Water Taking Charges for Industrial and Commercial Water Users under the OWRA
In August 2007, the Ontario government filed O. Reg. 450/07 – Charges for Industrial and Commercial Water Users – under the Ontario Water Resources Act (OWRA) . This new regulation establishes a regulatory charge for the taking of water by prescribed commercial and industrial water takers.
Starting on January 1, 2009, all “phase one industrial or commercial water users” will be required to pay $3.71 for every million litres of water that they take each year. Although the authorizing provision in the OWRA allowed the charge to be applied to any commercial and industrial water taker, O. Reg. 450/07 prescribed only the following seven categories of commercial and industrial water takers that incorporate water into their products as subject to the charge:
- water-bottling facilities;
- beverage manufacturing facilities;
- fruit and vegetable canning or pickling facilities;
- ready-mix concrete manufacturing facilities;
- non-metallic mineral product manufacturing facilities;
- pesticide, fertilizer and other agricultural chemical manufacturing facilities; and
- inorganic chemical manufacturing facilities.
The government has stated that more sectors (such as the mining, pulp and paper, non-hydroelectric power, and recreational sectors) may be regulated in future phases, though no plans for a next phase have yet been announced.
The regulation states that the purpose of the water taking charge is to recover a portion of the costs that the province incurs in administering water management programs. The regulation also requires the charge rate to be reviewed periodically. In spring 2008, the government had already signalled that it intends to review the charge rate and look into “more appropriate” fees.
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Implications of the Decision
The regulation introduces a partial cost recovery system
Currently, the government finances – out of general tax revenues – a large number of water management programs intended to protect Ontario’s water resources. These programs include information-gathering programs (e.g., water quantity monitoring and water budget development), programs that regulate water withdrawals, and programs that support government partners (such as conservation authorities) in undertaking water research and management activities. All of these programs require substantial financing to cover a variety of costs, including staff wages, field work, equipment, educational materials and data management.
O. Reg. 450/07 establishes a partial user-pay system by requiring some water users to contribute to some of the costs of the provincial water management programs for which they help create the need and from which they undoubtedly benefits. However, the limited revenue that is expected to be generated from the “phase one” water taking charge (estimated to be about $18 million) is likely intended to cover only a small portion of the province’s total costs for its water management programs. While MOE has not provided an accounting of government water-related costs, the ECO presumes that Ontario’s water quality management programs relating to the phase one users must (or should) cost considerably more than $18 million.
Only a small percentage of water takers are being charged
The new water taking charges currently only apply to the prescribed “phase one” users, who collectively take less than two per cent of the total amount of water that is permitted to be taken in the province.
MOE selected the prescribed group of facilities as the first phase of users subject to the charge based on the fact that these facilities are all “highly consumptive” users (i.e., users who permanently remove significant amounts of water from the watershed). MOE deems these highly consumptive users to have the greatest impacts on the watershed, and therefore they create the greatest need for provincial water management programs. MOE also notes that these facilities all use water to produce private financial benefits through the sale of products or services derived, at least in part, from water.
Water taking charges are unlikely to provide environmental benefits
In addition to defraying the government’s administrative costs, the OWRA also authorizes a charge to be established for the purpose of “[promoting] the conservation, protection and management of Ontario’s waters and their efficient and sustainable use.” Indeed, in the proposal document, the charge was initially called a “water conservation charge,” and the promotion of water conservation and efficiency was cited as the secondary purpose of the charge. However, this secondary purpose is missing from the final regulation (and no explanation of this change was provided in the ministry’s decision notice on the Registry), although MOE still maintains that the water charge may encourage water conservation.
Given the very low charge rate, and the small number of water users being charged, it is unlikely that the new water taking charge will have any real effect on water conservation or water use efficiency. Moreover the charge currently applies only to consumptive users that incorporate water into products and who have limited options to reduce water consumption other than by decreasing production and sales.
Furthermore, there is no indication that the revenue generated from the charge will be allocated to additional water management programs and/or increased staffing in the water management area. Rather, it appears that the new source of revenue will simply offset other program funding from the government’s consolidated revenue fund.
ECO Comment
The purpose of O. Reg. 450/07 is purely one of partial cost-recovery – that is, to defray some of the government’s costs of managing the province’s water resources. The ECO fully supports this purpose, as well as the underlying principle that users should pay for the services for which they create a need and from which they benefits. However, the ECO believes that this regulation should have gone much further.
The new water taking charge, as established, will not meaningfully “promote the conservation, protection or wise management of Ontario’s waters,” despite the fact that this purpose is explicitly authorized by the OWRA. The very low charge rate of $3.71 per million litres of water is unlikely to create any real economic incentive for conservation – just a penny will buy almost three cubic meters of water. Nor is it likely that the new charge will result in any new or expanded water management programs.
In addition, the application of the charge to so few water takers will limit the benefits of the charge. While it is reasonable to phase-in the charge, the ECO notes that many sectors that were not included in phase one – including both consumptive and non-consumptive users – have a significant impact on the province’s water resources. The ECO hopes that in future phases, MOE takes a broader approach in considering which sectors should be included in the regulation.
Moreover, even accepting that the sole purpose of the charge is to defray some administrative costs, the ECO believes that the scope of programs notionally covered by the charge is far too limited. The water taking charge should reflect the real proportionate costs of what the government truly is (or should be) spending on all water quantity management programs that relate to the charged sectors (including the costs of programs operated by partners, such as the conservation authorities). Accordingly, the ECO encourages the ministry, during its first review of this charge, to itemize the actual costs of the programs included in this regulatory framework, and to establish a fee that is both substantial and proportionate to the true administrative costs related to the charged sectors. This should also help to encourage water conservation as well.
Going forward, the ECO strongly encourages the development of a more substantial and comprehensive water taking charge. Nevertheless, the system for issuing water taking permits should continue to be based on the policy and scientific criteria in both the Water Taking Regulation and the ministry’s Permit To Take Water Manual, rather than based on a capacity to pay, in order to ensure that ecosystem protection and the public interest continue to be paramount.
For more information on this decision, please see 2007 Review of decision on water taking charge for industrial and commercial users.
| Recommendation 8:
The ECO recommends that MOE establish fees that are proportionate to the full administrative costs related to the government’s water management programs. |
| This is an article from the 2007/08 Annual Report to the Legislature from the Environmental Commissioner of Ontario. |
Citing This Article:
Environmental Commissioner of Ontario. 2008. "The Water Taking Charge Regulation." Getting to K(No)w, ECO Annual Report, 2007-08. Toronto, ON : Environmental Commissioner of Ontario. 94-97.
