatively minor environmental impacts, may be amenable to control by means of general binding rules.

2.2.3 Point Source Pollution

Unlike the other regulatory regimes, that for point sources will not be entirely new, replacing/subsuming controls currently in place under Part II of the Control of Pollution Act 1974 (COPA) and the Groundwater Regulations (1998). At present, discharges of trade and sewage effluent to controlled waters require consent. Other discharges, such as uncontaminated surface water, are exempt, unless specifically prohibited by SEPA.

It is anticipated that the majority of dischargers with COPA consents and Groundwater authorisations would have to apply to transfer their consents/authorisations to a WEWS licence. Any controlled activities that are not covered by a licence would have to apply for a WEWSA authorisation. Current proposals are that all large COPA users will have to be transfer between the period April 2005 and September 2006.

It is proposed that the existing conditions and limits would apply without modification unless current operational practice was not compliant. Provided there was no unacceptable environmental impact the WEWS licence would reflect current practice.

Transferred authorisations would be reviewed by SEPA as soon as possible to identify any investment required by 2012 to deliver WFD requirements. . The reviews would not constrain existing discharge performance but will provide dischargers with the advanced warning of requirements for December 2012.

It is anticipated that a Priority Substances Daughter Directive will be adopted in 2004. This means that action must be taken which aims to cease the discharge of Priority Hazardous Substances by 2024. This applies irrespective of the legislative regime, i.e. IPC authorisation, PPC permit, Waste Management licence or WEWSA authorisation. Discharges, losses and emissions of less hazardous Priority Substances have to be progressively reduced which means that all water-use activities currently contributing an environmental load of a Priority Substance will be required to investigate and incorporate means of minimising its presence in waste streams.

The point source regime will have the generic hierarchy of authorisation; licence for high risk discharges/activities, GBR for medium risk and Registration for low risk.

Of particular challenge in developing the new regime is identifying;

• low-risk activities where standard industry practice predominates and which therefore can be adequately and effectively regulated by means of a GBR; and
• low-risk activities which although currently consented under COPA could be regulated by means of a GBR or Registration.

In order for the development of a GBR to be worthwhile, the activity has to be simple, subject to common practice and sufficiently widespread to achieve efficiency savings, both to the regulator and the industry/user.

Some discharges which are being considered for authorisation by GBR or Registration are:

i. Combined sewer overflows
ii. Scour valve discharges;
iii. Surface water discharges.

However, where site-specific sensitivities apply an activity normally authorised by a GBR or simple Registration might require a licence, for example where there was a public health risk from a discharge liable to impact a bathing water or shellfish water.

Conversely, where water users considered that the risk from a controlled activity had diminished they could apply for review, e.g. from a licence to a GBR.

Regulatory mechanisms comparable to a GBR already exist in Scotland. The Control of Pollution (Silage, Slurry, and Agricultural Fuel Oil) (Scotland) Regulations 1991 define statutory standards for collection and storage and include a requirement to notify SEPA. Similarly, Part M of the Building Standards Regulations which sets out requirements for the design and construction of septic tank soakaways could be considered to be GBRs. The draft Control of Pollution (Oil Storage) (Scotland) Regulations 2003, which were consulted on in March 2003, will be subsumed into the WEWS regime and therefore do not now require separate costs to administer and regulate. The Oil Storage regulations will increase the efficiency of regulation and will not impose any additional costs upon SEPA (pers. com. Martin Marsden, SEPA).

2.3 Status Gap by Sector

2.3.1 Abstractions

It is estimated that in Scotland there are 40,000-50,000 abstractions (SEPA, 2002), the majority of which are small private supplies. Large users are public water supplies and hydro-electricity schemes. These users are regulated through the Natural Heritage (Scotland) Act 1991 for Irrigation; Electricity (Scotland) Act 1989 for hydro-electric power; Water (Scotland) Act 1980 for public water supply; and Salmon (Fish Passes and Screens) (Scotland) Regulations 1994 for fisheries management. Some other new abstractions may be regulated under the Town and Country Planning (Scotland) Act 1997 and the planning process can thereby incorporate the Environmental Impact Assessment (Scotland) Regulations 1999.

The principal categories of abstraction are:

1. Public Water Supplies
2. Private Water Supplies:-
(a) Potable
(b) Industrial
(c) Agricultural

3. Hydro-electric Generation

Public Water Supplies

The most recent survey (SO, Water Services Unit, 1997) recorded 710 surface and groundwater sources in Scotland operated by the then three Scottish Water Authorities (now Scottish Water). A summary is given in Table 2.1.

