Feasibility of WFD cost categories? Ingo Heinz Institute of Environmental Research (INFU), University of Dortmund, Germany SECOND INTERNATIONAL WORKSHOP ON IMPLEMENTING ECONOMIC ANALYSIS IN THE WATER FRAMEWORK DIRECTIVE, PARIS, FEBRUARY 17 & 18, 2005 Starting points: Cost-recovery principle Polluter-pays principle

Cost-recovery principle: Product price should cover all production costs, including the non-market costs (“externalities”) Polluter-pays cost principle: The prices charged for the use of environmental resources should cover all the cost of damages caused by emissions of pollutants or of the costs of reducing / preventing such damages

Water Cost-recovery principle: The water prices should cover all the costs of water services (such as water abtraction, water supply, wastewater disposal), incl. non-market costs Polluter-pays principle: Water pollution should be charged covering all the costs of damages caused or the costs of reduction / prevention of such pollution

Polluter-pays principle Point-pollution (from industries or municipalities): Charges on wastewater disposal Charges on wastewater effluents Non-point pollution (from agriculture): Charges on pesticides Charges on mineral fertilisers, nutrient surplus

Full-cost recovery principle Non-point pollution caused by agriculture Should the prices of water services cover also the costs of compensation payments and advisory services provided to farmers? Violation of the polluter-pays principle or costs of measures to protect waters to be payed by water users?

Water user-pays principle The use of water services should be charged, such as for Water abstraction Water supply (pumpage, treatment, storage, distribution) Wastewater disposal (treatment, collection, effluent) Wastewater discharge Flood control?? Recreation?? Aquatic habitats??

Water user-pays principle Water abstractionWater abstraction levy Water supplyCharge on water supply Wastewater disposalCharge on wastewater disposal Wastewater dischargeWastewater levy (effluent charge)

Example: The German ‚Abwasserabgabe‘

Water abstraction levy France Germany The Netherlands UK (Denmark)

Baden-Württemberg  Bayern to introduce ? Brandenburg no Hesse cancelled! Meklenb./Westpom. no Lower Saxony  North Rhine-Westf. new! Rhineland-Palatinate no Saarland no Saxony  Saxony-Anhalt no Schleswig-Holstein  Thruringia  Berlin  Bremen  Hamburg  Water abstraction levies in Germany

WFD cost categories Financial costs? Environmental costs?? Resource costs??? Any hope to reach clear definitions ?

Financial costs Of which water services? (flood control included?) Which values of assets for depreciation and interest calculation? (present or future values?) Internalised non-market costs included? (no environmental costs?) Which interest rates? (social discount rates?)

Environmental costs Internalised non-market costs excluded? (financial costs?) Compensations payed to injured parties excluded? (financial costs?) Costs needed to be taken to reduce/prevent damage included? (or to include in the financial costs?)

Which assessment methods appropriate? Revealed preference methods, such as costs of averting behaviour? Price differentials of properties? Stated preference methods, such as willingness to pay, incl. non-use values? Environmental costs (continued)

Resource costs Can we ever understand this term ? Economic losses that suffer other water users due to over-exploitation? (in part environmental costs?) Economic losses due to deviances of the current and the optimal water use?

Economic losses due to inefficient allocation of water uses among different water services, such as abstraction, discharge and recreation (environmental costs?) rights to abstract water and to discharge wastewater at a given set of environmental limit values (e.g. groundwater yield, maximum pollution load) Resource costs (continued)

Discussion points 1. Financial costs should include costs of water services measures to reduce / avoid environmental damage in the past, present and future 2. Environmental costs should include the costs of not-internalised damage

Resource costs should include the economic losses due to inefficient allocation of rights to abstract water and discharge wastewater at a given set of environmental limit values (e.g. groundwater yield, maximum pollution load) Discussion points (continued)

How to operationalise resource costs? Determine the appropriate level of charges water abstraction and wastewater discharge! How to do this? Develop and and apply hydro-economic water management models Discussion points (final)

Hope this helps