ECONOMICS IN THE WFD PROCESS

ECONOMICS IN WFD PROCESS WFD, a factor of innovation and integration What to expect from the use of economic instruments? 2/24

ECONOMICS IN WFD PROCESS WFD, a factor of innovation and integration What to expect from the use of economic instruments? 3/24

A DECISION-MAKING PROCESS UNDER PRESSURE European Parliament After 1999: co-decision 1998-1999 procedural delay June 2000: conciliation procedure Interest groups Mid-90's: intense debates on water policy Proposal of WFD Member States Before 1999: co-operation 6/1998 political agreement 4/24

AN OBLIGATION OF RESULT Good status General obligation Actions defined with regards to the goal Derogations to be justified 5/24

WFD, A NEVER-ENDED PROCESS continuous monitoring public participation programme of measures characterisation / assessment Continuous improvement  good status in 2015  no deterioration 6-year cycles 6/24

A CONTINUOUS TRANSPARENCY Public participation art. 14 Economic justification of decisions art. 4 Frequent reporting to the Commission art. 22 7/24

WFD'S GENERAL METHODOLOGY Characterisation of the district Initial situation Scenario trends Public participation Monitoring Implementation of directives Economic studies Evaluation of results Results vs goal =>relevance of measures? Identification of gaps X Business as usual Good status 2003 2015 gap How to do it? see Guidance documents 8/24 Programme of measures Fill the gap with basic + complementary measures

NOVELTY IN TERMS OF METHODS A structured process global process: long-term and cyclic approach connections with other European policies: CAP, regional, etc. stringent step by step methodology An open process involvement of professionals, experts and stakeholders all aspects of water management at hydrological scales unusual issues to be debated: disproportion of costs, recovery of costs, cost-effectiveness and cost-benefit ratios... Clear justification of important decisions HMWB, derogations... based on "objective" arguments: efficiency, benefits, ability to pay of citizens... 9/24

NOVELTY IN TERMS OF INSTRUMENTS Construction and use of baseline scenario horizontal approach: impacts of other policies on water water policy as a driver for evolutions: choices regarding water with impacts on other policies Economic tools cost-benefit and cost-efficiency analyses understanding of specificities and of outputs Unusual use of prices pricing policies as a tool aiming at a specific goal assessment of environmental costs: damages, resource cost... 10/24

ECONOMICS IN WFD PROCESS WFD, a factor of innovation and integration What to expect from the use of economic instruments? 11/24

A DOUBLE ROLE FOR ECONOMICS A tool for decision-making provides information provides a better view of water uses and services helps assessing impacts, ranking measures… allows to take account of environmental costs and benefits Effectiveness of all measures is assessed first Measures for the achievement of goal incentive water pricing policies recovery of costs fees, licences, fiscal measures, optimal choices co-operative agreements... The higher the risk of gap, the more intensive the use of economics: adapted objectives (HMWB), potential non-compliance with the goal (derogations) 12/24

FLOW CHART OF THE USE OF ECONOMICS 2004 2006 2008 Characterisation 1- Assess economic significance of water uses and services 2- Project trends in key indicators and drivers up to 2015 3- Assess current level of cost recovery Identification of significant water issues 1- Identify likely gaps in water status by 2015 2- Propose actions when a likely gap has been identified 3- Action when no likely gap has been identified Identification of measures and of their economic impact 1- Evaluate the cost-effectiveness of potential measures 2- Construct a cost-effective programme of measures 3- Evaluate whether costs are disproportionate 4- Assess the financial implication of the programme of measures Economic "weight" of water uses now / in 2015 Assessment of the cost of basic measures Identification of socio-economic groups likely to be affected by gaps / mitigation measures 13/24 Cost-effective programme of measures Main steps WFD "eco procedure" Sub-steps Economic outputs

ECONOMIC SIGNIFICANCE OF WATER USES AND SERVICES Source: Ministry of the environment, Québec, Canada Aspects closely connected 2004 Identification of significant uses & services: cf. 2004 characterisation 14/24

BASELINE SCENARIO UP TO 2015 Conformity Non conformity + improvement Impact in terms of water status Source of original map: Agence de l'Eau Seine-Normandie 2004 15/24

