1. INTERNATIONAL CONFERENCE ON WATER ECONOMICS, STATISTICS AND FINANCE Crete, Rethymnon, 8-10 July 2005 Ingo Heinz University of Dortmund, Germany The Economic Value of Water and the EU Water Framework Directive: How Managed in Practice?

2. EU Water Framework Directive (WFD) Characterisation of the river basins till end 2004 (Article 5): 1.Analysis / review of water uses and impacts on water status 2.Economic analysis of water use.  Economic analysis of water use  Significant water uses (agriculture, households, industry) Trend analysis concerning future water uses Assessment of the current level of cost recovery

3. Commence river basin plans 2009 Introduce water pricing and cost recovery 2010 Implement programmes of measures 2012 Achieve good water status in most waters 2015 Commence monitoring programme 2006 EU Water Framework Directive (WFD)

4. Cost Recovery: The costs of water services (such as water abstraction, water supply, wastewater disposal), incl. financial, environmental and resource costs, are to be recovered by an appropriate water pricing policy  Adequate contribution of water users to the costs of water services Water pricing according to the WFD Polluter-pays principle: Water pollution should be charged covering all the costs of damages caused or the costs of reduction / prevention of such pollution

5. What are water services? Water abstraction Water supply (pumpage, treatment, storage, distribution) Wastewater disposal (collection, treatment) Wastewater discharge Flood control?? Recreation?? Aquatic habitats??

6. Water abstraction  Water abstraction levy Water supply  Charge on water supply Wastewater disposal  Charge on wastewater disposal Wastewater discharge  Effluent levy Further water services?  ? Cost Recovery: water pricing

7. Effluent levy Examples: France Germany (UK)

8. Examples: Germany France The Netherlands (UK) Water abstraction levy

9. Baden-Württemberg  Bayern be will introduced ? Brandenburg no Hesse cancelled 2002 Meklenb./Westpom. no Lower Saxony  North Rhine-W. new 2005 Rhineland-Palatinate no Saarland no Saxony  Saxony-Anhalt no Schleswig-Holstein  Thruringia  Berlin  Bremen  Hamburg  Water abstraction levies in Germany

10. 1.Financial costs of water services WFD cost categories 2.Environmental costs of water services 3.Resource costs of water services  Costs of water services are to be recovered !  Appropriate charges on using water services !

11. Financial Costs Which water services? (costs of flood control, recreation and aquatic biotopes to be included?) Which values of assets for depreciation and interest calculation? (present or future values?) Which interest rates? (market or social discount rates?)

12. Internalised environmental costs = financial costs ? Future costs of environmental laws = financial costs ? Not internalised environmental costs = ??? Environmental Costs Which economic methods to evaluate environmental costs are appropriate? 1.type of damages (e.g. forests, life) ? 2.costs of averting / restoring measures ? 3.willingness to pay (contingent valuation method) ?

13. Economic losses that suffer other water users due to over-exploitation ? (overlap with environmental costs) Resource Costs or: Economic losses due to non-optimal water use ?  inefficient water allocation among 1.water users 2.regions 3.generations at a given set of environmental limit values for abstraction and pollution rights

14. WFD cost categories: Application in Practice ? 2004 Reports of EU Member States on characteristics of the river basin districts and economic analysis of water use (incl. current level of Cost Recovery) Pilot River Basins Water Management Models

15. 2004 Characterisation of river basins: Current Level of Cost Recovery Financial costsEnvironmental costs Resource costs No clear-cut between cash-flow and capital costs Public water services only not applied Cost Recovery (%) water supply 92 wastewater 84 Example: Austria (e.g. River Basin: Donau)

16. Example: Germany (e.g. River Basin: Weser) 2004 Characterisation of river basins: Current Level of Cost Recovery Financial costsEnvironmental costs Resource costs Accounting includes always capital costs Public water services only Charge on water abstractions Charge on effluents (Charge on special uses of nature) Charge on water abstractions Charge on effluents (Charge on special use of nature) Cost Recovery (%) water supply 100 wastewater 96 Cost Recovery (%) < 100? Cost Recovery (%) < 100?

17. Financial costsEnvironmental costs Resource costs Clear-cut against environmental costs Water services provided to business and households Not applied due to data problems Rough estimates refers to water industry and agriculture (85%) Not applied due to data problems To be related to inefficient allocation of abstraction rights Cost Recovery (%) water supply 98 wastewater 100 2004 Characterisation of river basins: Current Level of Cost Recovery Example: UK (e.g. Anglian River Basin District)

18. Austria:Currently no estimates of environmental and resource costs Germany:No differentiation between environmental and resource costs: for both charges on abstractions and effluents UK:Currently no estimates of environmental and resource costs. Clear-cut differentiation between the three cost categories. 2004 Characterisation of river basins: Current Level of Cost Recovery

19. Key Questions Financial, environmental and resource costs caused by agriculture and industry ? Distinction between financial and environmental costs ? Distinction between environmental and resource costs ? Appropriate value of assets for depreciation and interest calculation ? Appropriate value of discount rates ?

20. Key Question What is the appropriate composition of charges on water services?  Best water pricing policy ?  True value of water ?... compared with the actual charges on water services?

21. Solutions?  Recommendation: Financial costs should include the costs  of water uses, such as abstraction, supply, disposal, effluents, flood control, natural habitats, recreation and  of measures to reduce / avoid environmental damage in the past, present and future to comply with regulations Environmental costs should include the costs  of not-internalised damages to waters (due to e.g. over-exploitation, pollution) and  of inefficient allocation among different water uses, such as abstraction, discharge, habitats and recreation

22. Solutions?  Recommendation: Resource costs should include  the economic losses due to deviances of the current water allocation from the optimal water allocations among different users, regions and periods (e.g. generations) at a given set of environmental limit values is equivalent with…. the economic losses due to inefficient allocation of rights to abstract water and to discharge residual wastewater at given limit values concerning e.g. groundwater yields, maximum pollution loads

23. Hydro-economic water management models can help to find out  the optimal allocation of water uses  the appropriate charges on water abstraction and pollution How to determine the resource costs in practice?

24. Financial costs  Environmental costs  Resource costs  Summary : Appropriate charges on water uses Charge on use of water infrastructure, incl. the costs of compliance with environmental regulations Charge on causing non- regulated environmental damage (external costs) Charge on water abstractions Charge on effluents (Charge on use of nature) ? Cost Recovery (%) Water supply... Wastewater... Others... Cost Recovery (%) Economic evaluation of damage Cost Recovery (%) Hydro-economic models

25. This investigation is ongoing on the basis of case studies

26. For those who are interested in water management models:  Expert Meeting on Economics in Water Management Models, Copenhagen, Denmark, 15-16 November 2004 http://hit.infu.uni-dortmund.de/login.html, userid: Copenhagen, password: EconoMod  HarmonIT Workshop on Model Linking using OpenMI, Munich, Germany, 27 September 2005 http://www.harmonit/org/Workshops/munich