Table 2-1 Public Water Supplies

(a) Potable

The best estimates of private potable supplies, in Scotland, is from a database of private supplies derived from registers held by Scottish local authorities under the 1992 Regulations. This has some 30,000 entries covering all private registered supplies for drinking water and food processing purposes as at summer 1999.

Sources vary and volumes abstracted for private dwellings tend to be small. However of significance under this heading are the private supplies used for food and drink manufacturing which includes bottled water, distilleries, brewing, dairies and various food processing activities. These are registered and monitored for the purposes of public health but there is very little information on the source and nature of the abstractions. Numbers of these operations could be significant, for instance there are currently about 87 distilleries operating in Scotland, although not all will be drawing water from springs and burns.

(b) Industrial

This covers a wide range of extractive and manufacturing activities using water for product or process purposes. Very little information is available on this sector which includes many diverse activities ranging from quarrying, sand & gravel washing, mine dewatering, cooling processes through to textiles, paper and other product manufacture.

Some of the abstractions involved with industrial activities can be large in volume, particularly for cooling purposes where upwards of 5Ml/d may be required. Also some manufacturing processes can use large volumes, depending on the scale of the plant. Some paper producers use between 5 and 10 Ml/d. Not all abstractions are 'consumptive' with some being returned to the watercourse downstream as 'effluent'.

(c) Agricultural

The principal abstractions associated with agriculture are for irrigation and fish farming. Abstractions for agricultural purposes also include those for stock watering. Some food preparation processes such as vegetable washing may not come under the 1992 Private Water Supplies (Scotland) Regulations.

Irrigation

Abstraction of water for commercial irrigation purposes is only subject to licensing where control areas have been established under the Natural Heritage (Scotland) Act 1991. Only two small areas presently exist in Scotland covering the catchments of the West Peffer Burn in East Lothian and the Ordie Burn in Perthshire. Licences are granted annually and in recent years these have numbered about 15 in total.

Outwith these Control Areas information on the number and scale of irrigation abstractions is incomplete. The total irrigated area is estimated as 7,309 ha and the principal use of water is for maincrop potatoes located in Angus, Borders, East Lothian, Fife and Perth and Kinross (CJC,2002) In addition specialist vegetable growing and soft fruit producers have also been significant users.

In 1984 the Department of Agriculture and Fisheries for Scotland reported on a Survey of Irrigation of Outdoor Crops in Scotland undertaken in 1982. This survey indicated that 78% of total abstracted water for irrigation was in Angus, Perthshire, Fife and East Lothian. Potatoes and grass received 79% of total abstracted water, and at that time 87% of water was abstracted from rivers, streams or other surface water sources.

Despite changes in the agricultural sector in the intervening years the recent dry July has seen widespread irrigation in Eastern Scotland. Detailed information on the nature and scale of the abstractions is limited although a study by Crabtree et al (2002) investigated the potential impact of alternative forms abstraction control on potato farmers and production.

The Environmental Impact Assessment (Water Management) (Scotland) Regulations 2003 came into force on the 30th September 2003. These Regulations amend the Town and Country Planning (Scotland) Act 1997 to ensure that the definition of development includes "the carrying out of irrigation or drainage for agriculture or of any other water management project for that purpose". All water management projects for agricultural purposes, including the use of mobile spray irrigation equipment, are now within the meaning of development and therefore require planning permission and an EIA report.

The threshold set out in the regulation states that abstractions or diversions of water (surface and groundwater) for more than 48 hours per year to irrigate more than 50 hectares (ha) must provide an EIA report. Although there is insufficient data to calculate exactly how many farms this may cover, SEPA has estimated it may be between 100 to 200 farms.

The SE's Planning Circular also states that smaller irrigation schemes located in "sensitive areas" will also need to provide an EIA report. The number of farms that this may cover is currently unknown and depends on how the individual LA's interpret the Planning Circular.

Fish Farms

In 1999 there were 296 freshwater fish farm sites in Scotland using surface or groundwater sources. Of these, 68 sites were producing Rainbow Trout, 189 producing Salmon smolts and about 39 producing other species including, Brown Trout, Arctic Char and Brook Trout.

