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Aqua Publica Europea event Assessment of cost recovery through water pricing Gorm Dige Territorial environment, policy and economic analysis

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Presentation on theme: "Aqua Publica Europea event Assessment of cost recovery through water pricing Gorm Dige Territorial environment, policy and economic analysis"— Presentation transcript:

1 Aqua Publica Europea event Assessment of cost recovery through water pricing Gorm Dige Territorial environment, policy and economic analysis

2 From the 2012 Water Eurobarometer 70% of Europeans realise the seriousness of water- related problems and support stronger EU action 84% of consumers support charges for the volume of water they use 12% disagree with pay-more-if- you-use-more-principle 57% explicitly call for a fairer pricing policy 47% want stricter water regulation

3 Challenges Article 9 of Water Framework Directive (WFD) – cost recovery of water services taking into consideration environmental and resource costs (ERC) Blueprint to safeguard Europe’s water – enforce water pricing/cost recovery obligations under WFD including metering when relevant Are Member States ready for the challenge?

4 Purpose of this study Collates practical information on current state of water pricing in Europe Cost recovery of water services including ERCs Addresses issues of incentives, affordability and social equity Selected countries: Croatia, England, France, Germany, the Netherlands, Serbia, Scotland, Slovenia, Spain and Wales Recommendations - development of pricing models and water pricing reporting

5 Pricing of water serve as policy instrument to achieve: Cost recovery - financial recovery of water supply (including investments in infrastructure, operation and maintenance) and water use-related environmental and resource costs Incentives - conserve water and promote water efficiency

6 Water prices can be charged in many ways

7 Is water consumption reactive to water price changes? Source:

8 Source: Grafton et al., 2009

9 Evidence of water pricing schemes providing incentives to reduce household water use Czech Republic: Between the water and wastewater tariff for households increased from 0.8 to 48 CZK/m3. Fees increased for the extraction of both surface, ground water, and discharge of waste water. Household consumption decreased by 40% from 171 litres per capita per day in 1989 to 103 litres in 2002 Denmark: Between real price of water (including environmental taxes) increased by 54 %. This has led to a substantial decrease in urban water demand from 155 to 125 litres per person per day, one of the lowest levels in OECD

10 Water pricing schemes to recover costs in water and wastewater services Country Water pricing structures Drinking WaterSewage/SanitationIrrigation England and Wales Households: fixed + rateable value (if unmetered) OR fixed + volumetric Industry: fixed + volumetric Households: fixed + rateable value (if unmetered) OR fixed + volumetric Industry: Small users pay volumetric; large users pay fixed + higher volumetric rate Abstraction charges (fixed + volumetric) apply Scotland Households: fixed (based on tax bracket) Industry: fixed + volumetric (based on size of meter) Households: fixed (based on tax bracket) Industry: fixed + volumetric (based on size of meter) Only abstraction charges apply The Netherlands Households: fixed + volumetric Industry: fixed + volumetric Households: fixed (based on size) Industry: variable (based on pollution units) Farmers using piped water are treated as business customers (industry); farmers using groundwater pay a groundwater charge; farmers using surface water pay nothing Germany Households: fixed +volumetric Industry: fixed +volumetric Households: fixed + volumetric + runoff charge based on land cover Industry: N/A N/A

11 Cost recovery levels (water/sanitation tariffs) Note: For FR the estimated cost-recovery levels are evaluated together and should be 83% (median level) and not 138% as reflected in the table

12 Some issues related to financial cost recovery Difference in assessment methodologies including cost elements considered Operation and maintenance costs recovered from water users in most countries/sectors – not the case for investment costs Data on cost recovery are not homogenous across and within countries – and not always easily accessible

13 ERCs and cost recovery Variability in the way Member States define and account for externalities in practice Most MSs examined consider ECs by charging water polluters for purification of wastewater and for untreated pollution discharged in surface waters RCs to a lesser extent considered by setting charges on water abstraction, construction, operation, and maintenance of water storage facilities

14 Examples of revenue figures collected from env. taxes for water services New requirements in WFD Article 9 – not affect mechanisms put in place for recovering ERCs as indicated in total revenues Absence of drastic changes in revenues from env. taxes - indicating no additional efforts to internalise ERCs (000s Euros) Germany (all Länder) 339,480289,140269,330254, France (all agencies) 1,789,3001,665,8001,730,4001,876,2001,838,7001,959,6002,044,7002,084,000 Spain (ACA) 326,110336,967322,127347,518366, UK (EA) 119,400114,300184,500188,900200,000200,600194,300196,700 Scotland (SEPA) 12,72813,94016,95418,86719,45219,08219,45919,929

15 Proposed options for reporting ERCs To ensure EU wide implementation of cost recovery principles - comparable systems for reporting of utility costs and revenues A system is needed that indicates what areas of ERCs are covered Benchmarking initatives are one promising option for such a reporting instrument Proposed reporting sheet for assessment of inclusion of environmental and resource cost in cost recovery (p. 103)

16 Affordability levels for drinking water supply and sewage and wastewater treatment services Country Affordability for the household sector [% of disposable income] Drinking Water SupplySewage and WastewaterYear England & Wales /2010 Scotland /2011 The Netherlands ;n.d. France /2010 Germany Slovenia1.40.2n.d. Spain (Catalonia)

17 Do water pricing schemes account for social concerns? In each examined MS affordability taken into account. A variety of systems are found Water authorities in some MSs perform periodical pricing studies - comparing family income with water bill Some MS specify means to achieve affordability others leave this unaddressed Artificially low water prices not the best way to ensure affordabilty – risk of underfunded service providers....

18 Example of means for achieving affordability Via reductions in service charges Social welfare allowances earmarked for the payment of water services Water charges pegged to the value of the house (e.g. England, Wales, Scotland) and special tariffs Sewage charge remission for households (e.g. the Netherlands) that cannot afford to pay A remission for the purification, pollution and water system charges is also possible Support through social welfare – includes an allowance for the cost for water service (e.g. Germany)

19 In conclusion - ways forward for pricing schemes A substantial part of the water bill is variable Volumetric or increasing block rates are used - metering indispensable Rates or rules for calculation fixed in a transparent way Rates high enough for water suppliers to invest in improvements Affordability addressed through social measures - not by reducing water price incentives (such as reduced VAT rates) Regional variations in e.g. water scarcity reflected in water prices

20 Please do not hesitate to ask us! Contact the European Environment Agency for information

21 ERCs – the two attempts from Common Implementation Strategy (CIS) WATECO group (2003): Environmental costs: damages incurred by ecosystems and people as a result of water use... Resource costs: occur only when the resource is used beyond its natural regnerative capacity...(overexploitation) DG ECO2 group (2004): Environmental costs: env. damage costs of aquatic ecosystem depletion (e.g. pollution).... Resource costs: only arise if alternative water use generates a higher economic value......(misallocation)

22 Financial cost recovery (agriculture - where irrigation water tariffs are in place)


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