Valuing water – how upstream markets could deliver for consumers and the environment

Water is a precious resource. Its importance is universally recognised. Over recent decades, it has become an increasingly prominent issue. We face a number of new challenges, including a changing and unpredictable climate, population growth in water scarce areas and affordability issues.

These challenges mean that we have to look carefully at how we use water. We need to value it and manage it responsibly. The problem is that we do not actually have a value for water. The price that customers pay reflects what has been done to get the water to the tap, but not the value of the resource itself. So, we must start valuing water, using a range of tools to reveal that value, including regulation and water trading.

One tool that we could use is a regulated upstream market. Markets give decision-making power to buyers and sellers. As buyers meet sellers in markets they reveal information, which should improve decision-making about both water resource use, and the investments needed. The area where markets could have the biggest role to play is the upstream processes of water and sewerage services delivery. These account for 90% of all investment in the sectors, and almost all their environmental impact.

Our ‘Valuing water – how upstream markets could deliver for consumers and the environment’ focus report explores one possible hypothetical model for a regulated upstream market. It considers how such a market could determine a value for water and allow the sectors to make more informed choices about providing stable and secure water and sewerage services in the future.

This model builds on existing proposals, adding some new ideas which we think will help make them more effective in practice.

We consider that our model would deliver a number of benefits for consumers, appointed water companies, new entrants and the environment. The main benefits are likely to result from the more efficient use of water resources and secure supplies over the long term.

Further information

The Cave review

  • ‘Independent review of competition and innovation in water markets: final report’, Defra, April 2009.
  • ‘Consultation on the Cave review of competition and innovation in water markets’, Defra and Welsh Assembly Government, September 2009.

The Pitt review

  • ‘Learning lessons from the 2007 floods’, June 2008.

The Walker review

  • ‘The independent review of charging for household water and sewerage services’, December 2009.

Other sources