ECONOMIC INSTRUMENTS TO SUPPORT WATER POLICY IN EUROPE

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6 Νοε 2013 (πριν από 3 χρόνια και 8 μήνες)

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ECONOMIC INSTRUMENTS TO SUPPORT
WATER POLICY IN EUROPE

PAVING THE WAY FOR RESEARCH AND
FUTURE DEVELOPMENT

December 9 & 10 2009
Paris
Economic instruments to support water policy in Europe
Paris, 9-10
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This document has been prepared by Pierre Strosser, Verena Mattheiß and
Pierre Defrance as part of the support provided by ACTeon to ONEMA for
the organisation of the European workshop entitled Economic instruments
to support water policy in Europe - Paving the way for research and future
development organised in Paris, December 9 & 10, 2009.

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Content
Content...................................................................................................................................................................2
Economic instruments and water policy: setting the scene...................................................................................4
Water management in Europe............................................................................................................................4
Economic instruments: what are they?..............................................................................................................5
Economic instruments for water policy: what are the main issues?..................................................................7
A European workshop: what for?.......................................................................................................................8
Proposed workshop agenda....................................................................................................................................9
A user’s guide to the workshop agenda................................................................................................................13
Individual contributions from speakers................................................................................................................21
Bruce Aylward - Ecosystem Economics - Using Markets to Restore Water-Related Ecosystem Services........21
Josefina Maestu -Program Coordinator -Department of Economic and Social Affairs (UN DESA) – The role of
economic analysis and economic instruments in River Basin management Plans...........................................21
Markku Ollikainen - University of Helsinki – Water markets: why are they considered by NEFCO as policy
options?............................................................................................................................................................23
Dr. Stephan von Keitz (Twinning Project) - “Financing the WFD Program of Measures in Croatia”.................24
Stefan Speck (Kommunalkredit Public Consulting GmbH) - Financing water management in Austria: issues
and options.......................................................................................................................................................26
Sophie Trémolet (Trémolet Consulting) - Mobilizing market finance for water and sanitation services :
Preliminary results from a study for the OECD Environment Directorate........................................................26
Julio Berbel (Universidad de Córdoba) - Water pricing: can it provide incentives and change behaviour? The
case of agriculture in Spain...............................................................................................................................27
Jochem Jantzen (TME) – Waterpricing in the 21th century, Netherlands........................................................30
Marielle MONTINOUL (Cemagref), Noémie NEVERRE (Brgm) and Jean-Daniel RINAUDO (Brgm) - Simulating
the impact of changes of price level and structure on urban water demand: a Southern France case study..31
James Blignaut (University of Pretoria) - The economic imperatives of investing in the restoration of natural
capital................................................................................................................................................................34
Ece Ozdemiroglu (eftec) - Environmental liability, offsets and habitat banking...............................................35
Mark Kieser - Review of water quality trading experiences from the US: What have we learned?.................36
Linda Karlsson (Swedish environmental protection agency) -Proposal for a Permit Fee System for Nitrogen
and Phosphorus................................................................................................................................................37
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Dennis Collentine - Crop discharge permits for reduction of nitrogen loads to the Baltic Sea........................38
Jose Albiac (CITA) - Facilitating re-allocation through tradable water permits, quotas or rights: The Spanish
experience: food for thoughts..........................................................................................................................39
Richard Howitt – Implementing water trading under environmental constraints: the California Experience.40
James Aronson - Restoring natural capital - a priority for global society: Getting scientists, economists and
politicians to work together..............................................................................................................................41
Presentation of speakers......................................................................................................................................42


Economic instruments to support water policy in Europe
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Economic instruments and water policy: setting the scene

Water management in Europe
Many water economists in Europe might have expected a renewed interest in the application of economic
instruments in water management and policy after the adoption of the European Water Framework Directive
in the year 2000. A decade later, the limited attention given to water pricing in the context of the WFD
implementation is striking: water pricing has been the focus of many assessments (in particular dealing with
cost-recovery issues); but few countries have considered adapting existing economic instruments or proposing
new ones as part of their River Basin Management Planning (RBMP) process.
Box 1. Economic instruments and the Water Framework Directive
The WFD is the first European environmental directive which explicitly refers to the application of economic instruments for achieving its
objectives (Kraemer et al. 2003). Article 9 of the WFD states that Member States shall ensure by 2010:
That water-pricing policies provide adequate incentives for users to use water resources efficiently, and thereby contribute to the
environmental objectives of this Directive.
An adequate contribution of the different water uses, disaggregated into at least industry, households and agriculture, to the recovery of
the costs of water services.
Thus, the WFD proposes water pricing as an adequate measure for achieving good water status. In addition, it refers to fiscal instruments
and negotiated environmental agreements as potential supplementary measures that might prove to be effective. A recent review of draft
River Basin Management Plans from selected EU countries shows, however, that changes in water pricing policy and the establishment of
new economic instruments for achieving the environmental objectives of the WFD have so far hardly been considered (Grandmougin et al.
2009
1
).
With the programme of measures (PoM) being finalised, interest in economic instruments might rise again.
Confronted with significant costs of their PoM, countries need to identify new sources of financing in particular
for economic sectors and environmental issues that were not at the forefront of past policies (e.g. ecology,
morphology….). Furthermore, some countries are giving attention to innovative economic instruments in the
search for more cost-effective solutions to reach sustainable water management. Tradable permits are, for
example, receiving attention in the South (quantitative management) and in the North (qualitative
management) of Europe. Finally, the recent attention given to ecosystem goods and services in the context of
the Millennium Assessment has created an impetus for identifying new economic instruments for protecting
(or creating new) ecosystem services, including those provided by the aquatic environment.
With the first WFD planning process ending, and the recent attention given to ecosystem goods and services, it
is the right time to support the policy debate on economic instruments and financing strategies for water
policy. To feed this debate that encompasses a wide range of instruments and decision making scales, a
dialogue between science and policy is necessary to enhance our knowledge base on critical issues
progressively (e.g. the incentive character of (innovative) economic instruments; their role in influencing
behaviour (of individuals, of economic operators); factors and (pre-)conditions that lead to effectiveness and
efficiency….).


1
Grandmougin, B., Mattheiß, V., Kervarec, F., Strosser, P., Dworak, T., Fleischmann, N. & Thaler, T. (2009) „International comparison of the
implementation of the WFD in EU Member states – ACTeon/Ecologic. Comparison report”, A report written for the Dutch Ministry of
Transport, Public Works and Water Management, unpublished.
Economic instruments to support water policy in Europe
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Economic instruments: what are they?
Economic instruments enclose a wide diversity of policy measures, which can generally be differentiated in
market-based and non-market based instruments (Strosser and Speck 2004
2
). The rationale underlying their
application in the field of environment includes modifying the behaviour and decisions of stakeholders and
individuals to promote the protection of the environment, maintaining an optimal level of pollution or reaching
optimal rates of resource use and depletion, and collating financial revenues for supporting environmentally-
friendly practices (Mattheiß et al. 2009
3
, see also Kraemer et al. 2003
4
).
The main characteristic of market-based instruments is their reliance on market price mechanisms in order to
provide financial incentives to economic stakeholders and to internalize environmental costs and benefits (EEA
2005
5
). Market-based instruments are often seen in contrast to regulatory or “command-and-control”
instruments, as they provide more flexibility for the given environmental targets (Kraemer et al. 2003
4
,
Bernstein 1997
6
). However, a combination of both types of instruments is often advocated as being most
effective. The most common market-based instruments used today in the field of water management can be
classified into two categories (Mattheiß et al. 2009
3
):
￿ Instruments that use existing markets and modify the market price of goods and services, so existing
environmental impacts are taken into account in consumers’ decisions. These include for example: (1)
the application of, or changes in, tariffs for existing services (e.g. water pricing); (2) the application of
environmental taxes and charges on the degradation/pollution and/or extraction of natural resources
(e.g. sewerage charges, groundwater taxes); (3) the application of positive financial incentives
(subsidies) for good environmental practice.
￿ Instruments creating new markets for environmental goods and services, a relatively new approach in
the European policy context (see box below). This implies creating a new institutional and regulatory
framework, addressing property right issue for these goods and services, etc. New markets might be
established for water quality, water quantity (e.g. markets for water abstraction permit/right) or any
specific good and ecological service provided by aquatic ecosystems. Depending on the design of the
markets, they might function either by confronting directly the demand and supply of such goods, or
they involve intermediary structures which facilitate this confrontation including financial transfers
between market actors.




