Researchers are probing whether England and Wales can maintain current water abstraction levels for horticulture, agriculture, other businesses and homes.
University of Worcester and the Environment Agency were prompted to act by growing alarm that licensed abstractions might no longer be sustainable due to population and weather changes.
A spokeswoman said: "The current system is not flexible enough to respond to future pressures such as climate change and population growth. Abstraction charges do not reflect water availability or encourage efficiency."
Worcester hydro-ecology researcher Megan Klaar said the research could help to inform the future direction of governments. Colleague and lecturer Dr Ian Maddock is assessing how the geology of riverbeds responds to unsustainable abstraction.
"Any reform will look to take a fairer and more sustainable approach, for both the environment and the abstractor," said Maddock. "The sensitivity of each river will be an important factor."
Consultant John Adlam said current untimed licences need expiry dates to ensure a fairer allocation if circumstances change. But this would cause "tears because it's hard to reallocate a dwindling resource".
He said the Government must encourage more people to trade unneeded water allocations rather than keep them as an "insurance policy". Meanwhile, practices such as using drip irrigation not covered by licensing, could fall within the regime.
Adlam said charges for abstraction, much cheaper in winter than summer, need to change to "any time of plenty" so people can extract during summer floods without paying a hefty price.
The research, due for completion in March 2014, will help the Environment Agency decide how much water should be protected from abstraction to ensure plants, animals and environments are not damaged.
WATER COMPANIES ENCOURAGED TO ADOPT TRAFFIC-LIGHT SYSTEM
John Adlam, managing director, Dove Associates
"The HTA has been working extremely hard to encourage water companies to introduce a traffic-light system for hosepipe bans. When the utilities first went public about water shortages last year, consumption dropped seven per cent overnight. When they introduced the ban, it fell a further three per cent. They realise the value of getting messages out on water. This suggests if you issue an amber warning on shortages, people including industry respond immediately, which might do away with the need for a hosepipe ban."