Water companies are regional monopolies in the UK. The minimum standards of service and prices they can charge for water supply and sewage, are set by the government and the regulator OFWAT. This paper outlines the scope for the Environment Agency (EA) to impose higher standards on water companies than the statutory minimum, in order to generate greater environmental benefits. It investigates how the inappropriate application of the technique to assess environmental benefits by the EA leads to too many environmental schemes passing a cost–benefit test and hence how too much investment may be channelled into environmental schemes in relation to the benefits the public really receive from the improvements. By inappropriate application of environmental valuation methods, the EA is shaping public policy through institutional practice.

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