2
Strosser, P. & Speck, S. (2004) “Environmental taxes and charges in the water sector, a review of European experiences”, Final report of a
study for the Water Agency of Catalonia, Spain
3
Mattheiß, V., Le Mat, O. and P. Strosser (2009) “Which role for economic instruments in the management of water resources in Europe?
In search for innovative ideas for application in the Netherlands”, Report for the Dutch Ministry of Transport, Public Works and Water
Management, unpublished
4
Kraemer, R.A., Pielen, B.M., & Leipprand, A. (2003) Economic Instruments for Water Management: Extra-regional experiences and their
applicability in Latin America and the Caribbean, in: “Economic Instruments for Water Management: Experiences from Europe and
Implications for Latin America and the Caribbean”, R.A. Kraemer, Z.G. Castro, R.S. da Motta & C. Russell (eds.), Inter-american development
bank, Regional policy dialogue study series, Washington, D.C., USA
5
EEA (2005) “Marked based instruments for environmental policy in Europe”, EEA Technical report, No 8/2005, Copenhagen, Denmark
6
Bernstein, J.D. (1997) “Economic Instruments”, in: Water Pollution Control – A Guide to the Use of Water Quantity Management, Helmer,
R. & Hespanhol, I. (eds.), WHO & UNEP, Geneva, Switzerland
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Box 2. Creating new markets for the environment: innovative experiences from outside Europe
Member States’ reliance on economic instruments varies widely within the European Union. While some instruments such as water tariffs
and environmental charges or taxes are applied in the majority of the Member States (Kraemer et al. 2003
4
), examples of markets of
tradable permits are rare in Europe. In the Western United States, however, water markets have been developed over the last twenty
years as a means of addressing water allocation problems. In this context, water banking plays an increasing role (Macfarlane 2008
7
)
8
. In
Chile auctions in water use rights are established in the Chilean legislation as an economic and financial instrument for the management of
water resources. Already in 1981 the existing water rights allocation system was replaced by a bidding system among several applicants for
the same water, when the availability of the resource is insufficient to satisfy all of them (Andueza 2008
9
). Other examples of water
markets outside Europe can be found in Australia and Mexico (Landry 2000
10
). Implemented under the right conditions, tradable permit
schemes can show several benefits: (i) environmental effectiveness, (ii) decentralized flexibility, (iii) economic efficiency and (iv) better
control over distributive effects – depending on how the tradable permit scheme is designed (OECD 2001
11
).

Some market based economic instruments may include voluntary agreements which are increasingly applied in
the field of environment but not always. These include: (1) Unilateral commitments by individuals/private
companies that establish environmental improvement standards and programs without external input; (2)
voluntary agreements between two economic operators which agree on rules and practices that are beneficial
for both partners. It often involves financial compensation for the loss of income which might occur to one
partner when applying agreed practices; (3) public voluntary schemes where public institutions establish a set
of minimum standards of performance that individual firms can decide to join (e.g. eco-labelling); (4) Voluntary
or negotiated agreements where the government interacts with companies to agree on performance targets
based on commitments and/or obligations of both parties.
The table below presents a diversity of economic instruments which can be applied to water ecosystems and
policy.



7
Macfarlane, S.M. (2008) Water banking in the Western United States: An overview and recent development, in: “First international legal
colloquium on regulation and integrated water resources management. Summary of Lectures”, National Water Commission (ed.), Mexico

8
Water banking is “an institutionalized process specifically designed to facilitate the transfer of developed water to new uses; a water bank
is an institutional intermediary that brings together buyers and sellers under known procedures and with some kind of public sanction for
its activities.” (National Water Commission 2008)
9
Andueza, T.P. (2008) Auction in water use rights on the legislation of Chile, in: “First international legal colloquium on regulation and
integrated water resources management. Summary of Lectures”, National Water Commission (ed.), Mexico
10
Landry, C.J. (2000) “Water Markets Surging into the New Millennium”, in: VERITAS – A Quarterly Publication of Public Policy in Texas,
Spring 2000
11
OECD (2001) “Domestic transferable permits for environmental management: Design and Implementation”, Executive Summary, Paris,
France
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Table 1 Economic instruments for the water sector (Mattheiß et al. 2009
3
, adapted)
Type of instrument
Function/main purpose
Examples
Water tariffs
To collect financial resources for the
functioning of a given water service.
Efficiency in the use of water
Tariffs for drinking water and
sewage, tariffs for irrigation water
Environmental tax
To internalise negative environmental
impacts and influence behaviour, to collect
financial resources for the central budget
Tax on pollution discharge or
abstraction, tax on polluting input
(e.g. tax on pesticide use)
Taxes and
charges
Environmental
charge
To internalise negative environmental
impacts and influence behaviour, to collect
financial resources that are allocated to
support environmentally friendly practices
and projects
Charge on pollution discharge or
abstraction, charge on polluting
input (e.g. charge on pesticide use)
Subsidies on
products
To increase the attractiveness of “green”
products and production factors that have
limited negative environmental
impact/footprint
Subsidies for biological agricultural
products
Market-based instruments using existing markets
Subsidies
Subsidies on
practices
To promote the application of practices and
production processes that limit negative
impacts on water resources or produce
positive environmental externalities
Subsidies for agri-environmental
measures in the field of agriculture
Tradable permit for
pollution
To ensure an optimum allocation of pollution
among sectors
Market for pollution permits among
polluters of a given river basin
Tradable permit for
abstraction
To ensure an optimum allocation of water
quantity among sectors (including the
natural environment)
Informal water markets in irrigation
schemes. Temporary/permanent
transfers of water from agriculture
to urban areas
Market-based instruments
creating new markets
Markets for
environmental
goods
Compensation
mechanisms
To establish mechanisms where
environmental degradation leads to financial
payment that is allocated to alternative
actions to compensate for the degradation
Compensation to ecological
degradation in the aquatic
ecosystem
Market and Non-
market-based
instruments
Voluntary agreementq
To establish a contractual agreement
between two parties (public/private or
private/private) to promote good practices
that reduce pressures on water resources.
There are increasingly referred to as
Payments for Environmental Services.
Unilateral commitments and public voluntary
schemes
Agreements between water
companies and farmers to promote
good agricultural practices in
drinking water protection zones
Agreements between municipalities
and farmers to change practices in
rivers’ mobility space.


