The Government has set out plans to launches pilot water credits market scheme in Cambridge as part of its guidance to addressing water scarcity in Greater Cambridge.

The proposals have been set out in a paper published jointly by the Department for Levelling Up, Housing and Communities (DLUHC) and the Department for Environment, Food and Rural Affairs (DEFRA).

Government makes one-off commitment to address deficit in water supply through new water credits system

Introducing the scheme, the paper says:

“This paper provides an update on measures announced at Autumn Statement 2023 to increase water supply in the region over the longer-term in the Greater Cambridge area, and on plans to address water scarcity issues in the short-term.

“Recognising the unique context in Cambridge, the government has made a one-off commitment to work with local partners to address the deficit in water supply, until water companies bring major infrastructure online, through a new water credits system. This is underpinned by a major investment in measures to offset new demand for water in the area through retrofitting water efficient devices in existing buildings.”

The paper says that in order for growth to proceed in a sustainable way, the Government has developed a 2-part plan as follows:

1. Ensuring long-term water supply so that the city can grow in a sustainable way.by:

• Assuring the delivery of long-term major water supply infrastructure including the proposed Grafham transfer and Fens Reservoir.
• Supporting the development of a plan for strategic water resources over the long-term.
• Using Cambridge as an area for innovation in water management in agriculture and through nature-based solutions.

2. Supporting growth in the short-term so that development currently stalled can proceed by supporting increased water efficiency, reuse and offsetting, which will prime a ‘water credits system’.

Over 9,000 homes and 300,000m2 of commercial space currently unable to proceed through planning system

Currently, there are over 9,000 homes and 300,000m2 of commercial space unable to proceed through the planning system due to the Environment Agency advising that some water bodies in the Cambridge area are at risk of deterioration and that any new development that takes place must not to add to this adverse effect.

The pilot water credits system will be primed by up to £4.5 million to retrofit water efficient devices into existing buildings and offset projected demand of development coming forward.

“Ahead of introducing the system, we will work with the local planning authority, developers, EA and other key stakeholders to consider how the scheme will interact with the planning process. We are confident this overall package will be sufficient to address the EA’s concerns,” the paper says..

Water credits system will establish a market framework and a market operator

The Government will pilot a ‘water credits’ system where developers can offset their development through the purchase and sale of water credits to ensure they have a neutral impact on water scarcity within Cambridge. This will provide the mechanism for development to progress through planning while minimising the risk to the environment.

The Government is currently undertaking detailed design work for theme scheme and has now set out the following starting point.

The scheme will establish a market framework and a market operator who will oversee where ‘water credits’ can be allocated to developers to ensure that the impact of water demand from new development is neutralised. This will be in place as long as it is necessary. Initial government investment will be used to retrofit both household and non-household properties in Cambridge to provide the initial credits, with any property owners meeting the market requirements for retrofits able to supply the market in future.

The Government is also undertaking a pilot to understand the scope for nature-based solutions and other water saving measures to provide assured water savings through the market.

Once the system is up and running the market operator will match up buyers and sellers of water credits. Developers will be expected to increase levels of water efficiency and reuse (where possible), with the remaining water that cannot be reduced, offset through the purchase of credits. Water savings provided through retrofits will be monitored and assured, using water company metering data and assured through the EA and the market operator.

The paper says this will allow the EA’s objections on the grounds of water supply issues to be lifted to development identified as water neutral through the system. The Government is currently working on the requirements for the market and the operator and establishing the most cost-effective routes to retrofit with the support of local stakeholders.Detailed design work on the system is currently underway, ahead of launching it later this year. We expect to Further updates will be provided in due course, including on the appointment of a market operator.

The Government says it will work to ensure that the cost of the system balances the impact on viability with effectiveness of the system overall and will engage with developers to support that process.

Defra encourages water companies to provide developer incentives for meeting a standard of 110 litres per person per day (l/p/d) or lower, which could relieve some of the burden. Examples of this include the discount or zero charge provided by United Utilities, Severn Trent and Northumbrian Water. The United Utilities discount has saved developers more than £25 million and created a potential saving of 3.8 million litres of water per day. Thames Water also provide a £200 per home developer incentive for using the fittings-based approach.

The Government will work with Cambridge Water and Anglian Water to ensure they provide this and to quantify their level of support.

The paper says the Government is also working closely with regulators and the highest water-using sectors to identify opportunities for non-household consumers to move their usage off mains drinking water supply and utilise the opportunities offered by recycled water.

In addition, it is also working closely with MOSL and the retail market to consider innovative approaches to tariffs and how government can support the rollout of smart metering to improve data on water usage across the sector and make water efficient practices easier for non-household consumers.

Click here to read the paper in full.