The Department for Environment and Rural Affairs has launched a new consultation on its proposals to define the circumstances in which compensation would be paid to licence holders who have their abstraction licences withdrawn.

The topic could be on the agenda at today’s Water Summit being held by Environment Secretary Caroline Spelman to discuss the drought.

The proposals could have serious financial implications for the water companies and the agricultural sector in the light of the looming drought. Under the new proposals, after 15 July 2012, where a licence is varied or revoked, no compensation would be payable where the Secretary of State is satisfied that the grounds for varying or revoking the licence is to protect the environment from serious damage. The Agency is already having to take emergency action to protect fish as a result of falling river levels.

The Environment Agency is already suspending or modifying existing abstraction licences, while winter abstraction licence restrictions remain in place in theMidlands region (41), Anglian region (104) and South East region (200). The numbers of licences restricted change on a weekly basis with the change in rainfall. There are currently no licences subject to voluntary restrictions or formal Section 57 restrictions.

Last year the Agency called upon all water abstractors, including farmers and businesses, to look for ways to share and make the best use of limited water resources via setting up a water abstractor group. Some areas in the South East region are already setting up ‘virtual abstractors groups’ comprising abstractors from several local rivers.

The Agency’s regional teams are producing reports for spray irrigators to provide them with the prospects for spring and summer and has issued a 'poor' prospects for abstractors in the Anglian region.

Right to compensation can be removed in certain circumstances

The current abstraction and impounding licensing system has its legislative basis in the Water Resources Act 1991. Under this system the Environment Agency has powers to vary or revoke abstraction and impoundment licences. Where a licence is revoked or varied without the agreement of the licence holder, the licence holder may be entitled to compensation for loss or damage which he has sustained.

However, the Water Act 2003, which introduced a number of changes to further the compliance with the Water Framework Directive, contained a power (section 27) to remove the right to compensation in certain circumstances. After 15 July 2012 under this provision, where a licence, that is not a time limited licence, is varied or revoked, no compensation will be payable where the Secretary of State is satisfied that the grounds for varying or revoking the licence is to protect the environment from serious damage.

Defra and the Welsh Government have worked closely with the Environment Agency, to develop the consultation on the proposed approach to assessing serious damage.

The approach identifies the following three key principles against which to assess whether the damage is serious for the purposes of section 27:

• Establishing the extent and magnitude of the damage.
• Establishing the qualitative nature of the damage.
• Establishing if the damage is reversible and how long recovery may take

The impact of an abstraction on the environment depends on a number of factors, including for example the type/rarity of habitat or species affected, the scale and longevity/reversibility of the impacts and how these factors combine in specific cases.  The consultation has set out some worked examples to show how the assessment would be applied in practice.

Deadline to submit responses to the consultation is 3rd May 2012.