Feasibility of WFD cost categories?Ingo Heinz

Institute of Environmental Research (INFU), University of Dortmund, Germany

SECOND INTERNATIONAL WORKSHOP ON IMPLEMENTING ECONOMIC ANALYSIS IN THE WATER FRAMEWORK

DIRECTIVE, PARIS, FEBRUARY 17 & 18, 2005

Starting points:

• Cost-recovery principle• Polluter-pays principle

Cost-recovery principle:

Product price should cover all production costs, including the non-market costs (“externalities”)

Polluter-pays cost principle:

The prices charged for the use of environmental resources should cover all the cost of damages caused by emissions of pollutants or of the costs of reducing / preventing such damages

Water

Cost-recovery principle:

The water prices should cover all the costs of water services (such as water abtraction, water supply, wastewater disposal), incl. non-market costs

Polluter-pays principle:

Water pollution should be charged covering all the costs of damages caused or the costs of reduction / prevention of such pollution

Polluter-pays principle

Point-pollution (from industries or municipalities):• Charges on wastewater disposal• Charges on wastewater effluents

Non-point pollution (from agriculture):• Charges on pesticides

• Charges on mineral fertilisers, nutrient surplus

Full-cost recovery principle

Non-point pollution caused by agriculture

Should the prices of water services cover also the costs of compensation payments and advisory services provided to farmers?

Violation of the polluter-pays principle or

costs of measures to protect waters to be payed by water users?

Water user-pays principle

The use of water services should be charged, such as for

• Water abstraction• Water supply (pumpage, treatment, storage, distribution)• Wastewater disposal (treatment, collection, effluent) • Wastewater discharge• Flood control??• Recreation??• Aquatic habitats??

Water user-pays principle

Water abstraction Water abstraction levy

Water supply Charge on water supply

Wastewater disposal Charge on wastewater disposal

Wastewater discharge Wastewater levy (effluent charge)

Wastewater levy (effluent charge)

Example:

The German ‚Abwasserabgabe‘

Water abstraction levy

• France

• Germany

• The Netherlands

• UK

• (Denmark)

Baden-Württemberg Bayern to introduce?

Brandenburg no

Hesse cancelled!

Meklenb./Westpom. no

Lower Saxony North Rhine-Westf. new!

Rhineland-Palatinate no

Saarland no

Saxony Saxony-Anhalt

no

Schleswig-Holstein Thruringia

Berlin Bremen Hamburg

Water abstraction levies in Germany

WFD cost categories

Financial costs ?

Environmental costs ??

Resource costs ???

Any hope to reach

clear definitions ?

Financial costs

• Of which water services? (flood control included?)

• Which values of assets for depreciation and interest

calculation? (present or future values?)

• Internalised non-market costs included? (no

environmental costs?)

• Which interest rates? (social discount rates?)

Environmental costs

• Internalised non-market costs excluded? (financial

costs?)

• Compensations payed to injured parties excluded?

(financial costs?)

• Costs needed to be taken to reduce/prevent damage

included? (or to include in the financial costs?)

Which assessment methods appropriate?

• Revealed preference methods, such as

costs of averting behaviour?

• Price differentials of properties?

• Stated preference methods, such as willingness to pay, incl. non-use values?

Environmental costs (continued)

Resource costs

Can we ever understand this term ?

• Economic losses that suffer other water users due to over-exploitation? (in part environmental costs?)

• Economic losses due to deviances of the current and the optimal water use?

Economic losses due to inefficient allocation of

• water uses among different water services, such as

abstraction, discharge and recreation (environmental

costs?)

• rights to abstract water and to discharge wastewater

at a given set of environmental limit values

(e.g. groundwater yield, maximum pollution load)

Resource costs (continued)

Discussion points

1. Financial costs should include costs of• water services

• measures to reduce / avoid environmental damage in the past, present and future

2. Environmental costs should include the costs of• not-internalised damage

Resource costs should include the

economic losses due to

inefficient allocation of

rights to abstract water and discharge wastewater at a given set of environmental limit values

(e.g. groundwater yield, maximum pollution load)

Discussion points (continued)

How to operationalise resource costs?

Determine the appropriate level of charges water abstraction and wastewater discharge!

How to do this?

Develop and and apply hydro-economic water

management models

Discussion points (final)

Hope this helps