Economic instruments for water policy: what are the main issues?
Although the potential usefulness of economic instruments for a variety of issues in the water sector is clear,
several questions need to be answered in order to choose the right mechanisms for the corresponding
situation. Among the questions to be looked at, the following can be cited:
• Which instruments for which pressures? – Not only a wide variety of different instruments exists, but
each can be found in practice in multiple variations. For a given water resource pressure, several
economic (but also other) instruments might be worth considering. Criteria have to be defined for
selecting the most promising instruments. Also monitoring systems for accompanying the application
of instruments, assessing their impact and potentially adapting them as conditions are changing (e.g.
as a result of climate change) should be developed.
• What are the most cost-effective solutions? – Different instruments might be able to reach the same
objective, however, with different cost-effectiveness. This issue needs a thorough examination of the
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current situation, past experiences in applying instruments, the implementation of pilot case studies
with ex-ante analysis of different options (e.g. building on modelling), etc.
• Which institutional and legal framework is required? – The application of new instruments might
require changes in the institutional and legal framework for ensuring (adequate) implementation of
the instrument. New organizations or changes in the definition of water (use) rights might be required,
be it in terms of administrative efforts needed, monitoring and enforcement capacities, etc.
• Can non-European experiences be transferred to the European context? – This question relates to the
adequacy between economic instruments on the one hand, and institutions, social and economic
conditions on the other hand. Are the long-lived practices and traditions in many European countries
compatible with proposed new instruments? Is the allocation of new property rights culturally
acceptable for an essential good like water?
• Why is it important to ask those questions now? What are the options afterwards? The obligations set
under the Water Framework Directive force the EU member states to act now, entailing considerable
financial implications. Economic instruments can fulfil several functions, by representing themselves
measures to reduce pressures, by helping to comply with the polluter-pays-principle and by creating
additional funds to finance activities. Thinking about economic instruments now might allow finding
solutions to finance part of the Programme of Measures which will be published in December. Starting
discussions at this point leaves furthermore the time to thoroughly study the different possibilities, to
start and analyze pilot case studies etc. and to potentially include the chosen economic instruments in
the programme of measures of the second river basin management planning period.
A European workshop: what for?
To address these issues, and to widen the policy debate on economic instruments for water management in
Europe, ONEMA and its department of scientific and technical activities is organising this European workshop
entitled Economic instruments to support water policy in Europe: Paving the way for research and future
development. Positioned at the interface between science and policy, the workshop will provide an
opportunity for economists, practitioners, policy makers and researchers to dialogue on the design and
implementation of (new) economic instruments in the field of water. The objectives of the workshop include:
1. Sharing experiences in the real-life policy application of economic instruments, as a means to
identify the main policy demands in terms of economic knowledge and expertise;
2. Confronting experiences in policy and research aimed at identifying
a. Key “factors for success” for an effective implementation of economic instruments in the
water sector – be it linked to the design of the instrument, required institutional
arrangements, accompanying measures, technical adaptations in water systems….;
b. How these instruments need to be designed to ensure they provide incentive to
behavioural changes, deliver efficiency gains and help financing actions for achieving
sustainable water management and the ecological objectives of the WFD;
c. Contributing to the identification of policy-relevant issues that will require further
research – in the field of economics but also at the interface between economics and
other disciplines such as sociology, ecology, governance…
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Proposed workshop agenda


December 9, 2009 (Day 1)
Timing
Session & presentation titles
Speakers
11 :30 Registration – welcome snacks
Session I - Launching the workshop

Welcome on behalf of ONEMA Patrick Lavarde – Director, ONEMA (France)
Research challenges in designing economic instruments: the
experience from European projects
The European policy context: challenges for policy makers in
using economic instruments.
Using economics instruments and markets to Restore
Water-Related Ecosystem Services
Andrea Tilche – Head of Unit, DG Research
(Belgium)
Anita Payne – DG Environment (Belgium)

Bruce Aylward - Ecosystems economics
(United-States)
13:00
The workshop: what for and how? (objectives, structure,
expected output)
Sarah Hernandez - ONEMA (France)
Session II - Which policy demand on economic
instruments?
Chair: Olivier Bommelaer – CGDD (France)
14:00
A panel discussion for investigating the policy demand in
terms of:
￿ The role of economic instruments in river basin
management plans

￿ Innovative instruments for financing water
management
￿ Water markets: why are they considered by
NEFCO as policy options?
￿ Comparing economic instruments and
regulatory approaches


Josefina Maestu - Coordinator
United Nations Office to Support the
International Decade for Action (Spain)
Dominique Bureau – Conseil Economique
du Développement Durable (France)
Markku Ollikainen, University of Helsinki
(Finland)
Marian Garcia-Valinas – INRA/LERNA
(France)
15:30
Coffee break

16:00 Introduction to the parallel working sessions
Session III – Working Group series 1

WG1 - Financing water management
￿ Financing water management – towards a policy
framework
￿ Financing the WFD Programme of Measures:
experience from Croatia
￿ Financing water management in Austria: issues and
options
Chair: Sarah Hernandez - ONEMA (France)
Roberto Martin-Hurtado – OECD (France)
Stefan Van Keitz – Twinning Project
(Croatia/Germany)
Stefan Speck - Kommunalkredit Public
Consulting GmbH (Austria)
16:10
WG2 - Innovative financing instruments for water
management
￿ Financing water: searching for innovative
approaches in the Netherlands
￿ Results of an OECD study on mechanisms in the
finance markets
Chair: Prof. Robert Holländer - University of
Leipzig (Germany)
Rob van der Veeren – Ministry of Transport
& Water Management (The Netherlands)
Sophie Trémolet - Trémolet Consulting (UK)


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￿ Economic incentives for wetland management in
agriculture in Norway – traditional subsidies or
payments for environmental services (PES)?
Silje Holen - NIVA (Norway)

WG3 – Water pricing: can it provide incentives and change
behaviour?
￿ Water pricing –overview of practice in OECD
countries
￿ Under which conditions does it work? The case of
agriculture in Spain
￿ You said: incentiveness? How important it is for
future pricing policy in the Netherlands
￿ Simulating the impact of changes in price level and
structure on urban water demand: a case study
from the South of France
Chair: Sarah Feuillette – Seine-Normandie
Water Agency (France)
Xavier Leflaive – OCDE (France)

Julio Berbel – University of Cordoba (Spain)

Jochem Jantzen – TME (The Netherlands)

Jean-Daniel Rinaudo – BRGM (France) &
Marielle Montginoul – Cemagref (France)
18:00
Closing the day with an opening issue…
Water and common property resource: building on Elinor
Ostrom’s approach.
Elinor Ostrom – Prize Nobel of Economy 2009.

Jacques Weber – CIRAD (France)
Guest Speaker
20:30
Official diner




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December 10, 2009 (Day 2)
Timing
Session & presentation title
Speakers
Launching the day Sarah Hernandez – ONEMA (France) 09:00
Reporting from WG series 1 & discussions
Rapporteurs
Session IV – Working Group series 2

WG4 – Financial compensation for damage & ecological
goods and services
￿ Compensation mechanisms for damage and
ecological goods and services: what are they?
￿ How can compensation instruments be applied to
water management?
￿ Ecological effectiveness and economic/financial
efficiency in achieving restoration and
preservation goals: lessons from experience
￿
Investigating legal, economic & ecological
conditions for applying financial compensations in
the European context

Chair: James Aronson –CNRS (France)

James Blignaut – University of Pretoria
(South-Africa)
Brice Quenouille - CDC Biodiversité
(France)
Wayne White –W2Consulting (United
States)

Ece Ozdemiroglu – eftec (UK)
WG5 –Tradable pollution permits: searching for
optimality?
￿ A review of experiences from the US: what do we
learn?
￿ Testing new approaches to pollution
management: the permit-fee system in Sweden
￿ Tradable discharge permits: focusing on the case
of agriculture
￿ Implementing tradable quotas for sewage sludge
disposal in Brittany (France)
Chair: Dr. Jaroslav Mysiak- Fondazione Eni
Enrico Mattei (Italy)
Mark Kieser – Kieser & Associates (United-
States)
Linda Karlsson - SEPA (Sweden)

Dennis Collentine - University of Gävle
(Sweden)
Mélanie Tauber - Environmental
Directorate for the Aquitaine Region
(France)
10:00
WG6 – Facilitating re-allocation through tradable water
permits, quotas or rights

￿ The Spanish experience: food for thoughts

￿ Additional insight: the Spanish experience during
the 2005-2009 drought
￿ The role of water markets in water management
in Australia
￿ Emergency water markets in California: what has
changed over the last decade ?
Chair: Josefina Maestu - Coordinator
United Nations Office to Support the
International Decade for Action (Spain)
Jose Albiac - Department of Agricultural
Economics/CITA (Spain)
Julio Berbel – University of Cordoba (Spain)

Tom Rooney – National Water Brokers
(Australia)
Richard Howitt (United States)

12:30 Lunch
14:00
Reporting from Workshop series 2 & discussions

Session V - Closing session
Chair: Pierre Strosser – ACTeon (France) 15:00
When economists meet sociologists, natural scientists or
lawyers: an interactive debate around multi-disciplinarity
Colin Green (United Kingdom)
James Aronson – CNRS (France)
Laurent Neyret- maître de conférence
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Université Versailles (France)
Economic instruments for water management: from
workshop discussions to priorities for research -
Sarah Hernandez – ONEMA (France)
Follow-up to the workshop and words of thanks Patrick Flammarion – ONEMA (France)
17 :00 End of the workshop




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A user’s guide to the workshop agenda

The following paragraphs aim at presenting the logics of the workshop and the focus of individual sessions and
presentations. The different elements presented below are only indicative of what individual speakers will
present. Indeed, speakers might want to add relevant elements to respond to questions and issues that arise as
we move through the workshop agenda.
The main objective of Session I –Launching the workshop will be to position the workshop in its overall policy
context. Following the welcome addressed to all participants by
Patrick Lavarde
, managing director of the host
organization ONEMA, the session will bring three complementary policy perspectives that will guide the
workshop sessions and discussions: research, water policy and economics.

