The urban water sector in Australia is facing major challenges over the coming decades.

Our major cities are changing rapidly. Population projections indicate that our five largest capital cities will need to accommodate around 10 million additional residents by 2050. Climate change is likely to mean increased temperatures, reduced rainfall, more frequent and severe droughts and more extreme storm events. In response, billions of dollars will be spent over the next decade on new water infrastructure in growth areas and replacing existing ageing assets.

With such rapid growth, there is a major focus on ensuring that cities remain ‘liveable’. A key component of liveability is the provision of urban amenity, including access to high quality green open spaces, which is increasingly recognised as being important for the physical and mental health of residents and their potential to combat rising temperatures in urban areas. The availability of water — both in the landscape and to ensure the ‘green’ in green open space — is an important input to providing enhanced amenity.

This creates a challenge for the urban water sector, which not only needs to provide traditional water services to a rapidly growing population, but also to service potential additional demands to contribute to enhanced amenity, and to do so in the context of climate change. The level of investment required provides a key opportunity to rethink how water, wastewater and stormwater services are delivered to ensure that both current and future communities get the best value possible from this investment. As many water assets are expensive with long operating lives, it is important to get these decisions right, as decisions taken now cannot be reversed and will set up the nature of these growth areas forever.

Integrated water cycle management (IWCM) is a relatively new approach that is advocated by the water sector as a way to meet these challenges more efficiently and effectively. IWCM is a whole‑of‑system, multidisciplinary approach that aims to manage the entire urban water cycle by integrating the delivery of water, wastewater and stormwater services to contribute to the full suite of water security, public health, environmental and urban amenity outcomes that the community seeks. Using an integrated approach as the ‘business‑as‑usual’ approach for the planning and management of urban water services allows a greater range of options to be identified and evaluated at the outset, which can be designed to provide a broader suite of community outcomes, including enhanced urban amenity. This should lead to better decisions and lower cost solutions. However, IWCM cannot be delivered by the water sector alone. Implementing IWCM will require significant, ongoing collaboration between the land‑use planning and local government sectors and the water sector, in both policy and planning at a range of different scales.

This paper examines the policy and implementation frameworks currently governing the urban water sector to identify where there may be impediments to the adoption of IWCM. The focus is on the arrangements in major cities because of their projected growth, but the issues identified are likely to be relevant to smaller towns and cities as well.

The current arrangements for water supply and wastewater management in major cities are generally effective for delivering safe and secure water supplies and disposing of wastewater in ways that meet health and environmental standards. It is when attention moves to the integration of stormwater management and the role of the urban water sector in contributing to delivering enhanced urban amenity outcomes that a number of barriers to the implementation of IWCM become apparent. The paper canvasses ten key impediments in the current operating environment. There are likely to be others, but addressing these ten, particularly those in the policy sphere, would make a significant difference to the implementation of IWCM.

Impediments in the policy environment

There is a lack of clear objectives for water‑related aspects of enhanced urban amenity

While broad government statements support the need to enhance urban amenity by providing green public open space for communities, there are no clear, government‑endorsed objectives for this aspect of urban amenity that would enable effective planning to meet this community need. This means that the authorising environment is ambiguous, which weakens the incentives for water and urban planners to work together at critical early stages of planning processes to identify and then evaluate a range of options. Water management options that provide enhanced amenity, or improved environments in greenfield and major infield areas, may be more expensive than traditional approaches that do not provide the same level of outcomes. However, there is no clear policy framework for making planning decisions that balance the benefits of enhanced urban amenity against any additional cost.

