INTERCONNEXIONS BETWEEN ECONOMICS AND WFD What room and what role for economics?

INTERCONNEXIONS BETWEEN ECONOMICS AND WFD Where are economics in WFD process? What input is expected from the use of economics? What are the implications in terms of decision-making? 2/18

INTERCONNEXIONS BETWEEN ECONOMICS AND WFD What input is expected from the use of economics? What are the implications in terms of decision-making? Where are economics in WFD process? 3/19

WFD BEARS THE STAMP OF ECONOMICS  debates on the economic impact of previous directives  discussions on cost recovery & tarification From the origins...  stress on the economic dimension in the preamble  major role for economics in the design of water policies to reach WFD's key goal  prior economic justification of derogations … to the adoption... … and to the implementation  intensive use of economics to define measures  tarification as an incentive for an efficient use of water resources  economic and fiscal measures may contribute to the achievement of the goal Where are eco? 4/19

ECONOMICS IN WFD PROCESS 12/2003 Art.3 Transposition 12/2015 Art.4 Good status Art.4 Designation of HMWB Deadline Goal Art.4 Derogations 3/2005 Art.15 Reporting 12/2004 Art.6 Register of protected areas Art.5 Characterisation of the district Identification of potential gaps Economic analysis Description of the district Baseline scenario Recovery of costs Art.15 Reporting 3/2010 Art.9 Water pricing policy Adequate contribution to recovery of costs 12/ /2012 Art.8 Combined approach Art.15 Interim report 12/ /2006 Art.8 Monitoring programme Art.14 RBMP working progr. 12/2006 3/2007 Art.15 Reporting Art.14 RBMP interim review 12/ /2009 Art.11 Programme of measures Art.13 RBMP 12/2009 Art.14 RBMP draft copies 3/2008 New measures according to results of monitoring 12/2006 E E E E E E E E Deliverables Main tasks "Sub-tasks" Actions / Measures E Economic input Where are eco? 5/19

THOUGH IMPORTANT, ECONOMICS ARE ONLY ONE INPUT … in the implementation Basic measures - implementation of directives - controls - licences... Supplementary measures - legislation - fiscal instruments - negotiated agreements - codes of good practice - education... … in the decision-making process WFD forward-look'g monitoring participation hydrology Where are eco? 6/19

INTERCONNEXIONS BETWEEN ECONOMICS AND WFD Where are economics in WFD process? What are the implications in terms of decision-making? What input is expected from the use of economics? 7/19

What to do? Economic analysis of water uses and services What economic input?  calculations of recovery of costs of water services  taking into account long-term forecasts of supply and demand  estimates of volume, prices and costs associated with water services  estimates of relevant investments  judgements on most cost-effective combination of measures  based on estimates of potential cost of such measures When?  December 2004  Update December 2013 and every 6 years CHARACTERISATION OF THE DISTRICT Art. 5 Annex II; III E Economic input 8/19

All WFD process is based on the initial characterisation: potential to reach the goal, trends, judgements on cost-effectiveness of measures, etc.  pay special attention to the quality of works, data, etc.  take into account the requirements for later stages Balance adequately two constraints: information shall be sufficiently detailed to allow proper implementation of WFD costs associated with collection of the relevant data should not be excessive CHARACTERISATION OF THE DISTRICT Art. 5 Annex II; III Economic input 9/19

What to do? Register all areas designated as requiring special protection under specific Community legislation  bathing waters (Dir. 76/160/EEC - 8/12/1975)  nutrient-sensitive areas: sensitive zones (Dir. 991/271/EEC - 21/05/1991); vulnerable zones (Dir. 1991/676/EEC -12/12/1991)  Natura 2000 (Dir. 92/43/EEC - 22/07/1992)… What economic input? Include the areas designated for the protection of economically significant aquatic species When?  December 2004  Kept under review and up to date REGISTER OF PROTECTED AREAS E Art. 6 Annex IV Economic input 10/19

What to do? Identify water bodies unlikely to reach the goal by 2015 and check whether 3 conditions are simultaneously filled:  physical alterations by human activity make it impossible to achieve the good ecological status  and changes needed to achieve the goal would have significant adverse effects on existing uses / the wider environment  and other environmental options to serve the same objectives are technically unfeasible and/or disproportionately costly What economic input? Disproportion of costs of the required measures is the ultimate factor to designate a water body as HMWB When?  No precise agenda  Between 2004 (characterisation) and 2006 (RBMP working programme) DESIGNATION OF HMWB Art. 4; 4.3 Annex II; V E Economic input 11/19

What to do? Seek specific solutions for water bodies unlikely to reach the goal by 2015 Assess whether the cost of the required measures are disproportionate and/or the measures are technically not feasible  where phased achievement of the measures allows to reach the goal under acceptable conditions (no more disproportionate costs nor technical unfeasibility): seek time derogation until 2021 or 2027  where phased achievement doesn't suffice: seek derogation on the objective and achieve less stringent objective DEROGATIONS Art. 4.4; 4.5 Annex II When?  No precise agenda  Between 2004 (characterisation) and 2006 (RBMP working programme) What economic input? Disproportion of costs of the required measures is the ultimate and key factor to designate a water body as HMWB E Economic input 12/19

