water abstraction licences

Water abstraction (extraction) for industry, agriculture and drinking water, is regulated by the Environment Agency (EA) through the abstraction licensing system.  Abstraction licence trading allows a licence holder to sell their water rights to a third party.  This is beneficial because, with the exception of high-flow river water, no new licences are available throughout most of England and Wales.  The only means of securing a new, year-round supply of water is, therefore, through an abstraction licence trade or by purchasing it from a water company.

The EA encourages licence trading because it allows them to allocate water resources in a way that meets demand and supports the environment without the abstraction of additional water.  The EA is however, subject to the requirements of the Water Framework Directive which demands that they reduce licensed abstraction in areas where water resources are under stress and abstraction is unsustainable.  Most of the rivers and groundwater supplies (aquifers) in the east and south east of England are calculated to have unsustainable levels of abstraction with large parts of Wales, the south west and north of England also affected. In an effort to return abstraction to sustainable levels the EA has recently started to use water trading as an opportunity to reduce licence volumes. This policy has significantly suppressed licence trading activity in recent years.

Abstraction licence trades fall broadly into three types:

  • ‘Water transfers’ where the abstraction licence is included within the sale of land.
  • ‘Non-regulated trades’ where there is no requirement to change the terms or conditions of the licence, for example; supplying water by pipe to a neighbour to use for the same purpose.
  • ‘Regulated trades’ where the point of abstraction or its purpose changes.

Because there is no requirement to change the terms and conditions of a licence in a ‘transfer’ or ‘non-regulated trade’ the EA has minimal involvement in these processes.  ‘Regulated trades’ on the other hand, allow the EA to change the conditions of the licence including making quantity reductions.

Restrictions on abstraction licence trades

The EA generally limits the area in which trades can take place to within the same groundwater and river catchment.  This is to ensure that abstraction impacts are not transferred from one catchment to another.  Exceptions can be made if significant environmental benefits are likely to arise as a result of the trade.

Where the trade involves a change in purpose, the EA will apply a consumptive loss factor.  This takes account of the change in the proportion of water that is returned to the environment after use.  More water will be returned from vegetable washing, for example, than from spray irrigation and the quantities allowed for the trade will reflect this change in purpose.  In water stressed parts of southern and central England, the EA applies a sustainability reduction which caps the quantities allowed for a trade to the peak historic licence uptake between the years 2005 and 2015 (2000 to 2015 for spray irrigation).  In the east of England where resources are even more stressed the EA caps tradable quantities to the average annual licence use between 2007 and 2012.  The combined effect of these sustainability and consumptive loss reductions can mean that there is a significant difference between the amount of water stated on the licence and the amount available to trade.

Although the EA is taking steps to make licence trading easier, including the development of an online trading platform and the introduction of temporary (rapid turnaround) trades, the limits on the spatial extent of potential trades and the risk of losing a large part of the licence has placed a strong chilling effect on regulated trading activity.  Informal (unregulated) trades are however, very common, particularly within the agricultural sector.  Because of this informal nature, it is not possible to place a figure on the number of unregulated trades taking place but industry experts estimate that up to 25% of agricultural abstraction relies on traded water.

Abstraction licensing 2020

The dry spring across the whole of the UK in 2020 caused many farmers to draw on their abstraction licences significantly earlier than usual and by early July many were beginning to run short of water.  Heavy rainfall in the north and north west of the UK alleviated this problem for some, but the rain did not extend to the eastern side of the country, leaving many irrigators in the East and South East of England with high soil moisture deficits and insufficient water to finish their irrigation season.   This increased interest in both temporary and longer term water trades in these areas.

If you are interested in either selling or buying water abstraction licences, Townsend Chartered Surveyors trade UK wide and can advise on applying for new licences and other water related issues.

Hugh Townsend

Hugh Townsend
FRICS. FCIArb. FAAV.

01392 823935
htownsend@townsendcharteredsurveyors.co.uk