Roles and responsibilities for providing enhanced amenity are unclear

A consequence of the lack of clear policy objectives is that the roles and responsibilities for providing water‑related urban amenity are often perceived to be unclear. In some areas, urban water utilities have been pushing the boundaries of their mandated roles and obligations. They have been showing, through pilot projects and partnerships with local governments, the feasibility and benefits of alternative IWCM approaches in providing enhanced amenity. The lack of a clear interface between urban planning and water service planning generates the potential for role creep and cost transfers (for example, from ratepayers to water utility customers). Unclear roles and responsibilities can lead to confusion about who should pay for enhanced urban amenity. This may result in some people disproportionately bearing the cost of providing this amenity or pursuing projects with low overall benefits. Water utilities may also promulgate views on the form of urban development, which has historically been the domain of state and local urban planners.

Statutory land planning and water planning are not well linked

Identifying and evaluating options for enhancing urban amenity requires close collaboration between statutory land planners and water planners at the right scales and at the right times to influence decision‑making. At the city scale, this could influence the urban form and the area, type, quality and connectivity of public open space and urban habitat to make best use of water flows within catchments. This would then be incorporated into requirements at both district/precinct and local scales. Currently, few formal processes link statutory land planning and water planning to require this collaboration at the full range of city, district/precinct and local scales.

Stormwater planning and management is not integrated into general water planning

While different models exist, stormwater management in major cities is generally undertaken by local governments, while water utilities supply water and undertake wastewater management. This gives rise to very different management arrangements across these elements of the urban water cycle. Stormwater management was not part of past COAG water reforms, and is not subject to the same level of detailed, consistent policy direction and economic and environmental regulation as other parts of the urban water sector. These factors have acted to effectively silo these functions. Despite tentative steps to break down these silos in different jurisdictions, nothing systematic is in place.

Restrictions and mandates prevent all options being put on the table

Some governments have policy bans in place that prevent evaluation of IWCM options against other possible options for achieving the required policy outcomes. Suitably treated recycled wastewater or treated stormwater cannot be used to directly augment the supply of potable water in all states and territories, even when that water meets exactly the same strict public health standards that apply to potable water. Suitably treated recycled water can only be used to augment potable water supplies in Western Australia and Queensland if the water is first released back into the natural environment. There are also restrictions on using rural water for urban use. Such bans may result in the adoption of higher cost or otherwise inferior solutions and may inhibit the sector from delivering the full range of potential water sector outcomes in a cost‑effective way.

The flip side to this is when governments have decided to favour certain solutions over others. Many governments, for example, set recycled water targets, mandate the installation of household rainwater tanks or specify that recycled water is to be used in particular applications (such as for flushing toilets). These policy decisions are often set without clear and transparent evidence and analysis. They have driven significant investment and have sometimes resulted in higher costs than alternatives and failed to deliver their expected benefits.

Removing these inefficient policy bans and mandates would enable urban water service providers to consider opportunities that respond to local circumstances and achieve better or lower cost outcomes.

Impediments in water service planning and delivery

There are barriers to effective collaboration

IWCM requires ongoing collaboration between a range of organisations. This is critical not only in the planning stage (impediment 3 above), but also at decision‑making, through implementation and during ongoing management. Many IWCM projects are at the boundaries of water utility or local government roles and it is not always clear which entity should lead. Implementing IWCM may require better on‑ground arrangements between organisations covering operational decision‑making, risk sharing, land management and project governance, with agreed accountabilities for monitoring, ongoing maintenance and stakeholder engagement. There are examples of IWCM projects that have floundered because these implementation arrangements were not sufficiently considered at the outset and were not able to be agreed to later.

Project selection is not always based on rigorous and transparent assessment of the options

IWCM expands the number and range of options for delivering a broader range of outcomes, both city‑wide and locally, making decision‑making more complex. However, there is a lack of rigorous and transparent assessment of the options using cost–benefit analysis — a deficit that needs to be addressed. In the absence of robust processes, decisions have not always been informed by the relative net benefits of different options. Reform will require organisations involved in IWCM planning to be capable of assessing costs and benefits across the entire water cycle, recognising the interrelationships involved across different scales of water management, and across the broad range of outcomes. Such assessments are relevant at different stages of the planning process, and at different scales, with the most appropriate approach depending on the circumstances.

