Carbon and its impact on UK water industry investment and regulation
Water is one of the most underappreciated and undervalued natural resources in the world today. In delivering this essential resource, the water industry links available water to consumers and is responsible for safely returning it to the environment. As a vital link, the water services sector is confronted by many challenges along its service provision pathway; areas of risk include availability and quality of supply, infrastructure provision, population growth and demographic changes, and the impacts of climate change, among others.
In an unprecedented effort by a national government, the Climate Change Act 2008 made the UK the first country in the world to adopt a self-imposed, legally binding agenda to reduce greenhouse gas emissions in the near-, medium-, and long-terms. Spurred by the goal of an 80% reduction in greenhouse gas emissions by 2050 as compared to 1990 levels, the water industry has endeavoured to develop increasingly comprehensive emissions assessment tools under the guidance of varied governmental policies; however, given the Climate Change Act’s wide reaching implications across varied sectors, there lacks foundational knowledge of the interactions and implications such policies pose to the carbon reduction activities within the water industry.
Driven to explore these implications, Scottish water authorities called attention to the Government’s efforts towards ‘green’ power generation and its implications in water industry carbon accounting projections. Importantly, a large percentage of water industry emissions are derived from electricity consumption. Further, if carbon is an equal and separate criteria consideration for water specific capital investment projects, what is an appropriate rational for discounting, and how sensitive are such calculations on discount rate variations?
Continuing, given the aforementioned projected reductions in energy sector carbon emissions, is deferment of capital investment projects a viable mechanism to realise carbon reductions in water delivery and treatment? Exploration and research utilised published literature on government policy and available reports, previously accomplished academic research, as well as current industry practices and procedures. Specifically, analysis focused on hypothetical case studies developed in a 2008 UK Water Industry Research (UKWIR) report to compare outcomes of present value calculations performed on emissions accounting and their possible impacts on the overall cost benefit analysis determination.
The case study audit utilised prescribed UKWIR carbon accounting framework procedures and variable assumptions to establish baseline datasets to which comparative calculations were performed on key assumptions. Economic sensitivity calculations on discount rates and carbon pricing were conducted, and assumptions and estimates were made in the absence of mandates on a variety of dependant factors. Where common practice was established, dependant factors were varied to expose linkages and possible impacts of projected policies.
Overall analysis suggests if UK energy sector emission reduction targets are realised, whole life carbon quantification and monetisation for the water industry will be significantly influenced. Results suggest the ‘water-energy nexus’ produces a scenario where operational carbon emissions have decreasing importance in long-term carbon ‘optioneering’ scenarios with strong indications toward an emphasis on embodied carbon and emissions other than carbon dioxide to realise industry specific greenhouse gas emissions savings in real terms.
The overall monetisation analysis was hindered by the lack of comprehensive capital expenditure data, which prevented exploration of an appropriate carbon price to explicitly promote low carbon solutions within the given assumption (the carbon trigger points).
As the analysis produced an emphasis on embodied carbon, the remaining discussion focused on promoting activities to support embodied carbon reductions, barriers to carbon reductions, recommendations, and future action and work suggestions.