WHAT IS THE ROLE OF WHAT IS THE ROLE OF ECONOMICS ECONOMICS

IN THE WFD PROCESS?IN THE WFD PROCESS?

A selection of key economic inputs

THE KEY ECONOMIC INPUTS

1- Recovery of costs

2- Cost-effectiveness analysis

3- Cost-benefit analysis

4- Water pricing policies

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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?...How to implement recovery of costs?

Under WFD, it refers to "water services" and "water uses"

identification at the characterisation stage (2004)

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ACTIVITIESActivities with no

significant impact on water status

EXAMPLESE.g. navigation

E.g. diffuse pollution

E.g. fishing...

THE RECOVERY OF COSTS IN PRACTICE1- IDENTIFY WATER USES AND SERVICES

WATER USES Activities with

significant impacton water status

EXAMPLESE.g. navigation

E.g. diffuse pollution

E.g. fishing...

scale

high

low

EXAMPLESE.g. drinking water

supplyE.g. wastewater

treatmentE.g. irrigation...

WATER SERVICESMainly water uses for the purpose of which water is diverted from its natural

cycle by a work or an equipment

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2004

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Task for 2004:

description of

the situation

THE RECOVERY OF COSTS IN PRACTICE2- ASSESS THE LEVEL OF RECOVERY

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

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

Take account of social, environmental

and economic effects

Funding of preventive or remedial

measures in order to achieve WFD

objectives is possible.

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THE RECOVERY OF COSTS IN PRACTICE3- COMBINE THE LEVEL OF RECOVERY

WITH WFD'S GOALS

2010

When do we implement CEA? when potential measures are identified based on the

outcomes of the characterisation (2004)

COST-EFFECTIVENESS ANALYSIS (CEA)

Why do we care about cost-effectiveness? To identify the (sets of) measure(s) that will best

achieve the compliance with the goal at the lowest cost

To rank (sets of) measures that allow to reach the goal

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account of benefits, at least to identify them

Ensure fruitful co-operation between water

professionals (effectiveness) and economists

(costs)

...2008

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

COST-EFFECTIVENESS IN PRACTICEE.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-...

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 3- ...

basic measur

e

basic measur

e

basic measur

e

basic measur

e

supplement.

measure

supplement.

measure

supplement.

measure

supplement.

measure

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...2008

Why do we use CBA to compare variations of quantifiable costs and

benefits, caused by the activities, for people affected by the policy under consideration

COST-BENEFIT ANALYSIS (CBA)

When do we use CBA? when potential measures to reach the objective have

disproportionate costs: need to identify the least costly measures

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...2008

Includes all types of costs and benefits: qualitative and quantitative financial and environmental direct and indirect; present and future...

COST-BENEFIT ANALYSIS IN PRACTICE

Take account of uncertainty due to methods implemented: (dis)aggregation, use

of proxies… due to lack of data: unavailable, unreliable…

Decision makers will have to cope with

these constraints

clear information on these aspects is

needed from experts

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...2008

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

WATER PRICING POLICIES

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...2010

Take account of elasticity and affordabilitye.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 minde.g. to ensure sustainability, progressive tariffs are

more efficient, although marginal cost decreases

Specific aspects with WFDtake account of established practicestake account of social, environmental… aspects

WATER PRICING POLICIES IN PRACTICE

Water pricing policy is one type of

measure

potential impact to be assessed in

combination with other planned

measures'

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...2010