Water Economics in the Implementation of the Water Framework Directive

1. ETC/Water 2010 Overview of EEA/ETC water and economics work Manuel Lago Ecologic Institute, Berlin

2. Outline of presentation • Introducing the role of economics in the WFD • Overview and progress of the EEA current work on water economics. • Applications

3. The WFD: Economics thinking is most relevant… • for the selection of the most cost-effective POMs for the River Basin Management Plans; • for the use of specific economic instruments to support application of cost recovery of water services, such as water pricing or taxes; • including resource and environmental costs of water services provision • for the considerations relating to the impact of water policies on the water using and water polluting sectors; and • for the assessment of disproportionate costs in order to justify exemptions to achieve ‘good status’ at particular water bodies.

4. WFD implementation: integrating a wide range of economic issues • Defining penalties • Economics importance of water uses • Assessment of cost recovery • Trends in supply and demand Characterisation - 2004 Implementing WFD pricing Provisions - 2010 • Assessment of unitary costs, effectiveness and cost-effectiveness of measures • Identification of a cost-effective programme of measures • Assessing the role of pricing as measure (incentive) • Costs & benefits of measures • Designation of HMWB • Defining less stringent objectives & time derogation • Justification of cost-recovery levels Programme of measures (RBMP) - 2008 & 2009

5. EEA current work on water economics • European Topic Centre-water • Task 1.4.2.6: Water and economics • Task 2.4.2.4: MSFD: understanding of economic elements • Framework contract on environmental economics • Water Economics and Ecosystem Accounts - A project under the Framework contract Ref. No. EEA/IEA/09/002-Lot3

6. ETC-Water: Policy links • WFD: • Review of RBMPs reporting exercise: templates on objectives and exemptions, pricing, programme of measures and agriculture • Support the development of ecosystem capital accounts in water • MSFD • Understanding of the economic elements of the Directive • Follow progress of the WG ESA • Development of maritime socio-economic indicators • Marine/maritime ecosystem assessments - Eureca

7. Objectives of the Framework contract study • Clarification of terminology • Data mining and Assessment of economics Information - Review RBMPs and other documents • Incorporation of economics information into SEEAW and EEA fast track ecosystem accounts

8. Potential applications of the water economics work • Analysis of possible trade-offs between alternative water policies and economic strategies. • Support policy decisions on economic instruments (design, monitoring and evaluation) and their possible impact on the selection of Programme of Measures as dictated by the WFD. • application of other measures (i.e. cooperation agreements) and economic instruments (i.e. pollution trading permits) and incentives (i.e. the role of subsidies) • Inform decisions on water allocation, pricing and infrastructure development. • Provide Information on water use and demand and from there we could establish some concept of value if linked with economic data per sector. Thus, potential use of sectoral water accounts to inform disproportionate costs analysis.

9. EEA water economics work is also leading to the fulfilment of other specific objectives: • EEA 2012 water report • A water economics output as part of key “water ” messages for 2012 (sub-assessment), • EEA indicator development work (ETC-water) • New indicators on resource efficiency incorporating economic information • Improved assessment of state of the water environment in Europe • WFD and economic analysis of water use • Links with other policy areas (agriculture) • Incorporation of economics into existing indicators

10. Progress in task1 Clarification of terminology • Clarification of the water economics terminology widely used in the main policy streams (WFD; EEA fast track ecosystem accounts; UN SEEAW; MSFD). • Identification of potential discrepancies and incoherence between concepts (units, geographical scale) and terms used, including possible misinterpretation that might arise as a result of different definitions. • 38 reviewed definitions

11. Linking FTEA and water accounts to WFD implementation

12. Points fordiscussion • With respect to ‘purchase of water’, WFD information and data on the ‘full supply cost’ is required for the FTEA. • The WFD concept of full cost recovery implies that careful interpretation of information on the costs of supply will be required to determine if components of environmental and resource costs are accounted for. Taking the SEEAW definition of the ‘costs of purchasing water and sewerage services’ these should note be included in the FTEA ‘purchases of water’. • With respect to ‘taxes and subsidies’, WFD information and data on cost recovery should also detail aspects related to taxes and subsidies levied on water users by sector. • With respect to ‘maintenance and restoration costs due to ecosystem capital degradation’, WFD information on the ‘costs of measures’ is required for the FTEA. However the WFD presents a wider scope of maintenance and restoration costs by including aspects such non-water environmental costs and wider economic costs. These additional elements are not consistent with the SEEAW definition of environmental protection expenditures that informs the FTEA.

13. Thankyouforyourattention! Manuel Lago Ecologic Institute, Pfalzburger Strasse 43/44,10717, Berlin  +49 30 86880-110 Manuel.lago@ecologic.eu | www.ecologic.eu