Andrea Tilche
, Head of Unit at DG Research (European Commission), will set the scene in terms of the
research agenda. He will address the question: what can research offer? His talk will build among
other things on recent experiences from European projects funded by DG Research. Andrea will
illustrate how key principles of multi-disciplinarity and support to decision making are effectively
tackled in such projects, identifying some issues where research is clearly lacking.

Anita Payne
, economist at DG Environment (European Commission), will focus on the (European)
water policy demand and on challenges policy makers might face when applying (new) economic
instruments. The challenges posed by water policies, in particular in relation to the implementation of
the European Union Water Framework Directive, raise the question of the role economic instruments
and market-based instruments might play in contributing to the achievement of set environmental
objectives (good water status) and in preserving aquatic ecosystems’ goods and services ;

Bruce Aylward
from Ecosystems Economics, Stanford University (United-States), will set up the scene
of the economic spectrum on the use of economic and market-based instruments for water policy.
Bruce will put himself in the role of the “knowledge provider” to policy making. He will address the
challenges economists face when supporting policy processes that aim at adapting or introducing
economic instruments or market based instruments. Specific attention will be given to the conditions
for good performance and efficiency in the application of economic and market-based instruments.
Having set the scene in terms of principles, demands, terminology and issues, these three presentations will be
followed by a presentation by
Sarah Hernandez
, environmental economist at ONEMA (France). In charge of the
organization of the workshop, Sarah will present the workshop objectives, its structure (both plenary and
working group sessions) and its expected output. She will in particular stress the different research and policy
processes to which the workshop’s output will contribute.
Session II will then expand on the policy demand on economic instruments.
Chaired by
Olivier Bommelaer
, Commissariat Général du Développement Durable of the Ministry of Ecology in
France, the session will build on a series of presentations on real life policy making processes, situations and
demands. These presentations will address political and practical demands and issues linked to the
development and application of economic instruments. They will tackle issues such as: the diversity of the
political demand, and how it has been (is) expressed; mechanisms, knowledge and tools mobilized for
designing new (or revisiting existing) instruments; processes developed (with whom, when, how, for what) for
discussing and “agreeing” on new economic instruments (or changes in existing ones); perception, acceptance
and interest by stakeholders and politicians…
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To capture how diverse political (policy) demand might be, four presentations are proposed dealing with
different socio-economic, hydrological and institutional contexts. These presentations will address the
following questions:
The role of economic instruments and market based instruments (if considered at all) in the context
of the preparation of River Basin Management Plans as required under the EU WFD.
Josefina
Maestu
, coordinator of the United Nations Office (Spain), will bring her experience from Spain to
address the following questions: Which roles are economic instruments given today? Which additional
roles should they fulfil? Which economic instruments are considered – at which stage of the RBMP
planning process and at which geographic/decision making level(s)? Which priority
sector(s)/environmental issue(s) are targeted by economic instruments? Why? Which main issues are
considered when designing them? Who decides – based on what? Which implementation difficulties
are foreseen?
For many years, economic instruments applied to the water sector have been limited to tariffs for
water services, environmental taxes and charges (for both quantity and pollution aspects). However,
these are clearly not the only economic instruments that can be applied in the water sector! And the
recent policy efforts on ecosystem goods and services are widening the range of instruments that can
be proposed.
Dominique Bureau,
member of the Conseil Economique du Développement Durable
(France) will illustrate the diversity of innovative economic instruments for financing water
management – What are they and which opportunities for the implementation of water policy? Which
role might these instruments play? Why are they of interest for policy makers? Under which
institutional setup should they operate?
The third presentation will focus on tradable permits and water markets, an economic instrument
rarely advocated for in European water management.
Markku Ollikainen
from the University of
Helsinki (Finland) will present the case of their application for addressing water pollution in the Baltic
Sea context in a cost-effective manner. Bringing also the issue of the application of economic
instruments in a transboundary context, Markku will address the following questions: why have
tradable permits been chosen by policy makers as potential economic instruments? For which
purpose? Which process has been followed for designing and analyzing them? Which (expected)
efficiency as compared to other economic/regulatory instruments? What have been their pros and
cons – in particular for political bodies involved?
The last presentation by
Marian Garcia-Valinas
, economist at the LERNA Laboratory of INRA (France)
will compare economic instruments and regulatory approaches, focusing in particular on the
household sector.
These presentations will be followed by an open exchange with the audience to clarify concepts, policy
demands and practical implementation issues. These first exchanges will also contribute to identifying
questions to be tackled by the following working group sessions.
Session III & Session IV are structured around a series of interactive working sessions in small groups targeting
(1) specific economic instruments aimed at achieving (2) different policy objectives (such as financing, change
of behaviour or optimal allocation). These working sessions will follow the same structure as detailed below.
Each session will start by a short (5 minute) intervention by the session chair to present the main issues linked
to the topic, some of those being addressed in following presentations of the working groups. It will be
followed by a limited number of presentations providing different views on the topic based on real policy
experience, review of experiences and research. Finally, mobilising the knowledge of all working group
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participants (in particular linked to additional (research) results that might already exist), the group will discuss
and identify key questions that would need further research & investigation.
The outcome of each working group discussion in terms of issues for further research will be presented in
plenary at the end of their respective session. Preliminary suggestions of research questions and how these
might be addressed (e.g. in terms of disciplines, methods, tools, information…) will be proposed during reports,
and then discussed with all participants. Participants will also contribute to identifying the relative importance
of the research questions identified – be it from a research point of view or from a policy & water management
point of view.
In total, two working group series are envisaged (three individual working groups for Session III and three
individual workshops for Session IV).
The working group session of December 9
th
will focus on:
Working Group 1 – Financing water management (Session III).
Chaired by
Sarah Hernandez
, environmental economist at ONEMA, the session will build on three
presentations.
Roberto Martin-Hurtado,
economist at the OECD (France) will share initial results from an on-going
initiative on financing integrated water management. This initiative mobilizes experiences and results
from both OECD and non-OECD countries.
Stefan Van Keitz
, water expert from the Ministry of Environment from the Land Hesse (Germany) and
formerly Resident Advisor of the Croatian/German Twinning on the implementation of the WFD, will
present results and issues for Croatia.
Stefan Speck,
economist at the Kommunalkredit Public Consulting GmbH (Austria), will bring to the
audience the experience of Austria in financing water management. Specific attention will be given to
the challenges brought forward by the WFD, in particular with regards to morphological improvements
and hydropower.
Overall, the session will address the following questions: What are the main demands for financing
water management? Which financing instruments are mobilised? For which actions and/or economic
sectors? What are existing financing gaps? Which options are considered for solving these gaps?
(postponing implementation, increasing the burden on water users/sectors, etc.). The presentations
will give attention to financing via traditional mechanisms such as water tariffs and environmental
charges and taxes. It will also consider other mechanisms as payments for environmental services,
taxes/charges and subsidies on production inputs (e.g. tax on fertiliser), production processes and
practices (e.g. support to practices that reduce pressures) and end-products (e.g. premium on hydro-
energy produced). The workshop will discuss how these instruments are developed (and for which
main policy objective), the pre-conditions for their application, expected impact and effectiveness…
Working Group 2 – Innovative instruments for financing water management (Session III).
To respond to the increasing challenges of integrated water management (larger number of sectors
and environmental issues, more emphasis given to ecology, scarce public financial resources, etc.),
many countries are considering new economic instruments. These include specific financial market
mechanisms/tools to facilitate access to credit, access to financial markets (e.g. reporting and
corporate social responsibility), voluntary approaches for business and water management,
superfunds… These instruments are already applied in selected countries. But lessons on their
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application are rare. The workshop will discuss how these instruments are developed (and for which
main policy objective), the pre-conditions for their application, expected impact and effectiveness…
Chaired by
Prof. Robert Holländer
from the University of Leipzig (Germany), the session will also build
on three presentations.
Rob van der Veeren
, water economist at the Ministry of Transport, Public Works and Water
Management (the Netherlands) will present the main rationale for justifying the need for new and
innovative economic instruments for water management in the Netherlands. He will then present
different options that are currently considered, along with their pros and cons.
Sophie Trémolet
head of Trémolet Consulting (United-Kingdom) and
Monica Scatasta
, economist at
