Transcript INTERNATIONAL CONFERENCE ON WATER ECONOMICS, …

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
EU Water Framework Directive (WFD)
• Commence monitoring programme
2006
• 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
Water pricing according to the 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
• 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??
Cost Recovery: water
pricing
Water abstraction
 Water abstraction levy
Water supply
 Charge on water supply
Wastewater disposal
 Charge on wastewater disposal
Wastewater discharge 
Further water services? 
Effluent levy
??
Effluent levy
Examples:
• France
• Germany
• (UK)
Water abstraction levy
Examples:
•
•
•
•
Germany
France
The Netherlands
(UK)
Water abstraction levies in Germany
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
Saxony
Saxony-Anhalt
Schleswig-Holstein
Thruringia
Berlin
Bremen
Hamburg
no

no





WFD cost categories
1.
2.
3.
Financial costs of water services
Environmental costs of water services
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?)
Environmental Costs
• Internalised environmental costs
= financial costs ?
• Future costs of environmental laws = financial costs ?
• Not internalised 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) ?
Resource Costs
•
•
Economic losses that suffer other water users due to
over-exploitation ? (overlap with environmental 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
• Example: Austria (e.g. River Basin: Donau)
Financial costs
• No clear-cut between
cash-flow and capital costs
• Public water services only
Cost Recovery
water supply
wastewater
(%)
92
84
Environmental
costs
Resource costs
not applied
not applied
2004 Characterisation of river basins:
Current Level of Cost Recovery
• Example: Germany (e.g. River Basin: Weser)
Financial costs
• Accounting includes
always capital costs
• Public water services
only
Cost Recovery
water supply
wastewater
Environmental
Resource costs
costs
•Charge on water
• Charge on water
abstractions
abstractions
• Charge on effluents • Charge on effluents
• (Charge on special • (Charge on special
uses of nature)
use of nature)
(%) Cost Recovery (%) Cost Recovery (%)
100
< 100?
< 100?
96
< 100?
< 100?
2004 Characterisation of river basins:
Current Level of Cost Recovery
• Example: UK (e.g. Anglian River Basin District)
Financial costs
Environmental
costs
• Clear-cut against
• Not applied due
environmental costs
to data problems
• Rough estimates
refers to water
• Water services provided
to business and households industry and
agriculture (85%)
Cost Recovery
water supply
wastewater
(%)
98
100
Resource costs
• Not applied due
to data problems
• To be related to
inefficient
allocation of
abstraction rights
2004 Characterisation of river basins:
Current Level of Cost Recovery
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.
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
How to determine the resource costs
in practice?
Hydro-economic water management models can help to
find out

the optimal allocation of water uses

the appropriate charges on water abstraction and
pollution
Summary: Appropriate charges on water uses
Financial costs

Environmental costs

• Charge on use of
water infrastructure,
incl. the costs of
compliance with
environmental
regulations
Cost Recovery
Water supply
Wastewater
Others
• Charge on
causing nonregulated
environmental
damage (external
costs)
Resource costs

• Charge on water
abstractions
• Charge on
effluents
• (Charge on use of
nature) ?
(%) Cost Recovery (%) Cost Recovery (%)
...
... Economic evaluation Hydro-economic
models
... of damage
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 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