Generally fish farms return abstracted water some distance downstream as effluent subject to a consent under the Control of Pollution Act 1974. Volumetric restrictions have sometimes been included in the consents to discharge thereby having a de facto control on the initial abstraction. However, because of the requirement for discharge consents there is probably more information on fish farm locations and the scale of the abstractions than for many other users of water.

In many cases the volumes abstracted are considerable and can significantly reduce flows over some river reaches, particularly in low flow conditions. For instance fish farms on the Ericht Lade at Blairgowrie occasionally abstract the bulk of the 95 percentile flow leaving little or no flow in main river channel for several kilometres. Similar problems have been reported elsewhere in Scotland.

Hydro Electric Power

Major hydro-electric generation schemes cover about 20% of the Scottish mainland, principally exploiting water resources in upland areas. These major schemes are operated by two private sector companies, Scottish & Southern Energy and Scottish Power. Some smaller more local schemes are also operated by Scottish & Southern Energy in the Highlands and Islands and there are an increasing number of small scale schemes under 1MW being developed by private landowners for personal/local use as a result of the Scottish Renewables Order.

Of the 10 major schemes in Scotland six are operated by Scottish & Southern Energy and four by Scottish Power. One other large scale scheme operated in the Highlands is the Kinlochleven/Lochaber scheme developed by the British Aluminium Company.

In addition to the major schemes Scottish & Southern Energy also operate smaller schemes at Loch Dubh, Gairloch, Lochalsh, Morar, Kilmelfort and Glen Lussa in the Western Highlands and Gisla, Chliostair, Storr Lochs and Tobermory on the Islands.

Virtually all of these schemes involve some element of impoundment and storage of water in reservoirs. Some of the larger schemes will involve the diversion of water from smaller sub-catchments into reservoirs and in some cases there are inter-basin transfers of water from one major catchment into another. In all it is estimated that there are in excess of 1000 'offtakes' in Scotland associated with these schemes.

Navigation

British Waterways Board ("the Board") has the power under s10(3d) of the 1962 Act to abstract and sell untreated water from any inland waterway owned or managed by the Board for any purpose, subject to restrictions by the Transport Act 1968. Section 63 of the 1962 Act lays down restrictions on the abstraction of waters from inland waterways operated by the Board. It is estimated that they make approximately 500 abstractions.

Future Status of Abstractions

SEPA estimates that in future 20,000 abstractions will be regulated under the new regime, of which 14,000 will be covered by registrations, 1,800 covered by GBA and GBR, 3,300 covered by licences. In the period to 2009 it is anticipated that registration and licences will be issued in line with proposed policy discussed in section 2.2

2.3.2 Impoundments

Current Situation

Scotland's abundant water resources have been harnessed for many years for different aspects of human activity. This has often involved the impoundment of a body of surface water behind a dam to facilitate abstraction or the regulation of flow. Impoundment structures in Scotland range from the many headpond structures for small scale abstractions to the relatively low number of large impounding reservoirs used for public water supply and hydro electricity generation purposes.

There are 16 acts which relate indirectly to the identification and control of different types of impoundments or impoundments in different sectors. A list of these is provided in Appendix 2.

There is no single comprehensive source of data on impoundment structures in Scotland. This hinders an assessment of present activity and indicates a significant future task - the collection and collation of information necessary to assess impact and to implement the Directive.

The main sources of information are briefly identified below.

• The Reservoirs Act 1975 ("the 1975 Act") places duties on local authorities relating to inspections and reporting and enforcement of remedial works for impounding structures which enable more than 25,000 cubic metres of water above the natural outlet level to be retained. As a result records of these major structures are available though the many small structures which intercept and divert headwaters into those reservoirs may not be.
• Impoundments by recent small scale HEP schemes are held by Local Authority Planning Departments.
• SEPA also operates river gauging stations where weirs have been constructed and in total there are 62 such impounding structures in Scotland.
• Impoundments identified from the post-1945 Water Orders in Scotland.

Table 2.3 Summary of Existing Impoundments and Future New Impoundments

The main drivers for new impoundments are likely to be:

Government targets for developing renewable energy in order to reduce CO₂ emissions and financial support via Renewables Obligation Certificates (ROCs) are providing an incentive to new hydropower developments. SEPA has been consulted on thirty nine new hydropower schemes over the last three years and while many of these are small 'run of river' schemes there are a significant proportion that include proposals for new impoundments.

