Swedish Environmental Protection Agency Costs and benefits from reduced eutrophication in the Stockholm archipelago Kerstin Blyh Swedish Environmental Protection Agency Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Introduction Main methodological issue tackled Affordability in the disproportionality analysis (4.5) Use of instruments (Annex VI part B) to tackle affordability issues Relevance in respect to the request of the Water Directors (4) When is affordability relevant? (5) Example on approach on financing mechanisms (6) Costs of non-action Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Overview of the Case Study North Baltic river basin district: 6 main catchment areas, 33 sub-catchments Main pressures: agriculture, waste water discharges, pop. 2,9 millions Impact: eutrophication – moderate status Measures: supplementary measures in waste water treatment plants, wetlands, less use of fertilizers Note: Independent study, used in this context to illustrate principal issues! Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Key message with case study “Ability to pay should not water down the ambition of the Directive” Thus, affordability should not be decisive when justifying less stringent objectives, when measures are cost-effective and reaching the objective generates welfare gains Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Estimated costs and benefits Cost-effective abatement measures: - suppl. measures waste water treatment less use of fertilizers creation of wetlands Reduced eutrophication Total Costs: ca 6 million Euro/year Total Benefits: ca 55 million Euro/year Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Results cost-effective combination of measures to reach the objective Wetlands Catch crops Cost/kg Marginal cost Objective Cost effective measures Not cost effective measures Suppl measures in WWTP Marginal cost Reduction % (kg) Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Cost-effectiveness versus possible distributional effects Cost-effectiveness from target perspective Possible distributional effects (v.) Construction costs for wetlands are high for concerned farmers From a buisness economic view wetlands might be too expensive Cheaper for concerned farmers to cultivate catch crops Wetlands are cost-effective Catch crops are not cost-effective Can these affordability issues be mitigated, thus reaching objective in a cost-effective way? Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Possible instruments to reach objective cost-effectively and to mitigate distributional effects Agricultural sector not negatively im-pacted Individual farmers not negatively im- pacted State financed Financed by actors Actors choose to pay charges or take measures Cost-effective measures, but.. Burden on tax payers PPP (cost-recovery) not achieved Cost-effective measures, and.. No burden on tax payers or state budget Costs of measures at expense of polluters Subsidies Compensation to farmers for wetlands Charge system on nutrients Polluter pays for share of nutrient contribution. Income from charges used to finance wetlands Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Policy instrument, example self-financed system Cost/kg Authority Marginal cost Charge fee Compensation Reduction % (kg) Cost effective measures Not cost effective measures Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Conclusion and Outlook: Consequences if lowering objectives due to affordability No need for action – No incentives for policy instruments! No need for action – No incentives for technical development! Cost-effective measures risk not being taken Documented welfare benefits to society will not be realized Legitimate opportunity for strong lobby-groups Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Recommendations for guidance document Affordability issues should not be decisive when considering less stringent objectives Disproportionality under Art. 4.5 should be based on whether costs significantly exceed benefits There is a difference between reaching objectives later or not reaching them at all, thus justifying a different approach on the concept of disproportionality between 4.4 and 4.5 Art. 9 gives leeway to mitigating affordability issues using e.g. policy instruments, i.e. administrative measures in PoM 3) WITH THIS NOT MEANT THAT THE LOWERED OBJECTIVE WILL NOT BE RECONCIDERED IS ABOUT ESTABLISHING A PRINCIPLE THAT CAN HAVE THIS EFFECT ! Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen

Thank you for your attention Contact for further details on the Case Study Kerstin.Blyh@naturvardsverket.se, www.naturvardsverket.se 106 48 Stockholm  +46-8-6981056,  +46-8-6981433 Workshop on Disproportionate Costs, 10./11.4.2008 Copenhagen