the European Investment Bank (Luxemburg), will shift the attention to financing issues. Building on a
recent study by the OECD, they will present the different mechanisms that financial markets offer to
support investments in the water sector. The constraints faced by existing mechanisms will be
specifically highlighted.
Silje Holen
, economist at the research centre NIVA (Norway), will focus on financing issues for
agriculture, a key sector in the WFD implementation in many EU countries. The presentation will
question financing for agriculture to support wetland management, balancing traditional (CAP/second
pillar) subsidies with new financial Payments for Environmental Services (PES).
Working Group 3 – Water pricing: incentives and changes in behaviour (Session III).
Working group 3 will focus on the issue of incentiveness and change in behaviour. As it is stressed in
Article 9 of the WFD, the use of economic instruments is often justified on economic efficiency and
incentiveness grounds: it is expected that the instrument provides sufficient incentives for individuals
or economic operators to change their practices and behaviour and to reach an optimum balancing
between economic development and the protection of the environment. Whether this is really the
case remains an open question for many instruments currently applied. Do current economic
instruments provide an incentive for enhancing the sustainable use of water resources? If not, what
would then be necessary changes to achieve incentiveness? For which water use sector? Under which
institutional, hydrological and socio-economic conditions? The session focuses on tariffs for water
services and on environmental (abstraction, pollution) charges and taxes applied to the water sector.
Chaired by
Sarah Feuillette,
head of the prospective and evaluation team at the Seine-Normandie
water agency, the session will build on four presentations.
Xavier Leflaive
from the OECD (France) will present the water price system based on the experience of
OECD countries. He will investigate the old culprits that are service charges, environmental charges
and taxes. His presentation, built on the results of a recent OECD initiative, will investigate these
instruments under a diversity of institutional and policy contexts.
Marian Garcia-Valinas
, economist at the LERNA Laboratory of INRA (France) will compare economic
instruments and regulatory approaches, focusing in particular on the household sector.
Julio Berbel
, economist at the University of Cordoba, will shift our attention to the agricultural sector,
a sector for which the expected role water tariffs might play is well debated in Europe. Julio will in
particular present differences in terms of impact and efficiency for different types of agriculture and
hydrological conditions.
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Jochem Jantzen,
economist at TME (The Netherlands) will present the results of a recent study aimed
at guiding policy choices for future water pricing policy in the Netherlands. He will in particular focus
on incentiveness and how this principle is considered (or not) in this context.
Jean-Daniel Rinaudo
, head of the economic team at BRGM (France) and
Marielle Montginoul
, water
economist at Cemagref, will bring results from the Roussillon Region (South of France) on the
expected impact of changes in domestic water tariffs. Impacts of both changes in price level and price
structure will be discussed.
To close the first day of the workshop, ONEMA has proposed a challenging task to Jacques Weber,
researcher at CIRAD. As a guest speaker, Jacques has agreed to close the first day of the workshop
with an opening: he will investigate the links between economic instruments for water policy and the
management of common property resources. His speech will make particular reference to the
fundamental research made by Elinor Ostrom, the 2009 Prize Nobel for Economy. Clearly, food for
thoughts for future research….
The working group session of December 10
th
will focus on:
Working Group 4 – Financial compensation for damage/ecological goods and services (Session IV).
There has been an increasing call for the application of instruments that provide financial
compensation for the production of ecological goods and services – in particular in the context of
wetland restoration and the Millennium Assessment. Application of this instrument to water
ecosystems remains, however, limited.
Chaired by
James Aronson
from CNRS (France), the working session will combine presentations
dealing with water and also other natural resources and ecosystems, applied mostly in non-European
countries/continents.
James Blignaut
from the University of Pretoria (South-Africa) will help clarifying what compensation
mechanisms for ecological “goods”/”bads” are. He will present in particular the diversity of
mechanisms that can be considered, along with some of the issues one might face when applying such
mechanisms under different institutional and environmental conditions. He will present a concrete
case study from South Africa.
Brice Quenouille
from CDC Biodiversité (France) will discuss the potential application of financial
compensation mechanisms for preserving ecological services derived from biodiversity and its
extension to water ecological services, bringing first experiences from France.
Wayne White
from W2Consulting (United States) will discuss the expected (ecological) effectiveness
and (economic/financial) efficiency of setting up a mitigation banking system for damages on
wetlands as applied in the Unites States. He will build on different experiences for assessing the
effectiveness of compensation instruments in achieving restoration and preservation goals.
Ece Ozdemiroglu
from eftec (United-Kingdom) will widen the scope of the debate on financial
compensation. She will investigate the legal, economic and ecological conditions for applying
mitigation banking systems as compensation for ecological damage in the European context.
Overall, the presentations will stress the conditions required for the application of mechanisms for
financial compensation. They will also bring some lights on impact and effectiveness issues, in
particular how these instruments can help in achieving restoration goals. Also how such instruments
can be applied to water management will be discussed.
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Working Group 5 – Optimum allocation: tradable pollution permits (Session IV).
The establishment of tradable pollution permits is receiving increasing attention in Europe, in
particular in Nordic countries. We are today at the pilot testing phase, with mechanisms intermediary
between traditional environmental taxes/charges and tradable permits being proposed. Tradable
pollution permits are however operational in some countries and basins. The working group discussion
will investigate: the pre-conditions for tradable pollution permits to operate – including in terms of
institutional and legal conditions; the elements to be considered for the definition of permits/rights;
economic and environmental impacts; transaction costs for establishing tradable pollution permit
systems…
The working group discussion will be chaired by
Jaroslav Mysiak
, economist from the Fondazione Eni
Enrico Mattei (Italy). It will include four specific contributions.
Mark Kieser
from Kieser & Associates (United-States) will present different approaches to tradable
pollution permits, building on the experience from the United States. He will in particular present the
main lessons one might learn from the past and on-going experiences in this field.
Linda Karlsson
from the Swedish Environment Protection Agency will present the new permit-fee
system that is currently proposed for policy consideration in Sweden. Targeted to reduce pollution to
the Baltic Sea, the proposed system includes different (separated) markets that might in the medium
term be combined.
Dennis Collentine
from the University of Gävle (Sweden) investigates the question of diffuse pollution
and agriculture in the context of the establishment of tradable pollution permits. In particular, Denis
identifies a series of legal, institutional, technical and cultural issues that need to be tackled for such
instruments to be made operational.
Mélanie Tauber
from the Regional Environment Directorate of the Aquitaine Region will end the
session with a presentation on tradable permits/quotas for sewage sludge disposal. Her presentation
will provide information and modelling results for the Brittany Region in France, a region that faces
significant diffuse pollution problems leading to eutrophication and algae bloom in rivers and coastal
areas.
Working Group 6 – Optimum allocation: tradable permits for the quantitative management of water
resources (Session IV).
Tradable abstraction permits or water (use) rights are operational in some countries worldwide for
many years. In Europe, their application and the policy discussion on their potential are more limited
(mainly in Southern member states and with a focus on agriculture).
The working group discussions will present examples of application and lessons in terms of: pre-
conditions; definition of water rights; economic efficiency gains; environmental impacts; transaction
costs; perception issues; etc. Chaired by
Josefina Maestu
, coordinator of the United Nations Office
(Spain), the working session will build on four interventions.
Jose Albiac
, head of the Department of Agricultural Economics at CITA (Spain), will present results on
the functioning and impact of current water markets in Spain.
Julio Berbel
, economist at the University of Cordoba (Spain), will bring additional insights into the
functioning of the water market in Spain. He will in particular present the lessons from the recent
2005-2009 drought that has severely affected Spain.
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Tom Rooney
from the National Water Brokers (Australia) will bring his operational experience from
Australia in making water markets work in practice!
Finally,
Richard Howitt
, professor at the University of California, Davis (United States) will investigate
the emergency water markets put in place in California for tackling extreme water droughts. In
particular, he will compare the functioning of emergency water markets over time and analyse the
reasons why they did not perform so well in recent years.
Session V is the closing session of the workshop that aims at synthesizing the many presentations and
discussions in a structured manner. This session is built around a series of debates and exchanges that will
highlight basic/key principles for further work on economic instruments for water management to be effective
in bridging the knowledge gap and supporting policy decision.
Integration and multi-disciplinarity will be central to the panel debate entitled
When economists meet
sociologists, natural scientists and lawyers
. Indeed, the assumption here is that further work on economic
instruments cannot be left to economists alone! Structured around a series of question-answer steps between
panel members and workshop participants, this debate will stress issues of: jargon, system definition, spatial &
time scales, challenges faced by multi-disciplinarity… The panel debate, facilitated by
Pierre Strosser
, head of
ACTeon (France), will involve four key scientists from different disciplines:

