Elizabeth Brubaker
October 2, 2009

Environment Probe’s comments on Stewardship, Leadership, Accountability: Safeguarding and Sustaining Ontario’s Water Resources for Future Generations, a Proposal Paper presented by Ontario Minister of the Environment John Gerretsen and Ontario Minister of Natural Resources Donna Cansfield.

Summary

Environment Probe advocates full-cost pricing for all water used by residential, commercial, and industrial users. No sectors – including agriculture – should be exempt from water charges. Municipal water charges should fully recover the costs of providing water and wastewater services. Provincial water charges should fully recover the costs of managing the resource. They should also reflect the value and scarcity of the raw resource and the amount of water consumed.

Part 1: Options for What Ontario Could Include in Its Water Conservation and Efficiency Strategy

We are pleased that, in Part 1, the government includes water charges under possible actions to promote efficient use and conservation. And we are pleased to learn that stakeholders expressed strong support for both water metering and conservation-based water pricing. But we do not believe that the government goes far enough in its promotion of pricing.

Water charges should not be seen as just one of many equally attractive potential strategies. Rather, they should be understood as a key strategy upon which the success of other strategies rests.

Properly calibrated, water charges will do much to help the province meet the objectives proposed in this paper. They will play an educational role, communicating to users information about the value of water. They will provide users with financial incentives to audit their water use and develop plans to maximize efficiency and minimize waste. They will promote investment in and maintenance of efficient water technology and infrastructure. They will encourage leak detection and repair. Myriad demands for greater efficiency and conservation will provide those in the water industry with incentives to develop innovative technologies. Combined, such practices and technologies will lead to the conservation of existing supplies and prevent or delay the demand for and development of additional supplies. Both the environment and the economy will benefit.

The body of the Proposal Paper suggests promoting municipal initiatives such as volume-based pricing and full cost recovery. A stronger option is relegated to the Appendix: Municipalities could be required to have a pricing structure that charges all users the full cost of providing water and wastewater services. We endorse the latter option.

Part 2: Proposals for Managing New or Increased Intra-Basin Transfers

Section 5 of Part 2 concerns administrative changes to the Permit To Take Water (PTTW) Program. Existing Environmental Bill of Rights regulations require most types of PTTW applications to be posted on the Environmental Registry for at least 30 days. Third parties may review and comment on the applications and may ask for an appeal of a permit decision to the Environmental Review Tribunal. Currently, applications for water takings for some agricultural uses are exempt from these requirements.

The government’s proposal to bring agricultural uses under this regime does not go far enough. The government proposes that PTTW applications for watering livestock or poultry or for irrigating crops be posted for public review and comment only if they involve a significant transfer of water between Great Lakes watersheds. Furthermore, such applications, if successful, would not be subject to the third-party appeal process that applies to other water takings.

The government justifies such exemptions on the grounds that they give farmers greater certainty. We believe that farmers require no greater certainty than other businesses. Agriculture is, in some parts of the province, a major user, polluter, and consumer of water. All of its water takings – including those that do not involve transfers between watersheds – should be subject to the same permit requirements, public scrutiny, and legal challenges as other sectors’ takings.

Part 3: Water Charges, Phase 2

Although we are pleased that the government is proposing to expand the provincial water charges program, we believe that the structure and application of the charges will undermine the program’s guiding principles.

The development of a water charge framework is to be governed by four guiding principles. Two concern the program’s purposes. The first guiding principle is cost-recovery: The framework should ensure that those who create the need for and benefit from water management programs contribute to the administrative costs of delivering those programs. Another guiding principle is efficiency: The program should promote more efficient water use. The remaining guiding principles commit the framework to being affordable, equitable, and administratively efficient.

Neither the proposed structure nor the proposed charges will satisfy the guiding principles. The government is proposing rates that fall to zero as the percentage of water consumed falls. While we agree that consumption is an important element in any pricing scheme (see below), we do not believe that this is the only factor to be considered. Consumption may not accurately reflect the administrative costs that the charges are intended to recover; such costs may be substantial even for low-consumptive users.

Furthermore, the proposed rates are far too low to curb water use. Current charges to high consumptive users are just $3.71 per million litres, amounting to a mere $0.0000037 (less than a thousandth of a cent) per litre. The government is proposing significantly lower rates for medium and low consumptive users – only $0.86 and $0.06 per million litres, respectively. Such charges, it maintains, will have a limited financial impact on the companies that will be paying them. Unfortunately, while meeting the guiding principle of affordability, charges with limited financial impacts will not meet the guiding principle of promoting more efficient water use. Indeed, they will likely have a negligible – if any – impact on water use decisions.

A better approach to pricing would involve several components. Prices should be designed to fully recover administrative costs, to reflect the value of the water used, and to reflect the extent to which the water is consumed. (These charges should, of course, be in addition to any charges imposed by municipalities or other suppliers to recover the costs of treating and distributing water.)

The guiding principles hint that charges “may suggest water’s inherent value.” They should certainly do so. Water’s value depends on many factors, including where the water is located, how plentiful or scarce it is, and how much competition there is for it. Charges should vary across the province to reflect such factors.

Water charges should be substantially higher for water that is consumed than for water that is returned to the source. (The former water is in effect being purchased, while the latter is merely being rented.) Whenever possible, consumption should be assessed for specific users rather than estimated for an entire sector. Furthermore, the definition of consumption should be broadened. The government defines consumptive use as the portion of a withdrawal that is lost or otherwise not returned to the source due to evaporation, incorporation into products, or other processes. We believe that consumptive use should be re-defined to include any use that makes water unavailable for other uses. Pollution, or any other use that precludes water from being used in other ways, should be considered a consumptive use.

We are also concerned about the government’s proposal to exempt some parties from water charges. Charges currently cover seven types of facilities that incorporate large amounts of water into their products. The government is proposing to expand coverage to include medium and low consumptive users. But charges will apply only to commercial and industrial water users, while residential consumers and farmers will be exempt. (Producers of hydroelectricity will also be exempt, but they already pay water rental charges.)

Such exemptions violate several of the framework’s guiding principles. Exempted users will not be contributing to the costs of management programs that benefit them. Nor will they have financial incentives to use water efficiently. Furthermore, exempting just one industry (agriculture) from the charges violates the guiding principle of equity. It is not equitable for one industrial sector to be given free water when all others have to pay.

It is telling that the Proposal Paper separates developing a water conservation and efficiency strategy (Part 1) from expanding the provincial water charges program (Part 3). These two programs should be closely connected, with water charges encouraging conservation and efficiency wherever water is scarce. This will happen only if the proposed water charges apply to all water users and reflect water’s value and the amount of water consumed.