Stakeholders’ Responses to the Use of Innovative Water Trading Systems in East Anglia, England

Abstract

It is widely recognised that the current abstraction licensing system in England needs to be reformed to meet the challenges of future environmental flow requirements, likely increases in water demands and climate change. The UK Government has committed to the reform of the abstraction regime in England and work is underway, including the Welsh Government, to assess the impacts of different reform options, working closely with stakeholders. International experience reveals that the complexity of water management at a national level lends itself to common principles but ultimately that local solutions are required at a catchment-level to manage such challenges. Historically the number of abstraction licences traded in England is negligible. In the future the trading of abstraction licences and derivative water rights, for example water quotas, could play a key role in improving water use efficiency. This paper describes research that was carried out to add to this evidence base in the Upper Ouse and Bedford Ouse catchment in East Anglia with a number of stakeholders to document their response to two innovative water trading systems which have been termed “improved pair-wise” trading and the “common pool” approach. Improved pair-wise trading would allow for a hierarchy of types of short-term abstraction licence trades. Some trades between specific points in a catchment might be pre-approved if the risks to the environment were deemed acceptable. The common pool approach is based on the trading of water quotas, using “smart market” methods, which enable economic optimisation of market outcomes based on abstractors’ bids subject to realistic hydrological constraints. This method would allow all abstractors to bid into a common pool on a weekly basis to obtain their water. Both methods were demonstrated via two workshops to investigate the barriers and facilitators to water trading in practice. Participants were cautiously interested in the benefits offered by both methods, especially the ability to trade water at short notice. However, for these trading methods to play a key role in the reform of abstraction licensing the abstractors must have sufficient confidence that the underlying methods are sufficiently equitable, reliable and accurate.