Colin Green
, economist at the Flood Hazard Research Centre (United Kingdom);

James Aronson
, restoration ecologist at CNRS (France) ;

Laurent Neyret
from the University of Versailles (France) specialized in legal issues in the field of
environment
The session will build on the contribution from panel members complemented by those of all participants in
addressing three basic questions:
• Is it worth discussing about multidisciplinarity in the context of research/work on “economic
instruments”? Why? Are there recent changes/developments making this even more (less) important
(e.g. the increased reliance on principles and concepts linked to values of goods and services)?
• What are the main issues to be tackled to “make it work in practice”? Common or shared concepts,
jargon, spatial & time scales? Institutional and organizational arrangements? Other issues?
• Which advise for further research on economic instruments and water management?
The session will continue with a first synthesis of the main research needs that have been identified during the
workshop and in particular working group sessions, complemented by additional elements coming from the
panel discussion.
Sarah Hernandez
, environmental economist at ONEMA (France) will present these priority
thematic issues as proposed by the workshop participants that will need further research.
Patrick Flammarion
, director at ONEMA (France), will formally close the workshop.
• He will first bring some thoughts on the possible follow-up to the workshop. These might include: the
preparation and finalisation of the workshop synthesis; possible input to activities and events
developed under the Common Implementation Strategy (CIS); possible further discussion and
exchange on specific issues (be it in the context of the CIS, in other forums, in an informal manner);
the preparation of a publication mobilising workshop presentations and results; etc.
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• he will also present their words of thanks to all speakers, chairs, participants and interpreters on
behalf of ONEMA and of its team.
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Individual contributions from speakers

Bruce Aylward - Ecosystem Economics - Using Markets to Restore Water-
Related Ecosystem Services
There is a long tradition of using regulatory and economic instruments to manage water for its own sake, but
also for its associated ecosystem services. In the last couple of decades interest in using markets to allocate
water and restore water-related ecosystem service has evolved from theoretical arguments to practical
implementation. Still, the incidence, spread and accomplishments of these efforts is limited, as is research
aimed at developing a more thorough understanding of where markets are an appropriate policy choice and
identifying the critical pre-conditions and design elements.
Through an elaboration of the theoretical underpinnings of a market approach and attention to emerging
examples the presentation seeks to:
• Provide a brief overview of economic policy instruments for the management of water and water-
related ecosystem services
• Explain the rationale and opportunity associated with applying market institutional arrangements to
the management of resources typically regarded as common pool resources – surface and ground
water, and public goods – water-related ecosystem services.
• Illustrate the type and range of applications for which markets and market tools are being deployed
• Identify important design considerations, including enabling conditions and critical drivers for using
markets for environmental purposes
• Identify key advantages and limitations for the use of markets
• Examine lessons learned regarding the political process involved in the development and design of
markets based on water quantity and water quality examples from the Pacific Northwest of the U.S.
• Identify research needs to support further market experimentation and development

Josefina Maestu -Program Coordinator -Department of Economic and Social
Affairs (UN DESA) – The role of economic analysis and economic
instruments in River Basin management Plans
Water Policy in many countries was implemented to facilitate economic development, insuring basic services
were provided for the smooth functioning of the economy and to fulfill social goals. Investments in water
supply and sanitation meant a dramatic improvement of welfare and the reductions of waterborne diseases in
most countries were these services are provided for all. In Europe with the Water Framework Directive this
role for economics has changed. Today economic analysis and economic instruments have mainly an
instrumental role to help achieving the environmental objectives of the Directive and hence contribute to
sustainable water use.
The elements of economic analysis in Europe were mapped out in the context of the Common Implementation
Strategy of the WFD in the WATECO Group. Then it was clear that economic analysis in the WFD went beyond
the analysis of pricing and cost recovery of article 9 – the explicit economic article of the WFD- and required at
least: the analysis of the socio-economic drivers of water uses and the cost effectiveness analysis of the
programs of measures. Many in the water community started to be concerned about the increasing role of
economic analysis. Some objected to this on the basis that this was an environmental directives and analysis
should be mainly about environmental process but also because this meant two important things:
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• That the river basin plans needed to look outside of the water domain and analyze how the
expected evolution of economic and social processes may impact water use and ecosystems (
quality, hydro morphological and biological indicators) in the scenarios of the River Basin
Management Plans.
• That economic analysis had a fundamental role in providing key information in the process of
deciding which measures to implement.
When in the process of preparation of the River Basin management Plans it became clear that the achievement
of environmental objectives in many water bodies was going to be difficult, justification on the basis of
disproportionate costs became of outmost importance in the process of preparation of the River Basin
Management Plans. The criterion to decide on what was disproportionate was subject of much debate – and
will continue to do so-. It soon became apparent that economic valuation of benefits and financial analysis-
including criteria for public subsidies- would be part of this analysis. Economic analysts then knew that there
were entering into difficult (technical and political) terrain. The case is that reporting requirements for the
2009 plans has been simplified to Article 9 reporting (cost recovery and pricing) and that discussions on
financial strategies of the River Basin Management Plans have been considered as a question that should not
be treated in the context of the Common Implementation strategy. This in spite of the fact that it is the key for
plans to be more than shopping lists. Many countries have engaged in laborious cost-effectiveness analysis but
this makes sense mainly when it is done in parallel with the financial strategy of the plans and there is a budget
restriction.
Economic Analysis in the River Basin Management Plans
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The planning process and economic analysis (WATECO Guidance)









Markku Ollikainen - University of Helsinki – Water markets: why are they
considered by NEFCO as policy options?
The Baltic Sea is a common resource, utilized openly by all coastal states. It suffers from the tragedy of
commons. Theory advises and empirics confirm (Ollikainen and Honkatukia 2001, Gren 2001) that the political
economy of water quality management in the Baltic Sea has thoroughly failed: there are no economic
mechanisms to correct the unavoidable asymmetry of benefits and costs of water quality improvement.

The ultimate key to progress in the Baltic Sea protection is obtaining a binding international agreement to
reduce nutrients; the past ministerial declarations have not been binding and provide no progress. Also, the
current Baltic Sea Action Plan does not provide needed incentives for progress (Gren (2008). The features of
cost-efficient international solutions are examined in Ollikainen and Honkatukia (2001), Gren (2001) and (2008)
and Elofsson (2009). Cost-efficient solutions, however, do not necessarily inform about the political feasibility
of the solution.