Scottish Water reviews its water supplies as part of the business planning process which may give rise to development of new impoundments;

Further demands for potable water for private supplies may be associated with new development in rural areas and associated high charges for supply from public providers;

Continuing climatic change is likely to place a particular stress on crops in the growing season and financial returns for high value fruit and vegetable crops may well increase the demand for impoundment associated with abstraction for this purpose;

Increasing leisure time and fiscal incentives to create or restore wildlife habitats may well lead to a steady demand for the construction of new impoundments for this purpose.

2.3.3 Point Source Pollution

Currently, there are 100,000 discharges regulated under COPA, of which 8,600 are chargeable by SEPA (pers.com. Martin. Marsden, SEPA). Discharges to water are licensed and monitored under COPA. In addition to these there are a number of licences regulated under PPC which have aqueous discharges. Table 2.2 categorises discharges by sector.

Table 2-2 Chargeable Consents Under COPA Presented By Sector

* 95% accounted for by Scottish Water

Source: SEPA

In the short term it is proposed that these existing consents will be transferred to the proposed licence regime. In the longer term it is likely that licences will increase both with industry and domestic growth, new developments and as the WFD requirements for Priority Substances is introduced. Table 2-3 indicates which sectors are potentially using priority substances.

Table 2-3 Numbers of Sites Potentially Using Priority Substances

Source: SEPA

2.3.4 Engineering

The regulation of new structures affecting inland water bodies and the also the maintenance and repair works for all new and existing structures will be consolidated under the new regulations. Currently regulation of structure and works is undertaken under several different acts and regulations.

The Town & Country Planning (Scotland) Act 1997 provides the regulatory framework for development defined as "the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or land". In the context of watercourses, such activities might include: -

• Bank revetment works including the placing of gabions and buttresses;
• Removal or relocation of single shingle banks;
• Construction of new gravel beds;
• Deepening of the river bed and pools by excavation;
• Widening the river bed and pools by excavation
• Altering the course of a river by way of a constructing or placing obstructions to flow and/or excavating new channels;
• The importation of boulders or other material found in the river and the placing of such boulders or material into the river channel;
• The construction of groynes, croys or other flow deflectors.

In broad terms, planning control affords the opportunity for many developments associated with waters to be assessed, particularly where they fall within the requirements of the Environmental Impact Assessment (EIA) (Scotland) Regulations 1999. EIA are categorised by Schedule 1 or 2 of the Regulations. Developments which fall within Schedule 1 are typically large scale with the potential to impact on the environment. These will always require an EIA. Schedule 2 developments are smaller works that may require EIA depending upon their scale, nature, location and their potential for significant environmental impact. Examples of development that relate to the requirements of the Directive and which may come under EIA (Schedule 2) include:

• Water management for agriculture, including irrigation and land drainage where works would result in permanent change to more than 5 hectares of land;
• Intensive fish farms designed to produce more than 100 tonnes of fish per year;
• Flood relief works where the area would exceed 5 hectares or 2km river length; and
• Extraction of minerals in fluvial waters where more than 100,000 tonnes of material will be extracted per year.

Under the Flood Prevention (Scotland) Act 1961 as amended by the Flood Prevention and Land Drainage (Scotland) Act 1997, the Local Authorities are given various duties. These duties include assessing whether the condition of any watercourse is likely to flood non-agricultural land within or out with their area, and to cleanse, repair or otherwise maintain the watercourse in a due state of efficiency where such operations would substantially reduce the likelihood of flooding of such land. Such operations are not subject to planning procedures. Local Authorities have discretionary powers to construct, alter or remove any watercourse or barrier or embankment or other work for defence against flooding of non-agricultural land if this is in accordance with a flood prevention scheme made by the local authorities and confirmed by Scottish Ministers. The Act provides for public notification of the scheme and all objections must be heard before a public local inquiry. Ministers may confirm, with or without modifications, or refuse to confirm a scheme. Schemes may also be subject to planning and EIA procedures, unless the proposed works were considered to be permitted development.

The Roads Authority (RA) in terms of the Roads (Scotland) Act 1984 may be the Scottish Executive, its contractor in terms of Design Build Finance and Operate Regulations or LAs. Under the Act, the RA can effectively move any watercourse or construct culverts or bridges without due consideration of the impact that the action may have on aquatic and associated habitats and hydromorphology. Larger projects require assessment in terms of the EIA Regulations. Some protection is afforded by the Special Requirements, but these are not applied universally or for all engineering or road construction projects.

