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Economic Analysis

  • The Water Framework Directive (WFD) is promoting the application of sound economic principles, methods and instruments for supporting the achievement of its objectives (good ecological status) in Europe. However, at the start of adoption of the WFD, few countries had experience in water economics. For that purpose, a specific guidance on water economics (WATECO) was developed in 2001-04 under the CIS process, contributing to strengthening and homogenisation of the economic knowledge in the field of water throughout Europe.
  • An Information sheet on "Assessment of Environmental and Resource Costs in the WFD" was prepared for Water Directors by Drafting Group ECO2 in June 2004, based on a workshop held in Amsterdam on 26 March 2004.
  • The 1st WFD implementation report (accompanying COM(2007) 128) pointed out that the economic analysis was the weakest part of the Article 5 2004 report. On the basis of the information provided, a comparable performance analysis could only be made on a few topics for which most information was available, being the sectors for which the level of cost recovery has been supplied, an overview of the socioeconomic importance of water uses in the RBD in relation to the significant pressures and a summary of the work completed to establish a baseline scenario.
  • A Cost Effectiveness Analysis document was drafted by an ad-hoc CIS group in 2005-2006 and presented at Water Directors meeting in June 2006.
  • CIS guidance on Exemptions to the Environmental Objectives under the Water Framework Directive was issues in 2008, with a specific focus on Disproportional Costs under Art 4.
  • Regarding the question of the baseline and other Directives, a follow-up study undertaken in 2009-10 identified and addressed the methodological and data issues associated with developing a standard approach to defining and monitoring WFD and pre-WFD measuresto facilitate an accurate distribution of costs and benefits to pre-WFD and WFD legislation.
  • An exploratory cost-benefit analysis was performed in 2006-7 to look at the work that had been carried out on Member State level, the available methodologies and examples, in particular in relation with agriculture. It identified only few available comprehensive cost-benefit studies on water management, carried out mainly in the United Kingdom, the Netherlands and France. The study identified many methodological difficulties and data gaps, in particularly on the benefit side that prevent the preparation of a pan-European cost-benefit analysis. Furthermore, it was too early to carry out a full cost-benefit analysis since the costs of implementation will depend on the level of ambition of the programme of measures which will only be known in 2009 following the finalisation of the river basin management plans. Another complication was the difficulty in estimating the economic baseline as regards the costs of implementation of other Directives (for instance the UWWT or Nitrates Directive) and to estimate exactly how much implementation of such Directives in the pipeline will contribute to the achievement of the environmental objectives of the WFD. The study concluded that common methodologies and related data needs were lacking and should be developed and applied on EU level.
  • Another follow-up study performed a critical review of the literature on water pricing in relation to WFD Article 9. A review of a number of draft RBMPs was undertaken to provide an overview of how a cross-section of Member States were planning to meet Article 9 requirements. On the basis of this review, a set of recommendations for improving implementation were made, looking also at the role of water pricing in delivering objectives of other policies as well as the need for further research, capacity building and networking.
  • A third follow-up study looked at the economic (or non-market) valuation issues in the perspective of WFD implementation, which is particularly relevant in the context of benefits quantification.
  • A CIS Workshop on WFD economics took place in October 2010 in Liège to share information, exchange views in relation to Member States and stakeholder views on experience in implementing the economic aspects of Article 9 and cost effectiveness analysis (CEA) and to get an improved understanding of the common difficulties encountered.
  • A CIS WG F Workshop on Floods and Economics took place in October 2010 in Ghent, to discuss considerations of costs and benefits and prioritisation of measures in the process of preparing flood risk management plans. The relevance of WFD economic aspects were addressed. As a follow up of this workshop and related questionnaires a resource document on flood risk management economics and decision making support was finalised in October 2012.
  • The report on the 1st River Basin Management Plans (RBMP) illustrated the emerging role of economics for supporting water management, the very partial economic information being reported by EU member states (MS) and the lack of transparency on results, methods and assumptions presented.
  • A detailed collection and review of cost and benefit information in RBMP in selected countries revealed an often great diversity in the type of information provided across different countries and RBDs. In the case of costs, it was still possible to perform comparison, statistical analysis and aggregation of available cost figures despite these challenges, although the resulting cost figures must be taken as a first indication. In the case of benefits, in contrast, available figures proved to be extremely diverse, and only a very limited number of studies could be found: for this reason, severe limits to the possibilities of data analysis, comparison and aggregation were encountered in the course of that assessment.