International trading of nutrients in a water quality trading program offers an interesting way to overcome the
obvious reluctance among the Baltic Sea countries to reduce the nutrient loads created by the uneven
distribution of benefits from and costs for protection. Water quality trading is a means to achieve nutrient
reductions at lowest costs, that is, cost-efficiently. The trading system is similar to the European Union’s
emission trading system, but applied to nutrients in water. So far nutrient trading between point and nonpoint
sources has been analyzed and applied at national level only. The Nordic Investment Finance Corporation
(NEFCO) Report 2008 outlines a new strategy for developing a full scale trading among the littoral countries of
Environmental
Objectives
Evaluati ng the
i mpact s of
programmes
Identifying
potential
measures
Implementing
programmes of
measures
Justifying
potential
derogations
Identifying
programmes of
measures
Anal ysing
existing water
uses, impacts
and pressures
Defining Penalties
Economic importance of water uses
Trends in supply and demand
Assessment of current levels of cost-
recovery for water services
Assessment of
unitary costs of
measures
Designation of HMWB
Definition of less stringent
objectives
Justification of time
derogation
Justification of proposed cost-
recovery levels
Assessing role of
pricing as a measure
Assessment of
effectiveness of
measures
Identification of a cost-
eff ective set of measures
Assessment of
cost-effectiveness
of measures
Assessment of costs/benefits
of packages of measures
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the Baltic Sea. What makes the report interesting is the fact that this is the first suggestion of establishing an
international water quality trading system.

According to NEFCO the international sea-level trading program can be developed gradually in four stages, so
that I eventually comprises of all relevant loading sectors (municipal sewage plants, other point sources, and
agriculture). The trading would start as a current practice where the states and non-profit organizations
provide funds for building and renovating municipal sewage water treatment plants. In the second stage, all
voluntary donators would pool their investment funds and arrange a competitive bidding system for municipal
sewage water treatment plants and other point sources. The two stages are the pre-stages for actual trading
and build the required informational basis for actual trading. The third stage would include agriculture and
other nonpoint sources in the system. The fourth stage would be the full trading among all dischargers in the
littoral countries.

Dr. Stephan von Keitz (Twinning Project) - “Financing the WFD Program of
Measures in Croatia”
Croatia is a heterogenic country in terms of its economic and ecologic situation. The Dinaric part with its coastal
areas looks quite different to the Pannonian part which comprises the vast floodplains of the rivers Sava, Drava
and Danube. Thus, tailor-made solutions have to be found in order to meet the objectives set by the WFD in
terms of resource, energy and cost efficiency.
Due to the war and post-war situation in Ex-Yugoslavia the environmental development of Croatia had been
more ore less paralyzed. The EU accession perspective in 2004 paved the way to European environmental
standards and regulations. To have a ‘good ecological status’ is the main objective for all rivers in Europe. But
how does the water quality look like in Croatia? And what kind of consequences have to be drawn from that?
While in EU Member States the results of the assessment of the ecological status are on the table, water
monitoring in Croatia gave only very limited information on this question. The priorities of the water sector
had been on wastewater treatment, focusing on centralized and energy intensive technology. In prioritising
investments for smaller settlements, the effect on the ecological status of the river has not been taken into
consideration. In order to overcome traditional management routines Croatia asked for support by the German
environmental administration of an integrated water resource management, as it is described in the WFD.
Between 2007 and 2009 the EU financed Twinning Project the two administrations had continuous
cooperation. Special emphasis was given to economic issues.
The Twinning Project initialized a proper surveillance monitoring and carried out an initial assessment of the
ecological status. It turned out that pollution from household sources (point and diffuse) remains a water
management task and efforts in terms of installation of UWWTP have to continue. The saprobic map of Croatia,
which indicates the pollution from urban wastewater, shows that the negative influence is less important than
expected. Pollution from industry in certain water bodies is mostly of local nature.
Morphological alterations however, turned out to play an important role, especially in the Pannonian part of
the country. Results compiled by the Twinning Project clearly indicate that a large number of rivers are strongly
degraded and are at high risk of failing the objectives. Nevertheless Croatia’s water administration still focuses
on technical river regulation (canalization, diking). Thus, the current maintenance of rivers contradicts Croatia’s
efforts to harmonize its environmental legislation with the EU water acquis.
Apart from this, measures will be necessary in regard to agricultural practice. Especially in the eastern part of
Slavonia impacts from agriculture (diffuse pollution, water abstractions) turned out to be an important reason
to fail the good status.
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The Twinning Project supported the Croatian water administration in setting priorities towards the
achievement of WFD objectives. The principles of prioritization were that
• water bodies with a status less than good should have priority,
• measures at source should have priority over end-of-pipe-solutions
• drinking water supply has priority to other uses and
• supplementary measures like river habilitation might have the same or even higher priority than
primarily measures, if they are more efficient in achieving the objectives of good surface and
groundwater status.
Based on this priorities the Twinning Project provided tailor made generic toolboxes for all significant
pressures: point sources, diffuse sources and degraded morphology. The proposed measures range from new
treatment installations to a better enforcement of permit systems as well as economic instruments like making
the existing fees user-/polluter-pays oriented. Some examples:
• For the improvement of wastewater treatment
in small settlements, systems based on onsite or cluster
treatment in constructed wetlands and other natural treatment concepts that are simple, robust, low-
cost and sustainable should have priority. Combined sewerage should be avoided.
• In terms of hydromorphology
the Croatian water administration should reduce maintenance of rivers,
apply soft engineering techniques and follow the “give space to the rivers”-approach. For flood
protection an approach that focused on strengthening dikes should be substituted by an approach that
develops flood storage areas and provides ecological and recreational benefits.
• In the agriculture sector
codes of good agriculture practice, e.g. buffer zones – both for surface water
and groundwater, development of financial mechanism for compensation of farmers for ecological
friendly farming, reduction of soil erosion should be applied.
• In terms of climate change adaptation
water saving irrigation systems should be introduced and water
leakages in the drinking water sector should be reduced.
• Finally, more dialogue is needed with major water users. All date should be made available for the
dialogue with stakeholders, users, research organisations and NGOs.
The current financial crisis may jeopardize the achievement of the objectives. On the other hand it could open
the way towards a more efficient approach in achieving these objectives. However, the implementation will
remain challenging for years. Heavy investments and a sustainable strategy will be necessary to achieve the
objectives set by the EU environmental aquis. Further information under:
www.wfd-croatia.eu
.
In terms of research demand the question of priority setting is significant. To achieve the economic and
ecological targets of the WFD all water-related directives, especially those on urban wastewater treatment,
nitrate pollution from agriculture and integrated pollution prevention and control have to be taken into
consideration. They are all part of the basic measures, which are obligatory in the implementation process of
the WFD. To fulfill the obligations from all these – partly heavily cost intensive directives – before planning
additional measures was logical for the old EU Member States.
New Member States and Accession Countries have to implement all EU directives in parallel. In this case the
different philosophies behind these directives become obvious. While the WFD has a strong focus on the
ambient side (the good status is the main objective) the UWWTD focus on the implementation of an adequate
wastewater infrastructure. This infrastructure is heavily cost-intensive. In rural countries like Croatia with its
scattered settlements and low density of population many rivers do not show negative impact from
wastewater from households. Thus, heavy investments in collecting and treatment systems are not always the
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adequate answer. Other water problems like diffuse pollutions from agriculture or hydromorphology might be
more pressing. Thus, priority of investments should be directed to these sectors.
Setting priorities is an important part of integrated water resource management. It is an opportunity for
efficiency and a key to success. Only with strict cost efficiency the risk of overloading the population with
inadequate costs can be limited.
Stefan Speck (Kommunalkredit Public Consulting GmbH)12 - Financing
water management in Austria: issues and options
The Austrian financial support scheme for water management was implemented already in the 1950s when the
Water Management Fund (WMF) was founded. Since then the support scheme as well as the funding priorities
have been revised several times. In 1987 the Water Management Fund and the Environment Fund were
merged into one legal entity. The then disbursement scheme was to provide loans with low interest rates
(between 1 and 3%) and long payback period (up to 50 years). A major revision came along with the
implementation of the Law of Environmental Support in 1993 because the management of the support scheme
was delegated to a private bank (Kommunalkredit Austria) and the sole role of the Environmental and Water
Fund was to manage the asset. Furthermore, the disbursement scheme was radically shifted from the provision
of loans to grants.
Since 1993 a total of 14.2 billion Euro was invested into water management (water supply and wastewater
treatment) and the federal support amounted to 4.2 billion Euro, i.e. an average aid intensity of 29.7%. The aid
intensity for wastewater treatment facilities ranges from 8 to 50% depending on the location of the
municipalities (rural vs. urban) as well as on the normalised investment cost. The nine federal states are
granting additional financial support for water investments which are independent from the federal subsidy
scheme and are amounting to an additional investment support of about 12% (water supply) and 10%
(wastewater treatment) of the total water investment costs.
Future investment needs (up to 2015) are estimated in the range of 5 billion Euro (1.3 billion Euro for water
supply and 3.7billion Euro for wastewater treatment). The federal funds are allocated from the national
budget. Apart from water supply and wastewater tariffs no other economic instruments, such as water
abstraction taxes or trade effluent taxes, are being used in Austria. The Austrian average water tariff was
around 3.15 Euro/m3 in 2006 with large differences between municipalities.
Sophie Trémolet (Trémolet Consulting) - Mobilizing market finance for
water and sanitation services : Preliminary results from a study for the
OECD Environment Directorate
The water and sanitation sector is seriously under-financed in many countries, leading to the deterioration and
potential collapse of the infrastructure. Public funds (and particularly ODA in developing countries) can be used
more effectively to attract market-based repayable finance so as to increase the overall amount of financial
resources available to the sector.
Where we stand now :
Even though innovative financing tools to mobilize market-based repayable finance do exist, they have been
under-utilized in the water sector by comparison with other infrastructure sectors. This may be due to a
number of factors. On the one hand, there has been insufficient demand for these products due to a lack of