The Salmon Fisheries (Scotland) Act 1868 contains offences potentially relating to engineering activities undertaken in watercourses used by migratory salmonid fish (salmon and sea trout). Essentially, under Section 19 of this Act, it is an offence to disturb the spawning locations or the eggs deposited in these locations of migratory salmonids or to prevent access to these locations by returning adult fish. However, as eggs will only be deposited in spawning locations during winter and early spring months this makes the offence less clear at other times. Additionally, there are provisions which detail exemptions to the Act (eg clearing or repair of dams and mill lades) and which allow works to take place as part of exercising the rights of property. This would, potentially, allow the owner of the river bed to undertake works under his or her rights of property.

The Salmon (Fish Passes and Screens) (Scotland) Regulations 1994, (made under Section 3 of the Salmon Act 1986) require that the owner or occupier of a dam on a salmon river must ensure that it is provided with a fish pass to allow free passage of migratory salmonids unless the dam itself does not form a barrier to passage. Additionally, the owner of an offtake from a salmon river must adequately screen the intake and outfall.

These acts and regulations do not cover all potential cases and include various potentially important exceptions. Land drainage works provide an example of an unlicensed activity on agricultural land where no public money is spent. Such works can be extensive and may lead to significant alterations in hydromorphological quality with resultant impacts on ecological status.

There is the potential for current legislation to conflict with a new regulatory regime implemented to meet the requirements of the Directive. In the longer term it will be necessary to consider the most appropriate means of integrating new Directive legislation with that existing already.

SEPA has provided an assessment of the potential number of structures and works which will require regulation. This includes 500 registrations, 500 GBA and 150 licences. It is not clear what proportion would already have been regulated under existing legislation by for example the Town & Country Planning (Scotland) Act 1997 and, or EIA.

3. COST ANALYSIS

3.1 SEPA

The expected numbers of regulated activities under the new regime to 2009 are detailed in Table 3.1 below.

Table 3-1 Breakdown of activities to be regulated under the new regime

Source: Martin Marsden, SEPA

It is anticipated that all large COPA users will be brought into the scheme over the first 6 months of the regime: April 2005 to September 2006, whilst small COPA users, currently numbering 80,000, will be transferred into the regime between April 2006 and March 2007. It is only possible to estimate such figures at this point in time. Figures for engineering are less easily anticipated as these are one-off activities and their regulation has been on an ad-hoc basis.

Table 3-2 Estimated number of FTE required to deliver the regulatory requirements of new regime

Source: SEPA

Table 3.2 presents provisional estimates by SEPA of the number of FTE's required to deliver the regulatory requirements of the WEWS regime. These figures do not include resources required for environmental monitoring, RBMP planning nor support services. The dominant resource demand over this period is determined by the review of all authorisations over the period 2005 to 2010. This review process will also take account of other legislative drivers for reviewing authorisations including Dangerous Substances Directive and Habitats and Species Directives.

Once issued, all licences would then be reviewed within the following five year period to ensure that they are 2012 compliant. This activity presents the largest regulatory demand over the period 2005/6 to 2008/9. Regulatory costs will not commence until 2005/6, as the regime comes into operation.

SEPA will need to designate quite substantial spending to publicising and making business, as well as the public, aware of the new regulatory regime. Many small and domestic water users, which are presently unregulated by SEPA will need to be brought into the new regime, submitting applications in due course. The values provided in Table 3.3 include the cost of publicising the new regime and all consultation processes.

Information Systems (IS)

As the separate regime operated under PPC will need to be in place by September 2004, and the WEWS regime by April 2005, SEPA has taken the opportunity to develop a new, generic database in support of the regulatory regime. It is therefore difficult to attribute costs and benefits directly to the WEWS Act. Establishing the new regime under PPC will in turn meet 60-70% of the reporting requirements for the WFD.

3.2 Business by sector

(Further data is required for each of the business sectors for a full RIA)

3.2.1 Abstraction

The regulatory regime is to be put in place in 2005, requiring the registration, application of binding agreements and licensing of abstractors. The costs and impacts of introducing the regulatory in the period to 2009 are likely to be:

a) Administrative resource cost in registering the abstraction and providing information to identify the level of regulation;
b) Financial cost of charges introduced from 2005 for registration, GBR, licences;
c) Additional operating costs for any additional monitoring of water use or environmental impact ;
d) The regime will not impose WFD requirements until 2012. Investment to deliver these requirements would have to be delivered so that the construction of mitigation measures is complete by December 2012. Any substantial changes in water use up to 2012 would be regulated to ensure no deterioration in environmental status.

