Water scarcity requires a balanced policy approach that supports conservation while recognising the essential role of water in safe and efficient chemical manufacturing. The UK faces growing pressure on water supplies, with the Environment Agency warning of a potential 5 billion litre a day shortfall by 2055 unless action is taken to reduce demand, cut waste and increase supply. This important challenge must be addressed in a way that incentivises efficiency without undermining critical industrial operations or the wider supply chains they support.
The need to conserve water – now and in the future
In July 2025, the Environment Agency warned that we could have a 5 billion litre of water a day shortfall by 2055, unless action is taken to reduce demand, cut waste and increase supply. It also warned that climate change, population growth, and environmental pressures are affecting supplies with the predicted shortfall equivalent to a third of our current daily use.
The CIA supports the need to conserve water. Efficiency is ingrained into the chemical industry, with the sector constantly innovating to maximise yield while minimising energy, water and waste – it makes business sense. In addition, our sector is one of the most highly regulated sectors. Permits include legal requirements to carry out periodic water efficiency audits.
However, it must also be recognised that safe operations require sufficient water to adequately cool processes and abate emissions. Many processes fall under COMAH (Control of Major Accident Hazards) legislation which requires critical safeguards and emergency response systems to be in place to prevent fires and emissions of harmful pollutants. Water is of paramount importance for many of these safeguards and cannot be compromised. The CIA works closely with the Environment Agency water resilience team to pursue water saving options for the chemical sector.
What does the Government currently propose to address water scarcity issues?
The July 2025 Independent Water Commission Final Report recommends that charging structures be changed to incentivise water efficiency. However, they also note that in the short term, improving water efficiency may conflict with efforts to keep business costs low. Following this, Defra published its Water White paper 2026. This ‘Vision for Water’ includes an action to increase wholesale water charges, subsequently leading to Ofwat proposals to remove existing large water user discount for non-domestic water users, meaning they pay the same volumetric price (£/m3) as domestic users. The suggested intent of the proposal is to encourage large water users to become more water efficient – driven by cost impact alone. Water wholesalers have subsequently started to remove large water user discounts from April 2026, although some plan to remove them later e.g. by 2030. However, users pay for water based on the cost of its supply. Therefore, historically large users who are typically located relatively close to main water supply and treatment sources and infrastructure requiring less maintenance meant the cost of water supply is much less per unit volume. This ‘cost of supply’ does not appear to feature as part of the Governments changes to charging structures.
Aside from charging mechanisms, the Governments vision also plans to bring water abstraction licences into EPR (Environmental Permitting Regulations) i.e. into site operational permits. This, alongside new powers to reduce abstraction licence volumes or to revoke licences starting early on in 2028, will result in a much tighter focus on water consumption more broadly, with regulators able to restrict supplies where water scarcity is a major local concern.
Ofwat will publish a statutory consultation on proposed changes to their wholesale charging rules later this year. These proposed changes are expected to clarify that long run costs include water scarcity, and allow differences in charging to reflect environmental considerations, including incentives to promote water efficiency, as well as network characteristics.
The Government will also issue a Water Bill (Kings speech announcement) this summer. It may contain some support for growth, which could be used as part of future negotiations with water wholesale providers.
Impact of Ofwat’s proposals for the chemical industry and wider supply chains
The natural economic incentive for chemical sites to reduce water consumption means there is very little can be done with existing facilities to improve water efficiency. Therefore, the increase in charges will not achieve its aim of improving water efficiency but instead adds further cost and represents an anti-growth burden for industry. The cost for a few chemical sites is estimated to add another £50million per year in water fees alone. In addition, these very sites provide key products to Critical National Infrastructure Sectors (including the water sector) as well as being key to our Industrial Strategy Growth sectors. The government stated in the white paper that they will develop an assessment of critical supply chains for the water and wastewater industries, with a specific focus on chemicals. The CIA supports this and will use it as an opportunity to communicate the importance of our sector to the water Industry.
CIA’s Position
The CIA strongly opposes plans to remove the large water discount. It is unfair (due to the lower maintenance price per volume of water supplied) and penalises those who are likely most efficient already just because they have large operations.
Instead, a different approach is needed – one that provides fairer incentives and one that does not penalise already water efficient operations. CIA also calls for special provision and protection for chemical sites that are key for critical national infrastructure such as the water sector.
As a minimum, water discounts should not be removed before smart metering is widely in place, so businesses have better data on their water use i.e., prohibit significant price rises before 2030. This would also help to avoid widely fluctuating water prices across the UK, which would also impact planning and investment.