12
Stefan Speck, Kommunalkredit Public Consulting GmbH, Tuerkenstr 9, 1092 Vienna, Austria, tel: +43
(0)676 8831 63 248, email:
s.speck@kommunalkredit.at
, internet:
www.publicconsulting.at

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awareness and training (which means that demand, even if it is there, is not expressed). On the other hand,
supply of market-based repayable finance has been limited given that the economic characteristics of the
sector are often not conducive to adopting such innovation. Too often, the sector is perceived as a high-
risk/low return sector by external financiers when, if a number of critical reforms were adopted, it could be
transformed into a low risk/ low but steady return sector, which may prove attractive in the current economic
climate.
In the context of the financial crisis, Official Development Assistance (ODA), in the form of concessionary
repayable finance or in some cases grants will be needed to get credit flowing again. This does not necessarily
mean pouring public money into water projects (although this is partly what some governments are doing via
stimulus packages) but rather improving targeting in the use of public funds so as to leverage market-based
finance. It will also be more important than ever before to pay attention to the long-term sustainability of such
financing: this will entail establishing institutions at the national level that can channel funds (both public and
private) into the sector in order to finance relatively small projects rather than focus on a few landmark
transactions at the international level.
What could be done better
Public funds could be used more efficiently in order to leverage market-based repayable finance in the
following ways:
• Combining concessionary finance with repayable finance to support a project or comprehensive
lending program, in order to attract financing that would otherwise not come whilst ensuring that the
poor are not excluded;
• Providing seed financing for micro-finance institutions offering financial products to support water and
sanitation investments;
o Financing output-based subsidies to entrepreneurs and households to leverage their
investments;
o Providing guarantees and risk insurance where perceptions of risk keep private investment
away;
• Where applicable, making equity injections so as to improve the ability of utility providers to raise debt
financing;
o Supporting the establishment of pooled financing facilities;
• Contributing to improving the sector’s transparency and addressing the lack of knowledge of the
sector at the level of financial institutions, by supporting the development of credit rating systems;
• Supporting the development of bankable projects in the water sector through the establishment of
project preparation facilities.
Julio Berbel (Universidad de Córdoba) - Water pricing: can it provide
incentives and change behaviour? The case of agriculture in Spain
Background
Water pricing is generally perceived as an effective instrument for water management, and it is assumed by
most of policy relevant documents. WFD assumed general knowledge and Article 9 imposes the need for
recovery of water services as a tool for water management, imposing the PPP principle and the ‘Resource use
pays’ as a guideline for price incentives.
Cost recovery has gain public attention ad it should be implemented in 2010 and it should be included in the
Programme of Measures for WFD implementation in order to reach good environmental status in 2015. The
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inclusion of ‘environmental and resource cost’ should theoretically will increase the economic incentive for
water saving behaviour in economic agents.
The use of economic instruments such as water pricing maybe also have a ‘double dividend’ result as it may
simultaneously induce changes in behaviour to water savings technology and obtain resources to finance
environmental measures. Therefore the effect of water pricing is an increase in economic efficiency and a
better environment. There is also a social dividend of the policy in the sense of equity in distribution of public
funds as the subsidies to some water consuming activities (agriculture, etc.) is not supported for the majority
of citizens via general taxes. But the real impact of water pricing is subject to water demand response, and
unfortunately where water is scarce is also where water has a higher value and demand is less responsive to
prices increases.
Impact of water pricing in irrigated agriculture in Spain
The economic theory predicts that the demand of any final good (water for domestic uses) or intermediate
good (water for agriculture or industry) will react to price increases by reducing the consumption subject to the
elasticity of demand. The demand of water will have also a short-term behaviour and long term behaviour as
significant price increase will induce changes in the technology of production.
Water pricing cannot have any impact in demand when it is a flat-rate per hectare tariff, only when water
pricing is ‘volumetric’ there maybe impact on demand. Groundwater use is related to volumetric pricing as
energy cost is directly related to consumption and some pressurized surface water use volumetric pricing.
On the other hand, economic theory of rent states that when a resource supply is limited (such as land or
water), the owner of the resource may capture an ‘economic rent’ because the marginal value of production
due to the resource is higher than the cost of production (Ricardian theory of rent). In the case of land, the
economic rent is captured by the owner by renting the land, but in the case of water, as the markets for the
resource are limited, the economic rent maybe partially captured in the price of land that is linked to water use
or it is captured by the owner or tenant of the water rights (if market is established). Water pricing will impact
the distribution of the economic rent of water between the society and the owner of water rights.
The analysis of real cases in Spain shows large differences in the elasticity of demand for water as will be
illustrated by analyzing different cases.
(1) Water abundant areas (open basins): e.g. Ebro, Duero (North of Spain): elasticity is high, a small
increase in water pricing may induce significant changes in behaviour, usually crops affected are
Maize, Sugar beet, cereals.
(2) Water scarce areas (closed basins): e.g. Guadalquivir, Segura (South of Spain): elasticity is small.
Increase in price impact mainly agricultural income.
(3) High value farming (greenhouses): e.g. Southeast Spain: water is only a small percentage of cost
(around 1-5%), no response to price increase.
The level of scarcity implies that water saving technologies are applied already as a response to unreliability
and scarcity (drip irrigation, pressurized distribution networks) and energy is a significant cost of water use at
farm level as energy cost may go from 35% to 60% of water cost in surface water and 90% in groundwater
users.
Analysis of case studies
The analysis of application of Art 9 with full cost recovery in surface waters shows that present level of cost
recovery varies in the different basins in Spain, with levels of recovery from 50% to 75% at ‘Water Agency
services’ as the private ‘on farm services’ are fully paid by the farmers themselves. The efficiency of large scale
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water reservoirs and distribution makes the cost of surface water relatively low (average of 1.2 cent/m3),
therefore full cost recovery may increase around 0.1-0.6 cent/m
3
in most of the Basins in Spain. Consequently
with this level of financial cost recovery (that already includes some environmental programs), the impact in
the water demand will be analyzed in different case studies.
Three case studies will be presented: (1) Ebro general herbaceous where water responses to water cost are
elastic from present situation; (2) Guadalquivir Medium valley (mixed crops) where response is moderate
elastic and impact of volumetric pricing and pressurized system can be observed; (3) Guadalquivir high value
crops (irrigated olive) where small doses implies large increases in productivity and the response to small
increase is almost negligible (4) Greenhouse and intensive horticulture in Mediterranean coast, no response is
observed.
Figure shows the impact of irrigation units in Guadalquivir with volumetric tariff, cost increase (in the range of
3 to 6 cent/m
3
) and distribution and irrigation network improvement, including the observation of a recently
improved irrigation system (Bembezar)

Figure 1: Irrigated units with modern distribution and pricing schemes against ‘flat rate tariff’ and standard