1. ECONOMICS IN THE WFD PROCESS

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

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

4. A DECISION-MAKING PROCESS UNDER PRESSURE
European Parliament
After 1999: co-decision
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

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

6. 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

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

8. 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

9. 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

10. 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

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

12. 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

13. 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

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

15. 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

16. 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

17. 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

18. 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

19. 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
basic measure
supplement. measure
19/24

20. 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
Disproportion of costs is a case-by-case issue.
Ultimately, disproportionality is a local judgement informed by economic information.
20/24

21. 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

22. 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

23. 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

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