DISPROPORTIONATE COSTS Disproportion of costs is a key indicator for  the designation of HMWB  the justification of derogations on deadline or on goal Ultimately, disproportionality is a local judgement informed by economic information Disproportionality is considered on a case-by-case basis: it changes from place to place and (often) from time to time Disproportionality is determined with regards:  to the ability to pay of parties involved  to the benefits expected, including environmental ones Art. 4.3; 4.4; Annexes II; V Economic input 13/19

What to do? Construct a programme of measures allowing to reach the goal combining basic measures and supplementary measures What economic input?  define economic measures  basic ones : incentive water pricing policies; adequate contribution of the 3 main sectors to the recovery of the costs of water services  supplementary ones: economic and fiscal instruments (fines, abstraction/discharge taxes…)  help constructing the programme of measures  select the most cost-effective measures allowing to reach the goal  make the most cost-effective combination of individual measures When?  December 2009  Update December 2015 and every 6 years PROGRAMME OF MEASURES Art. 11 Annexes VI; III E Economic input 14/19

What economic input?  Economic measures on their own  Have regards to users' affordability and to the elasticity of the demand When?  December 2010 INCENTIVE PRICING POLICIES AND RECOVERY OF COSTS Art. 5; 9 Annex III E What to do?  Use such economic instruments as contributions to the environmental objectives of WFD by:  ensuring that water pricing policies provide adequate incentive for efficient use of water  ensuring an adequate contribution of the different uses to the recovery of costs  Implement those measures having regards to:  social, environmental, economic effects  local conditions Economic input 15/19

INTERCONNEXIONS BETWEEN ECONOMICS AND WFD Where are economics in WFD process? What input is expected from the use of economics? What are the implications in terms of decision-making? 16/19

NOVELTY IN TERMS OF METHODS l 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... l Clear justification of important decisions  HMWB, derogations...  based on "objective" arguments: efficiency, benefits, ability to pay of citizens... l A structured process  global process: long-term and cyclic approach  connections with other European policies: CAP, regional, etc.  stringent step by step methodology Implications 17/19

NOVELTY IN TERMS OF INSTRUMENTS l Economic tools  cost-benefit and cost-efficiency analyses  understanding of specificities and of outputs l Unusual use of prices  pricing policies as a tool aiming at a specific goal  assessment of environmental costs: damages, resource cost... l 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 Implications 18/19

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 "Integration", the motto for economics under WFD Opened to non experts Implications 19/19

GO FURTHER l WFD and economics  room  functions l Economic input in selected cases  HMWB  recovery of costs of water services

WHAT ROOM FOR ECONOMICS IN WFD? The general approach  "Water is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such" (Preamble 1) The text  art.4 - designation of HMWB / derogations  art.5 - characterisation of the district  art.6 - register of protected areas  art.9 - recovery of costs  art.11 - programme of measures  art.13 - management plan  art.16 - priority substances  art.23 - penalties The annexes  Annex III: economic analysis  Annex VI: basic/supplementary measures

ECONOMIC ANALYSIS: EXPLICIT AND IMPLICIT FUNCTIONS The implicit function  other references to economic issues that will require economic analysis  various stages : designation of HMWB, choice of measures, justification of derogations… The explicit function  economic components specifically outlined: art.5 and Annex III  main focus on recovery of costs and pricing WATECO Guidance document is thus essential

FLOW CHART OF THE HMWB DESIGNATION PROCEDURE Heavily Modified Water Body Are alternatives significantly better environmental options? Can we identify technically feasible alternatives? Are costs of alternatives disproportionate? Step 2 Comparison with alternatives no Natural water body no yes no Do the measures required for achieving good status have significant impact on the specific use(s) / the wider environment? Step 1 Significant adverse effect yes Natural water body

Actors involved WP: water professionals ECO: economists DM: decision makers SH: stakeholders WHO DOES WHAT IN THE HMWB DESIGNATION PROCEDURE?

RECOVERY OF COSTS The scope of implementation What costs? What uses of water? What level? Two levels  By water service  By sector: domestic, industrial, agriculture Covers all costs  Financial costs  Environmental costs  Resource costs Applies to "water services"  Definition: art. 2#38 Definition: art. 2#38  Detailed comments: WATECO Guidance document Detailed comments: WATECO Guidance document Art. 9 Annex III

WATER SERVICES art.2 #38; art.9 All services which provide, for households, public institutions or any economic activity:  a) abstraction, impoundment, storage, treatment and distribution of surface water or groundwater  b) wastewater collection and treatment facilities which subsequently discharge into surface water Examples  drinking water supply, wastewater treatment  hydropower production  individual or collective irrigation  etc...

WATER USES art.2 #39; art.5 Water servicesWater services together with any other activity identified under Article 5 and Annex II having a significant impact on the status of water. No impact on water status  is not water use  is an activity Significant impact on the ecology of a river and on the water status  is a water use Example Several activities may be considered as water uses depending on their scale