Cost-Effectiveness Analysis when implementing the WFD in Denmark Senior Researcher Brian H. Jacobsen Institute of Food and Resource Economics University of Copenhagen E-mail: Brian@foi.dk

Content Danish analyses - past and present 2. Reflections on cost effectiveness 3. Reflections on EU guidelines 4. Conclusions

Analyses prior to WFD implementation Denmark has implemented 3 action plans with focus on nitrogen (50% reduction in N-leaching). Large effect on point source (P+N). Action Plan II in 1998 was followed by both a preliminary, mid-term and ex-post analysis of cost-effectiveness - See FOI report 169 for a summary Action Plan III in 2003-4, based on detailed work on scenarios and economics of different measures. Midterm review in 2008. - see FOI report 167 and www.vmp3.dk

N-surplus, N-leaching and N-loss in DK (kg N/ha) WFD target

Steps in WFD implementation in DK Target 2015 Baseline 2015 Action Plan III Scattered housing and sewage Present condition Nitrate directive

Steps in implementation of WFD in DK (N) Target 2015 N-quota model No Autumn cultivation Buffer strips Wetlands Catch crops Baseline 2015 Action Plan III Sewage from scattered housing Present condition Nitrate directive

Reduction required to reach target Share (%) Streams (km) Target not met Improve physical conditions 4.000 40 Lakes: Reduction (ton P) 25-40 30 Fjords : Reduction (ton N) 19.000 80-90

4 water districts and 23 main catchment areas Fødevareøkonomisk Institut Denmark 4 water districts and 23 main catchment areas One trans-boundary catchment. Much local co-operation needed.

Choosing measures in DK Step 1: Make a list of all possible measures Step 2: Analyse the effectiveness and costs of selected measures also looking at : - Budget and welfare-economic costs - Side effects (CO2, NH3, pesticides, Biodiversity) - Shadow value of side-effects - Certainty with respect to estimates from research NERI (DMU) report no. 625 from 2007 POM: Single indicator – Single measure cost-effectiveness approach (not a package) Detailed analysis on the use of cost-effectiveness in FOI report no. 191.

Choosing measures in DK Step 3: Select the most cost-effective measures for detailed analyses in 3 regions in 2008 - regional effectiveness and costs - likely potential of each measure - administrative costs - control issues Step 4: An element in Green Growth (2009) - Water, CO2, NH3 and Biodiversity plans - Search for synergies - Reduction requirements in catchments - Focus on financing (EU, state, local) - Wider economic effects (employment) Step 5: dRBMP and PoM (2010-11)

Content in Danish PoM (Roskilde) - N, P, physical issues and costs 1.Diffuse losses Buffer strips, catch crops etc. 2. Groundwater Moving abstraction sites Pumping out water 3. Physical conditions in streams Maintenance and restoration 4. Point source Basin for overflow of rainwater Wastewater treatment plant (higher capacity) 11

Division of marine area according to knowledge level (uncertainty): V1-area (10%) V2-area (20%) V3-area (30%) In the 1st plan period 2015-2021, focus is mainly on measures in V1 and V2

Reduction requirement Efterafgrøder FOI og DJF antager få sædskifteændringer og jævn placering i DK DMU angiver at der er plads til flere efterafgrøder (250-500.000 ha) Andel stiger fra 10/14% op til et gennemsnit på ca. 22%. (maks. 37%) (V1+V2 er 70% af det samlede areal) Arealet med yderligere 24% efterafgrøder er ca. 6% af arealet (Jylland). Areal med yderligere 0-5% er noget større. Stor geografisk forskellighed

Cost efficiency (€ / kg N) – Green Growth General measures Efficiency (kg P/ha) Costs (€/ha) (kg N /ha) € / kg N Limit ploughing in the Autumn 0.2 1.2 7 Limit ploughing of grass 9.0 15 0.6 Catch crops 56.4 14 4.1 10 meter buffer strips (N+P) 3 277 48 5.8

Cost efficiency (€ / kg N) – Green Growth Specific measures Efficiency (kg P/ha) Costs (€/ha) (kg N /ha) € / kg N Targeted catch crops 56.4 14 4.1 Wetlands (N) 1.043 113 9.2 Tradable quotas (N) 4.8 – 20

Cost efficiency (€ / kg N) Green Growth Other measures Costs (€/ha) Efficiency (kg N /ha) € / kg N Biogas 2 Organic dairy farming 37 9 4 Energy crops (willow) 188 17 11 Reduced N-norm (10%) 26

Cost efficiency Lakes (€ / kg P) P-measures Costs (€/ha) Efficiency (kg P /ha) € / kg P P-wetlands 457 10 46 Grass to reduce erosion 388 0,16 2.550 Non farm measures Sewage from scattered housing <800 Waste water treatment Rain water storage

Catch crops in water plans 2010 Efterafgrøder Add. Catch crops (%)

Location of measures - different retention and loss of income will affect CEA ranking (Jacobsen and Abildtrup, 2003)

Ranking is easy ?

When ranking becomes more difficult ! One source (e.g. N) in one area is easy Two sources in one area is possible (e.g. N and P) – eutrophication index Several sources in several areas with interaction (up-down stream) and synergies between measures - as well as side-effects, then ranking is not straight forward. Is the ranking at national, regional or farm level ? How do you explain the ranking to others?

Reflections with respect to EU guidelines Good basic material Not enough detail when the actual work is underway Too few examples of best practice National differences are large and make it difficult to give a unified approach Commission seems to be reluctant to give clear guidelines (e.g. disproportionate costs) “No single approach to CEA should be desired or expected” (CEA drafting group, 2006) 22

Conclusions on CEA in DK CEA has played a central role in DK for a number of years Ranking of supplementary measures using single indicator – single measure approach - model for N-quota model is not decided Implementation at the field level – is it possible ? Financing is an important issue (80 mio. €/yr) Cost effectiveness analysis should be the starting point for the cost-benefit analysis - What about welfare economics ? 23

Conclusions on WFD More examples of Best Practice and more exchange of ideas between countries Minimum standards on e.g. cost definitions and what to include “New” terminology like environmental and resource costs are not easy to use Future work requires both economists and those involved in interdisciplinary work

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