Those using water from the mains will indirectly be impacted on through water charges made by Scottish water for increased costs resulting from the above.

The sectors most dependent on abstracted water were fish farming (100% of firms abstracting), malt distillers (96%), mineral water/soft drinks (86%), paper (78%), vegetable processing (67%) and chemicals (50%).

Based on a postal survey reported by CJC Consulting (2002) the major water using sectors (total use comprising abstracted water and mains supply) are fish farming, water supply (Scottish Water), malt whisky distilling and paper manufacturing. The chemicals, food processing and agricultural sectors are also significant users (see Table 3.3). The major water using sectors were also the major abstractors in volume terms.

Table 3-3 Main Water Users By Sector

Note (1) relates to vegetable processing
Source: Based on CJC (2002)

Approximately 545 main abstractors have been identified of which agriculture, distillers, fish farming, ores and minerals are the most numerous.

Table 3-4 Main Abstractors Identified by Sector

Source: Summarised from CJC (2002) Table 5.2

The water cost to different sectors, based on 1998 input-output information suggest that water costs are a small proportion of a businesses costs, generally less than 1%, see Table 3.5. The Table is only informative about mains using sectors because the cost of directly abstracted water is generally very low and is unlikely to be identified as a water cost purchase in the table. Even if water costs were to double, the impact on industry costs would be low. Other industries such as distilleries and fish farming are located close to water sources for various reasons including the need for large volumes of water, the quality of the water, and its cost.

Table 3-5 Water As A Percentage Cost of Total Costs

Source: CJC (2002)

Costs to Scottish Water
(Further consultation would be required with Scottish Water for a full RIA)

Scottish Water expect to incur charges over the period to 2009 for:

• Resource costs of the administration involved in registering abstractions;
• Additional capital expenditure required from 2006 to respond to the conditions of the abstraction licences and any other regulation of supply imposed by SEPA;
• Additional operating costs reflecting demands made in licences by SEPA for improved monitoring, site maintenance and environmental impact assessment.

These costs have been explored with Scottish Water by CJC (2002) for the period to 2013. Their findings are summarised in Table 3.6, and have been adapted for the purposes of this RIA to reflect the potential costs to 2009. These will need to be re-visited in the light of the forthcoming stakeholder consultation.

Table 3-6 Summary of Potential Annualised Costs of WFD to Scottish Water to 2009

There are approximately 800 abstractions identified as public water supply in Table 2.3.

SEPA will issue licences during the 2005-2009 period with conditions to be met by 2013. It is not clear what these charges would be, however, CJC (2002) make a best estimate that this may costs £1.6m /year. This figure is based on the scheme of charges used by the Environment Agency, and assuming that possibly 75-80% of the additional SEPA cost of £2.0m per year would be recovered though licence charges on Scottish Water. In practice much will depend on the charging structure that is ultimately established by SEPA.

Additional capital expenditure would include the capital works that are needed to maintain regional supplies in situations where abstraction levels are reduced or compensation flows are required. Investment will be required to manage compensation flows and to enhance supply and its distribution from other existing or new sources. Scottish Water may in appropriate circumstances invest in leakage reduction where it can be demonstrated that it is economic to do so to reduce abstraction demand.

Scottish Water will also be required to invest in raw water metering at a number of locations. Existing meter installations in all but the larger or more modern plants are generally older generation units that will require to be replaced. In a number of sites raw water metering currently does not exist. The main investment period will be from 2006 to 2013. There will be some phasing in the early years with more substantial investment later.

It was not possible to calculate with much precision the likely additional capital costs to Scottish Water. This can only realistically be done when licence conditions are established and least cost options investigated. However, after discussion with Scottish Water CJC (2002) estimated that a reasonable maximum figure would be a rolling programme of capital investment of £25m per year. The amount would be likely to reduce as the investment required by the licence conditions is put in place. The most expensive scenario would be that £25m per year is required during the years 2006-2013 (8 years). If it is assumed that £25m per year is required for 8 years, the present value (at year 2005) at the test discount rate of 6.0% is £155.2m. This converts to an annual charge over 40 years at 6.0% of £10.3m per year. If the same assumptions are made but the analysis is only to 2009, annualised costs for the period 2005-2009 would be £7m per year.

