Transcript INTERNATIONAL CONFERENCE ON WATER ECONOMICS, …

International Workshop on Hydro-Economic Modeling and Tools for
Implementation of the European Water Framework Directive
Valencia, Spain, 30 – 31 January 2006
The Economic Value of Water
Ingo Heinz
University of Dortmund, Germany
“Water industry – a business with increasing profits in
future”
(Pictet Fund Water)
“Water resources – only to satisfy demands, not for
sale”
(Mohammed)
“Water – has an economic value in all its competing
uses and should be recognised as an economic good”
(International Conference on Water and Environment,
Dublin 1992)
EU Water Framework Directive (WFD)
• Characterisation of the river basins
2004
• 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
EU Water Framework Directive (WFD)
Characterisation of the river basins 2004:
1.
Analysis / review of water uses and impacts on
water status
2.
Economic analysis of water use including:
Assessment of the current level of cost recovery
Cost recovery and water-pricing policy
 The costs of water services (abstraction,
supply, disposal)
financial, environmental and resource costs
are to be recovered by water pricing policy
 Adequate contribution of water users to the costs of
water services
Cost Recovery: Current water pricing
Water abstraction
 Water abstraction levy
Water supply
 Charge on water supply
Wastewater disposal
 Charge on wastewater disposal
Wastewater discharge 
Effluent levy
Effluent levy
Examples:
•
•
•
•
•
Denmark
France
Germany
Spain
UK
36 Euro / damage unit
Water abstraction levy
Examples:
•
•
•
•
Germany
France
The Netherlands
(UK)
e.g.
0.05
Euro / m³
0.1785 Euro / m³
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
• “Abatement costs”
= financial costs ?
• “Costs of future regulations”
= financial costs ?
• “Not internalised environmental costs”
?!
Methods to evaluate environmental costs
1. Costs of preventing / mitigating / reducing damage
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
•
“Economic losses due to
 inefficient water allocation among
1. water users
2. regions
3. generations
at a given set of environmental limit values for
abstraction and pollution rights”
2004 Characterisation of river basins:
Current Level of Cost Recovery
• Example: Austria
Financial costs
• No clear-cut between
cash-flow and capital costs
Environmental
costs
Resource costs
not applied
not applied
?
?
• Public water services only
Cost Recovery
water supply
wastewater
(%)
92
84
• Example: Germany
Financial costs
Environmental
costs
Resource costs
• Accounting includes
always capital costs
• Charge on water
abstractions
• Public water services
only
• Charge on effluents • Charge on effluents
Cost Recovery
water supply
wastewater
(%)
100
96
?
• Charge on water
abstractions
?
• Example: UK
Financial costs
• Clear-cut against
environmental costs
Environmental
costs
Resource costs
• Not applied due
to data problems
• Not applied due
to data problems
• Related to
inefficient
allocation of
abstraction rights
• Water services provided
• Rough estimates
to business and households available
Cost Recovery
water supply
wastewater
(%)
98
100
?
?
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:
roughly recovered by both charges on
abstractions and effluents
UK:
Currently no estimates of
environmental and resource costs.
Clear-cut differentiation between
all three cost categories.
Key Question
• What is the
 true economic value of water ?
compared with the actual charges on water
services?
Suggestion how to differentiate
Financial costs

• Costs of water
infrastructure
• Costs of compliance
with environmental
regulations
Environmental costs

• Non-regulated,
not-internalised
environmental
damage (external
costs)
Resource costs

• Inefficiencies in
allocation of water
resources for
 abstractions
 effluents
To determine the true economic value of
water
Hydro-economic models can help to find out the




most cost-efficient properties of infrastructure


optimal allocation of water resources
proper financial costs and charges
most efficient reduction of environmental costs
appropriate charges on non-internalised damage
appropriate charges on
water abstraction,
pollution
Hydro-economic models: two examples
Aquatool
WaterStrategyMan
•Financial costs
Costs of infrastructure.
Charges on using it.
•Environmental
costs
Future abatement costs. Not-internalised
Shadow price of
damage. Charges on
standards.
abstraction / pollution.
•Resource costs
Gap: current / optimal Economic losses or
allocation. Shadow price foregone economic
of scarcity.
benefits. Scarcity rents.
Economic
value of water
?
Costs of infrastructure.
Charges on using it.
?
Summary
• Divergent definitions and calculation methods in EU Countries
 No comparison of cost recovery
• True economic value of water:
 Economic benefits  financial + environmental
+ resource costs
• Water price = economic benefit per m³ at optimal allocation
• Resource costs per m³ = water price - unit financial costs
- unit environmental costs
“Water industry – a business with
increasing profits in
future”
(Pictet Fund Water)
“Water resources – only to satisfy demands, not
(Mohammed)
for sale”
“Water – has an economic value in all its competing uses and
should be recognised as an economic good”
(International Conference on Water and Environment, Dublin 1992)
WHO IS RIGHT ?