Droughts like the one being experienced this year could become commonplace in the future, with demand for water outstripping supply, the report cautions.
In two reports published to support the government's Water White Paper, the Agency warns that climate change and population growth could lead to water shortages in the future, if the system used to manage water today is not radically overhauled.
Businesses and farmers that rely on taking water from rivers for their daily operations may find that no water is available, and important water habitats and wildlife such as Salmon could be lost.
Pressures on water resources will increase
Trevor Bishop, Head of Water Resources at the Environment Agency said: "In the future, climate change and population growth will increase the pressures on our water resources, and we need to plan carefully to secure sustainable water supplies for people, businesses and the environment.
"The current system of allowing water to be taken from rivers by farmers, businesses and water companies has been in place since the 1960s, and will not be able to ensure secure supplies of water for people and businesses in the future, and protect the environment at the same time.
"Reform of abstraction management is critical if people and businesses using water are to adapt to the impacts of climate change and economic growth is to continue.
"Defra's Water White Paper, published this week, plans to reform the abstraction system in England so that it is fit for the future."
The case for change, current and future water availability found that:
* In the future climate change and population growth will increase the pressure on water availability.
* Short duration droughts of 12-18 months are likely to become more frequent and droughts like that of 1976 will become more common.
* Those areas that are already experiencing water stress -- such as the South East of England and Greater London, will potentially see population increase by over 40 per cent, which will make the problem worse.
* The whole of England could see demand for water outstrip supply -- not just the areas under pressure today, such as the South East.
* With changes to the amount of rainfall and an increase in temperatures, the water environment will change. Some species will be better suited to warmer conditions and thrive, but we risk losing some important species and habitats including iconic fish species such as Atlantic salmon and brown trout, which need cold water to thrive.
* Water resources are already under pressure, and reliable supplies of water for abstraction are not available across much of England.
The case for change reforming water abstraction management in England, a joint report with Ofwat, found that:
* In many parts of the country there is no further water available for farmers and businesses to abstract, which risks limiting growth.
* The system we use to manage water today will not be able to provide access to secure supplies of water in the future, while also protecting the environment.
* Future changes in climate will affect the reliability of water available through abstraction licensing, which could have a major impact on some abstractors and their businesses.
* Abstractors are not all treated equally, and many of those granted licences before 2000 have no time limits, which makes them difficult and costly to amend, while all those granted after 2001 have set time limits.
* Abstraction charges do not put a realistic value on water, as the charges for abstracting water are not linked to the availability of water in the environment.
* There is no incentive for abstractors that do not use their water allocation to hand back or trade their licences so that those who need the water can use it.
A reformed system by the 2020s
The reports stress that a reformed system will not happen overnight, and consultation with industry, water companies, consumers and farmers must take place before a reformed system comes into place by the mid 2020s. But it also said that all water users, businesses and householders need to be aware that there will be less water available in the future and urged them to take steps now to prepare, by taking steps to become more water efficient and to think about their water supply arrangements.
Marian Spain, Ofwat's Senior Director -- Policy and Communications said: "With population growth, climate change, and rising consumer expectations, we face significant future challenges. In many areas water resources are becoming more stretched.
"Our joint-work with the EA shows that the current abstraction and licensing regime will not enable us to meet the challenges of the 21st century. We need to become smarter in how we value, manage and use our water. Reform will help continue to deliver safe, reliable supplies to water customers, at a fair cost, while protecting the environment.
"We welcome the UK government's commitment to reforming the abstraction management system. And will continue to work with them to make the commitments in the Water White Paper a reality."