Scottish Water will be required to register 800 abstractions for licence purposes and to review all Water Orders to ensure compliance with consented limits. Whilst, in general, larger sources comply with Water Orders, a large number of the smaller sources historically either do not have Water Orders or exceed the abstraction limits set. Calibration will become an important feature of operational work in order to ensure an adequate audit trail is kept of all abstractions. It is expected that the Directive will lead to tighter compliance with its associated costs.

Most changes in operating costs may only be incurred once licences are enforced are therefore are not expected to be realised until after 2009². Approximately £45,000 are identified as additional operating costs for the period to 2009. These are registration costs only and any costs for improved monitoring, site maintenance and environmental impact assessment which may be required prior to 2009 are excluded. The identified cost and assumptions will be confirmed in the forthcoming consultation with stakeholders.

Additional operating and capital costs excluded from the approved business plan may be logged up and reclaimed, if agreed by the Water Industry Commissioner (WIC), through future increases in customer tariffs. In such a case the actual cost to the company will be mainly in terms of managing its cash flow position. This may require additional short term financing.

The additional costs to the customer are not known, however the example used by CJC 2002 suggested that if it costs of £13.4m per year were to be raised, this is the equivalent of 3.4% of the 2001 revenue or 3.2% of the 2002/3 water services revenue.

Costs to Other Businesses

Apart from expenditure that may be required to measure and monitor the volume of abstracted water, businesses will only suffer additional costs when licences or abstraction bans are introduced. At present this is expected to be after 2009.

3.2.2 Point Sources

(This section could be developed more fully following stakeholder consultation on controlled activities in March 2004.)

The expected costs incurred by firms operating under the current COPA regime will be limited to:

• Resource costs of the administration involved in registering activities;
• Additional costs should registration or licence fees be increased in comparison with existing chargeable consents;
• Potential additional costs of monitoring discharges.

Scottish Water will be most affected having 3,300 discharge consents. If registration is required and based on the registration process being a simple transfer task, taking one hour to produce, it is estimated that this would require 2 people for a year. This may be done by junior staff at a cost to the company of £25,000 person year. This assumption and other information will be developed following formal stakeholder consultation.

3.2.3 Engineering Works

Sectors and organisations undertaking engineering works include SEPA e.g. flood defence maintenance works, local authorities, transport and highways authorities, fish farming, port authorities, housing and developers, hydropower and others.

The costs likely to be incurred by such organisations to 2009 would include:

• Resource costs of the administration involved in registering activities;
• Additional costs for works compliance due to the more systematic process;
• Charges as they are introduced.

Fuller consideration of what these costs may amount to as a proportion of such works and the extent to which these will be absorbed or passed onto the final customer or taxpayer will be developed after formal stakeholder consultation.

3.3 Benefits to Scotland

Efficient regulation

The introduction of a single regulatory system covering all impacts upon the water environment provides the opportunity to develop a highly efficient regulatory structure.

SEPA is preparing an integrated control regime, where area teams cover all impacts associated with point & diffuse pollution, abstractions, impoundments and engineering. The intention is to produce single integrated licences for a site which covers all aspects of water use. In most circumstances, this means that one officer can cover all issues on a site.

In England and Wales, the Environment Agency has separate functions covering the regulation of water quality and water resources. Separate licences are produced covering discharges, abstractions and impoundments. In most other EU countries such as Ireland, Denmark, Germany and Sweden, there are separate regulatory controls over pollution and water resources and these are split between National Environmental Protection Agencies, and several tiers of local authorities. These approaches have the potential for duplication of regulatory effort.

An illustration of the potential efficiencies provided by the new Scottish regime is the development by SEPA of a new generic IS system . This joint PPC/WEWS system will allow for the development of a national electronic register and ultimately web-based application forms (see Appendix 3).

The extent to which efficiencies can be delivered will depend upon the extent to which the regime is truly risk-based. SEPA currently considers that about 80% of activities will be covered by registration and GBR. Under this scenario, administrative effort will be minimised and resources can be focused on delivering environmental benefits.