Local‑scale and system‑wide water planning are not well integrated

IWCM requires consideration of the interaction between local and system‑wide projects. To achieve this, there needs to be a clear interaction and exchange of information across all water services — water, wastewater and stormwater — and between local and city‑wide system planning to promote economically efficient outcomes. Few processes exist to enable this to occur with confidence, although some jurisdictions are developing them. While this is a complex task, taking into account the interactions between centralised and local options is critical to ensuring optimal system‑wide outcomes.

Impediments in the regulatory environment

Environmental regulators often focus on actions instead of outcomes

Arrangements for discharging wastewater into aquatic environments are governed by state environmental regulators, who have focused on licensing point‑source wastewater discharges from water utilities to minimise their impact on the environment. By contrast, stormwater is viewed as a diffuse source of pollution and is not adequately regulated, regardless of the fact that, in growing cities, stormwater can account for a significant proportion of pollution entering waterways. In some cases, regulatory requirements to maintain or improve environmental water quality can lead to a focus on more stringent wastewater discharge conditions and inhibit an IWCM approach. Taking a more outcomes‑based approach may provide more flexibility and enable a broader range of potentially cheaper solutions to achieve the same environmental outcomes.

Cumulative effects of regulation can impede integration

Additional administrative hurdles, excessive transaction costs and complex regulatory regimes can impede the uptake of IWCM options on top of any arbitrary policy bans or mandates (impediment 5). Recycled wastewater and stormwater harvesting projects, to the extent that they are allowed in individual jurisdictions, may still have to comply with the quality and other standards imposed by both the environmental and health regulators if they produce potable water, with the former regulating the recycling of water and the latter regulating drinking water. Separate national guidelines for recycled and drinking water do not help. Some jurisdictions have additional policies or impose further regulatory requirements on providers, such as the requirement to use the best quality source of water available rather than taking a fit‑for‑purpose approach. Such policies and regulations can arbitrarily restrict the range of options considered, consequently increasing costs to customers and impeding a fully integrated approach to urban water management.

Progressing an integrated approach

None of these impediments are new. In each area, there are examples of best practice. In these cases, governments clearly understand the need for integrated water management and are seeking to enable or facilitate the approach to be taken. Yet they have not provided the leadership required through substantive policy change for IWCM to become the new business‑as‑usual approach for urban water management.

Reflecting these policy impediments, IWCM projects can be difficult to fund. In the view of many urban water utilities, this could be rectified by additional government funding or by allowing water authorities to charge their customers for the additional costs involved. However, the funding issues observed by the sector are generally the symptoms of the broader policy issues described above. These policy issues need to be thought through and decisions made, particularly about the level of urban amenity sought in new growth areas. If the policy is clear, existing funding principles and mechanisms for the water sector and local governments can be employed.

Providing clearer policy on issues like enhanced urban amenity is not an easy task. There are trade‑offs between the quality and type of urban amenity and environmental outcomes being sought and the costs of providing them. There are questions of equity to be considered, including the impacts on house prices, who should bear the costs of improving liveability and community wellbeing, the issue of ‘intergenerational equity’ as well as the long‑term opportunity costs of not providing an appropriate quality of urban environment in a changing climate. However, it appears that the urban water sector, in partnership with some local governments, has gone as far as is possible under the current broad policy statements. The absence of a clear policy direction about the significance of urban amenity and the expectations of state governments are key impediments to not only the adoption of an IWCM approach, but also to the quality and liveability of future suburbs that are currently being planned. Given the rapid growth of our major cities and the importance of amenity to community wellbeing, this issue now requires stronger policy direction from governments.

The ten key impediments identified point to where action is needed to progress IWCM towards becoming the new business‑as‑usual way of planning and managing urban water resources. This would assist urban water providers to make better decisions and deliver lower cost solutions for providing the full suite of community water needs in our major cities. These issues and possible policy responses will be explored further in the Commission’s next review of progress on national water reform to be undertaken later in 2020.