Lax regulation leaves water sector in crisis
In May, the UK regulator Ofwat fined Thames Water, the country’s largest water company, £123m for failures resulting in significant sewage spills and inappropriate dividend payments to shareholders. The fine is the biggest penalty ever imposed by the regulator. In response, Thames Water said it takes its responsibility towards the environment ‘very seriously’, adding that it continues to search for investment to help relieve its £20bn debt.
The UK’s water sector faces a severe crisis characterised by financial instability, environmental harms and lack of public trust. This crisis stems from the long-term consequences of privatisation, inadequate regulatory oversight and underinvestment in infrastructure. The total debt of the UK’s 12 water companies stands at £65bn.
‘The water sector has been poorly regulated for decades,’ says Jo Maugham, Director of the Good Law Project, which has been involved in various legal challenges against water companies for their sewage dumping practices. ‘It has been poorly regulated primarily by allowing water companies to over extract water from aquifers and reservoirs but also cash from operating entities within the water companies, and they’ve been allowed to underinvest in water infrastructure,’ he says.
Since July, over 81 criminal investigations have been launched into sewage dumping by water companies and UK bathing water quality is the fifth worst in Europe. Many experts believe the solution is to nationalise the water industry. Ewan McGaughey, a professor of law at Kings College London, argues that the government could use a process called special administration to take over Thames Water for a minimal cost. Under the 1991 Water Industry Act the process can be triggered when a company is heavily indebted or seriously underperforming. He says that public ownership is the best way to ensure ‘lower bills, higher water quality and investment in infrastructure’.
The water sector has been poorly regulated primarily by allowing water companies to over extract water from aquifers and reservoirs but also cash from operating entities within the water companies
Jo Maugham
Director, Good Law Project
Apart from concerns over the poor performance of water companies, the Environment Agency has warned that the UK faces a five-billion-litre water shortage by 2055 because of pressures caused by climate change, emerging technologies and an aging population.
Susie Alegre, a human rights barrister at Garden Court Chambers in London, who specialises in technology and human rights, says that the new data centres required for the government’s AI growth plans, which require large amounts of water to prevent them from overheating, will require a sustainable approach. ‘When you look at the scale of energy and water use in generative AI, compared to, for example, a straight Google search, we’re talking about 10 or possibly even more times,’ she says. Experts have predicted a typical data centre can use between 11 million and 19 million litres of water per day, the same as a town of 30,000 to 50,000 people.
Environmental organisations have raised concerns about the strain such giant data centres would put on already stretched supplies of drinking water with some of the areas where the data centres are set to be built being particularly vulnerable to water shortages. In April, non-profit Source Material published an investigation that found some of the biggest tech companies are operating data centres that use vast amounts of water in some of the world’s driest areas and are in the process of building many more.
Internationally, the water sector faces multifaceted issues including water scarcity, pollution, aging infrastructure and the impacts of the climate crisis. The World Health Organization estimates that two billion people lack access to safely managed drinking water and 3.6 billion people lack access to safely managed sanitation. ‘We have droughts all over the world leading to a reduction in rain levels and we also have rivers and lakes being contaminated, limiting the availability of water,’ says Kleber Luiz Zanchim, Co-Chair of the IBA’s Water Law Committee and a partner at SABZ Advogados in Brazil. ‘This requires from a regulatory perspective different actions to prevent new contaminations and to help areas that are sometimes far away from the water source’.
Zanchim says that the main challenges relating to the regulation of the water sector include ensuring the technology developed for water recycling is ‘widespread and at a fair cost’ and defining the water quality standards for human consumption, agriculture and other uses. He says PFAS – a group of chemicals used in many everyday consumer products – ‘is a huge discussion because it gets into the rivers and water resources and we still don’t have a clear perspective on the impacts on human health’.
The EU introduced a Drinking Water Directive, which is expected to come into effect in 2026, which limits the level of PFAS allowed in drinking water. Several countries, including the US, Denmark, Sweden and Germany already have stricter measures for PFAS levels. Research has shown that exposure to PFAS can lead to various environmental harms and health problems including an increased risk of certain cancers, suppression of the immune system and liver damage.
In South America, Zanchim says, cross-border agreements to regulate water quality and environmental impacts are not easy to reach because the countries in the region have other major issues they need to prioritise. ‘We don’t have the very well-structured regulation among different countries that we should have,’ he says, ‘because these countries have so many challenges – economic, social and so on – that make this is a secondary issue.’
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