Efficient environmental protection

The current Scottish system of protecting the water environment is split between a number of regulatory authorities. The new regime will allow SEPA to provide an integrated system of monitoring and regulation. This is important because the main impacts upon the water environment interact. Abstractions result in less water in a river and therefore less dilution for discharges. As a consequence more stringent discharge standards are required. Straightening rivers reduces its self purifying capacity making it more vulnerable to pollution. It also increases the risks of flooding. The rate of release of water from a dam affects the level of abstraction which is possible downstream.

Currently SEPA is a pollution control authority. Its actions to improve the environment are focused upon point source discharges. Its takes action against discharges even if it would be more cost effective to increase dilution in a river. In future, SEPA will be able to discuss with stakeholders the most cost-effective means of delivering environmental protection. It will be able to look at the water environment as a whole and consider which measures would deliver the greatest overall improvements. The expectation is that investment in the delivery of environmental improvement will deliver greater scales of environmental improvement.

Benefits For Business

The WFD requires the application of controls over pressures upon the water environment in a consistent manner across the European Union. The benefits to business provided by the form in which the Scottish regulations have been developed are linked to competition and River Basin Management Planning .

Competition. The WFD requires the Programmes of Measures to be in place by 2012. This means that for the first time investment planning in the water sector will be synchronised across Europe. The resultant peaks in demand for consultants/contractors towards the end of each 6 year cycle will lead to higher prices. In Scotland, SEPA will start issuing WFD compliant authorisations from 2005. This will give water users the maximum amount of time to plan the delivery of any required measures. It should be stressed that SEPA estimates that it will take about 5 years to review all the authorisations, so some water users will not receive their 2012 conditions until 2010. The work will, however, be prioritised so that the discharges which have the largest impacts, and therefore potentially the largest costs, are reviewed first. This will provide Scottish industry with a competitive advantage compared to the rest of the UK and potentially the rest of Europe.

RBM Planning. SEPA will be setting WFD compliant consents which aim to deliver good status over the period from 2005. When the first River Basin Management Plan is produced in 2009, it will set objectives for 2015, 2021 and 2027. By 2009, much of the work to deliver the 2015 standards will already have been delivered.

The longer term objectives (2021 and 2027) will allow Scotland to determine the priorities for investment to deliver improvements to the water environment. The plan will also determine where the levels of environmental protection can be varied to ensure appropriate local conditions. This particularly applies to areas designated for the protection of, for example, drinking water or shellfish or bathing waters. This planning process will provide the necessary long-term context to support business confidence.

This in turn allows business and the public sector to use the most cost-effective means to achieve the identified objectives, a point which received general recognition in the submissions made to the Transport and the Environment Committee, 16th Report 2002 Annex C: Oral evidence and associated written evidence.

(Further data is presently unavailable. However, it is anticipated that wider benefits could be identified for Business and Scotland within a full RIA)

4. RECOMMENDATIONS

On the basis of the draft findings provided in this interim report, it is recommended that further research is conducted to address the various gaps in data which could not be supplied at this time.

In particular there is a need to identify if additional EIA's or other items will be incurred in registration, the extent to which any additional site monitoring for abstraction or discharge purposes will be required prior to 2009, the costs of this for large and small businesses.

In particular, it is recommended that full use is made of the Stakeholder Consultation in March 2004, engaging the key business and public sector groups which will be affected by the new regulatory regime.

REFERENCES

Scottish Statutory Instrument 2003 No. 562 (c.30) Water Environment and Water Services (Scotland) Act 2003

http://www.scotland-legislation.hmso.gov.uk/legislation/scotland/acts2003/20030003.htm

WRc (2002) Costs and benefits of Implementation of the EC Water Framework Directive (2000/60/EC) in Scotland. Report to the Scottish Executive.

Scottish Environment Protection Agency (2002) The Future of Scotland's Waters. Guiding Principle on the Technical Requirements of the Water Framework Directive

CJC Consulting (2002) Evaluating the Economic Impact of Abstraction Controls on High and

Medium Volume Water Users in Scotland. Report for the Scottish Executive Environment and Rural Affairs Department Water Environment Unit.

MLURI and Cambridge University Farm Potato Unit (2002) Evaluating the Economic Impacts of Irrigation Controls. Report to SEERAD

GLOSSARY OF TERMS

Footnotes

^1. Coastal and Estuarine water are already covered under the Food and Environmental Protection Act 1985.

^2. These costs include: possible additional treatment costs, if abstraction changes result in greater use of alternative lower quality supplies; possible additional tankerage costs. CJC (2002) estimated that these increases in operating expenditure might cost £1.5m per year

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