A distinctive feature of the Water Framework Directive (WFD) is the multiple references to economic aspects. According to the WFD, members of the European Union (EU) are mandated to:
Recover the financial, environmental and resource costs of using water. These costs include the financial costs of operating infrastructure and services to access water the (non-financial) costs of pollution, in the prevailing interpretation comprising all environmental pressures (in line with the Polluter Pays Principle), and the opportunity cost of using water (which should reflect scarcity);
Establish water prices that promote water use efficiency and hence discourage wastage and encourage efficient allocation of water resources;
Define the size of the adequate contributions to the costs of water services that the various water user sectors need to incur;
Use economic analysis on a robust base of appropriate data to document costs of measures and investments, their allocation;
Identify the cost-effective combination of measures that can achieve good status.
The Fitness Check of the EU's water legislation and the assessment of the second cycle of implementation of river basin management plans (RBMPs) and flood risk management plans (FRMPs) indicates that there is room for improvement with regard to the integration of water economics into the frame of integrated water management:
Financing is a major obstacle towards improved implementation. For the WFD, the objectives of the Programmes of Measures are mostly determined by what can be delivered with the pre-set available budgets informed by the policies that are already in place. For the FD, the financing of measures is not specified in the Flood Risk Management Plans;
Much of the potential of cost recovery is left untapped. One third of the countries only apply cost recovery to water supply and sanitation services. Several countries are progressively applying cost recovery to a wider range of water uses, including hydropower generation, navigation, flood protection, or self-abstraction for agriculture and industry. In addition, "the adequate contribution" of certain water uses to the recovery of water services’ costs remains low to non-existent;
The estimation of actual and future investment needs does not always deliver reliable figures for a robust investment planning. The methodologies and scope differ and often lack transparency. Financial costs are the focus of the cost recovery efforts, even though the methods used may not fully account for costs (in particular as regards capital and depreciation costs). Less attention is devoted to wider economic costs. Only half of EU member countries document the opportunity / scarcity costs of using water and the (non-financial) pollution costs;
The estimation of costs and benefits is insufficiently documented, and exemptions based on "disproportionate costs" are not always properly justified;
The use of cost-effectiveness analysis could further be improved in order to increase the efficiency the implementation of the necessary measures.
Further progress towards a more robust water economics approach to support water resource management is needed to facilitate compliance with the WFD and FD objectives. While finance is often referred to by countries as a constraint in the implementation efforts, a better use of insights from water economics can ensure that available financial resources are used effectively (i.e. allocated to measures that contribute tangible benefits on the ground in terms of good ecological status) and that potential sources of revenues are mobilised.
With this in mind, the European Commission – DG Environment and the OECD Environment Directorate endeavoured to:
Explore what could be appropriate mechanisms, including those hitherto rather underused, to recover costs of water management;
identify good practices that can inspire further progress in member states; and
provide policy and methodological guidance as to how to further recover costs of water management.
This effort took the form of a series of 4 thematic workshops, organised by the OECD and hosted by the European Commission. The 4 thematic workshops focused respectively on the implementation of the Polluter Pays principle; cost recovery; water scarcity, and the water-related investment planning and financing. A concluding, fifth workshop focused on cross-cutting issues.
Discussions at each workshop were supported by a background note from the OECD on the policy issues, available information, and selected good practices in Europe, OECD countries or beyond. Each workshop was organised to facilitate the exchange of experience and to overcome some of the bottlenecks to further documenting costs, supporting cost recovery and allocating efforts across water users. Invitations were sent to the appropriate members of the Common Implementation Strategy plus other relevant experts, as well as the members of the OECD Working Party on Biodiversity Water and Ecosystems. Discussions highlights are appended to this report and have informed the executive summary.
The next section reports on some of the cross-cutting messages that emerged from the series of thematic and concluding workshops.