THE RECOVERY OF COSTS What is "recovery of costs"?  The extent to which the costs associated to water uses are borne by those who generate them Why do we care about recovery of costs? it brings transparency on financial flows associated to water uses and services:  who bears / will bear costs and damages associated to water uses?  who pays for these costs?  who bears the difference between prices and costs?... 2004 How to implement recovery of costs? Under WFD, it refers to "water services" and "water uses"  identification at the characterisation stage (2004) 16/24

THE RECOVERY OF COSTS IN PRACTICE 1- IDENTIFY WATER USES AND SERVICES ACTIVITIES Activities with no significant impact on water status EXAMPLES E.g. navigation E.g. diffuse pollution E.g. fishing... WATER USES Activities with significant impact on water status EXAMPLES E.g. navigation E.g. diffuse pollution E.g. fishing... EXAMPLES E.g. drinking water supply E.g. wastewater treatment E.g. irrigation... WATER SERVICES Mainly water uses for the purpose of which water is diverted from its natural cycle by a work or an equipment 2004 scale high low 17/24

THE RECOVERY OF COSTS IN PRACTICE 2- ASSESS THE LEVEL OF RECOVERY Task for 2004: description of the situation WATER USES Industry Households Agriculture Identification of financial flows in the district through prices, subsidies, transfers... WATER SERVICES Financial costs Environmental costs Resource costs 2004 18/24

COST-EFFECTIVENESS IN PRACTICE E.g. goal: improve the quality of water M1- Restoration of wetlands  1ha treats 21,7kg BOD5/day  restoration/maintenance costs? M2- Wastewater treatment plant  depollution cost of 1kg BOD5~0,45€ M3-... Assess the cost-effectiveness of individual measures direct / indirect costs and benefits economic and non-economic impacts… Compare (sets of) measures targeting the same goal Combine the selected best measures to construct the programme of measures Set 1- Improve water flow by reducing water demand, importing water... Set 2- Restore wetlands, promote individual treatment systems…  benefits generated by wetlands vs. wastewater treatment plant: 9700€/ha Set 3- ... ...2008 basic measure supplement. measure 19/24

THE IDENTIFICATION OF DISPROPORTIONATE COSTS OF MEASURES How to assess whether costs are disproportionate?  carry out a cost-benefit analysis of potential measures  consider all types of costs and benefits: financial / environmental ; present / future... regarding benefits, willingness to pay, affordability What happens if costs are judged disproportionate?  water body may be designated as HMWB  a derogation may be sought and justified: an extension of deadline or (if not sufficient) a less stringent objective ...2008 Disproportion of costs is a case-by-case issue. Ultimately, disproportionality is a local judgement informed by economic information. 20/24

WATER PRICING POLICIES Why do we care about pricing? the level of price has a direct impact on water demand and water uses pricing policies may play as a measure contributing to the achievement of the environmental objective by enhancing efficient use of water resources the more external costs are internalised, the more prices show the real cost of water uses and services 2010 21/24

WATER PRICING POLICIES IN PRACTICE Take account of elasticity and affordability e.g. very limited for domestic uses (~0,2-0,3) e.g. in industrialised countries, water is considered "expensive" when it weights more than 1,5% of households' income Keep the objective in mind e.g. to ensure sustainability, progressive tariffs are more efficient, although marginal cost decreases Specific aspects with WFD take account of established practices take account of social, environmental… aspects 2010 Water pricing policy is one type of measure  potential impact to be assessed in combination with other planned measures' 22/24

Not necessarily full cost recovery THE RECOVERY OF COSTS IN PRACTICE 3- COMBINE THE LEVEL OF RECOVERY WITH WFD'S GOALS Not necessarily full cost recovery WATER USES Industry Households Agriculture Adequate contribution to the recovery of the costs of water services WATER SERVICES Financial costs Environmental costs Resource costs 2010 Take account of social, environmental and economic effects Funding of preventive or remedial measures in order to achieve WFD objectives is possible. 23/24

ECONOMIC ANALYSIS IS NOT AN ISOLATED EXERCICE Integrated into technical issues: water utilities, quality of water, etc.. Integrated into interdisciplinary exercise: IRBM Decision-making oriented: concrete, operational, "ready-to-apply" Included into public participation process: clear, understandable... Opened to external skills Opened to non experts "INTEGRATION", the motto for economics under WFD 24/24