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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?
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
• 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)
• 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
What are water services?
• Water abstraction
• Water supply (pumpage, treatment, storage, distribution)
• Wastewater disposal (collection, treatment)
• Wastewater discharge
• Flood control??
• Recreation??
• Aquatic habitats??
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
Effluent levy
Examples:
• France
• Germany
• (UK)
Examples:
• Germany
• France
• The Netherlands
• (UK)
Water abstraction levy
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
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 !
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?)
• 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) ?
• 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
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
2004 Characterisation of river basins:Current Level of Cost Recovery
Financial costs Environmental costs
Resource costs
• No clear-cut between cash-flow and capital costs
• Public water services only
not applied not applied
Cost Recovery (%) water supply 92
wastewater 84
• Example: Austria (e.g. River Basin: Donau)
• Example: Germany (e.g. River Basin: Weser)
2004 Characterisation of river basins: Current Level of Cost Recovery
Financial costs Environmental 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?
< 100?
Cost Recovery (%)
< 100?
< 100?
Financial costs Environmental 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)
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 betweenthe three cost categories.
2004 Characterisation of river basins: Current Level of Cost Recovery
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 ?
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?
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
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
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 costsin practice?
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
This investigation is ongoing on the basis of case studies
For those who are interested in water management models:
Expert Meeting on Economics in Water Management Models, Copenhagen, Denmark, 15-16 November 2004http://hit.infu.uni-dortmund.de/login.html, userid: Copenhagen, password: EconoMod
HarmonIT Workshop on Model Linking using OpenMI, Munich, Germany, 27 September 2005http://www.harmonit/org/Workshops/munich
