1. Aqua Publica Europea event
Assessment
of cost recovery
through water pricing
Gorm Dige
Territorial environment, policy and economic analysis

2. From the 2012 Water Eurobarometer
70% of Europeans realise the seriousness of water-related problems and support stronger EU action
84% of consumers support charges for the volume of water they use
12% disagree with pay-more-if-
you-use-more-principle
57% explicitly call for a fairer
pricing policy
47% want stricter water regulation

3. Challenges
Article 9 of Water Framework Directive (WFD) – cost recovery of water services taking into consideration environmental and resource costs (ERC)
Blueprint to safeguard Europe’s water – enforce water pricing/cost recovery obligations under WFD including metering when relevant
Are Member States ready for the challenge?

4. Purpose of this study
Collates practical information on current state of water pricing in Europe
Cost recovery of water services including ERCs
Addresses issues of incentives, affordability and social equity
Selected countries: Croatia, England, France, Germany, the Netherlands, Serbia, Scotland, Slovenia, Spain and Wales
Recommendations - development of pricing models and water pricing reporting

5. Pricing of water serve as policy instrument to achieve:
Cost recovery - financial recovery of water supply (including investments in infrastructure, operation and maintenance) and water use-related environmental and resource costs
Incentives - conserve water and promote water efficiency

6. Water prices can be charged in many ways

7. Is water consumption reactive to water price changes?
Source:

8. Source: Grafton et al., 2009

9. Evidence of water pricing schemes providing incentives to reduce household water use
Czech Republic:
Between the water and wastewater tariff for households increased from 0.8 to 48 CZK/m3. Fees increased for the extraction of both surface, ground water, and discharge of waste water. Household consumption decreased by 40% from 171 litres per capita per day in 1989 to 103 litres in 2002
Denmark:
Between real price of water (including environmental taxes) increased by 54 %. This has led to a substantial decrease in urban water demand from 155 to 125 litres per person per day, one of the lowest levels in OECD  

10. Water pricing structures
Water pricing schemes to recover costs in water and wastewater services
Country
Water pricing structures
Drinking Water
Sewage/Sanitation
Irrigation
England and Wales
Households: fixed + rateable value (if unmetered) OR fixed + volumetric
Industry: fixed + volumetric
Households: fixed + rateable value (if unmetered) OR fixed + volumetric
Industry: Small users pay volumetric; large users pay fixed + higher volumetric rate
Abstraction charges (fixed + volumetric) apply
Scotland
Households: fixed (based on tax bracket)
Industry: fixed + volumetric (based on size of meter)
Households: fixed (based on tax bracket)
Only abstraction charges apply
The Netherlands
Households: fixed + volumetric
Households: fixed (based on size)
Industry: variable (based on pollution units)
Farmers using piped water are treated as business customers (industry); farmers using groundwater pay a groundwater charge; farmers using surface water pay nothing
Germany
Households: fixed +volumetric
Industry: fixed +volumetric
Households: fixed + volumetric + runoff charge based on land cover
Industry: N/A
N/A

11. Cost recovery levels (water/sanitation tariffs)
Note: For FR the estimated cost-recovery levels are evaluated together and should be 83% (median level) and not 138% as reflected in the table

12. Some issues related to financial cost recovery
Difference in assessment methodologies including cost elements considered
Operation and maintenance costs recovered from water users in most countries/sectors – not the case for investment costs
Data on cost recovery are not homogenous across and within countries – and not always easily accessible

13. ERCs and cost recovery
Variability in the way Member States define and account for externalities in practice
Most MSs examined consider ECs by charging water polluters for purification of wastewater and for untreated pollution discharged in surface waters
RCs to a lesser extent considered by setting charges on water abstraction, construction, operation, and maintenance of water storage facilities

14. Examples of revenue figures collected from env
Examples of revenue figures collected from env. taxes for water services
New requirements in WFD Article 9 – not affect mechanisms put in place for recovering ERCs as indicated in total revenues
Absence of drastic changes in revenues from env. taxes - indicating no additional efforts to internalise ERCs
(000s Euros)
2005
2006
2007
2008
2009
2010
2011
2012
Germany (all Länder)
339,480
289,140
269,330
254,040  - - 
France (all agencies)
1,789,300
1,665,800
1,730,400
1,876,200
1,838,700
1,959,600
2,044,700
2,084,000
Spain (ACA)
326,110
336,967
322,127
347,518
366,420
UK (EA)
119,400
114,300
184,500
188,900
200,000
200,600
194,300
196,700
Scotland (SEPA)
12,728
13,940
16,954
18,867
19,452
19,082
19,459
19,929

15. Proposed options for reporting ERCs
To ensure EU wide implementation of cost recovery principles - comparable systems for reporting of utility costs and revenues
A system is needed that indicates what areas of ERCs are covered
Benchmarking initatives are one promising option for such a reporting instrument
Proposed reporting sheet for assessment of inclusion of environmental and resource cost in cost recovery (p. 103)

16. Affordability for the household sector [% of disposable income]
Affordability levels for drinking water supply and sewage and wastewater treatment services
Country
Affordability for the household sector [% of disposable income]
Drinking Water Supply
Sewage and Wastewater
Year
England & Wales
1.09
1.21
2009/2010
Scotland
0.96
2010/2011
The Netherlands
0.6
1.00
2009;n.d.
France
0.42
0.38
Germany
0.55
0.68
2010
Slovenia
1.4
0.2
n.d.
Spain (Catalonia)
0.52

17. Do water pricing schemes account for social concerns?
In each examined MS affordability taken into account. A variety of systems are found
Water authorities in some MSs perform periodical pricing studies - comparing family income with water bill
Some MS specify means to achieve affordability others leave this unaddressed
Artificially low water prices not the best way to ensure affordabilty – risk of underfunded service providers....

18. Example of means for achieving affordability
Via reductions in service charges
Social welfare allowances earmarked for the payment of water services
Water charges pegged to the value of the house (e.g. England, Wales, Scotland) and special tariffs
Sewage charge remission for households (e.g. the Netherlands) that cannot afford to pay
A remission for the purification, pollution and water system charges is also possible
Support through social welfare – includes an allowance for the cost for water service (e.g. Germany)

19. In conclusion - ways forward for pricing schemes
A substantial part of the water bill is variable
Volumetric or increasing block rates are used - metering indispensable
Rates or rules for calculation fixed in a transparent way
Rates high enough for water suppliers to invest in improvements
Affordability addressed through social measures - not by reducing water price incentives (such as reduced VAT rates)
Regional variations in e.g. water scarcity reflected in water prices

20. Please do not hesitate to ask us
Please do not hesitate to ask us! Contact the European Environment Agency for information

21. ERCs – the two attempts from Common Implementation Strategy (CIS)
WATECO group (2003):
Environmental costs: damages incurred by ecosystems and people as a result of water use...
Resource costs: occur only when the resource is used beyond its natural regnerative capacity...(overexploitation)
DG ECO2 group (2004):
Environmental costs: env. damage costs of aquatic ecosystem depletion (e.g. pollution)....
Resource costs: only arise if alternative water use generates a higher economic value......(misallocation)

22. Financial cost recovery (agriculture - where irrigation water tariffs are in place)